Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 72160-72401 [2016-18901]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 81, Number 202 (Wednesday, October 19, 2016)]
[Rules and Regulations]
[Pages 72160-72401]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18901]



[[Page 72159]]

Vol. 81

Wednesday,

No. 202

October 19, 2016

Part II





Bureau of Consumer Financial Protection





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12 CFR Parts 1024 and 1026





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Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 
Z); Final Rule

Federal Register / Vol. 81 , No. 202 / Wednesday, October 19, 2016 / 
Rules and Regulations

[[Page 72160]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1024 and 1026

[Docket No. CFPB-2014-0033]
RIN 3170-AA49


Amendments to the 2013 Mortgage Rules Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
amending certain mortgage servicing rules issued by the Bureau in 2013. 
This final rule clarifies, revises, or amends provisions regarding 
force-placed insurance notices, policies and procedures, early 
intervention, and loss mitigation requirements under Regulation X's 
servicing provisions; and prompt crediting and periodic statement 
requirements under Regulation Z's servicing provisions. The final rule 
also addresses proper compliance regarding certain servicing 
requirements when a person is a potential or confirmed successor in 
interest, is a debtor in bankruptcy, or sends a cease communication 
request under the Fair Debt Collection Practices Act. The final rule 
also makes technical corrections to several provisions of Regulations X 
and Z. The Bureau is issuing concurrently with this final rule an 
interpretive rule under the Fair Debt Collection Practices Act relating 
to servicers' compliance with certain mortgage servicing rules.

DATES: This final rule is effective on October 19, 2017, except that 
the following amendments are effective on April 19, 2018: Amendatory 
instructions 5, 6.b, 7, 8, 9, 11.b, 17.a.ii, 17.b.ii, 17.c, 17.d.ii, 
17.f.i, 17.i.i, 17.k, 19, 20, 22, 23.c, 25.a, 25.b, 25.c.ii, and 
25.d.ii. For additional discussion regarding the effective date of the 
rule, see part VI of the SUPPLEMENTARY INFORMATION below.

FOR FURTHER INFORMATION CONTACT: Dania L. Ayoubi, David H. Hixson, 
Alexandra W. Reimelt, or Joel L. Singerman, Counsels; or William R. 
Corbett, Laura A. Johnson, or Amanda E. Quester, Senior Counsels; 
Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule

    In January 2013, the Bureau issued several final rules concerning 
mortgage markets in the United States (2013 Title XIV Final Rules), 
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\ Two 
of these rules were (1) the Mortgage Servicing Rules Under the Real 
Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing 
Final Rule); \2\ and (2) the Mortgage Servicing Rules Under the Truth 
in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule).\3\
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    \1\ Specifically, on January 10, 2013, the Bureau issued Escrow 
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR 
4725 (Jan. 22, 2013) (2013 Escrows Final Rule), High-Cost Mortgage 
and Homeownership Counseling Amendments to the Truth in Lending Act 
(Regulation Z) and Homeownership Counseling Amendments to the Real 
Estate Settlement Procedures Act (Regulation X), 78 FR 6855 (Jan. 
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and 
Qualified Mortgage Standards Under the Truth in Lending Act 
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final 
Rule). The Bureau concurrently issued a proposal to amend the 
January 2013 ATR Final Rule, which was finalized on May 29, 2013. 
See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR Proposal) and 78 FR 
35429 (June 12, 2013) (May 2013 ATR Final Rule). On January 17, 
2013, the Bureau issued the Real Estate Settlement Procedures Act 
(Regulation X) and Truth in Lending Act (Regulation Z) Mortgage 
Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z) 
and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage 
Servicing Final Rules). On January 18, 2013, the Bureau issued the 
Disclosure and Delivery Requirements for Copies of Appraisals and 
Other Written Valuations Under the Equal Credit Opportunity Act 
(Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Valuations 
Final Rule) and, jointly with other agencies, issued Appraisals for 
Higher-Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13, 
2013) (2013 Interagency Appraisals Final Rule). On January 20, 2013, 
the Bureau issued the Loan Originator Compensation Requirements 
under the Truth in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15, 
2013) (2013 Loan Originator Final Rule).
    \2\ 78 FR 10695 (Feb. 14, 2013).
    \3\ 78 FR 10901 (Feb. 14, 2013).
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    The Bureau clarified and revised those rules through notice and 
comment rulemaking during the summer and fall of 2013 in the (1) 
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 
Z) (July 2013 Mortgage Final Rule) \4\ and (2) Amendments to the 2013 
Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), 
Real Estate Settlement Procedures Act (Regulation X), and the Truth in 
Lending Act (Regulation Z) (September 2013 Mortgage Final Rule).\5\ In 
October 2013, the Bureau clarified compliance requirements in relation 
to successors in interest, early intervention requirements, bankruptcy 
law, and the Fair Debt Collection Practices Act (FDCPA),\6\ through an 
Interim Final Rule (October 2013 IFR or IFR) \7\ and a contemporaneous 
compliance bulletin (October 2013 Servicing Bulletin).\8\ In addition, 
in October 2014, the Bureau added an alternative definition of small 
servicer in the Amendments to the 2013 Mortgage Rules under the Truth 
in Lending Act (Regulation Z).\9\ The purpose of each of these updates 
was to address important questions raised by industry, consumer 
advocacy groups, and other stakeholders. The 2013 RESPA Servicing Final 
Rule and the 2013 TILA Servicing Final Rule, as amended in 2013 and 
2014, are collectively referred to herein as the 2013 Mortgage 
Servicing Final Rules.
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    \4\ 78 FR 44685 (July 24, 2013).
    \5\ 78 FR 60381 (Oct. 1, 2013).
    \6\ 15 U.S.C. 1692 et seq.
    \7\ 78 FR 62993 (Oct. 23, 2013).
    \8\ Bureau of Consumer Fin. Prot., CFPB Bulletin 2013-12, 
Implementation Guidance for Certain Mortgage Servicing Rules (Oct. 
15, 2013), available at https://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
    \9\ 79 FR 65300, 65304 (Nov. 3, 2014).
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    On November 20, 2014, the Bureau issued a proposed rule that would 
have further amended the 2013 Mortgage Servicing Final Rules.\10\ The 
proposal covered nine major topics, and focused primarily on 
clarifying, revising, or amending provisions regarding force-placed 
insurance notices, policies and procedures, early intervention, and 
loss mitigation requirements under Regulation X's servicing provisions; 
and prompt crediting and periodic statement requirements under 
Regulation Z's servicing provisions. The proposal also addressed proper 
compliance regarding certain servicing requirements when a person is a 
potential or confirmed successor in interest, is a debtor in 
bankruptcy, or sends a cease communication request under the Fair Debt 
Collection Practices Act.
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    \10\ 79 FR 74175 (Dec. 15, 2014).
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    The Bureau is now finalizing the proposed amendments, with 
additional clarifications and revisions, to revise regulatory 
provisions and official interpretations relating to the Regulation X 
and Z mortgage servicing rules.\11\ The final rule also covers nine 
major topics, summarized below, generally in the order they appear in 
the final rule. More details can be found in the section-by-section 
analysis below.
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    \11\ Note that RESPA and TILA differ in their terminology. 
Whereas Regulation X generally refers to ``borrowers,'' Regulation Z 
generally refers to ``consumers.''
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    1. Successors in interest. The Bureau is finalizing three sets of 
rule changes relating to successors in interest. First, the Bureau is 
adopting definitions of successor in interest for purposes of 
Regulation X's subpart C and Regulation Z that are modeled on the 
categories of transfers protected under section 341(d) of the Garn-St 
Germain Act. Second, the Bureau is finalizing rules relating to

[[Page 72161]]

how a mortgage servicer confirms a successor in interest's identity and 
ownership interest.\12\ Third, the Bureau is applying the Regulation X 
and Z mortgage servicing rules to successors in interest once a 
servicer confirms the successor in interest's status.
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    \12\ This final rule uses the term ``successor in interest's 
status'' to refer to the successor in interest's identity and 
ownership interest in the property.
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    2. Definition of delinquency. The Bureau is finalizing a general 
definition of delinquency that applies to all of the servicing 
provisions of Regulation X and the provisions regarding periodic 
statements for mortgage loans in Regulation Z. Delinquency means a 
period of time during which a borrower and a borrower's mortgage loan 
obligation are delinquent. A borrower and a borrower's mortgage loan 
obligation are delinquent beginning on the date a periodic payment 
sufficient to cover principal, interest, and, if applicable, escrow, 
becomes due and unpaid, until such time as no periodic payment is due 
and unpaid.
    3. Requests for information. The Bureau is finalizing amendments 
that change how a servicer must respond to requests for information 
asking for ownership information for loans in trust for which the 
Federal National Mortgage Association (Fannie Mae) or Federal Home Loan 
Mortgage Corporation (Freddie Mac) is the owner of the loan or the 
trustee of the securitization trust in which the loan is held.
    4. Force-placed insurance. The Bureau is finalizing amendments to 
the force-placed insurance disclosures and model forms to account for 
when a servicer wishes to force-place insurance when the borrower has 
insufficient, rather than expiring or expired, hazard insurance 
coverage on the property. Additionally, servicers now will have the 
option to include a borrower's mortgage loan account number on the 
notices required under Sec.  1024.37. The Bureau also is finalizing 
several technical edits to correct discrepancies between the model 
forms and the text of Sec.  1024.37.
    5. Early intervention. The Bureau is clarifying the early 
intervention live contact obligations for servicers to establish or 
make good faith efforts to establish live contact so long as the 
borrower remains delinquent. The Bureau is also clarifying requirements 
regarding the frequency of the written early intervention notices, 
including when there is a servicing transfer. In addition, regarding 
certain borrowers who are in bankruptcy or who have invoked their cease 
communication rights under the FDCPA, the Bureau is finalizing 
exemptions for servicers from complying with the live contact 
obligations but requiring servicers to provide written early 
intervention notices under certain circumstances.
    6. Loss mitigation. The Bureau is finalizing several amendments 
relating to the loss mitigation requirements. The final rule: (1) 
Requires servicers to meet the loss mitigation requirements more than 
once in the life of a loan for borrowers who become current on payments 
at any time between the borrower's prior complete loss mitigation 
application and a subsequent loss mitigation application; (2) modifies 
an existing exception to the 120-day prohibition on foreclosure filing 
to allow a servicer to join the foreclosure action of a superior or 
subordinate lienholder; (3) clarifies how servicers select the 
reasonable date by which a borrower should return documents and 
information to complete an application; (4) clarifies that, if the 
servicer has already made the first notice or filing, and a borrower 
timely submits a complete loss mitigation application: (i) The servicer 
must not move for foreclosure judgment or order of sale, or conduct a 
foreclosure sale, even where the sale proceedings are conducted by a 
third party, unless one of the specified circumstances is met (i.e., 
the borrower's loss mitigation application is properly denied, 
withdrawn, or the borrower fails to perform on a loss mitigation 
agreement); (ii) that absent one of the specified circumstances, 
conduct of the sale violates the rule; (iii) that the servicer must 
instruct foreclosure counsel promptly not to make any further 
dispositive motion, to avoid a ruling or order on a pending dispositive 
motion, or to prevent conduct of a foreclosure sale, unless one of the 
specified circumstances is met; and (iv) that the servicer is not 
relieved from its obligations by counsel's actions or inactions; (5) 
requires that servicers provide a written notice to a borrower within 
five days (excluding Saturdays, Sundays, or legal holidays) after they 
receive a complete loss mitigation application and requires that the 
notice: (i) Indicate that the servicer has received a complete 
application; (ii) provide the date of completion, a statement that the 
servicer expects to complete its evaluation within 30 days from the 
date it received the complete application, and an explanation that the 
borrower is entitled to certain specific foreclosure protections and 
may be entitled to additional protections under State or Federal law; 
(iii) clarify that the servicer might need additional information 
later, in which case the evaluation could take longer and the 
foreclosure protections could end if the servicer does not receive the 
information as requested; (6) sets forth how servicers must attempt to 
obtain information not in the borrower's control and evaluate a loss 
mitigation application while waiting for third party information; 
requires servicers to exercise reasonable diligence to obtain the 
information and prohibits servicers from denying borrowers solely 
because a servicer lacks required information not in the borrower's 
control, except under certain circumstances; requires servicers in this 
circumstance to complete all possible steps in the evaluation process 
within the 30 days, notwithstanding the lack of the required third-
party information; requires that servicers promptly provide a written 
notice to the borrower if the servicer lacks required third party 
information 30 days after receiving the borrower's complete application 
and cannot evaluate the application in accordance with applicable 
requirements established by the owner or assignee of the mortgage loan; 
and requires servicers to notify borrowers of their determination on 
the application in writing promptly upon receipt of the third party 
information it lacked; (7) permits servicers to offer a short-term 
repayment plan based upon an evaluation of an incomplete loss 
mitigation application; (8) clarifies that servicers may stop 
collecting documents and information from a borrower for a particular 
loss mitigation option after receiving information confirming that, 
pursuant to any requirements established by the owner or assignee, the 
borrower is ineligible for that option; and clarifies that servicers 
may not stop collecting documents and information for any loss 
mitigation option based solely upon the borrower's stated preference 
but may stop collecting documents and information for any loss 
mitigation option based on the borrower's stated preference in 
conjunction with other information, as prescribed by requirements 
established by the owner or assignee of the mortgage loan; and (9) 
addresses and clarifies how loss mitigation procedures and timelines 
apply when a transferee servicer receives a mortgage loan for which 
there is a loss mitigation application pending at the time of a 
servicing transfer.
    7. Prompt payment crediting. The Bureau is clarifying how servicers 
must treat periodic payments made by consumers who are performing under 
either temporary loss mitigation programs or permanent loan 
modifications. Periodic payments made

[[Page 72162]]

pursuant to temporary loss mitigation programs must continue to be 
credited according to the loan contract and could, if appropriate, be 
credited as partial payments, while periodic payments made pursuant to 
a permanent loan modification must be credited under the terms of the 
permanent loan agreement.
    8. Periodic statements. The Bureau is finalizing several 
requirements relating to periodic statements. The final rule: (1) 
Clarifies certain periodic statement disclosure requirements relating 
to mortgage loans that have been accelerated, are in temporary loss 
mitigation programs, or have been permanently modified, to conform 
generally the disclosure of the amount due with the Bureau's 
understanding of the legal obligation in each of those circumstances, 
including that the amount due may only be accurate for a specified 
period of time when a mortgage loan has been accelerated; (2) requires 
servicers to send modified periodic statements (or coupon books, where 
servicers are otherwise permitted to send coupon books instead of 
periodic statements) to consumers who have filed for bankruptcy, 
subject to certain exceptions, with content varying depending on 
whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case, 
or a chapter 12 or 13 bankruptcy case; and includes proposed sample 
periodic statement forms that servicers may use for consumers in 
bankruptcy to ensure compliance with Sec.  1026.41; and (3) exempts 
servicers from the periodic statement requirement for charged-off 
mortgage loans if the servicer will not charge any additional fees or 
interest on the account and provides a periodic statement including 
additional disclosures related to the effects of charge-off.
    9. Small servicer. The Bureau is finalizing certain changes to the 
small servicer determination. The small servicer exemption generally 
applies to servicers who service 5,000 or fewer mortgage loans for all 
of which the servicer is the creditor or assignee. The final rule 
excludes certain seller-financed transactions and mortgage loans 
voluntarily serviced for a non-affiliate, even if the non-affiliate is 
not a creditor or assignee, from being counted toward the 5,000 loan 
limit, allowing servicers that would otherwise qualify for small 
servicer status to retain their exemption while servicing those 
transactions.
    In addition to the changes discussed above, the final rule also 
makes technical corrections and minor clarifications to wording 
throughout several provisions of Regulations X and Z that generally are 
not substantive in nature.

II. Background

Title XIV Rules Under the Dodd-Frank Act
    In response to an unprecedented cycle of expansion and contraction 
in the mortgage market that sparked the most severe U.S. recession 
since the Great Depression, Congress passed the Dodd-Frank Act, which 
was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress 
established the Bureau and generally consolidated the rulemaking 
authority for Federal consumer financial laws, including the Truth in 
Lending Act (TILA) and the Real Estate Settlement Procedures Act 
(RESPA), in the Bureau.\13\ At the same time, Congress significantly 
amended the statutory requirements governing mortgages with the intent 
to restrict the practices that contributed to and exacerbated the 
crisis.\14\ Under the statute, most of these new requirements would 
have taken effect automatically on January 21, 2013, if the Bureau had 
not issued implementing regulations by that date.\15\ To avoid 
uncertainty and potential disruption in the national mortgage market at 
a time of economic vulnerability, the Bureau issued several final rules 
in January 2013 to implement these new statutory provisions and provide 
for an orderly transition. These rules included the 2013 RESPA 
Servicing Final Rule and the 2013 TILA Servicing Final Rule, issued on 
January 17, 2013. Pursuant to the Dodd-Frank Act, which permitted a 
maximum of one year for implementation, these rules became effective on 
January 10, 2014. The Bureau issued additional corrections and 
clarifications to the 2013 RESPA Servicing Final Rule and the 2013 TILA 
Servicing Final Rule in the summer and fall of 2013 and in the fall of 
2014.
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    \13\ See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12 
U.S.C. 5491 and 5511 (establishing and setting forth the purpose, 
objectives, and functions of the Bureau); section 1061 of the Dodd-
Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking 
authority for Federal consumer financial laws in the Bureau); 
section 1100A of the Dodd-Frank Act (codified in scattered sections 
of 15 U.S.C.) (similarly consolidating certain rulemaking authority 
in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12 
U.S.C. 5519 (subject to certain exceptions, excluding from the 
Bureau's authority any rulemaking authority over a motor vehicle 
dealer that is predominantly engaged in the sale and servicing of 
motor vehicles, the leasing and servicing of motor vehicles, or 
both).
    \14\ See title XIV of the Dodd-Frank Act, Public Law 111-203, 
124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C., 
15 U.S.C., and 42 U.S.C.).
    \15\ See Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
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III. Summary of the Rulemaking Process

A. Implementation Plan for New Mortgage Rules

    On February 13, 2013, the Bureau announced an initiative to support 
implementation of the new mortgage rules (Implementation Plan),\16\ 
under which the Bureau would work with the mortgage industry to ensure 
that the 2013 Title XIV Final Rules could be implemented accurately and 
expeditiously. The Implementation Plan included: (1) Coordination with 
other agencies; (2) Publication of plain-language guides to the new 
rules; (3) Ongoing conversations with stakeholders involved in 
implementation with respect to questions and concerns they had 
identified; (4) Publication of additional interpretive guidance and 
corrections or clarifications of the new rules as needed; (5) 
Publication of readiness guides for the new rules; and (5) Education of 
consumers on the new rules.
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    \16\ Press Release, Bureau of Consumer Fin. Prot., CFPB Lays Out 
Implementation Plan for New Mortgage Rules (Feb. 13, 2013), 
available at https://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
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    In the course of the implementation process, the Bureau identified 
a number of respects in which the 2013 Mortgage Servicing Final Rules 
posed implementation challenges. As a result, in July 2013 and 
September 2013, following notice and comment, the Bureau issued two 
final rules amending discrete aspects of the 2013 Mortgage Servicing 
Final Rules. Among other things, the July 2013 Mortgage Final Rule 
clarified, corrected, or amended provisions on the relation to State 
law to Regulation X's servicing requirements; implementation dates for 
certain adjustable-rate mortgage servicing notices under Regulation Z; 
and the small servicer exemption from certain servicing rules. Among 
other things, the September 2013 Mortgage Final Rule modified 
provisions of Regulation X related to error resolution, information 
requests, and loss mitigation procedures. In October 2013, the Bureau 
issued an IFR, which among other things, provisionally suspended the 
effectiveness of certain requirements of the 2013 Mortgage Servicing 
Final Rules with respect to consumers in bankruptcy and consumers who 
had exercised their rights under the FDCPA to direct that debt 
collectors cease

[[Page 72163]]

contacting them with respect to outstanding debts. In the October 2013 
Servicing Bulletin, the Bureau also clarified compliance requirements 
regarding successors in interest, early intervention live contact 
requirements, and the FDCPA. In addition, in October 2014, the Bureau 
issued a final rule that, among other things, added an alternative 
definition of small servicer that applies to certain nonprofit entities 
that service, for a fee, only loans for which the servicer or an 
associated nonprofit entity is the creditor.

B. Ongoing Monitoring

    After the January 10, 2014 effective date of the rules, the Bureau 
has continued to engage in ongoing outreach and monitoring with 
industry, consumer advocacy groups, and other stakeholders. As a 
result, the Bureau has identified further issues that continue to pose 
implementation challenges or require clarification. The Bureau has also 
recognized that there are instances in which the rules are creating 
unintended consequences or failing to achieve desired objectives.
    The Bureau recognizes that industry has incurred costs in the 
implementation of the 2013 Mortgage Servicing Final Rules. The Bureau 
believes that the majority of the provisions in this final rule would 
impose, at most, minimal new compliance burdens, and in many cases 
would reduce the compliance burden relative to the existing rules. 
Where the Bureau is adding new requirements to the 2013 Mortgage 
Servicing Final Rules, the Bureau is doing so after careful weighing of 
incremental costs and benefits.
    This final rule adopts the proposed amendments with some additional 
clarifications and revisions. The purpose of these updates is to 
address important questions raised by industry, consumer advocacy 
groups, and other stakeholders.

C. Testing of Bankruptcy Periodic Statement Sample Forms

    In the proposed rule, the Bureau indicated that it would conduct 
consumer testing of the proposed sample periodic statement forms for 
consumers who have filed for bankruptcy and would publish and seek 
comment on a report summarizing the methods and results of such testing 
prior to finalizing any sample forms. Following publication of the 
proposed rule, the Bureau engaged Fors Marsh Group (FMG), a research 
and consulting firm that specializes in designing disclosures and 
consumer testing, to conduct one-on-one cognitive interviews to test 
the Bureau's proposed sample periodic statement forms for consumers who 
have filed for bankruptcy. As described in detail in the report 
summarizing the testing,\17\ between May 2015 and August 2015, the 
Bureau worked with the firm to conduct three rounds of one-on-one 
cognitive interviews with a total of 51 consumers in Arlington, 
Virginia, Fort Lauderdale, Florida, and Chicago, Illinois. Efforts were 
made to recruit a significant number of participants who had filed for 
bankruptcy, who had a mortgage (preferably when they filed for 
bankruptcy), and who had trouble making mortgage payments in the last 
two years.
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    \17\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing (Feb. 2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on 
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
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    During the interviews, participants were shown sample modified 
periodic statements. In general, participants who had filed for chapter 
7 bankruptcy reviewed statements tailored to borrowers who are debtors 
in a chapter 7 or chapter 11 bankruptcy case, while participants who 
had filed for chapter 13 bankruptcy reviewed statements tailored to 
borrowers who are debtors in a chapter 12 or chapter 13 bankruptcy 
case. Participants were asked specific questions to test their 
understanding of the information presented in the sample statements and 
how easily they could find various pieces of information presented in 
the sample statements, as well as to learn about how they would use the 
information presented in the sample statements. The Bureau and FMG 
jointly developed revisions to all of the forms between rounds to 
address any apparent usability or comprehension issues and in response 
to public comments the Bureau received on the proposed rule.
    The Bureau conducted the consumer testing after the close of the 
original comment period. The notice seeking public comment specifically 
on the report summarizing the methods and results of the testing was 
published in the Federal Register on April 26, 2016.\18\
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    \18\ 81 FR 24519 (Apr. 26, 2016).
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D. Comments on the Proposed Rule and Testing of Bankruptcy Periodic 
Statement Sample Forms

    The Bureau issued the proposed rule on November 20, 2014, and the 
proposal was published in the Federal Register on December 15, 
2014.\19\ The comment period ended on March 16, 2015. The comment 
period on the report summarizing the results of the consumer testing of 
bankruptcy periodic statement sample forms ended on May 26, 2016. The 
Bureau received more than 160 comments on the proposed rule and 
approximately 20 comments on the testing report. The comments were 
received from consumers, consumer advocacy groups, government agencies, 
servicers, industry trade associations, and others. As discussed in 
more detail below, the Bureau has considered these comments in adopting 
this final rule.
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    \19\ 79 FR 74175 (Dec. 15, 2014).
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    The Bureau notes that a number of consumer advocacy group 
commenters discussed language access and communications with consumers 
with limited English proficiency (LEP) and indicated that this is an 
area that needs further action and attention from the Bureau. One 
commenter urged the Bureau to consider additional rulemaking to require 
servicers to respond effectively to the needs of LEP borrowers. Another 
commenter stated that servicers' failure to communicate effectively 
with LEP homeowners remains a major unresolved issue, and said that 
servicers fail to provide written communication in the homeowner's 
preferred non-English language, fail to provide adequate oral 
translation for LEP homeowners, and refuse to accept official 
government documents in non-English languages. The commenter suggested 
that the Bureau should ensure that materials and points of contact are 
available in homeowners' preferred languages.
    The Bureau takes seriously the important considerations of language 
access. The Bureau believes that LEP consumers should be served fairly, 
equitably, and in a nondiscriminatory manner. The Bureau recognizes 
that LEP consumers face particular challenges and obstacles in 
accessing effective loss mitigation. The Bureau believes that servicers 
should communicate with borrowers clearly, including in the consumer's 
preferred language, where possible, and especially when lenders 
advertise in the consumer's preferred language.
    The Bureau has not had the opportunity, however, to test either the 
new disclosures that the Bureau is adopting in this final rule or the 
pre-existing RESPA and TILA servicing disclosures in languages other 
than English. Nor has the Bureau had the opportunity to take comment 
from all interested parties about the significant operational 
challenges implicated in addressing language access in the mortgage 
servicing context. Accordingly, the Bureau is not imposing

[[Page 72164]]

mandatory language translation requirements or other language access 
requirements at this time with respect to the mortgage servicing 
disclosures and other mortgage servicing requirements.
    Although the Bureau declines at this time to implement requirements 
regarding language access, the Bureau reiterates the importance of 
servicers communicating clearly and in a non-discriminatory manner with 
all consumers, including those with limited English proficiency. 
Servicers should ensure they are in compliance with all applicable law. 
For instance, servicers may have separate responsibilities under State 
law, which may, in certain circumstances, require that financial 
institutions provide foreign language services. As the Bureau has 
previously noted, the Final Servicing Rules do not have the effect of 
prohibiting State law from affording borrowers broader consumer 
protections relating to mortgage servicing than those conferred under 
the mortgage servicing rules.\20\ The Bureau will continue to consider 
language access generally in connection with mortgage servicing, 
including access to effective loss mitigation. The Bureau continues to 
explore the obstacles that LEP consumers face when attempting to access 
credit, as well as the challenges that servicers and creditors face 
when interacting with those consumers.\21\ The Bureau will consider 
further requirements on servicer communications with LEP consumers in 
the mortgage servicing context, if appropriate.
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    \20\ 78 FR 10696, 10706 (Feb. 14, 2013).
    \21\ The Bureau has created a Language Access Task Force, which 
is an internal cross-divisional working group aimed at developing 
and executing a Bureau-wide strategy to provide LEP consumers with 
meaningful access to information produced by the Bureau. The 
Language Access Task Force coordinated the development of the 
Bureau's Language Access Plan, which describes the Bureau's policy 
and how the current language access activities are implemented 
across all of the Bureau's operations, programs, and services. 
Bureau of Consumer Fin. Prot. Language Access Plan, available at 
https://www.federalregister.gov/articles/2014/10/08/2014-24122/proposed-language-access-plan-for-the-consumer-financial-protection-bureau.
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IV. Legal Authority

    As discussed more fully in the section-by-section analysis, the 
Bureau is issuing this final rule pursuant to RESPA, TILA, the FDCPA, 
and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred 
to the Bureau the ``consumer financial protection functions'' 
previously vested in certain other Federal agencies, including the 
Board of Governors of the Federal Reserve System (Board). 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.'' Section 1061 of the Dodd-Frank Act also transferred to 
the Bureau all of the Department of Housing and Urban Development's 
(HUD's) consumer protection functions relating to RESPA. Title X of the 
Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, along 
with RESPA, TILA, the FDCPA, and certain subtitles and provisions of 
title XIV of the Dodd-Frank Act, are Federal consumer financial 
laws.\22\
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    \22\ See Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws,'' the provisions of title X of the Dodd-
Frank Act, and the laws for which authorities are transferred under 
title X subtitles F and H of the Dodd-Frank Act); Dodd-Frank Act 
section 1002(12), 12 U.S.C. 5481(12) (defining ``enumerated consumer 
laws'' to include TILA); Dodd-Frank Act section 1400(b), 12 U.S.C. 
5481(12) note (defining ``enumerated consumer laws'' to include 
certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-
Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to 
the Bureau all of HUD's consumer protection functions relating to 
RESPA).
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A. RESPA

    Section 19(a) of RESPA, 12 U.S.C. 2617(a), 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 include its 
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12 
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements 
necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of 
RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe 
regulations that are appropriate to carry out RESPA's consumer 
protection purposes. As identified in the 2013 RESPA Servicing Final 
Rule, the consumer protection purposes of RESPA include ensuring that 
servicers respond to borrower requests and complaints in a timely 
manner and maintain and provide accurate information, helping borrowers 
avoid unwarranted or unnecessary costs and fees and facilitating review 
for foreclosure avoidance options. Each of the amendments or 
clarifications to Regulation X is intended to achieve some or all these 
purposes.
    Additionally, as explained below, certain of the amendments to 
Regulation X implement specific provisions of RESPA.
    This final rule also includes amendments to the official Bureau 
commentary in Regulation X. Section 19(a) of RESPA 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 affords servicers protection 
from liability under section 19(b) of RESPA.

B. TILA

    Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to 
prescribe regulations to carry out the purposes of TILA. Under section 
105(a), such regulations may contain such additional requirements, 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for all or any class of 
transactions, as in the judgment of the Bureau are necessary or proper 
to effectuate the purposes of TILA, to prevent circumvention or evasion 
thereof, or to facilitate compliance therewith. Under section 102(a), 
15 U.S.C. 1601(a), the purposes of TILA include assuring the meaningful 
disclosure of credit terms to enable consumers to compare more readily 
the various credit terms available and avoid the uninformed use of 
credit and to protect consumers against inaccurate and unfair credit 
billing practices. The Bureau's amendments to Regulation Z carry out 
TILA's purposes and such additional requirements, adjustments, and 
exceptions as, in the Bureau's judgment, are necessary and proper to 
carry out the purposes of TILA, prevent circumvention or evasion 
thereof, or to facilitate compliance therewith.
    Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to 
exempt from all or part of TILA any class of transactions if the Bureau 
determines that TILA coverage does not provide a meaningful benefit to 
consumers in the form of useful information or protection. For the 
reasons discussed in this notice, the Bureau exempts certain 
transactions from the requirements of TILA pursuant to its authority 
under section 105(f) of TILA.
    Additionally, as explained below, certain of the amendments to 
Regulation Z implement specific provisions of TILA.
    This final rule also includes amendments to the official Bureau 
commentary in Regulation Z. Good faith compliance with the 
interpretations affords protection from liability under section 130(f) 
of TILA.

[[Page 72165]]

C. FDCPA

    As explained in the section-by-section analysis, the Bureau also is 
issuing an FDCPA interpretive rule in a separate notice issued 
concurrently with this Final Rule.\23\ The Bureau exercises its 
authority to prescribe rules with respect to the collection of debts by 
debt collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C. 
1692l(d), and its power to issue advisory opinions under section 813(e) 
of the FDCPA, 15 U.S.C. 1692k(e). Under that section, ``[n]o provision 
of [the FDCPA] imposing any liability shall apply to any act done or 
omitted in good faith in conformity with any advisory opinion of the 
Bureau, notwithstanding that after such act or omission has occurred, 
such opinion is amended, rescinded, or determined by judicial or other 
authority to be invalid for any reason.'' The Bureau relies on this 
authority to issue an FDCPA interpretive rule interpreting the 
exceptions set forth in section 805(c)(2) and (3) of the FDCPA to 
include the written early intervention notice required by proposed 
Sec.  1024.39(d)(2)(iii) as well as providing that loss mitigation 
information or assistance provided in response to a borrower-initiated 
communication should be considered outside the scope of a borrower's 
invocation of the cease communication right. The interpretive rule also 
interprets the term consumer for purposes of FDCPA section 805 to 
include a confirmed successor in interest, as that term is defined in 
Regulation X Sec.  1024.31 and Regulation Z Sec.  1026.2(a)(27)(ii).
---------------------------------------------------------------------------

    \23\ See Bureau of Consumer Fin. Prot., Official Bureau 
Interpretations: Safe Harbors from Liability under the Fair Debt 
Collection Practices Act for Certain Actions Taken in Compliance 
with Mortgage Servicing Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z) (Aug. 4, 2016), available at https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
---------------------------------------------------------------------------

D. The Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1), 
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.'' RESPA, TILA, the FDCPA, and title X of the 
Dodd-Frank Act are Federal consumer financial laws.
    Section 1032(a) of the Dodd-Frank Act, 12 U.S.C. 5532(a), 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 understand 
the costs, benefits, and risks associated with the product or service, 
in light of the facts and circumstances.'' The authority granted to the 
Bureau in section 1032(a) of the Dodd-Frank Act 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.
    Section 1032(c) of the Dodd-Frank Act, 12 U.S.C. 5532(c), provides 
that, in prescribing rules pursuant to section 1032 of the Dodd-Frank 
Act, 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.'' Accordingly, in amending provisions 
authorized under section 1032(a) of the Dodd-Frank Act, 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.

V. Section-by-Section Analysis

A. Overview of Sections Relating to Successors in Interest in 
Regulations X and Z

Introduction
    Several aspects of the final rule affect provisions in both 
Regulations X and Z. For example, the definition of delinquency in 
Sec.  1024.31 affects requirements in Sec. Sec.  1024.39 through 
1024.41 of Regulation X, as well as Sec.  1026.41 of Regulation Z. 
Generally, the Bureau discusses each section of the final rule under 
the heading designating the applicable regulation below--part V.B. for 
Regulation X and part V.C. for Regulation Z. However, because the final 
rule and commentary relating to successors in interest are interspersed 
throughout Regulations X and Z and many commenters addressed multiple 
sections of the proposal at once, this combined part V.A. provides an 
overview of the successor in interest provisions in the final rule and 
related issues raised by commenters for both Regulations X and Z. The 
Bureau then discusses each specific section of the final rule relating 
to successors in interest in more detail under the heading designating 
the applicable regulation below.
    Current Sec.  1024.38(b)(1)(vi) provides that servicers are 
required to maintain policies and procedures that are reasonably 
designed to ensure that the servicer can, upon notification of the 
death of a borrower, promptly identify and facilitate communication 
with the successor in interest of the deceased borrower with respect to 
the property securing the deceased borrower's mortgage loan. The Bureau 
adopted this requirement in the 2013 RESPA Servicing Final Rule because 
it understood that successors in interest may encounter challenges in 
communicating with mortgage servicers about a deceased borrower's 
mortgage loan account.\24\
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    \24\ 78 FR 10695, 10781 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau provided guidance about this requirement in the October 
2013 Servicing Bulletin. The Bureau noted that it had received reports 
of servicers either refusing to speak to a successor in interest or 
demanding documents to prove the successor in interest's claim to the 
property that either did not exist or were not reasonably 
available.\25\ The Bureau stated that these practices often prevented a 
successor in interest from pursuing assumption of the mortgage loan 
and, if applicable, loss mitigation options.\26\ The October 2013 
Servicing Bulletin provided examples of servicer practices and 
procedures that would accomplish the objectives set forth in Sec.  
1024.38(b)(1)(vi) and alleviate these problems.\27\
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    \25\ October 2013 Servicing Bulletin at 2.
    \26\ Id.
    \27\ Id. On July 17, 2014, the Bureau also issued an 
interpretive rule clarifying that where a successor in interest who 
has previously acquired a legal interest in a dwelling agrees to be 
added as obligor on the mortgage loan, the servicer's express 
acknowledgment of the successor in interest as obligor does not 
constitute an ``assumption'' as that term is used in Regulation Z. 
See 79 FR 41631, 41632-33 (July 17, 2014). Accordingly, the 
Regulation Z Ability-to-Repay Rule does not apply when a creditor 
expressly accepts a successor in interest as obligor on a loan under 
these circumstances. See id. The interpretive rule also noted that 
the servicer must comply with any ongoing obligations pertaining to 
consumer credit, such as the ARM notice requirements (12 CFR 
1026.20(c) and (d)) and periodic statement requirement (12 CFR 
1026.41), after the successor in interest is added as an obligor on 
the mortgage note. Id.
---------------------------------------------------------------------------

    Despite the Bureau's guidance regarding the requirements of the 
existing rule, housing counselors and consumer advocacy groups continue 
to report, in both published reports and their comments on this 
rulemaking, that

[[Page 72166]]

successors in interest face a variety of challenges, including 
difficulties in obtaining information about the status of mortgage 
loans on their homes or the monthly payment amount, getting servicers 
to accept their payments, and finding out their options to avoid 
foreclosure.\28\ Housing counselors and consumer advocacy groups have 
also reported that servicers often refuse to speak with successors in 
interest, tell them they must assume the loan before they can apply for 
a loss mitigation option, or accept payments for several months before 
telling a successor in interest that the servicer will no longer accept 
payments because the successor in interest is not a borrower.
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    \28\ See, e.g., Alys Cohen, Nat'l Consumer Law Ctr., Snapshots 
of Struggle: Saving the Family Home After a Death or Divorce, 
Successors Still Face Major Challenges in Obtaining Loan 
Modifications (Mar. 2016), available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Hous. Res. Ctr., 
Servicer Compliance with CFPB Servicing Regulations (Feb. 2016), 
available at https://www.hsgcenter.org/wp-content/uploads/2016/02/NHRC-2016-Servicing-Survey-Report.pdf; Nat'l Consumer Law Ctr., NCLC 
Survey Reveals Ongoing Problems with Mortgage Servicing (May 2015), 
available at https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf; Nat'l Council of La 
Raza & Nat'l Hous. Res. Ctr., Are Mortgage Servicers Following the 
New Rules? A Snapshot of Compliance with CFPB Servicing Standards 3, 
7 (Jan. 9, 2015), available at https://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf; Nat'l Consumer Law 
Ctr., Examples of Cases Where Successors in Interest and Similar 
Parties Faced Challenges Seeking Loan Modifications and 
Communicating with Mortgage Servicers (July 1, 2014), available at 
https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/successor-stories-2014.pdf; Cal. Reinvestment 
Coal., Chasm Between Words and Deeds X: How Ongoing Mortgage 
Servicing Problems Hurt California Homeowners and Hardest-Hit 
Communities (May 2014), available at https://www.calreinvest.org/publications/california-reinvestment-coalition-research; Nat'l Hous. 
Res. Ctr., National Mortgage Settlement Servicing Standards and 
Noncompliance: Results of a National Housing Counselor Survey 8 
(June 5, 2013), available at https://www.hsgcenter.org/wp-content/uploads/2013/06/NMS_Findings.pdf; Cal. Reinvestment Coal., Chasm 
Between Words and Deeds IX: Bank Violations Hurt Hardest Hit 
Communities (April 2013), available at https://www.calreinvest.org/publications/california-reinvestment-coalition-research. The 
Bureau's examiners have also observed non-compliance with Regulation 
X's policy and procedure requirement relating to successors in 
interest. See Bureau of Consumer Fin. Prot., Supervisory Highlights 
Mortgage Servicing Special Edition (Issue 11) at 15-16 (June 2016).
---------------------------------------------------------------------------

    Consumer advocacy groups emphasized in their comments that 
successors in interest also continue to face problems establishing 
their successor status. For example, when surveyed by one consumer 
advocacy organization about their experiences assisting successors in 
interest, a large number of elder advocates including legal services 
attorneys and housing counselors reported that they had been asked for 
probate documents despite having provided the servicer with a right of 
survivorship deed, had been asked to supply the same documents 
regarding proof of successor status multiple times, had experienced a 
servicer refusing to communicate with a successor in interest at all, 
or had dealt with a servicer that was unclear about what documents were 
needed to establish successor status. These reports suggest that 
widespread confusion remains about the rights and options of successors 
in interest.
    Moreover, the protections established in the Bureau's existing 
rules do not apply to many categories of successors in interest in need 
of assistance. The office of a State Attorney General commented that it 
continues to receive complaints on behalf of non-borrowers who obtain 
property through divorce or other types of family transfers that are 
not covered under the current rules.
    The ability of successors in interest to sell, encumber, or make 
improvements to their property is limited by the lien securing the 
mortgage loan. As homeowners of property securing a mortgage loan, 
successors in interest typically must satisfy the loan's payment 
obligations to avoid foreclosure, even though a successor in interest 
will not necessarily have assumed liability for the mortgage debt under 
State law. A foreclosure or threatened foreclosure imperils a successor 
in interest's ownership interest and poses significant risk of consumer 
harm. Successors in interest, like other homeowners, can face serious 
adverse consequences from foreclosure. These consumer harms may include 
loss of the home and accumulated equity, displacement, and damage to 
credit scores.
    Successors in interest may also have difficulty, beyond that of 
other homeowners, in avoiding foreclosure and may be more likely than 
other homeowners to have experienced recently or to be experiencing an 
income disruption due to death or divorce. Successors in interest may 
also have more difficulty than other homeowners obtaining information 
about the status of the mortgage loan, options for loss mitigation, and 
payoff information and may be more likely than other homeowners to 
experience difficulty with the prompt crediting of their payments, 
resulting in unnecessary foreclosure. For all these reasons, successors 
in interest are a particularly vulnerable group at risk of substantial 
harms.
    These difficulties present significant problems related to the 
consumer protection purposes of RESPA and TILA and are similar to many 
of the problems that prompted the Bureau to adopt the 2013 Mortgage 
Servicing Rules. As the Bureau noted in its 2013 RESPA Servicing Final 
Rule, RESPA's consumer protection purposes include ensuring that 
servicers respond to borrower requests and complaints in a timely 
manner and maintain and provide accurate information, helping borrowers 
avoid unwarranted or unnecessary costs and fees, and facilitating 
review for foreclosure avoidance options. The Dodd-Frank Act provides 
the Bureau authority to establish prohibitions on servicers of 
federally related mortgage loans appropriate to carry out the consumer 
protection purposes of RESPA.\29\ As the proposal explained, the Bureau 
believes that further modifications to Regulation X's mortgage 
servicing rules relating to successors in interest serve these 
purposes, in particular with respect to preventing unnecessary 
foreclosure and other homeowner harms, much as the 2013 RESPA Servicing 
Final Rule served these consumer protection purposes.
---------------------------------------------------------------------------

    \29\ 12 U.S.C. 5512(b)(1).
---------------------------------------------------------------------------

    The purposes of TILA are to assure a meaningful disclosure of 
credit terms so that the consumers will be able to compare more readily 
the various credit terms available and avoid the uninformed use of 
credit and to protect consumers against inaccurate and unfair credit 
billing practices.\30\ The Bureau believes these purposes are served by 
extending the protections of Regulation Z's mortgage servicing rules to 
confirmed successors in interest, who, as owners of dwellings securing 
mortgage loans, have an interest in obtaining timely and accurate 
account information as to the mortgage secured by their dwelling. The 
Dodd-Frank Act authorizes the Bureau to modify or create an exemption 
from the disclosure requirements of TILA regarding residential mortgage 
loans if the Bureau determines that such exemption or modification is 
in the interest of consumers and in the public interest.\31\
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 1601(a).
    \31\ Dodd-Frank Act section 1405(b), 15 U.S.C. 1601 note.
---------------------------------------------------------------------------

    As explained in more detail in the discussion that follows and in 
the section-by-section analysis of the final rule sections,\32\ the 
Bureau proposed three sets of rules relating to successors in interest. 
First, the Bureau proposed rules to define successors in interest for

[[Page 72167]]

purposes of Regulation X's subpart C and Regulation Z as those persons 
who acquired an ownership interest in the property securing a mortgage 
loan in a transfer protected by the Garn-St Germain Depository 
Institutions Act of 1982 (the Garn-St Germain Act).\33\ Second, the 
Bureau proposed rules relating to how a mortgage servicer confirms a 
successor in interest's identity and ownership interest in the 
property. Third, the Bureau proposed to apply certain mortgage 
servicing rules to successors in interest whose identity and ownership 
interest in the property have been confirmed by the servicer.
---------------------------------------------------------------------------

    \32\ See section-by-section analyses of Sec. Sec.  1024.30(d), 
1024.31, 1024.36(i), 1024.38(b)(1)(vi), 1024.39(b)(1), 1024.41(b), 
1026.2(a)(11), 1026.2(a)(27), and 1026.41(a), infra.
    \33\ 12 U.S.C. 1701j-3(d).
---------------------------------------------------------------------------

    The Bureau received more comments on the successor in interest 
provisions than on any other aspect of the proposal. As noted above, in 
their comments, consumer advocacy groups reported that successors in 
interest continue to face challenges with respect to the servicing of 
mortgage loans secured by their property. These commenters generally 
expressed support for the Bureau's proposal and, in many instances, 
urged the Bureau to adopt additional or broader protections for 
successors in interest. Servicers, trade associations, and other 
industry commenters, however, raised a variety of concerns about the 
Bureau's proposal, including operational challenges, privacy concerns, 
and questions about the Bureau's legal authority and the proposal's 
interaction with other laws.
    As explained in more detail in the discussion that follows and in 
the section-by-section analysis of the final rule sections, the Bureau 
is finalizing the three sets of rules relating to successors in 
interest with significant adjustments to address concerns raised in the 
comments. The Bureau believes that the successor in interest provisions 
in the final rule are necessary to address the significant problems 
successors in interest continue to encounter with respect to the 
servicing of mortgage loans secured by their property, such as lack of 
access to information about the mortgage loan. The Bureau also believes 
that the rule, as finalized, addresses the operational, privacy, and 
other significant concerns raised by commenters.
    As explained below, the final rule defines successor in interest 
and establishes requirements relating to confirming successors in 
interest. It also extends to confirmed successors in interest the 
protections of the mortgage servicing rules that the Bureau identified 
in the proposal (Regulation X's subpart C and Sec. Sec.  1026.20(c), 
(d), and (e), 1026.36(c), and 1026.41), as well as two additional 
protections that were not part of the proposal (Sec. Sec.  1024.17 and 
1026.39). These provisions are referred to herein collectively as the 
Mortgage Servicing Rules.\34\
---------------------------------------------------------------------------

    \34\ The term Mortgage Servicing Rules has a broader meaning as 
used herein than it did in the proposal, where the Bureau used it to 
refer to the 2013 Mortgage Servicing Rules as amended in 2013 and 
2014. The term Mortgage Servicing Rules as used herein includes 
Sec. Sec.  1024.17 and 1026.39 in addition to the 2013 Mortgage 
Servicing Rules as amended in 2013 and 2014.
---------------------------------------------------------------------------

    Consistent with the proposal, coverage under the final rule does 
not depend on whether a successor in interest has assumed the mortgage 
loan obligation (i.e., legal liability for the mortgage debt) under 
State law. Whether a successor in interest has assumed a mortgage loan 
obligation under State law is a fact-specific question. The final rule 
does not affect this question but applies with respect to a successor 
in interest regardless of whether that person has assumed the mortgage 
loan obligation under State law.\35\ As explained in comment 30(d)-2 to 
Regulation X and in comment 2(a)(11)-4 to Regulation Z, if a successor 
in interest assumes a mortgage loan obligation under State law or is 
otherwise liable on the mortgage loan obligation, the protections the 
successor in interest enjoys under Regulations X and Z are not limited 
to the protections that apply under Sec. Sec.  1024.30(d) and 
1026.2(a)(11) to a confirmed successor in interest.
---------------------------------------------------------------------------

    \35\ As noted, the Bureau has also clarified in an interpretive 
rule that where a successor in interest who has previously acquired 
a legal interest in a dwelling agrees to be added as obligor on the 
mortgage loan, the servicer's express acknowledgment of the 
successor in interest as obligor does not constitute an 
``assumption'' as that term is used in Regulation Z. See 79 FR 
41631, 41632-33 (July 17, 2014).
---------------------------------------------------------------------------

Scope of Successor in Interest Rules
    The Bureau proposed changes regarding who is considered a successor 
in interest for purposes of Regulation X's subpart C and Regulation Z. 
Current Sec.  1024.38(b)(1)(vi) refers to the successor in interest of 
the deceased borrower. The Bureau proposed to define successor in 
interest using definitions based on section 341(d) of the Garn-St 
Germain Act, which generally prohibits the exercise of due-on-sale 
clauses with respect to certain protected transfers.\36\ The Act 
protects certain types of transfers involving the death of a 
borrower.\37\ In addition, the Garn-St Germain Act protects other 
categories of transfers: A transfer where the spouse or children of the 
borrower become an owner of the property; a transfer resulting from a 
decree of a dissolution of marriage, legal separation agreement, or 
from an incidental property settlement agreement, by which the spouse 
of the borrower becomes an owner of the property; a transfer into an 
inter vivos trust in which the borrower is and remains a beneficiary 
and which does not relate to a transfer of rights of occupancy in the 
property; and any other transfer or disposition described in 
regulations prescribed by the Federal Home Loan Bank Board.\38\
---------------------------------------------------------------------------

    \36\ 12 U.S.C. 1701j-3(d).
    \37\ Specifically, the Act protects a transfer to a relative 
resulting from the death of a borrower and a transfer by devise, 
descent, or operation of law on the death of a joint tenant or 
tenant by the entirety. Id.
    \38\ Id. The Garn-St Germain Act also prohibits exercise of due-
on-sale clauses with respect to certain other situations that do not 
involve transfer of an ownership interest in the property. Id. The 
Bureau's proposal would not have applied to these situations.
---------------------------------------------------------------------------

    The Bureau proposed that, to the extent that certain mortgage 
servicing rules apply to successors in interest, the rules would apply 
to all successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act, rather than only successors in interest who acquired an 
ownership interest upon a borrower's death. Accordingly, for the 
purposes of Regulation X, the Bureau proposed to define successor in 
interest in Sec.  1024.31 as a member of any of the categories of 
successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. The Bureau also proposed to modify current Sec.  
1024.38(b)(1)(vi) to account for all transfers to successors in 
interest meeting this definition. Similarly, for the purposes of 
Regulation Z, proposed Sec.  1026.2(a)(27) would have defined successor 
in interest to cover all categories of successors in interest who 
acquired an ownership interest in the dwelling securing a mortgage loan 
in a transfer protected by the Garn-St Germain Act.
    For the reasons that follow and that are explained in the section-
by-section analyses of Sec. Sec.  1024.31 and 1026.2(a)(27)(i), the 
final rule includes definitions of successor in interest in Sec. Sec.  
1024.31 and 1026.2(a)(27)(i) that are modeled on categories of 
transfers protected in the Garn-St Germain Act, but the definitions do 
not cross-reference the Garn-St Germain Act itself. Specifically, after 
reviewing the comments, the Bureau is defining successor in interest 
for purposes of subpart C of Regulation X in Sec.  1024.31 to mean a 
person to whom an ownership interest in a property

[[Page 72168]]

securing a mortgage loan subject to subpart C is transferred from a 
borrower, provided that the transfer falls in one or more of the 
following categories:
     A transfer by devise, descent, or operation of law on the 
death of a joint tenant or tenant by the entirety;
     A transfer to a relative resulting from the death of a 
borrower;
     A transfer where the spouse or children of the borrower 
become an owner of the property;
     A transfer resulting from a decree of a dissolution of 
marriage, legal separation agreement, or from an incidental property 
settlement agreement, by which the spouse of the borrower becomes an 
owner of the property; or
     A transfer into an inter vivos trust in which the borrower 
is and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property.\39\
---------------------------------------------------------------------------

    \39\ The Bureau interprets ``spouse'' to include married same-
sex spouses. See Memorandum on Ensuring Equal Treatment for Same-Sex 
Married Couples (Same-Sex Married Couple Policy) (June 25, 2014), 
available at https://files.consumerfinance.gov/f/201407_cfpb_memo_ensuring-equal-treatment-for-same-sex-married-couples.pdf.
---------------------------------------------------------------------------

    The Bureau is finalizing an analogous definition for Regulation Z 
in Sec.  1026.2(a)(27)(i).\40\
---------------------------------------------------------------------------

    \40\ The final rule's definition of successor in interest for 
Regulation Z is identical to the definition for subpart C of 
Regulation X, except that the Regulation Z definition substitutes 
``a dwelling securing a closed-end consumer credit transaction is 
transferred from a consumer'' for ``a property securing a mortgage 
loan is transferred from a borrower'' and substitutes ``consumer'' 
for ``borrower'' throughout. Both definitions of successor in 
interest are limited to transferees who receive an ownership in 
property that secures closed-end credit because Sec.  1024.31 
defines mortgage loan for purposes of Regulation X subpart C to 
exclude open-end lines of credit and Sec.  1026.2(a)(27)(i) refers 
to closed-end consumer credit transactions. However, transferees of 
properties that secure open-end credit are entitled to protection as 
borrowers under RESPA and Regulation X and consumers under TILA and 
Regulation Z if they assume the loan obligation under State law or 
are otherwise liable on the mortgage loan obligation and may be 
protected under other laws.
---------------------------------------------------------------------------

    Whether to use the Garn-St Germain Act categories at all in 
defining successor in interest. Commenters offered different views on 
whether the Bureau should use the Garn-St Germain Act categories at all 
in defining the term successor in interest. Consumer advocacy groups 
and some State and local government commenters expressed support for 
including the Garn-St Germain Act categories in the definition.\41\ For 
example, one consumer advocacy group indicated that, for a large 
percentage of the successors in interest it has assisted, the 
servicers' refusal to provide any information about the status of the 
account to the successor in interest has led to prolonged delinquency 
and unnecessary foreclosure proceedings. This group stated that it 
believes that the proposed definition of successor in interest would 
offer important protections to prevent unnecessary foreclosures and 
reduce unnecessary delays in reaching agreements. Another consumer 
advocacy group indicated that extending the rules to include all 
protected transfers under the Garn-St Germain Act would significantly 
benefit its vulnerable clients.
---------------------------------------------------------------------------

    \41\ As discussed infra, these commenters generally also favored 
adding additional categories to the proposed definitions of 
successor in interest for Regulation X subpart C and Regulation Z.
---------------------------------------------------------------------------

    The office of a State Attorney General expressed support for 
extending protections to the Garn-St Germain Act categories and 
indicated that servicers often refuse to communicate with divorcees and 
other family transferees. A local government commenter also expressed 
strong support for including in the definition successors in interest 
who meet the criteria set forth in the Garn-St Germain Act based on its 
experience running a mortgage foreclosure diversion program over the 
past seven years.
    Some industry commenters objected to the use of the Garn-St Germain 
Act framework in defining who is a successor in interest. Two trade 
associations stated that Congress did not intend for the Garn-St 
Germain Act to protect against any consequences of delinquency. These 
commenters stated that section 341 of the Garn-St Germain Act was 
designed to address when lenders may and may not require a loan 
modification. One of these trade associations suggested that the Garn-
St Germain Act categories are not well-suited for use in the successor 
in interest definitions because a child who buys a property from a 
parent would be protected but a parent who buys a property from a child 
would not. Another trade association stated that the sole purpose of 
the Garn-St Germain Act was to preempt acceleration based on certain 
transfers of ownership on residential properties.
    Despite the concerns expressed by some commenters, the Bureau 
continues to believe that it is appropriate to align the successor in 
interest definitions in Regulations X and Z in large part with the 
categories in section 341(d) of the Garn-St Germain Act. Although a few 
industry commenters attempted to characterize this provision 
differently, the text of section 341(d) clearly provides a broad 
exemption from due-on-sale enforcement for various categories of 
transfers. The legislative history of the Garn-St Germain Act reflects 
that Congress chose to create this broad exemption because it deemed 
such enforcement unfair and inappropriate.\42\ For the same reasons 
that due-on-sale enforcement would be inappropriate in the context of 
these transfers, the Bureau believes it is also important to ensure 
that servicers do not interfere in other ways with the transferees' 
ability to take advantage of their ownership interest in the property. 
For example, just as due-on-sale enforcement can result in a successor 
in interest losing a property, a servicer's failure to provide 
information to a successor in interest about the status of a mortgage 
loan or to evaluate the successor in interest for available loss 
mitigation options could result in unnecessary foreclosure and loss of 
the successor in interest's ownership interest.
---------------------------------------------------------------------------

    \42\ See S. Rep. No. 536, 97th Cong., at 24 (1982), reprinted in 
1982 U.S.C.C.A.N. 3054, 3078 (``The Committee believes that it would 
be unfair and inappropriate for lenders to enforce due-on-sale 
clauses under certain circumstances--such as involuntary transfers 
resulting from the death of a borrower, transfers which rearrange 
ownership rights within a family, or transfers resulting from a 
separation or dissolution of a marriage. Similarly, further 
encumbrances of the property, such as second mortgages which are 
often used by families to send a child to college, or finance home 
improvements, will not trigger due-on-sale enforcement as long as 
the encumbrance does not relate to a transfer of rights of occupancy 
in the property.'').
---------------------------------------------------------------------------

    Congress identified in the Garn-St Germain Act the categories that 
it felt warranted protection from one type of foreclosure risk. The 
Bureau agrees that these general categories include the most vulnerable 
classes of transferees and has concluded that it is important to 
protect such transferees from other types of foreclosure risk and 
servicing abuses.
    Notwithstanding the suggestion of one commenter to the contrary, 
the Bureau also believes that the categories established in section 
341(d) of the Garn-St Germain Act provide adequate protection for 
transfers from child to parent. Section 341(d)(5) includes transfers 
from a relative (including from a child to a parent or from a parent to 
a child) that occur upon the death of a borrower. Section 341(d)(6) 
also includes ownership transfers from a parent to a child and between 
spouses that occur during the life of the borrower. The fact that 
section 341(d) does not include transfers from a child to a parent that 
occur during the life of the transferor reflects Congress's 
determination that transfers from parent to child need greater 
protection from due-on-sale enforcement. The Bureau

[[Page 72169]]

believes that the same policy choice is appropriate in defining 
successor in interest in Regulations X and Z because lifetime transfers 
to children and spouses are both more common than lifetime transfers to 
parents and more central to ensuring that familial homesteads and 
wealth will be available to the next generation.\43\
---------------------------------------------------------------------------

    \43\ Another commenter suggested that using the Garn-St Germain 
Act categories could create inequitable results, noting that if 
three descendants inherit an unencumbered property that is later 
encumbered by only one descendant, there would be no successor in 
interest, but if the parent had encumbered the property with a 
mortgage loan prior to the inheritance, all three descendants would 
be successors in interest. The Bureau believes, however, that those 
situations are not comparable. In the former case, where the 
transfer of ownership occurs before the encumbrance, the interests 
of the heirs are generally only subject to the mortgage if they have 
consented to the mortgage.
---------------------------------------------------------------------------

    Whether to cross-reference the Garn-St Germain Act in the 
definitions and whether to incorporate limitations imposed by the Garn-
St Germain Act implementing regulations. Industry commenters asked 
whether the Bureau intended to incorporate the occupancy requirements 
of the Garn-St Germain Act implementing regulations administered by the 
Office of the Comptroller of the Currency (OCC), 12 CFR 191.5(b). The 
implementing regulations impose certain occupancy requirements and 
expressly exclude reverse mortgages from the scope of Garn-St Germain 
due-on-sale protection.\44\ Commenters indicated uncertainty about 
whether the Bureau intended to apply the occupancy requirements that 
appear only in the Garn-St Germain Act implementing regulations and not 
in the Garn-St Germain Act.
---------------------------------------------------------------------------

    \44\ 12 CFR 191.5(b).
---------------------------------------------------------------------------

    An industry commenter suggested that the Bureau should omit 
reference to the Garn-St Germain Act in Regulations X and Z and instead 
enumerate the categories of transfers of ownership that would qualify 
for regulatory protection, in order to avoid unintended consequences. 
Other industry commenters asked the Bureau to clarify in the final rule 
how the existing exemptions and scope limitations in Regulations X and 
Z would apply to the servicing of a mortgage loan with respect to a 
successor in interest.
    A trade association urged the Bureau to exempt reverse mortgages 
entirely. It stated that existing guidelines, protocols, and timelines 
governing Home Equity Conversion Mortgages insured by the Federal 
Housing Administration (FHA) require servicers of such reverse 
mortgages to reach out to and deal with persons who might fall within 
the Bureau's definition of successor in interest. This trade 
association said that its membership indicated that servicers of non-
FHA-insured reverse mortgages follow similar processes. It also noted 
that reverse mortgages are exempt from many of the mortgage servicing 
requirements in Regulations X and Z. It suggested that applying the 
successor in interest requirements to reverse mortgage servicers would 
be burdensome and would provide little if any practical benefits given 
the servicing protocols and requirements already in place in the 
reverse mortgage industry.
    A trade association requested that small servicers be exempted from 
complying with the prescriptive requirements of the successor in 
interest provisions. It stated that tracking successors in interest 
could require costly system modifications. The commenter indicated that 
an exemption for small servicers would be consistent with the Bureau's 
approach to other general servicing requirements for small servicers. 
By contrast, several consumer advocacy groups urged the Bureau to 
expand the requirements for small servicers beyond those in the 
proposal to require small servicers to comply with all of the proposed 
requirements of Sec.  1024.38(b)(1)(vi).
    Upon consideration, the Bureau has decided to incorporate the 
relevant categories of transfers directly into the final rule, rather 
than relying on a cross-reference to the Garn-St Germain Act. 
Accordingly, the final rule lists the specific categories of transfers 
that qualify a transferee to be a successor in interest, using 
categories that are modeled on categories protected by the Garn-St 
Germain Act. To ensure that the scope of the final rule does not change 
over time without further rulemaking by the Bureau, the Bureau has 
omitted the Garn-St Germain Act category that protects from due-on-sale 
enforcement any other transfer or disposition described in the Garn-St 
Germain Act implementing regulations.\45\ The Bureau believes that 
listing the specific categories rather than including a cross-reference 
makes the definitions in Regulations X and Z clearer and easier to 
apply.
---------------------------------------------------------------------------

    \45\ 12 U.S.C. 1701j-3(d)(9). There are no such other categories 
currently in the OCC's regulation. See 12 CFR 191.5(b)(1). The 
Bureau has also omitted several categories in the Garn-St Germain 
Act that do not result in a transfer of ownership interest and that 
are therefore irrelevant for successor in interest status. See 12 
U.S.C. 1701j-3(d)(1), (2), (4); see also 79 FR 74176, 74181 n.28 
(Dec. 15, 2014) (noting that the proposal would not apply to the 
situations described in these categories).
---------------------------------------------------------------------------

    In restating the categories in the final rule, the Bureau has not 
incorporated certain scope limitations imposed by the Garn-St Germain 
Act itself or its implementing regulations. The Bureau notes that many 
of those limitations are similar in nature to those in the Mortgage 
Servicing Rules themselves and believes that it will be easier for 
servicers and more protective for consumers to let the Mortgage 
Servicing Rules' limitations determine the scope of coverage 
consistently for confirmed successors in interest as for other 
borrowers under the Mortgage Servicing Rules, rather than to import 
slightly varying limitations in the Garn-St Germain Act or OCC 
regulations.\46\ The Mortgage Servicing Rules thus generally apply to 
confirmed successors in interest in the same manner that they do to 
other borrowers.
---------------------------------------------------------------------------

    \46\ While the Garn-St Germain Act and its implementing 
regulations define a category of transactions that should receive 
protection from foreclosure through the exercise of a due-on-sale 
clause, the focus of the Garn-St Germain Act and its implementing 
regulations is solely on operation of due-on-sale protections, and 
the Bureau's focus, while related, is somewhat different.
---------------------------------------------------------------------------

    For example, section 341(d) of the Garn St-Germain Act by its terms 
only applies with respect to a real property loan secured by a lien on 
residential real property containing less than five dwelling units, 
including a lien on the stock allocated to a dwelling unit in a 
cooperative housing corporation, or on a residential manufactured 
home.\47\ For ease of application and to align with other parts of 
Regulations X and Z, the Bureau has not incorporated these limitations 
into the definitions of successor in interest in the final rule. 
Instead, the definitions of successor in interest in the final rule 
incorporate the scope limitations from Regulations X and Z respectively 
by, for example, referring to a mortgage loan in the definition of 
successor in interest in Sec.  1024.31 and to a dwelling securing a 
closed-end consumer credit transaction in Sec.  1026.2(a)(27)(i).\48\
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 1701j-3(d).
    \48\ See, e.g., Sec.  1024.31 (defining mortgage loan for 
purposes of Regulation X subpart C as any federally related mortgage 
loan, as that term is defined in Sec.  1024.2 subject to the 
exemptions in Sec.  1024.5(b), but not including open-end lines of 
credit (home equity plans)); Sec.  1026.2(a)(19) (defining dwelling 
for Regulation Z as a residential structure that contains one to 
four units, whether or not that structure is attached to real 
property, and noting that the term includes an individual 
condominium unit, cooperative unit, mobile home, and trailer, if it 
is used as a residence).
---------------------------------------------------------------------------

    The Bureau has also decided not to incorporate certain limitations 
imposed by the Garn-St Germain Act implementing regulations. The 
implementing regulations issued by the OCC's predecessor, the Federal 
Home

[[Page 72170]]

Loan Bank Board, exempt reverse mortgages from the due-on-sale 
protections in Garn-St Germain Act section 341(d).\49\ They also impose 
certain occupancy requirements, which limit protection from due-on-sale 
enforcement to circumstances where the property was occupied or was to 
be occupied by the borrower.\50\ The implementing regulations further 
limit protection from due-on-sale enforcement to circumstances where 
the transferee occupies or will occupy the property if it is an intra-
familial transfer and to circumstances where the borrower is and 
remains an occupant of the property if it is a transfer to an inter 
vivos trust.\51\
---------------------------------------------------------------------------

    \49\ 12 CFR 191.5(b)(1).
    \50\ 12 CFR 191.5(b).
    \51\ 12 CFR 191.5(b)(1)(v), (vi).
---------------------------------------------------------------------------

    Rather than incorporating these scope limitations into the final 
rule, the Bureau has decided to apply the exemptions and scope 
limitations in the existing Mortgage Servicing Rules to the servicing 
of a mortgage loan with respect to a confirmed successor in interest, 
as it proposed to do. For example, Sec.  1024.30(b) exempts small 
servicers from Sec. Sec.  1024.38 through 1024.41 (except Sec.  
1024.41(j)). Likewise, Sec.  1024.30(b) provides an exemption from 
these sections with respect to reverse mortgage transactions and 
mortgage loan for which the servicer is a qualified lender as that term 
is defined in 12 CFR 617.7000. Accordingly, except as otherwise 
provided in Sec.  1024.41(j), and consistent with the generally 
applicable scope limitations of the Mortgage Servicing Rules, 
Sec. Sec.  1024.38 through 1024.41 do not apply to confirmed successors 
in interest with respect to small servicers, reverse mortgage 
transactions, and mortgage loans for which the servicer is a qualified 
lender. Similarly, Sec.  1024.30(c) provides that Sec.  1024.33(a) only 
applies to reverse mortgage loan transactions and that Sec. Sec.  
1024.39 through 1024.41 only apply to mortgage loans secured by 
property that is a borrower's principal residence. Accordingly, with 
respect to confirmed successors in interest, Sec.  1024.33(a) only 
applies to reverse mortgage loan transactions, and Sec. Sec.  1024.39 
through 1024.41 only apply to mortgage loans secured by property that 
is the confirmed successor in interest's principal residence.\52\
---------------------------------------------------------------------------

    \52\ In response to questions raised by commenters, the final 
rule clarifies in comments 30(d)-1 and 41(b)-1.ii to Regulation X 
that a property must be the confirmed successor in interest's 
primary residence for the procedures in Sec.  1024.41 to apply.
---------------------------------------------------------------------------

    The Mortgage Servicing Rules in Regulation Z contain similar 
exemptions and scope limitations, which also apply to the treatment of 
confirmed successors in interest under the final rule. For example, 
creditors, assignees, and servicers are exempt from Sec.  1026.41's 
periodic statement requirements for mortgage loans serviced by a small 
servicer, as defined in Sec.  1026.41(e)(4).\53\
---------------------------------------------------------------------------

    \53\ Section 1026.41 defines servicers to mean creditors, 
assignees, or servicers for the purposes of Sec.  1026.41. The 
Bureau, therefore, also uses the term servicer to mean a creditor, 
assignee, or servicer in this discussion and in the section-by-
section analysis of Sec.  1026.41.
---------------------------------------------------------------------------

    Applying these existing exemptions and scope limitations to the 
servicing of a mortgage loan with respect to a confirmed successor in 
interest promotes clarity and consistency with other aspects of 
Regulations X and Z, making the rules easier to apply. It also furthers 
the policy goals that led to the adoption of those exemptions and scope 
limitations in the existing Mortgage Servicing Rules. In adopting the 
2013 Mortgage Servicing Rules, the Bureau weighed relevant 
considerations for the exemptions and scope limitations and made a 
series of carefully calibrated judgments about the circumstances under 
which each of the rule's protections should apply.\54\ For example, in 
limiting the scope of Sec. Sec.  1024.39 through 1024.41 to mortgage 
loans that are secured by a borrower's principal residence in Sec.  
1024.30(c), the Bureau noted that 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 loan owners 
and assignees, by ensuring that servicers use clear standards of review 
for loss mitigation options.\55\ The Bureau did not believe that this 
purpose would be furthered by extending those protections to mortgage 
loans for investment, vacation, or other properties that are not 
principal residences.\56\ These same considerations support applying 
the same exemptions and scope limitations in the context of confirmed 
successors in interest.
---------------------------------------------------------------------------

    \54\ See, e.g., 78 FR 10696, 10718-22 (Feb. 14, 2013).
    \55\ Id. at 10722.
    \56\ For example, the Bureau noted that, for properties that are 
not the borrower's principal residence, the protections set forth in 
Sec. Sec.  1024.39 through 41 might only serve to assist a non-
occupying borrower to maintain cash flow from rental revenue during 
a period of delinquency. Id. Further, the Bureau recognized that, 
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. Id. The Bureau also 
noted that this limitation is consistent with the California 
Homeowner Bill of Rights and the National Mortgage Settlement and 
that its incorporation would further the goal of creating uniform 
standards. Id.
---------------------------------------------------------------------------

    Applying occupancy requirements from the Garn-St Germain Act 
implementing regulations to successors in interest would make 
Regulations X and Z more complex and difficult to implement and 
administer and would offer less protection to successors in interest. 
While certain Mortgage Servicing Rules will not apply due to existing 
exemptions and scope limitations,\57\ the Bureau believes that 
successors in interest will benefit from other protections of the 
Mortgage Servicing Rules even if they do not occupy or intend to occupy 
the property, just as non-occupant borrowers currently do. For example, 
successors in interest, whether occupants or non-occupants, often 
encounter difficulties accessing information about the mortgage account 
and making payments and will benefit from the ability to submit 
requests for information and request payoff statements once they are 
confirmed.
---------------------------------------------------------------------------

    \57\ See, e.g., Sec.  1024.30(c)(2).
---------------------------------------------------------------------------

    The Bureau also believes it is appropriate to include reverse 
mortgages to the same extent that they are covered under the existing 
Mortgage Servicing Rules. The Bureau recognizes that there are many 
ways in which reverse mortgages differ from other mortgages. The 
exemptions and scope limitations in the existing Mortgage Servicing 
Rules are already tailored to these differences and ensure that 
consumers with reverse mortgages benefit from the protections that are 
relevant to their situations and that reverse mortgage servicers are 
not required to comply with Regulation X and Z protections that are not 
relevant to reverse mortgages. When a reverse mortgage is secured by a 
property that is acquired by a successor in interest, the successor in 
interest will benefit upon confirmation from the ability to invoke the 
Mortgage Servicing Rules that apply to reverse mortgages, just as the 
transferor borrower might benefit. For example, in many instances, 
successors in interest to properties that are secured by reverse 
mortgages will need to pay off the reverse mortgage in order to protect 
their ownership interest and will benefit from the information in a 
payoff statement available under Sec.  1026.36(c). The Bureau believes 
that it will be easier for servicers to follow consistent rules with 
regard to reverse mortgages regardless of whether there has been a 
succession of interest with respect to a particular property and that 
such an approach provides greater protections to consumers that are

[[Page 72171]]

calibrated to the context of the Mortgage Servicing Rules.
    The final rule also applies the same exemptions for small servicers 
that currently apply under the Mortgage Servicing Rules. Although a 
trade association suggested that it would be consistent with other 
mortgage servicing requirements to exempt small servicers entirely from 
the successor in interest provisions, the Bureau believes that the most 
consistent approach is to apply the same exemptions that exist in 
current Regulations X and Z to the final rule's new successor in 
interest provisions. These exemptions reflect the unique circumstances 
of small servicers, which may not have systems in place to implement 
certain requirements in a cost-effective way given their size. Although 
some consumer advocacy groups suggested that the Bureau should subject 
small servicers to the policies and procedures requirements in Sec.  
1024.38(b)(1)(vi), the Bureau believes that requiring small servicers 
to develop such policies and procedures could cause small servicers to 
incur incremental expenses which, because of their size, would be 
burdensome for them. Under the final rule, as under the proposal, Sec.  
1024.36(i), but not Sec.  1024.38(b)(1)(vi), applies to small 
servicers. Accordingly, small servicers, for example, must respond to 
requests for information under Sec.  1024.36(i) by providing a written 
description of the documents the servicer reasonably requires to 
confirm the person's identity and ownership interest in the property 
within the timeframe set forth in Sec.  1024.36, even though small 
servicers are not required to maintain policies and procedures to 
determine promptly what documents the servicer reasonably requires to 
confirm the successor in interest's identity and ownership interest in 
the property. The Bureau believes that this approach appropriately 
balances the burden on small servicers with confirmed successors in 
interest's need to receive this information.
    Whether to limit the Garn-St Germain Act categories to situations 
involving death, to persons who have assumed the loan obligation, or in 
other significant ways. Some industry commenters suggested narrowing 
the scope of the successor in interest provisions in various ways. A 
number of industry commenters suggested limiting the categories to 
situations involving the death of an obligor, as the current rule does, 
or the death of all obligors. These commenters said that providing 
loan-related information to a successor in interest who is not liable 
on the note could violate the financial privacy of living obligors and 
result in liability for servicers.
    Other industry commenters suggested limiting the scope to 
successors in interest who obtain their interest through death or 
divorce, sometimes with additional triggering criteria. An industry 
commenter suggested limiting the scope to situations involving a 
mortgage transaction where either the borrower is deceased or the loan 
is in default due to delinquency and the borrower is unwilling to work 
with the servicer to resolve the default. A trade association suggested 
that the definition should be limited to circumstances where the 
successor inherits property after death, has been awarded property in a 
divorce action, or has received a quitclaim deed from the borrower.
    Some industry commenters suggested other limiting factors for 
recognizing successors in interest. A trade association stated that 
transfers where the transferor borrower retains ownership rights and 
remains obligated on the loan do not actually involve a succession of 
interest. Some industry commenters also suggested that the Bureau 
should impose occupancy restrictions in the definition--for example, by 
limiting the definition to individuals who occupy the property as a 
primary residence. Two industry commenters urged the Bureau to exclude 
from the definition of successors in interest third parties who become 
successors in interest through ``take over the payments,'' contracts 
for deed, wrap notes, and similar sales transactions that are 
unauthorized by mortgagees and are in violation of due-on-sale clauses 
in the mortgage instruments.
    In suggesting these limitations, some commenters expressed concern 
about excessive regulatory burden. Other industry commenters asserted 
that the scope of the successor in interest definitions in the proposal 
would allow borrowers to transfer the property solely to delay 
foreclosure and to influence whose income is considered in loss 
mitigation, which would impose additional costs on the holder of the 
mortgage. Others suggested that the definition should not include 
transfers while the transferor borrower is living (such as transfers 
where the child of a borrower becomes an owner or transfers into an 
inter vivos trust) because living transferor borrowers always have the 
option to create authority in a transferee through a power of attorney 
or other means should they wish to do so.
    A number of industry commenters suggested that the Bureau should 
exclude anyone who has not assumed the mortgage loan obligation from 
the definitions of successor in interest in order to address their 
concerns about being required to interact with a person not legally 
obligated on the note. One commenter stated that it would not be 
appropriate to grant statutory rights to a person who is a legal 
stranger to the owner of the loan and against whom the owner of the 
loan may not proceed if the loan becomes delinquent. Another suggested 
that the primary reason that borrowers receive many protections under 
the mortgage servicing rules is because they have undertaken a 
substantial obligation to repay a loan and could suffer significant 
negative ramifications if they fail to meet that obligation. Some 
commenters expressed concern that the proposal would allow someone who 
is not a party to the loan agreement to modify its terms. A trade 
association indicated that treating people who have not assumed the 
loan as successors in interest would raise serious privacy concerns and 
suggested that the Bureau should provide a safe harbor if the final 
rule requires disclosure of nonpublic borrower information to non-
obligated co-owners. Other industry commenters urged the Bureau to 
provide clarification, potentially in commentary, on the privacy 
implications of the proposed provision's coverage of successors-in-
interest who have not assumed the mortgage loan obligation under State 
law.
    By contrast, consumer advocacy groups and government commenters 
emphasized in their comments the need for broad coverage. A State 
Attorney General's office noted that it often must intervene on behalf 
of vulnerable non-borrowers who obtain an interest in a property 
through divorce or otherwise. It observed that servicers fail to 
communicate with these homeowners even when the loans at issue are 
owned by Fannie Mae and Freddie Mac, both of which have long directed 
servicers to work with divorcees. Several consumer advocacy groups 
reported that a large number of attorneys and housing counselors 
representing homeowners across the United States have been asked to 
supply a quitclaim deed to the servicer, even where the successor in 
interest had already provided a copy of a divorce decree that clearly 
transferred the property. One consumer advocacy group noted that it has 
seen cases involving divorced spouses and other intra-family transfers, 
as well as heirs, and that a large percentage of its successor in 
interest cases have led to prolonged delinquency and unnecessary 
foreclosure proceedings due to the servicers' refusal to provide any

[[Page 72172]]

information about the status of the account to the successor in 
interest.
    Another consumer advocacy group expressed particular concern about 
the need to protect successors in interest who have experienced 
intimate partner violence. This commenter explained that, for example, 
survivors of spousal abuse often receive the marital home in a divorce 
only to have mortgage servicers refuse to provide them with information 
about the mortgage loan if the loan is in the name of the former 
spouse. It also noted that survivors of spousal abuse often need to 
request loss mitigation assistance because of their changed economic 
circumstances after a divorce but are told they cannot apply for loss 
mitigation without the participation of the former spouse. The 
commenter noted that giving abusers sole access to necessary 
information about the loan or requiring their participation for loss 
mitigation applications perpetuates the dynamics of power and control 
inherent in abusive relationships.
    A consumer advocacy group stated that assumption should not be a 
requirement for confirmation because successors in interest cannot 
evaluate whether it is in their best interests to assume a loan unless 
they have information about the status of the loan and whether it will 
be possible to avoid foreclosure. This commenter noted that successors 
in interest are harmed if they assume liability on a loan that is in 
default or foreclosure only to discover that there is no feasible loss 
mitigation option. The office of a State Attorney General raised 
similar concerns.
    The Bureau is not limiting the scope, as industry commenters 
suggested, and is expanding the scope beyond the current rule's 
limitation to situations involving death. In issuing current Sec.  
1024.38(b)(1)(vi), the Bureau relied on information about difficulties 
faced by surviving spouses, children, and other relatives who succeed 
in the interest of a deceased borrower to a property that the successor 
in interest also occupied as a principal residence, when that property 
is securing a mortgage loan account solely in the name of the deceased 
borrower.\58\ Since that time, the Bureau has received additional 
information that other categories of successors in interest who acquire 
an ownership interest in the property securing a mortgage loan in a 
transfer protected by the Garn-St Germain Act, such as divorced 
spouses, face similar difficulties to those identified by the Bureau in 
issuing the original policies and procedures requirement.\59\ Many 
commenters confirmed that successors in interest who are transferred an 
ownership interest in property securing a mortgage loan upon divorce 
and through other protected transfers face similar challenges to those 
faced by successors in interest after a borrower's death, including, 
for example, difficulty obtaining information about the mortgage loan. 
In light of the information received through comments and published 
reports and the Bureau's market knowledge, the Bureau concludes that 
many successors in interest in the Garn-St Germain Act categories that 
do not involve a borrower's death face the same risk of unnecessary 
foreclosure and other consumer harm with respect to the mortgage loan 
and property as successors in interest who receive an ownership 
interest upon a borrower's death.
---------------------------------------------------------------------------

    \58\ 78 FR 10695, 10781 (Feb. 14, 2013).
    \59\ For example, a national survey of attorneys and housing 
counselors representing homeowners in 2015 found that 55 percent of 
respondents were asked by a servicer to supply a quitclaim deed in 
circumstances where one was not needed or available because a 
divorce decree clearly transferred the property. Nat'l Consumer Law 
Ctr., NCLC Survey Reveals Ongoing Problems with Mortgage Servicing 
1-2 (May 2015), available at https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf.
---------------------------------------------------------------------------

    The Bureau does not believe it would be appropriate to limit the 
scope of the definition to transfers occurring upon death or to impose 
any of the alternative limitations suggested by commenters. As many 
commenters noted, divorcees and individuals who are legally separated 
from their spouses often need to communicate with servicers regarding 
mortgage loans that encumber property they have obtained through the 
divorce or legal separation process. Similarly, children or spouses who 
receive an ownership interest during the life of the transferor 
borrower and beneficiaries of inter vivos trusts may need information 
about the mortgage loan in order to ensure the property does not go 
into default or foreclosure. This can be particularly important in 
cases where the transferor borrower is unwilling or unable to handle 
financial matters relating to the property. Congress included these 
categories in the Garn-St Germain Act, as well as various categories 
occurring on the death of the transferor borrower, because it concluded 
that due-on-sale enforcement would be unfair and inappropriate with 
respect to these transferees.\60\ The Bureau believes that these 
transferees are also at risk of losing the home or falling behind on 
the mortgage if they do not receive timely information from the 
servicer and are unable to communicate with the servicer about the 
mortgage loan. The Bureau, therefore, has decided not to exclude from 
the scope of the final rule's successor in interest protections the 
various Garn-St Germain Act categories of ownership interest transfers 
that occur during the life of the transferor borrower.
---------------------------------------------------------------------------

    \60\ See S. Rep. No. 536, 97th Cong., 2d Sess. 23, reprinted in 
1982 U.S.C.C.A.N. 3054, 3078.
---------------------------------------------------------------------------

    The Bureau has also decided not to limit the definitions of 
successor in interest to those who have assumed the loan obligation. As 
some commenters noted, successors in interest must have access to 
information about the loan in order to evaluate the viability of a 
legal assumption of the mortgage loan obligation. The Bureau recognizes 
the potential privacy concerns expressed by commenters raised by 
sharing information with successors in interest who are not obligated 
on the loan. However, the Bureau does not believe that these concerns 
warrant narrowing the scope of the successor in interest definitions. 
Instead, the Bureau is authorizing servicers to withhold certain types 
of sensitive information in response to requests for information and 
notices of error that involve successors in interest, as discussed 
below.
    Commenters also expressed concern that defining successors in 
interest to include persons who are not obligated on the loan might 
needlessly delay foreclosure proceedings. The Bureau does not believe 
that this is a significant risk and does not believe that borrowers are 
likely to transfer ownership of real property simply as a delay tactic. 
Moreover, the final rule does not extend dual tracking protections 
during the pendency of the confirmation process. The final rule does, 
however, require servicers to review and evaluate loss mitigation 
applications from confirmed successors in interest in accordance with 
the procedures set forth in Sec.  1024.41 if the property is the 
confirmed successor in interest's principal residence and the 
procedures set forth in Sec.  1024.41 are otherwise applicable. The 
Bureau recognizes that, as with reviews and evaluations for other 
borrowers, these reviews and evaluations could result in short delays 
in some cases but believes it is important to extend these foreclosure 
protections to confirmed successors in interest for the reasons 
discussed in this discussion and in the section-by-section analysis of 
Sec.  1024.30(d).
    As noted above, two commenters suggested that the Bureau exclude 
from the definitions of successor in interest third parties who become 
successors in

[[Page 72173]]

interest through ``take over the payments,'' contracts for deed, wrap 
notes, and similar sales transactions. The final rule's definitions of 
successor in interest include transfers during the life of the 
transferor only if the recipient is a spouse, former spouse, or child 
of the transferor, or the beneficiary of an inter vivos trust. Third 
parties who do not fall into these categories and acquire the property 
during the life of the transferor are not successors in interest for 
the purpose of the final rule, regardless of how they obtain the 
property. Conversely, recipients who are spouses, former spouses, or 
children of the transferor or who are the beneficiaries of an inter 
vivos trust can be successors in interest even if they obtain the 
property through the types of contracts for deed or similar 
transactions to which the commenters are referring. For the reasons 
stated in this discussion and in the section-by-section analyses of 
Sec. Sec.  1024.31 and 1026.2(a)(27)(i), the Bureau believes that it is 
appropriate to treat the categories of transferees described in 
Sec. Sec.  1024.31 and 1026.2(a)(27)(i) as successors in interest for 
purposes of the final rule regardless of how they obtain an interest in 
the property, while not treating other transferees as successors in 
interest.
    Whether to include in the successor in interest definitions 
additional categories, beyond those protected by the Garn-St Germain 
Act. The Bureau also solicited comment on whether additional categories 
of successors in interest, beyond those protected by the Garn-St 
Germain Act, should be covered by the Bureau's definitions of successor 
in interest. Consumer advocacy groups urged the Bureau to broaden the 
definition to include various categories that are not covered by the 
Garn-St Germain Act but that are similar to the Garn-St Germain Act 
categories. They suggested, for example, that the definition should 
include same-sex partners, as well as parents, siblings, and 
grandchildren who obtain an interest in the home through a quitclaim 
deed. Several consumer advocacy groups suggested that, in addition to 
the Garn-St Germain Act categories, the definition should cover any 
instance where there is not an enforceable due-on-sale clause, 
including situations where there is no due-on-sale clause in the 
mortgage.\61\
---------------------------------------------------------------------------

    \61\ One consumer advocacy group suggested that the Bureau 
should include representatives of estates within the definitions of 
successor in interest. Estates and their representatives have unique 
interests and already benefit from protections under RESPA and TILA, 
which the final rule is not curtailing. The Bureau therefore has 
decided not to define estates or their representatives as successors 
in interest for purposes of this final rule. Estate-related issues 
are addressed further in the discussion of Regulation X comment 
30(d)-3 in the section-by-section analysis of Sec.  1024.30(d) and 
in the discussion of Regulation Z comment 2(a)(11)-4.iii in the 
section-by-section analysis of Sec.  1026.2(a)(11), infra.
---------------------------------------------------------------------------

    A number of consumer advocacy groups urged the Bureau to expand the 
definitions of successor in interest to include co-homeowners who did 
not sign the original note. They indicated that homeowners who are not 
borrowers on the note experience the same frustrations, problems, and 
potential harms as successors in interest.
    Industry commenters stated that mortgagors may have elected not to 
sign the note. An industry commenter also stated that mortgagors always 
have the option to refinance the loan in their own name should they 
choose to do so.
    The final rule does not cover categories of successors in interest 
beyond the categories established in the Garn-St Germain Act. Some of 
the categories that consumer advocacy groups suggested adding are 
already covered in part by the final rule categories that are modeled 
on the Garn-St Germain Act. For example, co-owners who did not sign the 
note will be covered upon the death of their co-owner if they are a 
joint tenant, a spouse who owns the property as a tenant by the 
entirety, or a relative who inherits an additional interest in the 
property. As finalized, the definitions also include transfers made 
where there is no due-on-sale clause in the mortgage instrument as long 
as the transfer falls within one of the specified categories listed in 
the definitions (such as a transfer to a relative resulting from the 
death of the transferor).
    The Bureau considered adding certain additional categories to the 
scope of the definitions, such as non-relatives who receive property 
upon the death of a borrower, but decided not to do so for several 
reasons. Because the Bureau is applying the Mortgage Servicing Rules to 
confirmed successors in interest in large part to prevent unnecessary 
foreclosure, the Bureau believes that it is appropriate to align 
generally the successor in interest definitions with Congress's policy 
choice about which categories of successors in interest should be 
protected from foreclosure based on a lender's exercise of a due-on-
sale clause. The Bureau also believes that the Garn-St Germain Act 
categories capture the most vulnerable classes of transferees that 
warrant successor in interest protection. Basing the definitions on the 
Garn-St Germain Act categories should assist servicers in identifying 
successors in interest, since servicers already need to comply with the 
Garn-St Germain Act. Further expansion of the scope of the successor in 
interest definitions beyond the Garn-St Germain Act categories might 
not be helpful to the property owners who would be added because, in 
the absence of due-on-sale protection, a servicer might be able to 
accelerate and foreclose independent of the final rule's successor in 
interest protections.
    How to address the rights of transferor borrowers and their 
estates. A large number of commenters of various types described as 
confusing or inaccurate the use of the terms prior borrower and prior 
consumer in the proposal to refer to the person who transferred an 
ownership interest to the successor in interest.\62\ Many of these 
commenters noted that a borrower who transfers an interest typically 
remains obligated on the mortgage loan. An industry commenter suggested 
substituting ``transferor-borrower'' for ``prior borrower.'' A number 
of commenters asserted that borrowers who retain ownership and remain 
obligated under the mortgage loan should continue to receive mortgage 
servicing rule protections, while a trade association suggested that 
the transferor borrower should stop receiving communications when a 
successor in interest is confirmed.
---------------------------------------------------------------------------

    \62\ ``Prior borrower'' appears in the proposed definition of 
successor in interest in proposed Sec.  1024.31; proposed Sec.  
1024.36(i); and proposed Regulation X comments 30(d)-2, 
38(b)(1)(vi)-2, and 39(b)(1)-5. ``Prior consumer'' appears in 
proposed Sec.  1026.2(a)(27) and proposed Regulation Z comment 
2(a)(11)-4.
---------------------------------------------------------------------------

    A number of commenters expressed concern that the Bureau's proposal 
would not provide adequate protection for the estates of transferor 
borrowers. Several consumer advocacy groups explained that estate 
representatives are protected by TILA and RESPA. These groups suggested 
that estates and their representatives should be able to obtain 
information and have payments applied correctly until the estate is 
closed. A trade association agreed with two caveats: It indicated that: 
(1) The servicer needs to verify that a person purporting to act as 
administrator or executor is properly acting in that capacity, and (2) 
If the estate is released from the loan obligation Regulation P may 
limit the estate's ability to access future loan information. Another 
trade association noted that the executor of an estate may ultimately 
be legally obligated to dispose of property and needs information in 
order to fulfill the executor's responsibilities. Other industry 
commenters suggested that protection for the estate should

[[Page 72174]]

terminate upon confirmation of a successor in interest.
    The final rule substitutes ``borrower'' for ``prior borrower'' and 
``consumer'' for ``prior consumer'' in the definitions of successor in 
interest and in other successor in interest provisions. As many 
commenters noted, a borrower who transfers an ownership interest 
typically remains obligated on the loan, making the word ``prior'' 
inapposite. In light of concerns raised by commenters regarding the 
need to protect transferor borrowers and their estates, the Bureau is 
also clarifying in comment 30(d)-3 to Regulation X and comment 
2(a)(11)-4.iii to Regulation Z that, even after a servicer's 
confirmation of a successor in interest, the servicer is still required 
to comply with all applicable requirements of Regulations X and Z with 
respect to the borrower who transferred the ownership interest to the 
successor in interest. This final rule does not take away any existing 
rights of transferor borrowers or their estates under Regulations X and 
Z.
Confirming a Successor in Interest's Status
    The Bureau proposed modifications to the Mortgage Servicing Rules 
in Regulation X relating to how a mortgage servicer confirms a 
successor in interest's identity and ownership interest in the property 
securing the mortgage loan.\63\ Proposed Sec.  1024.36(i) would have 
generally required a servicer to respond to a written request that 
indicates that the person making the request may be a successor in 
interest by providing that person with information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. Proposed Sec.  1024.38(b)(1)(vi) 
would have added several related modifications to the current policies 
and procedures provision involving successors in interest.
---------------------------------------------------------------------------

    \63\ As the Bureau explained in the proposal, similar 
modifications to the Mortgage Servicing Rules in Regulation Z 
relating to how a mortgage servicer confirms a successor in 
interest's identity and ownership interest in the dwelling are 
unnecessary. The Mortgage Servicing Rules in Regulation X apply to 
the vast majority of mortgage loans to which the Mortgage Servicing 
Rules in Regulation Z apply. Accordingly, the rules under Regulation 
X relating to how a mortgage servicer confirms a successor in 
interest's identity and ownership interest in the property generally 
apply to loans to which the Mortgage Servicing Rules in Regulation Z 
apply, making unnecessary similar modifications to Regulation Z.
---------------------------------------------------------------------------

    Proposed Sec.  1024.38(b)(1)(vi)(A) would have required servicers 
to maintain policies and procedures that are reasonably designed to 
ensure that the servicer can, upon notification of the death of a 
borrower or of any transfer of the property securing a mortgage loan, 
promptly identify and facilitate communication with any potential 
successors in interest regarding the property. Proposed Sec.  
1024.38(b)(1)(vi)(B) would have required servicers to maintain policies 
and procedures reasonably designed to ensure that the servicer can, 
upon identification of a potential successor in interest, promptly 
provide to that person a description of the documents the servicer 
reasonably requires to confirm the person's identity and ownership 
interest in the property and how the person may submit a written 
request under Sec.  1024.36(i) (including the appropriate address). 
Proposed Sec.  1024.38(b)(1)(vi)(C) would have required servicers to 
maintain policies and procedures reasonably designed to ensure that, 
upon the receipt of such documents, the servicer can promptly notify 
the person, as applicable, that the servicer has confirmed the person's 
status, has determined that additional documents are required (and what 
those documents are), or has determined that the person is not a 
successor in interest. For the reasons set forth in this discussion and 
in the section-by-section analyses of Sec. Sec.  1024.36(i) and 
1024.38(b)(1)(vi), the Bureau is finalizing Sec. Sec.  1024.36(i) and 
1024.38(b)(1)(vi) with a number of adjustments to clarify the parties' 
obligations during the confirmation process.
    Industry commenters asserted that the proposal would require 
servicers to know the intricacies of real property law, contract law, 
estate law, and family law in each of the fifty States; to apply the 
applicable State's law to each successor in interest's factual 
circumstances; and to provide legal advice to people claiming to be 
successors in interest. One commenter indicated that servicers can 
assist potential successors in interest by explaining, in general 
terms, what information the servicer may need before the servicer can 
recognize a successor as an owner, but servicers cannot give the 
impression to potential successors in interest that the servicer's 
determination resolves their property interest with finality or 
provides the best outcome based on their particular situation. Some 
commenters were also concerned that proposed Sec.  1024.38(b)(1)(vi)(A) 
might require them to seek out potential successors in interest even in 
the absence of affirmative notification. Other commenters stated that 
broadening the scope of successor in interest rules would further 
increase the complexity of confirming a successor in interest's status. 
Many industry commenters requested greater precision about the 
confirmation process and servicers' responsibilities with respect to 
potential successors in interest. Some also requested that the Bureau 
provide a safe harbor for confirmation decisions or indicate that 
incorrect successorship determinations or non-determinations do not 
give rise to claims of unfair, deceptive, or abusive acts or practices 
in violation of the Dodd-Frank Act or other litigation.
    As explained above, consumer advocacy groups reported in their 
comments that successors continue to face problems establishing their 
successor status. These groups urged the Bureau to create a private 
right of action to allow potential successors in interest to enforce 
the requirements of proposed Sec. Sec.  1024.36(i) and 
1024.38(b)(1)(vi) and a privately enforceable notice of error 
requirement related to successorship determinations. They suggested 
that rights under the final rule should be triggered by a homeowner's 
submission of documentation, rather than by the servicer's additional 
step of confirming the successor in interest's status.\64\ They also 
encouraged the Bureau to establish time limits for the confirmation 
process and to institute other protections for potential successors in 
interest.
---------------------------------------------------------------------------

    \64\ In the alternative, some consumer advocacy groups suggested 
that the Bureau could include in the definition of borrower any 
successor in interest who has provided reasonable proof of the 
successor in interest's identity and ownership interest, unless the 
servicer provides a timely and reasonable response stating that the 
potential successor in interest will not be confirmed as a successor 
in interest and the reason for the lack of confirmation.
---------------------------------------------------------------------------

    After reviewing the comments received, the Bureau is finalizing 
Sec. Sec.  1024.36(i) and 1024.38(b)(1)(vi) with adjustments to clarify 
the parties' obligations during the confirmation process. As finalized, 
Sec.  1024.36(i) generally requires a servicer to respond to a written 
request that indicates that the person making the request may be a 
successor in interest by providing that person with a written 
description of the documents the servicer reasonably requires to 
confirm the person's identity and ownership interest in the property. 
Section 1024.38(b)(1)(vi)(A) requires servicers to maintain policies 
and procedures reasonably designed to ensure that the servicer can, 
upon receiving notice of the death of a borrower or of any transfer of 
the property, promptly facilitate communication with any potential or 
confirmed successors in interest regarding the property. Section

[[Page 72175]]

1024.38(b)(1)(vi)(B) requires servicers to maintain policies and 
procedures reasonably designed to ensure that the servicer can, upon 
receiving notice of the existence of a potential successor in interest, 
promptly determine the documents the servicer reasonably requires to 
confirm the person's identity and ownership interest in the property 
and promptly provide to the potential successor in interest a 
description of those documents and how the person may submit a written 
request under Sec.  1024.36(i) (including the appropriate address). 
Section 1024.38(b)(1)(vi)(C) requires servicers to maintain policies 
and procedures reasonably designed to ensure that the servicer can, 
upon the receipt of such documents, promptly make a confirmation 
determination and promptly notify the person, as applicable, that the 
servicer has confirmed the person's status, has determined that 
additional documents are required (and what those documents are), or 
has determined that the person is not a successor in interest.
    In response to the concerns raised by commenters, the Bureau has 
made a number of adjustments to the proposed confirmation process to 
delineate more clearly the parties' responsibilities during the 
confirmation process. For example, final Sec.  1024.38(b)(1)(vi) makes 
clear that servicers do not need to search for potential successors in 
interest if the servicer has not received actual notice of their 
existence. The comments on the confirmation process set forth in 
proposed Sec. Sec.  1024.36(i) and 1024.38(b)(1)(vi) and the changes 
that the Bureau has made in response to those comments are discussed in 
more detail in the section-by-section analyses of Sec. Sec.  1024.36(i) 
and 1024.38(b)(1)(vi).
    Like the proposal, the final rule does not require servicers to 
provide legal advice. The final rule does, however, require a servicer 
to have policies and procedures in place that are reasonably designed 
to ensure that the servicer can identify and communicate to potential 
successors in interest the documents that the servicer will accept as 
confirmation of the potential successor in interest's identity and 
ownership interest in the property. While confirmation determinations 
can in some cases raise complex issues, the relevant determinations 
regarding identity and ownership interest are determinations that 
servicers make on a regular basis in the course of their work already. 
Servicers routinely need to determine who has an ownership interest in 
the properties that secure their mortgage loans--for example, in 
identifying who to serve in a foreclosure action or who should receive 
other notices required by State law. Moreover, as explained in the 
section-by-section analysis of Sec.  1024.38(b)(1)(vi), the final rule 
allows servicers to request additional documentation if they reasonably 
determine that they cannot make a determination of the potential 
successor in interest's status based on the documentation provided.
    The Bureau is not creating a safe harbor from liability for claims 
alleging unfair, deceptive, or abusive acts or practices in violation 
of the Dodd-Frank Act related to successorship determinations. Although 
some industry commenters requested this type of protection, the Bureau 
does not believe it is appropriate to shield a servicer categorically 
from liability for unfair, deceptive, or abusive practices that may 
occur during the confirmation process or otherwise in the servicer's 
treatment of potential successors in interest.
    Despite the urging of consumer advocacy groups, the final rule does 
not provide potential successors in interest a private right of action 
or a notice of error procedure for claims that a servicer made an 
inaccurate determination about successorship status or failed to comply 
with Sec.  1024.36(i) or Sec.  1024.38(b)(1)(vi).\65\ The Bureau 
expects that the confirmation process established by the final rule 
will address the problems that many successors in interest have 
experienced to date in trying to get servicers to recognize their 
status. The Bureau and other Federal and State agencies will review 
servicers' compliance with respect to potential successors in interest 
through the agencies' supervision and enforcement authority and through 
complaint monitoring. Through that review, the Bureau can assess 
whether any additional enforcement mechanisms are necessary.
---------------------------------------------------------------------------

    \65\ Confirmed successors in interest, however, have the same 
private rights of action to enforce the Mortgage Servicing Rules as 
other borrowers and consumers.
---------------------------------------------------------------------------

    The Bureau is finalizing the confirmation process in Sec. Sec.  
1024.36(i) and 1024.38(b)(1)(vi) largely as proposed because it 
continues to believe that successors in interest have difficulty 
demonstrating their identity and ownership interest in the property to 
servicers' satisfaction.\66\ The risk of harm to successors in interest 
is highest when a servicer does not promptly confirm a successor in 
interest's identity and ownership interest in the property. During this 
period, successors in interest may have difficulty obtaining 
information about the loan or finding out about loss mitigation 
options. Accordingly, when confirmation is delayed, the potential risk 
of foreclosure and other harms to the successor in interest increase. 
The difficulties faced by successors in interest with respect to 
confirmation of their status have thus caused successors in interest to 
face unnecessary problems with respect to the mortgage loans secured by 
the property, which may lead to unnecessary foreclosure on the 
property.
---------------------------------------------------------------------------

    \66\ See, e.g., Cal. Reinvestment Coal., Chasm Between Words and 
Deeds X: How Ongoing Mortgage Servicing Problems Hurt California 
Homeowners and Hardest-Hit Communities 20 (May 2014), available at 
https://calreinvest.wordpress.com/2014/05/21/how-ongoing-mortgage-servicing-problems-hurt-california-homeowners-and-hardest-hit-communities/ (noting that majority of housing counselors surveyed 
reported continuation of previously reported problems regarding 
successors in interest, such as that ``servicers often . . . would 
require [such homeowners] to go through costly and unnecessary 
hoops'').
---------------------------------------------------------------------------

    The Bureau's October 2013 Servicing Bulletin addressed these 
problems for a subset of successors in interest by requiring servicers 
to have policies and procedures in place to facilitate the provision of 
information to successors in interest who had inherited a property 
securing a deceased borrower's mortgage loan. The October 2013 
Servicing Bulletin indicated that servicers should have a practice of 
promptly providing to any party claiming to be a successor in interest 
a list of all documents or other evidence the servicer requires, which 
should be reasonable in light of the laws of the relevant jurisdiction, 
for the party to establish (1) the death of the borrower and (2) the 
identity and legal interest of the successor in interest.\67\ 
Nonetheless, consumer advocacy groups indicated in their comments that 
servicers continue to ask for unnecessary documents or multiple copies 
of the same documents or refuse to communicate with successors in 
interest at all. In addition, commenters reported that the categories 
of successors in interest as defined in the proposal, including those 
who inherit the property upon death of a family member, continue to 
experience difficulties in having servicers confirm the successor in 
interest's legal status.
---------------------------------------------------------------------------

    \67\ October 2013 Servicing Bulletin at 2.
---------------------------------------------------------------------------

    Changes to the rules themselves are appropriate and necessary to 
clarify servicers' obligations and to ensure that the requirements are 
widely understood and enforceable. The rule changes establishing a more 
structured and defined confirmation process are particularly important 
to enable successors in interest to demonstrate efficiently their 
status to servicers and, where they do, to require servicers to

[[Page 72176]]

confirm promptly this status. Such prompt confirmation is critical to 
reduce the risk of unnecessary foreclosures and other consumer harm. 
Because the Bureau is applying the Mortgage Servicing Rules to 
confirmed successors in interest, enabling successors in interest to 
demonstrate their status to servicers efficiently and requiring 
servicers to confirm this status promptly will allow successors in 
interest to access the Mortgage Servicing Rules' protections as quickly 
as possible.
Applying Mortgage Servicing Rules to Confirmed Successors in Interest
    The Bureau proposed to apply certain mortgage servicing rules in 
Regulations X and Z to confirmed successors in interest. Accordingly, 
proposed Sec.  1024.30(d) would have provided that a successor in 
interest would be considered a borrower for purposes of Regulation X's 
subpart C once a servicer confirms the successor in interest's identity 
and ownership interest in a property that secures a mortgage loan 
covered by subpart C. Similarly, proposed Sec.  1026.2(a)(11) would 
have provided that a confirmed successor in interest is a consumer for 
purposes of Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41. 
Under the proposal, these specified mortgage servicing rules would have 
applied with respect to a confirmed successor in interest regardless of 
whether that person has assumed the mortgage loan obligation (i.e., 
legal liability for the mortgage debt) under State law. For the reasons 
that follow and that are discussed in the section-by-section analyses 
of Sec. Sec.  1024.30(d) and 1026.2(a)(11), the Bureau is finalizing 
these provisions and related commentary with a number of adjustments to 
address concerns raised by commenters. The adjustments include changes 
to ensure that confirmed successors in interest can benefit from the 
escrow-related protections in Sec.  1024.17 and mortgage transfer 
disclosures in Sec.  1026.39, to clarify that the final rule generally 
does not require servicers to provide multiple copies of the same 
notice, to authorize servicers to withhold certain types of sensitive 
information in responding to requests under Sec. Sec.  1024.35 or 
1024.36, and to allow servicers to require confirmed successors in 
interest to return an acknowledgment form before the servicer sends 
servicing notices to them.\68\
---------------------------------------------------------------------------

    \68\ In discussing the successor in interest provisions, 
commenters also raised a number of specific questions or concerns 
relating to Regulations X and Z that could arise for borrowers or 
consumers regardless of whether they are confirmed successors in 
interest. The Bureau declines to address these issues in this 
rulemaking. Except as otherwise indicated in the final rule, the 
Mortgage Servicing Rules generally apply to confirmed successors in 
interest in the same way that these provisions apply to other types 
of borrowers and consumers.
---------------------------------------------------------------------------

    Whether confirmed successors in interest need the protections of 
the Mortgage Servicing Rules. Many commenters of all types expressed 
support for the Bureau's general objectives in this rulemaking. 
Industry commenters were divided on whether successors in interest need 
or will benefit from the protections of the mortgage servicing rules. A 
trade association asserted that servicers restrict account information 
due to restrictions in the FDCPA, the GLBA, and Regulation P and that 
making changes to Regulations X and Z would not remove these 
restrictions. It also suggested that, under current law, successors in 
interest can obtain full account access by requesting it through a 
borrower or the borrower's estate.
    An industry commenter suggested that the additional requirements 
and prohibitions could increase the cost of compliance by providing 
protections and rights to individuals that do not have a contractual 
obligation with the lender or servicer. This commenter suggested that 
finalizing the proposal could therefore have a chilling effect on 
consumer lending in the real estate market.
    Some industry commenters raised specific concerns about extending 
loss mitigation protections to confirmed successors in interest. A 
trade association suggested, for example, that extending protections to 
successors in interest who acquire an ownership interest in property as 
a result of divorce, legal separation, transfers to a family trust, or 
a transfer to a spouse or a child could disrupt and delay the 
foreclosure process, as discussed above. Another industry commenter 
suggested that a servicer should not be required to engage in loss 
mitigation efforts with a successor in interest when the servicer is 
actively working with the primary borrower concerning a delinquency or 
loss mitigation effort involving the loan.\69\
---------------------------------------------------------------------------

    \69\ One industry commenter recommended that Sec.  1024.41 
protections cover only confirmed successors in interest who have 
applied to assume the loan and that assumption and loss mitigation 
reviews should run concurrently. As explained above, the Bureau has 
decided not to require assumption for successor in interest status 
and for similar reasons does not believe that the final rule should 
require individuals to apply for an assumption to receive 
protections as confirmed successors in interest. The final rule does 
not, however, prevent servicers from offering simultaneous reviews 
for assumption and loss modification to successors in interest who 
might be interested. The final rule also does not prevent a servicer 
from conditioning an offer for a loss mitigation option on the 
successor in interest's assumption of the mortgage loan obligation 
under State law or from offering loss mitigation options to the 
successor in interest that differ based on whether the successor in 
interest would simultaneously assume the mortgage loan obligation.
---------------------------------------------------------------------------

    Consumer advocacy groups took a different view. In their comments, 
they stated that surveys of attorneys and housing counselors 
representing homeowners indicate that successor in interest problems 
are widespread. They identified successor in interest problems as among 
the most difficult problems that attorneys and counselors representing 
homeowners face as they work to save homes from foreclosure. They 
stated that the actions taken by Federal agencies to date have not 
resolved the problems faced by successors in interest and that 
homeowners' advocates still report widespread stonewalling and 
obfuscation by servicers as they attempt to help successors obtain 
information about the mortgage and apply for needed loan modifications.
    A number of consumer advocacy group commenters predicted that the 
number of successors in interest facing foreclosure or otherwise in 
need of protection is likely to grow given demographic trends, 
including the aging of baby boomers. They stated that, due to longer 
life expectancies, women often experience the death of a spouse or 
partner and that a large number of women who become the sole owner of a 
home upon the death of a spouse will not have been an original borrower 
on the loan. These consumer advocacy groups also noted that refinancing 
is unlikely to be an option for an increasing number of successors in 
interest because a significant percentage of homes now carry mortgage 
debt in excess of the value of the property.
    One consumer advocacy group stated that servicers routinely provide 
misleading and incorrect information to survivors, which frequently 
leads to foreclosure on the family home. It also stated that servicers 
still refuse to share information about the mortgage with survivors and 
routinely demand that successors in interest who are already on the 
title or who have already provided proof that they inherited the 
property probate the property. It also stated that servicers 
persistently refuse to assist survivors with loan assumption, much less 
loss mitigation and loan modifications.
    A number of consumer advocacy groups explained that many successors

[[Page 72177]]

are eligible for loan modifications under applicable program rules but 
are experiencing unnecessary delays, frustrations, and an elevated risk 
of foreclosure due to servicers' unwillingness to review them properly 
for these loan modification programs. These groups indicated that, 
during each month of delay imposed by servicers in recognizing the 
status of a successor in interest or processing a loan modification 
application, the interest arrearage grows at the currently applicable 
note rate rather than at a modified rate. They noted that these delays 
can eat away at the equity in the home, push the loan further into 
default, and make it more difficult for successors in interest to 
qualify for a loan modification.
    Another consumer advocacy group noted that the proposal might 
assist in resolving a paralyzing Catch-22, in which successors in 
interest are told that they cannot apply for loss mitigation without 
assuming the loan and that they cannot assume the loan without its 
being current, but they cannot bring the loan current without access to 
loss mitigation. The office of a State Attorney General noted in its 
comment that, by ensuring that servicers do not condition the review 
and evaluation of a loss mitigation application on the successor in 
interest's assumption of the mortgage obligation, the proposal would 
address a longstanding dilemma faced by successors in interest: Whether 
to assume a delinquent mortgage loan without knowing the terms of a 
prospective loan modification or even whether a modification is 
possible. This commenter explained that assuming any mortgage, 
especially a distressed one, is a major financial decision and 
successors in interest cannot know whether it is in their financial 
interest to assume the loan without knowing whether they qualify for a 
modification. It indicated that the initial loss mitigation review 
required by the proposal would allow successors in interest to make a 
more informed decision regarding whether to assume the mortgage loan 
obligation.
    The Bureau is particularly concerned about reports from commenters 
and others indicating that successors in interest continue to have 
difficulty receiving information about the mortgage loan secured by the 
property or correcting errors regarding the mortgage loan account and 
that servicers sometimes refuse to accept, or may misapply, payments 
from successors in interest.\70\ The Bureau is also concerned about 
reports that successors in interest often encounter difficulties when 
being evaluated for loss mitigation options, including that servicers 
often require successors in interest to assume the mortgage loan 
obligation under State law before evaluating the successor in interest 
for loss mitigation options.\71\ Applying the Mortgage Servicing Rules 
in Regulation X to successors in interest provides these homeowners 
with access to information about the mortgage, helps successors in 
interest avoid unwarranted or unnecessary costs and fees, and prevents 
unnecessary foreclosure.
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    \70\ In one 2015 survey of attorneys and housing counselors 
representing homeowners, 55 percent of respondents had been asked by 
a servicer to supply a quitclaim deed where one was not needed or 
available because a divorce decree clearly transferred the property; 
63 percent had been asked to provide probate documents or proof that 
the client was the estate representative even though the property 
passed through a right of survivorship deed or tenancy by the 
entirety; 66 percent had been asked to submit the same documents 
over and over again in an attempt to prove an ownership interest to 
the servicer; 28 percent reported that a servicer had demanded a 
quitclaim deed when the borrower was deceased; and another 28 
percent indicated that a servicer had refused to tell them what 
documents they needed to prove successor in interest status. Alys 
Cohen, Nat'l Consumer Law Ctr., Snapshots of Struggle: Saving the 
Family Home After a Death or Divorce, Successors Still Face Major 
Challenges in Obtaining Loan Modifications (Mar. 2016), available at 
https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Consumer Law Ctr., NCLC Survey Reveals Ongoing 
Problems with Mortgage Servicing 2, 5 (May 2015), available at 
https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf. A survey conducted 
in the summer of 2014 found that 63 percent of housing counselors 
reported servicers rarely or never had required policies in place to 
promptly identify and communicate with a successor in interest for a 
deceased borrower. Nat'l Council of La Raza & Nat'l Hous. Res. Ctr., 
Are Mortgage Servicers Following the New Rules? A Snapshot of 
Compliance with CFPB Servicing Standards 3, 7 (Jan. 9, 2015), 
available at https://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf.
    \71\ A 2015 national survey asked attorneys and housing 
counselors representing homeowners how frequently servicers refused 
to provide information about the loan or allow them to apply for a 
loan modification after proof of successor status was provided. Alys 
Cohen, Nat'l Consumer Law Ctr., Snapshots of Struggle: Saving the 
Family Home After a Death or Divorce, Successors Still Face Major 
Challenges in Obtaining Loan Modifications 17-18 (Mar. 2016), 
available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf. Seventy percent of respondents said this 
happened sometimes, often, or most of the time in their successor in 
interest cases. Id. A similar proportion of respondents indicated 
that that they have not seen any recent improvement in problems with 
successors in interest seeking mortgage modifications. Id. at 16.
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    As many consumer advocacy groups recognized in their comments, it 
is especially important for the loss mitigation procedures in Sec.  
1024.41 to apply to successors in interest. When the Bureau issued the 
2013 RESPA Servicing Final Rule, the Bureau observed that establishing 
national mortgage servicing standards ensures that borrowers have a 
full and fair opportunity to receive an evaluation for a loss 
mitigation option before suffering the harms associated with 
foreclosure.\72\ The Bureau also recognized that 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.\73\ 
These same consumer protection purposes are served by applying the loss 
mitigation procedures in Sec.  1024.41 to confirmed successors in 
interest who, as homeowners of property securing a mortgage loan, may 
need to make payments on the loan to avoid foreclosure.
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    \72\ 78 FR 10696, 10815 (Feb. 14, 2013).
    \73\ Id.
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    Successors in interest are a particularly vulnerable group of 
consumers, who often must make complex financial decisions with limited 
information during a period of extreme emotional stress. Successors in 
interest may be more likely than other homeowners to experience a 
disruption in household income and therefore may be more likely than 
other homeowners to need loss mitigation to avoid foreclosure. The 
Bureau therefore concludes that requiring servicers to evaluate a 
complete loss mitigation application received from a confirmed 
successor in interest under Sec.  1024.41's procedures serves RESPA's 
consumer protection purposes.
    Further, because a successor in interest's ability to repay the 
mortgage loan generally was not considered in originating the mortgage 
loan, successors in interest are particularly dependent on a prompt 
loss mitigation evaluation to assess the mortgage loan's long-term 
affordability as to the successor in interest.\74\ Requiring servicers 
to evaluate a complete loss mitigation application received from a 
confirmed successor in interest supports the successor in interest in 
making a fully informed decision about whether to assume the mortgage 
loan obligation under State law.
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    \74\ Where a successor in interest who has previously acquired a 
legal interest in a dwelling is added as an obligor on the mortgage 
loan, the Regulation Z Ability-to-Repay Rule does not apply. See 79 
FR 41631, 41632-33 (July 17, 2014).
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    The Bureau also believes that requiring servicers to comply with

[[Page 72178]]

Sec.  1024.41's procedures with respect to confirmed successors in 
interest will not impose significant costs on servicers. Although some 
commenters expressed concern about the costs of originating loans, the 
final rule, like the proposal, does not require servicers to originate 
any loans. The Bureau is not providing confirmed successors in interest 
any protections that are not already available to borrowers and 
therefore does not anticipate the final rule will result in any unusual 
disruption of the foreclosure process. Both industry and consumer 
advocacy group commenters indicated that servicers are often already 
subject to other non-regulatory requirements to communicate with 
successors in interest and evaluate them for loan modifications. The 
costs imposed by the final rule should therefore largely be limited to 
ensuring that such requirements are met in a consistent and timely way. 
The Bureau therefore does not expect any chilling effect on consumer 
lending in the real estate market.
    Notwithstanding the concerns expressed by industry commenters 
regarding potential delays, confirmation of a successor in interest 
will not reset the 180-day period in Sec.  1024.39(b) or the 120-day 
period in Sec.  1024.41(f)(1)(i). Section 1024.39(b) provides that a 
servicer is not required to provide a written early intervention notice 
more than once during any 180-day period. Section 1024.41(f) provides 
that a servicer shall not make 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 more than 120 days 
delinquent or another specified condition is met. Confirmation of a 
successor in interest does not change the date when a loan obligation 
becomes delinquent.
    With respect to Regulation Z, applying the Mortgage Servicing Rules 
in Regulation Z to confirmed successors in interest will protect them 
against inaccurate and unfair payment crediting practices by the 
servicer of the mortgage loan on which they may be making payments and 
which encumbers their property. It will also help prevent unnecessary 
foreclosure by, for example, keeping confirmed successors in interest 
informed of the status of the mortgage loan. Moreover, the amendments 
to Regulation Z will help ensure that confirmed successors in interest 
receive prompt information about the amount necessary to pay off the 
mortgage loan, as other homeowners do under Regulation Z.
    Whether to apply or clarify additional laws or regulations not 
discussed in the proposal. Some commenters identified additional 
sections of Regulations X and Z or of other laws or regulations that 
they believed the Bureau should address in the final rule's provisions 
relating to successors in interest. A number of consumer advocacy 
groups stated that, in order to achieve the Bureau's goal of applying 
all the mortgage servicing regulations to successors in interest, the 
final rule should also define successors in interest as borrowers for 
purposes of Sec.  1024.17. These groups suggested that successors in 
interest are particularly likely to face escrow issues due to the 
transfer of ownership. They indicated that a transfer of ownership 
requires the new owner to take steps to obtain homeowner's insurance 
and, usually, to apply for the property tax homestead exemption in the 
new owner's own name.
    A trade association also stated that a confirmed successor in 
interest should be a borrower for purposes of the escrow requirement in 
Sec.  1024.17 and a consumer for purposes of the mortgage transfer 
disclosure requirements of Sec.  1026.39. This commenter also 
identified various other laws and regulations that it suggested could 
be affected by a regulation addressing successors in interest, 
including additional provisions of Regulations X and Z; the Fair Credit 
Reporting Act and its implementing regulation, Regulation V; the FDCPA; 
the Servicemembers Civil Relief Act; and the Mortgage Assistance Relief 
Services regulation, Regulation O.
    As these commenters noted, successors in interest confront the same 
types of escrow issues as borrowers protected by Sec.  1024.17 and are 
particularly likely to experience escrow problems due to the transfer 
of ownership through which they acquired their ownership interest in 
the property. In issuing the proposal, the Bureau intended to include 
all of the mortgage servicing protections of Regulations X and Z, 
which, as the commenters noted, should include the escrow protections 
of Sec.  1024.17. For the reasons set forth in this discussion and in 
the section-by-section analysis of Sec.  1024.30(d), the Bureau is 
expanding the protections applicable to confirmed successors in 
interest in Sec.  1024.30(d) to include Sec.  1024.17. This effectuates 
the Bureau's stated intent in the proposal to apply all of the mortgage 
servicing rules in Regulation X to confirmed successors in interest and 
will ensure that confirmed successors in interest can obtain necessary 
escrow information.
    The Bureau also believes that a confirmed successor in interest 
should be treated as a consumer for purposes of the mortgage transfer 
disclosure requirement in Sec.  1026.39, as a trade association 
commenter suggested. The mortgage transfer disclosure notifies 
consumers of valuable information regarding certain transfers of 
ownership of a mortgage loan, including the name and contact 
information for the new owner of the mortgage loan and an agent or 
party authorized to resolve issues concerning the consumer's payments 
on the loan (if the owner's information cannot be used for that 
purpose).\75\ Information of this nature will be helpful to confirmed 
successors in interest in many of the same ways that it is helpful to 
other borrowers--for example, if they seek to engage in loss 
mitigation, to ensure that payments on the account are properly 
applied, or to identify who has a security interest in their property. 
For the reasons set forth in this discussion and in the section-by-
section analysis of Sec.  1026.39, the Bureau is defining the term 
consumer in Sec.  1026.2(a)(11) to include confirmed successors in 
interest for purposes of Sec.  1026.39.
---------------------------------------------------------------------------

    \75\ Sec.  1026.39(d).
---------------------------------------------------------------------------

    The Bureau has reviewed the other laws and regulations that 
commenters suggested that the Bureau should address and has concluded 
that they are largely outside the scope of this rulemaking.\76\ Except 
as specifically addressed elsewhere in this final rule, the Bureau does 
not believe that further discussion or clarification is necessary with 
respect to these other laws and regulations as part of this rulemaking. 
However, the Bureau will continue to engage in ongoing outreach and 
monitoring with industry, consumer advocacy groups, and other 
stakeholders to identify issues that pose implementation challenges, 
create a risk of consumer harm, or require clarification.
---------------------------------------------------------------------------

    \76\ For example, a trade association commenter suggested that 
the Bureau should address various issues relating to the right of 
rescission under Sec.  1026.23. The Bureau did not propose any 
changes to Sec.  1026.23 and is not making any changes to Sec.  
1026.23 in the final rule. Pursuant to Sec.  1026.2(a)(11), a 
consumer for purposes of rescission under Sec. Sec.  1026.15 and 
1026.23 means a cardholder or natural person to whom consumer credit 
is offered or extended and also includes a natural person in whose 
principal dwelling a security interest is or will be retained or 
acquired, if that person's ownership interest in the dwelling is or 
will be subject to the security interest.
---------------------------------------------------------------------------

    Two industry commenters also suggested that the final rule should 
incorporate into Regulation Z or its commentary the Bureau's July 17, 
2014, interpretive rule relating to the application of the Ability-to-
Repay Rule to certain situations involving

[[Page 72179]]

successors in interest.\77\ One commenter indicated that doing so would 
increase servicer awareness. The Bureau plans to incorporate the 
interpretive rule into the commentary to Regulation Z at a later date.
---------------------------------------------------------------------------

    \77\ The interpretive rule clarified that, where a successor in 
interest who has previously acquired a legal interest in a dwelling 
agrees to be added as obligor on the mortgage loan, the servicer's 
express acknowledgment of the successor in interest as obligor does 
not constitute an ``assumption'' as that term is used in Regulation 
Z. 79 FR 41631 (July 17, 2014). Accordingly, the Regulation Z 
Ability-to-Repay Rule does not apply when a creditor expressly 
accepts a successor in interest as obligor on a loan under these 
circumstances. See id. The interpretive rule also noted that the 
servicer must comply with any ongoing obligations pertaining to the 
extension of consumer credit, such as the ARM notice requirements 
under 12 CFR 1026.20(c) and (d) and the periodic statement 
requirement under 12 CFR 1026.41, after the successor in interest is 
added as an obligor on the mortgage note. Id. at 41633.
---------------------------------------------------------------------------

    Whether to require servicers to send duplicate copies of Mortgage 
Servicing Rule notices to confirmed successors in interest. Proposed 
Regulation Z comment 41(a)-5.ii would have provided that, if a servicer 
sends a periodic statement meeting the requirements of Sec.  1026.41 to 
another consumer, the servicer need not also send a periodic statement 
to a successor in interest. The proposal did not address specifically 
whether servicers must provide duplicate copies of other types of 
required servicing notices.
    A number of commenters asked the Bureau to clarify whether 
servicers must send multiple copies of required servicing notices after 
a successor in interest is confirmed. One industry commenter explained 
that most servicing platforms only allow for automated delivery of 
correspondence to one address. It indicated that a requirement to send 
items to multiple addresses or through differing communication channels 
(electronic or non-electronic) would create significant operational and 
systems challenges with concomitant costs. Another industry commenter 
suggested that the Bureau adopt, in Regulation X, language similar to 
proposed Regulation Z comment 41(a)-5.ii, providing that servicers need 
not send duplicative periodic statements to confirmed successors in 
interest. Another industry commenter suggested that a servicer should 
not be required to make live contact with a successor in interest when 
the servicer is actively working with the primary borrower concerning a 
delinquency or loss mitigation effort involving the loan.
    Several consumer advocacy groups challenged the assumption that 
successors in interest receive copies of notices provided to the 
transferor borrower. They noted, for example, that the successor in 
interest and transferor borrower may not have any form of communication 
in a divorce or separation, especially in situations involving domestic 
violence. These groups encouraged the Bureau to require servicers to 
send additional copies of written early intervention notices to 
confirmed successors in interest. Another consumer advocacy group also 
suggested that anyone with an ownership interest should receive a copy 
of the periodic statement, provided they have given their contact 
information to the servicer.
    The Bureau believes that it would be unnecessarily burdensome to 
require a servicer to send additional copies of notices required by the 
Mortgage Servicing Rules if the servicer is already providing the 
notice to another borrower or consumer on the account. As explained in 
the section-by-section analyses of Sec. Sec.  1024.32(c)(4) and 
1026.2(a)(11), the Bureau is adding Sec.  1024.32(c)(4) and new 
commentary to Sec.  1026.2(a)(11) to address whether duplicative 
notices are required for confirmed successors in interest for all of 
the Mortgage Servicing Rules. Section 1024.32(c)(4) provides that, 
except as required by Sec.  1024.36, a servicer is not required to 
provide to a confirmed successor in interest any written disclosure 
required by Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, 
or Sec.  1024.39(b) if the servicer is providing the same specific 
disclosure to another borrower on the account. Section 1024.32(c)(4) 
also provides that a servicer is not required to comply with the live 
contact requirements set forth in Sec.  1024.39(a) with respect to a 
confirmed successor in interest if the servicer is complying with those 
requirements with respect to another borrower on the account. Comment 
2(a)(11)-4.iv clarifies that, except in response to an information 
request as required by Sec.  1024.36, a servicer is not required to 
provide to a confirmed successor in interest any written disclosure 
required by Sec.  1026.20(c), (d), or (e), Sec.  1026.39, or Sec.  
1026.41 if the servicer is providing the same specific disclosure to 
another consumer on the account. These provisions clarify servicers' 
obligations under the final rule and should alleviate the concern that 
many commenters raised regarding the potential burden of providing 
duplicative notices to confirmed successors in interest.
    The Bureau recognizes, however, that successors in interest do not 
in all cases have access to notices received by the transferor borrower 
and may need such notices. The provisions discussed above with regard 
to the servicer's obligations to send duplicative notices do not limit 
the ability of any confirmed successor in interest to request copies of 
notices and other information through an information request under 
Sec.  1024.36. Thus, if a confirmed successor in interest is not in 
contact with a borrower on the account who is receiving the 
disclosures, the confirmed successor in interest can request 
information as needed through the information request process.
    Gramm-Leach-Bliley Act and privacy concerns. In the proposal, the 
Bureau indicated that it believed that applying Regulation X's subpart 
C to confirmed successors in interest does not present privacy 
concerns. The proposal explained that the Bureau believed that a 
confirmed successor in interest's ownership interest in the property 
securing the mortgage loan is sufficient to justify enabling the 
successor in interest to receive information about the mortgage loan. 
However, because some people representing themselves as successors in 
interest may not actually have an ownership interest in the property, 
the Bureau recognized that requiring servicers to apply the 
communication, disclosure, and loss mitigation requirements from 
Regulations X and Z to successors in interest before servicers have 
confirmed the successor in interest's identity and ownership interest 
in the property might present privacy and other concerns. The Bureau 
solicited comment on whether any information that could be provided to 
successors in interest under Sec. Sec.  1024.35 and 1024.36 presents 
privacy concerns and whether servicers should be permitted to withhold 
any information from successors in interest out of such privacy 
concerns.
    Various industry commenters expressed concern that the proposal 
would require them to violate privacy laws, including the Gramm-Leach-
Bliley Act (GLBA) and Regulation P, and would otherwise interfere with 
borrowers' privacy rights.\78\ They noted

[[Page 72180]]

that sharing information about the mortgage--including even the limited 
information about document requirements that would be available to 
potential successors in interest--would constitute a disclosure of 
nonpublic personal information to a nonaffiliated third party for 
purposes of the GLBA and Regulation P. Some requested clarity regarding 
what information they should release under the proposal, while others 
suggested that an interagency GLBA rulemaking would be required to 
adjust applicable privacy rules.
---------------------------------------------------------------------------

    \78\ Some industry commenters also suggested that the proposal 
might cause them to violate the information security standards 
required by the GLBA. Providing information to successors in 
interest would not violate the GLBA information security provisions, 
as long as disclosures are made in a manner consistent with those 
standards. For example, the Interagency Guidelines Establishing 
Information Security Standards require a financial institution to 
consider and, if appropriate, adopt measures including encryption of 
electronic customer information and controls to prevent employees 
from providing customer information to unauthorized individuals who 
may seek to obtain this information through fraudulent means. 66 FR 
8616, 8633-34 (Feb. 1, 2001); 69 FR 77610 (Dec. 28, 2004). The final 
rule does not prevent a servicer from complying with these 
information security standards in dealing with successors in 
interest.
---------------------------------------------------------------------------

    Some industry commenters provided specific examples of situations 
that might raise concern--for example, releasing contact information or 
sensitive information such as paystubs from a prior loss mitigation 
application in the context of a divorce or a domestic violence 
situation. Other industry commenters indicated that they were most 
concerned about giving a party that is not obligated on the loan access 
to financial records, especially in circumstances where the primary 
obligor remains fully obligated to the loan transaction or where there 
is litigation relating to the property and attendant obligation.
    One industry commenter stated that these privacy concerns apply to 
the disclosure of the confirmed successor in interest's personal, 
private information to the existing borrower as well as to the 
disclosure of an existing borrower's personal, private information to 
the confirmed successor in interest. This commenter suggested that the 
final rule should not require servicers to comply with the requirements 
in Sec. Sec.  1024.35 and 1024.36 relating to notices of error and 
requests for information if communicating with a confirmed successor in 
interest is otherwise prohibited under applicable law, including the 
FDCPA, or if the servicer reasonably determines that the response to 
the asserted error or information request would result in the 
disclosure of any personal, private information of the existing 
borrower or of the successor in interest. Alternatively, this commenter 
urged the Bureau to provide servicers a safe harbor from liability 
under the FDCPA with respect to disclosing information regarding the 
debt and other Federal and State laws with respect to disclosing 
personal, private information for an existing borrower or a confirmed 
successor in interest. It noted, for example, that the former husband 
of an existing borrower could submit a request for information seeking 
copies of loss mitigation efforts by his former wife, which might 
include her contact information and copies of her paystubs. Other 
industry commenters provided additional examples of types of sensitive 
information that should not be disclosed, such as Social Security 
numbers.
    Some consumer advocacy groups and the office of a State Attorney 
General asserted that there are no privacy concerns raised by the 
proposal because of the successor in interest's ownership interest in 
the property securing the mortgage loan. One of these consumer advocacy 
groups stated that the original borrower's private financial 
information, including credit score, income, or expenses, is not 
relevant to the successor homeowner and need not be disclosed. This 
group also indicated that no successor in interest should have a need 
for the original borrower's location or contact information.\79\ It 
stated that a successor in interest should not need access to other 
financial information of the borrower, as it will not be relevant to 
loss mitigation sought by the successor in interest.
---------------------------------------------------------------------------

    \79\ This consumer advocacy group suggested that the Bureau 
create an FDCPA exemption for liability under FDCPA section 805(b). 
It also suggested that in doing so the Bureau should indicate that 
information that a debt collector is permitted to share with a 
confirmed successor in interest regarding the mortgage loan account 
should not include the location or contact information of the 
original borrower or any financial information of the original 
borrower other than the mortgage terms and status. As explained 
above, concurrently with issuing this final rule, the Bureau is 
issuing an interpretation of FDCPA section 805 that creates a safe 
harbor pursuant to FDCPA section 813(e). In light of this 
interpretation, no exemption from the requirements of FDCPA section 
805(b) is required.
---------------------------------------------------------------------------

    The Bureau concludes that complying with the final rule does not 
cause servicers to violate the GLBA or its implementing regulations but 
recognizes the potential privacy and related concerns raised by 
commenters and has made adjustments in the final rule to address these 
concerns. Disclosing information to successors in interest as required 
under the final rule will not cause a servicer to violate the GLBA or 
Regulation P because the GLBA and Regulation P permit financial 
institutions to disclose information to comply with a Federal law or 
regulation.\80\
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 6802(e)(8); 12 CFR 1016.15(a)(7)(i) (providing an 
exception to the GLBA's general prohibition on disclosing nonpublic 
personal information to a nonaffiliated third party absent notice 
and an opportunity to opt out of such disclosure where the 
disclosure is to comply with Federal, State, or local laws, rules, 
and other applicable legal requirements). A trade association 
suggested that, before disclosing information protected under 
Regulation P, the servicer should be able to require the recipient 
to agree not to redisclose the information unless permitted by law. 
Although 12 CFR 1016.11(c) imposes certain restrictions on the 
disclosure and use of information disclosed pursuant to a Regulation 
P exception in 12 CFR 1016.14 or 1016.15, neither the GLBA nor 
Regulation P requires the recipient of such information to enter 
into an agreement relating to these restrictions with the financial 
institution that discloses the information. The Bureau therefore 
declines to establish such a requirement under Regulation X or Z.
---------------------------------------------------------------------------

    The Bureau continues to believe that a confirmed successor in 
interest's ownership interest in the property securing the mortgage 
loan is sufficient to warrant that person's access to information about 
the mortgage loan. The Bureau also believes it is important for 
confirmed successors in interest to be able to obtain information about 
the terms, status, and payment history of the mortgage loan. However, 
the Bureau agrees with commenters that confirmed successors in interest 
are unlikely to need information regarding the location or contact 
information of an original borrower or financial information of an 
original borrower other than the mortgage terms, status, and payment 
history. As commenters noted, providing additional financial, contact, 
or location information of other borrowers could raise privacy concerns 
and is not likely to assist the confirmed successor in interest in 
maintaining the property. The Bureau believes that this is especially 
true with respect to a borrower's Social Security number.
    The Bureau believes that similar potential privacy concerns could 
arise when borrowers request information about potential and confirmed 
successors in interest. A potential or confirmed successor in interest 
could, for example, submit a loss mitigation application containing a 
Social Security number, contact information, and paystubs. Borrowers on 
the account who are not the person to whom the information pertains are 
unlikely to need to obtain from the servicer these types of information 
about potential or confirmed successors in interest.
    To address the potential privacy concerns raised in the comments, 
the Bureau is adding new Sec. Sec.  1024.35(e)(5) and 1024.36(d)(3). 
Pursuant to these provisions, a servicer responding to a request for 
information or a notice of error request for documentation may omit 
location and contact information and personal financial information 
(other than information about the terms, status, and payment history of 
the mortgage loan) if: (i) The information pertains to a potential or 
confirmed successor in interest who is not the requester; or (ii) The 
requester is a confirmed successor in interest and the information 
pertains to any borrower who is not the requester. These

[[Page 72181]]

provisions allow servicers to limit the information that confirmed 
successors in interest may obtain about other borrowers (including 
other confirmed successors in interest) and that borrowers may obtain 
about potential and confirmed successors in interest who are not the 
requesting party.
    FDCPA and related concerns. A number of industry commenters 
indicated in their comments that the requirement to send servicing 
notices and share information about the mortgage loan with confirmed 
successors in interest could subject them to liability under the FDCPA. 
While many mortgage servicers are not subject to the FDCPA, mortgage 
servicers that acquired a mortgage loan at the time that it was in 
default are subject to the FDCPA with respect to that mortgage 
loan.\81\ Two specific areas of concern raised by commenters are 
discussed in turn below: (1) Whether the proposal would cause servicers 
that are debt collectors for purposes of the FDCPA to violate FDCPA 
section 805(b)'s general prohibition on communicating with third 
parties in connection with the collection of a debt, and (2) Whether 
providing periodic statements and other servicing notices to confirmed 
successors in interest who have not assumed the loan obligation under 
State law would be confusing or harassing.
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    \81\ A trade association commenter asserted that the FDCPA 
should not apply to mortgage loans and suggested that the Bureau 
exempt mortgage loans and mortgage servicers altogether from the 
FDCPA or, alternatively, from the FDCPA's debt validation and cease 
communication requirements. These comments are beyond the scope of 
this rulemaking, and the Bureau declines to address them, other than 
to note that mortgage servicers are not per se exempt from the 
FDCPA.
---------------------------------------------------------------------------

    Some commenters expressed concern that sharing information about 
the debt, such as periodic statements and responses to requests for 
information, with confirmed successors in interest who are not 
obligated on the loan could violate FDCPA section 805(b). They 
suggested that, if the proposal is adopted, the Bureau should create an 
FDCPA exemption or include commentary providing a safe harbor under the 
FDCPA when a servicer contacts a successor in interest regarding a debt 
that is not assumed by the successor in interest.
    FDCPA section 805(b) generally prohibits debt collectors from 
communicating with third parties in connection with the collection of a 
debt, in the absence of a court order or prior consumer consent given 
directly to the debt collector.\82\ FDCPA section 805(b) permits debt 
collectors to communicate with a person who is a consumer for purposes 
of section 805. FDCPA section 805(d), in turn, states that the term 
consumer for purposes of section 805 includes the consumer's spouse, 
parent (if the consumer is a minor), guardian, executor, or 
administrator.\83\ The use of the word ``includes'' indicates that 
section 805(d) is an exemplary rather than exhaustive list of the 
categories of individuals that are ``consumers'' for purposes of FDCPA 
section 805.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 1692c(b).
    \83\ 15 U.S.C. 1692c(d).
---------------------------------------------------------------------------

    The Bureau is issuing concurrently with this final rule an 
interpretive rule that constitutes an advisory opinion under FDCPA 
section 813(e) \84\ interpreting consumer for purposes of FDCPA section 
805 to include a confirmed successor in interest, as that term is 
defined in Regulation X Sec.  1024.31 and Regulation Z Sec.  
1026.2(a)(27)(ii).\85\ As provided in FDCPA section 813(e), no 
liability arises under the FDCPA for an act done or omitted in good 
faith in conformity with an advisory opinion of the Bureau while that 
advisory opinion is in effect. The Bureau's interpretive rule provides 
a safe harbor from liability under FDCPA section 805(b) for servicers 
communicating with a confirmed successor in interest about a mortgage 
loan secured by property in which the confirmed successor in interest 
has an ownership interest, in compliance with Regulations X and Z.
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 1692k(e).
    \85\ See Bureau of Consumer Fin. Prot., Official Bureau 
Interpretations: Safe Harbors from Liability under the Fair Debt 
Collection Practices Act for Certain Actions Taken in Compliance 
with Mortgage Servicing Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z) (Aug. 4, 2016), available at https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
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    As the interpretive rule explains, given their relationship to the 
obligor, the mortgage loan, and the property securing the mortgage loan 
and the Bureau's extension of certain protections of Regulations X and 
Z to them, confirmed successors in interest are--like the narrow 
categories of persons enumerated in FDCPA section 805(d)--the type of 
individuals with whom the servicer needs to communicate. Interpreting 
consumers in section 805 to include confirmed successors in interest 
permits debt collectors to communicate with them about the mortgage 
loan without engaging in a third-party communication in violation of 
section 805(b). It also helps to ensure that confirmed successors in 
interest benefit from the protections for ``consumers'' in FDCPA 
section 805--including the debt collector generally being prohibited 
from communicating at a time or place the collector knows or should 
know is inconvenient and being required to cease communication upon 
written request from the consumer. The Bureau therefore has concluded 
that consumer as defined in section 805(d) includes a confirmed 
successor in interest, as that term is defined in Regulations X and 
Z.\86\ The Bureau's interpretive rule should resolve commenters' 
concerns regarding potential liability under FDCPA section 805(b) for 
disclosures to confirmed successors in interest.\87\
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    \86\ Because the interpretive rule applies only to the use of 
the term consumer in section 805, it does not affect the definition 
of consumer under the remaining FDCPA provisions.
    \87\ The interpretation does not relieve servicers that are debt 
collectors of their obligations under the FDCPA. For example, they 
must not: Engage in conduct the natural consequence of which is to 
harass, oppress, or abuse any person in connection with the 
collection of a debt; use any false, deceptive, or misleading 
representation or means in connection with the collection of a debt; 
or use unfair or unconscionable means to collect or attempt to 
collect any debt.
---------------------------------------------------------------------------

    An industry commenter suggested that successors who are not liable 
on the debt might be confused if they start receiving periodic 
statements. Another industry commenter suggested that sending loss 
mitigation-related letters and trying to establish right party contact 
with individuals not liable on a delinquent loan could be viewed as 
abusive or harassing debt collection efforts, in violation of FDCPA 
section 806.\88\
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 1692d.
---------------------------------------------------------------------------

    Under the final rule, confirmed successors in interest will receive 
servicing notices only after they have proceeded through the 
confirmation process. The servicing notices provide important 
information that will assist confirmed successors in interest in 
preserving their ownership interests in the properties secured by the 
relevant mortgage loans. Given this context, the Bureau does not 
believe that simply providing periodic statements and other servicing 
notices to the confirmed successor in interest pursuant to Regulations 
X and Z would be viewed as having the natural consequence of harassing, 
oppressing, or abusing the confirmed successor in interest under FDCPA 
section 806.
    The Bureau recognizes, however, that some language appearing in the 
model and sample form notices in Regulations X and Z could suggest that 
the recipient of the notice is liable on the mortgage loan obligation 
and that it is possible

[[Page 72182]]

that this language, on its own without modification, could confuse 
confirmed successors in interest who have not assumed the mortgage loan 
obligation under State law and are not otherwise liable for it as to 
whether they are liable on the mortgage loan obligation. For example, 
some of these forms state: ``your loan,'' ``your interest rate,'' 
``[y]ou are late on your mortgage payments,'' ``[y]ou must pay us for 
any period during which the insurance we buy is in effect but you do 
not have insurance,'' and ``you could be charged a penalty.'' \89\
---------------------------------------------------------------------------

    \89\ Regulation X appendices MS-3(A) & MS-4; Regulation Z 
appendices H-4(D) & H-30.
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    As modified by the final rule, Regulations X and Z offer servicers 
various means that they can employ to ensure that communications 
required by the Mortgage Servicing Rules do not mislead confirmed 
successors in interest who have not assumed the mortgage loan 
obligation under State law and are not otherwise liable for it. One 
option available to servicers is to adjust the language in the notices 
to replace any terminology that might suggest liability. Regulation Z 
already permits modification of certain model and sample forms for ARM 
disclosures to remove language regarding personal liability to 
accommodate particular consumer circumstances or transactions not 
addressed by the forms,\90\ and the final rule clarifies in revised 
comment 2 to Regulation X's appendix MS and new comments 20(e)(4)-3 and 
41(c)-5 to Regulation Z that similar changes may be made to other model 
and sample form notices. For example, as revised, comment appendix MS 
to part 1024-2 permits servicers to substitute ``this mortgage'' or 
``the mortgage'' in place of ``your mortgage'' in notices sent to a 
confirmed successor in interest who has not assumed the mortgage loan 
obligation under State law or is not otherwise liable on the mortgage 
loan obligation.
---------------------------------------------------------------------------

    \90\ Regulation Z comments 20(c)(3)(i)-1, 20(d)(3)(i)-1.
---------------------------------------------------------------------------

    Another option available to servicers to reduce the risk of any 
potential confusion is to add an affirmative disclosure to the Mortgage 
Servicing Rule notices that clarifies that a confirmed successor in 
interest who has not assumed the mortgage loan obligation under State 
law and is not otherwise liable for it has no personal liability. For 
some of the required servicing notices, this type of disclosure could 
be added into the notice,\91\ while for other types of notices the 
rules prohibit additional information in the notice but would permit an 
explanatory cover letter in the same transmittal.\92\
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    \91\ See, e.g., Regulation X comment 39(b)(2)-1; Regulation Z 
comment 41(c)-1.
    \92\ See, e.g., Sec.  1024.37(c)(4), (d)(4), (e)(4).
---------------------------------------------------------------------------

    The Bureau recognizes that the foregoing options would require 
servicers to incur some costs because these options would involve 
customizing certain materials for confirmed successors in interest. To 
address this concern, and for the reasons stated in the section-by-
section analyses of Sec. Sec.  1024.32(c), 1026.20(f), 1026.39(f), and 
1026.41(g), new Sec.  1024.32(c)(1) allows servicers to provide an 
initial explanatory written notice and acknowledgment form to confirmed 
successors in interest who have not assumed the mortgage loan 
obligation under State law and are not otherwise liable on it. The 
notice explains that the confirmed successor in interest is not liable 
unless and until the confirmed successor in interest assumes the 
mortgage loan obligation under State law. The notice also indicates 
that the confirmed successor in interest must return the acknowledgment 
to receive servicing notices under the Mortgage Servicing Rules. 
Sections 1024.32(c), 1026.20(f), 1026.39(f), and 1026.41(g) relieve 
servicers that send this type of notice and acknowledgment form of the 
obligations to provide Mortgage Servicing Rule notices and to engage in 
live contacts with the confirmed successor in interest until the 
confirmed successor in interest provides the servicer an executed 
acknowledgment indicating a desire to receive the notices or assumes 
the mortgage loan obligation under State law.
    These provisions relieve servicers of the costs associated with 
sending the notices to confirmed successors in interest who are not 
liable on the mortgage loan obligation and do not want them. However, 
the Bureau believes that when a confirmed successor in interest assumes 
a mortgage loan obligation under State law there is no longer any 
reason to suspend a servicer's obligation to provide notices and other 
communications that are otherwise required by the Mortgage Servicing 
Rules.\93\ Additionally, the Bureau expects that servicers will provide 
additional copies of the written notice and acknowledgment form to 
confirmed successors in interest upon request; the Bureau recognizes 
that confirmed successors in interest who choose not to receive 
servicing notices at the time of confirmation may later wish to receive 
such notices and believes that servicers should facilitate subsequent 
requests from confirmed successors in interest to receive the 
notices.\94\
---------------------------------------------------------------------------

    \93\ However, other provisions of existing Regulations X and Z 
may relieve servicers of the obligation to provide notices in those 
circumstances. For example, Sec. Sec.  1026.17(d) and 1026.31(e) 
generally provide that, if there is more than one consumer, the 
disclosures required by Regulation Z subparts C and E may be made to 
any consumer who is primarily liable on the obligation, and comment 
41(a)-1 to Regulation Z provides that, when two consumers are joint 
obligors with primary liability on a closed-end consumer credit 
transaction secured by a dwelling, the periodic statement may be 
sent to either one of them.
    \94\ See section-by-section analyses of Sec.  1024.32(c)(2) and 
(3).
---------------------------------------------------------------------------

    The final rule does not mandate that servicers use the initial 
notice and acknowledgment option or either of the two other options 
mentioned above but instead gives servicers the flexibility to use any 
of these options as the servicer deems appropriate to ensure clarity in 
its communications with confirmed successors in interest. Offering 
servicers these options will allow servicers to use their business 
judgment to determine the best approach in light of their particular 
situations and operational considerations.
    The Bureau considered providing a safe harbor from UDAAP claims or 
FDCPA deception claims related to representations in notices about 
whether a confirmed successor in interest is liable on the mortgage 
loan obligation. The Bureau believes that such a safe harbor is 
unnecessary. The Bureau believes that UDAAP claims are unlikely to 
arise solely from servicers providing to confirmed successors in 
interest notices and information required by and in compliance with 
Regulations X or Z, particularly if servicers implement one of the 
approaches described above. The Bureau also believes that a safe harbor 
insulating servicers from liability related to their communications to 
confirmed successors in interest could undermine incentives for 
servicers to ensure that the overall effect of their communications 
with successors in interest is not deceptive and does not create 
consumer harm. The options that the Bureau is providing to servicers 
should allow servicers to choose the most cost-effective way to ensure 
that their communications do not confuse or deceive successors in 
interest who are not liable on the mortgage loan obligation under State 
law.
Legal Authority
    Based on its experience and expertise with respect to mortgage 
servicing, the Bureau believes that the amendments relating to 
successors in interest promote the purposes of RESPA and TILA 
effectuated by the Mortgage Servicing Rules. As discussed below,

[[Page 72183]]

the Mortgage Servicing Rules apply to borrowers (for the Regulation X 
rules) and consumers (for the Regulation Z rules). As further discussed 
below, the Bureau believes that the terms borrowers in RESPA and 
consumers in TILA, as used in the relevant portions of the Mortgage 
Servicing Rules, should be understood to include confirmed successors 
in interest. In addition, the amendments relating to successors in 
interest are authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a) 
of RESPA with respect to the Mortgage Servicing Rules in Regulation X 
and under section 105(a) of TILA with respect to the Mortgage Servicing 
Rules in Regulation Z. The amendments are also authorized under section 
1022(b) of the Dodd-Frank Act, which authorizes the Bureau to prescribe 
regulations necessary or appropriate to carry out the purposes and 
objectives of Federal consumer financial laws.
    Regulation X amendments relating to successors in interest. Some 
trade associations raised questions about whether RESPA permits the 
Bureau to regulate a servicer's conduct towards non-obligors and to 
create a private right of action for non-obligors. Two trade 
associations indicated that it is not clear that RESPA applies to 
servicers unless the servicer receives ``payments from a borrower'' who 
signed a federally related mortgage loan.\95\
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    \95\ These trade associations also stated that the Bureau cannot 
proceed with this rulemaking because it lacks rulemaking authority 
under the Garn-St Germain Act. Because the Bureau is not purporting 
to write regulations under the Garn-St Germain Act, it does not 
require rulemaking authority under that Act.
---------------------------------------------------------------------------

    Other commenters asserted that the Bureau's rulemaking appeared 
well within its legal authority. A consumer advocacy group noted that 
the Bureau relied on its rulemaking authority under the Dodd-Frank Act 
and RESPA to mandate a uniform loss mitigation framework that 
establishes appropriate mortgage servicing standards in the private 
market. It noted that RESPA already contained provisions with private 
rights of action and said that the Bureau's servicing regulations and 
proposed additions, including those related to successors in interest, 
simply further that existing scheme. It stated that by integrating 
successors in interest into the existing loss mitigation framework, the 
Bureau is faithfully executing its mission to implement and enforce 
consumer financial protection laws without imposing undue burdens on 
servicers who are already following the loss mitigation rules.
    As explained below in the section-by-section analysis of Sec.  
1024.30(d), the final rule provides that a confirmed successor in 
interest shall be considered a borrower for purposes of Sec.  1024.17 
and subpart C of Regulation X. In light of its experience and expertise 
with respect to mortgage servicing, the Bureau believes that this 
interpretation promotes the purposes of RESPA effectuated through the 
provisions of the Mortgage Servicing Rules in Regulation X, which in 
turn were issued under, among other provisions, sections 6(j)(3), 
6(k)(1)(E), and 19(a) of RESPA. Therefore, because the Bureau concludes 
that confirmed successors in interest are borrowers for purposes of the 
Mortgage Servicing Rules in Regulation X, these amendments are 
authorized under the same authorities on which the applicable Mortgage 
Servicing Rules are based.
    Although a confirmed successor in interest will not necessarily 
have assumed the mortgage loan obligation under State law, the 
successor in interest, after the transfer of ownership of the property, 
will have stepped into the shoes of the transferor borrower for many 
purposes. As noted above, the successor in interest will typically need 
to make payments on the loan in order to avoid foreclosure on the 
property. The successor in interest's ability to sell, encumber, or 
make improvements to the property will also be limited by the lien 
securing the loan. In other words, the property rights of the confirmed 
successor in interest, like those of the transferor borrower, are 
subject to the mortgage loan.
    The Bureau believes that State property law, which provides the 
context for RESPA, also supports treating confirmed successors in 
interest as borrowers. At common law, a successor in interest ``retains 
the same rights as the original owner, with no change in substance.'' 
\96\ As a matter of State law, successors in interest have historically 
been afforded many of the same rights and responsibilities as the 
transferor borrower. For example, there is a significant amount of 
State law indicating that a successor in interest, like the transferor 
borrower, possesses the right to redeem following the mortgagee's 
foreclosure on the property.\97\ Moreover, there is significant State 
law providing that the contractual rights and obligations under the 
mortgage loan of the transferor borrower are freely assignable to 
successors in interest.\98\ Further, before the enactment of the Garn-
St Germain Act, several States had longstanding prohibitions on the 
exercise of due-on-sale clauses, thereby limiting servicers to the same 
contractual remedies with respect to successors in interest as were 
available against the transferor borrower, whether or not the successor 
in interest under State law assumed the legal obligation to pay the 
mortgage.\99\ Additionally, while successors in interest may not be 
personally liable on the mortgage note, absent their express assumption 
of such liability under State law, in a significant number of 
mortgages, the borrower on the note is also, under State law, not 
personally liable for the debt upon foreclosure because a deficiency 
judgment is not allowed.\100\ Accordingly, under State law, a successor 
in interest is often in virtually the same legal position as the 
borrower on the note with respect to foreclosure.\101\
---------------------------------------------------------------------------

    \96\ Black's Law Dictionary (9th ed. 2009).
    \97\ `` `Property sold subject to redemption . . . may be 
redeemed in the manner hereinafter provided, by the . . . [j]udgment 
debtor, or his successor in interest in the whole or any part of the 
property. . . . .' '' Phillips v. Hagart, 45 P. 843, 843 (Cal. 1896) 
(quoting California Code of Civil Procedure section 705); see also, 
e.g., Forty-Four Hundred E. Broadway Co. v. 4400 E. Broadway Co., 
660 P.2d 866, 868 (Ariz. Ct. App. 1982) (citing Call v. Thunderbird 
Mortg. Co., 375 P.2d 169 (Cal. 1962)); Brastrup v. Ellingson, 161 
NW. 553, 554 (N.D. 1917); Tate v. Dinsmore, 175 SW. 528, 529 (Ark. 
1915).
    \98\ See, e.g., Badran v. Household Fin. Corp., 2008 WL 4335098, 
at *4 (Mich. Ct. App. 2008); Bermes v. Sylling, 587 P.2d 377, 384 
(Mont. 1978); In re Fogarty's Estate, 300 N.Y.S. 231 (N.Y. Sur. Ct. 
1937).
    \99\ See, e.g., Continental Fed. Sav. & Loan Ass'n v. Fetter, 
564 P.2d 1013, 1017 n.4 (Okla. 1977) (collecting cases). The Garn-St 
Germain Act later preempted restrictions on due-on-sale clauses 
generally but prohibited exercise of due-on-sale clauses with 
respect to certain categories of successors in interest. See 12 
U.S.C. 1701j-3(b) (preempting restrictions); id. section 1701j-3(d) 
(prohibiting exercise for certain categories).
    \100\ Deficiency judgments against borrowers upon foreclosure 
are disallowed with respect to most residential mortgages in some 
States. See Connecticut Gen. Assembly, Office of Legislative 
Research, OLR Research Report 2010-R-0327, Comparison of State Laws 
on Mortgage Deficiencies and Redemption Periods (Dec. 9, 2011) 
(citing and updating Nat'l Consumer Law Ctr., Survey of State 
Foreclosure Laws (2009)), available at https://www.cga.ct.gov/2010/rpt/2010-R-0327.htm.
    \101\ The Bureau is aware that some courts have indicated that 
successors in interest would not ordinarily be considered borrowers 
under RESPA. These cases were decided without the benefit of or 
consideration of the purposes of the regulations that the Bureau is 
now finalizing.
---------------------------------------------------------------------------

    The Bureau also believes that this treatment of successors in 
interest is consistent with other aspects of Federal law. The Garn-St 
Germain Act protects successors in interest from foreclosure based on 
the mortgage loan due-on-sale clause after transfer of homeownership to 
them. Additionally, several bankruptcy courts have held that successors 
in interest are entitled to the same treatment as transferor borrowers, 
for example, with respect to curing an

[[Page 72184]]

arrearage on a mortgage and reinstating the loan.\102\
---------------------------------------------------------------------------

    \102\ See, e.g., In re Smith, 469 B.R. 198, 202 (Bankr. S.D.N.Y. 
2012); In re Curinton, 300 B.R. 78, 82-86 (Bankr. M.D. Fla. 2003) 
(quoting In re Garcia, 276 B.R. 627, 631 (Bankr. D. Ariz. 2002)).
---------------------------------------------------------------------------

    In addition, the amendments relating to successors in interest to 
the Mortgage Servicing Rules in Regulation X are independently 
authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA. 
RESPA section 6(j)(3) authorizes the Bureau to establish any 
requirements necessary to carry out section 6 of RESPA; RESPA section 
6(k)(1)(E) authorizes the Bureau to create obligations for servicers 
through regulation that it finds appropriate to carry out the consumer 
protection purposes of RESPA; and RESPA section 19(a) authorizes the 
Bureau to prescribe such rules and regulations as may be necessary to 
achieve the purposes of RESPA.\103\
---------------------------------------------------------------------------

    \103\ A trade association commenter stated that the Bureau does 
not have the authority under RESPA to write loss mitigation or 
successorship regulations or to create a private right of action. It 
suggested that the Bureau's authority under RESPA sections 6(j)(3), 
6(k), and 19(a) is circumscribed by the limited statutory purposes 
set forth in RESPA section 2(b). The Bureau disagrees. It would not 
be reasonable to read ``consumer protection purposes of this 
chapter'' in section 6(k) and ``the purposes of this chapter'' in 
section 19 in a way that would exclude Congress's purposes in 
enacting various provisions in section 6 of RESPA relating to 
servicing.
---------------------------------------------------------------------------

    Considered as a whole, RESPA, as amended by the Dodd-Frank Act, 
reflects at least two significant consumer protection purposes: (1) To 
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.\104\ 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.
---------------------------------------------------------------------------

    \104\ 78 FR 10696, 10709 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau believes that establishing procedures for confirmation 
of successors in interest and extending various protections in 
Regulation X to confirmed successors in interest achieves these 
purposes of RESPA.\105\ As noted above, successors in interest are a 
vulnerable group of consumers. As owners of property securing a 
mortgage loan, they may face foreclosure unless they satisfy the loan's 
payment obligations. But, as also noted above, successors in interest 
often cannot obtain information about the loan, including options for 
loss mitigation, and may thus have difficulty avoiding foreclosure. The 
Bureau therefore believes that applying servicing protections in 
Regulation X to confirmed successors in interest is necessary and 
appropriate to assist confirmed successors in interest with the types 
of servicing problems and issues that are within the scope of RESPA's 
consumer protection purposes. Specifically, as explained in the 
section-by-section analysis of Sec.  1024.30(d), extending the various 
Regulation X protections to confirmed successors in interest will 
establish procedures by which servicers must respond to confirmed 
successors in interest's requests and complaints in a timely manner, 
will require servicers to maintain and provide accurate information 
with respect to confirmed successors in interest, and will establish 
safeguards to help confirmed successors in interest avoid unwarranted 
or unnecessary costs and fees and to facilitate review of confirmed 
successors in interest's applications for foreclosure avoidance 
options.\106\
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    \105\ A trade association commenter claimed that the Bureau 
cannot now assert that successor in interest regulations are 
necessary under RESPA section 6(j)(3) because the statute was 
enacted in 1991 and HUD did not issue any successor in interest 
RESPA regulations when it had rulemaking authority. However, section 
6(j)(3) does not limit the Bureau's rulemaking authority based on 
rules previously issued by HUD. The Bureau, like HUD before it, 
evaluates what is necessary to carry out RESPA section 6 on an 
ongoing basis.
    \106\ A trade association commenter suggested that the Bureau's 
authority under RESPA section 6(k)(1)(e) is limited by the canon of 
ejusdem generis, which provides that, when a general phrase follows 
a list of specific items, the general phrase must be construed to 
include only items of the same class as the specific items on the 
list. RESPA section 6(k)(1)(e) requires compliance with ``any other 
obligation'' that the Bureau finds ``by regulation to be appropriate 
to carry out the consumer protection purposes of'' RESPA. The 
commenter suggested that ``any other obligation'' cannot relate to 
successor in interest issues or loss mitigation issues because those 
topics are different from the categories identified in RESPA section 
6(k)(1)(a) through (d) (force-placed insurance; fees for qualified 
written request responses; failure to timely correct errors; and 
failure to provide owner or assignee contact information). However, 
the Bureau does not agree that the canon of ejusdem generis is 
relevant to determining the scope of section 6(k)(1)(e). That 
provision generally authorizes the Bureau to create obligations for 
services that are ``appropriate to carry out the consumer protection 
purposes of [RESPA].'' In other words, it authorizes regulations 
that would further RESPA's consumer protection purposes, which, as 
explained above, the amendments related to successors in interest 
do. Moreover, even if the canon applied, contrary to the commenter's 
assertion, the disparate items listed in RESPA section 6(k)(1)(a) 
through (d) are not similar in kind, nor are they all related in a 
way that distinguishes them as a group from successor in interest 
and loss mitigation issues.
---------------------------------------------------------------------------

    The Bureau also notes that confirmed successors in interest will 
have a private right of action under RESPA to enforce these rules. 
Under section 6(f) of RESPA, 12 U.S.C. 2605(f), ``[w]hoever fails to 
comply with any provision of this section shall be liable to the 
borrower for each such failure.'' For the reasons discussed above, the 
Bureau believes that the term borrower as used in the mortgage 
servicing provisions of RESPA should be understood to encompass 
confirmed successors in interest.
    Regulation Z amendments relating to successors in interest. As 
noted in the section-by-section analysis of Sec.  1026.2(a)(11), the 
Bureau is defining the term consumer to include a confirmed successor 
in interest for purposes of Sec. Sec.  1026.20(c) through (e), 
1026.36(c), 1026.39, and 1026.41. Those provisions establish certain 
protections for consumers with respect to their mortgage loans, and, as 
explained above in the context of the Regulation X, confirmed 
successors in interest step into the shoes of the transferor consumer 
for many purposes once they have obtained an ownership interest in the 
property. In light of its experience and expertise, the Bureau believes 
the term consumer in those provisions should be interpreted to include 
confirmed successors in interest. The Mortgage Servicing Rules in 
Regulation Z were authorized by, among other provisions, section 105(a) 
of TILA. Therefore, because the Bureau concludes that confirmed 
successors in interest are consumers for purposes of the Mortgage 
Servicing Rules in Regulation Z, these amendments are authorized under 
the same authorities on which the Mortgage Servicing Rules are based.
    In addition, the amendments relating to successors in interest to 
the Mortgage Servicing Rules in Regulation Z are independently 
authorized under section 105(a) of TILA. That provision allows the 
Bureau to issue regulations that may contain such additional 
requirements, classifications, differentiations, or other provisions, 
and may provide for such adjustments and exceptions for all or any 
class of transactions, as in the judgment of the Bureau are necessary 
or proper to effectuate the purposes of TILA, to prevent circumvention 
or evasion thereof, or to facilitate compliance therewith. 15 U.S.C. 
1604(a). The purposes of TILA include assuring the meaningful 
disclosure of credit terms to enable consumers to compare more readily 
the various credit

[[Page 72185]]

terms available and avoid the uninformed use of credit and to protect 
consumers against inaccurate and unfair credit billing practices. 15 
U.S.C. 1601(a).
    The Bureau believes that the amendments to Regulation Z relating to 
successors in interest are necessary or proper to effectuate TILA's 
purposes. Successors in interest are owners of dwellings securing 
mortgage loans and must typically meet the payment obligations on the 
loan in order to avoid foreclosure on their property. Successors in 
interest thus have a strong interest in obtaining timely and accurate 
account information from servicers as to the mortgage loan secured by 
their dwelling. As explained in the section-by-section analysis of 
Sec.  1026.2(a)(11), to achieve TILA's purposes, confirmed successors 
in interest warrant the protections of Sec. Sec.  1026.20(c) through 
(e), 1026.36(c), 1026.39, and 1026.41.
    Some trade associations stated that it is not clear that TILA can 
apply to those who do not borrow. However, Regulation Z has defined 
consumer for decades to include non-obligors for purposes of rescission 
under Sec. Sec.  1026.15 and 1026.23.\107\ The Bureau is now 
interpreting the term consumer to include confirmed successors in 
interest for purposes of the Mortgage Servicing Rules in Regulation 
Z.\108\
---------------------------------------------------------------------------

    \107\ 12 CFR 1026.2(a)(11) (defining consumer for purposes of 
rescission under Sec. Sec.  1026.15 and 1026.23 to include a natural 
person in whose principal dwelling a security interest is or will be 
retained or acquired, if that person's ownership interest in the 
dwelling is or will be subject to the security interest).
    \108\ A trade association commenter also suggested that RESPA 
section 17, 12 U.S.C. 2615, and TILA section 111(d), 15 U.S.C. 1610, 
might bar this rulemaking. They do not because the successor in 
interest provisions do not affect the validity or enforceability of 
any loan or mortgage agreement. The commenter also stated that the 
Bureau does not have the authority to rewrite State contract law or 
the mortgage default remedies that are available under State law. 
However, the final rule does not purport to alter State contract law 
principles. The final rule simply extends the Federal regulatory 
protections of the Mortgage Servicing Rules to confirmed successors 
in interest and provides other related Federal protections under the 
Mortgage Servicing Rules.
---------------------------------------------------------------------------

B. Regulation X

Section 1024.6 Special Information Booklet at Time of Loan Application
6(d) Permissible Changes
    Although the Bureau did not propose to amend Sec.  1024.6(d), for 
the reasons set forth below, the Bureau is revising current Sec.  
1024.6(d)(1)(i) and renumbering it as Sec.  1024.6(d)(1), eliminating 
Sec.  1024.6(d)(1)(ii), and revising Sec.  1024.6(d)(2).
    Under Sec.  1024.6(a), a lender must provide a copy of a special 
information booklet to certain applicants for a federally related 
mortgage loan. The special information booklet, adopted pursuant to 
section 5 of RESPA, helps mortgage loan applicants understand the 
nature and costs of settlement services.\109\ The Bureau's publication 
entitled ``Your Home Loan Toolkit: A Step-by-Step Guide,'' updated the 
special information booklet to incorporate statutory amendments, the 
Bureau's Integrated Mortgage Disclosures Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z) (TILA-RESPA Final Rule),\110\ and additional contact 
information, online tools, and information on how to submit 
complaints.\111\ Current Sec.  1024.6(d)(i) and (ii) set forth the 
permissible changes that may be made to the special information 
booklet. The Bureau is revising the final sentence of current Sec.  
1024.6(d)(1)(i) to update the address to which requests for changes to 
the booklet beyond those permitted by the rule must be submitted.
---------------------------------------------------------------------------

    \109\ 12 CFR 1024.2(b) (defining special information booklet for 
purposes of Regulation X).
    \110\ 78 FR 79730 (Dec. 31, 2013) (TILA-RESPA Final Rule).
    \111\ 80 FR 17414 (April 1, 2015). See 12 CFR 1026.19(g) 
(explaining similar requirements to those in Sec.  1024.6).
---------------------------------------------------------------------------

    Currently, Sec.  1024.6(d)(1)(i) provides in relevant part that a 
request to the Bureau for the approval of certain changes to the 
booklet shall be submitted in writing to the address indicated in Sec.  
1024.3. However, Sec.  1024.3 no longer includes this address. As 
revised and renumbered, final Sec.  1024.6(d)(1) instead provides that 
a request to the Bureau for approval of certain changes shall be 
submitted in writing to the address indicated in the definition of 
Public Guidance Documents in Sec.  1024.2.
    Current Sec.  1024.6(d)(1)(ii) sets forth three permissible changes 
that may be made to the special information booklet. Current Sec.  
1024.6(d)(1)(ii)(A) provides that, in the Complaints section of the 
booklet, it is a permissible change to substitute ``the Bureau of 
Consumer Financial Protection'' for ``HUD's Office of RESPA'' and ``the 
RESPA office.'' Current Sec.  1024.6(d)(1)(ii)(B) provides that, in the 
Avoiding Foreclosure section of the booklet, it is a permissible change 
to inform homeowners that they may find information on and assistance 
in avoiding foreclosures at https://www.consumerfinance.gov. It further 
explains that the deletion of the reference to the HUD Web page, https://www.hud.gov/foreclosure/, in the Avoiding Foreclosure section of the 
booklet, is not a permissible change. Current Sec.  1024.6(d)(1)(ii)(C) 
provides that, in the appendix to the booklet, it is a permissible 
change to substitute ``the Bureau of Consumer Financial Protection'' 
for the reference to the ``Board of Governors of the Federal Reserve 
System'' in the No Discrimination section of the appendix to the 
booklet. It also explains that, in the Contact Information section of 
the appendix to the booklet, it is a permissible change to add the 
following contact information for the Bureau: ``Bureau of Consumer 
Financial Protection, 1700 G Street NW., Washington, DC 20006; 
www.consumerfinance.gov/learnmore.'' Finally, it provides that it is 
also a permissible change to remove the contact information for HUD's 
Office of RESPA and Interstate Land Sales from the Contact Information 
section of the appendix to the booklet.
    To reflect the Bureau's exclusive authority with regard to the 
special information booklet, the final rule eliminates Sec.  
1024.6(d)(1)(ii). The Bureau is removing the references to permissible 
changes that are no longer relevant because the stated language for 
which substitutions are authorized does not in appear in the special 
information booklet currently prescribed by the Bureau. A lender will 
not be permitted to change the special information booklet in the ways 
described above to reference the Department of Housing and Urban 
Development and the Board of Governors of the Federal Reserve System. 
Accordingly, the Bureau is renumbering Sec.  1024.6(d)(1)(i) as Sec.  
1024.6(d)(1); removing Sec.  1024.6(d)(1)(ii)(A), (B), and (C); and 
replacing the references to Sec.  1024.6(d)(1)(ii) in Sec.  
1024.6(d)(1) with references to Sec.  1024.6(d)(2).
    For similar reasons, the Bureau is removing the final sentence of 
current Sec.  1024.6(d)(2), which provides that references to HUD on 
the cover of the booklet may be changed to references to the Bureau.
Section 1024.9 Reproduction of Settlement Statements
9(a) Permissible Changes--HUD-1
    Although the Bureau did not propose to amend Sec.  1024.9(a), for 
the reasons set forth below, the Bureau is revising Sec.  1024.9(a). 
Section 1024.9(a) sets forth the permissible changes and insertions 
that may be made when the HUD-1 settlement statement is reproduced. The 
HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) is defined 
in Sec.  1024.2 as ``the statement that is prescribed in this part for 
setting

[[Page 72186]]

forth settlement charges in connection with either the purchase or the 
refinancing (or other subordinate lien transaction) of 1- to 4-[person] 
family residential property.'' \112\ Current Sec.  1024.9(a)(5) 
explains that certain variations in layout and format to the HUD-1 are 
within the discretion of persons reproducing the HUD-1 and do not 
require prior HUD approval.
---------------------------------------------------------------------------

    \112\ 12 CFR 1024.2.
---------------------------------------------------------------------------

    To reflect the Bureau's exclusive authority with regard to the HUD-
1, the final rule revises Sec.  1024.9(a)(5). Final Sec.  1024.9(a)(5) 
explains that certain variations in layout and format to the HUD-1 are 
within the discretion of persons reproducing the HUD-1 and do not 
require prior Bureau approval.
9(c) Written Approval
    The Bureau is revising Sec.  1024.9(c) to update the address to 
which requests for deviations in the HUD-1 or HUD-1A forms beyond those 
permitted by the rule must be submitted. Currently, Sec.  1024.9(c) 
provides in relevant part that a request to the Bureau for the approval 
of certain deviations shall be submitted in writing to the address 
indicated in Sec.  1024.3. However, Sec.  1024.3 no longer includes 
this address. Thus, as revised, Sec.  1024.9(c) instead provides that a 
request to the Bureau for approval of the certain changes shall be 
submitted in writing to the address indicated in the definition of 
Public Guidance Documents in Sec.  1024.2.
Section 1024.17 Escrow Accounts
17(h) Format for Initial Escrow Account Statement
17(h)(1)
    Although the Bureau did not propose to amend Sec.  1024.17(h)(1), 
for the reasons set forth below, the Bureau is revising Sec.  
1024.17(h)(1). Currently, Sec.  1024.17(h)(1) provides that the format 
and a completed example for an initial escrow account statement are set 
out in Public Guidance Documents entitled ``Initial Escrow Account 
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure 
Statement--Example,'' available in accordance with Sec.  1024.3. 
However, Sec.  1024.3 no longer specifies how the public may request 
copies of Public Guidance Documents. Thus, as revised, Sec.  
1024.17(h)(1) instead provides that the format and a completed example 
for an initial escrow account statement are set out in Public Guidance 
Documents entitled ``Initial Escrow Account Disclosure Statement--
Format'' and ``Initial Escrow Account Disclosure Statement--Example,'' 
available in accordance with the direction in the definition of Public 
Guidance Documents in Sec.  1024.2.
Section 1024.30 Scope
30(c) Scope of Certain Sections
Paragraph 30(c)(2)
    Although the Bureau did not propose to add comment 30(c)(2)-1, for 
the reasons set forth below, the Bureau is adopting new comment 
30(c)(2)-1 to provide further clarification on the determination of 
whether a property is a principal residence for purposes of Regulation 
X.
    Pursuant to Sec.  1024.30(c)(2), the procedures set forth in 
Sec. Sec.  1024.39 through 1024.41 regarding early intervention, 
continuity of contact, and loss mitigation only apply to a mortgage 
loan secured by a property that is a borrower's principal residence. 
Consequently, a borrower's protections under Regulation X depend on 
whether or not the property securing the loan is the borrower's 
principal residence. The Bureau has previously explained that the 
determination of whether a property is the borrower's principal 
residence is a fact specific inquiry, particularly when a property may 
appear to be vacant.\113\ Several servicers have indicated to the 
Bureau that they remain uncertain as to the applicability of, for 
example, the 120-day foreclosure referral waiting period in Sec.  
1024.41(f)(1)(i) when a property is vacant.
---------------------------------------------------------------------------

    \113\ See Amendments to the 2013 Mortgage Rules, 78 FR 60382, 
60407 (Oct. 1, 2013).
---------------------------------------------------------------------------

    Accordingly, the Bureau is adopting comment 30(c)(2)-1, which 
clarifies that, if a property ceases to be a borrower's principal 
residence, the procedures set forth in Sec. Sec.  1024.39 through 
1024.41 do not apply to a mortgage loan secured by that property. The 
comment further explains that the determination of principal residence 
status will depend on the specific facts and circumstances regarding 
the property and applicable State law. It further clarifies this 
explanation with an example explaining that a vacant property may still 
be a borrower's principal residence.
    The Bureau understands that a vacant property may still be the 
principal residence of a borrower in certain circumstances. For 
example, the Bureau understands that a property may still be the 
borrower's principal residence where a servicemember relocates pursuant 
to permanent change of station orders, was occupying the property as 
his or her principal residence immediately prior to displacement, 
intends to return to the property at some point in the future, and does 
not own any other residential property.\114\ Comment 30(c)(2)-1 
clarifies that the vacancy of a property does not necessarily mean that 
the property is no longer the borrower's principal residence. 
Accordingly, a vacant property may still be covered by Sec.  1024.41, 
meaning that the 120-day foreclosure referral waiting period could 
still apply to the mortgage loan securing that property.
---------------------------------------------------------------------------

    \114\ See Making Home Affordable Program, Handbook for Servicers 
of Non-GSE Mortgages Version 5.0, HAMP Tier 1 Eligibility Criteria, 
at 64 (2016), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_5.pdf; Fed. Reserve Sys., Bureau of 
Consumer Fin. Prot., Fed. Deposit Ins. Corp., Nat'l Credit Union 
Ass'n., Office of the Comptroller of the Currency, Interagency 
Guidance on Mortgage Servicing Practices Concerning Military 
Homeowners with Permanent Change of Station Orders, (June 21, 2012), 
available at https://files.consumerfinance.gov/f/201206_cfpb_PCS_Orders_Guidance.pdf.
---------------------------------------------------------------------------

    New comment 30(c)(2)-1 provides servicers, borrowers, and other 
stakeholders with additional guidance as to the applicability of 
servicers' responsibilities under Sec. Sec.  1024.39 through 1024.41. 
It should help ensure that borrowers do not lose critical protections 
under the mortgage servicing rules to which they are entitled. At the 
same time, the Bureau is not establishing a bright-line test in comment 
30(c)(2)-1, as the determination of principal residence status will 
depend on the specific facts and circumstances regarding the property 
and applicable State law.
30(d) Successors in Interest
    As explained in part V.A., the Bureau proposed to apply subpart C 
of Regulation X to confirmed successors in interest (as defined by the 
proposed definition of successor in interest, discussed in the section-
by-section analysis of Sec.  1024.31). Proposed Sec.  1024.30(d) 
accordingly would have provided that a successor in interest must be 
considered a borrower for the purposes of subpart C of Regulation X 
once a servicer confirms the successor in interest's identity and 
ownership interest in a property that secures a mortgage loan covered 
by Regulation X's mortgage servicing rules. For the reasons set forth 
in part V.A. and in this discussion, the Bureau is finalizing Sec.  
1024.30(d) with only one substantive change. That change expands the 
scope of protections that apply to confirmed successors in interest to 
include the escrow-related requirements in Sec.  1024.17. The Bureau 
has also made technical changes to incorporate the new definition of 
confirmed successor

[[Page 72187]]

in interest in Sec.  1024.31 into Sec.  1024.30(d). As under the 
proposal, the exemptions and scope limitations in Regulation X's 
mortgage servicing rules apply to the servicing of a mortgage loan with 
respect to a confirmed successor in interest under the final rule.\115\
---------------------------------------------------------------------------

    \115\ Section 1024.30(b) exempts small servicers from Sec. Sec.  
1024.38 through 1024.41 (except Sec.  1024.41(j)). Likewise, Sec.  
1024.30(b) provides an exemption from these sections with respect to 
reverse mortgage transactions and mortgage loan for which the 
servicer is a qualified lender. Accordingly, except as otherwise 
provided in Sec.  1024.41(j), Sec. Sec.  1024.38 through 1024.41 do 
not apply to confirmed successors in interest with respect to small 
servicers, reverse mortgage transactions, and mortgage loans for 
which the servicer is a qualified lender. Under the final rule, 
however, Sec. Sec.  1024.30 through 1024.37 apply with respect to 
reverse mortgages secured by a property acquired by a confirmed 
successor in interest. Section 1024.30(c) provides that Sec.  
1024.33(a) only applies to reverse mortgage transactions and that 
Sec. Sec.  1024.39 through 1024.41 only apply to mortgage loans 
secured by property that is a borrower's principal residence. With 
respect to confirmed successors in interest, Sec.  1024.33(a) only 
applies to reverse mortgage transactions, and Sec. Sec.  1024.39 
through 1024.41 only apply to mortgage loans secured by property 
that is the confirmed successor in interest's principal residence.
---------------------------------------------------------------------------

    Commenters raised a number of concerns about the scope of the 
definition of successor in interest, which are discussed in part V.A. 
and the section-by-section analysis of Sec.  1024.31. A number of 
industry commenters urged the Bureau not to finalize the rule. These 
commenters suggested, for example, that the Bureau might consider other 
approaches, such as best practices, guidance, and consumer education, 
or that the Bureau could delay action in order to solicit further 
comment or conduct further outreach to industry, governmental offices, 
and other stakeholders. Some industry commenters urged the Bureau to 
narrow the protections that would apply to confirmed successors in 
interest and not to add additional protections. For example, one 
industry commenter suggested that the Bureau limit the successor in 
interest rules and commentary to facilitating communication with 
successors in interest, while another suggested that the Bureau adopt 
only enhanced policies and procedures requirements setting forth 
objectives for servicers to meet. A number of industry commenters also 
urged the Bureau not to extend the protections of the mortgage 
servicing rules to potential successors in interest, noting that doing 
so could allow someone without a true ownership interest to initiate 
actions that might jeopardize the interests of the true owner or the 
privacy of any borrowers on the account.
    One trade association submitted a comment listing a large number of 
additional regulatory provisions that the Bureau should address from 
Regulations X and Z and other regulations. As part of this list, this 
commenter stated that a confirmed successor in interest should be a 
borrower for purposes of Sec.  1024.17.
    A number of consumer advocacy group commenters also urged the 
Bureau to extend the protections of Sec.  1024.17 to successors in 
interest. As discussed in part V.A. and the section-by-section analyses 
of Sec. Sec.  1024.36(i) and 1024.38(b)(1)(vi), various consumer 
advocacy groups also suggested that successors in interest should 
receive additional protections prior to confirmation. Some consumer 
advocacy groups urged the Bureau to create a privately enforceable 
right triggered by the homeowner's submission of documentation, not the 
servicer's additional step of confirming the person's status. They also 
urged the Bureau to provide a limited notice of error procedure related 
to successor status before a foreclosure sale and to make both the 
request for information and notice of error procedures privately 
enforceable. Consumer advocacy groups also stated that the final rule 
should extend dual tracking protections to successors in interest even 
prior to confirmation, to ensure that the house is not lost to 
foreclosure before successor in interest status is determined. In their 
view, once a successor in interest has submitted a complete loan 
modification application, including reasonable documentation 
establishing the successor in interest's identity and ownership 
interest, within the timelines contained in Sec.  1024.41(f) and (g), a 
servicer should not be permitted to initiate or continue with 
foreclosure until it has reviewed the proof of successor status and the 
application.
    A large number of commenters of various types expressed concern 
about the proposal's use of the term prior borrower because the 
borrower who transfers an interest may still be liable on the loan 
obligation (absent a release) and a borrower for purposes of Regulation 
X.
    For the reasons set forth in part V.A. and this discussion, the 
Bureau is expanding the protections applicable to confirmed successors 
in interest to include Sec.  1024.17. The Bureau agrees that successors 
in interest confront the same types of escrow issues as borrowers who 
are currently protected by Sec.  1024.17. As consumer advocacy groups 
noted in their comments, successors in interest are particularly likely 
to experience escrow problems due to the transfer of ownership through 
which they acquired their ownership interest in the property. In 
issuing the proposal, the Bureau intended to include all of the 
mortgage servicing protections of Regulations X and Z, which, as 
commenters noted, should include the escrow protections of Sec.  
1024.17. Expanding the protections afforded to confirmed successors in 
interest to include Sec.  1024.17 effectuates the Bureau's stated 
intent in the proposal to extend all of the Regulation X mortgage 
servicing protections to confirmed successors in interest and ensures 
that confirmed successors in interest can obtain necessary escrow 
information.
    The Bureau has reviewed the other sections of Regulation X that 
commenters suggested that the Bureau should address and does not 
believe that it is appropriate to add them to the regulatory provisions 
listed in Sec.  1024.30(d). For example, a trade association stated 
that the final rule should define a confirmed successor in interest as 
a borrower for purposes of Sec.  1024.11, which governs mailing of 
documents under Regulation X. However, it is not necessary to do so 
because Sec.  1024.11 does not use the term borrower and, by its terms, 
already applies to any provision of Regulation X that requires or 
permits mailing of documents.
    Although many industry commenters questioned the need to extend the 
protections of the Regulation X mortgage servicing rules to confirmed 
successors in interest, the Bureau concludes that such protections are 
necessary and appropriate. As numerous consumer advocacy groups, a 
local government commenter, and the office of a State Attorney General 
explained and illustrated in their comments, successors in interest 
face many of the challenges that Regulation X's mortgage servicing 
rules were designed to prevent. These comments are consistent with 
various published reports and the Bureau's market knowledge.\116\ The 
same reasons that

[[Page 72188]]

supported the Bureau's adoption of the 2013 RESPA Servicing Final Rule 
also support Sec.  1024.30(d): Successors in interest are homeowners 
whose property is subject to foreclosure if the mortgage loan 
obligation is not satisfied, even though the successor in interest may 
not have assumed that obligation under State law or otherwise be liable 
on the obligation. In addition to Sec.  1024.17 as discussed above, the 
Bureau has considered each section of subpart C of Regulation X and 
believes that each section should apply to confirmed successors in 
interest.\117\
---------------------------------------------------------------------------

    \116\ See part V.A., supra; see also Bureau of Consumer Fin. 
Prot., Supervisory Highlights Mortgage Servicing Special Edition 
(Issue 11) at 15-16 (June 2016); Alys Cohen, Nat'l Consumer Law 
Ctr., Snapshots of Struggle: Saving the Family Home After a Death or 
Divorce, Successors Still Face Major Challenges in Obtaining Loan 
Modifications (Mar. 2016), available at https://www.nclc.org/images/pdf/pr-reports/report-snapshot-struggle.pdf; Nat'l Hous. Res. Ctr., 
Servicer Compliance with CFPB Servicing Regulations (Feb. 2016), 
available at https://www.hsgcenter.org/wp-content/uploads/2016/02/NHRC-2016-Servicing-Survey-Report.pdf; Nat'l Consumer Law Ctr., NCLC 
Survey Reveals Ongoing Problems with Mortgage Servicing 2, 5 (May 
2015), available at https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/ib-servicing-issues-2015.pdf; Nat'l Council of La Raza & Nat'l Hous. Res. Ctr., Are 
Mortgage Servicers Following the New Rules? A Snapshot of Compliance 
with CFPB Servicing Standards 3, 7 (Jan. 9, 2015), available at 
https://www.nclr.org/Assets/uploads/Publications/mortgageservicesreport_11215.pdf; Nat'l Consumer Law Ctr., Examples 
of Cases Where Successors in Interest and Similar Parties Faced 
Challenges Seeking Loan Modifications and Communicating with 
Mortgage Servicers (July 1, 2014), available at https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/successor-stories-2014.pdf; Cal. Reinvestment Coal., Chasm Between Words and 
Deeds X: How Ongoing Mortgage Servicing Problems Hurt California 
Homeowners and Hardest-Hit Communities (May 2014), available at 
https://www.calreinvest.org/publications/california-reinvestment-coalition-research; Nat'l Hous. Res. Ctr., National Mortgage 
Settlement Servicing Standards and Noncompliance: Results of a 
National Housing Counsel Survey 8 (June 5, 2013), available at 
content/uploads/2013/06/NMS_Findings.pdf; Cal. Reinvestment Coal., 
Chasm Between Words and Deeds IX: Bank Violations Hurt Hardest Hit 
Communities (Apr. 2013), available at https://www.calreinvest.org/publications/california-reinvestment-coalition-research.
    \117\ As explained in part V.A., supra, and in the section-by-
section analyses of Sec.  1024.32(c)(1) through (4), infra, the 
final rule includes additional provisions governing how the Mortgage 
Servicing Rules in Regulation X apply to confirmed successors in 
interest.
---------------------------------------------------------------------------

    Specifically, the Bureau concludes that Sec. Sec.  1024.35 and 
1024.36 should apply to confirmed successors in interest.\118\ When the 
Bureau issued Sec. Sec.  1024.35 and 1024.36 in the 2013 RESPA 
Servicing Final Rule, the Bureau acknowledged that both borrowers and 
servicers would be best served if the Bureau were to define clearly a 
servicer's obligation to correct errors or respond to information 
requests.\119\ Clearly defining a servicer's obligation with respect to 
a confirmed successor in interest will similarly benefit both servicers 
and confirmed successors in interest. Under current Sec.  
1024.38(b)(1)(vi), servicers are required to have policies and 
procedures reasonably designed to ensure that the servicer can identify 
and communicate with successors in interest upon notification of the 
death of a borrower. Because Sec. Sec.  1024.35 and 1024.36 do not 
currently necessarily apply to successors in interest, however, the 
extent of the obligation to communicate with successors in interest and 
how a successor in interest may obtain information from a servicer are 
not clear. Sections 1024.35 and 1024.36 will provide important 
protections to confirmed successors in interest. For instance, Sec.  
1024.35 will provide confirmed successors in interest with protections 
regarding a servicer's failure to accept payments conforming to the 
servicer's written requirements for payments. Additionally, Sec.  
1024.36's requirements to provide information about the mortgage loan 
will help prevent unnecessary foreclosure on the confirmed successor in 
interest's property by, for example, ensuring that a confirmed 
successor in interest can obtain information about the payment history 
of the loan. Because confirmed successors in interest, like transferor 
borrowers, bear the risk of unnecessary foreclosure as homeowners of 
the property, Sec. Sec.  1024.35 and 1024.36 should apply to confirmed 
successors in interest.
---------------------------------------------------------------------------

    \118\ As described in the section-by-section analysis of Sec.  
1024.36(i), infra, in addition to applying the Mortgage Servicing 
Rules, including Sec.  1024.36, with respect to confirmed successors 
in interest, the Bureau is also finalizing a new information request 
requirement in Sec.  1024.36(i) that applies before the servicer has 
confirmed the successor in interest's status.
    \119\ 78 FR 10695, 10736 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau solicited comment on whether any information that could 
be provided to successors in interest under Sec. Sec.  1024.35 and 
1024.36 presents privacy concerns and whether servicers should be 
permitted to withhold any information from successors in interest out 
of such privacy concerns. A number of commenters expressed concerns 
regarding privacy issues, which are discussed in more detail in part 
V.A. In light of these concerns, the Bureau is amending Sec. Sec.  
1024.35 and 1024.36 to allow servicers to limit the information that 
confirmed successors in interest may obtain about other borrowers and 
that all borrowers may obtain about potential and confirmed successors 
in interest, as discussed in the section-by-section analyses of 
Sec. Sec.  1024.35 and 1024.36.\120\
---------------------------------------------------------------------------

    \120\ The Bureau also considered, as an alternative, the 
approach suggested by an industry commenter that would have allowed 
servicers to omit ``personal, private information.'' The Bureau 
concluded that such a standard would have proved difficult to apply 
and could, in many instances, have resulted in servicers withholding 
information that confirmed successors in interest need to preserve 
their ownership interest in the property.
---------------------------------------------------------------------------

    As explained in part V.A., after considering the comments received, 
the Bureau has decided that the loss mitigation procedures contained in 
Sec.  1024.41 should apply to confirmed successors in interest and that 
servicers should be required to evaluate confirmed successors in 
interest for loss mitigation options to prevent unnecessary 
foreclosure. Significant consumer harm flows from a servicer's failure 
to afford a confirmed successor in interest the same access to loss 
mitigation as other homeowners. The Bureau also believes that requiring 
servicers to evaluate confirmed successors in interest for loss 
mitigation prior to the confirmed successor in interest's assumption of 
liability for the mortgage debt under State law is consistent with 
Fannie Mae and Freddie Mac guidelines and serves RESPA's purposes as 
discussed in part V.A.\121\
---------------------------------------------------------------------------

    \121\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17 
(Aug. 28, 2013), available at https://www.fanniemae.com/content/announcement/svc1317.pdf; Freddie Mac, Bulletin 2013-3 (Feb. 15, 
2013), available at https://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1303.pdf.
---------------------------------------------------------------------------

    Consistent with the proposal and with Sec.  1024.41's treatment of 
borrowers generally, the final rule does not require a servicer to 
offer a successor in interest any particular loss mitigation 
option.\122\ The final rule also does not prevent a servicer from 
conditioning an offer for a loss mitigation option on the successor in 
interest's assumption of the mortgage loan obligation under State law 
or from offering loss mitigation options to the successor in interest 
that differ based on whether the successor in interest would 
simultaneously assume the mortgage loan obligation. Under the final 
rule, however, a servicer cannot condition review and evaluation of a 
loss mitigation application on a confirmed successor in interest's 
assumption of the mortgage obligation. If the property is the confirmed 
successor in interest's principal residence and the procedures set 
forth in Sec.  1024.41 are otherwise applicable, a servicer is, for 
example, required under Sec.  1024.41(b) to respond to a loss 
mitigation application from the confirmed successor in interest and 
exercise reasonable diligence in obtaining documents and information to 
complete the loss mitigation application. The foreclosure prohibitions 
under Sec.  1024.41(f) and (g) may also apply.
---------------------------------------------------------------------------

    \122\ A trade association also stated it was not clear if the 
proposal would require servicers to allow confirmed successors in 
interest to assume the loan. State law may require servicers to 
allow confirmed successors in interest to assume the loan, but the 
Bureau is not interpreting State law, and the final rule does not 
require assumptions as a matter of Federal law.
---------------------------------------------------------------------------

    For similar reasons, the early intervention and continuity of 
contact requirements contained in Sec. Sec.  1024.39 and 1024.40 should 
apply to confirmed

[[Page 72189]]

successors in interest.\123\ In issuing these provisions in the 2013 
RESPA Servicing Final Rule, the Bureau stated that Sec. Sec.  1024.39 
and 1024.40 are 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.\124\ The Bureau further determined that Sec. Sec.  
1024.39 and 1024.40 are necessary and appropriate to carry out the 
purposes of the Dodd-Frank Act of ensuring that markets for consumer 
financial products and services are fair, transparent, and competitive; 
that consumers are provided with timely and understandable information 
to make responsible decisions about financial transactions; and that 
markets for consumer financial products and services operate 
transparently and efficiently to facilitate access and innovation.\125\ 
These same consumer protection purposes are served by applying 
Sec. Sec.  1024.39 and 1024.40 to confirmed successors in interest, 
who, as homeowners of a property securing a mortgage loan, may be 
required to make payments on the loan to avoid foreclosure. In 
particular, the protections provided by Sec. Sec.  1024.39 and 1024.40 
serve to prevent unnecessary foreclosure by alerting confirmed 
successors in interest to any delinquency on the mortgage loan secured 
by their property and assisting with the process of applying for loss 
mitigation options.
---------------------------------------------------------------------------

    \123\ Although one industry commenter expressed concern that 
sending loss mitigation related letters and trying to establish 
right party contact with individuals not liable on a delinquent loan 
could constitute abusive or harassing debt collection efforts, in 
violation of FDCPA section 806, 15 U.S.C. 1692d, the Bureau does not 
believe that providing this important information about the property 
at issue to confirmed successors in interest in a notice that is 
required by Regulation X will be abusive or harassing absent other 
conduct making the overall effect of the communication abusive or 
harassing, as explained in part V.A., supra. Additionally, if upon 
confirmation a servicer sends an initial written notice and 
acknowledgment form to a confirmed successor in interest who is not 
liable on the mortgage loan obligation in compliance with the 
requirements of Sec.  1024.32(c)(1) through (3), the final rule 
gives the servicer the option not to send Mortgage Servicing Rule 
notices to the confirmed successor in interest until the confirmed 
successor in interest requests them through the acknowledgment. See 
part V.A., supra, and the section-by-section analysis of Sec.  
1024.32(c), infra.
    \124\ 78 FR 10696, 10791 (Feb. 14, 2013) (discussing Sec.  
1024.39); see also id. at 10809-10 (discussing Sec.  1024.40).
    \125\ Id. at 10791 (citing section 1021(a) and (b) of the Dodd-
Frank Act).
---------------------------------------------------------------------------

    Finally, the Bureau concludes that the requirements contained in 
Sec.  1024.33 (regarding mortgage servicing transfers), Sec.  1024.34 
(regarding escrow payments and account balances), and Sec.  1024.37 
(regarding force-placed insurance) should apply to confirmed successors 
in interest. The same rationale for applying these rules to any 
borrower applies with respect to confirmed successors in interest, who 
are also homeowners and may be required to make payments on the loan to 
avoid foreclosure. Confirmed successors in interest, like other 
borrowers, need to know where to send their mortgage payments in the 
event of a servicing transfer. They also need to know the balance of 
the escrow loan account, how their payments into that account are 
applied, and the status of tax and homeowner's insurance payments made 
from the escrow account. Like other borrowers, they also need 
information about any force-placed insurance the servicer has taken out 
on their property. Moreover, it would add unnecessary complexity to the 
rules to apply the rest of the Mortgage Servicing Rules in Regulation X 
to confirmed successors in interest but not to apply Sec. Sec.  
1024.33, 1024.34, and 1024.37 to them. The Bureau believes it is 
preferable to apply all of the Mortgage Servicing Rules in Regulation X 
to confirmed successors in interest, unless there is a compelling 
reason not to apply a particular rule. The Bureau solicited comment as 
to whether any such compelling reasons exist with respect to Sec. Sec.  
1024.33, 1024.34, and 1024.37. After reviewing the comments, the Bureau 
has not identified any compelling reasons not to apply a particular 
provision of the Mortgage Service Rules in Regulation X to confirmed 
successors in interest.
    While industry commenters expressed a number of concerns relating 
to the cost of complying with the Regulation X mortgage servicing 
requirements with respect to confirmed successors in interest, many of 
the requirements that they identified as particularly burdensome or 
costly are not part of the final rule. For example, a number of 
industry commenters indicated that it would be costly and might require 
systems changes if the final rule required servicers to send confirmed 
successors in interest duplicate copies of mortgage servicing rule 
notices that the servicer was also sending to another borrower on the 
account. The final rule includes new Sec.  1024.32(c)(4), which 
clarifies that such duplicate notices are generally not required. Other 
industry commenters expressed concern that it would be costly if the 
final rule required servicers to preserve until confirmation 
information requests from potential successors in interest who request 
information other than a list of documents required for confirmation. 
Section 1024.36(i) does not require servicers to preserve this type of 
request. Similarly, a number of industry commenters said that it would 
be burdensome if the final rule allowed requests for information under 
Sec.  1024.36(i) to be sent to any address for the servicer. Like the 
proposal, the final rule permits the servicer to establish an exclusive 
address. Some trade associations suggested that the Bureau should have 
considered the costs for servicers to become equipped to originate 
mortgage loans. Because the final rule does not require servicers to 
originate mortgage loans, this type of cost, like many others mentioned 
by commenters, is not one imposed by the final rule.\126\
---------------------------------------------------------------------------

    \126\ Successors in interest may have a right under State law to 
assume the mortgage loan obligation, but that is independent of the 
final rule, which does not mandate assumptions. In any event, a 
successor in interest's assumption of the loan obligation generally 
would not result in a new origination. The Bureau's July 2014 
interpretive rule clarified that, where a successor in interest who 
has previously acquired a legal interest in a dwelling is added as 
an obligor on the mortgage loan, the Regulation Z Ability-to-Repay 
Rule does not apply. See 79 FR 41631, 41632-33 (July 17, 2014).
---------------------------------------------------------------------------

    Nevertheless, the Bureau recognizes that providing confirmed 
successors in interest with protections under Sec.  1024.17 and subpart 
C will cause servicers to incur some costs. As many industry commenters 
noted, servicers may need to devote additional resources to assessing 
the identity and ownership interest of potential successors in interest 
as part of the confirmation process established by the final rule. The 
Bureau expects that these additional costs will be limited because 
servicers already routinely make these types of determinations. For 
example, servicers confirm the identity of potential successors in 
interest and other third parties when such parties assume the mortgage 
loan obligation under State law. Prior to bringing a foreclosure 
action, servicers also generally have to determine who owns the 
property at issue, in order to ensure that all proper parties are 
notified. Moreover, the final rule allows a servicer to require 
additional documentation from a potential successor in interest if it 
reasonably determines that it cannot make a confirmation determination 
based on the documentation provided by the potential successor in 
interest.\127\ The

[[Page 72190]]

Bureau anticipates that these considerations will mitigate any 
additional costs associated with making confirmation determinations in 
conformance with the final rule.
---------------------------------------------------------------------------

    \127\ Comment 38(b)(1)(vi)-4 explains, for example, that, if 
there is pending litigation involving the potential successor in 
interest and other claimants regarding who has title to the property 
at issue, a servicer may specify that documentation of a court 
determination or other resolution of the litigation is required 
before a confirmation determination can be made. Additionally, if a 
servicer requires additional information in order to identify the 
documents required for confirmation in response to a written request 
under Sec.  1024.36(i), the final rule allows the servicer to 
provide a response that includes examples of documents typically 
accepted to establish identity and ownership interest in a property, 
indicates that the person may obtain a more individualized 
description of required documents by providing additional 
information, specifies what additional information is required, and 
provides contact information for further assistance.
---------------------------------------------------------------------------

    Servicers may also have to devote additional resources to tracking 
successors in interest, providing responses to information requests 
from confirmed successors in interest, handling error resolution, 
responding to and evaluating loss mitigation applications from 
successors in interest, and otherwise communicating with successors in 
interest. Providing confirmed successors in interest with Sec.  
1024.41's protections may delay foreclosure on the property securing 
the mortgage loan in some cases, as discussed above. However, because 
servicers are already required to comply with the requirements of Sec.  
1024.17 and subpart C with respect to transferor borrowers, the 
additional cost to servicers to apply these requirements to confirmed 
successors in interest should be limited. Moreover, applying these 
protections may result in the avoidance of unnecessary foreclosures 
where loss mitigation options are available, thus providing benefits to 
all parties.
    The final rule limits the application of Sec.  1024.30(d) to 
confirmed successors in interest.\128\ Because some people representing 
themselves as successors in interest may not actually have an ownership 
interest in the property, requiring servicers to apply Regulation X's 
communication, disclosure, and loss mitigation requirements to 
successors in interest before the servicer has confirmed the successor 
in interest's identity and ownership interest in the property could 
present privacy and other concerns, as many commenters noted. The 
Bureau also believes it would be inappropriate to require servicers to 
incur substantial costs before confirming the successor in interest's 
identity and ownership interest in the property. The final rule 
includes, however, a new information request for potential successors 
in interest and revised policies and procedures requirements relating 
to potential successors in interest, which are discussed in the 
section-by-section analyses of Sec. Sec.  1024.36(i) and 
1024.38(b)(1)(vi), as well as new Regulation Z commentary related to 
payments by successors in interest, which is discussed in the section-
by-section analysis of Sec.  1026.36(c).
---------------------------------------------------------------------------

    \128\ However, a successor in interest could be a borrower for 
purposes of the Mortgage Servicing Rules in Regulation X (both 
currently and as amended by the final rule), even if the successor 
in interest has not been confirmed, if the successor in interest has 
assumed the mortgage loan obligation under State law or is otherwise 
obligated on the mortgage loan. Section 1024.30(d) does not prevent 
an unconfirmed successor in interest from being a borrower for 
purposes of Regulation X.
---------------------------------------------------------------------------

    Proposed comment 30(d)-1 would have clarified the requirement in 
proposed Sec.  1024.30(d) that a successor in interest must be 
considered a borrower for the purposes of Regulation X's subpart C once 
a servicer confirms the successor in interest's identity and ownership 
interest in the property. The proposed comment included an example of 
the application of Sec.  1024.41's loss mitigation procedures to 
successors in interest and a cross-reference to Sec.  1024.36(i)'s 
requirement that a servicer must respond to written requests for 
certain information from a potential successor in interest.
    The Bureau is finalizing proposed comment 30(d)-1 with a number of 
changes. To conform to final Sec.  1024.30(d), the final version of 
comment 30(d)-1 identifies Sec.  1024.17 as a protection applicable to 
confirmed successors in interest. As finalized, comment 30(d)-1 
explains that a confirmed successor in interest must be considered a 
borrower for purposes of subpart C and Sec.  1024.17, regardless of 
whether the successor in interest assumes the mortgage loan obligation 
under State law. An industry commenter suggested that the Bureau 
clarify that the treatment of a successor in interest may depend on 
whether the property is the successor in interest's principal 
residence, noting that, under Sec.  1024.30(c)(2), Sec. Sec.  1024.39 
through 1024.41 only apply to mortgage loans that are secured by a 
property that is a borrower's principal residence. In illustrating how 
Sec.  1024.41's loss mitigation procedures apply to confirmed 
successors in interest, the final version of comment 30(d)-1 indicates 
that the property must be the confirmed successor in interest's 
principal residence and that the procedures set forth in Sec.  1024.41 
must otherwise be applicable. Because comment 30(d)-1 addresses the 
treatment of confirmed successors in interest, the Bureau has 
eliminated the cross-reference to Sec.  1024.36(i) that appeared in 
proposed comment 30(d)-1 and has added the word confirmed in the 
comment heading. The final version of comment 30(d)-1 also includes 
technical changes to incorporate the new definition of confirmed 
successor in interest.
    The final version of comment 30(d)-1 also clarifies that treatment 
of a confirmed successor in interest as a borrower for purposes of 
Sec.  1024.17 and subpart C does not affect whether the confirmed 
successor in interest is subject to the contractual obligations of the 
mortgage loan agreement, which is determined by applicable State law. 
This addition clarifies that confirmation of a successor in interest 
who has not assumed the loan obligation and is not otherwise liable on 
the obligation does not make the successor in interest a ``borrower'' 
for liability purposes.\129\ Consistent with an interpretive rule that 
the Bureau is issuing concurrently with this final rule, comment 30(d)-
1 also clarifies that communications in compliance with Regulation X to 
a confirmed successor in interest as defined in Sec.  1024.31 do not 
violate FDCPA section 805(b) because the term consumer for purposes of 
FDCPA section 805 includes any person who meets the definition in 
Regulation X of confirmed successor in interest.
---------------------------------------------------------------------------

    \129\ Since confirmation does not affect liability under State 
law, it would not be accurate, for example, for a servicer to report 
to a consumer reporting agency that a confirmed successor in 
interest is delinquent on the mortgage loan if the confirmed 
successor in interest has not assumed the mortgage loan obligation 
under State law and is not otherwise liable for it.
---------------------------------------------------------------------------

    The final rule also adds new comment 30(d)-2 relating to assumption 
of the mortgage loan obligation under State law. This new comment 
clarifies that a servicer may not require a confirmed successor in 
interest to assume the mortgage loan obligation under State law to be 
considered a borrower for purposes of Sec.  1024.17 and subpart C. As 
explained in part V.A., the Bureau believes that it is important to 
make the protections of the Mortgage Servicing Rules available to 
confirmed successors in interest who have not assumed the mortgage loan 
obligation under State law because confirmed successors in interest may 
need information about the loan in order to decide whether to assume 
the loan obligation and to protect their ownership interest.
    New comment 30(d)-2 further explains that, if a successor in 
interest assumes a mortgage loan obligation under State law or is 
otherwise liable on the mortgage loan obligation, the protections that 
the successor in interest enjoys under Regulation X are not limited to 
the protections that apply under Sec.  1024.30(d) to a confirmed

[[Page 72191]]

successor in interest. This addition clarifies that Sec.  1024.30(d) 
does not abrogate the Regulation X protections that already exist for 
persons (including potential or confirmed successors in interest) who 
assume a mortgage loan obligation under State law.
    Proposed comment 30(d)-2 addressed how a servicer's confirmation of 
a successor in interest's identity and ownership interest in the 
property would affect the borrower who transferred the ownership 
interest. The proposed comment would have provided that, even after a 
servicer's confirmation of a successor in interest's identity and 
ownership interest in the property, the servicer would still be 
required to comply with the requirements of Regulation X's subpart C 
with respect to the prior borrower, unless that borrower also had 
either died or been released from the obligation on the mortgage loan. 
The proposed comment also would have provided that the prior borrower 
would retain any rights under Regulation X's subpart C that accrued 
prior to the confirmation of the successor in interest to the extent 
these rights would otherwise survive the prior borrower's death or 
release from the obligation. For the reasons stated in part V.A. and in 
this discussion, the Bureau is finalizing proposed comment 30(d)-2, 
renumbered as comment 30(d)-3, with substantial revisions to make it 
clear that confirmation of a successor in interest does not strip the 
borrower who transferred the ownership interest of any protections 
under Regulation X.\130\
---------------------------------------------------------------------------

    \130\ As described in the section-by-section analysis of Sec.  
1026.2(a)(11), infra, the Bureau is making parallel revisions to 
similar commentary with respect to Regulation Z's requirements.
---------------------------------------------------------------------------

    As explained in part V.A., the Bureau received many comments 
objecting to the use of the term prior borrower on the grounds that it 
was confusing and inaccurate. A number of commenters also expressed 
concern that the Bureau's proposal would not provide adequate 
protection to transferor borrowers or the estates of transferor 
borrowers.
    As many commenters noted, the term prior borrower is inapt because 
a transferor borrower may still be liable on the mortgage note and may 
have significant legal interests at stake with respect to the mortgage 
loan. For example, the servicer may continue to report the performance 
of the loan on the transferor borrower's credit report, and, in the 
event of foreclosure, the transferor borrower could be liable for any 
deficiency, depending on the contract terms and applicable State law. 
The Bureau also recognizes that, when a transferor borrower dies, the 
estate and its representative have an important role to play and that 
Regulation X can provide valuable information and protections to 
estates even after confirmation of a successor in interest.
    In light of these considerations, the Bureau does not intend for 
the final rule to take away the protections that Regulation X currently 
provides for living transferor borrowers or for estates of transferor 
borrowers and their representatives and has significantly revised 
proposed comment 30(d)-2 to make this clear. As finalized, comment 
30(d)-3 provides that, even after a servicer's confirmation of a 
successor in interest, the servicer is still required to comply with 
all applicable requirements of Regulation X with respect to the 
borrower who transferred the ownership interest to the successor in 
interest.
    The Bureau acknowledges that, under the final rule, servicers will 
sometimes be required to comply with the Mortgage Servicing Rules in 
Regulation X with respect to more than one person--such as the 
transferor borrower or the transferor borrower's estate and the 
confirmed successor in interest, as well as, in some cases, multiple 
confirmed successors in interest who each acquire an ownership interest 
in a property. Although some commenters expressed concern about this, 
the Bureau notes that the Mortgage Servicing Rules already may apply 
with respect to more than one borrower for a particular mortgage loan. 
Spouses, for example, are commonly jointly obligated on the mortgage 
note, and the Mortgage Servicing Rules apply with respect to each 
borrower in such cases. In addition, the final rule includes new Sec.  
1024.32(c)(4), which makes it clear that servicers generally do not 
need to send Regulation X notices to confirmed successors in interest 
if the notices would be duplicative of notices sent to another borrower 
on the account. Accordingly, the Bureau does not believe that applying 
the Mortgage Servicing Rules in Regulation X to confirmed successors in 
interest presents novel challenges for servicers in this regard.
Section 1024.31 Definitions
Confirmed Successor in Interest
    For clarity and ease of reference, the Bureau is adding a 
definition of confirmed successor in interest to Sec.  1024.31 in the 
final rule. As finalized, Sec.  1024.31 defines confirmed successor in 
interest for purposes of subpart C of Regulation X as a successor in 
interest once a servicer has confirmed the successor in interest's 
identity and ownership interest in a property that secures a mortgage 
loan subject to subpart C of Regulation X. This new definition was not 
part of the proposal but is consistent with how the Bureau used the 
term confirmed successor in interest in the preamble to the proposal. 
The Bureau is also finalizing a definition of successor in interest, as 
discussed below.
Delinquency
    Section 1024.31 contains definitions for various terms that are 
used throughout the provisions of subpart C of Regulation X. It does 
not contain a generally-applicable definition of the term 
``delinquency.'' However, delinquency is defined for the specific 
purposes of Sec. Sec.  1024.39(a) and (b) and 1024.40(a) as beginning 
``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.'' \131\ Delinquency is not defined for 
purposes of other sections of subpart C, including Sec.  1024.41(f)(1), 
which prohibits a servicer from making the first notice or filing for 
foreclosure unless ``[a] borrower's mortgage loan obligation is more 
than 120 days delinquent.''
---------------------------------------------------------------------------

    \131\ Comments 39(a)-1.i and 40(a)-3.
---------------------------------------------------------------------------

    To ensure that the term ``delinquency'' is interpreted consistently 
throughout Regulation X's mortgage servicing rules, the Bureau proposed 
to remove the current definition of delinquency applicable to 
Sec. Sec.  1024.39(a) and (b) and 1024.40(a) and to add a general 
definition of delinquency in Sec.  1024.31 that would apply to all 
sections of subpart C.\132\ The Bureau proposed to define delinquency 
as a period of time during which a borrower and the borrower's mortgage 
loan obligation are delinquent. The proposed definition would have 
provided that a borrower and a borrower's mortgage loan obligation are 
delinquent beginning on the day a periodic payment sufficient to cover 
principal, interest, and, if applicable, escrow, became due and unpaid, 
until such time as the outstanding payment is made.\133\ Delinquency 
under the

[[Page 72192]]

proposed definition would not have been triggered by a borrower's 
failure to pay a late fee, consistent with current comments 39(a)-1.i 
and 40(a)-3. The Bureau believed that it was unlikely that servicers 
would initiate foreclosure on borrowers who are current with respect to 
principal, interest, and escrow payments solely because of a failure to 
pay accumulated late charges. In contrast with the definition of 
delinquency currently found in comments 39(a)-1.i and 40(a)-3, the 
proposed definition would not have included the phrase ``for a given 
billing cycle.'' The proposal explained that, as used in the context of 
the live contact and continuity of contact requirements under 
Sec. Sec.  1024.39 and 1024.40, respectively, ``for a given billing 
cycle'' was intended to ensure that the servicer met the respective 
requirements of those rules during each billing cycle in which the 
borrower was delinquent. However, such a definition would have created 
incongruities if applied to the 120-day foreclosure referral waiting 
period in Sec.  1024.41(f)(1)(i).
---------------------------------------------------------------------------

    \132\ The proposed definition would not have affected the 
interpretation of Sec.  1024.33(c), which prohibits servicers from 
treating a borrower as ``late for any purpose'' if a transferee 
servicer receives a payment from a borrower within the 60-day period 
beginning on the effective date of a transfer.
    \133\ All three concepts--delinquency, delinquent borrower, and 
delinquent mortgage loan obligation--are used interchangeably 
throughout subpart C. See, e.g., 12 CFR 1024.39(a) (``delinquent 
borrower''; ``borrower's delinquency''); 12 CFR 1024.39(b) (same); 
12 CFR 1024.41(f)(1)(i) (``A borrower's mortgage loan obligation is 
more than 120 days delinquent'').
---------------------------------------------------------------------------

    The Bureau sought to provide servicers, borrowers, and other 
stakeholders with clear guidance on how to determine whether a borrower 
is delinquent for purposes of Regulation X's servicing provisions and 
when the borrower's delinquency began. Since the publication of the 
2013 RESPA Servicing Final Rule, the Bureau had received numerous 
inquiries about how servicers should calculate delinquency with respect 
to those provisions of the Mortgage Servicing Rules that refer to 
delinquency but do not define delinquency. In particular, stakeholders 
had asked the Bureau how servicers should calculate the 120-day 
foreclosure referral waiting period set forth in Sec.  
1024.41(f)(1)(i).\134\
---------------------------------------------------------------------------

    \134\ For example, in advance of the proposal, some servicers 
that apply a borrower's payments to the oldest outstanding periodic 
payment sought guidance from the Bureau about how to calculate the 
length of a borrower's delinquency. See Am. Bankers Ass'n. Letter to 
Bureau of Consumer Fin. Prot. (Oct. 24, 2014), available at https://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
---------------------------------------------------------------------------

    The Bureau also proposed three new comments to the proposed 
definition of delinquency. Proposed comment 31 (Delinquency)-1 
essentially restated existing comments 39(a)-1.i and 40(a)-3 by stating 
that a borrower becomes delinquent beginning the day on which the 
borrower fails to make a periodic payment, even if the servicer grants 
the borrower additional time after the due date to pay before charging 
the borrower a late fee.
    Proposed comment 31 (Delinquency)-2 addressed how delinquency 
should be calculated if a servicer applies a borrower's payments to the 
oldest outstanding periodic payment. Proposed comment 31 (Delinquency)-
2 would have clarified that, if a servicer applies payments to the 
oldest outstanding periodic payment, the date of the borrower's 
delinquency must advance accordingly. The proposed comment included an 
example illustrating this concept. The Bureau understood from its 
outreach that many servicers credit payments made to a delinquent 
account to the oldest outstanding periodic payment; in fact, the Fannie 
Mae's and Freddie Mac's model deeds of trust require this.\135\ The 
Bureau also understood that most servicers already do not treat such a 
borrower as seriously delinquent and do not initiate loss mitigation 
procedures or seek to foreclose on that borrower. As such, the Bureau 
explained that the proposed comment would not place a significant 
additional burden on most servicers. Moreover, because the proposed 
comment would not have required servicers to apply payments to the 
oldest outstanding periodic payment, consistent with the Bureau's 
decision in the context of the 2013 TILA Servicing Final Rule, 
servicers who do not apply payments to the oldest outstanding periodic 
payment would be unaffected.
---------------------------------------------------------------------------

    \135\ See, e.g., Fannie Mae, Security Instruments, https://www.fanniemae.com/singlefamily/security-instruments (security 
instruments for various states but with a uniform covenant that 
payments shall be applied to each periodic payment in the order in 
which it became due); Fannie Mae & Freddie Mac, California Single 
Family Uniform Instrument, Form 3005-4, available at https://www.fanniemae.com/content/legal_form/3005w.doc; Fannie Mae & Freddie 
Mac, New York Single Family Uniform Instrument, Form 3033, available 
at https://www.fanniemae.com/content/legal_form/3033w.doc.
---------------------------------------------------------------------------

    Proposed comment 31 (Delinquency)-3 would have permitted servicers 
to apply a payment tolerance to partial payments under certain 
circumstances. The Bureau learned from its pre-proposal outreach that 
some servicers elect or are required to treat borrowers as having made 
a timely payment even if they make payments that are less than the 
amount due by some small amount (perhaps as a result of a scrivener's 
error or a recent ARM payment adjustment), such that the account is 
reflected as current in the servicer's systems. Proposed comment 31 
(Delinquency)-3 would have permitted servicers that elect to advance 
outstanding funds to a borrower's mortgage loan account to treat the 
borrower's insufficient payment as timely, and therefore not 
delinquent, for purposes of Regulation X's mortgage servicing rules. 
The comment would have clarified, however, that if a servicer chooses 
not to treat the borrower as delinquent for purposes of subpart C of 
Regulation X, the borrower is not delinquent as defined in Sec.  
1024.31. This clarification was intended to prevent servicers from 
selectively applying a payment tolerance only where doing so benefits 
the servicer. The Bureau sought comment on whether it should limit 
servicers' use of a payment tolerance to a specific dollar amount or 
percentage of the periodic payment amount and, if so, what the specific 
amount or percentage should be.
    The Bureau sought comment regarding whether the proposed definition 
of delinquency had the potential of interfering with industry's 
existing policies and procedures and on whether there were better ways 
to articulate the proposed definition. The Bureau received a number of 
comments. Most commenters generally supported the proposal, and some 
stated that it reflected industry's general understanding of the term. 
One industry commenter expressed concern with the proposal's treatment 
of a borrower as delinquent until such time as the outstanding payment 
is made. The commenter noted that, in the section-by-section analysis 
of Sec.  1024.41(i) discussing duplicative requests, the Bureau assumed 
that a borrower who is performing on a permanent loan modification does 
not meet the definition of delinquency that the Bureau was proposing. 
The commenter stated that a borrower performing on a permanent loan 
modification may not have made all outstanding payments and therefore 
would be considered delinquent under the proposal, contrary to the 
Bureau's assumption.
    Several industry commenters expressed concern that the proposal 
addressed only breaches of the mortgage loan obligation regarding the 
borrower's periodic payment obligation and did not specifically address 
other breaches of the mortgage loan obligation. They stated that, in 
addition to delinquency, borrowers may breach mortgage contracts in 
other ways, including through, for example, non-occupancy of the 
property, waste, damage to the property, and civil or criminal 
violations that could result in forfeiture of the property.\136\ A few 
industry

[[Page 72193]]

commenters expressed concern that a borrower's failure to pay taxes or 
insurance outside of escrow would not meet the proposed definition of 
delinquency. Some industry commenters requested that the Bureau clarify 
whether these types of contractual defaults would be considered a 
delinquency that would trigger the 120-day period under Sec.  
1024.41(f)(1)(i) during which a servicer may not make the first notice 
or filing required by applicable law for any judicial or non-judicial 
foreclosure. Several industry commenters requested that the 120-day 
foreclosure referral waiting period under Sec.  1024.41(f)(1)(i) not 
apply when borrowers commit ``waste'' or abandonment in violation of 
the underlying mortgage contract because these forms of default impair 
the value of the collateral.
---------------------------------------------------------------------------

    \136\ The Bureau notes that these other types of breaches are 
sometimes referred to as non-monetary breaches or non-monetary 
defaults, even though they may involve a monetary aspect (such as 
failure to pay homeowners association dues or taxes outside of 
escrow).
---------------------------------------------------------------------------

    Many industry commenters also expressed concern that the proposal 
did not specifically address ``rolling delinquencies.'' These 
commenters described rolling delinquencies as situations where the 
borrower becomes delinquent, resumes making payments but does not make 
all outstanding payments to cure the delinquency, and the servicer's 
application of payments to the oldest outstanding payment advances the 
borrower's delinquency. A primary concern among commenters was a 
situation where a servicer would never be able to pursue foreclosure 
because a borrower is delinquent but never become more than 120 days 
delinquent because of the rolling delinquency. In this circumstance, 
Sec.  1024.41(f)(1)(i), as described above, would prohibit the servicer 
from making the first notice or filing required by applicable law for 
any judicial or non-judicial foreclosure. Industry commenters urged the 
Bureau to provide clarity on the application of Sec.  1024.41(f)(1)(i) 
to rolling delinquencies. A few commenters suggested the Bureau permit 
servicers to file for foreclosure when a borrower has been continuously 
delinquent for a period of time, but does not becomes more than 120 
days delinquent. Two commenters requested that the Bureau clarify that 
servicers have the right to accelerate the mortgage loan if permitted 
by State law and the contract and can then refer the mortgage loan to 
foreclosure if the accelerated amount is not paid after 120 days.
    One consumer advocacy group expressed support for the clarification 
in proposed comment 31 (Delinquency)-2 that, if a servicer applies 
payments to the oldest outstanding periodic payment, a payment by a 
delinquent borrower advances the date the borrower's delinquency began. 
This commenter recommended the Bureau consider requiring servicers to 
apply borrower payments to the oldest outstanding periodic payment. 
This commenter said that this guidance is consistent with Fannie Mae 
and Freddie Mac guidelines and, as such, should not impose significant 
costs on industry.
    Several industry commenters and one consumer advocacy group 
expressed support for proposed comment 31 (Delinquency)-3. Some 
industry commenters stated that servicers do not always advance 
outstanding funds to address the insufficient payment. They said, for 
example, that servicers may use escrow funds to make up the 
delinquency. One consumer advocacy group recommended that the Bureau 
limit servicers' use of a payment tolerance to 10 dollars. Several 
industry commenters requested that a limit on payment tolerances not be 
set, but recommended that, if the Bureau did set a limit, such a limit 
should be set at a dollar amount rather than a percentage. One industry 
commenter suggested that any limit be set at an amount not to exceed 
five dollars.
    For the reasons discussed below, the Bureau is adopting the 
definition of delinquency in Sec.  1024.31 with changes from the 
proposal. The Bureau is adopting a revised definition of delinquency in 
Sec.  1024.31 and adopting comments 31 (Delinquency)-1 and -2 with 
revisions for clarity. The Bureau is making minor revisions to comment 
31 (Delinquency)-3 in light of comments, and is adopting new comment 31 
(Delinquency)-4 for further clarity.
    As adopted, the definition of delinquency in Sec.  1024.31 explains 
that delinquency means a period of time during which a borrower and a 
borrower's mortgage loan obligation are delinquent. It further explains 
that a borrower and a borrower's mortgage loan obligation are 
delinquent beginning on the date a periodic payment sufficient to cover 
principal, interest, and, if applicable, escrow becomes due and unpaid, 
until such time as no periodic payment is due and unpaid.
    The Bureau recognizes that the proposed language indicating that 
the delinquency ends when the outstanding payment is made may have 
caused uncertainty as to whether a borrower performing on a permanent 
loan modification would have been delinquent under the proposed 
definition of delinquency. Accordingly, the Bureau is revising the 
definition of delinquency to clarify that a borrower and a borrower's 
mortgage loan obligation are delinquent beginning on the date a 
periodic payment sufficient to cover principal, interest, and, if 
applicable, escrow becomes due and unpaid, until such time as no 
periodic payment is due and unpaid. By providing that the delinquency 
exists only until no periodic payment is due and unpaid, the revised 
definition of delinquency addresses a situation where a borrower may 
not have made the outstanding payment, but no periodic payment is due 
and unpaid. For example, a borrower performing under a permanent loan 
modification agreement may not have made all outstanding payments but 
may be making all periodic payments due and owing under the modified 
contract terms. Thus, a borrower performing on a permanent loan 
modification is not delinquent under Sec.  1024.31.
    The definition of delinquency in Sec.  1024.31 applies only for 
purposes of the mortgage servicing rules in Regulation X. It is not 
intended to affect industry's existing policies and procedures for 
identifying and working with borrowers who are late or behind on their 
payments, or existing requirements imposed by other laws or 
regulations, such as the Fair Credit Reporting Act and Regulation V. 
Servicers may use different definitions of ``delinquency'' for 
operational purposes. Servicers may also use different or additional 
terminology when referring to borrowers who are late or behind on their 
payments--for example, servicers may refer to borrowers as ``past due'' 
or ``in default,'' and may distinguish between borrowers who are 
``delinquent'' and ``seriously delinquent.''
    The Bureau is finalizing comment 31 (Delinquency)-1 to provide 
further clarity and reflect the changes to Sec.  1024.31. Comment 31 
(Delinquency)-1 explains that a borrower's delinquency begins on the 
date an amount sufficient to cover a periodic payment of principal, 
interest, and, if applicable, escrow becomes due and unpaid, and lasts 
until such time as no periodic payment 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. Comment 31 (Delinquency)-1 clarifies that 
the delinquency lasts until no periodic payment is due and unpaid.
    The Bureau is finalizing comment 31 (Delinquency)-2 substantially 
as proposed, with minor revisions for clarity. Comment 31 
(Delinquency)-2 provides that if a servicer applies payments to the 
oldest outstanding periodic payment, a payment by a

[[Page 72194]]

delinquent borrower advances the date the borrower's delinquency began. 
It provides an illustrative example. The Bureau notes that some 
commenters asked about how proposed comment 31 (Delinquency)-2 would 
impact a servicer's obligations under the 120-day foreclosure referral 
waiting period in Sec.  1024.41(f)(1)(i). Because the definition of 
delinquency in Sec.  1024.31 applies to all provisions of subpart C of 
Regulation X, it applies to Sec.  1024.41(f)(1)(i). Therefore, if a 
servicer credits a payment by a delinquent borrower to the oldest 
missed payment, the result is that the 120-day foreclosure referral 
waiting period in Sec.  1024.41(f)(1)(i) is advanced.
    The Bureau declines to adopt a requirement in the final rule that 
servicers must apply payments to the oldest outstanding periodic 
payment. As the Bureau has previously explained, such a requirement 
would provide limited consumer benefit and may pose a conflict with 
State law.\137\ The Bureau continues to believe, however, as it stated 
in the 2012 TILA Servicing Proposal, that this method of crediting 
payments provides greater consumer protection.\138\ The Bureau will 
continue to monitor the market to evaluate servicers' payment crediting 
practices and those practices' effects on consumers.
---------------------------------------------------------------------------

    \137\ 78 FR 10901, 10956 (Feb. 14, 2013).
    \138\ See 77 FR 57318, 57352-53 (Sept. 17, 2012).
---------------------------------------------------------------------------

    The Bureau is finalizing comment 31 (Delinquency)-3 with changes 
from the proposal. Final comment 31 (Delinquency)-3 provides that, for 
any given billing cycle for which a borrower's payment is less than the 
periodic payment due, if a servicer chooses not to treat a borrower as 
delinquent for purposes of any section of subpart C, that borrower is 
not delinquent as defined in Sec.  1024.31. Comment 31 (Delinquency)-3 
thus does not specify a method by which a servicer covers a payment 
tolerance, unlike the proposal. The Bureau received comments indicating 
that servicers may cover a payment tolerance in a variety of ways, 
including by advancing the outstanding payment amount to a borrower's 
account, as suggested in the proposal, and applying escrow funds to 
make up the delinquency. The Bureau understands that these servicers 
would prefer not to initiate early intervention communications, 
continuity of contact requirements, or loss mitigation procedures with 
those borrowers for that given billing cycle. The Bureau does not 
intend to mandate how servicers cover a payment tolerance. Servicers 
are permitted to use any method permitted by applicable law to cover a 
payment tolerance. However, the Bureau reminds servicers of their 
obligations to make full and timely payments from escrow \139\ and 
cautions that reliance on application of a payment tolerance to escrow 
funds should not, for example, occasion a default in the payment of 
property taxes.
---------------------------------------------------------------------------

    \139\ 12 CFR 1024.34(a).
---------------------------------------------------------------------------

    The Bureau understands that servicers may collect the amounts 
included in a payment tolerance from the borrower at a later date. The 
Bureau believes that such a practice would still fall within the scope 
of the comment but cautions that a servicer may not cancel or rescind a 
payment tolerance applied for a given billing cycle for purposes of 
determining the date on which the borrower's delinquency began.
    The Bureau declines to set a tolerance limit in the rule. The 
Bureau understands that the maximum amount servicers use for a payment 
tolerance is generally relatively small, ranging from $10 to $50.\140\ 
It is not clear from the comments that a tolerance limit should be 
adopted, or what an appropriate limit would be. As a servicer's 
application of a payment tolerance is voluntary and, as noted above, 
prevents a borrower from becoming delinquent, the Bureau does not 
believe a tolerance limit is necessary to protect against borrower 
harm.
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    \140\ The variation in the payment tolerance amounts used could 
relate to whether the servicer is bound by the terms of the National 
Mortgage Settlement, which includes a mandatory payment tolerance 
policy: Servicers subject to the National Mortgage Settlement must 
accept and credit up to two payments that come within $50 of the 
scheduled payment to the borrower's account. The National Mortgage 
Settlement is available at: https://www.nationalmortgagesettlement.com/. The five servicers subject to 
the National Mortgage Settlement are Bank of America, JP Morgan 
Chase, Wells Fargo, CitiMortgage, and Ally/GMAC. Ocwen reached a 
separate settlement agreement containing an identical provision at a 
later time, also available at https://www.nationalmortgagesettlement.com/.
---------------------------------------------------------------------------

    Finally, in light of comments, the Bureau is adopting new comment 
31 (Delinquency)-4 to address a creditor's right to accelerate payment 
under the contract. Comment 31 (Delinquency)-4 provides that subpart C 
of Regulation X does not prevent a creditor from exercising a right 
provided by a mortgage loan contract to accelerate payment for a breach 
of that contract. Comment 31 (Delinquency)-4 further explains that 
failure to pay the amount due after the creditor accelerates the 
mortgage loan obligation in accordance with the mortgage loan contract 
would begin or continue delinquency.
    As noted above, several industry commenters requested that the 
final rule address breaches of the underlying mortgage agreement other 
than the borrower's monthly periodic payment obligation or rolling 
delinquencies where the borrower is delinquent but does not become more 
than 120 days delinquent. Two commenters requested that the final rule 
clarify the right to accelerate the mortgage loan if permitted by State 
law and the contract. The Bureau previously explained the relationship 
between acceleration and delinquency in the preamble to the 2013 TILA 
Servicing Final Rule. The Bureau explained that, because the definition 
of ``periodic payment'' is intended to reflect the consumer's 
contractual obligation, to the extent a consumer's mortgage loan has 
been accelerated (such that the periodic payment constitutes the total 
amount owed for all principal and interest), this total accelerated 
amount may be appropriately accounted for within this definition of a 
periodic payment,\141\ and would constitute the new amount due. Comment 
31 (Delinquency)-4 applies to permissible acceleration permitted based 
on any breach of the underlying mortgage loan obligation. Depending on 
the contract, this could include, for example, the borrower's failure 
to pay the monthly periodic payment amount on the payment due date as 
well as the borrower's failure to comply with other components of the 
contract, such as requirements to pay property taxes, maintain 
insurance, or pay late fees. If the borrower reinstates the loan or 
otherwise cures the arrearage following acceleration, the borrower 
would no longer be delinquent under the definition set forth in Sec.  
1024.31.
---------------------------------------------------------------------------

    \141\ 78 FR 10902, 10954 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Certain industry commenters requested an exemption from the 120-day 
foreclosure referral waiting period under Sec.  1024.41(f)(1)(i) where 
there is a breach of the underlying mortgage agreement other than the 
borrower's monthly periodic payment obligation. Section 1024.41(f)(1) 
prohibits a servicer from making the first notice or filing required 
under applicable law for any judicial or non-judicial foreclosure 
process unless one of three circumstances occurs: The mortgage loan 
obligation is more than 120 days delinquent, the foreclosure is based 
on a borrower's violation of a due-on-sale clause, or the servicer is 
joining the foreclosure of a superior or subordinate lienholder.\142\ 
The Bureau is not providing exemptions from the

[[Page 72195]]

requirements of Sec.  1024.41(f)(1) for breaches of the contract other 
than the borrower's monthly periodic payment obligation. In the 
Amendments to the 2013 Mortgage Rules, the Bureau declined to exempt 
servicers from the borrower protections set forth in Sec.  1024.41 for 
delinquent borrowers simply because these borrowers may have breached 
other components of the underlying mortgage, such as requirements to 
pay property taxes, maintain insurance, or pay late fees.\143\ The 
Bureau expressed concern that additional exemptions would create 
uncertainty and could potentially be construed in a manner to permit 
evasion of the requirements of Sec.  1024.41(f). Additionally, the 
Bureau explained that an exemption from the pre-foreclosure review 
period is not appropriate merely because foreclosure is based upon an 
obligation other than the borrower's monthly payment.\144\ In many 
instances, these borrowers are experiencing financial distress and may 
benefit from time to seek loss mitigation.\145\
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    \142\ The Bureau is amending Sec.  1024.41(f)(1)(iii) to include 
a servicer's joining of a superior or subordinate lienholder. See 
section-by-section analysis of Sec.  1024.41(f)(1)(iii).
    \143\ Amendments to the 2013 Mortgage Rules, 78 FR 60382, 60406 
(Oct. 1, 2013).
    \144\ Id.
    \145\ Id.
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    For similar reasons, the Bureau again declines to adopt a specific 
exemption from Sec.  1024.41(f)(1) for situations where a borrower may 
be committing ``waste'' in violation of an underlying mortgage 
agreement. The Bureau explained in the Amendments to the 2013 Mortgage 
Rules that it was concerned that such an exemption could be used to 
circumvent the 120-day prohibition for borrowers who are also 
delinquent.\146\ The Bureau also noted that what constitutes waste is a 
very fact-specific determination.\147\ The Bureau recognizes that, as 
some commenters suggested, Sec.  1024.41(f)(1) may disadvantage 
servicers in situations where the property deteriorates during the 120-
day foreclosure referral waiting period. However, the Bureau continues 
to believe that borrowers may be harmed by the risks associated with a 
broader set of exemptions from the requirements of Sec.  1024.41(f)(1).
---------------------------------------------------------------------------

    \146\ Id.
    \147\ Id.
---------------------------------------------------------------------------

    Additionally, the Bureau declines to adopt an exception to Sec.  
1024.41(f)(1) for rolling delinquencies. The Bureau does not want to 
encourage servicers to proceed to foreclosure in situations, where, as 
explained above, a borrower may have only missed one or two payments. 
Additionally, the Bureau believes that servicers may have alternative 
means for addressing situations where a borrower is delinquent but does 
not become more than 120 days delinquent, including acceleration of the 
loan where permitted under the contract and applicable law, as 
discussed in comment 31 (Delinquency)-4.
Successor in Interest
    The Bureau proposed to add a definition of successor in interest to 
Sec.  1024.31 that would be broader than the category of successors in 
interest contemplated by current Sec.  1024.38(b)(1)(vi) and would 
cover all categories of successors in interest who acquired an 
ownership interest in the property securing a mortgage loan in a 
transfer protected by the Garn-St Germain Act. The proposed definition 
stated that a successor in interest is a person to whom an ownership 
interest in a property securing a mortgage loan is transferred from a 
prior borrower, provided that the transfer falls under an exemption 
specified in section 341(d) of the Garn-St Germain Act. The Bureau is 
finalizing the definition of successor in interest with several 
adjustments to address concerns raised by commenters.
    As explained in part V.A., some industry commenters objected to the 
use of the Garn-St Germain Act framework, and many industry commenters 
urged the Bureau to narrow the scope of the definition of successor in 
interest substantially--for example, to limit the scope to just 
situations involving death or death or divorce. Others urged the Bureau 
to exclude anyone who has not assumed the mortgage loan obligation from 
the definition of successor in interest. Some suggested excluding 
certain types of transactions, such as reverse mortgages.
    Consumer advocacy group commenters generally supported use of the 
Garn-St Germain Act framework and urged the Bureau to broaden the 
definition to include various categories that are not covered by the 
Garn-St Germain Act but that are similar to the Garn-St Germain Act 
categories. They suggested, for example, that the definition should 
include unmarried partners, relatives other than a spouse or child of 
the borrower who obtain an interest in the home through a quitclaim 
deed, unrelated transferees, and co-homeowners who did not sign the 
original loan.
    Some commenters raised questions about whether the Bureau intended 
to incorporate the occupancy requirements of the Garn-St Germain Act 
implementing regulations administered by the OCC in 12 CFR part 191. An 
industry commenter suggested that the Bureau should omit reference to 
the Garn-St Germain Act and instead enumerate the categories of 
transfer of ownership that would qualify for regulatory protection, in 
order to avoid unintended consequences.
    A large number of commenters of various types expressed concern 
about the use of the term prior borrower. These commenters noted that 
the borrower who transfers an interest may still be liable on the loan 
obligation (absent a release) and may still be a borrower for purposes 
of Regulation X.
    For the reasons explained in part V.A. and in this discussion, the 
Bureau is finalizing the definition of successor in interest in Sec.  
1024.31 using the Garn-St Germain Act framework but with both 
substantive and technical changes. The Bureau continues to believe that 
it is appropriate to use the categories of transfers of ownership 
interest protected under section 341(d) of the Garn-St Germain Act in 
defining successors in interest for purposes of subpart C of Regulation 
X. Congress recognized that it would be inappropriate to allow lenders 
to exercise a due-on-sale clause with respect to these transferees, and 
the Bureau has concluded that it would also be inappropriate to allow 
these categories of transferees to lose their ownership interests 
because they were unable to avail themselves of the protections of the 
Mortgage Servicing Rules with respect to a mortgage loan on their 
property. As explained in part V.A., the Bureau has considered 
commenters' suggestions about substantially broadening or narrowing the 
Garn-St Germain Act categories but has concluded that the Garn-St 
Germain Act categories remain the best framework to use in defining 
successor in interest in the final rule.
    Because a transferor borrower may still be a borrower after the 
transfer, the final rule substitutes ``borrower'' where ``prior 
borrower'' appeared in the proposed definition of successor in 
interest. For clarity and ease of reference, the final rule does not 
include a cross-reference to the Garn-St Germain Act but instead lists 
the specific categories of transfers that could render a transferee a 
successor in interest. The categories are modeled on categories 
protected by section 341(d) of the Garn-St Germain Act. To ensure that 
the scope of the final rule does not change without further rulemaking 
by the Bureau, the Bureau has omitted the Garn-St Germain Act category 
that protects from due-on-sale enforcement any other transfer or 
disposition described in the Garn-St Germain Act implementing 
regulations.\148\

[[Page 72196]]

Additionally, in restating the categories in the final rule, the Bureau 
has not incorporated certain scope limitations imposed by the Garn-St 
Germain Act or its implementing regulations, such as the exclusion for 
reverse mortgages and certain occupancy requirements in 12 CFR 
191.5(b). As explained in part V.A., these adjustments promote clarity 
and consistency with other aspects of Regulation X and with the final 
definition of successor in interest in Regulation Z. The final rule 
thus provides that the term successor in interest means a person to 
whom an ownership interest in a property securing a mortgage loan 
subject to subpart C is transferred from a borrower, provided that the 
transfer is:
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    \148\ 12 U.S.C. 1701j-3(d)(9). The Bureau has also omitted 
several categories in section 341(d) of the Garn-St Germain Act that 
do not result in a transfer of ownership interest and that are 
therefore irrelevant for successor in interest status. See 12 U.S.C. 
1701j-3(d)(1), (2), (4); see also 79 FR 74176, 74181 n.28 (Dec. 15, 
2014) (noting that the proposal would not apply to the situations 
described in these categories).
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     A transfer by devise, descent, or operation of law on the 
death of a joint tenant or tenant by the entirety;
     A transfer to a relative resulting from the death of a 
borrower;
     A transfer where the spouse or children of the borrower 
become an owner of the property;
     A transfer resulting from a decree of a dissolution of 
marriage, legal separation agreement, or from an incidental property 
settlement agreement, by which the spouse of the borrower becomes an 
owner of the property; or
     A transfer into an inter vivos trust in which the borrower 
is and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property.
    The final rule adds new comment 31 (Successor in interest)-1 to the 
Sec.  1024.31 definition of successor in interest to clarify how the 
definition applies when property is held in a joint tenancy or a 
tenancy by the entirety. A trade association questioned whether the 
proposal would protect a non-borrower owner who holds property in a 
tenancy by the entirety when the borrower owner dies if there is not a 
transfer under state law. This commenter stated that, if property is 
held in a tenancy by the entirety, it is not clear that there is a 
property transfer when one owner dies because State law may provide 
that the survivor continues to own an undivided interest in the entire 
property and that the late spouse's property interest simply 
terminates.
    The Bureau believes it is important to extend protections to a 
tenant by the entirety upon the death of a borrower spouse and to a 
joint tenant upon the death of a borrower joint tenant. The Bureau is 
adding comment 31 (Successor in interest)-1 to the definition of 
successor in interest in Sec.  1024.31 to clarify that, if a borrower 
who has an ownership interest as a joint tenant or tenant by the 
entirety in a property securing a mortgage loan subject to Regulation 
X's subpart C dies, a surviving joint tenant or tenant by the entirety 
with a right of survivorship in the property is a successor in interest 
as defined in Sec.  1024.31.
    The final rule also adds new comment 31 (Successor in interest)-2 
to the definition of successor in interest, which clarifies how the 
definition applies to inter vivos trusts. The comment explains that, in 
the event of a transfer into an inter vivos trust in which the borrower 
is and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property, the beneficiaries of the inter 
vivos trust rather than the inter vivos trust itself are considered to 
be the successors in interest for purposes of Sec.  1024.31. This 
clarification ensures that a trust is not a successor in interest under 
these circumstances. It is also consistent with comment 3(a)-10 to 
Regulation Z, which explains that credit extended for consumer purposes 
to certain trusts is considered to be credit extended to a natural 
person rather than credit extended to an organization.
Section 1024.32 General Disclosure Requirements
32(c) Successors in Interest
    Several commenters raised concerns as to how disclosures required 
under various mortgage servicing rules in Regulation X apply to 
successors in interest. To address these concerns, the final rule 
includes new Sec.  1024.32(c) relating to general disclosure 
requirements for successors in interest. Section 1024.32(c)(1) through 
(3) relates to an optional notice and acknowledgment form that 
servicers may provide upon confirmation to confirmed successors in 
interest who have not assumed the mortgage loan obligation and are not 
otherwise liable on the mortgage loan obligation. Section 1024.32(c)(4) 
generally relieves a servicer of the obligation to provide disclosures 
to a confirmed successor in interest and to engage in live contacts 
with a confirmed successor as required by Sec. Sec.  1024.17, 1024.33, 
1024.34, 1024.37, and 1024.39 if the servicer is complying with those 
requirements with respect to another borrower on the account.
32(c)(1) Optional Notice With Acknowledgment Form
    Some commenters expressed concern about the requirement to send 
mortgage servicing notices to confirmed successors in interest who are 
not liable on the loan obligation under State law, suggesting that such 
contact could be viewed as confusing or harassing or could result in 
liability under the FDCPA. The Bureau believes that the notices and 
other communications required by the Mortgage Servicing Rules in 
Regulation X provide critical information that successors in interest 
will generally want to receive. However, the Bureau also recognizes 
that the language typically used in many of the required notices could 
suggest that the recipient is liable on the loan obligation. As 
explained in part V.A., the Bureau is therefore providing servicers 
with various options they can use to help ensure that confirmed 
successors in interest who are not liable on the mortgage loan 
obligation are not confused or deceived about their status. For the 
reasons set forth in part V.A. and in this discussion, Sec.  1024.32(c) 
provides one such option, authorizing servicers, upon confirming such a 
successor in interest, to provide a written notice that explains the 
confirmed successor in interest's status together with a separate 
acknowledgment form for the confirmed successor in interest to return.
    Section 1024.32(c)(1) provides that the written notice must clearly 
and conspicuously explain:
     The servicer has confirmed the successor in interest's 
identity and ownership interest in the property;
     Unless the successor in interest assumes the mortgage loan 
obligation under State law, the successor in interest is not liable for 
the mortgage debt and cannot be required to use the successor in 
interest's assets to pay the mortgage debt, except that the lender has 
a security interest in the property and a right to foreclose on the 
property, when permitted by law and authorized under the mortgage loan 
contract;
     The successor in interest may be entitled to receive 
certain notices and communications about the mortgage loan if the 
servicer is not providing them to another confirmed successor in 
interest or borrower on the account;
     In order to receive such notices and communications, the 
successor in interest must execute and provide to the servicer an 
acknowledgment form that:
    [cir] Requests receipt of such notices and communications if the 
servicer is not providing them to another

[[Page 72197]]

confirmed successor in interest or borrower on the account; and
    [cir] Indicates that the successor in interest understands that 
such notices do not make the successor in interest liable for the 
mortgage debt and that the successor in interest is only liable for the 
mortgage debt if the successor in interest assumes the mortgage loan 
obligation under State law; and
    [cir] Informs the successor in interest that there is no time limit 
to return the acknowledgment but that the servicer will not begin 
sending such notices and communications to the confirmed successor in 
interest until the acknowledgment is returned; and
     Whether or not the successor in interest executes the 
acknowledgment form, the successor in interest is entitled to submit 
notices of error under Sec.  1024.35, requests for information under 
Sec.  1024.36, and requests for a payoff statement under Sec.  1026.36 
with respect to the mortgage loan account, with a brief explanation of 
those rights and how to exercise them, including appropriate address 
information. Section 1024.32(c)(1) also provides that the 
acknowledgment form may not require acknowledgment of any items other 
than those identified in Sec.  1024.32(c)(1)(iv).
    Comment 32(c)(1)-1 explains that a servicer may identify in the 
acknowledgment form examples of the types of notices and communications 
that the successor in interest may be entitled to receive, such as 
periodic statements and mortgage servicing transfer notices. The 
comment clarifies that any examples provided should be the types of 
notices or communications that would be available to a confirmed 
successor in interest if the confirmed successor in interest executed 
the acknowledgment and returned it to the servicer.
    As explained in the section-by-section analysis of Sec.  
1024.32(c)(2), a servicer that provides a written notice and 
acknowledgment form meeting these requirements need not send any 
further disclosures under the Mortgage Servicing Rules in Regulation X 
to the confirmed successor in interest until the confirmed successor in 
interest either assumes the mortgage loan obligation under State law or 
executes an acknowledgment and provides it to the servicer. As 
discussed in part V.A., the Bureau believes that, together with Sec.  
1024.32(c)(2), Sec.  1024.32(c)(1) provides servicers a cost-effective 
means that they can use to help ensure that confirmed successors in 
interest understand their status.
32(c)(2) Effect of Failure To Execute Acknowledgment
    New Sec.  1024.32(c)(2) addresses the consequences if a servicer 
provides a written notice and acknowledgment form in compliance with 
Sec.  1024.32(c)(1) to a confirmed successor in interest who is not 
liable on the mortgage loan obligation. In that event, Sec.  
1024.32(c)(2) provides that the servicer is not required to provide to 
the confirmed successor in interest any written disclosure required by 
Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, or Sec.  
1024.39 or to comply with the live contact requirements in Sec.  
1024.39(a) with respect to the confirmed successor in interest until 
the confirmed successor in interest either assumes the mortgage loan 
obligation under State law or executes an acknowledgment and provides 
it to the servicer.\149\ The Bureau believes it is appropriate for 
Sec.  1024.32(c)(2) to excuse servicers from the requirement to send 
notices required by the Mortgage Servicing Rules in Regulation X if the 
servicers have not received an acknowledgment back from a confirmed 
successor in interest, because doing so relieves servicers of the costs 
associated with sending notices to confirmed successors in interest who 
are not liable on the mortgage loan obligation and do not want notices. 
However, if a confirmed successor in interest assumes a mortgage loan 
obligation under State law, the information in the initial notice and 
acknowledgment form is no longer applicable, and Sec.  1024.32(c)(2) 
accordingly does not suspend the servicer's obligation to provide 
notices required by the Mortgage Servicing Rules in Regulation X.
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    \149\ Similar provisions in Sec. Sec.  1026.20(f), 1026.39(f), 
and 1026.41(g) address the disclosures required by Regulation Z.
---------------------------------------------------------------------------

    Comment 32(c)(2)-1 explains that a confirmed successor in interest 
may provide an executed acknowledgment that complies with Sec.  
1024.32(c)(1)(iv) to the servicer at any time after confirmation. This 
ensures that confirmed successors in interest who have received an 
initial written notice and acknowledgment form pursuant to Sec.  
1024.32(c)(1) do not lose the opportunity to receive Regulation X 
mortgage servicing disclosures due to lapse of time.
    Comment 32(c)(2)-2 explains the effect of a successor in interest's 
revocation of an acknowledgment. If a confirmed successor in interest 
who is not liable on the mortgage loan obligation executes and then 
later revokes an acknowledgment pursuant to Sec.  1024.32(c)(1)(iv), 
the servicer is not required to provide to the confirmed successor in 
interest any written disclosure required by Sec.  1024.17, Sec.  
1024.33, Sec.  1024.34, Sec.  1024.37, or Sec.  1024.39 or to comply 
with the live contact requirements in Sec.  1024.39(a) with respect to 
the confirmed successor in interest from the date the revocation is 
received until the confirmed successor in interest either assumes the 
mortgage loan obligation under State law or executes a new 
acknowledgment that complies with Sec.  1024.32(c)(1)(iv) and provides 
it to the servicer.
32(c)(3) Additional Copies of Acknowledgment
    As comment 32(c)(2)-1 explains, confirmed successors in interest 
may return an executed acknowledgment that complies with Sec.  
1024.32(c)(1)(iv) to the servicer at any time after confirmation. Once 
a confirmed successor in interest has returned an executed 
acknowledgment form, the servicer must provide to the confirmed 
successor in interest any written disclosures required by Sec. Sec.  
1024.17, 1024.33, 1024.34, 1024.37, and 1024.39 (as well as any 
required by Regulation Z) and comply with the live contact requirements 
in Sec.  1024.39(a) unless and until the confirmed successor in 
interest revokes the acknowledgment. The Bureau wants to ensure that 
confirmed successors in interest who have received an initial written 
notice and acknowledgment form pursuant to Sec.  1024.32(c)(1) are able 
to avail themselves of these protections at any time, even if they are 
unable to locate the original acknowledgment form they received. 
Accordingly, Sec.  1024.32(c)(3) specifies that, if a servicer provides 
a confirmed successor in interest with a written notice and 
acknowledgment form in accordance with Sec.  1024.32(c)(1), the 
servicer must make additional copies of the written notice and 
acknowledgment form available to the confirmed successor in interest 
upon written or oral request.
32(c)(4) Multiple Notices Unnecessary
    The Bureau is adding new Sec.  1024.32(c)(4) to the final rule to 
make it clear that servicers generally do not need to provide a 
duplicate copy of a notice required by the Mortgage Servicing Rules in 
Regulation X to a confirmed successor in interest if the servicer is 
providing the same notice to another borrower. A number of commenters 
asked the Bureau to clarify whether servicers must send multiple copies 
of notices required by the Mortgage Servicing Rules in Regulation X 
after a successor in interest is confirmed. One industry commenter 
explained that most servicing platforms

[[Page 72198]]

only allow for automated delivery of correspondence to one address. It 
indicated that a requirement to send items to multiple addresses or 
through differing communication channels would create significant 
operational and systems challenges with concomitant costs. Another 
industry commenter suggested that the Bureau could adopt commentary to 
the Mortgage Servicing Rules in Regulation X that is similar to 
proposed Regulation Z comment 41(a)-5.ii, which indicated that 
servicers do not need to send duplicative periodic statements to 
confirmed successors in interest.
    The Bureau agrees that it would be unnecessarily burdensome to 
require servicers to provide the notices or communications required by 
the Mortgage Servicing Rules in Regulation X to a confirmed successor 
in interest if the same notice is already being provided to another 
borrower on the account. Section 1024.32(c)(4) accordingly clarifies 
that, except as required by Sec.  1024.36, a servicer is not required 
to provide to a confirmed successor in interest any written disclosure 
required by Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, 
or Sec.  1024.39(b) if the servicer is providing the same specific 
disclosure to another borrower on the account. Section 1024.32(c)(4) 
also provides that a servicer is not required to comply with the live 
contact requirements set forth in Sec.  1024.39(a) with respect to a 
confirmed successor in interest if the servicer is complying with those 
requirements with respect to another borrower on the account.\150\ 
Section 1024.32(c)(4) thus reduces the burden imposed on servicers by 
Regulation X's successor in interest provisions.
---------------------------------------------------------------------------

    \150\ For example, if a servicer confirms multiple successors in 
interest and complies with the live contact requirements in Sec.  
1024.39(a) with respect to one confirmed successor in interest, the 
servicer is not required to comply with the live contact 
requirements with respect to any of the other confirmed successors 
in interest.
---------------------------------------------------------------------------

    Section 1024.32(c)(4) does not, however, limit the ability of any 
confirmed successor in interest to request copies of notices and other 
information through an information request under Sec.  1024.36. Thus, 
confirmed successors in interest who are not receiving the required 
servicing communications because the servicer is providing them to 
another borrower on the account can request additional information as 
needed through the information request process.
    Comment 32(c)(4)-1 explains that a servicer may rely on Sec.  
1024.32(c)(4) if the servicer provides a specific written disclosure 
required by Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, 
or Sec.  1024.39(b) to another borrower. The comment notes, for 
example, that a servicer is not required to provide a force-placed 
insurance notice required under Sec.  1024.37 to a confirmed successor 
in interest if the servicer is providing the same force-placed 
insurance notice to a transferor borrower or to another confirmed 
successor in interest.
Legal Authority
    The Bureau relies on section 19(a) of RESPA, 12 U.S.C. 2617(a), to 
implement new Sec.  1024.32(c). For the reasons explained above, the 
Bureau believes that these amendments are necessary to provide a cost-
effective process by which servicers can provide confirmed successors 
in interest the information required by this final rule.
Section 1024.35 Error Resolution Procedures
35(e) Response to Notice of Error
35(e)(5) Omissions in Responding to Requests for Documentation
    Section 1024.35 sets forth error resolution requirements that 
servicers must follow to respond to errors asserted by borrowers. When 
a servicer determines that no error occurred, Sec.  1024.35(e)(4) 
generally requires the servicer to provide in response to the 
borrower's request, at no charge, copies of documents and information 
relied upon by the servicer in making that determination. As explained 
in part V.A., the Bureau proposed to apply Sec.  1024.35 as well as the 
information request requirements of Sec.  1024.36 to confirmed 
successors in interest. The Bureau requested comment on whether any 
information that could be provided to successors in interest under 
Sec. Sec.  1024.35 and 1024.36 presents privacy concerns and whether 
servicers should be permitted to withhold any information from 
successors in interest out of such privacy concerns. In light of the 
concerns expressed in the comments received, as discussed in part V.A. 
and in this discussion, the Bureau is adding new Sec.  1024.35(e)(5) to 
allow servicers to limit the information that confirmed successors in 
interest may obtain under Sec.  1024.35(e)(4) about other borrowers and 
to limit the information that borrowers may obtain under Sec.  
1024.35(e)(4) about potential and confirmed successors in interest who 
are not the requesting party.
    As noted in part V.A., some industry commenters recommended that 
disclosures under Sec. Sec.  1024.35 and 1024.36 be limited due to 
privacy concerns. An industry commenter suggested that these privacy 
concerns apply not only to the disclosure of the existing borrower's 
personal, private information to the confirmed successor in interest, 
but also to the disclosure of the confirmed successor in interest's 
personal, private information to the existing borrower. A consumer 
advocacy group commented that the original borrower's private financial 
information is not relevant to the successor in interest and that no 
successor in interest should have a need for information about the 
original borrower's location or contact information.
    The Bureau continues to believe that it is important for confirmed 
successors in interest to be able to obtain information about the 
terms, status, and payment history of the mortgage loan. However, the 
Bureau recognizes that providing additional financial information about 
other borrowers or contact or location information for them could raise 
privacy concerns and is not likely to assist the confirmed successor in 
interest in maintaining the property. The Bureau believes that this is 
especially true with respect to a borrower's Social Security number. 
Based on similar potential privacy concerns, the Bureau also believes 
that it is appropriate to allow servicers to withhold certain 
information provided by potential and confirmed successors in interest 
from borrowers on the account who are not the person to whom the 
information pertains.
    To address these potential privacy concerns, Sec.  1024.35(e)(5) 
provides that, in responding to a request for documentation under Sec.  
1024.35(e)(4), a servicer may omit location and contact information and 
personal financial information (other than information about the terms, 
status, and payment history of the mortgage loan) if: (1) The 
information pertains to a potential or confirmed successor in interest 
who is not the requester; or (2) the requester is a confirmed successor 
in interest and the information pertains to any borrower who is not the 
requester. This provision allows servicers to limit the information 
that confirmed successors in interest can obtain about other borrowers 
(including other confirmed successors in interest) and to protect 
certain sensitive information about potential and confirmed successors 
in interest from disclosure to borrowers who are not the person to whom 
the information pertains.\151\ The Bureau

[[Page 72199]]

believes the restrictions in Sec.  1024.35(e)(5) appropriately balance 
potential privacy concerns with the need to make mortgage information 
available to confirmed successors in interest and other borrowers.
---------------------------------------------------------------------------

    \151\ The final rule does not, however, make any changes with 
respect to the types of information that joint borrowers who are not 
confirmed successors in interest can obtain about each other.
---------------------------------------------------------------------------

Section 1024.36 Requests for Information
36(a) Information Request
    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. Currently, when a borrower 
submits a request for information under Sec.  1024.36(a) asking for the 
owner or assignee of a mortgage loan held by a trust in connection with 
a securitization transaction and administered by an appointed trustee, 
comment 36(a)-2 provides that the servicer complies with Sec.  
1024.36(d) by identifying both the name of the trust and the name, 
address, and appropriate contact information for the trustee. The 
comment provides that, among other examples, if a mortgage loan is 
owned by Mortgage Loan Trust, Series ABC-1, for which XYZ Trust Company 
is the trustee, the servicer complies with Sec.  1024.36(d) by 
responding to a request for information regarding the owner or assignee 
of the mortgage loan by identifying the owner as Mortgage Loan Trust, 
Series ABC-1, and providing the name, address, and appropriate contact 
information for XYZ Trust Company as the trustee. Proposed amendments 
to comment 36(a)-2 would have changed how a servicer must respond to 
such requests when Fannie Mae or Freddie Mac is the trustee, investor, 
or guarantor. The Bureau is adopting comment 36(a)-2 with changes.
    In advance of the proposal, the Bureau received information from 
industry that providing borrowers with detailed information about the 
trust when Fannie Mae or Freddie Mac is the trustee, investor, or 
guarantor could be unnecessarily burdensome on servicers. According to 
industry, servicers' systems do not typically track the name of the 
trust for each such loan, so a servicer must ask the trustee for this 
information each time it receives an information request asking for the 
loan's owner or assignee. Moreover, because the loss mitigation 
provisions for loans sold to Fannie Mae or Freddie Mac are determined 
by Fannie Mae or Freddie Mac and not by the trust, the trust-
identifying information may be of less value to borrowers when Fannie 
Mae or Freddie Mac is the trustee, investor, or guarantor. Industry 
requested that the Bureau reconsider the requirement for a servicer to 
provide specific trust-identifying information for loans governed by 
Fannie Mae's or Freddie Mac's servicing guidelines.
    In the proposal, the Bureau stated its belief that, with respect to 
a loan for which Fannie Mae or Freddie Mac is the trustee, investor, or 
guarantor, servicers may not need to identify both the trustee and the 
trust in response to all requests for information seeking ownership 
information. If a borrower knows that Fannie Mae or Freddie Mac is the 
trustee, investor, or guarantor, the borrower could look to the Fannie 
Mae or Freddie Mac servicing guide and related bulletins to learn what 
loss mitigation options are available, what foreclosure processes the 
servicer must follow, how the servicer is compensated, and a wide 
variety of other information applicable to the loan, without 
distinction based on the particular trust. Borrowers can also access 
the appropriate Web site to learn more information once they know which 
entity's guidelines apply; both Fannie Mae and Freddie Mac maintain Web 
sites containing a considerable amount of information relating to 
standards affecting borrowers' mortgage loans. Fannie Mae and Freddie 
Mac also maintain dedicated telephone lines for borrower inquiries. 
Thus, requiring a servicer to identify Fannie Mae or Freddie Mac as the 
owner or assignee of the loan (without also identifying the name of the 
trust) could give borrowers access to the critical information about 
loss mitigation options and other investor requirements.
    At the same time, the Bureau sought to preserve a borrower's right 
to obtain the identity of the trust by submitting a request for 
information under Sec.  1024.36(a). Prior to the proposal, consumer 
advocacy groups informed the Bureau that borrowers need trust-
identifying information in order to raise certain claims or defenses 
during litigation, as well as to exercise the extended right of 
rescission under Sec.  1026.23(a)(3) when applicable. Further, the 
Bureau understood that, for loans held in a trust for which Fannie Mae 
or Freddie Mac is not the trustee, investor, or guarantor, a borrower 
would need the trust-identifying information to determine what loss 
mitigation options are available.
    Accordingly, the Bureau proposed to revise comment 36(a)-2 to 
provide that, for loans for which Fannie Mae or Freddie Mac is the 
trustee, investor, or guarantor, a servicer could comply with Sec.  
1024.36(d) by responding to requests for information asking only for 
the owner or assignee of the loan by providing only the name and 
contact information for Fannie Mae or Freddie Mac, as applicable, 
without also providing the name of the trust. However, proposed comment 
36(a)-2 would have also provided that, if a request for information 
expressly requested the name or number of the trust or pool, the 
servicer would comply with Sec.  1024.36(d) by providing the name of 
the trust and the name, address, and appropriate contact information 
for the trustee, regardless of whether or not Fannie Mae or Freddie Mac 
is the trustee, investor, or guarantor.
    The Bureau believed that proposed comment 36(a)-2 would preserve a 
borrower's access to information while reducing burden on servicers by 
no longer requiring them to obtain trust-identifying information for 
loans for which Fannie Mae or Freddie Mac is the trustee, investor, or 
guarantor. Further, the Bureau believed that, by requiring servicers to 
provide specific trust-identifying information upon a request expressly 
seeking such information, proposed comment 36(a)-2 would ensure that 
borrowers who do need specific trust-identifying information could 
obtain it. The proposed amendments also restructured comment 36(a)-2 
for clarity. The proposed changes would not have affected a servicer's 
existing obligations with respect to loans not held in a trust for 
which an appointed trustee receives payments on behalf of the trust, or 
with respect to any loan held in a trust for which neither Fannie Mae 
nor Freddie Mac is the trustee, investor, or guarantor.
    Proposed comment 36(a)-2.i would have also clarified that a 
servicer would not be the owner or assignee for purposes of Sec.  
1024.36(d) if the servicer holds title to the loan, or title is 
assigned to the servicer, solely for the administrative convenience of 
the servicer in servicing the mortgage loan obligation. This change was 
intended to bring the Sec.  1024.36(d) commentary clearly in line with 
the Regulation Z provisions in Sec.  1026.39 related to transfer of 
ownership notices. As to loans held in a trust for which Fannie Mae or 
Freddie Mac is not the investor, guarantor, or trustee, proposed 
comments 36(a)-2.ii.A and 36(a)-2.ii.B would have preserved the 
obligation in existing comment 36(a)-2.ii that servicers comply with 
Sec.  1024.36(d) by identifying both the trust and the trustee of such 
loans to the borrower, regardless of how the borrower phrased the 
request for ownership information.
    Similarly, the proposed amendments would not have changed a 
servicer's

[[Page 72200]]

requirements for responding to requests for ownership information for 
loans for which the Government National Mortgage Association (Ginnie 
Mae) is the guarantor. As noted in both current comment 36(a)-2 and 
proposed comment 36(a)-2.ii.B, Ginnie Mae is not the owner or assignee 
of the loan solely as a result of its role as a guarantor. In addition, 
servicing requirements for those loans are governed by the Federal 
agency insuring the loan--such as the Federal Housing Association, the 
Department of Veterans Affairs, the Rural Housing Services, or the 
Office of Public and Indian Housing--not by Ginnie Mae itself.
    Industry commenters generally expressed strong support for the 
Bureau's proposal to permit servicers to respond to nonspecific 
requests for information about the owner or assignee of the loan by 
providing only the name and contact information for Fannie Mae and 
Freddie Mac, as applicable. These commenters stated that permitting 
servicers to provide this more limited information for loans where 
Fannie Mae or Freddie Mac was the investor, guarantor, or trustee would 
reduce the burden on servicers without adversely affecting a borrower's 
ability to obtain information on the owner or assignee of the mortgage 
loan. Certain industry commenters requested limits on the proposed 
requirement for a servicer to provide the name and number of the trust 
or pool even when borrowers expressly request such information. One 
commenter stated that providing this specific information would be 
burdensome and not relevant to the transaction and requested that the 
final rule include a list of legitimate reasons or conditions that a 
borrower must certify exist before a servicer would be required to 
provide this trust-identifying information.
    Freddie Mac expressed general support for proposed comment 36(a)-2 
but said that the language ``investor, guarantor, or trustee'' could 
refer to loans that were not covered by Freddie Mac's servicing guide. 
The commenter explained that Freddie Mac's servicing guide applies when 
Freddie Mac is the trustee of a trust that owns a mortgage loan, 
because servicers of loans held by such trusts are required to service 
those loans in accordance with the servicing guide. However, the 
commenter stated that where Freddie Mac is acting as an investor or 
guarantor, rather than a trustee, the servicer is not necessarily 
required to comply with all of the requirements of the servicing guide 
with respect to that loan. The commenter recommended that the Bureau 
remove the reference to ``investor'' or ``guarantor'' in proposed 
comment 36(a)-2.
    Consumer advocacy groups urged the Bureau not to adopt the proposed 
revisions to comment 36(a)-2. These commenters stated that there is a 
distinction between guarantors and owners of a loan, and that the 
Fannie Mae servicing guide does not fully apply to all loans that 
Fannie Mae guarantees. These commenters stated that borrowers may not 
be able to obtain all relevant information regarding loss mitigation 
options in Fannie Mae's servicing guide.
    The Bureau conducted further outreach with FHFA, Freddie Mac, and 
Fannie Mae. According to these stakeholders, where Fannie Mae or 
Freddie Mac is the owner of the loan or the trustee of the 
securitization trust in which the loan is held, the loan is subject to 
the servicing requirements of Fannie Mae's or Freddie Mac's servicing 
guide. Fannie Mae or Freddie Mac are the owner or trustee for the 
overwhelming majority of loans in which they have an interest. Both 
Fannie Mae and Freddie Mac, however, are investors in other loans, 
often through a securitization trust, for which they are not the 
trustee, and, in these cases, the requirements of the servicing guides 
may not necessarily apply. Where loans are held in such securitization 
trusts, the Bureau understands that servicers would be able to identify 
the name of the trust that holds the loan.
    The Bureau is finalizing comment 36(a)-2 with changes. Comment 
36(a)-2.i explains that, when a loan is not held in a trust for which 
an appointed trustee receives payments on behalf of the trust, a 
servicer complies with Sec.  1024.36(d) by responding to a request for 
information regarding the owner or assignee of a mortgage loan by 
identifying the person on whose behalf the servicer receives payments 
from the borrower. The comment further explains that a servicer is not 
the owner or assignee for purposes of Sec.  1024.36(d) if the servicer 
holds title to the loan, or title is assigned to the servicer, solely 
for the administrative convenience of the servicer in servicing the 
mortgage loan obligation. Comment 36(a)-2.i also explains that Ginnie 
Mae is not the owner or assignee for purposes of such requests for 
information solely as a result of its role as the guarantor of the 
security in which the loan serves as the collateral.
    Comment 36(a)-2.ii explains that, when the loan is held in a trust 
for which an appointed trustee receives payments on behalf of the 
trust, a servicer complies with Sec.  1024.36(d) by responding to a 
borrower's request for information regarding the owner, assignee, or 
trust of the mortgage loan with the information, as applicable, as set 
forth in comment 36(a)-2.ii.A through C.
    The Bureau is finalizing comment 36(a)-2.ii.A with changes. Comment 
36(a)-2.ii.A explains that, for any request for information where 
Fannie Mae or Freddie Mac is not the owner of the loan or the trustee 
of the securitization trust in which the loan is held, the servicer 
complies with Sec.  1024.36(d) by responding to a borrower's request 
for information by providing information on: The name of the trust and 
the name, address, and appropriate contact information for the trustee. 
It provides an illustrative example. Comment 36(a)-2.ii.A makes clear 
that, where Fannie Mae or Freddie Mac is not the owner or trustee of 
the securitization trust in which the loan is held, a servicer must 
respond to even a nonspecific request for the identity of the owner or 
assignee by providing information about the trust and contact 
information for the trustee.
    The Bureau is also finalizing comment 36(a)-2.ii.B with changes. 
The Bureau proposed comment 36(a)-2.ii.B to provide a limited exception 
where a borrower makes a nonspecific request for information regarding 
the owner or assignee of a loan for which Fannie Mae or Freddie Mac is 
the investor, guarantor, or trustee. As explained in the proposal, the 
Bureau understood that such loans would be subject to servicing 
requirements set forth in Fannie Mae's or Freddie Mac's respective 
servicing guide. However, the Bureau now understands that this 
reasoning may not apply to loans for which Fannie Mae or Freddie Mac is 
the investor or guarantor of the loan, but not the trustee or owner of 
the loan.
    Accordingly, the Bureau is finalizing comment 36(a)-2.ii.B to 
explain that, if the request for information did not expressly request 
the name or number of the trust or pool and Fannie Mae or Freddie Mac 
is the owner of the loan or the trustee of the securitization trust in 
which the loan is held, the servicer complies with Sec.  1024.36(d) by 
responding to a borrower's request for information by providing the 
name and contact information for Fannie Mae or Freddie Mac, as 
applicable, without also providing the name of the trust. The Bureau's 
intent, by referring to the ``owner or the trustee of the 
securitization trust in which the loan is held'' in comment 36(a)-
2.ii.B, is to permit a servicer to respond to a nonspecific request for 
information by providing only the name and contact

[[Page 72201]]

information for Fannie Mae or Freddie Mac, as applicable, for only 
those loans that are subject to Fannie Mae's or Freddie Mac's servicing 
guide but not for other loans.
    The Bureau is adding comment 36(a)-2.ii.C to explain that if the 
request for information did expressly request the name or number of the 
trust or pool and Fannie Mae or Freddie Mac is the owner of the loan or 
the trustee of the securitization trust in which the loan is held, the 
servicer complies with Sec.  1024.36(d) by responding to a borrower's 
request for information by providing the name of the trust and the 
name, address, and appropriate contact information for the trustee, as 
in comment 36(a)-2.ii.A above.
    The Bureau is not adopting additional requirements for borrowers 
making specific information requests, as some commenters suggested. 
Requiring borrowers to provide additional detail regarding their 
requests would not alleviate any burden on servicers associated with 
providing required trust-identifying information but would impose a 
burden on borrowers in obtaining information.
36(d) Response to Information Request
36(d)(3) Omissions in Responding to Requests
    Section 1024.36 sets forth servicers' obligations in responding to 
a request for information from a borrower. As explained in part V.A., 
the Bureau proposed to apply Sec.  1024.36 as well as the notice of 
error requirements of Sec.  1024.35 to confirmed successors in 
interest. The Bureau requested comment on whether any information that 
could be provided to successors in interest under Sec. Sec.  1024.35 
and 1024.36 presents privacy concerns and whether servicers should be 
permitted to withhold any information from successors in interest out 
of such privacy concerns. In light of the concerns expressed in the 
comments received, as discussed in part V.A. and in this discussion, 
the Bureau is adding new Sec.  1024.36(d)(3) to allow servicers to 
limit the information that confirmed successors in interest may obtain 
under Sec.  1024.36 about other borrowers and to limit the information 
that borrowers may obtain under Sec.  1024.36 about potential and 
confirmed successors in interest who are not the requesting party.
    As noted in part V.A., some industry commenters recommended that 
disclosures under Sec. Sec.  1024.35 and 1024.36 be limited due to 
privacy concerns. An industry commenter suggested that these privacy 
concerns apply not only to the disclosure of the existing borrower's 
personal, private information to the confirmed successor in interest, 
but also to the disclosure of the confirmed successor in interest's 
personal, private information to the existing borrower. A consumer 
advocacy group commented that the original borrower's private financial 
information is not relevant to the successor homeowner and that no 
successor in interest should have a need for information about the 
original borrower's location or contact information.
    The Bureau continues to believe that it is important for confirmed 
successors in interest to be able to obtain information about the 
terms, status, and payment history of the mortgage loan. However, the 
Bureau recognizes that providing additional financial information about 
other borrowers or contact or location information for them could raise 
privacy concerns and is not likely to assist the confirmed successor in 
interest in maintaining the property. The Bureau believes that this is 
especially true with respect to a borrower's Social Security number. 
Based on similar potential privacy concerns, the Bureau also believes 
that it is appropriate to allow servicers to withhold certain 
information provided by potential and confirmed successors in interest 
from borrowers on the account who are not the person to whom the 
information pertains.
    To address these potential privacy concerns, Sec.  1024.36(d)(3) 
provides that, in responding to a request for information, a servicer 
may omit location and contact information and personal financial 
information (other than information about the terms, status, and 
payment history of the mortgage loan) if: (1) The information pertains 
to a potential or confirmed successor in interest who is not the 
requester; or (2) the requester is a confirmed successor in interest 
and the information pertains to any borrower who is not the requester. 
This provision allows servicers to limit the information that confirmed 
successors in interest can obtain about other borrowers (including 
other confirmed successors in interest) and to protect certain 
sensitive information about potential and confirmed successors in 
interest from disclosure to borrowers who are not the person to whom 
the information pertains.\152\ The Bureau believes the restrictions in 
Sec.  1024.36(d)(3) appropriately balance potential privacy concerns 
with the need to make mortgage information available to confirmed 
successors in interest and other borrowers.
---------------------------------------------------------------------------

    \152\ The final rule does not, however, make any changes with 
respect to the types of information that joint borrowers who are not 
confirmed successors in interest can obtain about each other.
---------------------------------------------------------------------------

36(i) Successors in Interest
    The Bureau proposed a new request for information requirement 
regarding the confirmation of a successor in interest's identity and 
ownership interest in the property. Proposed Sec.  1024.36(i) would 
have required a servicer to respond to a written request that indicates 
that the person may be a successor in interest and that includes the 
name of the prior borrower and information that enables the servicer to 
identify that borrower's mortgage loan account. Under the proposal, a 
servicer would have to respond to such a request by providing the 
person with information regarding the documents the servicer requires 
to confirm the person's identity and ownership interest in the 
property. With respect to the written request, the proposal would have 
required the servicer to treat the person as a borrower for the 
purposes of the procedural requirements of Sec.  1024.36(c) through 
(g). The proposal also would have provided that, if a servicer has 
established an address that a borrower must use to request information 
pursuant to Sec.  1024.36(b), a servicer must comply with the 
requirements of Sec.  1024.36(i) only for requests received at the 
established address. Servicers would have been required to comply with 
proposed Sec.  1024.36(i) before confirming the successor in interest's 
identity and ownership interest in the property. For the reasons set 
forth in part V.A. and in this discussion, the Bureau is finalizing 
Sec.  1024.36(i) with adjustments to clarify the parties' obligations 
during the confirmation process.
    Commenters expressed divergent views regarding proposed Sec.  
1024.36(i). Consumer advocacy groups suggested that the Bureau should 
not limit the provision to written requests. They suggested that 
successors in interest are unlikely to know about the request for 
information procedure due to their lack of prior contact with the 
servicer. They also suggested that a successor in interest should not 
need to use specific wording to trigger a response under Sec.  
1024.36(i). A consumer advocacy group suggested that a servicer should 
have to respond if the information provided is sufficient to put the 
servicer on notice that the person is a potential successor in 
interest.
    A number of consumer advocacy groups also objected to the 
requirement in the proposal that a potential successor in interest use 
a specific address if a servicer has established one.

[[Page 72202]]

One such group indicated that expecting a successor in interest, who 
often is handling many complicated personal, legal, and financial 
affairs in a time of grieving, to ascertain and use the servicer's 
established contact address would be unreasonable and overly 
burdensome. This group also suggested that the Bureau could require 
servicers, upon hearing of the death of a borrower, to send a letter to 
the home containing information about how successors in interest can 
confirm their status and explaining the servicer's obligations under 
Sec.  1024.36(i). Another consumer advocacy group suggested that, if a 
servicer receives a request for information at a non-designated 
location, it should respond by notifying the potential successor in 
interest of the correct address for submission of requests for 
information.
    This commenter indicated that successors in interest need prompt 
information identifying specific documents and that vague references to 
``probate documents'' or ``legal documents,'' without further 
elaboration, are not sufficient. It noted that delays cause significant 
problems because loans may become delinquent to the point that loss 
mitigation options that would have been available earlier are no longer 
viable. It suggested that, for purposes of servicers responding to 
requests for information under Sec.  1024.36(i), the final rule should 
define promptly as within 15 days for clarity.
    Consumer advocacy groups also urged the Bureau not to require 
resubmission of requests that seek information other than the 
description of documents required for confirmation, suggesting that 
requiring successors in interest to resubmit such requests would cause 
unnecessary delay and could be confusing. These commenters suggested 
that servicers should be required to respond to requests for 
information on other issues related to the servicing of the mortgage 
once they have received proof of successor in interest status, with 
time running from the date the successor in interest provides necessary 
documentation showing successor in interest status. A consumer advocacy 
group stated that this would save time and streamline the process, 
where time is often of the essence.\153\ Another consumer advocacy 
group urged the Bureau to clarify how Sec.  1024.36(f)(1)(i)'s rule on 
duplicative information relates to Sec.  1024.36(i). This group 
suggested that Sec.  1024.36(f)(1)(i)'s rule should only apply if 
duplicative information was requested by the same person.
---------------------------------------------------------------------------

    \153\ Consumer advocacy groups also suggested that the Bureau 
should make the request for information for potential successors in 
interest privately enforceable. As explained in part V.A., supra, 
the Bureau declines to do so.
---------------------------------------------------------------------------

    Industry commenters raised a variety of different concerns related 
to the requirements in Sec.  1024.36(i), with some suggesting that the 
Bureau should not finalize the provision at all and others suggesting 
changes. Some industry commenters supported the proposal's requirement 
that requests must be in writing to trigger the requirements of Sec.  
1024.36(i). For example, a trade association stated that allowing oral 
requests would create a risk of fraud.
    A number of industry commenters also indicated that the Bureau 
should clarify what it means by ``indicates that a person may be a 
successor in interest'' or should substitute narrower language. For 
example, one trade association suggested Sec.  1024.36(i) should only 
apply if the requester specifically asks for information on how to 
confirm the requestor's status as a successor in interest, although the 
commenter did not think that the final rule should require use of the 
term successor in interest.\154\ Another industry commenter suggested 
that a servicer should be required to provide information regarding the 
documents the servicer requires to confirm a person's identity and 
ownership interest in the property in response to a request that 
affirmatively states that there has been a transfer of the property, a 
divorce, legal separation, or death of a borrower, or that the writer 
has become the owner of the property. This commenter also stated that a 
servicer should not be required to respond to a request from a non-
borrower that does not include any statement that indicates the non-
borrower may have an interest in the property.
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    \154\ Another trade association suggested that the final rule 
should limit servicers' obligations to written communications that 
specifically request information about confirming the person's 
status as a successor in interest or indicate the nature of the 
transfer of ownership interest. Yet another trade association 
suggested that the final rule should limit servicers' obligations to 
written communications that specifically identify the writer as one 
claiming to be a successor in interest to property rights and the 
manner in which and under what authority the claim is made.
---------------------------------------------------------------------------

    Industry commenters also requested that, where a servicer has 
established an address, the final rule should limit servicers' 
obligation to requests received at that address. They suggested that it 
would be burdensome for servicers to respond to inquiries from 
potential successors in interest received at an address other than the 
established address because it would require servicers to monitor every 
location where a request for information could be sent. An industry 
commenter noted that requiring use of the established address would 
align treatment of requests for information under Sec.  1024.36(i) with 
how other requests for information are treated under Sec.  1024.36. 
Other industry commenters suggested that it would facilitate servicers' 
tracking of requests and that servicers would not be able to respond 
quickly unless they receive requests through an established address.
    A number of industry commenters responded to the Bureau's request 
for comment regarding what requirements should apply if a potential 
successor in interest submits a request for information other than a 
description of the documents required for confirmation. Industry 
commenters generally urged the Bureau not to require a response unless 
the successor in interest resubmits the request upon confirmation, and 
some suggested that the final rule should require servicers to inform 
potential successors in interest that they would need to resubmit such 
requests upon confirmation. An industry commenter suggested that it 
might confuse successors in interest to get a response to an outdated 
request. Another suggested that resubmission would be much more 
efficient, in part because any number of variables could have changed 
the information that the successor in interest is seeking during the 
elapsed time between initial submission and confirmation. Various 
industry commenters noted that it would be a significant burden and 
might require costly systems changes to preserve requests until 
confirmation. An industry commenter suggested that there is nothing 
analogous in the servicing requirements that requires a servicer to 
keep consumer information requests prior to the establishment of a 
relationship. By contrast, one trade association suggested that the 
final rule should require servicers to provide confirmed successors in 
interest information requested prior to confirmation and that the 
timelines servicers must meet to provide such information should run 
from time of confirmation.
    Industry commenters expressed concerns relating to the timeframes 
specified in Sec.  1024.36(i) and indicated that the process described 
in the proposal was too rigid. Some trade associations suggested that 
there should be no deadline imposed. They noted that, with only the 
loan identified, the servicer may not know, for example, who the 
claimant is, the nature of the claim, the basis of the claim, whether 
the claim will be contested, whether the claimant is a minor, or where 
the

[[Page 72203]]

borrower lived when the claim arose.\155\ These commenters suggested 
that several rounds of communication are required in all or almost all 
instances because servicers need to start with basic questions and then 
move to more detailed questions. These commenters also suggested that 
servicers might deny claims unnecessarily if the final rule imposes a 
deadline that does not provide enough time. They also provided a sample 
model form for the first iteration of servicer requests for information 
from claimants. They indicated that servicers do not currently maintain 
the list of documents required by proposed Sec.  1024.36(i) and 
suggested that a complete list of all documents a servicer might need 
would overwhelm potential successors in interest. One of these 
commenters also stated that servicers need to be able to verify a 
claimant's agent.\156\
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    \155\ Another industry commenter made a similar point, noting 
that a letter from a potential successor may not provide sufficient 
information to allow the servicer to identify what documents are 
required and could, for example, simply state that a borrower died 
or that a divorce is being executed.
    \156\ An industry commenter also suggested that proposed Sec.  
1024.36(i) would require servicers to violate privacy law 
requirements by implicitly confirming that a customer has a mortgage 
loan serviced by the servicer. Disclosing information to potential 
successors in interest as required under the final rule will not 
cause a servicer to violate the GLBA or Regulation P because the 
GLBA and Regulation P permit financial institutions to disclose 
information to comply with a Federal law or regulation. 15 U.S.C. 
6802(e)(8); 12 CFR 1016.15(a)(7)(i).
---------------------------------------------------------------------------

    An industry commenter also expressed concern that proposed comment 
36(i)-1 might be inconsistent with the proposed regulation. It noted 
that the proposed commentary stated that servicers do not have to 
provide any additional information that may be requested by the 
potential successor in interest, while proposed Sec.  1024.36(i) stated 
that, with respect to the written request, a servicer shall treat the 
person as a borrower for the purposes of the requirements of Sec.  
1024.36(c) through (g).
    The Bureau is finalizing the requirements of proposed Sec.  
1024.36(i) in Sec.  1024.36(i)(1) and (4), with adjustments in response 
to the comments received and technical changes for clarity.\157\ Like 
proposed Sec.  1024.36(i), Sec.  1024.36(i)(4) provides that, if a 
servicer has established an address that a borrower must use to request 
information pursuant to Sec.  1024.36(b), a servicer must comply with 
the requirements of Sec.  1024.36(i)(1) only for requests received at 
the established address.
---------------------------------------------------------------------------

    \157\ For example, the Bureau has added language in Sec.  
1024.36(i)(1) that specifically requires servicers to provide in 
their written response contact information for further assistance, 
to ensure that it is clear that this requirement of Sec.  
1024.36(d)(1) applies to requests under Sec.  1024.36(i). The Bureau 
has also substituted ``a written description of'' for ``information 
regarding.'' This clarifies that the response must be written and 
aligns Sec.  1024.36(i) with similar language used in Sec.  
1024.38(b)(1)(vi)(B), which refers to a ``description'' of the 
documents the servicer reasonably requires to confirm the potential 
successor in interest's identity and ownership interest in the 
property.
---------------------------------------------------------------------------

    In light of industry comments indicating that more than one round 
of communication may be required in some instances, the Bureau has also 
added language in Sec.  1024.36(i)(2) addressing circumstances where 
servicers are not able to respond fully based on the information 
provided in a request under Sec.  1024.36(i)(1). As with other requests 
under Sec.  1024.36, the Bureau anticipates that servicers may contact 
the requestor informally to clarify the request and obtain additional 
relevant information that may be needed to respond to the request. 
Through such contacts, servicers may be able to obtain any missing 
information that they need to respond fully within the time limits. 
However, if a request under Sec.  1024.36(i)(1) does not provide 
sufficient information to enable the servicer to identify the documents 
the servicer reasonably requires to confirm the person's identity and 
ownership interest in the property, Sec.  1024.36(i)(2) allows the 
servicer to provide a response that includes examples of documents 
typically accepted to establish identity and ownership interest in a 
property; indicates that the person may obtain a more individualized 
description of required documents by providing additional information; 
specifies what additional information is required to enable the 
servicer to identify the required documents; and provides contact 
information, including a telephone number, for further assistance. A 
servicer's response under Sec.  1024.36(i)(2) must otherwise comply 
with the requirements of Sec.  1024.36(i)(1). Notwithstanding the 
duplicative request rule of Sec.  1024.36(f)(1)(i), if a potential 
successor in interest subsequently provides the required information 
specified by the servicer pursuant to Sec.  1024.36(i)(2) either orally 
or in writing, the servicer must treat the new information, together 
with the original request, as a new, non-duplicative request under 
Sec.  1024.36(i)(1), received as of the date the required information 
was received, and must respond accordingly. These changes should help 
ensure that servicers can comply with their obligations under Sec.  
1024.36(i) in responding to requests that provide very limited 
information about a potential successor in interest's circumstances.
    The Bureau has also incorporated the substance of proposed comment 
36(i)-1 into Sec.  1024.36(i)(3), which provides that, in responding to 
a request under Sec.  1024.36(i)(1) prior to confirmation, the servicer 
is not required to provide any information other than the information 
specified in Sec.  1024.36(i)(1) and (2). Section 1024.36(i)(3) also 
provides that, in responding to a written request under Sec.  
1024.36(i)(1) that requests other information, the servicer must 
indicate that the potential successor in interest may resubmit any 
request for information once confirmed as a successor in interest. The 
Bureau believes that addressing these issues in this manner in Sec.  
1024.36(i)(3) rather than in the commentary obviates the concern 
expressed by an industry commenter that the commentary might be 
inconsistent with the regulation.
    As indicated in part V.A., Sec.  1024.36(i) addresses problems 
faced by successors in interest in confirming their identity and 
ownership interest in the property securing the mortgage loan and may 
help them avoid unnecessary foreclosure on the property. Section 
1024.36(i) is complemented by Sec.  1024.38(b)(1)(vi), which requires 
servicers to maintain certain policies and procedures relating to 
potential successors in interest. Section 1024.38(b)(1)(vi)(B) requires 
servicers to have policies and procedures to determine promptly what 
documents are reasonable to require from successors in interest in 
particular circumstances, so that the servicer is prepared to provide 
promptly a description of those documents, while Sec.  1024.36(i) gives 
potential successors in interest a mechanism to obtain this information 
from servicers. The separate requirement in Sec.  1024.36(i) is 
appropriate, in addition to the policies and procedures requirement in 
Sec.  1024.38(b)(1)(vi), because information regarding the documents 
the servicer requires to confirm a successor in interest's status may 
be of importance to each individual potential successor in interest.
    As the Bureau explained in the proposal, Sec.  1024.36(i) applies 
to a broad range of written communications from potential successors in 
interest. A potential successor in interest does not need to request 
specifically that the servicer provide information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. As with other requests for 
information, the successor in interest also does not need to indicate 
specifically that the request is a written request under Sec.  1024.36 
or to make the request in any particular

[[Page 72204]]

form. Accordingly, servicers are required to provide the information in 
response to any written communication indicating that the person may be 
a successor in interest that is accompanied by the name of the 
transferor borrower and information that enables the servicer to 
identify that borrower's mortgage loan account and that is received at 
the address established by the servicer under Sec.  1024.36(b) if the 
servicer has established one.
    This broad coverage is appropriate because some successors in 
interest may not be aware that they need to confirm their identity and 
ownership interest in the property. As consumer advocacy groups noted, 
successors in interest may not know the exact words to use in framing 
their requests. Requiring servicers to respond only to a written 
communication that actually requests a description of the documents 
required for confirmation would deprive many successors in interest of 
the information they need to protect their ownership interest and could 
subject them to unnecessary foreclosures.
    Section 1024.36(i) applies with respect to the servicer's receipt 
of written communication from any potential successor in interest.\158\ 
Even though a servicer may be unaware at the time of initial contact 
with a potential successor in interest whether the potential successor 
in interest is in fact a successor in interest as defined in this final 
rule, in these situations the servicer should still communicate with 
the potential successor in interest about confirmation and should not 
wait until it has reason to believe that the definition of successor in 
interest is met.
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    \158\ Pursuant to the Bureau's Same-Sex Married Couple Policy, 
see supra note 39, a same-sex spouse would be evaluated for 
confirmation as a successor in interest under Sec.  
1024.38(b)(1)(vi) as would any other potential successor in 
interest. As with any potential successor in interest, confirmation 
as a successor in interest would depend on whether the person meets 
the definition of successor in interest in Sec.  1024.31.
---------------------------------------------------------------------------

    Many requests under Sec.  1024.36(i) may indicate the nature of the 
transfer of the ownership interest from the transferor borrower to the 
successor in interest. In those cases, servicers will respond with 
information that is relevant to that potential successor in interest's 
specific situation. If the potential successor in interest does not 
indicate the nature of the transfer of the ownership interest to the 
potential successor in interest, the final rule allows the servicers to 
provide a response that includes examples of documents typically 
accepted to establish identity and ownership interest in a property, 
indicates that the requestor may obtain a more individualized 
description of required documents by providing additional information, 
specifies what additional information is required to enable the 
servicer to identify the required documents, and provides contact 
information for further assistance. As with other situations where 
servicers are responding to customer inquiries, the Bureau believes 
that servicers will in many instances contact the potential successor 
in interest for clarifying information before providing the formal 
notice required under Sec.  1024.36(i).
    Section 1024.36(c) through (g) establishes various requirements 
governing servicers' responses to requests for information under Sec.  
1024.36, such as acknowledgment requirements and time limits. Except as 
otherwise provided in the final rule, the Bureau believes it is 
appropriate for servicers to handle requests for information under 
Sec.  1024.36(i) in the same way that they handle other requests for 
information under Sec.  1024.36 and therefore has decided to apply the 
requirements of Sec.  1024.36(c) through (g) to requests under Sec.  
1024.36(i). For example, the final rule requires servicers to respond 
to a request under Sec.  1024.36(i) in writing, as they would for any 
other request for information. As a result, the information servicers 
provide will be memorialized, which should help to avoid uncertainty.
    The Bureau also concludes that it is appropriate to limit 
servicers' obligation to respond under Sec.  1024.36(i) to those 
requests received at an established address if a servicer has 
established one under Sec.  1024.36(b), as Sec.  1024.36 does for other 
requests for information. As many industry commenters noted, servicers 
would have difficulty responding promptly and efficiently to requests 
for information from potential successors in interest at locations 
other than the established address. Because servicers that have 
established an address are not ordinarily required to respond to 
requests for information received at other locations, servicers would 
need to train staff and set up systems at these locations to comply 
with Sec.  1024.36(i). Further, the Bureau anticipates that most 
successors in interest will be able to send information requests to the 
established address. Successors in interest may in some circumstances 
have access to written communications provided to the transferor 
borrower that identify the established address. Additionally, under 
Sec.  1024.36(b), a servicer that establishes an address for receipt of 
information requests must post the established address on any Web site 
maintained by the servicer if the Web site lists any contact address 
for the servicer. Furthermore, as explained in the section-by-section 
analysis of Sec.  1024.38(b)(1)(vi), servicers subject to Sec.  
1024.38(b)(1)(vi) must have policies and procedures reasonably designed 
to ensure that they are able to respond promptly with information that 
includes the appropriate address for a Sec.  1024.36(i) request upon 
receiving notice of the existence of a potential successor in interest, 
even if the notice is oral or received at an address that is not the 
address a servicer has established for requests under Sec.  1024.36.
    Because Sec.  1024.36(c) through (g) applies to requests under 
Sec.  1024.36(i), Sec.  1024.36(f)(1)(i)'s rule on duplicative 
information applies to requests under Sec.  1024.36(i). Section 
1024.36(i) does not require a servicer to respond to a request if the 
information requested is substantially the same as information 
previously requested by the borrower for which the servicer has 
previously complied with its obligation to respond. The fact that 
information was previously requested by a different borrower would not 
excuse a servicer from compliance under Sec.  1024.36(f)(1)(i) because, 
in that situation, the information would not have been requested ``by 
the borrower'' for purposes of Sec.  1024.36(f)(1)(i).\159\ Except as 
provided in Sec.  1024.36(i)(2), a servicer need not respond to 
repeated requests under Sec.  1024.36(i) for substantially the same 
information from the same potential successor in interest, if the 
servicer has previously complied with its obligation to respond to that 
potential successor in interest.\160\
---------------------------------------------------------------------------

    \159\ A trade association commenter suggested that the Bureau 
should indicate that, if a borrower receives information in response 
to a request for information and a confirmed successor later 
requests the same information, the second request should be deemed 
duplicative unless the first requester (or the first requester's 
estate) has been released from the loan obligation before the 
servicer receives the second request. The Bureau does not believe 
this interpretation would be consistent with the language of Sec.  
1024.36 for the reasons stated above. This commenter also asserted 
that, if a borrower asserts an error and a confirmed successor later 
asserts the same error, the second assertion should be deemed 
duplicative. The fact that an error asserted by a confirmed 
successor in interest is substantially the same as an error 
previously asserted by a transferor borrower would not excuse a 
servicer from compliance with the notice of error requirements in 
Sec.  1024.35 because, in that situation, the error would not have 
been previously ``asserted by the borrower'' for purposes of Sec.  
1024.35(i).
    \160\ For the reasons explained in part V.A., the application of 
the scope provision in Regulation X's subpart C (Sec.  1024.30(b)) 
to successors in interest means that Sec.  1024.36(i), but not Sec.  
1024.38(b)(1)(vi), applies to small servicers, with respect to 
reverse mortgage transactions, and with respect to mortgage loans 
for which the servicer is a qualified lender. Accordingly, small 
servicers, for example, are required to respond to requests for 
information under Sec.  1024.36(i) by providing a written 
description of the documents the servicer requires to confirm the 
person's identity and ownership interest in the property, even 
though small servicers are not required to maintain policies and 
procedures to decide promptly what documents the servicer reasonably 
requires to confirm the successor in interest's identity and 
ownership interest in the property.

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[[Page 72205]]

    Proposed comment 36(i)-1 would have provided that, for the purposes 
of requests under Sec.  1024.36(i), a servicer would only have been 
required to provide information regarding the documents the servicer 
requires to confirm the person's identity and ownership interest in the 
property, not any other information that may also be requested by the 
person. As explained above, the Bureau has decided to address this 
issue in regulation text. As finalized, Sec.  1024.36(i)(3) indicates 
that, prior to confirmation, the servicer is not required to provide 
any information the person may request, other than the information 
specified in Sec.  1024.36(i)(1) and (2). The Bureau is not finalizing 
proposed comment 36(i)-1 because it would be redundant of Sec.  
1024.36(i)(3).
    As noted above, industry commenters requested that the Bureau 
clarify what types of communications might indicate that a person may 
be a successor in interest for purposes of Sec.  1024.36(i). As 
finalized, comment 36(i)-1 provides examples of written requests that 
indicate that a person may be a successor in interest, including a 
written statement from a person other than a borrower indicating that 
there has been a transfer of ownership or of an ownership interest in 
the property to the person or that a borrower has been divorced, 
legally separated, or died; or a written loss mitigation application 
received from a person other than a borrower. Providing this non-
exhaustive list of examples in the commentary will assist servicers in 
understanding the types of contacts that constitute requests for 
information under Sec.  1024.36(i).
    The Bureau is also adding comment 36(i)-2, which addresses the time 
limits for servicers to respond to a request for information under 
Sec.  1024.36(i). The comment notes that a servicer must respond to a 
request under Sec.  1024.36(i) not later than the time limits set forth 
in Sec.  1024.36(d)(2). It explains that servicers subject to Sec.  
1024.38(b)(1)(vi)(B) must also maintain policies and procedures 
reasonably designed to ensure that, upon receiving notice of the 
existence of a potential successor in interest, the servicer can 
promptly determine the documents the servicer reasonably requires to 
confirm that person's identity and ownership interest in the property 
and promptly provide to the potential successor in interest a 
description of those documents and how the person may submit a written 
request under Sec.  1024.36(i) (including the appropriate address). The 
comment also explains that, depending on the facts and circumstances of 
the request, responding promptly may require a servicer to respond more 
quickly than the time limits established in Sec.  1024.36(d)(2).
    The Bureau considered, as an alternative, imposing a rigid, shorter 
time period, such as 15 days, that would apply to all requests under 
Sec.  1024.36(i), as some consumer advocacy groups had suggested. The 
Bureau believes that such a rigid deadline might be difficult to meet 
for more complex requests and has therefore chosen to impose the same 
time limits established for other requests for information in Sec.  
1024.36, with the expectation that the policies and procedures 
established pursuant to Sec.  1024.38(b)(1)(vi)(B) will provide for 
faster responses in appropriate cases when the facts and circumstances 
make that feasible, in order to avoid the harms that can result from 
confirmation delays, including unnecessary foreclosures. In light of 
those harms, the Bureau also declines to allow servicers more time to 
respond to requests for information from potential successors in 
interest than servicers have to respond to other requests for 
information or to set no time limit, as some industry commenters 
suggested.
    The Bureau is also adding comment 36(i)-3, which addresses agents 
of potential successors in interest. Once a servicer confirms a 
successor in interest, the confirmed successor in interest can take 
various steps through an agent because the confirmed successor in 
interest is treated as a borrower or consumer for purposes of a number 
of provisions in Regulations X and Z that permit borrowers or consumers 
to operate through agents.\161\ The proposal, however, did not address 
agents of potential successors in interest. Existing comment 36(a)-1 
addresses agents for purposes of information requests under Sec.  
1024.36 but does not apply to information requests that potential 
successors in interest submit under Sec.  1024.36(i).
---------------------------------------------------------------------------

    \161\ See, e.g., Regulation X comments 31 (Loss mitigation 
application)-1, 35(a)-1, 36(a)-1.
---------------------------------------------------------------------------

    The Bureau believes that potential successors in interest should be 
able to submit requests pursuant to Sec.  1024.36(i) through an agent 
and is adding comment 36(i)-3 to that end. Comment 36(i)-3 clarifies 
that an information request pursuant to Sec.  1024.36(i) is submitted 
by a potential successor in interest if it is submitted by an agent of 
the potential successor in interest. As a trade association noted in 
its comment, servicers must be able to verify the agents of potential 
successors in interest. Comment 36(i)-3 therefore states that servicers 
may undertake reasonable procedures to determine if a person that 
claims to be an agent of a potential successor in interest has 
authority from the potential successor in interest to act on the 
potential successor in interest's behalf, for example, by requiring 
that a person that claims to be the agent provide documentation from 
the potential successor in interest stating that the purported agent is 
acting on the potential successor in interest's behalf. The comment 
explains that, upon receipt of such documentation, the servicer shall 
treat the request for information as having been submitted by the 
potential successor in interest.
    The Bureau anticipates that it will be easy for servicers to 
implement the process described in comment 36(i)-3 because it is 
modeled on that of comment 36(a)-1, which applies to other types of 
requests for information under Sec.  1024.36. The Bureau believes 
comment 36(i)-3 is necessary and helpful because potential successors 
in interest who are experiencing difficulty in the confirmation process 
or in understanding the mortgage obligations that encumber their 
property may turn, for example, to housing counselors or other 
knowledgeable persons to assist them in addressing such issues.\162\
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    \162\ For example, the Bureau believes that the clarification in 
comment 36(i)-3 may be helpful in cases where successors in interest 
are minors. A trade association commenter indicated that servicers 
should not be required to enter into contracts with claimants who 
are minors, but the final rule does not impose any such requirement.
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Section 1024.37 Force-Placed Insurance
37(c) Requirements Before Charging Borrower for Force-Placed Insurance
37(c)(2) Content of Notice
37(c)(2)(v)
    Under Sec.  1024.37(b), a servicer may not charge a borrower for 
force-placed insurance ``unless the servicer has a reasonable basis to 
believe that the borrower has failed to comply with the mortgage loan's 
contract requirement to maintain hazard insurance.'' Section 
1024.37(c)(1) requires a servicer to provide to a borrower an initial 
notice and a reminder notice before assessing a fee or charge related 
to force-placed insurance. Sections 1024.37(c)(2) and 1024.37(d)(2) 
specify the notices' content. Current Sec.  1024.37(c)(2)(v) requires 
the initial notice to include a statement that, among other things, 
``the

[[Page 72206]]

borrower's hazard insurance is expiring or has expired, as applicable, 
and that the servicer does not have evidence that the borrower has 
hazard insurance coverage past the expiration date. . . .'' Section 
1024.37(d)(2)(i)(C) requires the reminder notice to include the same 
statement if, after providing the initial notice, a servicer does not 
receive any evidence of hazard insurance. These provisions do not 
specify what a notice must state if a borrower has insufficient 
coverage, such as when the borrower's insurance provides coverage in a 
dollar amount less than that required by the mortgage loan contract. 
The Bureau proposed to amend Sec.  1024.37(c)(2)(v) to address 
situations in which a borrower has insufficient, rather than expiring 
or expired, hazard insurance. The Bureau is finalizing Sec.  
1024.37(c)(2)(v) as proposed.
    In advance of the proposal, the Bureau was concerned that the 
statements required by Sec.  1024.37(c)(2)(v) and (d)(2)(i)(C) may not 
afford servicers flexibility to address circumstances in which a 
borrower has insufficient coverage. When a borrower has hazard 
insurance that is insufficient under the mortgage loan contract's 
requirements, a statement that coverage has expired or is expiring may 
not be applicable. Similarly, the notices must state that the servicer 
does not have evidence that the borrower has hazard insurance past the 
coverage date, but Sec.  1024.37 does not permit the notices to instead 
state that the servicer lacks evidence that the borrower's hazard 
insurance provides sufficient coverage. Moreover, Sec.  1024.37(c)(4) 
and (d)(4) prohibit a servicer from including in the force-placed 
insurance notices any information other than that required by Sec.  
1024.37(c)(2) or (d)(2). A servicer cannot explain on the notice itself 
that the borrower's hazard insurance is insufficient rather than 
expired or expiring. Although a servicer could include such an 
explanation on a separate piece of paper in the same transmittal as the 
force-placed insurance notice,\163\ the Bureau believed that servicers 
and borrowers could benefit if servicers were able to state on the 
notice itself that the servicer lacks evidence of sufficient coverage.
---------------------------------------------------------------------------

    \163\ See 12 CFR 1024.37(c)(2) and (d)(2).
---------------------------------------------------------------------------

    Accordingly, the Bureau proposed to amend Sec.  1024.37(c)(2)(v) to 
provide that the force-placed insurance notices must include a 
statement that the borrower's hazard insurance is expiring, has 
expired, or provides insufficient coverage, as applicable, and that the 
servicer does not have evidence that the borrower has hazard insurance 
coverage past the expiration date or evidence that the borrower has 
hazard insurance that provides sufficient coverage, as applicable. The 
Bureau believed that this amendment might enable servicers to provide 
borrowers with notices that are more accurately tailored for their 
precise circumstances and potentially avoid confusing a borrower whose 
coverage is not expiring but is insufficient under the mortgage loan 
contract. The Bureau solicited comment on whether other modifications 
to the required content of the force-placed insurance notices are 
necessary or appropriate to address circumstances in which a servicer 
force-places insurance for reasons other than expired or expiring 
coverage.
    The Bureau received a number of comments from industry and consumer 
advocacy groups on its proposal to revise the notices under Sec.  
1024.37 to include a statement regarding insufficient coverage. The 
vast majority of commenters expressed support for the proposed 
revisions and agreed that a statement regarding insufficient coverage 
on the notices required by Sec.  1024.37 would provide greater clarity 
to borrowers. One industry commenter recommended that the notices also 
include a statement to address a situation where the borrower purchases 
insurance through a company that the lender or servicer does not allow.
    The Bureau is finalizing Sec.  1024.37(c)(2)(v) as proposed. 
Section 1024.37(c)(2)(v) provides that the force-placed insurance 
notices must include a statement that the borrower's hazard insurance 
is expiring, has expired, or provides insufficient coverage, as 
applicable, and that the servicer does not have evidence that the 
borrower has hazard insurance coverage past the expiration date or 
evidence that the borrower has hazard insurance that provides 
sufficient coverage, as applicable. The Bureau declines to further 
modify the notices to specifically address a circumstance raised by one 
commenter in which a servicer force-places insurance because the 
borrower purchases insurance through a company that the lender or 
servicer does not allow. Where a borrower's hazard insurance does not 
satisfy the requirements of the mortgage loan contract, a servicer may 
explain on the force-placed insurance notices that the borrower's 
hazard insurance provides insufficient coverage. Any additional detail 
regarding the borrower's specific circumstances may be included with 
the force-placed insurance notice, on a separate piece of paper, as 
permitted under Sec.  1024.37(c)(4).
37(c)(4) Additional Information
    Section 1024.37(c) currently requires servicers to provide a 
borrower a notice at least 45 days before assessing a fee or charge 
related to force-placed insurance. Section 1024.37(c)(4) prohibits a 
servicer from including in the notice any information other than that 
required by Sec.  1024.37(c)(2), though a servicer may provide a 
borrower with additional information on separate pieces of paper in the 
same transmittal. In the 2013 RESPA Servicing Final Rule, the Bureau 
explained that providing required information along with additional 
information in the same notice could obscure the most important 
information or lead to information overload. The Bureau instead 
permitted servicers to provide additional information on separate 
pieces of paper in the same transmittal.\164\
---------------------------------------------------------------------------

    \164\ 78 FR 10695, 10770 (Feb. 14, 2013).
---------------------------------------------------------------------------

    However, in advance of the proposal, the Bureau received questions 
regarding whether servicers may include a borrower's mortgage loan 
account number in the notices required by Sec.  1024.37, including the 
initial notice required by Sec.  1024.37(c)(1)(i). As indicated in the 
proposal, the Bureau believed it could be appropriate to give servicers 
the flexibility to include a borrower's mortgage loan account number in 
the notices required by Sec.  1024.37. An account number is a customary 
disclosure on communications between a servicer and a borrower. The 
Bureau also believed that including the borrower's mortgage loan 
account number could help facilitate communications between a borrower 
and a servicer regarding a notice provided under Sec.  1024.37. 
Therefore, the Bureau proposed to amend Sec.  1024.37(c)(4) to grant 
servicers flexibility to include a borrower's mortgage loan account 
number in the notices required by Sec.  1024.37.
    The Bureau received numerous comments on the proposal to permit the 
inclusion of the mortgage loan account number in the notices required 
by Sec.  1024.37. The Bureau received several comments from industry 
and consumer advocacy groups expressing support for the proposal to 
allow servicers to include the mortgage loan account number in the 
written notice required by Sec.  1024.37(c)(1)(i). One industry 
commenter representing credit unions stated that including the mortgage 
loan account number in the written notices would help borrowers 
identify the loan for which the written notice applies and would 
facilitate communication between the borrower and the credit

[[Page 72207]]

union. Another industry commenter stated that permitting servicers to 
include the mortgage loan account number in the notices required by 
Sec.  1024.37(c)(1)(i) and (ii), and (e)(1)(i) would improve clarity 
and continuity in the communications between borrowers and servicers. A 
consumer advocacy group requested that the inclusion of the mortgage 
loan account number in the written notices be made mandatory to avoid 
confusion that may occur when servicers manage two or more accounts 
that pertain to the same borrower. One industry commenter recommended 
that such inclusion remain discretionary.
    Several commenters urged the Bureau to allow other additional 
information to be included in the notices required by Sec.  1024.37. 
One industry commenter requested that Sec.  1024.37(c)(4) permit 
servicers to include information that would improve borrower 
understanding of the notices, while another recommended that the rule 
permit additional information so long as it was related to the general 
content of the notice. One consumer advocacy group stated that the 
notices under Sec.  1024.37 would provide borrowers greater clarity if 
they included information on the dollar amount of coverage the servicer 
claims is needed and the fair market value of the home that the 
servicer used to determine the amount of coverage needed. The commenter 
stated that this information would help borrowers understand why the 
servicer was delivering a notice resulting from insufficient insurance 
coverage. Several industry commenters requested that Sec.  
1024.37(c)(4) also permit the notices to include information on force-
placed insurance required by State law. These commenters stated that 
delivering the notices required by Sec.  1024.37(c) and State law 
separately increases costs to servicers and may result in borrower 
confusion.
    The Bureau is adopting Sec.  1024.37(c)(4) as proposed. Section 
1024.37(c)(4) provides that, except for the mortgage loan account 
number, a servicer may not include any information other than the 
information required by Sec.  1024.37(c)(2) in the written notice 
required by Sec.  1024.37(c)(1)(i). It further explains that a servicer 
may provide such additional information to a borrower on separate 
pieces of paper in the same transmittal. The Bureau declines to make 
the inclusion of the mortgage loan account number in the notices 
required by Sec.  1024.37 mandatory, as one commenter recommended. 
Servicers should have flexibility to determine when the inclusion of 
the mortgage loan account number in the notices would be helpful to 
facilitating communication and borrower understanding.
    The Bureau is not permitting additional types of information to be 
included in the notices required by Sec.  1024.37, as some commenters 
recommended. In contrast to the mortgage loan account number, the 
Bureau believes that including information such as the dollar amount of 
coverage the servicer claims is needed or information on force-placed 
insurance required by State law, as suggested by some commenters, could 
obscure the required notices or create information overload in the 
required notices that could result in borrower uncertainty. Although 
such information may be helpful to borrowers, the Bureau believes it is 
more appropriately included on separate pieces of paper in the same 
transmittal under Sec.  1024.37(c)(4).
37(d) Reminder Notice
37(d)(2) Content of the Reminder Notice
37(d)(2)(ii) Servicer Lacking Evidence of Continuous Coverage
    The Bureau proposed to amend Sec.  1024.37(d)(2)(ii), which 
specifies the information a force-placed insurance reminder notice must 
contain if a servicer does not have evidence that the borrower has had 
hazard insurance in place continuously. Currently, this provision does 
not address the scenario in which a servicer receives evidence that the 
borrower has had hazard insurance in place continuously, but the 
servicer lacks evidence that the continued hazard insurance is 
sufficient under the mortgage loan contract. While a servicer could 
include on a separate piece of paper a statement clarifying that it is 
purchasing insurance due to insufficient coverage, the Bureau believed 
it may be preferable for the notice itself to be clear in this regard.
    In order to align the requirements of Sec.  1024.37(d)(2)(ii) with 
the proposed changes to Sec.  1024.37(c)(2)(v), the Bureau proposed to 
amend Sec.  1024.37(d)(2)(ii) to clarify that the provision applies 
when a servicer has received hazard insurance information after 
providing the initial notice but has not received evidence 
demonstrating that the borrower has had sufficient hazard insurance 
coverage in place continuously. The Bureau solicited comment on whether 
other modifications to the required contents of the force-placed 
insurance notices are necessary or appropriate to address circumstances 
in which a servicer force-places insurance for reasons other than 
expired or expiring coverage.
    The majority of commenters discussing the proposed revisions to 
Sec.  1024.37 expressed support for the Bureau's proposal to address 
situations in which a borrower has insufficient, rather than expiring 
or expired, hazard insurance. A discussion of these comments is 
included in the section-by-section analysis of Sec.  1024.37(c)(2).
    The Bureau is finalizing Sec.  1024.37(d)(2)(ii) as proposed. Final 
Sec.  1024.37(d)(2)(ii) explains that this provision applies when a 
servicer has received hazard insurance information after delivering to 
a borrower or placing in the mail the notice required by Sec.  
1024.37(c)(1)(i), but has not received, from the borrower or otherwise, 
evidence demonstrating that the borrower has had sufficient hazard 
insurance coverage in place continuously. The requirements of final 
Sec.  1024.37(d)(2)(ii) align with the requirements of final Sec.  
1024.37(c)(2)(v), discussed in the section-by section analysis of Sec.  
1024.37(c)(2)(v).
37(d)(2)(ii)(B)
    The Bureau proposed to correct the statement in Sec.  
1024.37(d)(2)(ii)(B) that the notice must set forth the information 
required by Sec.  1024.37(c)(2)(ii) through (iv), (x), (xi), and 
(d)(2)(i)(B) and (D). Section 1024.37(d)(2)(ii)(B) should state that 
the notice must also set forth information required by Sec.  
1024.37(c)(2)(ix). The Bureau did not receive comments on this proposed 
correction and is finalizing Sec.  1024.37(d)(2)(ii)(B) as proposed.
37(d)(3) Format
    Section 1024.37(d)(3) sets forth certain formatting requirements 
for the reminder notice required by Sec.  1024.41(c)(1)(ii). The 
reminder notice contains some of the same information as the initial 
notice provided under Sec.  1024.37(c)(1)(i). The proposal would have 
made a technical correction to Sec.  1024.37(d)(3) to state that the 
formatting instructions in Sec.  1024.37(c)(3), which apply to 
information set forth in the initial notice, also apply to the 
information set forth in the reminder notice provided pursuant to Sec.  
1024.37(d). The purpose of this change was to clarify that, when the 
same information appears in both the initial and the reminder notice, 
that information must be formatted the same in both notices. The Bureau 
did not receive comments in response to the proposed technical 
correction to Sec.  1024.37(d)(3) and is finalizing as proposed.

[[Page 72208]]

37(d)(4) Additional Information
    The Bureau proposed two amendments with respect to Sec.  
1024.37(d)(4). First, the Bureau proposed to amend Sec.  1024.37(d)(4) 
to give servicers the flexibility to include a borrower's mortgage loan 
account number in the notice required by Sec.  1024.37(c)(1)(ii). For 
the reasons discussed in the section-by-section analysis of Sec.  
1024.37(c)(4), the Bureau believed that giving servicers flexibility to 
include the account number might benefit servicers and borrowers 
without obscuring other information on the notice or leading to 
information overload. The Bureau sought comment on this proposal to 
grant servicers flexibility to include a borrower's mortgage loan 
account number in the notices required by Sec.  1024.37 and whether 
there are other types of information that servicers should be allowed 
to include that would not obscure the required disclosures or create 
information overload. The Bureau also proposed technical corrections to 
renumber comment 37(d)(4)-1 as comment 37(d)(5)-1 and to correct an 
erroneous reference in that comment to Sec.  1024.37(d)(4), which 
instead should be a reference to Sec.  1024.37(d)(5).
    The Bureau received numerous comments in response to its proposal 
to permit servicers to include a borrower's mortgage loan account 
number in the notices required by Sec.  1024.37. The Bureau has 
included a discussion of these comments in the section-by-section 
analysis of Sec.  1024.37(c)(4).
    The Bureau is finalizing Sec.  1024.37(d)(4) as proposed, and is 
renumbering comment 37(d)(4)-1 as comment 37(d)(5)-1 with certain 
changes for clarity. Section 1024.37(d)(4) explains that, except for 
the borrower's mortgage loan account number, a servicer may not include 
any information other than information required by Sec.  
1024.37(d)(2)(i) or (ii), as applicable, in the written notice required 
by Sec.  1024.37(c)(1)(ii). It further explains that a servicer may 
provide such additional information to a borrower on separate pieces of 
paper in the same transmittal. Final Sec.  1024.37(d)(4) is consistent 
with final Sec.  1024.37(c)(4), which allows servicers to include the 
borrower's mortgage loan account number in the written notice required 
by Sec.  1024.37(c)(1)(i).
37(d)(5) Updating Notice With Borrower Information
    For the reasons discussed above, the Bureau is renumbering comment 
37(d)(4)-1 as comment 37(d)(5)-1 and is finalizing comment 37(d)(5)-1 
substantially as proposed. Comment 37(d)(5)-1 explains that, if the 
written notice required by Sec.  1024.37(c)(1)(ii) was put into 
production a reasonable time prior to the servicer delivering or 
placing the notice in the mail, the servicer is not required to update 
the notice with new insurance information received. It clarifies that, 
for purposes of Sec.  1024.37(d)(5), a reasonable time is no more than 
five days (excluding legal holidays, Saturdays, and Sundays). The final 
rule revises current comment 37(d)(5)-1 to remove superfluous language 
regarding a servicer preparing a written notice in advance of 
delivering or placing the notice in the mail and that the information 
received is about the borrower, and to make clear that five days is the 
maximum period of time that would be considered a reasonable time for 
purposes of Sec.  1024.37(d)(5).
37(e) Renewing or Replacing Force-placed Insurance
37(e)(4) Additional Information
    The Bureau proposed two amendments with respect to Sec.  
1024.37(e)(4). First, the Bureau proposed to amend Sec.  1024.37(e)(4) 
to give servicers the flexibility to include a borrower's mortgage loan 
account number in the notice required by Sec.  1024.37(e)(1)(i). For 
the reasons discussed in the section-by-section analysis of Sec.  
1024.37(c)(4), the Bureau explained that giving servicers flexibility 
to include the account number may benefit servicers and borrowers 
without obscuring other information on the notice or leading to 
information overload. Second, the Bureau proposed a technical 
correction to remove the unnecessary words ``[a]s applicable'' from 
Sec.  1024.37(e)(4).
    Numerous commenters discussed the Bureau's proposal to permit the 
inclusion of the mortgage loan account number in the notices required 
by Sec.  1024.37. The Bureau has included a discussion of these 
comments in the section-by-section analysis of Sec.  1024.37(c)(4).
    The Bureau is finalizing Sec.  1024.37(e)(4) substantially as 
proposed, with a technical correction. Section 1024.37(e)(4) provides 
that, except for the borrower's mortgage loan account number, a 
servicer may not include any information other than information 
required by Sec.  1024.37(e)(2) in the written notice required by Sec.  
1024.37(e)(1). It further explains that a servicer may provide such 
additional information to a borrower on separate pieces of paper in the 
same transmittal. The Bureau is making a technical correction in this 
final rule to add a missing ``the'' to the second sentence of Sec.  
1024.37(e)(4).
Legal Authority
    These amendments and clarifications to Sec.  1024.37 implement 
sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.
Section 1024.38 General Servicing Policies, Procedures, and 
Requirements
38(b) Objectives
38(b)(1)(vi) Successors in Interest
    Current Sec.  1024.38(b)(1)(vi) provides that servicers shall 
maintain policies and procedures that are reasonably designed to 
achieve the objective of, upon notification of the death of a borrower, 
promptly identifying and facilitating communication with the successor 
in interest of the deceased borrower with respect to the property 
securing the deceased borrower's mortgage loan. The Bureau proposed 
several modifications to this requirement.
    Proposed Sec.  1024.38(b)(1)(vi) would have expanded the current 
policies and procedures requirement regarding identifying and 
communicating with successors in interest. Proposed Sec.  
1024.38(b)(1)(vi)(A) would have required servicers to maintain policies 
and procedures that are reasonably designed to ensure that the servicer 
can promptly identify and facilitate communication with any potential 
successors in interest upon notification either of the death of a 
borrower or of any transfer of the property securing a mortgage loan. 
Proposed Sec.  1024.38(b)(1)(vi)(B) would have required servicers to 
maintain policies and procedures that are reasonably designed to ensure 
that the servicer can, upon identification of a potential successor in 
interest--including through any request made by a potential successor 
in interest under Sec.  1024.36(i) or any loss mitigation application 
received from a potential successor in interest--provide promptly to 
the potential successor in interest a description of the documents the 
servicer reasonably requires to confirm that person's identity and 
ownership interest in the property and how the person may submit a 
written request under Sec.  1024.36(i) (including the appropriate 
address). Proposed Sec.  1024.38(b)(1)(vi)(C) would have required 
servicers to maintain policies and procedures that are reasonably 
designed to ensure that the servicer can, upon the receipt of such 
documents (i.e., those the servicer reasonably requires to confirm that 
person's identity and ownership interest in the

[[Page 72209]]

property), promptly notify the person, as applicable, that the servicer 
has confirmed the person's status, has determined that additional 
documents are required (and what those documents are), or has 
determined that the person is not a successor in interest. Proposed 
commentary to Sec.  1024.38(b)(1)(vi) would have clarified these 
requirements, including providing examples illustrating documents a 
servicer may require under certain circumstances. For the reasons 
stated in part V.A. and this discussion, the Bureau has decided to 
finalize proposed Sec.  1024.38(b)(1)(vi) and related commentary with a 
number of changes.
    In their comments, consumer advocacy groups generally supported the 
substance of the proposed changes to Sec.  1024.38(b)(1)(vi), noting 
that they would bring greater clarity to the process and specificity 
regarding servicers' obligations. A number of these groups urged the 
Bureau to move all of the requirements of Sec.  1024.38(b)(1)(vi) to a 
privately enforceable section of Regulation X and to require small 
servicers to comply with them. Some commenters also suggested that the 
final rule should create an appeal process or notice of error 
procedure, with a private right of action, that successors in interest 
could use to challenge unfavorable determinations relating to successor 
status. Consumer advocacy groups also encouraged the Bureau to 
establish specific time limits for the confirmation process.
    Consumer advocacy groups emphasized the need for servicers to 
identify promptly the specific documents required for confirmation. The 
office of a State Attorney General commented that, in its experience, 
servicers do not consider the successor in interest's circumstances or 
State-specific requirements and instead impose the same requirements on 
all potential successors in interest, forcing them to expend time and 
resources needlessly to establish their ownership interest in the 
property. This commenter supported requiring servicers to implement 
State-specific policies relating to necessary proof to establish an 
ownership interest under proposed Sec.  1024.38(b)(1)(vi)(B). It stated 
that the required documents should take into account the relevant 
jurisdiction, the successor in interest's specific situation, and the 
documents already in the servicer's possession.
    A number of industry commenters urged the Bureau to provide greater 
clarity regarding servicers' obligations in confirming successors in 
interest. These commenters requested clear and reasonable requirements 
for identifying and communicating with successors in interest. Some of 
these industry commenters urged the Bureau to lay out a process for 
identifying and communicating with potential successors and to provide 
a safe harbor in the final rule for servicers that comply with that 
process.
    Various industry commenters expressed concern that the proposal 
might require them to provide legal advice to potential successors in 
interest. A trade association suggested that it would be a monumental 
task to create and maintain over time policies and procedures 
appropriate for each jurisdiction to address the varying situations 
that might arise. Another industry commenter urged the Bureau to 
indicate that the burden of determining the appropriate 
jurisdictionally valid documents lies with the successor in interest. 
It recommended that the final rule limit a servicer's obligation to a 
potential successor in interest to providing general examples of 
documents typically accepted to establish identity and ownership 
interest in the property, similar to the examples provided in proposed 
comment 38(b)(1)(vi)-2.
    Industry commenters also stated that servicers should not be put in 
the position of having to adjudicate the validity of a potential 
successor's ownership interest, particularly when there are competing 
claims from other parties. These commenters indicated that they did not 
want to get drawn into contentious divorce disputes or other civil 
litigation.
    Two trade associations stated that the Bureau should permit 
servicers to adjust their practices to the actual and potential risks 
of illegal activity or erroneous information. They referred to 
requirements under the Bank Secrecy Act to verify the identity of 
persons who seek to open accounts and stated that servicers need to be 
able to decline to recognize a claimant as a borrower, where 
appropriate.
    A number of industry commenters expressed concern about the 
requirement in proposed Sec.  1024.38(b)(1)(vi)(A) to identify 
potential successors in interest. An industry commenter suggested that 
a requirement to identify any potential successors in interest could 
open servicers up to civil liability where the servicer has not 
identified all potential successors in interest. Other industry 
commenters expressed concern that proposed Sec.  1024.38(b)(1)(vi)(A) 
might require servicers to seek out potential successors in interest. 
Some industry commenters suggested that the Bureau should not extend 
the scope of the obligation in Sec.  1024.38(b)(1)(vi) beyond the scope 
of the definition of successor in interest in proposed Sec.  1024.31. 
At least one industry commenter found the interplay between proposed 
Sec.  1024.38(b)(1)(vi) and proposed Sec.  1024.36(i) confusing.
    Commenters expressed widely divergent views on whether Sec.  
1024.38(b)(1)(vi) should require servicers to respond to potential 
successors in interest in writing. Consumer advocacy groups and the 
office of a State Attorney General recommended requiring a written 
response, given the continuing problems they have seen successors in 
interest encounter in establishing their status. The office of a State 
Attorney General stated that requiring a written response would prevent 
miscommunications and provide clear documentation in the event of a 
transfer of servicing. This commenter noted that it has worked with 
homeowners who have had to reestablish their successor in interest 
status after a transfer of servicing rights. It also indicated that a 
homeowner who has written confirmation from a previous servicer is less 
likely to have to repeat the successor identification process with the 
new servicer. Consumer advocacy groups suggested that a written 
response might be helpful if a potential successor in interest is 
seeking assistance from an advocate. These groups indicated that, if a 
potential successor in interest is not confirmed, the servicer should 
include in its written response an explanation of reasons for the 
determination as well as an explanation of how to submit a written 
notice of error.
    In contrast, industry commenters indicated that the Bureau should 
not require a written response. Some industry commenters suggested that 
servicers should have the flexibility to decide whether confirmation of 
the successor in interest should be in writing, oral, or both. One 
industry commenter noted that, if there is a danger of foreclosure, for 
example, a servicer could communicate a confirmation determination 
verbally to avoid mailing delays.
    Commenters also expressed divergent views on whether the final rule 
should define the term promptly for purposes of Sec.  1024.38(b)(1)(vi) 
and, if so, how. Several consumer advocacy groups suggested that 
promptly for purposes of Sec.  1024.38(b)(1)(vi) should mean within 
five business days. Another consumer advocacy group suggested that, for 
purposes of notifying successors in interest of confirmation, promptly 
should be defined as within 30 days. This commenter noted that delays 
in

[[Page 72210]]

confirmation determinations can cause or increase delinquencies and 
harm prospects for loss mitigation. A consumer advocacy group suggested 
that the Bureau should consider the loss mitigation timetable that 
requires notices for an incomplete application, a complete application, 
and a deadline for review as a reference in defining promptly for 
purposes of Sec.  1024.38(b)(1)(vi).
    An industry commenter urged the Bureau not to define promptly, 
noting that what should be considered promptly may vary depending on 
the scenario. It suggested that servicers should have a reasonable 
amount of time, not less than 30 days, to make confirmation decisions. 
Another industry commenter suggested 60 days, while a trade association 
suggested that the final rule should provide a reasonable time of up to 
90 calendar days, unless a dispute is being litigated. Another industry 
commenter suggested that 10 business days from determination of 
confirmation would suffice.\165\
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    \165\ As discussed below, both consumer advocacy groups and 
industry commenters criticized the requirement in proposed comment 
38(b)(1)(vi)-3 that, in general, a servicer's policies and 
procedures would have to be reasonably designed to ensure that the 
servicer confirms a successor in interest's status and notifies the 
person of the servicer's confirmation at least 30 days before the 
next applicable milestone provided in comment 41(b)(2)(ii)-2.
---------------------------------------------------------------------------

    The Bureau agrees with the various commenters that emphasized the 
need for greater specificity regarding the policies and procedures that 
servicers need to implement with regard to successors in interest. In 
light of the comments received, the Bureau has made adjustments to the 
proposed regulation text and commentary and has added additional 
commentary in the final rule. As finalized, Sec.  1024.38(b)(1)(vi)(A) 
requires servicers to maintain policies and procedures reasonably 
designed to ensure that, upon receiving notice of the death of a 
borrower or of any transfer of the property securing a mortgage loan, 
the servicer can promptly facilitate communication with any potential 
or confirmed successors in interest regarding the property. Section 
1024.38(b)(1)(vi)(B) requires servicers to maintain policies and 
procedures reasonably designed to ensure that, upon receiving notice of 
the existence of a potential successor in interest, the servicer can 
promptly determine the documents it reasonably requires to confirm that 
person's identity and ownership interest in the property and promptly 
provide to the potential successor in interest a description of those 
documents and how the person may submit a written request under Sec.  
1024.36(i) (including the appropriate address). Section 
1024.38(b)(1)(vi)(C) requires servicers to maintain policies and 
procedures reasonably designed to ensure that, upon the receipt of such 
documents, the servicer can promptly make a confirmation determination 
and promptly notify the person, as applicable, that the servicer has 
confirmed the person's status, has determined that additional documents 
are required (and what those documents are), or has determined that the 
person is not a successor in interest.
    In light of the other requirements that it is finalizing in Sec.  
1024.38(b)(1)(vi), the Bureau has concluded that there is no need to 
finalize the aspect of proposed Sec.  1024.38(b)(1)(vi)(A) that would 
have required a servicer to have policies and procedures in place 
reasonably designed to identify promptly any potential successors in 
interest upon notification of the death of a borrower or of any 
transfer of the property securing a mortgage loan. In lieu of 
finalizing the proposed requirement to identify potential successors in 
interest that raised concerns for many industry commenters, the Bureau 
has provided illustrative examples in new comment 38(b)(1)(vi)-1 of how 
a servicer may be notified of the existence of a potential successor in 
interest. The Bureau believes that these revisions clarify servicers' 
responsibilities under Sec.  1024.38(b)(1)(vi) without undermining the 
protections provided for potential successors in interest.
    The Bureau recognizes, as it did at the proposal stage, that the 
policies and procedures requirement must apply to a broader category of 
persons than the definition of successor in interest under the final 
rule. As many consumer advocacy groups and other commenters noted, a 
potential successor in interest may come to the attention of the 
servicer in a variety of ways. The policies and procedures requirements 
in Sec.  1024.38(b)(1)(vi) are triggered as soon as a servicer receives 
notice of the existence of a potential successor in interest, even if 
the servicer does not know at the time of initial contact whether a 
potential successor in interest in fact meets the Regulation X 
definition of successor in interest. A servicer may not wait until it 
has reason to believe that the transfer falls within the scope of the 
definition to engage in the communications required by Sec.  
1024.38(b)(1)(vi). Thus, for example, a servicer's policies and 
procedures should require the servicer to facilitate communication 
regarding the proof required to establish successor in interest status 
with any person who indicates that a borrower has died, even if the 
servicer is not certain whether the person is in fact a successor in 
interest.
    The final rule, like the proposal, does not require servicers to 
provide legal advice to successors in interest. As explained in part 
V.A., the final rule does, however, require a servicer to have policies 
and procedures in place that are reasonably designed to ensure that the 
servicer can promptly describe to the successor in interest the 
documents that the servicer will accept to confirm the potential 
successor in interest's identity and ownership interest in the 
property. The types of determinations necessary for a confirmation 
decision are ones that servicers routinely make for a variety of 
purposes--for example, in identifying who to serve in a foreclosure 
action and who should receive other notices required by State law.
    As some industry commenters indicated, there may be circumstances 
where it is not possible for a servicer to make a confirmation 
determination based on the information submitted, due to competing 
successorship claims or other reasons. In light of concerns raised by 
commenters, the Bureau has added commentary to Sec.  1024.38(b)(1)(vi) 
addressing circumstances where additional documentation is required for 
confirmation, as discussed below.\166\
---------------------------------------------------------------------------

    \166\ The Bureau has also made adjustments to Sec.  1024.36(i). 
If a written request under Sec.  1024.36(i) does not provide 
sufficient information to enable the servicer to identify the 
documents the servicer reasonably requires for confirmation, Sec.  
1024.36(i)(2) allows the servicer to provide a response that 
includes examples of documents typically accepted to establish 
identity and ownership interest in a property, indicates that the 
person may obtain a more individualized description of required 
documents by providing additional information, specifies what 
additional information is required, and provides contact information 
for further assistance.
---------------------------------------------------------------------------

    Although a number of consumer advocacy group commenters urged the 
Bureau to require servicers to provide written confirmation decisions, 
the final rule follows the proposal in leaving the means of 
communication to servicers' discretion. Servicers will likely find it 
beneficial to communicate their decisions in writing in many cases to 
prevent ambiguity and memorialize decisions. However, as industry 
commenters noted, there may be circumstances where oral notification is 
advantageous due to time constraints, and the Bureau has concluded that 
the best approach is to allow the servicer to choose the appropriate 
mode of communication based on the particular facts and circumstances 
of each case.
    The Bureau has decided not to adopt a definition of promptly for 
purposes of

[[Page 72211]]

Sec.  1024.38(b)(1)(vi) because whether an action is prompt under Sec.  
1024.38(b)(1)(vi) will depend on the facts and circumstances of the 
request. In many instances, providing information promptly may require 
a servicer to respond more quickly than the time limits established in 
Sec.  1024.36(d)(2) for responding to a request for information under 
Sec.  1024.36(i). For example, if a non-borrowing spouse informs the 
servicer of the borrowing spouse's mortgage that the borrowing spouse 
has died and that the borrowing spouse and non-borrowing spouse owned 
the property jointly as tenants by the entirety, the Bureau expects 
that a servicer would respond to the non-borrowing spouse with a 
description of the documents required for confirmation within a 
significantly shorter period of time than 30 days.
    The Bureau has made specific adjustments in the final rule to 
ensure that it is clear that servicers must act promptly both in 
determining the documents the servicer reasonably requires and in 
providing to the potential successor in interest a description of those 
documents and how the person may submit a written request under Sec.  
1024.36(i). Similarly, the Bureau has made adjustments to ensure that 
it is clear that both the servicer's confirmation determination and the 
notification to the potential successor in interest of that 
determination are to be done promptly. The Bureau recognizes that 
delays in the confirmation process can have significant deleterious 
consequences for successors in interest, including unnecessary 
foreclosures. The Bureau will monitor carefully how servicers implement 
the policies and procedures requirement to provide information 
promptly.
    Although some industry commenters expressed concern regarding the 
possibility of fraud, identity theft, or similar malfeasance, the 
Bureau does not anticipate that the final rule will result in any 
significant increase in these problems. Revised Sec.  1024.38(b)(1)(vi) 
lays out a process for confirmation of a potential successor in 
interest's identity and ownership interest. Neither Sec.  
1024.38(b)(1)(vi) nor Sec.  1024.36 requires a servicer to provide any 
account-specific information to a potential successor in interest prior 
to confirmation, other than a description of the documents required for 
confirmation. Further, nothing in the final rule prevents compliance 
with the GLBA information security requirements or, if applicable, the 
Bank Secrecy Act. As discussed below, the Bureau has added a new 
comment clarifying that, prior to confirmation, servicers may request 
documents that the servicer reasonably believes are necessary to 
prevent fraud or other criminal activity.\167\
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    \167\ Regulation X comment 38(b)(1)(vi)-2.
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    For the reasons stated in part V.A., the final rule does not create 
a private right of action for potential successors in interest relating 
to confirmation determinations, nor does it provide a safe harbor from 
UDAAP claims relating to confirmation determinations. A trade 
association urged the Bureau more generally to protect servicers from 
RESPA liability as to non-obligor successors in the final rule. 
However, as explained in part V.A., confirmed successors in interest 
are borrowers for purposes of Regulation X subpart C and Sec.  1024.17 
and, as such, should enjoy the same protections as other borrowers, 
including, where applicable, a right of action under 12 U.S.C. 2605.
    The final rule includes a new comment 38(b)(1)(vi)-1, which 
explains that a servicer may be notified of the existence of a 
potential successor in interest in a variety of ways. Comment 
38(b)(1)(vi)-1 provides a non-exclusive list of examples of ways in 
which a servicer could be notified of the existence of a potential 
successor in interest, including that a person could indicate that 
there has been a transfer of ownership or of an ownership interest in 
the property or that a borrower has been divorced, legally separated, 
or died, or a person other than a borrower could submit a loss 
mitigation application. The comment also explains that a servicer must 
maintain policies and procedures reasonably designed to ensure that the 
servicer can retain this information and promptly facilitate 
communication with potential successors in interest when a servicer is 
notified of their existence. The comment clarifies that a servicer is 
not required to conduct a search for potential successors in interest 
if the servicer has not received actual notice of their existence. This 
comment addresses questions that commenters raised regarding servicers' 
responsibilities in identifying and communicating with potential 
successors in interest.
    Proposed comment 38(b)(1)(vi)-1 stated that the documents a 
servicer requires to confirm a potential successor in interest's 
identity and ownership interest in the property must be reasonable in 
light of the laws of the relevant jurisdiction, the successor in 
interest's specific situation, and the documents already in the 
servicer's possession. The proposed comment would have provided that 
the required documents may, where appropriate, include, for example, a 
death certificate, an executed will, or a court order.
    The Bureau is finalizing this comment, renumbered as comment 
38(b)(1)(vi)-2, with additional language to address concerns raised by 
commenters relating to the possibility of fraud or criminal activity. 
As finalized, comment 38(b)(1)(vi)-2 indicates that the documents a 
servicer requires to confirm that person's identity and ownership 
interest in the property may also include documents that the servicer 
reasonably believes are necessary to prevent fraud or other criminal 
activity (for example, if a servicer has reason to believe that 
documents presented are forged).
    Proposed comment 38(b)(1)(vi)-2 included examples illustrating 
documents that a servicer may require to confirm a potential successor 
in interest's identity and ownership interest in the property and that 
generally would be reasonable, subject to the relevant law governing 
each situation, in four common situations involving potential 
successors in interests. The Bureau is finalizing this proposed comment 
with a number of clarifying changes and renumbering it as comment 
38(b)(1)(vi)-3.
    Some industry commenters urged the Bureau not to finalize these 
examples and expressed concern that they might limit the information 
that servicers could request from potential successors in interest. 
Some trade associations stated that the type of documents required to 
prove a transfer of ownership depends on State law and urged the Bureau 
not to finalize a regulation that could interfere or conflict with 
State law. These trade associations also suggested that servicers might 
need to request additional documents not described in the examples 
listed to protect against the possibility that the claimant is engaging 
in fraud, that a third party may claim an ownership interest in the 
property through adverse possession or an undisclosed transfer, that 
tenants by the entirety may have divorced, or that there has been a 
probate proceeding not required by applicable law.
    Other commenters indicated that they found the examples identified 
in the proposed comment helpful. Several consumer advocacy groups 
stated in their comments that servicers continue to request 
documentation to prove the successor in interest's identity and 
ownership interest in the property that is unreasonable in the 
successor in interest's particular situation. For instance, a large 
number of elder

[[Page 72212]]

advocates, including legal services attorneys and housing counselors, 
reported to one consumer advocacy group that they had been asked for 
probate documents despite having provided the servicer with a right of 
survivorship deed.
    In light of the challenges that successors in interest continue to 
face, as described in part V.A., the Bureau believes that it is 
necessary to provide guidance on the documents a servicer would 
generally reasonably require to confirm a potential successor in 
interest's identity and ownership interest in the property. However, in 
light of the concerns expressed regarding the proposed examples, the 
Bureau has made adjustments to the comment to emphasize that the 
relevant law governing each situation may vary from State to State, 
that the examples are illustrative only, and that the examples 
illustrate documents that it would generally be reasonable for a 
servicer to require to confirm a potential successor in interest's 
identity and ownership interest in the property under the specific 
circumstances described.
    The Bureau appreciates commenters' concerns that there may be 
factual scenarios that appear similar to one of the examples listed in 
comment 38(b)(1)(vi)-3 where a servicer needs to request documents that 
are not identified in the example due to particular circumstances not 
discussed in the example. As comment 38(b)(1)(vi)-3 indicates, the 
examples are intended to provide general guidance, and a servicer may 
reasonably require additional or different documents when warranted by 
the circumstances. Any such requests must be tailored to and 
appropriate for the potential successor in interest's particular 
circumstances.
    A number of industry commenters and consumer advocacy groups 
highlighted various ways in which the applicable law described in the 
examples is not consistent with the law of one or more particular 
States.\168\ The Bureau believes that these comments reflect a 
misunderstanding of the purpose of the examples and how the term 
applicable law was used in proposed comment 38(b)(1)(vi)-2. Each of the 
examples in the comment discusses the law of a hypothetical 
jurisdiction. In using the term applicable law, the Bureau did not mean 
to suggest that any particular State law principle described applies 
universally. To clarify this point, the final commentary replaces 
``applicable law'' with ``the applicable law of the relevant 
jurisdiction'' in each example provided.
---------------------------------------------------------------------------

    \168\ For example, responding to one example in proposed comment 
38(b)(1)(vi)-2 that mentioned an affidavit of heirship, a trade 
association commenter noted that California does not use an 
affidavit of heirship.
---------------------------------------------------------------------------

    The situations identified in comment 38(b)(1)(vi)-3 are:
    1. Tenancy by the entirety or joint tenancy. Assume that a servicer 
knows that the potential successor in interest and the transferor 
borrower owned the property as tenants by the entirety or joint tenants 
and that the transferor borrower has died. Assume further that, upon 
the death of the transferor borrower, the applicable law of the 
relevant jurisdiction does not require a probate proceeding to 
establish that the potential successor in interest has sole interest in 
the property but requires only that there be a prior recorded deed 
listing both the potential successor in interest and the transferor 
borrower as tenants by the entirety (e.g., married grantees) or joint 
tenants. Comment 38(b)(1)(vi)-3 indicates that, under these 
circumstances, it would be reasonable for the servicer to require the 
potential successor in interest to provide documentation of the 
recorded instrument, if the servicer does not already have it, and the 
death certificate of the transferor borrower. The comment also explains 
that it generally would not be reasonable for the servicer to require 
documentation of a probate proceeding because, in this situation, a 
probate proceeding is not required under the applicable law of the 
relevant jurisdiction.
    2. Affidavits of heirship. Assume that a potential successor in 
interest indicates that an ownership interest in the property 
transferred to the potential successor in interest upon the death of 
the transferor borrower through intestate succession and offers an 
affidavit of heirship as confirmation. Assume further that, upon the 
death of the transferor borrower, the applicable law of the relevant 
jurisdiction does not require a probate proceeding to establish that 
the potential successor in interest has an interest in the property but 
requires only an appropriate affidavit of heirship. Comment 
38(b)(1)(vi)-3 indicates that, under these circumstances, it would be 
reasonable for the servicer to require the potential successor in 
interest to provide the affidavit of heirship and the death certificate 
of the transferor borrower. The comment also explains that it generally 
would not be reasonable for the servicer to require documentation of a 
probate proceeding because a probate proceeding is not required under 
the applicable law of the relevant jurisdiction to recognize the 
transfer of title.
    3. Divorce or legal separation. Assume that a potential successor 
in interest indicates that an ownership interest in the property 
transferred to the potential successor in interest from a spouse who is 
a borrower as a result of a property agreement incident to a divorce 
proceeding. Assume further that the applicable law of the relevant 
jurisdiction does not require a deed conveying the interest in the 
property but accepts a final divorce decree and accompanying separation 
agreement executed by both spouses to evidence transfer of title. 
Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it 
would be reasonable for the servicer to require the potential successor 
in interest to provide documentation of the final divorce decree and an 
executed separation agreement. The comment indicates that, generally, 
it would not be reasonable for the servicer to require a deed because 
the applicable law of the relevant jurisdiction does not require a 
deed.
    4. Living spouses or parents. Assume that a potential successor in 
interest indicates that an ownership interest in the property 
transferred to the potential successor in interest from a living spouse 
or parent who is a borrower by quitclaim deed or act of donation. 
Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it 
would be reasonable for the servicer to require the potential successor 
in interest to provide the quitclaim deed or act of donation. The 
comment explains that it generally would not be reasonable, however, 
for the servicer to require additional documents.
    Comment 38(b)(1)(vi)-3 provides specific guidance about what are 
reasonable documents to require from a potential successor in interest 
to confirm the person's status as a successor in interest in very 
common and straightforward situations. In those situations, the Bureau 
expects that servicers generally will not need potential successors in 
interest to produce any additional documents beyond those specified in 
comment 38(b)(1)(vi)-3. This comment does not cover all possible 
situations involving successors in interest, however, and additional 
documents may be required in certain less straightforward situations or 
due to facts or legal requirements that are not addressed in the 
examples. The Bureau will continue to monitor implementation of these 
policies and procedures requirements to see if there are further 
clarifications in this area that would be helpful.

[[Page 72213]]

    The final rule also includes new comment 38(b)(1)(vi)-4, which 
explains that, if a servicer reasonably determines that it cannot make 
a determination of the potential successor in interest's status based 
on the documentation provided, it must specify what additional 
documentation is required. The comment notes, for example, that, if 
there is pending litigation involving the potential successor in 
interest and other claimants regarding who has title to the property at 
issue, a servicer may specify that documentation of a court 
determination or other resolution of the litigation is required. 
Servicers should not generally, however, request documentation of a 
court determination or other resolution of litigation absent knowledge 
of such litigation.
    Proposed comment 38(b)(1)(vi)-3 explained proposed Sec.  
1024.38(b)(1)(vi)(C)'s requirement that servicers maintain policies and 
procedures reasonably designed to ensure that the servicer can, upon 
the receipt of the documents that the servicer reasonably requires, 
promptly notify the person, as applicable, that the servicer has 
confirmed the person's status, has determined that additional documents 
are required (and what those documents are), or has determined that the 
person is not a successor in interest. The proposed comment would have 
provided that, upon the receipt of the documents, the servicer's 
confirmation and notification must be sufficiently prompt so as not to 
interfere with the successor in interest's ability to apply for loss 
mitigation options according to the procedures provided in Sec.  
1024.41. The proposed comment also would have provided that, in 
general, a servicer's policies and procedures must be reasonably 
designed to ensure that confirmation of a successor in interest's 
status occurs at least 30 days before the next applicable milestone 
provided in proposed comment 41(b)(2)(ii)-2.\169\ The Bureau proposed 
comment 38(b)(1)(vi)-3 because it recognized that successors in 
interest may have difficulty pursuing loss mitigation options to avoid 
foreclosure when the servicer does not promptly confirm the successor 
in interest's identity and ownership interest in the property. 
Miscommunication and delay in the process of confirming successors in 
interest's identity and ownership interest in the property can prevent 
successors in interest from successfully applying for loss mitigation.
---------------------------------------------------------------------------

    \169\ Proposed comment 41(b)(2)(ii)-2 would have provided the 
following milestones: (1) The date by which any document or 
information submitted by a borrower will be considered stale or 
invalid pursuant to any requirements applicable to any loss 
mitigation option available to the borrower; (b) The date that is 
the 120th day of the borrower's delinquency; (3) The date that is 90 
days before a foreclosure sale; (4) The date that is 38 days before 
a foreclosure sale.
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    Various commenters objected to the linkage of confirmation in 
proposed comment 38(b)(1)(vi)-3 with the milestones in proposed comment 
41(b)(2)(ii)-2. Some of these commenters noted that tying promptness to 
the next milestone could either result in an unreasonably long period 
or an unreasonably short one and predicted that it would lead to errors 
and confusion.
    The final rule addresses these issues in comment 38(b)(1)(vi)-5, 
which clarifies servicers' obligations under Sec.  1024.38(b)(1)(vi)(C) 
to maintain policies and procedures that are reasonably designed to 
ensure that the servicer can promptly notify the potential successor in 
interest that the servicer has confirmed the potential successor in 
interest's status. In light of the concerns raised by commenters, 
comment 38(b)(1)(vi)-5 omits any reference to the milestones. Instead, 
comment 38(b)(1)(vi)-5 clarifies that notification is not prompt for 
purposes of the requirement in Sec.  1024.38(b)(1)(vi)(C) if it 
unreasonably interferes with a successor in interest's ability to apply 
for loss mitigation options according to the procedures provided in 
Sec.  1024.41.
Legal Authority
    The Bureau is issuing these amendments to Sec.  1024.38 pursuant to 
its authority under section 19(a) of RESPA. As explained above, the 
servicing policies, procedures, and requirements set forth in these 
amendments 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 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 policies and procedures and without achieving 
certain standard requirements, servicers will not be able to achieve 
those purposes.
    The Bureau is also issuing these amendments to Sec.  1024.38 
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, these amendments to Sec.  1024.38 are necessary and 
appropriate to carry out the purposes under section 1021(a) 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 is relying 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(b)(2) Properly Evaluating Loss Mitigation Applications
38(b)(2)(vi)
    Proposed Sec.  1024.38(b)(2)(vi) provided that a servicer must 
maintain policies and procedures reasonably designed to ensure that the 
servicer can promptly identify and obtain documents or information not 
in the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, to offer the borrower in accordance 
with the requirements of proposed Sec.  1024.41(c)(4), discussed 
below.\170\ The Bureau received no comments on proposed Sec.  
1024.38(b)(2)(vi) and is adopting the provision as proposed, for the 
reasons discussed below.
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    \170\ As discussed in the section-by-section analysis of Sec.  
1024.41(c)(4) below, the Bureau is adopting Sec.  1024.41(c)(4) with 
several changes from the proposal.
---------------------------------------------------------------------------

    Under current Sec.  1024.41(c)(1), if a servicer receives a 
complete loss mitigation application more than 37 days before a 
foreclosure sale, the servicer shall, within 30 days of receipt, 
evaluate the borrower for all loss mitigation options available to the 
borrower and provide the notice required under Sec.  1024.41(c)(1)(ii). 
Section 1024.41(b)(1) defines a complete loss mitigation application to 
include information that the servicer requires from the borrower in 
evaluating applications for the loss mitigation options available to 
the borrower. Thus, a loss mitigation application can be complete even 
if a servicer requires additional information that is not in the 
control of the borrower.\171\
---------------------------------------------------------------------------

    \171\ See comment 41(b)(1)-5.
---------------------------------------------------------------------------

    Through outreach efforts in advance of the proposal, the Bureau 
learned that servicers cannot always obtain necessary third-party 
information in time to evaluate a borrower's complete loss mitigation 
application within 30

[[Page 72214]]

days of receipt, as required by Sec.  1024.41(c)(1). Servicers and 
Federal agencies informed the Bureau that this can occur either because 
a servicer delays requesting the information, or because a third party 
delays providing it. Current Sec.  1024.41 does not specifically 
address this circumstance--when a servicer is unable to obtain 
information not in the borrower's control by a date that will enable 
the servicer to make a determination as to which loss mitigation 
options, if any, to offer the borrower within 30 days of receiving a 
complete application as required by Sec.  1024.41(c)(1).
    As explained in the section-by-section analysis of new Sec.  
1024.41(c)(4), the Bureau is addressing these issues by adding 
requirements with respect to the servicer's obligation to pursue 
necessary information not in the borrower's control and the servicer's 
responsibilities if unable to obtain such information within 30 days of 
receiving a complete loss mitigation application. Servicers often need 
to access information from parties other than the borrower at different 
points during a loss mitigation application process, and Sec.  
1024.41(c)(4) (among other things) ensures that they pursue that 
information timely. Servicers' efficiency in obtaining such information 
will benefit borrowers by facilitating compliance with Sec.  
1024.41(c)(1)'s requirement to evaluate complete loss mitigation 
applications within 30 days.
    The policies and procedures requirements in Sec.  1024.38(b)(2)(vi) 
will facilitate compliance with the requirements for gathering 
information not in the borrower's control under Sec.  1024.41(c)(4). 
Maintaining such policies and procedures will ensure that servicers 
have appropriate mechanisms in place to identify and obtain such 
information efficiently. Section 1024.38(b)(2)(vi) also contributes to 
the goals of Sec.  1024.38(b)(2) more generally. Section 1024.38(b)(2) 
requires servicers to maintain policies and procedures regarding 
various aspects of evaluation of loss mitigation applications, 
including (among others) document collection and proper evaluation. The 
Bureau believes that these and other requirements of Sec.  
1024.38(b)(2) facilitate servicer compliance with Sec.  1024.41 and 
lead to loss mitigation processes that better protect consumers.\172\ 
Requiring servicers to maintain policies and procedures regarding the 
identification and collection of information not in the borrower's 
control under Sec.  1024.38(b)(2)(vi) similarly protects borrowers by 
facilitating compliance with Sec.  1024.41(c)(4) and the evaluation 
timelines provided under Sec.  1024.41(c)(1).
---------------------------------------------------------------------------

    \172\ 77 FR 57199, 57248 (Sept. 17, 2012).
---------------------------------------------------------------------------

38(b)(3) Facilitating Oversight of, and Compliance by, Service 
Providers
38(b)(3)(iii)
    The Bureau proposed and is adopting a new comment to Sec.  
1024.38(b)(3)(iii) to clarify the requirements for policies and 
procedures regarding servicers' communications with service provider 
personnel, including foreclosure counsel, as they relate to the 
prohibition in Sec.  1024.41(g). As discussed in the section-by-section 
analysis of Sec.  1024.41(g) below, the Bureau received no comments 
that raised concerns about the proposed comment.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
39(a) Live Contact
    The Bureau proposed several clarifications, revisions, and 
amendments to Sec.  1024.39(a) and its commentary. The proposed changes 
were intended to clarify that a servicer's early intervention live 
contact obligations recur in each billing cycle while a borrower is 
delinquent, and to provide additional examples illustrating how the 
live contact requirements apply in certain circumstances, such as when 
a borrower is unresponsive or is in the process of applying for loss 
mitigation pursuant to Sec.  1024.41. The Bureau is finalizing Sec.  
1024.39(a) substantially as proposed, with a change to clarify its 
applicability. The Bureau is finalizing comments 39(a)-1, -2, and -3 
substantially as proposed, with certain revisions for clarity. The 
Bureau is finalizing comments 39(a)-4 and -5 with minor revisions for 
clarity.
Repeated Attempts to Establish Live Contact
    Section 1024.39(a) currently requires a servicer to 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. 
Current comment 39(a)-1 states that a borrower's 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 . . . 
.'' \173\ The Bureau has always understood these provisions to require 
servicers to make repeated attempts to contact a borrower who remains 
delinquent for more than one billing cycle. The Bureau proposed to 
revise Sec.  1024.39(a) to codify this interpretation and expressly 
require servicers to establish or make good faith efforts to establish 
live contact with a delinquent borrower no later than the 36th day 
after each payment due date for the duration of the borrower's 
delinquency.
---------------------------------------------------------------------------

    \173\ Current Comment 39(a)-1.
---------------------------------------------------------------------------

    As stated in the 2012 RESPA Servicing Proposal, the Bureau intended 
the live contact provisions to create an ongoing obligation for a 
servicer to attempt to communicate with a delinquent borrower. In its 
discussion of the decision to limit a servicer's obligation to provide 
written notice under Sec.  1024.39(b)(1) to once every 180 days, the 
Bureau noted that it was not including a similar limitation in Sec.  
1024.39(a) because it expected a servicer to contact a borrower during 
each period of delinquency.\174\ In the 2013 RESPA Servicing Final 
Rule, the Bureau confirmed that it expected servicers to attempt to 
make live contact on a recurring basis and stated that servicers must 
establish live contact or make good faith efforts to do so, ``even with 
borrowers who are regularly delinquent, by the 36th day of a borrower's 
delinquency.'' \175\ In the October 2013 Servicing Bulletin, the Bureau 
again clarified that servicers have an obligation to make good faith 
efforts to contact a borrower within 36 days of when a borrower first 
becomes delinquent ``and for each of any subsequent billing periods for 
which the borrower's obligation is due and unpaid.'' \176\ The Bureau 
still believes that borrowers who remain delinquent for more than one 
billing cycle benefit from receiving repeated live contact and that 
relieving a servicer of its obligations to establish live contact after 
the initial delinquent billing cycle would undermine the intent of 
Sec.  1024.39(a).
---------------------------------------------------------------------------

    \174\ 77 FR 57199, 57256 (Sept. 17, 2012).
    \175\ 78 FR 10696, 10795 (Feb. 14, 2013).
    \176\ October 2013 Servicing Bulletin at 5.
---------------------------------------------------------------------------

    To provide additional guidance, the Bureau proposed to revise and 
re-order comment 39(a)-1 and its subsections. First, the Bureau 
proposed to remove the language in current comment 39(a)-1.i. As 
discussed in the section-by-section analysis of Sec.  1024.31, the 
Bureau proposed a new definition of delinquency applicable to all of 
subpart C, which would make the language in current comment 39(a)-1.i 
superfluous. Second, the Bureau proposed to revise current comment 
39(a)-1 and 39(a)-1.i and add comment 39(a)-1.i.A and 39(a)-1.i.B with 
examples to illustrate how a servicer may comply with the recurring 
live contact obligation when a borrower is delinquent for one or more 
billing cycles. The Bureau also proposed to revise comment 39(a)-2 to 
codify

[[Page 72215]]

guidance from the October 2013 Servicing Bulletin, which clarified that 
servicers are permitted to combine their live contact attempts with 
their attempts to contact borrowers for other purposes, including, for 
example, by providing a borrower with information about available loss 
mitigation options when contacting the borrower for purposes of 
collection.\177\
---------------------------------------------------------------------------

    \177\ Id.
---------------------------------------------------------------------------

    Finally, the Bureau proposed to add comment 39(a)-3 to clarify 
that, while the Bureau expects servicers to continue to attempt to make 
live contact with borrowers who are regularly delinquent, a borrower's 
failure to respond to such attempts, as well as the length of the 
borrower's delinquency, are relevant circumstances to consider when 
evaluating a servicer's good faith. To this end, the Bureau proposed to 
add an example it first provided in the October 2013 Servicing 
Bulletin. The example would have provided that, in the case of a 
borrower with six or more consecutive delinquencies, good faith efforts 
to establish live contact might include adding a sentence in the 
borrower's periodic statement or another communication encouraging the 
borrower to contact the servicer. The Bureau proposed to re-designate 
current comments 39(a)-3 and 39(a)-4 as, respectively, comments 39(a)-4 
and 39(a)-5 to accommodate the addition of proposed comment 39(a)-3.
    The Bureau received several comments from industry and consumer 
advocacy group commenters expressing general support for the proposed 
revisions to Sec.  1024.39(a). Two industry commenters stated that the 
proposed revisions would clarify the current requirements for early 
intervention and generally reflect common practices among credit 
unions.
    A few industry commenters stated that the proposal would impose 
burdensome requirements on servicers because it would require them to 
comply with the live contact requirements under Sec.  1024.39(a) every 
36 days. These commenters expressed concern that the proposal could 
require such live contact efforts to continue even after a loan has 
been referred to foreclosure, and they noted that the foreclosure 
process can continue for years in judicial foreclosure States. One 
commenter expressed concern that the proposed revisions would not 
define what constitutes good faith efforts to establish live contact. 
Another industry commenter said that the proposal could require 
servicers to make live contact with borrowers in bankruptcy, which 
would be inconsistent with the goals of bankruptcy protection and could 
cause borrower confusion. This commenter also suggested that the live 
contact requirements could cause confusion for borrowers who are 
receiving State-mandated pre-foreclosure notices or the first notice or 
filing for foreclosure. This commenter urged the Bureau to restrict the 
live contact requirements of proposed Sec.  1024.39(a) to the first 120 
days of the borrower's delinquency.
    The Bureau is finalizing Sec.  1024.39(a) substantially as 
proposed, with a change to clarify its applicability. The Bureau is 
finalizing comments 39(a)-1,-2, and -3 substantially as proposed, with 
certain revisions for clarity. The Bureau is finalizing comments 39(a)-
4 and -5 with minor revisions for clarity.
    Section 1024.39(a) explains that, except as otherwise provided in 
Sec.  1024.39, a servicer shall establish or make good faith efforts to 
establish live contact with a delinquent borrower no later than the 
36th day of a borrower's delinquency and again no later than 36 days 
after each payment due date so long as the borrower remains delinquent. 
It further provides that, promptly after establishing live contact with 
a borrower, the servicer shall inform the borrower about the 
availability of loss mitigation options, if appropriate.
    Some commenters expressed specific concern over the burden 
associated with the live contact requirements in situations where a 
loan has been referred to foreclosure, noting that the foreclosure 
process may take several years. As discussed in more detail below, 
comment 39(a)-3 accounts for the burden associated with Sec.  
1024.39(a) where there is a prolonged delinquency. It clarifies that 
the length of a borrower's delinquency may be a factor to consider in 
the determination of what constitutes good faith efforts to establish 
live contact.
    The Bureau declines to adopt additional exemptions to the live 
contact requirements based on the length of a borrower's delinquency, 
as requested by one commenter. Additional exemptions could harm 
borrowers by limiting their communications with servicers and their 
awareness of possible alternatives to foreclosure. The Bureau continues 
to believe that borrowers at all stages of delinquency benefit from 
live contact.
    The Bureau notes that one commenter expressed concern over the live 
contact requirements in proposed Sec.  1024.39(a) when a borrower is in 
bankruptcy. Section 1024.39 includes an exemption from the live contact 
requirements for borrowers in bankruptcy in Sec.  1024.39(c). To 
clarify the applicability of the live contact requirements in Sec.  
1024.39(a) in light of the bankruptcy exemption in Sec.  1024.39(c) and 
a similar one in Sec.  1024.39(d) when a borrower has invoked certain 
rights under the FDCPA, the Bureau is finalizing Sec.  1024.39(a) to 
explain that the live contact requirements of Sec.  1024.39(a) apply, 
except as otherwise provided in Sec.  1024.39.
    The Bureau is finalizing comment 39(a)-1 substantially as proposed, 
with certain non-substantive revisions for clarity. Comment 39(a)-1 
explains that Sec.  1024.39 requires a servicer to establish or attempt 
to establish live contact no later than the 36th day of a borrower's 
delinquency. Comment 39(a)-1.i.A illustrates this provision through an 
example. Comment 39(a)-1.i.B explains that the servicer may time its 
attempts to establish live contact such that a single attempt will meet 
the requirements of Sec.  1024.39(a) for two missed payments and 
provides an illustrative example.
    The Bureau is finalizing comment 39(a)-2 substantially as proposed, 
with certain changes for clarity. Comment 39(a)-2 explains that live 
contact provides servicers an opportunity to discuss the circumstances 
of a borrower's delinquency. Live contact with a borrower includes 
speaking on the telephone or conducting an in-person meeting with the 
borrower but not leaving a recorded phone message. Comment 39(a)-2 
states that a servicer may rely on live contact established at the 
borrower's initiative to satisfy the live contact requirement in Sec.  
1024.39(a). Finally, it provides that servicers may also combine 
contacts made pursuant to Sec.  1024.39(a) with contacts made with 
borrowers for other reasons, for instance, by telling borrowers on 
collection calls that loss mitigation options may be available.
    The Bureau is finalizing comment 39(a)-3 with changes. Comment 
39(a)-3 explains 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 length of a 
borrower's delinquency, as well as a borrower's failure to respond to a 
servicer's repeated attempts at communication pursuant to Sec.  
1024.39(a), are relevant circumstances to consider. For example, 
whereas ``good faith efforts'' to establish live contact with regard to 
a borrower with two consecutive missed payments might require a 
telephone call, ``good faith

[[Page 72216]]

efforts'' to establish live contact with regard to an unresponsive 
borrower with six or more consecutive missed payments might require no 
more than including a sentence requesting that the borrower contact the 
servicer with regard to the delinquencies in the periodic statement or 
in an electronic communication. The comment explains that comment 
39(a)-6 discusses the relationship between live contact and the loss 
mitigation procedures set forth in Sec.  1024.41.
    Final comment 39(a)-3 omits language from the proposal regarding 
the good faith efforts that might be sufficient where there is little 
or no hope of home retention, such as may occur in the later stages of 
foreclosure. The Bureau now believes it more appropriate to calibrate 
good faith efforts to the duration of the delinquency rather than a 
subjective judgment on the possibility of home retention, regardless of 
the stage of foreclosure.
    The Bureau is declining to adopt a specific definition of what 
constitutes good faith efforts in comment 39(a)-3, as requested by one 
commenter. What constitutes good faith efforts is based on 
circumstances specific to the borrower and the borrower's mortgage loan 
obligation. The comment provides examples demonstrating the fact-
specific nature of this determination.
    The Bureau is finalizing comment 39(a)-4 as proposed. The final 
rule renumbers current comment 39(a)-3 as 39(a)-4, with no further 
changes. The final rule renumbers current comment 39(a)-4 as 39(a)-5, 
with a technical correction to add an omitted ``to.''
Relationship Between Live Contact and Loss Mitigation Procedures
    The Bureau also proposed to add comment 39(a)-6 to illustrate how a 
servicer could meet its early intervention live contact requirements 
when it is working with a borrower pursuant to the loss mitigation 
procedures set forth in Sec.  1024.41. Proposed comment 39(a)-6 would 
have codified guidance the Bureau provided in its October 2013 
Servicing Bulletin, explaining that, under current comment 39(a)-2, 
good faith efforts to establish live contact consist of ``reasonable 
steps under the circumstances to reach a borrower . . . . '' The Bureau 
provided several examples of reasonable steps, including the example of 
a servicer that has established and is maintaining live contact with a 
borrower ``with regard to the borrower's completion of a loss 
mitigation application and the servicer's evaluation of that borrower 
for loss mitigation options.'' \178\
---------------------------------------------------------------------------

    \178\ October 2013 Servicing Bulletin at 5.
---------------------------------------------------------------------------

    Proposed comment 39(a)-6 therefore would have clarified that a 
servicer that has established and is maintaining ongoing contact with 
regard to a borrower's completion of a loss mitigation application, or 
in connection with the servicer's evaluation of the borrower's complete 
loss mitigation application, would comply with the requirements of 
Sec.  1024.39(a). In addition, the proposed comment would have 
clarified that a servicer that has evaluated and denied a borrower for 
all available loss mitigation options has complied with the 
requirements of Sec.  1024.39(a). The Bureau explained that, once a 
servicer has complied with the requirements of Sec.  1024.41 with 
respect to a specific borrower, and has determined that the borrower 
does not qualify for any available loss mitigation options, continued 
live contact between a borrower and a servicer no longer serves the 
purpose of Sec.  1024.39(a). Indeed, at that point, continued attempts 
by the servicer to establish live contact may frustrate or even harass 
a borrower who was recently denied for loss mitigation.
    The Bureau explained, however, that a borrower who cures a prior 
delinquency but subsequently becomes delinquent again would benefit 
from the servicer resuming compliance with the live contact 
requirement. Therefore, proposed comment 39(a)-6 also would have 
clarified that a servicer is again subject to the requirements of Sec.  
1024.39(a) with respect to a borrower who becomes delinquent after 
curing a prior delinquency.
    Several consumer advocacy group commenters expressed support for 
proposed comment 39(a)-6. The commenters stated that live contact is 
unnecessary when a borrower is in contact with a servicer with regard 
to a loss mitigation application and expressed agreement with the 
Bureau's explanation that a servicer's repeated attempts to establish 
live contact may frustrate or even harass a borrower who was recently 
denied for loss mitigation. These commenters supported requiring a 
servicer to renew live contact for a borrower who experiences a 
delinquency subsequent to curing a prior delinquency.
    The Bureau is finalizing comment 39(a)-6 with certain changes to 
improve clarity and consistency with other provisions in Regulation X. 
Comment 39(a)-6 explains that if the servicer has established and is 
maintaining ongoing contact with the borrower under the loss mitigation 
procedures under Sec.  1024.41, including during the borrower's 
completion of a loss mitigation application or the servicer's 
evaluation of the borrower's complete loss mitigation application, or 
if the servicer has sent the borrower a notice pursuant to Sec.  
1024.41(c)(1)(ii) that the borrower is not eligible for any loss 
mitigation options, the servicer complies with Sec.  1024.39(a) and 
need not otherwise establish or make good faith efforts to establish 
live contact. It further provides that a servicer must resume 
compliance with the requirements of Sec.  1024.39(a) for a borrower who 
becomes delinquent again after curing a prior delinquency.
    The Bureau is changing the last sentence of proposed comment 39(a)-
6 to improve clarity in the final rule and align language in Regulation 
X. Unlike the proposal, which referred to a borrower's ``prior 
default,'' the final comment refers to a borrower's prior delinquency, 
as newly defined in Sec.  1024.31.
    39(b) Written Notice
    39(b)(1) Notice Required
    The Bureau proposed certain revisions to Sec.  1024.39(b)(1) and 
its commentary to clarify the frequency with which a servicer must 
provide the written early intervention notice and to ensure consistency 
with the proposed revisions to the live contact requirements in Sec.  
1024.39(a). Under the proposed revision, a servicer would have had to 
send a written notice to a delinquent borrower no later than the 45th 
day of the borrower's delinquency, but a servicer would not have had to 
send such a notice more than once in any 180-day period. If the 
borrower remains delinquent or becomes 45 days delinquent again after 
the 180-day period expires, the proposed revision would have required 
the servicer to provide the written notice again. The Bureau is 
adopting Sec.  1024.39(b)(1) with revisions. The Bureau is finalizing 
comment 39(b)(1)-2 with certain changes for clarity, making a technical 
correction to comment 39(b)(1)-3, and finalizing comment 39(b)(1)-6 but 
renumbering it as comment 39(b)(1)-5 and making certain changes for 
clarity.
    Current comment 39(b)(1)-1 references the definition of delinquency 
in current comment 39(a)-1.i. As explained in the section-by-section 
analysis of Sec.  1024.39(a), the definition of delinquency included in 
current comment 39(a)-1.i and referenced in comment 39(b)(1)-1 states 
that a borrower's 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. As with Sec.  1024.39(a), the

[[Page 72217]]

inclusion of the phrase ``for a given billing cycle'' in the definition 
of delinquency for purposes of Sec.  1024.39(b)(1) creates a recurring 
obligation on the part of servicers to provide a delinquent borrower 
with a written notice. In contrast with the recurring obligation to 
make live contact under Sec.  1024.39(a), however, servicers only have 
to comply with the requirement to send a written notice once in a 180-
day period.\179\ This is because, as the Bureau explained in the 2012 
RESPA Servicing Proposal, the Bureau did not believe ``that borrowers 
who are consistently delinquent would benefit from receiving the same 
written notice every month.'' \180\
---------------------------------------------------------------------------

    \179\ 12 CFR 1024.39(b)(1).
    \180\ 77 FR 57199, 57257 (Sept. 17, 2012).
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1024.31, 
the Bureau's proposed definition of delinquency in Sec.  1024.31 did 
not use the phrase ``for a given billing cycle.'' The Bureau proposed 
revisions to Sec.  1024.39(b)(1) and comment 39(b)(1)-2 to preserve the 
recurring nature of the written notice requirement, as well as the 
limitation that a servicer has to send a written notice only once 
during any 180-day period. Under the proposed revision, a servicer 
would have been required to send a written notice to a delinquent 
borrower no later than the 45th day of the borrower's delinquency but 
no more than once in any 180-day period. If the borrower either 
remained delinquent or became delinquent again at some point after the 
180-day period expires, the proposed revision would have required the 
servicer to provide the borrower with another written notice 45 days 
from the date of the borrower's most recent missed payment.
    In addition, the Bureau proposed to clarify through a revision to 
comment 39(b)(1)-2 that a servicer would again be required to send 
written notice to a borrower who remains delinquent more than 180 days 
after the servicer sent the first notice. The Bureau proposed to revise 
the example in comment 39(b)(1)-2 to illustrate this concept. The 
proposal also made a minor technical change to comment 39(b)(1)-2 to 
correct an erroneous reference to Sec.  1024.39(a), which should 
instead be a reference to Sec.  1024.39(b).
    Finally, the Bureau proposed to add comment 39(b)(1)-6 to clarify 
the obligation of a transferee servicer to provide the written notice 
required by Sec.  1024.39(b). Proposed comment 39(b)(1)-6 stated that a 
transferee servicer is not required to provide a second written notice 
to a borrower who already received a written notice from the transferor 
servicer on or before the borrower's 45th day of delinquency. The 
comment would have further clarified, however, that a servicer would be 
required to comply with Sec.  1024.39(b) regardless of whether the 
transferor servicer sent the borrower a written notice in the preceding 
180-day period. In other words, if the transferor servicer provided a 
first written notice after an initial missed payment and, following the 
transfer, the borrower remains or becomes 45 days delinquent again, the 
transferee servicer would have to provide a written notice again no 
later than 45 days after the payment due date, regardless of whether or 
not 180 days had passed since the date the transferor servicer provided 
the first written notice to the borrower.
    The Bureau proposed this clarification because it believed that the 
rationale that justified applying the 180-day limitation to mortgage 
loans serviced by a single servicer may not apply in the case of a loan 
whose servicing rights are transferred to another servicer. In the case 
of a transferred loan, the Bureau believed that a transferee servicer 
may provide additional and different information to a delinquent 
borrower and that a borrower would benefit from receiving this 
information sooner rather than later following a transfer. Accordingly, 
the Bureau believed it was appropriate to clarify that the 180-day 
limitation in Sec.  1024.39(b)(1) would not apply where the prior 
notice triggering the 180-day waiting period was provided by the 
transferor servicer prior to transfer.
    Several commenters expressed general support for the written notice 
requirements set forth in proposed Sec.  1024.41(b)(1). As with 
proposed Sec.  1024.39(a), several industry commenters stated that 
these requirements would provide further clarity and reflected common 
practice in the industry. One industry commenter and several consumer 
advocacy group commenters recommended that the 180-day limitation 
should not apply when borrowers cure a delinquency following receipt of 
the written notice but become delinquent again during the 180-day 
period that follows. These commenters stated that requiring the written 
notice within 45 days of each delinquency would improve borrower access 
to timely information.
    Several industry commenters suggested that that the written notice 
may be confusing, or provide limited benefit, when it is provided to 
seriously delinquent borrowers or borrowers engaged in loss mitigation. 
One industry commenter provided an example, stating that the proposal 
could result in a written notice being provided on day 225 of a 
borrower's delinquency, at which point a borrower may already be in 
foreclosure or completing a short sale or deed-in-lieu of foreclosure. 
This commenter recommended that a servicer only be required to provide 
a subsequent written notice if the borrower had been current for at 
least 180 days following the provision of the previous written notice. 
Another industry commenter requested an exemption from Sec.  
1024.39(b)(1) in situations where the scheduled foreclosure sale is 
within 37 days of the date a servicer would be required to provide the 
written notice or where no loss mitigation options are available to the 
borrower. This commenter stated that in such situations, provision of 
the written notice could cause borrower confusion. One industry 
commenter said that it would be unnecessary, and potentially confusing, 
for borrowers performing on a trial loan modification to be provided 
the written notice required by Sec.  1024.39(b)(1).
    Several consumer advocacy groups expressed support for proposed 
comment 39(b)(1)-6. They stated that borrowers would benefit if the 
180-day limitation in Sec.  1024.39(b)(1) did not apply where the prior 
written notice was provided by the transferor servicer. One of these 
commenters recommended that transferee servicers must provide the 
written notice within 15 days of the transfer date, stating that this 
would improve the borrower's ability to obtain certain foreclosure 
protections.
    The Bureau is adopting Sec.  1024.39(b)(1) with revisions. The 
Bureau is finalizing comment 39(b)(1)-2 with certain changes for 
clarity, making a technical correction to comment 39(b)(1)-3, and 
finalizing comment 39(b)(1)-6 but renumbering it as comment 39(b)(1)-5 
and making certain changes for clarity.
    As finalized, Sec.  1024.39(b)(1) explains that, except as 
otherwise provided in Sec.  1024.39, a servicer shall provide to a 
delinquent borrower a written notice with the information set forth in 
Sec.  1024.39(b)(2) no later than the 45th day of the borrower's 
delinquency and again no later than 45 days after each payment due date 
so long as the borrower remains delinquent. Final Sec.  1024.39(b)(1) 
further explains that a servicer is not required to provide the written 
notice, however, more than once during any 180-day period. It provides 
that if a borrower is 45 days or more delinquent at the end of any 180-
day period after the servicer has provided the written notice, a 
servicer must provide the written notice again no later than 180 days 
after the provision of the

[[Page 72218]]

prior written notice. Finally, it provides that, if a borrower is less 
than 45 days delinquent at the end of any 180-day period after the 
servicer has provided the written notice, a servicer must provide the 
written notice again no later than 45 days after the payment due date 
for which the borrower remains delinquent.
    The Bureau is finalizing Sec.  1024.39(b)(1) to add more clarity 
regarding when the written notice must be provided. The Bureau has 
always understood that servicers are required to provide the written 
notice with the information set forth in Sec.  1024.39(b)(2) once every 
180 days to borrowers who consistently carry a short-term 
delinquency.\181\ When a borrower is 45 days or more delinquent at the 
end of any 180-day period after the servicer has provided the written 
notice, the servicer must provide the written notice not later than 180 
days after providing the prior written notice. A servicer need not 
provide the written notice more than once during that 180-day period, 
regardless of whether the borrower remains delinquent throughout the 
180-day period or the borrower cures the delinquency but becomes 45 
days delinquent again during the 180-day period. When a borrower is 
less than 45 days delinquent at the end of any 180-day period after the 
servicer has provided the written notice, but later becomes 45 days 
delinquent, the servicer must provide the written notice no later than 
45 days after the payment due date for which the borrower remains 
delinquent.
---------------------------------------------------------------------------

    \181\ 78 FR 10695, 10800 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau declines to revise the 180-day limitation in Sec.  
1024.39(b)(1), as requested by some commenters. The Bureau continues to 
believe that the requirement to provide the written notice once every 
180 days, as well as the live contact requirements set forth in Sec.  
1024.39(a), adequately address situations where a borrower experiences 
multiple delinquencies.
    The Bureau also declines to exempt servicers from the written 
notice requirements where Sec.  1024.39(b)(1) may require the servicer 
to provide the written notice close in time to a scheduled foreclosure 
sale or where the borrower may be performing on a temporary loss 
mitigation program. The Bureau notes that current comment 39(b)(2)-1 
clarifies that servicers may include information on the written notice 
relevant to the circumstances specific to the borrower. Comment 
39(b)(2)-1 explains that Sec.  1024.39(b)(2) sets forth minimum content 
requirements for the written notice and that a servicer may provide 
additional information in the written notice that would be helpful or 
which may be required by applicable law or the owner or assignee of the 
mortgage loan. Accordingly, a servicer may include in the written 
notice additional, relevant information that would benefit borrowers 
even in the later stages of foreclosure or when performing on a 
temporary loss mitigation program.
    The Bureau is making certain changes to proposed comment 39(b)(1)-2 
to clarify the requirements for providing a written notice during and 
after any 180-day period. As finalized, comment 39(b)(1)-2 provides 
that a servicer need not provide the written notice under Sec.  
1024.39(b) more than once during a 180-day period beginning on the date 
on which the written notice is provided. A servicer must provide the 
written notice under Sec.  1024.39(b) at least once every 180 days to a 
borrower who is 45 days or more delinquent. Comment 39(b)(1)-2 provides 
an illustrative example.
    The Bureau is revising final comment 39(b)(1)-3, which currently 
cross references comment 39(a)-4, to reflect the renumbering of the 
comments. Final comment 39(b)(1)-3 provides that comment 39(a)-5 
explains how a servicer may satisfy the requirements under Sec.  
1024.39 with a person authorized by the borrower to communicate with 
the servicer on the borrower's behalf.
    The Bureau is adopting proposed comment 39(b)(1)-6 but renumbering 
it as comment 39(b)(1)-5 and making certain changes for clarity and to 
correct a typographical error. Final comment 39(b)(1)-5 provides that a 
transferee servicer is required to comply with the requirements of 
Sec.  1024.39(b) regardless of whether the transferor servicer provided 
a written notice to the borrower in the preceding 180-day period. 
Comment 39(b)(1)-5 further explains, however, that a transferee 
servicer is not required to provide a written notice under Sec.  
1024.39(b) if the transferor servicer provided the written notice under 
Sec.  1024.39(b) within 45 days of the transfer date. It provides an 
example to illustrate this provision.
    The Bureau declines to require, as suggested by one commenter, that 
transferee servicers provide the written notice within 15 days of the 
transfer date. Comment 39(b)(1)-5 is consistent with the timing of the 
notice required under Sec.  1024.39(b)(1) for a borrower with a new 
delinquency, and clarifies an additional requirement on transferee 
servicers beyond that imposed on servicers in the absence of a 
transfer. The Bureau is clarifying in final comment 39(b)(1)-5 that the 
180-day limitation in Sec.  1024.39(b)(1) does not apply where the 
prior written notice triggering the 180-day waiting period was provided 
by the transferor servicer prior to transfer.
Successors in Interest
    Proposed Sec.  1024.30(d) would have provided that a confirmed 
successor in interest must be considered a borrower for the purposes of 
the Mortgage Servicing Rules in Regulation X, including the early 
intervention requirements of Sec.  1024.39. Proposed comment 39(b)(1)-5 
would have provided that, where a servicer has already provided a 
written early intervention notice to a prior borrower under Sec.  
1024.39(b) before confirming a successor in interest's status, the 
servicer would not be required also to provide that notice to the 
unconfirmed successor in interest, but the servicer would be required 
to provide the confirmed successor in interest with any additional 
written early intervention notices required after confirming the 
successor in interest's status.
    Several consumer advocacy group commenters suggested that the 
Bureau eliminate proposed comment 39(b)(1)-5. They urged the Bureau to 
indicate instead that the 180-day limitation does not apply to a 
successor in interest where the prior notice triggering the 180-day 
waiting period was provided to the transferor borrower.
    Confirmation of a successor in interest does not restart the 180-
day period specified by Sec.  1024.39(b)(1) if the prior notice 
triggering the 180-day waiting period was provided to a transferor 
borrower. Section 1024.39(b)(1) provides that a servicer is not 
required to provide a written notice with the information set forth in 
Sec.  1024.39(b)(2) more than once during any 180-day period. The 
Bureau believes that it would be unnecessarily burdensome to require 
servicers to provide to a confirmed successor in interest an additional 
copy of a written early intervention notice that servicer has already 
provided to a transferor borrower. The Bureau also believes that, in 
many cases, confirmed successors in interest may have received the 
original notice that the servicer mailed to the transferor borrower. 
Further, confirmed successors in interest may obtain information from 
servicers using a request for information, to which servicers must 
respond.
    The Bureau is not finalizing proposed comment 39(b)(1)-5. The 
Bureau is addressing in new Sec.  1024.32(c)(4) the questions about 
whether servicers must provide confirmed successors in interest with 
duplicative copies of notices

[[Page 72219]]

required by the Mortgage Servicing Rules in Regulation X, including 
Sec.  1024.39(b).
39(b)(2) Content of the Written Notice
    The Bureau proposed to clarify when a servicer must include the 
disclosures under Sec.  1024.39(b)(2)(iii) and (iv) in the written 
early intervention notice. Section 1024.39(b)(2)(iii) and (iv) state 
that, ``if applicable,'' the written notice must include a statement 
providing a brief description of examples of loss mitigation options 
that may be available and either application instructions or a 
statement informing the borrower how to obtain more information about 
loss mitigation options from the servicer. The Bureau proposed to add a 
comment to clarify when such disclosures are ``applicable'' and when a 
servicer is therefore required to include them in the written early 
intervention notice. Proposed comment 39(b)(2)-4 would have provided 
that, if loss mitigation options are available, a servicer must include 
in the written notice the disclosures set forth in Sec.  
1024.39(b)(2)(iii) and (iv). Further, the proposed comment would have 
provided that loss mitigation options are available if the owner or 
assignee of a borrower's mortgage loan offers an alternative to 
foreclosure that is made available through the servicer. Additionally, 
the proposed comment would have provided that the availability of loss 
mitigation options does not depend upon a particular borrower's 
eligibility for those options but only on whether the owner or assignee 
of a borrower's mortgage loan generally offers loss mitigation options 
through the servicer. Proposed comment 39(b)(2)-4 was generally 
intended to assist servicers in determining when they are exempt from 
providing the written notice under proposed Sec.  1024.39(d)(1)(ii) or 
(d)(2)(ii) for, respectively, borrowers in bankruptcy or borrowers who 
have invoked cease communication protections under FDCPA section 
805(c).
    One industry commenter requested the Bureau further clarify when 
loss mitigation options are available. One consumer advocacy group 
raised concerns with proposed comment 39(b)(2)-4 not expressly stating 
that it is applicable to the exemption under proposed Sec.  
1024.39(d)(2)(ii) for borrowers who have invoked cease communication 
protections under FDCPA section 805(c).
    The Bureau is not finalizing proposed comment 39(b)(2)-4. Although 
proposed comment 39(b)(2)-4 would have explained when the disclosures 
required by Sec.  1024.39(b)(2)(iii) and (iv) are ``applicable,'' the 
comment was intended to clarify whether a servicer would be exempt from 
providing the written notice under proposed Sec.  1024.39(d)(1)(ii) for 
borrowers in bankruptcy or under proposed Sec.  1024.39(d)(2)(ii) for 
borrowers who have invoked their cease communication protections 
pursuant to FDCPA section 805(c). The Bureau is finalizing revised 
explanations in comments 39(c)(1)-2 and 39(d)-1, to place the comments 
with the respective partial exemptions for borrowers in bankruptcy or 
borrowers who have invoked their cease communication rights, as 
detailed below in the section-by-section analyses of Sec.  1024.39(c) 
and (d).
39(c) Conflicts With Other Law
    Current Sec.  1024.39(c) provides that nothing in Sec.  1024.39 
requires a servicer to communicate with a borrower in a manner 
otherwise prohibited by applicable law. Although the Bureau did not 
propose to address this paragraph in the proposal, for the reasons 
discussed below, the Bureau is removing current Sec.  1024.39(c) from 
the final rule and renumbering the rest of Sec.  1024.39 accordingly.
    The Bureau adopted current Sec.  1024.39(c) as part of the 2013 
RESPA Servicing Rule in response to industry commenters' concerns 
raised in response to the 2012 RESPA Servicing Proposal related to 
potential conflicts between the early intervention requirements and 
existing law, including State law, the Bankruptcy Code, and the 
FDCPA.\182\ Following issuance of the 2013 RESPA Servicing Rule, the 
Bureau determined that it was appropriate to address more specifically 
the interplay between the early intervention requirements and the 
Bankruptcy Code as well as the FDCPA. The Bureau therefore issued the 
IFR in October 2013 to implement current Sec.  1024.39(d)(1) and (2), 
which exempt servicers from complying with the early intervention 
requirements when the borrower is in bankruptcy or has invoked the 
FDCPA's cease communications protections, respectively.\183\ In 
providing these exemptions, the Bureau did not modify Sec.  1024.39(c).
---------------------------------------------------------------------------

    \182\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
    \183\ 78 FR 62993 (Oct. 23, 2013).
---------------------------------------------------------------------------

    In response to proposed Sec.  1024.39(d)(2) to require that 
servicers provide a modified written early intervention notice to 
borrowers who have invoked their FDCPA cease communication protections, 
several industry commenters noted the interplay of state debt 
collection laws, which they stated may prohibit servicers from 
providing the written early intervention notice to borrowers who have 
invoked their cease communication rights even if it would be 
permissible under Federal law. One commenter explained that at least 
two States, Florida and West Virginia, prohibit debt collection 
communication directly with borrowers who are represented by attorneys, 
even when the borrower has not elected to cease communication. As a 
result, some industry commenters requested a safe harbor from State law 
liability for sending the modified written early intervention notice 
that the Bureau proposed to require notwithstanding a borrower's 
invocation of the cease communication right. One industry commenter 
requested the Bureau provide an explicit safe harbor from the FDCPA 
that permits servicers to comply with all applicable State and local 
laws without risk of FDCPA liability.
    After the close of the comment period, the Bureau conducted 
additional outreach to both servicers and consumer advocacy groups to 
further understand the scope of any such conflict between State debt 
collection laws and the proposal's requirement that servicers provide a 
modified written early intervention notice to borrowers who have 
provided a cease communication notification pursuant to FDCPA section 
805(c).\184\ The Bureau sought information related to whether the early 
intervention requirements under Sec.  1024.39 conflict with State early 
intervention requirements, State cease communication laws, or State 
foreclosure laws.
---------------------------------------------------------------------------

    \184\ See Bureau of Consumer Fin. Prot., CFPB Bulletin 11-3, 
CFPB Policy on Ex Parte Presentations in Rulemaking Proceedings 
(Aug. 16, 2011), available at https://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf. 
Materials pertaining to these presentations are filed in the record 
and are publicly available at https://www.regulations.gov. Summaries 
of the Bureau's outreach are filed in the record and are publicly 
available at https://www.regulations.gov.
---------------------------------------------------------------------------

    Servicers generally reported not experiencing conflicts with State 
laws while meeting their early intervention requirements under Sec.  
1024.39. One servicer noted that West Virginia's debt collection laws 
require communication with counsel if a borrower is represented. 
Consumer advocacy groups also generally indicated that they are not 
encountering conflicts between State laws and the early intervention 
requirements under Sec.  1024.39.
    The Bureau concludes that removing current Sec.  1024.39(c) 
regarding conflicts

[[Page 72220]]

with other law is appropriate. Neither commenters nor the Bureau's 
additional outreach indicated any specific conflict between State laws 
and the early intervention requirements under proposed Sec.  
1024.39(d)(2)(iii) as set forth in the proposal or as adopted in this 
final rule under new Sec.  1024.39(d)(3). Industry commenters expressed 
concerns generally related to potential conflicts with State debt 
collection laws but did not point to any specific State laws posing an 
actual conflict with the Bureau's proposal. With respect to State laws 
that require that a servicer communicate with the borrower's 
representative instead of directly with a represented borrower, the 
Bureau reminds servicers that providing early intervention 
communications to a person authorized by the borrower to communicate 
with the servicer on the borrower's behalf is permitted under Sec.  
1024.39.\185\
---------------------------------------------------------------------------

    \185\ See current comment 39(a)-4 (renumbered in this final rule 
as comment 39(a)-5) and current comment 39(b)(1)-3.
---------------------------------------------------------------------------

    The Bureau removes current Sec.  1024.39(c) to provide servicers 
with clarity about their early intervention obligations. To the extent 
there may be any actual conflict between a State law and a servicer's 
requirements under Sec.  1024.39, a servicer is required to comply with 
its obligations under Sec.  1024.39. Additionally, as discussed in the 
section-by-section analyses of revised Sec.  1024.39(c) and (d), the 
Bureau resolves the questions posed by the intersection of the early 
intervention requirements under Sec.  1024.39 with the Bankruptcy Code 
and the FDCPA.
    The Bureau reminds servicers of Sec.  1024.5(c)(1), which states, 
in relevant part, that RESPA and Regulation X do not annul, alter, 
affect, or exempt any person subject to their provisions from complying 
with the laws of any State with respect to settlement practices, except 
to the extent that a State law is inconsistent with RESPA and 
Regulation X.\186\ Comment 5(c)(1)-1 explains that State laws that are 
inconsistent with the requirements of RESPA or Regulation X may be 
preempted, while State laws that give greater protection to consumers 
are not inconsistent with and are not preempted by RESPA or Regulation 
X. The Bureau believes that early intervention provides critically 
important benefits to borrowers and therefore, to the extent that a 
State law would prevent early intervention as required under Sec.  
1024.39, that State law is preempted. The Bureau knows of no such 
conflicts and notes that certain State law requirements, for example 
requiring communication through counsel where a borrower is 
represented, do not conflict with the requirement to provide early 
intervention. Where Regulation X affords a method of complying with 
both the State law and with the requirements of Sec.  1024.39, 
servicers should avail themselves of that opportunity. Generally, State 
laws that give greater protection to consumers are not inconsistent 
with Sec.  1024.39 and would not be preempted.
---------------------------------------------------------------------------

    \186\ Section 1024.5 implements RESPA section 18 (12 U.S.C. 
2616). Section 1024.5(c)(2) and (3) provide additional information 
on how any person may request the Bureau to determine if 
inconsistencies with State law exist.
---------------------------------------------------------------------------

39(c) Borrowers in Bankruptcy
    Under current Sec.  1024.39(d)(1), a servicer is exempt from the 
requirements of Sec.  1024.39 for a mortgage loan while the borrower is 
a debtor in bankruptcy under title 11 of the United States Code. The 
Bureau proposed to revise current Sec.  1024.39(d)(1) to narrow the 
scope of the bankruptcy exemption from the early intervention 
requirements. The proposed revisions would have preserved the current 
exemption from the live contact requirements of Sec.  1024.39(a) as it 
relates to a borrower in bankruptcy but would have required live 
contact for a borrower who is jointly liable on the mortgage loan with 
someone who is a debtor in a chapter 7 or chapter 11 bankruptcy 
case.\187\ The proposal also would have partially removed the exemption 
from the written notice requirements of Sec.  1024.39(b) for a borrower 
in bankruptcy and would have required a servicer to provide the written 
notice unless no loss mitigation options are available, the borrower's 
confirmed plan of reorganization provides for surrendering the property 
or avoidance of the lien securing the mortgage loan, the borrower files 
a Statement of Intention in the bankruptcy case identifying an intent 
to surrender the mortgage loan, or a court enters an order avoiding the 
lien securing the mortgage loan or lifting the Bankruptcy Code's 
automatic stay with respect to the property securing the mortgage loan. 
Additionally, the proposal would have required a servicer to resume 
compliance with the requirements of Sec.  1024.39 with respect to a 
borrower who has not discharged the mortgage debt under certain 
conditions.
---------------------------------------------------------------------------

    \187\ ``Consumer homeowners typically seek relief under either 
Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 requires 
the debtor to surrender all nonexempt property for distribution to 
creditors. In return, the debtor's debts are discharged, with some 
exceptions. Chapter 13 permits debtors with regular income to keep 
their property and to repay creditors in whole or in part by making 
monthly payments to a Chapter 13 trustee, who then distributes the 
payments to creditors.'' Alan M. White & Carolina Reid, Saving 
Homes, Bankruptcies and Loan Modifications in the Foreclosure 
Crisis, 65 Fla. L. Rev. 1713, 1717 (Dec. 2013) (citing Adam J. 
Levitin, Resolving the Foreclosure Crisis: Modification of Mortgages 
in Bankruptcy, 2009 Wis. L. Rev. 565, 579, 643 (2009)). Some 
consumer homeowners seek relief under chapter 11 of the Bankruptcy 
Code, usually because their debt levels exceed chapter 13's 
limitations, and family farmers and fishermen may file under chapter 
12. See 11 U.S.C. 109(d)-(f) (defining who may be a debtor under 
chapter 11, chapter 12, and chapter 13). The discussion of early 
intervention focuses primarily on homeowners in chapter 7 or chapter 
13 cases because relatively few consumer homeowners seek relief 
under chapter 11 or chapter 12 of the Bankruptcy Code. See 
Administrative Office of the U.S. Courts, U.S. Bankruptcy Courts--
Business and Nonbusiness Cases Commenced, by Chapter of the 
Bankruptcy Code, During the 12-Month Period Ending December 31, 
2013, available at https://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf (indicating 
that in 2013, there were only 1,320 nonbusiness chapter 11 filings 
and 495 chapter 12 filings nationwide).
---------------------------------------------------------------------------

    For the reasons discussed below, the Bureau is finalizing proposed 
Sec.  1024.39(d)(1), but renumbering it as new Sec.  1024.39(c)(1), and 
making certain adjustments to implement the partial exemption on a loan 
level and for debtors in any chapter of bankruptcy to address concerns 
raised by commenters. The Bureau is adopting modifications regarding 
the frequency of the written notice required under new Sec.  
1024.39(c)(1). The Bureau is also exempting a servicer from providing 
the written early intervention notice with regard to a mortgage loan 
for which any borrower on the mortgage loan invokes the FDCPA's cease 
communications protections while any borrower on the mortgage loan is a 
debtor in bankruptcy. The Bureau is finalizing proposed comment 
39(d)(1)-1 in new Sec.  1024.39(c)(2) as proposed, with modifications 
to require a servicer to resume compliance with the early intervention 
requirements under certain conditions and subject to certain 
exemptions.
39(c)(1) Partial Exemption
    Based upon its review of the comments received in response to the 
October 2013 IFR and its study of the intersection of the early 
intervention requirements and bankruptcy law, as stated in the 
proposal, the Bureau believed it would be appropriate to reinstate the 
early intervention requirements with respect to borrowers in bankruptcy 
under certain circumstances. The Bureau proposed to do so in this final 
rule because, as noted in the IFR, the Bureau believed that it would be 
preferable to use notice and comment rulemaking, rather than simply 
finalizing the IFR with

[[Page 72221]]

modifications, to reinstate the early intervention requirements with 
respect to such borrowers.\188\ The Bureau believed that this approach 
would allow stakeholders a more robust opportunity to consider and 
comment on the Bureau's specific proposal. The Bureau addressed in the 
proposal comments it received on this issue in response to the IFR, 
including those received after the IFR's official comment period 
ended.\189\ As discussed further below, in light of those comments as 
well as the comments received in response to the proposal, the Bureau 
is finalizing the live contact exemption as proposed, with 
modifications to implement the exemption at the loan level and for 
debtors in any chapter of bankruptcy. The Bureau is also finalizing the 
proposed written notice partial exemption as proposed, with similar and 
additional modifications. The live contact and written notice 
exemptions are discussed in turn below.
---------------------------------------------------------------------------

    \188\ 78 FR 62993, 62998 (Oct. 23, 2013).
    \189\ See 79 FR 74176, 74203-05 (Dec. 15, 2014).
---------------------------------------------------------------------------

Live Contact
    The Bureau proposed to maintain the exemption from the live contact 
requirements with respect to a borrower who is in bankruptcy, has 
discharged personal liability for the mortgage loan, or shares 
liability on a mortgage loan with a person who is a debtor in a chapter 
12 or chapter 13 bankruptcy case. As the Bureau explained in the 
proposal, when a debtor files for protection under chapter 12 or 
chapter 13, the Bankruptcy Code implements a co-debtor stay, which 
prohibits creditors from engaging in collection efforts against certain 
of the debtor's joint obligors, such as a joint obligor on the debtor's 
mortgage loan, even though the joint obligor has not filed for 
bankruptcy.\190\ Because contacting a borrower covered by the co-debtor 
stay raises some of the same concerns as contacting a borrower covered 
by the automatic stay, the Bureau explained in the proposal that it may 
be appropriate to exempt servicers from compliance with Sec.  
1024.39(a) with respect to non-bankrupt borrowers who are jointly 
liable on a mortgage loan with a debtor in a chapter 12 or chapter 13 
bankruptcy case. However, the proposed exemption would have excluded 
borrowers who are jointly liable on a mortgage loan with a debtor in a 
chapter 7 or chapter 11 case because the Bankruptcy Code does not 
prevent collection attempts against such joint obligors, and servicers 
do not violate the automatic stay by contacting them.\191\ This was a 
departure from current Sec.  1024.39(d)(1), in which the Bureau crafted 
a broad exemption from Sec.  1024.39, making the exemption applicable 
to any joint obligor of a debtor in bankruptcy, regardless of whether 
the joint obligor was in bankruptcy or protected against collection 
attempts by the co-debtor stay under 11 U.S.C. 1201(a) or 1301(a). The 
Bureau is finalizing this exemption from live contact as proposed, with 
modifications to apply the exemption on a loan level and for debtors in 
any chapter of bankruptcy.
---------------------------------------------------------------------------

    \190\ 11 U.S.C. 1201(a) and 1301(a) (both stating that 
``[e]xcept as provided in subsections (b) and (c) of this section, 
after the order for relief under this chapter, a creditor may not 
act, or commence or continue any civil action, to collect all or any 
part of a consumer debt of the debtor from any individual that is 
liable on such debt with the debtor, or that secured such debt, 
unless--(1) such individual became liable on or secured such debt in 
the ordinary course of such individual's business; or (2) the case 
is closed, dismissed, or converted to a case under chapter 7 or 11 
of this title.'').
    \191\ In re Chugach Forest Products, Inc., 23 F.3d 241, 246 (9th 
Cir. 1994) (``As a general rule, `[t]he automatic stay of section 
362(a) protects only the debtor, property of the debtor or property 
of the estate. It does not protect non-debtor parties or their 
property. Thus, section 362(a) does not stay actions against 
guarantors, sureties, corporate affiliates, or other non-debtor 
parties liable on the debts of the debtor.' '') (quoting Advanced 
Ribbons & Office Prods. v. U.S. Interstate Distrib. (In re Advanced 
Ribbons & Office Prods.), 125 B.R. 259, 263 (B.A.P. 9th Cir. 1991)).
---------------------------------------------------------------------------

Comments on Live Contact, Including Borrower-Specific and Chapter-
Specific Exemption
    The Bureau received comments from servicers, credit unions, 
consumer advocacy groups, trade associations, and the U.S. Trustee 
Program. Similar to comments received in response to the October 2013 
IFR, commenters generally agreed that servicers should be exempt from 
the early intervention live contact requirements as to a borrower in 
bankruptcy or a borrower who has discharged personal liability for a 
mortgage loan. Industry commenters generally raised concerns with the 
proposed requirement that servicers provide live contact to non-debtor 
co-borrowers when a borrower files for chapter 7 or 11 bankruptcy, 
while supporting the loan-level exemption for borrowers who file under 
chapter 13. Numerous industry commenters strongly opposed a borrower-
specific exemption in favor of a loan-level exemption, citing three 
major concerns. First, industry expressed concerns related to 
circumstances in which co-borrowers live together and only one files 
for bankruptcy. Servicers explained that they fear violating the 
automatic stay if the servicer's phone calls are answered by the debtor 
borrower instead of the non-debtor co-borrower. Second, servicers cited 
the burden of keeping track of which chapter of bankruptcy each 
borrower is in rather than just applying a single bankruptcy flag to 
the account. One commenter noted that bankruptcy cases commonly switch 
from one chapter to another, which under the proposal would affect 
whether the servicer would be required to comply with the early 
intervention requirements. Third, industry commenters explained that 
servicers' systems currently track mortgage loans at the loan level. 
Servicers explained that they would be required to undergo burdensome 
systems upgrades to change how they track mortgage loans to distinguish 
communications as between borrowers on the same loan. One industry 
commenter also stated that it would be misleading and potentially 
violate the automatic stay for a servicer to make live contact with the 
non-debtor co-borrower to discuss loss mitigation options because the 
property could not be disposed of without bankruptcy court permission. 
Therefore, the commenter stated, the risks to the servicer are high 
while offering no benefits to the non-debtor co-borrowers.
    Consumer advocacy groups generally supported the proposal's 
approach to live contact for non-debtor co-borrowers and expressed 
their position that, under certain circumstances, live contact with a 
borrower in bankruptcy can be appropriate and would not violate the 
Bankruptcy Code's automatic stay. Consumer advocacy groups requested 
that the Bureau include commentary to the rule that would explain the 
Bureau does not take a position on whether early intervention efforts 
might violate the automatic stay or discharge injunction and that 
clarifies that the exemption from live contact with respect to 
borrowers in bankruptcy is permissive.
    After the close of the comment period, the Bureau conducted 
additional outreach with servicers to gain insight into their mortgage 
processing systems and capabilities to implement proposed changes to 
the servicing of loans in bankruptcy. Servicers continued to express 
the same three broad concerns with the proposal's approach as outlined 
above.
Final Rule
    The Bureau is finalizing the live contact exemption as proposed, 
with modifications to implement the exemption at the loan level and for 
debtors in any chapter of bankruptcy. The Bureau is adopting an 
exemption from the live contact early intervention requirements for 
borrowers in

[[Page 72222]]

bankruptcy and renumbering it as new Sec.  1024.39(c)(1)(i) instead of 
as proposed in Sec.  1024.39(d)(1)(i). New Sec.  1024.39(c)(1)(i) 
provides that, while any borrower on a mortgage loan is a debtor in 
bankruptcy under title 11 of the United States Code, a servicer, with 
regard to that mortgage loan, is exempt from the live contact early 
intervention requirements of Sec.  1024.39(a). The Bureau has also 
modified the final commentary to align with and provide additional 
guidance on this provision.
    Borrower-specific and chapter-specific exemption rationale. The 
Bureau considered commenters' concerns related to the difficulty of 
administering the proposal's borrower-specific approach. Although the 
proposal attempted to strike an appropriate balance by limiting the 
partial exemptions from Sec.  1024.39 to only those borrowers protected 
by the Bankruptcy Code's automatic stay and discharge provisions, the 
Bureau is persuaded by the practical considerations industry commenters 
cited in favor of adopting a loan-level exemption. In particular, the 
Bureau recognizes the challenges presented by providing live or written 
early intervention to a non-debtor co-borrower who lives with the 
debtor borrower and the possibility of disputes about whether a 
servicer has violated the automatic stay if those communications 
inadvertently reach the wrong borrower. The Bureau also believes that 
applying the partial exemption from Sec.  1024.39 with regard to a 
mortgage loan while any borrower on that loan is a debtor under any 
bankruptcy chapter generally simplifies the exemption, reduces servicer 
burden, and facilitates servicer compliance.
    Therefore, the Bureau adopts a loan-level exemption from the live 
contact early intervention requirements rather than a borrower-specific 
exemption as proposed. The final rule does not draw distinctions 
between the chapter of bankruptcy under which the borrower filed for 
purposes of the partial exemption. Instead, new Sec.  1024.39(c)(1) 
applies the exemption with regard to a mortgage loan while any borrower 
on that loan is a debtor in bankruptcy under title 11 of the United 
States Code generally. Additionally, because this final rule does not 
adopt the borrower-specific approach in the proposal, the Bureau 
declines to adopt proposed comment 39(d)(1)(i)-1 related to live 
contact and proposed comment 39(d)(1)(ii)-1 related to a borrower's 
plan of reorganization under chapters 11, 12, and 13 of the Bankruptcy 
Code. Instead, the Bureau adopts comment 39(c)(1)-1 which explains that 
Sec.  1024.39(c)(1) applies once a petition is filed under title 11 of 
the United States Code, commencing a case in which the borrower is a 
debtor in bankruptcy.
    Live contact exemption rationale. In addition to the issues 
identified in the comments, two other factors inform the Bureau's 
decision to maintain the exemption from the live contact early 
intervention requirements. First, as the Bureau explained in the 
proposal, live contact may be perceived as more intrusive and of less 
value to a borrower in bankruptcy. As discussed in the section-by-
section analysis of Sec.  1024.39(a), the live contact requirements are 
ongoing and generally require a servicer to make continued efforts to 
establish live contact with a borrower so long as a borrower remains 
delinquent. In addition, compliance with Sec.  1024.39(a) is not 
limited to, and does not in every case require, a discussion of 
available loss mitigation options. Section 1024.39(a) requires a 
servicer to inform a borrower of loss mitigation options ``if 
appropriate.'' More broadly, live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's 
delinquency,\192\ and, based on this discussion, a servicer may 
determine not to inform a borrower of loss mitigation options. Current 
comment 39(a)-3.i.B provides an example of when a servicer makes a 
reasonable determination not to provide information about the 
availability of loss mitigation options to a borrower. In that example, 
the borrower has missed a January 1 payment and notified the servicer 
that full late payment will be transmitted to the servicer by February 
15.\193\ As the comment demonstrates, live contact could serve as a 
reminder to a borrower who inadvertently missed a payment, or it could 
give the servicer an opportunity to discuss when the borrower would 
cure a temporary delinquency; it would not necessarily involve a 
discussion of loss mitigation options. Borrowers who seek protection 
under the Bankruptcy Code, however, may do so in part to obtain a 
reprieve from unwelcome creditor communications about outstanding 
payment obligations during which the borrower can reorganize financial 
obligations comprehensively rather than interacting with individual 
creditors. For such borrowers, a servicer's repeated attempts to 
establish live contact, which may not lead to a discussion of available 
loss mitigation options between the parties, may be of diminished value 
to the borrower.
---------------------------------------------------------------------------

    \192\ Comment 39(a)-2.
    \193\ This final rule renumbers this as comment 39(a) 4.i.B.
---------------------------------------------------------------------------

    Second, while some courts have determined that a creditor may 
properly contact a borrower in bankruptcy, including by telephone, to 
inform the borrower about loss mitigation options or to negotiate the 
terms of a loss mitigation agreement,\194\ other courts have found that 
a creditor violated the automatic stay by making live contact with a 
borrower to discuss loss mitigation.\195\ As the Bureau noted in the 
proposal, these violations appear to involve extreme facts, such as 
creditors making dozens of phone calls, some of which threatened legal 
action, to borrowers who had requested that the creditor stop 
contacting them and either had already decided to surrender the 
property or were not interested in the offered loss mitigation 
options.\196\
---------------------------------------------------------------------------

    \194\ See, e.g., In re Brown, 481 B.R. 351, 360 (Bankr. W.D. Pa. 
2012) (holding that creditor did not violate the automatic stay by 
making telephone calls to a borrower regarding foreclosure 
alternatives); In re Silva, No. 09-02504, 2010 WL 605578, at *1 
(Bankr. D. Haw. Feb. 19, 2010) (``Nothing in the Bankruptcy Code 
prevents or prohibits a chapter 7 or chapter 13 debtor or its 
secured creditors from entering into communications or negotiations 
about the possibility of a loan modification.''); In re Medina, No. 
6:12-bk-00066-ABB, 2012 WL 2090419, at *1 (Bankr. M.D. Fla. June 8, 
2012) (``The automatic stay and the discharge provisions of the 
Bankruptcy Code do not prevent the parties from negotiating and 
entering into a loan modification post-petition.'').
    \195\ See, e.g., In re Culpepper, 481 B.R. 650, 659-60 (Bankr. 
D. Or. 2012) (stating that a creditor's reasonable contacts with a 
debtor regarding foreclosure alternatives may be permissible, but 
nonetheless finding a stay violation because the creditor made more 
than 100 phones calls to a borrower who had requested the creditor 
stop contacting her and the creditor discussed only loss mitigation 
options (i) for which the borrower was ineligible, (ii) in which the 
borrower was not interested, and (iii) which would have revived at 
least a portion of the borrower's discharged mortgage debt); In re 
Whitmarsh, 383 B.R. 735, 737 (Bankr. D. Neb. 2008) (stating that 
``[a] phone call or two to follow up a letter regarding loss 
mitigation efforts is understandable,'' but finding that the 
creditor violated the automatic stay by making at least 22 phone 
calls, some of which threatened legal action, to borrowers who had 
already decided to surrender the property and had requested in 
writing on several occasions that the creditor make contact only 
with the borrowers' attorney).
    \196\ Culpepper, 481 B.R. at 659-60; Whitmarsh, 383 B.R. at 737.
---------------------------------------------------------------------------

    The Bureau does not believe that compliance with the live contact 
requirement under Sec.  1024.39(a) would generally violate the stay. 
The Bureau is concerned, however, that, given the interactive and 
potentially unscripted nature of live contact, as well as the fact that 
live contact does not necessarily require a discussion of loss 
mitigation options, borrowers or courts may view a servicer's attempts 
to establish live contact as a communication prohibited by the 
Bankruptcy Code's automatic

[[Page 72223]]

stay under certain circumstances. Accordingly, the Bureau concludes 
that it is appropriate to exempt servicers from engaging in live 
contact with borrowers in bankruptcy.
    Consumer advocacy groups requested that the Bureau include 
commentary to explain that it does not take a position on whether early 
intervention efforts might violate the Bankruptcy Code and to clarify 
that the exemption from live contact with respect to borrowers in 
bankruptcy is permissive. The Bureau concludes that its statements in 
the IFR and in this final rule are sufficient and it declines to 
include the commentary requested by consumer advocacy groups. As the 
Bureau previously explained in the IFR and in the proposal, the Bureau 
does not take a position as to whether early intervention efforts might 
violate the Bankruptcy Code's automatic stay or discharge injunction. 
The partial exemption set forth in the final rule is indeed permissive, 
not prohibitive, and the Bureau once again encourages servicers that 
have been communicating with borrowers in bankruptcy about loss 
mitigation options to continue doing so. The Bureau believes that 
borrowers in bankruptcy may benefit from receiving tailored loss 
mitigation information that is appropriate to their circumstances.
Written Notice
    The Bureau proposed to revise the exemption in current Sec.  
1024.39(d)(1) from the written early intervention notice requirements 
with respect to a delinquent borrower who is in bankruptcy or has 
discharged personal liability for the mortgage loan. The proposal would 
have limited the exemption to instances where there are no loss 
mitigation options available or where the borrower is surrendering the 
property or avoiding the lien securing the mortgage loan. Proposed 
Sec.  1024.39(d)(1)(ii)(B) through (D) would have exempted a servicer 
from the written early intervention notice requirement in several 
situations where the borrower in bankruptcy surrenders the property 
securing the mortgage loan or avoids (i.e., renders unenforceable) the 
lien securing the mortgage loan. First, proposed Sec.  
1024.39(d)(1)(ii)(B) would have provided that a servicer is exempt if 
the borrower's confirmed plan of reorganization provides for the 
borrower to surrender the property, provides for the avoidance of the 
lien securing the mortgage loan, or otherwise does not provide for, as 
applicable, the payment of pre-bankruptcy arrearages or the maintenance 
of payments due under the mortgage loan. Second, proposed Sec.  
1024.39(d)(1)(ii)(C) would have provided that a servicer is exempt if 
the borrower files a statement of intention with the bankruptcy court 
that identifies an intent to surrender the property securing the 
mortgage loan. Third, proposed Sec.  1024.39(d)(1)(ii)(D) would have 
provided that a servicer is exempt if the bankruptcy court enters an 
order providing for the avoidance of the servicer's lien or lifting the 
automatic stay with respect to the property securing the mortgage loan.
    The Bureau is finalizing this exemption as proposed, with 
modifications to simplify triggering the exemption based on the 
availability of loss mitigation options and to apply uniformly the 
exemption on a loan level and for debtors in any chapter of bankruptcy. 
The Bureau is adopting modifications regarding the frequency of this 
modified written notice. The Bureau is also adding a new provision that 
exempts a servicer from providing the written early intervention notice 
with regard to a mortgage loan for which any borrower on the mortgage 
loan invokes the FDCPA's cease communications protections while any 
borrower on the mortgage loan is a debtor in bankruptcy.
Comments on Written Notice
    The Bureau requested comment on the proposed partial exemption from 
the written early intervention notice, including the scope of the 
exemption, the criteria for qualifying for the exemption, and how 
communications could be tailored to meet the particular needs of 
borrowers in bankruptcy. Most industry commenters objected to the 
proposed requirement to provide the written early intervention notice, 
with certain exceptions, to a delinquent borrower who is in bankruptcy 
or has discharged personal liability for the mortgage loan. As 
explained above with respect to live contact, industry commenters 
raised concerns with the borrower-specific exemption and instead 
favored a blanket, loan-level exemption. Servicers commented that, 
while written communications may be more easily tailored to individual 
borrowers, servicers cannot avoid situations where an early 
intervention letter or email reaches the wrong borrower (such as where 
one spouse routinely opens all the mail). In addition, servicers 
reported that they maintain a single address for providing written 
notices related to the mortgage loan and, while some servicers may be 
able to provide duplicate copies of notices to a second borrower at 
another address, they generally cannot automate a process for providing 
only some written notices to one borrower while providing other or 
modified notices to another borrower at a different address. Industry 
commenters also explained that servicers do not always know when co-
borrowers live apart or, if so, the alternative mailing addresses and 
that, therefore, servicers would bear the burden of researching this 
information.
    After the close of the comment period, the Bureau conducted 
additional outreach to servicers to gain insight into their mortgage 
processing systems and capabilities to implement proposed changes to 
the servicing of loans in bankruptcy. Servicers reiterated the system 
difficulties associated with tracking additional mailing addresses as 
well as the manual burden that would be required to provide 
communications to a co-borrower at a different address.
    Several industry commenters objected to the proposed exemption's 
complexity, citing the multiple different events during the bankruptcy 
case that can trigger the exemption, before assessing each factor for 
each co-borrower. Servicers commented that they would incur significant 
burden to determine correctly when the exemption applies. One servicer 
commented that it would be very difficult to apply the exemption 
correctly and consistently. Industry commenters also stated that the 
compliance burden is unwarranted for the few borrowers they believe 
would be helped by early intervention. Industry commenters said that 
many borrowers in bankruptcy likely would have already received 
multiple early intervention notices prior to the bankruptcy and 
exhausted all of their loss mitigation options, making additional 
notices of little value. Several industry commenters asserted more 
generally that the written early intervention notice offers minimal 
value to a borrower in bankruptcy and should therefore not be provided.
    Several industry commenters noted the particular problems posed for 
borrowers in chapter 13. Delinquent borrowers may repay their 
arrearages over three to five years in chapter 13. Commenters explained 
that assessing the delinquency can be difficult because a missed 
payment may be due to a delay in the bankruptcy trustee forwarding 
funds to the servicer or the result of a dispute about how much the 
servicer is owed. Commenters also stated that providing the written 
notice at least once in every 180-day period as proposed could confuse 
a borrower who is making all payments due under the chapter 13 
bankruptcy plan but contractually delinquent on the mortgage loan.

[[Page 72224]]

    Additionally, numerous industry commenters stated that sending the 
notice could violate the automatic stay given the lack of a safe harbor 
and expressed concern about the prospect of litigation. One commenter 
noted that HUD's 2008 mortgagee letter required servicers to provide 
loss mitigation information to borrowers in bankruptcy only if the 
borrower had counsel who could receive the notice. Two other commenters 
explained that bankruptcy courts in Florida, for example, have adopted 
mortgage modification mediation procedures and prohibit written 
communication about the mediation outside the bankruptcy court portal. 
Some commenters contended that the Bureau was inappropriately 
attempting to interpret the Bankruptcy Code.\197\
---------------------------------------------------------------------------

    \197\ As in the IFR, in this final rule, the Bureau is not 
taking a position as to whether early intervention efforts might 
violate the Bankruptcy Code's automatic stay or discharge 
injunction.
---------------------------------------------------------------------------

    The Bureau received comments from consumer advocacy groups, two 
industry members, and the U.S. Trustee Program generally supporting the 
proposal's requirement to provide the written notice, with certain 
exceptions, to a delinquent borrower who is in bankruptcy or has 
discharged personal liability for the mortgage loan. Consumer advocacy 
groups generally favored the proposed borrower-specific exemptions from 
the written notice requirements. Several consumer advocacy groups 
supported the proposal on the basis that members of a particularly at-
risk population who have difficulty meeting their financial obligations 
would receive loss mitigation information; one consumer advocacy group 
stated that the availability of loss mitigation options should not 
determine whether a borrower in bankruptcy is provided the written 
early intervention notice. Another consumer advocacy group stated that 
the proposal is consistent with FHA loss mitigation guidance and HAMP 
rules. A different consumer advocacy group supported the proposal but 
noted that, when completing bankruptcy court filings in several 
jurisdictions, debtors often must check a box identifying an intent to 
surrender their homes even when they actually plan to keep the 
property; as a result, these borrowers would not receive early 
intervention under the proposal. One trade association said it viewed 
the proposal's written notice requirements for borrowers in bankruptcy 
as reasonable when compared against permissible bankruptcy and loss 
mitigation options. The U.S. Trustee Program agreed with the proposal's 
approach, noting that debtors in bankruptcy have difficulty meeting 
their financial obligations and that therefore these debtors may often 
benefit substantially from opportunities for loss mitigation.
Comments on Timing of Written Notice
    The Bureau requested comment on whether the timing of the written 
early intervention notice should be different for a borrower in 
bankruptcy, such as whether a servicer should be required to provide 
the written notice to a borrower in bankruptcy within 45 days after the 
bankruptcy case commences, rather than by the 45th day of the 
borrower's delinquency. One industry commenter suggested requiring the 
notice within 45 days after the petition date at the point in time when 
the borrower is determining whether to keep the home. Another industry 
commenter suggested that, if the Bureau required a written early 
intervention notice for borrowers in bankruptcy, the Bureau should 
require just one written early intervention notice in bankruptcy for 
the life of the loan.
    The Bureau conducted additional outreach on the timing of the 
written notice after the close of the comment period. One servicer 
stated that it currently provides loss mitigation information to the 
borrower, counsel, and bankruptcy trustee within one week of the 
bankruptcy filing, regardless of the period of the borrower's 
delinquency (if any), and considers this to be a best practice. This 
servicer explained that, even if the mortgage is current, it assumes a 
borrower who has filed for bankruptcy is experiencing some financial 
difficulty and wants to inform the borrower that help is available. 
Another servicer stated that it likely would be easier to provide a 
single written early intervention notice immediately following 
notification of a new bankruptcy. One consumer advocacy group advised 
that servicers subject to HUD's requirement to provide loss mitigation 
information appear to provide that information at different times, such 
that borrowers sometimes receive it months after filing for bankruptcy.
Comments on Overlap Between Borrowers in Bankruptcy and FDCPA
    The Bureau proposed comment 39(d)(2)(iii)-2 to address the 
situation of a borrower in bankruptcy who has invoked cease 
communication rights under FDCPA section 805(c). The Bureau requested 
comment on whether it should require a servicer to provide the written 
early intervention notice to a borrower's representative, instead of 
the borrower, to the extent the FDCPA applies to a servicer's 
communications with a borrower in bankruptcy and the borrower has 
provided a notification pursuant to FDCPA section 805(c). The Bureau 
sought comment on whether there may be a conflict between the language 
of proposed model clause MS-4(D) and applicable bankruptcy laws when a 
borrower has exercised cease communication rights under the FDCPA and 
is also a borrower in bankruptcy and on the scope of any such conflict.
    Industry commenters said that most borrowers file for bankruptcy as 
a last resort, after all loss mitigation options have been exhausted. 
Consequently, they said, providing another written notice will do 
little for the borrower and possibly subject the servicer to liability 
under the Bankruptcy Code. Industry commenters stated that tracking 
whether the borrower has a representative, along with tracking FDCPA 
and bankruptcy case status, would increase servicer burden and the 
likelihood of mistakes. Industry commenters also noted that the model 
language in proposed Model Clause MS-4(D) could be inaccurate because 
the automatic stay is a legal impediment to foreclosure.\198\
---------------------------------------------------------------------------

    \198\ For a more general discussion of model clause MS-4(D), see 
the section-by-section analysis of Appendix MS-4 to Part 1024--
Mortgage Servicing.
---------------------------------------------------------------------------

    Consumer advocacy groups, including a group of consumer bankruptcy 
attorneys, supported the Bureau's proposal to require a written early 
intervention notice when a borrower has both invoked the FDCPA's cease 
communication protections and is a debtor in bankruptcy. However, they 
opposed an exemption when the borrower is not represented. They 
explained that unrepresented borrowers have the same need for loss 
mitigation information as represented borrowers. They also stated that 
the written notice would not violate the Bankruptcy Code's automatic 
stay when sent directly to the borrower. Consumer advocacy groups 
expressed general concern that servicers will often erroneously 
conclude that borrowers are not represented.
    The U.S. Trustee Program commented that the modified written 
notice, including the proposed model language, may be seen by some 
bankruptcy judges or borrowers as violating the Bankruptcy Code's 
automatic stay even when sent to the borrower's representative. The 
commenter suggested that the Bureau consider modifying the proposed 
language in Model Clause MS-D(4) or exempting

[[Page 72225]]

servicers from the requirement to provide a written early intervention 
notice unless the borrower requests it when the borrower has invoked 
the FDCPA's cease communication protections and is also a debtor in 
bankruptcy.\199\
---------------------------------------------------------------------------

    \199\ This final rule modifies the language in Model Clause MS-
D(4), as explained in the section-by-section analysis of Appendix 
MS-4 to Part 1024--Mortgage Servicing.
---------------------------------------------------------------------------

Final Rule
    In light of the comments received and for the reasons set forth 
below, the Bureau is adopting a partial exemption from the written 
early intervention notice for borrowers in bankruptcy and renumbering 
it as new Sec.  1024.39(c)(1)(ii) and (iii) instead of as proposed in 
Sec.  1024.39(d)(1)(ii), with modifications to implement the partial 
exemption on a loan level and for debtors in any chapter of bankruptcy 
and with modifications to the frequency of the written notice. As 
finalized, new Sec.  1024.39(c)(1)(ii) provides that, while any 
borrower on a mortgage loan is a debtor in bankruptcy under title 11 of 
the United States Code, a servicer, with regard to that mortgage loan, 
is exempt from the written early intervention notice requirements if no 
loss mitigation option is available or if any borrower on the mortgage 
loan has provided a cease communication notification pursuant to FDCPA 
section 805(c) with respect to that mortgage loan as referenced in 
Sec.  1024.39(d). As explained above in the discussion of the live 
contact exemption, the Bureau also adopts a loan-level exemption from 
the written early intervention notice requirements rather than a 
borrower-specific exemption as proposed. The final rule does not draw 
distinctions between the chapter of bankruptcy under which the borrower 
filed for purposes of the partial exemption. Instead, new Sec.  
1024.39(c)(1) applies the exemption with regard to a mortgage loan 
while any borrower on that loan is a debtor in bankruptcy under title 
11 of the United States Code generally.
    New Sec.  1024.39(c)(1)(iii) provides that if the conditions of 
Sec.  1024.39(c)(1)(ii) are not met, a servicer, with regard to that 
mortgage loan, must comply with the written early intervention notice 
requirements, as modified by Sec.  1024.39(c)(1)(iii). Therefore, if 
any loss mitigation option is available and no borrower on the mortgage 
loan has invoked FDCPA section 805(c)'s cease communication 
protections, a servicer is required to provide the modified written 
early intervention notice as described in Sec.  1024.39(c)(1)(iii). 
Section 1024.39(c)(1)(iii) also provides that, if a borrower is 
delinquent when the borrower becomes a debtor in bankruptcy, a servicer 
must provide the written notice not later than the 45th day after the 
borrower files a bankruptcy petition under title 11 of the United 
States Code. If the borrower is not delinquent when the borrower files 
a bankruptcy petition, but subsequently becomes delinquent while in 
bankruptcy, the servicer must provide the written notice not later than 
the 45th day of the borrower's delinquency. A servicer must comply with 
these timing requirements regardless of whether the servicer provided 
the written notice in the preceding 180-day period. Section 
1024.39(c)(1)(iii) further provides that the written notice may not 
contain a request for payment and that a servicer is not required to 
provide the written notice more than once during a single bankruptcy 
case. The final commentary has also been modified.
    Written notice rationale. As the Bureau explained in the proposal, 
a primary value of the written early intervention notice to a 
delinquent borrower in bankruptcy is to inform the borrower of 
potential loss mitigation options to avoid foreclosure. The Bureau 
considered comments that it should require the written early 
intervention notice for all borrowers in bankruptcy, regardless of 
whether any loss mitigation option is available. However, a notice that 
does not contain information related to loss mitigation options serves 
primarily as a payment reminder, which is of significantly diminished 
value to a borrower in bankruptcy and precisely the type of 
communication to a borrower in bankruptcy that the automatic stay is 
intended to prevent. Therefore, the Bureau concludes that it is not 
appropriate to require servicers to provide the written early 
intervention notice to borrowers in bankruptcy if no loss mitigation 
option is available. The final rule retains the exemption from Sec.  
1024.39(b) if no loss mitigation option is available or if any borrower 
on the mortgage loan has invoked the FDCPA's cease communication 
protections while requiring the provision of a modified form of the 
written early intervention notice to borrowers in bankruptcy if those 
conditions are not met.
    To assist servicers in determining whether any loss mitigation 
option is available and thus whether the servicer is required to 
provide the modified written early intervention notice under new Sec.  
1024.39(c)(1)(iii), the Bureau is adopting new comment 39(c)(1)(ii)-1. 
New comment 39(c)(1)(ii)-1 states that in part, Sec.  1024.39(c)(1)(ii) 
exempts a servicer from the requirements of Sec.  1024.39(b) if no loss 
mitigation option is available. The comment then explains that a loss 
mitigation option is available if the owner or assignee of a mortgage 
loan offers an alternative to foreclosure that is made available 
through the servicer and for which a borrower may apply, even if the 
borrower ultimately does not qualify for such option. As explained in 
the section-by-section analysis of Sec.  1024.39(b)(2), the Bureau is 
not adopting proposed comment 39(b)(2)-4, which would have explained 
when a loss mitigation option is available for purposes of Sec.  
1024.39(b) generally, but is instead adopting new comment 39(c)(1)(ii)-
1 to explain when a loss mitigation option is available for purposes of 
Sec.  1024.39(c).
    The Bureau believes that delinquent borrowers in bankruptcy would 
benefit from receiving the written notice required under Sec.  
1024.39(b) if any loss mitigation option is available. The Bureau 
believes that the content of the notice, including the statement 
providing a brief description of loss mitigation options that may be 
available from the servicer and the application instructions or a 
statement informing the borrower how to obtain more information about 
loss mitigation options from the servicer, are of particular value to a 
delinquent borrower in bankruptcy. Borrowers who have filed for 
bankruptcy should not be denied an opportunity to obtain information 
about available loss mitigation options, as this information may be 
uniquely critical for borrowers in bankruptcy making decisions about 
how best to reduce, eliminate, or reorganize their debts. The Bureau 
understands that borrowers sometimes initially determine to surrender 
their property only to reconsider that decision upon receiving loss 
mitigation information.
    Although industry commenters generally opposed providing a written 
early intervention notice to borrowers in bankruptcy, the Bureau 
concludes that requiring the notice, as modified in new Sec.  
1024.39(c)(1)(iii), strikes the appropriate balance for several 
reasons. First, the Bureau does not agree with those industry 
commenters who claimed that the written notice would be of little value 
to borrowers in bankruptcy. While it may be the case that some 
borrowers exhaust their loss mitigation options before bankruptcy, many 
borrowers file for bankruptcy precisely to avoid losing their home, and 
for those borrowers, continuing to receive information about available 
loss mitigation options is vital. Comments from consumer advocacy 
groups, including consumer bankruptcy

[[Page 72226]]

attorneys, and the U.S. Trustee Program all emphasized the importance 
of providing loss mitigation information to borrowers in bankruptcy, 
noting that they are, by definition, experiencing financial hardships. 
The Bureau believes that delinquent borrowers in bankruptcy would 
benefit from information about available loss mitigation options.
    HUD, Treasury, and many local bankruptcy courts have similarly 
recognized that borrowers in bankruptcy have a need for loss mitigation 
assistance. In 2008, HUD issued guidance requiring servicers of FHA 
mortgage loans to provide loss mitigation information to bankrupt 
borrowers represented by counsel, while also recommending that 
servicers provide that information to pro se borrowers.\200\ Although 
Treasury does not require servicers to solicit borrowers in bankruptcy 
actively for loss mitigation, it has made clear that such borrowers are 
eligible for HAMP.\201\ Numerous bankruptcy courts, including in 
Florida, Nevada, New Jersey, New York, and Wisconsin, have adopted 
mortgage modification programs or procedures.
---------------------------------------------------------------------------

    \200\ ``[T]he Department understands that . . . waiting until a 
bankruptcy is discharged or dismissed before offering loss 
mitigation may be injurious to the interests of the borrower, the 
mortgagee and the FHA insurance funds.'' U.S. Dep't of Housing and 
Urban Dev., Mortgagee Letter 2008-32, Use of FHA Loss Mitigation 
During Bankruptcy (Oct. 17, 2008) available at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/lmmltrs.
    \201\ ``Borrowers in active Chapter 7 or Chapter 13 bankruptcy 
cases are eligible for [the Home Affordable Modification Program 
(HAMP)] at the servicer's discretion in accordance with investor 
guidelines, but servicers are not required to solicit these 
borrowers proactively for HAMP. Notwithstanding the foregoing, such 
borrowers must be considered for HAMP if the borrower, borrower's 
counsel or bankruptcy trustee submits a request to the servicer. 
However, if the borrower is also unemployed, the servicer must 
evaluate the borrower for [the Home Affordable Unemployment 
Program], subject to any required bankruptcy court approvals, before 
evaluating the borrower for HAMP.'' Making Home Affordable, Making 
Home Affordable Program Handbook for Servicers of Non-GSE Mortgages, 
Version 5.0 at 71 (Jan. 6, 2016), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_5.pdf.
---------------------------------------------------------------------------

    Second, the Bureau believes that this final rule appropriately 
addresses industry commenters' concerns that determining when the 
exemption applies could be particularly difficult or burdensome. The 
Bureau understands that servicers often review borrowers' initial court 
filings as part of their efforts in monitoring borrowers' bankruptcy 
cases, and the information servicers would have needed to determine 
whether or not an exemption applied, such as whether or not the 
borrower is represented and the chapter of bankruptcy under which 
relief is sought, is usually contained in those filings. Nonetheless, 
as explained above, the Bureau is finalizing new Sec.  
1024.39(c)(1)(iii) to take a uniform approach for borrowers in any 
chapter of bankruptcy under title 11 of the United States Code, thus 
obviating any need for servicers to distinguish the chapter of 
bankruptcy filed by the borrower. Moreover, as finalized, Sec.  
1024.39(c)(1)(iii) requires that a servicer provide the notice only 
once during a single bankruptcy case, further alleviating servicer 
burden. Additionally, new comment 39(c)-2 provides that Sec.  
1024.39(c) does not require a servicer to communicate with a borrower 
in a manner that would be inconsistent with applicable bankruptcy law 
or a court order in a bankruptcy case, and that, if necessary to comply 
with such law or court order, a servicer may adapt the requirements of 
Sec.  1024.39 as appropriate.
    Third, while industry commenters expressed concerns that providing 
the written early intervention notice to borrowers in bankruptcy would 
violate the automatic stay, courts have found no violation under 
similar circumstances. Of the handful of cases cited by industry 
commenters finding stay or discharge injunction violations for any 
reason related to a mortgage loan, all involved extreme facts and only 
one involved loss mitigation communications. In that case, the servicer 
had sent several ARM notices, two HAMP packets, and a letter offering 
workout options, but also engaged in collection attempts, such as 
making multiple phone calls requesting payment, after the borrower had 
long since surrendered the home and stopped making payments.\202\ In 
finding a violation of the discharge injunction, the court noted that 
the totality of the servicer's collection efforts included at least 15 
separate collection attempts and that the debtor had in fact vacated 
the home before filing for bankruptcy and moved to another 
address.\203\ The final rule, in contrast, requires a single written 
notice containing information about available loss mitigation options, 
which may not include a request for payment. The Bureau is not aware of 
any reported decision in which a court sanctioned a servicer for 
providing a written notice about loss mitigation information with the 
content and frequency as adopted in this final rule. In fact, some 
industry commenters, consumer advocacy groups, bankruptcy attorneys, 
the U.S. Trustee Program, and two bankruptcy judges \204\ all agreed 
that providing the written early intervention notice likely would not 
violate the automatic stay.
---------------------------------------------------------------------------

    \202\ See In re Bibolotti, No. 4:11-CV-472, 2013 WL 2147949 
(E.D. Tex. May 15, 2013). The other cases industry commenters cited 
did not involve loss mitigation notices or conduct that the proposal 
or final rule would require. See In re Shinabeck, No. 08-41942, 2014 
WL 5325781 (Bankr. E.D. Tex. Oct. 20, 2014) (collection attempts 
continued even after borrower filed lawsuit alleging violations of 
the discharge injunction); In re Draper, 237 B.R. 502, 505-06 
(Bankr. M.D. Fla. 1999) (debtor had asked not to receive periodic 
statements, which were inaccurate in any event); In re Connor, 366 
B.R. 133, 136, 138 (Bankr. D. Haw. 2007) (debtor was surrendering 
his home and did not need periodic statements).
    \203\ Bibolotti, 2013 WL 2147949, at *1.
    \204\ As the Bureau explained, prior to the proposal, the Bureau 
conducted outreach to two bankruptcy judges who commented that a 
written notice compliant with Sec.  1024.39(b) and containing a 
bankruptcy disclaimer would raise fewer concerns about the automatic 
stay than live contact because the notice does not contain any 
payment demand and because the nature of the notice is an invitation 
to apply for debt relief. 79 FR 74176, 74205 (Dec. 15, 2014).
---------------------------------------------------------------------------

    Additionally, the Bureau understands that, even after a borrower 
files for bankruptcy, a servicer is not categorically barred from 
communicating with the borrower.\205\ Courts have found that, under 
appropriate circumstances, servicers may provide periodic statements, 
notices of change in payments, and other communications without 
violating the automatic stay.\206\ As noted above, several courts have 
determined that a servicer may properly contact a borrower to inform 
the borrower about loss mitigation options or to negotiate the terms of 
a loss mitigation agreement.
---------------------------------------------------------------------------

    \205\ See, e.g., In re Zotow, 432 B.R. 252, 258 (B.A.P. 9th Cir. 
2010) (``[T]he automatic stay does not prevent all communications 
between a creditor and the debtor.'') (citations omitted); In re 
Duke, 79 F.3d 43, 45 (7th Cir. 1996) (holding that creditor does not 
violate automatic stay by sending a ``nonthreatening and non-
coercive'' offer to reaffirm a pre-petition debt and stating that 
``the respite provided by Sec.  362 `is . . . from the threat of 
immediate action by creditors, such as a foreclosure or a lawsuit' 
'') (quoting In re Brown, 851 F.2d 81, 86 (3d Cir. 1988)).
    \206\ See section-by-section analysis of 12 CFR 1026.41, infra; 
see also Zotow, 432 B.R. at 260 (notice of payment change due to 
escrow deficiency); Duke, 79 F.3d at 45 (offer to reaffirm debt); In 
re Schatz, 452 B.R. 544 (Bankr. M.D. Pa. 2011) (periodic 
statements); In re Singh, 457 B.R. 790 (Bankr. E.D. Cal. 2011) 
(notice of payment change); see also Morgan Guaranty Trust Co. of 
N.Y. v. Am. Sav. & Loan Ass'n, 804 F.2d 1487, 1491 (9th Cir. 1986) 
(``[M]ere requests for payment are not barred absent coercion or 
harassment by the creditor. . . .'').
---------------------------------------------------------------------------

    The Bureau also does not believe that servicers' concerns about 
communicating with a borrower represented by counsel warrant a blanket 
exemption from providing the written early intervention notice to 
borrowers in bankruptcy. To the extent that a servicer is concerned 
about

[[Page 72227]]

communicating with a borrower represented by counsel, it may 
communicate with the borrower's authorized representative instead.\207\ 
New comment 39(c)-1 provides that, if the borrower is represented by a 
person authorized by the borrower to communicate with the servicer on 
the borrower's behalf, the servicer may provide the written notice 
required by Sec.  1024.39(b), as modified by Sec.  1024.39(c)(1)(iii), 
to the borrower's representative. The comment explains that, in 
general, bankruptcy counsel is the borrower's representative and that a 
servicer's procedures for determining whether counsel is the borrower's 
representative are generally considered reasonable if they are limited 
to, for example, confirming that the attorney's name is listed on the 
borrower's bankruptcy petition or other court filing.\208\
---------------------------------------------------------------------------

    \207\ As HUD has also recognized, communicating with a 
borrower's bankruptcy counsel about available loss mitigation does 
not raise concerns about violating the automatic stay. HUD Mortgagee 
Letter 2008-32 (``As a result of these discussions [with bankruptcy 
experts], the Department understands that contact with debtor's 
counsel or a bankruptcy trustee does not constitute a violation of 
the automatic stay and that waiting until a bankruptcy is discharged 
or dismissed before offering loss mitigation may be injurious to the 
interests of the borrower, the mortgagee and the FHA insurance 
funds.''); see also Henry v. Assocs. Home Equity Servs., Inc. (In re 
Henry), 266 B.R. 457 (Bankr. C.D. Cal. 2001) (``If a debtor is 
represented by counsel, any creditor may communicate with counsel 
for the debtor without violating the automatic stay. Counsel has no 
need to be shielded from a client's creditors. It is part of the job 
of counsel for a debtor to deal with the client's creditors.''); 
United States v. Nelson, 969 F.2d 626, 628 (8th Cir. 1992) (holding 
that creditor did not violate the stay by sending a letter to 
debtor's counsel); Cash Am. Pawn, L.P. v. Murphy, 209 B.R. 419, 424 
(E.D. Tex. 1997) (similar); In re Murray, 89 B.R. 533, 536 (Bankr. 
E.D. Pa. 1988) (similar); cf. Duke, 79 F.3d at 45 (holding that 
creditor did not violate stay by copying debtor on letter it sent to 
debtor's counsel).
    \208\ See current comments 39(b)(1)-3 and 39(a)-4 (renumbered in 
this final rule as comment 39(a)-5).
---------------------------------------------------------------------------

    As evidenced by the numerous jurisdictions that provide special 
bankruptcy court rules for loss mitigation,\209\ the Bureau continues 
to believe that bankruptcy courts often encourage loss mitigation 
efforts and that bankruptcy courts are unlikely to sanction a servicer 
for sending notices required by Regulation X unless the servicer 
engaged in other, more aggressive collection attempts. To address 
further commenters' concerns about the automatic stay, the Bureau is 
finalizing Sec.  1024.39(c)(1)(iii) to specify that the written notice 
may not contain a request for payment and require that a servicer 
provide the notice only once during a single bankruptcy case. As 
explained more fully in the section-by-section analysis of Sec.  
1024.39(d), the prohibition on making a payment request ensures that 
the written early intervention notice is purely informational and does 
not serve as a pretext for collection attempts. The Bureau is also 
revising existing comment 39(d)(1)-3 and renumbering it as comment 
39(c)(1)(iii)-1 to provide that, when two or more borrowers are joint 
obligors with primary liability on a mortgage loan subject to Sec.  
1024.39, if any of the borrowers is a debtor in bankruptcy, a servicer 
may provide the written notice required by Sec.  1024.39(b), as 
modified by Sec.  1024.39(c)(1)(iii), to any borrower who is primarily 
liable on the obligation. This comment should clarify servicers' 
obligations when there are multiple borrowers on a mortgage loan and 
only one of them is in bankruptcy.
---------------------------------------------------------------------------

    \209\ See, e.g., Bankr. S.D.N.Y., Loss Mitigation Program 
Procedures, available at https://www.nysb.uscourts.gov/pgh/lossmitigation/LossMitigationProcedures.pdf; Bankr. E.D.N.Y., In re 
Adoption of Modified Loss Mitigation Program Procedures, Gen. Order 
582 (Sept. 9, 2011), available at https://www.nyeb.uscourts.gov/sites/nyeb/files/ord_582.pdf; Bankr. D.R.I., Eighth Amended Loss 
Mitigation Program and Procedures, available at https://www.rib.uscourts.gov/sites/default/files/programs_and_services/loss_mitigation/Appendix%20VII%20Loss%20Mitigation.pdf; Bankr. D. 
Vt., L.B.R. 4001-7, Mortgage Mediation and Loss Mitigation Program, 
available at https://www.vtb.uscourts.gov/sites/vtb/files/general-ordes/SO%2015-02%20-%20MM%20-%202.2.15%20FINAL%20with%20attachments.pdf; Bankr. D.N.J., Loss 
Mitigation Program and Procedures, available at https://www.njb.uscourts.gov/sites/default/files/forms/Loss_Mitigation_Program_and_Procedures.pdf; Bankr. M.D. Fla., In re 
Administrative Order Prescribing Procedures for Mortgage 
Modification Mediation, Admin. Order FLM 2015-1, available at https://pacer.flmb.uscourts.gov/administrativeorders/DataFileOrder.asp?FileID=43.
---------------------------------------------------------------------------

    The Bureau also proposed comment 39(d)(1)(ii)-2 to clarify 
servicers' obligations when the FDCPA applies to a servicer's 
communications with a borrower who is a debtor in bankruptcy if that 
borrower has also invoked the cease communication protections of FDCPA 
section 805(c). The Bureau revises and renumbers proposed comment 
39(d)(1)(ii)-2 as new comment 39(c)(1)(ii)-2, which illustrates 
application of the exemption in Sec.  1024.39(c)(1)(ii). Final comment 
39(c)(1)(ii)-2.i provides that, to the extent the FDCPA applies to a 
servicer's communications with a borrower in bankruptcy and any 
borrower on the mortgage loan has provided a notification pursuant to 
FDCPA section 805(c) notifying the servicer that the borrower refuses 
to pay a debt or that the borrower wishes the servicer to cease further 
communications (a cease communications notice), with regard to that 
mortgage loan, Sec.  1024.39(c)(1)(ii) exempts a servicer from 
providing the written notice required by Sec.  1024.39(b). New comment 
39(c)(1)(ii)-2.ii provides an illustrative example of the application 
of this exemption.
    Timing of written notice rationale. New Sec.  1024.39(c)(1)(iii)(A) 
requires that a servicer provide the written notice not later than the 
45th day after a delinquent borrower files a bankruptcy petition under 
title 11 of the United States Code. The Bureau believes that requiring 
servicers to provide a single notice for delinquent borrowers who file 
for bankruptcy without having to review the borrower's bankruptcy 
filings or the bankruptcy court's orders reduces servicer burdens 
compared to the proposed approach. The Bureau believes that delinquent 
borrowers will benefit by having the notice provided shortly after the 
bankruptcy filing when they are making decisions about whether to 
retain the property, even if they received a version of the early 
intervention notice prior to the bankruptcy filing. The final rule's 
approach is consistent with HUD's 2008 FHA guidance, which requires 
servicers to provide loss mitigation information ``upon receipt'' of a 
borrower's filing.\210\
---------------------------------------------------------------------------

    \210\ U.S. Dep't of Housing and Urban Dev., Mortgagee Letter 
2008-32, Use of FHA Loss Mitigation During Bankruptcy (Oct. 17, 
2008) (HUD Mortgagee Letter 2008-32), available at https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/lmmltrs.
---------------------------------------------------------------------------

    Overlap between borrowers in bankruptcy and FDCPA rationale. New 
Sec.  1024.39(c)(1)(ii) provides that a servicer is exempt from the 
written early intervention notice requirements if Sec.  1024.39(d) also 
applies with respect to that borrower's loan, meaning that a servicer 
subject to the FDCPA is exempt from providing the written early 
intervention notice with regard to a mortgage loan for which any 
borrower on the mortgage loan invokes the FDCPA's cease communications 
protections while any borrower on the mortgage loan is a debtor in 
bankruptcy. The Bureau agrees with commenters that there is tension 
between, on the one hand, the Bankruptcy Code's automatic stay, which 
prevents the servicer from pursuing foreclosure, and, on the other 
hand, a statement that the servicer may or intends to invoke its 
specified remedy of foreclosure, as required to be included under Sec.  
1024.39(d)(3)(i) in the notice to a borrower who has invoked the 
FDCPA's cease communication protections.\211\
---------------------------------------------------------------------------

    \211\ See section-by-section analysis of Sec.  1024.39(d)(3) for 
further discussion of the requirement that the written early 
intervention notice include a statement that the servicer may or 
intends to invoke its specified remedy of foreclosure.

---------------------------------------------------------------------------

[[Page 72228]]

    The Bureau believes that any potential borrower harm resulting from 
this exemption is mitigated because Sec.  1024.39(d)(3) requires that, 
if any loss mitigation option is available, servicers must provide the 
written early intervention notice to delinquent borrowers outside of 
bankruptcy, even if those borrowers have invoked their cease 
communication rights. If any loss mitigation option is available, a 
servicer is exempt from providing the written early intervention notice 
only with respect to a mortgage loan for which any borrower on the loan 
has invoked the FDCPA cease communication right and while any borrower 
on that mortgage loan is a debtor in bankruptcy. Consequently, many 
borrowers among that subset of delinquent borrowers who have invoked 
their cease communication rights while any borrower on the mortgage 
loan is a debtor in bankruptcy will nonetheless receive an early 
intervention notice, either because they received such a notice before 
exercising their cease communication rights or because they received 
the modified written early intervention notice required to be provided 
to all borrowers outside of bankruptcy if any loss mitigation option is 
available. As commenters noted, many borrowers will be more than 45 
days delinquent upon filing for bankruptcy and so will have received a 
written early intervention notice before entering bankruptcy, if any 
loss mitigation option is available.
39(c)(2) Resuming Compliance
    The Bureau also proposed to revise current comment 39(d)(1)-2 and 
redesignate it as comment 39(d)(1)-1 (and remove existing comment 
39(d)(1)-1). The proposed comment would have provided that, with 
respect to any borrower who has not discharged the mortgage debt, a 
servicer must resume compliance with Sec.  1024.39(a) and (b), as 
applicable, as of the first delinquency that follows the earliest of 
the following outcomes in the bankruptcy case: (1) The case is 
dismissed, (2) the case is closed, (3) the borrower reaffirms the 
mortgage loan under 11 U.S.C. 524, or (4) the borrower receives a 
discharge under 11 U.S.C. 727, 1141, 1228, or 1328. Proposed comment 
39(d)(1)-1 also clarified that the requirement to resume compliance 
with Sec.  1024.39 would not require a servicer to communicate with a 
borrower in a manner that would be inconsistent with applicable 
bankruptcy law or a court order in a bankruptcy case. The proposed 
revisions would have provided that, to the extent necessary to comply 
with such law or court order, a servicer may adapt the requirements of 
Sec.  1024.39 as appropriate.
    In addition, proposed comment 39(d)(1)-1 would have provided that 
compliance with Sec.  1024.39(a) is not required with respect to any 
borrower who has discharged the mortgage debt under applicable 
provisions of the Bankruptcy Code but continues to make mortgage 
payments to avoid foreclosure of the lien and retain the home. As to 
borrowers who use such a ride-through option, the proposal would have 
imposed the same requirements on a servicer both during and after the 
bankruptcy case: The servicer would be exempt from the live contact 
requirements of Sec.  1024.39(a), but the servicer would have to 
continue to comply with the written notice requirements of Sec.  
1024.39(b) unless one of the conditions in proposed Sec.  
1024.39(d)(1)(ii) was satisfied. If the borrower's bankruptcy case was 
revived, for example, through the court's reinstating a previously 
dismissed case or reopening the case, the servicer would be exempt 
again from the requirements of proposed Sec.  1024.39(a). As discussed 
further below, the Bureau is adopting clarifications to proposed 
comment 39(d)(1)-1 and codifying it in new Sec.  1024.39(c)(2) and its 
related commentary to explain when a servicer is required to resume 
compliance with the early intervention requirements.
Comments on Resuming Compliance
    Commenters expressed varied opinions about whether a servicer 
should be required to resume compliance with Sec.  1024.39 if a 
borrower discharged the mortgage loan. One industry commenter explained 
that a bankruptcy case can remain open following the borrower's 
discharge, that the property securing the servicer's lien may remain 
property of the bankruptcy estate, and that the automatic stay could 
continue to apply to the property. The commenter recommended that a 
servicer not be required to resume compliance until the bankruptcy case 
is complete. Conversely, consumer advocacy groups stated that servicers 
should be required to resume compliance with the early intervention 
requirements for borrowers in chapter 7 bankruptcy who use the ride-
through option referenced above. These consumer advocacy groups 
suggested that, for simplicity of administration, if the servicer is 
required to send the borrower periodic statements after a bankruptcy 
discharge, then the servicer should also be required to attempt live 
contact and provide a written early intervention notice to the borrower 
if the loan becomes delinquent.
    In response to the Bureau's specific request for comment as to 
whether servicers have had difficulties receiving notices regarding the 
dismissal or closing of a bankruptcy case or of the debtor's discharge, 
one servicer stated that it encounters such problems. Another industry 
commenter stated that servicers incur expenses in monitoring bankruptcy 
cases for a case closing or for discharge of the mortgage loan. Both 
commenters suggested that the obligation to resume compliance be 
contingent on the servicer receiving notice from the bankruptcy court 
or the borrower.
    Specifically regarding ride-through borrowers, the U.S. Trustee 
Program commented that the criteria for resuming compliance with early 
intervention should be clarified to recognize borrowers who have 
received a discharge of personal liability but whose homes are still 
subject to valid liens. The U.S. Trustee Program stated that the Bureau 
should make clear that servicers must comply with the written early 
intervention notice requirements if the servicer retains a valid 
security interest in the property--even if the debtor has obtained a 
discharge of personal liability.
    The Bureau conducted additional outreach with servicers about how 
they monitor bankruptcy cases after the close of the comment period. 
Several servicers stated that they learn of new bankruptcy filings 
through electronic subscription monitoring services. One credit union 
explained that it learns of new bankruptcy filings either through 
mailings from the bankruptcy court or directly from the credit union 
member. In either case, servicers stated that they generally receive 
timely notice of new bankruptcy filings, in some cases within as little 
as one day of the filing. A number of servicers also explained that 
they track the status of bankruptcy cases electronically.
Final Rule
    The Bureau is adopting clarifications to proposed comment 39(d)(1)-
1 and codifying it in new Sec.  1024.39(c)(2) and its related 
commentary. Specifically, part of proposed comment 39(d)(1)-1.i is 
finalized as new Sec.  1024.39(c)(2)(i) with modifications and provides 
that, subject to certain exceptions in new Sec.  1024.39(c)(2)(ii), a 
servicer that was exempt pursuant to Sec.  1024.39(c)(1) must resume 
compliance with the early intervention requirements after the next 
payment due date that follows the

[[Page 72229]]

earliest of the following events: The bankruptcy case is dismissed; the 
bankruptcy case is closed; and the borrower reaffirms personal 
liability for the mortgage loan. New Sec.  1024.39(c)(2)(ii) finalizes 
part of proposed comment 39(d)(1)-1.ii with modifications and provides 
that, with respect to a mortgage loan for which the borrower has 
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 
1328, a servicer is not required to resume compliance with the live 
contact early intervention requirements and must resume compliance with 
the written early intervention notice requirements if the borrower has 
made any partial or periodic payment on the mortgage loan after 
commencement of the borrower's bankruptcy case.
    The Bureau considered whether the servicer's obligation to resume 
early intervention should be contingent on a servicer receiving notice 
that the bankruptcy case is dismissed or closed or that the borrower 
has reaffirmed personal liability for the mortgage loan. However, as 
the Bureau's outreach confirmed, servicers typically track the status 
of borrowers' bankruptcy cases already to ensure compliance with other 
Federal and State laws. Servicers generally have procedures in place to 
monitor outcomes in bankruptcy cases and already bear any costs 
associated with monitoring bankruptcy case outcomes. Additionally, a 
servicer that participates in the bankruptcy case, such as by filing a 
proof of claim or seeking relief from the automatic stay to pursue 
foreclosure, should receive automatic electronic notification of all 
case activity. Therefore, the Bureau concludes that any additional 
compliance burdens associated with new Sec.  1024.39(c)(2) will be 
minimal and that servicers have access to timely information about the 
bankruptcy case.
    The Bureau adopts part of proposed comment 39(d)(1)-1.ii in new 
comment 39(c)(2)-1, which explains that, if the borrower's bankruptcy 
case is revived, for example, if the court reinstates a previously 
dismissed case or reopens the case, Sec.  1024.39(c)(1) once again 
applies. However, Sec.  1024.39(c)(1)(iii)(C) provides that a servicer 
is not required to provide the written notice more than once during a 
single bankruptcy case. New comment 39(c)(2)-1 provides an illustrative 
example applying this provision.
    The final rule does not include the proposed language requiring 
servicers to resume compliance with the early intervention provisions 
when the borrower receives a discharge of the mortgage loan. The Bureau 
believes it would be more appropriate to require servicers to resume 
compliance once the bankruptcy case is complete. The Bureau understands 
that the time between a borrower's discharge of personal liability for 
the mortgage loan and the closing of a bankruptcy case is typically 
brief and that, therefore, not requiring early intervention during this 
period generally should not have significant adverse consequences for 
borrowers. Additionally, the property securing the mortgage loan may 
remain property of the bankruptcy estate after the borrower discharges 
personal liability for the loan, and the Bureau believes it would be 
more appropriate for a servicer to resume providing early intervention 
after the bankruptcy case is complete with respect to both the borrower 
and the property.
    The Bureau continues to believe that borrowers who exercise the 
ride-through option, like other borrowers who retain their homes, would 
benefit from early intervention. The Bureau is concerned, however, that 
in certain situations the borrower or bankruptcy court could view live 
contact as violating the discharge injunction. Therefore, with respect 
to a mortgage loan for which a borrower discharges personal liability, 
a servicer is not required to resume compliance with the live contact 
requirements of Sec.  1024.39(a). The Bureau believes that, for the 
reasons discussed above, providing a written early intervention notice 
after the bankruptcy case to a borrower who has discharged personal 
liability for the mortgage loan is unlikely to raise similar concerns 
about the discharge injunction.\212\ Accordingly, the final rule 
provides that, with respect to a borrower who has discharged personal 
liability for a mortgage loan, the servicer must resume compliance with 
Sec.  1024.39(b) after the bankruptcy case concludes if the borrower 
has made any partial or periodic payment on the mortgage loan after 
commencement of the borrower's bankruptcy case. Consistent with 
comments the Bureau received from the U.S. Trustee Program regarding 
the ride-through option, the Bureau believes that a borrower's partial 
or periodic payment after commencement of the bankruptcy case indicates 
the borrower's desire to retain the property and therefore that the 
written early intervention notice may continue to be helpful under 
those circumstances. Even if a servicer were to return a borrower's 
partial payment or hold it in suspense, the servicer would still be 
required to resume compliance with Sec.  1024.39(b) after the 
bankruptcy case concludes pursuant to Sec.  1024.39(c)(2)(ii)(B) 
because the borrower made the payment.
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    \212\ In addition to the reasons discussed above, the Bureau 
notes that the written early intervention notice may fall within the 
exception to the discharge injunction set forth in section 524(j) of 
the Bankruptcy Code. See 11 U.S.C. 524(j) (``[A discharge 
injunction] does not operate as an injunction against an act by a 
creditor that is the holder of a secured claim, if--(1) such 
creditor retains a security interest in real property that is the 
principal residence of the debtor; (2) such act is in the ordinary 
course of business between the creditor and the debtor; and (3) such 
act is limited to seeking or obtaining periodic payments associated 
with a valid security interest in lieu of pursuit of in rem relief 
to enforce the lien.'').
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Legal Authority
    The Bureau is exercising its authority under sections 6(j)(3) and 
19(a) of RESPA to exempt servicers from the early intervention live 
contact requirements in Sec.  1024.39(a) for a mortgage loan while any 
borrower on a mortgage loan is a debtor in bankruptcy under any chapter 
in title 11 of the United States Code. The Bureau exercises its 
authority under sections 6(j)(3) and 19(a) of RESPA to exempt a 
servicer from the written early intervention notice requirements in 
Sec.  1024.39(b) if any borrower on the mortgage loan is a debtor in 
bankruptcy and no loss mitigation option is available or if Sec.  
1024.39(d) also applies with respect to that borrower's loan. The 
Bureau also exercises its authority under sections 6(j)(3) and 19(a) of 
RESPA to exempt a servicer from resuming compliance with Sec.  
1024.39(a) with respect to a mortgage loan for which the borrower has 
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 
1328, and to require a servicer to resume compliance with Sec.  
1024.39(b) if the borrower has made any partial or periodic payment on 
the mortgage loan after commencement of the borrower's bankruptcy case. 
For the reasons discussed above, the Bureau does not believe that the 
consumer protection purposes of RESPA are furthered by requiring 
servicers to comply with Sec.  1024.39(a) or (b) under those 
bankruptcy-related circumstances.
    The Bureau is exercising its authority under sections 6(k)(1)(E), 
6(j)(3), and 19(a) of RESPA to require that a servicer provide the 
written early intervention notice as set forth in Sec.  
1024.39(c)(1)(iii) not later than the 45th day after the borrower files 
a bankruptcy petition under title 11 of the United States Code or not 
later than the 45th day of the borrower's delinquency, as applicable. 
The Bureau also exercises its authority under sections 6(k)(1)(E), 
6(j)(3), and 19(a) of RESPA to require that a servicer resume 
compliance with Sec.  1024.39(a) and (b) after the next payment due 
date that follows the earliest of the following

[[Page 72230]]

events: The bankruptcy case is dismissed; the bankruptcy case is 
closed; or the borrower reaffirms personal liability for the mortgage 
loan. The Bureau believes that the early intervention rules under Sec.  
1024.39 provide necessary consumer protections and that servicers are 
capable of providing such protections without negative consequences for 
borrowers, including borrowers in bankruptcy. The Bureau finds, 
consistent with RESPA section 6(k)(1)(E), that Sec.  1024.39(c)(1)(iii) 
and (c)(2) 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, Sec.  1024.39(c)(1)(iii) and 
(c)(2) 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. 
For the reasons discussed above, the Bureau concludes that the consumer 
protection purposes of RESPA are furthered by requiring servicers to 
provide the written early intervention notice as set forth in Sec.  
1024.39(c)(1)(iii) and to resume compliance with Sec.  1024.39(a) and 
(b) for borrowers in bankruptcy under the circumstances set forth in 
Sec.  1024.39(c)(2).
39(d) Fair Debt Collection Practices Act--Partial Exemption
    The Bureau proposed to revise the scope of the existing exemption 
from the early intervention requirements for servicers subject to the 
FDCPA with respect to a borrower who has sent a notification pursuant 
to FDCPA section 805(c), as set forth in current Sec.  
1024.39(d)(2).\213\ The proposal would have maintained the current 
exemption from the live contact requirements of Sec.  1024.39(a) while 
partially removing the exemption from the written early intervention 
notice requirements of Sec.  1024.39(b). The latter exemption would 
have been only partially removed in that it would remain in place for 
certain cases but would have added a requirement that a servicer 
provide a modified written notice if loss mitigation options are 
available. To the extent proposed Sec.  1024.39(d)(2)(iii) would have 
required a servicer to provide a modified written notice, the proposal 
contemplated a safe harbor for the servicer from liability under the 
FDCPA. FDCPA section 805 provides limitations on communications with 
borrowers, including the cease communication provision under which a 
borrower may notify a debt collector that the borrower refuses to pay a 
debt or that the borrower wishes the debt collector to cease further 
communication with the consumer.
---------------------------------------------------------------------------

    \213\ This section-by-section analysis discusses final Sec.  
1024.39(d) generally in terms of a borrower's cease communication 
notification and its effect on a servicer's obligations under the 
early intervention requirements, but the provision applies equally 
to a borrower's notice to the servicer that the borrower refuses to 
pay a debt. See FDCPA section 805(c) (``If a consumer notifies a 
debt collector in writing that the consumer refuses to pay a debt or 
that the consumer wishes the debt collector to cease further 
communication with the consumer, the debt collector shall not 
communicate further with the consumer with respect to such debt . . 
. .'').
---------------------------------------------------------------------------

    For the reasons discussed below, the Bureau is adopting proposed 
Sec.  1024.39(d)(2) generally as proposed, renumbered as Sec.  
1024.39(d), with technical corrections and modifications to adopt it on 
a loan level. The Bureau is adopting these modifications to ease 
servicer burden and to facilitate servicer compliance, in a manner and 
for several reasons that parallel those explained in the section-by-
section analysis of Sec.  1024.39(c). The Bureau is also adding a new 
provision that exempts a servicer that is a debt collector from 
providing the written early intervention notice with regard to a 
mortgage loan for which any borrower invokes the FDCPA's cease 
communication protections while any borrower on the mortgage loan is a 
debtor in bankruptcy.
    Consistent with the discussion in this section-by-section analysis, 
the Bureau is issuing concurrently with this final rule an interpretive 
rule interpreting the FDCPA cease communication requirement in relation 
to the mortgage servicing rules. This interpretation constitutes an 
advisory opinion under FDCPA section 813(e) (15 U.S.C. 1692k(e)).\214\ 
For the reasons discussed below, the Bureau is providing a safe harbor 
from liability under the FDCPA for the written notice that servicers 
that are debt collectors are required to provide under Sec.  
1024.39(d)(3), notwithstanding a borrower's invocation of the cease 
communication right. Additionally, the Bureau is providing a safe 
harbor from liability under the FDCPA for certain communications by a 
servicer to a borrower notwithstanding a borrower's invocation of the 
cease communication right.
---------------------------------------------------------------------------

    \214\ See Bureau of Consumer Fin. Prot., Official Bureau 
Interpretations: Safe Harbors from Liability under the Fair Debt 
Collection Practices Act for Certain Actions Taken in Compliance 
with Mortgage Servicing Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z) (Aug. 4, 2016), available at https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/safe-harbors-liability-under-fair-debt-collection-practices-act-certain-actions-taken-compliance-mortgage-servicing-rules-under-real-estate-settlement-procedures-act-regulation-x-and-truth-lending-act-regulation-z.
---------------------------------------------------------------------------

Comments on Partially Removing Exemption Generally
    The Bureau received comments on the proposed partial exemption from 
servicers, consumer advocacy groups, trade associations, credit unions, 
and the U.S. Trustee Program. Some industry commenters expressed 
concern with the Bureau's proposed approach, stating that it would be 
inconsistent to require that a servicer provide early intervention 
after receiving a borrower's cease communication notice. Two industry 
commenters stated that the better approach would be for the FDCPA not 
to apply to mortgage loans at all and for early intervention 
requirements to apply equally to all mortgage borrowers. Another 
industry commenter explained that, to ease operational burdens, the 
exemption should apply to any loans that a servicer chooses to treat as 
subject to the FDCPA and for which the borrower has provided a cease 
communication notification.
    Consumer advocacy groups generally supported the proposal, 
commenting that borrowers need and are interested in loss mitigation 
information notwithstanding invocation of their cease communication 
rights. Consumer advocacy groups explained that borrowers should not be 
forced to make a choice between exercising their rights under the FDCPA 
and receiving information about potential loss mitigation options.
Comments on Live Contact
    Industry commenters generally supported the exemption from live 
contact for a borrower who has provided a cease communication 
notification. Consumer advocacy groups stated that the Bureau should 
clarify that the exemption does not apply if the borrower has initiated 
contact with the servicer and has sought assistance with a delinquency 
or requested information about potential loss mitigation options.
Comments on Written Notice
    Industry commenters generally objected to the burden of providing a 
modified written early intervention notice on a modified schedule to a 
narrow subset of borrowers. They noted their difficulty in determining 
when the FDCPA applies to a mortgage loan and thus the difficulty they 
would have in

[[Page 72231]]

determining when to send the modified notice.
    Consumer advocacy groups generally supported a requirement that 
borrowers who invoke cease communication protections receive a written 
notice. However, consumer advocacy groups commented that the 
availability of loss mitigation options should not be the condition 
that determines whether a borrower receives the written notice. They 
stated that a servicer may make a mistake in its determination as to 
whether a borrower who has provided a servicer a cease communication 
notification would be eligible for some loss mitigation options. 
Therefore, consumer advocacy groups supported requiring that servicers 
provide a written notice to all borrowers who have invoked cease 
communication rights, regardless of whether loss mitigation options are 
available.
Comments on Frequency of Written Notice
    With respect to the frequency of the written early intervention 
notice, two industry group commenters indicated that, despite the 
option under the current rule to provide the early intervention notice 
no more than once in a 180-day period, servicers find it easier to 
provide the notice more frequently, sometimes monthly. The commenters 
suggested that the rule should allow servicers to provide a written 
notice monthly or once in connection with two missed payments during a 
calendar year to tie the notice requirement to a late payment rather 
than to the time between notices. The same commenters also said that a 
servicer should be permitted to provide a written notice upon the 
borrower's request.
    On the other hand, consumer advocacy groups suggested that, in 
limited circumstances, the Bureau should permit a servicer to provide a 
written early intervention notice more than once during a 180-day 
period. They stated that a servicer should be required to provide a 
written notice more than once during any 180-day period if there has 
been a cure of a default and subsequent re-default by the borrower 
within the 180-day period.
Comments on Safe Harbor and Advisory Opinion
    Industry commenters stated that the Bureau's overall proposed safe 
harbor approach failed to take into account the fluid nature of 
discussions between servicers and borrowers in the loss mitigation 
context. These commenters stated that assessing a borrower's 
eligibility for loss mitigation may require asking the borrower to pay 
a reinstatement amount or otherwise make an immediate payment. One 
industry commenter stated that loss mitigation is itself a form of debt 
collection and that servicing personnel are trained to explore options 
for collection. This commenter suggested that, with respect to any 
specific borrower-initiated communication, the cease communication 
notice should be deemed temporarily or permanently withdrawn. 
Accordingly, industry commenters suggested the Bureau modify the safe 
harbor to cover more discussions of loss mitigation options.
    Although consumer advocacy groups generally supported the proposal 
to require that a servicer provide a written early intervention notice 
to a borrower who has provided the servicer a cease communication 
notification, they opposed the proposed safe harbor from liability 
under the FDCPA. They stated that the proposal appeared to provide 
servicers with blanket FDCPA protection any time they provide a written 
notice required by proposed Sec.  1024.39(d)(2)(iii), under all 
circumstances, regardless of what is contained in the notice. Consumer 
advocacy groups also expressed concern with the proposal's discussion 
of borrower-initiated communications in a separate advisory opinion 
interpreting the FDCPA cease communication requirement. Rather than 
issue a separate advisory opinion interpreting the FDCPA cease 
communication requirement, consumer advocacy groups requested that the 
Bureau issue guidance in Regulation X itself, either as an amendment to 
proposed Sec.  1024.39(d)(2)(i) or in a comment. These consumer 
advocacy groups also opposed the Bureau's plan to provide servicers 
with a safe harbor from liability under the FDCPA for an act done or 
omitted in good faith in conformity with the advisory opinion.
Final Rule
    For the reasons set forth below and in light of the comments 
received, the Bureau is adopting a partial exemption from the early 
intervention requirements for borrowers who have invoked their FDCPA 
cease communication protections as proposed in Sec.  1024.39(d)(2), 
renumbered as Sec.  1024.39(d), with technical corrections and 
modifications to adopt it on a loan level instead of a borrower-
specific level. The Bureau is also adding a new provision that exempts 
a servicer that is a debt collector from providing the written early 
intervention notice with regard to a mortgage loan for which any 
borrower invokes the FDCPA's cease communication protections while any 
borrower on the mortgage loan is a debtor in bankruptcy.
    As finalized, Sec.  1024.39(d) provides that, with regard to a 
mortgage loan for which any borrower has provided a notification 
pursuant to FDCPA section 805(c), a servicer subject to the FDCPA with 
respect to that borrower's loan: (1) Is exempt from the live contact 
requirements of Sec.  1024.39(a); (2) is exempt from the written notice 
requirements of Sec.  1024.39(b) if no loss mitigation option is 
available or while any borrower on that mortgage loan is a debtor in 
bankruptcy under title 11 of the United States Code as referenced in 
Sec.  1024.39(c); and (3) if those conditions are not met (meaning that 
any loss mitigation option is available and no borrower on the mortgage 
loan is a debtor in bankruptcy), must comply with the written notice 
requirements of Sec.  1024.39(b), as modified by new Sec.  
1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of Sec.  
1024.39(b) under these circumstances to provide that, in addition to 
the information required pursuant to Sec.  1024.39(b)(2), the written 
notice must include a statement that the servicer may or intends to 
invoke its specified remedy of foreclosure. Model clause MS-4(D) in 
appendix MS-4 may be used to comply with this requirement.\215\ Revised 
Sec.  1024.39(d)(3) also finalizes two other aspects of the proposed 
rule: (1) The written notice may not contain a request for payment, and 
(2) a servicer is prohibited from providing the written notice more 
than once during any 180-day period.
---------------------------------------------------------------------------

    \215\ To assist servicers that are debt collectors in complying 
with the requirements of new Sec.  1024.39(d)(3), the Bureau is 
adopting model clause MS-4(D), contained in appendix MS-4 to part 
1024. A more detailed discussion of the model clause is contained in 
the section-by-section analysis of appendix MS.
---------------------------------------------------------------------------

    While many mortgage servicers are not subject to the FDCPA, 
mortgage servicers that acquired a mortgage loan at the time that it 
was in default are subject to the FDCPA with respect to that mortgage 
loan. The FDCPA generally grants consumers the right to bar debt 
collectors from communicating with them regarding a debt by sending a 
written cease communication notification pursuant to FDCPA section 
805(c). Section 805(c) of the FDCPA provides that if a consumer refuses 
in writing to pay a debt or requests that a debt collector cease 
communicating with the consumer about the debt, the debt collector must 
discontinue communicating with the consumer, subject to enumerated 
exceptions. However, even after a borrower sends a

[[Page 72232]]

servicer a cease communication notification, a servicer that is a debt 
collector is not categorically barred under the FDCPA from all 
communication with the borrower. FDCPA section 805(c) contains specific 
exceptions that allow further communications with the borrower with 
respect to a debt. As relevant here, the prohibition does not apply 
where a debt collector communicates with a consumer who has invoked the 
cease communication right to notify the consumer that the debt 
collector or creditor may invoke specified remedies which are 
ordinarily invoked by such debt collector or creditor \216\ or, where 
applicable, to notify the consumer that the debt collector or creditor 
intends to invoke a specified remedy.\217\
---------------------------------------------------------------------------

    \216\ FDCPA section 805(c)(2).
    \217\ FDCPA section 805(c)(3).
---------------------------------------------------------------------------

    The Bureau provisionally adopted the exemption in current Sec.  
1024.39(d)(2) in the IFR and indicated that the Bureau expected to 
explore the potential utility and application of such requirements in 
comparison to the FDCPA protections in the future.\218\ The Bureau now 
partially removes the exemption to require that a servicer that is a 
debt collector provide a modified written early intervention notice if 
any loss mitigation option is available and no borrower on the mortgage 
loan is a debtor in bankruptcy. The Bureau is issuing simultaneously 
with this final rule an interpretive rule that constitutes an advisory 
opinion under FDCPA section 813(e) interpreting the section 805(c)(2) 
and (3) exceptions to the cease communication right. No liability 
arises under the FDCPA for an act done or omitted in good faith in 
conformity with an advisory opinion of the Bureau while that advisory 
opinion is in effect.\219\ After careful consideration, the Bureau 
concludes that, because failure to provide the written early 
intervention notice required by Sec.  1024.39(d)(3) is closely linked 
to a servicer's ability to invoke its specified remedy of foreclosure, 
the notice falls within the exceptions in FDCPA sections 805(c)(2) and 
(3).
---------------------------------------------------------------------------

    \218\ 78 FR 62993, 62998-99 (Oct. 23, 2013). As in the IFR, the 
Bureau is not making a determination as to the legal status of the 
requirements under Sec.  1026.20(c) following receipt of proper 
cease communication requests at this time. Therefore, the Bureau 
continues to encourage servicers to provide ARM payment adjustment 
notices to the extent that the FDCPA permits. See 78 FR 62993, 62999 
(Oct. 23, 2013).
    \219\ FDCPA section 813(e).
---------------------------------------------------------------------------

39(d)(1)
    The Bureau is adopting proposed Sec.  1024.39(d)(2)(i) generally as 
proposed, renumbered as Sec.  1024.39(d)(1), with modifications to 
adopt the exemption on a loan level. Accordingly, new Sec.  
1024.39(d)(1) maintains the current exemption from the live contact 
requirements of Sec.  1024.39(a) for a servicer subject to the FDCPA 
with respect to a borrower's mortgage loan for which any borrower has 
provided a cease communication notification under FDCPA section 805(c). 
For reasons similar to those explained in the section-by-section 
analysis of Sec.  1024.39(c), the Bureau is adopting this partial 
exemption on a loan level to ease servicer burden and facilitate 
servicer compliance.
    As the Bureau explained in the proposal, the Bureau understands 
that the nature of live contact and the information conveyed may be 
highly variable. The information conveyed, the manner for conveying 
that information, and whether any loss mitigation information is 
conveyed depends on the borrower's circumstances, the servicer's 
perception of those circumstances, and the servicer's exercise of 
reasonable discretion.\220\ The servicer may contact the borrower in 
person, by telephone, or not at all, if the servicer's good faith 
efforts to reach the borrower fail.\221\ By their nature, discussions 
or conversations resulting from live contact are not and cannot be 
closely prescribed.\222\ Such variability is inconsistent with the 
narrow exceptions in FDCPA section 805(c)(2) and (3), which permit a 
debt collector to communicate further with a borrower for extremely 
limited purposes after a borrower has provided a servicer a cease 
communication notification. Because the information conveyed and the 
manner for conveying such information may be highly variable in the 
context of live contact, the Bureau concludes that requiring a servicer 
that is a debt collector to comply with the live contact requirements 
with regard to a mortgage loan for which a borrower has provided a 
notification pursuant to FDCPA section 805(c) is inappropriate and may 
put a servicer subject to the FDCPA with respect to that borrower's 
loan at risk of violating the FDCPA. The Bureau adopts no general rule 
about whether oral versus written communications are more likely to 
violate the FDCPA but notes only that the live contact requirements of 
Sec.  1024.39(a) are less susceptible to standard, uniform delivery in 
compliance with the cease communication exceptions in FDCPA section 
805(c)(2) and (3) than are the modified written early intervention 
notice requirements required under this final rule.
---------------------------------------------------------------------------

    \220\ See current comment 39(a)-3.i, which this final rule 
renumbers as comment 39(a)-4.i.
    \221\ See current comment 39(a)-2 (``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.''). This final rule moves this language into 
comment 39(a)-3.
    \222\ See 78 FR 10695, 10793 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau also concludes that live contact may be of less value to 
a delinquent borrower who has properly invoked the FDCPA's cease 
communication protections. Compliance with the live contact 
requirements in Sec.  1024.39(a) is not limited to, and does not in 
every case require, a discussion of available loss mitigation options. 
Section 1024.39(a) requires that a servicer inform the borrower about 
the availability of loss mitigation options, ``if appropriate.'' More 
broadly, comment 39(a)-2 states that live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's delinquency, 
and, based on this discussion, a servicer may determine not to inform a 
borrower of loss mitigation options. As current comment 39(a)-3.i 
explains, servicers have discretion to determine whether informing a 
borrower about the availability of loss mitigation options is 
appropriate under the circumstances. A servicer may determine that 
promptly informing the borrower about the availability of loss 
mitigation options is not appropriate under certain circumstances. 
Current comment 39(a)-3.i.B provides an example of a servicer's 
reasonable determination not to 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.\223\ The purpose of such 
a conversation could be to remind a borrower who perhaps inadvertently 
missed a payment of a past due amount, or to give the servicer an 
opportunity to discuss when the borrower may cure a temporary 
delinquency, but the conversation need not involve a discussion of loss 
mitigation options.
---------------------------------------------------------------------------

    \223\ This final rule renumbers current comment 39(a)-3.iB as 
comment 39(a)-4.i.B.
---------------------------------------------------------------------------

    The early intervention live contact requirement is a recurring 
obligation that generally requires servicers to make continued efforts 
to establish live contact with a borrower so long as a borrower remains 
delinquent.\224\ A

[[Page 72233]]

borrower who has provided a servicer a cease communication notification 
may perceive a servicer's early intervention live contact under Sec.  
1024.39(a) as an intrusive and unwanted communication. The Bureau 
concludes that repeated attempts to establish live contact, which may 
not lead to a discussion of available loss mitigation options, with a 
borrower who has instructed a servicer that is a debt collector to stop 
communicating with the borrower about the debt pursuant to the FDCPA 
may be unwanted and in contravention of the purposes of the FDCPA's 
cease communication protections. Therefore, the Bureau is finalizing 
proposed Sec.  1024.39(d)(2)(i) in new Sec.  1024.39(d)(1) to maintain 
the current exemption from the live contact requirements of Sec.  
1024.39(a) for a servicer subject to the FDCPA with respect to a 
borrower's mortgage loan for which any borrower has provided a cease 
communication notification under FDCPA section 805(c) with regard to 
that mortgage loan.
---------------------------------------------------------------------------

    \224\ See Bureau of Consumer Fin. Prot., CFPB Bulletin 2013-12, 
Implementation Guidance for Certain Mortgage Servicing Rules (Oct. 
15, 2013), available at https://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf; section-by-section 
analysis of Sec.  1024.39(a), supra.
---------------------------------------------------------------------------

39(d)(2)
    The Bureau is adopting proposed Sec.  1024.39(d)(2)(ii), renumbered 
as Sec.  1024.39(d)(2), to exempt a servicer from the written notice 
requirements of Sec.  1024.39(b) with regard to a mortgage loan for 
which any borrower has provided a notification pursuant to FDCPA 
section 805(c) if no loss mitigation option is available, or while any 
borrower on that mortgage loan is a debtor in bankruptcy under title 11 
of the United States Code as referenced in Sec.  1024.39(c). In the 
limited circumstances where no loss mitigation option is available, the 
Bureau believes that the written notice may be of significantly less 
value to a borrower and is not as closely tied to the servicer's right 
to invoke foreclosure due to the limited impact of the dual tracking 
restrictions in the absence of loss mitigation options. The Bureau 
considered comments that it should require the written early 
intervention notice for all borrowers who have exercised cease 
communication rights under the FDCPA, regardless of whether any loss 
mitigation option is available. However, the Bureau concludes that it 
is not appropriate to require servicers that are debt collectors to 
provide the written early intervention notice to borrowers who have 
exercised their FDCPA cease communication rights if no loss mitigation 
option is available. In light of these considerations, if no loss 
mitigation option is available, the Bureau retains the exemption from 
the requirements of Sec.  1024.39(b) for a servicer subject to the 
FDCPA with respect to a mortgage loan for which any borrower has 
provided a cease communication notification with regard to that 
mortgage loan. The Bureau adopts this exemption on a loan level to ease 
servicer burden and further facilitate servicer compliance as explained 
in the section-by-section analysis of Sec.  1024.39(c).
Overlap Between Borrowers in Bankruptcy and FDCPA Rationale
    Additionally, revised Sec.  1024.39(d)(2) exempts a servicer from 
the written notice requirements of Sec.  1024.39(b) with regard to a 
mortgage loan for which any borrower has provided a notification 
pursuant to FDCPA section 805(c) while any borrower on the mortgage 
loan is a debtor in bankruptcy under title 11 of the United States Code 
as referenced in Sec.  1024.39(c). Based on the comments received and 
for the reasons set forth in the section-by-section analysis of Sec.  
1024.39(c), the Bureau declines to finalize proposed comment 
39(d)(2)(iii)-2, which would have explained that a servicer subject to 
the FDCPA with respect to a borrower who invokes the FDCPA's cease 
communication protections and is also a debtor in bankruptcy would only 
be required to provide the modified written early intervention notice 
if the borrower is represented by a person authorized to communicate 
with the servicer on the borrower's behalf. Comment 39(d)(2)-1 explains 
that to the extent the FDCPA applies to a servicer's communications 
with a borrower and the borrower has provided a notification pursuant 
to FDCPA section 805(c) notifying the servicer that the borrower 
refuses to pay a debt or that the borrower wishes the servicer to cease 
further communications, with regard to that mortgage loan, Sec.  
1024.39(d)(2) exempts a servicer from providing the written notice 
required by Sec.  1024.39(b) while any borrower on the mortgage loan is 
also a debtor in bankruptcy under title 11 of the United States Code. 
Comment 39(d)(2)-1 also cites the illustrative example in comment 
39(c)(1)(ii)-1.ii for further guidance.
39(d)(3)
    New Sec.  1024.39(d)(3) provides that with regard to a mortgage 
loan for which any borrower has provided a notification pursuant to 
FDCPA section 805(c), a servicer subject to the FDCPA with respect to 
that borrower's loan must comply with the requirements of Sec.  
1024.39(b), as modified by new Sec.  1024.39(d)(3), if the conditions 
of Sec.  1024.39(d)(2) are not met. Therefore, if any loss mitigation 
option is available and no borrower on the mortgage loan is a debtor in 
bankruptcy, a servicer that is a debt collector is required to provide 
the modified written early intervention notice described in Sec.  
1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of Sec.  
1024.39(b) under these circumstances to provide that, in addition to 
the information required pursuant to Sec.  1024.39(b)(2), the written 
notice must include a statement that the servicer may or intends to 
invoke its specified remedy of foreclosure. Model clause MS-4(D) in 
appendix MS-4 to this part may be used to comply with this 
requirement.\225\ Revised Sec.  1024.39(d)(3) also finalizes two other 
aspects from the proposed rule: (1) The written notice may not contain 
a request for payment, and (2) a servicer is prohibited from providing 
the written notice more than once during any 180-day period.
---------------------------------------------------------------------------

    \225\ To assist servicers that are debt collectors in complying 
with the requirements of new Sec.  1024.39(d)(3), the Bureau is 
adopting model clause MS-4(D), contained in appendix MS-4 to part 
1024. A more detailed discussion of the model clause is contained in 
the section-by-section analysis of appendix MS.
---------------------------------------------------------------------------

    The Bureau concludes that, because failure to provide the written 
early intervention notice required by Sec.  1024.39(d)(3) is closely 
linked to a servicer's ability to invoke its specified remedy of 
foreclosure, the notice falls within the exceptions to FDCPA section 
805(c)(2) and (3). A servicer is legally required to provide a 
delinquent borrower with the written notice not later than the 45th day 
of the borrower's delinquency under current Sec.  1024.39(b). As a 
general matter, this written notice must be provided well before the 
servicer may initiate foreclosure: In most cases, the servicer is 
legally required to wait until a borrower's mortgage loan obligation is 
more than 120 days delinquent, after the written notice has been sent, 
to make the first notice or filing to initiate the foreclosure 
process.\226\ As the Bureau explained in the 2013 RESPA Servicing Final 
Rule, the purpose of the written notice is to provide more information 
to a borrower who has not cured by the 45th day of delinquency. 
Additionally, the written notice generally provides more information 
than likely would have been provided through live contact and provides 
the borrower with information that may be reviewed and discussed

[[Page 72234]]

with a housing counselor or other advisor.\227\
---------------------------------------------------------------------------

    \226\ See Sec.  1024.41(f)(1)(i); but see Sec.  
1024.41(f)(1)(ii) and (iii) (``The foreclosure is based on a 
borrower's violation of a due-on-sale clause; or The servicer is 
joining the foreclosure action of a subordinate lienholder.'').
    \227\ See 78 FR 10695, 10796-97 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau understands that, in most cases, there may be some loss 
mitigation option available. Therefore, in most cases, a borrower who 
exercised the cease communication right will receive the written early 
intervention notice and will have an opportunity to respond to the 
written notice by applying for loss mitigation, should the borrower so 
choose. Where a borrower responds to the written notice by applying for 
loss mitigation, the dual tracking restrictions of the 2013 RESPA 
Servicing Final Rule apply, further limiting the servicer's ability to 
invoke the remedy of foreclosure. Pursuant to Sec.  1024.41(f)(2) and 
(g), respectively, a servicer may not make the first notice or filing 
for foreclosure if a borrower submits a complete loss mitigation 
application before foreclosure referral and cannot move for foreclosure 
judgment or order of sale or conduct a foreclosure sale if a borrower 
submits a complete loss mitigation application more than 37 days before 
a foreclosure sale.
    The failure to provide a borrower with the written early 
intervention notice may impede a servicer's ability to invoke 
foreclosure, particularly if any loss mitigation option is available. 
For example, because failure to provide a borrower with the written 
early intervention notice may result in borrowers submitting requests 
for loss mitigation at a later point in time and presumably closer to 
the foreclosure sale, failure to provide the written early intervention 
notice may delay or otherwise interfere with the servicer's exercise of 
its specified remedy of foreclosure (for example, when the servicer is 
required to forego making a motion for judgment of sale or conducting 
the sale after receiving the borrower's complete loss mitigation 
application). In addition, the Bureau understands that some States 
require documentation of a servicer's efforts to modify the loan or 
require a servicer to provide the borrower with information 
substantially similar to the written early intervention notice prior to 
initiating foreclosure or conducting a foreclosure sale (e.g., 
California, Illinois). Therefore, when any loss mitigation option is 
available, the Bureau concludes that the written early intervention 
notice falls within the exceptions to FDCPA section 805(c)(2) and (3) 
because failure to provide the notice required by Sec.  1024.39(d)(3) 
is closely linked to a servicer's ability to invoke its specified 
remedy of foreclosure. As discussed below, the Bureau is concurrently 
issuing an interpretive rule that explains that this interpretation is 
limited to the specific situation where a servicer that is a debt 
collector is required by Sec.  1024.39(d)(3) to provide a modified 
written early intervention notice to a borrower who has invoked the 
cease communication right under FDCPA section 805(c). It is a narrow 
safe harbor, based only upon the interplay between these two specific 
Federal consumer protections--the early intervention requirements of 
Sec.  1024.39 of Regulation X and the cease communication provision and 
statutory exceptions of section 805(c) of the FDCPA. All other 
provisions of the FDCPA, including the prohibitions contained in FDCPA 
sections 805 through 808, are unaffected by this interpretation and a 
servicer remains liable to the extent that anything in the notice 
violates any other provision of the FDCPA.\228\
---------------------------------------------------------------------------

    \228\ For example, servicers that are debt collectors must not: 
Engage in conduct the natural consequence of which is to harass, 
oppress, or abuse any person in connection with the collection of a 
debt; use any false, deceptive, or misleading representation or 
means in connection with the collection of a debt; or use unfair or 
unconscionable means to collect or attempt to collect any debt.
---------------------------------------------------------------------------

    If any loss mitigation option is available, as will generally be 
the case, the written early intervention notice may also be of 
significant value to borrowers, in addition to being closely linked to 
a servicer's ability to invoke its specified remedy of foreclosure. The 
Bureau has stated that the early intervention notice requirements were 
designed primarily to encourage delinquent borrowers to work with their 
servicers to identify options for avoiding foreclosure.\229\ 
Specifically, the content of the written early intervention notice, 
including the statement providing a brief description of examples of 
loss mitigation options that may be available from the servicer and the 
application instructions or a statement informing the borrower how to 
obtain more information about loss mitigation options from the 
servicer, may be of particular value and relevance to a delinquent 
borrower facing debt collection in informing the borrower of 
potentially available loss mitigation options.
---------------------------------------------------------------------------

    \229\ Id. at 10787.
---------------------------------------------------------------------------

    Given its broad experience with consumers in debt, facing 
foreclosure, or dealing with other financial difficulties, the Bureau 
is issuing an interpretive rule that constitutes an advisory opinion 
under FDCPA section 813(e) explaining that, because failure to provide 
the written early intervention notice required by Sec.  1024.39(d)(3) 
is closely linked to a servicer's ability to invoke its specified 
remedy of foreclosure, the Bureau concludes that the notice falls 
within the exceptions to FDCPA section 805(c)(2) and (3). The Bureau 
concludes that, in the limited circumstances where a servicer is 
subject to the FDCPA with respect to a borrower's mortgage loan and the 
borrower has invoked the cease communication right pursuant to FDCPA 
section 805(c) with regard to that mortgage loan, and where the 
servicer complies with the requirements of the modified written early 
intervention notice under Sec.  1024.39(d)(3) of Regulation X, the 
modified written early intervention notice required under Sec.  
1024.39(d)(3) is within the statutory exceptions of FDCPA section 
805(c)(2) and (3) and thus does not violate section 805(c) with respect 
to the mortgage loan.
    The Bureau has also learned that consumer advocates, in some cases, 
may be advising borrowers to refrain from providing servicers cease 
communication notifications pursuant to FDCPA section 805(c) in order 
to preserve access to information about loss mitigation and to continue 
to receive early intervention communications from servicers. Borrowers 
should not have to choose between exercising their cease communication 
rights to be free from debt collection communications and obtaining 
information about potential loss mitigation options that could allow 
them to resolve the underlying delinquency.
    The Bureau believes that servicers should be able to determine when 
the FDCPA applies to a mortgage loan. Regardless of the requirement in 
new Sec.  1024.39(d)(3), servicers that are debt collectors must make 
this determination in order to comply with the FDCPA, including, for 
example, to provide the borrower a validation notice.\230\ 
Additionally, the Bureau's servicer outreach confirmed that servicers 
are able to designate whether accounts in their systems are subject to 
the FDCPA. Identifying mortgage loans to which the FDCPA applies 
imposes no burdens beyond those required by existing law.
---------------------------------------------------------------------------

    \230\ See FDCPA section 809(a).
---------------------------------------------------------------------------

    Servicers that are debt collectors may use model clause MS-4(D) in 
appendix MS-4 for the required statement that a servicer may or intends 
to invoke its specified remedy of foreclosure. As discussed in the 
section-by-section analysis of appendix MS-4 and in the FDCPA 
interpretive rule accompanying this final rule, use of this model 
clause or another statement in compliance with Sec.  1024.39(d)(3)(i), 
on a written notice as required by and in compliance with the

[[Page 72235]]

other requirements of Sec.  1024.39(d)(3), provides a safe harbor from 
FDCPA liability under section 805(c) for providing the required 
statement.\231\ The Bureau believes that any operational burdens 
associated with including this statement on the written notice will be 
minimal.
---------------------------------------------------------------------------

    \231\ See comment appendix MS to part 1024-2 (describing 
permissible changes to the model forms and clauses in appendix MS to 
part 1024).
---------------------------------------------------------------------------

    The Bureau intends this interpretation for a servicer subject to 
the FDCPA with respect to a borrower who has invoked the FDCPA's cease 
communication protections to be limited to the precise parameters of 
the legal and factual situation described by the Bureau. Accordingly, 
the Bureau intends this interpretation to be narrow and based only upon 
the interplay between two specific Federal consumer protections--the 
early intervention requirements of Sec.  1024.39 of Regulation X and 
the cease communication provision and statutory exceptions of section 
805(c) of the FDCPA. The Bureau concludes that, in the limited 
circumstance where a mortgage servicer is subject to the FDCPA with 
respect to a borrower's mortgage loan, and the borrower has provided 
the servicer a cease communication notification with regard to that 
mortgage loan, the written early intervention notice falls within the 
exceptions to FDCPA section 805(c)(2) and (3) because failure to 
provide the notice required by Sec.  1024.39(d)(3) is closely linked to 
a servicer's ability to invoke its specified remedy of foreclosure.
    The Bureau reminds servicers that they may only rely on the 
exemptions in new Sec.  1024.39(d)(1) and (2) if both the servicer is 
subject to the FDCPA with respect to a borrower, meaning that the 
servicer of a defaulted mortgage loan is also acting as a debt 
collector under section 803(6) of the FDCPA (i.e., the servicer 
acquired the mortgage at the time that it was in default), and the 
borrower has properly provided the servicer a timely, written cease 
communication notification under section 805(c) of the FDCPA. 
Therefore, even if a servicer receives a written cease communication 
notification from a borrower, if the servicer is not also acting as a 
debt collector for purposes of the FDCPA with respect to that 
borrower's mortgage loan, the servicer must continue to comply with all 
of the early intervention requirements under Sec.  1024.39 for that 
loan.
    The Bureau has narrowly tailored this final rule and the 
accompanying interpretation to reduce the risk that servicers will 
circumvent a borrower's cease communication rights. Additionally, this 
final rule relates only to the modified written early intervention 
notice, while maintaining the exemption for early intervention live 
contact and the exemption for the written notice if no loss mitigation 
option is available. If no loss mitigation option is available or while 
any borrower on a mortgage loan is a debtor in bankruptcy if any 
borrower has invoked the cease communication right with respect to that 
loan, this final rule leaves the current exemption in place. 
Furthermore, this final rule requires that the modified written early 
intervention notice include a statement that the servicer may or 
intends to invoke its specified remedy of foreclosure, provides the 
written notice may not contain a request for payment, and prohibits a 
servicer from providing the written notice more than once during any 
180-day period.
    The Bureau considered comments that the Bureau should permit a 
servicer to provide the written notice more than once during any 180-
day period for a borrower that cures and subsequently redefaults or 
that a servicer should be permitted to provide the written notice as 
often as monthly. However, the Bureau is concerned that a frequent, 
repeated notice may undermine a borrower's cease communication right. 
Limiting the final rule in this manner reduces the risk that the 
modified written early intervention notice will be used to undermine a 
borrower's cease communication right under FDCPA section 805(c). In 
response to one commenter's suggestion that servicers should be 
permitted to provide the written notice upon a borrower's request even 
if that were to result in providing more than one notice in any 180-day 
period, the Bureau notes that under the final rule, a servicer is not 
prohibited from providing the written notice at the borrower's request 
and must do so under Sec.  1024.36 if the borrower properly submits a 
request for information regarding the notice.
    The Bureau also considered a commenter's request that the Bureau 
issue guidance in Regulation X itself interpreting the FDCPA cease 
communication requirement rather than issue a separate advisory 
opinion. In addition to issuing the interpretive rule, the Bureau is 
also providing guidance in Regulation X comment 39(d)-2. The same 
commenter opposed the Bureau's proposed advisory opinion that would 
have provided a safe harbor from liability under the FDCPA for an act 
done or omitted in good faith in conformity with that advisory opinion. 
The Bureau notes, as further discussed above, that the safe harbor is 
limited to the precise factual and legal situation described and that 
the safe harbor is only granted to the extent the communication is 
required by and in compliance with Sec.  1024.39(d)(3). Moreover, the 
safe harbor is limited to the cease communication provision in FDCPA 
section 805(c) and does not extend to other sections of the FDCPA. The 
Bureau determines that the safe harbor is necessary to facilitate 
servicer compliance with this provision and ensure that borrowers 
receive information about potentially available loss mitigation 
options.
    Final Sec.  1024.39(d)(3) requires that servicers that are debt 
collectors provide a modified form of the written early intervention 
notice to borrowers who have exercised their cease communication 
rights. To assist servicers in determining whether any loss mitigation 
option is available, the Bureau is adopting new comment 39(d)-1. New 
comment 39(d)-1 explains that Sec.  1024.39(d)(2) exempts a servicer 
that is a debt collector from providing the written notice required by 
Sec.  1024.39(b) if no loss mitigation option is available. New comment 
39(d)-1 further provides that a loss mitigation option is available if 
the owner or assignee of a mortgage loan offers an alternative to 
foreclosure that is made available through the servicer and for which a 
borrower may apply, even if the borrower ultimately does not qualify 
for such option. As explained in the section-by-section analysis of 
Sec.  1024.39(b)(2), the Bureau is adopting new comment 39(d)-1 instead 
of proposed comment 39(b)(2)-4.
    The Bureau is finalizing proposed comment 39(d)(2)(iii)-1 in new 
comment 39(d)-2 with additional clarifications related to borrower-
initiated communications as well as the restrictions contained in FDCPA 
sections 805 through 808. Revised comment 39(d)-2 offers servicers 
additional guidance on compliance with the modified written early 
intervention notice required by new Sec.  1024.39(d)(3). As finalized, 
the comment explains that, to the extent the FDCPA applies to a 
servicer's communications with a borrower, a servicer does not violate 
FDCPA section 805(c) by providing the written notice required by Sec.  
1024.39(b) as modified by Sec.  1024.39(d)(3) after a borrower has 
provided a notification pursuant to FDCPA section 805(c) with respect 
to that borrower's loan. New comment 39(d)-2 also provides that a 
servicer does not violate FDCPA section 805(c) by providing loss 
mitigation information or assistance in response to a borrower-
initiated communication after the borrower has invoked the cease

[[Page 72236]]

communication right under FDCPA section 805(c). Finally, new comment 
39(d)-2 notes that a servicer subject to the FDCPA must continue to 
comply with all other applicable provisions of the FDCPA, including 
other restrictions on communications and prohibitions on harassment or 
abuse, false or misleading representations, and unfair practices as 
contained in FDCPA sections 805 through 808 (15 U.S.C. 1692c through 
1692f).
    Borrower-initiated communications for purposes of loss mitigation 
after invocation of cease communication rights. The Bureau is also 
issuing concurrently with this final rule an interpretive rule that 
constitutes an advisory opinion under FDCPA section 813(e) interpreting 
the cease communication provision of section 805(c) of the FDCPA in 
relation to the early intervention requirements of Sec.  1024.39 of 
Regulation X. No liability arises under the FDCPA for an act done or 
omitted in good faith in conformity with an advisory opinion of the 
Bureau while that advisory opinion is in effect.\232\
---------------------------------------------------------------------------

    \232\ FDCPA section 813(e).
---------------------------------------------------------------------------

    Section 805(c) of the FDCPA empowers borrowers to direct debt 
collectors to cease contacting them with respect to a debt and thereby 
frees borrowers from the burden of being subject to unwanted 
communications regarding collection of a debt. Even after a borrower 
has invoked the cease communication right under section 805(c) of the 
FDCPA, the borrower may contact the servicer to discuss or apply for 
loss mitigation. For instance, as noted above, Sec.  1024.39(d)(3) 
requires servicers that are debt collectors to provide a written early 
intervention notice to borrowers who have invoked the FDCPA's cease 
communication right if any loss mitigation option is available and no 
borrower on the mortgage loan is a debtor in bankruptcy under title 11 
of the United States Code. The written notice must include a statement 
encouraging borrowers to contact the servicer.\233\ The Bureau believes 
that, when borrowers respond to such a notice by contacting the 
servicer to discuss available loss mitigation options or otherwise 
initiate communication with the servicer concerning loss mitigation, 
such a borrower-initiated communication should not be understood as 
within the category of communication that borrowers generally preclude 
by invoking the cease communication right under FDCPA section 805(c). 
The Bureau therefore concludes that a borrower's invocation of the 
FDCPA's cease communication right does not prevent a servicer that is a 
debt collector from responding to borrower-initiated communications 
concerning loss mitigation.
---------------------------------------------------------------------------

    \233\ See 12 CFR 1024.39(b)(2)(i).
---------------------------------------------------------------------------

    Borrower-initiated communications are by their nature wanted 
communications. Moreover, borrower-initiated communications about loss 
mitigation options do not give rise to the burden of unwanted 
communications that FDCPA section 805(c) protects against and may 
provide valuable information to borrowers. Rather they are sought out 
by borrowers for this narrow purpose. Under the Bureau's 
interpretation, a borrower's cease communication notification pursuant 
to FDCPA section 805(c) should ordinarily be understood to exclude 
borrower-initiated communications with a servicer that is a debt 
collector concerning loss mitigation because the borrower has 
specifically requested the communication at issue to discuss available 
loss mitigation options. Accordingly, when a servicer that is a debt 
collector responds to a borrower-initiated communication concerning 
loss mitigation after the borrower's invocation of FDCPA section 
805(c)'s cease communication protection, the servicer does not violate 
FDCPA section 805(c) with respect to such communications as long as the 
servicer's response is limited to a discussion of any potentially 
available loss mitigation option. For example, a servicer may discuss 
with a borrower any available loss mitigation option that the owner or 
assignee of the borrower's mortgage loan offers, instructions on how 
the borrower can apply for loss mitigation, what documents and 
information the borrower would need to provide to complete a loss 
mitigation application, and the potential terms or details of a loan 
modification program, including the monthly payment and duration of the 
program. These borrower-initiated communications, although variable, 
are unlikely to be perceived as within the scope of the cease 
communication request given the borrower's initiation of communications 
concerning loss mitigation information.
    However, the Bureau's interpretation does not protect a servicer 
that is a debt collector from using such borrower-initiated 
communications concerning loss mitigation as a pretext for debt 
collection in circumvention of a borrower's invoked cease communication 
right under FDCPA section 805(c). Seeking to collect a debt under the 
guise of a loss mitigation conversation is not exempt from liability 
under FDCPA section 805(c) under the Bureau's interpretation. Thus, in 
subsequently communicating with a borrower concerning loss mitigation, 
a servicer that is a debt collector is strictly prohibited from making 
a request for payment or a suggestion of payment that is not 
immediately related to any specific loss mitigation option. Some 
examples of impermissible communications include initiating 
conversations with the borrower related to repayment of the debt that 
are not for the purpose of loss mitigation, demanding that the borrower 
make a payment, requesting that the borrower bring the account current 
or make a partial payment on the account, or attempting to collect the 
outstanding balance or arrearage, unless such communications are 
immediately related to a specific loss mitigation option.\234\ The 
Bureau reiterates that servicers that are debt collectors may not 
misuse borrower-initiated communications concerning loss mitigation as 
an opportunity or pretext to direct or steer borrowers to a discussion 
of repayment or collection of the debt in circumvention of a borrower's 
cease communication protection. Additionally, a servicer that is a debt 
collector may not begin or resume contacting the borrower in 
contravention of the cease communication notification, unless the 
borrower consents to limit a prior cease communication request. As 
discussed above, all other provisions of the FDCPA, including 
restrictions on communications and prohibitions on harassment or abuse, 
false or misleading representations, and unfair practices as contained 
in sections 805 through 808 of the FDCPA, remain intact.
---------------------------------------------------------------------------

    \234\ See 53 FR 50097, 50103 (Dec. 13, 1988) (Section 805(c)-2 
of the Federal Trade Commission's (FTC) Official Staff Commentary on 
FDCPA section 805(c)) (``A debt collector's response to a `cease 
communication' notice from a consumer may not include a demand for 
payment, but is limited to the three statutory exceptions [under 
FDCPA section 805(c)(1) through (3)].'').
---------------------------------------------------------------------------

    The Bureau considered concerns expressed by commenters related to 
the fluid nature of loss mitigation discussions with borrowers. The 
Bureau notes that this interpretation provides a safe harbor from FDCPA 
section 805(c) for servicers that are debt collectors communicating 
with the borrower in connection with a borrower's initiation of 
communications concerning loss mitigation. Preceding a borrower's loss 
mitigation application and during the evaluation process, a servicer 
that is a debt collector may respond to borrower inquiries about 
potentially available loss mitigation options and provide information 
regarding any available option. Similarly, if that borrower

[[Page 72237]]

submits a loss mitigation application, the servicer's reasonable 
diligence obligations under Sec.  1024.41(b)(1) require the servicer to 
request additional information from the borrower, including by 
contacting the borrower, and these communications by the servicer to 
complete a loss mitigation application do not fall within the cease 
communication prohibition. The servicer may also seek information that 
will be necessary to evaluate that borrower for loss mitigation, though 
the servicer may not seek a payment unrelated to the purpose of loss 
mitigation. Additionally, once the borrower's loss mitigation 
application is complete, a servicer's communications with a borrower in 
accordance with the procedures in Sec.  1024.41 are not subject to 
liability under FDCPA section 805(c) because they arise from the 
borrower's application for loss mitigation. These communications 
include, for example, notifying the borrower of the servicer's 
determination of which loss mitigation options, if any, it will offer 
to the borrower, notifying the borrower of a denial for any trial or 
permanent loan modification option available, and notifying the 
borrower of whether the servicer will offer the borrower a loss 
mitigation option based upon an appeal.
    The Bureau considered one commenter's suggestion that, with respect 
to any specific borrower-initiated communication, the borrower's cease 
communication request should be considered temporarily or permanently 
withdrawn during this period. The Bureau declines to adopt this 
approach. Instead, as the Bureau explained in the proposal, the Bureau 
believes that a borrower's cease communication notification pursuant to 
the FDCPA should ordinarily be understood to exclude borrower-initiated 
communications with a servicer for the purposes of loss mitigation, 
because the borrower has specifically requested the communication at 
issue. As the Bureau explained in the October 2013 Servicing Bulletin, 
even if the borrower provides a cease communication notification during 
the loss mitigation application and evaluation process under Sec.  
1024.41, the borrower usually should be understood to have excluded the 
loss mitigation application and evaluation process under Sec.  1024.41 
from the general request to cease communication, and therefore a 
servicer that is a debt collector should continue to comply with the 
procedures under Sec.  1024.41. Thus, only if the borrower provides a 
communication to the servicer specifically withdrawing the request for 
loss mitigation does the cease communication prohibition apply to 
communicating about the specific loss mitigation action.\235\
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    \235\ See Implementation Guidance for Certain Mortgage Servicing 
Rules, CFPB Bulletin 2013-12 (Oct. 15, 2013), available at https://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
---------------------------------------------------------------------------

    Commenters requested clarity regarding a servicer's request that a 
borrower make a payment as a requirement or condition of a loss 
mitigation program and whether those requests would be covered under 
the safe harbor from FDCPA liability. One commenter explained that a 
servicer may request that a borrower make a payment as part of a loss 
mitigation program, including, for example, a reinstatement amount 
towards a repayment, forbearance, or trial modification plan. The 
Bureau understands that a servicer's discussions of an available loss 
mitigation option with a borrower may often require the servicer to 
assess a borrower's eligibility for a specific program and determine 
whether the borrower can afford to make a payment. The Bureau 
emphasizes, however, that the cease communication prohibition continues 
to apply to a servicer's communications with a borrower about payment 
of the mortgage loan that are outside the scope of loss mitigation 
conversations. The Bureau recognizes that in order for a borrower to 
engage in meaningful loss mitigation discussions with a servicer, the 
servicer may discuss repayment options, the borrower's ability to make 
a payment, and how much the borrower can afford to pay as part of a 
loss mitigation option for which the servicer is considering the 
borrower. Furthermore, the Bureau understands that any offer for a loan 
modification or repayment plan is likely to include a specific payment 
amount the borrower must pay under the terms of the loss mitigation 
agreement. Such communications, as long as for the purpose of loss 
mitigation, are permissible because they should not be understood as 
within the scope of the cease communication request.
Legal Authority
    The Bureau is exercising its authority under sections 6(j)(3) and 
19(a) of RESPA to exempt from the early intervention live contact 
requirements in Sec.  1024.39(a) a servicer that is subject to the 
FDCPA with respect to a mortgage loan for which any borrower has 
exercised the FDCPA's cease communication right with regard to that 
mortgage loan. For the reasons discussed above, the Bureau concludes 
that the consumer protection purposes of RESPA would not be furthered 
by requiring compliance with Sec.  1024.39(a) at a time when a borrower 
has specifically requested that the servicer stop communicating with 
the borrower about the debt. Accordingly, the Bureau implements new 
Sec.  1024.39(d)(1) pursuant to its authority under sections 6(j)(3) 
and 19(a) of RESPA.
    The Bureau is also exercising its authority under sections 6(j)(3) 
and 19(a) of RESPA to exempt from the written early intervention notice 
requirements in Sec.  1024.39(b) a servicer that is subject to the 
FDCPA with respect to a mortgage loan for which any borrower has 
exercised the FDCPA's cease communication right with regard to that 
mortgage loan if no loss mitigation option is available or while any 
borrower on the mortgage loan is a debtor in bankruptcy. For the 
reasons discussed above, the Bureau concludes that the consumer 
protection purposes of RESPA would not be furthered by requiring 
compliance with Sec.  1024.39(b) at a time when a borrower has 
specifically requested that the servicer stop communicating with the 
borrower about the debt and no loss mitigation option is available, or 
while any borrower on the mortgage loan is a debtor in bankruptcy. 
Accordingly, the Bureau implements new Sec.  1024.39(d)(2) pursuant to 
its authority under sections 6(j)(3) and 19(a) of RESPA.
    The Bureau is exercising its authority under section 6(k)(1)(E) of 
RESPA to add new Sec.  1024.39(d)(3). The Bureau has authority to 
implement requirements for servicers to provide information about 
borrower options pursuant to section 6(k)(1)(E) of RESPA. In order for 
borrowers to have a meaningful opportunity to avoid foreclosure, they 
must timely receive information about loss mitigation options and the 
foreclosure process, housing counselors and State housing finance 
authorities, and disclosures encouraging servicers to work with 
borrowers to identify any appropriate loss mitigation options.\236\
---------------------------------------------------------------------------

    \236\ See 77 FR 57199, 57260 (Sept. 17, 2012).
---------------------------------------------------------------------------

    The Bureau also exercises its authority to prescribe rules with 
respect to the collection of debts by debt collectors pursuant to 
section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). Pursuant to this 
authority, the Bureau is clarifying a borrower's cease communication 
protections under the FDCPA. Section 805(c) of the FDCPA sets forth 
both the cease communication requirement and its exceptions. Under 
section 805(c)(2) and (3) of the FDCPA, a borrower's cease 
communication request does not prohibit a debt

[[Page 72238]]

collector from communicating with the borrower to notify the consumer 
that the debt collector or creditor may invoke specified remedies which 
are ordinarily invoked by such debt collector or creditor or, where 
applicable, to notify the consumer that the debt collector or creditor 
intends to invoke a specified remedy. For the reasons given above, the 
Bureau is interpreting section 805(c)(2) and (3) of the FDCPA to 
require a servicer to provide the written early intervention notice if 
any loss mitigation option is available and no borrower on the mortgage 
loan is a debtor in bankruptcy. The Bureau concludes that because the 
written early intervention notice will generally be closely linked to 
the invocation of foreclosure, such a notice informs a borrower that 
the servicer may invoke or intends to invoke the specified remedy of 
foreclosure and thus falls within the scope of the exceptions under 
section 805(c)(2) and (3) of the FDCPA. Accordingly, the Bureau 
implements new Sec.  1024.39(d)(3) pursuant to its authority under 
section 6(k)(1)(E) of RESPA and section 814(d) of the FDCPA.
Section 1024.40 Continuity of Contact
40(a) In General
    As explained in the section-by-section analysis of Sec.  1024.31, 
the Bureau is adopting a single definition of delinquency that will 
apply to all provisions in subpart C of Regulation X. The proposal 
explained that the Bureau was removing the definitions of delinquency 
from the commentary to Sec. Sec.  1024.39(a) and (b) and 1024.40(a). 
The Bureau omitted from its proposal any specific amendments to current 
comment 40(a)-3. The Bureau is revising comment 40(a)-3 to replace the 
current definition of delinquency in comment 40(a)-3 with a cross-
reference to Sec.  1024.31.
Section 1024.41 Loss Mitigation Procedures
41(b) Receipt of a Loss Mitigation Application
Successors in Interest
    Proposed comment 41(b)-1.i stated that, if a servicer receives a 
loss mitigation application, including a complete loss mitigation 
application, from a potential successor in interest before confirming 
that person's identity and ownership interest in the property, the 
servicer may, but need not, review and evaluate the loss mitigation 
application in accordance with the procedures set forth in Sec.  
1024.41. The proposed comment also would have provided that, if a 
servicer complies with the requirements of Sec.  1024.41 for a complete 
loss mitigation application submitted by a potential successor in 
interest before confirming that person's identity and ownership 
interest in the property, Sec.  1024.41(i)'s limitation on duplicative 
requests applies to that person, provided that confirmation of the 
successor in interest's status would not affect the servicer's 
evaluation of the application. The Bureau is finalizing comment 41(b)-
1.i as proposed with non-substantive changes for clarity.
    A number of consumer advocacy groups suggested that the Bureau 
should eliminate the option to review loss mitigation applications 
prior to confirmation. These groups noted that loan modification rules 
imposed by the Making Home Affordable Program, the Federal Housing 
Administration, Fannie Mae, and Freddie Mac require a showing of proof 
of ownership of the home for a simultaneous modification and 
assumption.\237\ A trade association also stated that the vast majority 
of servicers do not have loss mitigation options available for 
successors in interest. The Bureau notes that the loss mitigation 
requirements referenced by these commenters may change over time. 
Further, even if the review process set forth in comment 41(b)-1.i is 
not used often, the comment confirms that Regulation X does not 
prohibit servicers from considering successors in interest for loss 
mitigation prior to confirmation when appropriate. In some 
circumstances, consideration of potential successors in interest for 
loss mitigation options prior to confirmation may expedite full formal 
evaluation of those successors in interest upon confirmation. Comment 
41(b)-1.i clarifies that Regulation X allows servicers to review and 
evaluate loss mitigation applications from potential successors in 
interest prior to confirmation in accordance with the procedures set 
forth in Sec.  1024.41, even though servicers are not required to do 
so.
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    \237\ These commenters also advocated that the servicer's 30-day 
timeframe to review the complete application should start to run 
from the date the successor in interest provides the necessary proof 
of successor status, rather than from the date a servicer confirms 
this status. As comment 41(b)-1.ii explains, the final rule instead 
requires servicers, for purposes of Sec.  1024.41, to treat loss 
mitigation applications from potential successors in interest that 
the servicer elects not to review and evaluate prior to confirmation 
as if the application had been received on the date that the 
servicer confirmed the successor in interest's status. This ensures 
that servicers have adequate time to review the loss mitigation 
application once they have confirmed the applicant's status as a 
successor in interest.
---------------------------------------------------------------------------

    Comment 41(b)-1.i also explains how an evaluation of a potential 
successor in interest's loss mitigation application is treated for 
purposes of the duplicative request limitation in Sec.  1024.41(i). If 
a servicer complies with the requirements of Sec.  1024.41 for a 
complete loss mitigation application submitted by a potential successor 
in interest before confirming that person's identity and ownership 
interest in the property, Sec.  1024.41(i)'s limitation on duplicative 
requests applies to that person, provided the servicer's evaluation of 
loss mitigation options available to the person would not have resulted 
in a different determination due to the person's confirmation as a 
successor in interest if it had been conducted after the servicer 
confirmed the person's status as a successor in interest. This 
provision is an exception to the general rule that servicers may only 
invoke Sec.  1024.41(i)'s limitation on duplicative requests with 
respect to borrowers who have had a complete loss mitigation 
application reviewed by that servicer in compliance with the 
requirements of Sec.  1024.41. Ordinarily, as a potential successor in 
interest is not yet treated as a borrower for all purposes of Sec.  
1024.41, the potential successor in interest's loss mitigation 
application would not count as a duplicative request. If the servicer's 
evaluation of loss mitigation options available to the person would 
have resulted in a different determination due to the person's 
confirmation as a successor in interest if it had been conducted after 
the servicer confirmed the person's status as a successor in interest, 
however, Sec.  1024.41(i)'s limitation on duplicative requests does not 
apply to that application, and the servicer would consequently have to 
comply with Sec.  1024.41's procedures for any subsequent loss 
mitigation application submitted by the potential successor in interest 
upon confirmation.
    A number of consumer advocacy groups asked the Bureau to clarify 
that a previous loss mitigation application submitted by the transferor 
borrower rather than the successor in interest should not make a 
successor in interest's request duplicative for purposes of Sec.  
1024.41(i). Under the final rule, each confirmed successor in interest 
is a borrower for purposes of Sec.  1024.41(i) and is not the same 
borrower as the transferor borrower. Except as specified in comment 
41(b)-1, the duplicative request limitation applies to confirmed 
successors in interest in the same way that it applies to other 
borrowers under Sec.  1024.41(i), as amended by this final rule.
    Proposed comment 41(b)-1.ii stated that, if a servicer receives a 
loss mitigation application from a potential successor in interest and 
elects not to review and evaluate it before confirming

[[Page 72239]]

that person's status, upon such confirmation the servicer must review 
and evaluate the loss mitigation application in accordance with the 
procedures set forth in Sec.  1024.41. The proposed comment indicated 
that, for purposes of Sec.  1024.41, the servicer must treat the loss 
mitigation application as if it had been received on the date that the 
servicer confirmed the successor in interest's status. For the reasons 
that follow, the Bureau is finalizing comment 41(b)-1.ii with this 
commentary as proposed and additional commentary to clarify the 
operation of the loss mitigation procedures with respect to successors 
in interest.
    Several industry commenters requested clarification regarding 
whether the principal residence requirement applicable to Sec.  1024.41 
applies to confirmed successors in interest. In proposing the rule, the 
Bureau indicated that the exemptions and scope limitations in the 
Mortgage Servicing Rules in Regulation X, including the principal 
residence requirement in Sec.  1024.30(c), would also apply to the 
servicing of a mortgage loan with respect to a confirmed successor in 
interest. As finalized, comment 41(b)-1.ii explains that the procedures 
set forth in Sec.  1024.41 apply only if the property is the confirmed 
successor in interest's principal residence and Sec.  1024.41 is 
otherwise applicable.
    As finalized, comment 41(b)-1.ii also indicates that the servicer 
must preserve the loss mitigation application and all documents 
submitted in connection with the application. Although some industry 
commenters expressed concern about the burden of having to preserve 
loss mitigation applications during the confirmation process, the 
Bureau concludes that it would be much more burdensome to require 
successors in interest to resubmit an entire loss mitigation 
application upon confirmation. As the Bureau indicated in the proposal, 
successors in interest may be unduly burdened if required to resubmit 
identical documents simply because the servicer has confirmed the 
successor in interest's status. The Bureau continues to believe that 
requiring servicers to preserve loss mitigation applications received 
from potential successors in interest is preferable, so that servicers 
can review and evaluate those loss mitigation applications 
expeditiously upon confirming the successor in interest's status.
    Comment 41(b)-1.ii clarifies that servicers must preserve any loss 
mitigation application received from a potential successor in interest 
in order to facilitate the servicer's timely review and evaluation of 
the application upon confirmation of the successor in interest's status 
in accordance with the procedures of Sec.  1024.41 and to ensure that 
the confirmed successor in interest does not have to resubmit the same 
loss mitigation application. For purposes of Sec.  1024.41, the 
servicer must treat the loss mitigation application as if it had been 
received on the date that the servicer confirmed the successor in 
interest's status.
    Another industry commenter asked the Bureau to confirm that 
servicers can request updated documents if they receive loss mitigation 
documents prior to confirming a successor in interest and those 
documents are expired or near expiration on the date of confirmation. 
As finalized, comment 41(b)-1.ii explains that, if the loss mitigation 
application is incomplete at the time of confirmation because documents 
submitted by the successor in interest became stale or invalid after 
they were submitted and confirmation is 45 days or more before a 
foreclosure sale, the servicer must identify the stale or invalid 
documents that need to be updated in a notice pursuant to Sec.  
1024.41(b)(2). This comment clarifies servicers' obligations with 
respect to loss mitigation applications received during the 
confirmation process that the servicer elects not to review or evaluate 
until confirmation.
41(b)(1) Complete Loss Mitigation Application
    The Bureau proposed to revise two comments under Sec.  
1024.41(b)(1). First, the Bureau proposed to revise comment 41(b)(1)-1 
to clarify that, in the course of gathering documents and information 
from a borrower to complete a loss mitigation application, a servicer 
may stop collecting documents and information pertaining to a 
particular loss mitigation option after receiving information 
confirming that the borrower is ineligible for that option. Second, the 
Bureau proposed to revise comment 41(b)(1)-4.iii, which relates to a 
servicer's obligation to exercise reasonable diligence in obtaining 
documents and information to complete a loss mitigation application 
when a servicer offers a borrower a short-term loss mitigation option 
based on an evaluation of an incomplete loss mitigation application.
    For the reasons set forth below, the Bureau is adopting both 
comment 41(b)(1)-1 and comment 41(b)(1)-4.iii with revisions to the 
proposal. The Bureau is also adopting minor revisions to the 
introductory text to comment 41(b)(1)-4 for clarity. This section-by-
section analysis discusses comment 41(b)(1)-1. Comment 41(b)(1)-4, 
including the revisions to comment 41(b)(1)-4.iii, is addressed in the 
section-by-section analysis of Sec.  1024.41(c)(2)(iii) within the 
discussion of reasonable diligence in the context of short-term loss 
mitigation options offered based upon an evaluation of an incomplete 
loss mitigation application.
    Existing Sec.  1024.41(b)(1) requires a servicer to exercise 
reasonable diligence in obtaining documents and information to complete 
a loss mitigation application. The provision defines a complete 
application as an application for which a servicer has received all the 
information the servicer requires from a borrower in evaluating 
applications for the loss mitigation options available to the borrower. 
Current comment 41(b)(1)-1 explains that a servicer has the flexibility 
to establish the type and amount of information that it will require 
from borrowers applying for loss mitigation options. The Bureau 
explained in the 2013 RESPA Servicing Final Rule that servicers have 
the flexibility 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 obligated to provide information or documents that are 
unnecessary and inappropriate for a loss mitigation evaluation.\238\ In 
exercising reasonable diligence to obtain a complete application under 
Sec.  1024.41(b)(1), therefore, a servicer may determine that an 
application is complete even when the borrower has not submitted 
certain information, so long as that information is irrelevant with 
respect to that particular borrower.
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    \238\ See 78 FR 10695, 10824 (Feb. 14, 2013).
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    In advance of the proposal, the Bureau learned from servicers and 
consumer advocacy groups that some servicers have been attempting to 
collect a large number of documents from borrowers, including many 
documents that may be required for some borrowers but are irrelevant to 
determining whether a particular borrower is eligible for any loss 
mitigation option. The Bureau explained in the proposal that the good 
faith exercise of reasonable diligence under Sec.  1024.41(b)(1) does 
not require the collection of unnecessary documents. Collection of 
documents or information after the servicer has confirmed that such 
documents cannot affect the outcome of an evaluation unnecessarily 
burdens both the servicer and the borrower and hinders efforts to 
complete the loss mitigation application.

[[Page 72240]]

    Therefore, the Bureau proposed to amend comment 41(b)(1)-1. As 
proposed, the comment would have clarified that (1) a servicer may stop 
collecting a borrower's application materials for a particular loss 
mitigation option upon receiving information confirming that the 
borrower is ineligible for that option, (2) the servicer must continue 
its efforts to obtain documents and information that pertain to all 
other available options, and (3) a servicer may not stop collecting 
documents for a particular loss mitigation option based solely on the 
borrower's stated preference for a different option.
    The Bureau received comments from industry stakeholders and 
consumer advocacy groups on the proposed amendments. Additionally, the 
Bureau conducted outreach with several servicers to learn more about 
how the proposed revisions would affect borrowers and servicers.
    No commenters opposed the first two elements of the proposal--that 
a servicer may stop collecting application materials for a loss 
mitigation option upon learning that the borrower is ineligible for 
that option, and that the servicer must continue to pursue materials 
relating to all other available options. Several industry commenters 
and consumer advocacy groups opined that those elements would reduce 
unnecessary burden by clarifying that servicers do not need to collect 
application materials relating to loss mitigation options for which a 
borrower is ineligible. A trade association stated that the proposal 
would work in conjunction with the new written notice of complete 
application, under proposed Sec.  1024.41(c)(3), to encourage best 
efforts from servicers in obtaining application materials from 
borrowers to complete an application.
    Commenters' views on the third element of the proposal, that a 
servicer may not stop collecting application materials for a particular 
loss mitigation option based solely on the borrower's stated preference 
for a different option, were more diverse. Industry commenters 
generally objected to the third element of the proposal. For example, a 
servicer and a trade association stated that the proposal could 
conflict with FHA's loss mitigation waterfall, which the commenters 
stated requires a borrower to express interest in certain loss 
mitigation options to be eligible. The commenters suggested that 
requiring servicers to collect application materials relating to all 
available loss mitigation options would be burdensome, would cause 
borrowers to disengage, or would complicate the working relationship 
between borrowers and servicers. One servicer stated during outreach 
that doing so when a borrower already has a purchase contract could 
jeopardize the sale. Several servicers the Bureau spoke with during 
outreach reported that some of their borrowers have a purchase contract 
at the outset of the loss mitigation application process, although one 
servicer stated that its borrowers rarely do.
    Industry commenters also stated that this third element of the 
proposal appeared to conflict with statements by the Bureau in a 
webinar in 2013. In that webinar, the Bureau explained that the 
mortgage servicing rules permit investors to set their own loss 
mitigation eligibility criteria, such that a servicer may deny a 
borrower for a loan modification if the investor provides that a 
borrower must be interested in remaining in the home to be eligible for 
a modification and the borrower has indicated that there is no such 
interest.
    Some commenters made specific recommendations for amending the 
rule. For example, some industry trade associations recommended that 
servicers should be permitted to stop collecting application materials 
for a loan modification if the borrower indicates a need to sell the 
property, saying that such a borrower essentially has rejected a loan 
modification. A government-sponsored enterprise recommended allowing 
servicers greater flexibility when borrowers express a preference for a 
short sale and said the rule should allow borrowers to move toward a 
short sale while concurrently working to complete an application for 
retention options. The commenter suggested that, because the short sale 
process is lengthy, additional delay that stems from the requirement to 
complete an application may harm such borrowers.
    Servicers informed the Bureau that relatively few borrowers request 
a short sale at the outset of a loss mitigation application. One 
servicer stated that borrowers who request short sales are typically 
significantly delinquent. Servicers said that most borrowers who do 
make such a request are approved for a short sale. However, the 
percentage of borrowers seeking a short sale who ultimately sell the 
property through a short sale varied greatly from servicer to 
servicer--estimates ranged from approximately 28% to approximately 85%.
    During outreach, the Bureau asked several servicers about 
borrowers' ability to access other loss mitigation options if they 
pursue a short sale from the outset. Most of those servicers indicated 
that they discuss other loss mitigation options with borrowers who 
request a short sale at the outset of the application process. One 
suggested that it does not describe in detail all available options if 
the borrower states the intent not to retain the home. Most of the 
servicers stated that they process the application according to the 
borrower's preference, that they continue to work with these borrowers 
to pursue other loss mitigation solutions when a short sale is 
unsuccessful, and that, when borrowers change their minds during the 
loss mitigation application process, the servicer will process their 
applications accordingly. No servicers said that they did not work with 
borrowers when a short sale falls through or when borrowers change 
their minds. One servicer stated that, the longer a delinquency lasts, 
the less likely borrowers generally are able to obtain loss mitigation.
    The Bureau also asked servicers about the documentation 
requirements for different loss mitigation options. Most servicers 
stated that they generally collect application materials sufficient to 
evaluate the borrower for both retention options and non-retention 
options, but servicers varied in how diligently they pursue documents 
supporting home retention options when the borrower requests a short 
sale. Among the reasons servicers gave for collecting documents for 
retention and non-retention options were investor requirements and a 
concern that borrowers may not understand their options. Some servicers 
explained that their collection of documents for home retention options 
when a borrower has requested a short sale may be more pro forma. One 
servicer indicated that, when a borrower requests a short sale, the 
servicer's collection of documents for home retention options is 
limited to providing the borrower with a list of all such documents; 
the servicer does not continue to make active attempts to collect 
documents to support a review for retention options if the borrower 
wants a short sale. Another servicer stated that it collects a complete 
application package when the borrower requests loss mitigation but, if 
the borrower provides a short sale contract, the servicer evaluates 
only for a short sale. One servicer stated that it does not collect 
application materials for home retention options at all if the borrower 
is uninterested in those options.
    Consumer advocacy groups strongly supported the third element of 
the proposal, stating that reviewing a borrower for all available loss 
mitigation options would limit steering, address uneven access to 
information between

[[Page 72241]]

borrowers and servicers, and provide borrowers with better access to 
home retention options.
    The Bureau is revising comment 41(b)(1)-1 to clarify the 
prohibition against a servicer ceasing efforts to collect documents and 
information based upon a borrower's stated preference. The comment 
retains the key elements of the proposal but is restructured and edited 
for clarity. As revised, comment 41(b)(1)-1 provides that a servicer 
has flexibility to establish its own application requirements and to 
decide the type and amount of information it will require from 
borrowers applying for loss mitigation options. The comment provides 
that, in the course of gathering documents and information from a 
borrower to complete a loss mitigation application, a servicer may stop 
collecting documents and information for a particular loss mitigation 
option after receiving information confirming that, pursuant to any 
requirements established by the owner or assignee of the borrower's 
mortgage loan, the borrower is ineligible for that option. The comment 
clarifies that a servicer may not stop collecting documents and 
information for any loss mitigation option based solely upon the 
borrower's stated preference but may stop collecting documents and 
information for any loss mitigation option based on the borrower's 
stated preference in conjunction with other information, as prescribed 
by any requirements established by the owner or assignee. The comment 
then states that a servicer must continue to exercise reasonable 
diligence to obtain documents and information from the borrower that 
the servicer requires to evaluate the borrower as to all other loss 
mitigation options available to the borrower.
    Comment 41(b)(1)-1 provides two examples for further clarity. The 
first example, slightly revised from the proposal, assumes that a 
particular loss mitigation option is only available for borrowers whose 
mortgage loans were originated before a specific date. The example 
explains that, once a servicer receives documents or information 
confirming that a mortgage loan was originated after that date, the 
servicer may stop collecting documents or information from the borrower 
that the servicer would use to evaluate the borrower for that loss 
mitigation option, but the servicer must continue its efforts to obtain 
documents and information from the borrower that the servicer requires 
to evaluate the borrower for all other available loss mitigation 
options.
    The new second example in comment 41(b)(1)-1 clarifies how a 
borrower's stated preference might affect a loss mitigation 
application. The example assumes that applicable requirements 
established by the owner or assignee of the mortgage loan provide that 
a borrower is ineligible for home retention loss mitigation options if 
the borrower states a preference for a short sale and provides evidence 
of another applicable hardship, such as military Permanent Change of 
Station orders or an employment transfer more than 50 miles away. The 
example then explains that, if the borrower indicates a preference for 
a short sale or, more generally, not to retain the property, the 
servicer may not stop collecting documents and information from the 
borrower pertaining to available home retention options solely because 
the borrower has indicated such preference, but the servicer may stop 
collecting such documents and information once the servicer receives 
information confirming that the borrower has an applicable hardship 
under requirements established by the owner or assignee, such as 
military Permanent Change of Station orders or employment transfer. The 
example in comment 41(b)(1)-1.ii is intended to clarify how borrower 
preference can affect the way in which the servicer might exercise 
reasonable diligence in obtaining documents and information to complete 
a loss mitigation application as required under Sec.  10241.41(b)(1). 
The Bureau believes that guidelines established by owners or assignees 
of mortgage loans similarly generally do not allow borrower preference 
alone to drive the servicer's conduct but generally require both the 
borrower's expressed preference and the borrower's submission of 
additional information. The Bureau notes that the comment merely offers 
an example and does not create a new standard for compliance.
    As revised, comment 41(b)(1)-1 does not alter a servicer's overall 
obligation to collect application materials it requires to evaluate a 
borrower for all available loss mitigation options before conducting 
the evaluation. It is, however, intended to clarify that a servicer has 
flexibility to determine which documents and information it needs to 
evaluate a borrower for each option. Servicers must exercise reasonable 
diligence to obtain a complete application, which includes all the 
information that the servicer requires from the borrower in evaluating 
the application for all options available to the borrower. The 
documents and information that satisfy this requirement for a given 
option may change depending on the information a servicer receives 
during the application process. If a servicer receives documents and 
information that render a borrower ineligible for a given option 
regardless of any additional information, the servicer is not required 
to continue collecting application materials for that option. For 
example, if a servicer receives information confirming that a borrower 
is ineligible for a loan modification, the servicer may no longer need 
to collect detailed information about the borrower's income if it does 
not require income information to evaluate the application for any 
other available loss mitigation option, such as a short sale. Within 
the confines of the rule, servicers may organize the collection of 
application materials accordingly, in a way that minimizes unnecessary 
burden.
    Notwithstanding the above, the borrower's stated preference, 
without more, may not be the basis on which a servicer stops collecting 
application materials. In exercising reasonable diligence to obtain a 
complete application, a servicer may not stop collecting application 
materials relating to a home retention option, for example, solely 
because a borrower states a preference for a short sale or states a 
more general preference not to retain the property. Revised comment 
41(b)(1)-1 is intended to clarify that servicers have sufficient 
flexibility under Sec.  1024.41 to stop collecting documents or 
information after confirming that such application materials cannot 
affect the outcome of an evaluation, but that this determination cannot 
be based on a borrower's stated preference alone.
    In finalizing these revisions, the Bureau sought to balance the 
ability of a borrower to indicate a preference for or against a loss 
mitigation option early in the process, thus allowing servicers the 
opportunity to collect application materials more efficiently during 
the application process, with the overarching goals of the 2013 
Mortgage Servicing Final Rules to prevent unnecessary foreclosures.
    The Bureau recognizes that, under final comment 41(b)(1)-1, some 
borrowers may be required to submit some additional documentation 
relating to loss mitigation options that they have indicated they do 
not want before the servicer can evaluate the application for the 
borrowers' preferred option under the rule. Nonetheless, the Bureau 
believes that the additional documentation that some borrowers may need 
to submit as a result of the rule, which the Bureau understands from 
outreach to be minimal in many instances, is justified. While the 
Bureau realizes that this approach may present

[[Page 72242]]

some additional burden to both borrowers and servicers, the Bureau 
believes, for the reasons below, that it will produce the most 
efficient and optimal outcomes for borrowers and servicers alike in the 
long run.
    Borrowers applying for loss mitigation are often operating under 
substantial financial distress and with limited information, and they 
may not be situated to make an optimal choice at the outset of the 
application process. Permitting servicers to stop collecting documents 
on the basis of a borrower's preference alone might allow servicers to 
influence inappropriately the borrower's preference during 
communications with the borrower toward the option that most benefits 
the servicer, even if it is not optimal for the borrower. Moreover, the 
Bureau notes that, even in situations in which borrowers are making 
fully informed, independent choices as to which options they prefer, 
borrowers sometimes do not ultimately obtain that option.
    For example, the Bureau understands that the short sale process 
frequently takes months to complete. Over this time, a borrower's 
preferences may change, whether because the borrower comes to a better 
understanding of other available loss mitigation options or otherwise 
decides against seeking a short sale. Moreover, an attempted short sale 
may ultimately be unsuccessful, for a variety of reasons. As noted 
above, servicers report widely varying rates of successful short sales, 
in some cases less than one in three. If a borrower ultimately is not 
successful in securing a short sale, the delinquency will have 
increased in the meantime, possibly making any alternate loss 
mitigation option more difficult to achieve. If the servicer has also 
stopped collecting documents or information to support an evaluation of 
other loss mitigation options, the borrower could be left with a 
greater delinquency and greater need for evaluation for all available 
loss mitigation options but without the protections of Sec.  1024.41.
    As noted above, some commenters asserted that proposed comment 
41(b)(1)-1 was in conflict with statements the Bureau made during a 
webinar in 2013. In the webinar, the Bureau explained that the mortgage 
servicing rules permit investors to set their own loss mitigation 
eligibility criteria, such that a servicer may deny a borrower for a 
loan modification if the investor criteria provide that a borrower must 
be interested in remaining in the home to be eligible for a 
modification and the borrower has indicated that there is no such 
interest. The Bureau believes that any perceived conflict between final 
comment 41(b)(1)-1's provision that servicers may not stop collecting 
documents based solely on the borrower's preference and the webinar's 
indication that investor criteria may include the borrower's 
preference, is theoretical. The Bureau is not aware of owner or 
assignee guidelines that render borrowers ineligible for a loss 
mitigation option solely because of the borrower's stated preference. 
Although some such guidelines may use a borrower's preference in 
addition to some other factor as an eligibility criterion, borrower 
preference alone generally does not appear to be the basis for 
determining that a borrower is ineligible.
41(b)(2) Review of Loss Mitigation Application Submission
41(b)(2)(i) Requirements
    Proposed comment 41(b)(2)(i)-1 would have clarified the timelines 
on which a servicer must review and acknowledge a borrower's loss 
mitigation application when no foreclosure sale has been scheduled as 
of the date the loss mitigation application is received. For the 
reasons discussed below, the Bureau is adopting comment 41(b)(2)(i)-1 
with minor revisions to improve clarity.
    Under Sec.  1024.41(b)(2)(i), if a servicer receives a loss 
mitigation application 45 days or more before a foreclosure sale, the 
servicer must: (1) Promptly review the application to determine if it 
is complete; and (2) within five days (excluding legal public holidays, 
Saturdays, and Sundays) of receiving the application, notify the 
borrower in writing that the application was received, state whether it 
is complete or incomplete, and if the application is incomplete, state 
the additional documents and information needed to complete the 
application.
    Section 1024.41(b)(2)(i) does not expressly address whether this 
requirement applies when an application is received before a 
foreclosure sale is scheduled.\239\ As the Bureau explained in the 
proposal, the Bureau believes that, in that scenario, the application 
was still received ``45 days or more before a foreclosure sale,'' and 
the requirements of Sec.  1024.41(b)(2)(i) still apply. To codify this 
interpretation, the Bureau proposed to add new comment 41(b)(2)(i)-1 to 
clarify that, for purposes of Sec.  1024.41(b)(2)(i), if a foreclosure 
sale has not been scheduled as of the date an application is received, 
the application shall be treated as if it were received at least 45 
days before a foreclosure sale. The proposal would have clarified that 
servicers must comply with all of the requirements of Sec.  
1024.41(b)(2)(i) even when no foreclosure sale has been scheduled as of 
the date a servicer receives a borrower's loss mitigation application.
---------------------------------------------------------------------------

    \239\ In the September 2013 Mortgage Final Rule, the Bureau 
adopted new Sec.  1024.41(b)(3) and related commentary to address 
borrowers' rights where no foreclosure sale has been scheduled as of 
the date a complete loss mitigation application is received. The 
final rule clarified that, if a foreclosure sale has not yet been 
scheduled as of the date a complete loss mitigation application is 
received, the application shall be treated as if it were received at 
least 90 days before a foreclosure sale. See 78 FR 60381, 60397 
(Oct. 1, 2013).
---------------------------------------------------------------------------

    The Bureau received several comments supporting proposed comment 
41(b)(2)(i)-1. For example, a national trade association commented that 
the proposal adds clarity for both servicers and borrowers. A consumer 
advocacy group was similarly supportive.
    The Bureau is adopting comment 41(b)(2)(i)-1 substantially as 
proposed, with minor, non-substantive revisions for clarity. As the 
Bureau explained in the proposal, the comment is intended to provide 
certainty to servicers and borrowers.
41(b)(2)(ii) Time Period Disclosure
    Section 1024.41(b)(2)(ii) requires a servicer to include on the 
loss mitigation application acknowledgment notice required under Sec.  
1024.41(b)(2)(i)(B) a reasonable date by which the borrower should 
submit additional documents and information necessary to make the loan 
application complete. Current comment 41(b)(2)(ii)-1 clarifies how 
servicers should set that date, taking into consideration specific 
milestones that correspond to specific protections under Sec.  1024.41. 
Proposed comments 41(b)(2)(ii)-1 through -3 would have further 
clarified that servicers have significant flexibility in selecting the 
reasonable date. Generally stated, the proposal would have clarified 
that servicers may select any date that it determines both maximizes 
borrower rights under Sec.  1024.41 and allows the borrower a 
reasonable period of time to obtain and submit the documents and 
information. Although the proposed comments would have provided that a 
servicer should not select a reasonable date that is later than the 
nearest of the four milestones associated with the specified 
protections of Sec.  1024.41, they also would have clarified that a 
servicer may select a reasonable date that is earlier than the nearest 
remaining milestone. For the reasons discussed below, the

[[Page 72243]]

Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with substantial 
revisions. As revised, the comments provide more specific guidance 
about how a servicer selects a reasonable date in compliance with Sec.  
1024.41(b)(2)(ii).
    The Bureau sought comment on three aspects of the proposal: Whether 
the proposal would provide servicers with sufficient guidance under 
Sec.  1024.41(b)(2)(ii) in setting a reasonable date for the return of 
documents and information that maximizes borrower protections; whether 
to address those situations where the nearest remaining milestone will 
not occur for several months based on the date of a scheduled 
foreclosure sale and the documents the borrower has already submitted 
at the time the servicer selects the reasonable date under Sec.  
1024.41(b)(2)(ii); and whether to adopt a less flexible standard that 
would leave servicers with little or no discretion in setting a 
reasonable date under Sec.  1024.41(b)(2)(ii) and, if so, what would 
constitute an appropriate standard under such an approach.
    Several commenters supported the proposal. A credit union stated 
that the proposal would provide clear and transparent procedures 
beneficial to credit unions and borrowers. An industry trade 
association stated that the flexibility that the proposal would afford 
servicers in selecting a reasonable date would benefit both servicers 
and borrowers, particularly because each borrower's application is 
unique.
    Some industry commenters supported an even more flexible approach. 
One servicer said that a reasonable date that is later than the nearest 
milestone could provide borrowers with even greater protections. 
Another cautioned that setting a return date as little as eight days 
away could create borrower confusion and panic and argued that 
servicers should have complete flexibility to select the date. This 
commenter also requested that the Bureau create a safe harbor for 
compliance with Sec.  1024.41(b)(2)(i)(B), through the use of a model 
form with language describing the milestones.
    In contrast, other industry commenters and some consumer advocacy 
groups recommended limiting servicer discretion in selecting a 
reasonable date. These industry commenters stated that a flexible 
approach would be difficult to apply and would open servicers to 
various risks, such as litigation, monetary penalties, or reputational 
harm. Industry commenters also expressed concern that borrowers are 
less likely to be responsive if they have too much time to submit 
documents and that a longer time to completion can increase the 
delinquency, thereby decreasing the likelihood of successful loss 
mitigation. Industry commenters expressed varying opinions about the 
right length of time to afford borrowers, ranging from 14 days to 45 
days. One servicer recommended that the final rule allow servicers 
limited discretion to select a reasonable date between 30 and 45 days 
away. Another servicer recommended a two-tiered approach, with 
borrowers permitted 30 days to submit documents and then an additional 
30 days to complete the application as long as the borrower has 
submitted some of the outstanding documents that the servicer requested 
by the end of the first 30-day period.
    Consumer advocacy groups that recommended limiting servicer 
discretion suggested different approaches. One consumer advocacy group 
recommended selecting a reasonable date that is between seven and 30 
days away. Other consumer advocacy groups recommended requiring the 
reasonable date to be no more than 30 days away if the nearest 
milestone is 45 days or more in the future. These commenters suggested 
that these timeframes would, for example, reduce processing times, 
borrower discouragement, and documents going stale and that borrowers 
would rarely, if ever, need more than 30 days to provide the requested 
information.
    Several industry commenters expressed concern with tracking the 
milestones and maximizing borrower rights in the selection of a 
reasonable date. Industry commenters cited litigation risk and the 
operational difficulties in tracking when documents go stale, among 
other matters. One industry commenter stated that servicers must 
manually track when documents will go stale to comply with the first 
milestone in the list, the date by which any document or information 
that a borrower submitted will be considered stale or invalid pursuant 
to any requirements applicable to any available loss mitigation option.
    The Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with 
substantial revisions to the proposal. The final rule provides 
servicers with more specific guidance on how to select a reasonable 
date than the proposal would have provided. As explained in more detail 
below, the commentary explains that 30 days from the date the servicer 
provides the notice under Sec.  1024.41(b)(2)(i)(B) is generally a 
reasonable date. If a milestone will occur within 30 days, however, the 
commentary specifies that the reasonable date must be no later than the 
earliest of the milestones, subject to a minimum of seven days, so that 
borrowers can return application materials. The Bureau believes that 
these clearer guidelines should aid compliance and improve borrower 
protections.
    Comment 41(b)(2)(ii)-1 provides that, in general and subject to the 
restrictions described in comments 41(b)(2)(ii)-2 and -3, a servicer 
complies with the requirement to include a reasonable date in the 
written notice required under Sec.  1024.41(b)(2)(i)(B) by including a 
date that is 30 days after the date the servicer provides the written 
notice. Comment 41(b)(2)(ii)-2 states that, for purposes of Sec.  
1024.41(b)(2)(ii), subject to the restriction described in comment 
41(b)(2)(ii)-3, the reasonable date must be no later than the earliest 
of four milestone dates. The dates are the same as the milestones in 
the proposal and in existing comment 41(b)(2)(ii)-1: (1) The date by 
which any document or information submitted by a borrower will be 
considered stale or invalid pursuant to any requirements applicable to 
any loss mitigation option available to the borrower; (2) the date that 
is the 120th day of the borrower's delinquency; (3) the date that is 90 
days before a foreclosure sale; and (4) the date that is 38 days before 
a foreclosure sale. Comment 41(b)(2)(ii)-3 clarifies that a reasonable 
date for purposes of Sec.  1024.41(b)(2)(ii) must never be less than 
seven days from the date on which the servicer provides the written 
notice pursuant to Sec.  1024.41(b)(2)(i)(B).
    As explained above, the proposal would have expressly stated that a 
servicer may select any date that it determines both maximizes borrower 
rights under Sec.  1024.41 (in consideration of the milestones) and 
allows the borrower a reasonable period of time to obtain and submit 
the applicable documents and information. The final rule commentary, in 
contrast, states that a date that is 30 days after the date the 
servicer provides the written notice is generally compliant. The 
reasonable date must be no later than the nearest remaining milestone 
even if it will occur earlier than 30 days, subject to a minimum of 
seven days after the servicer provides the borrower with the notice. 
This increased specificity should afford borrowers sufficient time to 
obtain and submit application materials while reducing lengthy 
timelines for returning documents, which can lead to borrower 
disengagement, increased delinquency, or a diminished likelihood that 
the borrower will obtain a loss mitigation option. The Bureau believes 
that borrowers will rarely need more

[[Page 72244]]

than 30 days to obtain and submit application materials. Further, as 
revised, the commentary to Sec.  1024.41(b)(2)(ii) still preserves 
borrower protections under Sec.  1024.41 by expressly prohibiting 
servicers from selecting a reasonable date that is later than the four 
milestone dates after which various protections end under the rule, 
subject to the seven-day minimum. In general, as each milestone passes 
before an application is complete, borrowers enjoy fewer protections 
under Sec.  1024.41. A reasonable date too close to the next milestone 
would place consumers at risk of losing those protections. The Bureau 
believes this provision should increase borrowers' opportunity to 
complete their applications before any future milestones have passed. 
The Bureau also notes that servicers already must track the upcoming 
milestones to comply with Sec.  1024.41.
    The Bureau declines to adopt a more flexible standard than 
proposed, as some commenters suggested. As the Bureau explained in the 
proposal, and as both industry and consumer advocacy group commenters 
noted, servicers could select a date that is too far in the future 
under a more flexible standard. A date that is too far in the future 
would not be reasonable, and borrowers might be discouraged from 
promptly providing the requested documents and information.
    Based on the comments received, the Bureau believes that the 
revisions may reduce industry burden, litigation risk, and the 
possibility of reputational harm associated with determining on a case-
by-case basis what constitutes a reasonable date. Also, the Bureau 
understands that some servicers already provide a 30-day period for 
borrowers to obtain and submit documents and information necessary to 
complete a loss mitigation application, so the burden of amending 
business practices to comply with the final rule should be limited for 
these servicers. Although servicers may have to incur some costs to 
program their systems to ensure that the date selected complies with 
the revised comment, the Bureau believes the final rule will 
substantially benefit borrowers.
    The Bureau is not adopting one commenter's suggestion to require a 
servicer to describe the milestones on the written notice under Sec.  
1024.41(b)(2)(i)(B). The Bureau believes this information would 
introduce significant burden for servicers. The Bureau also believes 
the additional information would not provide borrowers any significant 
benefit and could risk distracting borrowers from focusing on the 
critical information.
    Finally, the Bureau reiterates that, pursuant to Sec.  
1024.41(b)(2)(ii), the reasonable date is not a hard deadline for the 
borrower to return the documents to the servicer.\240\ As the Bureau 
explained in the 2013 RESPA Servicing Final Rule, servicers may still 
accept documents after the reasonable date, and the borrower may still 
be able to submit a complete loss mitigation application, even if the 
borrower does not submit the requested information by the reasonable 
date.\241\
---------------------------------------------------------------------------

    \240\ See 78 FR 10695, 10826 (Feb. 14, 2013).
    \241\ 78 FR 10695, 10826 (Feb. 14, 2013).
---------------------------------------------------------------------------

41(c) Evaluation of Loss Mitigation Applications
41(c)(1) Complete Loss Mitigation Application
    The Bureau proposed and is adopting a minor technical revision to 
Sec.  1024.41(c)(1) to facilitate the addition of Sec.  1024.41(c)(4), 
discussed below. The Bureau also sought comment as to whether the 
applicable timelines set forth in Sec.  1024.41 allow borrowers 
sufficient time to accept or reject a loss mitigation offer if they 
complete a loss mitigation application near the foreclosure sale date. 
The Bureau did not make any specific proposal to address those 
concerns. The Bureau is not adopting any further revisions to Sec.  
1024.41(c)(1) to address those concerns at this time.
    In response to the Bureau's request for comment, several commenters 
expressed concerns about the timing requirements in Sec.  1024.41. A 
trade association suggested that a borrower may have little time to 
respond to a loss mitigation offer if the borrower submitted a complete 
loss mitigation application 38 days before a foreclosure sale and the 
servicer responds 30 days later notifying the borrower of which options 
the servicer will offer. A consumer advocacy group expressed concern 
that the amount of time the rule allows a borrower to respond to a loss 
mitigation offer or to exercise appeal rights is shortened by the 
amount of time it takes the borrower to receive the determination 
letter. Other consumer advocacy groups stated that the timing and 
method of communicating offers and appeals present problems for 
borrowers, including sometimes facing shorter response and appeal 
timeframes than intended, in part because of the delay in receiving a 
decision by standard (not first class) mail or because servicers 
sometimes backdate documents.
    Commenters recommended different approaches for addressing their 
concerns about the timing requirements discussed above. A consumer 
advocacy group said that the Bureau should require servicers to mail 
notices promptly and should carve out additional time in the loss 
mitigation timeline for a servicer to mail the notices to the borrower. 
A trade association recommended that the Bureau consider allowing the 
borrower less time to decide whether to accept a loss mitigation offer 
or increasing the number of days before a foreclosure sale a servicer 
must receive a complete loss mitigation application and still be 
required to evaluate the application. A servicer requested a separate, 
10-day timeframe to mail the determination letter, arguing that the 
additional time would permit servicers to obtain third-party 
information and ensure that the borrower receives the most accurate 
determination possible. The commenter also stated that a 10-day delay 
in mailing the determination letter would not harm the borrower because 
the servicer already contacts the borrower at the end of the existing 
30-day evaluation period to inform the borrower of its determination.
    Consumer advocacy groups recommended that the Bureau address timing 
problems by prohibiting servicers from backdating documents and 
regulating further the manner in which notices are delivered. For 
example, these commenters suggested requiring servicers to provide 
notices via first class mail; adding three days to certain timing 
deadlines if a notice is not sent by first class mail; providing that 
the time a borrower has to respond to a loss mitigation offer begins 
only when the borrower receives the decision notice; setting forth 
specific mailing requirements and deadlines; specifying how servicers 
must construe timing requirements under applicable deadlines; or 
requiring that notices display the same date as the date the notice is 
placed in the mail, even if a vendor sends the notice.
    Consumer advocacy groups also advocated requiring servicers to 
postpone a foreclosure sale when they offer a borrower a loss 
mitigation option after receiving the complete loss mitigation 
application on or near the 38th day before the sale. They said that 
servicers can simply conduct the sale later if the borrower rejects the 
offer and that the slight inconvenience that this would cause does not 
justify denying the borrower's application simply because the offer and 
acceptance might be communicated by mail. Some industry commenters 
suggested that the

[[Page 72245]]

rule's current structure may not pose timing problems in some cases. 
One state trade association stated that the 30-day evaluation timeline 
does not cause problems for its members because evaluations typically 
take less than 30 days. A servicer generally endorsed the timing and 
method of communicating loss mitigation offers and appeals and stated 
that servicers will take measures to provide borrowers with foreclosure 
protections when they receive a complete loss mitigation application 
more than 37 days before a scheduled foreclosure sale. However, one 
servicer stated that, although servicers take measures to provide 
foreclosure protections upon receiving a complete loss mitigation 
application more than 37 days before a foreclosure sale, the servicer 
cannot guarantee that the sale will be postponed.
    The Bureau is not taking action on these issues at this time. The 
comments received suggest that, when servicers comply with the existing 
timing requirements, borrowers are protected from the most serious 
harms and that servicers are, in the main, able to comply with those 
timing requirements. The Bureau notes that, under Sec.  
1024.38(b)(1)(i), a servicer must maintain policies and procedures that 
are reasonably designed to ensure that the servicer can provide 
accurate and timely disclosures to a borrower as required by Regulation 
X's mortgage servicing rules, including Sec.  1024.41, or other 
applicable law. Particularly when a scheduled foreclosure sale places 
pressure on a loss mitigation application timeline, the Bureau 
encourages servicers to provide borrowers with notices in the most 
efficient and effective manner possible to maximize the likelihood that 
the borrower can obtain loss mitigation and avoid foreclosure and 
unnecessary fees. Servicers must ensure that their policies and 
procedures are reasonably designed to provide accurate and timely 
disclosures to borrowers in all circumstances, even when a foreclosure 
sale has been scheduled. The Bureau will continue monitoring the market 
for these and related issues.
    The Bureau is making a technical correction that redesignates a 
comment to Sec.  1024.41(d) as new comment 41(c)(1)-4. The 2013 
Mortgage Servicing Final Rules added a comment to Sec.  1024.41(d) that 
provides that a servicer may combine other notices required by 
applicable law, including, without limitation, a notice with respect to 
an adverse action required by Regulation B, 12 CFR part 1002, or a 
notice required pursuant to the Fair Credit Reporting Act, with the 
notice required pursuant to Sec.  1024.41(d), unless otherwise 
prohibited by applicable law.\242\ Because Sec.  1024.41(d) requires 
that certain disclosures be made in a notice sent pursuant to Sec.  
1024.41(c)(1), the Bureau sought to redesignate this comment as comment 
41(c)(1)-4 in the September 2013 Mortgage Final Rule but inadvertently 
redesignated it instead as comment 41(d)-(c)(1)(4).\243\ The Bureau is 
now removing comment 41(d)-(c)(1)(4) and replacing it with new comment 
41(c)(1)-4. New comment 41(c)(1)-4 is identical to the comment that it 
replaces, except that the Bureau is making a technical, clarifying 
change that substitutes ``notice required under Sec.  1024.41(c)(1)'' 
for ``notice required under Sec.  1024.41(d).''
---------------------------------------------------------------------------

    \242\ 78 FR 10696, 10897 (Feb. 14, 2013).
    \243\ 78 FR 60381, 60438 (Oct. 1, 2013).
---------------------------------------------------------------------------

41(c)(2) Incomplete Loss Mitigation Application Evaluation
41(c)(2)(iii) Payment Forbearance
    Proposed Sec.  1024.41(c)(2)(iii) would have allowed servicers to 
offer borrowers short-term repayment plans, as described in the 
proposal, based upon an evaluation of an incomplete loss mitigation 
application. This would have been an exception to the general rule 
under Sec.  1024.41(c)(2), which generally prohibits a servicer from 
evading the requirement to evaluate a complete loss mitigation 
application by offering a loss mitigation option based upon an 
evaluation of any information provided by a borrower in connection with 
an incomplete application. Section 1024.41(c)(2)(iii) currently allows 
such an exception for short-term forbearance programs but does not 
specifically address short-term repayment plans. The proposal also 
would have set forth certain protections for borrowers with either or 
both of these short-term loss mitigation options, including limitations 
on dual tracking and a requirement that the servicer clearly specify 
the payment terms and duration of the program or plan in writing and 
provide that information to the borrower before the program or plan 
begins. Finally, the proposal would have described in commentary to 
Sec.  1024.41(b)(1) a servicer's obligation to collect a borrower's 
application materials in the context of a short-term program or plan 
offered pursuant to Sec.  1024.41(c)(2)(iii).
    The Bureau received numerous comments on the proposal. Many 
consumer advocacy group and industry commenters expressed support for 
the proposal generally but expressed concern with specific elements of 
the proposal, as discussed below. Comments on most aspects of the 
proposal are summarized here, but comments relating to the proposed 
description of a servicer's reasonable diligence obligations under 
comment 41(b)(1)-4 are addressed below in this section-by-section 
analysis, under the heading Reasonable Diligence.
    Consumer advocacy groups generally stated that the final rule 
should extend borrowers protections in addition to those existing for 
short-term forbearance plans. They recommended (1) tolling, during a 
borrower's short-term repayment plan, the 120-day pre-foreclosure 
period under Sec.  1024.41(f)(1)(i) during which servicers must not 
make the first notice or filing required by applicable law for any 
judicial or non-judicial foreclosure process; (2) prohibiting servicers 
from scheduling a foreclosure sale while the borrower is performing 
pursuant to a short-term repayment plan offered under Sec.  
1024.41(c)(2)(iii); and (3) requiring servicers to provide borrowers 
information necessary to understand that more affordable loss 
mitigation options may be available if the borrower completes the 
application.
    Many comments addressed the proposed requirement that servicers 
clearly specify the payment terms and duration of the program or plan 
in writing and provide that information to the borrower before the 
program or plan begins. Consumer advocacy groups stated that providing 
this information in writing would be important because the agreements 
sometimes suggest that they are an initial step to a loan modification 
and borrowers sometimes believe erroneously that the short-term 
forbearance program or short-term repayment plan is a loan 
modification. The commenters said that, as a result, borrowers 
sometimes believe either that they need not apply for loss mitigation 
or that defaulting on the short-term option would render them 
ineligible for a loan modification. Consumer advocacy groups therefore 
recommended requiring servicers additionally to state in writing that 
the offer is being made based on a limited application and that, 
regardless of the outcome of the short-term program or plan, the 
borrower may seek a full loss mitigation review in the future.
    Some industry commenters, including servicers and national trade 
associations, expressed concerns about the proposed requirement to 
clearly specify the terms and duration of the program or plan in 
writing before the program or plan begins. They recommended allowing 
the program or plan to begin before servicers must

[[Page 72246]]

provide written information about the program or plan, as is common 
industry practice. Commenters stated that requiring servicers to 
provide written information before the program or plan begins could 
create ambiguity as to when a program or plan begins and delay the 
start of the program or plan. One servicer noted that some borrowers 
can make their first plan payment over the phone upon accepting the 
offer and that prohibiting a servicer from accepting such payment 
before providing the written information could lead to additional costs 
to the borrower. One servicer requested that the Bureau address how 
servicers would clearly specify the payment terms and duration when 
there may be a change in payment during the short-term repayment plan. 
The servicer stated that this could occur, for example, when the 
interest rate may change during the plan or when there may be an 
increase to the borrower's escrow payment during the plan.
    The proposal also would have required that the short-term repayment 
plans permitted under Sec.  1024.41(c)(2)(iii) must bring the loan 
current. One trade association expressly supported the proposal to 
require that such a plan cure the delinquency.
    Many commenters discussed the proposed limitations on the maximum 
arrearage and maximum repayment period for such short-term repayment 
plans. Several industry commenters and consumer advocacy groups 
supported the proposed limitations from both a borrower protection and 
an operational vantage point. A credit union stated that the proposed 
limitations on arrearage and repayment period would not create 
operational difficulties for its affiliate lenders. A trade association 
stated that the most effective short-term repayment plans last between 
three and six months. During outreach, some servicers similarly stated 
that their repayment plans typically last no more than six months, 
depending on the borrower's circumstance or investor requirements. A 
servicer supported the six-month maximum repayment period for short-
term repayment plans and noted that servicers can offer longer 
repayment plans, lasting up to 12 months, based on a complete 
application. Other industry commenters opposed the proposed 
limitations. Some industry commenters suggested that borrowers should 
have unlimited time to repay an arrearage under a short-term repayment 
plan and noted that borrowers may need more than six months to pay off 
the arrearage. Several industry commenters recommended allowing a 
repayment period of up to 12 months, suggesting that repayment plans of 
12 months would be consistent with guidelines established by owners or 
assignees. A servicer suggested the Bureau leave it to investors to 
define repayment plan limitations, given that this involves an 
assessment of the risk of ultimate repayment. A government-sponsored 
enterprise stated that the Bureau should not limit the size of the 
arrearage or the repayment period, as long as the servicer discloses to 
the borrower that the plan would eliminate the delinquency upon 
completion and that the borrower may submit a complete application and 
as long as the servicer resumes efforts to obtain a complete 
application if the borrower defaults on the short-term repayment plan. 
Several industry commenters suggested aligning the maximum repayment 
durations for short-term repayment plans and short-term payment 
forbearance programs, noting that short-term payment forbearance 
programs currently may be offered regardless of the amount of time a 
servicer allows the borrower to make up the missing payments.\244\ One 
servicer requested clarification that, in accordance with informal 
guidance the Bureau issued in 2013, a servicer may offer a short-term 
repayment plan and a short-term payment forbearance program 
simultaneously, as long as the combined arrangement does not 
incorporate more than six months of payments past due.
---------------------------------------------------------------------------

    \244\ See comment 41(c)(2)(iii)-1.
---------------------------------------------------------------------------

    Servicers the Bureau spoke with during outreach reported varying 
cure rates for borrowers in their repayment plans. None of these 
servicers estimated a cure rate significantly higher than 50%. Two 
servicers stated that a significant proportion of their borrowers who 
do not complete a repayment plan fail within the first month or two. 
Servicers participating in the Bureau's outreach indicated that they 
encourage borrowers who fail to complete a repayment plan to apply for 
other loss mitigation options.
    Industry commenters expressed other miscellaneous concerns about 
the proposal. For example, a trade association stated that a short-term 
repayment plan offered under Sec.  1024.41(c)(2)(iii) might be 
considered a troubled-debt restructuring and could therefore result in 
increased burden and expense. A trade association cautioned against the 
Bureau expanding the proposal to require a servicer to provide a short-
term solution if the borrower fails to complete a loss mitigation 
application.
    The Bureau is adopting Sec.  1024.41(c)(2)(iii) generally as 
proposed to permit explicitly servicers to offer short-term repayment 
plans based upon an evaluation of an incomplete loss mitigation 
application. The final rule includes revisions, however, as to the 
contents and timing of the written information that servicers must 
provide to borrowers. The final rule requires servicers to provide more 
information than the proposal and specifies that a servicer must 
provide a written notice promptly after offering the program or plan. 
The Bureau is also adopting commentary that describes what constitutes 
a short-term payment forbearance program and a short-term repayment 
plan for purposes of Sec.  1024.41(c)(2)(iii), clarifies the 
application of Sec.  1024.41 to such programs or plans, and clarifies 
various aspects of the written notice requirement. The Bureau is also 
adopting revisions to comment 41(b)(1)-4.iii, which clarifies a 
servicer's obligation under Sec.  1024.41(b)(1) to exercise reasonable 
diligence when a servicer offers a borrower a short-term payment 
forbearance program or a short-term repayment plan based on an 
evaluation of an incomplete loss mitigation application. Among other 
things, these revisions to comment 41(b)(1)-4.iii clarify that a 
servicer must immediately resume exercising reasonable diligence to 
obtain a complete application if a borrower defaults on a short-term 
repayment plan.
    The Bureau continues to believe that allowing servicers to offer 
short-term repayment plans based on an evaluation of an incomplete loss 
mitigation application can substantially benefit borrowers and 
servicers. It offers a relatively efficient way for borrowers to 
address temporary hardships without exhausting those protections under 
Sec.  1024.41 determined as of the date a complete loss mitigation 
application is received. The same rationale underpins the existing 
exception for short-term forbearance programs under Sec.  
1024.41(c)(2)(iii). Although nothing in Sec.  1024.41 requires a 
servicer to offer such forbearance programs or repayment plans based 
upon an incomplete application, Sec.  1024.41(c)(2)(iii) permits 
servicers to offer temporary assistance to qualifying borrowers who may 
need only to address short-term financial difficulty.
    However, the Bureau also notes that, without appropriate 
safeguards, permitting a servicer to offer loss mitigation based upon 
an evaluation of an incomplete application could have adverse 
consequences for a borrower. If

[[Page 72247]]

a servicer inappropriately diverts a borrower into a loss mitigation 
program based upon an incomplete application, it could exacerbate the 
borrower's delinquency and put the borrower at risk of losing the 
opportunity to complete the application and receive the full 
protections of Sec.  1024.41. A borrower who is offered a short-term 
payment forbearance program or short-term repayment plan may be 
experiencing a hardship for which other, longer-term loss mitigation 
solutions might be more appropriate for a particular borrower's 
circumstance.
    As revised and adopted in final form, Sec.  1024.41(c)(2)(iii) 
contains three key elements. First, it provides that, notwithstanding 
the rule's general prohibition against offering a loss mitigation 
option based upon an evaluation of an incomplete application, a 
servicer may offer a short-term payment forbearance program or a short-
term repayment plan to a borrower based upon an evaluation of an 
incomplete loss mitigation application. Second, it provides that, 
promptly after offering a payment forbearance program or a repayment 
plan under Sec.  1024.41(c)(2)(iii), unless the borrower has rejected 
the offer, the servicer must provide the borrower a written notice 
stating the specific payment terms and duration of the program or plan, 
that the servicer offered the program or plan based on an evaluation of 
an incomplete application, that other loss mitigation options may be 
available, and that the borrower has the option to submit a complete 
loss mitigation application to receive an evaluation for all loss 
mitigation options available to the borrower regardless of whether the 
borrower accepts the offered program or plan.\245\ Third, it prohibits 
a servicer from making the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process, or 
moving for foreclosure judgment or order of sale or conducting a 
foreclosure sale, if a borrower is performing pursuant to the terms of 
a payment forbearance program or repayment plan offered pursuant to 
Sec.  1024.41(c)(2)(iii). The final rule also specifies that a servicer 
may offer a short-term payment forbearance program in conjunction with 
a short-term repayment plan pursuant to Sec.  1024.41(c)(2)(iii).
---------------------------------------------------------------------------

    \245\ In the 2013 RESPA-TILA Servicing Amendments, the Bureau 
declined to require servicers to include similar disclosures in the 
written notification required under Sec.  1024.41(b)(2)(i)(B), 
stating that servicers should have flexibility to provide the 
disclosures at the appropriate time. 78 FR 60381, 60400 (Sept. 12, 
2013). The Bureau believes that it is appropriate for borrowers to 
receive these disclosures in the written notice provided at the time 
a borrower receives an offer for a short-term forbearance program or 
short-term repayment plan under Sec.  1024.41(c)(2)(iii).
---------------------------------------------------------------------------

    The final rule retains the proposed disclosures relating to the 
payment terms and duration of the program or plan, which the Bureau 
believes should reduce misunderstandings between servicers and 
borrowers, including those that may result in borrowers making 
incorrect payments. Comment 41(c)(2)(iii)-5, discussed below, clarifies 
these requirements.
    The final rule also requires several additional disclosures that 
were not proposed. Many of these disclosures are specified in current 
comment 41(b)(1)-4.iii as part of a servicer's obligation to exercise 
reasonable diligence. The Bureau is removing those specific disclosures 
from final comment 41(b)(1)-4.iii, as they would be duplicative of the 
new written notice requirements in final Sec.  1024.41(c)(2)(iii). 
Final Sec.  1024.41(c)(2)(iii) also introduces a new disclosure, that 
other loss mitigation options may be available.
    After considering the comments, the Bureau believes that allowing a 
short-term payment forbearance program or short-term repayment plan to 
begin immediately following an oral offer is appropriate. The Bureau 
understands that some servicers already allow a short-term payment 
forbearance program or repayment plan to begin upon offer. Allowing 
commencement of the program or plan immediately upon an oral offer may 
benefit some borrowers by reducing the accrual of late fees, negative 
credit reporting, and the accumulation of further delinquency. Entering 
the short-term repayment plan also triggers the protections of Sec.  
1024.41(c)(2)(iii), which forbids the servicer from making the first 
notice or filing required under applicable law for any judicial or non-
judicial foreclosure process, moving for foreclosure judgment or order 
of sale, or conducting a foreclosure sale.
    The Bureau continues to believe, however, that borrowers will 
benefit from receiving a written notice describing the program or plan. 
The final rule therefore requires servicers to provide a written notice 
promptly after offering a payment forbearance program or a repayment 
plan under Sec.  1024.41(c)(2)(iii), unless the borrower has rejected 
the offer. The Bureau continues to believe that receiving the written 
notice promptly will assist borrowers in understanding the terms and 
consequences of the program or plan and will allow borrowers to address 
any discrepancies more quickly. The Bureau notes that Sec.  
1024.41(c)(2)(iii) does not require servicers to provide the written 
notice if the borrower has rejected the offer. A notice after the 
borrower has rejected the offer would provide little benefit to the 
borrower and could introduce unnecessary burden for the servicer.
    The Bureau is not adopting some commenters' suggestions to toll the 
loss mitigation timelines under Sec.  1024.41 or to prohibit servicers 
from scheduling a foreclosure sale while a borrower is performing under 
a short-term repayment plan offered under Sec.  1024.41(c)(2)(iii). The 
Bureau believes that the protections extended under Sec.  
1024.41(c)(2)(iii) and (b)(1) are sufficient. As detailed below, a 
short-term repayment plan for purposes of Sec.  1024.41(c)(2)(iii) must 
have terms under which a borrower would be able to repay all past due 
payments over a specified period of time to cure the delinquency; and 
while a borrower is performing under such a plan, servicers may not 
make the first notice or filing required by applicable law for any 
judicial or non-judicial foreclosure process, move for foreclosure 
judgment or order of sale, or conduct a foreclosure sale. Further, if 
the borrower fails to comply with the plan, servicers must immediately 
resume exercising reasonable diligence to obtain a complete 
application, as described in revised comment 41(b)(1)-4.iii. The Bureau 
will continue to monitor the marketplace regarding the sufficiency of 
these protections. The Bureau also is not addressing, as one commenter 
suggested, whether short-term repayment plans offered under Sec.  
1024.41(c)(2)(iii) might be considered troubled-debt restructurings.
    The Bureau is adopting comments 41(c)(2)(iii)-1 through -4 
substantially as proposed, with non-substantive revisions to improve 
clarity. Comment 41(c)(2)(iii)-1 clarifies what constitutes a short-
term payment forbearance program for purposes of Sec.  
1024.41(c)(2)(iii). Comments 41(c)(2)(iii)-2 and -3 clarify that 
various protections under Sec.  1024.41 apply notwithstanding a 
servicer's offer of a short-term payment forbearance program or short-
term repayment plan under Sec.  1024.41(c)(2)(iii). Comment 
41(c)(2)(iii)-2 explains that, although Sec.  1024.41(c)(2)(iii) allows 
a servicer to offer a borrower a short-term payment forbearance program 
or a short-term repayment plan based on an evaluation of an incomplete 
loss mitigation application, the servicer must still comply with the 
other requirements of Sec.  1024.41 with respect to the incomplete loss 
mitigation application. The comment includes several examples of the 
protections. Comment 41(c)(2)(iii)-3

[[Page 72248]]

clarifies that the servicer must still comply with all applicable 
requirements in Sec.  1024.41 if the borrower completes a loss 
mitigation application.
    As finalized, comment 41(c)(2)(iii)-4 clarifies that repayment 
plans for purposes of Sec.  1024.41(c)(4)(iii) have terms under which a 
borrower would repay all past due payments over a specified period of 
time to bring the mortgage loan account current. Repayment plans that 
are not intended to cure the delinquency risk merely prolonging the 
delinquency with consequent borrower harm, including negative credit 
reporting and a diminished ability to qualify for other loss mitigation 
options. Comment 41(c)(2)(iii)-4 explains that a short-term repayment 
plan for purposes of Sec.  1024.41(c)(2)(iii) is one that allows for 
the repayment of no more than three months of past due payments and 
allows a borrower to repay the arrearage over a period lasting no more 
than six months.
    The Bureau also believes that these specific limitations, to three 
months of past due payments and a repayment period of six months, 
reduce the risk of borrower harm. Allowing more than three months of 
past due payments or longer repayment periods could result in a higher 
default rate, and borrowers' prospects for loss mitigation may be 
diminished by a default on a short-term repayment plan. As noted above, 
servicers that the Bureau spoke with during outreach informed the 
Bureau that their borrowers in repayment plans frequently do not result 
in a cure; none of these servicers reported cure rates higher than 
approximately 50%.
    Moreover, borrowers in short-term repayment plans under Sec.  
1024.41(c)(2)(iii) are at risk of losing various protections under 
Sec.  1024.41. In general, the longer a delinquency exists without the 
borrower completing an application, the fewer borrower protections 
Sec.  1024.41 is likely to provide if the borrower later completes the 
application. For example, certain protections apply only if the 
borrower completes a loss mitigation application more than a certain 
number of days before a scheduled foreclosure sale. As a result, a 
borrower could exit an unsuccessful short-term repayment plan to face a 
scheduled foreclosure sale with no right under Sec.  1024.41 to have a 
complete loss mitigation application evaluated or to have the denial of 
loan modification options subject to appeal.
    Given these potentially serious consequences for borrowers who are 
in short-term repayment plans based on an evaluation of an incomplete 
loss mitigation application, the Bureau believes that the limitations 
in the final rule, as explained by comment 41(c)(2)(iii)-4, are 
necessary. The final rule affords servicers sufficient flexibility to 
address borrowers' temporary hardships, while also ensuring that 
borrowers facing more substantial hardship will not lose time and 
protections under Sec.  1024.41 by agreeing to a repayment plan that 
they may have little chance of completing.
    The Bureau notes that nothing in Sec.  1024.41 prevents a servicer 
from offering a repayment plan that exceeds the durational limitations 
set forth in comment 41(c)(2)(iii)-4. Rather, the rule simply prohibits 
a servicer from doing so without obtaining a complete loss mitigation 
application and evaluating the borrower for all available options. As 
discussed below, the Bureau is also revising comment 41(b)(1)-4.iii, 
which clarifies a servicer's obligation under Sec.  1024.41(b)(1) to 
act with reasonable diligence in obtaining documents and information to 
complete a loss mitigation application when the servicer offers the 
borrower a short-term payment forbearance program or short-term 
repayment plan under Sec.  1024.41(c)(2)(iii).
    The Bureau is also adopting new comment 41(c)(2)(iii)-5 to clarify 
the written notice requirement for short-term loss mitigation options 
under Sec.  1024.41(c)(2)(iii). Comment 41(c)(2)(iii)-5.i notes that 
Sec.  1024.41(c)(2)(iii) requires a servicer to provide the borrower a 
written notice stating, among other things, the specific payment terms 
and duration of a short-term payment forbearance program or a short-
term repayment plan offered based on an evaluation of an incomplete 
application. The comment explains that, generally, a servicer complies 
with these requirements if the written notice states the amount of each 
payment due during the program or plan, the date by which the borrower 
must make each payment, and whether the mortgage loan will be current 
at the end of the program or plan if the borrower complies with the 
program or plan. The Bureau believes that these guidelines clarify a 
servicer's obligations under Sec.  1024.41(c)(2)(iii) and may help 
borrowers better understand short-term programs or plans offered based 
upon incomplete applications.
    One commenter noted that servicers will not always know precisely 
how a borrower's payments will change during a short-term payment 
forbearance program or short-term repayment plan. New comment 
41(c)(2)(iii)-5.ii clarifies how a servicer may comply with the 
requirement in this circumstance. The comment describes how a servicer 
complies when, at the time a servicer provides the written notice, the 
servicer lacks information necessary to determine the amount of a 
specific payment due during the program or plan (for example, because 
the borrower's interest rate will change to an unknown rate based on an 
index or because an escrow account computation year as defined in Sec.  
1024.17(b) will end and the borrower's escrow payment may change). The 
comment states that, in such circumstances the servicer complies with 
the requirement to disclose the specific payment terms and duration of 
a short-term payment forbearance program or short-term repayment plan 
if the disclosures are based on the best information reasonably 
available to the servicer at the time the notice is provided and the 
written notice identifies which payment amounts may change, states that 
such payment amounts are estimates, and states the general reason that 
such payment amounts might change. The comment provides an illustrative 
example.
    The Bureau is also adopting new comment 41(c)(2)(iii)-6 to clarify 
the requirement that a servicer must provide the written notice 
promptly after offering a short-term payment forbearance program or 
short-term repayment plan. The comment explains that, generally, a 
servicer acts promptly to provide the written notice if the servicer 
provides it no later than five days (excluding legal public holidays, 
Saturdays, and Sundays) after offering the borrower a short-term 
payment forbearance program or short-term repayment plan. The comment 
also clarifies that a servicer may provide the written notice at the 
same time the servicer offers the borrower the program or plan. 
Finally, the comment states that a written offer that contains all the 
required elements of the written notice also satisfies Sec.  
1024.41(c)(2)(iii).
Reasonable Diligence
    The Bureau is also revising the introductory text to comment 
41(b)(1)-4 and the substance of comment 41(b)(1)-4iii to clarify a 
servicer's obligation under Sec.  1024.41(b)(1) to act with reasonable 
diligence in obtaining documents and information to complete a loss 
mitigation application when the servicer offers the borrower a short-
term payment forbearance program or short-term repayment plan under 
Sec.  1024.41(c)(2)(iii). Current comment 41(b)(1)-4 describes the 
reasonable diligence obligation generally. The comment states that a 
servicer must request information necessary to make a loss mitigation 
application complete

[[Page 72249]]

promptly after receiving the loss mitigation application. Comments 
41(b)(1)-4.i through -4.iii clarify reasonable diligence for purposes 
of Sec.  1024.41(b)(1) in specific circumstances. Comment 41(b)(1)-
4.iii clarifies the standard when a servicer offers a short-term 
payment forbearance programs under Sec.  1024.41(c)(2)(iii). Proposed 
revisions would have extended the comment to include short-term 
repayment plans.
    The Bureau received many comments discussing the proposed 
amendments to a servicer's reasonable diligence obligations with 
respect to short-term loss mitigation options offered under Sec.  
1024.41(c)(2)(iii). Some consumer advocacy groups said that the Bureau 
should strengthen the applicable reasonable diligence standard a 
servicer must employ to obtain a complete application from the 
borrower. Under the proposal, servicers generally would have been 
allowed to suspend such efforts until near the end of the program or 
plan. The commenters recommended a rule that more clearly states that a 
servicer's reasonable diligence obligations resume if a borrower 
defaults on a short-term repayment plan and requires servicers to 
provide the borrower with a written notice stating that the borrower 
may submit a complete application and be considered for all loss 
mitigation options. These consumer advocacy groups stated that these 
protections are critical because a borrower might default on a 
repayment plan months before the plan will terminate under the terms of 
the agreement. They also suggested that additional protections are 
essential because the consequences of default for these borrowers could 
be severe.
    Some industry commenters suggested, conversely, that the Bureau 
limit the applicable reasonable diligence requirements. For example, a 
trade association said that a full loss mitigation review under Sec.  
1024.41 is not necessary for all borrowers and that requiring servicers 
nonetheless to continue reasonable diligence and other applicable 
communication requirements under Sec.  1024.41 assumes that borrowers 
are uninformed, would frustrate some borrowers, and would lead to 
negative perceptions of customer service. One servicer recommended 
suspending reasonable diligence requirements for borrowers in short-
term repayment plans while continuing to require reasonable diligence 
for borrowers in short-term forbearance programs. This servicer 
suggested that reasonable diligence should be suspended for short-term 
repayment plans because, unlike short-term forbearance programs, short-
term repayment plans are expected to bring the loans current. Another 
servicer advocated against requiring servicers to provide borrowers who 
receive a short-term repayment plan with information about remaining 
items needed to complete the application, reasoning that the plans are 
designed to cure delinquencies and borrowers would receive necessary 
information if they default on the plan.
    As finalized, comment 41(b)(1)-4 contains minor revisions to the 
introductory text to improve clarity. Revised comment 41(b)(1)-4.iii 
contains several elements, which provide non-exhaustive descriptions of 
a servicer's reasonable diligence obligations during different phases 
of a short-term loss mitigation option offered under Sec.  
1024.41(c)(2)(iii).
    First, comment 41(b)(1)-4.iii explains that a servicer exercises 
reasonable diligence by providing the borrower the written notice 
pursuant to Sec.  1024.41(c)(2)(iii). The Bureau is not adopting 
proposed language that would have directed the servicer to inform the 
borrower, as part of its reasonable diligence obligations, that the 
offer of a payment forbearance program or repayment plan was based on 
an evaluation of an incomplete application, as the final rule 
incorporates that information as an express requirement in the written 
notice setting forth the terms and duration of the program or plan 
under Sec.  1024.41(c)(2)(iii).
    Second, as revised, comment 41(b)(1)-4.iii provides that, if the 
borrower remains in compliance with the short-term payment forbearance 
program or short-term repayment plan, and the borrower does not request 
further assistance, the servicer may suspend reasonable diligence 
efforts until near the end of the payment forbearance program or 
repayment plan. However, if the borrower fails to comply with the 
program or plan or requests further assistance, the servicer must 
immediately resume reasonable diligence efforts. Suspending reasonable 
diligence efforts to complete an application during a performing short-
term payment forbearance program or short-term repayment plan may avoid 
borrower frustration and unnecessary burden, but servicers must resume 
those efforts immediately in the specified circumstances because of the 
substantial consequences borrowers may face in the absence of a 
complete application. Many of Sec.  1024.41's protections do not apply 
until a borrower completes an application, and borrowers are generally 
at risk of losing additional protections under Sec.  1024.41 the longer 
a delinquency lasts while an application remains incomplete. Borrowers 
who default on short-term loss mitigation option under Sec.  
1024.41(c)(2)(iii) may be particularly at risk. While Sec.  
1024.41(c)(2)(iii) prohibits servicers from making the first notice or 
filing required by applicable law for any judicial or non-judicial 
foreclosure process, moving for foreclosure judgment or order of sale, 
or conducting a foreclosure sale, those protections may no longer apply 
once a borrower is not performing under a short-term loss mitigation 
option. Borrowers do not receive the similar protections available 
under Sec.  1024.41(f)(2) or (g) until they complete an application 
and, by the time of default on the short-term loss mitigation option, 
they may have lost the possibility of obtaining those protections if 
they completed the application within 37 days of a scheduled 
foreclosure sale. The Bureau therefore believes it is vital that 
servicers not delay in resuming efforts to assist the borrower in 
completing an application, upon either the borrower's request or the 
borrower's failure of compliance with the short-term loss mitigation 
option.
    Third, as revised, comment 41(b)(1)-4.iii makes more explicit that, 
near the end of a short-term payment forbearance program offered based 
on an evaluation of an incomplete loss mitigation application pursuant 
to Sec.  1024.41(c)(2)(iii), and prior to the end of the forbearance 
period, if the borrower remains delinquent, a servicer must contact the 
borrower to determine if the borrower wishes to complete the loss 
mitigation application and proceed with a full loss mitigation 
evaluation. This aspect of the comment applies only to a short-term 
payment forbearance program and not to a short-term repayment plan as 
proposed because short-term repayment plans must be designed to cure 
the delinquency under comment 41(c)(2)(iii)-4. Consequently, as some 
commenters noted, as long as a borrower is performing under such a plan 
and does not request further assistance, requiring a servicer to engage 
in efforts to collect a complete loss mitigation application could 
create unnecessary burden and frustrate the borrower.
41(c)(2)(iv) Facially Complete Application
    Current Sec.  1024.41(c)(2)(iv) provides that, among other things, 
if a borrower submits all the missing documents and information as 
stated in the notice required pursuant to Sec.  1026.41(b)(2)(i)(B), or 
no additional information is requested in such notice, an application 
shall be considered

[[Page 72250]]

facially complete. If a servicer later discovers additional information 
or corrections to a previously submitted document are required to 
complete the application, certain protections under Sec.  1024.41 that 
apply as of the date on which a servicer receives a complete 
application continue to run from the date the application became 
facially complete and continue until the borrower is given a reasonable 
opportunity to complete the application. If the borrower completes the 
application during this period, the servicer must treat the application 
as complete as of the date it was facially complete, for purposes of 
certain provisions under Sec.  1024.41 and as of the date the 
application was actually complete for the purposes Sec.  1024.41(c).
    The Bureau proposed three revisions to Sec.  1024.41(c)(2)(iv). 
First, the Bureau proposed a minor technical change to correct the 
erroneous reference to Sec.  1026.41(b)(2)(i)(B), which should refer to 
Sec.  1024.41(b)(2)(i)(B). Second, the Bureau proposed to provide that 
an application becomes facially complete when, in addition to the 
conditions described above, a servicer is required, under proposed 
Sec.  1024.41(c)(3)(i), to send the borrower a notice of complete 
application. Section 1024.41(c)(3) requires servicers to provide a 
written notice informing the borrower, among other things, when the 
loss mitigation application becomes complete. However, the Bureau 
recognizes that, in certain circumstances, servicers might require 
additional documents or information from a borrower after sending a 
notice of complete application under Sec.  1024.41(c)(3)(i). To clarify 
the status of an application in this circumstance, the Bureau proposed 
to extend expressly the facially complete application status described 
in Sec.  1024.41(c)(2)(iv) to an application when the servicer is 
required to provide the notice of complete application under proposed 
Sec.  1024.41(c)(3).
    Third, the Bureau proposed to provide that, if a servicer requests 
the required additional information or corrections to a previously 
submitted document, and the borrower timely submits those materials to 
complete the application as described in 1024.41(c)(2)(iv), the 
application shall be considered complete as of the date it first became 
facially complete for purposes of specified provisions in Sec.  
1024.41, and as of the date the application was actually complete for 
the purposes Sec.  1024.41(c). In proposing this revision, the Bureau 
recognized that an application may become complete more than once 
during a single cycle.
    The Bureau received several comments on the proposed amendments. 
Consumer advocacy groups supported maintaining the initial date of 
completion as the date on which dual tracking protections under Sec.  
1024.41 begin to apply, saying that doing so should limit incentives 
for servicers to promote delay and seek additional fees from borrowers. 
They also expressed concern about ongoing servicer delays in the loss 
mitigation application and evaluation processes. One trade association 
commented that the proposal could harm servicers by providing borrowers 
with additional time to submit application materials without affording 
servicers a similar extension. The group suggested that the Bureau 
lengthen the amount of time a servicer has to evaluate a complete loss 
mitigation application.
    The Bureau is finalizing Sec.  1024.41(c)(2)(iv) substantially as 
proposed, with minor revisions. Under the revisions to Sec.  
1024.41(c)(2)(iv), a loss mitigation application is facially complete 
once the servicer receives the complete application, regardless of when 
the servicer determines that the application is complete. As a result, 
the protections under Sec.  1024.41 that begin when an application 
becomes facially complete are in effect when a borrower submits all the 
missing documents and information as stated in the notice required 
under Sec.  1024.41(b)(2)(i)(B), when no additional information is 
requested in such notice, or once the servicer is required to provide 
the borrower a written notice of complete application pursuant to Sec.  
1024.41(c)(3)(i).
    Revised Sec.  1024.41(c)(2)(iv) also requires that, if a servicer 
later discovers that additional information or corrections to a 
previously submitted document are required to complete the application, 
the servicer must promptly request the missing information or corrected 
documents and treat the application as complete for purposes of Sec.  
1024.41(f)(2) and (g) until the borrower is given a reasonable 
opportunity to complete the application. Further, if the borrower 
timely submits those materials to complete the application, the 
servicer must treat the application as complete as of the date it first 
became facially complete for the purposes of Sec.  1024.41(d), (e), 
(f)(2), (g), and (h), and as of the date the application was actually 
complete for the purposes of Sec.  1024.41(c). Finally, a servicer that 
complies with Sec.  1024.41(c)(2)(iv) will be deemed in the final rule 
to have fulfilled its obligation to provide an accurate notice under 
Sec.  1024.41(b)(2)(i)(B).
    Various protections under Sec.  1024.41 depend on the timing of a 
complete application. For example, evaluation requirements, certain 
dual tracking protections, and appeal rights apply only if the servicer 
received a complete application a certain number of days before a 
foreclosure sale. Tying the date of completion to the date an 
application first became facially complete for purposes of specified 
provisions in Sec.  1024.41 ensures that borrowers do not lose the 
protections associated with those provisions because a servicer has 
requested additional information. The protections apply as though the 
application was complete as of the original date it became facially 
complete.
    As the Bureau explained in the proposal, the amendments to Sec.  
1024.41(c)(2)(iv) are intended to provide both borrowers and servicers 
with certainty about whether and when various protections apply under 
Sec.  1024.41 when a servicer requires additional information for an 
application that the borrower previously completed. Also, continuing 
borrower protections under Sec.  1024.41 encourages servicers to 
process loss mitigation applications efficiently.
    To the extent that Sec.  1024.41(c)(2)(iv) allows borrowers 
additional time to complete an application without providing 
corresponding extensions for servicers, as one commenter suggested, the 
Bureau believes that this is appropriate. The Bureau believes that 
borrowers have strong incentives not to delay the provision of 
application materials and expects servicers to be actively engaged with 
borrowers in all stages of the loss mitigation application process. If 
a borrower is actively engaged in the loss mitigation application 
process and has completed an application, the servicer should not be 
permitted to make the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process or to move for 
foreclosure judgment or order of sale or conduct a foreclosure sale, as 
applicable, until the servicer evaluates the borrower for loss 
mitigation. The Bureau continues to believe that the loss mitigation 
rules afford servicers sufficient time to evaluate a complete 
application and does not believe that an extension is justified.
    Nothing in Sec.  1024.41(c)(2)(iv) alters the servicer's ability to 
request additional information or corrections to a previously submitted 
document that are required to complete the application. The Bureau 
recognizes that there are circumstances where servicers may need to 
request additional

[[Page 72251]]

information or corrections to a previously submitted document when 
required to evaluate the borrower pursuant to Sec.  1024.41(c)(1) and 
owner or assignee requirements. When they do so unnecessarily, however, 
it can prolong application timelines, increase costs for borrowers, and 
leave borrowers unsure of their application status. Repeated requests 
for additional documents and information by servicers could impede 
borrower protections under the rules. The Bureau will continue to 
monitor the market in this area.
41(c)(3) Notice of Complete Application
    The Bureau proposed to require a servicer to provide a written 
notice of complete loss mitigation application under new Sec.  
1024.41(c)(3). The Bureau is adopting Sec.  1024.41(c)(3) largely as 
proposed but with several revisions to the contents and timing of the 
written notice.
    In advance of the proposal, the Bureau learned from consumer 
advocacy groups that, during the loss mitigation application process, 
borrowers are frequently uncertain about whether an application was 
complete. Current Sec.  1024.41 requires a servicer to notify a 
borrower that an application is complete only if the application is 
complete when the servicer provides the notice acknowledging receipt of 
an application under Sec.  1024.41(b)(2)(i)(B). The Bureau learned from 
pre-proposal outreach efforts that applications are rarely complete at 
that stage. Many borrowers who completed an application might not 
receive any notice specifying that the application was complete. 
Because the foreclosure protections under Sec.  1024.41(f)(2) and (g) 
\246\ are triggered based on when the borrower submits a complete loss 
mitigation application, clarity as to when the application is complete 
is vital.
---------------------------------------------------------------------------

    \246\ Subject to certain limitations, Sec.  1024.41(f)(2) 
prohibits a servicer from making the first notice or filing required 
by applicable law for any judicial or non-judicial foreclosure 
process if a borrower submits a complete application during the pre-
foreclosure review period set forth in Sec.  1024.41(f)(1) or before 
the servicer has made the first notice or filing, and Sec.  
1024.41(g) prohibits a servicer from moving for foreclosure judgment 
or order of sale, or conducting a foreclosure sale, if the borrower 
completes a loss mitigation application after the servicer has made 
the first notice or filing but more than 37 days before a 
foreclosure sale. In general, neither provision applies if the 
servicer has denied the application and no appeal is available; the 
borrower rejects all loss mitigation options offered by the 
servicer; or the borrower fails to perform under an agreement on a 
loss mitigation option.
---------------------------------------------------------------------------

    Proposed Sec.  1024.41(c)(3)(i) would have required a servicer to 
provide a borrower a written notice, including specific information, 
promptly upon receiving the borrower's complete application. As 
proposed, the notice would have informed the borrower of: The 
application's completion; the date the servicer received the complete 
application; whether a foreclosure sale was scheduled as of the date 
the servicer received the complete application and, if so, the date of 
that scheduled sale; and the date the borrower's foreclosure 
protections began under Sec.  1024.41(f)(2) and (g), as applicable, 
with a concise description of those protections. The notice also would 
have included a statement that the servicer expects to complete its 
evaluation within 30 days of the date it received the complete 
application and a statement that, although the application is complete, 
the borrower may need to submit additional information at a later date 
if the servicer determines that it is necessary. Finally, the notice 
would have informed the borrower, if applicable, of the borrower's 
rights to appeal the servicer's determination to deny the borrower for 
any trial or permanent loan modification under Sec.  1024.41(h).
    Proposed Sec.  1024.41(c)(3)(ii) stated that a servicer need not 
provide the notice of complete application in three circumstances: If 
the servicer has already notified the borrower under Sec.  
1024.41(b)(2)(i)(B) that the application is complete and the servicer 
has not subsequently requested additional information or a corrected 
version of a previously submitted document from the borrower to 
complete the application, the application was not complete or facially 
complete more than 37 days before a foreclosure sale, or the servicer 
has already provided a notice approving or denying the application 
under Sec.  1024.41(c)(1)(ii). These exceptions were intended to avoid 
unnecessary burden on servicers and prevent borrower confusion due to 
the receipt of conflicting or redundant information.
    The Bureau also proposed commentary to explain certain aspects of 
the notice requirement under proposed Sec.  1024.41(c)(3). Proposed 
comment 41(c)(3)(i)-1 would have explained that, generally, a servicer 
complies with the requirement to provide a borrower with written notice 
promptly by providing the notice within five days of receiving a 
complete application. However, the Bureau recognized that servicers 
might sometimes require more than five days to determine whether a loss 
mitigation application is complete. In the proposal, the Bureau 
explained its belief that the general five day standard would provide 
servicers with sufficient flexibility to make an accurate determination 
but prevent undue delay. Proposed comment 41(c)(3)(i)-2 would have 
provided that the date the borrower's protections began under Sec.  
1024.41(f)(2) and (g) must be the date on which the application became 
either complete or facially complete, as applicable.
    Proposed comment 41(c)(3)(i)-3 would have explained that Sec.  
1024.41(c)(3)(i) requires a servicer to send a notification, subject to 
the exceptions under Sec.  1024.41(c)(3)(ii), every time a loss 
mitigation application becomes complete. The proposed comment further 
would have clarified that, if after providing a notice under Sec.  
1024.41(c)(3)(i) a servicer requests additional information or 
corrections to a previously submitted document required to complete the 
application in accordance with Sec.  1024.41(c)(2)(iv), the servicer 
might have to provide an additional notice under Sec.  1024.41(c)(3)(i) 
if the borrower submits the additional information or corrected 
documents to complete the application. The Bureau explained in the 
proposal that requiring a servicer to send an additional notice under 
these circumstances would help ensure that a borrower has accurate and 
current information about the status of the loan and when to expect a 
servicer to complete the evaluation.
    The Bureau explained in the proposal that requiring servicers to 
provide borrowers with the information in the notice of complete 
application under proposed Sec.  1024.41(c)(3)(i) would ensure that 
borrowers are informed of the next steps in the evaluation process. The 
Bureau explained its belief that receiving notice of when to expect an 
offer or denial would permit the borrower to make better-informed 
decisions. Additionally, the Bureau stated that requiring the notice of 
complete application to indicate the date that the servicer received a 
complete application would help both servicers and borrowers in 
determining which protections apply under Sec.  1024.41. The Bureau 
also indicated that the proposed disclosure that the servicer may need 
additional or updated information from the borrower after determining 
that the application was complete would reduce borrower confusion when 
and if the servicer requests such additional information.
    The Bureau sought comment on whether the notice of complete 
application required under proposed Sec.  1024.41(c)(3) should include 
additional or different disclosures than those listed above. The Bureau 
also sought comment on whether it should finalize a stricter timing 
requirement for

[[Page 72252]]

providing the notice than proposed under Sec.  1024.41(c)(3)(i) and, if 
so, what the specific number of days should be.
    Numerous commenters, including servicers, trade associations, and 
consumer advocacy groups, expressed general support for the proposal to 
require servicers to provide a notice of complete application to 
borrowers. A trade association stated that requiring servicers to 
provide a notice of complete application would operate in conjunction 
with proposed comment 41(b)(1)-1, which, in part, would have clarified 
that servicers can generally stop collecting application materials for 
a given loss mitigation option upon learning that the consumer is 
ineligible for that option, to alleviate unnecessary burden on 
borrowers while concurrently requiring servicers to engage in best 
efforts to collect loss mitigation application materials from 
borrowers. One servicer commented that the notice of complete 
application as proposed would provide borrowers with more clarity about 
the loss mitigation process. A number of consumer advocacy groups urged 
the Bureau to base the onset of foreclosure protections on the 
submission of an initial application but stated that, if the Bureau 
retains the current approach to Sec.  1024.41, it should require 
servicers to provide a notice of complete application to borrowers, to 
address borrower uncertainty and unjustified denials. One trade 
association stated that a notice of complete application would alert 
borrowers to critical protections and deadlines under State and Federal 
rules. Several commenters expressed general support for the notice but 
took issue with other elements of the proposal; those comments are 
addressed in the discussion of the relevant elements below.
    Some commenters addressed cost-benefit considerations of requiring 
servicers to provide a notice of complete application. Several said 
that requiring the notice would not create significant additional 
burden for servicers, for example, because some jurisdictions already 
require servicers to send such notices. However, other commenters 
stated that the benefit to borrowers of receiving a notice of complete 
application would not justify the additional cost, burden, or risk for 
servicers. Some industry commenters suggested that the notice would not 
significantly benefit borrowers because they have other means to secure 
relevant information, they will have been in contact with servicers, or 
they might find the notice confusing due to the various other notices 
they receive relating to the delinquency and their rights. Industry 
commenters also stated that the new notice requirement would increase 
servicer cost or burden, as well as the risk of servicer liability. One 
trade association suggested that the additional cost of the notice 
requirement would make credit more expensive.
    Some commenters addressed the proposed requirement to provide the 
written notice promptly, generally within five days of receiving the 
complete application. Consumer advocacy groups argued that the timing 
requirement should be short and inflexible because a flexible standard 
invites delay. Consumer advocacy groups also stated that a five-day 
standard would encourage servicers to evaluate complete applications 
earlier. They stated that it would not burden servicers or result in 
undue delay because the standard would align with the standard in Sec.  
1024.41(b)(2)(i)(B). One consumer advocacy group noted that, because 
servicers may need additional time in some cases, the Bureau should 
finalize a maximum time limit to reduce confusion and delay.
    Numerous industry commenters requested that servicers have more 
than five days to provide the notice. Some said that a five-day 
standard would not leave servicers with sufficient time to review the 
application and determine whether it is complete, with one industry 
trade association saying that the standard would suffice only if the 
disclosures were generic and requesting 10 or 15 days to provide the 
notice. One servicer said that the notice should not state whether the 
application is complete but that servicers should be required to send a 
notice each time a borrower submits application materials to 
acknowledge receipt and specify which items remain outstanding.
    Commenters also addressed the content of the written notice. 
Consumer advocacy groups stated that requiring the notice to contain 
the disclosures proposed under Sec.  1024.41(c)(3)(i)(A) through (F) 
would create a bright-line, written record of when dual tracking 
protections begin and when other requirements under Sec.  1024.41 
apply. Several industry commenters recommended that the notice contain 
only standard disclosures that servicers do not need to adjust for each 
individual borrower, to reduce compliance burdens. For example, several 
servicers said that the notice should focus on informing the borrower 
of the application status, as borrowers can obtain the other 
information elsewhere. One of these servicers stated that the notice 
should include the following generic disclosures: That the application 
is complete; that the servicer expects to complete its evaluation 
within 30 days; that additional information may later be required; 
that, if additional information is required, the servicer will complete 
its evaluation within 30 days of receiving that additional information; 
and that the servicer will take measures to provide foreclosure 
protections.
    A trade association expressed concern that the proposed contents of 
the written notice could potentially mislead some borrowers and result 
in FDCPA litigation. The association stated that: (1) State laws 
sometimes offer protections that the written notice under proposed 
Sec.  1024.41(c)(3)(i) would not disclose, so the written notice could 
suggest that borrowers have fewer protections than they actually have; 
(2) the proposed disclosures might mislead borrowers into believing 
that a servicer cannot execute a foreclosure sale even after denying 
the application, particularly when a servicer is statutorily required 
to send a separate notice of sale; (3) borrowers could be misled by a 
notice containing both foreclosure-related disclosures and a statement 
that the application is complete; and (4) the Bureau could alleviate 
these concerns by drafting specific language for the notice under Sec.  
1024.41(c)(3)(i) and by introducing a safe harbor for the notices under 
the FDCPA.
    Several commenters took issue with proposed Sec.  
1024.41(c)(3)(i)(C) in particular, which would have required servicers 
to disclose the date of a scheduled foreclosure sale as of when the 
servicer received the complete application. A servicer argued that 
disclosing the sale date is unnecessary because the borrower receives 
notification of the sale date when the sale is scheduled and postponed. 
Several trade associations suggested that the sale date disclosure 
might create difficulties when servicers are not in control of the sale 
date, such as when the servicer has filed a motion in court to postpone 
the sale but the court has yet to respond, when the sheriff responsible 
for delivering the notice of sale schedules the sale shortly after the 
servicer issues the notice under Sec.  1024.41(c)(3), or when the 
sheriff has already scheduled the sale but delays informing the 
servicer. In these circumstances, the notice under Sec.  
1024.41(c)(3)(i) could be misleading or incorrect. A trade association 
further opposed disclosing a scheduled foreclosure sale date on the 
notice because State law may control how the delivery of sale date 
information must be displayed, although the association was unaware of 
specific conflicts with

[[Page 72253]]

State law. The trade association also stated that, more generally, 
determining the foreclosure sale date at a particular point in time is 
often not straight-forward, and it expressed concern that an incorrect 
statement of sale date could invalidate the sale and lead to attorney 
and trustee liability. Consumer advocacy groups suggested that a final 
rule adopting the notice requirement should require a statement whether 
a scheduled foreclosure sale has been canceled or postponed.
    Other commenters raised miscellaneous other issues relating to 
specific proposed disclosures. A trade association recommended that the 
Bureau clarify how servicers must describe the borrower's foreclosure 
protections under proposed Sec.  1024.41(c)(3)(i)(D), saying it would 
be difficult for servicers to determine which protections apply at a 
given moment and how to describe those protections, particularly given 
the various protections that State law may provide. Several commenters 
expressed concerns about the disclosure proposed under Sec.  
1024.41(c)(3)(i)(G) relating to a borrower's appeal rights. One 
servicer said that the proposed disclosure would be particularly 
confusing to borrowers. Another servicer stated that information about 
a borrower's appeal rights is more appropriate in a loss mitigation 
determination letter provided under Sec.  1024.41(c)(1)(ii) than at the 
time the servicer receives the complete application.
    One consumer advocacy group supported proposed comment 41(c)(3)(i)-
3, which would have clarified that servicers must provide a notice of 
complete application to borrowers each time an application becomes 
complete. The commenter stated that this requirement would avoid 
borrower uncertainty that occurs when a servicer fails to inform the 
borrower when the application is complete. Several industry commenters 
supported the requirement of a notice of complete application while 
opposing the proposal to require the servicer to send additional 
notices every time the borrower's application becomes complete. A 
servicer said that additional notices after the first notice would be 
unnecessary because a borrower's foreclosure protections under Sec.  
1024.41 begin when the application becomes facially complete and last 
through any appeal. A credit union suggested that receiving additional 
notices would confuse borrowers and result in unnecessary inquiries.
    Commenters made other recommendations relating to the proposed 
notice of complete application. Consumer advocacy groups and a trade 
association recommended requiring servicers to provide the notice of 
complete application to the servicer's foreclosure counsel where 
applicable to prevent improper foreclosure filings. A trade association 
requested that the Bureau issue a model form for the notice. One 
consumer advocacy group argued that servicers should provide a list of 
borrower rights and protections under Regulation X. Consumer advocacy 
groups recommended that the Bureau require servicers to document the 
need for additional information after the application becomes complete 
or facially complete to curb dilatory tactics.
    The Bureau is adopting Sec.  1024.41(c)(3) and related commentary 
with several revisions to the content and timing of the written notice. 
First, the Bureau is revising the disclosures that a written notice 
must contain pursuant to Sec.  1024.41(c)(3)(i). As revised, Sec.  
1024.41(c)(3)(i) requires that the written notice set forth the 
following information: (1) That the loss mitigation application is 
complete; (2) the date the servicer received the complete application; 
(3) that the servicer expects to complete its evaluation within 30 days 
of the date it received the complete application; (4) that the borrower 
is entitled to certain foreclosure protections because the servicer has 
received the complete application and, if the servicer has not made the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process, that the servicer cannot make the 
first notice or filing required to commence or initiate the foreclosure 
process under applicable law before evaluating the borrower's complete 
application, or, if the servicer has made such first notice or filing, 
that the servicer has begun the foreclosure process, and that the 
servicer cannot conduct a foreclosure sale before evaluating the 
borrower's complete application; (5) that the servicer may need 
additional information at a later date to evaluate the application, in 
which case the servicer will request that information from the borrower 
and give the borrower a reasonable opportunity to submit it, the 
evaluation process may take longer, and the foreclosure protections 
could end if the servicer does not receive the information as 
requested; and (6) that the borrower may be entitled to additional 
protections under State or Federal law. Although these disclosures do 
not contain exclusively generic disclosures as some commenters 
requested, the Bureau has minimized the degree to which servicers will 
need to tailor the disclosures to individual borrowers or make complex 
determinations about a borrower's protections or application status.
    The first three of these disclosures were included in the proposal, 
although the Bureau has made several non-substantive revisions to 
improve clarity. The remaining disclosures have been substantially 
revised or are new. First, for example, the disclosures relating to a 
borrower's foreclosure protections now consist of one of two 
standardized disclosures, depending on the foreclosure status. The 
proposal would have required servicers to state the date on which the 
borrower's protections began under Sec.  1024.41(f)(2) and (g) and to 
describe those protections concisely. As one commenter noted, servicers 
may have had difficulty determining which protections apply at a given 
moment and how to describe those protections, particularly given the 
various protections that State law may provide. As revised (and as 
clarified in comment 41(c)(3)(i)-2, discussed further below), the 
disclosures provide borrowers with sufficient information about the 
status of the foreclosure and their foreclosure protections under 
Regulation X but eliminate much of the burden and risk that the 
proposal may have introduced. The Bureau believes that receiving these 
disclosures will help borrowers understand their rights. Although the 
revised disclosures do not restate verbatim the protections of Sec.  
1024.41(f)(2) and (g), the Bureau believes that they alert borrowers to 
the main contours of the foreclosure protections. While commenters 
expressed concern that disclosing these dual tracking protections would 
lead borrowers to believe that a servicer cannot execute a foreclosure 
sale even after denying the application, the Bureau believes that this 
is unlikely. The notice must expressly state that the servicer cannot 
take the applicable actions with respect to foreclosure before 
evaluating the application. The Bureau believes the notice will 
effectively communicate to the borrower that the dual tracking 
protections may end.
    The Bureau is also revising the proposed disclosure relating to a 
servicer's potential need for additional information notwithstanding 
the complete application. Under Sec.  1024.41(c)(3)(i)(E) as adopted, 
the written notice must disclose that the servicer may need additional 
information at a later date to evaluate the application, in which case 
the servicer will request that information from the borrower and give 
the borrower a reasonable opportunity to submit it,

[[Page 72254]]

the evaluation process may take longer, and the foreclosure protections 
could end if the servicer does not receive the information as 
requested. Servicers sometimes request additional application materials 
from borrowers after an application becomes complete, and pursuant to 
Sec.  1024.41(c)(2)(iv) a borrower might lose protections under Sec.  
1024.41 if the borrower fails to respond timely to such requests. 
Borrowers should be alerted to the possibility that servicers may 
require them to submit additional documents even after notifying them 
that an application is complete and that they will need to respond in a 
timely way to those requests for additional documents.
    The Bureau also has decided, in response to concerns raised by 
commenters, to require an additional disclosure in Sec.  
1024.41(c)(3)(i)(F), stating that the borrower may be entitled to 
additional protections under State or Federal law. Disclosing only the 
foreclosure protections described above could suggest that borrowers 
have fewer protections than they in fact have under all applicable 
laws. This could discourage borrowers from researching or enforcing 
those other protections. Thus, the Bureau is adopting the new 
disclosure under Sec.  1024.41(c)(3)(i)(F) to ensure that borrowers are 
aware that protections set forth on the written notice may not be an 
exhaustive enumeration of their legal rights and protections.
    The Bureau has decided not to adopt two other proposed disclosures. 
The first of these is whether a foreclosure sale was scheduled as of 
the date the servicer received the complete application and, if so, the 
date of that scheduled sale. The second is the proposed disclosure 
that, if applicable, the borrower will have the opportunity to appeal 
the servicer's determination to deny the borrower for any trial or 
permanent loan modification pursuant to Sec.  1024.41(h).
    The Bureau is not requiring the first of these disclosures because, 
although the disclosure may have benefited some borrowers and enhanced 
servicers' ability to track borrowers' protections under Sec.  1024.41, 
the Bureau believes that the operational complexities, costs of 
compliance, and resulting potential legal risks do not justify its 
inclusion. The Bureau understands that third parties sometimes schedule 
the foreclosure sale date, and that the date is sometimes subject to 
change. In these circumstances, servicers may have difficulty timely 
determining and disclosing the date accurately. The Bureau believes 
that borrowers generally receive the sale date disclosure on other 
notices and are often able to confirm the sale date through third 
parties or public records. The Bureau also expects that servicers, in 
the course of their loss mitigation communications with borrowers, 
ordinarily communicate the foreclosure sale date to borrowers. The 
Bureau may revisit requiring disclosure of the foreclosure sale date at 
a later time if the Bureau learns that borrowers in fact have 
difficulty ascertaining the scheduled foreclosure sale date. As the 
Bureau is not requiring servicers to disclose the date of a scheduled 
foreclosure sale, it also is not requiring servicers to disclose 
whether the sale date has been canceled or postponed, as consumer 
advocacy groups recommended. Again, the Bureau expects that this is 
information that servicers do ordinarily communicate to borrowers, and 
the Bureau will continue to monitor this area for consumer harm.
    The second disclosure the Bureau is not requiring, as noted above, 
is the proposed language relating to a borrower's appeal rights. The 
Bureau has concluded that disclosing whether a borrower will have 
appeal rights under Sec.  1024.41(h) on a notice of complete 
application would be premature. Borrowers will have just completed the 
application at this stage, and they may not have the opportunity to 
exercise their appeal rights for more than a month in some instances; 
they also in some cases never have any need to exercise their appeal 
rights and thus will not need the information at all. Borrowers still 
will learn of their appeal rights when the information is more salient: 
If and when an evaluation leads to a denial of a loan modification 
option and the servicer provides the written notice of determination 
pursuant to Sec.  1024.41(c)(1)(ii).
    The Bureau is also revising the amount of time a servicer has after 
receiving a complete application to provide a written notice to provide 
servicers with greater clarity and (in most cases) slightly more time 
for compliance. Proposed Sec.  1024.41(c)(3)(i) would have required 
servicers to provide the notice promptly upon receiving a complete loss 
mitigation application, and proposed comment 41(c)(3)(i)-1 would have 
clarified that providing the notice within five calendar days would 
generally satisfy the requirement. Some commenters said that servicers 
should have more than five calendar days to provide the notice under 
Sec.  1024.41(c)(3)(i) because it would be difficult to comply with the 
proposed requirements within that timeframe. As adopted in final form, 
the section requires servicers to provide the notice within five days, 
excluding legal public holidays, Saturdays, and Sundays. To ensure that 
servicers do not delay, this bright-line standard is more prescriptive 
than the proposal, but it should allow servicers in most cases slightly 
longer to comply with the requirement than the proposal would have 
allowed. In conjunction with limiting the complexity of the disclosures 
as described above, the Bureau believes that this new standard of five 
days (excluding legal public holidays, Saturdays, and Sundays) should 
afford servicers sufficient time to review a borrower's application for 
completion and produce an accurate written notice of complete 
application. Additionally, the Bureau notes that this timeframe aligns 
with the timeframe afforded to servicers to provide written 
notification of a borrower's application status under Sec.  
1024.41(b)(2)(i)(B).
    At the same time, the Bureau does not believe that it would be 
appropriate to extend the time frame further. Some borrowers may need 
evidence that their loss mitigation application is complete to 
forestall a foreclosure action that would violate Sec.  1024.41(g). As 
consumer advocacy groups noted in comments to the proposal, a more 
flexible standard could result in delay and the consequent reduction of 
borrower protections. Therefore, the Bureau declines to adopt the 
longer timelines for providing the notice that some commenters 
suggested.
    The Bureau is adopting Sec.  1024.41(c)(3)(ii) substantially as 
proposed, with minor revisions to improve clarity. Section 
1024.41(c)(3)(ii) provides that a servicer is not required to provide a 
notice pursuant to Sec.  1024.41(c)(3)(i) under three circumstances: 
(1) The servicer has already provided the borrower a notice under Sec.  
1024.41(b)(2)(i)(B) informing the borrower that the application is 
complete and the servicer has not subsequently requested additional 
information or a corrected version of a previously submitted document 
from the borrower pursuant to Sec.  1024.41(c)(2)(iv); (2) the 
application was not complete or facially complete more than 37 days 
before a foreclosure sale; or (3) the servicer has already provided the 
borrower a notice regarding the application under Sec.  
1024.41(c)(1)(ii). As the Bureau explained in the proposal, these 
exceptions are intended to avoid unnecessary burden on servicers and 
prevent borrower confusion due to the receipt of conflicting or 
redundant information. The Bureau received no comments on this aspect 
of the proposal.

[[Page 72255]]

    Proposed comment 41(c)(3)(i)-1 is no longer necessary, as it would 
have clarified the requirement that servicers must provide the notice 
under Sec.  1024.41(c)(3)(i) promptly. As explained above, Sec.  
1024.41(c)(3)(i), as adopted, requires the servicer to provide the 
notice within five days (excluding Saturdays, Sundays, and legal 
holidays) after receiving a complete loss mitigation application. Thus, 
the Bureau is adopting entirely different content in new comment 
41(c)(3)(i)-1. New comment 41(c)(3)(i)-1 clarifies that a servicer 
complies with Sec.  1024.41(c)(3)(i)(B) (which requires the servicer to 
disclose on the written notice of complete application the date the 
servicer received the complete loss mitigation application) by 
disclosing the most recent date the servicer received the complete loss 
mitigation application. The comment provides an example illustrating 
this principle. The comment also includes a cross-reference to comment 
41(c)(3)(i)-3, which discusses a servicer's obligation to provide 
additional notices.
    The Bureau is adopting new comment 41(c)(3)(i)-1 to ensure that 
servicers understand that the section requires them to disclose the 
most recent date an application became complete, not the date the 
application initially became complete or facially complete. Consumer 
advocacy groups and servicers have informed the Bureau that servicers 
frequently require borrowers to submit additional information or 
corrected versions of previously submitted documents several times 
during the application process, both before and after an application 
becomes complete. Requiring the disclosure of the most recent date of 
completion will ensure that borrowers receive current information about 
the status of an application.
    The Bureau is also significantly revising comment 41(c)(3)(i)-2. 
Proposed comment 41(c)(3)(i)-2 would have clarified proposed 
disclosures relating to the date on which a borrower's protections 
began under Sec.  1024.42(f) and (g). As described above, the Bureau is 
not adopting those disclosures and is therefore replacing the substance 
of proposed comment 41(c)(3)(i)-2 in its entirety. New comment 
41(c)(3)(i)-2 instead clarifies that the two disclosures in Sec.  
1024.41(c)(3)(i)(D)(1) and (2) sets forth different requirements 
depending on whether the servicer has made the first notice or filing 
under applicable law for any judicial or non-judicial foreclosure 
process, as described in Sec.  1024.41(f). The comment also includes a 
cross-reference to comment 41(f)-1 for a description of whether a 
document is considered the first notice or filing under applicable law.
    The Bureau is adopting comment 41(c)(3)(i)-3 substantially as 
proposed, with minor revisions to improve clarity. It explains that, 
except as provided in Sec.  1024.41(c)(3)(ii), Sec.  1024.41(c)(3)(i) 
requires a servicer to provide a written notice every time a loss 
mitigation application becomes complete. The comment provides an 
example illustrating this requirement. The comment also includes a 
cross-reference to comment 41(c)(3)(i)-1, which clarifies that a 
servicer complies with Sec.  1024.41(c)(3)(i)(B) (which requires the 
servicer to disclose on the written notice of complete application the 
date the servicer received the complete loss mitigation application) by 
disclosing the most recent date the servicer received the complete loss 
mitigation application.
    Although commenters disagreed as to the merits of providing 
additional notices of complete application after the servicer receives 
additional information or corrected documents, the Bureau continues to 
believe that such notices are warranted to ensure that borrowers 
receive information regarding the current status of their applications 
and when their dual tracking protections begin. Particularly given that 
the notices will suggest to borrowers that failure to respond to 
follow-up requests could cause the consumer to lose certain foreclosure 
protections, the Bureau believes that it is important for borrowers to 
receive further updates about application status. In addition, because 
some servicers already provide a written notice of complete application 
to borrowers, they should incur only limited increases in their costs 
of compliance. The Bureau has also minimized the degree to which 
servicers will need to tailor the disclosures to individual borrowers 
or make complex determinations about a borrower's protections or 
application status.
    The Bureau is not adopting a requirement that servicers provide a 
notice of complete application to servicers' foreclosure counsel. Some 
commenters recommended this requirement as a means to reduce improper 
foreclosure filings that harm all parties. As discussed in the section-
by-section analyses of Sec.  1024.41(g), servicers must provide prompt 
instruction to foreclosure counsel upon receipt of a complete loss 
mitigation application. Similarly, as discussed in the section-by-
section analysis of Sec.  1024.38(b)(3)(iii), servicers must have 
policies and procedures reasonably designed to ensure that servicer 
personnel promptly inform foreclosure counsel that the servicer has 
received a complete application, among other things. The Bureau notes 
that the rule does not prohibit a servicer from voluntarily providing 
the notice of complete application required under Sec.  1024.41(c)(3) 
to foreclosure counsel. Doing so may be part of an effective procedure 
for informing foreclosure counsel about a borrower's loss mitigation 
application status as part of servicers' efforts to comply with Sec.  
1024.41(g). The Bureau believes, however, that it is appropriate to 
permit servicers discretion in determining alternative means for 
compliance with Sec. Sec.  1024.38(b)(3)(iii) and 1024.41(g) and 
therefore is not requiring servicers to provide the notice of complete 
application to foreclosure counsel. Whatever method a servicer chooses 
to instruct foreclosure counsel how to comply with Sec.  1024.41(g), 
the servicer remains responsible for ensuring compliance with Sec.  
1024.41(g).
    The Bureau is also not providing a safe harbor under the FDCPA for 
the written notice. The Bureau believes that the specific required 
disclosures in the notice, particularly as they have been further 
tailored in the final rule, should not prompt the filing of baseless 
FDCPA cases.
41(c)(4) Information Not in the Borrower's Control
    The Bureau proposed to amend Sec.  1024.41(c)(1) and to add Sec.  
1024.41(c)(4) to address a servicer's obligations with respect to 
information not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, it will offer a 
borrower. Among other things, the proposal would have introduced 
standards governing a servicer's attempts to collect information not in 
the borrower's control, prohibited a servicer from denying the 
application because it lacks such information, and required servicers 
to provide a written notice if a delay in receiving third-party 
information precludes the servicer from making the determination within 
30 days of receiving the complete application. Certain aspects of the 
proposal would have addressed third-party information, that is, 
information from a party other than the borrower or servicer, while 
other aspects would have addressed information not in the borrower's 
control, which could include third-party information or information 
within the servicer's control. For the reasons set forth below, the 
Bureau is adopting Sec.  1024.41(c)(1) as proposed and is adopting 
Sec.  1024.41(c)(4) largely as proposed but with revisions to the

[[Page 72256]]

denial prohibition and the written notice requirement.
    Under existing Sec.  1024.41(c)(1), a servicer generally must 
evaluate a borrower's timely complete loss mitigation application 
within 30 days of receipt. A complete loss mitigation application 
includes all the information the servicer requires from a borrower in 
evaluating applications for the loss mitigation options available to 
the borrower.\247\ Thus, a loss mitigation application is considered 
complete under the current rule notwithstanding whether a servicer 
requires additional information that is within the control of the 
servicer or a third-party and not in the control of the borrower, such 
as investor approval, property tax information, or homeowner 
association payoff information.\248\ While the rule is clear that 
servicers generally must exercise reasonable diligence in obtaining 
documents and information from a borrower to complete the 
application,\249\ the rule currently does not address a servicer's 
obligations with respect to obtaining required information from other 
parties, including the servicer itself or third-parties.
---------------------------------------------------------------------------

    \247\ 12 CFR 1024.41(b)(1).
    \248\ See comment 41(b)(1)-5.
    \249\ See 1024.41(b)(1) and comment 41(b)(1)-4.
---------------------------------------------------------------------------

    Delay in obtaining non-borrower information that the servicer 
requires to determine which loss mitigation options, if any, it will 
offer a borrower could result in increased fees and negative credit 
reporting for borrowers and could increase a borrower's delinquency, 
thereby decreasing the likelihood of successful loss mitigation. It 
also could disrupt servicers' payments to investors. Servicers can 
obtain information within their own control at will, but the Bureau 
learned during pre-proposal outreach that they do not always timely 
receive third-party information, sometimes because the servicer did not 
request the information promptly, and sometimes because the party with 
the information delays in providing it. The Bureau understands that 
servicers sometimes do not receive necessary third-party information 
for 15 or 30 days after the initial 30-day evaluation period.
    Servicers informed the Bureau before the proposal that they were 
unsure how to remain in compliance with Sec.  1024.41 when lacking 
necessary third-party information at the end of the 30-day evaluation 
period. According to servicers, they have adopted different approaches. 
In pre-proposal outreach, the Bureau learned that some wait until the 
third-party provides the information before making any decision on the 
application, even if it results in a delay beyond the 30 days provided 
for in Sec.  1024.41(c)(1). One servicer told the Bureau it sends 
denial notices to borrowers in these circumstances but also informs 
borrowers that it will reevaluate the application upon receipt of the 
third-party information. The Bureau explained in the proposal that, 
although neither of these solutions appears to preclude a borrower from 
receiving loss mitigation, neither provides borrowers with clear 
information about the status of the application, and the latter 
practice may erode borrower protections under Sec.  1024.41. The Bureau 
expressed concern in the proposal that the absence of clear information 
about the status of the loss mitigation application may cause borrowers 
to abandon their pursuit of loss mitigation, or to be uncertain about 
their loss mitigation options and how they may pursue their rights 
under Sec.  1024.41.
    To address these concerns, the Bureau proposed amendments to Sec.  
1024.41 that would have required servicers to exercise reasonable 
diligence to gather necessary information not in the borrower's control 
and would have introduced requirements for when third-party delay 
prevents a servicer from completing the loss mitigation evaluation 
within 30 days of receiving a complete application. First, the Bureau 
proposed to amend Sec.  1024.41(c)(1) to provide an exception to the 
general requirement that a servicer must evaluate a complete loss 
mitigation application received more than 37 days before a foreclosure 
sale within 30 days of receiving it from the borrower. Second, under 
proposed Sec.  1024.41(c)(4)(i), if a servicer required documents or 
information not in the borrower's control, a servicer would have had to 
exercise reasonable diligence in obtaining such documents or 
information. Third, proposed Sec.  1024.41(c)(4)(ii)(A) would have 
prohibited a servicer from denying a borrower's complete application 
solely because the servicer had not received documents or information 
not in the borrower's control. And proposed Sec.  1024.41(c)(ii)(B) 
would have required that, if 30 days after a complete loss mitigation 
application is received a servicer is unable to determine which loss 
mitigation options, if any, it will offer the borrower because it lacks 
documents or information from a party other than the borrower or the 
servicer, the servicer must promptly provide the borrower a written 
notice stating: (1) That the servicer has not received documents or 
information not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, the servicer will 
offer on behalf of the owner or assignee of the mortgage; (2) the 
specific documents or information that the servicer lacks; (3) the date 
on which the servicer first requested that documentation or information 
during the current loss mitigation application process; and (4) that 
the servicer will complete its evaluation of the borrower for all 
available loss mitigation options promptly upon receiving the 
documentation or information.
    Finally, proposed Sec.  1024.41(c)(4)(ii)(C) would have required 
that, if a servicer is unable to determine which loss mitigation 
options, if any, to offer a borrower within 30 days of receiving a 
complete application due to lack of documents or information from a 
party other than the borrower or the servicer, upon receiving such 
documents or information, the servicer must promptly provide the 
borrower a written notice stating the servicer's determination in 
accordance with Sec.  1024.41(c)(1)(ii). Proposed comment 
41(c)(4)(ii)(C)-1 would have clarified that, in this circumstance, the 
servicer should not provide the borrower a written notice stating the 
servicer's determination until the servicer receives the documentation 
or information.
    The Bureau also proposed comments 41(c)(4)(i)-1 and -2 to explain a 
servicer's obligations under proposed Sec.  1024.41(c)(4)(i)'s 
reasonable diligence standard with respect to gathering information not 
in the borrower's control. The proposed comments would have described a 
servicer's reasonable diligence obligations upon receipt of a complete 
loss mitigation application and provided for a heightened standard 
where a servicer has not received third-party information within 30 
days of a complete application.
    The Bureau sought comment on proposed Sec.  1024.41(c)(4) to 
understand better the cause of delay in servicers receiving non-
borrower information necessary to determine which loss mitigation 
options, if any, to offer a borrower. This information could include 
information within the servicer's control or third-party information. 
The Bureau sought comment on how servicers and third-parties contribute 
to the delay, as well as which categories of non-borrower information 
most frequently result in delay. Finally, the Bureau sought comment on 
whether to limit the amount of time that a servicer must exercise 
reasonable diligence in

[[Page 72257]]

attempting to obtain information not in the borrower's control.
    The Bureau received comments on various elements of proposed Sec.  
1024.41(c)(4) and engaged in additional outreach. Among other things, 
as described in greater detail below, commenters addressed the nature 
of the delay in obtaining necessary third-party information, the 
proposed requirement that servicers exercise reasonable diligence in 
obtaining information not in the borrower's control, the proposed 
prohibition on denying an application solely due to missing non-
borrower information, and the proposal to require a written notice if 
the servicer cannot make a determination on the application within 30 
days.
    Several servicers reported that they request information from third 
parties at different stages of the application process, depending on 
the type of information. For example, some servicers stated that they 
wait to receive a complete application from the borrower before 
requesting certain information from a third party, such as valuation 
information, a title report, or investor approval. Some servicers 
reported that they request necessary third-party information shortly 
after receiving a borrower's application or complete application. One 
servicer stated that it may request some third-party information, such 
as title information or a credit report, upon receipt of a borrower's 
initial application, but that it typically waits to request other 
information, such as valuation information or real estate tax 
information, until it receives a complete application.
    Several servicers stated that significant delay in obtaining 
necessary third-party information generally is rare. Several servicers 
stated that they sometimes find it difficult to obtain timely 
information from the local taxing authority in certain jurisdictions, 
timely approval from the mortgage insurance company or investor on the 
loan, or timely appraisal or valuation information. One servicer 
expressed difficulty in obtaining information about State loss 
mitigation programs, tax return information from the IRS, or approval 
from bankruptcy courts or trustees. Another servicer stated that it has 
had difficulty obtaining information from local taxing authorities but 
was still able to proceed in the review process by using estimates 
based on information from its escrow department. Some servicers noted 
that, although third parties sometimes delay the provision of necessary 
information, they always ultimately provide it.
    Several commenters discussed the proposed requirement that 
servicers must exercise reasonable diligence in obtaining documents or 
information not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, it will offer to the 
borrower. Consumer advocacy groups supported this element of the 
proposal, stating that it, in conjunction with the written notice 
requirement under proposed Sec.  1024.41(c)(4)(i), would enhance 
transparency and accountability. However, a trade association stated 
that the requirement that a servicer must seek missing third-party 
information as quickly as possible after the first 30 days lacked 
clarity.
    Some commenters addressed the prohibition in proposed Sec.  
1024.41(c)(4)(ii)(A) on denying a complete loss mitigation application 
solely because the servicer has not received documents or information 
not in the borrower's control. Several industry and consumer advocacy 
groups supported the prohibition. One servicer said that a denial at 
this stage would disadvantage otherwise engaged borrowers and could 
lead to ongoing requests for loss mitigation from borrowers that 
already should have received a loss mitigation determination. A 
consumer advocacy group stated that borrowers could misunderstand the 
denial as a denial on the merits of the application, which they said 
could lead to avoidable foreclosures. Another servicer recommended that 
the Bureau not limit the amount of time a servicer must exercise 
reasonable diligence in attempting to obtain third-party information.
    Several industry commenters expressed concern that the denial 
prohibition would conflict with ECOA, which requires creditors to send 
notification of action taken within 30 days of receiving a completed 
application. Some of those commenters recommended that the Bureau 
either clarify that complying with the denial prohibition under 
proposed Sec.  1024.41(c)(4) does not violate ECOA or allow servicers 
to deny the complete loss mitigation application due to a lack of 
third-party information, provided that they later make an offer, if 
appropriate, upon receipt of the third-party information. Another 
commenter requested that the Bureau clarify what constitutes a 
reasonable time for servicers to wait for third-party information.
    Consumer advocacy groups and one servicer expressed support for the 
written notice under Sec.  1024.41(c)(4)(ii)(B). The servicer argued 
that the notice would provide greater clarity for borrowers in loss 
mitigation. Some consumer advocacy groups maintained that the proposed 
written notice requirement would prompt the servicer to seek third-
party information more quickly and keep a written record of its efforts 
to obtain the third-party information, help borrowers understand the 
application process, and perhaps help expedite the return of the third-
party information where appropriate.
    Several servicers stated, however, that the proposed written notice 
requirement would be costly. One servicer stated that one-time costs 
related to implementing the new notice requirement would be around 
$2,000 for its third-party vendor, in addition to internal costs for 
legal services, business process, and technology, and that the 
necessary implementation would take approximately 60 to 90 days. This 
commenter also asserted that the proposed content requirements of the 
written notice would be unlikely to be of much use to borrowers. Other 
servicers suggested that the benefits of the notice would not outweigh 
the costs because, for example, borrowers would have other means to 
secure relevant information. Servicers also expressed other concerns, 
including that the written notice would confuse or overwhelm a borrower 
or negatively affect credit availability generally by increasing the 
cost of servicing. One servicer opposed the notice on the grounds that 
it would increase the number of inquiries borrowers submit.
    Several commenters opposed specific disclosure elements of the 
proposed notice. One servicer stated that disclosing the specific 
documents or information that the servicer lacks, as proposed under 
Sec.  1024.41(c)(4)(ii)(B)(2), may prompt borrowers to contact the 
third-party to obtain the information. A servicer recommended not 
requiring disclosure of the name of the third party because such 
disclosure would sometimes not expedite the process and could cause 
consternation among all stakeholders. Two industry commenters opposed 
requiring disclosure of the date on which the servicer first requested 
the missing third-party information, as proposed under Sec.  
1024.41(c)(4)(ii)(B)(3). One stated that the disclosure would be of 
little use to borrowers and would increase burden, and the other 
maintained that it would introduce operational complexities because 
servicers' systems do not capture that information.
    A consumer advocacy group recommended that the notice state

[[Page 72258]]

whether a scheduled foreclosure sale will be postponed. Several 
industry commenters said that the notice should contain only generic 
disclosures, such as the following: That the servicer has received the 
information it requires from the borrower and is prepared to evaluate 
the application, that the servicer needs additional information from a 
third-party, that the servicer has requested such additional 
information, and that the borrower can contact the servicer for more 
information. One trade association said that a generic disclosure would 
prevent unnecessary costs and stated that servicers' systems do not 
necessarily capture the date a servicer requests the information from 
the third party. Another trade association stated that a notice 
containing more specific disclosures would not be of much use to 
borrowers and would expose servicers to the risk of making mistakes, 
some of which could cause borrowers undue anxiety.
    Two industry commenters opposed the proposed requirement in comment 
41(c)(4)(ii)-1 that, notwithstanding delay in receiving information 
from any third party, servicers must complete all possible steps in the 
evaluation process within 30 days of receiving a complete application, 
including by taking all steps mandated by mortgage insurance companies, 
guarantors, owners, and assignees. A servicer stated that the proposed 
comment appeared to require servicers to make conditional approvals or 
piecemeal determinations, which it said would be impractical. A 
government-sponsored enterprise said that it is not clear what steps a 
servicer would have to take before receiving the missing third-party 
information, especially given that such information is often necessary 
to evaluate the application.
    Various industry commenters expressed more general concerns about 
proposed Sec.  1024.41(c)(4). A credit union opposed what it referred 
to as the expansion of consumer rights relating to third-party 
information. A trade association expressed concern that, in the future, 
the Bureau will attempt to regulate when a bank may make a 
determination on a loss mitigation application absent third-party 
information, instead of allowing banks to determine whether such third-
party information is necessary. One commenter requested clarification 
of what constitutes documents or information not in the borrower's 
control.
    Several commenters made specific recommendations about how to 
accommodate a delay in receiving necessary third-party information. One 
consumer advocacy group recommended that the Bureau require servicers 
to postpone a foreclosure sale when a complete application is received 
more than 37 days before the sale but where necessary third-party 
information remains outstanding. One servicer requested 10 additional 
days to provide borrowers with the determination letter pursuant to 
Sec.  1024.41(c)(1)(ii), saying this additional period would permit the 
servicer to obtain third-party information and would not harm the 
borrower because, once the underwriting process is complete, a 
representative of that servicer already calls to update the borrower as 
to the determination and appeal rights.
    The Bureau is adopting Sec.  1024.41(c)(1) as proposed and is 
adopting Sec.  1024.41(c)(4) and associated commentary with the 
revisions described below. As revised, the final rule provides guidance 
for servicers and protections for borrowers when a servicer lacks 
required non-borrower information under certain circumstances. As 
revised, Sec.  1024.41(c)(4)(i) sets forth a servicer's reasonable 
diligence requirements with respect to information not in the 
borrower's control, that is, third-party information or information 
within the servicer's control. It provides that, if a servicer requires 
documents or information not in the borrower's control to determine 
which loss mitigation options, if any, it will offer to the borrower, 
the servicer must exercise reasonable diligence in obtaining such 
documents or information.
    Revised comments 41(c)(4)(i)-1 and -2 clarify the reasonable 
diligence requirements at different stages of the application process. 
The Bureau is finalizing comment 41(c)(4)(i)-1 largely as proposed, 
with minor revisions to improve clarity and accuracy. The comment 
reiterates the reasonable diligence requirements set forth in Sec.  
1024.41(c)(4)(i) and provides that, at a minimum and without 
limitation, a servicer must request such documents or information from 
the appropriate party promptly upon determining that the servicer 
requires the documents or information to determine which loss 
mitigation options, if any, the servicer will offer the borrower and, 
to the extent practicable, by a date that will enable the servicer to 
complete the evaluation within 30 days of receiving the complete loss 
mitigation application, as set forth in Sec.  1024.41(c)(1). The Bureau 
notes that some servicers already take steps to do this by, for 
example, requesting certain information not in the borrower's control 
as soon as the borrower submits the initial application and requesting 
other such information within a week of the borrower's submission of 
all information and documents within the borrower's control.
    The Bureau is making more substantive revisions to comment 
41(c)(4)(i)-2, which clarifies the reasonable diligence standard when 
the servicer lacks required third-party information 30 days after 
receiving a complete application. The Bureau continues to believe that 
it is appropriate to require servicers to intensify efforts to obtain 
outstanding third-party information at this stage but believes that the 
proposed standard, requiring servicers to attempt to obtain documents 
or information from the appropriate person as quickly as possible, may 
not have provided servicers sufficient guidance. Thus, revised comment 
41(c)(4)(i)-2 provides that, if a servicer has not received the 
required documents or information from a party other than the borrower 
or the servicer within 30 days of receiving a complete loss mitigation 
application, the servicer acts with reasonable diligence pursuant to 
Sec.  1024.41(c)(4)(i) by heightening efforts to obtain the documents 
or information promptly, to minimize delay in making a determination of 
which loss mitigation options, if any, it will offer to the borrower. 
Such heightened efforts include, for example, promptly verifying that 
it has contacted the appropriate party and determining whether it 
should obtain the required documents or information from a different 
party. The Bureau believes that this standard is clearer for servicers 
than the proposed standard would have been and prompts servicers to 
complete the application process as close as possible to the 30-day 
evaluation period set forth in Sec.  1024.41(c)(1).
    The Bureau also notes that comment 41(c)(4)(i)-1 applies with 
respect to any type of non-borrower information, including third-party 
information or information within the servicer's control, whereas 
comment 41(c)(4)(i)-2 applies only when the servicer lacks third-party 
information. The reason for this distinction is that comment 
41(c)(4)(i)-2 applies only after 30 days have passed since the servicer 
received the complete application, and Sec.  1024.41(c)(4)(ii) 
(described below) contemplates servicers exceeding the 30-day mark only 
when the servicer lacks information from a third-party, not the 
servicer. Servicers should not exceed the 30-day timeline for lack of 
accessing information within their own control.

[[Page 72259]]

    As noted above, the Bureau is limiting the prohibition on denying 
an application due to a servicer lacking required third-party 
information. Like the proposal, Sec.  1024.41(c)(4)(ii)(A)(1) provides 
that a servicer must not deny a complete loss mitigation application 
solely because the servicer lacks required documents or information not 
in the borrower's control. However, unlike the proposal, the Bureau is 
adopting an exception to this prohibition under Sec.  
1024.41(c)(4)(ii)(A)(2). Section 1024.41(c)(4)(ii)(A)(2) provides that, 
if a servicer has exercised reasonable diligence to obtain required 
documents or information from a party other than the borrower or the 
servicer, but the servicer has been unable to obtain such documents or 
information for a significant period of time following the 30-day 
period identified in Sec.  1024.41(c)(1), and the servicer, in 
accordance with applicable requirements established by the owner or 
assignee of the borrower's mortgage loan, is unable to determine which 
loss mitigation options, if any, it will offer the borrower without 
such documents or information, the servicer may deny the application 
and provide the borrower with a written notice in accordance with Sec.  
1024.41(c)(1)(ii). The provision also states that, when providing the 
written notice, the servicer must provide the borrower with a copy of 
the written notice required by Sec.  1024.41(c)(4)(ii)(B). As described 
below, that notice includes disclosures about the cause of the delay.
    The Bureau stresses that the reasonable diligence standard that a 
servicer must satisfy before denying an application under Sec.  
1024.41(c)(4)(ii)(A)(2) is the heightened standard in comment 
41(c)(4)(ii)-2, described above. Borrowers should not lose the 
opportunity for loss mitigation at this stage due to missing third-
party information unless a servicer is absolutely unable to obtain the 
information. Due to the significant harm of denial, the Bureau expects 
servicers to redouble efforts to obtain such information.
    Nonetheless, the Bureau is adopting this exception because, in the 
highly unlikely event that a servicer is unable to obtain third-party 
information, it would be harmful to borrowers, servicers, and investors 
if the servicer was never able to deny the complete loss mitigation 
application. In this circumstance, borrowers would remain in uncertain 
status while waiting on a decision for an indefinite amount of time, 
and Sec.  1024.41(g) may prohibit a servicer from ever foreclosing on 
the loan, even if the borrower did not resume making payments.
    The Bureau expects that this exception will apply in exceedingly 
rare circumstances. Based on its outreach to servicers and government-
sponsored enterprises, the Bureau is unaware of any instance in which a 
servicer has been unable to obtain information from a third-party that 
it requires to make a determination as to which loss mitigation 
options, if any, to offer the borrower after receiving a complete loss 
mitigation application from the borrower. As several commenters noted, 
and as the Bureau explained in the proposal, it would be unjust and 
significantly harmful to deny an engaged borrower who has completed a 
loss mitigation application solely because of a third party's delay. 
The Bureau continues to believe that, whenever possible, the borrower 
should not lose the opportunity for loss mitigation solely because of 
such delay. Among other harms, a borrower in this circumstance might 
lose the opportunity to obtain loss mitigation and thereby avoid 
foreclosure; and such a borrower may not have another opportunity to 
apply for loss mitigation with the protections of Sec.  1024.41, 
pursuant to Sec.  1024.41(i). Further, as one commenter pointed out, 
some borrowers may attempt to re-apply for loss mitigation following a 
denial due to the servicer lacking required third-party information, 
which could produce additional, unnecessary burden for borrowers and 
servicers.
    The Bureau believes that two aspects of the denial prohibition 
exception provided in Sec.  1024.41(c)(4)(ii)(A)(2) should mitigate the 
risks to borrowers associated with allowing servicers to deny an 
application due solely to the servicer lacking required third-party 
information. First, the exception applies only if, in accordance with 
requirements established by the owner or assignee of the mortgage loan, 
a servicer cannot evaluate the borrower without the information. For 
example, there may be instances in which investors may be willing to 
waive requirements for specific third-party information that servicers 
must otherwise obtain, in which case servicers should promptly pursue 
such waivers and evaluate the borrower upon receipt. Second, when 
sending a denial letter, the servicer must also send a copy of the 
written notice under Sec.  1024.41(c)(4)(ii)(B), which describes 
generally the missing information and the servicer's efforts to obtain 
it. Receiving this information may enable borrowers to better protect 
their rights, including when filing an appeal after a denial, if 
appropriate. Also, upon receiving the notice of the missing 
information, some borrowers may be able to help acquire the 
information. The Bureau will monitor the industry to ensure that 
servicers do not inappropriately exploit this exception to the denial 
prohibition.
    The Bureau declines to provide more specific guidance, as one 
commenter requested, as to how long a servicer must exercise reasonable 
diligence to attempt to obtain required third-party information before 
the servicer may deny the application. Reasonable diligence depends on 
the facts and circumstances of a particular loss mitigation 
application, and the Bureau is concerned that any specific deadline 
could negatively affect a servicer's efforts to obtain outstanding 
third-party information. The Bureau understands that, although Sec.  
1024.41(c)(4)(ii)(A)(2) will rarely apply, the response time of third 
parties will vary depending on the type of information or the identity 
of the third party, among other factors. However, the Bureau reiterates 
that servicers must intensify reasonable diligence efforts when lacking 
required third-party information after 30 days have passed, pursuant to 
comment 41(c)(4)(ii)-2, described above.
    The Bureau notes that the denial prohibition does not prevent a 
servicer from complying with Regulation B Sec.  1002.9(a)(1)(i), as 
some commenters suggested. Although servicers may be required to 
provide Regulation B Sec.  1002.9(a)(1) notices relating to a 
borrower's loss mitigation application in certain circumstances, the 
denial prohibition under final Sec.  1024.41(c)(4)(ii)(A) will not 
prevent a servicer from complying with the requirement in Regulation B 
Sec.  1002.9(a)(1)(i) to provide such notices within 30 days after 
receiving a completed application because compliance with Regulation B 
and Regulation X requirements may operate on different timelines. Under 
Regulation B Sec.  1002.2(f), a completed application means an 
application in connection with which a creditor has received all the 
information that the creditor regularly obtains and considers in 
evaluating applications for the amount and type of credit requested. 
Regulation B's definition of application permits flexibility in 
determining what type and amount of information are required from 
applicants for different types of credit, and the information 
requirements for a completed application for different types of credit, 
including information

[[Page 72260]]

from third parties.\250\ Although a loss mitigation application may be 
considered complete under Sec.  1024.41(b)(1) notwithstanding whether a 
servicer requires additional information that is not in control of the 
borrower, such an application may not yet be a completed application 
under Regulation B Sec.  1002.2(f) if the creditor regularly obtains 
and considers information from third parties for that type of credit 
requested, and therefore a creditor would not yet be required to comply 
with Regulation B Sec.  1002.9(a)(1)(i) for such an application.\251\
---------------------------------------------------------------------------

    \250\ See 12 CFR 1002.2(f), comments 2(f)-1, -2, and -6.
    \251\ See 12 CFR 1024.41(b)(1), comment 41(b)(1)-5; 12 CFR 
1002.9(a)(1)(i), comment 9(a)(1)-1.
---------------------------------------------------------------------------

    The Bureau is also adopting Sec.  1024.41(c)(4)(ii)(B) with certain 
revisions. In addition to adopting revisions to improve clarity, the 
Bureau is amending the contents of the written notice that a servicer 
must provide a borrower if a servicer is unable to make a determination 
within the 30-day evaluation period under Sec.  1024.41(c)(1) because 
the servicer lacks required documents or information from a party other 
than the borrower or the servicer. Under Sec.  1024.41(c)(4)(ii)(B), 
the written notice must inform the borrower that the servicer has not 
received documents or information not in the borrower's control that 
the servicer requires to determine which loss mitigation options, if 
any, it will offer to the borrower on behalf of the owner or assignee 
of the mortgage; of the specific documents or information that the 
servicer lacks; that the servicer has requested such documents or 
information; and that the servicer will complete its evaluation of the 
borrower for all available loss mitigation options promptly upon 
receiving the documents or information. These disclosures inform 
borrowers of their application status.
    Section 1024.41(c)(4)(ii)(B) retains the proposed requirement that 
the written notice disclose the specific documents or information that 
the servicer lacks and therefore does not contain entirely generic 
disclosures as recommended by some commenters. The Bureau believes 
providing this information in the notice may increase borrower 
understanding of the notice. The Bureau also believes that requiring 
this disclosure may limit the need for borrowers to make additional 
requests for information of the servicer prompted by uncertainty or 
lack of information about the status of an application. By providing 
borrowers timely, accurate information about the status of their 
applications, the notice could result in fewer inquiries to the 
servicer as to the status of a borrower's loss mitigation application. 
Finalizing an entirely generic notice would have inappropriately placed 
the onus on the borrower to obtain the relevant information from the 
servicer. Borrowers are unlikely to know what third-party information a 
servicer requires unless the servicer affirmatively tells them.
    The Bureau acknowledges commenters' concerns about borrowers 
contacting third parties. The Bureau believes that, if borrowers can 
easily contact a third-party, such as a homeowner's association or 
their local taxing authority, they may be able to make their own 
attempts to obtain the missing information and could help expedite the 
process. The Bureau further notes that Sec.  1024.41(c)(4)(ii)(B) does 
not require servicers to disclose the specific third-party from which 
they lack information, but only the specific information they lack. 
This should insulate many third-parties that may not be prepared for 
borrower communications, such as title companies or investors, from 
receiving them. Although some borrowers may contact their servicers to 
determine the specific identity of the third-party, on balance, these 
requests should not result in a significantly greater number of 
requests for information, as one commenter suggested, given that the 
Bureau expects that the provision of the written notice should reduce 
borrowers' overall need to make such requests.
    The final rule does not require that the written notice disclose 
the date on which the servicer first requested the documentation or 
information during the current loss mitigation application, as proposed 
Sec.  1024.41(c)(4)(ii)(B)(3) would have required. The Bureau believes 
that such a disclosure may have promoted compliance by making it easier 
for servicers and borrowers to determine whether the servicer exercised 
reasonable diligence in obtaining third-party information as Sec.  
1024.41(c)(4)(i) requires. However, upon consideration of the comments 
received, the Bureau is eliminating the proposed requirement because it 
may offer limited value for borrowers while imposing burden on 
servicers.
    The Bureau declines to adopt other disclosures for the written 
notice as some commenters recommended. For example, the Bureau is not 
adopting a consumer advocacy group's recommendation that the notice 
state whether a foreclosure sale date will be postponed. Servicers may 
include such a disclosure, but the Bureau declines to mandate it. The 
Bureau believes that requiring this disclosure would add significant 
operational complexity for servicers with limited benefit to borrowers. 
The Bureau believes that borrowers who are concerned about the timing 
of the foreclosure sale may contact their servicers to obtain the 
information and notes that affected borrowers will already have certain 
foreclosure protections and are likely to have received notification of 
those protections. Among other protections, if Sec.  1024.41(g) applies 
with respect to the complete application, a servicer is prohibited from 
moving for foreclosure judgment or order of sale, or conducting a 
foreclosure sale, unless certain conditions apply.\252\ In addition, if 
a servicer must provide the notice of complete application to the 
borrower pursuant to Sec.  1024.41(c)(3)(i), that notice will already 
have informed the borrower generally about these foreclosure 
protections. Although servicers are not required to inform borrowers in 
the notice under Sec.  1024.41(c)(4)(ii)(B) whether they will postpone 
a foreclosure sale, this lack of disclosure should not significantly 
affect borrowers' ability to protect their interests.
---------------------------------------------------------------------------

    \252\ Specifically, the servicer is prohibited from moving for 
foreclosure judgment or order of sale or conducting a foreclosure 
sale unless: (1) The servicer has sent the borrower a notice 
pursuant to Sec.  1024.41(c)(1)(ii) that the borrower is not 
eligible for any loss mitigation option and the appeal process under 
Sec.  1024.41(h) is not applicable, the borrower has not requested 
an appeal within 14 days, or the servicer has denied the borrower's 
appeal; (2) the borrower rejects all loss mitigation options offered 
by the servicer; or (3) the borrower fails to perform under an 
agreement on a loss mitigation option.
---------------------------------------------------------------------------

    The Bureau is also not adopting commenters' recommendation that the 
Bureau include a disclosure prompting the borrower to contact the 
servicer for more information. Commenters recommended this disclosure 
as part of a written notice that would contain only generic 
disclosures. Servicers may include such a disclosure, but the Bureau 
declines to mandate it. The Bureau believes that borrowers generally 
already know how to contact their servicers and notes that many 
servicers include contact information on all correspondence.
    As revised, Sec.  1024.41(c)(4)(ii)(B) requires servicers to 
provide the written notice (when required under the rule) within the 
30-day determination period identified in Sec.  1024.41(c)(1) or 
promptly thereafter. This timing requirement differs from the proposal, 
which would have required servicers to provide the written notice 
promptly if, 30 days after a complete application is received, the

[[Page 72261]]

servicer is unable to make a determination on the application because 
the servicer lacks documents or information from a third party. 
Requiring servicers to provide the written notice within this 30-day 
period or promptly thereafter should more timely apprise borrowers of 
their application status.
    Although servicers will incur costs to provide a notice to 
borrowers under Sec.  1024.41(c)(4)(ii)(B), the Bureau is requiring it 
because it will provide substantial benefit to affected borrowers, as 
described above. To the extent that any additional cost may negatively 
affect the cost or availability of credit, as one commenter suggested, 
the Bureau believes that such impact will be negligible, in part 
because servicers have reported that inability to evaluate a loss 
mitigation application because of the lack of third party data is 
extremely uncommon. The incremental cost of providing the notice should 
be small.
    The Bureau is not adopting one commenter's recommendation to allow 
servicers 10 additional days to obtain required third-party information 
and to provide the written notice of which loss mitigation options, if 
any, to offer to a borrower as required under Sec.  1024.41(c)(1)(ii). 
As the Bureau explained when adopting Sec.  1024.41(c)(1), a 30-day 
evaluation timeline is an industry standard.\253\ In most cases, 
servicers should be able to complete the evaluation within this 
timeframe. Adding 10 days could lead to unnecessary delay, which could 
increase costs for the borrower during the application process. 
Further, even if the Bureau were to add 10 days, the extension still 
may not suffice. As described above, the Bureau understands that 
servicers sometimes do not receive necessary third-party information 
for 15 or 30 days after the initial 30-day evaluation period.
---------------------------------------------------------------------------

    \253\ 78 FR 10695, 10826.
---------------------------------------------------------------------------

    The Bureau is revising Sec.  1024.41(c)(4)(ii)(C) to specify that, 
if a servicer must provide a notice required by Sec.  
1024.41(c)(4)(ii)(B), the servicer must not provide the borrower a 
written notice stating the servicer's determination pursuant to Sec.  
1024.41(c)(1)(ii) until the servicer receives the required documents or 
information referenced in Sec.  1024.41(c)(4)(ii)(B)(2), except as 
provided under Sec.  1024.41(c)(4)(ii)(A)(2). As described above, Sec.  
1024.41(c)(4)(ii)(A)(2) allows a servicer to deny an application for 
lack of third-party information in certain circumstances.
    Section 1024.41(c)(4)(ii)(C) further provides that, upon receiving 
such third-party documents or information, the servicer must promptly 
provide the borrower with the written determination notice required 
under Sec.  1024.41(c)(1)(ii). The provision is intended to ensure that 
servicers do not delay providing the determination notice. The Bureau 
also understands that servicers generally already provide the 
determination notice promptly upon receiving the third-party 
information that the servicers required. The Bureau proposed this 
provision as comment 41(c)(4)(ii)(C)-1 but is incorporating it into the 
regulatory text of Sec.  1024.41(c)(4)(ii)(C) and eliminating the 
comment.
    The Bureau is adopting comment 41(c)(4)(ii)-1 with certain 
revisions to improve clarity. That comment provides that, 
notwithstanding delay in receiving required documents or information 
from any party other than the borrower or the servicer, Sec.  
1024.41(c)(1)(i) requires a servicer to complete all possible steps in 
the process of evaluating a complete loss mitigation application within 
30 days of receiving the complete loss mitigation application. The 
comment further provides that such steps may include requirements 
imposed on the servicer by third parties, such as mortgage insurance 
companies, guarantors, owners, and assignees. The comment also provides 
an example explaining that, if a servicer can determine a borrower's 
eligibility for all available loss mitigation options based on an 
evaluation of the borrower's complete loss mitigation application 
subject only to approval from the mortgage insurance company, Sec.  
1024.41(c)(1)(i) requires the servicer to do so within 30 days of 
receiving the complete loss mitigation application notwithstanding the 
need to obtain such approval before offering the borrower any loss 
mitigation options.
    In other words, a servicer should not rely on the fact that it 
lacks third-party information as a reason to delay its evaluation. The 
Bureau believes that a servicer should be prepared to make a 
determination on a complete loss mitigation application upon receipt of 
the missing third-party information and make its determination as 
possible to the 30-day evaluation period set forth in Sec.  
1024.41(c)(1). As the Bureau explained in the proposal, any unnecessary 
delay of the evaluation process because of delayed third-party 
information increases the risk of harm to borrowers. For example, such 
delay increases the risk that a borrower's documents would go stale, 
possibly deferring the evaluation further while the hardship worsens, 
thereby reducing the likelihood that the servicer will offer the 
borrower a loss mitigation option. It also increases the likelihood 
that a borrower will incur additional fees or negative credit reporting 
or become disengaged from the loss mitigation process. To the extent 
that this comment results in servicers determining internally that a 
borrower is conditionally approved for loss mitigation pending receipt 
of the third-party information, or results in servicers making 
piecemeal determinations, as one commenter suggested, the Bureau 
believes that this is could result in improved outcomes for borrowers 
and is appropriate.
    In response to one commenter's concern that comment 41(c)(4)(ii)-1 
will not provide sufficient clarity as to the steps that a servicer 
must take before receiving the third-party information, the Bureau 
notes that the rule sets forth no standard list of steps that a 
servicer must take to evaluate any application. Servicers must take 
whatever steps they can in the evaluation process without having the 
missing third-party information. This is a fact-specific determination 
dependent on, among other things, investor requirements and what 
information the servicer is lacking. For example, when a servicer is 
waiting to receive investor approval, the Bureau expects the servicer 
to complete its evaluation subject only to investor approval.
    The Bureau is also adopting new comment 41(c)(4)(ii)-2, which 
provides that Sec.  1024.41(c)(4)(ii)(A)(2) permits a servicer to deny 
a complete loss mitigation application (in accordance with applicable 
investor requirements) if, after exercising reasonable diligence to 
obtain the required documents or information from a party other than 
the borrower or the servicer, the servicer has been unable to obtain 
such documents or information for a significant period of time and the 
servicer cannot complete its determination without the required 
documents or information. The comment further clarifies that Sec.  
1024.41(c)(4)(ii)(A)(2) does not require a servicer to deny a complete 
loss mitigation application and permits a servicer to offer a borrower 
a loss mitigation option, even if the servicer does not obtain the 
requested documents or information. This comment clarifies that Sec.  
1024.41(c)(4)(ii)(A)(2) addresses only whether a servicer is permitted 
to deny a complete loss mitigation application due to a lack of 
necessary third-party information and that the rule does not speak to 
when a servicer is permitted to

[[Page 72262]]

make an offer after receiving a complete loss mitigation application.
    The Bureau declines to define further what constitutes documents or 
information not in the borrower's control, as one commenter requested. 
A servicer must already determine what documents and information it 
requires from a borrower to complete a loss mitigation application. 
Whether documents and information are outside of the borrower's control 
will depend on the facts and circumstances of each case.
41(f) Prohibition on Foreclosure Referral
41(f)(1) Pre-Foreclosure Review Period
    Section 1024.41(f)(1) generally prohibits a servicer from making 
the first notice or filing required by applicable law to begin the 
foreclosure process unless a borrower's mortgage loan obligation is 
more than 120 days delinquent, but it includes an exception in Sec.  
1024.41(f)(1)(iii) allowing a servicer to make the first notice or 
filing when the servicer is joining the foreclosure action of a 
subordinate lienholder. The Bureau proposed to revise Sec.  
1024.41(f)(1)(iii) to provide a parallel exception when a servicer is 
joining the foreclosure action of a superior lienholder. The Bureau is 
adopting Sec.  1024.41(f)(1)(iii) as proposed.
    In the September 2013 Mortgage Final Rule, the Bureau explained 
that, if a borrower is current on a mortgage secured by a senior lien 
but is being foreclosed on by a subordinate lienholder, it would be 
appropriate for the servicer of the mortgage secured by the superior 
lien to join the foreclosure action, even though the borrower may not 
be delinquent on the mortgage secured by the superior lien, because the 
first notice or filing would not be based upon a borrower's delinquency 
in this circumstance.\254\
---------------------------------------------------------------------------

    \254\ See 78 FR 60381, 60406 (Oct. 1, 2013).
---------------------------------------------------------------------------

    The Bureau did not then consider the situation in which the 
servicer is joining the foreclosure action of a superior lienholder. 
After the issuance of the September 2013 Mortgage Final Rule, servicers 
asked the Bureau why the same rule does not apply to a foreclosure 
initiated by both a junior and a senior lienholder. In the proposal, 
the Bureau stated its belief that the same rationale justifies 
expanding the current exemption to circumstances in which the servicer 
is joining the foreclosure action of a superior lienholder. The Bureau 
explained that it would be appropriate for the servicer of the mortgage 
secured by the subordinate lien to join the foreclosure action, even 
though the borrower may not be delinquent on the mortgage secured by 
the subordinate lien, because the first notice or filing would not be 
based upon a borrower's delinquency with respect to the serviced loan. 
Further, the Bureau explained that expanding the exemption seems to 
present only minimal borrower protection concerns because the borrower 
would already be facing a foreclosure action on the property.
    The proposed rule aimed to help servicers by making clear that the 
servicer of a subordinate lien may participate in the existing 
foreclosure action on a superior lien. The servicer's participation in 
the foreclosure action of a superior lienholder may allow the servicer 
to represent its interests in the existing foreclosure action more 
fully under some circumstances. Additionally, it may sometimes be 
necessary, when the same servicer is responsible for both the superior 
and subordinate liens, for the servicer to initiate foreclosure on the 
subordinate lien as part of the foreclosure action on the superior 
lien, to clear title to the property for the subsequent owner.\255\
---------------------------------------------------------------------------

    \255\ If the servicer in this circumstance does not initiate 
foreclosure on the subordinate lien, the servicer may be deemed not 
to have joined the subordinate lienholder in the foreclosure action, 
causing the subordinate lien to remain on the property after 
foreclosure. See, e.g., Deutsche Bank Natl. Trust Co. v. Mark Dill 
Plumbing Co., 903 N.E.2d 166, 169 (Ind. Ct. App. 2009), aff'd on 
rehearing, 908 N.E.2d 1273 (Ind. Ct. App. 2009) (``Foreclosure by a 
senior mortgagee does not affect the rights of a junior lienholder 
who was not made a party to the foreclosure action.''); Portland 
Mort. Co. v. Creditors Protective Ass'n, 262 P.2d 918, 922 (Or. 
1953) (``The omitted junior lienholder is in the same position as if 
no foreclosure had ever taken place, and he has the same rights, no 
more and no less, which he had before the foreclosure suit was 
commenced.'').
---------------------------------------------------------------------------

    The Bureau received numerous comments on proposed Sec.  
1024.41(f)(1)(iii). Commenters included servicers, trade associations, 
and credit unions. All commenters supported the proposal.
    The Bureau is adopting Sec.  1024.41(f)(1)(iii) as proposed to 
allow a servicer to make the first notice or filing before the loan 
obligation is 120 days delinquent when the servicer is joining the 
foreclosure action of a superior lienholder.
41(g) Prohibition on Foreclosure Sale
    Under Sec.  1024.41(g), if a borrower submits a complete loss 
mitigation application after a servicer has made the first notice or 
filing, but more than 37 days before a foreclosure sale, the servicer 
is prohibited from moving for foreclosure judgment or order of sale, or 
conducting a foreclosure sale, unless the borrower's loss mitigation 
application is properly denied, withdrawn, or the borrower fails to 
perform on a loss mitigation agreement.\256\ Servicers and consumer 
advocacy groups had both expressed a desire for clarification of the 
prohibition on the conduct of a sale and whether a servicer was ever 
excused from the prohibition while a loss mitigation application was 
pending. To clarify the prohibition on the conduct of a foreclosure 
sale, the Bureau proposed to revise existing comments 41(g)-1 and -3 
and add new comment 41(g)-5, as well as commentary to clarify the 
requirements for policies and procedures regarding communications with 
service provider personnel, including foreclosure counsel, under Sec.  
1024.38(b)(3)(iii) as they relate to the prohibition under Sec.  
1024.41(g).
---------------------------------------------------------------------------

    \256\ Specifically, the servicer is prohibited from moving for 
foreclosure judgment or order of sale or conducting a foreclosure 
sale unless: (1) The servicer has sent the borrower a notice 
pursuant to Sec.  1024.41(c)(1)(ii) that the borrower is not 
eligible for any loss mitigation option and the appeal process under 
Sec.  1024.41(h) is not applicable, the borrower has not requested 
an appeal within 14 days, or the servicer has denied the borrower's 
appeal; (2) the borrower rejects all loss mitigation options offered 
by the servicer; or (3) the borrower fails to perform under an 
agreement on a loss mitigation option.
---------------------------------------------------------------------------

    For the reasons discussed below, the Bureau has substantially 
revised the proposed provisions. The Bureau believes that its final 
language is consonant with both the original rule and the proposal in 
affirming the absolute nature of the prohibition on conduct of a 
foreclosure sale. The Bureau is (1) not adopting the proposed revision 
to existing comment 41(g)-1 that would have required dismissal in 
certain circumstances, but instead is leaving the comment in its 
existing form; (2) adopting a revised comment 41(g)-3 clarifying 
servicers' responsibilities when acting through foreclosure counsel, 
with modifications to the proposal; (3) adopting new comment 41(g)-5 
clarifying the prohibition on conduct of a foreclosure sale, with 
modifications to the proposal; and (4) adopting new comment 
38(b)(3)(iii)-1 regarding communications with service providers, 
including foreclosure counsel, during the pendency of a foreclosure, 
with minor changes to the proposal. The Bureau is clarifying that the 
prohibition on conduct of a sale during the pendency of a loss 
mitigation application is absolute and that the servicer is not excused 
from compliance because it acts through a service provider, including 
foreclosure counsel. The Bureau recognizes that, to avoid the illegal 
conduct of a sale, servicers may

[[Page 72263]]

need to dismiss foreclosure proceedings in some circumstances. As 
discussed below, the Bureau believes that dismissals to avoid conduct 
of an illegal foreclosure sale are rare. The Bureau believes that these 
clarifications will substantially assist servicers and their service 
providers in compliance with the rule.
Background
    As noted above, Sec.  1024.41(g)'s prohibition applies to two 
distinct types of actions in the foreclosure process: Moving for 
judgment or an order of sale and conducting a foreclosure sale. A 
servicer's obligations under Sec.  1024.41(g) will vary depending on 
whether the foreclosure is non-judicial (requires no court action) or 
judicial (requires court action or order). If the applicable 
foreclosure procedure is non-judicial and does not require any court 
proceeding or order, then Sec.  1024.41(g)'s prohibition on moving for 
judgment or order of sale is inapposite. Thus, in a non-judicial 
proceeding, when there is no court action, where Sec.  1024.41(g) 
applies, it addresses only the conduct of a sale and not a non-existent 
court proceeding. However, where the foreclosure process requires court 
action or a court order and Sec.  1024.41(g) is applicable, a servicer 
must comply with both the prohibition against moving for judgment or 
order of sale and the prohibition against conducting a foreclosure 
sale.
    Existing comment 41(g)-1 addresses the servicer's obligation, where 
the foreclosure process requires such court action, with respect to the 
moving for judgment or order of sale and prior to the actual conduct of 
the sale. Existing comment 41(g)-1 explains that the prohibition on a 
servicer moving for judgment or order of sale includes making a 
dispositive motion for foreclosure judgment, such as a motion for 
default judgment, judgment on the pleadings, or summary judgment, which 
may directly result in a judgment of foreclosure or order of sale. The 
comment further explains that a servicer that has made a dispositive 
motion before receiving a complete loss mitigation application has not 
moved for a foreclosure judgment or order of sale in violation of the 
rule if the servicer takes reasonable steps to avoid a ruling on such 
motion or issuance of such order prior to completing the procedures 
required by Sec.  1024.41, notwithstanding whether any such step 
successfully avoids a ruling on a dispositive motion or issuance of an 
order of sale. Existing comment 41(g)-2 provides that Sec.  1024.41(g) 
does not prevent a servicer from proceeding with any steps in the 
foreclosure process, so long as any such steps do not cause or directly 
result in the issuance of a foreclosure judgment or order of sale, or 
the conduct of a foreclosure sale, in violation of Sec.  1024.41(g). 
Existing comment 41(g)-3 explains that a 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, in violation of Sec.  1024.41(g), when a 
servicer has received a complete loss mitigation application. Such 
instructions may include instructing counsel to move for continuance 
with respect to the deadline for filing a dispositive motion.
    As the Bureau noted in the proposal, since the Mortgage Servicing 
Rules went into effect, borrowers have not always received the benefits 
of the protections intended by Sec.  1024.41(g), specifically, that 
borrowers who timely submit a complete loss mitigation application 
would not lose their homes at a foreclosure sale while evaluation of 
that application was pending with the servicer. These instances of 
foreclosure proceedings continuing in spite of Sec.  1024.41(g)'s 
prohibitions may occur for several reasons, including impeded 
communications between servicers and their counsel, confusion about the 
reasonable steps framework, and difficulties managing judicial 
expectations.
    The Bureau has received reports that counsel retained by servicers 
to conduct the foreclosure proceeding sometimes have lacked current and 
accurate information about whether borrowers' loss mitigation 
applications are complete. Foreclosure counsel in some situations may 
not be taking adequate steps to avoid a judgment or order of sale and 
may fail to seek the delay or continuance of a sale when necessary to 
provide adequate time for the servicer to evaluate the loss mitigation 
application. The Bureau has also received reports that, in some cases, 
foreclosure counsel may not represent accurately to the court the 
status of the loss mitigation application. Some reports indicated that 
even when servicers, through their foreclosure counsel, took some steps 
to avoid a judgment or sale, they may not have been impressing 
sufficiently upon the courts the significance of Sec.  1024.41(g)'s 
prohibition on sale. Consequently, some borrowers lost their homes at 
foreclosure sales despite their timely submission of complete loss 
mitigation applications to the servicer.
    The Bureau also has received a substantial number of inquiries 
concerning what steps a servicer must take to comply with Sec.  
1024.41(g) where a court orders a foreclosure sale date that does not 
afford sufficient time for the servicer to complete the evaluation 
process required by Sec.  1024.41. Some inquirers suggested that the 
``reasonable steps'' framework in comment 41(g)-1, applicable only to 
pre-sale activities in a judicial proceeding, such as a motion for 
judgment or order of sale, might apply to the conduct of the sale, in 
spite of the absolute prohibition on conduct of a sale contained in 
Sec.  1024.41(g).
    The Bureau had learned that some courts have ruled on a pending 
dispositive motion and set a date for the foreclosure sale despite the 
servicer's attempts through counsel to delay the ruling or order as 
required under Sec.  1024.41(g). In many cases, the initially scheduled 
foreclosure sale date set by the court may not have provided the 
servicer adequate time to complete the loss mitigation evaluation and 
appeals process. Servicers indicated that, in some instances, courts 
have required that the foreclosure continue to a sale even when the 
servicer needs additional time to complete the loss mitigation process. 
Media accounts as well as reports from consumer advocacy groups 
suggested that some courts might have been refusing to continue cases 
when presented with a motion to do so, although the Bureau was not able 
to confirm the extent of that practice or distinguish between its 
prevalence when the servicer, as distinct from the borrower, was the 
moving party.\257\
---------------------------------------------------------------------------

    \257\ See, e.g., Alison Fitzgerald, Homeowners steamrolled as 
Florida courts clear foreclosure backlog, The Ctr. for Pub. 
Integrity, Sept. 10, 2014, available at https://www.publicintegrity.org/2014/09/10/15463/homeowners-steamrolled-florida-courts-clear-foreclosure-backlog.
---------------------------------------------------------------------------

    Based upon the reports and information received, the Bureau was 
concerned that the absence of express commentary requiring a servicer 
to take affirmative steps to delay the sale may have encouraged some 
servicers to fail to instruct foreclosure counsel appropriately and, 
further, might have led courts to discount servicer obligations under 
the rule, depriving borrowers of the important consumer protections 
against dual tracking that are provided under Sec.  1024.41. 
Accordingly, the Bureau proposed several revisions to commentary to 
address servicers' obligations in instructing foreclosure counsel, the 
general nature of the reasonable steps obligation, and the absolute 
prohibition on conducting a foreclosure sale pending review of a 
complete loss mitigation application, even if a motion for judgment or 
order of sale was excused as a violation of the rule

[[Page 72264]]

because of the servicer's reasonable steps to prevent entry of such a 
motion.
Proposed Rule
    The Bureau proposed to revise two existing comments and add two 
comments to clarify the operation of Sec.  1024.41(g). As proposed, 
revised comment 41(g)-1 generally retained the existing comment with 
regard to the nature of servicers' duty to avoid moving for judgment or 
order of sale. Revised comment 41(g)-1 would have added new language 
clarifying that, if, upon receipt of a complete loss mitigation 
application, a servicer or its foreclosure counsel failed to take 
reasonable steps to avoid a ruling on a pending motion for judgment or 
the issuance of an order of sale, the servicer would have to dismiss 
the foreclosure proceeding if necessary to avoid the sale. Proposed new 
comment 41(g)-5 would have clarified that Sec.  1024.41(g) prohibits a 
servicer from conducting a foreclosure sale, even if a person other 
than the servicer administers or conducts the foreclosure sale 
proceedings, and that servicers must take reasonable steps to delay the 
sale until one of the conditions under Sec.  1024.41(g)(1) through (3) 
is met.
    The Bureau also proposed to revise existing comment 41(g)-3 to 
clarify servicers' obligations under Sec.  1024.41(g) when acting 
through foreclosure counsel. And the Bureau proposed related comment 
38(b)(3)(iii)-1 to clarify that policies and procedures required under 
Sec.  1024.38(b)(3)(iii) to facilitate sharing of information with 
service provider personnel responsible for handling foreclosure 
proceedings must be reasonably designed to ensure that servicer 
personnel promptly inform service provider personnel handling 
foreclosure proceedings that the servicer has received a complete loss 
mitigation application.
    Thus, under the proposal, where a servicer failed to take 
reasonable steps to avoid a ruling on a dispositive motion to avoid 
issuance of a judgment or an order of sale, or to delay the foreclosure 
sale, or where the servicer's foreclosure counsel fails to take such 
steps, the Sec.  1024.41(g) commentary specified that the servicer 
would have to dismiss the foreclosure proceeding if necessary to avoid 
completing the foreclosure during the pendency of the loss mitigation 
evaluation.
    In the proposal, the Bureau stated its belief that the proposed 
revisions to the commentary would aid servicers in complying with Sec.  
1024.41(g)'s prohibition and assist courts in applying the prohibition 
in foreclosure proceedings. The Bureau also stated its belief that 
clarifying that a servicer must take affirmative reasonable steps, not 
only to delay issuance of a judgment or order, but also to delay the 
sale, would ensure that borrowers are protected from foreclosure during 
pending evaluations of complete loss mitigation applications. Further, 
the Bureau stated its belief that it would be appropriate to require a 
servicer to dismiss a foreclosure if necessary to permit completion of 
the loss mitigation evaluation procedures where the servicer or its 
foreclosure counsel has failed to take such reasonable steps. The 
Bureau explained its belief that clarifying that dismissal is required 
if a servicer has failed to take reasonable steps, on its own or 
through foreclosure counsel, to avoid a ruling or to delay a 
foreclosure sale during a pending loss mitigation evaluation would 
create incentives for servicers to develop more effective procedures to 
carry out the requirements of Sec.  1024.41(g). The Bureau estimated 
that dismissal should rarely be necessary, given that servicers have it 
within their power to take all such reasonable steps to avoid a ruling 
on a dispositive motion, issuance of a judgment or an order of sale, or 
the conduct of a foreclosure sale.
    Under existing comment 41(g)-1, a servicer that fails to take 
reasonable steps to avoid a ruling on a motion pending at the time the 
servicer receives a complete loss mitigation application violates Sec.  
1024.41(g)'s prohibition against moving for judgment or order of sale. 
In proposing to revise comment 41(g)-1, the Bureau explained that, 
where a servicer fails to take reasonable steps to avoid a ruling on or 
issuance resulting from a dispositive motion, as postulated in current 
comment 41(g)-1, the servicer must still comply with the prohibition 
against conducting a sale. The Bureau explained that a servicer's 
failure to comply with one element of Sec.  1024.41(g), the prohibition 
against proceeding on a dispositive motion, does not justify disregard 
of the prohibition against conducting a sale and that the completion of 
a foreclosure sale during the evaluation of a borrower's complete loss 
mitigation application is precisely the harm that the Bureau crafted 
Sec.  1024.41(g) to avoid. Consequently, to emphasize that a servicer 
must take reasonable steps to avoid a ruling or issuance of an order 
for sale when there is a pending loss mitigation evaluation, proposed 
comment 41(g)-1 would have provided explicitly that failure to take 
such steps at the pre-sale stage requires dismissal if necessary to 
avoid the foreclosure sale.
    Proposed comment 41(g)-5 would have clarified that a servicer must 
seek to delay a foreclosure sale, even if a third party, such as a 
sheriff, trustee, or other public official, administers or conducts the 
sale proceedings, as is the case under foreclosure procedure in many 
States. The Bureau stated that any interpretation of Sec.  1024.41(g)'s 
prohibition against conducting a foreclosure sale that relieves 
servicers of the responsibility to act to prevent a foreclosure simply 
because the foreclosure procedure does not require the servicer itself 
to conduct or administer the sale is inconsistent with the purpose of 
Sec.  1024.41(g). The Bureau explained that servicers already have an 
obligation to prevent a foreclosure sale under Sec.  1024.41(g)'s 
prohibition against the conduct of a foreclosure sale. The Bureau 
proposed comment 41(g)-5 to clarify a servicer's obligations under the 
prohibition and indicated that it was not proposing a new requirement 
or interpretation.
    The Bureau noted in proposing these clarifications that, in some 
jurisdictions, it may be difficult for a servicer to delay a 
foreclosure sale after entry of foreclosure judgment or issuance of an 
order of sale and that courts may be reluctant to delay foreclosure 
proceedings when lengthy foreclosure backlogs create added pressure to 
expedite dockets. The Bureau stated its belief that, even in these 
situations, reasonable steps to delay the sale are available to 
servicers and to courts administering foreclosure proceedings. Proposed 
comment 41(g)-5 would have provided a non-exclusive explanation of what 
such reasonable steps might include: Requesting that a court or the 
official conducting the sale re-schedule or delay the sale or remove 
the sale from the docket, or place the foreclosure proceeding in any 
administrative status that stays the sale. The Bureau sought comment on 
what reasonable steps may be available to servicers to delay the 
conduct of a foreclosure sale under different foreclosure procedures.
    Proposed comment 41(g)-3 would have explained that Sec.  
1024.41(g)'s prohibitions on moving for judgment or order of sale or 
conducting a sale may require a servicer to take steps through 
foreclosure counsel and that a servicer is not relieved of its 
obligations under Sec.  1024.41(g) because the foreclosure counsel's 
actions or inaction cause a violation. The proposal noted that proposed 
revisions to comment 41(g)-3 were consistent with the Bureau's 
understanding of servicers' responsibilities under the Mortgage 
Servicing Rules whenever service providers are involved, including the

[[Page 72265]]

policies and procedures requirements under Sec.  1024.38(b)(3). 
Proposed comment 41(g)-3 further would have explained that, if a 
servicer has received a complete loss mitigation application, the 
servicer must promptly instruct counsel not to make a dispositive 
motion for foreclosure judgment or order of sale; to take reasonable 
steps, where such a dispositive motion is pending, to avoid a ruling on 
the motion or issuance of an order of sale; and to take reasonable 
steps to delay the conduct of a foreclosure sale until the servicer 
satisfies one of the conditions in Sec.  1024.41(g)(1) through (3). 
Proposed comment 41(g)-3 would have provided the following examples of 
instructions that Sec.  1024.41(g) might require: Instructing counsel 
to move for a continuance with respect to the deadline for filing a 
dispositive motion or to move for or request that the foreclosure sale 
be stayed, otherwise delayed, or removed from the docket, or that the 
foreclosure proceeding be placed in any administrative status that 
stays the sale. In the proposal, the Bureau noted that the list was not 
meant to be exhaustive and sought comment on whether there are other 
helpful illustrative examples.
    The Bureau stated its belief in the proposal that the proposed 
revisions to comment 41(g)-3 would provide servicers, their foreclosure 
counsel, and courts with greater clarity with respect to the operation 
of Sec.  1024.41(g)'s prohibition. The Bureau noted, as it had in 
earlier guidance regarding service providers, that the fact that an 
entity enters into a business relationship with a service provider does 
not absolve the entity of responsibility for complying with Federal 
consumer financial law to avoid consumer harm.\258\ The Bureau stated 
in the proposal that codifying this principle in comment 41(g)-3 would 
ensure that servicers understand their obligations with respect to 
instructing foreclosure counsel promptly to take steps required by 
Sec.  1024.41(g). The Bureau acknowledged that, when a servicer 
receives a loss mitigation application shortly before a court hearing 
or while a dispositive motion is pending, timely communication with 
foreclosure counsel may require expedited procedures but that timely 
communication in such situations would present neither a novel nor an 
insurmountable challenge.
---------------------------------------------------------------------------

    \258\ Bureau of Consumer Fin. Prot., CFPB Bulletin 2012-03, 
Service Providers (Apr. 13, 2012), available at https://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
---------------------------------------------------------------------------

    The Bureau also proposed a related comment 38(b)(3)(iii)-1, which 
would have explained that a servicer's policies and procedures must be 
reasonably designed to ensure that servicer personnel promptly instruct 
foreclosure counsel to take any step required by Sec.  1024.41(g) 
sufficiently timely to avoid violating the prohibition against moving 
for judgment or order of sale or conducting a foreclosure sale. The 
Bureau explained that proposed comment 38(b)(3)(iii)-1 was designed to 
help ensure that foreclosure counsel are timely informed of the status 
of loss mitigation applications and can more effectively seek delay 
from a court of the issuance of an order or a foreclosure sale. Having 
policies and procedures to instruct foreclosure counsel timely to take 
the actions required by Sec.  1024.41(g) would help servicers 
efficiently handle communication with a servicer's foreclosure counsel 
and ensure that counsel accurately represent the status of loss 
mitigation applications and the obligations of servicers under Sec.  
1024.41(g) to courts handling foreclosure proceedings.\259\
---------------------------------------------------------------------------

    \259\ The Bureau notes that Sec.  1024.38(b)(1)(v) already 
requires servicers to maintain policies and procedures reasonably 
designed to ensure that the servicer can 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.
---------------------------------------------------------------------------

    In the proposal, the Bureau noted that, although the proposed 
commentary clarifications would not alter existing requirements under 
Sec.  1024.41(g), the Bureau had considered the potential burdens for 
servicers in dismissing a foreclosure proceeding, in particular in 
jurisdictions where significant foreclosure backlogs exist or when a 
subsequent foreclosure brought by a servicer may encounter procedural 
challenges or defenses. Nonetheless, the Bureau stated its belief that 
dismissal would be appropriate in the limited circumstances 
contemplated by the proposal where a servicer fails to take reasonable 
steps to avoid a ruling or issuance of an order or to delay the sale to 
protect borrowers from the dual tracking harms that Sec.  1024.41(g) 
aims to prevent. The Bureau noted that dismissal would be required only 
when necessary to avoid a violation of Sec.  1024.41(g), i.e., conduct 
of the foreclosure sale while a loss mitigation evaluation is pending, 
or to mitigate the harm to the borrower arising from the servicer's 
prior violation of Sec.  1024.41(g) in failing to take reasonable steps 
to delay a foreclosure sale. Thus, only those servicers that fail to 
act to delay issuance of the order or judgment would incur any costs 
related to dismissal. The Bureau stated its belief that expressly 
clarifying that dismissal may be required would encourage servicers to 
take reasonable steps to avoid foreclosure sales. The Bureau sought 
comment on whether the clarification was adequate or whether additional 
clarification was necessary to protect borrowers from foreclosure.
    The Bureau requested comment on whether all of the proposed 
commentary clarifications were appropriate and whether the proposed 
commentary provided sufficient clarity to prevent foreclosures during a 
pending loss mitigation evaluation. In addition, the Bureau requested 
comment on whether there were any specific reasonable steps to comply 
with Sec.  1024.41(g) that servicers should take, beyond re-scheduling 
or delaying the sale, removing the sale from the docket, or placing the 
foreclosure proceeding in any administrative status that stays the 
sale, where a court has ruled on a dispositive motion. The Bureau also 
requested comment on whether there were situations in which a servicer 
should dismiss a foreclosure proceeding to stop a sale even where the 
servicer has taken the reasonable steps outlined in Sec.  1024.41(g).
    Finally, the Bureau requested comment on whether the incorporation 
into the regulation text of any elements of the proposed commentary 
would aid servicers in complying with Sec.  1024.41(g). The Bureau 
stated that the proposed commentary would provide help in interpreting 
and complying with Sec.  1024.41(g). However, the Bureau also 
recognized that incorporation in the regulation text itself could aid 
servicers, borrowers, and courts in applying the prohibition.
Comments
    The Bureau received comments on the proposed revisions and 
additions to the commentary from several industry commenters and 
consumer advocacy groups. Commenters generally agreed that the conduct 
of a foreclosure sale during a loss mitigation evaluation causes 
significant consumer harm and should be avoided. However, commenters 
expressed a number of concerns about the Bureau's proposed 
clarifications.
    Several commenters discussed the nature and extent of the 
reasonable steps required to avoid having to dismiss foreclosure 
proceedings under proposed comments 41(g)-1 and -5, which would have 
required dismissal, if necessary to avoid the sale, when a servicer 
fails to take reasonable steps to avoid issuance of a judgment or an 
order of sale, or fails to take reasonable steps to delay the 
foreclosure sale. Many

[[Page 72266]]

commenters suggested that the inference taken from the proposed 
commentary changes was that a servicer that took reasonable steps would 
never be obligated to dismiss a foreclosure proceeding, even if the 
sale was conducted before any condition in Sec.  1024.41(g)(1) through 
(3) was met. Several industry commenters requested that the Bureau 
expressly clarify that, if a servicer takes reasonable steps, dismissal 
would not be required. One industry commenter requested that the 
commentary further clarify that servicers would not be required to take 
all reasonable steps, but only some reasonable steps. This commenter 
expressed concern that absent such clarification, servicers would seek 
unnecessary dismissals of foreclosure proceedings because they believed 
they could not otherwise comply with Sec.  1024.41(g).
    Some commenters discussed the difficulties of determining what 
constitutes reasonable steps in light of the varied procedures that 
apply in different jurisdictions. One industry commenter recommended 
that the commentary make clear that any examples of reasonable steps 
were only illustrative and not an exhaustive list. A consumer advocacy 
group expressed concern that the proposal would permit a sale where 
servicers make only token efforts to meet the reasonable steps standard 
and would effectively nullify the protections under Sec.  1024.41(g). 
Commenters did not provide any additional examples of reasonable steps 
to avoid or delay a sale that the Bureau might include in the 
commentary.
    Several, but not all, commenters addressing this issue indicated 
that servicers are able to obtain delays of foreclosure proceedings and 
comply with Sec.  1024.41(g). A consumer advocacy group noted that 
courts routinely enforce other types of delays or stays in foreclosure 
proceedings, such as those required by the Bankruptcy Code or the 
Servicemembers Civil Relief Act. This commenter suggested that it was 
appropriate to place upon servicers the burden of educating courts 
about the requirements of Sec.  1024.41(g) rather than borrowers, who 
often appear pro se in foreclosure proceedings. One industry commenter 
suggested that, following judgment or issuance of an order in a 
foreclosure proceeding, servicers have the ability to comply with Sec.  
1024.41(g) by either not scheduling the foreclosure sale or cancelling 
an already scheduled sale. Another trade association recommended that 
servicers be required to provide to foreclosure counsel a copy of the 
written notice of complete application that proposed Sec.  
1024.41(c)(3) would have required servicers to provide to borrowers 
after receipt of a complete application. Some industry commenters 
suggested that courts may not be willing to grant motions filed by 
foreclosure counsel and that servicers should not be held accountable 
when courts refuse to honor requests to delay issuance of an order or 
judgment. The consumer advocacy group that noted the ease with which 
courts grant other types of stays in foreclosure proceedings expressed 
concern that the proposal appeared to condone State court refusals to 
enforce Federal law and suggested the Bureau adopt a policy of 
intervening in State court proceedings to ensure that Sec.  1024.41(g) 
was properly enforced.
    A number of industry commenters discussed the potential burden to 
servicers, investors, and borrowers that might result from any 
dismissal requirement. Generally, these commenters noted that dismissal 
may result in lengthy delays (especially in States with significant 
backlogs), costs, and potential procedural challenges to subsequent 
actions. In particular, commenters suggested that statutes of 
limitation might bar a subsequent action or that dismissal may affect 
the enforceability of the mortgage lien or note. Another industry 
commenter suggested that the Bureau should provide an exception to the 
dismissal requirement that permits the servicer, in those jurisdictions 
that provide for post-sale confirmation proceedings, to take steps to 
invoke Sec.  1024.41(g)'s protections on behalf of the borrower.
    Some industry commenters expressed concern that borrowers may face 
financial and emotional costs when foreclosures are dismissed and then 
re-filed if the borrower's loss mitigation application is ultimately 
denied. Some of these industry commenters also suggested that a 
dismissal requirement might create an incentive for borrowers to delay 
engagement in the loss mitigation process. One industry commenter 
suggested the Bureau adopt a one-year time limit for borrowers to 
submit a complete loss mitigation application under Sec.  1024.41 to 
prevent such strategic attempts to delay foreclosure.
    Consumer advocacy group commenters supported mandating dismissal 
broadly, suggesting it would aid enforcement of Sec.  1024.41(g)'s 
prohibitions and protect borrowers from the further harms that result 
from conduct of a sale during the pendency of a loss mitigation 
evaluation.
    Commenters did not raise any specific objections to the proposed 
revisions to comment 41(g)-3 or to proposed comment 38(b)(3)(iii)-1. 
One consumer advocacy group commenter supported the revisions to 
comment 41(g)-3, suggesting that it would clarify a servicer's 
responsibility for the actions of foreclosure counsel.
Final Rule
    The Bureau is not adopting the proposed revisions to comment 41(g)-
1 and is adopting a revised new comment 41(g)-5. The Bureau has decided 
to adopt the proposed commentary regarding instructions to foreclosure 
counsel largely as proposed in both comment 41(g)-3 and 38(b)(3)(iii)-1 
concerning related policies and procedures. As discussed below, the 
Bureau believes that its approach in the final rule is in accord with 
the original final rule and the Bureau's proposal in restating the 
absolute prohibition on conduct of a sale.
    In light of the comments received, the Bureau believes that the 
proposed revisions to comment 41(g)-1 would not further the purposes of 
Sec.  1024.41(g). Proposed comment 41(g)-1 would have explained that, 
where a servicer or counsel retained by the servicer fails to take 
reasonable steps to avoid a ruling on or issuance of an order with 
respect to a dispositive motion pending at the time a complete loss 
mitigation application was received, the servicer must dismiss the 
foreclosure proceeding if necessary to avoid the sale. The Bureau 
believes that the uncertainty expressed by commenters concerning the 
extent and nature of reasonable steps and the circumstances that would 
require dismissal of foreclosure proceedings illustrates that the 
proposed revisions to comment 41(g)-1 might have harmed borrowers by 
appearing to allow for deviation from the absolute nature of Sec.  
1024.41(g)'s prohibition of the conduct of a foreclosure sale.
    The Bureau is concerned with the inference commenters took from the 
proposed revision of comment 41(g)-1 and proposed comment 41(g)-5 that, 
where a servicer takes reasonable steps, but the sale goes forward in 
spite of these steps, a servicer is relieved of any responsibility for 
the conduct of the sale. Proposed comments 41(g)-1 and 41(g)-5 would 
have expressly addressed only situations where servicers fail to take 
reasonable steps. The purpose of both proposed comments was to 
emphasize that servicers must take reasonable steps to avoid conduct of 
the foreclosure sale absent one of the conditions under Sec.  
1024.41(g)(1) through (3) being met. By proposing to clarify that, when 
servicers fail to take reasonable steps to avoid a ruling on a

[[Page 72267]]

pending dispositive motion or to delay a foreclosure sale, servicers 
would be required to dismiss if necessary to avoid the sale, the Bureau 
did not intend to permit the conduct of the sale when the servicer has 
not met one of the conditions under Sec.  1024.41(g)(1) through (3). 
That interpretation would have been inconsistent with the text of Sec.  
1024.41(g), which imposes an absolute prohibition on the conduct of a 
sale. For similar reasons, the Bureau also declines to read an 
exception into Sec.  1024.41(g)'s prohibition against the conduct of 
the sale based upon any post-sale confirmation process that may apply 
in certain jurisdictions.\260\
---------------------------------------------------------------------------

    \260\ In addition to being inconsistent with Sec.  1024.41(g)'s 
text and purpose, the Bureau believes it would impose significant 
costs and risks on borrowers. Even where post-sale confirmation or 
other procedure might be available to cancel or reverse a sale, 
permitting sales to be conducted may impose significant costs on 
borrowers. At least one commenter suggested that borrowers 
themselves would have to move for the court to overturn sales. In 
addition, where a sale is to a third-party, there may be no recourse 
for the borrower.
---------------------------------------------------------------------------

    For these reasons, the Bureau is not adopting the proposed 
revisions to comment 41(g)-1. Similarly, comment 41(g)-5, as adopted, 
also does not discuss any dismissal requirement with respect to 
servicers that fail to take reasonable steps to delay a foreclosure 
sale. The Bureau is concerned that an express dismissal requirement, 
even if only when dismissal is necessary to avoid a sale, would be 
unworkable in the absence of an exhaustive list of reasonable steps 
that a servicer could take to prevent the sale short of dismissal. As 
commenters generally explained, what constitutes a reasonable step in a 
particular proceeding would depend on the specific facts, 
circumstances, and procedures of the jurisdiction. The dismissal 
requirement as proposed thus would have been based on an ultimately 
subjective test that varied based not only on the particular 
circumstances of the foreclosure proceeding but also the rules of an 
individual court. The Bureau is also concerned, as some commenters 
indicated, that some servicers may have believed in certain 
circumstances that whatever steps they may take may not have met the 
reasonable steps standard if finalized as proposed and that these 
servicers may thus have elected to dismiss the foreclosure proceeding 
unnecessarily to avoid a subsequent violation. The Bureau is equally 
concerned that without providing an exhaustive list of reasonable 
steps, and specifying that servicers would have to take all of those 
steps to comply with Sec.  1024.41(g), the proposed commentary might 
have been interpreted to permit evasion of the rule and excuse a 
servicer from dismissal in order to prevent a sale. In either case, the 
Bureau is concerned that the proposed reasonable steps requirement may 
have led to litigation that would not further the purpose of the rule 
itself and may have eventually eroded borrower protections or led to 
uneven application of the rule across and within jurisdictions.
    At the same time, the Bureau is also declining to adopt, as some 
commenters suggested, any interpretation that Sec.  1024.41(g) does not 
require dismissal to avoid a sale if the servicer takes any or all 
other reasonable steps to delay a ruling on a pending dispositive 
motion, issuance of an order, or conduct of the sale. The Bureau 
believes such an interpretation would be inconsistent with the text and 
purpose of Sec.  1024.41(g). As the Bureau explained in the proposal, 
protecting borrowers from foreclosure during the loss mitigation 
evaluation process is the central and fundamental protection under 
Sec.  1024.41(g). The Bureau did not propose to alter the regulation 
text but to interpret and clarify it in commentary. While the Bureau 
believes, as discussed below, that servicers have many options 
available to them for avoiding a sale short of dismissal, dismissal may 
in some instances be necessary to avoid violation of Sec.  1024.41(g), 
particularly if the servicer has, in fact, failed to take reasonable 
steps to avoid the sale in a timely way. Moreover, even if the Bureau 
were to adopt a standard that dismissal is not required where a 
servicer has taken reasonable steps, the rule would still lack clarity 
regarding what steps are reasonable. This uncertainty would leave 
servicers subject to litigation over the reasonable steps standard, and 
borrowers subject to different outcomes and harm, based upon different 
interpretations of what is reasonable.
    The Bureau believes that the purposes of Sec.  1024.41(g) will be 
better served by a clear, unequivocal interpretation than a vague, but 
still prescriptive, and fact-specific standard that in some cases might 
ultimately result in the very outcome that Sec.  1024.41(g) prohibits. 
As adopted, final comment 41(g)-5 provides a clear interpretation of 
what Sec.  1024.41(g) requires: The servicer may not permit the conduct 
of the sale unless one of the conditions under Sec.  1024.41(g)(1) 
through (3) is met.
    The Bureau believes that the means to prevent foreclosure sales 
should be readily available to servicers. In jurisdictions where there 
is no court action required, the Bureau understands that servicers 
exercise significant, if not entire, control over the conduct of the 
sale. Where courts are involved, procedures are generally available to 
delay proceedings and, in many jurisdictions, to delay the conduct of 
the sale specifically. As the plaintiff in the proceeding, a servicer 
generally has a determinative voice as to the timing and nature of any 
court-ordered remedies, including a foreclosure sale. Servicers may be 
able to minimize any difficulties obtaining necessary delays through 
timely communication with counsel and, through counsel, with the court, 
as to the status of the loss mitigation application and the servicer's 
obligations under Sec.  1024.41. And, as consumer advocacy groups 
noted, such delays are not novel in court proceedings. For example, 
delays or stays are available in other contexts, such as when a 
borrower is protected by bankruptcy law.
    While the reasonable steps language in the proposed revision to 
comment 41(g)-1 and in proposed comment 41(g)-5 would have provided 
some guidance to servicers about how to comply with Sec.  1024.41(g), 
the Bureau believes that the reasonable steps language would not have 
adequately protected servicers from post hoc evaluations of whether the 
specific steps taken by the servicer or its foreclosure counsel were 
reasonable. The Bureau believes comment 41(g)-5, as adopted, will 
provide greater clarity and aid servicers through courts to prevent the 
foreclosure sale.
    In addition, the Bureau believes that, because proposed comment 
41(g)-5 would have addressed the prohibition against conducting the 
sale, retaining any reasonable steps language in that comment would 
have been subject to much more litigation than the existing dispositive 
motion reasonable steps language in comment 41(g)-1. Unlike existing 
comment 41(g)-1, which addresses an earlier stage in the foreclosure 
proceeding that is less detrimental to a borrower's ownership of the 
home, comment 41(g)-5 addresses the foreclosure sale, which often 
operates as the final step in the foreclosure process and may be 
difficult to overturn under State laws that do not provide that a 
violation of Regulation X is a basis for such a reversal.\261\ As a 
result, the Bureau believes that borrowers may be more likely to 
challenge a foreclosure sale as a violation of Sec.  1024.41(g) than an 
entry of judgment.
---------------------------------------------------------------------------

    \261\ The Bureau also notes that, though some commenters 
suggested a post-sale remedy to alleviate servicer concerns, 
purchase at the sale by a third-party purchaser may make the sale 
irrevocable under State law.

---------------------------------------------------------------------------

[[Page 72268]]

    The Bureau recognizes that there may be limited situations where 
servicers, despite their attempts to prevent foreclosure sales, may 
need to dismiss a foreclosure proceeding to avoid a violation of Sec.  
1024.41(g) and then may re-file if the borrower ultimately does not 
qualify for, or perform on, a loss mitigation option. The Bureau also 
recognizes that this approach imposes costs on servicers and borrowers. 
As the Bureau noted in preamble to the proposal, these costs could be 
significant in an individual case but are unlikely to be significant 
overall. The Bureau believes, as supported by many commenters, that 
servicers are usually able to stop the foreclosure sale by using any of 
several other means short of dismissal. The Bureau also believes the 
benefit to borrowers of providing an unequivocal explanation of Sec.  
1024.41(g) that reduces the risk of untimely foreclosure sales during 
pending loss mitigation evaluations outweighs the risks or costs to 
servicers of these atypical situations. The Bureau believes that 
clarifying that any conduct of the sale violates Sec.  1024.41(g), 
making the ramifications of failure to prevent a sale from occurring 
clear to all stakeholders, including State courts, will make these 
scenarios less likely to occur.
    The Bureau is also adopting revisions to proposed comment 41(g)-3, 
with changes to address issues raised by comments received. As adopted, 
comment 41(g)-3 explains that the prohibitions against moving for 
judgment or order of sale or conducting a sale may require a servicer 
to act through foreclosure counsel retained by the servicer in a 
foreclosure proceeding. The comment explains that, if a servicer has 
received a complete loss mitigation application, the servicer promptly 
must instruct counsel not to make a dispositive motion for foreclosure 
judgment or order of sale; where such a dispositive motion is pending, 
to avoid a ruling on the motion or issuance of an order of sale; and, 
where a sale is scheduled, to prevent conduct of a foreclosure sale, 
unless one of the conditions in Sec.  1024.41(g)(1) through (3) is met. 
The comment further provides that a servicer is not relieved of its 
obligations because foreclosure counsel's action or inaction caused a 
violation.
    The Bureau believes it is appropriate to clarify that a servicer's 
responsibilities under Sec.  1024.41(g) are not relieved upon 
foreclosure counsel's action or inaction. The additional language that 
the proposal would have added to comment 41(g)-3 addressing reasonable 
steps is no longer necessary in light of the changes to comment 41(g)-
5.
    The Bureau is adopting related comment 38(b)(3)(iii)-1 as proposed, 
with minor revisions. The Bureau believes that comment 38(b)(3)(iii)-1 
will help to ensure that servicers effectively communicate with 
foreclosure counsel. The Bureau received no comments that raised 
concerns about new comment 38(b)(3)(iii)-1.
    One industry commenter suggested that the Bureau require servicers 
to send foreclosure counsel a copy of the notice, which proposed Sec.  
1024.41(c)(3) would have required the servicer to send to borrowers 
after the servicer receives a complete application. As discussed in the 
section-by-section analysis of Sec.  1024.41(c)(3), the Bureau is 
adopting a rule that requires servicers to provide borrowers with a 
notice of complete application but is not requiring servicers to send a 
copy of the notice to foreclosure counsel. As revised, comment 41(g)-3 
requires servicers to provide prompt instruction to foreclosure counsel 
upon the receipt of a complete loss mitigation application. Comment 
38(b)(3)(iii)-1 explains that the policies and procedures of the 
servicer must be reasonably designed to ensure that servicer personnel 
promptly inform foreclosure counsel that the servicer has received a 
complete loss mitigation application and promptly instruct counsel to 
take any step required by Sec.  1024.41(g) sufficiently timely to avoid 
violating the prohibition against moving for judgment or order of sale, 
or conducting a foreclosure sale. The Bureau believes that these 
comments clarify the obligation of servicers under Sec.  1024.41(g) to 
ensure that foreclosure counsel is informed and has the necessary 
information to take appropriate steps in foreclosure proceedings to 
comply with Sec.  1024.41(g). As noted in the section-by-section 
discussion of Sec.  1024.41(c)(3), the Bureau is not requiring 
servicers to provide to foreclosure counsel the notice of complete 
application required by Sec.  1024.41(c)(3). While providing a copy of 
the notice may be part of an effective procedure for informing 
foreclosure counsel about a borrower's loss mitigation application 
status, the notice's required contents are designed to inform borrowers 
about the status of their loss mitigation applications and, by 
themselves, may not provide sufficient instruction to foreclosure 
counsel for compliance purposes. Whatever method a servicer chooses to 
communicate with foreclosure counsel, the servicer remains responsible 
for ensuring compliance with Sec.  1024.41(g). The Bureau believes that 
it is appropriate to permit servicers discretion in determining 
alternative means for compliance with Sec. Sec.  1024.38(b)(3)(iii) and 
1024.41(g).
41(i) Duplicative Requests
    Currently, Sec.  1024.41(i) requires a servicer to comply with the 
requirements of Sec.  1024.41 for only a single complete loss 
mitigation application for a borrower's mortgage loan account. Section 
1024.38(b)(2)(v) requires a servicer to maintain policies and 
procedures designed to ensure that the servicer can properly evaluate a 
borrower 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. . . .'' In effect, therefore, 
unless investor guidelines require them to do so, servicers are not 
required to comply with the loss mitigation provisions in Sec.  1024.41 
if they previously complied with those requirements with respect to the 
same borrower's prior complete loss mitigation application.
    The Bureau proposed to revise Sec.  1024.41(i) to provide that 
servicers are required to comply with the requirements of Sec.  1024.41 
unless (1) the servicer has previously complied with Sec.  1024.41 for 
a borrower's complete loss mitigation application and (2) the borrower 
has been delinquent at all times since the borrower submitted that 
complete application. Thus, as revised, the provision would require 
servicers to follow the requirements of Sec.  1024.41 again when a 
borrower has previously enjoyed those protections with respect to a 
complete loss mitigation application but since then has become current 
and subsequently become delinquent on the loan once again. The Bureau 
believed that requiring servicers to comply with Sec.  1024.41 again in 
these circumstances would serve an important consumer protection 
purpose by extending the protections of Sec.  1024.41 and promoting the 
use of uniform loss mitigation procedures for all borrowers. At the 
same time, the Bureau's proposed revision to Sec.  1024.41(i) would 
have limited the scope of servicers' obligations to comply with Sec.  
1024.41 for a borrower's subsequent loss mitigation application and 
preserved servicer and borrower incentives to dedicate appropriate 
resources to an initial loss mitigation application. The Bureau is 
finalizing Sec.  1024.41(i) substantially as proposed, with certain 
non-substantive changes for clarity.
    When the Bureau first proposed Sec.  1024.41 in the 2012 RESPA 
Servicing Proposal, it sought comment on whether

[[Page 72269]]

a borrower should be entitled to a renewed evaluation for a loss 
mitigation option if an appropriate time period had passed since the 
initial evaluation or if there had been a material change in the 
borrower's financial circumstances. Industry commenters at that time 
generally supported the Bureau's proposal to limit a servicer's 
obligation to comply with Sec.  1024.41 to once over the life of a 
borrower's loan. Consumer advocacy groups, however, said that the 
Bureau should require servicers to review a subsequent loss mitigation 
submission when a borrower has demonstrated a material change in the 
borrower's financial circumstances.\262\
---------------------------------------------------------------------------

    \262\ See 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------

    In the 2013 RESPA Servicing Final Rule, the Bureau agreed that 
there are circumstances in which it is appropriate to reevaluate 
borrowers in light of a material change in financial 
circumstances.\263\ The Bureau also acknowledged that many owners or 
assignees of mortgage loans already require servicers to consider 
material changes in a borrower's financial circumstances.\264\ However, 
the Bureau noted that ``significant challenges exist to determine 
whether a material change in financial circumstances has occurred[,]'' 
and that, in contrast to investor guidelines, Sec.  1024.41 gives 
borrowers a private right of action to enforce its procedures.\265\ In 
addition, the Bureau believed that limiting the loss mitigation 
procedures of Sec.  1024.41 to a single complete loss mitigation 
application would provide borrowers with appropriate incentives to 
submit all relevant information up front and allow servicers to 
dedicate resources to those applications most likely to qualify for 
loss mitigation options.\266\ Accordingly, in the 2013 RESPA Servicing 
Final Rule, the Bureau required servicers to comply with the loss 
mitigation procedures in Sec.  1024.41 only once over the life of a 
mortgage loan for any borrower.
---------------------------------------------------------------------------

    \263\ Id.
    \264\ Id.
    \265\ Id.
    \266\ Id.
---------------------------------------------------------------------------

    Since the publication of the 2013 RESPA Servicing Final Rule, the 
Bureau has received numerous requests to revise this provision and 
require servicers to reevaluate borrowers who have experienced a change 
in financial circumstances and might therefore benefit from subsequent 
review of a new loss mitigation application under the requirements of 
Sec.  1024.41. Industry monitoring efforts, outreach to stakeholders, 
and reports from consumer advocacy groups suggested that current Sec.  
1024.41(i) might unfairly disadvantage a borrower who experiences 
multiple hardships over the life of a loan.
    In advance of the proposal, the Bureau understood that a borrower 
might greatly benefit from the protections of Sec.  1024.41 for loss 
mitigation applications submitted in connection with subsequent 
hardships. Moreover, the Bureau believed that requiring servicers to 
reevaluate borrowers in certain circumstances under the requirements of 
Sec.  1024.41, in and of itself, would not place a significant 
additional burden on servicers because many servicers already do so. 
However, the Bureau continued to have concerns with requiring 
reevaluations under Sec.  1024.41 when there has been a ``material 
change in financial circumstances,'' because of the challenges of 
prescribing with sufficient clarity what may constitute such a 
``material change.''
    Based on this analysis, the Bureau proposed to revise the current 
rule to require servicers to reevaluate borrowers under Sec.  1024.41 
in certain circumstances. However, as the Bureau explained in the 2013 
RESPA Servicing Final Rule, the Bureau believed that a servicer's 
obligation to reevaluate borrowers under Sec.  1024.41 should be 
limited in scope. Accordingly, proposed Sec.  1024.41(i) would have 
provided that servicers would be required to comply with Sec.  1024.41 
unless the servicer had previously complied with Sec.  1024.41 for a 
borrower's complete loss mitigation application and the borrower had 
been delinquent at all times since the borrower submitted that complete 
application. In other words, a servicer would have been required to 
comply with Sec.  1024.41, even if it had previously complied with 
Sec.  1024.41 for a borrower's complete loss mitigation application, 
for a borrower who had been current on payments at any time between the 
borrower's prior complete loss mitigation application and a subsequent 
loss mitigation application. This revision was intended to preserve 
borrower and servicer incentives to reach a timely, efficient, and 
effective resolution to a borrower's hardship the first time a borrower 
applies for loss mitigation.
    In addition, the Bureau believed that proposed Sec.  1024.41(i) 
would base a servicer's obligation to reevaluate a borrower under Sec.  
1024.41 on an objective, bright-line test. One of the Bureau's concerns 
about the suggestions to require reevaluations under Sec.  1024.41 when 
there has been a ``material change in financial circumstances'' was 
that the standard would be dependent upon a servicer's subjective 
determination. The Bureau believed that the challenges in implementing 
and enforcing such a standard would outweigh any intended benefit to 
borrowers. However, the Bureau believed that an easy-to-administer 
standard such as the one in proposed Sec.  1024.41(i) could promote 
servicer compliance. The Bureau also believed that proposed Sec.  
1024.41(i) may encourage consistent implementation of the mortgage 
servicing rules by discouraging servicers from applying different loss 
mitigation procedures outside of the framework of Sec.  1024.41 if a 
borrower has been previously evaluated under Sec.  1024.41.
    For purposes of this proposal, the Bureau assumed that a permanent 
modification of a borrower's mortgage loan obligation effectively cures 
the borrower's pre-modification delinquency. The Bureau further assumed 
that a borrower who is performing under a permanent modification would 
not meet the definition of delinquency that the Bureau proposed to add 
to Sec.  1024.31. The Bureau sought comment on whether there are types 
of permanent loan modifications or other circumstances for which these 
assumptions would be inaccurate.
    The Bureau also proposed to revise the current Sec.  1024.41(i) 
commentary, which addresses servicers' obligations following the 
transfer of servicing rights, to accommodate proposed Sec.  1024.41(k). 
Specifically, the Bureau proposed to preserve the portion of comment 
41(i)-1 that obligates a transferee servicer to comply with Sec.  
1024.41 regardless of whether a transferor servicer previously 
evaluated a borrower's complete loss mitigation application. As 
discussed in the section-by-section analysis of Sec.  1024.41(k), the 
Bureau proposed to move the balance of comment 41(i)-1, as revised, as 
well as comment 41(i)-2, as revised, into proposed Sec.  1024.41(k) and 
proposed new commentary.
    The Bureau sought comment on the proposed revision to Sec.  
1024.41(i) generally. The Bureau specifically sought comment on whether 
the borrower's right to a reevaluation should be contingent upon 
whether the borrower was current for a minimum period of time since the 
borrower's last-submitted complete loss mitigation application.
    The Bureau received a number of comments from industry and consumer 
advocacy group commenters in response to proposed Sec.  1024.41(i). 
Several industry commenters stated that there was no need to require 
servicers to comply with the loss mitigation provisions in Sec.  
1024.41 for a borrower's

[[Page 72270]]

subsequent loss mitigation application. They expressed the view that, 
if a borrower is eligible for loss mitigation, and the investor is 
willing to offer loss mitigation, the servicer will make loss 
mitigation options available to the borrower pursuant to its own 
policies. One industry commenter recommended that borrowers be required 
to demonstrate changed circumstances before a servicer would be 
required to comply with Sec.  1024.41 for a borrower's subsequent loss 
mitigation application.
    The majority of industry commenters that discussed Sec.  1024.41(i) 
recommended that a borrower's right to a reevaluation under Sec.  
1024.41 should be contingent on the borrower being current for a 
minimum time period following the borrower's last submitted complete 
loss mitigation application. These commenters recommended periods that 
ranged from six months to five years. Many of these commenters said 
that requiring a borrower to be current for a minimum time period would 
discourage borrowers from abusing foreclosure protections and limit the 
burden and costs associated with the requirements set forth in the 
proposal. Several of these industry commenters also suggested that the 
rule should limit the number of times that a servicer must evaluate a 
borrower for loss mitigation options pursuant to Sec.  1024.41 over the 
life of the loan. They stated that such a limit would provide clear 
expectations for borrowers and servicers. One industry commenter stated 
that the proposal would impose costs in the form of substantial 
technology changes, staffing adjustments, new training, and vendor 
expenses.
    Numerous consumer advocacy groups supported the proposal's 
requirement that servicers be required to comply with the loss 
mitigation requirements set forth in Sec.  1024.41 for a borrower's 
loss mitigation application unless the borrower had been delinquent at 
all times since submitting the prior complete loss mitigation 
application. Several consumer advocacy groups stated that the proposal 
provided a reasonable limitation on the applicability of Sec.  
1024.41(i). The majority of consumer advocacy groups recommended 
additional circumstances under which servicers should be required to 
comply with Sec.  1024.41 for a borrower's subsequent loss mitigation 
application. For example, many consumer advocacy groups recommended 
that servicers be required to comply with Sec.  1024.41 with respect to 
a borrower's subsequent loss mitigation application when the borrower 
had experienced a change in financial circumstances, or when more than 
a year had passed since the borrower's submission of the prior complete 
loss mitigation application, even if the borrower had not brought the 
loan current in the interim. Many of these commenters also recommended 
that the Bureau require any voluntary evaluation of a loss mitigation 
application to be completed in accordance with Sec.  1024.41. One 
consumer advocacy group stated that the proposal failed to account for 
borrowers in temporary loss mitigation programs, and several commenters 
requested that the Bureau specify when a borrower is no longer 
delinquent for purposes of Sec.  1024.41(i).
    As noted in the section-by-section analysis of Sec.  1024.31, one 
industry commenter expressed concern with the proposal's treatment of a 
borrower as delinquent until such time as the outstanding payment is 
made. The commenter stated that a borrower performing on a permanent 
loan modification may not have made all outstanding payments and 
therefore would be considered delinquent under the proposal, contrary 
to the Bureau's assumption that a borrower who is performing on a 
permanent loan modification would not meet the Bureau's proposed 
definition of delinquency.
    The Bureau is adopting Sec.  1024.41(i) substantially as proposed, 
with non-substantive changes for clarity. The Bureau is adopting 
comments 41(i)-1 and -2 with revisions. The Bureau understands that 
current Sec.  1024.41(i) might unfairly disadvantage a borrower who 
experiences multiple hardships over the life of a loan. Final Sec.  
1024.41(i) serves an important consumer protection purpose by extending 
the protections of Sec.  1024.41 to loss mitigation applications 
submitted in connection with subsequent hardships and promoting the use 
of uniform loss mitigation procedures for all borrowers in such 
circumstances. At the same time, final Sec.  1024.41(i) limits the 
scope of servicers' obligations to comply with Sec.  1024.41 for a 
borrower's subsequent loss mitigation application and preserves 
servicer and borrower incentives to dedicate appropriate resources to 
an initial loss mitigation application.
    As finalized, Sec.  1024.41(i) explains that a servicer must comply 
with the requirements of Sec.  1024.41 for a borrower's loss mitigation 
application, unless the servicer has previously complied with the 
requirements of Sec.  1024.41 for a complete loss mitigation 
application submitted by the borrower and the borrower has been 
delinquent at all times since submitting the prior complete 
application. In other words, a servicer is required to comply with 
Sec.  1024.41, even if it had previously complied with Sec.  1024.41 
for a borrower's complete loss mitigation application, for a borrower 
who has been current on payments at any time between the borrower's 
prior complete loss mitigation application and a subsequent loss 
mitigation application.
    The Bureau is finalizing Sec.  1024.41(i) substantially as proposed 
to provide an objective, bright-line standard. In doing so, the Bureau 
weighed many of the same factors that it considered when finalizing the 
2013 RESPA Servicing Final Rule. The Bureau sought to balance access to 
the consumer protections afforded by Sec.  1024.41 with a recognition 
of the potential burden an unlimited requirement to comply with Sec.  
1024.41's requirements for any subsequent loss mitigation application 
could have on servicers. In particular, the Bureau continues to have 
concerns with requiring reevaluations under Sec.  1024.41 when there 
has been a ``material change in financial circumstances,'' given the 
difficulty of defining an objective standard for a ``material change in 
financial circumstances.''
    Thus, final Sec.  1024.41(i) ensures that, where a borrower 
receives a loss mitigation option, complies with its terms, and later 
experiences a new hardship, the borrower will benefit from having the 
protections of the Sec.  1024.41 loss mitigation procedures for a 
subsequent loss mitigation application, as well as the private right to 
enforce them. However, Sec.  1024.41(i) limits servicers' obligations 
under Sec.  1024.41 with respect to a borrower's subsequent loss 
mitigation application if the borrower has not been current on the loan 
at any time since submitting the prior application. Section 1024.41(i) 
preserves borrower and servicer incentives to reach a timely, 
efficient, and effective resolution to a borrower's hardship. 
Additionally, to the extent servicers already reevaluate borrowers who 
submit subsequent loss mitigation applications pursuant to the 
procedures set forth in Sec.  1024.41, as suggested by some commenters, 
final Sec.  1024.41(i) should not impose a significant additional 
burden on servicers.
    The Bureau has decided not to adopt a requirement that a borrower 
must have remained current for a specified period of time before the 
servicer is again required to comply with Sec.  1024.41. Any such 
requirement would limit the important consumer protections of Sec.  
1024.41 with respect to certain borrowers submitting subsequent loss

[[Page 72271]]

mitigation applications. Moreover, in the absence of a clear consensus 
among commenters as to how long a borrower should remain current, or 
consistent objective criteria for determining an appropriate period of 
time, the Bureau believes it is appropriate to require servicers to 
comply with the procedures under Sec.  1024.41 once a borrower has come 
current, regardless of how long the borrower remains current.
    The Bureau believes that any increase in the burden on servicers 
associated with final Sec.  1024.41(i) should be limited. Current Sec.  
1024.41 requires that servicers evaluate a borrower for the loss 
mitigation options available to the borrower, but it does not require 
servicers or investors to offer any particular loss mitigation 
options.\267\ The Bureau understands that many investor guidelines 
already include some form of a minimum time current requirement for 
some loss mitigation options. Final Sec.  1024.41(i) does not preclude 
investors from continuing to apply such requirements, although it does 
require that the servicer comply with Sec.  1024.41 in evaluating the 
borrower for any loss mitigation options that may be available.\268\ 
Further, because servicers are not required to comply with Sec.  
1024.41 when a borrower has been delinquent at all times since 
submitting the previous application, the Bureau believes the risk that 
borrowers would repeatedly apply for loss mitigation only to delay 
foreclosure, as was suggested by some commenters, is de minimis.
---------------------------------------------------------------------------

    \267\ See Sec.  1024.41(b)(1), (c)(1)(i), (c)(2)(i).
    \268\ For example, Fannie Mae servicing guidelines provide that 
a ``mortgage loan that was previously modified and that becomes 60 
or more days delinquent within the first 12 months of the effective 
date of the mortgage loan modification is ineligible for a mortgage 
loan modification.'' Fannie Mae 2012 Servicing Guide at 706-17.
---------------------------------------------------------------------------

    The Bureau is declining to require that servicers comply with Sec.  
1024.41(i) for subsequent applications from borrowers who have been 
delinquent at all times since their last application. The Bureau notes 
that several commenters requested that servicers be required to comply 
with Sec.  1024.41 when a borrower submits a subsequent loss mitigation 
application after a certain time period had passed or when conducting 
voluntary reviews of a loss mitigation application not otherwise 
subject to Sec.  1024.41. Such additional conditions would require 
servicers to comply with Sec.  1024.41 even in situations where the 
borrower has been delinquent at all times since submitting the prior 
application and could reduce servicers' willingness to undertake 
voluntary loss mitigation efforts. The Bureau believes final Sec.  
1024.41(i) strikes an appropriate balance between providing additional 
consumer protections and limiting the scope of servicers' obligations 
to comply with Sec.  1024.41 for subsequent loss mitigation 
applications. Section 1024.41(i) preserves borrower and servicer 
incentives to reach a timely, efficient, and effective resolution to a 
borrower's hardship, thereby limiting the costs for both borrowers and 
servicers.
    The Bureau also declines to adopt a requirement that servicers 
comply with Sec.  1024.41 based on a borrower's demonstrated change in 
financial circumstances, as some commenters recommended. The Bureau 
explained in the proposal and in the 2013 RESPA Servicing Final Rule 
that determining whether a material change in financial circumstances 
has occurred could pose significant implementation and enforcement 
challenges that that would outweigh any intended benefit to 
borrowers.\269\ The Bureau believes that a broader change in financial 
circumstances standard could also pose such challenges. This standard 
would be dependent upon a servicer's subjective determination of what 
constitutes a change in financial circumstances. It could also increase 
litigation risk for servicers, given that borrowers may pursue a 
private right of action to enforce the procedures set forth in Sec.  
1024.41. However, as the Bureau has previously explained, and as noted 
by industry commenters, where a borrower has experienced a positive 
change in circumstances investors do in some instances require 
servicers to evaluate the borrower for loss mitigation options.\270\ 
Nothing in this final rule is meant to discourage or detract from those 
requirements.
---------------------------------------------------------------------------

    \269\ 78 FR 10695, 10836 (Feb. 14, 2013); 79 FR 74175, 74227 
(Dec. 15, 2014).
    \270\ See id.
---------------------------------------------------------------------------

    As noted above, one commenter said the proposal did not clearly 
explain how proposed Sec.  1024.41(i) would apply to a borrower 
performing on a temporary loss mitigation program while others 
requested further clarity on the determination of delinquency for 
purposes of Sec.  1024.41(i). As discussed in the section-by-section 
analysis of Sec.  1024.31, the revised definition of delinquency in 
Sec.  1024.31 applies to all of subpart C of Regulation X and thus 
applies for purposes of determining the applicability Sec.  1024.41(i). 
A temporary loss mitigation program does not modify the existing loan 
contract. A borrower may continue to accumulate a delinquency according 
to the loan contract for the duration of the temporary loss mitigation 
program. Accordingly, a borrower performing under a temporary loss 
mitigation program may be delinquent for purposes of Sec.  1024.41(i). 
This is distinct from a borrower performing under a permanent loss 
mitigation agreement, which does modify the existing loan contract. 
When a borrower is making payments required by the terms of a permanent 
loss mitigation agreement and therefore performing under the modified 
contract, the borrower would not meet the definition of delinquency in 
Sec.  1024.31 and thus would not be delinquent for purposes of Sec.  
1024.41(i). The Bureau notes that the timing of a borrower's conversion 
to a permanent modification from a trial modification is often a 
question of State contract law and investor requirements, apart from 
the requirements of Regulations X and Z. State contract law and 
investor requirements may therefore be dispositive as to whether a 
borrower is performing under a permanent or temporary loss mitigation 
agreement for purposes of Sec.  1024.41(i). The Bureau further notes 
that nothing in Sec.  1024.41(i) prevents a servicer from considering a 
borrower for loss mitigation after a default on a temporary loan 
modification. The Bureau understands that many servicers currently do 
so, and some investors may require such reconsideration.
    The Bureau proposed to revise the current Sec.  1024.41(i) 
commentary, which addresses servicers' obligations following the 
transfer of servicing rights, in light of proposed Sec.  1024.41(k) 
addressing the same issue. As discussed in the section-by-section 
analysis of Sec.  1024.41(k), the Bureau proposed to move the balance 
of comment 41(i)-1, as revised, as well as comment 41(i)-2, as revised, 
into proposed Sec.  1024.41(k) and proposed new commentary thereto. The 
Bureau proposed to preserve the portion of comment 41(i)-1 that 
obligates a transferee servicer to comply with Sec.  1024.41 regardless 
of whether a transferor servicer previously evaluated a borrower's 
complete loss mitigation application.
    The Bureau is renumbering comment 41(i)-1 as 41(i)-2 and making 
certain changes, as discussed in more detail below, and is adopting 
comment 41(i)-1 with revisions. Final comment 41(i)-1 explains that, 
under Sec.  1024.41(i), a servicer must comply with Sec.  1024.41 with 
respect to a loss mitigation application unless the servicer has 
previously done so for a complete loss mitigation application submitted 
by the borrower and the borrower has been delinquent at all times since 
submitting the prior complete application. Thus,

[[Page 72272]]

for example, if the borrower has previously submitted a complete loss 
mitigation application and the servicer complied fully with Sec.  
1024.41 for that application, but the borrower then ceased to be 
delinquent and later became delinquent again, the servicer again must 
comply with Sec.  1024.41 for any subsequent loss mitigation 
application submitted by the borrower. When a servicer is required to 
comply with the requirements of Sec.  1024.41 for such a subsequent 
loss mitigation application, the servicer must comply with all 
applicable requirements of Sec.  1024.41. It further explains that, for 
example, the servicer's provision of the notice of determination of 
which loss mitigation options, if any, it will offer to the borrower 
under Sec.  1024.41(c)(1)(ii) regarding the borrower's prior complete 
loss mitigation application does not affect the servicer's obligations 
to provide a new notice of complete application under Sec.  
1024.41(c)(3)(i) regarding the borrower's subsequent complete loss 
mitigation application. The Bureau is finalizing this comment to 
clarify that, where Sec.  1024.41(i) applies, a servicer must comply 
with the requirements of Sec.  1024.41 anew for a subsequent 
application submitted by a borrower irrespective of the servicer's 
compliance with Sec.  1024.41 for the borrower's prior complete 
application. Under Sec.  1024.41(i), a servicer's previous compliance 
with Sec.  1024.41 regarding a prior complete application submitted by 
the borrower does not relieve the servicer of any obligations or 
otherwise affect its requirement to comply with Sec.  1024.41 regarding 
a subsequent application submitted by the borrower.
    As finalized, comment 41(i)-2 explains that Sec.  1024.41(i) 
provides that a servicer need not comply with Sec.  1024.41 for a 
subsequent loss mitigation application from a borrower where certain 
conditions are met. It clarifies that a transferee servicer and a 
transferor servicer are not the same servicer. Accordingly, a 
transferee servicer is required to comply with the applicable 
requirements of Sec.  1024.41 upon receipt of a loss mitigation 
application from a borrower whose servicing the transferee servicer has 
obtained through a servicing transfer, even if the borrower previously 
received an evaluation of a complete loss mitigation application from 
the transferor servicer. As finalized, comment 41(i)-2 clarifies that a 
borrower has the right to an evaluation under Sec.  1024.41 with regard 
to a complete loss mitigation application received by the transferee 
servicer after a servicing transfer, even if the borrower would not 
have had this right in the absence of the transfer.
41(k) Servicing Transfers
    The Bureau proposed to add new Sec.  1024.41(k) to clarify a 
transferee servicer's obligations and a borrower's protections under 
Sec.  1024.41 where a loss mitigation application is pending at the 
time of a servicing transfer. Proposed Sec.  1024.41(k) would have 
provided that, subject to certain exceptions, a transferee servicer 
must comply with Sec.  1024.41's requirements within the same 
timeframes that were applicable to the transferor servicer, based on 
the date the transferor servicer received the borrower's application or 
the date the borrower made the appeal. Specifically, the exceptions 
would have allowed transferee servicers additional time to comply with, 
for example, the otherwise applicable requirements: (1) To review 
promptly a loss mitigation application and provide an acknowledgment 
notice within five days of the transferor servicer's receipt of the 
loss mitigation application; (2) to evaluate the borrower for loss 
mitigation options and provide a notice of its determination within 30 
days of the transferor servicer's receipt of a complete loss mitigation 
application; and (3) to evaluate the borrower's appeal and provide a 
notice of its determination within 30 days of the borrower making an 
appeal to the transferor servicer. As discussed in more detail in the 
section-by-section analyses of Sec.  1024.41(k)(1) through (5), the 
Bureau is finalizing the proposed provisions addressing transfers with 
several revisions. As revised, the timeframes for transferee servicer 
compliance under the final rule generally are based on the transfer 
date, rather than on the date the transferor servicer received a loss 
mitigation application or the borrower made an appeal to the transferor 
servicer.
    Currently, Sec.  1024.41 addresses transfers through the 
commentary. Comment 41(i)-1 provides that, among other things, 
documents and information transferred to a transferee servicer may 
constitute a loss mitigation application to the transferee servicer and 
may cause the transferee servicer to be required to comply with Sec.  
1024.41 with respect to a borrower's mortgage loan account. Comment 
41(i)-2 states that a transferee servicer must obtain documents and 
information a borrower submitted in connection with a loss mitigation 
application and that a transferee servicer should continue the 
evaluation of a complete loss mitigation application to the extent 
practicable. Finally, comment 41(i)-2 also states that, for purposes of 
specific subsections in Sec.  1024.41, if a loss mitigation application 
is complete as to a transferee servicer, the transferee servicer is 
considered to have received the documents and information constituting 
the complete application as of the date the transferor servicer 
received the documents and information. Comment 41(i)-2 is designed to 
ensure that a servicing transfer does not deprive a borrower of 
protections to which a borrower was entitled from the transferor 
servicer.\271\
---------------------------------------------------------------------------

    \271\ 78 FR 10695, 10837 (Feb. 14, 2013). See also 79 FR 63295, 
63298 (Oct. 23, 2014).
---------------------------------------------------------------------------

    Existing Sec.  1024.41 and comments 41(i)-1 and -2 generally 
require a transferee servicer to stand in the shoes of the transferor 
servicer with respect to a loss mitigation application pending at 
transfer. Consequently, a transferee servicer that receives a loss 
mitigation application as a result of a transfer should comply with 
Sec.  1024.41 within the timeframes that were applicable to the 
transferor servicer, and, as comment 41(i)-2 states, a borrower's 
protections are based upon when the transferor servicer received 
documents and information constituting a complete application. 
Nonetheless, comment 41(i)-2 implies that there are times when a 
transferee servicer may not be able to continue the evaluation of a 
complete application by stating that the transferee should continue the 
review to the extent practicable.
    In advance of the proposal, the Bureau had received questions about 
a transferee servicer's responsibilities in the event that continuing 
the evaluation of a complete loss mitigation application is not 
practicable. The Bureau had also received questions about the 
timeframes in which a transferee servicer must act and whether a 
transferee servicer must provide notices to a borrower if the 
transferor servicer already provided the same notices. The Bureau 
believed that servicers and borrowers would benefit from greater 
clarity regarding a transferee servicer's obligations and a borrower's 
protections under Sec.  1024.41, including with respect to certain 
situations not currently addressed in Sec.  1024.41 and comments 41(i)-
1 and -2, particularly how transferee servicers should handle a pending 
appeal of a denial of a loan modification option, a pending offer of a 
loss mitigation option, and pending applications that are facially 
complete or become complete as of the transfer date.
    Additionally, through outreach and industry monitoring efforts, the 
Bureau had learned from servicers that

[[Page 72273]]

complying with certain of Sec.  1024.41's requirements could be 
especially difficult in the transfer context. Servicers reported that 
the necessary coordination between the transferee and transferor 
servicer to ensure timely compliance was particularly challenging for 
the comparatively short timeframes required by, for example, the 
acknowledgment notice under Sec.  1024.41(b)(2)(i)(B). The Bureau has 
always believed that there is a risk of borrower harm in the context of 
servicing transfers. However, the Bureau also recognizes that there are 
many reasons for transfers, that excluding loans in active loss 
mitigation from transfers is logistically challenging and could impede 
transfers, and that transfers may sometimes result in improved borrower 
outcomes. The Bureau proposed limited exceptions to the general 
timeframe requirements of Sec.  1024.41 for transferee servicers to 
balance the competing considerations of the facilitation of transfers 
and the prevention of borrower harm from a transfer.
    The Bureau proposed Sec.  1024.41(k) to clarify the requirements 
applicable to loss mitigation applications pending at the time of a 
servicing transfer. Proposed Sec.  1024.41(k) would have provided that, 
subject to certain exceptions, a transferee servicer must comply with 
Sec.  1024.41's requirements within the same timeframes that were 
applicable to the transferor servicer. The proposed exceptions would 
have included up to a five-day extension of time for a transferee 
servicer to provide the written notice required by Sec.  
1024.41(b)(2)(i)(B) and a provision ensuring that a transferee servicer 
that acquires servicing through an involuntary transfer has 30 days 
from the date the transferor received the complete application or 15 
days after the transfer date, whichever is later, to evaluate a 
borrower's pending complete loss mitigation application. The proposal 
also would have provided that, if a borrower's appeal under Sec.  
1024.41(h) is pending as of the transfer date, a transferee servicer 
must evaluate the appeal pursuant to Sec.  1024.41(h) if it is able to 
determine whether it should offer the borrower the loan modification 
options subject to the appeal; a transferee servicer that is unable to 
evaluate an appeal would be required to treat the appeal as a complete 
loss mitigation application and evaluate the borrower for all loss 
mitigation options available to the borrower from the transferee 
servicer.
    Proposed comment 41(k)-1 would have provided that a loss mitigation 
application is considered pending if it was subject to Sec.  1024.41 
and had not been fully resolved before the transfer date. The comment 
also would have clarified that a pending application is considered a 
pending complete application if, as of the transfer date, the 
application was complete under the transferor servicer's criteria. 
Proposed comment 41(k)-1 sought to avoid ambiguity about whether a loss 
mitigation application that was fully resolved by a transferor servicer 
required new compliance with Sec.  1024.41 by the transferee servicer.
    Section 1024.38(b)(4) sets forth the Bureau's expectations of a 
transferor servicer: The Bureau expects transferor servicers to have 
policies and procedures designed to ensure the timely transfer of 
relevant information and to facilitate the transferee servicer's 
compliance with Sec.  1024.41, among other matters. Section 
1024.38(b)(4) requires a transferor servicer to have policies and 
procedures reasonably designed to ensure that it can timely transfer 
all information and documents in its possession or control related to a 
transferred mortgage loan to a transferee servicer in a form and manner 
that ensures the accuracy of the information and documents transferred. 
Section 1024.38(b)(4) further specifies that a transferor servicer's 
policies and procedures must be reasonably designed to ensure that the 
documents and information are transferred in a form and manner that 
``enables a transferee servicer to comply with . . . applicable law.'' 
The Bureau explained that the transferor servicer shares responsibility 
for enabling a transferee servicer to comply with Sec.  1024.41(k)'s 
requirements and ensuring that borrowers will not be adversely affected 
by a servicing transfer. The Bureau did not propose to impose any 
specific requirements in Sec.  1024.41(k) with respect to transferor 
servicers and instead continued to rely on Sec.  1024.38(b)(4) to 
ensure that transferor servicers assist transferee servicers in timely 
compliance with Sec.  1024.41. The Bureau expects that policies and 
procedures that are designed to ensure the timely and accurate transfer 
of documents and information in accord with Sec.  1024.38(b)(4) will 
result in such timely and accurate transfer of documents and 
information in the vast majority of cases.
    The Bureau did not receive comments in response to proposed comment 
41(k)-1 and is finalizing it as proposed. Comment 41(k)-1 provides 
that, for purposes of Sec.  1024.41(k), a loss mitigation application 
is pending if it was subject to Sec.  1024.41 and had not been fully 
resolved before the transfer date. It explains that, for example, a 
loss mitigation application would not be considered pending if a 
transferor servicer had denied a borrower for all options and the 
borrower's time for making an appeal, if any, had expired prior to the 
transfer date, such that the transferor servicer had no continuing 
obligations under Sec.  1024.41 with respect to the application. It 
further explains that a pending application is considered a pending 
complete application if it was complete as of the transfer date under 
the transferor servicer's criteria for evaluating loss mitigation 
applications.
41(k)(1) In General
    Proposed Sec.  1024.41(k)(1)(i) largely incorporated and clarified 
existing comments 41(i)-1 and -2. It would have required a transferee 
servicer that acquires the servicing of a mortgage loan for which a 
loss mitigation application is pending as of the transfer date to 
comply with Sec.  1024.41's requirements for that application. Proposed 
Sec.  1024.41(k)(1)(i) would have further required that, subject to the 
exceptions set forth in Sec.  1024.41(k)(2) through (4), a transferee 
servicer must comply with Sec.  1024.41's requirements within the 
timeframes that were applicable to the transferor servicer. Finally, 
proposed Sec.  1024.41(k)(1)(i) would have required that any 
protections under Sec.  1024.41(e) through (h), such as prohibitions on 
commencing foreclosure or conducting a foreclosure sale, that applied 
to a borrower before a transfer continue to apply notwithstanding the 
transfer. The Bureau is adopting Sec.  1024.41(k)(1)(i) substantially 
as proposed.
    The purpose of proposed Sec.  1024.41(k)(1)(i) was to ensure that a 
transfer does not adversely affect a borrower who is pursuing loss 
mitigation options. A borrower generally has no control over whether 
and when a mortgage loan is transferred to another servicer. As the 
Bureau has previously observed, there is heightened risk inherent in 
transferring mortgage loans that are in the process of loss 
mitigation.\272\ In the proposal, the Bureau expressed its belief that 
holding a transferee servicer to the same standards and timelines as a 
transferor servicer helps mitigate the risk of consumer harm.
---------------------------------------------------------------------------

    \272\ See 79 FR 63295, 63296 (Oct. 23, 2014).
---------------------------------------------------------------------------

    Proposed comment 41(k)(1)(i)-1.i incorporated a portion of existing 
comment 41(i)-2. It would have clarified that the regulation requires a 
transferee servicer to obtain from the transferor servicer documents 
and information a borrower submitted to a transferor servicer in 
connection with a

[[Page 72274]]

loss mitigation application, consistent with policies and procedures 
adopted pursuant to Sec.  1024.38. The proposed comment also would have 
provided that a transferee servicer must comply with the applicable 
requirements of Sec.  1024.41 with respect to a loss mitigation 
application received as a result of transfer, even if the transferor 
servicer was not required to comply with Sec.  1024.41 (because, for 
example, the transferor servicer was a small servicer or the 
application was a duplicative request under Sec.  1024.41(i) for the 
transferor servicer).
    Proposed comment 41(k)(1)(i)-1.ii would have clarified that a 
transferee servicer must, in accordance with Sec.  1024.41(b), exercise 
reasonable diligence to complete a loss mitigation application received 
as a result of a transfer. The proposed comment further explained that, 
in the transfer context, reasonable diligence includes ensuring that a 
borrower is informed of any changes to the application process, such as 
a change in the address to which the borrower should submit documents 
and information to complete the application, as well as ensuring that 
the borrower is informed about which documents and information are 
necessary to complete the application. Proposed comment 41(k)(1)(i)-1 
was intended to avoid any ambiguity about whether and in what manner a 
transferee servicer is required to comply with Sec.  1024.41 with 
respect to loss mitigation applications received as a result of a 
transfer.
    Proposed comment 41(k)(1)(i)-2 mirrored the last sentence of 
current comment 41(i)-2. It would have clarified that, for purposes of 
Sec.  1024.41(e) (borrower response), (f) and (g) (foreclosure 
protections), and (h) (appeal process), a transferee servicer must 
consider documents and information that constitute a complete 
application to have been received as of the date the transferor 
servicer received the documents and information. Proposed comment 
41(k)(1)-2 would have further clarified that an application that was 
facially complete with respect to a transferor servicer remains 
facially complete under Sec.  1024.41(c)(2)(iv) with respect to the 
transferee servicer as of the date it was facially complete with 
respect to the transferor servicer. It also would have clarified that, 
if an application was complete with respect to the transferor servicer 
but was not complete with respect to the transferee servicer, the 
transferee servicer must treat the application as facially complete as 
of the date the application was complete with respect to the transferor 
servicer. The purpose of this comment was to ensure that a transfer 
does not affect the protections to which a borrower is entitled under 
Sec.  1024.41.
    Finally, proposed comment 41(k)(1)(i)-3 would have clarified that a 
transferee servicer is not required to provide any notice required by 
Sec.  1024.41 with respect to a particular loss mitigation application 
if the transferor servicer provided the notice to a borrower before the 
transfer. This comment was intended to address questions about whether 
a transferee servicer must resend a notice already provided by the 
transferor servicer as to a particular application.
    Proposed Sec.  1024.41(k)(1)(ii) provided that, for purposes of 
Sec.  1024.41(k), the transfer date is the date on which the transfer 
of servicing responsibilities from the transferor servicer to the 
transferee servicer occurs. Proposed comment 41(k)(1)(ii)-1 would have 
provided that the transfer date corresponds to the date the transferee 
servicer will begin accepting payments relating to the mortgage loan, 
which already must be disclosed on the notice of transfer of loan 
servicing pursuant to Sec.  1024.33(b)(4)(iv).\273\ Proposed comment 
41(k)(1)(ii)-1 further clarified that the transfer date is not 
necessarily the sale date for the transaction. The Bureau explained 
that the proposed definition was consistent with the definition Fannie 
Mae employs in its servicing guide \274\ and reflected the industry's 
common understanding of the term.
---------------------------------------------------------------------------

    \273\ Section 1024.33(b)(4)(iv) requires the notice of transfer 
to include ``The date on which the transferor servicer will cease to 
accept payments relating to the loan and the date on which the 
transferee servicer will begin to accept such payments. These dates 
shall either be the same or consecutive days.''
    \274\ See Fannie Mae, Servicing Guide Announcement SVC-2014-06, 
at 1 (May 9, 2014), available at https://www.fanniemae.com/content/announcement/svc1406.pdf.
---------------------------------------------------------------------------

    The Bureau solicited comment on the treatment of loss mitigation 
applications pending at transfer and whether it was appropriate to 
require a transferee servicer to comply with Sec.  1024.41 within the 
timeframes that were applicable to the transferor servicer. 
Additionally, the Bureau solicited comment on whether, following a 
transfer, a transferee servicer should be required to provide a 
borrower a written notice of what documents and information the 
transferee servicer needs to complete the application, regardless of 
whether the transferor servicer has provided such a notice.
    The Bureau received several comments on the general requirement 
that the transferee servicer must comply with Sec.  1024.41 within the 
timeframes that were applicable to the transferor servicer, based on 
the date the transferor servicer received the loss mitigation 
application. One industry commenter recommended that transferee 
servicers be permitted to restart the Sec.  1024.41 timeframes for 
compliance following transfer, so long as the extension of time did not 
adversely affect the rights of borrowers. Another industry commenter 
expressed agreement that transfers should not affect a borrower's loss 
mitigation application or efforts to avoid foreclosure. However, it 
stated that it would be difficult for transferee servicers to comply 
with proposed Sec.  1024.41(k)(1)(i) when a loan is transferred with a 
pending loss mitigation application. This commenter suggested that 
transferee servicers should not be required to comply with the Sec.  
1024.41 timeframes that were applicable to the transferor servicer 
because the transferee servicer's access to the loan level information 
necessary to evaluate pending loss mitigation applications is delayed 
while data is uploaded and loan files are imaged. One industry 
commenter expressed concern that requiring transferee servicers to 
adhere to the same Sec.  1024.41 timeframes as transferor servicers 
would require transferee servicers to obtain detailed information on 
the loans being transferred prior to the transfer date, which may raise 
privacy concerns.
    Most consumer advocacy group commenters expressed support for the 
proposal to require transferee servicers to adhere generally to the 
same timeframes that were applicable to transferor servicers. Several 
of these commenters explained that, currently, transferee servicers 
often require applicants to re-submit previously submitted documents, 
in effect starting anew with a loss mitigation application upon 
transfer. Numerous consumer advocacy groups also recommended that the 
Bureau require transferor servicers to provide transferee servicers 
with all documents and information that had previously been provided by 
a borrower to support a loss mitigation application, as well as 
detailed lists of loans with pending loss mitigation applications. 
These commenters explained that the absence of a private right of 
action in current Sec.  1024.38(b)(4) renders it ineffective for 
consumers in addressing the problems associated with transfers where a 
borrower is pursuing loss mitigation. Several of these commenters also 
suggested that transferee servicers should be required to send 
borrowers written notice on the status of their loss mitigation 
application, regardless of whether the transferor had provided other 
notices pursuant to Sec.  1024.41.

[[Page 72275]]

    The Bureau is finalizing Sec.  1024.41(k)(1)(i) and comments 
41(k)(1)(i)-1.i, -1.ii, -2, and -3 with revisions. The Bureau is adding 
new comment 41(k)(1)(i)-1.iii. The Bureau is adopting Sec.  
1024.41(k)(1)(ii) and comment 41(k)(1)(ii)-1 with revisions.
    Final Sec.  1024.41(k)(1)(i) explains that, except as provided in 
Sec.  1024.41(k)(2) through (4), if a transferee servicer acquires the 
servicing of a mortgage loan for which a loss mitigation application is 
pending as of the transfer date, the transferee servicer must comply 
with the requirements of Sec.  1024.41 for that loss mitigation 
application within the timeframes that were applicable to the 
transferor servicer based on the date the transferor servicer received 
the loss mitigation application. Section 1024.41(k)(1)(i) further 
provides that all rights and protections under Sec.  1024.41(c) through 
(h) to which a borrower was entitled before a transfer continue to 
apply notwithstanding the transfer. The Bureau's proposal addressed 
Sec.  1024.41(e) through (h) but it did not specifically address Sec.  
1024.41(c) and (d) because a servicer must comply with Sec.  
1024.41(c), and as applicable, Sec.  1024.41(d), to satisfy its 
requirements under Sec.  1024.41(g). For additional clarity, the Bureau 
is specifying in the final rule that the rights and protections 
applicable to borrowers under Sec.  1024.41(k)(1)(i) include those in 
Sec.  1024.41(c) and (d).
    Section 1024.41(k)(1)(i) is consistent with the Bureau's current 
interpretation of comments 41(i)-1 and -2 as generally requiring the 
transferee servicer to ``stand in the shoes'' of the transferor 
servicer. Accordingly, Sec.  1024.41(k)(1)(i) protects borrowers who 
are pursuing loss mitigation options from being adversely affected when 
there is a servicing transfer. Borrowers will benefit from a general 
rule that, subject to certain exceptions, a transferee servicer must 
comply with the requirements of Sec.  1024.41 within the same 
timeframes that were applicable to the transferor servicer.
    The Bureau declines to extend the general timeframe for transferee 
servicers set forth in Sec.  1024.41(k)(1)(i) in response to commenter 
concerns over the ability of transferee servicers to comply with Sec.  
1024.41 within the timeframes applicable to transferor servicers. The 
Bureau recognizes that, under certain circumstances, it may be 
difficult for transferee servicers to comply with timeframes that would 
have been applicable to transferor servicers. Servicers should prepare 
for and mitigate these challenges by implementing comprehensive 
policies and procedures to facilitate the transfer of information. To 
give servicers additional time where necessary, the Bureau proposed 
specific exceptions in Sec.  1024.41(k)(2) through (4) to the general 
loss mitigation timeframes for transferee servicers established in 
Sec.  1024.41(k)(1)(i). As described in greater detail in the section-
by-section analyses of Sec.  1024.41(k)(2) through (4), the Bureau is 
finalizing Sec.  1024.41(k)(2) through (4) with timeframes generally 
based on the transfer date, rather than on the date the transferor 
received a loss mitigation application or the borrower made an appeal. 
The Bureau notes that the timeframe extensions in Sec.  1024.41(k)(2) 
through (4) provided to transferee servicers apply only with respect to 
loans that are being transferred during the loss mitigation 
application, evaluation, and appeal process. Transferee servicers 
remain subject to all generally applicable requirements and timeframes 
of Sec.  1024.41 with respect to loss mitigation applications received 
directly by the transferee servicer, outside of the transfer process. 
Because the exceptions to Sec.  1024.41(k)(1)(i) provide servicers 
flexibility in situations where compliance with Sec.  1024.41 in the 
timeframes applicable to the transferor servicer may be especially 
difficult, the Bureau is not revising the general framework set forth 
in Sec.  1024.41(k)(1)(i), which requires a transferee servicer to 
comply with Sec.  1024.41 for most purposes as if it were the same 
entity as the transferor servicer. The Bureau continues to believe that 
it is incumbent on both the transferor servicer and transferee servicer 
to ensure a smooth transition for borrowers and prevent borrower harm 
during servicing transfers.
    The Bureau is finalizing several revisions to comment 41(k)(1)(i)-
1.i. Final comment 41(k)(1)(i)-1.i explains that, in connection with a 
transfer, a transferor servicer must timely transfer, and a transferee 
servicer must obtain from the transferor servicer, documents and 
information submitted by a borrower in connection with a loss 
mitigation application, consistent with policies and procedures adopted 
pursuant to Sec.  1024.38(b)(4).
    Comment 41(k)(1)(i)-1.i further provides that a transferee servicer 
must comply with the applicable requirements of Sec.  1024.41 with 
respect to a loss mitigation application received as a result of a 
transfer, even if the transferor servicer was not required to comply 
with Sec.  1024.41 with respect to that application (for example, 
because Sec.  1024.41(i) precluded applicability of Sec.  1024.41 with 
respect to the transferor servicer). Comment 41(k)(1)(i)-1.i explains 
that, if an application was not subject to Sec.  1024.41 prior to a 
transfer, then for purposes of Sec.  1024.41(b) and (c), a transferee 
servicer is considered to have received the loss mitigation application 
on the transfer date. Finally, it states that any such application 
shall be subject to the timeframes for compliance set forth in Sec.  
1024.41(k).
    The Bureau is finalizing comment 41(k)(1)(i)-1.i to describe more 
clearly the specific obligations of transferor servicers in connection 
with a transfer of loan servicing. The proposal did not address 
specific requirements for transferor servicers under Sec.  1024.41(k). 
However, the Bureau believes that reiterating the specific obligation 
inherent in Sec.  1024.38(b)(4) for transferor servicers under new 
comment 41(k)(1)(i)-1.i will address certain consumer protection 
concerns raised by commenters. Several consumer advocacy group 
commenters observed that, notwithstanding Sec.  1024.38(b)(4), 
transferee servicers often require applicants to re-submit previously 
submitted documents, in effect starting over with a loss mitigation 
application upon transfer. The Bureau believes that requiring borrowers 
to re-submit previously submitted documents and otherwise restart the 
loss mitigation application process is generally inconsistent with the 
intended effect of Sec.  1024.38(b)(4). Transferor servicers share 
responsibility under the regulation for ensuring that borrowers are not 
adversely affected by a servicing transfer. Comment 41(k)(1)(i)-1.i now 
specifies that transferor servicers must timely transfer documents and 
information submitted by a borrower in connection with a loss 
mitigation application, consistent with policies and procedures adopted 
pursuant to Sec.  1024.38(b)(4).
    Final comment 41(k)(1)(i)-1.i also provides further clarity on the 
obligations and timeframes applicable to a transferee servicer that 
receives a loss mitigation application as a result of a transfer when 
the transferor servicer was not required to comply with Sec.  1024.41 
with respect to that application. Transferee servicers have an 
obligation to review the documents and information that the transferor 
servicer provides to the transferee servicer to assess whether those 
documents and information constitute a loss mitigation application. If 
so, the transferee servicer must comply with Sec.  1024.41, even if the 
transferor servicer was not required to do so for that application.
    The Bureau believes that there are limited circumstances under 
which a transferor servicer would not have been

[[Page 72276]]

required to comply with Sec.  1024.41 for a particular application, for 
example, an application submitted to the transferor servicer but 
subject to the limiting provision against duplicative applications in 
Sec.  1024.41(i). The comment clarifies that a transferee servicer must 
comply with Sec.  1024.41 for such an application, which includes the 
requirement to engage in reasonable diligence to complete the 
application pursuant to comment 41(k)(1)(i)-1.ii. The Bureau 
acknowledges that this requirement means that a transferee servicer may 
be required to review documents and information that the borrower 
submitted to the transferor servicer well before the transfer date. 
Nonetheless, the Bureau believes that it is beneficial to borrowers if 
the transferee servicer treats the documents submitted to the 
transferor servicer as an application subject to Sec.  1024.41. Doing 
so affords borrowers the protections of Sec.  1024.41 sooner, which 
preserves important borrower protections. Additionally, as the investor 
and the loss mitigation options offered by that investor may change 
concurrently with the servicing transfer, borrowers could benefit by 
having those different loss mitigation options made available to them 
at an earlier date. Moreover, a transferee servicer's review of the 
documents and information submitted to a transferor servicer by a 
borrower obviates the need for the borrower to start over in the loss 
mitigation application process upon transfer, as many commenters allege 
continues to happen. The Bureau recognizes that, in some instances, the 
transferee servicer may still discover, upon reviewing the information 
and documents constituting the application, as part of its review and 
notice required under Sec.  1024.41(b)(2)(i), that the application 
includes stale or invalid documents pursuant to any requirements 
applicable to any loss mitigation option available to the borrower. The 
Bureau acknowledges that, in those circumstances, the servicer would 
appropriately request that the borrower update the documents and 
information.
    Final comment 41(k)(1)(i)-1.i explains that, if an application was 
not subject to Sec.  1024.41 prior to a transfer, then for purposes of 
Sec.  1024.41(b) and (c), a transferee servicer is considered to have 
received the loss mitigation application on the transfer date. The 
Bureau is adding a new sentence in the comment explaining that any such 
application is subject to the timeframes for compliance set forth in 
Sec.  1024.41(k). This change clarifies that, for example, if a 
transferee servicer is required to comply with Sec.  1024.41 but the 
transferor servicer was not, the transferee servicer must provide the 
acknowledgment notice required by Sec.  1024.41(b)(2)(i)(B) within the 
timeframe set forth in Sec.  1024.41(k)(2)(i), rather than within the 
timeframe required by Sec.  1024.41(b)(2)(i)(B). This treatment allows 
a transferee servicer the necessary time to comply with Sec.  1024.41 
under the slightly-extended timeframes provided for transferee 
servicers in Sec.  1024.41(k).
    The Bureau declines to adopt a further revision to comment 
41(k)(1)(i)-1.i, as requested by some commenters, to require 
specifically that transferor servicers provide transferee servicers a 
list of loans that will be transferred that have pending loss 
mitigation applications. Final comment 41(k)(1)(i)-1.i provides clear 
guidance that transferor servicers must timely transfer documents and 
information submitted by a borrower in connection with a loss 
mitigation application consistent with policies and procedures adopted 
pursuant to Sec.  1024.38(b)(4). The Bureau recognizes that the 
provision of a list of loans with pending loss mitigation applications 
by the transferor servicer to the transferee servicer could help the 
transferee servicer comply with its obligations and mitigate the risk a 
servicing transfer poses to borrowers with pending loss mitigation 
applications. Although transferor servicers may wish to provide such a 
list under policies and procedures adopted pursuant Sec.  
1024.38(b)(4), the Bureau is not specifying such a requirement in this 
rule. The Bureau wishes to allow transferor and transferee servicers 
the flexibility to develop and implement the specific practices that 
best support compliance for their specific organizations and 
circumstances.\275\
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    \275\ See 79 FR 63295, 63299 (Oct. 23, 2014).
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    The Bureau is making certain non-substantive revisions to comment 
41(k)(1)(i)-1.ii to clarify transferee servicers' responsibilities when 
an application is facially complete. The Bureau is finalizing comment 
41(k)(1)(i)-1.ii to explain that a transferee servicer must, in 
accordance with Sec.  1024.41(b)(1), exercise reasonable diligence to 
complete a loss mitigation application, including a facially complete 
application, received as a result of a transfer. Comment 41(k)(1)(i)-
1.ii further provides that, in the transfer context, reasonable 
diligence includes ensuring that a borrower is informed of any changes 
to the application process, such as a change in the address to which 
the borrower should submit documents and information to complete the 
application, as well as ensuring that the borrower is informed about 
which documents and information are necessary to complete the 
application. The proposal did not expressly include an obligation to 
exercise reasonable diligence to complete facially complete 
applications. The final rule clarifies that the obligation pertains to 
both incomplete and facially complete applications.
    The Bureau is adopting new comment 41(k)(1)(i)-1.iii. This comment 
explains that a borrower may provide documents and information 
necessary to complete an application to a transferor servicer after the 
transfer date. It further provides that, consistent with policies and 
procedures maintained pursuant to Sec.  1024.38(b)(4), the transferor 
servicer must timely transfer, and the transferee servicer must obtain, 
such documents and information. The Bureau is finalizing similar 
language regarding borrower appeals and borrower acceptances or 
rejections of pending loss mitigation offers in comments 41(k)(4)-1 and 
41(k)(5)-1, respectively. The Bureau believes new comment 41(k)(1)(i)-
1.iii clarifies the Bureau's expectation that a transfer should not 
adversely affect a borrower who is pursuing loss mitigation options, 
even if a borrower provides documents and information to the transferor 
servicer after the transfer date. This comment parallels other language 
in Sec.  1024.41(k).
    The Bureau is finalizing comment 41(k)(1)(i)-2 with certain 
revisions. Comment 41(k)(1)(i)-2 explains that, for purposes of Sec.  
1024.41(c) through (h), a transferee servicer must consider documents 
and information that constitute a complete loss mitigation application 
for the transferee servicer to have been received as of the date such 
documents and information were received by the transferor servicer, 
even if such documents and information were received by the transferor 
servicer after the transfer date, and includes a cross-reference to 
comment 41(k)(1)(i)-1.iii. It explains that an application that was 
facially complete under Sec.  1024.41(c)(2)(iv) with respect to the 
transferor servicer remains facially complete under Sec.  
1024.41(c)(2)(iv) with respect to the transferee servicer as of the 
date it was facially complete with respect to the transferor servicer. 
Comment 41(k)(1)(i)-2 further explains that, if an application was 
complete with respect to the transferor servicer, but is not complete 
with respect to the transferee servicer, the transferee servicer must 
treat the application as facially complete under Sec.  
1024.41(c)(2)(iv) as of the date the

[[Page 72277]]

application was complete with respect to the transferor servicer.
    Final comment 41(k)(1)(i)-2 clarifies the applicability of the 
rights and protections in Sec.  1024.41(c) through (h) where a borrower 
submits documents and information that constitute a complete 
application for the transferee servicer to the transferor servicer 
after the transfer date. The Bureau seeks to ensure that a borrower who 
submits a complete application to the transferor servicer after the 
transfer date does not lose rights or protections to which the borrower 
would have been entitled had the borrower submitted the complete 
application to the transferee servicer. Comment 41(k)(1)(i)-2 also 
includes a cross-reference to new comment 41(k)(1)(i)-1.iii, which 
clarifies that a borrower may provide documents and information 
necessary to complete the application to the transferor servicer after 
the transfer date and the transferor and transferee servicer 
obligations regarding the transfer of such documents and information. 
The final rule clarifies that the rights in Sec.  1024.41(c) and (d) 
apply in such situations to parallel the changes finalized in Sec.  
1024.41(k)(1)(i). The final rule also includes citations to Sec.  
1024.41(c)(2)(iv) where there is a discussion of a facially complete 
application. These changes to final comment 41(k)(1)(i)-2 clarify that 
the facially complete applications discussed in comment 41(k)(1)(i)-2 
are those applications that meet the criteria of Sec.  
1024.41(c)(2)(iv).
    Final comment 41(k)(1)(i)-3 provides that a transferee servicer is 
not required to provide notices under Sec.  1024.41 with respect to a 
particular loss mitigation application that the transferor servicer 
provided prior to the transfer. For example, if the transferor servicer 
provided the notice required by Sec.  1024.41(b)(2)(i)(B) prior to the 
transfer, the transferee servicer is not required to provide the notice 
again for that application. The Bureau is declining to require 
transferee servicers to provide borrowers a duplicative notice, or to 
provide a new notice under Sec.  1024.41 explaining the additional 
documents and information necessary to complete the application, as 
suggested by several consumer advocacy groups. A transferee servicer's 
obligations under Sec.  1024.41 generally, and Sec.  1024.41(k) 
specifically, should ensure that borrowers are kept updated as to the 
status of their loss mitigation application. For example, under comment 
41(k)(1)(i)-1.ii, transferee servicers must exercise reasonable 
diligence to complete a loss mitigation application, which includes 
keeping borrowers informed of any changes to the application process or 
any documents and information needed to complete the application. 
Additionally, Sec.  1024.41(b)(2)(i)(B) already requires servicers that 
receive an incomplete application more than 45 days before a scheduled 
foreclosure sale to provide a notice of the additional documents and 
information needed to complete the application. Finally, as explained 
in the section-by-section analysis of Sec.  1024.41(c)(3), servicers 
will be required to provide borrowers a written notice within five days 
(excluding legal holidays, Saturdays, and Sundays) of receipt of a 
complete loss mitigation application.
    The Bureau is finalizing revisions to Sec.  1024.41(k)(1)(ii), 
which defines transfer date for the purposes of Sec.  1024.41(k), to 
incorporate language from proposed comment 41(k)(1)(ii)-1 directly in 
the regulation text. As finalized, Sec.  1024.41(k)(1)(ii) defines 
transfer date as the date on which the transferee servicer will begin 
accepting payments relating to the mortgage loan, as disclosed on the 
notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv).
    The Bureau did not receive any comments on its proposed definition 
of transfer date in Sec.  1024.41(k)(1)(ii). The Bureau believes that 
linking the definition of transfer date in Sec.  1024.41(k)(1)(ii) 
directly to a date the servicer has already disclosed to the borrower 
on the notice of the transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv) will improve the ability of servicers and borrowers 
to track this date and monitor compliance with Sec.  1024.41 generally 
and specifically the timeframes established in Sec.  1024.41(k)(2) 
through (4).
    The Bureau is finalizing revisions to comment 41(k)(1)(ii)-1 to 
reflect the revised definition of transfer date set forth in Sec.  
1024.41(k)(1)(ii). Comment 41(k)(1)(ii)-1 explains that the transfer 
date is the date on which the transferee servicer will begin accepting 
payments relating to the mortgage loan, as disclosed on the notice of 
transfer of loan servicing pursuant to Sec.  1024.33(b)(4)(iv). It 
further explains that the transfer date is the same date as that on 
which the transfer of the servicing responsibilities from the 
transferor servicer to the transferee servicer occurs. As the Bureau 
explained in the proposal, the proposed definition of transfer date is 
consistent with the definition Fannie Mae employs in its servicing 
guide and reflects the industry's common understanding of the term.
    Additionally, the Bureau is further clarifying in comment 
41(k)(1)(ii)-1 that the transfer date is not necessarily the same date 
as either the effective date of the transfer of servicing as disclosed 
on the notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(i) or the sale date identified in a servicing transfer 
agreement. The Bureau believes it is appropriate to clarify the 
distinction between the transfer date and the effective date of the 
transfer of servicing, as the date the transferee servicer begins 
accepting payments may be earlier than the effective date of transfer. 
RESPA section 6(i)(1) defines ``effective date of transfer'' as the 
date on which the mortgage payment of a borrower is first due to the 
transferee servicer of a mortgage loan pursuant to the assignment, 
sale, or transfer of the servicing of the mortgage loan. Accordingly, 
if the transfer date is June 10, but the borrower's payment is first 
due to the transferee servicer on July 1, the effective date of 
transfer would be July 1. However, the Bureau understands that 
transferee servicers may begin accepting payments on June 10. For 
purposes of Sec.  1024.41(k)(1)(ii), therefore, June 10 is the transfer 
date.
41(k)(2) Acknowledgment Notices
    Proposed Sec.  1024.41(k)(2) would have provided that, if a 
transferee servicer acquires the servicing of a mortgage loan for which 
the period to provide the notice required by Sec.  1024.41(b)(2)(i)(B) 
has not expired as of the transfer date, the transferee servicer must 
provide the notice within 10 days (excluding legal public holidays, 
Saturdays, or Sundays) after the date the transferor servicer received 
the application. As discussed below, the Bureau is adopting proposed 
Sec.  1024.41(k)(2) with several substantial revisions.
    Section 1024.41(b)(2)(i)(B) states that, if a servicer receives a 
loss mitigation application 45 days or more before a foreclosure sale, 
a servicer must notify the borrower in writing within five days 
(excluding legal public holidays, Saturdays, or Sundays) that the 
servicer acknowledges receipt of the application and the servicer has 
determined that the application is complete or incomplete. If the 
application is incomplete, the notice must, among other things, 
identify the documents or information necessary to complete the 
application.
    The Bureau was concerned about a transferee servicer's ability to 
comply with Sec.  1024.41(b)(2)(i)(B) in the scenario where a 
transferor servicer receives a loss mitigation application and, before 
the time period in which to provide the notice required by Sec.  
1024.41(b)(2)(i)(B) expires, transfers the mortgage loan to the 
transferee servicer without providing the notice. In that situation, a

[[Page 72278]]

transferee servicer would be required to provide the notice within five 
days (excluding legal public holidays, Saturdays, or Sundays) of when 
the transferor servicer received the application. Depending on the 
timing of the transfer, a transferee servicer might have as little as 
one day after the transfer date to provide this notice.
    Information the Bureau gathered through its outreach and industry 
monitoring efforts in advance of the proposal confirmed that a 
transferee servicer often has difficulty providing the notice required 
by Sec.  1024.41(b)(2)(i)(B) within five days after the transferor 
servicer received a loss mitigation application. The Bureau understood 
that a transferee servicer typically requires several days to load a 
mortgage loan file and related information onto its systems and to 
access this information. Consequently, a transferee servicer may be 
unable to integrate this information and accurately review a loss 
mitigation application within the five-day time period specified in 
Sec.  1024.41(b)(2)(i)(B), particularly for applications received 
several days before transfer. As a result, in this situation a 
transferee servicer acting diligently and in good faith may still be 
unable to comply timely with the requirements of Sec.  
1024.41(b)(2)(i)(B).
    The Bureau proposed to allow transferee servicers up to an 
additional five days to comply with Sec.  1024.41(b)(2)(i)(B) with 
respect to applications pending as of the transfer date. Specifically, 
proposed Sec.  1024.41(k)(2) would have required a transferee servicer 
to provide the notice required by Sec.  1024.41(b)(2)(i)(B) within 10 
days (excluding legal public holidays, Saturdays, or Sundays) after the 
date the transferor servicer received a borrower's application.
    The Bureau believed that establishing a specific deadline for the 
transferee servicer to provide the notice required by Sec.  
1024.41(b)(2)(i)(B) might encourage transferor and transferee servicers 
to work together to streamline the transfer of documents. In 
particular, a specific deadline would underscore the importance of 
Sec.  1024.38(b)(4)(i), which requires a transferor servicer to have 
policies and procedures reasonably designed to ensure that it can 
timely transfer all information and documents in its possession or 
control relating to a transferred mortgage loan to a transferee 
servicer in a form and manner that ensures the accuracy of the 
information and documents transferred. Thus, the Bureau expected that 
the proposed timeframe would lead transferor servicers to identify and 
transfer all loss mitigation applications, timely and accurately, to 
transferee servicers. Further, the Bureau believed a firm compliance 
deadline could avoid unnecessary delays in the loss mitigation 
application process, while at the same time affording transferee 
servicers additional time to respond properly to a borrower's 
application.
    The Bureau also believed that this proposed extension would 
facilitate transferee servicers' compliance with Sec.  
1024.41(b)(2)(i)(B) while not materially affecting most borrowers. The 
existence and the extent of a borrower's protections under Sec.  
1024.41(e) through (h) are determined as of the date on which a 
servicer receives a borrower's complete application; extending the time 
for a transferee servicer to comply with Sec.  1024.41(b)(2)(i)(B) 
could delay, but in most cases would not prevent, a borrower from 
obtaining those protections. Moreover, the proposed extension was for a 
relatively brief period of time, and the Bureau did not believe that a 
short delay in providing the Sec.  1024.41(b)(2)(i)(B) notice would 
significantly lengthen the loss mitigation application, evaluation, and 
appeal process. Finally, the Bureau believed that allowing a transferee 
servicer some additional time to review a borrower's initial loss 
mitigation application might result in more accurate determinations and 
statements in the notice required under Sec.  1024.41(b)(2)(i)(B) 
regarding the documents and information needed to complete an 
application, which would ultimately benefit borrowers.
    Nonetheless, the Bureau recognized in the proposal that a delay in 
providing the Sec.  1024.41(b)(2)(i)(B) notice could affect a borrower 
in certain circumstances, particularly when a servicer receives an 
incomplete loss mitigation application shortly before the dates tied to 
certain foreclosure protections, 90 and 38 days before a foreclosure 
sale. In that instance, a borrower has an interest in completing the 
application as soon as possible to preserve the maximum protections 
available under Sec.  1024.41(e) through (h). Allowing a transferee 
servicer additional time to provide a borrower with a written 
notification of the documents and information required to complete an 
application could shorten the amount of time borrowers have to obtain 
and submit the documents and information necessary to complete an 
application, potentially reducing the ability of borrowers to complete 
the application in time to obtain certain foreclosure protections under 
Sec.  1024.41 that are triggered by the receipt of a complete 
application by a specified date.
    The Bureau requested comment on whether borrowers currently have 
difficulty in obtaining and submitting required documents and 
information to complete an application that the servicer received 
shortly before the 90th or 38th day before a foreclosure sale and 
whether the extension in proposed Sec.  1024.41(k)(2) would exacerbate 
such difficulties. The Bureau further requested comment on whether it 
is reasonable to require a transferee servicer to provide the written 
notice required by Sec.  1024.41(b)(2)(i)(B) within 10 days (excluding 
legal public holidays, Saturdays, or Sundays) from the date a 
transferor servicer received a loss mitigation application or whether a 
shorter or longer period is more appropriate. Finally, if a longer 
period would be appropriate, the Bureau requested comment on whether a 
transferee servicer that avails itself of the proposed extension should 
be required to give a borrower additional time to complete an 
application, such that a borrower would have additional time past the 
90th or 38th day before a foreclosure sale to submit a complete 
application and obtain the applicable protections under Sec.  
1024.41(e) through (h).
    The Bureau received several comments on proposed Sec.  
1024.41(k)(2). Industry commenters asserted that the proposed five-day 
extension would not provide enough time for servicers to provide the 
notice required by Sec.  1024.41(b)(2)(i)(B) and recommended longer 
timeframes. One industry commenter specifically stated that the lag 
time between the transfer date and the date on which the transferee 
servicer has access to the loan level information necessary to provide 
the Sec.  1024.41(b)(2)(i)(B) notice would make compliance with 
proposed Sec.  1024.41(k)(2) difficult. Industry commenters recommended 
that transferee servicers be provided an extension of 10 or 25 days. 
Other industry commenters recommended that transferee servicers be 
permitted to comply with Sec.  1024.41(k)(2) within 15 business days 
from the transfer date or 30 days from the transfer date.
    Consumer advocacy group commenters expressed concern with the 
potential effect on borrowers resulting from the proposal's five-day 
extension. These commenters stated that the notice required by Sec.  
1024.41(b)(2)(i)(B) is critical for borrowers seeking to submit 
complete applications and meet the deadlines for certain foreclosure 
protections. They cautioned that the extension of the timeframe for 
transferee servicers to provide this notice could result in borrowers 
completing

[[Page 72279]]

applications past the 90th or 38th day before a scheduled foreclosure 
sale, and thereby losing certain foreclosure protections under Sec.  
1024.41(e) through (h) and the right to an evaluation under Sec.  
1024.41(c). These commenters recommended limiting any extension of the 
timeframe for transferee servicers in Sec.  1024.41(k)(2) to five days, 
as proposed.
    Some consumer advocacy groups suggested that, in light of the 
proposed extension for transferee servicers in Sec.  1024.41(k)(2), the 
Bureau should provide borrowers additional time to complete an 
application when Sec.  1024.41(k)(2) applies. These commenters 
recommended that, when Sec.  1024.41(k)(2) applies, all of the time 
periods under Sec.  1024.41(c) and Sec.  1024.41(e) through (h) should 
be extended by 10 days. One industry commenter recommended that 
transferee servicers should be required to continue a pending 
foreclosure sale if necessary to maintain the loss mitigation deadlines 
and borrower protections under Sec.  1024.41, assuming an extension to 
the timeframe proposed in Sec.  1024.41(k)(2).
    Finally, some consumer advocacy groups expressed concern that the 
proposal addressed only situations where the time period to provide the 
Sec.  1024.41(b)(2)(i)(B) notice had not expired as of the transfer 
date. These commenters recommended that the rule also require 
transferee servicers to send the notice required by Sec.  
1024.41(b)(2)(i)(B) if the transferor servicer was required to send 
this notice prior to the transfer date but failed to do so.
    For the reasons explained below, the Bureau is adopting Sec.  
1024.41(k)(2) with several substantial changes to the proposal. Final 
Sec.  1024.41(k)(2)(i) explains that, if a transferee servicer acquires 
the servicing of a mortgage loan for which the period to provide the 
notice required by Sec.  1024.41(b)(2)(i)(B) has not expired as of the 
transfer date and the transferor servicer has not provided such notice, 
the transferee servicer must provide the notice within 10 days 
(excluding legal public holidays, Saturdays, and Sundays) of the 
transfer date. As discussed in more detail below, in an effort to 
reduce the borrower harms created by the extension in the timeframe 
applicable to transferee servicers, the Bureau is adding new Sec.  
1024.41(k)(2)(ii) and new comments 41(k)(2)(ii)-1 through -3 to adjust 
the timeframes for certain borrower rights and foreclosure protections 
where Sec.  1024.41(k)(2)(i) applies.
    The Bureau understands that, when a loan is transferred, it 
generally takes several days to board documents onto the transferee 
servicer's systems. During this transition period, the transferee 
servicer cannot access the loan level data and documents necessary to 
send the acknowledgment notice or to evaluate applications and appeals. 
Transferee servicers are also unable to assess transferor servicers' 
compliance during this period of time when the documents are being 
boarded onto transferee servicer's systems. Transferor servicers may 
have difficulty sending the acknowledgment notice or completing a loss 
mitigation evaluation when an application is received shortly before 
transfer. As a result, transferee servicers may experience difficulty 
ensuring compliance with timeframes applicable to the transferor 
servicer based on the date the transferor servicer received the loss 
mitigation application, even with the five-day extension in proposed 
Sec.  1024.41(k)(2). The Bureau believes that finalizing a timeframe 
for compliance in Sec.  1024.41(k)(2)(i) that is based on the transfer 
date, rather than on the date the transferor servicer received the 
application, better accounts for the transition period inherent to 
transfers.
    The final rule, by taking into account the transition period 
inherent to transfers, effectively allows transferee servicers subject 
to Sec.  1024.41(k)(2)(i) approximately the same time to comply as 
servicers subject to the general five day timeframe in Sec.  
1024.41(b)(2)(i)(B). Although servicers are generally only permitted 
five days to provide the notice required by Sec.  1024.41(b)(2)(i)(B), 
transferee servicers must also account for the several-day transition 
period that occurs when there is a transfer of servicing rights. In 
starting the timeframe for compliance at the transfer date, and 
providing only an additional five days to comply, the Bureau means to 
ensure that transferee servicers are able to comply with the 
requirements of Sec.  1024.41(b)(2)(i)(B) within the approximate 
timeframes generally applicable to servicers absent the complicating 
factors of a transfer.
    The Bureau expects that the final rule will have a limited effect 
on most borrowers. The time extension permitted for transferee 
servicers is modest and should limit the number of borrowers who have 
difficulty obtaining the foreclosure protections because of a 
transferee servicer's delay. More importantly, because the existence 
and the extent of a borrower's rights and protections under Sec.  
1024.41(c) through (h) are determined as of the date on which a 
servicer receives a borrower's complete application, extending the time 
for a transferee servicer to comply with Sec.  1024.41(b)(2)(i)(B) 
could delay, but in most cases should not prevent, a borrower from 
obtaining those rights and protections. Moreover, the Bureau believes 
that tying compliance under Sec.  1024.41(k)(2)(i) to the transfer date 
will make it easier for borrowers and servicers alike to track the 
transferee servicer's compliance, as the transfer date is disclosed on 
the notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv).
    As discussed in the section-by-section analysis of Sec.  
1024.41(k)(1), comment 41(k)(1)(i)-3 clarifies that a transferee 
servicer is not required to provide notices under Sec.  1024.41 with 
respect to a particular loss mitigation application that the transferor 
servicer provided prior to the transfer. Thus, the transferee servicer 
is not required to provide the notice required under Sec.  
1024.41(b)(2)(i)(B) if the transferor servicer has provided it. The 
Bureau does not believe that a duplicative notice requirement in this 
context would provide a significant additional benefit to borrowers 
because, as comment 41(k)(1)(i)-1.ii clarifies, a transferee servicer 
must exercise reasonable diligence to complete a loss mitigation 
application following the transfer, which includes ensuring that a 
borrower is informed of any changes to the application process and 
which documents and information are necessary to complete the 
application. Adopting this requirement would also impose an additional 
burden on transferee servicers. Thus, final Sec.  1024.41(k)(2)(i) 
explains that the requirements of Sec.  1024.41(k)(2)(i) apply if a 
transferee servicer acquires the servicing of a mortgage loan for which 
the period to provide the notice required by Sec.  1024.41(b)(2)(i)(B) 
has not expired as of the transfer date and the transferor servicer has 
not provided such notice.
    Similarly, the Bureau is declining to adopt a requirement that the 
transferee servicer provide the notice required by Sec.  
1024.41(b)(2)(i)(B), if the time period for providing that notice had 
expired as of the transfer date, even if the transferor servicer has 
not provided it. Pursuant to final comment 41(k)(1)(i)-1.ii, transferee 
servicers must exercise reasonable diligence to complete any incomplete 
applications, including those for which a transferor servicer has 
failed to provide the notice required by Sec.  1024.41(b)(2)(i)(B). 
Similarly, as provided in Sec.  1024.41(k)(3), a transferee servicer 
would be expected to evaluate any complete applications received by the 
transferor servicer, even if the transferor servicer had not provided 
the notice required by Sec.  1024.41(b)(2)(i)(B).

[[Page 72280]]

    The Bureau is adding new Sec.  1024.41(k)(2)(ii) to mitigate 
potential borrower harm caused by the extended timeframe for transferee 
servicers finalized in Sec.  1024.41(k)(2)(i). Although the Bureau 
believes that Sec.  1024.41(k)(2)(i) should have a limited effect on 
most borrowers, it recognizes that any delay in the receipt of the 
notice required by Sec.  1024.41(b)(2)(i)(B) may affect the ability of 
some borrowers to complete an application before certain deadlines 
under Sec.  1024.41. For example, where a transferor servicer receives 
a borrower's application shortly before the borrower's loan becomes 
more than 120 days delinquent or shortly before day 90 or day 38 before 
a foreclosure sale, the delayed provision of the notice required by 
Sec.  1024.41(b)(2)(i)(B) may make it more difficult for a borrower to 
obtain and submit required documents and information to complete an 
application prior to those milestones, which could dictate whether, 
among other things, a servicer is required to evaluate a borrower's 
application within 30 days, a borrower obtains appeal rights, or 
certain foreclosure protections apply. Additionally, the Bureau 
recognizes that borrowers generally benefit by obtaining the 
foreclosure protections of Sec.  1024.41 at an earlier date. The Bureau 
is adding new Sec.  1024.41(k)(2)(ii) because it believes the extended 
timeframe for transferee servicers under Sec.  1024.41(k)(2)(i) should 
not limit a borrower's opportunity to obtain certain critical rights 
and foreclosure protections.
    The Bureau is finalizing Sec.  1024.41(k)(2)(ii)(A) to provide that 
a transferee servicer that must provide the notice required by Sec.  
1024.41(b)(2)(i)(B) under Sec.  1024.41(k)(2) shall not make the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process until a date that is after the reasonable 
date disclosed to the borrower pursuant to Sec.  1024.41(b)(2)(ii), 
notwithstanding Sec.  1024.41(f)(1). Section 1024.41(k)(2)(ii)(A) 
further explains that, for purposes of Sec.  1024.41(f)(2), a borrower 
who submits a complete loss mitigation application on or before the 
reasonable date disclosed to the borrower pursuant to Sec.  
1024.41(b)(2)(ii) shall be treated as having done so during the pre-
foreclosure review period set forth in Sec.  1024.41(f)(1). Section 
1024.41(k)(2)(ii)(A) addresses the potential situation where a borrower 
might have less time to complete an application during the 120-day pre-
foreclosure review period because of the extended timeline for 
transferee servicers to provide the notice required by Sec.  
1024.41(b)(2)(i)(B).
    Generally, under Sec.  1024.41(f)(1)(i) and (f)(2), a servicer is 
permitted to make the first notice or filing required by applicable law 
for any judicial or non-judicial foreclosure process if a borrower's 
mortgage loan obligation is more than 120 days delinquent and the 
borrower has not submitted a complete application during this pre-
foreclosure review period. Thus, absent Sec.  1024.41(k)(2)(ii)(A), and 
assuming the borrower did not submit a complete application during the 
120-day pre-foreclosure review period, the servicer could otherwise 
feasibly file for foreclosure on the day when the borrower becomes 121 
days delinquent. Under Sec.  1024.41(k)(2)(ii)(A), however, the 
transferee servicer may not make the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
until a date that is after the reasonable date disclosed to the 
borrower pursuant to Sec.  1024.41(b)(2)(ii). If the borrower submits a 
complete loss mitigation application on or before the reasonable date 
disclosed to the borrower pursuant to Sec.  1024.41(b)(2)(ii), then for 
purposes of Sec.  1024.41(f)(2), the borrower shall be treated as 
having done so during the pre-foreclosure review period set forth in 
Sec.  1024.41(f)(1). Accordingly, Sec.  1024.41(k)(2)(ii)(A) prevents a 
borrower from losing part of the 120-day pre-foreclosure review period 
to complete an application because of the extended timeline for 
transferee servicers to provide the Sec.  1024.41(b)(2)(i)(B) notice 
that is set forth in Sec.  1024.41(k)(2)(i). The Bureau is adopting new 
comment 41(k)(2)(ii)-1.i to provide an illustrative example.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1024.41(b)(2)(ii), a reasonable date is at least seven days from 
the date the servicer provides the Sec.  1024.41(b)(2)(i)(B) notice and 
generally 30 days after the date the servicer provides the Sec.  
1024.41(b)(2)(i)(B) notice. Additionally, the reasonable date must be 
no later than the earliest remaining milestone,\276\ subject to the 
minimum seven day requirement. So, for example, if the date that is the 
120th day of the borrower's delinquency is the earliest remaining 
milestone, and that date is 15 days from the date the notice required 
by Sec.  1024.41(b)(2)(i)(B) is provided, the reasonable date must be 
at least seven days from the date the Sec.  1024.41(b)(2)(i)(B) notice 
is provided and not later than the date that is the 120th day of the 
borrower's delinquency. Accordingly, new Sec.  1024.41(k)(2)(ii) 
requires transferee servicers to provide borrowers additional time to 
complete an application and obtain certain rights and protections only 
in situations where a milestone either occurs before the notice under 
Sec.  1024.41(b)(2)(i)(B) is provided or less than seven days from when 
the notice is provided. The Bureau is adding new comment 41(k)(2)(ii)-3 
to clarify the determination of the correct reasonable date where no 
milestones remain.
---------------------------------------------------------------------------

    \276\ As revised, comment 41(b)(2)(ii)-1 sets forth the 
following four milestones for servicers setting the reasonable date: 
(i) The date by which any document or information submitted by a 
borrower will be considered stale or invalid pursuant to any 
requirements applicable to any loss mitigation option available to 
the borrower; (ii) the date that is the 120th day of the borrower's 
delinquency; (iii) the date that is 90 days before a foreclosure 
sale; or (iv) the date that is 38 days before a foreclosure sale.
---------------------------------------------------------------------------

    The Bureau is adding new Sec.  1024.41(k)(2)(ii)(B) to address 
situations where borrowers who are provided the notice required under 
Sec.  1024.41(b)(2)(i)(B) by transferee servicers pursuant to Sec.  
1024.41(k)(2)(i) submit a complete loss mitigation application 37 days 
or less before a scheduled foreclosure sale. Specifically, Sec.  
1024.41(k)(2)(ii)(B) provides that a transferee servicer that must 
provide the notice required by Sec.  1024.41(b)(2)(i)(B) under Sec.  
1024.41(k)(2) shall comply with Sec.  1024.41(c), (d), and (g) if the 
borrower submits a complete loss mitigation application to the 
transferee or transferor servicer 37 or fewer days before the 
foreclosure sale but on or before the reasonable date disclosed to the 
borrower pursuant to Sec.  1024.41(b)(2)(ii). Section 1024.41(c) 
establishes requirements for a servicer's evaluation of a complete loss 
mitigation application received more than 37 days before a foreclosure 
sale, and Sec.  1024.41(d) includes certain requirements, as 
applicable, for the notice a servicer must provide pursuant to Sec.  
1024.41(c). Section 1024.41(g) limits a servicer's ability to proceed 
with a foreclosure sale until certain conditions are met where a 
borrower submits a complete loss mitigation application more than 37 
days before a foreclosure sale.
    Thus, Sec.  1024.41(k)(2)(ii)(B) addresses situations where the 
extended timeline provided to transferee servicers to provide the Sec.  
1024.41(b)(2)(i)(B) notice under Sec.  1024.41(k)(2)(i) could limit a 
borrower's opportunity to complete an application and obtain the rights 
and protections afforded under Sec.  1024.41(c), (d), and (g). It 
requires transferee servicers to comply with these provisions if the 
borrower submits a

[[Page 72281]]

complete application on or before the reasonable date, notwithstanding 
that this date is 37 days or less before a scheduled foreclosure sale. 
New comment 41(k)(2)(ii)-1.ii provides an illustrative example of this 
provision. As explained in new comment 41(k)(2)(ii)-2, discussed in 
more detail below, where a borrower submits a complete application more 
than 37 days before a scheduled foreclosure sale, a transferee servicer 
must comply with the otherwise applicable requirements of Sec.  
1024.41. The Bureau believes that Sec.  1024.41(k)(2)(ii)(B) reduces 
potential harm from the extended timeline for transferee servicers in 
Sec.  1024.41(k)(2)(i) and in particular affords a borrower a 
reasonable opportunity to complete an application and obtain the rights 
and protections of Sec.  1024.41(c), (d), and (g).
    The Bureau recognizes that Sec.  1024.41(k)(2)(ii)(B) requires 
transferee servicers to provide certain borrowers rights and 
protections in situations where compliance with Sec.  1024.41(c), (d), 
and (g) would not otherwise be required. Depending on the 
circumstances, Sec.  1024.41(k)(2)(ii)(B) may provide certain borrowers 
more time to complete an application and obtain the rights and 
protections under Sec.  1024.41(c), (d), and (g) than if the borrower's 
loan had not been transferred. Under Sec.  1024.41(k)(2)(ii)(B) 
transferee servicers will, for example, be required to comply with 
Sec.  1024.41(g) by delaying a foreclosure sale within a shorter period 
of time prior to a scheduled foreclosure sale than they would generally 
be required to do. However, the Bureau expects that such instances will 
be rare, as Sec.  1024.41(k)(2)(ii)(B) applies only where a transferee 
servicer provides the notice required by Sec.  1024.41(b)(2)(i)(B) to a 
borrower pursuant to Sec.  1024.41(k)(2)(i) and the borrower submits a 
complete application 37 days or less before a foreclosure sale but on 
or before the reasonable date disclosed under Sec.  1024.41(b)(2)(ii).
    The Bureau believes that this approach appropriately balances 
mitigating consumer harm and imposing burden on transferee servicers. 
Requiring compliance with existing Sec.  1024.41(c), (d), and (g), 
rather than establishing a separate standard for evaluating 
applications and providing dual tracking protections, as the Bureau 
considered, eases any compliance burden on transferee servicers 
associated with Sec.  1024.41(k)(2)(ii)(B). Transferee servicers can 
further minimize any delay and associated burden by working proactively 
with transferor servicers to expedite the provision of the notice 
required under Sec.  1024.41(b)(2)(i)(B). Because the rule currently 
requires that the notice under Sec.  1024.41(b)(2)(i)(B) be provided 
within five days of the receipt of the loss mitigation application, 
without regard to transfer, the Bureau believes that some servicers may 
have already developed standardized data protocols to identify affected 
loan files and expedite delivery of the required notice. Accordingly, 
the Bureau believes Sec.  1024.41(k)(2)(ii) strikes an appropriate 
balance to limit borrower harm associated with the extended timeline in 
Sec.  1024.41(k)(2)(i) while limiting the compliance burden on 
transferee servicers.
    As part of striking this balance, the Bureau has decided not to 
preserve a borrower's opportunity to obtain appeal rights under Sec.  
1024.41(h) if the 90-day milestone passes before the transferor or 
transferee servicer receives the borrower's complete loss mitigation 
application. Appeal rights afford borrowers an important safeguard 
against servicer error in the evaluation of complete loss mitigation 
applications. However, for the likely few number of borrowers who may 
be affected by the extended timeframe in Sec.  1024.41(k)(2)(i), the 
Bureau has prioritized preventing transferee servicers from taking 
critical foreclosure actions to the detriment of those borrowers 
immediately following transfer, while limiting the effect of Sec.  
1024.41(k)(2)(ii) on the otherwise applicable timeframes set forth in 
the loss mitigation rules and potentially complicating compliance. The 
Bureau notes that, even absent appeal rights under Sec.  1024.41(h), 
borrowers may still submit a notice of error under Sec.  1024.35 
relating to the loss mitigation or foreclosure process and to the 
servicing of the loan, and servicers must comply with the applicable 
provisions of Sec.  1024.35 regarding such notices of error.
    The Bureau is adding new comment 41(k)(2)(ii)-2 to address the 
applicability of other loss mitigation provisions in light of new Sec.  
1024.41(k)(2)(ii). Comment 41(k)(2)(ii)-2 explains that Sec.  
1024.41(k)(2)(ii)(A) prohibits a servicer from making the first notice 
or filing required by applicable law for any judicial or non-judicial 
foreclosure process until a date that is after the reasonable date 
disclosed to the borrower pursuant to Sec.  1024.41(b)(2)(ii), 
notwithstanding Sec.  1024.41(f)(1). It further explains that Sec.  
1024.41(k)(2)(ii)(B) requires a servicer to comply with Sec.  
1024.41(c), (d), and (g) if a borrower submits a complete loss 
mitigation application on or before the reasonable date disclosed in 
the notice required by Sec.  1024.41(b)(2)(i)(B), even if the servicer 
would otherwise not be required to comply with Sec.  1024.41(c), (d), 
and (g) because the application is submitted 37 days or fewer before a 
foreclosure sale. Comment 41(k)(2)(ii)-2 explains that Sec.  
1024.41(k)(2)(ii) provides additional protections for borrowers but 
does not remove any protections, and clarifies that servicers remain 
subject to the requirements of Sec.  1024.41 as applicable and so, for 
example, must comply with Sec.  1024.41(h) if the servicer receives a 
complete loss mitigation 90 days or more before a foreclosure sale. It 
further explains that similarly, a servicer is prohibited from making 
the first notice or filing before the borrower's mortgage loan 
obligation is more than 120 days delinquent, even if that is after the 
reasonable date disclosed to the borrower pursuant to Sec.  
1024.41(b)(2)(ii). Section 1024.41(k)(2)(ii) provides certain borrowers 
an opportunity to obtain rights and protections under Sec.  1024.41(c), 
(d), and (g) if they submit a complete loss mitigation application 37 
or fewer days before a foreclosure sale but on or before the reasonable 
date disclosed on the notice required by Sec.  1024.41(b)(2)(i)(B). 
Comment 41(k)(2)(ii)-2 clarifies that Sec.  1024.41(k)(2)(ii)(B) does 
not detract from or otherwise affect any other requirements under Sec.  
1024.41.
    The Bureau is also finalizing new comment 41(k)(2)(ii)-3 to address 
the determination of the reasonable date when no milestones remain. As 
explained in more detail in the section-by-section analysis of Sec.  
1024.41(b)(2)(ii), Sec.  1024.41(b)(2)(ii) commentary explains that the 
reasonable date generally must be no later than the earliest milestone, 
that 30 days is generally reasonable, and that the reasonable date must 
never be less than seven days after the Sec.  1024.41(b)(2)(i)(B) 
notice is provided to the borrower. As noted above, this generally 
means that when the nearest remaining milestone is between seven days 
and 30 days away from the date the notice required by Sec.  
1024.41(b)(2)(i)(B) is provided, the reasonable date must be no later 
than the date of that milestone. However, where a transferee servicer 
provides a borrower the notice required by Sec.  1024.41(b)(2)(i)(B) 37 
or fewer days before a foreclosure sale, no milestones remain. Comment 
41(k)(2)(ii)-3 explains that, generally, a servicer does not provide 
the notice required under Sec.  1024.41(b)(2)(i)(B) after the date that 
is 38 days before a foreclosure sale, so at least one milestone 
specified in comment 41(b)(ii)-1 always remains

[[Page 72282]]

applicable. When Sec.  1024.41(k)(2)(i) applies, however, the 
transferee servicer may sometimes provide the notice after the date 
that is 38 days before a foreclosure sale. When this occurs, the 
transferee servicer must determine the reasonable date when none of the 
four specified milestones remain. Comment 41(k)(2)(ii)-3 explains that 
the other requirements of Sec.  1024.41(b)(2)(ii) continue to apply and 
clarifies that, in this circumstance, a reasonable date may occur less 
than 30 days, but not less than seven days, after the date the 
transferee servicer provides the written notice pursuant to Sec.  
1024.41(b)(2)(i)(B). Section 1024.41(k)(2)(ii) establishes additional 
borrower rights and protections determined in relation to the 
reasonable date disclosed pursuant to Sec.  1024.41(b)(2)(ii). Thus, 
comment 41(k)(2)(ii)-3 clarifies that Sec.  1024.41(k)(2)(ii) does not 
affect the transferee servicer's obligation to determine the reasonable 
date in accordance with the Sec.  1024.41(b)(2)(ii) commentary.
41(k)(3) Complete Loss Mitigation Applications Pending at Transfer
    Proposed Sec.  1024.41(k)(3)(i) would have provided that, with two 
exceptions, a transferee servicer that acquires the servicing of a 
mortgage loan for which a complete loss mitigation application is 
pending as of the transfer date must comply with the applicable 
requirements of Sec.  1024.41(c)(1) and (4) within 30 days of the date 
the transferor servicer received the complete application. Thus, unless 
an exception applies, a transfer would not affect the time in which a 
borrower should receive a notice of which loss mitigation options, if 
any, a servicer will offer to the borrower. The Bureau explained that 
this proposed requirement may be necessary to ensure that a transfer 
does not adversely affect a borrower's right to a prompt evaluation of 
a complete loss mitigation application. The Bureau is finalizing 
proposed Sec.  1024.41(k)(3) with substantial revisions. Final Sec.  
1024.41(k)(3) establishes a timeframe for transferee servicer 
compliance that is 30 days from the transfer date and does not include 
the proposed exceptions.
    Proposed comment 41(k)(3)(i)-1 would have clarified a transferee 
servicer's obligations regarding an application that was complete with 
respect to the transferor servicer but for which the transferee 
servicer needed additional documentation or corrections to a previously 
submitted document to evaluate the borrower for all loss mitigation 
options based upon the transferee servicer's criteria. Specifically, 
the proposed comment would have clarified that, in this scenario and 
consistent with proposed Sec.  1024.41(c)(2)(iv), the application is 
facially complete as of the date it was first facially complete or 
complete, as applicable, with respect to the transferor servicer, and 
the borrower is entitled to all of the protections under Sec.  
1024.41(c)(2)(iv). Additionally, once the transferee servicer receives 
the information or corrections necessary to complete the application, 
Sec.  1024.41(c)(3) requires the transferee servicer to provide a 
notice of complete application. Finally, the proposed comment would 
have clarified that an application that was complete with respect to 
the transferor servicer remains complete even if the transferee 
servicer requests that a borrower resubmit the same information in the 
transferee servicer's specified format or make clerical corrections to 
the application. The comment would have further explained that a 
borrower's failure to resubmit such information or make such clerical 
corrections does not extend the time in which the transferee servicer 
must complete the evaluation of the borrower's complete application.
    Proposed comment 41(k)(3)(i)-2 addressed the reverse situation in 
which a borrower's loss mitigation application was incomplete based 
upon the transferor servicer's criteria prior to transfer but the 
transferee servicer determines that the application is complete based 
upon its own criteria. In that case, the proposed comment would have 
clarified that the application is considered a pending loss mitigation 
application complete as of the transfer date for purposes of Sec.  
1024.41(k)(3), but complete as of the date the transferor servicer 
received the documents and information constituting the complete 
application for purposes of Sec.  1024.41(e) through (h). This comment 
was intended to avoid uncertainty about the timeframe in which the 
transferee servicer must evaluate a complete application and the date 
on which the borrower obtained protections under Sec.  1024.41.
    Proposed Sec.  1024.41(k)(3)(ii)(A) set forth the first proposed 
exception to the requirement to comply with Sec.  1024.41(c)(1) and (4) 
within 30 days of the date the transferor servicer received the 
complete application. This proposed exception addressed involuntary 
transfers of servicing. The Bureau understood that a servicer that 
acquires servicing as a result of an involuntary transfer is less 
likely to be able to plan properly for a transfer. Additionally, 
involuntary transferee servicers may be more likely to receive loans 
from a failing or bankrupt servicer, which in turn may be more likely 
to have failed to maintain adequate records regarding borrowers' 
mortgage loans. Therefore, proposed Sec.  1024.41(k)(3)(ii)(A) would 
have allowed a servicer that acquires servicing as a result of an 
involuntary transfer to comply with the applicable requirements of 
Sec.  1024.41(c)(1) and (4) within 30 days of the date the transferor 
servicer received a complete loss mitigation application, or within 15 
days of the transfer date, whichever is later. Proposed Sec.  
1024.41(k)(3)(ii)(B) would have provided that a transfer is involuntary 
when an unaffiliated investor or a court or regulator with jurisdiction 
requires, with less than 30 days advance notice, the transferor 
servicer to transfer servicing to another servicer and the transferor 
servicer is in breach of, or default under, its servicing agreement for 
loss mitigation related-servicing performance deficiencies or is in 
receivership or bankruptcy.
    The second proposed exception, in proposed Sec.  
1024.41(k)(3)(iii), concerned instances where a transferee servicer's 
completion of the evaluation within the timeframes set forth in 
proposed Sec.  1024.41(k)(3)(i) or (ii)(A), as applicable, was 
impracticable under the circumstances. The Bureau understood that, due 
to the unique circumstances and complications that may arise in 
connection with a transfer, there may be times when, despite the 
transferee servicer's good faith efforts, it may be impracticable to 
comply with the timing requirements of Sec.  1024.41(k)(3)(i) or 
(ii)(A). In that situation, proposed Sec.  1024.41(k)(3)(iii) would 
have required a transferee servicer to comply with the applicable 
requirements of Sec.  1024.41(c)(1) and (4) within a reasonably prompt 
time after expiration of the applicable time period in Sec.  
1024.41(k)(3)(i) or (ii)(A). The Bureau expected that, in most 
circumstances, it would be practicable for a transferee servicer to 
evaluate a complete application within the prescribed timeframes and 
that an extension would not be necessary or appropriate. The Bureau 
also proposed comment 41(k)(3)(iii)-1, which would have clarified that, 
for purposes of Sec.  1024.41(k)(3)(iii), a servicer that complies with 
the applicable requirements of Sec.  1024.41(c)(1) and (4) within five 
days after the expiration of the applicable timeframe in proposed Sec.  
1024.41(k)(3)(i) or (ii)(A) would generally be considered to have acted 
within a ``reasonably prompt time.''
    The Bureau sought comment on the treatment of complete applications 
pending at transfer. In particular, the Bureau sought comment on 
whether it is ever necessary or appropriate to give

[[Page 72283]]

transferee servicers an extension of time to evaluate complete 
applications. If an extension were necessary or appropriate, the Bureau 
sought comment on which factors and circumstances, including but not 
limited to involuntary transfers, might require an extension, the 
appropriate length of any extension, and the burden transferee 
servicers should have to meet to demonstrate a need for the extension. 
The Bureau also sought comment on what obstacles transferee servicers 
currently face in obtaining and evaluating pending loss mitigation 
applications and the problems faced by borrowers who have applications 
pending at the time of a servicing transfer, as well as whether an 
extension of time to comply with Sec.  1024.41 following a transfer 
would ameliorate or exacerbate those problems.
    The Bureau received a number of comments in response to proposed 
Sec.  1024.41(k)(3). Many industry commenters recommended that proposed 
Sec.  1024.41(k)(3)(i) be revised to provide transferee servicers an 
extension of time to evaluate a pending complete application, with 
several recommending that transferee servicers be permitted 30 days 
from the transfer date to comply with Sec.  1024.41(c)(1) and (4). 
Several other industry commenters requested an extension of the 
timeframe in Sec.  1024.41(k)(3)(i) but did not recommend a specific 
timeframe. A few industry commenters stated that the transition period 
inherent to transfers would make compliance with proposed Sec.  
1024.41(k)(3)(i) difficult. One industry commenter stated that the 
timeframe in the proposal was not feasible, even with the potential for 
a five-day extension under proposed Sec.  1024.41(k)(3)(iii). This 
commenter further stated that proposed Sec.  1024.41(k)(3) would either 
effectively stop the transfer of servicing for most loans with pending 
loss mitigation applications or greatly increase the number of errors 
made by transferee servicers in evaluating these applications. Another 
industry commenter explained that proposed Sec.  1024.41(k)(3) would 
place a significant administrative and cost burden on transferee 
servicers.
    Several industry commenters that recommended an extension of the 
timeframe in proposed Sec.  1024.41(k)(3)(i) discussed the potential 
impact such an extension could have on borrowers. One industry 
commenter asserted that providing transferee servicers adequate time to 
evaluate an application would benefit borrowers, and noted that 
borrower foreclosure protections would continue to apply during the 
evaluation period. One commenter expressed the view that an extension 
to Sec.  1024.41(k)(3)(i) would not adversely affect borrower 
foreclosure protections because generally a pending foreclosure 
proceeding is paused until the transferee servicer has evaluated the 
complete application. Another industry commenter suggested that the 
Bureau should extend the timeframe in proposed Sec.  1024.41(k)(3)(i) 
and could require that servicers postpone pending foreclosure sales to 
maintain the current Sec.  1024.41 loss mitigation timelines.
    Several industry commenters expressed concern over transferee 
servicers' ability to comply with the 30-day timeframe applicable to 
the transferor servicer in proposed Sec.  1024.41(k)(3)(i) where most 
of the 30-day period had passed prior to transfer. These commenters 
recommended that the Bureau revise the proposal to provide a transferee 
servicer an extension of time to comply with Sec.  1024.41(c)(1) and 
(4) where most of the 30-day timeframe had passed prior to transfer.
    Industry commenters generally supported the exception for 
involuntary transfers in proposed Sec.  1024.41(k)(3)(ii). However, 
several of these commenters stated that an extension should be provided 
for all transferee servicers, not just those evaluating applications 
following an involuntary transfer. One industry commenter stated that 
requiring transferee servicers to comply within the same timeframes 
applicable to transferor servicers would be difficult for both 
voluntary and involuntary transfers.
    The consumer advocacy groups that commented on the exception in 
proposed Sec.  1024.41(k)(3)(iii), where compliance was not 
practicable, expressed concern that this proposed exception was not 
sufficiently definite and could create a compliance gap. These 
commenters recommended that the Bureau incorporate language from the 
proposal's preamble into comment 41(k)(3)(iii)-1, indicating that this 
exception would only be applicable in unusual circumstances and that 
generally it would be practicable for transferee servicers to evaluate 
an application within the otherwise applicable timeframes. These 
consumer advocacy groups also stated that Sec.  1024.41(k)(3)(iii) 
should incorporate language from the proposed commentary into the 
regulation text and require compliance within five days of the 
expiration of the otherwise applicable timeframes. Finally, these 
commenters recommended that comment 41(k)(3)(iii)-1 provide examples of 
when it would be impracticable for transferee servicers to comply 
within the otherwise applicable timeframes.
    Several consumer advocacy groups recommended revisions to the 
proposed Sec.  1024.41(k)(3) commentary. They stated that comment 
41(k)(3)(i)-1 should be revised to prohibit transferees from requesting 
that borrowers resubmit information in the transferee servicer's 
required format or make clerical corrections to an application. One 
consumer advocacy group recommended that proposed comment 41(k)(3)(i)-1 
should require transferee servicers to treat applications considered 
complete by the transferor servicer as complete, rather than facially 
complete. This commenter suggested that, if the transferee servicer 
requires more information to evaluate the application, the 30-day 
evaluation period under Sec.  1024.41(c)(1) should be extended and 
there should be a required pause in foreclosure activities under Sec.  
1024.41(f) and (g). This commenter also recommended that a transferee 
servicer treat the borrower as if a complete loss mitigation 
application was pending at transfer and should not determine it has 
received the full loan file following transfer until the transferor 
servicer has certified that it has provided the transferee servicer the 
entire loan file, including any loss mitigation applications or loss 
mitigation options offered, or 60 days have passed following the 
transfer date and neither the transferor servicer or borrower has 
indicated the existence of a pending loss mitigation application or 
plan. It stated that this requirement would ensure that foreclosure 
sales are not conducted while the transferee servicer is unaware of any 
pending loss mitigation applications or agreements between the borrower 
and the transferor servicer. Consumer advocacy groups also recommended 
that comment 41(k)(3)(i)-2 be revised to provide borrowers the right to 
an evaluation under Sec.  1024.41(c)(1) based on the date the 
transferor servicer received the application, even if the application 
was first complete upon transfer to the transferee servicer.
    For the reasons explained below, the Bureau is finalizing changes 
to Sec.  1024.41(k)(3). Final Sec.  1024.41(k)(3) establishes a 
timeframe for transferee servicer compliance that is 30 days from the 
transfer date, whether the transfer is voluntary or involuntary. Based 
on the timeframe finalized in Sec.  1024.41(k)(3), the Bureau believes 
the exceptions proposed in Sec.  1024.41(k)(3)(ii) and Sec.  
1024.41(k)(3)(iii) are no longer necessary. The Bureau is therefore 
renumbering proposed Sec.  1024.41(k)(3)(i) as Sec.  1024.41(k)(3), and 
is not adopting

[[Page 72284]]

proposed Sec.  1024.41(k)(3)(ii) or Sec.  1024.41(k)(3)(iii). The 
Bureau is renumbering comments 41(k)(3)(i)-1 and -2 as comments 
41(k)(3)-1 and -2, and is making minor changes to those comments. The 
Bureau is not adopting proposed comment 41(k)(3)(iii)-1.
    The Bureau has concluded that proposed Sec.  1024.41(k)(3)(i) could 
have posed compliance difficulties for transferee servicers. The Bureau 
notes that extending the evaluation date for transferee servicers does 
not reduce borrower rights and protections in Sec.  1024.41(c) through 
(h). The existence and extent of those rights and protections are 
determined as of the date a complete application is received (in this 
case, by the transferor servicer, prior to the transfer date). The 
rights and protections, once determined as of the date the transferor 
servicer received the complete application, continue during the 
evaluation period and are not diminished by any delay in the conduct of 
the evaluation by the transferee servicer. However, the Bureau 
recognizes that both borrowers and servicers are generally best served 
by an efficient and timely evaluation of loss mitigation options and 
that borrowers, in particular, face increased delinquency and credit 
reporting harms when an evaluation is delayed. Nonetheless, balancing 
the difficulties faced by transferee servicers in completing the 
evaluation of a transferred loss mitigation application and the harm 
delayed evaluations occasion borrowers, the Bureau is finalizing Sec.  
1024.41(k)(3) to provide that, if a transferee servicer acquires the 
servicing of a mortgage loan for which a complete loss mitigation 
application is pending as of the transfer date, the transferee servicer 
must comply with the applicable requirements of Sec.  1024.41(c)(1) and 
(4) within 30 days of the transfer date.
    Similar to final Sec.  1024.41(k)(2)(i) with regard to transferee 
servicers' provision of Sec.  1024.41(b)(2)(i)(B) notices, final Sec.  
1024.41(k)(3) provides a bright-line standard for the applicable 
timeframe for transferee servicers to comply with Sec.  1024.41(c)(1) 
and (4) regarding the evaluation of complete applications and 
applicable notice requirements. The Bureau believes that determining 
compliance with Sec.  1024.41(k)(3) based on the transfer date, rather 
than based on the date the transferor servicer received the 
application, as proposed, should make it easier for borrowers and 
servicers alike to track compliance. As discussed in the section-by-
section analysis of Sec.  1024.41(k)(2), the transfer date is disclosed 
on the notice of transfer of loan servicing provided to borrowers 
pursuant to Sec.  1024.33(b)(4)(iv).
    In light of the expansion in timelines beyond the proposed rule, 
the Bureau believes that all transferee servicers should be able to 
comply with Sec.  1024.41(k)(3) without reliance on the proposed 
exceptions for involuntary transfers or situations where compliance 
with the otherwise applicable timeframes would be impracticable. 
Accordingly, the Bureau is not finalizing the proposed exceptions in 
Sec.  1024.41(k)(3)(ii) and (iii) and clarifications in proposed 
comment 41(k)(3)(iii)-1 and is removing references to these exceptions 
in Sec.  1024.41(k)(3).
    The Bureau recognizes that the transition period associated with 
transfers, a several-day period following transfer in which the 
transferee servicer may not have access to the loan-level information, 
may effectively shorten the actual time that transferee servicers will 
have following transfer to comply with the applicable requirements of 
Sec.  1024.41(c)(1) and (4). Although this transition period may result 
in a transferee servicer having fewer days to comply with Sec.  
1024.41(c)(1) and (4) than would a servicer in the absence of a 
transfer, final Sec.  1024.41(k)(3) balances transferee servicer 
interests in having sufficient time to comply against borrower 
interests in a prompt evaluation of a loss mitigation application. As 
explained above, even with a several-day transition period, Sec.  
1024.41(k)(3) should generally provide transferee servicers more time 
to evaluate a borrower's application than the proposal would have 
provided by triggering the evaluation timeframe based on the transfer 
date, rather than the date the transferor received the application. 
Moreover, several industry commenters recommended the adoption of a 30-
day timeframe for compliance, measured from the transfer date.
    The Bureau also recognizes that this delay necessarily imposes 
costs on borrowers, even if their rights and foreclosure protections 
under Sec.  1024.41 are not curtailed. In general, the longer the 
borrower must wait for an evaluation, the more the borrower's 
outstanding delinquency increases. As discussed in the section-by-
section analysis of Sec.  1024.41(b)(2)(ii), industry commenters have 
stated that an increase in the delinquency can decrease the likelihood 
of successful loss mitigation. Borrowers may face other harms due to an 
extended evaluation period as well, such as continued adverse credit 
reporting. While the Bureau is persuaded by industry commenters that 
transferee servicers should have 30 days from the transfer date to 
evaluate a complete application, any further extension for transferee 
servicers could result in borrower harm and is not necessary to enable 
transferee servicer compliance.
    As discussed in the section-by-section analysis of Sec.  
1024.41(k)(1), the Bureau is finalizing commentary to limit the impact 
on borrowers of any additional delays resulting from final Sec.  
1024.41(k)(3). Final comment 41(k)(1)(i)-2 provides that, for purposes 
of the borrower rights and protections under Sec.  1024.41(c) through 
(h), a transferee servicer must consider documents and information that 
constitute a complete loss mitigation application for the transferee 
servicer to have been received as of the date such documents and 
information were received by the transferor servicer, even if such 
documents and information were received by the transferor servicer 
after the transfer date. The borrower rights and protections under 
Sec.  1024.41(c) through (h) begin as of the date the transferor 
servicer receives a complete application, and extending the timeframe 
for transferee servicer evaluations will not affect the timing of these 
protections. As noted above, the Bureau recognizes that Sec.  
1024.41(k)(3) could extend the amount of time that a borrower must wait 
for an evaluation, that the amount of the borrower's obligation that is 
past due may increase during this extended timeframe, and that the 
borrower may suffer harm as a result. Nevertheless, the Bureau believes 
this approach provides an appropriate balance to limit borrower harm 
while facilitating transferee servicer compliance. The Bureau also 
believes providing transferee servicers appropriate time to comply with 
Sec.  1024.41(c)(1) and (4) may improve transferee servicers' ability 
to evaluate applications fairly and efficiently, which would ultimately 
benefit borrowers.
    The Bureau is renumbering proposed comments 41(k)(3)(i)-1 and -2 as 
41(k)(3)-1 and -2 and is finalizing these comments with revisions. 
Comment 41(k)(3)-1 explains that, if a transferee servicer acquires the 
servicing of a mortgage loan for which a complete loss mitigation 
application is pending as of the transfer date and the transferee 
servicer determines that additional information or a correction to a 
previously submitted document is required based upon its criteria for 
evaluating loss mitigation applications, the application is considered 
facially complete under Sec.  1024.41(c)(2)(iv) as of the date it was 
first facially complete or complete, as applicable, with respect to

[[Page 72285]]

the transferor servicer. It further provides that once the transferee 
servicer receives the information or corrections necessary to complete 
the application, Sec.  1024.41(c)(3) requires the transferee servicer 
to provide a notice of complete application.
    The Bureau is finalizing comment 41(k)(3)-1 without the proposed 
language pertaining to a transferee servicer's request that a borrower 
resubmit the same information in the transferee servicer's specified 
format or make clerical corrections to the application and without the 
proposed language pertaining to the borrower's failure to do so. While 
the Bureau recognizes that servicers may occasionally ask for such 
resubmission of the same previously submitted information in certain 
circumstances, the Bureau does not believe that such requests should be 
the norm. Such requests could be burdensome to borrowers or possibly 
mislead them. For example, the Bureau is concerned that such requests 
may lead borrowers to believe erroneously that their application is 
incomplete as to the transferee servicer.
    While the Bureau is concerned that a transferee servicer's requests 
that the borrower resubmit the same information in the transferee 
servicer's specified format or make clerical corrections to the 
application may be burdensome or misleading to borrowers, the Bureau is 
not prohibiting transferees from requesting that borrowers do so, as 
suggested by some consumer advocacy groups. Although the Bureau 
generally discourages such requests, the Bureau believes that, in the 
limited circumstances where, for example, a transferee servicer 
determines that a clerical correction to a previously submitted 
document is required based on its criteria for evaluating loss 
mitigation applications, or that resubmission in the transferee 
servicer's specified format would speed the evaluation based on the 
servicer's systems capabilities, servicers should be able to request 
such clerical corrections or resubmissions. The Bureau will continue to 
monitor whether these requests raise consumer protection concerns.
    Comment 41(k)(3)-1 does not change the general requirements 
regarding facially complete applications under Sec.  1024.41(c)(2)(iv), 
including the standard for when an application is considered complete 
or facially complete. For example, if a transferee servicer acquires 
the servicing of a mortgage loan for which a complete loss mitigation 
application is pending as of the transfer date, and the transferee 
servicer requests that the borrower resubmit the same information in 
the transferee servicer's specified format, such a request would not 
render the application facially complete, as opposed to complete, 
because it is not a request for additional information or corrections 
to a previously submitted document (reformatting does not constitute a 
correction). Thus, a request for previously submitted information in 
the transferee servicer's specified format does not justify an 
extension of the 30-day timeframe in Sec.  1024.41(k)(3) for a 
transferee servicer's evaluation of a borrower's complete application. 
A transferee servicer that does not receive the same previously 
submitted information in its specified format still must comply timely 
with Sec.  1024.41(k)(3).
    The Bureau is not revising the treatment of applications as 
facially complete where a transferee servicer determines additional 
information or a correction to a previously submitted document is 
required, as suggested by one consumer advocate commenter. Comment 
41(k)(3)-1 provides that an application is considered facially complete 
under Sec.  1024.41(c)(2)(iv) as of the date it was first facially 
complete or complete, as applicable, to the transferor servicer. An 
application that is facially complete under Sec.  1024.41(c)(2)(iv) is 
treated as complete for the purposes of Sec.  1024.41(f)(2) and (g) 
until the borrower is given a reasonable opportunity to complete the 
application. Accordingly, the current foreclosure protections provided 
to borrowers when an application is considered facially complete 
address concerns about a transferee servicer taking an action otherwise 
prohibited by Sec.  1024.41(f)(2) or (g) in such situations.
    The Bureau also declines to adopt one commenter's suggestion to 
require the transferor servicer to certify that it has provided the 
transferee servicer the entire loan file, or to require that 60 days 
pass following the transfer date, before the transferee servicer may 
conclude that the entire loan file has been transferred. Section 
1024.38(b)(4)(i) requires a transferor servicer to maintain policies 
and procedures reasonably designed to ensure the timely transfer of all 
information and documents in its possession or control relating to the 
transferred mortgage loan in a form and manner that ensures the 
accuracy of the documents and information transferred. Comment 
38(b)(4)(i)-2 further clarifies that this policies and procedures 
requirement imposes an affirmative obligation on the transferor 
servicer with respect to the transfer of any information reflecting the 
current status of discussions with a borrower regarding loss mitigation 
options and any agreements entered into with a borrower on a loss 
mitigation option.\277\ Additionally, as discussed above, comment 
41(k)(1)(i)-1.i explains that a transferor servicer must timely 
transfer, and a transferee servicer must obtain from the transferor 
servicer, documents and information submitted by a borrower in 
connection with a loss mitigation application, consistent with policies 
and procedures adopted pursuant to Sec.  1024.38(b)(4). This comment 
clarifies the obligation of transferor servicers to transfer timely, 
and transferee servicers to obtain, documents and information submitted 
by a borrower in connection with a loss mitigation application. 
Accordingly, the Bureau believes that additional requirements 
pertaining to a transferee servicer's determination that it has a 
complete loan file are not necessary to ensure borrowers are afforded 
the rights and protections to which they are entitled under Sec.  
1024.41.
---------------------------------------------------------------------------

    \277\ See 79 FR 63295, 63295-96 (Oct. 23, 2014) (discussing 
policies and procedures that may contribute to meeting the 
requirements of Sec.  1024.38(b)(4)).
---------------------------------------------------------------------------

    The Bureau is adopting proposed comment 41(k)(3)(i)-2, renumbered 
as comment 41(k)(3)-2, with certain changes for clarity. Under comment 
41(k)(3)-2, if the borrower's loss mitigation application was 
incomplete based on the transferor servicer's criteria prior to 
transfer but is complete based upon the transferee servicer's criteria, 
the application is considered a pending loss mitigation application 
complete as of the transfer date for purposes of Sec.  1024.41(k)(3), 
and the transferee servicer must comply with the applicable 
requirements of Sec.  1024.41(c)(1) and (4) within 30 days of the 
transfer date. The comment further provides that, for purposes of Sec.  
1024.41(c) through (h), the application is complete as of the date the 
transferor servicer received the documents and information constituting 
the complete application, and includes a cross-reference to comment 
41(k)(1)(i)-2. In such circumstances, Sec.  1024.41(c)(3) requires the 
transferee servicer to provide a notice of complete application that 
discloses the date the transferor servicer received the documents and 
information constituting the complete application.
    The Bureau did not specifically address in proposed comment 
41(k)(3)(i)-2 the requirements of Sec.  1024.41(c) and (d), the 
compliance timeframe under Sec.  1024.41(k)(3), or the

[[Page 72286]]

date disclosed on the notice of complete application required under 
Sec.  1024.41(c)(3). As discussed in the section-by-section analysis of 
Sec.  1024.41(k)(1), the proposal did not specifically address Sec.  
1024.41(c) and (d) because a servicer must comply with Sec.  
1024.41(c), and as applicable, Sec.  1024.41(d), to satisfy its 
requirements under Sec.  1024.41(g). For additional clarity, the Bureau 
is finalizing comment 41(k)(3)-2 to specify the applicability of Sec.  
1024.41(c) and (d) under Sec.  1024.41(k)(3). The Bureau is also 
clarifying in final comment 41(k)(3)-2 that the date disclosed on the 
notice of complete application under Sec.  1024.41(c)(3) is distinct 
from the date on which the 30-day evaluation timeframe under Sec.  
1024.41(k)(3) begins.
    The Bureau notes that some consumer advocacy groups requested that 
borrowers be provided the right to an evaluation under Sec.  
1024.41(c)(1) based on the date the transferor servicer received the 
application, even if the application was first complete upon transfer 
to the transferee servicer. Final Sec.  1024.41(k)(3) establishes a 30-
day evaluation timeframe from the transfer date for all complete 
applications, including those first complete upon transfer to the 
transferee servicer. Additionally, comment 41(k)(3)-2 provides that, 
where an application is first complete upon transfer, the application 
is complete as of the date the transferor servicer received the 
documents and information constituting the complete application for 
purposes of Sec.  1024.41(c) through (h). Thus, the transferee servicer 
must comply with Sec.  1024.41(c) through (h) regarding the complete 
application. The transferee servicer must treat those rights and 
protections as attaching as of the date the transferor servicer 
received the documents and information constituting the complete 
application, even if the application was incomplete based on the 
transferor servicer's criteria. The transferor servicer's actions 
regarding a loss mitigation application that was incomplete based on 
the transferor servicer's criteria but complete based on the transferee 
servicer's criteria do not affect the transferee servicer's obligations 
under Sec.  1024.41(c) through (h). For example, if the transferor 
servicer moved for foreclosure judgment or order of sale prior to the 
transfer date, but the documents and information constituting a 
complete application to the transferee servicer were received by the 
transferor servicer more than 37 days before the foreclosure sale, the 
transferee servicer is required to comply with Sec.  1024.41(g) 
regarding that complete application. As discussed in the section-by-
section analysis of Sec.  1026.41(g), comment 41(g)-5 provides that, 
where a foreclosure sale is scheduled and none of the conditions under 
Sec.  1024.41(g)(1) through (3) are applicable, conduct of the sale 
violates Sec.  1024.41(g).
    Finally, the Bureau is not adopting proposed comment 41(k)(3)(iii)-
1, which would have clarified the proposed exception in Sec.  
1024.41(k)(3)(iii). As the Bureau is not adopting the proposed 
exceptions in Sec.  1024.41(k)(3)(iii), proposed comment 41(k)(3)(iii)-
1 is not necessary.
41(k)(4) Applications Subject to Appeal Process
    Proposed Sec.  1024.41(k)(4) would have provided that, if a 
borrower timely appeals a transferor servicer's denial of a loan 
modification option under Sec.  1024.41(h), a transferee servicer must 
evaluate the appeal if it is able to determine whether it should offer 
the borrower the loan modification options subject to the appeal. A 
transferee servicer that is unable to evaluate an appeal would have 
been required to treat the borrower's appeal as a pending complete loss 
mitigation application and comply with the requirements of Sec.  
1024.41 for such an application. Proposed Sec.  1024.41(k)(4) would 
have applied if a borrower made an appeal before the transfer date and 
the appeal remained pending as of the transfer date or if the period 
for making an appeal under Sec.  1024.41(h) had not expired as of the 
transfer date and a borrower subsequently made a timely appeal. The 
Bureau is finalizing proposed Sec.  1024.41(k)(4)(i) with revisions. 
Final Sec.  1024.41(k)(4)(i) provides that, if a transferee servicer is 
required under Sec.  1024.41(k)(4) to make a determination on an 
appeal, the transferee servicer must complete its determination and 
provide the notice required by Sec.  1024.41(h)(4) within 30 days of 
the transfer date or 30 days of the date the borrower made the appeal, 
whichever is later.
    The Bureau believed that a transfer should not deprive a borrower 
of the right to appeal a servicer's denial of a loan modification 
option. The terms of loan modification programs are complex, and the 
Bureau believed that, as with any complex process, servicers may make 
mistakes in evaluating borrowers' complete applications. In addition, 
investors or guarantors may transfer servicing to a new servicer 
precisely because they believe the new servicer is better able to 
evaluate borrowers for loss mitigation options. In that case, both a 
borrower and an investor or guarantor might benefit from the new 
servicer attempting to determine whether the transferor servicer 
mistakenly denied the borrower for a loan modification option.
    Therefore, proposed Sec.  1024.41(k)(4) would have provided that, 
if a transferee servicer acquires the servicing of a mortgage loan for 
which, as of the transfer date, a borrower's appeal under Sec.  
1024.41(h) is pending, or a borrower's time period to appeal under 
Sec.  1024.41(h) has not expired and the borrower subsequently makes a 
timely appeal, the transferee servicer must evaluate the appeal if it 
is able to determine whether it should offer the borrower the loan 
modification options subject to the appeal. Proposed Sec.  
1024.41(k)(4)(i) would have further provided that, if a servicer is 
able to evaluate an appeal but it is not practicable under the 
circumstances to complete the determination within 30 days of when the 
borrower made the appeal, the transferee servicer must complete the 
evaluation of the borrower's appeal and provide the notice required by 
Sec.  1024.41(h)(4) within a reasonably prompt time. Proposed comment 
41(k)(4)-2 would have clarified that, in general, a reasonably prompt 
time would be within an additional five days after the expiration of 
the original 30-day evaluation window. For the reasons discussed above, 
the Bureau explained that in some circumstances a transferee servicer 
may need to exceed the 30-day evaluation window to complete the 
evaluation of the appeal.
    The Bureau also recognized, however, that a transferee servicer may 
not always be able to determine whether a transferor servicer 
incorrectly denied the borrower for a loan modification option. For 
example, the transferee servicer may not have sufficient information 
about the evaluation criteria used by the transferor servicer, in 
particular when the transferor servicer denied a borrower for a loan 
modification option that the transferee servicer does not offer, or 
when the transferee servicer receives the mortgage loan file through an 
involuntary transfer and the transferor servicer failed to maintain 
proper records such that the transferee servicer does not have 
sufficient information to evaluate the appeal. The Bureau expected that 
such circumstances would be rare, that transferee servicers would 
generally be able to evaluate borrowers' appeals, and that borrowers 
would not be disadvantaged as a result of transfers. In those limited 
circumstances, however, proposed Sec.  1024.41(k)(4)(ii) would have 
required the transferee servicer to treat

[[Page 72287]]

the appeal as a pending complete loss mitigation application and 
evaluate the borrower for all options available to the borrower from 
the transferee servicer. For purposes of Sec.  1024.41(c) or (k)(3), as 
applicable, such a pending complete loss mitigation application would 
have been considered complete as of the date the appeal was received. 
For purposes of Sec.  1024.41(e) through (h), such a pending complete 
loss mitigation application would have been considered facially 
complete as of the date the application was facially complete with 
respect to the transferor servicer.
    The Bureau explained in the proposal its belief that, in cases 
where the transferee servicer cannot evaluate the appeal, requiring the 
transferee servicer to reevaluate the borrower for all loss mitigation 
options that may be available to the borrower preserves the benefits of 
the appeal process for borrowers. Furthermore, the Bureau believed that 
the proposed requirement would not impose substantial burdens on 
transferee servicers because a transferee servicer is already required 
to comply with the requirements of Sec.  1024.41, regardless of whether 
the borrower received an evaluation of a complete loss mitigation 
application from the transferor servicer, as explained by comment 
41(i)-2.
    Proposed comment 41(k)(4)-1 noted that a transferee servicer may be 
unable to evaluate an appeal when, for example, the transferor servicer 
denied a borrower for a loan modification option that the transferee 
servicer does not offer or when the transferee servicer receives the 
mortgage loan file through an involuntary transfer and the transferor 
servicer failed to maintain proper records such that the transferee 
servicer lacks sufficient information to evaluate the appeal. The 
proposed comment would have clarified that, if a transferee servicer is 
required to treat the appeal as a pending complete application, the 
transferee servicer must permit the borrower to accept or reject any 
loss mitigation options offered by the transferor servicer, in addition 
to the loss mitigation options, if any, that the transferee servicer 
determined to offer the borrower based on its own evaluation of the 
borrower's complete loss mitigation application.
    The Bureau requested comment on the treatment of appeals pending at 
transfer, including whether transferee servicers may need additional 
time to evaluate pending appeals, the extent to which transferee 
servicers are able to evaluate appeals of a transferor servicer's 
denial of a loan modification option, and whether a pending appeal 
should ever or always be treated as a new loss mitigation application 
such that a transferee servicer must evaluate the borrower for all 
available loss mitigation options. Additionally, the Bureau was 
concerned about the appropriate recourse when, if ever, a transferee 
servicer was unable to evaluate a borrower's appeal. The Bureau 
believed that treating the appeal as a pending complete application 
would provide benefits to borrowers, but the Bureau requested comment 
on whether such treatment would be in the borrower's best interests 
where, for example, the borrower's application documents may have gone 
stale, and whether such treatment is inconsistent with applicable 
investor requirements.
    The Bureau received several comments in response to proposed Sec.  
1024.41(k)(4). Industry commenters generally requested an extension to 
the proposed timeframe for transferee servicers to determine appeals. 
Some industry commenters stated that the transition period inherent to 
transfers could make compliance with proposed Sec.  1024.41(k)(4) 
difficult. As with proposed Sec.  1024.41(k)(3)(i), certain industry 
commenters also expressed concern about situations where the transfer 
date occurs near the end of the 30-day determination period applicable 
to the transferor servicer. One industry commenter recommended that the 
Bureau revise proposed Sec.  1024.41(k)(4) to provide transferee 
servicers 30 days from the transfer date to comply. This commenter 
stated that borrowers would continue to have foreclosure protections 
while the servicer was making its determination on an appeal.
    Several industry commenters also discussed proposed Sec.  
1024.41(k)(4) in relation to borrower foreclosure timelines and 
protections. One industry commenter suggested that the timeframe for 
transferee servicer compliance in proposed Sec.  1024.41(k)(4) should 
be extended and that transferee servicers could be required to postpone 
any pending foreclosure sales to maintain the structure of the current 
loss mitigation timelines. Another industry commenter expressed concern 
with the current borrower timelines for submitting an appeal and 
accepting a loss mitigation offer because of the potential for borrower 
confusion where there is a servicing transfer. This commenter suggested 
that borrowers be provided 30 days from the transfer date to make an 
appeal. This commenter further stated that, if the transferee servicer 
is able to determine an appeal, but not within 30 days of the date the 
borrower made the appeal to the transferor servicer, the transferor 
servicer should make sure that the borrower receives foreclosure 
protections during this extended timeframe.
    The Bureau solicited comment as to whether a pending appeal should 
ever or always be treated as a pending loss mitigation application. One 
industry commenter stated that, if the transferee servicer can 
determine the appeal, it should be treated as an appeal to avoid any 
further delay. One industry commenter stated, however, that because 
each servicer may have different loss mitigation review criteria, it 
would be difficult for a transferee servicer to evaluate an appeal 
based on the transferor servicer's criteria. This commenter suggested 
that the appeal be treated as a complete loss mitigation application. 
One consumer advocacy group stated that, because of the time it takes 
for transferee servicers to obtain loan documents from the transferor 
servicer, it could be difficult for a transferee servicer to evaluate 
an appeal timely. The commenter suggested that, if the transferee 
servicer is unable to evaluate an appeal timely, the appeal should be 
treated as a complete loss mitigation application. Another consumer 
advocacy group expressed support for the Bureau's proposal to permit 
transferee servicers to treat a borrower's pending appeal as a complete 
loss mitigation application when they are unable to evaluate an appeal.
    The Bureau is finalizing proposed Sec.  1024.41(k)(4) with 
revisions. Final Sec.  1024.41(k)(4)(i) provides that, if a transferee 
servicer is required under Sec.  1024.41(k)(4) to make a determination 
on an appeal, the transferee servicer must complete the determination 
and provide the notice required by Sec.  1024.41(h)(4) within 30 days 
of the transfer date or 30 days of the date the borrower made the 
appeal, whichever is later. Based on this finalized timeframe, the 
Bureau believes the exception for situations where compliance would 
have been impracticable in proposed Sec.  1024.41(k)(4)(i) is no longer 
necessary. The Bureau is therefore not adopting this proposed 
exception. The Bureau is adding new comment 41(k)(4)-1 to explain that 
a borrower may submit an appeal of a transferor servicer's 
determination pursuant to Sec.  1024.41(h) to the transferor servicer 
after the transfer date and to clarify transferor and transferee 
servicer obligations in such situations. The Bureau is renumbering 
proposed comment 41(k)(4)-1 as 41(k)(4)-2 and making certain revisions 
for clarity. The Bureau is not adopting proposed comment 41(k)(4)-2.

[[Page 72288]]

    To improve consistency between Sec.  1024.41(h)(4) and (k)(4), the 
final rule uses the term ``determination,'' rather than ``evaluation,'' 
when discussing appeals. Section 1024.41(h)(4) sets forth the 
requirements for a servicer's determination of an appeal, while Sec.  
1024.41(c)(1) sets forth the requirements for a servicer's evaluation 
of a complete loss mitigation application. The final rule implements 
this change and includes conforming changes throughout Sec.  
1024.41(k)(4).
    The Bureau is finalizing Sec.  1024.41(k)(4) with certain changes 
to improve clarity. Section 1024.41(k)(4) provides that, if a 
transferee servicer acquires the servicing of a mortgage loan for which 
an appeal of a transferor servicer's determination pursuant to Sec.  
1024.41(h) has not been resolved by the transferor servicer as of the 
transfer date or is timely filed after the transfer date, the 
transferee servicer must make a determination on the appeal if it is 
able to do so or, if it is unable to do so, must treat the appeal as a 
pending complete loss mitigation application. Section 1024.41(k)(4) 
does not prohibit the transferee servicer from evaluating the borrower 
for any loss mitigation options it offers in addition to determining 
the appeal, when it is able to determine the appeal. The Bureau 
believes that if the transferee servicer offers additional loss 
mitigation options to those offered by the transferor servicer and 
subject to the appeal, the transferee servicer could, in addition to 
determining the appeal, also evaluate for any loss mitigation options 
it offers. Proposed Sec.  1024.41(k)(4) would have required a 
transferee servicer to evaluate the appeal if it were able to determine 
whether to offer the borrower the loan modification options subject to 
the appeal. Proposed Sec.  1024.41(k)(4)(ii) would have required a 
transferee servicer that is unable to evaluate an appeal to treat the 
appeal as a pending complete loss mitigation application and comply 
with the requirements of Sec.  1024.41 for such application. The final 
rule explains both of these requirements in Sec.  1024.41(k)(4), rather 
than explaining them separately in Sec.  1024.41(k)(4) and (k)(4)(ii), 
as proposed.
    The Bureau believes that proposed Sec.  1024.41(k)(4)(i) may have 
posed compliance difficulties for transferee servicers by requiring a 
determination on an appeal within 30 days of the date the borrower made 
the appeal. The Bureau is finalizing changes to Sec.  1024.41(k)(4)(i) 
to explain that, if a transferee servicer is required under Sec.  
1024.41(k)(4) to make a determination on an appeal, the transferee 
servicer must complete the determination and provide the notice 
required by Sec.  1024.41(h)(4) within 30 days of the transfer date or 
30 days of the date the borrower made the appeal, whichever is later.
    The Bureau notes that, as discussed in the section-by-section 
analysis of Sec.  1024.41(k)(3), the existence and the extent of a 
borrower's rights and protections under Sec.  1024.41(c) through (h) 
are established based on the date the transferor servicer receives a 
complete application. Extending the time for a transferee servicer to 
make a determination on an appeal will not affect the date these 
protections begin. Further, neither the transferor nor the transferee 
servicer may take an action prohibited by Sec.  1024.41(f)(2) or (g) 
until it has made a determination on the borrower's appeal. However, 
the Bureau recognizes that a borrower's delinquency continues during 
the time when a transferee servicer is determining an appeal, and that 
the changes in final Sec.  1024.41(k)(4)(i) may extend the duration of 
the borrower's delinquency by an additional 30 days. In general, the 
longer the borrower must wait for a determination, the more the 
borrower's outstanding delinquency increases. Nonetheless, the Bureau 
believes that final Sec.  1024.41(k)(4)(i) strikes an appropriate 
balance to limit borrower harm caused by delayed determinations while 
accounting for difficulties faced by transferee servicers in 
determining appeals of a transferor servicer's determination of a loss 
mitigation application and facilitating transferee servicer compliance.
    As with final Sec.  1024.41(k)(2)(i) and (k)(3), Sec.  
1024.41(k)(4)(i) establishes a bright-line standard for transferee 
servicer compliance with the requirement to determine and provide 
notice on an appeal pursuant to Sec.  1024.41(h). The Bureau believes 
borrowers and servicers can track compliance based on the transfer 
date, as this date is disclosed on the notice of transfer of loan 
servicing provided to borrowers pursuant to Sec.  1024.33(b)(4)(iv).
    Final Sec.  1024.41(k)(4)(i) generally provides transferee 
servicers a greater amount of time to comply than under the proposal. 
Proposed Sec.  1024.41(k)(4)(i) would have generally required 
transferee servicers to provide the notice required by Sec.  
1024.41(h)(4) within 30 days of the date the borrower made the appeal. 
The final rule establishes a longer timeframe for compliance, in most 
cases, by providing transferee servicers up to 30 days from the 
transfer date to comply with Sec.  1024.41(h)(4). Further, in 
situations where the transferee servicer must treat an appeal as a 
pending complete loss mitigation application, a 30-day timeframe from 
the transfer date is consistent with the timeframe set forth in final 
Sec.  1024.41(k)(3) for the evaluation of complete loss mitigation 
applications.
    In light of the expansion in timelines beyond the proposed rule, 
the Bureau believes that all transferee servicers should be able to 
comply with Sec.  1024.41(k)(4)(i) without reliance on the proposed 
exception for situations where compliance would be impracticable. 
Accordingly, final Sec.  1024.41(k)(4)(i) does not include the proposed 
exception where compliance within 30 days of when the borrower made the 
appeal would have been impracticable.
    The Bureau recognizes that, when transferee servicers acquire the 
servicing of a mortgage loan for which a borrower's appeal is pending 
as of the transfer date, the transition period associated with 
transfers of several days following transfer in which the transferee 
servicer may not have access to the loan-level information may 
effectively shorten the actual time that transferee servicers will have 
following transfer to determine the appeal and provide the notice 
required by Sec.  1024.41(h)(4). Although this transition period may 
result in a transferee servicer having fewer days to comply with Sec.  
1024.41(h)(4) than would a servicer in the absence of a transfer, final 
Sec.  1024.41(k)(4)(i) balances transferee servicer interests in having 
sufficient time to comply with borrower interests in a quick 
determination on an appeal. As explained above, even with this 
transition period, Sec.  1024.41(k)(4)(i) should generally provide 
transferee servicers more time to determine a borrower's appeal than 
the proposal would have provided by permitting compliance within 30 
days of the transfer date or 30 days of the date the borrower made the 
appeal, whichever is later. Moreover, one industry commenter 
recommended the adoption of a 30-day timeframe for compliance, measured 
from the transfer date. Accordingly, even accounting for the transition 
period inherent to transfers, the Bureau believes that final Sec.  
1024.41(k)(4)(i) provides transferee servicers appropriate time to 
complete a determination and provide the notice required by Sec.  
1024.41(h)(4) with respect to a borrower's appeal.
    Final Sec.  1024.41(k)(4)(i) also permits transferee servicers to 
comply within 30 days of the date the borrower made the appeal, as 
proposed. As noted above, the Bureau believes that providing transferee 
servicers 30 days from the

[[Page 72289]]

transfer date to comply will generally establish a longer timeframe for 
compliance than would have been provided under the proposal. However, 
the Bureau is cognizant that, in the context of appeals, unique 
circumstances may arise where it would be beneficial for transferee 
servicers and borrowers to base the timeframe for transferee servicer 
compliance on the date the borrower made the appeal. Specifically, some 
borrowers might make an appeal to the transferor servicer after the 
transfer date but before the borrower's time to appeal pursuant to 
Sec.  1024.41(h)(2) has expired. In such situations, a transferee 
servicer would have more time to make a proper determination on the 
appeal if the timeframe for compliance were based on the date the 
borrower made the appeal, rather than on the transfer date, without 
compromising reasonable borrower expectations. Accordingly, the Bureau 
is finalizing Sec.  1024.41(k)(4)(i) to provide greater flexibility and 
ensure transferee servicers have sufficient time to determine appeals 
even where a borrower timely makes an appeal to the transferor servicer 
after the transfer date. Moreover, the Bureau believes that the bright-
line standard in Sec.  1024.41(k)(4)(i) will facilitate compliance.
    The Bureau is finalizing Sec.  1024.41(k)(4)(ii) to provide that a 
transferee servicer that is required to treat a borrower's appeal as a 
pending complete loss mitigation application under Sec.  1024.41(k)(4) 
must comply with the requirements of Sec.  1024.41 for such 
application, including evaluating the borrower for all loss mitigation 
options available to the borrower from the transferee servicer. Section 
1024.41(k)(4)(ii) further explains that, for purposes of Sec.  
1024.41(c) or (k)(3), as applicable, such a pending complete loss 
mitigation application shall be considered complete as of the date the 
appeal was received by the transferor servicer or the transferee 
servicer, whichever occurs first. Finally, Sec.  1024.41(k)(4)(ii) 
provides that, for purposes of Sec.  1024.41(e) through (h), the 
transferee servicer must treat such a pending complete loss mitigation 
application as facially complete under Sec.  1024.41(c)(2)(iv) as of 
the date it was first facially complete or complete, as applicable, 
with respect to the transferor servicer.
    Final Sec.  1024.41(k)(4)(ii) includes several changes from the 
proposal. Section 1024.41(k)(4)(ii) explains that a transferee servicer 
that is required to treat a borrower's appeal as a pending complete 
loss mitigation application under Sec.  1024.41(k)(4) must comply with 
the requirements of Sec.  1024.41 for such application, including 
evaluating the borrower for all loss mitigation options available to 
the borrower from the transferee servicer. Final Sec.  
1024.41(k)(4)(ii) reflects the changes finalized in Sec.  1024.41(k)(4) 
and links the appeals covered by Sec.  1024.41(k)(4)(ii) to the 
category of appeals treated as complete loss mitigation applications in 
Sec.  1024.41(k)(4).
    Additionally, final Sec.  1024.41(k)(4)(ii) explains that, for 
purposes of Sec.  1024.41(c) or (k)(3), as applicable, such a pending 
complete loss mitigation application shall be considered complete as of 
the date the appeal was received by the transferor servicer or the 
transferee servicer, whichever occurs first. The proposal would have 
explained that the application shall be considered complete as of the 
date the appeal was received, but without specific reference to the 
date it was first received either by the transferor or transferee 
servicer. As explained above, the Bureau recognizes that there may be 
situations where a borrower timely submits an appeal to a transferor 
servicer after the transfer date. Under these circumstances, the date 
the appeal was received by the transferor servicer would be different 
from the date the appeal was received by the transferee servicer. 
Accordingly, the Bureau is including additional clarifying language in 
in final Sec.  1024.41(k)(4)(ii) to account for this situation.
    Finally, the Bureau is finalizing Sec.  1024.41(k)(4)(ii) to 
explain that, for purposes of Sec.  1024.41(e) through (h), the 
transferee servicer must treat such a pending complete loss mitigation 
application as facially complete under Sec.  1024.41(c)(2)(iv) as of 
the date it was first facially complete or complete, as applicable, 
with respect to the transferor servicer. The reference to Sec.  
1024.41(c)(2)(iv) in the final rule provides further clarity with 
regard to the treatment of facially complete loss mitigation 
applications. Additionally, the final rule clarifies the transferee 
servicer's obligations with respect to applications considered facially 
complete or complete, as applicable, with respect to the transferor 
servicer. The proposal would have addressed a transferee servicer's 
obligations only with respect to applications considered facially 
complete by the transferor servicer.
    The Bureau declines to revise the circumstances under which a 
transferee servicer must treat an appeal as a pending complete loss 
mitigation application, as suggested by some commenters. The timeframe 
for compliance set forth in final Sec.  1024.41(k)(4)(i), explained 
above, addresses commenter concerns over transferee servicers' ability 
to comply with the rule. The Bureau continues to believe that, where 
the transferee servicer cannot evaluate the appeal, requiring the 
transferee servicer to treat the appeal as a pending complete loss 
mitigation application and reevaluate the borrower for all loss 
mitigation options that may be available to the borrower preserves the 
benefits of the appeal process for borrowers, including an opportunity 
to receive loss mitigation when the transferor servicer has erred in 
its evaluation.
    The Bureau is renumbering proposed comment 41(k)(4)-1 as 41(k)(4)-
2, as discussed more below. The Bureau is adopting a new comment 
41(k)(4)-1 to clarify transferor and transferee servicer obligations 
when a borrower submits an appeal of a transferor servicer's 
determination to the transferor servicer after the transfer date. 
Comment 41(k)(4)-1 provides that a borrower may submit an appeal of a 
transferor servicer's determination pursuant to Sec.  1024.41(h) to the 
transferor servicer after the transfer date. It further explains that 
consistent with policies and procedures maintained pursuant to Sec.  
1024.38(b)(4), the transferor servicer must timely transfer, and the 
transferee servicer must obtain, documents and information regarding 
such appeals. By explaining the obligations of transferor and 
transferee servicers in such situations, comment 41(k)(4)-1 should 
better enable transferee servicers to comply with the requirements set 
forth in Sec.  1024.41(k)(4)(i). Comment 41(k)(4)-1 parallels new 
comment 41(k)(1)(i)-1.iii, which explains that borrowers may provide 
documents and information necessary to complete an application to the 
transferor servicer after the transfer date and clarifies the 
obligations of transferor and transferee servicers when this occurs.
    The Bureau declines to provide borrowers additional time beyond the 
timeframe in Sec.  1024.41(h)(2) to make an appeal after the transfer 
date, as suggested by one commenter. The transfer itself will not 
shorten the timeframe for borrowers to submit an appeal. Pursuant to 
comment 41(k)(4)-1, borrowers may submit appeals to either the 
transferor or transferee servicer without jeopardizing their right to 
timely appeals. A borrower who timely submits an appeal to the 
transferor servicer following the transfer date will have the right to 
a determination under Sec.  1024.41(h)(4), and no further extensions to 
borrower timeframes are necessary.
    The Bureau is finalizing comment 41(k)(4)-1 substantially as 
proposed, but

[[Page 72290]]

renumbered as comment 41(k)(4)-2 and with revisions for clarity. 
Comment 41(k)(4)-2 provides guidance on situations where a transferee 
servicer is unable to determine an appeal. Comment 41(k)(4)-2 explains 
that a transferee servicer may be unable to make a determination on an 
appeal when, for example, the transferor servicer denied a borrower for 
a loan modification option that the transferee servicer does not offer 
or when the transferee servicer receives the mortgage loan through an 
involuntary transfer and the transferor servicer failed to maintain 
proper records such that the transferee servicer lacks sufficient 
information to review the appeal. Comment 41(k)(4)-2 provides that, in 
that circumstance, the transferee servicer is required to treat the 
appeal as a pending complete application.
    Comment 41(k)(4)-2 further provides that the transferee servicer 
must permit the borrower to accept or reject any loss mitigation 
options offered by the transferor servicer, even if it does not offer 
the loss mitigation options offered by the transferor servicer, in 
addition to the loss mitigation options, if any, that the transferee 
servicer determines to offer the borrower based on its own evaluation 
of the borrower's complete loss mitigation application. Comment 
41(k)(4)-2 sets forth an example where a transferor servicer denied a 
borrower for all loan modification options but offered the borrower a 
short sale option, and the borrower's appeal of the loan modification 
denial was pending as of the transfer date. Comment 41(k)(4)-2 explains 
that, if the transferee servicer is unable to determine the borrower's 
appeal, the transferee servicer must evaluate the borrower for all 
available loss mitigation options in accordance with Sec.  1024.41(c) 
and (k)(3). It further explains that, at the conclusion of such 
evaluation, the transferee servicer must permit the borrower to accept 
the short sale option offered by the transferor servicer, even if the 
transferee servicer does not offer the short sale option, in addition 
to any loss mitigation options the transferee servicer determines to 
offer the borrower based upon its own evaluation.
    As proposed, the comment did not specifically explain a transferee 
servicer's obligations when the transferor servicer offers the borrower 
a loss mitigation option that the transferee servicer does not offer. 
The final comment clarifies that the transferee servicer's obligation 
to permit the borrower to accept or reject any loss mitigation options 
offered by the transferor servicer applies irrespective of whether the 
transferee servicer offers the particular loss mitigation option. The 
Bureau understands that the investor generally determines the loss 
mitigation options that may be available to a borrower. It further 
understands that a transferee servicer may not offer the same loss 
mitigation options as the transferor servicer when, for example, a 
transfer involves a change in the investor of the loan along with the 
transfer of servicing rights. The Bureau believes, however, that the 
transferee servicer, under both State contract law and investor 
requirements, should be able to execute any loss mitigation option 
offered by the transferor servicer, even if the transferee servicer 
does not offer the particular option. Comment 41(k)(4)-2 ensures that a 
transfer does not deprive a borrower of any loss mitigation options 
that were offered by the transferor servicer, and it is consistent with 
the treatment of pending loss mitigation offers in Sec.  1024.41(k)(5).
    Finally, the Bureau is not adopting proposed comment 41(k)(4)-2. 
Because of the changes incorporated in final Sec.  1024.41(k)(4)(i), 
proposed comment 41(k)(4)-2 is not necessary.
41(k)(5) Pending Loss Mitigation Offers
    Proposed Sec.  1024.41(k)(5) would have provided that a transfer 
does not affect the borrower's ability to accept or reject a loss 
mitigation option offered under Sec.  1024.41(c) or (h). Specifically, 
the proposal would have required that, if a transferor servicer offered 
the borrower a loss mitigation option prior to the transfer and the 
borrower's time to accept or reject the offer had not expired as of the 
transfer date, a transferee servicer must allow the borrower to accept 
or reject the offer. The Bureau is adopting Sec.  1024.41(k)(5) 
substantially as proposed.
    Proposed comment 41(k)(5)-1 would have clarified that some 
borrowers will provide their acceptances to the transferor servicer and 
that, pursuant to the policies and procedures maintained under Sec.  
1024.38(b)(4), a transferee servicer must obtain those acceptances from 
the transferor servicer. For example, a borrower may be able to accept 
a trial modification agreement by timely making an initial payment of 
the modified amount to the transferor servicer instead of to the 
transferee servicer. RESPA section 6(d) provides that, during the 60-
day period beginning on the effective date of the transfer of 
servicing, a payment received by the transferor servicer (rather than 
the transferee servicer) before the due date applicable to such payment 
may not be treated as late for purposes of imposing a late fee on the 
borrower or for any other purposes.\278\ Similarly, the proposed 
comment explained that the transferee servicer must honor an acceptance 
that the borrower timely sent to the transferor servicer.
---------------------------------------------------------------------------

    \278\ 12 U.S.C. 2605(d)).
---------------------------------------------------------------------------

    The Bureau received few comments on proposed Sec.  1024.41(k)(5). 
One industry commenter stated that most servicers currently operate 
under the principles set forth in proposed Sec.  1024.41(k)(5). Another 
industry commenter recommended that the borrower be provided an 
additional 14 days from the transfer date to accept any offers that had 
not expired. One consumer advocate commenter stated that transferee 
servicers should allow borrowers additional time to accept or reject a 
loss mitigation offer from the transferor servicer.
    The Bureau is adopting Sec.  1024.41(k)(5) and comment 41(k)(5)-1 
substantially as proposed. Final Sec.  1024.41(k)(5) provides that a 
transfer does not affect a borrower's ability to accept or reject a 
loss mitigation option offered under Sec.  1024.41(c) or (h). It 
further states that, if a transferee servicer acquires the servicing of 
a mortgage loan for which the borrower's time period under Sec.  
1024.41(e) or (h) for accepting or rejecting a loss mitigation option 
offered by the transferor servicer has not expired as of the transfer 
date, the transferee servicer must allow the borrower to accept or 
reject the offer during the unexpired balance of the applicable time 
period. The Bureau declines to extend borrower timeframes for accepting 
or rejecting a loss mitigation option, as suggested by some commenters. 
The timeframe for borrowers to accept or reject a loss mitigation 
option under Sec.  1024.41(e) or (h), as applicable, is determined as 
of the date the servicer provides the notice of the loss mitigation 
option. Although a transfer may extend the timeline for transferee 
servicers to provide notice of a loss mitigation option offered under 
Sec.  1024.41(c) or (h), it does not affect the borrower's timeframe to 
accept or reject a loss mitigation offer that is already pending as of 
the transfer date. Accordingly, a timeframe extension for borrowers to 
accept or reject a loss mitigation option is not necessary. Moreover, 
because the Bureau is providing that the borrower's acceptance is 
effective whether sent to the transferee or transferor servicer, the 
borrower does not need additional time to determine the correct 
address, learn of the transfer, or allow time for the forwarding of the 
acceptance from the transferor servicer to the transferee servicer.

[[Page 72291]]

    The Bureau is finalizing comment 41(k)(5)-1 with certain changes 
for clarity and consistency with Sec.  1024.41(k). Comment 41(k)(5)-1 
explains that a borrower may provide an acceptance or rejection of a 
pending loss mitigation offer to the transferor servicer after the 
transfer date. It further explains that, consistent with policies and 
procedures maintained pursuant to Sec.  1024.38(b)(4), the transferor 
servicer must timely transfer, and the transferee servicer must obtain, 
documents and information regarding such acceptances and rejections, 
and the transferee servicer must provide the borrower with any timely 
accepted loss mitigation option, even if the borrower submitted the 
acceptance to the transferor servicer.
    Final comment 41(k)(5)-1 differs from the proposal, which would 
have addressed only a borrower's acceptance, but not a rejection, of a 
pending loss mitigation offer to the transferor servicer after the 
transfer date. Final comment 41(k)(5)-1 also omits superfluous language 
regarding the transferee servicer's expectation of where a borrower may 
provide such acceptance. Additionally, final comment 41(k)(5)-1 
specifically explains that transferor servicers must timely transfer 
documents and information regarding such acceptances and rejections. 
The proposal did not impose specific requirements on transferor 
servicers in Sec.  1024.41(k). As explained in the section-by-section 
analysis of Sec.  1024.41(k)(1), however, the Bureau is clarifying the 
specific requirements of transferor servicers to improve the 
seamlessness of transfers and to facilitate transferee servicer 
compliance with the final rule. Additionally, final comment 41(k)(5)-1 
clarifies that the transferee servicer must provide the borrower with 
any timely accepted loss mitigation option, even if the borrower 
submitted the acceptance to the transferor servicer. Final comment 
41(k)(5)-1 thus makes clear that a borrower's acceptance may be timely, 
even if submitted to the transferor servicer.
Appendix MS to Part 1024--Mortgage Servicing
    Currently, the model forms that a servicer may use to comply with 
the disclosure requirements of Sec. Sec.  1024.33, 1024.37, and 1024.39 
are provided in an appendix with the heading ``Appendix MS--Mortgage 
Servicing.'' The Bureau did not propose to change this heading but is 
revising it in this final rule to ``Appendix MS to Part 1024--Mortgage 
Servicing'' to conform to the other appendix headings in Regulation X.
    Comment appendix MS to part 1024-2 explains that servicers may make 
certain changes to the format or content of the forms and clauses 
without losing protection from liability so long as those changes do 
not affect the substance, clarity, or meaningful sequence of the forms 
and clauses. The comment also provides examples of changes that the 
Bureau considers acceptable changes. For the reasons stated in part 
V.A. and in this discussion, the Bureau is amending comment appendix MS 
to part 1024-2 to allow servicers to make adjustments to these model 
forms to reflect the circumstances of confirmed successors in interest 
without losing the benefit of the protection from liability that use of 
the model forms affords.
    The model forms in appendix MS include language that, if sent to a 
confirmed successor in interest, could suggest that the successor in 
interest is liable on the mortgage loan obligation. For example, the 
Notice of Servicing Transfer model form provided in appendix MS-2 
refers to ``your mortgage loan'' and states: ``This means that after 
this date, a new servicer will be collecting your mortgage loan 
payments from you'' and ``Send all payments due on or after [Date] to 
[Name of new servicer] at this address: [New servicer address].'' Some 
of the model forms for force-placed insurance notices in appendix MS-3 
state: ``You must pay us for any period during which the insurance we 
buy is in effect but you do not have insurance.'' The model clauses for 
the written early intervention notice in appendix MS-4 include: 
``Refinance your loan with us or another lender''; ``Modify your loan 
terms with us''; ``Payment forbearance temporarily gives you more time 
to pay your monthly payment''; and ``As an alternative to foreclosure, 
you may be able to sell your home and use the proceeds to pay off your 
current loan.''
    The final rule amends comment appendix MS to part 1024-2 to 
indicate that, except as otherwise specifically required, acceptable 
changes to the format or content of the forms and clauses include 
modifications to remove language that could suggest liability under the 
mortgage loan agreement if such language is not applicable. The revised 
comment notes, for example, that, in the case of a confirmed successor 
in interest who has not assumed the mortgage loan obligation under 
State law and is not otherwise liable on the obligation, the 
modifications could include: Use of ``the mortgage loan'' or ``this 
mortgage loan'' instead of ``your mortgage loan'' and ``the monthly 
payments'' instead of ``your monthly payments''; use of ``Payments due 
on or after [Date] may be sent to'' instead of ``Send all payments due 
on or after [Date] to'' in notices of servicing transfer; and use of 
``We will charge the loan account'' instead of ``You must pay us'' in 
notices relating to force-placed insurance. As explained in part V.A., 
the adjustments authorized by these changes represent one of several 
options that servicers may use to ensure that their notices and other 
communications do not confuse or deceive successors in interest who 
have not assumed the mortgage loan obligation and are not otherwise 
liable on it regarding whether they are liable on the mortgage loan 
obligation.
Appendix MS-3 to Part 1024--Model Force-Placed Insurance Notice Forms
    The Bureau proposed three sets of changes to the model forms for 
force-placed insurance notices, located at appendix MS-3(A) through 
(D). First, the Bureau proposed to amend MS-3(A) and (B) to align the 
model forms to the proposed amendments to Sec.  1024.37(c)(2)(v). As 
discussed in the section-by-section analysis of Sec.  1024.37(c)(2)(v), 
the Bureau proposed to amend that provision to require the force-placed 
insurance notice to state, as applicable, that the borrower's hazard 
insurance provides insufficient coverage and that the servicer does not 
have evidence that the borrower has hazard insurance that provides 
sufficient coverage. The Bureau therefore proposed to make a 
corresponding change to the language in model forms MS-3(A) and (B) so 
that the forms include the statement ``your [hazard] [Insurance Type] 
insurance [is expiring] [expired] [provides insufficient coverage], and 
we do not have evidence that you have obtained new coverage.''
    Second, the Bureau proposed a technical change to align the model 
forms with the requirements of Sec.  1024.37(c)(2)(ix)(A) and 
(e)(2)(viii)(A). Those provisions require the force-placed insurance 
initial, reminder, and renewal notices to include a statement that the 
insurance the servicer has purchased or purchases ``may cost 
significantly more than hazard insurance purchased by the borrower.'' 
Current model forms MS-3(A) through (D) omit the word 
``significantly.'' The Bureau proposed to amend model forms MS-3(A) 
through (D) to add the word significantly, such that each model form 
would track the language of Sec.  1024.37(c)(2)(ix)(A) and 
(e)(2)(viii)(A).
    Third, the Bureau proposed a technical change to MS-3(D) to align 
the model form with the requirements of Sec.  1024.37(e)(3), which 
requires servicers

[[Page 72292]]

to provide certain information on the form in bold text.
    The Bureau received one comment that recommended revisions to Model 
Notice MS-3(A) through (C) so that the model forms included bold text 
consistent with the requirements under Sec.  1024.37.
    The Bureau is finalizing the technical corrections to the model 
forms for force-placed insurance notices located at appendix MS-3(A) 
through (D) as proposed. Additionally, the Bureau is making certain 
technical corrections to model forms MS-3(A) through (C) that were not 
proposed. The Bureau recognizes, as stated by one commenter, that the 
model forms MS-3(A) through (C) do not align with the requirements in 
Sec.  1024.37 that servicers provide certain information on the force-
placed insurance notices in bold text. Accordingly, the Bureau is 
revising MS-3(A) through (C) to align the model forms with the 
applicable requirements of Sec.  1024.37 that require certain 
information on the notices to be set in bold text. The Bureau is also 
making a technical correction to the heading for appendix MS.
Legal Authority
    The Bureau is exercising its authority under section 6(k)(1)(E) of 
RESPA to amend the model forms in appendix MS-3(A) through (D) to part 
1024 of Regulation X. The amendments to the model forms for the force-
placed insurance notices align the text of the model forms with the 
disclosures required by Sec.  1024.37.
Appendix MS-4 to Part 1024--Model Clauses for the Written Early 
Intervention Notice
    Proposed model clause MS-4(D) in appendix MS-4 would have 
illustrated model language that servicers could use to comply with the 
requirement under proposed Sec.  1024.39(d)(2)(iii)(A) that the 
modified written early intervention notice include a statement that the 
servicer may or intends to invoke its specified remedy of foreclosure. 
The Bureau proposed model clause MS-4(D) to assist servicers subject to 
the FDCPA with respect to a borrower who has invoked the FDCPA's cease 
communication protections in complying with the modified written early 
intervention notice under proposed Sec.  1024.39(d)(2)(iii).
    The Bureau sought comment on whether proposed model clause MS-4(D) 
was appropriate and whether alternate or additional model clauses would 
be helpful to borrowers and servicers in this context. Some industry 
commenters objected to the proposed model language on the basis that it 
may be considered threatening to a borrower and inconsistent with 
encouraging borrowers to reach out to the servicer. One servicer 
commented that the implied threat of foreclosure would be inaccurate in 
many cases because that servicer ultimately pursues foreclosure on just 
15 percent of the borrowers who receive a written early intervention 
notice.
    The Bureau is finalizing model clause MS-4(D) with modifications to 
the language to convey more accurately the circumstances under which a 
servicer may invoke its specific remedy of foreclosure. As discussed in 
the section-by-section analysis of new Sec.  1024.39(d), model clause 
MS-4(D) may be used to comply with the requirement that the written 
early intervention notice include a statement that the servicer may or 
intends to invoke its specified remedy of foreclosure pursuant to 
section 805(c)(2) or (3) of the FDCPA. Use of this model clause or 
another statement in compliance with Sec.  1024.39(d)(3)(i), located on 
a written notice as required by and in compliance with the other 
requirements of Sec.  1024.39(d)(3), provides a safe harbor from FDCPA 
liability under section 805(c) for providing the required statement. As 
finalized, model clause MS-4(D) states, ``This is a legally required 
notice. We are sending this notice to you because you are behind on 
your mortgage payment. We want to notify you of possible ways to avoid 
losing your home. We have a right to invoke foreclosure based on the 
terms of your mortgage contact. Please read this letter carefully.''
Legal Authority
    The Bureau adopts new model clause MS-4(D) in appendix MS-4 to part 
1024 of Regulation X pursuant to its authority under section 6(k)(1)(E) 
of RESPA and section 814(d) of the FDCPA. For the reasons discussed in 
the section-by-section analysis of new Sec.  1024.39(d) and the 
interpretive rule accompanying this final rule, the Bureau believes 
that requiring a servicer to provide the modified written early 
intervention notice if any loss mitigation option is available and if 
no borrower on the mortgage loan is a debtor in bankruptcy is a 
reasonable interpretation of the exceptions under section 805(c)(2) and 
(3) of the FDCPA, which permit a debt collector to communicate with a 
consumer who has invoked the cease communication protections to notify 
the consumer that the debt collector or creditor may or intends to 
invoke specified remedies which it ordinarily invokes.

C. Regulation Z

Section 1026.2 Definitions and Rules of Construction
2(a)(11)
    As noted in part V.A., the Bureau proposed to apply certain 
mortgage servicing rules to confirmed successors in interest. Similar 
to the definition in proposed Sec.  1024.30(d) with respect to the 
Mortgage Servicing Rules in Regulation X,\279\ proposed Sec.  
1026.2(a)(11) would have revised the definition of the term consumer to 
include a successor in interest once a servicer confirms the successor 
in interest's identity and ownership interest in the dwelling for the 
purposes of Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41. 
For the reasons described in part V.A. and in this discussion, the 
Bureau is finalizing this proposed definition with a substantive change 
to add the mortgage transfer disclosure requirements of Sec.  1026.39 
and technical changes to incorporate the new definition of confirmed 
successor in interest. The final rule thus amends the definition of 
consumer for purposes of Sec. Sec.  1026.20(c) through (e), 1026.36(c), 
1026.39, and 1026.41 to include a confirmed successor in interest. As 
in the proposal, confirmed successors in interest covered by Sec.  
1026.2(a)(11) will not necessarily have assumed the mortgage loan 
obligation (i.e., legal liability for the mortgage debt) under State 
law or otherwise be liable on it.\280\
---------------------------------------------------------------------------

    \279\ See section-by-section analysis of Sec.  1024.30(d), 
supra.
    \280\ As indicated in part V.A., supra, the Bureau understands 
that whether a successor in interest has assumed a mortgage loan 
obligation (i.e., legal liability for the mortgage debt) under State 
law is a fact-specific question.
---------------------------------------------------------------------------

    As described in part V.A., successors in interest face many of the 
challenges that the Mortgage Servicing Rules in Regulation Z were 
designed to prevent. Because a confirmed successor in interest is a 
homeowner whose dwelling is subject to foreclosure if the mortgage loan 
obligation is not satisfied, the same reasons supporting the Bureau's 
adoption of the 2013 TILA Servicing Final Rule support the changes that 
the Bureau is making to Sec.  1026.2(a)(11).
    The Bureau has considered each of the Mortgage Servicing Rules in 
Regulation Z and has concluded that each rule should apply to confirmed 
successors in interest. The Bureau generally believes that it would add 
unnecessary complexity to the rules to require servicers to apply some 
but not all of the Mortgage Servicing Rules in Regulation Z to 
confirmed successors in interest. After reviewing the comments, the 
Bureau has not identified any

[[Page 72293]]

compelling reasons not to apply a particular rule and therefore 
concludes that it is preferable to apply all of the Mortgage Servicing 
Rules in Regulation Z to confirmed successors in interest.\281\
---------------------------------------------------------------------------

    \281\ As explained in part V.A., supra, and in the section-by-
section analyses of Sec. Sec.  1026.20(f), 1026.39(f), and 
1026.41(g), infra, the final rule includes additional provisions 
governing how the Mortgage Servicing Rules in Regulation Z apply to 
confirmed successors in interest.
---------------------------------------------------------------------------

    The new definition of consumer in Sec.  1026.2(a)(11) entitles 
confirmed successors in interest to receive ARM disclosures under Sec.  
1026.20(c) and (d) and escrow account cancellation notices under Sec.  
1026.20(e).\282\ The disclosures required by Sec.  1026.20(c) through 
(e) will provide confirmed successors in interest with important 
information to allow the confirmed successor in interest to keep the 
mortgage loan current, which in turn will help the confirmed successor 
in interest avoid unnecessary foreclosure.
---------------------------------------------------------------------------

    \282\ Section 1026.20(c) and (d) generally applies with respect 
to a closed-end consumer credit transaction secured by the 
consumer's principal dwelling in which the annual percentage rate 
may increase after consummation, and Sec.  1026.20(e) generally 
applies with respect to a closed-end consumer credit transaction 
secured by a first lien on real property or a dwelling.
---------------------------------------------------------------------------

    The Bureau anticipates that Sec.  1026.36(c)'s protections will 
help confirmed successors in interest maintain ownership of their 
homes.\283\ As noted in the section-by-section analysis of Sec.  
1026.36(c)(1)(iii), even in the absence of the final rule, existing 
Sec.  1026.36(c) imposes certain obligations on servicers with respect 
to payments from successors in interest. However, consumer advocacy 
groups reported in their comments, as they had in earlier reports, that 
some servicers are refusing to accept payments from successors in 
interest, which in turn may lead to delinquency on the mortgage loan 
and, eventually, foreclosure. Applying Sec.  1026.36(c)'s prompt 
crediting requirements explicitly to confirmed successors in interest 
may help alleviate this problem. The Bureau also believes that 
providing confirmed successors in interest with access to the loan's 
payoff balance will help keep them informed about the mortgage loan 
secured by the dwelling and prevent unnecessary foreclosure.\284\ 
Access to this information could also facilitate refinancing by the 
confirmed successor in interest. Because successors in interest, as 
owners of a dwelling securing a mortgage loan, may be required to make 
payments on the loan to avoid foreclosure, applying the prohibition on 
pyramiding of late fees explicitly to confirmed successors in interest 
serves TILA's purpose of protecting consumers against inaccurate and 
unfair credit billing practices.\285\
---------------------------------------------------------------------------

    \283\ Section 1026.36(c)(1) and (2) apply in connection with a 
closed-end consumer credit transaction secured by a consumer's 
principal dwelling, and Sec.  1026.36(c)(3) applies in connection 
with a consumer credit transaction secured by a dwelling.
    \284\ For the reasons discussed in part V.A., supra, the Bureau 
believes that providing confirmed successors in interest with payoff 
balances does not present privacy concerns.
    \285\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S.C. 
1601(a)).
---------------------------------------------------------------------------

    The new definition of consumer in Sec.  1026.2(a)(11) also ensures 
that confirmed successors in interest can receive ongoing periodic 
statements required under Sec.  1026.41.\286\ As the Bureau recognized 
in issuing the periodic statement requirement in the 2013 TILA 
Servicing Final Rule, the periodic statement serves a variety of 
important purposes, including informing consumers of their payment 
obligations, providing information about the mortgage loan, creating a 
record of transactions that increase or decrease the outstanding 
balance, providing information needed to identify and assert errors, 
and providing information when consumers are delinquent.\287\ Receiving 
periodic statements serves these same purposes for confirmed successors 
in interest who, as homeowners of a dwelling securing a mortgage loan, 
may be required to make payments on the loan to avoid foreclosure.
---------------------------------------------------------------------------

    \286\ Section 1026.41 generally applies with respect to a 
closed-end consumer credit transaction secured by a dwelling.
    \287\ 78 FR 10901, 10959 (Feb. 14, 2013).
---------------------------------------------------------------------------

    As explained in part V.A., a trade association commenter suggested 
that a confirmed successor in interest should be treated as a consumer 
for purposes of the mortgage transfer disclosure requirement in Sec.  
1026.39. The mortgage transfer disclosure notifies consumers of 
valuable information regarding certain transfers of ownership of a 
mortgage loan, including the name and contact information for the new 
owner of the mortgage loan and an agent or party authorized to resolve 
issues concerning the consumer's payments on the loan (if the owner's 
information cannot be used for that purpose). Information of this 
nature can assist confirmed successors in interest who seek to engage 
in loss mitigation, to ensure that payments on the account are properly 
applied, or to identify who has a security interest in their property. 
For the reasons set forth in part V.A. and below, the final rule 
defines consumer in Sec.  1026.2(a)(11) to also include confirmed 
successors in interest for purposes of Sec.  1026.39.
    As explained in part V.A., some industry commenters expressed 
concern that the proposal would require servicers to communicate about 
the loan with parties that are not obligated on the loan in ways. An 
industry commenter suggested that such communications might be 
considered abusive or harassing and might be found to violate FDCPA 
section 806, 15 U.S.C. 1692d, if done by a servicer subject to the 
FDCPA. The Bureau does not believe that providing this important 
information about the property at issue in a notice that is required by 
Regulation X will be abusive or harassing absent other conduct making 
the overall effect of the communication abusive or harassing, as 
explained in part V.A. Additionally, the final rule gives servicers the 
option not to send Mortgage Servicing Rule notices to a confirmed 
successor in interest who is not liable on the loan obligation until 
the confirmed successor in interest requests them through a written 
acknowledgment, as long as the servicer sends an initial written notice 
and acknowledgment form to the confirmed successor in interest upon 
confirmation in compliance with the requirements of Sec.  1024.32(c)(1) 
through (3).
    A number of industry commenters also expressed concern that 
subjecting servicers to the Mortgage Servicing Rules in Regulation Z 
might prove costly for servicers. However, as explained in part V.A., 
many of the specific cost concerns that industry commenters raised 
relate to requirements that are not part of the final rule. For 
example, many industry commenters expressed concern about the potential 
burden of having to provide duplicative copies of notices to confirmed 
successors in interest if the servicer had already provided the same 
notice to another consumer on the account. To address this concern, the 
final rule clarifies that servicers generally do not have to send 
Regulation Z disclosures to a confirmed successor in interest if the 
disclosure is provided to another consumer on the account. Because 
servicers already must comply with Sec. Sec.  1026.20(c) through (e), 
1026.36, 1026.39, and 1026.41 with respect to the transferor consumer, 
the Bureau believes that the additional cost to servicers to apply 
these requirements to confirmed successors in interest will be 
relatively minimal. The Bureau believes that the additional cost 
imposed by extending the Mortgage Servicing Rules in Regulation Z to 
confirmed successors in interest will largely be limited to updating 
servicer systems initially, adding individual successors in interest to 
the system on an ongoing basis, and printing and mailing costs, if any.
    As discussed in more detail in part V.A., the Bureau received a 
variety of

[[Page 72294]]

comments on whether mortgage servicing protections should apply with 
respect to successors in interest even if the servicer has not 
confirmed the successor in interest's identity and ownership interest 
in the dwelling. Industry commenters generally opposed extending such 
protections, asserting that doing so could violate the privacy of the 
transferor consumer and any other consumers on the account and could 
result in unauthorized persons obtaining access to loan information or 
taking action with respect to a loan. Some consumer advocacy groups 
encouraged the Bureau to apply certain servicing protections prior to 
confirmation. For example, consumer advocacy groups indicated that, 
even before a successor in interest is confirmed, a servicer should be 
required to credit payments promptly and refrain from improper 
pyramiding of late fees pursuant to Sec.  1026.36(c).
    For the reasons stated in part V.A. and in this discussion, the 
Bureau has decided not to add successors in interest who have not been 
confirmed to the Regulation Z definition of consumer in Sec.  
1026.2(a)(11).\288\ Because some people representing themselves as 
successors in interest may not actually have an ownership interest in 
the dwelling, requiring servicers to apply Regulation Z's mortgage 
servicing communication and disclosure requirements to successors in 
interest before servicers have confirmed the successor in interest's 
identity and ownership interest in the dwelling may present privacy and 
other concerns, as various commenters noted. For the same reason, the 
Bureau also believes it is inappropriate to require servicers to incur 
substantial costs before confirming the successor in interest's 
identity and ownership interest in the dwelling. However, as discussed 
in the section-by-section analysis of Sec.  1026.36(c), Sec.  
1026.36(c)(1) and (2) imposes certain obligations relating to payment 
crediting and processing that apply even if a payment is received from 
a successor in interest prior to confirmation.\289\ Moreover, as 
discussed in the section-by-section analysis of Regulation X Sec. Sec.  
1024.36(i) and 1024.38(b)(1)(vi), the Bureau is creating a new request 
for information procedure and imposing certain policies and procedures 
requirements on servicers under Regulation X with respect to potential 
successors in interest.
---------------------------------------------------------------------------

    \288\ However, a successor in interest may be a consumer under 
the Regulation Z definition of consumer (both currently and as 
amended by the final rule), even if the successor in interest has 
not been confirmed, if the successor in interest has assumed the 
mortgage loan obligation under State law or is otherwise obligated 
on the mortgage loan obligation.
    \289\ For example, the Bureau is clarifying in comment 
36(c)(1)(iii)-2 that, when a servicer specifies requirements for 
payments, those requirements should not make it difficult for most 
confirmed and potential successors in interest to make conforming 
payments.
---------------------------------------------------------------------------

    The final rule includes commentary to Sec.  1026.2(a)(11) in 
comment 2(a)(11)-4.i, .ii, and .iv, which was not part of the proposal. 
It also includes a substantially revised version of proposed comment 
2(a)(11)-4 as comment 2(a)(11)-4.iii. New comment 2(a)(11)-4.i 
clarifies that confirmation of a successor in interest is different 
from assumption of the mortgage loan under State law. It explains that 
a servicer may not require a confirmed successor in interest to assume 
the mortgage loan obligation to be considered a consumer for purposes 
of Sec. Sec.  1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41. 
It also explains that, if a successor in interest assumes a mortgage 
loan obligation under State law or is otherwise liable on the mortgage 
loan obligation, the protections the successor in interest enjoys under 
Regulation Z are not limited to Sec. Sec.  1026.20(c) through (e), 
1026.36(c), 1026.39, and 1026.41. The Bureau believes that this comment 
will help prevent confusion about the consequences of confirmation and 
of assumption of the loan obligation under State law.
    New comment 2(a)(11)-4.ii explains that communications in 
compliance with Regulation Z to a confirmed successor in interest as 
defined in Sec.  1026.2(a)(27)(ii) do not violate FDCPA section 805(b) 
because the term consumer for purposes of FDCPA section 805 includes 
any person who meets the definition in Regulation Z of confirmed 
successor in interest. As explained in parts IV.C. and V.A., this is 
consistent with an interpretive rule that the Bureau is issuing 
concurrently with this final rule.
    Comment 2(a)(11)-4.iii addresses the treatment of transferor 
consumers, a subject that was addressed in proposed comment 2(a)(11)-4. 
Proposed comment 2(a)(11)-4 would have provided that, even after a 
servicer confirms a successor in interest's status, the servicer would 
still generally be required to comply with the requirements of 
Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41 with respect 
to the prior consumer. The proposed comment indicated, however, that a 
servicer would not be required to comply with the requirements of 
Sec. Sec.  1026.20(c) through (e) and 1026.41 if the prior consumer 
also either had died or had been released from the obligation on the 
mortgage loan and a servicer would not be required to comply with the 
requirements of Sec.  1026.36(c) if the prior consumer also had been 
released from the obligation on the mortgage loan. The proposed comment 
also would have provided that the prior consumer would retain any 
rights under Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41 
that accrued prior to the confirmation of the successor in interest to 
the extent those rights would otherwise survive the prior consumer's 
death or release from the obligation. For the reasons stated in part 
V.A. and in this discussion, the Bureau has substantially revised this 
comment to make it clear that confirmation of a successor in interest 
does not strip the consumer who transferred the ownership interest to 
the successor in interest of any protections under Regulation Z. The 
revised comment appears as comment 2(a)(11)-4.iii in the final rule.
    In the proposal, the Bureau solicited comment on whether a servicer 
should not be required to comply with Sec. Sec.  1026.20(c) through 
(e), 1026.36(c), and 1026.41 with respect to prior consumers after a 
successor in interest is confirmed. The Bureau also solicited comment 
on whether other circumstances exist, beyond death and release of the 
obligation on the mortgage loan, in which some or all of the 
requirements of Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 
1026.41 should not apply with respect to the prior consumer after a 
successor in interest is confirmed. The Bureau also solicited comment 
on whether Sec.  1026.41 should provide that, in the case of consumer 
death, the servicer should continue providing periodic statements to 
the consumer's estate until a successor in interest's status has been 
confirmed.
    As explained in part V.A., the Bureau received many comments 
objecting to the use of the term prior consumer. A number of commenters 
also expressed concern that the Bureau's proposal would not provide 
adequate protection to the estates of transferor consumers. Some 
consumer advocacy groups suggested that estates and their 
representatives should always be able to obtain information regarding 
the mortgage loan and have payments applied correctly. A trade 
association agreed with two caveats: It indicated that (1) the servicer 
needs to verify that a person purporting to act as administrator or 
executor is properly acting in that capacity, and (2) if the estate is 
released from the loan obligation, Regulation P may limit the estate's 
ability to access future loan information. Another trade association 
indicated that the executor of an estate

[[Page 72295]]

may ultimately be legally obligated to dispose of property and needs 
information in order to fulfill the executor's responsibilities.
    The final rule uses the term transferor consumer rather than prior 
consumer because a transferor consumer typically remains a consumer for 
purposes of Regulation Z after the transfer. As many commenters 
indicated, transferor consumers may remain liable on the mortgage loan 
obligation and can have significant legal interests at stake even after 
a successor in interest is confirmed. The Bureau also recognizes that, 
when a consumer dies, the consumer's estate and its representative have 
an important role to play and that Regulation Z can provide valuable 
information and protections to transferor consumers and their estates 
even after confirmation of a successor in interest. The Bureau does not 
intend for the final rule to diminish any protections that TILA and 
Regulation Z currently provide for living transferor consumers or for 
estates and their representatives, and the Bureau has significantly 
revised proposed comment 2(a)(11)-4 accordingly. As finalized, comment 
2(a)(11)-4.iii provides that, even after a servicer's confirmation of a 
successor in interest, the servicer is still required to comply with 
all applicable requirements of Sec. Sec.  1026.20(c) through (e), 
1026.36(c), 1026.39, and 1026.41 with respect to the consumer who 
transferred an ownership interest to the successor in interest.
    The Bureau acknowledges that, under the final rule, servicers will 
sometimes be required to comply with the Mortgage Servicing Rules in 
Regulation Z with respect to more than one person--such as the 
transferor consumer or a representative of the transferor consumer's 
estate and the confirmed successor in interest, as well as, in some 
cases, multiple confirmed successors in interest who each acquire an 
ownership interest in a dwelling. Although some commenters expressed 
concern about this, the Bureau notes that, under the Mortgage Servicing 
Rules, the rules already may apply with respect to more than one 
consumer for a particular mortgage loan. It is quite common for more 
than one consumer (for example, spouses) to be obligated on the 
mortgage note, and the Mortgage Servicing Rules apply with respect to 
each consumer in such cases. Accordingly, the Bureau does not believe 
that applying the Mortgage Servicing Rules in Regulation Z to confirmed 
successors in interest will present novel challenges for servicers in 
this regard.
    The final rule also includes new comment 2(a)(11)-4.iv, which makes 
clear that servicers generally do not need to send Regulation Z notices 
to confirmed successors in interest if the notices would be duplicative 
of notices sent to another consumer on the account. A number of 
commenters asked the Bureau to clarify whether servicers must send 
multiple copies of required servicing notices after a successor in 
interest is confirmed. One industry commenter explained that most 
servicing platforms only allow for automated delivery of correspondence 
to one address. It indicated that a requirement to send items to 
multiple addresses or through differing communication channels would 
create significant operational and systems challenges with concomitant 
costs.
    For the reasons set forth in part V.A. and in this discussion, the 
Bureau agrees that it would be unnecessarily burdensome to require 
servicers to send additional copies of notices required by Sec.  
1026.20(c), (d), or (e), Sec.  1026.39, or Sec.  1026.41 to confirmed 
successors in interest if another consumer is already receiving them. 
Proposed comment 41(a)-5.ii addressed this issue with respect to 
periodic statements, but, in light of the comments received, the Bureau 
believes it is clearest and most efficient to address questions 
regarding duplication of notices for confirmed successors in interest 
in a uniform, centralized way in comment 2(a)(11)-4.iv for all of the 
Mortgage Servicing Rules in Regulation Z. Comment 2(a)(11)-4.iv 
clarifies that, except as required by Regulation X 12 CFR 1024.36, in 
response to an information request, a servicer is not required to 
provide to a confirmed successor in interest any written disclosure 
required by Sec.  1026.20(c), (d), or (e), Sec.  1026.39, or Sec.  
1026.41 if the servicer is providing the same specific disclosure to 
another consumer on the account. Comment 2(a)(11)-4.iv also explains 
that, if a servicer confirms more than one successor in interest, the 
servicer need not send any disclosure required by Sec.  1026.20(c), 
(d), or (e), Sec.  1026.39, or Sec.  1026.41 to more than one of the 
confirmed successors in interest.
    Requiring only one periodic statement is consistent with current 
comment 41(a)-1, which provides that, when two consumers are joint 
obligors with primary liability on a closed-end consumer credit 
transaction secured by a dwelling, subject to Sec.  1026.41, the 
periodic statement may be sent to either one of them. New comment 
2(a)(11)-4.iv is also consistent with Sec.  1026.17(d), comment 17(d)-
2, and Sec.  1026.31(e), which generally provide that, if there is more 
than one consumer, the disclosures required by Regulation Z subparts C 
and E may be made to any consumer who is primarily liable on the 
obligation.
2(a)(27)
    The Bureau proposed to define successor in interest in Sec.  
1026.2(a)(27) to cover all categories of persons who acquired an 
ownership interest in a dwelling securing a mortgage loan in a transfer 
protected by the Garn-St Germain Act.\290\ The proposed definition 
stated that a successor in interest is a person to whom an ownership 
interest in a dwelling securing a closed-end consumer transaction is 
transferred from a prior consumer, provided that the transfer falls 
under an exemption specified in section 341(d) of the Garn-St Germain 
Act.\291\ As explained in part V.A., the Bureau is finalizing the 
definition of successor in interest in Sec.  1026.2(a)(27)(i) with 
several adjustments to address concerns raised by commenters. For 
clarity and ease of reference, the final rule also includes a 
definition of confirmed successor in interest in Sec.  
1026.2(a)(27)(ii).
---------------------------------------------------------------------------

    \290\ 12 U.S.C. 1701j-3(d).
    \291\ Id. As discussed in the section-by-section analysis of 
Sec.  1024.31, supra, the Bureau proposed to add a similar 
definition to Regulation X.
---------------------------------------------------------------------------

2(a)(27)(i)
    As explained in part V.A., some industry commenters objected to the 
use of categories from the Garn-St Germain Act, and many industry 
commenters urged the Bureau not to finalize the proposed successor 
provisions or to narrow the scope of the definition of successor in 
interest substantially--for example, to limit the scope to situations 
involving death or death or divorce. Others urged the Bureau to exclude 
anyone who has not assumed the mortgage loan obligation from the 
definition of successor in interest. Some suggested excluding certain 
types of transactions, such as reverse mortgages.
    Some industry commenters raised questions about whether the Bureau 
intended to incorporate the occupancy requirements of the Garn-St 
Germain Act implementing regulations administered by the OCC.\292\ An 
industry commenter suggested that the Bureau should omit reference to 
the Garn-St Germain Act and instead enumerate the categories of 
transfer of ownership that would qualify for regulatory protection, in 
order to avoid unintended consequences.
---------------------------------------------------------------------------

    \292\ 12 CFR 191.5(b).
---------------------------------------------------------------------------

    Consumer advocacy group commenters generally supported use of

[[Page 72296]]

the Garn-St Germain Act framework and urged the Bureau to broaden the 
definition to include various categories that are not covered by the 
Garn-St Germain Act but that are similar to the Garn-St Germain Act 
categories. They suggested, for example, that the definition should 
include unmarried partners, relatives other than a spouse or child of 
the borrower who obtain an interest in the home through a quitclaim 
deed, and unrelated transferees, as well as co-homeowners who did not 
sign the original loan. A large number of commenters of various types 
expressed concern about the use of the term prior consumer because the 
consumer who transfers an interest may still be liable on the loan 
obligation and a consumer for purposes of Regulation Z.
    For the reasons explained in part V.A. and in this discussion, the 
Bureau is finalizing the definition of successor in interest for 
Regulation Z in Sec.  1026.2(a)(27)(i) using the Garn-St Germain Act 
framework but with two changes. First, because the consumer who 
transfers an ownership interest to the successor in interest may remain 
a consumer after the transfer, the final rule substitutes ``consumer'' 
for ``prior consumer'' in the definition of successor in interest.
    Second, the final rule does not include a cross-reference to the 
Garn-St Germain Act but instead lists the specific categories of 
transfers that could render a transferee a successor in interest. These 
categories are modeled on the categories of transfers of ownership 
interest that section 341(d) of the Garn-St Germain Act protects. To 
ensure that the scope of the final rule does not change without further 
rulemaking by the Bureau, the Bureau has omitted the Garn-St Germain 
Act category that includes any other transfer or disposition described 
in the statute's implementing regulations.\293\ Additionally, in 
restating the categories in the final rule, the Bureau has not 
incorporated certain scope limitations imposed by the Garn-St Germain 
Act or its implementing regulations, such as the exclusion for reverse 
mortgages and certain occupancy requirements in 12 CFR 191.5(b). As 
explained in part V.A., these adjustments to the proposal promote 
clarity and consistency with other aspects of Regulation Z and with the 
final definition of successor in interest in subpart C of Regulation X.
---------------------------------------------------------------------------

    \293\ 12 U.S.C. 1701j-3(d)(9). The Bureau has also omitted 
several categories in the Garn-St Germain Act that do not result in 
a transfer of ownership interest and that are therefore irrelevant 
for successor in interest status. See 12 U.S.C. 1701j-3(d)(1), (2), 
(4); see also 79 FR 74176, 74181 n.28 (Dec. 15, 2014) (noting that 
the proposal would not apply to the situations described in these 
categories).
---------------------------------------------------------------------------

    The final rule adds new comment 2(a)(27)(i)-1 to clarify how the 
definition of successor in interest applies when property is held in a 
joint tenancy or a tenancy by the entirety. A trade association 
questioned whether the proposal would protect a non-borrower owner who 
holds property in a tenancy by the entirety when the borrower owner 
dies if there is not a transfer under State law. This commenter stated 
that, if property is held in a tenancy by the entirety, it is not clear 
that there is a property transfer when one owner dies because State law 
may provide that the survivor continues to own an undivided interest in 
the entire property and that the late spouse's property interest simply 
terminates.
    The Bureau believes it is important to extend protections to a 
tenant by the entirety upon the death of a borrower spouse and to a 
joint tenant upon the death of a borrower joint tenant. The Bureau is 
adding comment 2(a)(27)(i)-1 in the final rule, to clarify that, if a 
borrower who has an ownership interest as a joint tenant or tenant by 
the entirety in a dwelling securing a closed-end consumer credit 
transaction dies, a surviving joint tenant or tenant by the entirety 
with a right of survivorship in the property is a successor in interest 
as defined in Sec.  1026.2(a)(27)(i).
    The final rule also adds new comment 2(a)(27)(i)-2 to clarify the 
application of the definition of successor in interest to inter vivos 
trusts. The comment explains that, in the event of a transfer into an 
inter vivos trust in which the consumer is and remains a beneficiary 
and which does not relate to a transfer of rights of occupancy in the 
property, the beneficiaries of the inter vivos trust rather than the 
inter vivos trust itself are considered to be the successors in 
interest for purposes of Sec.  1026.2(a)(27)(i). This clarification 
ensures that a trust is not a successor in interest under these 
circumstances. It is also consistent with comment 3(a)-10 to Regulation 
Z, which explains that credit extended for consumer purposes to certain 
trusts is considered to be credit extended to a natural person rather 
than credit extended to an organization.
2(a)(27)(ii)
    Section 1026.2(a)(27)(ii) defines confirmed successor in interest 
for purposes of Regulation Z as a successor in interest once a servicer 
has confirmed the successor in interest's identity and ownership 
interest in the dwelling. This new definition was not part of the 
proposal but is consistent with how the Bureau used the term confirmed 
successor in interest in the proposal and includes language drawn from 
the proposed definition of consumer. Including this definition in the 
final rule will help to streamline the successor in interest provisions 
throughout Regulation Z.
Section 1026.20 Disclosure Requirements Regarding Post-Consummation 
Events
20(e) Escrow Account Cancellation Notice for Certain Mortgage 
Transactions
20(e)(4) Form of Disclosures
    Section 1026.20(e) implements the requirement in TILA section 
129D(j)(1)(B) that the creditor or servicer must provide an escrow 
account cancellation notice for certain mortgage transactions. Pursuant 
to Sec.  1026.2(a)(11), as amended by the final rule, confirmed 
successors in interest are consumers for purposes of Sec.  1026.20(e). 
Section 1026.20(e)(4) requires that the disclosures provided pursuant 
to Sec.  1026.20(e) must have headings, content, order, and format 
substantially similar to model form H-29 in appendix H to part 1026. 
For the reasons stated in part V.A. and in this discussion, the Bureau 
is adding comment 20(e)(4)-3 to make it clear that creditors and 
servicers may modify the language in model form H-29 to accommodate 
particular consumer circumstances or transactions not addressed by the 
form and to tailor the model form H-29 statement of consequences for 
failing to pay property costs to the circumstances of the particular 
consumer.
    Model form H-29 includes some language that may not be well suited 
to confirmed successors in interest who have not assumed the mortgage 
loan obligation under State law and are not otherwise liable on it. The 
model form states, for example, ``you will no longer have an escrow 
account,'' which could potentially be confusing for a confirmed 
successor in interest who is not liable on the mortgage loan obligation 
and therefore may not ever have been the holder of an escrow account. 
The model form notice refers to ``your loan'' and also states: ``[i]f 
you fail to pay any of your property costs, we may . . . require you to 
pay for property insurance that we buy on your behalf, which likely 
would cost more and provide fewer benefits than what you could buy on 
your own.'' This potential consequence may not apply to a confirmed 
successor in interest if the confirmed successor in interest is not a 
party to the loan agreement.

[[Page 72297]]

    The final rule adds comment 20(e)(4)-3 to indicate that the 
requirements of Sec.  1026.20(e)(4) to provide the Sec.  1026.20(e) 
disclosures with the headings, content, order, and format substantially 
similar to model form H-29 in appendix H to part 1026 do not preclude 
creditors and servicers from modifying the disclosures to accommodate 
particular consumer circumstances or transactions not addressed by the 
form. The requirements also do not preclude creditors and servicers 
from tailoring to the circumstances of the particular consumer the 
statement of consequences if the consumer fails to pay property costs. 
This new comment clarifies that servicers can adjust the language used 
in model form H-29 to the specific circumstances of confirmed 
successors in interest and others. The new comment is similar to 
existing Regulation Z comments 20(c)(3)(i)-1 and 20(d)(3)(i)-1, which 
authorize adjustments to accommodate particular consumer circumstances 
or transactions not addressed by the forms with respect to the ARM 
notices required by Sec.  1026.20(c) and (d). As explained in part 
V.A., the adjustments authorized by comments 20(c)(3)(i)-1, 
20(d)(3)(i)-1, and 20(e)(4)-3 represent one of several options that 
servicers may use to ensure that their notices and other communications 
do not confuse or deceive confirmed successors in interest who have not 
assumed the mortgage loan obligation under State law and are not 
otherwise liable on it as to whether they are liable on the mortgage 
loan obligation.
20(f) Successors in Interest
    As explained in part V.A. and the section-by-section analysis of 
Regulation X Sec.  1024.32, the final rule allows servicers to provide 
an initial explanatory written notice and acknowledgment form to 
confirmed successors in interest who are not liable on the mortgage 
loan obligation. The notice explains that the confirmed successor in 
interest is not liable unless and until the confirmed successor in 
interest assumes the mortgage loan obligation under State law. The 
notice also indicates that the confirmed successor in interest must 
return the acknowledgment to receive certain servicing notices under 
the Mortgage Servicing Rules. For the reasons stated in part V.A. and 
in this discussion, the final rule includes new Sec.  1026.20(f), which 
provides that, if, upon confirmation, a servicer provides a confirmed 
successor in interest who is not liable on the mortgage loan obligation 
with such a written notice and acknowledgment form, the servicer is not 
required to provide to the confirmed successor in interest any written 
disclosure required by Sec.  1026.20(c), (d), or (e) unless and until 
the confirmed successor in interest either assumes the mortgage loan 
obligation under State law or has provided the servicer an executed 
acknowledgment in accordance with Regulation X Sec.  1024.32(c)(1)(iv) 
that the confirmed successor in interest has not revoked.
    The final rule does not mandate that servicers send the initial 
written notice and acknowledgment form; instead, Regulation X Sec.  
1024.32(c)(1) gives servicers the option to do so and, if they choose 
to do so, Sec.  1026.20(f) relieves them of the obligation to provide 
written disclosures required by Sec.  1026.20(c), (d), or (e) until the 
confirmed successor in interest affirmatively indicates a desire to 
receive them by returning the acknowledgment or assumes the mortgage 
loan obligation under State law. Similar provisions in Sec. Sec.  
1024.32(c)(2), 1026.39(f), and 1026.41(g) address the disclosures 
required by, respectively, the Mortgage Servicing Rules in Regulation X 
and Sec. Sec.  1026.39 and 1026.41. As noted in part V.A., the Bureau 
has decided to excuse servicers that have not received an 
acknowledgment back from a confirmed successor in interest from the 
requirement to send Mortgage Servicing Rule notices because doing so 
relieves servicers of the costs associated with sending notices to 
confirmed successors in interest who are not liable on the mortgage 
loan obligation and do not want notices. However, if a confirmed 
successor in interest assumes a mortgage loan obligation under State 
law, the information in the initial notice and acknowledgment form is 
no longer applicable, and Sec.  1026.20(f) accordingly does not suspend 
the servicer's obligation to provide notices required by Sec.  
1026.20(c), (d), or (e).
Section 1026.36 Prohibited Acts or Practices and Certain Requirements 
for Credit Secured by a Dwelling
36(c) Servicing Practices
36(c)(1) Payment Processing
    The Bureau proposed a technical change to Sec.  1026.36(c)(1) for 
clarity. Section 1026.36(b) provides that Sec.  1026.36(c)(1) applies 
to closed-end consumer credit transactions secured by a consumer's 
principal dwelling. However, current Sec.  1026.36(c)(1) refers to 
consumer credit transactions secured by a consumer's principal 
dwelling, without referring to closed-end transactions. Proposed Sec.  
1026.36(c)(1) added language relating to closed-end consumer credit 
transactions.
    The Bureau also proposed commentary to Sec.  1026.36(c)(1) to 
clarify how servicers must treat periodic payments made by consumers 
who are performing under either temporary loss mitigation programs or 
permanent loan modifications. Proposed comment 36(c)(1)(i)-4 would have 
provided that, if the loan contract has not been permanently modified 
but the consumer has agreed to a temporary loss mitigation program, a 
periodic payment under Sec.  1026.36(c)(1)(i) remains an amount 
sufficient to cover principal, interest, and escrow (if applicable) for 
a given billing cycle under the loan contract, irrespective of the 
payment due under the temporary loss mitigation program. Accordingly, 
if a consumer submits a payment under a temporary loss mitigation 
program that is less than an amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the loan contract, the servicer should generally treat the payment as a 
partial payment under Sec.  1026.36(c)(1)(i), even though the consumer 
may have made the payment due under the temporary loss mitigation 
program.
    The Bureau proposed this comment in response to several inquiries 
regarding payment processing for payments under temporary loss 
mitigation programs. In the proposal, the Bureau acknowledged that its 
statement in the 2013 TILA Final Servicing Rule, ``if a consumer makes 
a payment sufficient to cover the principal, interest, and escrow due 
under a trial modification plan, these funds should be applied,'' \294\ 
may have suggested that, when a temporary loss mitigation program is in 
effect, the periodic payment is the payment due under the temporary 
loss mitigation program, rather than the amount sufficient to cover 
principal, interest, and escrow (if applicable) for a given billing 
cycle under the loan contract. In the proposal, the Bureau reiterated 
that the periodic payment, even under a temporary loss mitigation 
program, remains the amount sufficient to cover principal, interest, 
and escrow (if applicable) for a given billing cycle under the loan 
contract. A consumer may continue to accumulate a delinquency according 
to the loan contract during the duration of a temporary loss mitigation 
program. If a consumer fails to comply with the terms of a temporary 
loss mitigation program, the servicer will typically revert back to the 
terms of the loan contract, with the

[[Page 72298]]

result that the consumer may be facing acceleration or an immediate 
demand for payment in full of the accumulated delinquency. Accordingly, 
the Bureau believed that it would be appropriate to require servicers 
to credit payments in a way that reflects the continuing contractual 
obligations between the parties and any accumulating delinquency. 
Moreover, the Bureau believed it could be burdensome for servicers to 
treat the payment due under a temporary loss mitigation program as the 
periodic payment, only to revert to the contractual payment if the 
consumer fails to comply with the terms of the temporary loss 
mitigation program.
---------------------------------------------------------------------------

    \294\ 78 FR 10901, 10954 (Feb. 14, 2013).
---------------------------------------------------------------------------

    For loans that have been permanently modified, proposed comment 
36(c)(1)(i)-5 would have provided that the periodic payment under Sec.  
1026.36(c)(1)(i) is an amount sufficient to cover principal, interest, 
and escrow (if applicable) for a given billing cycle under the modified 
loan contract. The periodic payment should reflect the contractual 
obligation; once the loan contract has been permanently modified, the 
terms of the modified loan contract govern the periodic payment 
determination and not the terms of the contract pre-modification.
    Several consumer advocacy groups commented on proposed comment 
36(c)(1)(i)-4. Consumer advocacy group commenters expressed concern 
that the proposed comment would cause servicers to believe that 
payments made under a temporary loss mitigation program are treated 
differently than other partial payments. One consumer advocacy group 
stated that a temporary loss mitigation program is a contract that the 
consumer has the legal right to enforce. It suggested that treating 
payments made under a temporary plan as partial payments under proposed 
comment 36(c)(1)(i)-4 conflicts with this principle.
    The Bureau is finalizing the technical change to Sec.  
1026.36(c)(1) and the revisions to comments 36(c)(1)(i)-4 and -5 as 
proposed. Accordingly, final Sec.  1026.36(c)(1) refers directly to a 
closed-end consumer credit transaction secured by a consumer's 
principal dwelling. Comment 36(c)(1)(i)-4 explains that, if a loan 
contract has not been permanently modified but the consumer has agreed 
to a temporary loss mitigation program, a periodic payment under Sec.  
1026.36(c)(1)(i) is the amount sufficient to cover principal, interest, 
and escrow (if applicable) for a given billing cycle under the loan 
contract, regardless of the payment due under the temporary loss 
mitigation program. Comment 36(c)(1)(i)-5 provides that, if a loan 
contract has been permanently modified, a periodic payment under Sec.  
1026.36(c)(1)(i) is an amount sufficient to cover principal, interest, 
and escrow (if applicable) for a given billing cycle under the modified 
loan contract.\295\
---------------------------------------------------------------------------

    \295\ As described in the section-by-section analysis of Sec.  
1026.41(d), the Bureau is also finalizing commentary to Sec.  
1026.41(d) clarifying certain periodic statement disclosures 
relating to temporary loss mitigation programs and permanent loan 
modifications.
---------------------------------------------------------------------------

    As explained in the proposal, the servicer should generally treat a 
payment due under a temporary loss mitigation program as a partial 
payment under Sec.  1026.36(c)(1)(i). Although a temporary loss 
mitigation program is a contract, as noted by one commenter, and may be 
enforceable as such, the temporary loss mitigation program does not 
remove the obligations of the existing mortgage loan contract. 
Servicers must credit payments in a way that reflects the continuing 
contractual obligations between the parties. The Bureau notes that its 
commentary here is confined to clarifying how servicers must credit 
payments received and ensuring that those payments are credited 
according to the terms of the loan contract; the Bureau is not 
addressing other legal requirements the servicer may have to the 
borrower relating to the temporary loss mitigation program.
36(c)(1)(iii) Non-Conforming Payments
    Section 1026.36(c) includes requirements relating to prompt 
crediting of payments, pyramiding of late fees, and payoff statements. 
In the proposal, the Bureau solicited comment on whether certain parts 
of Sec.  1026.36(c) should apply with respect to successors in interest 
even if the servicer has not confirmed the successor in interest's 
identity and ownership interest in the dwelling. The Bureau received a 
variety of comments on this issue, including some that asked the Bureau 
to clarify how servicers should handle payments by potential successors 
in interest.\296\ For the reasons explained in part V.A. and in this 
discussion, the final rule clarifies the operation of Sec.  1026.36(c) 
with respect to potential successors in interest by amending comment 
36(c)(1)(iii)-2.
---------------------------------------------------------------------------

    \296\ Some commenters also addressed whether Sec.  1026.36(c) 
and other mortgage servicing requirements should apply to confirmed 
successors in interest. Those comments are addressed in part V.A. 
and the section-by-section analysis of Sec.  1026.2(a)(11).
---------------------------------------------------------------------------

    Several consumer advocacy groups stated that a servicer should 
always be required to credit payments promptly and to refrain from 
improper pyramiding of late fees. These groups noted that it could take 
potential successors in interest several months or longer to obtain and 
provide documentation of their status as a successor in interest. 
Consumer advocacy group commenters also indicated that successors in 
interest continue to have difficulties getting their payments credited. 
A local government commenter noted the importance of assisting 
successors in making payments on a loan if the loan is current at the 
time the servicer is notified of the borrower's death.
    A number of industry commenters urged the Bureau not to apply 
protections or regulations including Sec.  1026.36(c) to unconfirmed 
successors in interest. A trade association stated that successors in 
interest can and should make payments while successorship claims and 
loss mitigation applications are being prepared or pending. It 
indicated that servicers accept payments made prior to confirmation if 
the servicers have enough confirming information. This commenter 
suggested that it would be helpful for the Bureau to clarify the 
treatment of a payment that a successor in interest sends before 
confirmation and raised a number of questions relating to how the error 
resolution procedures of Sec.  1024.35 apply to payments received from 
potential and confirmed successor in interest. This commenter indicated 
that servicers should have the ability to accept or reject payments 
from potential successors in interest and that servicers need to be 
able to reject payments in certain circumstances, citing the Patriot 
Act.
    For the reasons stated in part V.A. and the section-by-section 
analysis of Sec.  1026.2(a)(11), the Bureau has decided not to define 
unconfirmed successors in interest as consumers for purposes of the 
Mortgage Servicing Rules, including Sec.  1026.36(c). However, the 
Bureau agrees with commenters that potential successors in interest 
should be able to make payments during the confirmation process, in 
order to ensure that mortgage loans do not become delinquent or, if 
already delinquent, do not become more delinquent while potential 
successors in interest await confirmation. Both industry commenters and 
consumer advocacy groups emphasized the importance of payments by 
potential successors in interest. The Bureau encourages servicers to 
continue to work with potential successors in interest to facilitate 
payments during the confirmation process in order to help prevent 
delinquency. The Bureau also notes that there may be circumstances 
where State law provides additional protections for potential 
successors in

[[Page 72299]]

interest as to payment acceptance and crediting.
    Additionally, the Bureau notes that the mere fact that a payment 
comes from someone who is not a consumer does not obviate the 
servicer's obligations to handle it properly under Sec.  1026.36(c)(1) 
and (2).\297\ In connection with consumer credit transactions secured 
by a consumer's principal dwelling, section 129F(a) of TILA generally 
requires servicers to credit a payment to the consumer's loan account 
as of the date of receipt, with certain limited exceptions.\298\ In 
establishing this requirement, Congress did not specify by whom the 
payment must be made. Consistent with section 129F(a), Sec.  
1026.36(c)(1)(i) provides, with specified exceptions, that, in 
connection with such transactions, no servicer shall fail to credit a 
periodic payment to the consumer's loan account as of the date of 
receipt, without limiting the requirement to payments received from a 
consumer. There may be many circumstances in which a third party makes 
mortgage payments on behalf of the consumer or as a successor in 
interest to the transferor consumer. In those cases, as well as when 
the consumer makes the payment directly, the Bureau expects servicers 
to follow the payment processing requirements in Sec.  1026.36(c)(1) 
and to adhere to the prohibition on pyramiding of late fees in Sec.  
1026.36(c)(2), to the extent those provisions are otherwise applicable.
---------------------------------------------------------------------------

    \297\ For example, comment 36(c)(1)(i)-3 addresses how servicers 
should calculate the date of receipt for payments made by third-
party payors such as a financial institution through a preauthorized 
payment or telephone bill-payment arrangement.
    \298\ 15 U.S.C. 1639f(a).
---------------------------------------------------------------------------

    Current comment 36(c)(1)(iii)-1 explains that a servicer may 
specify reasonable requirements for making payments in writing, such as 
requiring that payments be accompanied by the account number or payment 
coupon. Current comment 36(c)(1)(iii)-2 also explains that it should 
not be difficult for most consumers to make conforming payments. 
Pursuant to the final rule, consumers, as used in comment 
36(c)(1)(iii)-2, includes confirmed successors in interest. In light of 
the importance of keeping loans current, it would not be reasonable for 
a servicer to impose payment requirements that prevent a potential 
successor in interest from making payments on the account during the 
confirmation process. The final rule accordingly amends comment 
36(c)(1)(iii)-2 to clarify that it should not be difficult for most 
consumers or potential successors in interest to make payments that 
conform to a servicer's payment requirements. The Bureau believes that 
this clarification serves TILA's purpose of protecting consumers 
against inaccurate and unfair credit billing practices by ensuring that 
servicers properly process payments received on an account.\299\
---------------------------------------------------------------------------

    \299\ 15 U.S.C. 1601(a).
---------------------------------------------------------------------------

36(c)(2) No Pyramiding of Late Fees
    The Bureau proposed a technical change to Sec.  1026.36(c)(2). 
Section 1026.36(b) provides that Sec.  1026.36(c)(2) applies to closed-
end consumer credit transactions secured by a consumer's principal 
dwelling. However, current Sec.  1026.36(c)(2) refers to consumer 
credit transactions secured by a consumer's principal dwelling without 
referring to closed-end transactions. Consistent with Sec.  1026.36(b), 
proposed Sec.  1026.36(c)(2) modified the existing language to refer 
directly to closed-end consumer credit transactions secured by a 
consumer's principal dwelling.
    The Bureau did not receive comments addressing the proposed 
technical change to Sec.  1024.36(c)(2) and is finalizing as proposed. 
Accordingly, final Sec.  1024.36(c)(2) refers directly to a closed-end 
consumer credit transaction secured by a consumer's principal dwelling.
Section 1026.39 Mortgage Transfer Disclosures
39(f) Successors in Interest
    As explained in part V.A. and the section-by-section analysis of 
Regulation X Sec.  1024.32, the final rule allows servicers to provide 
an initial explanatory written notice and acknowledgment form to 
confirmed successors in interest who are not liable on the mortgage 
loan obligation. The notice explains that the confirmed successor in 
interest is not liable unless and until the confirmed successor in 
interest assumes the mortgage loan obligation under State law. The 
notice also indicates that the confirmed successor in interest must 
return the acknowledgment to receive certain servicing notices under 
the Mortgage Servicing Rules. For the reasons stated in part V.A. and 
in this discussion, the final rule includes new Sec.  1026.39(f), which 
provides that, if, upon confirmation, a servicer provides a confirmed 
successor in interest who is not liable on the mortgage loan obligation 
with such a written notice and acknowledgment form, the servicer is not 
required to provide to the confirmed successor in interest any written 
disclosure required by Sec.  1026.39(b) unless and until the confirmed 
successor in interest either assumes the mortgage loan obligation under 
State law or has provided the servicer an executed acknowledgment in 
accordance with Regulation X Sec.  1024.32(c)(1)(iv) that the confirmed 
successor in interest has not revoked.
    The final rule does not mandate that servicers send the initial 
written notice and acknowledgment form; instead, Regulation X Sec.  
1024.32(c)(1) gives servicers the option to do so and, if they choose 
to do so, Sec.  1026.39(f) relieves them of the obligation to provide 
written disclosures required by Sec.  1026.39(b) until the confirmed 
successor in interest affirmatively indicates a desire to receive them 
by returning the acknowledgment or assumes the mortgage loan obligation 
under State law. Similar provisions in Sec. Sec.  1024.32(c)(2), 
1026.20(f), and 1026.41(g) address the disclosures required by, 
respectively, the Mortgage Servicing Rules in Regulation X and 
Sec. Sec.  1026.20(c), (d), and (e) and 1026.41. As noted in part V.A., 
the Bureau has decided to excuse servicers that have not received an 
acknowledgment back from a confirmed successor in interest from the 
requirement to send Mortgage Servicing Rule notices because doing so 
relieves servicers of the costs associated with sending notices to 
confirmed successors in interest who are not liable on the mortgage 
loan obligation and do not want notices. However, if a confirmed 
successor in interest assumes a mortgage loan obligation under State 
law, the information in the initial notice and acknowledgment form is 
no longer applicable, and Sec.  1026.39(f) accordingly does not suspend 
the servicer's obligation to provide notices required by Sec.  
1026.39(b).
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(a) In General
    Although the Bureau did not propose to amend comment 41(a)-1, the 
Bureau is revising the example provided in comment 41(a)-1 to 
substitute ``spouses'' for ``husband and wife,'' in order to align the 
language with other examples in Regulation Z.\300\ Thus, as revised, 
comment 41(a)-1 explains that, if spouses jointly own a home, a 
servicer need not send statements to both spouses; a single statement 
may be sent.\301\
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    \300\ Pursuant to the Bureau's Same-Sex Married Couple Policy, 
see supra note 39, the Bureau interprets ``spouse'' to include 
married same-sex spouses.
    \301\ Section 1026.41 defines servicers to mean creditors, 
assignees, or servicers for the purposes of Sec.  1026.41. The 
Bureau, therefore, also uses the term servicer to mean a creditor, 
assignee, or servicer in the section-by-section analysis of Sec.  
1026.41, except as otherwise noted.

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[[Page 72300]]

    Proposed comment 41(a)-5.i reiterated for clarity that a servicer 
must provide a confirmed successor in interest with a periodic 
statement meeting the requirements of Sec.  1026.41. The Bureau 
proposed this comment to ensure that the effect of proposed Sec.  
1026.2(a)(11) with respect to providing periodic statements to 
confirmed successors in interest would be clear. However, the Bureau 
believes that the effect of the final version of Sec.  1026.2(a)(11) 
with respect to periodic statements is clear from Sec.  1026.2(a)(11) 
and its commentary and Sec.  1026.41(g), and the Bureau therefore has 
not included a comment similar to proposed comment 41(a)-5.i in the 
final rule. Pursuant to Sec.  1026.2(a)(11), comment 2(a)(11)-4.iv, and 
Sec.  1026.41(g), a servicer must provide a confirmed successor in 
interest with periodic statements, unless: (1) The servicer is 
providing the specific periodic statements to another consumer on the 
account, or (2) the confirmed successor in interest is not liable on 
the mortgage loan obligation, the servicer has provided a written 
notice and acknowledgment form in accordance with Regulation X Sec.  
1024.32(c)(1)(iv), and the confirmed successor in interest has not 
provided the servicer an executed acknowledgment that has not been 
revoked.
    Proposed comment 41(a)-5.ii would have provided that, if a servicer 
sends a periodic statement meeting the requirements of Sec.  1026.41 to 
another consumer, the servicer need not also send a periodic statement 
to a successor in interest; a single statement may be sent. The 
proposed comment also would have provided that, if a servicer confirms 
more than one successor in interest's identity and ownership interest 
in the dwelling, the servicer need not send periodic statements to more 
than one of the successors in interest. For the reasons stated in part 
V.A. and the section-by-section analysis of Sec.  1026.2(a)(11) and in 
this discussion, the Bureau has decided not to finalize proposed 
comment 41(a)-5.ii and is instead addressing in comment 2(a)(11)-4.iv 
whether duplicative periodic statements and other Regulation X 
disclosures must be sent to confirmed successors in interest.
    The Bureau solicited comment on whether only one successor in 
interest should receive a periodic statement or whether instead each 
successor in interest should receive a periodic statement. A number of 
industry commenters stated that the rule of joint obligors should 
apply, such that only one periodic statement is required, and urged the 
Bureau not to require multiple periodic statements. Some noted that a 
requirement to provide periodic statements to multiple successors in 
interest would be extremely burdensome and require significant systems 
changes. As explained above, various commenters also suggested that the 
Bureau clarify what is expected with regard to other Mortgage Servicing 
Rule notices when there are multiple borrowers and suggested that only 
one notice should be required. In contrast, a consumer advocacy group 
suggested that anyone with an ownership interest should receive a copy 
of the periodic statement, provided they have given their contact 
information to the servicer.
    The Bureau believes that servicers should not be required to send 
more than one periodic statement with respect to a mortgage loan. This 
is consistent with how periodic statements for multiple obligors are 
treated in current comment 41(a)-1, which provides that, when two 
consumers are joint obligors with primary liability on a closed-end 
consumer credit transaction secured by a dwelling, the periodic 
statement may be sent to either one of them. Due to the constraints of 
current systems platforms and other factors, the Bureau recognizes that 
requiring servicers to send multiple copies of the same periodic 
statement would impose additional costs. In light of commenters' 
requests for clarification regarding other notices required by the 
Mortgage Servicing Rules, the Bureau has decided to address this issue 
through a more general comment to Sec.  1026.2(a)(11), as explained in 
the section-by-section analysis of that section. The Bureau is 
therefore not finalizing proposed comment 41(a)-5.ii.
41(c) Form of the Periodic Statement
    Current section 1026.41(c) requires servicers to make periodic 
statement disclosures clearly and conspicuously and in a form the 
consumer may keep. It provides that proper use of sample forms provided 
in appendix H-30 complies with these requirements. For the reasons 
stated in part V.A. and in this discussion, the Bureau is adding new 
comment 41(c)-5, which explains that servicers may modify the sample 
forms for periodic statements provided in appendix H-30 to remove 
language that could suggest liability under the mortgage loan agreement 
if such language is not applicable.
    The sample periodic statement forms in appendix H-30 include 
language that could suggest liability under the mortgage loan, such as: 
``You are late on your mortgage payments. Failure to bring your loan 
current may result in fees and foreclosure--the loss of your home . . . 
. You must pay this amount to bring your loan current.'' Including 
these statements in notices sent to a confirmed successor in interest 
who is not liable on the loan obligation under State law could 
potentially result in confusion if the servicer has not otherwise 
clarified that the confirmed successor in interest is not in fact 
liable on the loan obligation.
    Comment 41(c)-5 notes that, for example, in the case of a confirmed 
successor in interest who has not assumed the mortgage loan obligation 
and is not otherwise liable on it, a servicer may modify the forms to 
use ``this mortgage'' or ``the mortgage'' instead of ``your mortgage''; 
``The payments on this mortgage are late'' instead of ``You are late on 
your mortgage payments''; and ``This is the amount needed to bring the 
loan current'' instead of ``You must pay this amount to bring your loan 
current.'' As explained in part V.A., the adjustments authorized by 
comment 41(c)-5 represent one of several options that servicers may use 
to ensure that their notices and other communications do not confuse or 
deceive successors in interest who have not assumed the mortgage loan 
obligation under State law and are not otherwise liable on it regarding 
whether they are liable on the mortgage loan obligation.
41(d) Content and Layout of the Periodic Statement
    Section 1026.41(d) specifies the disclosures that must be provided 
on the periodic statement and requires that several of those 
disclosures be provided in close proximity to one another. The Bureau 
proposed to amend current comment 41(d)-1 and add new comments 41(d)-4 
and -5 relating to the requirements in Sec.  1024.41(d). The Bureau is 
finalizing comments 41(d)-1 and -4 substantially as proposed. The 
Bureau is finalizing comment 41(d)-5 as proposed.
    The Bureau proposed to amend current comment 41(d)-1, which states 
that items in close proximity may not have any intervening text between 
them. The close proximity standard is found in other parts of 
Regulation Z, including Sec. Sec.  1026.24(b) and 1026.48. The proposed 
amendment would have relaxed this requirement for purposes of Sec.  
1026.41(d) and instead would have provided that items in close 
proximity may not have any unrelated text between them. This proposal 
mirrored the standard for open-end credit plans secured by a consumer's 
dwelling found

[[Page 72301]]

in Sec.  1026.40(a) and its corresponding comment 40(a)(1)-3, which 
explain that while most of the disclosures required by Sec.  1026.40(d) 
must be grouped together and segregated from all unrelated information, 
a creditor is permitted to include information that explains or expands 
upon the required disclosures.
    The proposed amendment to comment 41(d)-1 would have provided that 
items in close proximity may not have any unrelated text between them 
and explained that text is unrelated if it does not explain or expand 
upon the required disclosures. Text that explains or expands upon the 
required disclosures may include, for example, an additional 
explanation of the amount due when: A fee has been charged to the 
consumer but will not be collected until payoff (e.g., attorney's 
fees); the consumer has agreed to a temporary loss mitigation program 
(as discussed further in the section-by-section analysis of Sec.  
1026.41(d)(2)); the consumer makes an advance payment; or the servicer 
reverses a fee. The Bureau believed that the proposed amendment to 
comment 41(d)-1 would provide servicers with additional flexibility to 
clarify or explain information on the periodic statement and may enable 
servicers to address circumstances not expressly provided for in Sec.  
1026.41(d). The Bureau sought comment generally on this proposal to 
amend comment 41(d)-1 to relax the prohibition on intervening text to 
include only related text that explains or expands upon the required 
disclosures.
    The Bureau proposed additional Sec.  1026.41(d) commentary 
clarifying certain periodic statement disclosure requirements relating 
to temporary loss mitigation programs. Proposed comment 41(d)-4 would 
have provided that, if the consumer has agreed to a temporary loss 
mitigation program, the disclosures required by Sec.  1026.41(d)(2), 
(3), and (5) regarding how payments will be and were applied should 
nonetheless identify how payments are applied according to the loan 
contract, irrespective of the payment due under the temporary loss 
mitigation program. The Bureau proposed this commentary in response to 
several inquiries regarding how temporary loss mitigation programs 
affect certain disclosures on the periodic statement. Currently, the 
Bureau's rules and commentary do not address this issue.
    As described in the section-by-section analysis of Sec.  
1024.36(c)(1), proposed comment 36(c)(1)(i)-4 would have provided that, 
if the consumer has agreed to a temporary loss mitigation program, a 
periodic payment under Sec.  1026.36(c)(1)(i) remains an amount 
sufficient to cover principal, interest, and escrow (if applicable) for 
a given billing cycle under the loan contract, irrespective of the 
payment due under the temporary loss mitigation program. Accordingly, 
the Bureau believed that it was appropriate for the disclosures on the 
periodic statement required by Sec.  1026.41(d)(2), (3), and (5) to 
identify how payments will be and are applied according to the loan 
contract, irrespective of the payment due under the temporary loss 
mitigation program, because this is how servicers would actually be 
applying the payments under proposed comment 36(c)(1)(i)-4. The Bureau 
believed that this treatment would have been appropriate so that the 
consumer is kept apprised of how payments are being applied, including 
being notified of any delinquency that may be accumulating during a 
temporary loss mitigation program.
    The Bureau also proposed comment 41(d)-5 to address the disclosures 
that servicers must make on the first periodic statement provided to a 
consumer after an exemption under Sec.  1026.41(e) terminates. Section 
1026.41(d) requires that a periodic statement include three disclosures 
concerning account activity that occurred ``since the last statement.'' 
First, Sec.  1026.41(d)(2)(ii) requires the explanation of amount due 
to identify the total sum of any fees or charges imposed since the last 
statement. Second, Sec.  1026.41(d)(3)(i) requires the past payment 
breakdown to disclose all payments received since the last statement, 
including a breakdown showing the amount, if any, that was applied to 
principal, interest, escrow, fees and charges, and the amount, if any, 
sent to any suspense or unapplied funds account. Finally, Sec.  
1026.41(d)(4) requires the transaction activity to include a list of 
all transaction activity that occurred since the last statement.
    In advance of the proposal, the Bureau had received inquiries 
regarding a servicer's disclosure obligations under Sec.  
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) for purposes of the first 
periodic statement provided after an exemption under Sec.  1026.41(e) 
terminates. The Bureau understood that such circumstances might arise 
when a servicer provided periodic statements, became exempt from the 
requirements for one of the reasons under Sec.  1026.41(e), and the 
exemption subsequently terminated, thereby requiring the servicer to 
resume providing statements. For example, a servicer may have been 
exempt from providing periodic statements for the duration of a 
consumer's bankruptcy case, may have provided coupon books but has now 
decided to begin providing periodic statements, or may have been exempt 
from the periodic statement requirement as a small servicer but no 
longer qualifies for that exemption. Alternatively, a mortgage loan 
might be transferred from a servicer that provides coupon books or was 
an exempt small servicer to a servicer that provides periodic 
statements.
    Sections 1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) could be 
interpreted as requiring the periodic statement to include information 
about account activity for the duration of the exemption period--
literally ``since the last statement.'' The Bureau recognized that 
there may be benefits to providing a consumer with information 
regarding all fees and charges imposed, all payments received and 
applied, and all transaction activity that occurred during the 
exemption period. A consumer could review this information to determine 
if a servicer imposed any erroneous fees, failed to properly credit 
payments, or made other mistakes with respect to the consumer's 
mortgage loan while the exemption applied. The Sec.  1026.41(d)(2)(ii), 
(d)(3)(i), and (d)(4) disclosures, however, generally cover a time 
period equivalent to a billing cycle, and the first post-exemption 
periodic statement should arguably cover a similar time period. The 
proposal would therefore have clarified that the first post-exemption 
periodic statement may be limited to disclosing the fees and charges 
imposed, payments received and applied, and transaction activity since 
the last payment due date that occurred while the exemption was in 
effect.
    The Bureau believed that consumers and servicers may be better 
served if the first post-exemption periodic statement includes account 
activity only since the final payment due date that occurred while the 
exemption was in effect. The Bureau understood that servicers' systems 
are generally not equipped to provide months' or years' worth of 
account activity on a single periodic statement. Requiring the 
disclosure of all fees and charges imposed, payments received, and 
transaction activity during an exemption period, which could have 
spanned several months or years, would impose costs on servicers. 
Similarly, consumers could be confused or overwhelmed by the receipt of 
a periodic statement listing all account activity during a lengthy 
exemption period. For example, consumers might believe that listed fees 
and charges were presently due, even if the consumer had already paid 
them.

[[Page 72302]]

    Moreover, including account activity for the duration of the 
exemption period would have undermined, in part, the rationale for the 
exemptions. For example, Sec.  1026.41(e)(3) recognizes the value of a 
coupon book as striking a balance between ensuring consumers receive 
important information and providing a low-burden method for servicers 
to comply with the periodic statement requirements.\302\ Requiring the 
first post-exemption periodic statement to include the disclosures 
required under Sec.  1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) for the 
duration of the exemption arguably would have upset the balance struck 
by the coupon book exemption. Servicers might be forced to maintain the 
functional ability to produce periodic statements to account for the 
possibility of a change from coupon books to periodic statements or a 
loss of the exemption, thus obviating any burden-reduction features of 
the exemption.
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    \302\ 78 FR 10901, 10973 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Consumers either receive, or have alternative methods of obtaining, 
much of the account information that, under the proposal, would not 
have been included in the first post-exemption periodic statement. For 
example, consumers who receive coupon books have a right to request the 
information set forth in Sec.  1026.41(d)(2)(ii), (d)(3)(i), and 
(d)(4). Similarly, for servicers subject to Regulation X's servicing 
requirements, a consumer may obtain this information by submitting a 
written information request. In addition, even if the first post-
exemption periodic statement does not include the past payment 
breakdown since the last pre-exemption periodic statement, Sec.  
1026.41(d) requires the statement to identify the total of all payments 
received since the beginning of the current calendar year. This year-
to-date information, while not necessarily covering the entire 
exemption period, provides consumers with a broad overview of the costs 
of their mortgage loan and how their payments are being allocated to 
interest or fees as opposed to principal.\303\
---------------------------------------------------------------------------

    \303\ Id. at 10966.
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    Accordingly, the Bureau proposed comment 41(d)-5, which would have 
provided that, for purposes of the first periodic statement following 
termination of an exemption under Sec.  1026.41(e), the disclosures 
required by Sec.  1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be 
limited to the period since the final payment due date that occurred 
while the exemption was in effect. Proposed comment 41(d)-5 also 
provided an illustrative example. The Bureau sought comment on proposed 
comment 41(d)-5, including whether to disclose account activity since a 
date other than the final payment due date that occurred while the 
exemption was in effect.
    One industry commenter expressed support for the proposed 
clarifications to the periodic statement requirements generally, while 
another expressed concern over the costs associated with updating the 
periodic statements. A few consumer advocacy groups expressed support 
for proposed comment 41(d)-4 and stated that the proposal accurately 
reflects the fact that a temporary loss mitigation program does not 
change the terms of the loan contract.
    For the reasons discussed below, the Bureau is finalizing comments 
41(d)-1 through -5 substantially as proposed. Comment 41(d)-1 explains 
that Sec.  1026.41(d) requires several disclosures to be provided in 
close proximity to one another. It provides that, to meet this 
requirement, the items to be provided in close proximity must be 
grouped together, and set off from other groupings of items. It further 
provides that this may be accomplished in a variety of ways, for 
example, by presenting the information in boxes, or by arranging the 
items on the document and including spacing between the groupings. It 
clarifies that items in close proximity may not have any unrelated text 
between them and explains that text is unrelated if it does not explain 
or expand upon the required disclosures.
    Comment 41(d)-4 explains that, if the consumer has agreed to a 
temporary loss mitigation program, the disclosures required by Sec.  
1026.41(d)(2), (3), and (5) regarding how payments were and will be 
applied must identify how payments are applied according to the loan 
contract, regardless of the temporary loss mitigation program. Final 
comment 41(d)-4 clarifies the proposed language by explaining that a 
servicer must, rather than should, identify how payments are applied 
according to the loan contract, regardless of the temporary loss 
mitigation program. The Bureau is finalizing this change because it is 
mandatory that the disclosures required by Sec.  1026.41(d)(2), (3), 
and (5) identify how payments are applied according to the loan 
contract. Additionally, the Bureau is finalizing comment 41(d)-4 so 
that it discusses only temporary loss mitigation programs, rather than 
referring to both temporary loss mitigation programs and loss 
mitigation programs.
    Comment 41(d)-5 explains that Sec.  1026.41(d)(2)(ii), (d)(3)(i), 
and (d)(4) require the disclosure of the total sum of any fees or 
charges imposed since the last statement, the total of all payments 
received since the last statement, including a breakdown of how 
payments were applied, and a list of all transaction activity since the 
last statement. It explains that, for purposes of the first periodic 
statement provided to the consumer following termination of an 
exemption under Sec.  1026.41(e), the disclosures required by Sec.  
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be limited to account 
activity since the last payment due date that occurred while the 
exemption was in effect. It provides an illustrative example.
41(d)(1)
    Section 1026.41(d)(1)(iii) provides that the periodic statement 
required by Sec.  1026.41(d) must include the amount due, shown more 
prominently than other disclosures on the page. The Bureau proposed 
Sec.  1026.41(d)(1) commentary to clarify how acceleration, temporary 
loss mitigation programs, and permanent loan modification affect 
disclosure of the amount due on the periodic statement. Currently, the 
Bureau's rules and commentary do not address this issue. The Bureau is 
finalizing proposed comment 41(d)(1)-1 regarding acceleration with 
revisions. The Bureau is finalizing comment 41(d)(1)-2 regarding 
temporary loss mitigation programs as proposed and comment 41(d)(1)-3 
regarding permanent loan modifications substantially as proposed.
    Proposed comment 41(d)(1)-1 would have provided that, if the 
balance of a mortgage loan has been accelerated but the servicer will 
accept a lesser amount to reinstate the loan, the amount due disclosed 
on the periodic statement under Sec.  1026.41(d)(1) should identify 
only the lesser amount that will be accepted to reinstate the loan, not 
the entire accelerated balance.
    The Bureau is aware that, after accelerating a mortgage loan, a 
servicer may accept a lesser amount to reinstate the loan and may 
sometimes be required to do so by State law. The Bureau believed that 
receiving a periodic statement indicating that the amount due is the 
reinstatement amount rather than the full accelerated balance would 
make the consumer more likely to pay the reinstatement amount, thereby 
possibly preventing foreclosure. The Bureau believed it may confuse 
consumers to receive a periodic statement indicating that the amount 
due is the full accelerated balanced when, in fact, the consumer is 
informed elsewhere that the consumer may pay only the reinstatement 
amount. The consumer may be deterred from reading other disclosures or 
documents if the

[[Page 72303]]

consumer sees the full accelerated balance as the amount due and 
believes payment of that amount is impossible. In that case, the 
consumer may not become aware that reinstatement is available, possibly 
leading to unnecessary foreclosure.
    Proposed comment 41(d)(1)-2 would have provided that, if the 
consumer has agreed to a temporary loss mitigation program, the amount 
due under Sec.  1026.41(d)(1) may identify either the payment due under 
the temporary loss mitigation program or the amount due according to 
the loan contract. The Bureau believed that it may be confusing for 
consumers who have agreed to a loss mitigation program to receive a 
periodic statement identifying the amount due under the loan contract 
when that amount is different from the payment due under the temporary 
loss mitigation program. Accordingly, the Bureau proposed that 
servicers may, but are not required to, identify the payment due under 
the temporary loss mitigation program, instead of the amount due 
according to the loan contract.
    The Bureau did not propose to require that the payment due under 
the temporary loss mitigation program must be identified as the amount 
due for two primary reasons. First, because a temporary loss mitigation 
program does not change the underlying legal obligation, the Bureau 
believed it may be inappropriate to require a servicer to modify 
periodic statements whenever a consumer agrees to a temporary loss 
mitigation program. Second, the Bureau was concerned that imposing 
additional requirements on servicers when a consumer agrees to a 
temporary loss mitigation program could deter servicers from offering 
temporary loss mitigation programs.
    The Bureau solicited comment on whether, if the consumer has agreed 
to a temporary loss mitigation program, servicers should be required, 
rather than permitted, to identify the amount due under Sec.  
1026.41(d)(1) as the payment due under the temporary loss mitigation 
program, rather than the amount due according to the loan contract.
    Proposed comment 41(d)(1)-3 would have provided that, if the loan 
contract has been permanently modified, the amount due under Sec.  
1026.41(d)(1) should identify only the amount due under the modified 
loan contract. The Bureau believed that the periodic payment should 
reflect the contractual obligation; once the loan contract has been 
permanently modified, the terms of the modified loan contract govern 
the periodic payment determination, not the terms of the contract pre-
modification.
    The Bureau received a number of comments in response to the 
proposed Sec.  1026.41(d)(1) commentary. The majority of industry 
commenters expressed concern over the explanation in proposed comment 
41(d)(1)-1 that, if the balance of the mortgage loan has been 
accelerated but the servicer will accept a lesser amount to reinstate 
the loan, the amount due under Sec.  1026.41(d)(1) must identify only 
the lesser amount that will be accepted to reinstate the loan. Several 
of these commenters stated that disclosing the reinstatement amount on 
the periodic statement as proposed would not be feasible, as this value 
changes frequently, even daily. They stated that servicers could not be 
expected to disclose a reinstatement amount that would remain accurate 
until the periodic payment due date disclosed on the periodic 
statement. One industry commenter stated that reinstatement amounts are 
often manually calculated and that the proposal would necessitate 
implementation of expensive, automated systems. This commenter also 
said that the proposal was unclear as to whether a servicer would be 
required to accept the disclosed reinstatement amount after it is no 
longer accurate. Another industry commenter expressed that the 
reinstatement amount depends on the expenses incurred by third parties 
on behalf of servicers and stated that servicers would have no cause to 
stop such third-party activities unless they had received an indication 
from the consumer that the consumer sought to reinstate the loan.
    A few industry commenters recommended that the Bureau address 
concerns over frequent changes to the reinstatement amount by 
permitting servicers to disclose a reinstatement amount that is ``good 
through'' a specified date. These commenters stated that disclosing the 
good through date would clarify that the disclosed reinstatement amount 
may only be available for a specified period of time, and that this 
specified period of time may not coincide with the consumer's payment 
due date.
    Some industry commenters urged the Bureau to require only that 
servicers provide a general disclosure when a loan is accelerated. One 
commenter expressed support for the Bureau's goal of making the 
periodic statement seem less daunting for delinquent consumers. It 
stated, however, that this goal would be more effectively carried out 
if servicers provided a generic clarification on the periodic statement 
that, although the fully accelerated balance is the total amount owed 
on the loan, the consumer may have the right to request a quote for a 
lower reinstatement amount. This commenter recommended that the 
periodic statement include contact information for the mortgage 
servicer's payoff and reinstatement departments.
    Several consumer advocacy groups expressed support for proposed 
comment 41(d)(1)-1. These commenters stated that otherwise disclosing 
the amount due on the periodic statement as the fully accelerated 
amount may cause consumer confusion.
    A few industry commenters expressed concern with proposed comment 
41(d)(1)-2. These commenters stated that identifying an amount due 
other than what is legally required under the loan contract could lead 
to consumer confusion. They further expressed that disclosing this 
amount would provide little benefit to consumers, as consumers would 
already be aware of the terms of the loss mitigation program.
    In contrast, several consumer advocacy groups stated that, when a 
consumer and servicer have entered into a contract for temporary loss 
mitigation, the consumer may be confused if the periodic statement 
discloses the contractual amount due. These commenters stated that 
consumers may believe the contractual amount is the amount they are 
required to pay and may also believe that the servicer has terminated 
or will not comply with the terms of the temporary loss mitigation 
program. Some consumer advocacy groups expressed that the costs to 
servicers associated with changing the amount due on the periodic 
statement to reflect the terms of the temporary loss mitigation program 
would be minimal. These commenters further stated that any such costs 
would not deter servicers from offering temporary loss mitigation 
programs to consumers, as many servicers must extend such offers 
pursuant to investor requirements. One consumer advocacy group 
suggested that servicers identify the amount due under the loan 
contract if the loss mitigation program is expected to be 90 days or 
less and otherwise identify the amount due under the temporary loss 
mitigation plan. It stated that the proposal may lead to consumer 
confusion as to the validity of the loss mitigation program.
    For the reasons discussed below, the Bureau is finalizing comment 
41(d)(1)-1 with changes from the proposal. It is finalizing comment 
41(d)(1)-2 as proposed and is finalizing comment 41(d)(1)-3 
substantially as proposed.
    The Bureau understands that proposed comment 41(d)(1)-1 could have 
posed compliance difficulties. As

[[Page 72304]]

noted by commenters, the reinstatement amount may frequently change, 
which could make it difficult to disclose a reinstatement amount on the 
periodic statement that will remain accurate until the consumer's 
payment due date. Accordingly, the Bureau is finalizing comment 
41(d)(1)-1 with changes from the proposal.
    Final comment 41(d)(1)-1 provides that, if the balance of a 
mortgage loan has been accelerated but the servicer will accept a 
lesser amount to reinstate the loan, the amount due under Sec.  
1026.41(d)(1) must identify only the lesser amount that will be 
accepted to reinstate the loan. It further explains that the periodic 
statement must be accurate when provided and should indicate, if 
applicable, that the amount due is accurate only for a specified period 
of time. It provides that, for example, the statement may include 
language such as ``as of [date]'' or ``good through [date]'' and 
provide an amount due that will reinstate the loan as of that date or 
good through that date, respectively.
    Comment 41(d)(1)-1 provides a flexible standard for disclosing the 
reinstatement amount. Servicers may disclose that the reinstatement 
amount is accurate for only a specified time, thus reducing concerns 
about consumer confusion when a reinstatement amount changes between 
the date the amount is disclosed on the periodic statement and the date 
the consumer's payment is due. For example, if the servicer discloses 
that the reinstatement amount is ``good through'' a specific date, the 
reinstatement amount must be accepted through that date to reinstate 
the loan, even if that date is different from the date on which the 
consumer's payment is due. Additionally, consumers should benefit by 
having information on the statement indicating that the reinstatement 
amount is accurate, or will remain accurate, for only a specified time. 
A general disclosure, as suggested by some commenters, would be less 
effective in helping consumers understand the specific amount that the 
consumer can pay to reinstate the loan and possibly avoid unnecessary 
foreclosure. The Bureau understands that calculating the reinstatement 
amount for purposes of this disclosure may increase costs to servicers, 
as suggested by one commenter. However, the Bureau believes that final 
comment 41(d)(1)-1 may alleviate some of the costs that the proposal 
could have imposed, and that there are benefits to consumers associated 
with disclosure of the reinstatement amount. The Bureau also 
understands that servicers may already be required to disclose this 
information to consumers under State law.
    Permitting servicers to disclose an ``as of [date]'' enables 
servicers to disclose a reinstatement amount that accurately captures 
the amount of fees that have actually been incurred as of the date the 
periodic statement is provided. It avoids servicers having to make an 
estimate of future fees. If servicers instead disclose a ``good through 
[date],'' the reinstatement amount may include an estimate of future 
fees that have not yet been incurred at the time the periodic statement 
is provided. If any information necessary for an accurate disclosure 
under subpart E of Regulation Z is unknown to the servicer, the 
servicer must make the disclosure based on the best information 
reasonably available at the time the disclosure is provided.\304\ The 
disclosure shall state clearly that the disclosure is an estimate and 
describe the circumstances under which the disclosure may change.\305\
---------------------------------------------------------------------------

    \304\ See 12 CFR 1026.17(c)(1) and 1026.31(d)(2).
    \305\ Id.
---------------------------------------------------------------------------

    The Bureau recognizes that, where servicers are estimating future 
fees, servicers may overestimate or underestimate the actual amount of 
these unincurred fees. The Bureau understands that, under applicable 
State and Federal law, consumers would have a right to recover any fees 
that are paid based on the disclosed reinstatement amount but that the 
servicer does not actually incur during the time between when the 
periodic statement is provided and the ``good through'' date. 
Alternatively, any bona fide charges from third parties incurred during 
the time between when the periodic statement is provided and the ``good 
through'' date could still be accepted from the consumer after 
reinstatement, where permitted by applicable State law.
    Additionally, final comment 41(d)(1)-1 explains that, if the 
balance of a mortgage loan has been accelerated but the servicer will 
accept a lesser amount to reinstate the loan, the amount due under 
Sec.  1026.41(d)(1) must, rather than should, identify only the lesser 
amount that will be accepted to reinstate the loan. As the Bureau has 
explained, in these situations consumers will benefit from a periodic 
statement indicating that the amount due is the reinstatement amount. 
Additionally, the changes adopted in the final rule should facilitate 
servicers' compliance with comment 41(d)(1)-1.
    The Bureau is adopting comment 41(d)(1)-2 as proposed. Comment 
41(d)(1)-2 provides that, if the consumer has agreed to a temporary 
loss mitigation program, the amount due under Sec.  1026.41(d)(1) may 
identify either the payment due under the temporary loss mitigation 
program or the amount due according to the loan contract. Industry 
commenters generally stated that the disclosed amount due should 
reflect the amount due under the loan contract, while most consumer 
advocacy groups stated that the disclosed amount due should reflect the 
amount required to be paid pursuant to the temporary loss mitigation 
program. The Bureau continues to believe, as explained in the proposal, 
that it may be confusing for consumers who have agreed to a loss 
mitigation program to receive a periodic statement identifying the 
amount due under the loan contract when that amount is different from 
the payment due under the temporary loss mitigation program. At the 
same time, requiring servicers to modify periodic statements whenever a 
consumer agrees to a temporary loss mitigation program may be costly 
for servicers. Accordingly, where a consumer has agreed to a temporary 
loss mitigation program, the Bureau believes that permitting, but not 
requiring, servicers to disclose the amount due under the temporary 
loss mitigation program appropriately balances consumer and servicer 
interests.
    The Bureau did not receive any comments on proposed comment 
41(d)(1)-3 and is finalizing the comment substantially as proposed. 
Comment 41(d)(1)-3 provides that, if the loan contract has been 
permanently modified, the amount due under Sec.  1026.41(d)(1) must 
identify only the amount due under the modified loan contract. Comment 
41(d)(1)-3 clarifies the proposed language by explaining that the 
amount due under Sec.  1026.41(d)(1) must, rather than should, identify 
only the amount due under the modified loan contract. As the Bureau has 
explained, once a loan has been permanently modified, the obligation 
under the unmodified loan contract is not relevant to the periodic 
statement.
41(d)(2)
    Section 1026.41(d)(2)(i) provides that the explanation of amount 
due on periodic statements required by Sec.  1026.41 must include the 
monthly payment amount, including a breakdown showing how much, if any, 
will be applied to principal, interest, and escrow (if applicable) and, 
if a mortgage loan has multiple payment options, a breakdown of each of 
the payment options along with information on whether the principal 
balance will

[[Page 72305]]

increase, decrease, or stay the same for each option listed. The Bureau 
proposed Sec.  1026.41(d)(2) commentary to clarify how acceleration and 
temporary loss mitigation programs affect disclosure of the explanation 
of amount due on the periodic statement. The Bureau's rules and 
commentary do not currently address this issue. The Bureau proposed 
this Sec.  1026.41(d)(2) commentary in conjunction with proposed Sec.  
1026.41(d)(1) commentary, as discussed in the section-by-section 
analysis of Sec.  1026.41(d)(1). The Bureau is finalizing the proposed 
Sec.  1026.41(d)(2) commentary with revisions.
    Proposed comment 41(d)(2)-1 would have provided that, if the 
balance of a mortgage loan has been accelerated but the servicer will 
accept a lesser amount to reinstate the loan, the explanation of amount 
due under Sec.  1026.41(d)(2) should omit the monthly payment amount 
that would generally be required under Sec.  1026.41(d)(2)(i) and 
should include both the reinstatement amount and the accelerated 
amount. The proposed comment would have provided that the statement 
must also include an explanation that the reinstatement amount will be 
accepted to reinstate the loan. The proposed comment would have 
required that this explanation be on the front page of the statement 
or, alternatively, be included on a separate page enclosed with the 
periodic statement or in a separate letter.
    The Bureau proposed comment 41(d)(2)-1 because, given that the 
amount due will reflect the reinstatement amount, the Bureau believed 
that the periodic statement should elsewhere identify the accelerated 
balance, which is the amount that the consumer technically owes under 
the loan contract. The Bureau believed that the explanation of amount 
due is where this disclosure is most appropriate. The Bureau proposed 
that the monthly payment amount be omitted from the explanation of 
amount due after acceleration because the Bureau believed that, once a 
loan has been accelerated, the monthly payment obligation is not 
relevant to the consumer, as the servicer will no longer accept this 
amount.
    Because identification of both the reinstatement amount and the 
accelerated amount in the explanation of amount due may present some 
possibility of misleading consumers, the Bureau believed that the 
periodic statement should also include an explanation indicating that 
the reinstatement amount will be accepted to reinstate the loan. 
Consistent with the requirement under Sec.  1026.41(d)(5) that partial 
payment information must be on the front page of the periodic statement 
or, alternatively, may be included on a separate page enclosed with the 
statement or in a separate letter, the Bureau believed it was 
appropriate that this explanation should be on the front page of the 
periodic statement or, alternatively, may be included on a separate 
page enclosed with the statement or in a separate letter.
    Several industry commenters expressed concern with proposed comment 
41(d)(2)-1. These commenters stated that including both the 
reinstatement amount and the accelerated loan balance in the 
explanation of amount due could lead to consumer confusion. Many of 
these industry commenters asserted that, where a servicer will accept a 
lesser amount to reinstate the loan, there is no need to disclose the 
accelerated loan balance on the periodic statement. One industry 
commenter stated that there is often a significant difference between 
the reinstatement amount and the accelerated amount, and that 
disclosing the accelerated amount could be overwhelming to consumers.
    Several industry commenters requested that servicers not be 
required to disclose this amount or be permitted to disclose that this 
amount was an estimate. One industry commenter stated that it was 
unclear how the accelerated amount should be accurately disclosed on 
the periodic statement, and that programing systems to include the 
accelerated amount on the periodic statement could be complicated. 
Another industry commenter expressed concern that the proposal might 
have required servicers to provide a payoff amount in the periodic 
statement, and stated that payoff statements are difficult to produce 
because the amount required to pay off a loan can change daily. Some 
industry commenters requested that the final rule permit servicers to 
include language explaining that the payoff amount is distinct from the 
accelerated amount and reinstatement amount.
    Several consumer advocacy groups stated that, after acceleration, 
many servicers have specific requirements as to how the reinstatement 
amount must be paid that are distinct from the requirements pertaining 
to periodic payments. These commenters expressed that, for example, 
servicers may require that the reinstatement amount be submitted in the 
form of a certified check to the attorney handling the foreclosure on 
behalf of the servicer. These commenters recommended that the rule 
require that the periodic statement include an explanation of any 
requirements the consumer must follow in paying the reinstatement 
amount. Another consumer advocacy group stated that information 
regarding the accelerated balance should be clearly located to avoid 
confusing the consumer, whether on the periodic statement or in the 
same enclosure as the periodic statement.
    Proposed comment 41(d)(2)-2 would have provided that, if the 
consumer has agreed to a temporary loss mitigation program and the 
amount due on the periodic statement identifies the payment due under 
the temporary loss mitigation program, the explanation of amount due 
under Sec.  1026.41(d)(2) should include both the amount due according 
to the loan contract and the payment due under the temporary loss 
mitigation program. The proposed comment would have provided that the 
statement should also include an explanation that the amount due is 
being disclosed as a different amount because of the temporary loss 
mitigation program. The proposed comment would have also provided that 
this explanation should be on the front page of the statement or, 
alternatively, may be included on a separate page enclosed with the 
periodic statement or in a separate letter.
    The Bureau believed that, when the amount due is disclosed on the 
periodic statement as the payment due under the temporary loss 
mitigation program, the periodic statement should elsewhere identify 
the amount due according to the loan contract, as this amount is 
significant information that the consumer should have. For example, 
under proposed comment 36(c)(1)(i)-4, the amount due according to the 
loan contract would be the amount promptly credited by the servicer. 
The Bureau believed that the explanation of amount due under Sec.  
1026.41(d)(2) is where this disclosure is most appropriate.
    Because identification of both the payment due under the temporary 
loss mitigation program and the amount due according to the loan 
contract could present some possibility of consumer confusion, the 
Bureau believed that the statement should also include an explanation 
indicating that the amount due is being disclosed as a different amount 
than the amount due under the loan contract because of the temporary 
loss mitigation program. Again, consistent with the requirement under 
Sec.  1026.41(d)(5) that partial payment information must be on the 
front page of the statement or, alternatively, may be included on a 
separate page enclosed with the periodic statement or in a separate 
letter, the Bureau believed it

[[Page 72306]]

was appropriate that this explanation should be on the front page of 
the statement or, alternatively, may be included on a separate page 
enclosed with the periodic statement or in a separate letter.
    Comments regarding the disclosure of the amount due on the periodic 
statement when a consumer is participating in a temporary loss 
mitigation program are discussed in the section-by-section analysis of 
Sec.  1026.41(d)(1).
    The Bureau is finalizing comments 41(d)(2)-1 and -2 with changes 
from the proposal. The Bureau understands that proposed comment 
41(d)(2)-1 could have caused consumer uncertainty as to the meaning of 
the accelerated amount or the reinstatement amount. The Bureau 
continues to believe that consumers will benefit if the periodic 
statement includes both the reinstatement amount and the accelerated 
amount in the explanation of amount due. However, consumers may further 
benefit if servicers are permitted to include additional, relevant 
information in the explanation of amount due. Accordingly, the Bureau 
is finalizing comment 41(d)(2)-1 with changes.
    Final comment 41(d)(2)-1 explains that, if the balance of a 
mortgage loan has been accelerated but the servicer will accept a 
lesser amount to reinstate the loan, the explanation of amount due 
under Sec.  1026.41(d)(2) must list both the reinstatement amount that 
is disclosed as the amount due and the accelerated amount, but not the 
monthly payment amount that would otherwise be required under Sec.  
1026.41(d)(2)(i). Comment 41(d)(2)-1 further provides that the periodic 
statement must also include an explanation that the reinstatement 
amount will be accepted to reinstate the loan through the ``as of 
[date]'' or ``good through [date],'' as applicable, along with any 
special instructions for submitting the payment. It provides that the 
explanation should be on the front page of the statement or, 
alternatively, may be included on a separate page enclosed with the 
periodic statement. Finally, comment 41(d)(2)-1 provides that the 
explanation may include related information, such as a statement that 
the amount disclosed is ``not a payoff amount.''
    As the Bureau has previously explained, the accelerated amount is 
the amount that the consumer technically owes under the loan contract 
and is significant information that the consumer should have. 
Additionally, the Bureau believes the burden on servicers associated 
with providing the accelerated amount should be limited. The Bureau 
notes that some industry commenters requested that the final rule 
permit servicers to disclose an estimate of the accelerated amount 
because of the difficulty associated with disclosing an accurate 
accelerated amount. However, as discussed in the section-by-section 
analysis of Sec.  1026.41(d)(1), if any information necessary for an 
accurate disclosure is unknown to the servicer, the servicer must make 
the disclosure based on the best information reasonably available at 
the time the disclosure is provided and shall state clearly that the 
disclosure is an estimate, consistent with Regulation Z's provisions 
for the disclosure of estimates.\306\ The Bureau believes this 
provision accounts for situations where a servicer may not have 
sufficient information to calculate the accelerated amount accurately. 
Final comment 41(d)(2)-1 also clarifies that the reinstatement amount 
listed in the explanation of amount due under Sec.  1026.41(d)(2) must 
be the reinstatement amount that is disclosed as the amount due.
---------------------------------------------------------------------------

    \306\ See Sec. Sec.  1026.17(c)(1) and 1026.31(d)(2).
---------------------------------------------------------------------------

    Additionally, as discussed in the section-by-section-analysis of 
Sec.  1026.41(d)(1), the Bureau understands that reinstatement amounts 
may change with some frequency. Consistent with final comment 41(d)(1)-
1, the Bureau is finalizing comment 41(d)(2)-1 to explain that the 
periodic statement must include language stating that the reinstatement 
amount will be accepted to reinstate the loan through the ``as of 
[date]'' or ``good through [date],'' as applicable.
    The Bureau also understands from comments received that servicers 
may place certain conditions on the acceptance of the reinstatement 
amount, for example, requiring payment by certified check or to a 
specific address. Final comment 41(d)(2)-1 addresses this possibility 
by requiring that any special instructions for submitting the payment 
be included in the periodic statement. This explanation should prevent 
consumers from missing an opportunity to reinstate the loan simply 
because they are unaware of the specific form or manner in which the 
reinstatement amount must be remitted. Additionally, consumers may 
benefit if the explanation of the reinstatement amount is included on 
the periodic statement or enclosed with the periodic statement. 
Accordingly, final comment 41(d)(2)-1 does not permit this explanation 
to be provided in a separate letter.
    Final comment 41(d)(2)-1 also provides that the explanation on the 
periodic statement regarding the reinstatement amount may also include 
related information, such as a statement that the amount disclosed is 
``not a payoff amount.'' This provision enables servicers to provide 
further clarification and relevant, additional information to consumers 
in the explanation of amount due required by Sec.  1026.41(d)(2). For 
example, servicers could include information on the periodic statement 
regarding the distinction between the payoff amount and the 
reinstatement and accelerated amounts. Permitting this additional 
information addresses concerns about consumer uncertainty as to the 
meaning of the reinstatement or accelerated amounts as compared to the 
payoff amount. Additionally, servicers disclosing an estimated 
accelerated amount may include in the explanation of amount due 
relevant information regarding, for example, circumstances under which 
the estimate may change.
    The Bureau is finalizing comment 41(d)(2)-2 substantially as 
proposed. Comment 41(d)(2)-2 explains that, if the consumer has agreed 
to a temporary loss mitigation program and the amount due identifies 
the payment due under the temporary loss mitigation program, the 
explanation of amount due under Sec.  1026.41(d)(2) must include both 
the amount due according to the loan contract and the payment due under 
the temporary loss mitigation program. It further explains that the 
statement must also include an explanation that the amount due is being 
disclosed as a different amount because of the temporary loss 
mitigation program. Finally, it states that the explanation should be 
on the front page of the statement or, alternatively, may be included 
on a separate page enclosed with the periodic statement or in a 
separate letter.
    Final comment 41(d)(2)-2 clarifies that the explanation of amount 
due under Sec.  1026.41(d)(2) must, rather than should, include both 
the amount due according to the loan contract and the payment due under 
the temporary loss mitigation program. The final rule also explains 
that the statement must, rather than should, include an explanation 
that the amount due is being disclosed as a different amount because of 
the temporary loss mitigation program. Under these circumstances, 
requiring servicers to include this information in the explanation of 
amount due will benefit consumers. Additionally, as servicers will 
already know the amount due under the loan contract and be aware that 
the consumer is participating in a temporary loss mitigation program, 
requiring this additional information provides an important consumer 
protection without imposing a

[[Page 72307]]

significant additional burden on servicers.
41(d)(8)
    Section 1026.41(d)(8) requires a servicer to include a so-called 
``delinquency box'' containing certain prescribed information in 
periodic statements sent to consumers who are more than 45 days 
delinquent.\307\ The Bureau proposed certain revisions to Sec.  
1026.41(d)(8) to align the requirements of that section with the 
proposed definition of delinquency under Regulation X Sec.  1024.31. 
The Bureau proposed to revise Sec.  1026.41(d)(8) and add commentary to 
mirror the language in proposed Sec.  1024.31 (Delinquency) and its 
related comments.
---------------------------------------------------------------------------

    \307\ 12 CFR 1026.41(d)(8).
---------------------------------------------------------------------------

    Current Sec.  1026.41(d)(8) requires a servicer to include in each 
periodic statement certain information about a consumer's delinquency 
when the consumer is more than 45 days delinquent, including the date 
on which the consumer became delinquent. However, Regulation Z 
currently does not include an explanation of how a servicer must 
determine the length of a consumer's delinquency. The Bureau explained 
that it may confuse consumers if a servicer calculates the length of 
delinquency pursuant to Sec.  1026.41(d)(8)(i) differently from the 
length of delinquency for purposes of the servicing requirements in 
subpart C of Regulation X. As such, the Bureau proposed Regulation Z 
comment 41(d)(8)-1, which mirrored the proposed Regulation X definition 
of delinquency in Sec.  1024.31 and accompanying comment 31 
(Delinquency)-1. Proposed Regulation Z comment 41(d)(8)-1 would have 
clarified that delinquency begins on the date a consumer misses a 
payment of principal, interest, and escrow (if applicable), 
notwithstanding any grace period the servicer affords the consumer.
    In addition, the Bureau proposed to add comment 41(d)(8)-2 to 
address how a creditor must disclose the length of a consumer's 
delinquency as required by Sec.  1026.41(d)(8) if a servicer applies a 
consumer's payment to the oldest outstanding delinquency first. As 
discussed in the section-by-section analysis of Sec.  1024.31, the 
Bureau proposed a comment to the definition of delinquency to clarify 
that, if a servicer applies a borrower's payment to the oldest 
outstanding delinquency, the servicer must advance the date of the 
borrower's delinquency for purposes of calculating the length of a 
borrower's delinquency under the various applicable provisions of 
Regulation X's mortgage servicing rules. To ensure that a servicer's 
method of calculating the length of the consumer's delinquency for 
purposes of Regulation Z Sec.  1026.41(d)(8)(i) was consistent with the 
method for doing the same under the proposed definition of delinquency 
in Regulation X, the Bureau proposed to include the same commentary in 
proposed Regulation Z comment 41(d)(8)-2.
    Finally, the Bureau proposed to revise Sec.  1026.41(d)(8)(i) to 
harmonize its language with the notion that the date a consumer's 
delinquency begins advances if the servicer applies payments to the 
oldest outstanding delinquency. Current Sec.  1026.41(d)(8)(i) requires 
servicers to include the date on which the consumer became delinquent 
on a delinquent consumer's periodic statement. The Bureau believed that 
including that date could lead to consumer uncertainty if related 
proposed comment 41(d)(8)-2 was adopted. Accordingly, the Bureau 
proposed to revise Sec.  1026.41(d)(8)(i) to require servicers to 
instead disclose the length of a consumer's delinquency as of the date 
of the periodic statement.
    A consumer advocacy group expressed support for the proposed 
revisions to Sec.  1026.41(d)(8) and stated that consumers will benefit 
from the disclosure of the length of the delinquency.
    The Bureau is finalizing Sec.  1026.41(d)(8)(i) and comments 
41(d)(8)-1 and -2 substantially as proposed. Final Sec.  
1026.41(d)(8)(i) explains that servicers must disclose on the periodic 
statement the length of the consumer's delinquency. It omits proposed 
language regarding ``as of the date of the periodic statement,'' as the 
Bureau is incorporating this statement into final comment 41(d)(8)-1.
    Final comment 41(d)(8)-1 explains that, for purposes of Sec.  
1026.41(d)(8), the length of a consumer's delinquency is measured as of 
the date of the periodic statement or the date of the written notice 
provided under Sec.  1026.41(e)(3)(iv). A consumer's delinquency begins 
on the date an amount sufficient to cover a periodic payment of 
principal, interest, and escrow, if applicable, becomes due and unpaid, 
even if the consumer is afforded a period after the due date to pay 
before the servicer assesses a late fee. It further explains that a 
consumer is delinquent if one or more periodic payments of principal, 
interest, and escrow, if applicable, are due and unpaid. Final comment 
41(d)(8)-1 includes a change from the proposal to address a situation 
where a servicer provides the consumer a coupon book under Sec.  
1026.41(e)(3) and is exempt from the periodic statement requirements 
under Sec.  1026.41(a)(2). Section 1026.41(e)(3)(iv) requires the 
servicer to provide the consumer the information listed in Sec.  
1026.41(d)(8) in writing for any billing cycle during which the 
consumer is more than 45 days delinquent. Proposed Sec.  
1026.41(d)(8)(i), which would have referred to the length of the 
consumer's delinquency only as of the date of the periodic statement, 
did not account for situations where the servicer provides a coupon 
book under Sec.  1026.41(e)(3). Accordingly, the Bureau is finalizing 
comment 41(d)(8)-1 to also clarify how the length of a consumer's 
delinquency is determined when a servicer provides a written notice 
under Sec.  1026.41(e)(3)(iv).
    Final comment 41(d)(8)-2 provides that, for purposes of Sec.  
1026.41(d)(8), if a servicer applies payments to the oldest outstanding 
periodic payment, a payment by a delinquent consumer advances the date 
the consumer's delinquency began. It provides an illustrative example.
Legal Authority
    The amendments to Sec.  1026.41(d) implement section 128(f)(1)(H) 
of TILA, which requires inclusion in periodic statements of any 
information that the Bureau may prescribe by regulation.
41(e) Exemptions
41(e)(4) Small Servicers
41(e)(4)(iii) Small Servicer Determination
    The Bureau proposed to amend certain criteria for determining 
whether a servicer qualifies for the small servicer exemption under 
Sec.  1026.41(e)(4). For purposes of determining whether a servicer 
qualifies as a small servicer, current Sec.  1026.41(e)(4)(iii) 
excludes from consideration certain types of mortgage loans, including 
mortgage loans voluntarily serviced by the servicer for a creditor or 
assignee that is not an affiliate of the servicer and for which the 
servicer does not receive any compensation or fees. The proposal would 
have removed the requirement from Sec.  1026.41(e)(4)(iii)(A) that the 
non-affiliate be a creditor or assignee and would have added a new 
provision Sec.  1026.41(e)(4)(iii)(D) to exclude from the small 
servicer determination transactions serviced by a servicer for a seller 
financer that meet all of the criteria identified in Sec.  
1026.36(a)(5).\308\

[[Page 72308]]

For the reasons discussed below, the Bureau is adopting, as proposed, 
Sec.  1026.41(e)(4)(iii)(A) and (D).
---------------------------------------------------------------------------

    \308\ Section 1026.36(a)(5) provides that, to be considered a 
seller financer, a person must (1) provide financing for the sale of 
only one property in any 12-month period, (2) not have constructed a 
residence on the property in the ordinary course of business, and 
(3) provide financing that meets certain interest rate criteria and 
does not result in negative amortization. See the section-by-section 
analysis of Sec.  1026.41(e)(4)(iii)(D) for additional details.
---------------------------------------------------------------------------

    The Bureau's mortgage servicing rules exempt small servicers from 
certain mortgage servicing requirements. Regulation Z exempts small 
servicers, defined in Sec.  1026.41(e)(4)(ii), from the requirement to 
provide periodic statements for residential mortgage loans.\309\ 
Regulation X incorporates this same definition by reference to Sec.  
1026.41(e)(4) \310\ and thereby exempts small servicers from: (1) 
Certain requirements relating to obtaining force-placed insurance; 
\311\ (2) the general servicing policies, procedures, and requirements; 
\312\ and (3) certain requirements and restrictions relating to 
communicating with borrowers about, and evaluation of applications for, 
loss mitigation options.\313\
---------------------------------------------------------------------------

    \309\ See Sec.  1026.41(a), (e)(4). For loans serviced by a 
small servicer, a creditor or assignee is also exempt from the 
Regulation Z periodic statement requirements. See Sec.  
1026.41(e)(4)(i).
    \310\ See 12 CFR 1024.17(k)(5); 1024.30(b)(1); 1024.41(j).
    \311\ 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed 
insurance in certain circumstances).
    \312\ 12 CFR 1024.30(b)(1) (exempting small servicers from 
Sec. Sec.  1024.38 through 1024.41, except as otherwise provided 
under Sec.  1024.41(j), as discussed in note 313, infra). Sections 
1024.38 through 1024.40 respectively impose general servicing 
policies, procedures, and requirements; early intervention 
requirements for delinquent borrowers; and policies and procedures 
to maintain continuity of contact with delinquent borrowers.
    \313\ See 12 CFR 1024.41 (loss mitigation procedures). Though 
exempt from most of the rule, small servicers are subject to the 
prohibition of foreclosure referral before the loan obligation is 
more than 120 days delinquent and may not make the first notice or 
filing for foreclosure if a borrower is performing pursuant to the 
terms of an agreement on a loss mitigation option. 12 CFR 
1024.41(j).
---------------------------------------------------------------------------

    Under Sec.  1026.41(e)(4)(ii), a small servicer is a servicer that: 
(1) Services, together with any affiliates,\314\ 5,000 or fewer 
mortgage loans, for all of which the servicer (or an affiliate) is the 
creditor or assignee; (2) is a Housing Finance Agency, as defined in 24 
CFR 266.5; or (3) is a nonprofit entity that services 5,000 or fewer 
mortgage loans, including any mortgage loans serviced on behalf of 
associated nonprofit entities, for all of which the servicer or an 
associated nonprofit entity is the creditor. Generally, under Sec.  
1026.41(e)(4)(ii)(A), a servicer cannot be a small servicer if it 
services any loan for which the servicer or its affiliate is not the 
creditor or assignee. As noted above, current Sec.  1026.41(e)(4)(iii) 
excludes from the small servicer determination certain mortgage loans 
voluntarily serviced by the servicer.
---------------------------------------------------------------------------

    \314\ Affiliate is defined in Sec.  1026.32(b)(5) as any company 
that controls, is controlled by, or is under common control with 
another company, as set forth in the Bank Holding Company Act of 
1956, 12 U.S.C. 1841 et seq. (BHCA). Under the BHCA, a company has 
control over another company if it (i) ``directly or indirectly . . 
. owns, controls, or has power to vote 25 per centum or more of any 
class of voting securities'' of the other company; (ii) ``controls . 
. . the election of a majority of the directors or trustees'' of the 
other company; or (iii) ``directly or indirectly exercises a 
controlling influence over the management or policies'' of the other 
company (based on a determination by the Board). 12 U.S.C. 
1841(a)(2).
---------------------------------------------------------------------------

    In the 2012 RESPA Servicing Proposal, the Bureau proposed the 
exclusion from the small servicer determination for voluntarily 
serviced mortgage loans \315\ and received one comment from a national 
trade association requesting guidance regarding certain depository 
services some of its bank members provide for depositors who ``owner-
finance'' the sale of residential real estate. At that time, the Bureau 
did not have sufficient information about the described service.\316\ 
Since that time, the Bureau learned that certain depository 
institutions, which may otherwise qualify for the small servicer 
exemption, service for their depository customers seller-financed sales 
of residential real estate.\317\
---------------------------------------------------------------------------

    \315\ 78 FR 25638, 25644 (May 2, 2013).
    \316\ 78 FR 44685, 44697-98 (July 24, 2013).
    \317\ For ease of review, the section-by-section analyses of 
Sec.  1026.41(e)(4)(iii), (e)(4)(iii)(A), and (e)(4)(iii)(D) discuss 
the concept of seller financing and the practice of seller-financed 
sales of residential real estate in general terms, except when 
specifying that the analyses refer directly to the term seller 
financer as defined under Sec.  1026.36(a)(4) or (5).
---------------------------------------------------------------------------

    The Bureau understands that certain banks, particularly in small or 
remote communities, provide their customers this service when there may 
not be an alternative service provider in the state. The Bureau 
understands that, under these arrangements, depository institutions 
typically receive scheduled periodic payments from the purchaser of the 
property pursuant to the terms of the sale and deposit into the account 
of the seller (the depository institution's customer) the payments of 
principal and interest and such other payments with respect to the 
amounts received from the purchaser as may be required pursuant to the 
terms of the sale.\318\ The Bureau understands that these arrangements 
typically involve small seller financers who are not affiliates of the 
servicer, do not regularly extend consumer credit, and would not 
qualify as a creditor \319\ or an assignee in their own right. The 
Bureau understands that depository institutions typically charge a fee 
for servicing these seller-financed transactions. The Bureau further 
understands that in some cases, however, depository institutions may 
elect to service voluntarily these seller-financed sales of residential 
real estate on behalf of their depository customers without receiving 
any compensation or fees. In either scenario, under the current rule, a 
depository institution that services even a single seller-financed sale 
of residential real estate would likely no longer qualify for the small 
servicer exemption and would be subject to all of the applicable 
mortgage servicing rules for all of the mortgage loans that it 
services, including those that would otherwise be exempt as being owned 
or originated by the servicer.
---------------------------------------------------------------------------

    \318\ See 12 U.S.C. 2605(i)(3) (definition of servicing 
applicable to TILA, as amended by section 1401 of the Dodd-Frank 
Act).
    \319\ To be considered a creditor under TILA, a person generally 
must extend consumer credit for transactions secured by a dwelling 
more than five times in the preceding calendar year. Sec.  
1026.2(a)(17)(v). However, the Bureau notes that the threshold is 
lower for high-cost mortgages subject to Sec.  1026.32; a person 
regularly extends credit if, in any 12-month period, the person 
originates more than one credit extension that is subject to Sec.  
1026.32, or one or more such credit extensions through a mortgage 
broker. Id.
---------------------------------------------------------------------------

    To address these scenarios, in issuing the proposal, the Bureau 
sought comment on whether it would be appropriate to exclude from the 
small servicer determination mortgage loans voluntarily serviced by the 
servicer for a non-affiliate that is not a creditor or assignee, or 
transactions serviced by a servicer for a seller financer that meet all 
of the criteria identified in the definition of seller financer under 
Sec.  1026.36(a)(5). The Bureau also sought comment on whether to 
exclude from the small servicer determination existing mortgage loans 
that meet the criteria of proposed Sec.  1026.41(e)(4)(iii)(A) and (D).
    The Bureau received several comments supporting the proposed 
amendments to Sec.  1026.41(e)(4)(iii)(A) and (D). The commenters 
included credit union associations, trade associations, a nationwide 
association of State regulators, and a community bank. No commenters 
opposed these proposed amendments.
    Some commenters recommended that the Bureau adopt additional 
revisions, beyond those contemplated in the proposal, to expand the 
reach of the small servicer exemption. Several commenters recommended 
including additional types of transactions that could be exempt from 
the small servicer determination. One trade association suggested that 
the small servicer

[[Page 72309]]

exemption apply for all institutions that are community banks, a term 
that the rule would define. Several commenters also recommended that 
the Bureau raise the small servicer threshold under Sec.  
1026.41(e)(4)(ii) from 5,000 loans to 10,000 loans. One trade 
association recommended that the Bureau introduce a de minimis standard 
for servicing loans not owned or originated by the servicer. The Bureau 
declines to adopt these recommended approaches and considers these 
comments to be outside of the scope of the proposal, which did not 
contemplate altering the 5,000 loan threshold or exempting additional 
types of transactions.
    One commenter suggested that the servicing rules do not apply to 
long-term escrow companies or contract collection companies because 
such companies are not considered servicers and their activities should 
not be considered mortgage loan servicing. In part, the commenter 
predicated this assertion upon the nature of these companies, arguing 
that they are not in control of the loan, do not represent the lender 
in foreclosure matters, and cannot force-place insurance. The Bureau 
notes that the presence or absence of these factors is not 
determinative as to whether an entity qualifies as a servicer. TILA 
section 103(cc)(7) defines servicer to have the same meaning as in 
RESPA section 6(i)(2), which defines a servicer as, subject to certain 
exceptions, the person responsible for servicing of a loan (including 
the person who makes or holds a loan if such person also services the 
loan).\320\ Further, RESPA section 6(i)(3) defines servicing as 
receiving any scheduled periodic payments from a borrower pursuant to 
the terms of any loan.\321\ Thus, the mortgage servicing rules apply to 
any person who receives scheduled periodic payments from a borrower 
pursuant to the terms of any loan, even a person not typically 
considered to be a servicer.
---------------------------------------------------------------------------

    \320\ 15 U.S.C. 1602(cc)(7); see 12 U.S.C. 2605(i)(2).
    \321\ 12 U.S.C. 2605(i)(3).
---------------------------------------------------------------------------

    Two commenters recommended that the Bureau exclude from the small 
servicer determination existing mortgage loans that meet the criteria 
of proposed Sec.  1026.41(e)(4)(iii)(A) and (D), irrespective of when 
the servicing relationship began. A national trade association stated 
that excluding existing contract collection activities would afford 
banks the opportunity to make an informed business decision as to how 
they prefer to handle this activity going forward. And a community bank 
stated that, without excluding existing seller-financed loans, the new 
exemption would lose its value, as it would be impossible to impose new 
parameters on existing contracts with seller-financers.
    As discussed in the section-by-section analyses of Sec.  
1026.41(e)(4)(iii)(A) and (D), the final rule excludes from the small 
servicer determination both mortgage loans voluntarily serviced for a 
non-affiliate that is not a creditor or assignee and also transactions 
serviced for a seller financer that meet all of the criteria identified 
in the definition of seller financer under Sec.  1026.36(a)(5). The 
Bureau believes that, to the extent servicing cost savings are passed 
on to consumers, consumers may benefit from having a depository 
institution that otherwise qualifies for the small servicer exemption 
service voluntarily mortgage loans for a non-affiliate that is not a 
creditor or assignee without losing its small servicer status. 
Similarly, consumers benefit from having a depository institution 
service transactions for a seller financer that meet all of the 
criteria identified in the definition of seller financer under Sec.  
1026.36(a)(5) without losing its small servicer status. Financial 
institutions may be better equipped than individual seller financers to 
service loans. The Bureau believes that consumers may benefit from a 
depository institution receiving their scheduled periodic payments and 
providing an independent accounting as a third party to the 
transaction, even if the servicer is exempt from some servicing 
regulations as a small servicer.
    Under the final rule, a small servicer will now be able to service 
mortgage loans on behalf of certain seller financers, even if they do 
not meet TILA's definition of creditor, without jeopardizing the 
servicer's exemption. The Bureau will continue to monitor this market 
to determine if the small servicer exemption is being manipulated to 
evade TILA's requirements or otherwise cause consumer harm.
    The Bureau also determines that it is appropriate to exclude from 
the small servicer determination all loans that meet the criteria 
identified in Sec.  1026.41(e)(4)(iii)(A) and (D), regardless of 
whether the small servicer began servicing the loan before the 
effective date of this final rule. The Bureau believes that requiring 
servicers to review their entire portfolios to determine whether they 
already service such loans and, if so, how many would unnecessarily 
increase burden on servicers. Therefore, a servicer may continue to 
service existing loans that meet these criteria and exclude them from 
consideration in determining whether a servicer qualifies for the small 
servicer exemption.
41(e)(4)(iii)(A)
    The Bureau is adopting the proposed revisions to Sec.  
1026.41(e)(4)(iii)(A). In determining whether a servicer qualifies for 
the small servicer exemption, Sec.  1026.41(e)(4)(iii)(A) excludes from 
consideration mortgage loans voluntarily serviced by the servicer for a 
non-affiliate of the servicer and for which the servicer does not 
receive any compensation or fees. As revised, Sec.  
1026.41(e)(4)(iii)(A) no longer requires that the non-affiliate be a 
creditor or assignee.
    The Bureau believes that removing the requirement that the non-
affiliate be a creditor or assignee would not unduly expand the 
existing exception. The Bureau further believes that the rationale for 
the exception applies equally well to those non-affiliates who seller-
finance sales of residential real estate, do not meet the definition of 
creditor under Sec.  1026.2(a)(17) because they extend five or fewer 
mortgage loans in a year, and may or may not meet the criteria 
identified in the definition of seller financer under Sec.  
1026.36(a)(5). The Bureau also believes that continuing to limit the 
voluntarily serviced exception to mortgage loans voluntarily serviced 
by a servicer and for which the servicer does not receive any 
compensation or fees reduces the risk that the amendment to Sec.  
1026.41(e)(4)(iii)(A) will be used to circumvent the servicing rules. 
Because the small servicer cannot receive any fees or compensation for 
servicing these loans, the Bureau believes that the overall volume of 
such servicing, and consequent risk of harm to consumers, is likely to 
remain small, but the Bureau will continue to monitor this market to 
determine if the small servicer exemption is being manipulated to evade 
TILA's requirements or otherwise cause consumer harm.
Legal Authority
    The Bureau is amending the voluntarily serviced exception under 
current Sec.  1026.41(e)(4)(iii)(A) and exempting mortgage loans 
voluntarily serviced by a servicer for a non-affiliate of the servicer 
and for which the servicer does not receive any compensation or fees 
from the periodic statement requirement under section 128(f) of TILA 
pursuant to its authority under section 105(a) and (f) of TILA and 
section 1405(b) of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
amendment is appropriate under section 105(a) of TILA to facilitate 
servicer compliance.

[[Page 72310]]

The Bureau believes that the amendments to the voluntarily serviced 
exception to no longer require that the non-affiliate be a creditor or 
assignee facilitate compliance with TILA by allowing depository 
institutions to voluntarily service seller-financed sales of 
residential real estate, without losing status as a small servicer, in 
order to service loans cost-effectively and in compliance with 
applicable regulatory requirements. In addition, consistent with 
section 1405(b) of the Dodd-Frank Act, the Bureau believes that 
exempting from the requirements of section 128(f) of TILA those 
transactions voluntarily serviced by a servicer for a non-affiliate, 
without requiring the non-affiliate to be a creditor or assignee, is in 
the interest of consumers and in the public interest.
41(e)(4)(iii)(D)
    The Bureau is adopting new Sec.  1026.41(e)(4)(iii)(D) as proposed. 
Section 1026.41(e)(4)(iii)(D) excludes from the small servicer 
determination the new category of transactions serviced by a servicer 
for a seller financer that meet all of the criteria identified in the 
definition of seller financer under Sec.  1026.36(a)(5). Section 
1026.36(a)(5) identifies a seller financer as a natural person, estate, 
or trust that provides seller financing for the sale of only one 
property in any 12-month period to purchasers of such property, which 
is owned by the natural person, estate, or trust and serves as security 
for the financing.\322\ The natural person, estate, or trust cannot 
have constructed, or acted as a contractor for the construction of, a 
residence on the property in its ordinary course of business.\323\ The 
financing must have a repayment schedule that does not result in 
negative amortization and must have a fixed rate or an adjustable rate 
that is adjustable after five or more years, subject to reasonable 
annual and lifetime limitations on interest rate increases. If the 
financing agreement has an adjustable rate, the rate is determined by 
the addition of a margin to an index rate and is subject to reasonable 
rate adjustment limitations. The index the adjustable rate is based on 
is a widely available index such as indices for U.S. Treasury 
securities or the London Interbank Offered Rate (LIBOR).\324\
---------------------------------------------------------------------------

    \322\ Section 1026.36(a)(5)(i).
    \323\ Section 1026.36(a)(5)(ii).
    \324\ Section 1026.36(a)(5)(iii).
---------------------------------------------------------------------------

    In addition to the general comments discussed in the section-by-
section analysis of Sec.  1026.41(e)(iii), the Bureau received a 
comment generally supportive of proposed Sec.  1026.41(e)(4)(iii)(D) 
from a trade association that also said that the proposed exemption was 
overly restrictive in limiting seller financers to one loan per 12-
month period. The commenter stated that depository institutions would 
need to establish internal controls to track and monitor whether a 
seller financer provides financing for more than one property in any 
12-month period, which the commenter said may create an incentive for 
small banks to terminate collection contract relationships.
    The Bureau has narrowly tailored this new category of transactions 
that are excluded when determining whether a servicer qualifies as a 
small servicer. Section 1026.41(e)(4)(iii)(D) relates only to 
transactions serviced by the servicer for a seller financer that meet 
all of the criteria identified in the definition of seller financer 
under Sec.  1026.36(a)(5). In contrast to the criteria identified in a 
second definition of seller financer under Sec.  1026.36(a)(4), which 
permits seller financing for the sale of up to three properties in any 
12-month period, the criteria identified in the definition of seller 
financer under Sec.  1026.36(a)(5) permits seller financing for the 
sale of only one property in any 12-month period. Limiting the seller 
financer criteria to the sale of only one property in any 12-month 
period reduces the risk that this new category of transactions excluded 
from the small servicer determination will be used to circumvent the 
servicing rules.
    As the cost of servicing such transactions is likely to be 
relatively high, and may include costs to verify that a seller-financed 
transaction meets all of the criteria identified in the definition of 
seller financer under Sec.  1026.36(a)(5), the Bureau believes that it 
is appropriate to permit servicers to charge a fee for servicing the 
loans described in Sec.  1026.41(e)(4)(iii)(D). The Bureau will 
continue to monitor this market to determine if the small servicer 
exemption is being manipulated to evade TILA's requirements or 
otherwise cause consumer harm.
Legal Authority
    The Bureau is exempting transactions serviced by a servicer for a 
seller financer that meet all of the criteria identified in the 
definition of seller financer under Sec.  1026.36(a)(5) from the 
periodic statement requirement under section 128(f) of TILA pursuant to 
its authority under section 105(a) and (f) of TILA and section 1405(b) 
of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
exemption in Sec.  1026.41(e)(4)(iii)(D) is appropriate under section 
105(a) of TILA to facilitate servicer compliance. The Bureau believes 
that excluding from the small servicer determination transactions 
serviced by a servicer for a seller financer that meet all of the 
criteria identified in the definition of seller financer under Sec.  
1026.36(a)(5) facilitates compliance with TILA by allowing depository 
institutions to service seller-financed transactions, without losing 
status as a small servicer, in order to provide high-contact servicing 
and to service loans cost-effectively and in compliance with applicable 
regulatory requirements. In addition, consistent with section 1405(b) 
of the Dodd-Frank Act, the Bureau believes that exempting from the 
requirements of section 128(f) of TILA those transactions serviced by a 
servicer for a seller financer that meet all of the criteria identified 
in the definition of seller financer under Sec.  1026.36(a)(5) is in 
the interest of consumers and in the public interest.
41(e)(5) Certain Consumers in Bankruptcy
    Current Sec.  1026.41(e)(5) provides that a servicer is exempt from 
the requirement to provide a periodic statement for a mortgage loan 
while the consumer is a debtor in bankruptcy. Current comment 41(e)(5)-
3 states that, if there are joint obligors on the mortgage loan, the 
exemption applies if any of the consumers is in bankruptcy, and current 
comment 41(e)(5)-2.ii explains that a servicer has no obligation to 
resume providing a periodic statement with respect to any portion of 
the mortgage debt that is discharged in bankruptcy. Proposed revisions 
to Sec.  1026.41(e)(5) generally would have limited the exemption to a 
consumer in bankruptcy whose bankruptcy plan or statement of intention 
provides for surrendering the property or avoiding the lien securing 
the mortgage loan, as well as to a consumer who has requested that a 
servicer cease providing a periodic statement. In cases where a 
mortgage loan has multiple obligors and not all of them are in 
bankruptcy, the exemption would have applied to a non-bankrupt obligor 
only when (1) one of the obligors is in chapter 12 or chapter 13 
bankruptcy and (2) the non-bankrupt obligor requests that a servicer 
cease providing a periodic statement. The proposal also would have 
specified the circumstances when the exemption terminates and a 
servicer must resume providing a periodic statement.
    The Bureau is adopting Sec.  1026.41(e)(5) with several revisions 
from the proposal. As revised, Sec.  1026.41(e)(5) and associated 
commentary limit the circumstances in which a servicer is exempt from 
the

[[Page 72311]]

periodic statement requirements with respect to a consumer who is a 
debtor in bankruptcy or has discharged personal liability for a 
mortgage loan through bankruptcy. (Except where noted specifically, 
this section-by-section analysis of Sec.  1026.41(e)(5) uses the term 
periodic statement to refer to both a periodic statement and a coupon 
book that meets the requirements of Sec.  1026.41(e)(3).) In addition 
to the limited exemption from the requirement to provide a periodic 
statement with respect to a consumer who is a debtor in bankruptcy or 
has discharged personal liability for a mortgage loan through 
bankruptcy, Sec.  1026.41(e)(5) provides a transitional single-billing-
cycle exemption under certain circumstances to enable a servicer to 
transition to a periodic statement modified for bankruptcy and to an 
unmodified periodic statement upon the conclusion of the bankruptcy 
case or the reaffirmation of the debt.\325\ Once effective, final Sec.  
1026.41(e)(5) will apply to a mortgage loan irrespective of whether the 
consumer became a debtor in bankruptcy before or after the final rule's 
effective date.
---------------------------------------------------------------------------

    \325\ Section 1026.41(f) sets forth certain modifications to a 
periodic statement or coupon book when a consumer on a mortgage loan 
is a debtor in bankruptcy under title 11 of the United States Code, 
or if such consumer has discharged personal liability for the 
mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, or 1328.
---------------------------------------------------------------------------

    In contrast to the proposal, the final rule applies the exemption 
at the loan level, such that a servicer is exempt with respect to all 
consumers on a mortgage loan if the exemption criteria are met with 
respect to any one consumer on the loan.\326\ As in the proposal, the 
final rule generally allows a consumer in bankruptcy to opt in or out 
of receiving a periodic statement by making a written request to the 
servicer, but the final rule contains a new provision allowing a 
servicer to establish an exclusive address for such requests, subject 
to certain requirements. In addition, the final rule includes a new 
provision that ensures that a servicer has a period of time to 
transition to providing a periodic statement with the modifications set 
forth in Sec.  1026.41(f) or to resume providing a periodic statement 
without such modifications following a consumer's bankruptcy case. The 
final rule also contains various technical changes from the proposal, 
such as use of the term bankruptcy plan instead of plan of 
reorganization, to improve clarity. These and other changes from the 
proposal are described in more detail below.
---------------------------------------------------------------------------

    \326\ The proposal used the term primary obligor. The final rule 
instead uses the term consumer for clarity, given that it is already 
a defined term under Regulation Z.
---------------------------------------------------------------------------

Background
    Currently, Sec.  1026.41(e)(5) provides a blanket exemption from 
the requirement to send a periodic statement if a consumer is in 
bankruptcy or has discharged personal liability for a mortgage loan 
through bankruptcy. The Bureau deliberated on this issue in two 
rulemakings prior to the proposal, each of which was based in part on 
the requirement in section 128(f) of TILA, as amended by section 1420 
of the Dodd-Frank Act, that a creditor, assignee, or servicer must 
provide a periodic statement for a residential mortgage loan.
    On January 17, 2013, the Bureau issued the 2013 TILA Servicing 
Final Rule implementing the periodic statement requirements and related 
exemptions in Sec.  1026.41. In the 2013 TILA Servicing Final Rule, the 
Bureau acknowledged industry's concern that the Bankruptcy Code's 
automatic stay prevents attempts to collect a debt from a consumer in 
bankruptcy, but the Bureau explained that it did not believe the 
Bankruptcy Code would prevent a servicer from sending a consumer a 
statement on the status of the mortgage loan.\327\ The Bureau further 
explained that the 2013 TILA Servicing Final Rule allowed servicers to 
make changes to the periodic statement when a consumer is in 
bankruptcy, such as including a message about the bankruptcy and 
presenting the amount due to reflect payment obligations determined by 
the individual bankruptcy proceeding.\328\
---------------------------------------------------------------------------

    \327\ 78 FR 10901, 10966 (Feb. 14, 2013).
    \328\ Id. at 10966 n.125.
---------------------------------------------------------------------------

    After publication of the 2013 TILA Servicing Final Rule, servicers 
and their representatives expressed more detailed concerns about the 
requirement to provide periodic statements to consumers under 
bankruptcy protection. The Bureau received numerous requests for 
clarification regarding how to reconcile the periodic statement 
requirements with various bankruptcy law requirements. Industry 
stakeholders expressed concern that bankruptcy courts, under certain 
circumstances, may find that a periodic statement violates the 
automatic stay or discharge injunction, even if a disclaimer were 
included. They requested guidance regarding whether and how servicers 
could permit consumers to opt out of receiving statements. Bankruptcy 
trustees explained that sending a periodic statement that fails to 
recognize the unique character of chapter 13's treatment of a mortgage 
in default arguably violates the Bankruptcy Code's automatic stay. 
Servicers and trustees further questioned how a periodic statement 
could be adapted to the specific circumstances that may arise depending 
on the type of bankruptcy proceeding (i.e., liquidation under chapter 
7, or reorganization under chapter 11, chapter 12, or chapter 13).
    Consequently, the Bureau determined in 2013 that the interaction of 
bankruptcy law and the periodic statement requirements warranted 
further study and that there was insufficient time before the rule's 
January 10, 2014, effective date to reconcile completely the various 
competing requirements. Accordingly, the Bureau issued the October 2013 
IFR, which added current Sec.  1026.41(e)(5) to exempt a servicer from 
the periodic statement requirements with respect to a consumer in 
bankruptcy.\329\ The Bureau explained in commentary that the exemption 
in Sec.  1026.41(e)(5) applies to any consumer sharing primary 
liability on a mortgage loan with a debtor in bankruptcy \330\ and that 
a servicer has no obligation to resume compliance with Sec.  1026.41 
with respect to any portion of a mortgage loan that is discharged under 
applicable provisions of the Bankruptcy Code.\331\
---------------------------------------------------------------------------

    \329\ 78 FR 62993, 63000-02 (Oct. 23, 2013).
    \330\ Comment 41(e)(5)-3.
    \331\ Comment 41(e)(5)-2.ii.
---------------------------------------------------------------------------

    In issuing the October 2013 IFR, the Bureau did not take a position 
as to whether providing a periodic statement to a consumer in 
bankruptcy violates the automatic stay or discharge injunction. The 
Bureau also did not discourage servicers that send tailored periodic 
statements to consumers in bankruptcy from continuing to do so. 
Further, the Bureau expressed its belief that some consumers facing the 
complexities of bankruptcy may benefit from receiving a periodic 
statement, tailored to their circumstances.\332\
---------------------------------------------------------------------------

    \332\ 78 FR 62993, 63001 (Oct. 23, 2013).
---------------------------------------------------------------------------

    In the October 2013 IFR, the Bureau stated that it would continue 
to examine this issue and might reinstate the requirement to provide a 
consumer in bankruptcy with a periodic statement. However, the Bureau 
explained that it would not reinstate any such requirement without 
notice and comment rulemaking and an appropriate implementation period. 
The Bureau solicited comment on the scope of the exemption, when a 
servicer qualifies for the exemption and when it must resume providing 
a periodic statement, and how the content of a periodic statement might 
be tailored to

[[Page 72312]]

meet the particular needs of a consumer in bankruptcy.\333\
---------------------------------------------------------------------------

    \333\ Id. at 63002.
---------------------------------------------------------------------------

    After issuing the October 2013 IFR, the Bureau continued to engage 
various stakeholders on the scope of this exemption, including hosting 
a roundtable discussion on June 16, 2014, with representatives of 
consumer advocacy groups, bankruptcy attorneys, servicers, trade 
groups, bankruptcy trustees, and the U.S. Trustee Program. The Bureau 
also sought comment from bankruptcy judges and experts and conducted 
its own further analysis of the intersection of the periodic statement 
requirements and bankruptcy law.\334\
---------------------------------------------------------------------------

    \334\ Written or oral presentations to the Bureau imparting 
information or argument directed to the merits or outcome of the IFR 
were subject to the Bureau's policy on ex parte presentations. See 
Bureau of Consumer Fin. Prot., CFPB Bulletin 11-3, CFPB Policy on Ex 
Parte Presentations in Rulemaking Proceedings (Aug. 16, 2011), 
available at https://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------

    Based upon its review of the comments received on the October 2013 
IFR and its study of the intersection of the periodic statement 
requirements and bankruptcy law, the Bureau proposed to reinstate the 
periodic statement requirements with respect to a consumer in 
bankruptcy under certain circumstances. The Bureau proposed these 
modifications through notice and comment rulemaking, rather than simply 
finalizing the IFR with modifications, to provide the public with the 
opportunity to consider and comment more fully on the Bureau's specific 
proposal.
    The Bureau proposed to limit the scope of the exemption in Sec.  
1026.41(e)(5) to a consumer in bankruptcy who has made a determination 
to surrender the property or avoid the lien securing the mortgage loan 
or who has requested that a servicer cease providing periodic 
statements. The Bureau believed that drawing a distinction between a 
consumer who intends to retain the property and one who intends to 
surrender the property could strike an appropriate balance between a 
consumer's need for information about the mortgage loan and the burden 
on a servicer to provide information to such a consumer while avoiding 
violations of bankruptcy law.
    The Bureau believed that this approach, favored by many commenters, 
was consistent with bankruptcy case law. Courts have observed that 
whether periodic statements are appropriate in bankruptcy typically 
depends on whether ``the debtor needed the information contained in the 
statements when the statements were sent'' and that debtors need 
information about their mortgage loan when they intend to retain 
property, not when they intend to surrender it.\335\ Some courts have 
found that a periodic statement was permissible when the debtor planned 
to retain the property but that the same form of periodic statement 
violated the automatic stay when the same debtor later decided to 
surrender the home.\336\
---------------------------------------------------------------------------

    \335\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R. 
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry v. Assocs. Home 
Equity Servs., Inc. (In re Henry), 266 B.R. 457, 471 (Bankr. C.D. 
Cal. 2001) (collecting cases).
    \336\ Connor, 366 B.R. at 138 (debtor failed to state a claim 
for stay violation related to periodic statements received prior to 
chapter 13 plan confirmation, but debtor did state a claim related 
to statements received after conversation to chapter 7 because 
debtor had indicated his intent to surrender the property); In re 
Joens, No. 03-02077, 2003 WL 22839822, at *2-3 (Bankr. N.D. Iowa 
Nov. 21, 2003) (creditor violated automatic stay by sending 
collection letters and periodic statements to chapter 7 debtor who 
intended to surrender, but noting that it would have been proper to 
send statements if the debtor had intended to retain).
---------------------------------------------------------------------------

    Courts have held that periodic statements are appropriate for a 
chapter 7 debtor if the statement of intention identifies an intent to 
retain the property \337\ or if the debtor otherwise continues to make 
voluntary payments after the bankruptcy case.\338\ Similarly, courts 
have found that chapter 13 debtors who have not yet proposed a plan of 
reorganization may benefit from periodic statements because they need 
information about the amount of their mortgage loan debt in order to 
formulate a plan of reorganization \339\ and that chapter 13 debtors 
also benefit from periodic statements if their proposed or confirmed 
plan provides that they will retain the property and continue making 
payments.\340\
---------------------------------------------------------------------------

    \337\ In re Henry, 266 B.R. at 471 (holding that creditor did 
not violate the automatic stay by sending periodic statements and 
notice of default to debtors who retain their property by continuing 
to make payments without reaffirming the mortgage loan); Kibler v. 
WFS Fin., Inc. (In re Kibler), Case No. 97-25258-B-7, Adv. No. 00-
2604, 2001 WL 388764 (Bankr. E.D. Cal. Mar. 19, 2001) (noting that 
borrowers who retain their property by continuing to make payments 
without reaffirming the mortgage loan ``need to receive normal 
billings to avoid a contract default and potential foreclosure'').
    \338\ See 4 Collier on Bankruptcy ] 524.04 (``Section 524(j) 
clarifies that when a debtor does not reaffirm a mortgage debt 
secured by real estate that is the debtor's principal residence, the 
creditor may continue to send statements to the debtor in the 
ordinary course of business and collect payments made voluntarily by 
the debtor.'') (citing Jones v. Bac Home Loans Servicing, LP (In re 
Jones), Case No. 08-05439-AJM-7, Adv. No. 09-50281, 2009 WL 5842122, 
at *3 (Bankr. S.D. Ind. Nov. 2009)); cf. Ramirez v. Gen. Motors 
Acceptance Corp. (In re Ramirez), 280 B.R. 252, 257-58 (C.D. Cal. 
2002) (holding that creditor did not violate discharge injunction by 
sending periodic statements and a ``summary of voluntary payments'' 
to a debtor who his vehicle without reaffirming the loan).
    \339\ Connor, 366 B.R. at 138 (holding that debtor failed to 
state a claim for stay violation related to periodic statements 
received prior to chapter 13 plan confirmation); Pultz v. NovaStar 
Mortg., Inc. (In re Pultz), 400 B.R. 185, 190-92 (Bankr. D. Md. 
2008) (noting that sending of single loan statement was useful to 
the debtor for forecasting the amount of the unsecured debt she 
could pay through her chapter 13 plan); Schatz v. Chase Home Fin. 
(In re Schatz), 452 B.R. 544 (Bankr. M.D. Pa. 2011) (``I also 
recognize that such information could assist a Chapter 13 debtor in 
drafting his Chapter 13 plan.'').
    \340\ In re Henry, 266 B.R. at 471 (``A secured creditor should 
be encouraged to send out payment coupons, envelopes and periodic 
statements if a debtor has filed a statement that the debtor plans 
to keep property subject to secured debt and to make payments.''); 
Cousins v. CitiFinancial Mortg. Co. (In re Cousins), 404 B.R. 281, 
286-87 (Bankr. S.D. Ohio 2009) (stating in dicta that periodic 
statements can be helpful to chapter 13 debtors making direct 
payments to understand amounts due).
---------------------------------------------------------------------------

    Conversely, bankruptcy courts have determined that periodic 
statements can constitute impermissible collection attempts in 
violation of the automatic stay when a consumer has identified an 
intent to surrender the property, either through the statement of 
intention in a chapter 7 case or a plan of reorganization in a chapter 
13 case.\341\ Similarly, courts have held that a chapter 13 consumer 
with a plan of reorganization that provides for avoiding a junior 
lien--that is, rendering the lien unenforceable and treating the 
mortgage debt as an unsecured claim--has no need for statements 
regarding the amounts due under the mortgage loan.\342\ Finally, courts 
have found that consumers do not need statements when they have 
actually surrendered or vacated the property,\343\ or requested that 
the servicer not send periodic statements.\344\

[[Page 72313]]

In these cases, courts finding an automatic stay or discharge 
injunction violation have often looked to the totality of the 
creditor's collection efforts, beyond the creditor's providing a 
periodic statement.
---------------------------------------------------------------------------

    \341\ Joens, 2003 WL 22839822, at *2-3 (holding that creditor 
violated automatic stay by sending several collection letters and 
periodic statements to chapter 7 debtor who had indicated an intent 
to surrender); Connor, 366 B.R. at 138 (holding that debtor stated a 
claim related to periodic statements and demand letter received 
after conversion to chapter 7 because he had indicated his intent to 
surrender the property).
    \342\ Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470, 
484-85 (Bankr. D. Mass. 2005) (holding that wholly unsecured junior 
lienholder violated automatic stay by, among other things, sending a 
RESPA transfer letter demanding payment to a chapter 13 debtor whose 
plan provided for avoiding the lien).
    \343\ In re Roush, 88 B.R. 163, 164-65 (Bankr. S.D. Ohio 1988) 
(holding that creditor violated the discharge injunction when it 
sent a collection letter to debtor three years after debtor 
surrendered property); In re Bruce, No. 00-50556 C-7, 2000 WL 
33673773, at *4 (Bankr. M.D.N.C. Nov. 7, 2000) (holding that 
creditor violated the discharge injunction by sending periodic 
statements and calling the debtor at his place of employment after 
receiving notice that the debtor had vacated the property).
    \344\ In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. Fla. 1999) 
(holding that creditor violated the stay by, among other things, 
sending periodic statements to chapter 13 debtor who had asked not 
to receive them).
---------------------------------------------------------------------------

    Therefore, the Bureau proposed to revise the scope of the exemption 
in Sec.  1026.41(e)(5). Consistent with most comments the Bureau 
received on the IFR and the case law discussed above, proposed Sec.  
1026.41(e)(5) would have limited the scope of the exemption generally 
to when a consumer is no longer retaining the property, will no longer 
make regular payments on the mortgage loan, or has affirmatively 
requested not to receive a statement. Proposed Sec.  1026.41(e)(5)(i) 
would have provided an exemption from the periodic statement 
requirements in Sec.  1026.41 when two conditions are satisfied. First, 
the proposal would have required the consumer to be a debtor in a 
bankruptcy case, to have discharged personal liability for the mortgage 
loan through bankruptcy, or to be a primary obligor on a mortgage loan 
for which another primary obligor is a debtor in a chapter 12 or 
chapter 13 case. The purpose of this requirement would have been to 
limit the exemption to consumers who may be protected by the Bankruptcy 
Code's automatic stay or discharge injunction.
    Second, one of the following circumstances also would have had to 
apply: (1) The consumer requests in writing that the servicer cease 
providing a periodic statement; \345\ (2) the consumer's confirmed plan 
of reorganization provides that the consumer will surrender the 
property securing the mortgage loan, provides for the avoidance of the 
lien securing the mortgage loan, or otherwise does not provide for, as 
applicable, the payment of pre-bankruptcy arrearages or the maintenance 
of payments due under the mortgage loan; (3) a court enters an order in 
the consumer's bankruptcy case providing for the avoidance of the lien 
securing the mortgage loan, lifting the automatic stay pursuant to 11 
U.S.C. 362 with respect to the property securing the mortgage loan, or 
requiring the servicer to cease providing a periodic statement; or (4) 
the consumer files with the overseeing bankruptcy court a statement of 
intention pursuant to 11 U.S.C. 521(a) identifying an intent to 
surrender the property securing the mortgage loan. As commenters on the 
IFR noted, in each of these situations, a consumer is no longer 
retaining the property, is no longer making regular periodic payments 
on the mortgage loan, or has affirmatively requested not to receive a 
statement. As a result, the Bureau believed that the periodic 
statement's value is diminished and there is an increased risk of a 
court finding that a servicer violated the automatic stay by sending a 
periodic statement in this circumstance.
---------------------------------------------------------------------------

    \345\ The Bureau understands from its outreach that at least one 
large national servicer provides periodic statements to all of its 
consumers in bankruptcy who have a first-lien mortgage, except those 
who opt out, and that it believes its practice is consistent with 
the automatic stay.
---------------------------------------------------------------------------

    With respect to joint obligors who are not in bankruptcy, proposed 
Sec.  1026.41(e)(5)(i) would have effectively limited the exemption to 
those co-obligors who (i) share primary liability with a consumer who 
is a debtor in a chapter 12 or chapter 13 case and (ii) have requested 
that a servicer cease providing a periodic statement. As the Bureau 
noted in the proposal, a non-debtor joint obligor is protected by the 
Bankruptcy Code's automatic stay provisions only in chapter 12 or 
chapter 13 cases.\346\ The Bureau understood that these joint obligors 
generally have a need to continue receiving periodic statements. 
Moreover, these joint obligors are not bound by a debtor's decision to 
surrender the property securing the mortgage loan. Accordingly, the 
Bureau believed that it was appropriate for the non-debtor joint 
obligors to continue receiving periodic statements unless non-debtor 
joint obligors have requested that the servicer cease providing them.
---------------------------------------------------------------------------

    \346\ See 11 U.S.C. 1201, 1301.
---------------------------------------------------------------------------

    Proposed comment 41(e)(5)(i)-1 would have clarified the exemption's 
applicability with respect to joint obligors. The proposed comment 
stated that when two or more consumers are primarily liable on a 
mortgage loan, an exemption under Sec.  1026.41(e)(5)(i) with respect 
to one of the primary obligors does not affect the servicer's 
obligations to comply with Sec.  1026.41 with respect to the other 
primary obligors. The Bureau explained that the proposed comment was 
meant to eliminate ambiguity concerning whether a servicer must 
continue to provide a statement to joint obligors when an exemption 
under Sec.  1026.41(e)(5)(i) applies to one of the obligors. The 
proposed comment also referenced proposed Sec.  1026.41(f), explaining 
that, if one of the joint obligors is in bankruptcy and no exemption 
under Sec.  1026.41(e)(5)(i) applies, the servicer would have been 
required to provide a periodic statement with certain bankruptcy-
specific modifications set forth in Sec.  1026.41(f). In that instance, 
the servicer could have provided a periodic statement with the 
bankruptcy-specific modifications to any of the primary obligors on the 
mortgage loan, even if not all of them are in bankruptcy.
    Proposed comment 41(e)(5)(i)-2 also would have clarified that, for 
purposes of Sec.  1026.41(e)(5), the term plan of reorganization 
referred to a consumer's plan of reorganization filed under applicable 
provisions of the Bankruptcy Code and confirmed by a court with 
jurisdiction over a consumer's bankruptcy case. The proposed comment 
was intended to avoid confusion about the meaning of the term plan of 
reorganization and whether the term refers to a proposed plan or one 
that has been confirmed by a court.
    Finally, proposed comment 41(e)(5)(i)(B)(4)-1 would have further 
clarified that, for purposes of determining whether a servicer is 
exempt under Sec.  1026.41(e)(5)(i) based on a consumer's statement of 
intention filed in the consumer's bankruptcy case, a servicer must rely 
on a consumer's most recently filed statement of intention. Thus, under 
the proposed rule, if a consumer originally filed a statement of 
intention identifying an intent to retain the property, but the 
consumer then filed an amended statement of intention identifying an 
intent to surrender the property, a servicer would have had to rely on 
the amended filing to determine that the exemption applies. The Bureau 
explained that the proposed comment was meant to avoid uncertainty 
about whether the exemption applied when a consumer filed multiple or 
amended statements of intention.
    Proposed Sec.  1026.41(e)(5)(ii) would have specified when a 
servicer must resume providing a periodic statement in compliance with 
Sec.  1026.41. First, proposed Sec.  1026.41(e)(5)(ii)(A) would have 
provided that a servicer is not exempt from the requirements of Sec.  
1026.41 with respect to a consumer who submits a written request to 
continue receiving a periodic statement, unless a court enters an order 
prohibiting the servicer from providing a periodic statement. The 
Bureau explained that consumers should have the right to choose to 
receive information regarding their mortgage loan, particularly when 
their intent with regard to retaining the property changes. In advance 
of the proposal, the Bureau understood that, for example, some chapter 
7 debtors will file a statement of intention that initially identifies 
an intent to surrender the property but will subsequently decide to 
keep the property. In that case, the Bureau

[[Page 72314]]

believed a consumer should be able to receive a periodic statement. 
Proposed comment 41(e)(5)(ii)-1 would have clarified that a servicer 
must comply with a consumer's most recent written request to cease or 
to continue, as applicable, providing a periodic statement.
    Second, proposed Sec.  1026.41(e)(5)(ii)(B) would have provided 
that a servicer must resume compliance with Sec.  1026.41 within a 
reasonably prompt time after the next payment due date that follows the 
earliest of the following outcomes in either the consumer's or the 
joint obligor's bankruptcy case, as applicable: (1) The case is 
dismissed; (2) the case is closed; (3) the consumer reaffirms the 
mortgage loan pursuant to 11 U.S.C. 524; or (4) the consumer receives a 
discharge pursuant to 11 U.S.C. 727, 1141, 1228, or 1328. Proposed 
Sec.  1026.41(e)(5)(ii)(B) would have largely tracked current comment 
41(e)(5)-2.i, and the Bureau explained its belief that an exemption 
would no longer be necessary once the consumer has exited bankruptcy or 
reaffirmed personal liability for the mortgage loan. The Bureau also 
thought that the proposed ``reasonably prompt'' standard would be 
flexible enough to account for instances in which a servicer had no 
reason to know that the consumer's bankruptcy case had terminated.
    In combination, proposed Sec.  1026.41(e)(5)(ii)(A) and (B) would 
have required a servicer to resume providing a periodic statement 
within a reasonably prompt time after the next payment due date 
following receipt of a consumer's written request, the case closing or 
dismissal, the consumer's reaffirmation of the mortgage loan, or the 
consumer receiving a discharge. Proposed comment 41(e)(5)(ii)-2 would 
have clarified that delivering, emailing, or placing the periodic 
statement in the mail within four days after the next payment due date, 
or within four days of the close of any applicable courtesy period, 
generally would be considered reasonably prompt. (With respect to 
coupon books, resuming compliance would have required providing a new 
coupon book only to the extent the servicer had not previously provided 
the consumer with a coupon book that covered the upcoming billing 
cycle.) This interpretation of reasonably prompt would have been 
consistent with the Bureau's interpretation currently set forth in 
comment 41(b)-1, which clarifies the timing requirements for a periodic 
statement generally.
    Finally, proposed comment 41(e)(5)-1 would have clarified that, if 
an agent of a consumer submitted a request to cease or to continue 
providing a periodic statement, the request would have been deemed 
submitted by the consumer. The Bureau explained its understanding that 
attorneys or housing counselors often communicate with a servicer on a 
consumer's behalf and believed that it was important to clarify that a 
servicer must comply with a request to cease or commence providing a 
periodic statement by an agent of a consumer.
    The Bureau sought comment on all aspects of the proposal, including 
the scope of the proposed exemption, the requirements for qualifying 
for the exemption, and when servicers must resume providing a periodic 
statement.
Comments on the Proposed Scope of the Exemption
    The Bureau received numerous comments in response to proposed 
revisions to Sec.  1026.41(e)(5). As described below, the Bureau also 
conducted additional outreach. The summary below generally does not 
address comments received in response to the IFR because the Bureau 
addressed those comments in the proposal.\347\
---------------------------------------------------------------------------

    \347\ See 79 FR 74247.
---------------------------------------------------------------------------

    Commenters generally addressed five broad issues: (1) For mortgage 
loans with multiple obligors, whether the exemption should be 
determined at the individual consumer level or at the loan level; (2) 
whether and when a periodic statement should be required for a consumer 
who is in bankruptcy or has discharged personal liability for a 
mortgage loan through bankruptcy; (3) assuming a periodic statement is 
required with respect to a consumer in bankruptcy in some 
circumstances, whether a consumer's request to receive or cease 
receiving a periodic statement must be submitted in writing and not 
orally; (4) the conditions under which the exemption should terminate; 
and (5) whether the trustee of a consumer's bankruptcy case should 
receive a copy of the periodic statement.
    Consumer-specific vs. loan-level exemption.Consumer advocacy groups 
and industry commenters differed on whether the periodic statement 
exemption should apply to a specific consumer (as proposed) or at the 
loan level (as in the existing rule). Several consumer advocacy groups 
supported without qualification the proposal's treatment of co-obligors 
because it would allow a co-obligor who is not in bankruptcy to 
continue to receive a periodic statement even when the criteria for an 
exemption are satisfied with respect to the obligor in bankruptcy.
    Several industry commenters urged a loan-level exemption, for many 
of the same reasons advanced in comments on the early intervention 
bankruptcy exemption.\348\ For example, these commenters stated that 
servicers' systems are set up to manage communications at the account 
or loan level, such that they code an entire account (rather than 
designate a specific consumer) as subject to bankruptcy-related 
communication restrictions; that many servicers cannot suppress, or 
cease sending, statements as to one obligor while providing them to a 
co-obligor; that servicers have difficulty removing names from the 
account without affecting other aspects of loan administration, such as 
notices required by State law; and that, when co-obligors live 
together, a servicer cannot prevent the wrong consumer from opening the 
periodic statement. One servicer recommended requiring co-obligors to 
submit a joint written request to the servicer in order to receive a 
periodic statement. Other industry commenters suggested that servicers 
be expressly allowed to include one or all obligors' names on the 
statement, at the servicer's discretion. One servicer said that it 
would require two years to update systems to provide consumer-specific 
periodic statements when a consumer is in bankruptcy.
---------------------------------------------------------------------------

    \348\ See section-by-section analysis of Sec.  1024.39.
---------------------------------------------------------------------------

    The Bureau conducted additional outreach with several servicers to 
determine their current practices and systems capabilities. These 
servicers stated that they suppress or cease communications at the 
account or loan level; for example, when a consumer files bankruptcy, 
invokes the FDCPA cease communication right, or is a party to 
litigation against the servicer, these servicers flag the entire 
mortgage loan account as one for which they should not send certain 
communications. Some servicers stated that their systems can identify 
the reason for suppressing communications (e.g., bankruptcy, a 
consumer's invocation of the FDCPA cease communication right, or 
ongoing litigation), and a few could identify the specific co-obligor 
who, for example, filed for bankruptcy. A few servicers said that they 
could provide duplicate notices to co-obligors at different addresses, 
but most servicers said that they cannot provide certain communications 
to one obligor while providing other communications to a co-obligor at 
a different address. One servicer said that it can provide unique 
notices to different co-obligors at different addresses upon special 
request but that the process is manual and

[[Page 72315]]

would not be practical if required routinely.
    A trade association recommended that the final rule clarify that a 
servicer must provide only one periodic statement per loan per month. 
The commenter also advised that servicing systems cannot remove a name 
from an account because servicers need to send some information to each 
obligor regardless of bankruptcy. The commenter further stated that 
sending a periodic statement to a non-bankrupt co-obligor indicating 
that any part of the debt has been discharged (even as to another co-
obligor) may estop the servicer from collecting the debt.
    Whether and when to require statements for consumers in bankruptcy. 
The Bureau received comments supporting and opposing the proposed 
requirement to provide a periodic statement under any circumstances to 
a consumer who is in bankruptcy or has discharged personal liability 
for the mortgage loan through bankruptcy. Consumer advocacy groups 
strongly supported providing a periodic statement to a consumer in 
bankruptcy, while industry commenters offered differing views. Some 
industry commenters were generally supportive of providing a periodic 
statement to a consumer in bankruptcy, subject to certain conditions, 
while others strongly opposed any requirement to provide a periodic 
statement to a consumer in bankruptcy.
    Consumer advocacy groups strongly supported the proposal to limit 
the scope of the exemption, stating, among other things, that it would 
preserve the ability of consumers in bankruptcy to receive essential 
account information. These commenters further recommended that the 
exemption should not apply if a consumer has a pending loss mitigation 
application because such a consumer may decide to retain the property 
after being approved for loss mitigation. Consumer advocacy groups 
stated that receiving a periodic statement would help consumers 
understand their payment obligations, maintain mortgage payments, and 
make payments to the trustee on the arrearage. Both consumer advocacy 
groups and the U.S. Trustee Program noted that servicers sometimes 
misapply payments and supported the proposal in part because periodic 
statements might show whether servicers apply payments correctly or 
impose improper fees.
    Consumer advocacy groups also recommended requiring a servicer to 
provide a notice to the consumer upon determining that the bankruptcy 
exemption applies to a particular loan. The recommended notice would 
advise that standard periodic statements will no longer be provided, 
the basis for the exemption, and the consumer's right to continue 
receiving statements modified for consumers in bankruptcy.
    Some industry commenters expressed general support for requiring 
servicers to provide periodic statements to consumers in bankruptcy. 
For example, a servicer and a trade association both noted the need to 
provide accurate and clear information to a consumer in bankruptcy. One 
bank agreed that a servicer should provide a periodic statement 
following bankruptcy to a consumer who has discharged personal 
liability for a mortgage loan but retained possession of the property. 
The bank requested that the final rule state expressly that a periodic 
statement is required in this circumstance.
    Some industry commenters voiced strong opposition to providing a 
periodic statement to a consumer in bankruptcy, either in general or 
under the specific circumstances set forth in the proposal. Industry 
commenters stressed the lack of any safe harbor from liability under 
the Bankruptcy Code and noted that servicers are subject to individual 
judges' interpretations of the Bankruptcy Code. Industry commenters 
expressed concern that providing a periodic statement could give rise 
to the risk of litigation from a consumer who alleges an automatic stay 
violation.
    Several commenters asserted that the Bureau would be 
inappropriately intruding on bankruptcy law by requiring a servicer to 
send a periodic statement to a consumer in bankruptcy. A trade 
association expressed general concern that requiring a periodic 
statement for a consumer in bankruptcy could conflict with bankruptcy 
law. A credit union expressed concerns that the proposal purports to 
override bankruptcy law regarding communicating with a consumer in 
bankruptcy. Another trade association stated that some case law 
suggests that TILA cannot be interpreted as mandating communications 
that violate the automatic stay, and a different trade association 
commented that TILA does not apply to a mortgage loan that has been 
discharged through bankruptcy. Another trade association pointed to the 
complexity of bankruptcy law, stating that the Bureau should respect 
the delicate balance between creditors and debtors and should not 
attempt to strengthen protections for consumers in bankruptcy through 
amendments to Regulation Z.
    Numerous industry commenters objected to the burden that servicers 
would face in providing a periodic statement to a consumer in 
bankruptcy. They explained that most of the burden would result from 
the need to alter a periodic statement to comply with the proposal (as 
discussed in more detail in the section-by-section analysis of Sec.  
1026.41(f)). In particular, numerous industry commenters strongly 
opposed any requirement to provide a periodic statement that is 
modified for a consumer in chapter 13, stating, among other things, 
that the proposed changes would be difficult to operationalize and 
manage and would likewise be difficult and resource-intensive to 
implement or apply consistently and correctly. Some industry commenters 
noted that many servicers would have to change their systems in order 
to comply with the proposal. Credit unions and community banks 
expressed concern about these systems limitations more uniformly than 
did large servicers and national banks. Further, some commenters stated 
that switching to a modified periodic statement when a consumer is in 
bankruptcy would increase burden because consumers may move in-and-out 
of bankruptcy multiple times. Industry commenters also questioned 
whether the burden would be justified, as any one servicer may have 
only a limited number of loans in bankruptcy. One trade association 
commented that the complex interface with bankruptcy law would require 
servicers to consult with legal counsel, increasing cost.
    Some industry commenters stated that receiving a periodic statement 
could confuse or anger a consumer in bankruptcy, while others suggested 
that a periodic statement is less valuable or unnecessary for at least 
some of these consumers. Some servicers commented that statements are 
unnecessary for the roughly 50% of chapter 13 consumers who make 
mortgage payments through the trustee because the trustee is the one 
sending the payments to the servicer. These commenters stated the 
Federal Rules of Bankruptcy Procedure applicable to chapter 13 cases 
already require a servicer to provide the trustee and the consumer with 
sufficient ongoing information about the mortgage loan, in addition to 
providing a procedure at the end of the case to reconcile whether the 
consumer is current on the mortgage loan. One credit union suggested 
that consumers can obtain the relevant information in other ways, such 
as by making a request to a servicer or a trustee.
    A trade association discussed some servicers' current practices 
with respect to consumers who are in bankruptcy or who have discharged 
personal liability. For example, one servicer allows a consumer to opt 
out but otherwise sends a modified periodic statement that

[[Page 72316]]

shows account activity accompanied by bankruptcy disclaimers. Another 
sends a modified periodic statement disclosing payments received. And 
another sends monthly periodic statements containing disclaimers and 
other limited information, which allows the statement to be used for 
consumers in different chapters of bankruptcy. Servicers reported to 
the Bureau that they engage in a range of practices with respect to 
borrowers in bankruptcy: Some do not send periodic statements to any 
consumers in bankruptcy; others provide statements to consumers in only 
certain chapters of bankruptcy or provide statements only upon a 
consumer's request. Some industry commenters suggested generally that 
the Bureau adopt a rule that is consistent with one or more of these 
current practices.
    Some commenters addressed specifically the criteria for the 
proposed exemption. One servicer generally supported the proposed two-
pronged, multi-factor exemption test. Other commenters, while generally 
supportive, took issue with specific aspects of the proposal, as 
discussed more fully below. Several industry commenters suggested that 
the proposed exemption criteria would be difficult to implement and 
that determining if the exemption applied would require complex 
analysis.
    Some industry commenters made recommendations about which consumers 
in bankruptcy should receive a periodic statement. Consistent with the 
proposal, a trade association recommended not requiring a periodic 
statement for a consumer in chapter 13 who files a plan identifying an 
intent not to make loan payments, as well as for a consumer in chapter 
7 who files a statement of intention identifying an intent to surrender 
the property. Another trade association stated that a chapter 13 debtor 
does not need any statements because the plan of reorganization sets 
forth the consumer's payment obligation, the servicer's proof of claim 
discloses the arrearage, and the servicer's change-in-payment notices 
(required by the Bankruptcy Rules) alert the consumer to any change in 
the payment amount. A servicer and several trade associations requested 
that the exemption apply when a consumer in chapter 11, chapter 12, or 
chapter 13 bankruptcy has a cram-down plan--that is, a plan that 
reduces the mortgage debt to the value of the collateral. 
Alternatively, some commenters stated that a servicer should have more 
flexibility to modify the required disclosures for cram-down plans 
because they are atypical and can have unique payment requirements. 
Trade associations also recommended that the proposed exemption should 
apply not only when a consumer's confirmed plan of reorganization 
provides for the surrender of the property, but also when a consumer's 
proposed plan of reorganization provides for the surrender of the 
property, likening a proposed plan of reorganization to a statement of 
intention filed by a consumer in a chapter 7 case.
    Opt-ins and opt-outs. The Bureau received various comments on 
whether a potential requirement to provide a periodic statement to a 
consumer in bankruptcy should apply only to a consumer who opts in, or 
affirmatively requests, to receive a periodic statement, as well as 
comments on whether an opt-in or opt-out should be in writing. Consumer 
advocacy groups and the U.S. Trustee Program strongly opposed any opt-
in requirement for reasons similar to those the Bureau articulated in 
the proposal: Consumers may not be aware that they can opt in; some 
consumers will fail to opt in (particularly if a written opt-in is 
required), even though they want to receive a periodic statement; and 
an opt-in requirement would slow and perhaps impede the consumer's 
access to information after filing for bankruptcy. These commenters 
added that the proposal, as a practical matter, already incorporated an 
opt-in requirement because a consumer must declare in court filings 
whether the consumer intends to retain or surrender the property and a 
consumer would avoid triggering the exemption only by choosing to 
retain the property.
    Several industry commenters advocated for an express opt-in 
requirement. They stated that this approach would provide greater 
protection from automatic stay violations and be much less burdensome 
than requiring servicers to review bankruptcy court filings to 
determine whether the exemption applies. A trade association suggested 
that an opt-in would simplify compliance. Another trade association 
suggested that an opt-in requirement would prevent consumers in chapter 
13 bankruptcy from being confused as to why one creditor in the 
bankruptcy case continues to send periodic statements notwithstanding 
the bankruptcy. One trade association, however, stated that opt-ins and 
opt-outs cause additional burden and expense for servicers because they 
are another data field to track.
    Some industry commenters addressed the specifics of how opt-in 
requests should be made. Several trade associations stated that opt-ins 
should be effective if sent to either a specific address designated by 
the servicer or the servicer's address listed on the proof of claim. 
One industry commenter recommended that servicers should give a notice 
including the following disclosures to the consumer's counsel upon 
receipt of bankruptcy filing: (1) That the consumer can opt in to 
receiving a statement, (2) that all other aspects of the automatic stay 
will remain in place, and (3) a request for an appropriate address in 
the event that the consumer wants the counsel to manage receipt of 
periodic statements. Several industry commenters that already provide a 
periodic statement to a consumer in bankruptcy, subject to the 
consumer's ability to opt out, requested that the final rule 
grandfather a consumer's previous decision to opt out of receiving 
periodic statements, so that such a consumer does not need to opt out 
again. Some commenters also suggested that all co-obligors on a 
mortgage loan be required to jointly submit a request.
    The Bureau also received comments on whether a consumer's request 
to receive or cease receiving periodic statements must be submitted in 
writing and not orally. Industry commenters generally favored a writing 
requirement, stating that it will make compliance easier and offer more 
protection from the automatic stay because a writing creates a record 
to which the parties and a court can refer. Some industry commenters 
suggested that opt-outs via email or other electronic forms of 
communications should satisfy the requirement. Two servicers stated 
that oral opt-outs should be permitted so that consumers could more 
easily opt out of receiving statements. Consumer advocacy groups 
suggested that a consumer should be able to exercise any opt-in right 
orally and that, if the Bureau adopts a writing requirement, a servicer 
should have to inform a consumer who makes an oral request of the need 
to submit a written request. Further, these commenters stated that the 
Bureau should not permit a servicer to designate an exclusive address 
for written requests because this creates an additional hurdle for a 
consumer. They stated that servicers have misused the exclusive address 
requirement for qualified written requests.
    Transitioning to modified and unmodified periodic statements. 
Industry commenters generally suggested that the proposal would not 
afford a servicer sufficient time to begin providing a modified 
periodic statement to a consumer in bankruptcy or to resume providing 
an unmodified periodic statement after the consumer

[[Page 72317]]

exits bankruptcy. One servicer explained that providing a periodic 
statement tailored to bankruptcy requires disclosing additional or 
different information than a normal periodic statement and can require 
the servicer to account for payments differently. This commenter also 
stated that providing a periodic statement immediately following 
bankruptcy can be difficult because, for example, servicers subject to 
the National Mortgage Settlement are currently required to perform 
account reconciliation after a chapter 13 case is dismissed or 
discharged so that they can account for any payments received during 
the case. Another servicer stated that servicers cannot resume 
providing periodic statements within four days after the next payment 
due date because their systems may not contain the information 
necessary to produce the next statement. This servicer stated that, if 
the Bureau finalizes such a requirement, it may need to adjust the 
contents of the periodic statement, for example, to remove distinctions 
between pre- and post-petition payments. Some trade associations 
expressed concerns similar to those above.
    Several industry commenters recommended allowing servicers a 
reasonable amount of time after the second payment due date to 
transition to a modified statement or to resume providing an unmodified 
statement following bankruptcy. Some commenters specifically 
recommended allowing up to two billing cycles or up to 60 days. Another 
trade association recommended that the Bureau should not require 
servicers to provide a modified periodic statement under Sec.  
1026.41(f) to a consumer in bankruptcy until 30 days after the servicer 
files a proof of claim. The trade association explained that a servicer 
might not know the correct amount to disclose as the amount due under 
Sec.  1026.41(f)(3)(ii) until the servicer completes a post-filing 
escrow analysis; it added that a servicer currently has 120 days 
following the bankruptcy filing to conduct the analysis and proof of 
claim.
    The U.S. Trustee Program suggested that the Bureau revise the 
proposal to clarify how the requirement to resume providing a periodic 
statement after the bankruptcy concludes would apply to a servicer who 
was providing a periodic statement during the bankruptcy. Only one 
commenter responded to the proposal's request for comment as to whether 
servicers receive timely notifications that a consumer has filed or 
exited bankruptcy. This servicer stated that, on occasion, it does not 
receive timely notices from the bankruptcy court.
    The Bureau conducted additional outreach to several servicers 
regarding how they monitor for case openings, ongoing case activity, 
and case closings. Most servicers stated that they monitor these 
occurrences electronically and that they subscribe to some form of a 
third-party electronic notification system. As a result, these 
servicers learn of new filings, important case activity, and case 
closings quickly, usually within approximately a day. Servicers may 
also learn of filings through notices from the consumer or bankruptcy 
court. Some servicers rely on a manual review of the bankruptcy 
documents, including the consumer's bankruptcy petition or plan of 
reorganization, as the servicer receives them. Other servicers simply 
cease all activity with respect to the account until they receive a 
notice that the consumer has emerged from bankruptcy.
    Providing statements to a chapter 13 trustee. Most commenters were 
opposed to any requirement that servicers provide periodic statements 
to a trustee overseeing a consumer's chapter 13 case. Several 
commenters stated the requirement would increase cost or burden on 
servicers without sufficient corresponding benefit to consumers. The 
burden would include systems updates and providing additional copies of 
periodic statements each month. One trade association and a bank 
commented that providing a trustee with access to a consumer's periodic 
statement would raise privacy concerns because the trustee is not the 
consumer's representative and might be adverse to the consumer in 
certain circumstances. The bank advised that it would incur additional 
redaction costs to remove the account number from each periodic 
statement before sending it to a trustee. Several commenters stated 
that trustees can obtain necessary information by requesting it from 
the servicer or consumer or via, among other things, the proof of 
claim, change-in-payment notices, or notices of post-petition fees. 
Several servicers suggested that overseeing payment application is not 
one of a trustee's duties under the Bankruptcy Code. Although one 
servicer acknowledged that trustees may have an interest in proper 
payment application, it stated that some trustees would want to receive 
periodic statements in every case while others would not, which could 
make the rule difficult to implement.
    The U.S. Trustee Program stated that trustees should receive 
periodic statements for consumers in chapter 13 bankruptcy because, in 
cases where the trustee is making mortgage payments on behalf of the 
consumer, the trustee needs to know what payments are due and how they 
are applied. The U.S. Trustee Program also stated that receiving 
periodic statements will enable a trustee to determine whether a 
servicer's actual payment application matches representations the 
servicer makes to the bankruptcy court. In addition, the U.S. Trustee 
Program stated that it would be incongruous for a periodic statement to 
instruct a consumer to contact the trustee with questions (as proposed) 
while denying the trustee information necessary to answer those 
questions. Moreover, the U.S. Trustee Program observed that a trustee 
is not necessarily able to obtain the necessary information directly 
from a servicer and that obtaining it directly from a consumer results 
in costs to both the trustee and the consumer, as well as delays in the 
trustee's receipt of information. Finally, the U.S. Trustee Program 
stated that a trustee's receipt of a chapter 13 consumer's periodic 
statement would not necessarily raise privacy concerns, suggesting that 
servicers may not need to combine the mortgage statement with 
statements relating to other information.
Requiring Periodic Statements for Consumers in Bankruptcy
    The Bureau is adopting Sec.  1026.41(e)(5) with several revisions 
from the proposal. Among other things, revised Sec.  1026.41(e)(5) 
limits the circumstances in which a servicer is exempt from the 
periodic statement requirements when a consumer is a debtor in 
bankruptcy or has discharged personal liability for a mortgage loan 
through bankruptcy. The Bureau continues to believe that a consumer in 
bankruptcy will generally benefit from receiving a periodic statement 
under certain circumstances.
    The Bureau understands that a consumer in bankruptcy often does not 
receive information about a mortgage loan that would be disclosed on a 
periodic statement. As the Bureau explained in the proposal, consumers 
in bankruptcy have submitted complaints to the Bureau alleging that 
their servicers have denied requests to receive a periodic statement or 
other written information regarding upcoming payments. Consumers have 
complained that, as a result, they may fall behind on payments or lack 
basic information about the status of their loans. Bankruptcy case law 
also provides evidence that some servicers do not provide periodic 
statements to consumers in bankruptcy, even when

[[Page 72318]]

requested to do so by the consumer.\349\ The Bureau understands that, 
to address this issue, approximately 30 bankruptcy courts have adopted 
local rules permitting or requiring a servicer to provide a periodic 
statement to a consumer in bankruptcy under certain circumstances.\350\
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    \349\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In 
re Henry), 266 B.R. 457, 471 (Bankr. C.D. Cal. 2001) (``A secured 
creditor should be encouraged to send out payment coupons, envelopes 
and periodic statements if a debtor has filed a statement that the 
debtor plans to keep property subject to secured debt and to make 
payments. Debtors frequently complain to the court that they want to 
make their payments, but their creditors do not cooperate by 
providing payment coupons.''); In re Freeman, 352 B.R. 628 (Bankr. 
N.D. W. Va. 2006) (overruling creditor's objection to the debtor's 
request for periodic statements that were normally required by State 
law); cf. Payne v. Mortg. Elec. Registration Sys., Inc. (In re 
Payne), 387 B.R. 614, 626 (Bankr. D. Kan. 2008) (``[The servicer]'s 
representative testified [that the servicer] does not send payments 
books to mortgagors in bankruptcy because [the servicer] cannot 
present a true and accurate accounting of the loan payments [the 
servicer] is receiving from the Trustee as opposed to debtors' 
payments history.'').
    \350\ See, e.g., LBR 4001-2, Bankr. M.D. Ala.; LBR 4072-1, 
Bankr. N.D. Ala.; Model Chapter 13 Plan, Bankr. S.D. Ala.; Bankr. D. 
Colo. LBR 4001-4; Bankr. S.D. Ill. Model Chapter 13 Plan; Bankr. 
E.D. La. General Order 2012-1 (adopting model Chapter 13 plan); 
Bankr. D. Md. L.R. 4001-5; Bankr. D. Mass. L.R. 4001-3; Bankr. E.D. 
Mich. Model Chapter 13 Plan; Bankr. E.D. Mo. L.R. 3021; Bankr. W.D. 
Mo. L.R. 4001-4; Bankr. D. Mont. LBR 4001-3; Bankr. D. Kan. Bk. S.O. 
08-4; District of New Jersey Local Bankruptcy Rules, D.N.J LBR 4001-
3; Bankr. N.D.N.Y. Model Chapter 13 Plan; Bankr. E.D.N.C. LBR 4001-
2; Bankr. M.D.N.C Standing Order, In re Terms and Provisions 
Available for Incorporation into Chapter 13 Confirmation Orders; 
Bankr. W.D.N.C. LBR 4001-1; Bankr. D.N.H. L. Form 3015-1A, Model 
Chapter 13 Plan; Bankr. N.D. Ohio Admin. Order 13-02, In re Form 
Chapter 13 Plan; Bankr. D. Or. L.R. 3015-1; Bankr. D. R.I. LBR 4001-
1; Bankr. D. S.C.SC LBR 3015-1 (adopting model Chapter 13 plan); 
Bankr. N.D. TX General Order 2010-1, In re Amended Standing Order 
Concerning All Chapter 13 Cases; Bankr. S.D. TX Uniform Plan and 
Motion for Valuation of Collateral; Bankr. W.D. TX (Austin Div.), 
Consolidated Standing Order for Chapter 13 Case Administration for 
Austin Division (adopting model Chapter 13 plan); Bankr. W.D. TX 
(San Antonio Div.), Model Chapter 13 Plan; Bankr. D. Vt. LBR 3071-1; 
Bankr. W.D. Wash. L. Form 13-4; Bankr. E.D. Wis. Model Chapter 13 
Plan.
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    The Bureau believes that a consumer's status in bankruptcy should 
not act as a bar to receiving fundamental information about the 
mortgage loan account. Like all consumers, those in bankruptcy may 
benefit from information regarding the application of their payments to 
principal, interest, escrow, and fees. As the Bureau noted in the 2013 
TILA Servicing Final Rule, the explanation of amount due, transaction 
activity, and past payment breakdown give consumers the information 
they need to identify possible errors on the account and enable 
consumers to understand the costs of their mortgage loan.\351\
---------------------------------------------------------------------------

    \351\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
---------------------------------------------------------------------------

    In the absence of a requirement that servicers provide periodic 
statements, consumers in bankruptcy often lack crucial information 
about their mortgage loan account. The Bureau understands that, for 
example, consumers in chapter 7 bankruptcy or those who have discharged 
personal liability for a mortgage loan often do not receive written 
information regarding their mortgage payments. The lack of information 
is particularly troubling for consumers in chapter 7 bankruptcy who use 
the ride-through option--that is, consumers who discharge personal 
liability for the mortgage loan but continue making mortgage payments 
to forestall foreclosure, which enables them to remain in their home. 
In that instance, the lien is unaffected by bankruptcy, such that a 
consumer's post-bankruptcy failure to stay current on the mortgage 
would enable a servicer to foreclose on the property, even though the 
servicer could not pursue a deficiency judgment against the consumer 
personally.\352\ The Bureau understands that, although in many cases 
using this option may be a strategic decision by a consumer to avoid a 
future deficiency judgment, in some instances, courts will not permit a 
consumer to reaffirm a mortgage loan, and consumers are forced to use 
the ride-through option. Current Sec.  1026.41(e)(5) exempts a servicer 
from providing a periodic statement for the life of the mortgage loan 
in these circumstances, even if the maturity date is years away and the 
consumer continues making regular payments.
---------------------------------------------------------------------------

    \352\ See In re Henry, 266 B.R. at 476 (discussing the ride-
through option and disagreement among courts as to whether the 
Bankruptcy Code permits it); In re Covel, 474 B.R. 702, 708 (Bankr. 
W.D. Ark. 2012) (holding that Congress eliminated the ride-through 
option for personal property in 2005, but ``[b]y not making 
corresponding changes concerning real property, Congress appears to 
tacitly recognize a ride through option for real property.''); 
Kibler v. WFS Fin., Inc. (In re Kibler), Case No. 97-25258-B-7, Adv. 
No. 00-2604, 2001 WL 388764, at *5 (Bankr. E.D. Cal. Mar. 19, 2001) 
(``In jurisdictions that recognize the `ride-though' option, debtors 
may want to preserve their property, yet not incur the potential 
personal liability imposed by a reaffirmation agreement. These 
debtors . . . need to receive normal monthly billings to avoid a 
contract default and potential foreclosure.'').
---------------------------------------------------------------------------

    Congress mandated in the Dodd-Frank Act that consumers receive 
periodic statements and did not provide a bankruptcy exception. In 
addition, the 2005 amendments to the Bankruptcy Code provide expressly 
that a mortgage creditor does not violate the discharge injunction by 
seeking to obtain periodic payments on a discharged mortgage loan in 
the ordinary course of its relationship with a consumer in lieu of 
pursuing foreclosure.\353\ A leading bankruptcy treatise interprets 
these amendments as permitting a servicer to send a periodic statement 
to a consumer who has used the ride-through option.\354\ Both the Dodd-
Frank Act and the 2005 amendments to the Bankruptcy Code therefore 
indicate that Congress contemplated that consumers could receive 
periodic statements about their mortgage loans notwithstanding the 
bankruptcy process. The Bureau believes that maintaining a complete 
exemption from the periodic statement requirements with respect a 
consumer in bankruptcy would not further Congress's goals.
---------------------------------------------------------------------------

    \353\ 11 U.S.C. 524(j) (``Subsection (a)(2) does not operate as 
an injunction against an act by a creditor that is the holder of a 
secured claim, if--(1) such creditor retains a security interest in 
real property that is the principal residence of the debtor; (2) 
such act is in the ordinary course of business between the creditor 
and the debtor; and (3) such act is limited to seeking or obtaining 
periodic payments associated with a valid security interest in lieu 
of pursuit of in rem relief to enforce the lien.'').
    \354\ See 4 Collier on Bankruptcy ] 524.09 (Alan N. Resnick & 
Henry J. Sommer eds., 16th ed. 2014) (``Section 524(j) clarifies 
that when a debtor does not reaffirm a mortgage debt secured by real 
estate that is the debtor's principal residence, the creditor may 
continue to send statements to the debtor in the ordinary course of 
business and collect payments made voluntarily by the debtor. The 
provision makes clear that debtors do not have to reaffirm such 
debts in order to keep paying them. In fact, it has long been the 
practice that mortgage debts are not reaffirmed.'').
---------------------------------------------------------------------------

    The Bureau also believes that a consumer in chapter 13 will benefit 
from receiving the information set forth in periodic statements 
provided under Sec.  1026.41. With respect to mortgage loans, chapter 
13 contains unique provisions that allow a consumer to repay pre-
bankruptcy arrearages over a reasonable period of time while also 
making the regular periodic payments as they come due under the 
mortgage loan.\355\ Under chapter 13, servicers may need to adopt 
special accounting practices for consumers with these ``cure and 
maintain'' plans and separately track payments made on the pre-
bankruptcy arrearages and the regular periodic payments.\356\ These

[[Page 72319]]

accounting practices differ from a servicer's usual practice because, 
so long as a consumer is timely making all the payments due under the 
plan, a servicer should not treat a consumer as delinquent by, among 
other things, assessing certain fees and charges. As commenters noted, 
the bankruptcy plan and updates from a trustee may provide a consumer 
in chapter 13 with some information about the mortgage loan, but they 
do not inform a consumer about payments the servicer has received and 
applied, nor do they provide the same standardized point-in-time 
information about the consumer's mortgage loan as does a periodic 
statement.
---------------------------------------------------------------------------

    \355\ 11 U.S.C. 1322(b)(5).
    \356\ See, e.g., Boday v. Franklin Credit Mgmt. Corp. (In re 
Boday), 397 B.R. 846, 850-51 (Bankr. N.D. Ohio 2008) (``Section 
1322(b)(5), by splitting a claim, means that a creditor is no longer 
permitted to allocate payments according to the terms of its 
contract. Instead, its effect is to require that any prepetition 
arrearage claim must be paid separately, according to the terms of 
the debtor's confirmed plan, based upon the creditor's allowed 
claim. The remaining debt, consisting of those payments which become 
due after the petition is filed, is then paid according to the terms 
of the parties' contract and original loan amortization as if no 
default ever existed . . . . From an accounting standpoint, this 
requires that a creditor allocate a debtor's loan payments in the 
following manner: First, the creditor must apply the arrearage 
payments it receives during the plan's duration in accordance with 
the terms of the plan, so that upon completion of the plan the 
debtor is deemed current on the prepetition amortization schedule. 
Accord 8 Collier on Bankruptcy ] 1329.09[3] (15th ed. rev.2005). 
Second, payments received from the debtor to service those payments 
which contractually accrue postpetition[ ] must be allocated 
according to the terms of the parties' contract as if no default had 
occurred.''); In re Wines, 239 B.R. 703, 708 (Bankr. D.N.J. 1999) 
(``Crediting payments outside the plan to the installments due 
contemporaneously according to the original schedule is the only way 
to put the debtors in the same position as if default had never 
occurred.''); In re Collins, No. 07-30454, 2007 WL 2116416, at *13 
(Bankr. E.D. Tenn. July 19, 2007) (holding that chapter 13 cure and 
maintain plan can include provisions requiring servicer to apply 
payments separately and stating that such a provision ``is not only 
reasonable but required''); see also Fannie Mae, Fannie Mae Single 
Family 2016 Servicing Guide, at E.2.2.04 (July 13, 2016), available 
at https://www.fanniemae.com/content/guide/servicing/ 
(``Details to be noted with the receipt of all payments pre-
confirmation[:] Type of payment (pre-petition or post-petition)[;] 
Amount received; Date received[;] Source of the payment[; and] 
Allocation of the payment (principal, interest, late charges, etc.) 
. . . Unless the court requires the payments to be applied under the 
terms of the repayment plan, the servicer should generally hold any 
pre-petition payments it receives as ``unapplied'' funds until an 
amount equal to the contractual monthly or biweekly payment due is 
available for application . . . .'').
---------------------------------------------------------------------------

    The Bureau understands that the amendments to the Federal Rules of 
Bankruptcy Procedure, effective December 1, 2011, which require a 
servicer to disclose certain mortgage loan information to a consumer in 
chapter 13,\357\ were motivated in part by pervasive and documented 
servicer failures to make accurate filings or disclose fees during 
chapter 13 cases.\358\ Consumers would often successfully make all 
payments required under their chapter 13 plan, only to find that the 
servicer claimed substantial additional amounts were still owed.\359\ 
Courts have detailed some servicers' failure to properly credit 
payments made pursuant to chapter 13 plans, noting that servicers' 
systems and accounting practices often fail to adjust to the needs of 
chapter 13, and courts have sanctioned servicers or disallowed 
fees.\360\ These difficulties were also documented in and formed the 
basis of part of the National Mortgage Settlement, which required, 
among other things, that the subject servicers properly account for 
payments received in bankruptcy.\361\
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    \357\ Fed. R. Bankr. P. 3002.1 (requiring, among other things, 
servicers to provide 21-day advance notice of a change in payment 
amount and notice within 180 days after a servicer incurs a fees or 
expense for which the consumer is liable, and also providing for a 
reconciliation process at the end of the case to determine if a 
servicer disputes whether the consumer is current on the mortgage 
loan).
    \358\ Fed. R. Bankr. P. 3002.1 Advisory Committee's Notes (2011) 
(``[Rule 3002.1] is added to aid in the implementation of Sec.  
1322(b)(5), which permits a chapter 13 debtor to cure a default and 
maintain payments on a home mortgage over the course of the debtor's 
plan. It applies regardless of whether the trustee or the debtor is 
the disbursing agent for postpetition mortgage payments. In order to 
be able to fulfill the obligations of Sec.  1322(b)(5), a debtor and 
the trustee have to be informed of the exact amount needed to cure 
any prepetition arrearage, see Rule 3001(c)(2), and the amount of 
the postpetition payment obligations.''); In re Sheppard, No. 10-
33959-KRH, 2012 WL 1344112, at *2 (Bankr. E.D. Va. Apr. 18, 2012) 
(``Bankruptcy Rule 3002.1 was adopted to resolve significant and 
often hidden problems encountered by Chapter 13 debtors who utilized 
Sec.  1322(b)(5) of the Bankruptcy Code to cure mortgage defaults in 
their confirmed plans. While debtors could cure an arrearage on 
their principal residence under Sec.  1322(b)(5), they often 
incurred significant fees and other costs as a result of 
postpetition defaults or from interest or escrow fluctuations under 
the terms of the original loan documents. Fearful that any attempt 
to address these fees and charges could be construed as a violation 
of the automatic stay, many creditors would not inform debtors that 
these charges had been incurred until after the Chapter 13 case was 
closed. As the fees and charges were postpetition obligations not 
included in the plan and thus not discharged at the conclusion of 
the case, these debtors would emerge from bankruptcy only to face a 
substantial and previously undisclosed arrearage. This outcome was 
inconsistent with the goal of providing debtors with a fresh 
start.''); In re Thongta, 480 B.R. 317, 319 (Bankr. E.D. Wis. 2012) 
(similar).
    \359\ See, e.g., Sheppard, 2012 WL 1344112, at *2; Thongta, 480 
B.R. at 319.
    \360\ See, e.g., In re Jones, 366 B.R. 584, 594-98 (Bankr. E.D. 
La. 2007) (sanctioning servicer that applied all amounts received to 
pre- and post-petition charges, interest, and non-interest bearing 
debt, resulting ``in such a tangled mess'' that neither the CPA 
debtor nor the servicer could explain the accounting, and stating 
that ``[i]n this Court's experience, few, if any, lenders make the 
adjustments necessary to properly account for a reorganized debt 
repayment plan.''); In re Hudak, No. 08-10478-SBB, 2008 WL 4850196, 
at *5 (Bankr. D. Colo. Oct. 24, 2008) (``Many courts have noted that 
mortgage lenders simply do not accommodate for the accounting 
intricacies created by Chapter 13.''); Payne v. Mortg. Elec. 
Registration Sys., Inc. (In re Payne), 387 B.R. 614, 627 (Bankr. D. 
Kan. 2008) (``[The servicer] admitted their computer system does not 
allow debtors who make all their payments in a timely manner to exit 
bankruptcy current on their mortgage obligation.''); In re Myles, 
395 B.R. 599, 606 (Bankr. M.D. La. 2008) (holding that debtors 
stated claim for stay violation where creditor allegedly treated a 
chapter 13 debtor as in default due to improper payment application 
and applied payments to improper fees as a result); Boday, 397 B.R. 
at 850-51 (Bankr. N.D. Ohio 2008) (holding that creditor violated 
plan and section 1322(b)(5) by applying plan payments to interest 
rather than principal under daily simply interest loan); In re 
Rathe, 114 B.R. 253, 256-57 (Bankr. D. Idaho 1990) (``[The 
servicer]'s accounting procedure applied payments to the earliest 
payments due and not to the payments due and owing during the 
pendency of the plan. The purpose of a Chapter 13 plan is to allow a 
debtor to pay arrearages during the pendency of the plan while 
continuing to make payments at the contract rate. Payments made 
during the pendency of the Chapter 13 plan should have been applied 
by [the servicer] to the current payments due and owing with the 
arrearage amounts to be applied to the back payments. [The servicer] 
cannot utilize its accounting procedures to contravene the terms of 
a confirmed Chapter 13 plan and the Bankruptcy Code.''); In re 
Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008) (sanctioning servicer 
for misapplying payments and noting that ``[t]he reconciliation of 
Debtor's account took [the servicer] four months to research and 
three hearings before this Court to explain,'' that ``[a]n account 
history was not produced until two months after the filing of the 
Objection,'' and that ``[a]n additional two months were spent 
obtaining the necessary information to explain or establish the 
substantial charges, costs, and fees reflected on the account''), 
vacated in part, 647 F.3d 553 (5th Cir. 2011).
    \361\ See, e.g., Exhibit A at 9, United States v. Bank of Am., 
(2014) (No. 12-361 (RMC), 2014 WL 1016286 (National Mortgage 
Settlement)), available at https://d9klfgibkcquc.cloudfront.net/Ocwen-Consent-Judgment-Ex-A.pdf (providing that, among other things, 
``[i]n active chapter 13 cases, Servicer shall ensure that: a. 
Prompt and proper application of payments is made on account of (a) 
pre-petition arrearage amounts and (b) postpetition payment amounts 
and posting thereof as of the successful consummation of the 
effective confirmed plan; b. the debtor is treated as being current 
so long as the debtor is making payments in accordance with the 
terms of the then effective confirmed plan and any later effective 
payment change notices'').
---------------------------------------------------------------------------

    In light of these documented concerns about servicers not properly 
applying payments in chapter 13 cases, the Bureau believes that a 
periodic statement would benefit a consumer in chapter 13 by, for 
example, enabling the consumer or the consumer's attorney to monitor 
for payment application errors. Moreover, in cases where a consumer was 
current as of the date of the bankruptcy petition or is making periodic 
payments directly to a servicer, a monthly reminder of amounts due may 
help a consumer make timely payments. The Bureau notes that the U.S. 
Trustee Program and other commenters strongly supported requiring 
servicers to provide a periodic statement to a consumer in chapter 13 
for these and other reasons.
    The Bureau understands and appreciates the concerns expressed by 
many servicers that their systems are not currently set up to easily 
track how payments are applied in chapter 13 cases and that, in order 
to be able to disclose this information on a periodic statement, they 
may need to incur significant costs to upgrade their systems. Servicers 
and trade groups also

[[Page 72320]]

stated that consumers may not understand the complexities of accounting 
for payments made under a chapter 13 plan. However, as the Bureau noted 
in the 2013 TILA Servicing Final Rule, this complexity argues for 
providing a consumer with a periodic statement. Commenters, including 
consumer advocacy groups, the U.S. Trustee Program, and other 
bankruptcy experts, have stated that consumers and their attorneys need 
the information on a periodic statement to understand the status of 
their mortgage loan and payments while in bankruptcy. Similarly, 
participants in the Bureau's consumer testing generally reacted 
favorably to the prospect of receiving a periodic statement while in 
chapter 13, often noting that they did not receive this same 
information during their own bankruptcy cases and wished that they had. 
In addition, the Bureau notes that, while the Bankruptcy Rules provide 
for a reconciliation procedure once the consumer completes all payments 
under a chapter 13 plan, a large proportion of chapter 13 cases are 
dismissed prior to completion.\362\ As a result, many consumers in 
chapter 13 bankruptcy will not have a trustee or court oversee and 
ultimately determine whether a servicer correctly applied payments. For 
these consumers, having a record of payments made and applied may help 
resolve disputes once the bankruptcy case is over.\363\ Accordingly, 
the Bureau believes that all consumers in chapter 13 cases who intend 
to retain the property, including those making payments through a 
trustee, would benefit from receiving periodic statements.
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    \362\ See Ed Flynn, Chapter 13 Revisited: Can it help Solve the 
Judiciary's Fiscal Problems?, 32 Am. Bankr. Inst. J. 20, 20 (Dec. 
2013).
    \363\ The Bureau further notes that in instances where 
bankruptcy courts have local rules expressly permitting periodic 
statements or coupon books, the rules predominantly apply when the 
consumer is a debtor under chapter 13. See supra, note 350.
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    The Bureau recognizes that industry will incur costs associated 
with providing periodic statements to consumers in bankruptcy. The 
Bureau believes that most of those costs will be associated with one-
time systems changes necessary to implement Sec.  1026.41(f), as well 
as some additional ongoing costs to ensure that servicers accurately 
track and disclose payments they receive from consumers in chapter 13 
who are repaying their pre-bankruptcy arrearage. The Bureau thus 
believes that, as discussed in the section-by-section analysis of Sec.  
1026.41(f) and in parts VII and IX below, once servicers update their 
systems, providing periodic statements to consumers in bankruptcy will 
not add significant ongoing cost. In addition, some servicers informed 
the Bureau that they already supply periodic statements to some or all 
consumers in bankruptcy. For these servicers, the additional burden of 
complying with Sec.  1026.41(e)(5) should be reduced.
Interaction With Bankruptcy Law
    As noted above, several commenters suggested that requiring a 
periodic statement for a consumer in bankruptcy would inappropriately 
interfere with bankruptcy law. Some of these commenters stated that a 
bankruptcy court may hold a servicer in violation of the Bankruptcy 
Code's automatic stay for providing a periodic statement to a consumer 
in bankruptcy, even if the servicer did so in order to comply with TILA 
and Regulation Z.\364\ Some commenters suggested that, by a requiring a 
periodic statement for a consumer in bankruptcy, the Bureau would be 
effectively overruling bankruptcy law's general prohibition on 
creditors communicating with a debtor. Two commenters raised a question 
about the constitutionality of the Bureau's rulemaking in this area 
based on concerns about separation of powers, suggesting that the 
rulemaking would affect a judicial branch function. These two 
commenters urged the Bureau to defer to the expertise of the bankruptcy 
courts in developing a periodic statement.
---------------------------------------------------------------------------

    \364\ Some commenters stated that the risk of automatic stay 
violations could be reduced by requiring a consumer in bankruptcy to 
make an affirmative request before a servicer would be required to 
provide a periodic statement. The Bureau addresses those comments 
below.
---------------------------------------------------------------------------

    As discussed more in the section-by-section analysis of Sec.  
1026.41(f), the Bureau has considered the rulings of bankruptcy courts 
in developing the periodic statement. The Bureau believes that the 
final rule is consistent with, rather than in conflict with, bankruptcy 
law. The Bureau has tailored Sec.  1026.41(e)(5) to avoid requiring a 
servicer to send a periodic statement in circumstances when case law 
suggests that doing so would violate the automatic stay. As discussed 
above and in the proposal, courts have observed that whether periodic 
statements are appropriate in bankruptcy typically depends on whether 
``the debtor needed the information contained in the statements when 
the statements were sent'' and that debtors need information about the 
mortgage loan when they intend to retain property, not when they intend 
to surrender it.\365\ For example, under the final rule, a servicer 
generally will not be required to provide a periodic statement to a 
consumer in bankruptcy who has articulated an intent to surrender the 
property through a bankruptcy plan, a statement of intention filed with 
the bankruptcy court, or has made a written request to cease receiving 
a periodic statement.
---------------------------------------------------------------------------

    \365\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R. 
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry v. Assocs. Home 
Equity Servs., Inc. (In re Henry), 266 B.R. 457, 471 (Bankr. C.D. 
Cal. 2001) (collecting cases).
---------------------------------------------------------------------------

    The Bureau is not aware of any case law holding a servicer in 
violation for providing a periodic statement in the circumstances 
required by the final rule. Industry commenters cited several decisions 
finding automatic stay violations, but they all involved actions by a 
servicer that the final rule would not require, such as aggressive 
collections after the consumer agreed to surrender the property or 
sending notices misstating the consumer's obligations.\366\ Reports 
from servicers appear to confirm that liability for alleged stay 
violations is unlikely: For example, a large national servicer advised 
the Bureau that it provides periodic statements to all consumers in 
bankruptcy with mortgage loans secured by a first lien, subject to a 
consumer's right to opt out, and that it believes this practice 
complies with the automatic stay. Given the case law on this issue, the 
tailored requirements of Sec.  1026.41(e)(5) as described in more 
detail below, and the experiences of servicers that already provide 
periodic statements to consumers in bankruptcy, the Bureau does not 
believe that requiring servicers to send periodic statements to some 
consumers in bankruptcy exposes servicers to a risk of significant 
litigation or liability in the courts.
---------------------------------------------------------------------------

    \366\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. 
Fla. 1999) (holding that creditor violated the stay by sending 
periodic statements to chapter 13 debtor who had asked not to 
receive them); Connor v. Countrywide Bank NA (In re Connor), 366 
B.R. 133, 136, 138 (Bankr. D. Haw. 2007) (debtor failed to state a 
claim for stay violation related to periodic statements received 
prior to chapter 13 plan confirmation, but debtor did state a claim 
related to statements received after conversation to chapter 7 
because debtor had indicated his intent to surrender the property); 
In re Schinabeck, No. 08-41942, 2014 WL 5325781 (Bankr. E.D. Tex. 
Oct. 20, 2014) (holding that servicer violated the discharged 
injunction where it sent at least 60 written communications, 
including some after the consumer had filed the lawsuit alleging a 
discharge injunction violation, to a consumer who had vacated the 
property before bankruptcy and had requested to cease receiving 
communications about the property).

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[[Page 72321]]

    The Bureau's conclusion is informed particularly by the comments 
from the U.S. Trustee Program, which did not express concerns that the 
proposal would result in automatic stay violations and specifically 
stated that the proposal took the proper approach. Moreover, Congress 
amended TILA to require periodic statements for mortgage loans without 
any exception for consumers in bankruptcy, and the final rule simply 
limits the circumstances in which a servicer is exempt from this 
Congressionally-imposed requirement.\367\ For the reasons discussed, 
the Bureau believes that Sec.  1026.41(e)(5) does not inappropriately 
intrude upon bankruptcy law.
---------------------------------------------------------------------------

    \367\ One commenter stated that Regulation Z does not apply to a 
mortgage loan for which a consumer has discharged personal liability 
through bankruptcy. A bankruptcy discharge does not, however, by 
itself affect Regulation Z coverage. A bankruptcy discharge does not 
per se eliminate the existence of a debt or nullify an extension of 
credit; rather, the discharge operates as an injunction against 
collecting the debt as a personal liability of the consumer. See 11 
U.S.C. 524(a) (``A discharge in a case under this title . . . 
operates as an injunction against the commencement or continuation 
of an action, the employment of process, or an act, to collect, 
recover or offset any such debt as a personal liability of the 
debtor, whether or not discharge of such debt is waived.''); see 
also 11 U.S.C. 524(f) (clarifying that the discharge injunction does 
not prevent a debtor from ``voluntarily repaying any debt'').
---------------------------------------------------------------------------

Final Rule
    The Bureau is finalizing Sec.  1026.41(e)(5) and associated 
commentary with several revisions from the proposal. As revised, Sec.  
1026.41(e)(5) limits the circumstances in which a servicer is exempt 
from the periodic statement requirements when a consumer is a debtor in 
bankruptcy or has discharged the mortgage loan through bankruptcy. The 
exemption criteria in the final rule depart from the proposal in three 
primary ways. First, the exemption applies at the mortgage-loan level 
rather than as to specific consumers. When the criteria for an 
exemption are satisfied with respect to one consumer on a mortgage 
loan, a servicer is also exempt from the periodic statement 
requirements with respect to any other consumer on the mortgage loan. 
Second, the exemption can be triggered by a consumer's proposed 
bankruptcy plan, instead of only by the consumer's confirmed plan.\368\ 
Third, the final rule generally provides that a servicer is exempt upon 
the consumer filing a statement of intention identifying an intent to 
surrender the dwelling securing the mortgage loan only if the consumer 
has not made any partial or periodic payment on the mortgage loan after 
the commencement of the consumer's bankruptcy case.
---------------------------------------------------------------------------

    \368\ The final rule uses the term bankruptcy plan instead of 
plan of reorganization to improve clarity.
---------------------------------------------------------------------------

    The final rule also allows a servicer to establish an exclusive 
address that a consumer in bankruptcy must use to submit a written 
request to opt into or out of receiving periodic statements, provided 
that the servicer notifies the consumer of the address in a manner that 
is reasonably designed to inform the consumer of the address and uses 
the same address both for opt-ins and opt-outs. The final rule further 
sets forth a transitional single-billing-cycle exemption under certain 
circumstances to enable a servicer to transition to a periodic 
statement modified for bankruptcy and to an unmodified periodic 
statement upon the conclusion of the bankruptcy case or reaffirmation 
of the debt.
    The Bureau is finalizing proposed comment 41(e)(5)-1 substantially 
as proposed, with minor revisions to improve clarity. Comment 41(e)(5)-
1 clarifies that a written request that a servicer cease or continue 
providing a periodic statement is deemed to be submitted by the 
consumer if an agent of the consumer, such as the consumer's bankruptcy 
counsel, submits the request. The Bureau is finalizing proposed comment 
41(e)(5)(ii)-1 substantially as proposed, renumbered as comment 
41(e)(5)-2, with minor revisions to improve clarity. Comment 41(e)(5)-2 
states that a consumer's most recent written request under Sec.  
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) determines whether the exemption 
in Sec.  1026.41(e)(5)(i) applies. The Bureau is also finalizing new 
comment 41(e)(5)-3, which clarifies that a consumer's written request 
under Sec.  1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the 
date of receipt by the servicer. The Bureau is finalizing proposed 
comment 41(e)(5)(ii)-3, renumbered as comment 41(e)(5)(i)-4, without 
revision. The comment clarifies that, if a consumer's bankruptcy case 
is revived or if the court reinstates a previously dismissed case or 
reopens a case, Sec.  1026.41(e)(5) may apply again.
41(e)(5)(i) Exemption
Scope of Exemption
    Final Sec.  1026.41(e)(5)(i) provides that a servicer is exempt 
from the requirements of Sec.  1026.41 with regard to a mortgage loan 
if a two-prong test is satisfied. First, any consumer on the loan must 
be a debtor in bankruptcy under title 11 of the United States Code or 
must have discharged personal liability for the mortgage loan through 
bankruptcy pursuant to 11 U.S.C. 727, 1141, 1228, or 1328.
    Second, one of the following additional conditions in Sec.  
1026.41(e)(5)(i)(B)(1) through (4) must apply with regard to any 
consumer on the mortgage loan: (1) The consumer requests in writing 
that the servicer cease providing a periodic statement; (2) the 
consumer's bankruptcy plan provides that the consumer will surrender 
the dwelling securing the mortgage loan, provides for the avoidance of 
the lien securing the mortgage loan, or otherwise does not provide for, 
as applicable, the payment of pre-bankruptcy arrearage or the 
maintenance of payments due under the mortgage loan; (3) a court enters 
an order in the bankruptcy case providing for the avoidance of the lien 
securing the mortgage loan, lifting the automatic stay pursuant to 11 
U.S.C. 362 with regard to the dwelling securing the mortgage loan, or 
requiring the servicer to cease providing a periodic statement; or (4) 
the consumer files with the court overseeing the bankruptcy case a 
statement of intention pursuant to 11 U.S.C. 521(a) identifying an 
intent to surrender the dwelling securing the mortgage loan and a 
consumer has not made any partial or periodic payment on the mortgage 
loan after the commencement of the consumer's bankruptcy case.
Changes to the Proposed Exemption Criteria
    Apart from the exceptions discussed below, the Bureau is adopting 
proposed Sec.  1026.41(e)(5)(i) and associated commentary substantially 
as proposed, with various revisions to improve clarity. The exemption 
in the final rule departs from the proposal in three primary ways: (1) 
The exemption applies at the mortgage-loan level; (2) it can be 
triggered by a consumer's proposed bankruptcy plan; and (3) it includes 
an exemption upon the consumer filing a statement of intention 
identifying an intent to surrender the dwelling securing the mortgage 
loan only if a consumer has not made any partial or periodic payment on 
the mortgage loan after the commencement of the consumer's bankruptcy 
case.
    Loan-level exemption. The exemption in final Sec.  1026.41(e)(5)(i) 
applies at the loan level. This differs from the proposal, which would 
have exempted a servicer from the periodic statement requirements as to 
a specific consumer in bankruptcy but not, for example, as to any of 
the consumer's co-obligors who were not in bankruptcy. The Bureau is 
removing the reference to primary obligors that was in the

[[Page 72322]]

proposal. As the Bureau is finalizing the exemption at the loan level 
rather than at the consumer level, and, as consumer is a defined term 
in Regulation Z, the Bureau believes it is more appropriate to refer 
solely to consumers and not to primary obligors in the regulation. The 
Bureau does not believe the omission of primary obligors from the 
regulation text is a substantive change. Comment 41(e)(5)(i)-1 
discusses the applicability of the exemption when there is more than 
one primary obligor. Comment 41(e)(5)(i)-1 clarifies that, when two or 
more consumers are joint obligors with primary liability on a mortgage 
loan subject to Sec.  1026.41, the exemption applies if any one of the 
consumers meets the criteria set forth in Sec.  1026.41(e)(5)(i). The 
comment also offers an example in which two spouses jointly own a home 
and are primary obligors on the mortgage loan. One spouse files chapter 
13 bankruptcy and has a bankruptcy plan that provides for surrendering 
the home. In part, Sec.  1026.41(e)(5)(i) exempts the servicer from 
providing a periodic statement with regard to that mortgage loan, 
unless one of the spouses requests in writing that the servicer provide 
a periodic statement pursuant to Sec.  1026.41(e)(5)(ii).
    In general, the Bureau believes that a non-debtor co-obligor would 
benefit from receiving a periodic statement, just like any other 
consumer with a mortgage loan. Nonetheless, commenters raised 
legitimate concerns about the proposal, which in some circumstances 
would have exempted a servicer as to one co-obligor but not another. 
Commenters indicated that most servicers' systems currently would not 
accommodate such a requirement. For example, servicers' systems 
typically suppress communications at the loan level, and some servicers 
cannot easily remove names from an account. Nor can servicers' systems 
automate sending a periodic statement to one address while providing 
other mortgage-related notices to another address, which may have been 
necessary under the proposal when co-obligors live separately. For 
these reasons, servicers reported that they might have to reorder 
fundamentally their systems to comply with the proposal. Furthermore, 
the Bureau understands that a requirement to provide different 
disclosures to different addresses could cause conflict with mortgage 
security instruments, which often state that there can be only a single 
notice address for each mortgage loan. Implementing and complying with 
the proposed consumer-specific exemption therefore could have been 
resource-intensive.
    Definition of bankruptcy plan. Final Sec.  1026.41(e)(5)(i)(B)(2) 
provides that a servicer is exempt from the periodic statement 
requirements depending on the terms of a consumer's bankruptcy plan. 
The proposal used the term confirmed plan of reorganization, and 
proposed comment 41(e)(5)(i)-2 would have clarified the meaning of that 
term. The Bureau is finalizing the proposed comment, renumbered in the 
final rule as comment 41(e)(5)(i)(B)(2)-1, with revisions. The comment 
clarifies that the term bankruptcy plan, for purposes of Sec.  
1026.41(e)(5)(i)(B)(2), refers to a consumer's most recently filed 
bankruptcy plan filed under the applicable provisions of title 11 of 
the United States Code, regardless of whether the court overseeing the 
consumer's bankruptcy case has confirmed or approved the plan. Unlike 
the proposal, the final rule looks to the consumer's most recently 
filed bankruptcy plan, and it does not require the bankruptcy plan to 
be confirmed. The condition under Sec.  1026.41(e)(5)(i)(B)(2) is thus 
satisfied if the consumer's most recently filed bankruptcy plan 
provides that the consumer will surrender the dwelling securing the 
mortgage loan, provides for the avoidance of the lien securing the 
mortgage loan, or otherwise does not provide for, as applicable, the 
payment of pre-bankruptcy arrearage or the maintenance of payments due 
under the mortgage, whether or not that plan is confirmed or a prior 
plan provided for the payment of the mortgage loan.
    The Bureau is adopting these changes so that the exemption criteria 
in Sec.  1026.41(e)(5)(i)(B)(2) are based on a consumer's most recent 
expressed intent to retain or surrender the property as identified in a 
proposed or confirmed bankruptcy plan. As the Bureau explained in the 
proposal, the value of receiving a periodic statement is diminished for 
a consumer who intends to surrender the property. Additionally, 
providing a periodic statement to a consumer who has indicated, through 
a bankruptcy plan, an intention to surrender the property, could 
increase the risk of a court finding that a servicer violated the 
automatic stay. The Bureau understands that a consumer will often 
perform according to a proposed plan for several months before a plan 
is confirmed, and a consumer who is surrendering the property or 
avoiding the lien may not benefit from a statement during that 
interval. The Bureau therefore does not believe that a servicer should 
have to provide a periodic statement to a consumer whose proposed 
bankruptcy plan indicates that the consumer intends to cease making 
payments on the mortgage loan.
    Payment after bankruptcy filing and statement of intention. Final 
Sec.  1026.41(e)(5)(i)(B)(4) requires both that a consumer has filed 
with the bankruptcy court a statement of intention identifying an 
intent to surrender the dwelling securing the mortgage loan and that a 
consumer has not made any partial or periodic payment on the mortgage 
loan after the commencement of the consumer's bankruptcy case. Unlike 
the proposal, the final rule requires a servicer to provide a periodic 
statement to a consumer whose statement of intention identifies an 
intent to surrender the property if a consumer either has made any 
partial or periodic payment on the mortgage loan after the commencement 
of the bankruptcy case or has requested in writing that the servicer 
provide a periodic statement.\369\ The Bureau believes that making a 
payment on the mortgage loan may be a better indication of the 
consumer's intention to keep the property than a formal statement of 
intention filed with the bankruptcy court.\370\ The statement of 
intention may reflect only the consumer's intention at a point in time 
and not the consumer's present intention. Moreover, the Bureau is also 
aware that a consumer in bankruptcy will often file a statement of 
intent identifying a purported intent to surrender the home even when 
the consumer fully intends to retain the property and continue making 
mortgage payments. The Bureau believes that such a consumer benefits 
from receiving periodic information about the loan and that, as 
discussed above, providing a periodic statement to a consumer who is 
continuing to make voluntary mortgage payments is consistent with 
bankruptcy law.\371\
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    \369\ As noted above, one commenter requested that the final 
rule state more explicitly when a servicer is required to provide a 
periodic statement to a consumer who has discharged personal 
liability for the mortgage loan. The Bureau believes that the final 
rule does make these circumstances clear generally and that the 
inclusion of the partial or periodic payment language further 
eliminates any potential ambiguity.
    \370\ Even if a servicer were to return a consumer's partial 
payment or hold it in suspense, the servicer would still be required 
to resume compliance with Sec.  1026.41 after the bankruptcy case 
concludes because the consumer would have made the payment. The 
final rule looks to the consumer's actions in determining the scope 
of the exemption.
    \371\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In 
re Henry), 266 B.R. at 471 (Bankr. C.D. Cal. 2001) (holding that 
creditor did not violate the automatic stay by sending periodic 
statements and notice of default to debtors who retain their 
property by continuing to make payments without reaffirming the 
mortgage loan); Kibler v. WFS Fin., Inc. (In re Kibler), Case No. 
97-25258-B-7, Adv. No. 00-2604, 2001 WL 388764 (Bankr. E.D. Cal. 
Mar. 19, 2001) (noting that borrowers who retain their property by 
continuing to make payments without reaffirming the mortgage loan 
``need to receive normal billings to avoid a contract default and 
potential foreclosure''); 4 Collier on Bankruptcy ] 524.04 
(``Section 524(j) clarifies that when a debtor does not reaffirm a 
mortgage debt secured by real estate that is the debtor's principal 
residence, the creditor may continue to send statements to the 
debtor in the ordinary course of business and collect payments made 
voluntarily by the debtor.'') (citing Jones v. Bac Home Loans 
Servicing, LP (In re Jones), Case No. 08-05439-AJM-7, Adv. No. 09-
50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov. 25, 2009)).

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[[Page 72323]]

    In addition, as with the expression of the consumer's intent in a 
bankruptcy plan, the Bureau believes that the consumer's most recent 
statement of intention is the relevant filing for purposes of Sec.  
1026.41(e)(5)(i)(B)(4). The Bureau has finalized comment 
41(e)(5)(i)(B)(4)-1 accordingly. The comment also provides an 
illustrative example.
41(e)(5)(ii) Reaffirmation or Consumer Request To Receive Statement or 
Coupon Book
    The Bureau is finalizing proposed Sec.  1026.41(e)(5)(ii) with 
revisions. Final Sec.  1026.41(e)(5)(ii) provides that a servicer 
ceases to qualify for an exemption pursuant to Sec.  1026.41(e)(5)(i) 
with respect to a mortgage loan if the consumer reaffirms personal 
liability for the loan or any consumer on the mortgage loan requests in 
writing that the servicer provide a periodic statement or coupon book, 
unless a court enters an order in the bankruptcy case requiring the 
servicer to cease providing a periodic statement or coupon book. 
Proposed Sec.  1026.41(e)(5)(ii)(A) would have similarly required a 
servicer to resume compliance with the periodic statement requirements 
upon receipt of a consumer's written request, unless a court ordered 
the servicer to cease providing a periodic statement or coupon book. 
Proposed Sec.  1026.41(e)(ii)(B) would have likewise required a 
servicer to resume compliance after the consumer reaffirmed personal 
liability for the mortgage loan, among other things. The Bureau 
believes that final Sec.  1026.41(e)(5)(ii) more clearly states that a 
servicer ceases to qualify for an exemption pursuant to Sec.  
1026.41(e)(5)(i) with respect to a mortgage loan after either receipt 
of a consumer's written request or the consumer reaffirms personal 
liability for the mortgage loan.
    The Bureau is also adopting new comment 41(e)(5)(ii)-1 to clarify 
what form of periodic statement a servicer would provide after a 
consumer reaffirms personal liability for a mortgage loan or opts into 
receiving a periodic statement. The comment explains that a servicer 
would provide a modified statement only if Sec.  1026.41(f) applies to 
the mortgage loan at that time. The comment explains that, for example, 
Sec.  1026.41(f) does not apply with respect to a mortgage loan once 
the consumer has reaffirmed personal liability; therefore, following a 
consumer's reaffirmation, a servicer generally would provide a periodic 
statement that complies with Sec.  1026.41 but without the 
modifications set forth in Sec.  1026.41(f). The comment further 
explains that Sec.  1026.41(f) does apply, however, with respect to a 
mortgage loan following a consumer's written request to receive a 
periodic statement, so long as any consumer on the mortgage loan 
remains in bankruptcy or has discharged personal liability for the 
mortgage loan; accordingly, following that written request, a servicer 
must provide a periodic statement that includes the modifications set 
forth in Sec.  1026.41(f).
Written Opt-Out and Opt-In Requests Under 41(e)(5)(i) and 41(e)(5)(ii)
    As explained above, Sec.  1026.41(e)(5)(i)(B)(1) provides that a 
servicer may honor a consumer in bankruptcy's written request that the 
servicer cease providing a periodic statement. Section 
1026.41(e)(5)(ii) provides, in part, that a servicer ceases to qualify 
for an exemption pursuant to Sec.  1026.41(e)(5)(i) with respect to a 
mortgage loan if any consumer on the mortgage loan requests in writing 
that the servicer provide a periodic statement, unless a court enters 
an order in the bankruptcy case requiring the servicer to cease 
providing a periodic statement. Thus, Sec.  1026.41(e)(5)(i)(B)(1) 
provides an opt-out mechanism and Sec.  1026.41(e)(5)(ii) provides an 
opt-in mechanism.
    Section 1026.41(e)(5)(i)(B)(1) generally provides the requirements 
for opt-out. Section 1026.41(e)(5)(i)(B)(1) does not prohibit servicers 
from continuing to honor opt-out requests received, whether orally or 
in writing, from consumers in bankruptcy before the effective date, so 
long as the servicer can document that the consumer affirmatively made 
the request. Servicers may choose to require consumers to submit a new 
written request, but the Bureau is not requiring it. The Bureau 
believes that imposing such a requirement in the final rule would 
unnecessarily increase burden on consumers and servicers.
    As noted above, the Bureau is adopting comment 41(e)(5)-1, which 
clarifies that, if an agent of the consumer, such as the consumer's 
bankruptcy counsel, submits a request under Sec.  
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii), the request is deemed to be 
submitted by the consumer. The Bureau is also adopting new comment 
41(e)(5)-3, which clarifies that a consumer's written request under 
Sec.  1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the date 
of receipt by the servicer.
    Requiring written opt-out and opt-in. Requiring opt-out and opt-in 
requests to be in writing reduces the potential for litigation in the 
bankruptcy court and eliminates ambiguities about whether a consumer 
made an effective request. Although a written requirement imposes 
greater burden on consumers, a significant majority of consumers in 
bankruptcy are represented by counsel, who should be able to assist 
them with preparing a request.\372\ The section-by-section analysis of 
Sec.  1026.41(e)(5)(iii) discusses the final rule provision that a 
servicer may establish an address that a consumer must use to submit a 
written request that the servicer cease or continue providing a 
periodic statement.
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    \372\ See In re LaGrone, 525 B.R. 419, 427 (Bankr. N.D. Ill. 
2015) (citing By the Numbers--Pro Se Filers in the Bankruptcy 
Courts, The Third Branch News (U.S. Cts.) Oct. 2011, available at 
https://www.uscourts.gov/News/TheThirdBranch/11-10-01/By_the_Numbers-Pro_Se_Filers_in_the_Bankruptcy_Courts.aspx, for the proposition 
that in 2011 debtors were represented by counsel in 92% of chapter 7 
cases and 90% of chapter 13 cases).
---------------------------------------------------------------------------

    No universal opt-in requirement. The Bureau declines to require 
that a consumer in bankruptcy always submit an affirmative request to a 
servicer in order to receive a periodic statement. The Bureau shares 
the concern of some commenters that a consumer who wants to receive a 
periodic statement may nonetheless fail to make an affirmative request 
to opt in. Moreover, absent an express requirement that a servicer 
provide notice to a consumer of the right to opt in, a consumer may not 
be aware of this right, and the Bureau is concerned about the burden 
such a new notice requirement would impose on servicers. The Bureau is 
also concerned that a notice-and-opt-in procedure could create long 
delays between the bankruptcy filing and when a consumer receives a 
periodic statement, potentially causing a consumer to be unaware of 
additional fees and charges. The final rule already provides that a 
servicer has period of time constituting a limited exemption from the 
requirements of Sec.  1026.41 before it must provide a periodic 
statement subject to Sec.  1026.41(f) to a consumer in bankruptcy, and 
the Bureau is

[[Page 72324]]

concerned that lengthening this period with a notice-and-opt-in 
procedure could deprive the consumer of important information about the 
mortgage loan during a time when the consumer is attempting to reorder 
the consumer's financial affairs.
    The Bureau does not believe an affirmative opt-in requirement is 
necessary to protect servicers from violating the automatic stay or 
discharge injunction. As discussed above, bankruptcy courts hold 
consistently that a servicer does not violate the automatic stay when 
it provides an accurate periodic statement to a consumer who intends to 
retain a property through bankruptcy, including specifically in the 
circumstances in which the final rule would require a periodic 
statement.\373\ The Bureau notes that the U.S. Trustee Program opposed 
an opt-in requirement and did not express concerns that the proposal 
would result in automatic stay violations. Additionally, from outreach 
and comments received, the Bureau is aware that at least one large 
servicer provides a periodic statement to all of its consumers in 
bankruptcy who have a first-lien mortgage, subject to the consumer's 
right to opt out, and that this servicer believes its practice complies 
with the automatic stay. The final rule allows a consumer in bankruptcy 
to opt out of receiving a periodic statement, so a servicer does not 
risk an automatic stay violation by sending a periodic statement to a 
consumer who has requested not to receive them.
---------------------------------------------------------------------------

    \373\ See supra, note 335-340.
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    The Bureau further notes that the final rule incorporates a de 
facto opt-in requirement. As consumer advocacy groups commented about 
the proposal, a consumer must identify in either the bankruptcy plan or 
the statement of intention whether the consumer intends to retain or 
surrender the property. The exemption under Sec.  1026.41(e)(5)(i) does 
not apply if the consumer identifies an intent to retain the property, 
but it does apply if the consumer identifies an intent to surrender 
(unless the consumer subsequently makes a partial or periodic payment 
on the mortgage loan or requests in writing that the servicer provide a 
periodic statement). Accordingly, in practice, a servicer will 
generally not be required to provide a periodic statement to a consumer 
in bankruptcy unless the consumer has taken an affirmative step 
identifying an intent to retain the property.
    The Bureau believes that a consumer who makes such an affirmative 
step likely benefits from receiving a periodic statement.\374\ Indeed, 
consumer testing participants stated overwhelmingly that they would 
prefer to receive a periodic statement if they intended to retain their 
property through bankruptcy.\375\ The Bureau has also received 
complaints from consumers who are retaining their property but do not 
receive periodic statements from their servicers due to the bankruptcy.
---------------------------------------------------------------------------

    \374\ The Bureau acknowledges that, in some circumstances, the 
final rule may require a servicer to provide a periodic statement to 
a consumer who has not yet filed a statement of intention or 
bankruptcy plan and thus to a consumer who has not yet made clear an 
intent to retain or surrender the property. In this circumstance, 
however, courts have held that a periodic statement would be helpful 
to the consumer because it provides information that may be relevant 
to deciding whether to retain or surrender. See, e.g., Connor v. 
Countrywide Bank NA (In re Connor), 366 B.R. 133, 136, 138 (Bankr. 
D. Haw. 2007) (holding that debtor failed to state a claim for stay 
violation related to periodic statements received prior to chapter 
13 plan confirmation).
    \375\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 58 (Feb. 2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on 
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
---------------------------------------------------------------------------

    The Bureau also does not believe that the final rule imposes 
substantially more burden than would a universal opt-in regime. The 
Bureau understands that a servicer likely will expend more resources to 
determine whether an exemption applies under the final rule, such as by 
reviewing bankruptcy court filings, than it would if it were required 
to send a periodic statement only upon receiving a request from the 
consumer. As noted above, however, a servicer may have incurred other 
costs if the Bureau had required the servicer to provide a notice to 
the consumer about an opt-in right. Moreover, as already discussed, the 
Bureau believes there are substantial benefits to consumers of not 
adopting an express opt-in requirement.
    Other opt-in and opt-out issues raised by commenters. The Bureau is 
not adopting commenters' other recommendations relating to the written 
request requirement. For example, the Bureau is not adopting one 
commenter's recommendation that the rule require all co-obligors to 
sign any opt-in or opt-out requests. The Bureau believes that this 
approach would present practical challenges because some consumers may 
not be able to obtain a signature from all co-obligors and some 
consumers would be unaware of the need to obtain additional signatures. 
In such circumstances, requiring all co-obligors to sign a request 
could make it inappropriately difficult for a consumer to receive a 
periodic statement.
    The Bureau also is not adopting commenters' recommendation to 
require that a servicer inform a consumer attempting to opt in or opt 
out orally about the need to submit a written request. Many consumers 
in bankruptcy are represented by counsel who can advise them of the 
writing requirement. The Bureau believes that requiring this notice 
could add an unnecessary compliance obligation. Although not required, 
the Bureau nevertheless encourages servicers to inform consumers of the 
writing requirement and notes that doing so does not violate Sec.  
1026.41(e)(5).
41(e)(5)(iii) Exclusive Address
    Under new Sec.  1026.41(e)(5)(iii), a servicer may establish an 
address that a consumer must use to submit a written request that the 
servicer cease or continue providing a periodic statement. The Bureau 
believes that allowing servicers to designate an address for these 
purposes may reduce compliance burden for servicers and facilitate 
consumers' exercise of their opt-in and opt-out preferences.
    The Bureau shares some commenters' concerns, however, that some 
consumers may not know the specific address and therefore be unable to 
exercise these rights. Therefore, Sec.  1026.41(e)(5)(iii) requires a 
servicer establishing a specific address for this purpose to notify the 
consumer of the address in a manner that is reasonably designed to 
inform the consumer of the address. For example, a servicer may be able 
to satisfy this requirement by including the address on the servicer's 
Web site or the periodic statement. Section 1026.41(e)(5)(iii) does not 
necessarily require that the servicer inform the consumer of the 
address in writing; for example, when a consumer has called the 
servicer requesting a periodic statement, the servicer may inform the 
consumer of the address in that phone call with the consumer. Section 
1026.41(e)(5)(iii) also provides that, if a servicer designates a 
specific address for opt-in and opt-out requests, it must designate the 
same address for both. Requiring the same address for opt-ins and opt-
outs should reduce the potential for uncertainty or mistakes about 
which address consumers or their counsel should use for making 
requests.
41(e)(5)(iv) Timing of Compliance Following Transition
    The Bureau is finalizing new Sec.  1026.41(e)(5)(iv) to ensure that 
a servicer has a sufficient period of time to transition to providing a 
modified or an unmodified periodic statement in connection with a 
consumer's

[[Page 72325]]

bankruptcy case. Section 1026.41(e)(5)(iv)(A) specifies the three 
bankruptcy-related events that would cause a servicer to transition to 
providing a different form of periodic statement: (1) A mortgage loan 
becomes subject to the requirement to provide a modified periodic 
statement pursuant to Sec.  1026.41(f); (2) a mortgage loan ceases to 
be subject to the requirement to provide a modified periodic statement 
pursuant to Sec.  1026.41(f); or (3) a servicer ceases to qualify for 
an exemption pursuant to a Sec.  1026.41(f) with respect to a mortgage 
loan.
    Comment 41(e)(5)(iv)(A)-1 clarifies when a mortgage loan becomes, 
or ceases to be, subject to the requirements of Sec.  1026.41(f). The 
comment states that a mortgage loan becomes subject to the requirements 
of Sec.  1026.41(f) when, for example, any consumer who is on the 
mortgage loan becomes a debtor in bankruptcy or discharges personal 
liability for the mortgage loan. A mortgage loan may cease to be 
subject to the requirements of Sec.  1026.41(f) when, for example, the 
consumer in bankruptcy reaffirms personal liability for a mortgage loan 
or the consumer's bankruptcy case is closed or dismissed without the 
consumer having discharged personal liability.
    Comment 41(e)(5)(iv)(A)-2 clarifies when a servicer ceases to 
qualify for an exemption pursuant Sec.  1026.41(e)(5)(i) with respect 
to a mortgage loan. The comment states that a servicer ceases to 
qualify for an exemption pursuant to Sec.  1026.41(e)(5)(i) with 
respect to a mortgage loan when, for example, (1) the consumer's 
bankruptcy case is dismissed or closed; (2) the consumer files an 
amended bankruptcy plan or statement of intention that provides, as 
applicable, for the maintenance of payments due under the mortgage loan 
and the payment of pre-petition arrearage or that the consumer will 
retain the dwelling securing the mortgage loan; (3) the consumer makes 
a partial or periodic payment on the mortgage loan despite having filed 
a statement of intention identifying an intent to surrender the 
dwelling securing the mortgage loan, thus making Sec.  
1026.1(e)(5)(i)(B)(4) inapplicable; (4) the consumer in bankruptcy 
reaffirms personal liability for the mortgage loan; or (5) the consumer 
submits a written request pursuant to Sec.  1026.41(e)(5)(ii) that the 
servicer continue providing a periodic statement.
    Section 1026.41(e)(5)(iv)(B) provides that a servicer is exempt 
from the periodic statement requirements with respect to a single 
billing cycle if the payment due date for that billing cycle is no more 
than 14 days after the date on which an event listed in Sec.  
1026.41(e)(5)(iv)(A) occurs. Comment 41(e)(5)(iv)(B)-1 clarifies that 
this single-billing-cycle exemption applies only for the first billing 
cycle that occurs after an event listed in Sec.  1026.41(e)(5)(iv)(A) 
occurs. The comment explains that, if a servicer is required to provide 
a periodic statement, the servicer must do so beginning with the next 
billing cycle, in accordance with the timing provisions of Sec.  
1026.41(e)(5)(iv)(C).
    Section 1026.41(e)(5)(iv)(C) sets forth the timeframe within which 
a servicer must provide the next periodic statement after an event 
listed in Sec.  1026.41(e)(5)(iv)(A) occurs. When one of the events 
listed in Sec.  1026.41(e)(5)(iv)(A) occurs, a servicer must provide 
the next modified or unmodified periodic statement by delivering or 
placing it in the mail within a reasonably prompt time after the first 
payment due date, or the end of any courtesy period for the payment's 
corresponding billing cycle, that is more than 14 days after the date 
on which the applicable event listed in Sec.  1026.41(e)(5)(iv)(A) 
occurs. Comment 41(e)(5)(iv)(C)-1 clarifies that delivering, emailing, 
or placing the periodic statement in the mail within four days after 
the payment due date or the end of the courtesy period generally would 
be considered reasonably prompt. Comment 41(e)(5)(iv)(C)-2 clarifies 
that Sec.  1026.41(e)(5)(iv)(C) applies to the timing of only the first 
periodic statement or coupon book a servicer provides after one of the 
events listed in Sec.  1026.41(e)(5)(iv)(A) occurs. For subsequent 
billing cycles, a servicer must provide a periodic statement in 
accordance with the timing requirements of Sec.  1026.41(a)(2) and (b) 
(or Sec.  1026.41(e)(3), in the case of a coupon book). Comment 
41(e)(5)(iv)(C)-3 clarifies that Sec.  1026.41(e)(5)(iv)(C) requires a 
servicer to provide a new coupon book after one of the events listed in 
Sec.  1026.41(e)(5)(iv)(A) occurs only to the extent the servicer has 
not previously provided the consumer with a coupon book that covered 
the upcoming billing cycle. Section 1026.41(e)(iv)(C) and comments 
41(e)(5)(iv)(C)-1 and 2 thus impose timing requirements that are 
similar to those in Sec.  1026.41(b) and comment 41(b)-1 in the non-
bankruptcy context.
    Industry commenters expressed concern about a servicer's ability to 
transition to providing modified periodic statements that are both 
accurate and timely following a consumer's bankruptcy filing, stating 
that the transition could be particularly difficult if a servicer 
learns of the consumer's bankruptcy within just a few days before it 
was scheduled to provide the next periodic statement. Similarly, 
servicers expressed concern about their ability to timely provide an 
unmodified periodic statement after the close of a consumer's 
bankruptcy case. An industry commenter suggested that additional time 
is necessary because the National Mortgage Settlement requires certain 
servicers to perform an account reconciliation after the close of a 
consumer's chapter 13 case.
    The Bureau believes Sec.  1026.41(e)(5)(iv) provides an appropriate 
transition period for a servicer while also not unnecessarily 
disadvantaging a consumer. The Bureau therefore declines to adopt 
commenters' recommendations that the rule should uniformly allow a 
transition period until the second payment due date, of two billing 
cycles, or of 60 days. Under the final rule, a servicer will have more 
than 14 days before the first billing cycle due date for which it must 
provide the next periodic statement when a mortgage loan becomes 
subject to the requirement to provide a modified periodic statement, a 
mortgage loan ceases to be subject to the requirement to provide a 
modified periodic statement, or the servicer ceases to qualify for an 
exemption pursuant to Sec.  1026.41(e)(5)(i). The Bureau notes that, in 
practice, the final rule will afford most servicers a longer transition 
period than 14 days because Sec.  1026.41(b) states that providing a 
periodic statement is timely if it occurs within a reasonably prompt 
time after the close of any courtesy period.\376\
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    \376\ For example, a servicer with a courtesy period of 15 days 
would have at least 29 days (the 14-day period before the first 
payment due date plus the 15-day courtesy period) before it would be 
required to provide a periodic statement with the modification set 
forth in Sec.  1026.41(f). At that point, the servicer would have to 
deliver the periodic statement within a reasonably prompt time. See 
12 CFR 1026.41(b); comment 41(b)-1 (explaining that ``[d]elivering, 
emailing or placing the periodic statement in the mail within four 
days of the close of the courtesy period of the previous billing 
cycle generally would be considered reasonably prompt'').
---------------------------------------------------------------------------

Other Issues Raised by Commenters
    The Bureau declines to adopt commenters' suggestion to exempt a 
servicer from the periodic statement when a consumer is in chapter 12 
bankruptcy or has a bankruptcy plan that reduces the outstanding amount 
of the mortgage loan to the value of the collateral--that is, a cram-
down plan. The Bureau believes that such a consumer would benefit from 
the information contained in a periodic statement, including in 
particular the

[[Page 72326]]

disclosure of payments received and applied, as would any other 
consumer. As commenters noted, however, in this situation the 
consumer's payment obligations during bankruptcy may be tailored to 
that specific consumer, such as requiring payments seasonally to 
coincide with the consumer's harvest or reducing payments to the 
remaining secured portion of the loan. A servicer therefore could bear 
additional costs attempting to disclose those specific circumstances on 
a periodic statement. The Bureau believes that the additional costs may 
not be warranted given that those types of bankruptcy cases are 
relatively infrequent.\377\ Accordingly, as suggested by some 
commenters and in order to reduce burden further, the final rule 
provides servicers with flexibility as to how to present the 
information on periodic statements sent to consumers with cram-down 
plans, as explained in more detail in the section-by-section analysis 
of Sec.  1026.41(f).
---------------------------------------------------------------------------

    \377\ For example, that there was an average of approximately 
545 chapter 12 cases filed nationwide annually between 2011 and 
2014. See Administrative Office of the U.S. Courts, U.S. Bankruptcy 
Courts--Caseload Statistics Data Tables, available at https://www.uscourts.gov/statistics-reports/caseload-statistics-data-tables.
---------------------------------------------------------------------------

    The Bureau also declines to require a servicer to send a periodic 
statement to a trustee overseeing a consumer's bankruptcy case. 
Industry commenters objected to the burden of preparing and mailing 
statements to a trustee, as well as to potential costs related to 
ensuring that the periodic statement does not disclose any personal 
information to the trustee. Some commenters also noted that trustees 
are not uniformly interested in receiving periodic statements. The 
Bureau recognizes that some trustees would use periodic statements to 
monitor how servicers apply payments and acknowledges that the 
information contained on the periodic statement may otherwise be 
difficult for the trustee to obtain. Nonetheless, the Bureau declines 
to mandate that servicers provide periodic statements to bankruptcy 
trustees at this time, based on concern about the burden this could 
impose on servicers.
    The Bureau also declines to adopt other recommendations some 
commenters made relating to the exemption, for example, that the Bureau 
should require additional notices to the consumer or consumer's counsel 
regarding the exemption.
Legal Authority
    The Bureau is exercising its authority under sections 105(a) and 
(f) of TILA and section 1405(b) of the Dodd-Frank Act to exempt 
servicers from the requirement in section 128(f) of TILA to provide 
periodic statements for a mortgage loan in certain bankruptcy-related 
circumstances. For the reasons discussed above, the Bureau believes 
this exemption is necessary and proper under section 105(a) of TILA to 
facilitate compliance. In addition, consistent with section 105(f) of 
TILA and in light of the factors in that provision, the Bureau believes 
that imposing the periodic statement requirements for certain consumers 
in bankruptcy may not currently provide a meaningful benefit to those 
consumers in the form of useful information. Consistent with section 
1405(b) of the Dodd-Frank Act, the Bureau also believes that the 
modification of the requirements in section 128(f) of TILA to provide 
this exemption is in the interest of consumers and in the public 
interest.
41(e)(6) Charged-Off Loans
    Proposed Sec.  1026.41(e)(6) would have exempted a servicer from 
the requirements of Sec.  1026.41 for a mortgage loan charged off in 
accordance with loan-loss provisions, but only if the servicer would 
not charge any additional fees or interest on the account, and only 
after the servicer provided the consumer a periodic statement with 
various additional disclosures relating to the effects of charge off. 
For the reasons set forth below, the Bureau is adopting Sec.  
1026.41(e)(6)(i) as proposed but is revising the disclosures that must 
appear on the periodic statement that servicers must provide before 
exercising the exemption. As finalized, Sec.  1026.41(e)(6)(ii) also 
contains provisions relating to when a servicer must resume compliance 
with the periodic statement requirement.
    The periodic statement rule set forth in Sec.  1026.41 requires the 
creditor, assignee, or servicer of a closed-end consumer credit 
transaction secured by a dwelling (a mortgage loan) to provide the 
consumer, for each billing cycle, a periodic statement meeting certain 
time, form, and content requirements.\378\ The Bureau understands that 
a servicer, pursuant to certain accounting standards and at a 
creditor's direction, may be required to charge off a delinquent 
mortgage loan in accordance with applicable loan-loss provisions. 
Charge off is an accounting practice that indicates that the creditor 
or servicer no longer considers the mortgage loan to be an asset. 
However, charge off does not release the consumer from liability for 
the mortgage loan. In some cases, although the mortgage loan has been 
charged off, the underlying lien secured by the dwelling remains in 
place. Therefore, even after charge off, the credit transaction is 
still secured by a dwelling. As explained in the proposal, under Sec.  
1026.41, unless the lien is released, the periodic statement is 
required for all charged-off mortgage loans, regardless of whether the 
mortgage loan was charged off prior to the effective date of the rule, 
January 10, 2014.
---------------------------------------------------------------------------

    \378\ For purposes of Sec.  1026.41, the term servicer includes 
the creditor, assignee, or servicer, as applicable. 12 CFR 
1026.41(a)(2).
---------------------------------------------------------------------------

    In advance of the proposal, the Bureau understood that the 
servicing of charged-off mortgage loans may differ from the servicing 
of non-charged-off mortgage loans. A servicer's software, systems, and 
platforms may treat charged-off mortgage loans distinctly, such that 
providing a periodic statement for a charged-off mortgage loan may be 
more burdensome, and therefore more costly, than providing a periodic 
statement for a non-charged-off mortgage loan. The Bureau also 
understood, however, that, even after charge-off, a servicer may pass 
along various fees to the consumer, such as attorney's fees, court 
costs, filing fees, garnishment fees, property maintenance fees, taxes, 
insurance, and fees for maintaining the lien. In the proposal, the 
Bureau explained that, where a servicer continues to charge a consumer 
fees and interest, the periodic statement may provide significant value 
to the consumer. An important role of the periodic statement is to 
document fees and charges to the consumer; as long as such charges may 
be assessed, the consumer is entitled to receive a periodic 
statement.\379\ In advance of the proposal, the Bureau considered 
concerns expressed about circumstances in which periodic statements 
should not be required and acknowledged that some circumstances could 
make providing a periodic statement more complicated. However, such 
circumstances are often precisely when a consumer most needs the 
periodic statement.
---------------------------------------------------------------------------

    \379\ See 2013 TILA Servicing Final Rule, 78 FR 10901, 10960 
(Feb. 14, 2013).
---------------------------------------------------------------------------

    Balancing these considerations, the Bureau proposed Sec.  
1026.41(e)(6), which would have exempted servicers from the 
requirements of Sec.  1026.41 for a mortgage loan that a servicer has 
charged off in accordance with loan-loss provisions, but only if the 
servicer would not charge any additional fees or interest on the 
account and would provide the consumer a periodic statement with 
specified disclosures within 30 days of charge off or the most recent 
periodic

[[Page 72327]]

statement. Proposed comment 41(e)(6)-1 would have clarified the 
relationship between proposed Sec. Sec.  1026.41(e)(6) and 1026.39, 
which requires certain disclosures upon the purchase, assignment, or 
transfer of a mortgage loan. Proposed comment 41(e)(6)-2 would have 
clarified when the obligation to provide periodic statements resumes 
under certain circumstances. The Bureau is adopting Sec.  1026.41(e)(6) 
and comments 41(e)(6)-1 and -2 with several revisions from the 
proposal, as described below. Some of the revisions are substantive, 
while others are technical to improve clarity.
    In the proposal, the Bureau sought comment on whether limiting the 
exemption for charged-off mortgage loans as proposed would be 
appropriate. Additionally, the Bureau sought comment on whether, with 
respect to mortgage loans that were charged off prior to the rule's 
effective date, the Bureau should provide servicers additional time to 
comply with either the proposed exemption for charged-off mortgage 
loans or the otherwise applicable periodic statement rule. Finally, the 
Bureau sought comment on whether there are alternatives to periodic 
statements for charged-off mortgage loans, such as an annual reminder 
to the consumer of a loan's status, including what might be the 
associated benefits to consumers and costs to servicers of such 
alternatives.
    The Bureau received numerous comments on proposed Sec.  
1026.41(e)(6). Some industry commenters and consumer advocacy groups 
generally expressed support for the proposal. One trade association 
expressed particular support for the proposed requirement to have clear 
labeling on the proposed final periodic statement, arguing that it 
would help consumers understand what has happened to their debt and 
various implications thereof. A servicer expressed appreciation for the 
approach taken in the proposal, agreeing that providing periodic 
statements to consumers with charged-off loans would provide little 
benefit to consumers while posing significant costs to servicers.
    Other commenters recommended various revisions to the proposal. A 
trade association and a servicer requested that servicers be allowed to 
amend the periodic statements provided under Sec.  1026.41(e)(6) as to 
continuing liability when the debt has been discharged in bankruptcy. A 
commenter also requested that servicers should not be required to 
provide a periodic statement under Sec.  1026.41(e)(6) if the consumer 
has sent the servicer a cease communication letter pursuant to section 
805(c) of the FDCPA. A state trade association commented that, although 
the exemption under proposed Sec.  1026.41(e)(6) is worthwhile, the 
exemption should not depend on whether the servicer will continue to 
charge any fees, as providing statements after charge off imposes a 
heavy burden, servicers may have no choice but to assess additional 
fees, and the servicer should not be required to forego collecting such 
fees to take advantage of the exemption. One servicer generally agreed 
with the proposed exemption from providing periodic statements for 
charged-off mortgage loans. However, the servicer indicated that the 
proposed requirements would require servicers to create and maintain a 
new periodic statement that differs from the existing periodic 
statements, which takes between 60 and 90 days to create. This servicer 
thus expressed a preference for providing a simple notice setting forth 
the relevant information instead of a periodic statement that must 
comply with the requirements of proposed Sec.  1026.41(e)(6). Another 
servicer requested that the Bureau clarify whether the proposed 
commentary for when there is a change in ownership likewise applies 
when there is an assignment for collection but no change in ownership.
    Consumer advocacy groups suggested that the Bureau should clarify 
certain required language on the periodic statement provided under 
Sec.  1026.41(e)(6), stating that consumers will not clearly understand 
the meaning and implications of charge off. One consumer advocacy group 
stated that the periodic statement should clearly state that the charge 
off does not eliminate the consumer's liability and that a lien secured 
by the dwelling remains in place. This commenter also suggested that 
servicers should be required to provide an annual reminder of the 
loan's status with important information, until the loan is 
transferred, assigned, or foreclosed upon, or the borrower has 
successfully obtained loss mitigation.
    Other consumer advocacy groups stated that the periodic statement 
provided under Sec.  1026.41(e)(6) should not contain the label ``Final 
Statement,'' as proposed, because the periodic statement might not in 
fact be final if the servicer is later required to provide a periodic 
statement, for example, because it adds fees or interest to the 
account. These commenters recommended that the Bureau consider the 
following specific adjustments to the periodic statement following 
charge off: Delete any reference to finality; indicate that the 
creditor or future creditor can go back to charging interest and fees 
and collecting on the debt; include an explanation that the creditor 
must notify the borrower and resume statements before the creditor may 
recommence charging interest or fees; include an explanation of the 
prohibition on various charges accruing if collection activity resumes; 
and detail the right of resumption. Additionally, these consumer 
advocacy groups stated that the periodic statement should emphasize 
that later creditors who have not received the periodic statement may 
later resume retroactive collection efforts, suggesting that this 
practice could be problematic for some borrowers who, having not 
retained the final statement, would have no proof that the creditor 
cannot do so. Finally, these consumer advocacy groups recommended 
requiring servicers to provide additional statements about the charged-
off mortgage loan as a reminder, perhaps every six months, but also 
suggested finalizing a rule that would permit the servicer to stop 
providing periodic statements if they mark the mortgage as satisfied 
and remove the lien on the property post-charge-off.
    One credit union commenter opposed requiring servicers to provide a 
periodic statement with the modifications proposed under Sec.  
1026.41(e)(6), indicating that providing a periodic statement with the 
term ``Final Statement'' could be misleading to consumers because 
servicers may make attempts to recover the debt after charge off, for 
example, through foreclosure. This commenter recommended that a 
periodic statement should not contain this language and instead contain 
language stating that, if the balance due is not paid, the loan may be 
referred to foreclosure.
    A trade association stated that loans that were charged off before 
the effective date of the proposed amendments should not be subject to 
any periodic statement requirements. The association commented that 
guidance the Bureau issued in 2013, clarifying that the Bureau expects 
servicers to provide periodic statements for mortgage loans after 
charge off, came too late during industry's implementation of the 2013 
Mortgage Servicing Final Rules for vendors to integrate the systems 
changes to comply in advance of the 2014 effective date.
    The Bureau is adopting Sec.  1026.41(e)(6) with several revisions, 
as described below. As finalized, Sec.  1026.41(e)(6)(i) provides that 
a servicer is exempt from the requirements of Sec.  1026.41 for a 
mortgage loan if two conditions are met. First, under Sec.  
1026.41(e)(6)(i)(A), the servicer

[[Page 72328]]

must have charged off the loan in accordance with loan-loss provisions 
and will not charge any additional fees or interest on the account. 
Second, under Sec.  1026.41(e)(6)(i)(B), the servicer must provide, 
within 30 days of charge off or the most recent periodic statement, a 
periodic statement, clearly and conspicuously labeled ``Suspension of 
Statements & Notice of Charge Off--Retain This Copy for Your Records.'' 
Section 1026.41(e)(6)(i)(B) also requires that this periodic statement 
provide a clear and conspicuous explanation that, as applicable: The 
mortgage loan has been charged off and the servicer will not charge any 
additional fees or interest on the account; the servicer will no longer 
provide the consumer a periodic statement for each billing cycle; the 
lien on the property remains in place and the consumer remains liable 
for the mortgage loan obligation and any obligations arising from or 
related to the property, which may include property taxes; the consumer 
may be required to pay the balance on the account in the future, for 
example, upon sale of the property; the balance on the account is not 
being canceled or forgiven; and the loan may be purchased, assigned or 
transferred. Providing this periodic statement as required under Sec.  
1026.41(e)(6)(i)(B) will provide important consumer protections while 
relieving the burden on servicers associated with providing ongoing 
periodic statements under Sec.  1026.41. The Bureau stresses that a 
servicer does not need to include any of the enumerated statements 
unless they apply to a particular consumer. For example, if a consumer 
has discharged personal liability for the mortgage loan through 
bankruptcy, the servicer would not need to include on the periodic 
statement an explanation that the consumer remains liable for the 
mortgage loan obligation.
    The Bureau is finalizing proposed comment 41(e)(6)-2, but 
incorporating it in Sec.  1026.41(e)(6)(ii) instead of finalizing it as 
a comment. Section 1026.41(e)(6)(ii) clarifies when a servicer must 
resume compliance with Sec.  1026.41 after exercising the exemption 
under Sec.  1026.41(e)(6)(i) and how a servicer must treat fees or 
interest that accrued while the exemption applied. Section 
1026.41(e)(6)(ii)(A) states that, if a servicer fails at any time to 
treat the mortgage loan that is exempt under Sec.  1026.41(e)(6)(i) as 
charged off or charges any additional fees or interest on the account, 
the obligation to provide a periodic statement pursuant to Sec.  
1026.41 resumes. Section 1026.41(e)(6)(ii)(B) states that a servicer 
may not retroactively assess fees or interest on the account for the 
period of time during which the exemption in Sec.  1026.41(e)(6)(i) 
applied. As the Bureau explained in the proposal, if the servicer or 
covered person at any time no longer treats the mortgage loan as 
charged off, begins charging fees or interest on the account, or 
retroactively assesses fees or interest on the account, such conduct 
would contravene the purpose of the exemption from the otherwise 
applicable periodic statement requirement. As noted above, an important 
role of the periodic statement is to document fees and charges to the 
consumer. As long as such charges may be assessed, the consumer is 
entitled to receive a periodic statement.
    The Bureau is adopting three comments to clarify the requirements 
of Sec.  1026.41(e)(6). The Bureau is adopting comment 41(e)(6)-1 
substantially as proposed but separating it into two separate comments 
to clarify a servicer's obligations when there is a change in ownership 
and separately when there is a change in servicing. Comment 41(e)(6)-1, 
as finalized, clarifies the relationship between Sec. Sec.  
1026.41(e)(6) and 1026.39, which requires certain disclosures upon the 
purchase, assignment, or transfer of a mortgage loan. The comment 
provides that, if a charged-off mortgage loan is subsequently 
purchased, assigned, or transferred, Sec.  1026.39(b) requires a 
covered person, as defined in Sec.  1026.39(a)(1), to provide a 
mortgage transfer disclosure.\380\
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    \380\ Section 1026.39(a)(1) defines a covered person as any 
person, as defined in 12 CFR 1026.2(a)(22), that becomes the owner 
of an existing mortgage loan by acquiring legal title to the debt 
obligation, whether through a purchase, assignment or other 
transfer, and who acquires more than one mortgage loan in any 
twelve-month period.
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    Comment 41(e)(6)-2, as finalized, clarifies a servicer's rights and 
obligations under Sec.  1026.41(e)(6) when there is a change in 
servicing. The comment provides that a servicer may take advantage of 
the exemption in Sec.  1026.41(e)(6)(i), subject to the requirements of 
that paragraph, and may rely on a prior servicer's provision to the 
consumer of the periodic statement required under Sec.  
1026.41(e)(6)(i)(B), unless the servicer provided the consumer a 
periodic statement pursuant to Sec.  1026.41(a). As noted above, the 
substance of this comment appeared in the proposal as a portion of 
comment 41(e)(6)-1. The Bureau also notes that comment 41(e)(6)-2 
refers to the rights and obligations of a servicer, whereas the 
proposal would have referred to a covered person who would otherwise be 
subject to the requirements of Sec.  1026.41.
    The Bureau is also adopting new comment 41(e)(6)(i)(B)-1 to clarify 
the ``clearly and conspicuously'' standard for purposes of Sec.  
1026.41(e)(6)(i)(B). The comment reiterates that the periodic statement 
required under Sec.  1026.41(e)(6)(i)(B) must be clearly and 
conspicuously labeled ``Suspension of Statements & Notice of Charge 
Off--Retain This Copy for Your Records'' and that it must provide 
certain clear and conspicuous explanations to the consumer, as 
applicable, but no minimum type size or other technical requirements 
are imposed. Comment 41(e)(6)(i)(B)-1 further states that the clear and 
conspicuous standard generally requires that disclosures be in a 
reasonably understandable form and readily noticeable to the consumer. 
Finally, the comment refers to comment 41(c)-1, which discusses the 
same standard for the periodic statements more generally.
    Section 1026.41(e)(6) differs from the proposal in four primary 
ways. First, the Bureau is revising the label that must appear clearly 
and conspicuously on the periodic statement provided under Sec.  
1026.41(e)(6). Section 1026.41(e)(6)(i) requires that the periodic 
statement that a servicer provides as a prerequisite to taking 
advantage of the exemption in Sec.  1026.41(e)(6) be clearly and 
conspicuously labeled in bold print ``Suspension of Statements & Notice 
of Charge Off--Retain This Copy for Your Records.'' The proposal would 
have required the label to read, ``Final Statement--Retain This Copy 
for Your Records.'' As the Bureau explained in the proposal, consumers 
should be advised to retain this periodic statement provided under 
Sec.  1026.41(e)(6) for record-keeping purposes, as they may need the 
information therein for tax or accounting purposes or to demonstrate 
the status of the loan to various parties. However, as some commenters 
noted, the proposed label may have misled consumers because a servicer 
might still refer the loan to foreclosure following charge-off and 
provide an additional statement at that time, or the periodic statement 
that the servicer provides under Sec.  1026.41(e)(6)(ii) may not in 
fact have been the final periodic statement. For example, as Sec.  
1026.41(e)(6)(ii)(A) clarifies, a servicer must resume providing 
periodic statements to a consumer if a servicer later either fails to 
treat the mortgage loan as charged off or charges any additional fees 
or interest on the account. Therefore, Sec.  1026.41(e)(6)(ii) and 
comment 41(e)(6)-1 no longer require a reference to the ``Final 
Statement'' as in the proposal.

[[Page 72329]]

    Second, a periodic statement provided under Sec.  1026.41(e)(6) 
must provide two new disclosures that the proposal would not have 
required. First, the statement must explain that the servicer will no 
longer provide the consumer a periodic statement for each billing 
cycle. This disclosure should alert consumers that they will no longer 
receive these types of communications. Second, the statement must 
explain that the lien on the property remains in place and that the 
consumer remains liable for the mortgage loan obligation and any 
obligations arising from or related to the property, which may include 
property taxes. These additional disclosures may help consumers better 
understand the meaning and consequences of charge off, including the 
consumers' ongoing obligations with respect to the mortgage loan and 
the property. The Bureau is adopting the remaining disclosures as 
proposed. Together, the requisite disclosures offer consumers 
information to help them understand the meaning and consequences of 
charge off. The Bureau is including these disclosures to address 
commenters' concerns that consumers could misconstrue the charge off to 
mean that the mortgage loan obligation or lien has been released, or 
the debt forgiven, when in fact this is generally not the case.
    Third, as explained above, the Bureau is revising proposed comment 
41(e)(6)-2 and is incorporating it into Sec.  1026.41(e)(6)(ii). 
Fourth, the Bureau is adopting new comment 41(e)(6)(i)(B)-1, to clarify 
the ``clearly and conspicuously'' standard for purposes of the label 
required under Sec.  1026.41(e)(6)(i)(B). The Bureau believes that this 
comment will help servicers understand what the rule requires.
    The Bureau is adopting Sec.  1026.41(e)(6) to reduce the burden on 
servicers of otherwise having to provide a regular periodic statement 
on an ongoing basis and to also ensure that consumers still receive 
important information about the mortgage loan. Although the general 
periodic statement requirements in Sec.  1024.41(a) through (d) provide 
important consumer protections, if a servicer will not charge any 
additional fees or interest on the account, the benefit to a consumer 
of receiving a regular periodic statement may be minimal, and there 
will be potential for increased costs passed on to consumers.
    The Bureau has narrowly tailored the exemption from the 
requirements of Sec.  1026.41. As noted above, the exemption applies 
only to mortgage loans that have been charged off in accordance with 
loan-loss provisions and only if the servicer will not charge any 
additional fees or interest on the account. Additionally, the exemption 
requires that the servicer provide the consumer the periodic statement 
required under Sec.  1026.41(e)(6)(i) with specific disclosures. The 
Bureau believes that limiting the exemption in this fashion reduces the 
risk that this exemption will be used to circumvent the servicing 
rules.
    The Bureau declines to adopt other amendments to the disclosures 
required by Sec.  1026.41(e)(6)(i)(B) that commenters recommended, 
including, among others, adding an explanation of possible future fees 
or interest, or the consumer's right of redemption. Generally, the 
periodic statement required under Sec.  1026.41(e)(6)(i) is not the 
appropriate vehicle for these or other recommended disclosures. The 
Bureau is concerned that including these additional disclosures could 
overload the consumer with information. Moreover, additional 
disclosures are likely to increase compliance costs.
    The Bureau also declines to adopt one commenter's recommendation to 
remove the predicate that servicers may take advantage of the exemption 
under Sec.  1026.41(e)(6) only if they do not charge any additional 
fees or interest on the account. The commenter stated that providing 
periodic statements after charge off imposes a heavy burden on 
servicers, servicers may have no choice but to assess fees, and 
servicers should not be required to forego collecting such fees to take 
advantage of the exemption. As the Bureau explained in the 2013 TILA 
Servicing Final Rule, in determining the disclosures that a general 
periodic statement must contain, the Bureau aimed to allow periodic 
statements to serve a variety of important purposes, including 
informing consumers of their payment obligations, providing information 
about the mortgage loan, and creating a record of transactions that 
increase or decrease the outstanding balance.\381\ The Bureau continues 
to believe that periodic statements should serve these purposes and 
allowing servicers to charge additional fees or interest without 
providing a periodic statement to disclose such fees or interest would 
not accomplish this end. Consumers cannot adequately protect their 
interests if they are not aware that their mortgage loan is accruing 
interest or fees.\382\
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    \381\ 78 FR 10901, 10959, (Feb. 14, 2013).
    \382\ As explained in the proposal, the exemption under Sec.  
1026.41(e)(6) is similar to existing Sec.  1026.5(b)(2)(i), which 
provides an exemption for certain charged-off accounts from the 
periodic statement requirement in Sec.  1026.7 for open-end credit 
transactions. Section 1026.5(b)(2)(i) states, in relevant part, that 
``[a] periodic statement need not be sent for an account . . . if 
the creditor has charged off the account in accordance with loan-
loss provisions and will not charge any additional fees or interest 
on the account. . . .'' 12 CFR 1026.5(b)(2)(i). In finalizing this 
exemption under Sec.  1026.5(b)(2)(i), the Board weighed the costs 
and benefits and determined that ``the value of a periodic statement 
does not justify the cost of providing the disclosure because the 
amount of a consumer's obligation will not be increasing,'' while 
reiterating that ``this provision does not apply if a creditor has 
charged off the account but continues to accrue new interest or 
charge new fees.'' 74 FR 5244, 5276 (Jan. 29, 2009). The Bureau 
continues to agree with the Board's reasoning and believes that a 
similar analysis applies with respect to the proposed exemption from 
the periodic statement requirement in Sec.  1026.41 for a mortgage 
loan that a servicer has charged off in accordance with loan-loss 
provisions if the servicer will not charge any additional fees or 
interest on the account. However, because closed-end consumer credit 
transactions secured by a dwelling are distinct from unsecured, 
open-end credit transactions by virtue of the underlying lien, the 
Bureau also believes that it is appropriate to impose additional 
requirements in this context.
---------------------------------------------------------------------------

    The Bureau also declines to allow servicers to provide a simple 
written notification setting forth relevant information in place of a 
periodic statement, as one industry commenter recommended. The 
commenter stated that Sec.  1026.41(e)(6) will require servicers to 
create and maintain a new and different periodic statement, and that 
the new periodic statement could take several months to create. The 
Bureau acknowledges that servicers using the exemption under Sec.  
1026.41(e)(6) will incur some additional costs to create and maintain a 
periodic statement with the additional disclosures required under Sec.  
1026.41(e)(6). However, the Bureau is not mandating that servicers 
discontinue providing periodic statements for charged-off mortgage 
loans as Sec.  1026.41(e)(6) allows. Rather, servicers will have the 
option to take advantage of the exemption. The Bureau also notes that 
the periodic statement required under Sec.  1026.41(e)(6)(i) would not 
significantly differ from the periodic statement otherwise provided 
under Sec.  1026.41 except that it would include additional disclosures 
related to the charge off. Further, although a simple written 
notification may contain some relevant information appropriate for 
consumers, the Bureau believes that including the required additional 
disclosures on the periodic statement under Sec.  1026.41(e)(6) will be 
clearer for consumers and create a single record for the consumer to 
retain.
    The Bureau also declines to require servicers to provide borrowers 
with semi-annual or annual periodic statements following the periodic 
statement provided under

[[Page 72330]]

Sec.  1026.41(e)(6)(ii). The Bureau believes that, on balance, the 
additional cost to servicers of tracking the appropriate timeframes and 
providing these additional periodic statements outweighs the potential 
benefit to consumers of receiving these statements.
    The Bureau also declines to adopt one commenter's recommendation 
that servicers should not be required to provide a periodic statement 
if the consumer has sent a cease communication letter pursuant to 
805(c) of the FDCPA. As noted in the Bureau's October 2013 Servicing 
Bulletin, periodic statements are specifically mandated by the Dodd-
Frank Act, which makes no mention of their potential cessation under 
the FDCPA and presents a more recent and specific statement of 
legislative intent regarding these disclosures than does the FDCPA. 
Moreover, the Bureau believes that the periodic statements provide 
useful information to consumers regardless of their collections status. 
Finally, the Bureau notes that nothing in Sec.  1026.41(e)(6) affects a 
debt collector's obligations under the FDCPA, including, for example, 
the requirement to provide the consumer a written validation notice 
under section 809 of the FDCPA.
    Further, the Bureau declines to offer an exemption from the 
requirement to provide periodic statements for mortgage loans that were 
charged off before this final rule's effective date. As the Bureau 
indicated in the proposal, under the current rule, the periodic 
statement is required for charged-off mortgage loans unless the lien is 
released. For charged-off mortgage loans, if a servicer wishes to take 
advantage of the new exemption in Sec.  1026.41(e)(6), the servicer 
must comply with the requirements of that section and provide, within 
30 days of the most recent periodic statement, a periodic statement 
that meets the requirements of Sec.  1026.41(e)(6)(i).
Legal Authority
    The Bureau is exempting from the periodic statement requirement 
under section 128(f) of TILA a mortgage loan that a servicer has 
charged off in accordance with loan-loss provisions if the servicer 
will not charge any additional fees or interest on the account, 
provided that the servicer must provide the consumer a periodic 
statement under Sec.  1026.41(e)(6) within 30 days of charge off or the 
most recent periodic statement. The Bureau is adopting this exemption 
pursuant to its authority under section 105(a) and (f) of TILA and 
section 1405(b) of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
exemption is necessary and proper under section 105(a) of TILA to 
facilitate TILA compliance. As discussed above, the Bureau believes 
that the proposal to exempt certain mortgage loans that a servicer has 
charged off facilitates compliance with TILA by allowing servicers to 
service loans cost effectively in compliance with applicable regulatory 
requirements.
    In addition, consistent with section 105(f) of TILA and in light of 
the factors in that provision, for servicers that are required to 
charge off mortgage loans in accordance with loan-loss provisions, the 
Bureau believes that requiring them to comply with the periodic 
statement requirement in section 128(f) of TILA would not provide a 
meaningful benefit to consumers in the form of useful information or 
protection. The Bureau believes, as noted above, that requiring 
provision of periodic statements would impose significant costs and 
burden. Specifically, the Bureau believes that the requirement will not 
complicate, hinder, or make more expensive the credit process. In 
addition, consistent with section 1405(b) of the Dodd-Frank Act, for 
the reasons discussed above, the Bureau believes that exempting a 
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or 
interest on the account, provided that the servicer must provide the 
consumer a periodic statement under Sec.  1026.41(e)(6) within 30 days 
of charge off or the most recent periodic statement, from the 
requirements of section 128(f) of TILA would be in the interest of 
consumers and in the public interest.
    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 this 
final rule is necessary and appropriate to carry out the purpose under 
section 1021(a) of the Dodd-Frank Act of ensuring that all consumers 
have access to markets for consumer financial products and services 
that 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.
41(f) Modified Periodic Statements and Coupon Books for Certain 
Consumers in Bankruptcy
    Currently, Sec.  1026.41(e)(5) exempts servicers from the 
requirement to provide a periodic statement for a mortgage loan while a 
consumer is a debtor in bankruptcy. (Except where noted specifically, 
the section-by-section analyses of Sec.  1026.41(f), including this 
overview and the analyses of Sec.  1026.41(f)(1) through (4), use the 
term periodic statement to refer to both a periodic statement and a 
coupon book that meets the requirements of Sec.  1026.41(e)(3).) As 
discussed in the section-by-section analysis of Sec.  1026.41(e)(5), 
the proposal would have limited that exemption to a specified set of 
consumers who are in bankruptcy or have discharged personal liability 
for a mortgage loan through bankruptcy. Further, proposed Sec.  
1026.41(f) would have specified that, when no exemption under Sec.  
1026.41(e)(5) applied, servicers may make various clarifications and 
modifications to the periodic statement requirements with respect to 
those consumers. For the reasons set forth below, the Bureau is 
adopting Sec.  1026.41(f) largely as proposed, but with some 
substantive revisions.
    As discussed in greater detail in the section-by-section analysis 
of Sec.  1026.41(e)(5), the Bureau sought comment in the October 2013 
IFR as to how the content of a periodic statement might be tailored to 
meet the particular needs of consumers in bankruptcy. The Bureau 
received written comments in response to that solicitation during the 
official comment period. Prior to issuing the proposal, the Bureau 
continued to receive comments and consulted with servicers, trade 
groups, consumer advocacy groups, bankruptcy attorneys, bankruptcy 
trustees, and bankruptcy judges regarding how a periodic statement may 
be tailored for purposes of bankruptcy, including hosting a roundtable 
discussion on June 16, 2014. The Bureau already addressed these 
comments and outreach efforts in the proposal; \383\ the discussion 
below generally addresses only the comments the Bureau received after 
issuing the proposal.
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    \383\ 78 FR 74175, 74246-74251 (Dec. 15, 2014).
---------------------------------------------------------------------------

    The Bureau received comments relating to various elements of 
proposed Sec.  1026.41(f). Comments specific to particular subsections 
are summarized in the relevant section-by-section analyses below.
    Some consumer advocacy groups and industry commenters addressed 
more

[[Page 72331]]

generally proposed Sec.  1026.41(f). They expressed general support for 
the proposed modifications to the periodic statement requirement. One 
consumer advocacy group stated that consumers and their attorneys would 
benefit from being able to ensure that the servicer is correctly 
applying payments. Other consumer advocacy groups expressed strong 
support for the proposal, stating that receiving disclosures regarding 
pre-petition and post-petition payments would resolve concerns about 
misapplication of payments and consumer understanding of their 
bankruptcy obligations. A trade association stated that the proposed 
amendments would protect credit unions from liability related to 
automatic stay violations.
    The Bureau also received numerous comments from members of industry 
stating directly or indirectly that complying with proposed Sec.  
1026.41(f) would be costly and burdensome. Some credit unions stated 
that credit unions in particular would not be able to manage the level 
of detail that the proposal would have required. Other industry 
commenters stated that servicers in general would have difficulty 
accurately making the proposed disclosures. Several commenters stated 
that complying with the proposed modifications would require systems 
updates. Some of these commenters stated that the modified periodic 
statements would provide little corresponding benefit to consumers, for 
example, because the consumer can obtain the information from other 
sources, such as a bankruptcy trustee.
    Having considered the comments it received following the proposal, 
the Bureau is adopting Sec.  1026.41(f) with the revisions discussed 
below. In general, the Bureau believes that it is appropriate to modify 
or omit certain of the disclosures required by Sec.  1026.41(d) with 
respect to a periodic statement provided to a consumer in bankruptcy or 
who has discharged the mortgage loan through bankruptcy. As explained 
in more detail in the section-by-section analyses of Sec.  
1026.41(f)(1) through (3), the Bureau believes that the final rule's 
modifications and omissions are necessary to ensure that a periodic 
statement takes into account the unique circumstances of bankruptcy and 
accurately reflects the payments made by a consumer in bankruptcy. The 
Bureau further believes that it is appropriate to require certain 
modifications to the periodic statement specifically for consumers who 
have filed under chapter 12 or chapter 13, in part because of the 
special treatment of mortgage loans secured by a consumer's principal 
residence under chapter 12 and chapter 13, which permit a consumer to 
repay pre-bankruptcy arrearages over a reasonable time while continuing 
to make monthly periodic payments due under the loan.\384\
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    \384\ See 11 U.S.C. 1222(b)(5), 1322(b)(5) (both stating that a 
plan ``may provide for the curing of any default within a reasonable 
time and maintenance of payments while the case is pending on any 
unsecured claim or secured claim on which the last payment is due 
after the date on which the final payment under the plan is due.''). 
Under chapter 12, moreover, a court may modify the terms of a 
mortgage loan secured by a principal residence. 11 U.S.C. 
1222(b)(2).
---------------------------------------------------------------------------

    Thus, as explained in more detail in respective section-by-section 
analyses below, Sec.  1026.41(f)(1) through (5) set forth various 
requirements for these modified periodic statements. Briefly stated, 
Sec.  1026.41(f)(1) permits the periodic statement to omit certain 
delinquency information that would otherwise be required under Sec.  
1026.41(d) when the consumer is in bankruptcy. Section 1026.41(f)(2) 
requires all periodic statements modified under Sec.  1026.41(f) to 
include certain informational disclosures about the bankruptcy. Section 
1026.41(f)(3) sets forth various specific modifications to the periodic 
statement when the consumer is in chapter 12 or chapter 13 bankruptcy. 
Section 1026.41(f)(4) describes how a servicer complies with Sec.  
1026.41(f) when there is more than one primary obligor. And Sec.  
1026.41(f)(5) sets forth certain requirements when the servicer 
provides a coupon book under Sec.  1026.41(e)(3) instead of a periodic 
statement.
    Under revised Sec.  1026.41(f), these requirements apply while any 
consumer on a mortgage loan is a debtor in bankruptcy under title 11 of 
the United States Code or if such consumer has discharged personal 
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, 
or 1328. This modifies the proposal to clarify that, where applicable, 
Sec.  1026.41(f) applies only while such consumer is a debtor in 
bankruptcy or has discharged personal liability for the mortgage loan. 
Once the bankruptcy case ends, Sec.  1026.41(f) no longer applies 
unless the consumer has discharged personal liability for the mortgage 
loan.\385\
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    \385\ See also the section-by-section analysis of Sec.  
1026.41(e)(5). Under the final rule, Sec.  1026.41(e)(5)(iv)(B) and 
comment 41(e)(5)(iv)(B)-1 and -2 set forth guidelines for resuming 
the obligation to provide a periodic statement or coupon book under 
Sec.  1026.41 without the modifications set forth in Sec.  
1026.41(f) when the bankruptcy case is dismissed, the case is 
closed, or the consumer reaffirms the mortgage loan pursuant to 11 
U.S.C. 524.
---------------------------------------------------------------------------

    The Bureau is also adopting proposed comments 41(f)-1 through -3 
with revisions to improve clarity. The Bureau is renumbering proposed 
comment 41(f)-3 as comment 41(f)-4 because the Bureau is finalizing a 
new comment as comment 41(f)-3. The Bureau is also adopting new 
comments 41(f)-5 and -6.
    The Bureau received no comments on proposed comment 41(f)-1 but is 
revising it to improve clarity. As revised, the comment provides that, 
except as provided in Sec.  1026.41(e)(5), Sec.  1026.41(f) applies 
with regard to a mortgage loan for which any consumer with primary 
liability is a debtor in a case under title 11 of the United States 
Code. The comment further states that, after the debtor exits 
bankruptcy, Sec.  1026.41(f) continues to apply if the consumer has 
discharged personal liability for the mortgage loan, but Sec.  
1026.41(f) does not apply if the consumer has reaffirmed personal 
liability for the mortgage loan or otherwise has not discharged 
personal liability for the mortgage loan.
    The Bureau received few comments on proposed comment 41(f)-2, which 
generally would have allowed servicers some flexibility to use 
different terminology on a periodic statement than that found on the 
sample form in appendix H-30. A servicer supported the proposal to 
allow flexibility in modifying the terminology on a periodic statement. 
In the context of Sec.  1026.41(f)(3), some trade associations stated 
more generally that they support express flexibility to revise the 
terminology relating to the payment amount. However, another servicer 
suggested that the proposed comment used an example that would create 
challenges for some consumers in chapter 12 bankruptcy. The proposed 
comment would have stated that a servicer may, for example, refer to 
amounts past due as unpaid post-petition payments, and the commenter 
stated that some chapter 12 debtors may not have monthly post-petition 
payment obligations, so consumers would not benefit from receiving a 
modified periodic statement under Sec.  1026.41(f).
    Having considered these comments, the Bureau is adopting comment 
41(f)-2 substantially as proposed, with several revisions to improve 
clarity by better aligning the comment with the terminology used on the 
sample periodic statement provided in appendix H-30, as well as with 
terminology that consumer testing participants more readily understood. 
As revised, comment 41(f)-2 provides that, with regard to a periodic 
statement provided under Sec.  1026.41(f), a servicer may use 
terminology other than that found on the sample periodic statements in 
appendix H-30, so long as

[[Page 72332]]

the new terminology is commonly understood. The comment refers to 
comment 41(d)-3, which includes similar language with respect to 
periodic statements generally. Comment 41(f)-2 also provides a non-
exhaustive list of examples. The list includes examples that also 
appear on the new sample forms in appendices H-30(E) and H-30(F). 
Comment 41(f)-2, as finalized, does not include several examples that 
were in the proposal; the Bureau believes the examples provided in the 
final rule are more appropriate than the proposed examples with respect 
to the final sample forms. The Bureau does not intend for these changes 
to alter the meaning of the comment.
    Comment 41(f)-2 explains that, for purposes of Sec.  1026.41(f)(1) 
through (3), servicers may use terminology specific to the 
circumstances of bankruptcy. This approach is consistent with that of 
existing comment 41(d)-3, which provides similar flexibility on 
periodic statements generally with respect to, for example, regional 
differences in terminology. Some industry commenters stated that courts 
sometimes disfavor terms such as ``amount due,'' ``payment due date,'' 
and ``overdue'' or ``past due payments,'' as those terms call to mind 
an attempt to collect a debt; court decisions have occasionally focused 
on the precise language of the terms used on a periodic statement.\386\ 
The Bureau also believes that the need to distinguish between pre-
petition and post-petition payments in a chapter 13 case may require 
different terminology than that used on other periodic statements. 
Although many testing participants expressed a preference for the more-
familiar terms ``amount due'' or ``due date'' that normally appear on 
periodic statements and other bills,\387\ the consumer testing on 
sample forms demonstrated that consumers generally understood 
alternative terminology. Testing also suggested that some consumers 
prefer more technical, bankruptcy-specific language.\388\ As to one 
commenter's concern that proposed comment 41(f)-2 would have offered an 
example that would create challenges for some consumers in chapter 12 
bankruptcy, the Bureau notes that comment 41(f)-2 is designed to afford 
servicers greater flexibility, within certain limitations. If the 
specific language offered as an example is not appropriate in a certain 
context, a servicer does not need to use that language.
---------------------------------------------------------------------------

    \386\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. 
Fla. 1999) (statement listed the ``total amount due''); Butz v. 
People First Fed. Credit Union (In re Butz), 444 B.R. 301, 305 
(Bankr. M.D. Pa. 2011) (statement requested immediate payment of an 
``amount due''); Harris v. Mem'l Hosp. (In re Harris), 374 B.R. 611, 
61461 (Bankr. N.D. Ohio 2007) (statement advised that the ``account 
is past due'').
    \387\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 53-54 (Feb. 2016), available at 
https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ 
(report on consumer testing submitted to the Bureau of Consumer Fin. 
Prot.).
    \388\ Id at 58.
---------------------------------------------------------------------------

    The Bureau is adopting a new comment, finalized as comment 41(f)-3, 
to clarify that the requirements of Sec.  1026.41, including the 
content and layout requirements of Sec.  1026.41(d), apply unless 
modified expressly by Sec.  1026.41(e)(5) or (f). For example, as 
described in more detail in the section-by-section analysis of Sec.  
1026.41(d)(3), the disclosure of past payment breakdown information is 
already in Sec.  1026.41(d)(3) and need not be restated in Sec.  
1026.41(f). The comment clarifies that the requirement under Sec.  
1026.41(d)(3) to disclose a past payment breakdown applies without 
modification with respect to a periodic statement provided to a 
consumer in bankruptcy.
    The Bureau is adopting proposed comment 41(f)-3 but is renumbering 
the comment as 41(f)-4. The Bureau sought comment on whether the 
proposed comment may afford servicers too little or too much 
flexibility with respect to the required content of a periodic 
statement. A servicer supported additional flexibility in modifying the 
periodic statement requirements under Sec.  1026.41(f). The Bureau is 
finalizing the comment as proposed. The comment provides that a 
periodic statement or coupon book provided under Sec.  1026.41(f) may 
be modified as necessary to facilitate compliance with title 11 of the 
United States Code, the Federal Rules of Bankruptcy Procedure, court 
orders, and local rules, guidelines, and standing orders. The comment 
provides an example: A periodic statement or coupon book may include 
additional disclosures or disclaimers not required under Sec.  
1026.41(f) but that are related to the consumer's status as a debtor in 
bankruptcy or that advise the consumer how to submit a written request 
under Sec.  1026.41(e)(5)(i)(B)(1) that the servicer cease providing a 
periodic statement or coupon book.
    As explained in the proposal, servicers may need flexibility to 
modify the periodic statement's content to comply with applicable rules 
and guidelines. The Bureau understands that many local bankruptcy rules 
already impose certain requirements regarding periodic statements, and 
the Bureau believes that servicers should be able to comply with both 
those rules and Regulation Z. The Bureau further believes that giving 
servicers the flexibility to include disclosures related to a 
consumer's status in bankruptcy is important and necessary to permit 
servicers to comply with local practice or rules.
    The Bureau is adopting new comment 41(f)-5 to clarify the timing of 
compliance with Sec.  1026.41(f), when applicable. The comment states 
that a servicer must begin to provide a periodic statement or coupon 
book that complies with Sec.  1026.41(f) within the timeframe set forth 
in Sec.  1026.41(e)(5)(iv).\389\
---------------------------------------------------------------------------

    \389\ See section-by-section analysis of Sec.  1026.41(e)(5)(iv) 
for more detail.
---------------------------------------------------------------------------

41(f)(1) Requirements Not Applicable
    For the reasons set forth below, the Bureau is adopting Sec.  
1026.41(f)(1) substantially as proposed, with minor revisions. 
Generally stated, the provision allows a periodic statement for 
consumers in bankruptcy to omit certain information about a consumer's 
failure to make timely payments. The provision also explains that such 
a periodic statement need not show the amount due more prominently than 
other disclosures on the page.
    Section 1026.41(d) requires a periodic statement to disclose 
information related to a consumer's failure to make timely payments. 
Section 1026.41(d)(1)(ii) sets forth one such disclosure, requiring a 
periodic statement to include the amount of any late fee and the date 
on which the fee will be imposed if payment has not been received. 
Section 1026.41(d)(8) requires that a periodic statement include 
certain information for consumers who are 45 days or more delinquent on 
a mortgage loan. Specifically, current Sec.  1024.41(d)(8)(i), (ii), 
and (v) require the disclosure of the date on which the consumer became 
delinquent; a notification of possible risks, such as foreclosure and 
expenses, that may be incurred if the delinquency is not cured; and a 
notice of whether the servicer has made the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process, if applicable. Section 1026.41(d) also contains certain layout 
requirements, including the requirement in Sec.  1026.41(d)(1)(iii) 
that the amount due be displayed more prominently than other 
disclosures on the page.
    Proposed Sec.  1026.41(f)(1) would have provided that certain of 
Sec.  1026.41(d)'s

[[Page 72333]]

disclosures and layout requirements do not apply to a periodic 
statement provided to consumers in bankruptcy under proposed Sec.  
1026.41(f). The proposal would have further provided that servicers may 
exclude the disclosures set forth in Sec.  1026.41(d)(1)(ii) and 
(d)(8)(i), (ii), and (v), and that servicers do not need to comply with 
Sec.  1026.41(d)(1)(iii)'s requirement to display the amount due more 
prominently than other disclosures on the page.
    The Bureau solicited comment on whether these modifications would 
be appropriate and whether additional modifications are necessary. The 
Bureau also solicited comment on whether the proposed modifications or 
additional modifications would be necessary if the Bureau required a 
consumer in chapter 7 or chapter 11 (or a consumer who has discharged 
personal liability for the mortgage loan through bankruptcy) to opt in 
to receiving a periodic statement by submitting a written request to a 
servicer.
    A servicer and a trade association expressed support for the 
proposal. A chapter 13 trustee recommended that the final rule retain 
Sec.  1026.41(d)(7)(i)'s requirement to disclose the outstanding 
principal balance, while some trade associations stated that the final 
rule should clarify that servicers are permitted to disclose the 
outstanding principal balance according to contractual accounting 
methods. The final rule does not require a servicer to use any 
particular accounting method when calculating the outstanding principal 
balance, so long as the servicer accurately discloses this amount.
    Consumer advocacy groups expressed limited support for aspects of 
proposed Sec.  1026.41(f)(1). They stated that Sec.  1026.41(f)(1) 
should not apply after the bankruptcy case closes and the consumer 
continues making payments on the mortgage loan--that is, it should not 
apply to consumers who use chapter 7 to discharge personal liability 
but continue making payments on the mortgage after bankruptcy so that 
they can keep the property (the ride-through option). These consumer 
advocacy groups asserted that the delinquency information, such as the 
late fee disclosure, is no different from any other contractual term 
and that they were unaware of any case law holding that delinquency 
information violates the discharge injunction. Thus, the consumer 
advocacy groups stated that consumers who use the ride-through option 
should receive a periodic statement with all the normal information, 
including delinquency information, following bankruptcy.
    Several comments addressed whether servicers should be required to 
disclose late fee and past due amount information. Consumer advocacy 
groups initially stated that it may be appropriate to allow servicers 
to omit information about a late fee for chapter 13 consumers because 
some servicers do not charge late fees for payments disbursed by 
chapter 13 trustees. Upon reviewing the consumer testing report, some 
consumer advocacy groups stated definitively that the Bureau should 
require the disclosure that a late fee will be charged if payment is 
not received by the specified date.
    Some trade associations stated that the Bureau should either 
require a late fee disclosure when applicable or make clear that the 
final rule does not prohibit a servicer from including one on a 
periodic statement provided to a consumer in bankruptcy. Two trade 
associations commented that Sec.  1026.41(f)(1) should also allow a 
servicer to exclude past due amounts from the amount due on a periodic 
statement provided to a consumer in chapter 7 because including them 
could be seen as a collection attempt that violates the automatic stay. 
This commenter suggested that servicers be given the flexibility to 
list past due amounts elsewhere on a periodic statement, such as in the 
explanation of amount due or a separate box.
    The Bureau is finalizing Sec.  1026.41(f)(1) substantially as 
proposed. For consumers in bankruptcy or who have discharged personal 
liability for a mortgage loan through bankruptcy, Sec.  1026.41(f)(1) 
permits servicers to omit from the periodic statement the amount of any 
late payment fee that will be imposed and the date on which that fee 
will be imposed if payment has not been received. These disclosures 
would normally be required under Sec.  1026.41(d)(1)(ii). Section 
1026.41(f)(1) also permits servicers to omit for these consumers the 
delinquency-related disclosures set forth in Sec.  1024.41(d)(8)(i), 
(ii), and (v)--that is, the length of the consumer's delinquency; a 
notification of possible risks, such as foreclosure and expenses, that 
may be incurred if the delinquency is not cured; and a notice of 
whether the servicer has made the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process, if 
applicable. Finally, Sec.  1026.41(f)(1) states that, for these 
consumers, the requirement in Sec.  1026.41(d)(1)(iii) to show the 
amount due more prominently than other disclosures on the page does not 
apply.
    The Bureau continues to believe that receiving information 
regarding the consequences of late payments or continued delinquencies, 
such as disclosures regarding potential fees and possible foreclosure, 
provides tangible benefits to consumers. Indeed, consumer testing 
suggested that some consumers prefer to receive information about the 
delinquency, including the consequences of non-payment.\390\ Moreover, 
the Bureau continues to believe that a consumer in bankruptcy may 
already be aware of the consequences of non-payment and may have filed 
for bankruptcy precisely to avoid those consequences. Nonetheless, as 
the Bureau acknowledged in the proposal, bankruptcy courts have found 
that certain statements regarding potential late fees or foreclosure 
and other language that could be construed as threatening consequences 
for a failure to make payments could, in certain instances, violate the 
automatic stay. The Bureau is therefore permitting servicers to exclude 
from the periodic statement certain information regarding consequences 
of late payment or continued non-payment. The final rule, however, does 
not prohibit a servicer from including these disclosures.
---------------------------------------------------------------------------

    \390\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 56 (Feb. 2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on 
consumer testing submitted to the Bureau of Consumer Fin. Prot.)
---------------------------------------------------------------------------

    Consistent with the flexibility the Bureau is affording servicers 
in modifying the periodic statement as necessary, discussed above, the 
Bureau also believes it is appropriate to give servicers the 
flexibility to include other disclosures, such as a disclaimer 
acknowledging the consumer's bankruptcy case and advising that the 
statement is for informational purposes only, as the most prominent 
disclosures on the page. The Bureau notes that the amount due 
disclosures required by Sec.  1026.41(d)(1) must still be located at 
the top of the first page of the statement.
    The Bureau declines to adopt a rule that would provide that Sec.  
1026.41(f)(1) does not apply for consumers using the ride-through 
option. Such a rule would allow servicers to omit certain disclosures 
while the consumer is in bankruptcy but require it again after the 
bankruptcy case closes. The Bureau believes that consumers using the 
ride-through option would benefit from receiving the disclosures and 
that section 524(j) of the Bankruptcy Code may allow servicers the 
freedom to include information about the

[[Page 72334]]

consequences of non-payment on a periodic statement following a 
consumer's discharge. However, the Bureau understands that chapter 7 
cases often last six months or less, and it may be operationally 
difficult and burdensome for servicers to switch to yet a third version 
of the periodic statement following bankruptcy. Finally, while Sec.  
1026.41(f)(1) allows servicers to omit certain disclosures from the 
periodic statement, the final rule does not, as noted above, prohibit a 
servicer from including them. The Bureau encourages those servicers 
that currently include such information on a periodic statement without 
violating the automatic stay or discharge injunction during or after 
bankruptcy to continue doing so.
    The Bureau further continues to believe that the remainder of the 
delinquency disclosures required by Sec.  1026.41(d)(8)--that is, Sec.  
1026.41(d)(8)(iii), (iv), (vi), and (vii)--may be appropriate for 
consumers in a chapter 7 or chapter 11 case and for consumers who have 
discharged personal liability for a mortgage loan. For example, 
references to any loss mitigation program to which the consumer has 
agreed \391\ or to homeownership counselor information \392\ do not 
relate to amounts owed, nor do they threaten consequences for non-
payment. No commenter specifically identified this information as 
problematic and none cited case law indicating that providing it would 
cause a servicer to violate the automatic stay. The Bureau finds 
particularly instructive the comments submitted by the U.S. Trustee 
Program, which did not identify any automatic stay concerns related to 
this delinquency information.
---------------------------------------------------------------------------

    \391\ 12 CFR 1026.41(d)(8)(iv).
    \392\ 12 CFR 1026.41(d)(8)(vii).
---------------------------------------------------------------------------

    Additionally, the Bureau continues to believe that consumers in 
chapter 7 or chapter 11 bankruptcy (or those who have discharged 
personal liability for a mortgage loan through bankruptcy) who are 
intending to retain their homes have a need for information regarding 
recent account activity \393\ and the amount needed to bring the loan 
current.\394\ As the Bureau stated in the 2013 TILA Servicing Final 
Rule, the accounting associated with mortgage loan payments is 
complicated and can be even more so in delinquency situations.\395\ The 
account history helps a consumer better understand the exact amount 
owed on the loan and how that total was calculated, and it enables a 
consumer to better identify errors in payment application. Moreover, 
the Bureau understands that many housing counselors believe that this 
information is vital when trying to assist a consumer to pursue home 
retention options and cure prior defaults because it enables the 
counselor to understand the circumstances of a consumer's delinquency. 
The Bureau continues to believe that this information may have unique 
benefits for a consumer in bankruptcy because such a consumer may be 
facing an immediate decision whether to retain or surrender a home and 
in that situation the consumer needs accurate information about the 
amount the consumer owes.
---------------------------------------------------------------------------

    \393\ 12 CFR 1026.41(d)(8)(iii).
    \394\ 12 CFR 1026.41(d)(8)(vi).
    \395\ 78 FR 10901, 10971 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau further notes that the disclosures in Sec.  
1026.41(d)(8) do not require a servicer to use any specific language. A 
servicer is therefore permitted to describe those disclosures in any 
number of ways to avoid concerns about, for example, the account 
history appearing to be a collection attempt rather than simply 
providing useful information.
    For similar reasons, the Bureau declines to adopt a recommendation 
to allow servicers to exclude past due amounts from the amount due. The 
Bureau believes that providing such information to a consumer who is 
retaining the property through bankruptcy would be helpful, would not 
violate the automatic stay, and is consistent with some servicers' 
current practices. The Bureau further notes that participants in the 
Bureau's consumer testing overwhelmingly preferred and found clearer 
periodic statements which included past due amounts in the amount due. 
Some testing participants had difficulty determining how much they 
needed to pay to retain their homes when past due amounts were listed 
separately.
41(f)(2) Bankruptcy Notices
    Proposed Sec.  1026.41(f)(2) would have required that a periodic 
statement modified under Sec.  1026.41(f) include the following on the 
first page: (1) A statement identifying the consumer's status as a 
debtor in bankruptcy or the discharged nature of the mortgage loan, and 
(2) a statement that the periodic statement is for informational 
purposes only. Two industry commenters expressed support for Sec.  
1026.41(f)(2) as proposed. No commenters opposed proposed Sec.  
1026.41(f)(2). The Bureau is adopting the proposed disclosures, with 
revisions.
    The Bureau sought comment on whether servicers should be permitted 
to include the disclosures under proposed Sec.  1026.41(f)(2) on a 
separate page enclosed with the periodic statement, whether the 
disclosures under proposed Sec.  1026.41(f)(2) should be permissive 
rather than mandatory, and whether there are other appropriate 
disclosures that should be permitted or required. A servicer stated 
that the disclosures in proposed Sec.  1026.41(f)(2) should be 
mandatory and included on the first page of the periodic statement. A 
trade association expressed support for requiring the proposed 
disclaimers when the debtor requests in writing to continue to receive 
a periodic statement.
    As revised, Sec.  1026.41(f)(2) requires the periodic statement to 
include a statement identifying the consumer's status as a debtor in 
bankruptcy or the discharged nature of the mortgage loan, and a 
statement that the periodic statement is for informational purposes 
only. The Bureau understands that this requirement is consistent with 
the practice of servicers that currently provide a periodic statement 
to consumers in bankruptcy. Consumer testing participants generally 
understood the content of these disclosures.\396\ Most testing 
participants also inferred from the language that appears on the sample 
forms in appendices H-30(E) and H-30(F) that the sample forms were 
informational in nature rather than primarily an attempt to collect a 
debt.\397\
---------------------------------------------------------------------------

    \396\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 13 (Feb. 2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on 
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
    \397\ Id. at 13-14.
---------------------------------------------------------------------------

    Although a servicer recommended that the disclosures be included on 
the first page of the periodic statement, the Bureau is not adopting 
that proposed requirement. Servicers may locate the statements on the 
first page if they wish, but doing so may not be feasible or 
appropriate in some circumstances. Section 1026.41(f)(2) therefore 
grants servicers flexibility to determine how to include the relevant 
disclosures.
41(f)(3) Chapter 12 and Chapter 13 Consumers
    For the reasons set forth below, the Bureau is finalizing Sec.  
1026.41(f)(3) with several revisions. As proposed, Sec.  1026.41(f)(3) 
generally would have set forth additional modifications for a periodic 
statement provided to consumers in chapter 12 or chapter 13 cases. 
Proposed Sec.  1026.41(f)(3)(i) would have permitted the omission of 
certain disclosures relating to delinquency.

[[Page 72335]]

Proposed Sec.  1026.41(f)(3)(ii) through (v) would have described how a 
periodic statement for a consumer in chapter 12 or chapter 13 
bankruptcy may disclose the amount due, explanation of amount due, past 
payment breakdown, and transaction activity. Proposed Sec.  
1026.41(f)(3)(vi) would have required the periodic statement to include 
specific information about the pre-petition arrearage. Proposed Sec.  
1026.41(f)(3)(vii) would have required several additional standard 
bankruptcy-specific disclosures on the periodic statement. The comments 
on each of these specific aspects of the proposal are discussed in the 
respective section-by-section analyses below.
    The Bureau also received comments relating generally to Sec.  
1026.41(f)(3). Consumer advocacy groups, a chapter 13 trustee, and the 
U.S. Trustee Program generally supported the proposal regarding 
modified periodic statements for consumers in bankruptcy. These 
commenters noted servicers' history of misapplying payments in 
bankruptcy and argued that requiring pre-petition and post-petition 
disclosures would discourage improper fees and improve servicing 
practices.
    Numerous credit unions and trade associations objected to the 
entirety of the proposal, arguing that it would introduce too much 
burden for credit unions. The commenters stated that credit unions' 
systems are not equipped to modify a periodic statement as proposed 
Sec.  1026.41(f)(3) would have required, so they would bear significant 
implementation costs. Commenters stated that, for example, some credit 
unions may track the amount of the pre-petition arrearage and post-
petition payments ``off-system,'' that is, in a manner that is not 
readily automated or cannot be exported onto a periodic statement. 
These comments were consistent with comments the Bureau had received on 
the IFR, in which commenters stated that some servicers may be tracking 
pre-petition arrearage and post-petition payments in an Excel file or 
in another format that could not be exported easily to a periodic 
statement and some simply wait until the end of the consumer's 
bankruptcy case and compare the chapter 13 trustee's ledger to payments 
they received. Comments on the proposal stated that, no matter the 
method by which credit unions track the pre-petition arrearage and 
post-petition payments, most credit unions currently cannot easily 
export the pre-petition and post-petition information into a monthly 
statement. Additionally, one commenter stated that credit unions' 
systems currently are not equipped to produce numerous different 
versions of periodic statements in order to comply with various local 
rules and orders in individual cases. Several commenters stated that 
their systems currently cannot differentiate between pre-petition and 
post-petition payments and the proposed modifications under Sec.  
1026.41(f)(3) would pose challenges.
    Other industry commenters similarly objected to proposed Sec.  
1026.41(f)(3) in its entirety as unworkable in light of systems 
limitations and the complexity of chapter 13 bankruptcy cases. One 
commenter stated that servicing platforms have limited functionality 
with respect to pre-petition and post-petition payments, and that 
attempting to reconcile accurately payments from the consumer and the 
trustee would be exceedingly difficult.
    The Bureau also received comments relating to accounting methods 
for consumers in bankruptcy and how proposed Sec.  1026.41(f)(3) would 
affect servicers' accounting practices. Some industry commenters, 
including banks, trade associations, and an industry working group, 
stated that the proposal was inconsistent with their accounting 
practices. Some commenters stated that proposed Sec.  1026.41(f)(3) 
would have inappropriately mandated that servicers adhere to a 
bankruptcy accounting method, under which the servicer applies post-
petition periodic payments received to the current month and pre-
petition arrearage payments are the only amounts allocated to the 
amount that is past due as of the bankruptcy filing. Commenters stated 
that, in practice, servicers generally use the contractual accounting 
method, under which they apply all payments to the oldest outstanding 
debt as is normally done under the contract.
    Servicers generally requested that the Bureau provide them 
flexibility to make disclosures under Sec.  1026.41(f)(3) based on 
either method. A servicer provided a mock-up of a periodic statement 
that includes the contractual accounting method on page one and the 
bankruptcy accounting method on page two. Some commenters recommended 
requiring certain information relating to the bankruptcy on the second 
page only after a proof of claim is filed and only when the information 
is relevant to the consumer, such as when the consumer is curing a pre-
petition arrearage and maintaining post-petition obligations. A 
commenter also stated that consumers who were current on the mortgage 
loan when they filed for bankruptcy are better served by a contractual 
statement than the modified statement under Sec.  1026.41(f). One 
servicer stated that, because it currently employs contractual 
accounting, the proposal to break down how post-petition payments are 
applied to principal, interest, and escrow could confuse consumers. One 
commenter stated that consumers may not understand how transactions are 
applied due to differences in trustees' and servicers' accounting 
methods. A trade association argued that requiring disclosure of pre-
petition and post-petition payments could be interpreted as requiring 
disclosure of how funds will be applied even before the servicer 
applies them. Some commenters objected to requiring disclosures under 
Sec.  1026.41(f)(3), saying that servicers do not know how trustees 
will apply payments in advance, and servicers will be unable to match 
the trustee's accounting on a real-time basis.
    Consumer advocacy groups and the U.S. Trustee Program favored the 
bankruptcy accounting method. Consumer advocacy groups stated that 
consumers might be confused by a periodic statement that did not take 
into account the consumer's status in bankruptcy because, for example, 
it might list late fees that normally would be charged to a consumer 
who is behind on a mortgage payments but that would be inappropriate to 
impose on a consumer who is making timely chapter 13 plan payments. In 
addition, they stated that bankruptcy accounting is preferable because 
it shows the amounts the consumer is obligated to pay while in 
bankruptcy, as well as how those payments are applied. Consumer 
advocacy groups also stated that bankruptcy accounting is required 
under applicable bankruptcy law. They further stated that Fannie Mae 
and Freddie Mac already require servicers to track payments according 
to the terms of a chapter 13 plan.
    Some commenters opposed requiring a periodic statement to be sent 
when the consumer has a cram-down bankruptcy plan--that is, the plan 
provides, for example, that the outstanding amount of the loan will be 
reduced to the value of the collateral--because it would be difficult 
to capture accurately all aspects of the cram-down and that servicers 
would need to prepare the periodic statement manually. These commenters 
also stated that most cram-downs are unsuccessful and that servicers 
would have to revert to the contractual application of payments 
following bankruptcy. These commenters offered three suggestions with 
respect to mortgage loans subject to a cram-down plan: Exempt servicers 
from the periodic statement requirement with respect to such loans; 
permit servicers to send an unmodified periodic statement; or permit 
servicers to send a

[[Page 72336]]

periodic statement that discloses the amounts due and past payments 
related to only the remaining secured portion of the loan.
    Several commenters requested clarification of the definition of 
pre-petition and post-petition payments proposed in comment 41(f)(3)-2. 
A servicer stated that the proposed comment could be interpreted to 
mean that there can be no pre-petition or post-petition payments after 
a bankruptcy filing and before there is a confirmed plan. The servicer 
stated this interpretation could create a circumstance in which no 
information about the payments would be required in bankruptcy 
statements. The servicer recommended that the Bureau require a periodic 
statement to include the best information reasonably available to 
servicers.
    The Bureau notes that some trade associations requested 
clarification that servicers have the flexibility to adjust information 
disclosed on a periodic statement based on information they receive 
from trustees or through the National Data Center. These trade 
associations stated that servicers may need to determine how to apply 
payments made through trustees if the treatment is not readily 
apparent. The Bureau notes that the final rule does not prohibit a 
servicer from adjusting its records based on information it obtains 
from a trustee or other sources, including the National Data Center. 
The final rule does not, however, require a servicer to consult these 
sources before providing a periodic statement.
    The Bureau is adopting Sec.  1026.41(f)(3) with the revisions 
discussed below and in the section-by-section analyses of Sec.  
1026.41(f)(3)(i) through (vi). Section 1024.41(f)(3) generally sets 
forth additional modifications for a periodic statement provided to 
consumers in chapter 12 or chapter 13 cases.
    The Bureau acknowledges that servicers will incur costs and burden 
to implement Sec.  1026.41(f)(3) in particular. Nevertheless, the 
Bureau is adopting Sec.  1026.41(f)(3) because of the benefits to 
consumers. As explained in the section-by-section analysis of Sec.  
1026.41(e)(5), consumers in chapter 12 and chapter 13 bankruptcy 
generally benefit from receiving the information in a periodic 
statement; consumer testing \398\ and consumer complaint information 
indicate that consumers generally want to receive a periodic statement; 
and bankruptcy courts, the Advisory Committee on Bankruptcy Rules, and 
Congress have recognized that debtors need mortgage loan information. 
The modifications under Sec.  1026.41(f)(3) balance burden reduction on 
servicers and consumers' access to crucial information by tailoring the 
disclosures to account for a chapter 12 or chapter 13 bankruptcy case.
---------------------------------------------------------------------------

    \398\ Id. at 13, 33, 51.
---------------------------------------------------------------------------

    The Bureau is revising certain aspects of Sec.  1026.41(f)(3) to 
reduce some of the implementation burden. For example, as explained in 
the section-by-section analysis of Sec.  1026.41(f)(3)(iv), the final 
rule does not modify the requirements of Sec.  1026.41(d)(3) with 
respect to a periodic statement provided to consumers in chapter 12 or 
chapter 13 as proposed Sec.  1026.41(f)(3)(iv) would have done. 
Servicers are not required to alter how they disclose their method of 
applying payments for purposes of providing a periodic statement to a 
consumer in bankruptcy. Moreover, not all information must appear on 
the first page and some information may be omitted.\399\ A servicer may 
choose to include additional information on a periodic statement, 
including bankruptcy-specific information, such as descriptions of 
agreed orders or additional details about post-petition payments, even 
if such information is not required by Sec.  1026.41.
---------------------------------------------------------------------------

    \399\ See, e.g., comment 41(d)-2 (providing that a periodic 
statement may omit information that is not applicable to the 
mortgage loan); comment 41(f)(2)-4 (providing that a periodic 
statement or coupon book provided under Sec.  1026.41(f) may be 
modified as necessary to facilitate compliance with title 11 of the 
United States Code, the Federal Rules of Bankruptcy Procedure, court 
orders, and local rules, guidelines, and standing orders); comment 
41(f)(3)(v)-1 (explaining that a servicer may omit pre-petition 
arrearage information until the servicer has a reasonable 
opportunity to determine the amount of the pre-petition arrearage, 
but providing that the servicer may not omit the pre-petition 
arrearage after the deadline the bankruptcy court has fixed for 
filing a proof of claim).
---------------------------------------------------------------------------

    The Bureau is adopting several comments to Sec.  1026.41(f)(3). The 
Bureau is not finalizing proposed comment 41(f)(3)-1 but is adopting 
proposed comments 41(f)(3)-2 through -4 with revisions. As proposed, 
comment 41(f)(3)-1 would have clarified that the term plan of 
reorganization, for purposes of Sec.  1026.41(f)(3), refers to a 
consumer's plan of reorganization filed under the applicable provision 
of chapter 12 or chapter 13 of the Bankruptcy Code and confirmed by a 
court with jurisdiction over the consumer's bankruptcy case. The Bureau 
proposed this comment to help avoid any confusion about the meaning of 
the term plan of reorganization and whether the term refers to a 
proposed plan or one that has been confirmed by a court. The Bureau is 
not adopting proposed comment 41(f)(3)-1 because the final rule uses 
the term bankruptcy plan, and the Bureau does not believe that term 
needs to be clarified for purposes of Sec.  1026.41(f).
    The Bureau is revising proposed comment 41(f)(3)-2 and renumbering 
the comment as 41(f)(3)-1. The comment contains two parts. First, 
comment 41(f)(3)-1.i is similar to the proposal but contains revisions 
to improve clarity. It provides that, for purposes of Sec.  
1026.41(f)(3), pre-petition payments are payments made to cure the 
consumer's pre-bankruptcy defaults, and post-petition payments are 
payments made to satisfy the mortgage loan's periodic payments as they 
come due after the bankruptcy case is filed. The comment provides an 
illustrative example.
    Second, the Bureau is adopting new 41(f)(3)-1.ii to gives servicers 
flexibility with respect to chapter 12 cases and cram-down plans. The 
comment provides that, if a consumer is a debtor in a case under 
chapter 12 or if a consumer's bankruptcy plan modifies the terms of the 
mortgage loan, such as by reducing the outstanding balance of the 
mortgage loan or altering the applicable interest rate, the disclosures 
under Sec.  1026.41(d)(1) and (2) and (f)(3)(ii) and (iii) may disclose 
either the amount payable under the original terms of the mortgage 
loan, the amount payable under the remaining secured portion of the 
adjusted mortgage loan, or a statement that the consumer should contact 
the trustee or the consumer's attorney with any questions about the 
amount payable. The comment further provides that, in such cases, the 
remaining disclosures under Sec.  1026.41(d) or (f)(3), as applicable, 
may be limited to how payments are applied to the remaining secured 
portion of the adjusted mortgage loan. The Bureau is adopting this 
comment to accommodate industry commenters' request for flexibility 
when a consumer has a cram-down plan, given that the plans are 
atypical. Although it is important for consumers with such plans to 
receive a periodic statement (as explained in the section-by-section 
analysis of Sec.  1026.41(e)(5)), consumers with cram-down plans may 
better understand a periodic statement disclosing the terms of the 
portion of either the modified or unmodified mortgage loan, depending 
on the specific terms of the plan.
    The Bureau is adopting proposed comment 41(f)(3)-3 without revision 
but renumbering it as comment 41(f)(3)-2. This comment clarifies the 
distinction between fees and charges imposed before the bankruptcy case 
was filed and those imposed after filing. It provides that, for 
purposes of Sec.  1026.41(f)(3), post-petition fees and charges are 
those fees and charges

[[Page 72337]]

imposed after the bankruptcy case is filed. The comment further states 
that, to the extent that the court overseeing the consumer's bankruptcy 
case requires such fees and charges to be included as an amendment to a 
servicer's proof of claim, a servicer may include such fees and charges 
in the balance of the pre-petition arrearage under Sec.  
1026.41(f)(3)(v)(C) rather than treating them as post-petition fees and 
charges for purposes of Sec.  1026.41(f)(3).
    The Bureau is also adopting proposed comment 41(f)(3)-4 
substantially as proposed, renumbered as comment 41(f)(3)-3, with 
revisions for clarity and to indicate the renumbering of certain 
regulatory provisions referenced in the comment. The comment addresses 
the disclosures that must be made on the first modified periodic 
statement provided to a consumer under proposed Sec.  1024.41(f)(3) 
after an exemption under Sec.  1026.41(e) expires. The comment states 
that Sec.  1026.41(f)(3)(iii) through (v) requires, in part, the 
disclosure of certain information regarding account activity that has 
occurred since the last statement. For purposes of the first periodic 
statement provided to the consumer following termination of an 
exemption under Sec.  1026.41(e), those disclosures regarding account 
activity that has occurred since the last statement may be limited to 
account activity since the last payment due date that occurred while 
the exemption was in effect. The comment includes a reference to 
comment 41(d)-5, which includes similar language addressing the 
disclosures that servicers must make on the first unmodified periodic 
statement provided to a consumer after an exemption under Sec.  
1026.41(e) terminates.
41(f)(3)(i) Requirements Not Applicable
    For the reasons set forth in the proposal, the Bureau is adopting 
Sec.  1026.41(f)(3)(i) as proposed. Section 1026.41(f)(3)(i) provides 
that, in addition to omitting the information set forth in Sec.  
1026.41(f)(1), the periodic statement may also omit the information set 
forth in Sec.  1026.41(d)(8)(iii), (iv), (vi), and (vii), which relate 
generally to a consumer's account history, loss mitigation, the total 
payment amount needed to bring the account current, and homeownership 
counselor information.
    Consumer advocacy groups opposed permitting servicers to exclude 
information about the consumer's account history if the confirmed plan 
of reorganization provides for maintenance of payments and the servicer 
contends that the consumer has failed to maintain the post-petition 
payments. The commenters stated that, for unknown reasons, servicers 
have recently permitted some debtors to remain delinquent on post-
petition payments for months or years without providing notification to 
debtors, their attorneys, or chapter 13 trustees. To combat this 
problem, the commenters recommended that the periodic statement 
disclose the date on which the consumer became delinquent on post-
petition payments and an account history listing past due post-petition 
payments.
    As the Bureau explained in the proposal, requiring a periodic 
statement to include the delinquency information in Sec.  
1026.41(d)(8)(iii), (iv), (vi), and (vii) could be confusing or of 
little value to consumers in a chapter 13 case. Information related to 
pre-bankruptcy defaults may not be helpful, and in fact may be 
confusing, to a consumer whose bankruptcy plan is designed to repay 
those defaults over time. Moreover, industry commenters stated that a 
consumer who fails to make several plan payments will likely face 
immediate consequences in bankruptcy, such as a trustee's motion to 
dismiss or a servicer's motion for relief from the automatic stay, and 
the delinquency information in these disclosures may serve less value 
in that scenario. The Bureau acknowledges that information related to 
post-petition defaults could be helpful to consumers, and the Bureau 
encourages servicers that currently provide such information to 
continue doing so, but the Bureau is concerned about the additional 
burden a requirement to provide these disclosures could impose on 
servicers. Accordingly, Sec.  1026.41(f)(3)(i) provides that a servicer 
may omit the delinquency information required by current Sec.  
1026.41(d)(8).
41(f)(3)(ii) and (iii) Amount Due and Explanation of Amount Due
    For the reasons set forth in the proposal and those explained 
below, the Bureau is adopting Sec.  1024.41(f)(3)(ii) and (iii) 
substantially as proposed, with revisions to improve clarity. Thus, 
Sec.  1026.41(f)(3)(ii) and (iii) respectively modify the amount due 
and explanation of amount due disclosures, required under Sec.  
1026.41(d)(1) and (2), for purposes of periodic statements provided to 
consumers in chapter 12 or chapter 13 bankruptcy.
    Under Sec.  1026.41(d)(1), a periodic statement must disclose, 
among other things, the payment due date and the amount due. Section 
1026.41(d)(2) requires disclosure of an explanation of amount due, 
including: (1) The monthly payment amount, with a breakdown showing how 
much, if any, will be applied to principal, interest, and escrow; (2) 
the total sum of any fees or charges imposed since the last statement; 
and (3) any payment amount past due. Section 1026.41(f)(3)(ii) and 
(iii) of the final rule generally provides that these amount due and 
explanation of amount due disclosure may be limited to the monthly 
post-petition payments due under the mortgage loan and any post-
petition fees or charges imposed since the last periodic statement. 
Generally stated, comments 41(f)(3)(ii)-1 and (iii)-1 clarify, in part, 
that these disclosures would not be required to include the amounts of 
any payments on account of a consumer's pre-petition arrearage or that 
are due under a court order.
    The Bureau solicited comment on whether the explanation of amount 
due should include a breakdown of the amount of the monthly payment 
that will be applied to principal, interest, and escrow or whether a 
more limited disclosure is appropriate, such as listing the monthly 
payment as a lump sum or listing the principal and interest as a 
combined figure with the escrow amount disclosed separately. 
Additionally, the Bureau requested comment on whether a servicer should 
be permitted or required to include post-petition fees and charges in 
the amount due disclosure.
    Consumer advocacy groups submitted a comment expressing strong 
support for the proposal's requirement that the explanation of amount 
due break down the principal, interest, escrow, and fees and charges 
(as is currently required for non-bankruptcy periodic statements under 
Sec.  1026.41). The commenters reasoned that the disclosures will 
enable debtors, their attorneys, and chapter 13 trustees to detect when 
servicers fail to properly apply payments in accordance with bankruptcy 
law and the underlying mortgage contract.
    Numerous industry commenters supported aspects of Sec.  
1026.41(f)(3)(ii) and (iii) while also suggesting changes. One servicer 
supported disclosing post-petition information, as well as the amount 
of the arrearage balance. A trade organization and two servicers 
supported limiting the amount due disclosure under Sec.  
1026.41(f)(3)(ii) to the post-petition payment and any fees and 
charges, instead of including any pre-petition amounts. Another 
servicer agreed that the amount due disclosure should include post-
petition payments but stated that attempting to collect fees and 
charges without court approval could violate the automatic stay. In 
contrast, another servicer stated that the National Mortgage Settlement 
requires disclosure of fees and charges during

[[Page 72338]]

bankruptcy, that it is industry practice to collect them as they are 
incurred, and that bankruptcy law does not prohibit this. One servicer 
requested that the Bureau clarify in comment 41(f)(3)(ii)-1 that 
compliance with Federal Rule of Bankruptcy Procedure 3002.1(c) is not a 
prerequisite for disclosing a post-petition fee or charge in the 
explanation of amount due disclosure under Sec.  1026.41(f)(3)(iii). 
One servicer stated that it does not object to disclosing the amount of 
overdue payments in the explanation of amount due but requested 
flexibility.
    Several other industry commenters stated that the amount due 
disclosure should not include any past due amounts that became due and 
unpaid during the bankruptcy case. Some of these commenters stated 
that, when consumers make the post-petition payments to a trustee, 
there is often a delay before the trustee forwards the payment to the 
servicer, and, as a result, periodic statements may inaccurately show 
the consumer as behind on payments. One commenter added that repayment 
of past due amounts is often resolved through a court-approved agreed 
order, which may be inconsistent with the periodic statement's amount 
due disclosure. Another commenter stated that periodic statements under 
Sec.  1026.41(f) would be for informational purposes only, and that 
disclosing payment of an amount in default may be a collection effort 
inconsistent with the bankruptcy proceeding.
    These industry commenters also stated that seeking payment of past 
due post-petition amounts could violate the automatic stay. They 
recommended limiting the amount due disclosure to the current monthly 
payment and permitting servicers to identify past due amounts elsewhere 
in the statement--either in the explanation of amount due disclosure 
under Sec.  1026.41(f)(3)(iii) or in a separate box for outstanding 
post-petition payments. A servicer suggested placing the amount due 
disclosure with a disclaimer that the periodic statement is not an 
attempt to collect a debt.
    Several commenters stated that servicers' systems cannot currently 
differentiate between pre-petition and post-petition payments. One 
servicer stated that its systems can track post-petition payments but 
currently cannot translate the information into a periodic statement. A 
credit union stated that its systems currently cannot limit the amount 
due disclosure to reflect only post-petition payments as proposed. A 
servicer similarly stated that it would have to alter its systems to 
allow the amount due disclosure to contain only post-petition payments.
    Numerous industry commenters also argued that principal and 
interest should be permitted to be disclosed as a lump sum in the 
explanation of amount due disclosure under Sec.  1026.41(f)(3)(iii). 
Some commenters stated that, because servicers apply payments to the 
oldest outstanding debt, consumers will be confused if the principal-
interest breakdown of a payment due in one month differs from how that 
payment is actually applied in the following month. One servicer also 
stated that breaking down principal and interest could complicate 
reporting requirements to loan owners because servicers must apply or 
remit payments according to the underlying contract. Another servicer 
stated that, because it currently applies payments received to the 
oldest outstanding debt, the proposal to break down how post-petition 
payments are applied to principal, interest, and escrow could result in 
consumer confusion. A trade association opposing a breakdown of 
principal, interest, and escrow stated that, if such a breakdown is 
required, the Bureau should require the most detailed breakdown 
possible, given concerns about violating the FDCPA's prohibition 
against making false, deceptive, or misleading representations.
    One servicer stated that the breakdown of principal and interest 
may not match the trustee's records because servicers may not be able 
to discern how the trustee allocates payments. That servicer also 
stated that allowing the disclosure of principal and interest 
components in a lump sum would also ensure that the periodic statement 
discloses escrow and fees separately. Some trade associations argued 
that such a lump sum disclosure offers the consumer the necessary 
information, the amount of the required post-petition maintenance 
payment and the balance of the pre-petition arrearage. One commenter 
stated that consumers would still receive disclosure of the actual 
application of funds in the past payment breakdown section under 
proposed Sec.  1026.41(f)(3)(iv). One servicer stated that a rule 
requiring servicers to disclose a breakdown of principal and interest 
is inconsistent with the Bankruptcy Code and Bankruptcy Rules.
    The U.S. Trustee Program stated that removing a breakdown of 
principal, interest, taxes, and insurance would render the periodic 
statements less helpful. Consumer advocacy groups and a chapter 13 
trustee indicated strong support for breaking down the payments into 
these constituent parts, saying that it would help consumers and 
attorneys monitor for payment application errors.
    Several commenters recommended that, if the Bureau does require 
periodic statements to disclose a breakdown of principal and interest, 
the breakdown should disclose how a servicer is applying payments 
according to the terms of the mortgage loan agreement, rather than 
according to bankruptcy accounting. These commenters stated that, while 
they track separately pre-petition and post-petition payments, they 
actually apply and remit funds to the investor in accordance with the 
mortgage loan agreement. They added that, if the debtor fails to 
complete all payments and the case is dismissed, the servicer is to 
apply the payments as if the bankruptcy case never occurred. Some trade 
associations stated that, if the Bureau requires the past payment 
breakdown to identify principal and interest, the breakdown should 
include all payments received, not just post-petition payments.
    One servicer commented that the proposal did not address certain 
product types, such as payment option loans. The servicer requested 
clarification as to whether it could continue to provide periodic 
statements disclosing the various payment options consistent with the 
sample form in appendix H-30(C), or whether it would be appropriate to 
provide such a consumer with statements that disclose only the minimum 
payment option.
    The Bureau is adopting Sec.  1026.41(f)(3)(ii) and (iii) 
substantially as proposed, with revisions to improve clarity. Thus, 
Sec.  1026.41(f)(3)(ii) provides that the amount due information set 
forth in Sec.  1026.41(d)(1) may be limited to the date and amount of 
the post-petition payments due and any post-petition fees and charges 
imposed by the servicer.
    Comment 41(f)(3)(ii)-1 clarifies the amounts that must be included 
in the amount due and the amounts that may be included in the amount 
due at a servicer's discretion. The comment provides that the amount 
due under Sec.  1026.41(d)(1) is not required to include any amounts 
other than post-petition payments the consumer is required to make 
under the terms of the bankruptcy plan, including any past due post-
petition payments, and post-petition fees and charges that a servicer 
has imposed. The comment further provides that the servicer is not 
required to include in the amount due any pre-petition payments due 
under the bankruptcy plan or other amounts payable pursuant to a court 
order. The comment further provides that the servicer is not required 
to include in the

[[Page 72339]]

amount due any post-petition fees and charges that the servicer has not 
imposed. The comment explains that a servicer that defers collecting a 
fee or a charge until after complying with the Federal Rule of 
Bankruptcy Procedure 3002.1 procedures, and thus after a potential 
court determination on whether the fee or charge is allowed, is not 
required to disclose the fee or charge until complying with such 
procedures. The comment concludes by explaining that a servicer may 
include in the amount due other amounts due to the servicer that are 
not post-petition payments or fees or charges, such as amounts due 
under an agreed order, provided those other amounts are also disclosed 
in the explanation of amount due and transaction activity.
    Section 1026.41(f)(3)(iii) similarly provides that the explanation 
of amount due information set forth in Sec.  1026.41(d)(2) may be 
limited to the following: (1) The monthly post-petition payment amount, 
including a breakdown showing how much, if any, will be applied to 
principal, interest, and escrow; (2) the total sum of any post-petition 
fees or charges imposed since the last statement; and (3) any post-
petition payment amount past due. Comment 41(f)(3)(iii)-1 clarifies the 
amounts that must be included in the explanation of amount due and the 
amounts that may be included in the explanation amount due at a 
servicer's discretion. The comment provides that the explanation of 
amount due under Sec.  1026.41(d)(2) is not required to include any 
amounts other than the post-petition payments, including the amount of 
any past due post-petition payments, and post-petition fees and charges 
that a servicer has imposed. The comment further clarifies that, 
consistent with Sec.  1026.41(d)(3)(i), the post-petition payments must 
be broken down by the amount, if any, that will be applied to 
principal, interest, and escrow. The comment states that the servicer 
is not required to disclose, as part of the explanation of amount due, 
any pre-petition payments or the amount of the consumer's pre-
bankruptcy arrearage. Finally, the comment clarifies that, however, a 
servicer may identify other amounts due to the servicer provided those 
amounts are also disclosed in the amount due and transaction activity. 
The comment includes a reference to new comment 41(d)-4, which explains 
certain disclosure requirements if the consumer has agreed to a 
temporary loss mitigation program.
    The Bureau continues to believe that it is appropriate to allow 
servicers to limit the amount due and explanation of amount due 
disclosures to include only post-petition payments and any fees and 
charges that the servicer is attempting to collect from the consumer 
during the bankruptcy case. In addition to the reasons provided by 
commenters, as the Bureau explained in the proposal, the Bureau 
understands that some local rules adopted by bankruptcy courts that 
address periodic statements provide that the statements should reflect 
the post-petition payments, and that these local rules would not 
require a servicer to include pre-petition payments or amounts due 
under a court order in the amount due field.\400\ Accordingly, Sec.  
1026.41(f)(2)(ii) and (iii) requires a servicer to include post-
petition payments in the amount due and explanation of amount due, 
including any past due post-petition payments, but does not require a 
servicer to include pre-petition payments that may be due under the 
bankruptcy plan.
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    \400\ The Bureau proposed under Sec.  1026.41(f)(3)(vi) to 
require disclosures relating to a consumer's pre-petition arrearage. 
As described in the section-by-section analysis of Sec.  
1026.41(f)(3)(v), the Bureau renumbered that provision. Thus, the 
contents of Sec.  1026.41(f)(3)(vi) relating to the date of post-
petition delinquency are entirely new.
---------------------------------------------------------------------------

    The Bureau declines to adopt the recommendation of several industry 
commenters to allow servicers to omit past due post-petition amounts 
from the amount due and explanation of amount due and, for example, to 
permit servicers to include these amounts elsewhere on a periodic 
statement. As explained above in the section-by-section analysis of 
Sec.  1026.41(f)(1), the Bureau believes that it is important for 
consumers to understand the full amounts they need to pay to stay 
current on the periodic payments, which, in the chapter 12 and chapter 
13 context, include post-petition payments. Consumer testing 
participants preferred and found clearer sample forms that included 
past due post-petition amounts in the amount due and explanation of 
amount due.
    The Bureau also is requiring the explanation of amount due to 
contain a breakdown of how much, if any, of the post-petition payment 
will be applied to principal, interest, and escrow, as would normally 
be required under Sec.  1026.41(d)(2)(i). Although, as some commenters 
suggested, there may be some discrepancy between the principal-interest 
allocation in the amount to be paid one month and how that payment was 
actually applied in the following month, the Bureau notes that this 
prospect is not unique to bankruptcy consumers--it may arise any time a 
consumer is delinquent and pays less than the full outstanding amount. 
Moreover, consumer testing suggested that many consumers in bankruptcy 
find a breakdown of principal and interest helpful.\401\ Further, the 
Bureau believes that the potential for some confusion is outweighed by 
the benefits of disclosing the breakdown of the post-petition payments 
by principal, interest, and escrow. As the Bureau explained in the 
proposal, this breakdown is intended to give a consumer a snapshot of 
why the consumer is being asked to pay the amount due. Without an 
explanation of, for example, the amount attributable to escrow, a 
consumer and the consumer's attorney may be unable to discern how a 
servicer calculated the amount due.
---------------------------------------------------------------------------

    \401\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 39-40 (Feb. 2016), available at 
https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ 
(report on consumer testing submitted to the Bureau of Consumer Fin. 
Prot.)
---------------------------------------------------------------------------

    Some national trade associations asked that, if the rule required a 
principal-interest breakdown, the final rule should expressly endorse 
contractual accounting. The Bureau does not believe it is necessary or 
appropriate in this context to define how servicers should apply 
payments they receive from consumers in bankruptcy. Section 1026.41 
imposes disclosure requirements; it does not establish accounting 
methods. Nonetheless, servicers must accurately disclose how they are 
applying payments, whether they use contractual or bankruptcy 
accounting.
    As explained in the proposal, the Bureau believes that consumers, 
including those in bankruptcy, benefit from learning of fees and 
charges that have been imposed on their account. This information 
assists consumers' efforts to budget their finances and timely pay fees 
and charges. The Bureau further believes that servicers also benefit 
from fees or charges being disclosed on the periodic statement because 
it aids them in collecting the fees and charges quickly. The Bureau 
acknowledges the concern raised in comments that servicers should be 
permitted to disclose the fees and charges first to a bankruptcy court 
through the procedures set forth in Federal Rule of Bankruptcy 
Procedure 3002.1. Under the final rule, if a servicer defers collecting 
a fee or charge until after complying with the Federal Rule of 
Bankruptcy Procedure 3002.1 procedures, the servicer is not required to 
disclose the fee or charge until it has already complied with those 
procedures. To ensure that consumers

[[Page 72340]]

receive timely notice of such fees or charges, Sec.  1026.41(f)(2)(iii) 
requires a servicer to include in the explanation of amount due the 
total sum of any post-petition fees or charges imposed since the last 
periodic statement.
    With respect to payment option loans, the Bureau notes that a 
servicer may display the amount due and the explanation of amount due 
in the form and manner set forth in the sample form in appendix H-
30(C). The sample forms tailored to consumers in bankruptcy, found at 
appendices H-30(E) and H-30(F) of the proposal and final rule, are 
intended to provide examples of how a servicer may comply with Sec.  
1026.41(f). The Bureau understands that certain product types may 
necessitate displaying the mortgage loan in a different manner.
41(f)(3)(iv)
    The Bureau is not adopting Sec.  1026.41(f)(3)(iv) as proposed. For 
the reasons described below, the Bureau is adopting the contents it 
proposed under Sec.  1026.41(f)(3)(v), renumbered as Sec.  
1026.41(f)(3)(iv).
Past Payment Breakdown as Proposed
    As proposed, Sec.  1026.41(f)(3)(iv) would have provided that 
periodic statements under Sec.  1026.41(f) must disclose the past 
payment breakdown, limited to the total of post-petition payments 
received and a breakdown of how those funds were applied. The Bureau 
has determined that it is not necessary to modify the requirements of 
Sec.  1026.41(d)(3) for purposes of a periodic statement provided to a 
consumer in a chapter 12 or chapter 13 bankruptcy case. Section 
1026.41(d)(3) therefore applies to such periodic statements without 
modification. As explained in the relevant section-by-section analyses, 
proposed Sec.  1026.41(f)(3)(v) is adopted as revised at Sec.  
1026.41(f)(3)(iv).
    The Bureau solicited comment on whether the past payment breakdown 
should include a breakdown of the amount of the post-petition payments 
that were applied to principal, interest and escrow, or whether a more 
limited disclosure is appropriate, such as listing the amounts applied 
as a lump sum or listing the principal and interest as a combined 
figure with the escrow amount broken out separately. Consumer advocacy 
groups and the U.S. Trustee Program supported the proposal, stating 
that it would allow consumers, their attorneys, and trustees to 
identify payment application errors. Consistent with their comments on 
the explanation of amount due disclosure under Sec.  
1026.41(f)(3)(iii), several industry commenters stated that the past 
payments breakdown disclosure should reflect contractual accounting. As 
such, they stated it should reflect all payments applied to the loan, 
not just post-petition payments. However, one servicer stated that the 
past payment breakdown should not disclose pre-petition payments held 
in suspense because a consumer may be confused by the accumulation of 
small payments made by a trustee. Some servicers suggested that 
servicers include a statement in the Important Messages box indicating 
whether the past payments breakdown was a contractual or bankruptcy 
accounting.
    Several industry commenters requested permission to disclose 
principal and interest as a lump sum in the past payments breakdown 
disclosure. In the alternative, they asked that the principal and 
interest allocation reflect contractual accounting, saying this will 
show how the payment actually was applied. One commenter who also asked 
that principal and interest be a lump sum in the explanation of amount 
due disclosure under Sec.  1026.41(f)(3)(iii) suggested that principal 
and interest be disclosed separately in the past payments breakdown.
    As the Bureau explained in the proposal, disclosing a breakdown of 
the post-petition payments by principal, interest, and escrow provides 
a consumer with a snapshot of how their payments have been applied. 
This allows a consumer to identify potential errors in payment 
application, including any misapplication of payments to escrow or 
fees. This breakdown also plays an important role in educating a 
consumer, and consumer testing showed that participants found a 
breakdown of past payments generally helpful, and that they preferred a 
principal-interest breakdown.\402\ However, the Bureau now believes 
that the past payments breakdown disclosure should include all payments 
applied to the loan, not just post-petition payments, so that consumers 
know the status of all payments received by a servicer. Further, a 
servicer that applies payments contractually should be permitted to 
disclose this application on the periodic statement. Proposed Sec.  
1026.41(f)(3)(iv) arguably would have limited the past payments 
breakdown to only post-petition payments applied, which may have left 
consumers unable to determine when a servicer applied other amounts to 
the loan. Similarly, the proposal could have made it challenging for 
consumers to determine how much was applied to the loan in the year-to-
date disclosure under proposed Sec.  1026.41(f)(3)(iv)(B). The proposal 
may have also made it difficult for servicers to disclose accurately 
all the amounts that they are applying to the mortgage loan.
---------------------------------------------------------------------------

    \402\ Id.at 39.
---------------------------------------------------------------------------

    Given the foregoing, the Bureau is not adopting the proposed 
requirement for periodic statements modified under Sec.  1026.41(f) to 
disclose the past payment breakdowns by breaking out only post-petition 
payments. Instead, the past payment breakdown for consumers in 
bankruptcy must include all payments, just as it does for consumers not 
in bankruptcy under Sec.  1026.41(d)(3). As the Bureau previously 
discussed in the context of Sec.  1026.36(c)(1)'s prompt crediting 
requirements, servicers commonly maintain separate suspense accounts 
for pre-petition and post-petition payments,\403\ and these servicers 
may, but are not required to, include more than one suspense account in 
the past payment breakdown in order to accurately disclose how they are 
applying payments. The Bureau is eliminating under Sec.  
1026.41(f)(3)(iv) any reference to the past payment breakdown. As 
described below, the provisions that would have followed Sec.  
1026.41(f)(3)(iv) are renumbered accordingly.
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    \403\ 78 FR 10901, 10956 (Feb. 13, 2013).
---------------------------------------------------------------------------

Transaction Activity
    Proposed Sec.  1026.41(f)(3)(v) would have required a modified 
disclosure of transaction activity. The Bureau is renumbering the 
provision as Sec.  1026.41(f)(3)(iv) and adopting the provision 
substantially as proposed, with revisions to improve clarity. 
Specifically, revised Sec.  1026.41(f)(3)(iv) requires the disclosure 
of transaction activity under Sec.  1026.41(d)(4) \404\ to include all 
payments the servicer has received since the last statement, including 
all post-petition and pre-petition payments and payments of post-
petition fees and charges, and all post-petition fees and charges the 
servicer has imposed since the last statement. The provision also 
states that the brief description of the activity, required under Sec.  
1026.41(d)(4), need not identify the source of any payments.
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    \404\ Section 1026.41(d)(4) requires a periodic statement to 
include a list of all the transaction activity that occurred since 
the last statement. It defines transaction activity for purposes of 
the provision as any activity that causes a credit or debit to the 
amount currently due. It also provides that the list must include 
the date of the transaction, a brief description of the transaction, 
and the amount of the transaction for each activity in the list.

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[[Page 72341]]

    As revised, Sec.  1026.41(f)(3)(iv) incorporates the substance of 
proposed comment 41(f)(3)(v)-1 relating to transaction activity. The 
Bureau is therefore not adopting that proposed comment.
    The Bureau solicited comment on whether the transaction activity 
should include post-petition payments, pre-petition payments, and post-
petition fees and charges, or whether it should disclose different or 
additional types of activity. The Bureau received few comments 
specifically addressing this provision. Consumer advocacy groups 
supported the proposal, saying that it would help provide consumers in 
bankruptcy a complete and accurate record of account activity just as 
the transaction activity disclosure currently does for consumers who 
are not in bankruptcy. The consumer advocacy groups also stated that 
the transaction activity disclosure should include pre-petition arrears 
and post-petition amounts due that the servicer receives, regardless of 
whether they are disbursed by the consumer or the trustee, and that it 
is relatively unimportant to disclose the source of the payments. After 
reviewing the report summarizing the Bureau's consumer testing, 
however, two of these groups reconsidered and stated that disclosing 
the source of the payments is important to help consumers understand 
whether the payments were from the consumer or were pre-petition 
arrearage payments from a trustee. Some trade associations supported 
the proposal because it did not require servicers to identify the 
source of the payments. One servicer agreed that the transaction 
activity disclosure should include post-petition payments and fees and 
charges but stated that it should not include payments on the pre-
petition arrearage because those payments are already disclosed in the 
pre-petition arrearage box.
    The Bureau believes that consumers in bankruptcy may benefit if the 
transaction activity disclosed includes pre-petition payments. Although 
those payments do not affect the amount due (which may be limited to 
post-petition payments and fees in a chapter 12 or chapter 13 
bankruptcy), they nonetheless serve to reduce a consumer's delinquency. 
Moreover, the Bureau understands that there may be a significant delay 
between when a consumer sends a pre-petition payment to a trustee and 
when a servicer ultimately receives that payment. Consumers may benefit 
by having a record of when such payments are received by the servicer. 
The Bureau notes that consumer testing suggests that consumers may be 
able to use the transaction activity disclosures to identify key 
information about timing of past payments \405\ and fees and unpaid 
amounts included in the payment amount disclosure.\406\
---------------------------------------------------------------------------

    \405\ Fors Marsh Group, Testing of Bankruptcy Periodic Statement 
Forms for Mortgage Servicing, at 37 (Feb. 2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on 
consumer testing submitted to the Bureau of Consumer Fin. Prot.).
    \406\ Id. at 55-56.
---------------------------------------------------------------------------

    However, the Bureau recognizes that it may be difficult for 
servicers to identify whether a payment came from a trustee, a 
consumer, or a third-party. Thus, Sec.  1026.41(f)(3)(iv) does not 
require that Sec.  1026.41(d)(4)'s brief description of the transaction 
activity identify the source of the payments received by the servicer. 
The transaction activity disclosure, however, must include activity 
since the last statement.
41(f)(3)(v) Pre-Petition Arrearage
    Proposed Sec.  1026.41(f)(3)(vi) would have required a periodic 
statement to include certain information about the pre-petition 
arrearage, if applicable. The proposal would have required a periodic 
statement to contain the following disclosures, grouped in close 
proximity: The total of all pre-petition payments received since the 
last statement, the total of all pre-petition payments received since 
the beginning of the current calendar year, and the current balance of 
the consumer's pre-petition arrearage. The Bureau is renumbering the 
provision as Sec.  1026.41(f)(3)(v) and adopting certain revisions to 
the content of the disclosures and their location on the periodic 
statement.
    The Bureau solicited comment on whether periodic statements should 
include the pre-petition payments received and applied and the balance 
of the pre-petition arrearage, and whether there are alternative 
avenues for apprising consumers of this information. Several consumer 
advocacy groups, a chapter 13 trustee, and the U.S. Trustee Program 
supported such disclosure, saying that it would help consumers to 
understand how their bankruptcy plans are progressing. Two of these 
consumer advocacy groups stated that it is unnecessary to require a 
breakdown of pre-petition payments by principal, interest, and escrow.
    Numerous industry commenters opposed the disclosure of pre-petition 
payments because of systems limitations and the potential burden of 
tracking this information accurately. They stated that they would have 
to update their systems to disclose a pre-petition arrearage.
    Several servicers and some trade associations suggested that the 
periodic statement should include the amount paid on the arrearage over 
the entire bankruptcy case rather than year-to-date. These commenters 
stated this will provide more helpful information to consumers about 
how their bankruptcy plans are progressing. Other industry commenters 
also suggested that the Bureau require disclosure of the arrearage's 
starting balance instead of the amount received last month. One 
servicer requested clarification on whether the disclosure of pre-
petition payments received and how they were applied referred to how 
the payments were applied to reduce the outstanding pre-petition claim 
balance or how they were applied to the mortgage loan account.
    The Bureau is adopting the pre-petition arrearage disclosure with 
several revisions. As revised, Sec.  1026.41(f)(3)(v) requires a 
periodic statement modified in accordance with Sec.  1026.41(f) to 
include, if applicable, the total of all pre-petition payments received 
since the last statement, the total of all pre-petition payments 
received since the beginning of the consumer's bankruptcy case, and the 
current balance of the consumer's pre-petition arrearage. The pre-
petition arrearage disclosures must be grouped in close proximity to 
each other and located on the first page of the statement or, 
alternatively, on a separate page enclosed with the periodic statement 
or in a separate letter.
    The Bureau believes that consumers should have an accurate record 
of the payments received by a servicer, including pre-petition 
arrearage payments. Consumers need this information to track the 
delinquency, understand payment application, and monitor their accounts 
for possible servicer error. Consequently, the Bureau is mandating the 
inclusion of specified pre-petition information. Without this 
information, periodic statements would not provide any indication 
whether chapter 12 or chapter 13 consumers are contractually current or 
delinquent. Moreover, while some participants in the Bureau's consumer 
testing did not find the pre-petition arrearage disclosure helpful, 
most readily understood it and responded positively to its inclusion on 
the tested forms.\407\
---------------------------------------------------------------------------

    \407\ Id. at 56-57.
---------------------------------------------------------------------------

    The final rule requires disclosure of pre-petition payments 
received since the beginning of the bankruptcy case, whereas the 
proposal would have

[[Page 72342]]

required disclosure of pre-petition payments received only since the 
beginning of the current calendar year. As some commenters noted, a 
disclosure of the payments received since the beginning of the plan is 
more helpful for consumers in bankruptcy because it provides a more 
complete picture of the overall progress in the consumer's the 
bankruptcy plan.
    Further, the Bureau has learned that servicers generally keep 
records of this information and that servicers of Fannie Mae and 
Freddie Mac loans are required to do so. The Bureau therefore believes 
that, with an appropriate implementation period, servicers would be 
able to disclose the information on a periodic statement. During 
outreach with industry participants, several servicers informed the 
Bureau that they expected that their third-party systems vendors would 
develop sufficient programming upgrades to enable servicers to more 
easily track and disclose information about pre-petition arrearages. 
Accordingly, Sec.  1026.41(f)(3)(v) requires a servicer to disclose, if 
applicable, the total of all pre-petition payments received since the 
last periodic statement, the total of all pre-petition payments 
received since the beginning of the consumer's bankruptcy case, and the 
current balance of the consumer's pre-petition arrearage.
    The Bureau continues to believe that the pre-petition arrearage 
disclosure does not need to include a breakdown of principal, interest, 
and escrow. No commenters suggested that such a breakdown would be 
helpful or necessary, as the purpose of this disclosure is to inform 
the consumer of the consumer's overall progress in reducing a pre-
bankruptcy delinquency. Moreover, the Bureau understands that servicers 
may not be equipped currently to disclose a breakdown of this 
information on the periodic statement as modified for bankruptcy.
    Unlike the proposal, the final rule expressly permits servicers to 
include the disclosures on the first page of the periodic statement, on 
a separate enclosed page, or in a separate letter. The final rule 
ensures that these important disclosures are prominent while addressing 
industry's concerns about the cost of compliance given current systems 
limitations.
    The Bureau is also adopting proposed comment 41(f)(3)(vi)-1, 
renumbered as comment 41(f)(3)(v)-1, with certain revisions. The final 
comment provides that, if the amount of the pre-petition arrearage is 
subject to dispute, or has not yet been determined by the servicer, the 
periodic statement may include a statement acknowledging the unresolved 
amount of the pre-petition arrearage. Thus, the comment addresses 
situations where the servicer has not filed a proof of claim specifying 
the amount of the pre-petition arrearage, where an objection has been 
filed to the servicer's proof of claim, or where the servicer has not 
had time to determine the amount of the pre-petition arrearage before 
having to provide a periodic statement. Final comment 41(f)(3)(v)-1 
further clarifies that a servicer may omit the information required by 
Sec.  1026.41(f)(3)(v) from the periodic statement until such time as 
the servicer has had a reasonable opportunity to determine the amount 
of the pre-petition arrearage, and that the servicer may not omit that 
information from the periodic statement after the date that the 
bankruptcy court has fixed for filing proofs of claim in the consumer's 
bankruptcy case.
41(f)(3)(vi) Additional Disclosures
    Proposed Sec.  1026.41(f)(3)(vii) would have required periodic 
statements under Sec.  1026.41(f) to include certain additional 
bankruptcy-specific disclosures. The Bureau solicited comment on 
whether servicers should be permitted to include the proposed 
additional disclosures on a separate page enclosed with the periodic 
statement, whether the proposed disclosures should be permissive or 
mandatory when applicable, and whether there are other disclosures that 
a servicer should be required to include in a periodic statement under 
proposed Sec.  1026.41(f).
    The Bureau received several comments on this aspect of the 
proposal. Two servicers recommended that the Bureau allow servicers 
flexibility as to the location of the disclosures, citing servicers' 
systems limitations as the reason. One of these servicers expressed 
support for the proposed disclosures. Some trade associations 
specifically supported the proposal under Sec.  1026.41(f)(3)(vii)(D) 
to require a statement directing consumers to contact their attorneys 
or trustees with payment application questions, stating that servicers 
cannot answer those questions. The Bureau received no comments opposing 
the additional disclosures proposed.
    The Bureau is renumbering this provision as Sec.  1026.41(f)(3)(vi) 
and mandating a new disclosure relating to post-petition delinquency 
when applicable. The Bureau is otherwise adopting the provision 
substantially as proposed, with minor revisions to improve clarity. 
Section 1026.41(f)(3)(vi) requires a servicer to include five 
additional statements on the periodic statement, as applicable, when a 
consumer is in chapter 12 or chapter 13 bankruptcy. Under the final 
rule, servicers have flexibility to determine where on the periodic 
statement the disclosures will appear.
    Section 1026.41(f)(3)(vi)(A) requires a statement that the amount 
due includes only post-petition payments and does not include other 
payments that may be due under the terms of the consumer's bankruptcy 
plan. The purpose of this disclosure is to ensure that a consumer 
understands that there may be additional amounts due under the plan 
that relate to the mortgage debt. The Bureau continues to believe that 
consumers may benefit from this disclosure, and consumer testing shows 
that consumers may find this statement helpful.
    Section 1026.41(f)(3)(vi)(B) provides that, if the consumer's 
bankruptcy plan requires the consumer to make the post-petition 
mortgage payments directly to a bankruptcy trustee, the periodic 
statement must include a statement that the consumer should send the 
payment to the trustee and not to the servicer. This proposed 
disclosure is intended to ensure that consumers have information about 
whether to send a post-petition payment to the trustee or servicer. The 
Bureau continues to believe that such a disclosure is appropriate. Some 
consumer testing participants cited this statement when explaining that 
they would follow their bankruptcy plan's instructions as to where to 
send payments.
    Section 1026.41(f)(3)(vi)(C) and (D) requires disclosures tailored 
to when the consumer makes payments to a trustee. Section 
1026.41(f)(3)(vi)(C) requires a statement that the information 
disclosed on the periodic statement may not include payments the 
consumer has made to the trustee and may not be consistent with the 
trustee's records. Section 1026.41(f)(3)(vi)(D) requires a statement 
that encourages the consumer to contact the consumer's attorney or the 
trustee with questions regarding the application of payments. The 
Bureau is requiring these disclosures because there can be a delay 
between when a trustee receives a payment from a consumer and when the 
trustee remits that payment to a servicer. For pre-petition payments in 
particular, the Bureau understands that the delay can be weeks or even 
months, as a trustee may not distribute payments on pre-petition claims 
until the creditor files a proof of claim or until higher priority 
claims have been paid. Thus, the periodic statement the consumer 
receives may not include all payments

[[Page 72343]]

the consumer has made. Additionally, the Bureau understands that a 
trustee may allocate payments differently than a servicer, and until 
the allocations are reconciled, the periodic statement may indicate 
different allocations than a trustee's records. Based on these timing 
and allocation issues, the Bureau believes that it is appropriate to 
advise consumers of the differences between a servicer's records and a 
trustee's records and to encourage consumers to contact the attorney or 
trustee with questions. Consumer testing participants generally stated 
that these statements were helpful to explain why a servicer's records 
may differ from a trustee's or not include all of the consumer's 
payments made to a trustee.
    Finally, the Bureau is adding new Sec.  1026.41(f)(3)(vi)(E). If 
the consumer is more than 45 days delinquent on post-petition payments, 
Sec.  1026.41(f)(3)(vi)(E) requires the periodic statement to include a 
statement that the servicer has not received all the payments that 
became due since the consumer filed for bankruptcy. The Bureau 
considered whether to require periodic statements to include an account 
history listing only post-petition payments the consumer has failed to 
make or, alternatively, the date the consumer became delinquent on 
post-petition payments. Although the Bureau believes that this 
information would be beneficial to a consumer who is delinquent on 
mortgage payments due during the bankruptcy case, the Bureau is 
concerned that requiring this information may impose additional burdens 
on servicers. Nonetheless, the Bureau agrees with the consumer advocacy 
group commenters that consumers need to know when the servicer believes 
that the consumer has not made all required post-petition payments. 
Among other consequences, the failure to make a post-petition payment 
could lead to dismissal of the bankruptcy case. Accordingly, the Bureau 
is requiring in Sec.  1026.41(f)(3)(vi)(E) that, if the consumer is at 
least 45 days delinquent on post-petition payments, the periodic 
statement must include a statement that the servicer has not received 
all of the consumer's payments due during the bankruptcy case. The 
Bureau believes that this disclosure will help alert consumers to any 
delinquency and that, because the language is standard, the burden on 
industry should be low.
41(f)(4) Multiple Obligors
    Proposed Sec.  1026.41(f)(4) would have addressed the situation 
where more than one consumer is primarily obligated on a mortgage loan 
and a servicer is required to provide at least one of the primary 
obligors with a modified periodic statement pursuant to Sec.  
1026.41(f). Proposed Sec.  1026.41(f)(4) provided that, in this 
circumstance, the servicer may provide the modified version of the 
periodic statement to any or all of the primary obligors instead of 
providing any statements that do not include the bankruptcy-specific 
modifications, even if not all primary obligors are debtors in 
bankruptcy.
    The Bureau only received one comment on this aspect of the 
proposal. A trade association commenter agreed with the proposal to 
permit servicers to provide only one type of periodic statement per 
mortgage loan account.
    The Bureau is adopting Sec.  1026.41(f)(4) substantially as 
proposed, with minor revisions to improve clarity. As revised, Sec.  
1026.41(f)(4) provides that, if Sec.  1026.41(f) applies in connection 
with a mortgage loan with more than one primary obligor, the servicer 
may provide the modified statement to any or all of the primary 
obligors, even if a primary obligor to whom the servicer provides the 
modified statement is not a debtor in bankruptcy.
    The Bureau is also adopting comment 41(f)(4)-1 substantially as 
proposed but with certain revisions. As revised, comment 41(f)(4)-1 
provides that, when two or more consumers are joint obligors with 
primary liability on a mortgage loan subject to Sec.  1026.41, a 
servicer may send the periodic statement to any one of the primary 
obligors. Comment 41(f)(4)-1 further clarifies that Sec.  1026.41(f)(4) 
provides that a servicer may provide a modified statement under Sec.  
1026.41(f), if applicable, to any or all of the of the primary 
obligors, even if the primary obligor to whom the servicer provides the 
modified statement is not a debtor in bankruptcy. The comment specifies 
that the servicer need not provide an unmodified statement to any of 
the primary obligors. The comment provides an illustrative example.
    This result is consistent with comment 41(a)-1, which clarifies 
that, when more than one consumer is primarily obligated on a mortgage 
loan, a servicer may send the periodic statement to any one of the 
primary obligors; the servicer would not be required to provide 
periodic statements to all primary obligors. The Bureau also recognizes 
that, given current limitations on technology, servicers would incur 
costs if they were required to send one version of the periodic 
statement to a consumer in bankruptcy and a different version to the 
consumer's non-bankrupt co-obligors. As clarified by comment 41(f)(4)-1 
of the final rule, Sec.  1026.41(f)(4) should eliminate those costs.
    The Bureau notes that comment 41(f)(4)-1, as revised, does not 
include a proposed example describing a servicer's obligations when 
there are multiple obligors on the mortgage loan and an exemption 
applies under Sec.  1026.41(e)(5)(ii). As described in greater detail 
in the section-by-section analysis of Sec.  1026.41(e)(5), revisions to 
comment 41(e)(5)(i)-1 clarify that, subject to certain restrictions, 
servicers are exempt from providing any periodic statement with regard 
to a mortgage loan if one of the primary obligors, for example, files 
chapter 13 bankruptcy and has a bankruptcy plan that provides for 
surrendering the dwelling that secures the mortgage loan.
    New comment 41(f)(4)-2 clarifies disclosure requirements when co-
obligors are both debtors under different chapters of bankruptcy. The 
comment provides that, if two or more consumers are joint obligors with 
primary liability on a mortgage loan subject to Sec.  1026.41 and are 
debtors under different chapters of bankruptcy, only one of which is 
subject to Sec.  1026.41(f)(3), a servicer may, but need not, include 
the modifications set forth in Sec.  1026.41(f)(3). The comment sets 
forth an illustrative example.
41(f)(5) Coupon Books
    The Bureau proposed Sec.  1026.41(f)(5) to require a coupon book to 
comply with certain requirements of Sec.  1026.41(f) where applicable. 
The Bureau solicited comment on applying the modifications set forth in 
proposed Sec.  1026.41(f)(1) and (f)(3)(i) through (v) and (vii) when a 
servicer provides a coupon book under Sec.  1026.41(e)(3). In 
particular, the Bureau solicited comment on whether there may be 
alternative means to providing consumers with substantially the same 
information regarding the mortgage loan account while they are in 
bankruptcy. Additionally, the Bureau solicited comment on whether 
servicers should be required to issue a new coupon book or other 
disclosures immediately upon a consumer's bankruptcy filing. Finally, 
the Bureau solicited comment on servicers' current practices with 
respect to providing a coupon book to consumers in bankruptcy.
    The Bureau received no comments on Sec.  1026.41(f)(5) and is 
adopting it substantially as proposed, with minor modifications to 
improve clarity. Under Sec.  1026.41(f)(5), a servicer that provides a 
coupon book instead of a periodic statement under Sec.  1026.41(e)(3) 
must include in the coupon book the disclosures set forth in Sec.  
1026.41(f)(2) and (f)(3)(vi), as applicable. The servicer

[[Page 72344]]

may include these disclosures anywhere in the coupon book provided to 
the consumer or on a separate page enclosed with the coupon book. The 
servicer must make available upon request to the consumer by telephone, 
in writing, in person, or electronically, if the consumer consents, the 
pre-petition arrearage information listed in Sec.  1026.41(f)(3)(v), as 
applicable. Section 1026.41(f)(5) also provides that the modifications 
set forth in Sec.  1026.41(f)(1) and (f)(3)(i) through (iv) and (vi) 
apply to a coupon book and other information a servicer provides to the 
consumer under Sec.  1026.41(e)(3).
    The Bureau continues to believe that Sec.  1026.41(f)(5) will not 
impose significant burden on servicers that use a coupon book. The 
statements set forth in Sec.  1026.41(f)(1) and (f)(3)(vi) are the only 
new, bankruptcy-specific disclosures that a servicer must include in a 
coupon book. These are standardized statements; servicers will not need 
to craft language for individual consumers. Additionally, the Bureau is 
allowing servicers to include these statements anywhere in the coupon 
book or on a separate page enclosed with the coupon book.
    As to the pre-petition arrearage information set forth in Sec.  
1026.41(f)(3)(v), the Bureau understands that servicers already 
maintain internal records regarding pre-petition payments and the 
balance of the pre-petition arrearage. Therefore, the Bureau does not 
believe that the cost of providing this information upon a consumer's 
request will impose significant new burdens.
    The remainder of the modifications set forth in proposed Sec.  
1026.41(f)(1) and (f)(3)(i) through (iv) and (vi) do not require a 
servicer to modify any of the disclosures in the coupon book or provide 
new information to a consumer. Rather, these modifications provide that 
certain disclosures (such as a description of late payment fees) are 
not required when a consumer is in bankruptcy and clarify the 
requirements for certain other disclosures (such as amount due) in a 
manner that is consistent with the information already provided in a 
coupon book. Thus, while a servicer has the option to modify its coupon 
books to omit certain disclosures that are not required when a consumer 
is in bankruptcy, Sec.  1026.41(f)(5) does not require servicers to 
redesign their coupon books specifically for consumers in bankruptcy, 
and servicers can determine the most cost-efficient method of providing 
the required information.
    Servicers also are not required to update the coupon book with the 
bankruptcy disclosures immediately upon learning of the bankruptcy 
filing. Section 1026.41(f)(5) permits a servicer to provide a modified 
coupon book according to its normal schedule. For example, if a 
servicer provided a 12-month coupon book to a consumer in January and 
the consumer filed for bankruptcy in March, the servicer would not need 
to issue a new, modified coupon book accompanied by Sec.  1026.41(f)(1) 
and (f)(3)(vi) disclosures until the following January.
Sample Forms
    Section 1026.41(c) specifies that sample forms for periodic 
statements are provided in appendix H-30 and that proper use of these 
forms complies with the form and layout requirements of Sec.  
1026.41(c) and (d). The Bureau believes that sample forms are 
appropriate to provide servicers with guidance for complying with the 
requirements of Sec.  1026.41(c) and (d) as modified by Sec.  
1026.41(f). The Bureau therefore exercises its authority under, among 
other things, section 128(f) of TILA to finalize sample forms for Sec.  
1026.41(c) and (d) as modified by Sec.  1026.41(f). The Bureau notes 
that these are not required forms and that any arrangements of the 
information that meet the requirements of Sec.  1026.41 would be 
considered in compliance with the section. For the reasons discussed, 
the Bureau believes that finalizing the sample forms in appendices H-
30(E) and H-30(F) is appropriate.
    Appendix H-30(E) provides a sample form for complying with the 
requirements of Sec.  1026.41(c) and (d) as modified by Sec.  
1026.41(f) with respect to a consumer in a chapter 7 or chapter 11 
bankruptcy case or who has discharged personal liability for a mortgage 
loan. This form includes disclosures that may not be applicable in all 
circumstances. For example, the form includes certain delinquency-
related information to demonstrate compliance with Sec.  1026.41(d)(8) 
as modified by Sec.  1026.41(f), but a periodic statement does not need 
to include this information if it is not applicable to a mortgage loan.
    Appendix H-30(F) provides a sample form for complying with the 
requirements of Sec.  1026.41(c) and (d) as modified by Sec.  
1026.41(f) with respect to a consumer in a chapter 12 or chapter 13 
bankruptcy case. Not all information on this form will be applicable in 
all circumstances. For example, the form includes a pre-petition 
arrearage disclosure to demonstrate compliance with Sec.  
1026.41(f)(3)(v), but a periodic statement does not need to include 
this information if it is not applicable to a mortgage loan. In 
addition, comment 41(f)(3)-1.ii clarifies that a servicer has 
additional flexibility in making certain disclosures when the consumer 
is in chapter 12 or has a plan that modifies the terms of the mortgage 
loan, and a servicer has the flexibility to make corresponding changes 
to the sample form.
    The sample forms in appendices H-30(E) and H-30(F) use some 
terminology that differs from terminology used on the sample forms 
located in appendices H-30(A) through H-30(C), such as ``payment 
amount'' instead of ``amount due'' and ``past unpaid amount'' instead 
of ``overdue payment.'' This alternative terminology is not required 
but serves simply an example of how servicers may comply with the 
requirements of Sec.  1026.41(c) and (d) as modified by Sec.  
1026.41(f). As comment 41(f)-2 states, a periodic statement may use 
terminology other than that found on the sample forms in appendix H-30, 
so long as the new terminology is commonly understood. For example, a 
servicer could use commonly understood terms such as ``amount due,'' 
``explanation of amount due,'' and ``past due payment,'' on a periodic 
statement provided to a consumer in bankruptcy without affecting the 
servicer's safe harbor afforded by Sec.  1026.41(c).
    Consistent with Sec.  1026.41(f)(1) and (f)(3)(i), the sample forms 
in appendices H-30(E) and H-30(F) omit certain disclosures otherwise 
required by Sec.  1026.41(d), including disclosures that appear on the 
sample forms located on appendixes H-30(A) through H-30(C), such as the 
amount of any late payment fee and the date on which it will be 
assessed. A servicer has the option to include such disclosures on a 
periodic statement provided to a consumer in bankruptcy, and doing so 
would not affect the servicer's safe harbor for using the forms located 
in appendices H-30(E) or H-30(F). Similarly, a servicer may use a 
different presentation of the explanation of amount due, such as that 
on the sample form in appendix H-30(C), for payment option and other 
special types of loans, without affecting the servicer's safe harbor 
under Sec.  1026.41(c).
    Proposed sample forms. The proposed rule included proposed sample 
forms in appendices H-30(E) and H-30(F). A credit union supported the 
Bureau's efforts to gauge consumer understanding and stated that some 
proposed iterations of the sample forms may facilitate consumer 
comprehension. Two trade associations recommended that the Bureau 
publish the anticipated final

[[Page 72345]]

versions of the forms for notice and comment prior to issuing a final 
rule. Consumer advocacy groups generally did not oppose sample forms, 
and one consumer advocacy group suggested that the Bureau publish 
Spanish-language versions of the forms.
    Other trade associations requested that the Bureau state expressly 
that safe harbors remain in place under both the Dodd-Frank Act and 
TILA if servicers use the sample forms, even if a servicer omits 
certain information that Regulation Z does not require or a servicer 
rearranges the format or layout of the form. The commenters stated 
that, absent such a statement, servicers might feel compelled to 
include information that appears in the sample form exactly as 
displayed even if the regulation does not require such disclosures in 
the precise layout of the sample form.
    Several commenters stated that providing a sample form similar to 
the one that servicers provide to a consumer not in bankruptcy would 
facilitate consumer comprehension, minimize burden on servicers, or 
avoid potential conflicts with debt collection and bankruptcy law. 
Other commenters suggested the Bureau provide a single sample form that 
could be used for a consumer in any chapter of bankruptcy, which could 
be achieved by permitting a servicer to omit certain information that 
is not relevant to a particular consumer's loan. Some trade 
associations requested flexibility as to how to display the information 
required by Sec.  1026.41(d) as modified by Sec.  1026.41(f), including 
suggesting that a servicer should have wide latitude when drafting the 
narrative messages required by Sec.  1026.41(f)(2) and (f)(3)(vi) to 
incorporate language that has been received positively by consumers and 
bankruptcy courts.
    Some commenters also commented on the format and presentation of 
the proposed sample forms. For example, the U.S. Trustee Program 
recommended that the Bureau use less technical language, referring in 
particular to the proposed form's use of the term ``post-petition 
payments.'' Several consumer advocacy groups favored the technical 
language, however, noting that most consumers in bankruptcy would have 
an attorney to help them understand the disclosures. Other commenters 
had various alternative terminology and formatting suggestions.
    As discussed above, the Bureau believes it is appropriate to 
provide sample forms to assist servicers in complying with Sec.  
1026.41(f). The Bureau reiterates that, as sample forms, their use is 
permissive and, as comment 41(c)-2 states, servicers may provide 
additional information on a periodic statement unless expressly 
prohibited by Sec.  1024.41 or another provision of subpart E of 
Regulation Z. In addition, comment Sec.  1024.41(d)-2 states that 
servicers need not include on a periodic statement information that is 
inapplicable to a mortgage loan, while comment Sec.  1026.41(f)-4 
clarifies that a servicer may modify a periodic statement or coupon 
book as necessary to facilitate compliance with the Bankruptcy Code, 
the Federal Rules of Bankruptcy Procedure, court orders, and local 
rules, guidelines, and standing orders. A servicer thus does not lose a 
safe harbor under the Dodd-Frank Act or TILA by omitting inapplicable 
information or modifying a periodic statement in a manner consistent 
with the rule, including those comments. In addition, as discussed 
above, a servicer is permitted to use alternative terminology on a 
periodic statement so long as it is commonly understood. A servicer may 
use different language to convey the statements required by Sec.  
1026.41(f)(2) and (f)(3)(vi), so long as that language contains the 
information required by those provisions and is commonly understood.
    The Bureau also notes that, as explained in more detail below, the 
final sample forms in appendices H-30(E) and H-30(F) incorporate 
information the Bureau received through public comments and consumer 
testing. The final sample forms use language that is less technical 
than on the proposed forms and which testing participants readily 
understood. They incorporate many elements from the existing periodic 
statement sample forms located in appendices H-30(A) through H-30(C), 
while providing servicers flexibility as to how to incorporate new 
disclosures required by Sec.  1026.41(f). The Bureau intends for 
consumers to be able to comprehend the language in the new sample forms 
and for servicers not to have to fundamentally redesign their periodic 
statement templates for consumers in bankruptcy.
    The Bureau further believes that there has been a sufficient 
opportunity to comment on the sample forms. The final sample forms in 
appendices H-30(E) and H-30(F) closely resemble both the proposed 
sample forms and the tested prototypes. Stakeholders have commented on 
both the proposed sample forms and the prototypes used during consumer 
testing (the prototypes were included in the testing report that the 
Bureau published for public comment, as discussed below). The Bureau 
therefore believes that it is not necessary to seek additional comments 
on the final forms. The Bureau is not at this time providing sample 
forms in languages other than English, but the Bureau will continue to 
consider whether to do so in the future and whether additional consumer 
testing on such forms would be necessary or appropriate.
    Consumer testing methodology. The Bureau conducted consumer testing 
on the proposed sample forms and revisions thereto following 
publication of the proposed rule. The Bureau published and sought 
comment on a report summarizing the methods and results of the consumer 
testing.\408\ The Bureau received approximately 20 comments on the 
testing report from, among others, trade associations, servicers, 
credit unions, and consumer advocacy groups.
---------------------------------------------------------------------------

    \408\ 81 FR 24519 (Apr. 26, 2016); Fors Marsh Group, Testing of 
Bankruptcy Periodic Statement Forms for Mortgage Servicing (Feb. 
2016), available at https://www.consumerfinance.gov/data-research/research-reports/testing-bankruptcy-periodic-statement-forms-mortgage-servicing/ (report on consumer testing submitted to the 
CFPB).
---------------------------------------------------------------------------

    Commenters were divided on aspects of the Bureau's testing 
methodology. For example, several industry commenters and one consumer 
advocacy group stated that the testing should have used a larger and 
more diverse sample of consumers. The consumer advocacy group stated 
that the study lacked any mention of minority group outreach, 
especially to representatives from the Hispanic communities, and 
recommended publishing the forms in Spanish. A credit union commented 
that the testing results would have been more statistically sound had 
the consumers been asked a more controlled set of questions, and a 
trade association questioned why the report does not cite to medical 
literature in support of its conclusions, particularly with respect to 
the monitoring of eye tracking movements in one round of testing. Some 
trade associations expressed general concern that it was unclear how 
the Bureau would use the findings from the eye-tracking tool employed 
in that round of testing and more specific concern that the Bureau 
might rely on eye-tracking results obtained from, at most, five 
participants. Some trade associations stated that the Bureau should 
have solicited greater input on the testing methodology from other 
stakeholders who may use and review the forms, such as bankruptcy 
judges, bankruptcy attorneys, or trade associations. Some commenters 
suggested that the Bureau conduct additional testing, with one 
recommending additional testing

[[Page 72346]]

focused on the pre-petition arrearage disclosure.
    Some trade associations also commented that the testing did not 
account for the variety of procedures used in chapter 13 cases, such as 
cases in which the consumer sends all mortgage payments to a trustee, 
the trustee makes several streams of payments to a servicer, or the 
trustee provides information about the mortgage loan to the consumer. A 
trade association questioned how the testing would correlate to policy 
determinations related to the substantive requirements of periodic 
statements for consumers in bankruptcy.
    Several commenters expressed concerns about the inclusion of a 
payment coupon on the tested forms. For example, a bank stated that a 
blank payment coupon with a payment date but no payment amount, which 
was used in the second and third rounds of testing, seemed confusing. A 
trade association expressed concern that the testing report indicates 
that consumers focused on the payment coupon instead of the outstanding 
principal balance; the trade association recommended that the form be 
redesigned to focus the consumer on information other than the payment 
coupon.
    On the other hand, some consumer advocacy groups, industry 
commenters, and a bankruptcy trustee expressed support for the Bureau's 
consumer testing process. They commented favorably on, among other 
things, the use of multiple revised statements to determine which 
presentation might be most comprehensible to consumers and stated that 
the forms are clearer as a result of the testing process. They also 
noted that participants' understanding of the forms appeared to 
increase with each successive round of testing, and they suggested that 
the Bureau factor the report's findings into the rulemaking.
    The Bureau believes that the testing it conducted is appropriate. 
The testing methodology, including the number of rounds, the number of 
participants who reviewed each form in each round, the participants' 
relevant background experience, and the iterative process of form 
design and consumer interviews, is consistent with the testing the 
Bureau conducted in connection with other rulemakings, including the 
2013 TILA Servicing Final Rule. The Bureau notes that consumers' 
comprehension of the periodic statements improved from round to round 
and that the Bureau has integrated adjustments from the testing where 
appropriate. For example, the Bureau has revised the narrative 
statements required by Sec.  1026.41(f)(2) and (f)(3)(vi) from the 
proposed sample forms so that the final sample forms use language that 
testing participants found easier to understand. Similarly, the Bureau 
has adjusted the presentation of the Sec.  1026.41(f)(3)(v) pre-
petition arrearage disclosure from the proposed sample form so that the 
final sample form presents the information more effectively. While 
consumer testing cannot replicate every possible unique factual 
circumstance that may arise in a bankruptcy case, the Bureau's testing 
and the disclosures on the forms did address various scenarios such as, 
for example, a consumer who should make monthly post-petition payments 
to a trustee instead of a servicer. Most testing participants stated 
that, consistent with the direction on the sample form, they would 
continue to send such payments to the trustee if their bankruptcy plan 
so required.
    The Bureau also emphasizes that it is not relying solely on the 
consumer testing to determine that the sample forms will be effective; 
it is also relying on its knowledge of, and expertise in, consumer 
understanding and behavior, as well as principles of effective 
disclosure design. The Bureau further notes that many aspects of the 
final sample forms are similar or identical to aspects of the existing 
sample forms in appendices H-30(A) through H-30(C), which the Bureau 
previously tested in connection with the 2013 TILA Servicing Final Rule 
and which are now familiar to many consumers. Finally, the Bureau 
acknowledges that the eye-tracking findings came from only a handful of 
testing participants and has placed only limited weight on the eye-
tracking findings.
    As to a commenter's question regarding how the consumer testing 
would inform the substantive requirements of periodic statements for 
consumers in bankruptcy, the Bureau notes that the purpose of the 
testing was to test consumer understanding and make the sample forms 
clearer for consumers. As to the concerns some commenters raised about 
payment coupons on the sample forms, the Bureau notes that Sec.  
1026.41 does not mandate the inclusion of a payment coupon on periodic 
statements. The Bureau included them on the tested forms because 
servicers commonly include payment coupons on periodic statements. 
Servicers have flexibility to adjust the sample forms and the content 
of any payment coupon they choose to include on a periodic statement.
    Consumer testing results. Commenters made numerous comments about 
the specific disclosures and language that appeared on the tested 
versions of the forms. To the extent that these comments addressed the 
findings set forth in the testing report or the accuracy of the 
language on the final sample forms, they are addressed below. The 
Bureau does not address, however, comments that suggested alternative 
disclosures or language without referencing the testing report or the 
findings therein. Some of the comments the Bureau received raise issues 
that relate to the substantive requirements of Sec.  1026.41(e)(5) or 
(f) rather than to the format or design of the sample forms. Most of 
these comments are similar to comments the Bureau previously received 
in response to the proposal and that the Bureau addressed above in the 
section-by-section analyses of Sec.  1026.41(e)(5) and (f). Some 
commenters submitted substantive comments on the proposal. These 
comments were similar to the comments received on the proposal and, 
where appropriate, are addressed in the relevant section-by-section 
analyses.
    Some commenters recommended that the sample forms incorporate 
specific language that testing participants understood or preferred. 
For example, consumer advocacy groups recommended that the Bureau adopt 
the language tested in round three relating to the pre-petition 
arrearage because consumers demonstrated a high level of comprehension 
and because the information would benefit consumers in various ways. A 
chapter 13 trustee also recommended that the sample form in appendix H-
30(F) refer expressly to ``pre-petition arrearage,'' in part because 
the first round of testing showed that consumers understand the phrase. 
This trustee further recommended that, based on the testing 
participants' positive responses, the sample forms should separately 
break down principal and interest, include language stating that the 
periodic statement is being sent for informational and compliance 
purposes only, and include a message that the statement may not show 
recent payments sent to the trustee but not yet forwarded to the 
servicer. A servicer commented that the form in appendix H-30(E) should 
use the term ``account information'' because testing participants 
preferred it over ``delinquency information.'' Another servicer 
recommended that the final forms use concise versions of certain 
disclosures that were tested in certain rounds.
    Other commenters indicated that the final forms should not 
incorporate disclosures that the consumer testing participants did not 
readily understand. Among concerns about other disclosures, one credit 
union commented that testing participants'

[[Page 72347]]

trust in the accuracy of the tested forms was diminished by some of the 
narrative statements regarding the unique circumstances of chapter 13 
cases, such as a disclaimer that the periodic statement may not be up 
to date. Similarly, one commenter expressed concern that consumers 
paying their mortgage through a chapter 13 trustee would be confused by 
a periodic statement, citing the uncertainty some testing participants 
expressed about the meaning of the narrative messages. Two servicers 
commented that testing participants appeared uncertain about how much 
they should pay when reviewing certain of the tested forms, such as 
when past due amounts were listed separately from the amount currently 
due. One of these servicers further stated that testing participants 
had some difficulty distinguishing between pre-petition and post-
petition payments when both types of payments were listed in the 
transaction activity and past payment breakdown. One credit union 
stated that the participants' feedback on the forms' overall 
organization, clarity, and helpfulness suggested that the participants 
did not fully understand the disclosures. Some commenters recommended 
making clearer whether amounts due and payments received relate to pre-
petition arrearage or to post-petition payments. One servicer cautioned 
that providing greater detail about the breakdown of principal, 
interest, and escrow could confuse consumers comparing the previous 
month's statement to the subsequent month's statement. A credit union 
also noted that some testing participants stated that they would rather 
the periodic statements be sent to their attorneys to avoid 
miscommunications, and it added, more generally, that the Bureau should 
not ignore the report's negative findings.
    Industry commenters took opposing views on the testing report's 
finding that testing participants preferred disclosure of the 
consequences of nonpayment and language that uses the term ``due.'' 
Some commenters stated that the forms should reflect the participants' 
preference because it conveys information clearly and accurately, while 
others stated that disclosing this information and using ``due'' 
language could raise concerns about the automatic stay. One servicer 
expressed concerns that providing a periodic statement similar to the 
tested forms could violate the automatic stay because some testing 
participants stated that several iterations of the tested forms were 
collection attempts rather than purely informational notices. A trade 
association argued that the sample forms should not identify the number 
of days a mortgage loan is delinquent because testing participants' 
reactions varied as to whether the disclosure would be helpful.\409\
---------------------------------------------------------------------------

    \409\ Final Sec.  1026.41(f) permits, but does not require, a 
servicer to disclose the length of a delinquency on a periodic 
statement.
---------------------------------------------------------------------------

    The Bureau acknowledges that, as commenters noted, some versions of 
the narrative messages shown to testing participants received mixed or 
negative reactions, primarily in the first round and, to a lesser 
degree, the second round of testing. The Bureau notes that participants 
in each successive round found the various narrative messages to be 
clearer than those in the prior round, and the Bureau believes, that 
the versions of the messages included on the final sample forms in 
appendices H-30(E) and H-30(F) are clear and generally understandable 
to consumers. For example, while some participants in round one stated 
the periodic statement tested was untrustworthy because of a message 
that it might not be up to date, participants in the later rounds found 
helpful a revised message that recent payments to a trustee may not be 
disclosed on the statement because the trustee had not yet forwarded 
them to the servicer.
    The final versions of the sample forms in appendices H-30(E) and H-
30(F) incorporate findings set forth in the testing report, including 
specifically the language regarding pre-petition arrearage that 
participants found helpful in the third round of testing. Similarly, 
the final sample forms include language identifying payments as ``pre-
petition'' or ``post-petition'' payments, which some participants found 
helpful; the forms also include ``plain language'' terminology 
identifying those payments to assist consumers who are less familiar 
with bankruptcy-specific terminology. In addition, the sample form in 
appendix H-30(E) uses the term ``account history'' in lieu of 
``delinquency information,'' as testing participants found that term 
helpful.
    The Bureau believes that the testing report indicates that 
consumers generally should understand the account information as 
displayed on the sample forms. For example, testing participants 
readily comprehended the principal-interest breakdown and preferred 
such a disclosure over a combined disclosure. Consistent with this 
finding and the Bureau's other knowledge and experience regarding 
disclosures, the final rule requires a periodic statement to include a 
principal-interest breakdown. Testing participants also generally 
understood the pre-petition arrearage disclosure, and their 
comprehension was highest in the final round of testing, which used a 
disclosure similar to the disclosure on the final sample form. The 
final sample forms also present the amount due and explanation of 
amount due in the manner that participants found most helpful. 
Moreover, the Bureau believes that, as consumer advocacy groups 
commented and as explained in the testing report, a consumer may 
understand the disclosures on a periodic statement when they relate to 
the consumer's own mortgage loan and bankruptcy rather than a 
hypothetical testing scenario.
    As to commenters' concerns about some participants' preference that 
a servicer provide the periodic statement to their bankruptcy attorney, 
the Bureau notes that, depending on the circumstances, a servicer may 
be able to satisfy the requirements of Sec.  1026.41 by providing a 
periodic statement to a consumer's attorney. The Bureau further notes 
that, while some testing participants stated that the tested forms 
appeared to be more in the nature of collection attempts than purely 
informational, most participants viewed the forms as informational, and 
nearly all participants expressed a preference for receiving a similar 
form if they were attempting to retain their home through bankruptcy. 
More generally, as explained in the section-by-section of Sec.  
1026.41(e)(5), the Bureau does not believe that a servicer is likely to 
violate the automatic stay by providing a periodic statement that 
complies with the provision of Sec.  1026.41(c) and (d) as modified by 
Sec.  1026.41(f), nor does the Bureau believe that an automatic stay 
violation is likely when a servicer uses properly one of the sample 
forms in appendices H-30(E) or H-30(F).
    Format and Design of the Sample Forms. Several commenters had 
suggestions on the general design and format of the sample forms. For 
example, a consumer advocacy group suggested that the sample forms 
display information in a bullet point format, while other consumer 
advocacy groups recommended that certain of the bankruptcy-related 
narrative messages be located in a separate box because testing 
participants preferred that approach. Some servicers recommended 
against listing multiple suspense accounts in the past payments 
breakdown, as was done in one version of the tested forms. Industry 
commenters stated that the bankruptcy sample forms should be similar to 
the non-bankruptcy sample forms, that the Bureau should have a single 
bankruptcy

[[Page 72348]]

sample form that could be adapted to all chapters of bankruptcy, and 
that servicers should have flexibility in how they present the required 
information. Two consumer advocacy groups stated that the sample forms 
should describe a trustee's pre-petition payments as payments rather 
than partial payments. The Bureau also received several comments asking 
how the sample forms in appendices H-30(E) or H-30(F) should address 
specific scenarios or hypotheticals.
    As noted above, the sample forms are one way a servicer may choose 
to present the required information in a manner that complies with the 
formatting requirements of Sec.  1026.41(c), (d), and (f). To the 
extent that a servicer may wish to use a different format or add 
additional informational, it may do so within the limits provided by 
the rule. For example, a servicer may, as one commenter suggested, 
disclose one or multiple suspense accounts on a periodic statement 
without jeopardizing its safe harbor use of the sample forms.
    Consistent with these commenters' general recommendations, the 
sample forms in appendices H-30(E) and H-30(F) incorporate to a large 
degree the format and content of the sample forms in appendices H-30(A) 
through H-30(C). For example, the sample forms all contain the same 
general presentation of general account information, amount due, 
transaction activity, and past payment breakdown, among other things. 
The sample form in appendix H-30(E) contains the same disclosures in a 
similar format as the form in appendix H-30(B), except that appendix H-
30(E) omits three specific pieces of information, adds a short 
bankruptcy message, and uses alternative terminology that a servicer 
may but is not required to use for a consumer in bankruptcy. The Bureau 
believes that these similarities will help reduce the potential burdens 
on a servicer that chooses to use the new sample forms and will help 
make the forms generally understandable to consumers.
Legal Authority
    The Bureau is adopting Sec.  1026.41(f), which contains content and 
layout requirements for periodic statements in bankruptcy, to implement 
section 128(f) of TILA as well as section 105(a) of TILA and section 
1032(a) of the Dodd-Frank Act. Section 128(f)(1)(e) of TILA requires 
the periodic statement to include a description of any late payment 
fees. For the reasons discussed above, the Bureau is using its 
authority under section 105(a) and (f) of TILA to exempt servicers from 
having to include this information in periodic statements provided to 
consumers who are in bankruptcy or have discharged personal liability 
for a mortgage loan. This proposed exemption is additionally authorized 
under section 1405(b) of the Dodd-Frank Act.
41(g) Successors in Interest
    As explained in part V.A. and the section-by-section analysis of 
Regulation X Sec.  1024.32, the final rule allows servicers to provide 
an initial explanatory written notice and acknowledgment form to 
confirmed successors in interest who are not liable on the mortgage 
loan obligation. The notice explains that the confirmed successor in 
interest is not liable unless and until the confirmed successor in 
interest assumes the mortgage loan obligation under State law. The 
notice also indicates that the confirmed successor in interest must 
return the acknowledgment to receive certain servicing notices under 
the Mortgage Servicing Rules. For the reasons stated in part V.A. and 
in this discussion, the final rule includes new Sec.  1026.41(g), which 
provides that, if, upon confirmation, a servicer provides a confirmed 
successor in interest who is not liable on the mortgage loan obligation 
with such a written notice and acknowledgment form, the servicer is not 
required to provide to the confirmed successor in interest any written 
disclosure required by Sec.  1026.41 unless and until the confirmed 
successor in interest either assumes the mortgage loan obligation under 
State law or has provided an executed acknowledgment in accordance with 
Regulation X Sec.  1024.32(c)(1)(iv) that the confirmed successor in 
interest has not revoked.
    The final rule does not mandate that servicers send the initial 
written notice and acknowledgment form; instead Regulation X Sec.  
1024.32(c)(1) gives servicers the option to do so and, if they choose 
to do so, Sec.  1026.41(g) relieves them of the obligation to provide 
periodic statements until the confirmed successor in interest 
affirmatively indicates a desire to receive them by returning the 
acknowledgment or assumes the mortgage loan obligation under State law. 
Similar provisions in Sec. Sec.  1024.32(c)(2), 1026.20(g), and 
1026.39(f) address the disclosures required by, respectively, the 
Mortgage Servicing Rules in Regulation X and Sec. Sec.  1026.20(c), 
(d), and (e), and 1026.39. As noted in part V.A., the Bureau has 
decided to excuse servicers that have not received an acknowledgment 
back from a confirmed successor in interest from the requirement to 
send periodic statements and other Mortgage Servicing Rule notices 
because doing so relieves servicers of the costs associated with 
sending notices to confirmed successors in interest who are not liable 
on the mortgage loan obligation and do not want them. However, if a 
confirmed successor in interest assumes a mortgage loan obligation 
under State law, the information in the initial notice and 
acknowledgment form is no longer applicable, and Sec.  1026.41(g) 
accordingly does not suspend the servicer's obligation to provide 
periodic statements.
Appendix H to Part 1026--Closed-End Model Forms and Clauses
Appendix H-4(C) to Part 1026
    The 2013 TILA Servicing Final Rule revised the commentary to Sec.  
1026.19(b) to reflect the revised Sec.  1026.20(c) and revised Sec.  
1026.20(d) ARM notices. The proposal would have modified the Variable-
Rate Model Clauses in appendix H-4(C) to reflect the language in the 
revised commentary. The Bureau is adopting these modifications as 
proposed. No change to the table of contents of appendix H is 
necessary.
Appendix H-14 to Part 1026
    The 2013 TILA Servicing Final Rule changed the commentary to Sec.  
1026.19(b) to reflect the revised Sec.  1026.20(c) and revised Sec.  
1026.20(d) ARM notices. This proposal would have modified the Variable-
Rate Mortgage Sample form in appendix H-14 to reflect the language in 
the revised commentary. The Bureau is adopting these modifications as 
proposed. No change to the table of contents of appendix H is 
necessary.
Appendix H-30(C) to Part 1026
    This proposal would have made a minor technical revision to the 
entry for H-30(C) in the table of contents at the beginning of this 
appendix and republishes sample form H-30(C). The technical change 
amends ``Sample Form of Periodic Statement for a Payment-Options Loan 
(Sec.  1026.41)'' to ``Sample Form of Periodic Statement for a Payment-
Option Loan (Sec.  1026.41).'' The Bureau is adopting this technical 
change as proposed.
Appendices H-30(E) and H-30(F) to Part 1026
    This final rule provides sample forms for periodic statements for 
certain consumers in bankruptcy in proposed appendices H-30(E) and H-
30(F) and makes corresponding additions to the table of contents for 
appendix H. Section 1026.41(c) specifies that sample forms for periodic 
statements are provided in appendix H-30 and that proper use of these 
forms complies with

[[Page 72349]]

the form and layout requirements of Sec.  1026.41(c) and (d). The 
Bureau believes that sample forms are appropriate to provide servicers 
with guidance for complying with the requirements of Sec.  1026.41(c) 
and (d) as modified by proposed Sec.  1026.41(f). The Bureau therefore 
exercises its authority under, among other things, section 128(f) of 
TILA to provide sample forms for Sec.  1026.41(c) and (d), as modified 
by Sec.  1026.41(f). Appendix H-30(E) provides a sample form for 
complying with the requirements of Sec.  1026.41(f) with respect to a 
consumer in a chapter 7 or chapter 11 bankruptcy case or a consumer who 
has discharged personal liability for a mortgage loan. Appendix H-30(F) 
provides a sample form for complying with the requirements of Sec.  
1026.41(f) with respect to a consumer in a chapter 12 or chapter 13 
bankruptcy case. They would not be required forms, however, and any 
arrangements of the information that meet the requirements of Sec.  
1026.41 would be considered in compliance with the section.

VI. Effective Date

    The Bureau proposed an effective date of 280 days (approximately 
nine months) after publication of a final rule for all of the final 
rule provisions except the changes to Sec.  1026.41(e)(5) and (f) 
(bankruptcy periodic statement exemption and modified statements), for 
which the Bureau proposed an effective date of one year after 
publication. As discussed further below, the Bureau is adopting an 
effective date of one year after publication for most provisions, with 
an extended effective date of 18 months after publication for the 
provisions relating to bankruptcy periodic statements and to successors 
in interest.
    The Bureau received over a dozen comments on the effective date, 
all of which were from industry commenters, including both servicers 
and industry trade associations. Nearly all of the commenters 
recommended extensions of the proposed effective dates, generally to 
one year, 18 months, or two years. Several commenters suggested one 
effective date for all provisions, while others suggested that having 
two different effective dates was appropriate and requested more time 
to implement those provisions regarding bankruptcy periodic statements, 
successors in interest, and early intervention notices. Industry trade 
association commenters requested an explicit safe harbor for servicers 
that come into compliance before the effective date.
    Approximately half of commenters discussing the effective date 
indicated that an implementation period of 12 months or less would be 
sufficient for the provisions other than those regarding bankruptcy and 
successors in interest, while approximately half requested more time to 
implement the provisions other than those regarding bankruptcy and 
successors in interest. Approximately half of commenters discussing the 
effective date indicated that an implementation period of 18 months 
would be sufficient for the provisions regarding bankruptcy and 
successors in interest, while approximately half requested more time to 
implement those provisions. One commenter indicated that consumer-
focused enhancements to the rule, including the provisions addressing 
successors in interest, loss mitigation, transfers, and bankruptcy 
should be implemented promptly but cautioned that these areas involve 
significant operational complexity and will require significant time to 
implement properly. Similarly, in explaining their recommended 
extensions to the proposed effective dates, several commenters focused 
on the need for sufficient time to update operating systems and 
software; coordinate with third party service providers and, if 
applicable, bankruptcy trustees; train staff; and test customer support 
and technology to comply with the final rule.
    Regarding bankruptcy periodic statement requirements specifically, 
several industry commenters requested that the Bureau allow servicers a 
sufficiently long period to implement the changes necessary to comply. 
Multiple trade associations recommended 18 months. A systems vendor 
commenter and a credit union commenter each recommended 24 months. 
Another credit union commenter estimated it would take approximately 
four to six months for vendors to develop the statements, three months 
to test the statements, and two months to train employees and inform 
consumers about the statements, for a total of nine to 11 months.
    Industry trade association commenters noted that this rulemaking is 
not subject to a statutory deadline. They stated that the prior 
rulemakings under title XIV of the Dodd-Frank Act did not provide 
sufficient implementation time and so urged the Bureau to extend the 
effective dates. Several commenters pointed out that the industry is 
still implementing other Bureau rules, including the 2013 Integrated 
Mortgage Disclosures under the Real Estate Settlement Procedures Act 
and the Truth in Lending Act and the 2015 Home Mortgage Disclosure Act 
rulemaking. Commenters also indicated that they might have to implement 
other upcoming anticipated rules.
    For the reasons discussed in detail below, the Bureau is adopting 
an effective date of one year after publication for all provisions, 
except for an effective date of 18 months after publication for the 
bankruptcy periodic statement exemption and modified statements (Sec.  
1026.41(e)(5) and (f)) and for the following regulation text and 
commentary provisions specifically addressing successors in interest: 
In Regulation X, Sec.  1024.30(d) and related comments 30(d)-1 through 
-3; the definitions of successor in interest and confirmed successor in 
interest in Sec.  1024.31 and related comments 31 (Successor in 
interest)-1 and -2; Sec.  1024.32(c) and related comments 32(c)(1)-1, 
32(c)(2)-1 and -2, and 32(c)(4)-1; Sec.  1024.35(e)(5); Sec.  
1024.36(d)(3) and (i) and related comments 36(i)-1 through -3; Sec.  
1024.38(b)(1)(vi) and related comments 38(b)(1)(vi)-1 through -5; 
comment 41(b)-1; comment appendix MS to part 1024-2; and in Regulation 
Z, Sec.  1026.2(a)(11) and (27) and related comments 2(a)(11)-4 and 
2(a)(27)(i)-1 and -2; comment 20(e)(4)-3; Sec.  1026.20(f); comment 
36(c)(1)(iii)-2; Sec.  1026.39(f); comment 41(c)-5; and Sec.  
1026.41(g). The Bureau considered the comments, including the potential 
issues that could arise as a result of an inadequate implementation 
period and industry's focus on other recent mortgage rulemakings, and 
believes that these effective dates achieve the right balance between 
affording industry sufficient time for implementation and promptly 
affording consumers the benefits of the final rule.
    The Bureau recognizes that the final rule provisions regarding 
bankruptcy periodic statements and successors in interest may take more 
time to implement than the other final rule provisions. Specifically, 
servicers and third-party service providers need sufficient time to 
coordinate, develop, and test systems required to modify periodic 
statements for consumers in bankruptcy. They also need sufficient time 
to train employees regarding the bankruptcy periodic statement 
requirements. In addition, although the successor in interest 
provisions generally should not require the same levels of operating 
systems changes as the bankruptcy periodic statement requirements, the 
Bureau acknowledges that these proposed provisions generated more 
comments than any other aspect of the proposal. Many servicers may need 
to institute new systems to track potential and confirmed successors in 
interest who

[[Page 72350]]

are not obligated on the loan, particularly as to those successors in 
interest who are not already covered under the policies and procedures 
requirement in existing Sec.  1024.38(b)(1)(vi). Servicers also need 
sufficient time to develop policies and procedures relating to the 
types of documents that they will accept to confirm successor in 
interest status for common factual scenarios that could arise under the 
final rule's broader definition of successor in interest. The Bureau 
also recognizes that servicers may wish to work with third-party 
service providers to ensure compliance with the successor in interest 
provisions. Thus, the Bureau believes that an implementation period of 
18 months is reasonable for the changes to the bankruptcy periodic 
statement exemption and modified statements and to the provisions 
specifically addressing successors in interest.
    After further consideration, the Bureau also believes it is 
unlikely that servicers could implement within the proposed 280 days 
(approximately nine months) all of the remaining provisions of the 
final rule, including the early intervention notice requirements for 
which commenters specifically requested an extension of time for 
compliance. The Bureau recognizes that, in particular, the new notices 
required under the final rule will require some systems changes while 
servicers are, at the same time, implementing most of the other changes 
in the final rule. Thus, the Bureau believes that a one-year 
implementation period is reasonable for all of the provisions of the 
final rule other than the bankruptcy periodic statements and successor 
in interest provisions identified above.
    The Bureau considered whether to offer servicers a safe harbor for 
early compliance, as requested by some commenters. Specifically, the 
Bureau considered whether to adopt an early effective date (i.e., at or 
shortly after the time of publication in the Federal Register) and 
permit optional compliance with some or all of the final rule 
provisions for a specific period of time (e.g., one year or 18 months, 
depending on the provision) after that effective date, at which time 
compliance would be mandatory. For the reasons discussed below, the 
Bureau is choosing not to set an early effective date with optional 
early compliance.
    The Bureau does not believe that it is appropriate to permit 
servicers to choose optional early compliance for only some provisions 
of the final rule without requiring early compliance with other 
provisions. The provisions of the existing rule are closely intertwined 
with each other and with the final rule; early compliance with only 
some provisions of the final rule risks interfering with the 
connections among the different parts of the rule. Nor does the Bureau 
believe that servicers would choose or be able to comply with all 
aspects of the final rule prior to the mandatory compliance dates, in 
part because, as noted above, some provisions will require systems 
changes. Thus, the Bureau believes that any optional early compliance 
would require the Bureau to specify those provisions of the final rule 
with which a servicer must also comply if it chooses to comply early 
with other provisions of the final rule. This task would be 
speculative, given that the Bureau did not receive any comments on 
which portions of the proposal would be feasible for an early optional 
compliance period. In addition, offering an early optional compliance 
period could result in confusion about when, during that period, 
servicers must comply with either the current rule provisions or the 
final rule provisions.
    In addition, the Bureau is concerned about causing considerable 
uncertainty for servicers, consumers, and regulators by adopting an 
early effective date and permitting optional compliance with some or 
all of the final rule provisions for a specific period of time after 
that date. Even if some servicers were to choose to comply with all 
aspects of the final rule prior to the mandatory compliance dates, it 
would result in broader compliance challenges and potential unnecessary 
litigation. Consumers may have difficulty understanding whether their 
servicers are complying with specific provisions at any given time. 
Regulators and the judiciary would have to spend additional time and 
resources to determine which servicers are complying with the final 
rule provisions at which times, and the lack of certainty could 
potentially lead to inconsistent interpretations, treatment of 
different servicers, and application of borrower protections.
    The Bureau recognizes, however, that there are several instances 
where the final rule adopts new commentary to the current regulation 
that clarifies, reinforces, or does not conflict with the existing rule 
and commentary. Servicers may already be operating in a manner that is 
consistent with both these new commentary provisions and the existing 
regulation text and commentary. In those instances, servicers that 
continue to rely on the existing regulation and commentary prior to the 
effective dates do not violate the existing rules, even though the new 
commentary provisions are not yet effective during that period.
    Similarly, the Bureau is aware, as noted in several parts of the 
section-by-section analysis above, that servicers may already be 
engaged in several consumer-friendly practices that are not 
specifically required under the current rule and thus do not violate 
the current rule. Some of these practices not only may be required 
under the final rule as of the effective dates but also will be subject 
to specific requirements as of those dates. For example, some servicers 
currently are providing periodic statements to consumers in bankruptcy 
or providing notices of complete applications to consumers. Those 
statements or notices may not meet all of the specific requirements 
under the final rule but are nonetheless beneficial to borrowers. As 
another example, some servicers currently reevaluate borrowers for loss 
mitigation options in certain circumstances (such as a new hardship) 
under the requirements of Sec.  1024.41, even if they are not required 
to do so for a borrower's subsequent complete loss mitigation 
application under the current rule, as provided in Sec.  1024.41(i). 
Those reevaluations are not a violation of the current rule and may 
benefit borrowers in those circumstances. The Bureau recognizes that 
some servicers may be engaging in several other such practices, in 
addition to the above examples, that are not mandated by the current 
rule. Where such practices that will be mandated by the final rule are 
in compliance with the current rule or are not in violation of the 
current rule, servicers may continue those practices in compliance with 
the existing rule without necessarily adopting all of the specific 
requirements of the final rule before their effective dates.
    For the reasons discussed above, the Bureau believes that these 
effective dates, which provide extended implementation periods of one 
year and 18 months, are appropriate and will provide industry with 
sufficient time to revise and update policies and procedures; 
coordinate with third-party service providers to implement and test 
systems changes; and train staff. In addition, to assist industry with 
efficient and effective implementation of the rule, the Bureau intends 
to provide implementation material in advance of the effective dates in 
the form of revisions to the Bureau's small entity compliance guide to 
the mortgage servicing rules and other aids.

[[Page 72351]]

VII. Dodd-Frank Act Section 1022(b)

A. Overview

    In developing the final rule, the Bureau has considered the final 
rule's potential benefits, costs, and impacts.\410\ The proposal set 
forth a preliminary analysis of these effects, and the Bureau requested 
comment on this topic. In addition, the Bureau has consulted, or 
offered to consult with, the prudential regulators, the Securities and 
Exchange Commission, HUD, the HUD Office of Inspector General, the 
Federal Housing Finance Agency, the Federal Trade Commission, the 
Department of the Treasury, the Department of Agriculture, and the 
Department of Veterans Affairs, including regarding consistency with 
any prudential, market, or systemic objectives administered by such 
agencies.
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    \410\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
requires the Bureau to consider the potential benefits and costs of 
the regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products and services; the impact of the rule on insured depository 
institutions and insured credit unions with less than $10 billion in 
total assets as described in section 1026 of the Dodd-Frank Act; and 
the impact on consumers in rural areas.
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    The final rule covers nine major topics, summarized below, 
generally in the order they appear in the final rule. More details can 
be found in the section-by-section analysis above.
    1. Successors in interest. The Bureau is finalizing three sets of 
rule changes relating to successors in interest. First, the Bureau is 
adopting definitions of successor in interest for purposes of 
Regulation X's subpart C and Regulation Z that are modeled on the 
categories of transfers protected under section 341(d) of the Garn-St 
Germain Act. Second, the Bureau is finalizing rules relating to how a 
mortgage servicer confirms a successor in interest's identity and 
ownership interest.\411\ Third, the Bureau is applying the Regulation X 
and Z mortgage servicing rules to successors in interest once a 
servicer confirms the successor in interest's status.
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    \411\ This final rule uses the term ``successor in interest's 
status'' to refer to the successor in interest's identity and 
ownership interest in the property.
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    2. Definition of delinquency. The Bureau is finalizing a general 
definition of delinquency that applies to all of the servicing 
provisions of Regulation X and the provisions regarding periodic 
statements for mortgage loans in Regulation Z. Delinquency means a 
period of time during which a borrower and a borrower's mortgage loan 
obligation are delinquent. A borrower and a borrower's mortgage loan 
obligation are delinquent beginning on the date a periodic payment 
sufficient to cover principal, interest, and, if applicable, escrow, 
becomes due and unpaid, until such time as no periodic payment is due 
and unpaid.
    3. Requests for information. The Bureau is finalizing amendments 
that change how a servicer must respond to requests for information 
asking for ownership information for loans in trust for which the 
Federal National Mortgage Association (Fannie Mae) or Federal Home Loan 
Mortgage Corporation (Freddie Mac) is the owner of the loan or the 
trustee of the securitization trust in which the loan is held.
    4. Force-placed insurance. The Bureau is finalizing amendments to 
the force-placed insurance disclosures and model forms to account for 
when a servicer wishes to force-place insurance when the borrower has 
insufficient, rather than expiring or expired, hazard insurance 
coverage on the property. Additionally, servicers now will have the 
option to include a borrower's mortgage loan account number on the 
notices required under Sec.  1024.37. The Bureau also is finalizing 
several technical edits to correct discrepancies between the model 
forms and the text of Sec.  1024.37.
    5. Early intervention. The Bureau is clarifying the early 
intervention live contact obligations for servicers to establish or 
make good faith efforts to establish live contact so long as the 
borrower remains delinquent. The Bureau is also clarifying requirements 
regarding the frequency of the written early intervention notices, 
including when there is a servicing transfer. In addition, regarding 
certain borrowers who are in bankruptcy or who have invoked their cease 
communication rights under the FDCPA, the Bureau is finalizing 
exemptions for servicers from complying with the live contact 
obligations but requiring servicers to provide written early 
intervention notices under certain circumstances.
    6. Loss mitigation. The Bureau is finalizing several amendments 
relating to the loss mitigation requirements. The final rule: (1) 
Requires servicers to meet the loss mitigation requirements more than 
once in the life of a loan for borrowers who become current on payments 
at any time between the borrower's prior complete loss mitigation 
application and a subsequent loss mitigation application; (2) Modifies 
an existing exception to the 120-day prohibition on foreclosure filing 
to allow a servicer to join the foreclosure action of a superior or 
subordinate lienholder; (3) Clarifies how servicers select the 
reasonable date by which a borrower should return documents and 
information to complete an application; (4) Clarifies that, if the 
servicer has already made the first notice or filing, and a borrower 
timely submits a complete loss mitigation application: (i) The servicer 
must not move for foreclosure judgment or order of sale, or conduct a 
foreclosure sale, even where the sale proceedings are conducted by a 
third party, unless one of the specified circumstances is met (i.e., 
the borrower's loss mitigation application is properly denied, 
withdrawn, or the borrower fails to perform on a loss mitigation 
agreement); (ii) That absent one of the specified circumstances, 
conduct of the sale violates the rule; (iii) That the servicer must 
instruct foreclosure counsel promptly not to make any further 
dispositive motion, to avoid a ruling or order on a pending dispositive 
motion, or to prevent conduct of a foreclosure sale, unless one of the 
specified circumstances is met; and (iv) That the servicer is not 
relieved from its obligations by counsel's actions or inactions; (5) 
Requires that servicers provide a written notice to a borrower within 
five days (excluding Saturdays, Sundays, or legal holidays) after they 
receive a complete loss mitigation application and requires that the 
notice: (i) Indicate that the servicer has received a complete 
application; (ii) provide the date of completion, a statement that the 
servicer expects to complete its evaluation within 30 days from the 
date it received the complete application, and an explanation that the 
borrower is entitled to certain specific foreclosure protections and 
may be entitled to additional protections under State or Federal law; 
(iii) Clarify that the servicer might need additional information 
later, in which case the evaluation could take longer and the 
foreclosure protections could end if the servicer does not receive the 
information as requested.; (6) Sets forth how servicers must attempt to 
obtain information not in the borrower's control and evaluate a loss 
mitigation application while waiting for third party information; 
requires servicers to exercise reasonable diligence to obtain the 
information and prohibits servicers from denying borrowers solely 
because a servicer lacks required information not in the borrower's 
control, except under certain circumstances; requires servicers in this 
circumstance to complete all possible steps in the evaluation process 
within the 30 days, notwithstanding the lack of the required third-
party information; requires that servicers promptly provide a written 
notice to the borrower if the servicer lacks required third party 
information 30 days after receiving the

[[Page 72352]]

borrower's complete application and cannot evaluate the application in 
accordance with applicable requirements established by the owner or 
assignee of the mortgage loan; and requires servicers to notify 
borrowers of their determination on the application in writing promptly 
upon receipt of the third party information it lacked; (7) Permits 
servicers to offer a short-term repayment plan based upon an evaluation 
of an incomplete loss mitigation application; (8) Clarifies that 
servicers may stop collecting documents and information from a borrower 
for a particular loss mitigation option after receiving information 
confirming that, pursuant to any requirements established by the owner 
or assignee, the borrower is ineligible for that option; and clarifies 
that servicers may not stop collecting documents and information for 
any loss mitigation option based solely upon the borrower's stated 
preference but may stop collecting documents and information for any 
loss mitigation option based on the borrower's stated preference in 
conjunction with other information, as prescribed by requirements 
established by the owner or assignee of the mortgage loan; and (9) 
Addresses and clarifies how loss mitigation procedures and timelines 
apply when a transferee servicer receives a mortgage loan for which 
there is a loss mitigation application pending at the time of a 
servicing transfer.
    7. Prompt payment crediting. The Bureau is clarifying how servicers 
must treat periodic payments made by consumers who are performing under 
either temporary loss mitigation programs or permanent loan 
modifications. Periodic payments made pursuant to temporary loss 
mitigation programs must continue to be credited according to the loan 
contract and could, if appropriate, be credited as partial payments, 
while periodic payments made pursuant to a permanent loan modification 
must be credited under the terms of the permanent loan agreement.
    8. Periodic statements. The Bureau is finalizing several 
requirements relating to periodic statements. The final rule: (1) 
Clarifies certain periodic statement disclosure requirements relating 
to mortgage loans that have been accelerated, are in temporary loss 
mitigation programs, or have been permanently modified, to conform 
generally the disclosure of the amount due with the Bureau's 
understanding of the legal obligation in each of those circumstances, 
including that the amount due may only be accurate for a specified 
period of time when a mortgage loan has been accelerated; (2) Requires 
servicers to send modified periodic statements (or coupon books, where 
servicers are otherwise permitted to send coupon books instead of 
periodic statements) to consumers who have filed for bankruptcy, 
subject to certain exceptions, with content varying depending on 
whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case, 
or a chapter 12 or 13 bankruptcy case; and includes proposed sample 
periodic statement forms that servicers may use for consumers in 
bankruptcy to ensure compliance with Sec.  1026.41; and (3) Exempts 
servicers from the periodic statement requirement for charged-off 
mortgage loans if the servicer will not charge any additional fees or 
interest on the account and provides a periodic statement including 
additional disclosures related to the effects of charge-off.
    9. Small servicer. The Bureau is finalizing certain changes to the 
small servicer determination. The small servicer exemption generally 
applies to servicers who service 5,000 or fewer mortgage loans for all 
of which the servicer is the creditor or assignee. The final rule 
excludes certain seller-financed transactions and mortgage loans 
voluntarily serviced for a non-affiliate, even if the non-affiliate is 
not a creditor or assignee, from being counted toward the 5,000 loan 
limit, allowing servicers that would otherwise qualify for small 
servicer status to retain their exemption while servicing those 
transactions.
    In addition to the changes discussed above, the final rule also 
makes technical corrections and minor clarifications to wording 
throughout several provisions of Regulations X and Z that generally are 
not substantive in nature.

B. Provisions To Be Analyzed

    The analysis below considers the potential benefits, costs, and 
impacts to consumers and covered persons of the following key 
provisions of the final rule:
    1. Requirements related to successors in interest.
    2. A new definition of ``delinquency'' for purposes of Regulation 
X's mortgage servicing rules.
    3. Early intervention written notice requirements for certain 
consumers.
    4. Changes to loss mitigation procedures, including:
     Requiring a notice of complete application for loss 
mitigation applications;
     Requirements applicable when determination of what loss 
mitigation options to offer a borrower is delayed because information 
outside the borrower's control is missing;
     Clarifications to the dual tracking protections in Sec.  
1024.41(g);
     Requiring review of multiple loss mitigation applications 
from the same borrower in some circumstances;
     Clarification of how loss mitigation timelines apply in 
the case of servicing transfers; and
     Permitting evaluation for short-term repayment plans based 
on incomplete applications.
    5. Periodic statement requirements applicable to consumers in 
bankruptcy.
    6. An exemption from the servicing rule's periodic statement 
requirement for mortgage loans that have been charged off.
    7. Revisions to the small servicer determination.
    In addition to the changes listed above, the final rule modifies or 
clarifies other provisions of the 2013 Mortgage Servicing Final Rules. 
These other changes include: Commentary relaxing certain information 
provision requirements under Sec.  1024.36(a) when a borrower requests 
information about the owner of a loan and Fannie Mae or Freddie Mac is 
the owner of the loan or the trustee of the securitization trust in 
which the loan is held; an amendment to the force-placed insurance 
notice described in Sec.  1024.37(c) through (e) to require the notice 
to state that coverage is insufficient (rather than expiring or 
expired), when applicable, and to allow inclusion of the account number 
on the notice; a policies and procedures requirement under Sec.  
1024.38(b)(2)(vi) regarding identifying and obtaining documents not in 
the borrower's control that a servicer requires to determine what loss 
mitigation options, if any, to offer a borrower; commentary regarding a 
servicer's flexibility in collecting documents and information to 
complete a loss mitigation application under Sec.  1024.41(b)(1); 
commentary under Sec.  1024.41(b)(2)(i) to clarify how a servicer must 
treat a loss mitigation application it receives when no foreclosure 
sale has been scheduled; commentary relevant to the reasonable date for 
return of documents under Sec.  1024.41(b)(2)(ii); amendments to Sec.  
1024.41(c)(2)(iv) clarifying when a loss mitigation application is 
considered facially complete; an exception to Sec.  1024.41(f)(1)'s 
120-day pause for circumstances in which a servicer joins the 
foreclosure action of a superior or subordinate lienholder; commentary 
clarifying the effect of Sec.  1026.36(c)'s and Sec.  1026.41(d)'s 
prompt crediting and periodic statement requirements with regard to 
loan modifications and loans that have been accelerated; commentary

[[Page 72353]]

to clarify the information that must be included in a periodic 
statement pursuant to Sec.  1026.41(d) following a period when the 
servicer was exempt from sending periodic statements; removal of the 
phrase ``creditor or assignee'' from the description of voluntarily 
serviced loans that may be excluded in determining the small servicer 
exemption under Sec.  1026.41(e)(4), and certain other minor changes. 
The Bureau believes these modifications and clarifications will 
generally benefit consumers and covered persons and impose minimal new 
costs on consumers and covered persons.

C. Data Limitations and Quantification of Benefits, Costs and Impacts

    Prior to publishing the proposal, the Bureau engaged in extensive 
outreach on many of the issues addressed by the final rule, including 
discussions with several servicers of different sizes, consultations 
with other stakeholders, and convening a roundtable on the application 
of the mortgage servicing rules in the case of bankrupt borrowers. The 
Bureau received several comments related to the potential impacts of 
the proposal on consumers and industry. However, as discussed further 
below, the data with which to quantify the potential costs, benefits, 
and impacts of the final rule are generally limited.
    Quantifying the benefits of the final rule for consumers presents 
particular challenges. As discussed further below, certain provisions 
may directly save consumers time and money while others may benefit 
consumers by, for example, facilitating household budgeting, supporting 
the consumer's ability to obtain credit, and reducing default and 
avoidable foreclosure. Many of these benefits are qualitative in 
nature, while others are quantifiable but would require a wide range of 
data that is not currently available to the Bureau.
    In addition, the Bureau believes, based on industry outreach, that 
many servicers already follow procedures that comply with at least some 
provisions of the final rule. However, the Bureau does not have 
representative data on the extent to which servicer operations 
currently comply with the final rule. Consequently, the Bureau is 
unable to quantify the benefits to consumers or the costs to servicers 
of the final rule. Even with additional representative data, the Bureau 
would need information on the cost of changing current servicer 
practices in order to quantify the cost of closing any gaps between 
current practices and those mandated by the final rule.
    In light of these data limitations, the analysis below generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the final rule. General economic principles, together with the 
limited data that are available, provide insight into these benefits, 
costs, and impacts.

D. Small Servicer Exemption

    Small servicers--generally, those that service 5,000 or fewer 
mortgage loans, all of which the servicer or affiliates own or 
originated--are exempt from many of the provisions of the 2013 Mortgage 
Servicing Final Rules, including most of the provisions affected by the 
final rule.\412\ Therefore, most of the discussion of potential 
benefits and costs below generally does not apply to small servicers or 
to consumers whose mortgage loans are serviced by small servicers. The 
two exceptions are (1) the provisions related to successors in 
interest, which create new, limited information request procedures for 
potential successors in interest and extend the protections of the 
Mortgage Servicing Rules, including certain provisions from which small 
servicers are not exempt, to confirmed successors in interest, and (2) 
the definition of delinquency in Sec.  1024.31, which may affect the 
scope of the 2013 RESPA Servicing Final Rule's prohibition on 
initiating foreclosure proceedings unless a borrower's mortgage loan 
obligation is more than 120 days delinquent. For those provisions, the 
discussion of potential benefits and costs does apply to loans serviced 
by small servicers.
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    \412\ Section 1026.41(e)(4)(ii) defines the term small servicer 
as a servicer that either: (1) Services, together with any 
affiliates, 5,000 or fewer mortgage loans, for all of which the 
servicer (or an affiliate) is the creditor or assignee; (2) is a 
Housing Finance Agency, as defined in 24 CFR 266.5; or (3) is a 
nonprofit entity that services 5,000 or fewer mortgage loans, 
including any mortgage loans serviced on behalf of associated 
nonprofit entities, for all of which the servicer or an associated 
nonprofit entity is the creditor.
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E. Potential Benefits and Costs to Consumers and Covered Persons

    The Bureau believes that, compared to the baseline established by 
the 2013 Mortgage Servicing Final Rules, many of the final rule 
provisions benefit both consumers and covered persons by increasing the 
clarity and precision of the servicing rules and thereby reducing 
compliance costs. Other benefits and costs are considered below.
1. Successors in Interest
    The final rule includes new requirements for mortgage servicers 
with respect to successors in interest. For purposes of these 
provisions, successors in interest generally include individuals who 
receive an ownership interest in a property securing a mortgage loan in 
certain types of transfers that are protected by the Garn-St Germain 
Act, including, for example, certain transfers resulting from the death 
of the borrower, transfers to the borrower's spouse or children, or 
transfers resulting from divorce. As described in more detail below, 
these provisions relate to how mortgage servicers confirm a successor 
in interest's identity and ownership interest in the property and apply 
the Mortgage Servicing Rules to confirmed successors in interest.
    Section 1024.36(i) generally requires a servicer to respond to a 
written request that indicates that the person making the request may 
be a successor in interest by providing that person with a description 
of the documents the servicer reasonably requires to confirm the 
person's identity and ownership interest in the property. Section 
1024.38(b)(1)(vi) requires servicers to maintain certain policies and 
procedures with respect to successors in interest, which are generally 
intended to facilitate the process of confirming a person's status as a 
successor in interest and communicating with the person about the 
status.
    Section 1024.30(d) provides that a confirmed successor in interest 
shall be considered a borrower for the purposes of the Mortgage 
Servicing Rules in Regulation X. Similarly, Sec.  1026.2(a)(11) 
provides that a confirmed successor in interest is a consumer with 
respect to the Mortgage Servicing Rules in Regulation Z. Under the 
final rule, the Mortgage Servicing Rules apply with respect to a 
confirmed successor in interest regardless of whether that person has 
assumed the mortgage loan obligation (i.e., legal liability for the 
mortgage debt) under State law.
    Potential benefits and costs to consumers. As described in more 
detail below, the final rule will benefit successors in interest by 
permitting them to protect and manage their interest in the property, 
and to make key decisions about that property interest, without 
unnecessary delays and associated costs.\413\
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    \413\ The Dodd-Frank Act's broad definition of consumer includes 
successors in interest since it means an individual or an agent, 
trustee, or representative acting on behalf of an individual. 12 
U.S.C. 5481(4).
---------------------------------------------------------------------------

    The Bureau understands, based on pre-proposal discussions with 
certain large servicers, that only a small number of properties for 
which they service mortgage loans are transferred to

[[Page 72354]]

successors in interest in any given year.\414\ The Bureau does not have 
representative data on current servicer policies toward such successors 
in interest. Because the Garn-St Germain Act prevents foreclosure 
solely on the basis that a home was transferred to a successor in 
interest, the Bureau expects that servicers currently are servicing 
loans for successors in interest, regardless of whether such successors 
in interest assume the mortgage loan. The Bureau does not have 
representative information on the standards servicers use in servicing 
loans for successors in interest; however, as discussed below, the 
Bureau believes, based on information it has received through the 
comment process and from consumers and other stakeholders prior to 
issuing the proposal, that in many cases successors in interest would 
benefit from additional protections.
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    \414\ One large servicer indicated that in recent years the 
number of successors in interest applying to assume a mortgage loan 
each year represented less than 0.03 percent of the total loans it 
services. However, this number does not include successors in 
interest that did not apply to assume the loan but nonetheless might 
have benefitted from the final rule (for example, because they would 
have been able to obtain more information about the loan before 
deciding whether to apply to assume the loan). Data from the 
American Housing Survey indicate that, in 2011, 239,000 homeowners 
(approximately 0.5 percent of those with a mortgage) had assumed the 
mortgage loan on their home; however, these data do not indicate 
whether the homeowner was a successor in interest as defined in the 
final rule at the time the loan was assumed. Office of Policy Dev. 
and Research, U.S. Dep't of Hous. & Urban Dev. & U.S. Census Bureau, 
U.S. Dep't of Commerce, American Housing Survey for the United 
States: 2011, at 79 (Sept. 2013), available at https://www.census.gov/content/dam/Census/programs-surveys/ahs/data/2011/h150-11.pdf.
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    The final rule will help potential successors in interest confirm 
their status as successors in interest by requiring generally that 
servicers respond to written requests from potential successors in 
interest with a description of the documents the servicer requires to 
confirm the person's identity as a successor in interest, reducing the 
time and effort required to establish their status in the eyes of the 
servicer. In their comments, consumer advocacy groups and government 
commenters confirmed what the Bureau had heard through prior reports 
from consumers, consumer advocacy groups, and other stakeholders: That 
successors in interest often have difficulty demonstrating their 
identity and ownership interest in the property to servicers' 
satisfaction and that some servicers currently require successors in 
interest to submit documents that are unreasonable in light of the 
particular situation of that successor in interest or in light of the 
laws of the relevant jurisdiction. The Bureau has heard repeated 
reports that some servicers have taken a long time to confirm the 
successor in interest's status, even after receipt of appropriate 
documentation. The Bureau has also heard reports that servicers may 
fail to communicate to the successor in interest whether the servicer 
has confirmed the successor in interest's status. Unnecessary delays 
and other difficulties can harm successors in interest because 
successors in interest who have not been confirmed by the servicer may 
not be able to obtain information about the mortgage, and in some 
instances servicers may be unwilling to accept payment from the 
unconfirmed successor in interest. These problems may lead successors 
in interest to incur unnecessary costs related to the mortgage or 
deprive them of rights to which they would otherwise be entitled and 
may even lead to unnecessary foreclosures.
    The final rule will also benefit successors in interest after they 
have been confirmed by the servicer by extending the protections of the 
Mortgage Servicing Rules to confirmed successors in interest, 
regardless of whether they assume the obligations of the mortgage loan 
under State law. The benefits of the Mortgage Servicing Rules to 
consumers generally are discussed in the 2013 RESPA Servicing Final 
Rule and the 2013 TILA Servicing Final Rule, in which the Bureau noted 
that the need for these rules arises in part from the fact that, 
because borrowers generally do not choose their servicers, it is 
difficult for consumers to protect themselves from shoddy service or 
harmful practices.\415\ This reasoning is particularly applicable to 
successors in interest because they may not be parties to the mortgage 
loan. In addition, successors in interest may find that they have a 
particular need for access to information about the mortgage loan 
secured by the property that they now own. Access to this information 
may help them avoid unwarranted or unnecessary costs and fees on the 
mortgage loan and prevent unnecessary foreclosure.
---------------------------------------------------------------------------

    \415\ See 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901, 
10978-94 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Furthermore, confirmed successors in interest obtaining an 
ownership interest in a home that is their principal residence may 
benefit in particular from Regulation X's rules relating to loss 
mitigation procedures, particularly when deciding whether to assume the 
obligations of the mortgage loan. Successors in interest may often 
experience a disruption in household income due to death or divorce and 
therefore may be more likely than other homeowners to need loss 
mitigation to avoid foreclosure. If the servicer does not evaluate the 
successor in interest promptly for loss mitigation options, or if the 
servicer requires the successor in interest to assume the mortgage 
obligation before it will evaluate the successor in interest for loss 
mitigation options, the successor in interest will be required to 
decide whether to assume the mortgage obligation without knowing what 
loss mitigation options will be available. As noted by some government 
and consumer advocacy group commenters, the final rule helps confirmed 
successors in interest to assess whether they will be able to afford to 
keep the home, permitting them to make a more fully informed decision 
about whether to accept the mortgage obligation.
    Potential benefits and costs to covered persons. The costs of 
complying with the final rule's provisions related to successors in 
interest depend on servicers' current policies and procedures. Because 
the Garn-St Germain Act generally protects successors in interest from 
enforcement of due-on-sale provisions after transfer of homeownership 
to them, servicers are effectively required to continue servicing loans 
following their transfer to successors in interest. Thus, the Bureau 
believes that servicers likely already have some policies and 
procedures in place for confirming a successor in interest's identity 
and ownership interest in the property (and thereby determining whether 
the Garn-St Germain Act is applicable) and for servicing a loan secured 
by property that has been transferred to a successor in interest. The 
final rule establishes certain standards for the performance of these 
activities. To the extent to which some servicers are meeting these 
standards already, the costs for these servicers will be reduced. 
However, many servicers may need to significantly alter certain of 
their policies and procedures to comply with the final rule's successor 
in interest provisions.
    The revisions to Sec.  1024.38(b)(1)(vi) and new Sec.  1024.36(i) 
may require servicers to develop and implement new policies and 
procedures for confirming a successor in interest's interest in a 
property and communicating with potential successors in interest about 
documents the servicer requires to confirm the person's status. Under 
current Sec.  1024.38(b)(1)(vi), servicers must maintain policies and 
procedures designed to identify and facilitate

[[Page 72355]]

communication promptly with the successor in interest of a deceased 
borrower. As discussed above, the Bureau believes that, because the 
Garn-St Germain Act generally protects successors in interest from 
enforcement of due-on-sale provisions, servicers likely already have 
some policies and procedures in place for confirming the identity and 
ownership interest in the property of a successor in interest following 
most transfers covered by the final rule. However, the Bureau does not 
have data on the extent to which servicers' current policies and 
procedures may comply with the final rule's successor in interest 
provisions or the extent of the changes that will be required to bring 
policies and procedures into compliance with these provisions. In 
addition, servicers may not currently have policies in place for 
establishing a successor in interest's status when the transferor of 
the property retains an ownership interest following the transfer. Such 
transfers may not change servicers' servicing approach at all under 
current practice, whereas under the final rule servicers will be 
required to treat confirmed successors in interest as borrowers for 
purposes of the servicing rules.
    Some industry commenters pointed out that legal determinations of 
successorship are often complex and may involve competing claims or 
borrower confusion about their legal status. The Bureau acknowledges 
that such determinations may be difficult, particularly when there is a 
dispute regarding title to the property, and that laws relevant to 
successorship vary across jurisdictions. However, servicers must 
already make such determinations to assess whether the Garn-St Germain 
Act applies and, more generally, because, in order to protect the 
investor's security interest in the property, servicers may need to 
know who owns the property securing the loan they are servicing. Thus, 
while servicers will bear costs of establishing and carrying out 
procedures to establish a successor in interest's status under the 
final rule, the Bureau expects that in most cases servicers will be 
revising or formalizing existing processes for establishing ownership 
of the property following a transfer.
    In addition, some industry commenters said that the proposed rule's 
provisions could increase the risk of fraud losses. One commenter noted 
that the Bureau's discussion of benefits and costs in the preamble to 
the proposed rule did not discuss the possibility of increased servicer 
fraud losses. However, the Bureau does not expect that the final rule 
will lead to a significant increase in fraud losses to servicers. 
Servicers can comply with the final rule while taking steps designed to 
prevent fraudulent claims prior to confirming a successor in interest's 
status.\416\ Furthermore, because fraudulently establishing oneself as 
a confirmed successor in the eyes of the servicer would not affect 
title to the property, it is not clear what direct benefit this would 
offer to a fraudster or what direct fraud losses it would cause for the 
servicer.
---------------------------------------------------------------------------

    \416\ For example, comment 38(b)(1)(vi)-2 to Regulation X 
indicates that the documents that a servicer requires to confirm a 
potential successor in interest's identity and ownership interest in 
the property may include documents the servicer reasonably believes 
are necessary to prevent fraud or other criminal activity (such as 
if a servicer has reason to believe that the documents presented are 
forged).
---------------------------------------------------------------------------

    Sections 1024.30(d) and 1026.2(a)(11), which extend the protections 
of the Mortgage Servicing Rules to confirmed successors in interest, 
generally require servicers to continue to apply existing policies and 
procedures to a set of loans that were subject to the Mortgage 
Servicing Rules prior to an ownership interest in the property being 
transferred to the successor in interest. As discussed above, the 
Bureau expects that such loans make up a small fraction of the total 
loans serviced by any particular servicer. For these reasons, the 
Bureau expects that the cost to servicers of complying with most 
existing Mortgage Servicing Rules with respect to confirmed successors 
in interest generally will be small.
    Servicers may need to develop new policies and procedures to 
address certain circumstances specific to successors in interest. For 
example, servicers will need to decide whether to send the notice and 
acknowledgment form permitted by Sec.  1024.32(c)(1) through (3) before 
sending Mortgage Servicing Rule notices to a confirmed successor or may 
need to develop new policies and procedures for cases in which, 
following the transfer, the transferor retains an interest in the 
property or there are multiple borrowers. Servicers currently must 
address such situations in some manner, but given the final rule's 
requirement to comply with the Mortgage Servicing Rules with respect to 
successors in interest, servicers will likely need to reconsider 
policies and procedures to ensure they are in compliance.
    The Bureau acknowledges that, due to the unique circumstances of a 
confirmed successor in interest who has recently obtained an interest 
in the property, there may be additional costs associated with 
complying with the Mortgage Servicing Rules with respect to confirmed 
successors in interest. For example, confirmed successors in interest 
may have experienced a disruption in household income due to death or 
divorce and therefore may be more likely to seek loss mitigation to 
avoid foreclosure, possibly delaying the foreclosure process. Confirmed 
successors in interest may also be more likely to seek information 
regarding the loan that is secured by the property in which they now 
hold an interest. Compensation structures in servicing, which tend to 
make mortgage servicing a high-volume, low-margin business, may mean 
that servicers are not compensated for the time required to address the 
circumstances of some successors in interest even when doing so might 
minimize the aggregate costs to servicers and investors.\417\ 
Nonetheless, because the Bureau believes that the number of successors 
in interest serviced at any given time is small and that many servicers 
are already performing servicing tasks with respect to successors in 
interest, the Bureau expects that servicers would not incur significant 
additional costs as a result of the final rule's successor in interest 
provisions.
---------------------------------------------------------------------------

    \417\ See 78 FR 10695, 10843-44 (Feb. 14, 2013).
---------------------------------------------------------------------------

    One industry commenter noted that, in discussing the costs and 
benefits of the proposed successor in interest provisions in the 
preamble to the proposed rule, the Bureau did not discuss the costs to 
servicers of becoming equipped to originate mortgage loans. However, 
the final rule does not require servicers to originate mortgage loans.
2. Definition of ``Delinquency''
    The final rule adds a general definition of delinquency in Sec.  
1024.31 that applies to all sections of subpart C of Regulation X, 
replacing the existing definition of delinquency for purposes of 
Sec. Sec.  1024.39 and 1024.40(a). Delinquency is defined as a period 
of time during which a borrower and a borrower's mortgage loan 
obligation are delinquent, and a borrower and a borrower's mortgage 
loan obligation are delinquent beginning on the date a periodic payment 
sufficient to cover principal, interest, and, if applicable, escrow, 
becomes due and unpaid, until such time as no periodic payment is due 
and unpaid. Comment 31 (Delinquency)-2 clarifies that, if a servicer 
applies payments to the oldest outstanding periodic payment, a payment 
by a delinquent borrower advances the date the borrower's delinquency 
began. The Bureau

[[Page 72356]]

understands from its pre-proposal outreach and from commenters that the 
majority of servicers credit payments made to a delinquent account to 
the oldest outstanding periodic payment. Some servicers that use this 
method have expressed concern about how to calculate the length of a 
borrower's delinquency without increased certainty from the 
Bureau.\418\
---------------------------------------------------------------------------

    \418\ See Am. Bankers Ass'n. Letter to Bureau of Consumer Fin. 
Prot. (Oct. 24, 2014), available at https://www.aba.com/Advocacy/commentletters/Pages/default.aspx#2014.
---------------------------------------------------------------------------

    The Bureau believes that the final rule's definition will clarify 
the application of the servicing rules without imposing significant new 
burdens on servicers. The Bureau recognizes that, in principle, the 
definition could affect the circumstances under which a servicer may 
initiate foreclosure proceedings, because the definition of 
``delinquency'' affects the application of Sec.  1024.41(f)(1)'s 
prohibition on initiating foreclosure proceedings unless ``a borrower's 
mortgage loan obligation is more than 120 days delinquent.'' In 
particular, Comment 31 (Delinquency)-2 implies that a servicer that 
otherwise applies payments to the oldest outstanding periodic payment 
may not initiate foreclosure proceedings unless the borrower has missed 
the equivalent of at least four monthly payments. Absent this 
clarification, Sec.  1024.41(f)(1) could be interpreted to permit such 
a servicer to commence foreclosure even if the borrower has missed only 
one payment, so long as the payment was missed more than 120 days ago 
and the borrower has not become current since. However, information 
gathered in pre-proposal industry outreach indicates that servicers 
generally would not treat borrowers who are behind by three or fewer 
payments as seriously delinquent. More specifically, servicers 
contacted by the Bureau during pre-proposal outreach, when asked about 
policies for referring a loan for foreclosure, uniformly told the 
Bureau that they generally would not initiate foreclosure in cases 
where a borrower is making regular payments, even if such a borrower 
has a long-standing delinquency of up to three months' payments. In 
addition, Fannie Mae and Freddie Mac guidelines generally prevent 
servicers from initiating foreclosure if a loan is delinquent by fewer 
than four monthly payments. Therefore, the Bureau expects that the 
final rule's definition will not impose meaningful new constraints on 
servicers.
3. Early Intervention Written Notices
    The final rule revises the scope of the exemptions from the early 
intervention requirements in Sec.  1024.39(c) and (d) for two groups of 
borrowers: Those who are debtors in bankruptcy and those who have 
exercised their cease communication rights under the FDCPA regarding 
their mortgage loans when a servicer is subject to the FDCPA with 
respect to those loans. Servicers are currently exempt from each of 
Sec.  1024.39's early intervention requirements with respect to these 
two groups of borrowers. Under the final rule, servicers remain exempt 
from the live contact requirement of Sec.  1024.39(a) with respect to 
these borrowers. Servicers also remain exempt from the written notice 
requirement with respect to these borrowers if no loss mitigation 
option is available and if a borrower invokes the FDCPA's cease 
communication protections while any borrower on the mortgage loan is a 
debtor in bankruptcy. However, if these conditions are not met, the 
final rule requires that a servicer provide these two groups of 
borrowers with a modified version of the written early intervention 
notice that is generally required by Sec.  1024.39(b). Notices sent to 
such borrowers may not include a request for payment, and notices sent 
to borrowers who have exercised their cease communication rights under 
the FDCPA must include certain other modifications and may not be 
provided more than once during any 180-day period.
    Potential benefits and costs to consumers. As discussed in more 
detail below, Sec.  1024.39(c) and (d) of the final rule may benefit 
borrowers who are in bankruptcy or who have exercised their cease 
communication rights under the FDCPA by providing them with information 
about loss mitigation options that could enable them to remain in their 
homes or avoid other costs associated with default on their mortgages.
    The Bureau recognizes that many borrowers affected by this 
provision will have already received early intervention communications 
prior to filing for bankruptcy or invoking the FDCPA's cease 
communication protections. Most homeowners who file for bankruptcy are 
delinquent on their mortgage payments prior to filing for bankruptcy, 
in which case their servicers frequently will have been required to 
send early intervention communications prior to the filing.\419\ 
However, many borrowers filing for bankruptcy are not delinquent on 
their mortgages at the time of filing, and so, under the IFR, do not 
receive required communications about loss mitigation options if they 
become delinquent while in bankruptcy. Even borrowers who do receive an 
early intervention written notice prior to their bankruptcy filing may 
benefit from information about available loss mitigation options after 
filing for bankruptcy, given that the borrower's servicer may have 
changed or new loss mitigation options may have otherwise become 
available since the borrower initially became delinquent. Information 
regarding loss mitigation may have unique value for borrowers in 
bankruptcy as they make decisions about how best to eliminate or 
reorganize their debts.
---------------------------------------------------------------------------

    \419\ One study found that, among homeowners that file for 
bankruptcy, more than 60 percent of homeowners with prime mortgages 
and more than 75 percent of homeowners with subprime mortgages were 
delinquent on their mortgages prior to filing for bankruptcy. Wenli 
Li & Michelle J. White, Mortgage Default, Foreclosure, and 
Bankruptcy (Nat'l Bureau of Economic Research, Working Paper No. 
15472, Nov. 2009), available at https://www.nber.org/papers/w15472.
---------------------------------------------------------------------------

    Borrowers have FDCPA protections only with respect to debt 
collectors and a servicer generally is considered a debt collector for 
purposes of the FDCPA only if the servicer acquires servicing rights to 
a mortgage loan after the mortgage loan is in default. Therefore, at 
the time a borrower first becomes delinquent on a mortgage loan, the 
servicer is not covered by the FDCPA with respect to that mortgage 
loan, and is thus generally obligated to provide written early 
intervention communications no later than the 45th day of the 
borrower's delinquency even if that borrower provides the servicer with 
a cease communication notification. When servicing of a borrower's loan 
is subsequently transferred while the loan is in default, the borrower 
has FDCPA protections with respect to the transferee servicer and may 
then properly invoke the FDCPA's cease communication protection. When 
the initial early intervention communications came from a different 
servicer that may have offered different loss mitigation options, such 
borrowers may benefit from written information about loss mitigation 
options available from the new servicer.
    The final rule also may impose costs on some borrowers in both 
groups who would prefer not to receive any servicer communications 
regarding their mortgage loan. Both the Bankruptcy Code's automatic 
stay and the FDCPA's cease communication provision are intended to 
protect borrowers from being harassed by creditors while the borrowers 
are attempting to work

[[Page 72357]]

through difficult financial circumstances. By requiring servicers to 
send early intervention written notices to such borrowers, the final 
rule may cause some borrowers to receive unwanted communications. 
However, the Bureau notes that final Sec.  1024.39(c) and (d) limit the 
content and frequency of such communications so as to reduce any 
perceived harassment. Specifically, the modified written notice may not 
contain a request for payment. Furthermore, the written notice is not 
required to be provided more than once to borrowers in bankruptcy 
during a single bankruptcy case and may not be provided more than once 
during any 180-day period to borrowers who have invoked their FDCPA 
cease communication rights.
    Potential benefits and costs to covered persons. The requirement to 
send notices to borrowers who are in bankruptcy or who have provided a 
cease communication notification under the FDCPA will result in certain 
compliance costs for non-exempt servicers. These servicers will incur 
one-time costs from changing their systems to provide early 
intervention notices to these groups of borrowers and will incur 
ongoing costs from distributing these notices to an additional 
population. The Bureau believes that most, if not all, servicers are 
likely to service at least some mortgages for homeowners in bankruptcy. 
Fewer servicers are likely to service mortgage loans for borrowers who 
have FDCPA rights with respect to the mortgage loan, because these 
rights are triggered only if the servicer acquired the servicing rights 
at a time when the mortgage loan was already in default. Servicers that 
do not have a practice of acquiring servicing rights from others, or a 
practice of acquiring the servicing rights to loans that are in 
default, are therefore not subject to the FDCPA and are not affected by 
the final rule.
    Servicers will bear one-time costs to develop early intervention 
notices that comply with the modified requirements for borrowers in 
bankruptcy or who have exercised FDCPA cease communication rights. The 
Bureau expects that these one-time costs will be relatively small given 
the limited nature of the modifications and the fact that the final 
rule includes a model clause for the specific disclosures required for 
borrowers who have exercised their FDCPA cease communication rights. In 
addition, servicers will need to ensure that their procedures for 
sending written early intervention notices are designed to identify 
borrowers who must receive modified notices under the final rule. 
However, servicers already must identify borrowers in bankruptcy and 
borrowers that have exercised FDCPA cease communication rights in order 
to comply with bankruptcy law and the FDCPA. Therefore, the Bureau 
expects that servicers will need to make only minor changes to their 
procedures to begin sending written early intervention notices to such 
borrowers.
    Servicers will also incur ongoing costs from the requirement to 
distribute notices to these additional groups of borrowers. However, 
the Bureau believes that the number of additional written early 
intervention notices that are required by the final rule is relatively 
small. With respect to borrowers in bankruptcy, FHFA data indicate 
that, for homeowners with GSE loans, between 0.3 percent and 0.4 
percent of borrowers were in bankruptcy during 2015.\420\ Based on 
information from industry and other Federal agencies, the Bureau 
believes that the percentage of homeowners with non-GSE loans in 
bankruptcy may be higher but that the overall percentage of homeowners 
with mortgage loans in bankruptcy is less than 1 percent. The Bureau 
expects that the share of borrowers who have exercised the FDCPA cease 
communication right is likewise relatively small, since the right is 
available only to borrowers for whom the servicer acquired servicing 
rights after the loan is in default.
---------------------------------------------------------------------------

    \420\ Fed. Housing Fin. Agency, Foreclosure Prevention Report, 
at 6 (January 2016), available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf.
---------------------------------------------------------------------------

4. Loss Mitigation Procedures
Notice of Complete Loss Mitigation Application
    Section 1024.41(c)(3) requires a servicer to provide a borrower a 
written notice within five days (excluding legal public holidays, 
Saturdays, and Sundays) after receiving a borrower's complete loss 
mitigation application, subject to certain limitations discussed below. 
The notice informs the borrower that the application is complete; the 
date the servicer received the complete application; and certain other 
information regarding the borrower's rights under the servicing rules. 
A notice is not required if the application was not complete or 
facially complete more than 37 days before a scheduled foreclosure 
sale; the servicer has already notified the borrower under Sec.  
1024.41(b)(2)(i)(B) that the application is complete and the servicer 
has not subsequently requested additional documents or information from 
the borrower to complete the application; or the servicer has already 
provided a notice approving or denying the application.
    Potential benefits and costs to consumers. Section 1024.41(c)(3) 
creates a new requirement to notify a borrower that a loss mitigation 
application is complete in those cases where the application was not 
complete when the servicer provided the notice acknowledging receipt of 
an application under Sec.  1024.41(b)(2)(i)(B). Although this is a new 
requirement, the Bureau understands, based on pre-proposal outreach and 
comments it received, that many servicers nonetheless already notify 
borrowers in writing once their applications are complete. However, 
such notices may not include all the information borrowers need to 
determine when the application was considered complete for purposes of 
determining their protections under Regulation X's mortgage servicing 
rules.
    The new required notice is intended to benefit borrowers who apply 
for loss mitigation by providing them with more information about their 
application status and foreclosure protections, thereby allowing them 
to better protect their interests. Borrowers who have not yet received 
a notice will be able to infer that their applications are not yet 
complete and, if necessary, to follow up with the servicer to determine 
what remains missing. Once borrowers have received the notice, they 
will know that the servicer is prohibited from completing the 
foreclosure process until the application has been evaluated and will 
be able to plan based on the expectation that a decision will be 
reached within 30 days (unless the servicer determines that more 
information is needed). The notice will also provide the borrower, the 
servicer's compliance function, regulators, and courts with a written 
record that can help them evaluate a servicer's compliance with Sec.  
1024.41(c)(1)'s 30-day evaluation requirement and other requirements 
that depend on the date the servicer received a complete application.
    As noted above, several servicers informed the Bureau during pre-
proposal outreach efforts or in comments that they already provide a 
notice informing the borrower that an application is complete. Some 
commenters also said that they are already in close contact with 
borrowers about the status of their loss mitigation applications. To 
the extent that servicers are already providing a notice that includes 
some of the information required by the notice or otherwise 
communicating such information to borrowers, the incremental benefit to

[[Page 72358]]

borrowers of the provision may be reduced. Another industry commenter 
expressed concern that the costs of providing these notices could limit 
servicers' ability to make other changes that could benefit borrowers 
or could increase the cost of servicing non-performing loans, thereby 
reducing access to credit. The Bureau recognizes that additional costs 
to servicers can create negative consequences for consumers but agrees 
with other commenters that the notices will have significant benefits 
for many borrowers.
    Potential benefits and costs to covered persons. Servicers will 
incur costs associated with changing their policies and procedures and 
updating their systems to ensure that they are sending notices in 
compliance with the final rule and, in addition, will incur 
distribution costs associated with sending notices to borrowers. 
However, the Bureau expects that these costs may be less than those 
associated with some other disclosure requirements, for two reasons. 
First, to comply with Sec.  1024.41, servicers must already determine 
the time at which an application is complete and whether foreclosure 
protections apply under Sec.  1024.41(f)(2) and (g); thus, servicers 
will not be required to make any new determinations in order to comply 
with the requirement. Second, based on pre-proposal industry outreach 
and comments on the proposal, the Bureau understands that many 
servicers are already sending a written notification informing 
applicants that their applications are complete, so the costs of the 
new requirement will be limited for these servicers.
    In addition, the Bureau notes that certain provisions of the notice 
requirement are intended to prevent servicers from incurring 
unnecessary costs in connection with the requirement. The notice is not 
required under certain circumstances in which a borrower would not 
benefit from the notice, including when the servicer is able to notify 
the borrower of the outcome of its evaluation before the notice is 
sent.
Information Outside of the Borrower's Control
    The final rule amends Sec.  1024.41(c)(1) and comment 41(b)(1)-4 
and adds Sec.  1024.41(c)(4) to address a servicer's obligations with 
respect to information not in the borrower's control that the servicer 
requires to determine which loss mitigation options, if any, it will 
offer the borrower. A servicer must exercise reasonable diligence in 
obtaining such information. The final rule also prohibits a servicer 
from denying a borrower's complete application due to a lack of 
information not in the borrower's control except under certain 
circumstances; requires that a servicer inform a borrower in writing if 
the servicer is unable to complete its evaluation within 30 days of 
receiving a complete application because it lacks information from a 
party other than the borrower or the servicer; requires that a servicer 
promptly provide the borrower written notice stating the servicer's 
determination upon receipt of missing information from a party other 
than the borrower or the servicer; and requires the servicer to provide 
the determination notice under Sec.  1024.41(c)(1) promptly upon 
receipt of the required third-party information.
    Potential benefits and costs to consumers. Under the existing rule, 
if a servicer receives a complete loss mitigation application more than 
37 days before a foreclosure sale, the servicer must, within 30 days of 
receipt, determine what loss mitigation options, if any, it will offer 
a borrower, regardless of whether it has received required information 
not in the borrower's control. The new provision will benefit borrowers 
applying for loss mitigation in situations in which the servicer faces 
delays in receiving necessary information from a party other than the 
servicer or the borrower, such as homeowner association payoff 
information or approval of the loan owner, investor, or mortgage 
insurance company. It may also indirectly reduce the likelihood that 
evaluations are delayed by encouraging investors and servicers to 
consider more carefully what third-party documents are required as part 
of a loss mitigation application. When evaluations are nonetheless 
delayed beyond 30 days, the final rule will reduce the impact on the 
borrower of such delays by requiring servicers to exercise reasonable 
diligence in obtaining the information, limiting their ability to deny 
the borrower's application solely on the basis of missing information 
outside the borrower's control, and ensuring that the borrower is aware 
of the application's status.
    The Bureau understands from pre-proposal industry outreach that 
servicers currently follow different practices in the event they have 
not received required information that is outside the borrower's 
control 30 days after receipt of a complete loss mitigation 
application. Some servicers informed the Bureau that they exceed the 
30-day evaluation timeframe in Sec.  1024.41(c)(1) and wait to receive 
the information before making any decision on the application. One 
servicer informed the Bureau that it sends a denial notice to borrowers 
but also informs them that the servicer will reevaluate the application 
upon receipt of the third-party information. As a result, borrowers may 
be receiving conflicting messages from servicers about the status of 
their applications, and, in some cases, borrowers' applications for 
loss mitigation may be denied because the servicer has experienced a 
delay in receiving required information that is not in the borrower's 
control. The final rule requires servicers to give borrowers clearer 
information about their application status.
    Potential benefits and costs to covered persons. The final rule 
will benefit servicers by clarifying servicer responsibilities when 
non-borrower information has not been received within 30 days of 
receiving a complete application from the borrower and preventing 
servicers from risking non-compliance with the evaluation requirement 
in order to provide a benefit to borrowers seeking loss mitigation 
options. On the other hand, the changes require servicers to review and 
perhaps change their policies applicable to gathering information from 
parties other than the borrower and informing borrowers of their loss 
mitigation decisions, which will impose one-time costs of revising 
policies and systems. In addition, servicers will bear the one-time 
costs of developing the new required notice and the ongoing cost of 
providing consumers with the new notice required by the final rule. One 
commenter estimated that, in addition to internal legal, business 
process, and technology costs, the vendor costs associated with 
programming the new notice would be $2,000.
    The final rule provision also may impose costs on servicers because 
the requirement not to make a determination unless the servicer has 
obtained information outside of the borrower's control or has been 
unable to obtain such documents or information for a significant period 
of time while exercising reasonable diligence may delay the foreclosure 
process for a servicer that would otherwise deny an application without 
having received such information. The Bureau understands from pre-
proposal industry outreach that, in cases where investor approval has 
not been delegated to the servicer, the missing non-borrower 
information is frequently investor approval of the application. Because 
investors bear costs when foreclosure proceedings are delayed, 
investors have

[[Page 72359]]

incentives to weigh the cost of expediting their approval process 
against the potential delay in a foreclosure proceeding.
Clarification of the 2013 RESPA Servicing Final Rule's Dual Tracking 
Protections
    The final rule includes revised commentary to Sec.  1024.41(g) that 
clarifies servicers' obligations with respect to Sec.  1024.41(g)'s 
prohibition against moving for foreclosure judgment or order of sale, 
or conducting a sale, during evaluation of a complete loss mitigation 
application received more than 37 days before a foreclosure sale. 
Revised comment 41(g)-3 explains that the prohibitions against moving 
for judgment or order of sale or conducting a sale may require a 
servicer to act through foreclosure counsel; that upon receipt of a 
complete application, the servicer must instruct counsel promptly to 
take certain steps to avoid a violation of Sec.  1024.41(g); and that 
the servicer is not relieved of its obligations because the foreclosure 
counsel's actions or inactions caused a violation. Similarly, comment 
38(b)(3)(iii)-1 clarifies that policies and procedures required under 
Sec.  1024.38(b)(3)(iii) to facilitate sharing of information with 
service provider personnel responsible for handling foreclosure 
proceedings must be reasonably designed to ensure that servicer 
personnel promptly inform service provider personnel handling 
foreclosure proceedings that the servicer has received a complete loss 
mitigation application. New comment 41(g)-5 explains that Sec.  
1024.41(g) prohibits a servicer from conducting a foreclosure sale, 
even if a person other than the servicer administers or conducts the 
foreclosure sale proceedings.
    Section 1024.41(g) is intended to protect borrowers by preventing a 
foreclosure sale from going forward while review of a complete loss 
mitigation application is pending. The revised commentary clarifies 
servicers' obligations to protect borrowers from foreclosure when a 
complete loss mitigation application is pending, even if it may be late 
in the foreclosure process. The commentary may reduce servicer 
compliance costs by adding clarity regarding the application of Sec.  
1024.41(g) when a foreclosure sale has been scheduled. At the same 
time, servicers will bear costs in confirming that their policies and 
procedures for foreclosures, including communication with counsel, meet 
the requirements of Sec.  1024.41(g) in light of the revised 
commentary. However, the Bureau does not believe that the revisions 
will impose significant burdens on servicers. Section 1024.41(g) and 
its existing commentary already require servicers to prevent a 
scheduled foreclosure sale from going forward when a timely loss 
mitigation application has been received. The commentary is intended to 
aid servicers in complying with Sec.  1024.41(g) by elaborating upon 
and clarifying a servicer's obligations under the existing requirement, 
but does not impose new obligations on servicers.
    The Bureau recognizes that there may be situations where servicers, 
despite their attempts to delay foreclosure sales, have to dismiss a 
foreclosure proceeding to avoid a violation of Sec.  1024.41(g), and 
then may have to re-file where the borrower ultimately does not qualify 
for, or perform on, a loss mitigation option. The costs of dismissal 
may be significant in an individual case. However, the Bureau does not 
believe that the final commentary will impose significant overall costs 
on servicers because Sec.  1024.41(g) already prohibits the conduct of 
a foreclosure sale when a timely loss mitigation application is 
pending. Moreover, the Bureau expects that servicers generally will be 
able to avoid the costs of dismissal so long as they comply with 
existing requirements.
Review of Multiple Loss Mitigation Applications
    Currently, Sec.  1024.41(i) requires a servicer to comply with the 
requirements of Sec.  1024.41 for only a single complete loss 
mitigation application for a borrower's mortgage loan account. The 
final rule revises Sec.  1024.41(i) to require servicers to comply with 
the requirements of Sec.  1024.41 each time a borrower submits a loss 
mitigation application, unless the servicer has previously complied 
with Sec.  1024.41 for a borrower's complete loss mitigation 
application and the borrower has been delinquent at all times since the 
borrower submitted the prior application.
    Potential benefits and costs to consumers. Section 1024.41's loss 
mitigation procedures are intended to protect borrowers from harm in 
connection with the process of evaluating a borrower for loss 
mitigation options and proceeding to foreclosure. As discussed in the 
2013 RESPA Servicing Final Rule, benefits to these borrowers include a 
period of 120 days in which to submit a loss mitigation application 
before foreclosure can commence, restrictions on dual tracking, an 
appeals process for denials of loss mitigation applications, and 
consideration for all available loss mitigation alternatives.\421\ The 
final rule makes these benefits available to borrowers who complete a 
loss mitigation application, become (or remain) current after they 
submit that application, and subsequently encounter difficulties making 
payments and apply for loss mitigation again. The provision thereby 
benefits borrowers in two general circumstances: First, borrowers who 
have previously applied for and received a loan modification, and then 
subsequently have difficulty making payments on the modified loan 
(perhaps due to an unrelated hardship months or years after the 
modification), will be able to obtain the protections of Sec.  
1024.41's procedures for a subsequent loss mitigation application. 
Second, borrowers who previously applied for loss mitigation but were 
not approved for any option that they chose to accept will be able to 
apply for loss mitigation and benefit from Sec.  1024.41's procedures 
if they become (or remain) current on their loan following the prior 
complete application.
---------------------------------------------------------------------------

    \421\ See 78 FR 10695, 10857-60 (Feb. 14, 2013).
---------------------------------------------------------------------------

    A significant percentage of the borrowers who receive loan 
modifications subsequently become delinquent. The OCC Mortgage Metrics 
Report indicates that, for modifications completed since the second 
quarter of 2014, 13 to 16 percent of modified loans were 60 or more 
days delinquent six months after modification, and 20 percent were 60 
or more days delinquent after one year.\422\ For the HAMP program, as 
of January 2016, 33 percent of the permanent modifications that became 
effective between April 2009 and January 2016 had defaulted by the end 
of this period.\423\ These numbers suggest that a significant fraction 
of borrowers receiving loan modifications may benefit from the final 
rule's provision because they will have the protection of Sec.  
1024.41's loss mitigation procedures in the wake of these subsequent 
delinquencies. Many such borrowers may have received a loan 
modification that was affordable for them but then suffered a 
subsequent hardship. On the other hand, the large number of borrowers 
who become delinquent as soon as six months after

[[Page 72360]]

completing a loan modification suggests that, in many cases, the 
subsequent delinquency may reflect, not a new adverse event, but the 
failure of the modification to achieve an affordable monthly payment 
for the borrower in light of the circumstances that preceded the 
modification. To the extent that a borrower's circumstances have not 
changed significantly, a subsequent loss mitigation application may not 
yield a new option for which the borrower is eligible and that the 
borrower finds more beneficial.
---------------------------------------------------------------------------

    \422\ Office of the Comptroller of the Currency, OCC Mortgage 
Metrics Report: Disclosure of Nat'l Bank and Fed. Savings Ass'n 
Mortgage Loan Data, at 30 (Third Quarter 2015), available at https://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics/mortgage-metrics-q3-2015.pdf.
    \423\ See Fed. Housing Fin. Agency, Foreclosure Prevention 
Report, at 3 (Jan. 2016), available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf (reporting that, of 
650,511 permanent modifications that became effective between April 
2009 and January 2016, 211,918 had defaulted by the end of the 
period).
---------------------------------------------------------------------------

    The Bureau does not have data indicating the number of borrowers in 
the second group--that is, those who apply for loss mitigation, are not 
approved for any option that they choose to accept, and subsequently 
become or remain current on their mortgage. The Bureau notes that the 
final rule may provide additional flexibility to borrowers who are 
current on their mortgage but might benefit from a loss mitigation 
option, because such borrowers could apply and determine whether they 
are eligible for loss mitigation without losing the right to Sec.  
1024.41's loss mitigation procedures in the future. For example, 
homeowners who are able to make their mortgage payments but would like 
to determine whether a short sale is possible will be able to apply for 
a short sale without losing the protection of Sec.  1024.41's loss 
mitigation procedures in connection with a subsequent application for 
loss mitigation.
    The benefits to borrowers of the final rule's revision to Sec.  
1024.41(i) depend on whether and under what circumstances investors 
make loss mitigation options available to borrowers who have completed 
an earlier loss mitigation application and perhaps received a loan 
modification. Section 1024.41 does not require a servicer to make any 
loss mitigation options available to a borrower, but only governs a 
servicer's evaluation of a borrower for any loss mitigation option that 
is available. Many borrowers may not realize benefits from the change 
to Sec.  1024.41(i), even though it may entitle them to the protections 
in Sec.  1024.41 with regard to a subsequent loss mitigation 
application, because they are not eligible to receive a second loan 
modification. For example, Fannie Mae and Freddie Mac's servicing 
guidelines generally do not permit a subsequent loan modification when 
a borrower has become 60 days delinquent within the 12 months after a 
borrower receives a prior loan modification.\424\ The Bureau notes, 
however, that, for some borrowers affected by the final rule, any loss 
mitigation option provided as a result of the revision may be the first 
loss mitigation option offered to that borrower, even if it is not the 
first evaluation of a complete application.
---------------------------------------------------------------------------

    \424\ See Fannie Mae, Fannie Mae Single Family 2012 Servicing 
Guide, at Sec.  602.05 Redefault (Mar. 14, 2012), available at 
https://www.fanniemae.com/content/guide/svc031412.pdf; Freddie Mac, 
Single-Family Seller/Servicer Guide, at Sec.  9206.6: Ineligibility 
for Freddie Mac Standard Modification, available at https://www.allregs.com/tpl/Viewform.aspx?formid=00051757&formtype=agency.
---------------------------------------------------------------------------

    Potential benefits and costs to covered persons. The final rule 
will impose costs on servicers by requiring them to evaluate certain 
borrowers' subsequent loss mitigation applications in accordance with 
Sec.  1024.41's requirements. Costs of complying with Sec.  1024.41's 
requirements include those arising from the requirements to send 
specific notices, comply with the rule's timelines for evaluation of 
loss mitigation applications, evaluate the borrower for all loss 
mitigation options available to the borrower, and, under certain 
circumstances, to delay initiation of foreclosure proceedings. The 
extent to which these requirements impose additional costs on servicers 
depends on their current policies with respect to subsequent loss 
mitigation applications. The Bureau learned through its pre-proposal 
outreach efforts that many servicers already reevaluate borrowers who 
reapply for loss mitigation using the procedures set forth in Sec.  
1024.41. To the extent that servicer practices already meet the 
requirements of the rule, the burden on servicers will be reduced.
    Some industry commenters expressed concern that the requirement to 
review multiple loss mitigation applications would increase the burden 
to servicers of complying with Sec.  1024.41, and in particular that 
borrowers might take advantage of the ability to submit multiple loss 
mitigation applications to ``game the system'' and delay a possible 
foreclosure. The Bureau notes that any costs imposed by the rule are 
mitigated by the fact that servicers can determine whether any loss 
mitigation options are available to borrowers and set the eligibility 
criteria for any subsequent loss mitigation application. In addition, 
the requirement that the borrower bring the loan current before Sec.  
1024.41's loss mitigation procedures apply to a subsequent application 
mitigates the costs of the final rule's provision for servicers by 
limiting the risk that a borrower will use multiple loss mitigation 
applications as a way to postpone foreclosure.
Loss Mitigation Timelines and Servicing Transfers
    Section 1024.41(k) of the final rule addresses the requirements 
applicable to loss mitigation applications pending at the time of a 
servicing transfer. Section 1024.41(k) clarifies that, subject to 
certain exceptions, a transferee servicer must comply with Sec.  
1024.41's requirements within the same timeframes that were applicable 
to the transferor servicer. The first exception applies to the written 
notification required by Sec.  1024.41(b)(2)(i)(B), which servicers 
generally must provide within five days of a borrower's initial 
application. The final rule provides that, if a transferee servicer 
acquires the servicing of a mortgage loan for which the period to 
provide the notice required by Sec.  1024.41(b)(2)(i)(B) has not 
expired as of the transfer date and the transferor servicer has not 
provided such notice, the transferee servicer must provide the notice 
within 10 days (excluding legal public holidays, Saturdays, and 
Sundays) of the transfer date. The second exception applies to the 
evaluation of loss mitigation applications, which servicers generally 
must complete within thirty days after receipt of a complete 
application. The final rule provides that, if a transferee servicer 
acquires the servicing of a mortgage loan for which a complete loss 
mitigation application is pending as of the transfer date, the 
transferee servicer must complete the evaluation within 30 days of the 
transfer date. The final rule also provides that, if a borrower's 
appeal under Sec.  1024.41(h) is pending as of the transfer date or is 
timely filed after the transfer date, a transferee servicer must 
determine the appeal within 30 days of the transfer date or 30 days of 
the date the borrower made the appeal, whichever is later, if it is 
able to determine whether it should offer the borrower the loan 
modification options subject to the appeal; a transferee servicer that 
is unable to determine an appeal must treat the appeal as a complete 
loss mitigation application and evaluate the borrower for all loss 
mitigation options available to the borrower from the transferee 
servicer.
    Potential benefits and costs to consumers. Section 1024.41(k) is 
intended to benefit borrowers who have loss mitigation applications in 
process at the time their mortgage loans are transferred to another 
servicer by ensuring that the transfer does not unnecessarily delay the 
completion or evaluation of their applications or limit their ability 
to obtain the protections of Sec.  1024.41. Delays in the processing of 
loss mitigation applications can prolong

[[Page 72361]]

a borrower's delinquency, during which time fees and other costs may 
accrue, making it more difficult for the borrower to recover from 
financial distress. For some borrowers, delays in completing loss 
mitigation applications could prevent them from obtaining protections 
under Sec.  1024.41, such as the prohibition on initiating foreclosure 
proceedings if a borrower has completed a loss mitigation application 
more than 37 days before a foreclosure sale.
    The Bureau does not have representative data on how quickly 
servicers currently comply with the various loss mitigation 
requirements in the event of a servicing transfer but believes that 
timelines vary significantly across servicers. The Bureau understands 
that, while some servicers may already have practices that would comply 
with the final rule's timelines, others may not. To the extent that 
servicer practices already comply with Sec.  1024.41(k), consumer 
benefits from the final rule will be lower.
    Potential benefits and costs to covered persons. Section 1024.41(k) 
is intended to reduce the costs to servicers that engage in servicing 
transfers of complying with the loss mitigation rules by clarifying the 
application of loss mitigation timelines in the context of a servicing 
transfer. At the same time, while transferor and transferee servicers 
are currently required under Sec.  1024.38 to have policies and 
procedures in place to ensure the timely transfer and receipt of 
accurate data, including through the devotion of appropriate personnel 
and resources, Sec.  1024.41(k) will impose incremental costs on 
servicers to the extent that, under their current transfer procedures, 
their transfers do not comply with the final rule's timelines. 
Transferor and transferee servicers both may be required to devote more 
personnel and other resources in the days or weeks before and after a 
transfer to ensure that the data is accurately transferred in a way 
that permits the transferee servicer to comply with the timelines with 
respect to all pending loss mitigation applications.
    The final rule's exceptions, including extended timelines in 
connection with the acknowledgment notice confirming receipt of a loss 
mitigation application and the evaluation of loss mitigation 
applications and determination of appeals, are intended to mitigate the 
costs to servicers of complying with the final rule in circumstances in 
which the Bureau understands that complying with the timelines that are 
otherwise applicable would be especially difficult. The final rule 
generally provides transferee servicers with as much time to provide 
the acknowledgement notice, to evaluate loss mitigation applications, 
and to determine the outcome of appeals as servicers generally have 
when they receive a consumer's application, complete application, or 
appeal (as applicable) directly from the consumer.
Evaluation for Short-Term Repayment Plans Based on Incomplete 
Applications
    Section 1024.41(c)(2)(iii) of the final rule permits a servicer to 
offer short-term repayment plans based upon an evaluation of an 
incomplete loss mitigation application. This is an exception to the 
general rule under Sec.  1024.41(c)(2)(i) that a servicer may not 
evaluate a borrower for loss mitigation options based on an incomplete 
application, and parallels an existing exception to this rule, which 
permits a servicer to offer a short-term payment forbearance program 
based upon an incomplete application. Borrowers who are offered a 
short-term repayment plan based on an incomplete application will not 
lose their protections under Sec.  1024.41 with respect to a subsequent 
loss mitigation application.
    As with the existing exception for short-term payment forbearance 
plans, Sec.  1024.41(c)(2)(iii) of the final rule is intended to 
benefit borrowers and servicers by permitting servicers to offer a 
short-term loss mitigation option to address a temporary hardship, 
while preserving borrowers' loss mitigation protections, in situations 
in which completing an application would be time-consuming or 
burdensome or would significantly delay a decision. The provision does 
not impose costs on borrowers because a borrower always has the option 
to reject a short-term repayment plan based on review of an incomplete 
loss mitigation application, provide a complete loss mitigation 
application, and be reviewed for all loss mitigation options available 
to the borrower (and receive other protections) under Sec.  1024.41. 
Similarly, the provision does not impose costs on servicers because it 
does not impose any new obligations on servicers.
5. Periodic Statement Requirements Applicable to Consumers in 
Bankruptcy
    The final rule revises Sec.  1026.41(e)(5) to limit the 
circumstances in which a servicer is exempt from the periodic statement 
requirements with respect to a consumer who is a debtor in bankruptcy 
and adds Sec.  1026.41(f) to modify the content of periodic statements 
for certain consumers in bankruptcy. Currently, Sec.  1026.41(e)(5) 
provides that a servicer is exempt from the requirement to provide 
periodic statements for a mortgage loan while the consumer is a debtor 
in bankruptcy. In general, Sec.  1026.41(e)(5) of the final rule limits 
the exemption to consumers in bankruptcy who are surrendering the 
property or avoiding the lien securing the mortgage loan, to consumers 
in bankruptcy who have requested in writing that a servicer cease 
providing periodic statements or coupon books, and in certain other 
circumstances. Notwithstanding meeting the above conditions for an 
exemption, the final rule requires servicers to provide periodic 
statements or coupon books if the consumer reaffirms personal liability 
for the mortgage loan or requests statements in writing (unless a court 
has entered an order requiring otherwise) and to resume providing 
periodic statements when the consumer exits bankruptcy with respect to 
any portion of the mortgage debt that is not discharged through 
bankruptcy.
    Potential benefits and costs to consumers. The periodic statement 
requirements in Sec.  1026.41 are intended to benefit consumers by 
providing accurate information about payments that consumers can use to 
monitor the servicer, assert errors if necessary, and track the 
accumulation of equity so that they can effectively determine how to 
allocate income and consider options for refinancing. As revised, Sec.  
1026.41(e)(5) is intended to make these benefits available to consumers 
in bankruptcy who own a home subject to a mortgage and intend to retain 
the home post-bankruptcy. The Bureau does not have representative data 
describing the number of consumers in the bankruptcy process that own a 
home and intend to retain it through the bankruptcy process. The FHFA 
reports that of the mortgage loans serviced for Fannie Mae and Freddie 
Mac, between 0.3 percent and 0.4 percent were in bankruptcy during 
2015.\425\ However, based on information the Bureau has received from 
servicers and other Federal agencies, the Bureau believes that the 
percentage of non-GSE loans in bankruptcy may be significantly higher.
---------------------------------------------------------------------------

    \425\ Fed. Housing Fin. Agency, Foreclosure Prevention Report, 
at 6 (Jan. 2016), available at https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/FPR_January2016.pdf.
---------------------------------------------------------------------------

    There are at least two reasons to expect that consumers who are in 
bankruptcy and intend to retain the property are particularly likely to 
benefit from receiving periodic statements. First, consumers in 
bankruptcy have demonstrated difficulties in meeting their financial 
obligations and face unique challenges in rehabilitating their 
finances. Such consumers face complex decisions

[[Page 72362]]

about how to restructure their financial lives and may derive 
particular benefit from information about the status of their mortgages 
that enables them to allocate income and make other decisions about 
their finances. Second, as discussed in the section-by-section analysis 
of Sec.  1026.41(e)(5), there is evidence that some servicers may be 
especially prone to error in applying payments of consumers in 
bankruptcy, particularly in the context of chapter 13 cases. This 
evidence indicates that it may be especially important for consumers in 
bankruptcy to be able to monitor how servicers apply their payments. 
Further, the Bureau understands based on consumer testing of proposed 
modifications to periodic statements and consumer complaint information 
that many consumers in bankruptcy want to receive periodic statements.
    Potential benefits and costs to covered persons. Section 
1026.41(e)(5) and (f) will impose costs on servicers by requiring them 
to modify systems to provide statements that show how payments are 
applied for consumers in bankruptcy, particularly those in chapter 13 
bankruptcy. The Bureau understands from comments and from pre-proposal 
industry outreach that the principal systems some servicers currently 
use to process and apply mortgage payments are not designed to 
accommodate payments from consumers in chapter 13 bankruptcy and that 
many servicers account for payments from consumers in chapter 13 
bankruptcy using a separate system or process. Servicer systems for 
producing periodic statements are generally not designed to produce 
statements for consumers in chapter 13 bankruptcy. While servicers 
generally must be capable of accounting for payments from consumers in 
chapter 13 bankruptcy, this accounting currently may not be done on a 
timeline that permits statements to be produced on a regular billing 
cycle. Several commenters noted that these system limitations mean 
complying with the rule will require costly system updates. While some 
larger servicers already have systems designed to provide similar 
disclosures in bankruptcy, the Bureau acknowledges that, for many 
servicers, this will involve significant one-time costs to develop new 
systems. In the final rule, the Bureau is not requiring a past payment 
breakdown that distinguishes between pre-petition and post-petition 
payments, which some commenters identified as particularly burdensome. 
In addition, some servicers indicated that they expected vendors would 
modify software platforms used to generate periodic statements to 
accommodate requirements to send modified periodic statements to 
consumers in bankruptcy. While this will not eliminate all costs to 
servicers of establishing systems to provide periodic statements for 
consumers in bankruptcy, the Bureau expects that vendor adjustments to 
their systems will help mitigate the burden of the rule for many 
servicers.
    Some commenters noted that, in order to send statements in 
compliance with the proposed rule, servicers would need to analyze 
multiple factors, such as which chapter of the Bankruptcy Code the 
consumer has filed under and whether the plan of reorganization 
provides that the consumer intends to retain the home. The Bureau 
understands, based on outreach to industry, that many servicers already 
track these aspects of each bankruptcy case. The Bureau does expect 
that there will be one-time costs to ensure that servicing systems 
capture this information in order to determine whether periodic 
statements are required and in what form.
    Because the final rule requires sending periodic statements to an 
additional group of consumers, servicers will also incur additional 
vendor costs associated with distributing statements. With respect to 
servicers that provide consumers with coupon books, the final rule will 
require servicers to provide transaction activity and past payment 
application information to consumers upon a consumer's request, 
consistent with current Sec.  1026.41(e)(3)(iii). The Bureau does not 
believe that providing this information will impose significant new 
costs on servicers that provide coupon books because the Bureau 
understands that the vast majority of servicers are already required to 
provide such information in response to a consumer's written 
information request pursuant to Sec.  1024.36.
    The final rule includes sample forms for periodic statements in 
bankruptcy. Sample forms will lower costs to servicers by eliminating 
the need to develop compliant forms of periodic statements, and may 
also increase the overall usefulness to consumers of the periodic 
statements.
6. Periodic Statements Following Charge Off
    The final rule adds a new exemption from the requirement to provide 
periodic statements under Sec.  1026.41. The exemption applies to a 
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or 
interest on the account, provided that the servicer must provide the 
consumer a periodic statement within 30 days of charge off or the most 
recent periodic statement. The periodic statement must clearly and 
conspicuously labeled ``Suspension of Statements & Notice of Charge 
Off--Retain This Copy for Your Records'' and clearly and conspicuously 
explain that, as applicable: The mortgage loan has been charged off and 
the servicer will not charge any additional fees or interest on the 
account; the servicer will no longer provide the consumer a periodic 
statement for each billing cycle; the lien on the property remains in 
place and the consumer remains liable for the mortgage loan obligation 
and any obligations arising from or related to the property, which may 
include property taxes; the consumer may be required to pay the balance 
on the account in the future, for example, upon sale of the property; 
the balance on the account is not being canceled or forgiven; and the 
loan may be purchased, assigned, or transferred.
    Potential benefits and costs to consumers. The periodic statement 
requirements in Sec.  1026.41 are intended to benefit consumers by 
providing accurate information about payments that consumers can use to 
monitor the servicer, assert errors if necessary, and track the 
accumulation of equity. Where a consumer's loan has been charged off 
and the servicer will no longer charge any additional fees or interest 
on the account, these benefits are significantly decreased. So long as 
the consumer is aware that no additional fees or interest will be 
charged, monthly statements will include no new information useful to 
the consumer. A periodic statement notifying the consumer of suspension 
of periodic statements and charge off, on the other hand, may provide 
consumers with important information about the ongoing status of the 
loan and the significance of its status. The required periodic 
statement will clarify that, although the mortgage loan has been 
charged off, the obligation remains in place. The periodic statement 
will also describe the implications of the remaining lien to the 
consumer.
    Although periodic statements would not provide new information to 
consumers where accounts have been charged off and fees and interest no 
longer accrue, they may provide a benefit to some consumers as a 
reminder that the lien on the property remains in place. It is possible 
that, particularly years after charge off, a consumer (or successor in 
interest to the property securing the loan) may not realize that the 
obligation remains

[[Page 72363]]

outstanding and the lien is still in place. A periodic statement that 
details the status could mitigate this issue but may not completely 
address it in all cases. This represents a potential cost of the 
exemption to some consumers.
    Potential benefits and costs to covered persons. Because the 
provision does not impose any new requirements on servicers, it does 
not impose any new costs. The provision will benefit servicers by 
giving them the option to send a periodic statement explaining to the 
consumer the consequences of the charge off in lieu of continuing to 
send periodic statements for charged-off mortgage loans when they find 
it less costly to do so.
7. Small Servicer Exemption
    The final rule amends certain criteria for determining whether a 
servicer qualifies for the small servicer exemption set forth under 
Sec.  1026.41(e)(4). The final rule provides that transactions serviced 
by the servicer for a seller financer that meet certain criteria are 
not considered in determining whether a servicer qualifies as a small 
servicer. Small servicers (generally, those that service, together with 
any affiliates, 5,000 or fewer mortgage loans, for all of which the 
servicer (or an affiliate) is the creditor or assignee) are exempt from 
certain mortgage servicing requirements, including several of 
Regulation X's requirements, such as certain provisions related to 
force-placed insurance, general servicing policies and procedures, and 
communicating with borrowers about, and evaluation of applications for, 
loss mitigation options, and Regulation Z's requirement to provide 
periodic statements for residential mortgage loans. The final rule 
permits small servicers to maintain their small servicer status if they 
service transactions for a limited class of seller financers: Those 
that provide seller financing for only one property in any 12-month 
period for the purchase of a property that they own, so long as they 
did not construct a residence on the property in the ordinary course of 
business and the financing meets certain restrictions.
    The Bureau believes that the changes to Sec.  1026.41(e)(4) will 
have little or no effect on consumers who are not parties to seller-
financed transactions. The Bureau understands that the practice of 
servicing seller-financed transactions is not widespread and that 
depository institutions offering this service do not obtain significant 
revenue from the practice, but instead offer the service as an 
accommodation to depository customers that are seller financers. Thus, 
the Bureau expects that, in the absence of the final rule, small 
servicers would generally choose not to service seller-financed 
transactions in order to maintain their status as small servicers. 
Consequently, the Bureau does not expect that servicers' status as 
small servicers will ultimately be affected by the rule. Therefore, the 
final rule will not have any significant effect on the number of 
consumers whose servicer qualifies for the small servicer exemption.
    Given the limited nature of servicing loans for seller financers, 
and given the Bureau's understanding that these services are offered by 
depository institutions to their customers when alternative service 
providers are generally not available, the Bureau believes that, if 
seller financers were unable to obtain servicing from the depository 
institution where they do their banking then, in many cases, they would 
be likely to instead service the loan themselves. Consumers who 
purchase homes from seller financers may benefit from the servicing of 
the loan by a small servicer rather than directly by the seller 
financer. Purchasers of seller-financed residential real estate may 
benefit from a financial institution receiving scheduled periodic 
payments and providing an independent accounting as a third party to 
the transaction. In addition, small servicers may be able to process 
payments and perform other servicing activities at a lower cost than 
seller financers, and this cost savings may be passed on to purchasers 
of seller-financed residential real estate.
    The final rule will benefit certain servicers by allowing them to 
service some seller-financed transactions while still qualifying as 
small servicers. One commenter pointed out that, to ensure that 
servicing such transactions does not jeopardize their small servicer 
status, servicers would need to establish internal controls to track 
and monitor whether a seller financer provides financing for more than 
one property. The Bureau acknowledges that servicers could incur costs 
to verify that the seller-financed transactions they service meet the 
criteria of the final rule and that any such costs would mitigate the 
benefits from the final rule's changes to Sec.  1026.41(e)(4).

F. Potential Specific Impacts of the Final Rule

Depository Institutions and Credit Unions With $10 Billion or Less in 
Total Assets, as Described in Section 1026
    The Bureau believes that a large fraction of depository 
institutions and credit unions with $10 billion or less in total assets 
that are engaged in servicing mortgage loans qualify as ``small 
servicers'' for purposes of the mortgage servicing rules because they 
service 5,000 or fewer loans, all of which they or an affiliate own or 
originated. The Bureau estimates that 96 percent of insured 
depositories and credit unions with $10 billion or less in total assets 
service 5,000 mortgage loans or fewer.\426\ The Bureau believes that 
servicers that service loans that they neither own nor originated tend 
to service more than 5,000 loans, given the returns to scale in 
servicing technology. The impact of the final rule on small servicers, 
which are exempt from many of the provisions of the servicing rules 
that are affected by the final rule, is discussed below in connection 
with the Regulatory Flexibility Act.
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    \426\ Based on an analysis of December 2015 Call Report data as 
compiled by SNL Financial.
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    With respect to servicers that are not small servicers as defined 
in Sec.  1026.41(e)(4), the Bureau believes that the consideration of 
benefits and costs of covered persons presented above provides a 
largely accurate analysis of the impacts of the final rule on 
depository institutions and credit unions with $10 billion or less in 
total assets that are engaged in servicing mortgage loans.
Impact of the Final Rule's Provisions on Consumer Access to Credit and 
on Consumers in Rural Areas
    The Bureau believes that the additional costs to servicers from the 
final rule are not likely to be extensive enough to have a significant 
impact on consumer access to credit. The exemption of small servicers 
from many provisions of the final rule will help maintain consumer 
access to credit through these providers.
    Consumers in rural areas may experience benefits from the final 
rule that are different in certain respects from the benefits 
experienced by consumers in general. Consumers in rural areas may be 
more likely to obtain mortgages from small local banks and credit 
unions that either service the loans in portfolio or sell the loans and 
retain the servicing rights. The business model of these servicers may 
mean that they already provide most of the benefits to consumers that 
the final rule is designed to provide. It is also possible, however, 
that a lack of alternative lenders in certain rural areas may reduce 
competition and therefore the level of customer service, making it 
possible for the final rule to provide rural consumers with greater 
benefits

[[Page 72364]]

than consumers elsewhere. More specifically, seller financing may be 
more common in rural areas, and the final rule's provisions related to 
servicing of seller-financed loans may help small servicers continue to 
service such loans in rural areas.

VIII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis (FRFA) of any rule subject to 
notice-and-comment rulemaking requirements, unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities.\427\ The Bureau also is subject 
to certain additional procedures under the RFA involving the convening 
of a panel to consult with small business representatives prior to 
proposing a rule for which an IRFA is required.\428\
---------------------------------------------------------------------------

    \427\ 5 U.S.C. 601 through 612.
    \428\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    The undersigned certified that the proposed rule would not have a 
significant economic impact on a substantial number of small entities 
and that an IRFA was therefore not required. The final rule adopts the 
proposed rule with some modifications that do not lead to a different 
conclusion. Therefore, a FRFA is not required.\429\
---------------------------------------------------------------------------

    \429\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Application of the Final Rule to Small Entities

    The analysis below evaluates the potential economic impact of the 
final rule on small entities as defined by the RFA.\430\ The analysis 
uses as a baseline the 2013 Mortgage Servicing Final Rules as currently 
in effect. The Bureau has identified five categories of small entities 
that may be subject to the final rule for purposes of the RFA: 
Commercial banks/savings institutions (NAICS 522110 and 522120), credit 
unions (NAICS 522130), firms providing real estate credit (NAICS 
522292), firms engaged in other activities related to credit 
intermediation (NAICS 522390), and small non-profit organizations. 
Commercial banks, savings institutions, and credit unions are small 
businesses if they have $550 million or less in assets. Firms providing 
real estate credit are small businesses if average annual receipts do 
not exceed $38.5 million, and firms engaged in other activities related 
to credit intermediation are small businesses if their average annual 
receipts do not exceed $20.5 million. A small non-profit organization 
is any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.
---------------------------------------------------------------------------

    \430\ For purposes of assessing the impacts of the final rule on 
small entities, ``small entities'' is defined in the RFA to include 
small businesses, small not-for-profit organizations, and small 
government jurisdictions. 5 U.S.C. 601(6). A ``small business'' is 
determined by application of Small Business Administration 
regulations and reference to the North American Industry 
Classification System (``NAICS'') classifications and size 
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and 
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small 
governmental jurisdiction'' is the government of a city, county, 
town, township, village, school district, or special district with a 
population of less than 50,000. 5 U.S.C. 601(5).
---------------------------------------------------------------------------

    The Bureau estimates that there are approximately 9,868 insured 
depositories (banks, thrifts and credit unions) and 862 non-
depositories that engage in mortgage servicing and are therefore 
subject to the 2013 Mortgage Servicing Final Rules.\431\ Of these, the 
Bureau estimates that approximately 8,308 depositories and 742 non-
depositories are ``small entities'' as defined in the RFA.\432\
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    \431\ The estimated number of insured depositories engaged in 
mortgage servicing is based on the December 2015 Call Report data as 
compiled by SNL Financial, and the estimated number of non-
depositories is based on December 2015 data from the Nationwide 
Mortgage Licensing System and Registry.
    \432\ The estimated number of insured depositories engaged in 
mortgage servicing that are small entities is based on the December 
2015 Call Report data as compiled by SNL Financial, and the 
estimated number of non-depositories that are ``small entities'' as 
defined in the RFA is based on December 2015 data from the 
Nationwide Mortgage Licensing System and Registry. Non-profits and 
small non-profits engaged in mortgage loan servicing would be 
included in this estimate if their primary activity is originating 
or servicing loans. The Bureau has not been able to separately 
estimate the number of non-profits and small non-profits engaged in 
loan servicing.
---------------------------------------------------------------------------

    The large majority of these small entities qualify as ``small 
servicers'' for purposes of the 2013 Mortgage Servicing Final Rules: 
Generally, servicers that service 5,000 or fewer mortgage loans, all of 
which the servicer or affiliates own or originated. The Bureau 
estimates that, among 9,050 small entities subject to the 2013 Mortgage 
Servicing Final Rules, all but approximately 11 depositories and all 
but approximately 78 non-depositories (collectively, approximately 1.0 
percent of all small entities subject to the 2013 Mortgage Servicing 
Final Rules) service 5,000 loans or fewer.\433\ The Bureau does not 
have data to indicate whether these institutions service loans that 
they do not own and did not originate. However, as discussed in the 
2013 RESPA Servicing Final Rule, the Bureau believes that a servicer 
that services 5,000 loans or fewer is unlikely to service loans that it 
did not originate, because a servicer that services loans for others is 
likely to see servicing as a stand-alone line of business and would 
likely need to service substantially more than 5,000 loans to justify 
its investment in servicing activities.\434\
---------------------------------------------------------------------------

    \433\ For insured depositories, the estimate is based on an 
analysis of the December 2015 Call Report data as compiled by SNL 
Financial, and the estimated number of non-depositories that are 
``small entities'' as defined in the RFA is based on December 2015 
data from the Nationwide Mortgage Licensing System and Registry.
    \434\ 78 FR 10695, 10866 (Feb. 14, 2013). For example, one 
industry participant estimated that most servicers would need a 
portfolio of 175,000 to 200,000 loans to be profitable. Bonnie 
Sinnock, Servicers Search for 'Goldilocks' Size for Max Profits, 
American Banker (Sept. 10, 2015), available at https://www.americanbanker.com/news/consumer-finance/servicers-search-for-goldilocks-size-for-max-profits-1076620-1.html.
---------------------------------------------------------------------------

    Small servicers are exempt from many of the servicing provisions of 
Regulation X and Regulation Z. Pursuant to Sec.  1024.30, small 
servicers are exempt from Regulation X's general servicing policies and 
procedures requirements (Sec.  1024.38), early intervention and 
continuity of contact requirements (Sec. Sec.  1024.39 and 1024.40), 
and all loss mitigation procedures requirements of Sec.  1024.41 other 
than Sec.  1024.41(j), which makes applicable to small servicers Sec.  
1024.41(f)(1)'s prohibition on initiating foreclosure proceedings 
unless a borrower is more than 120 days delinquent and prohibits 
servicers from initiating foreclosure proceedings while a borrower is 
performing pursuant to the terms of an agreement on a loss mitigation 
option. Similarly, pursuant to Sec.  1026.41(e)(4), small servicers are 
exempt from Regulation Z's requirement to provide periodic statements 
for residential mortgage loans pursuant to Sec.  1026.41.
    Given the Bureau's estimate that all but approximately 1.0 percent 
of small entities subject to the rule are small servicers, the final 
rule provisions that amend sections of Regulation X and Regulation Z 
from which small servicers are exempt will have no effect on almost all 
small entities, and therefore will not have a significant economic 
impact on a substantial number of small entities. Most provisions of 
the final rule would amend Sec. Sec.  1024.38 through 1024.41 and 
1026.41 and would therefore not affect small servicers.
    In addition, certain provisions of the final rule apply to small 
servicers but reduce servicer compliance costs by relaxing the existing 
rules. This includes changes to the commentary to Sec.  1024.36(a) to 
reduce disclosure requirements when a borrower requests information 
about ownership of a loan

[[Page 72365]]

for which Fannie Mae or Freddie Mac is the owner of the loan or the 
trustee of the securitization trust in which the loan is held; an 
additional exception to Sec.  1024.41(f)(1)'s 120-day pause on 
initiating foreclosure proceedings for a servicer joining the 
foreclosure action of a senior lienholder; and revisions to the 
definition of small servicer in Sec.  1026.41(e)(4)(iii) that permit 
small servicers to service loans for seller financers under certain 
circumstances.
    There are three provisions of the final rule that do apply to small 
servicers and could potentially impose new costs on a substantial 
number of small entities: (1) The provisions related to successors in 
interest, which create a new, limited information request procedure for 
potential successors in interest and extend the protections of all the 
Mortgage Servicing Rules, including certain provisions from which small 
servicers are not exempt, to confirmed successors in interest; (2) the 
definition of delinquency in Sec.  1024.31, which may affect the scope 
of the 2013 RESPA Servicing Final Rule's prohibition on initiating 
foreclosure proceedings unless a borrower's mortgage loan obligation is 
more than 120 days delinquent; and (3) a minor revision to the content 
of force-placed insurance notices required by Sec.  1024.37(c). The 
following sections of this part discuss in greater detail the potential 
impact of these three provisions of the final rule on small servicers.

B. Successors in Interest

    The final rule imposes new requirements on mortgage servicers with 
respect to successors in interest. For purposes of these provisions, 
successors in interest generally include individuals who acquire an 
ownership interest in the property securing a mortgage loan through 
transfers that are protected by the Garn-St Germain Act, including, for 
example, certain transfers resulting from the death of the borrower, 
transfers to the borrower's spouse or children, or transfers incident 
to divorce. The provisions relate to how mortgage servicers confirm a 
successor in interest's identity and ownership interest in the property 
and apply the Mortgage Servicing Rules to confirmed successors in 
interest.
    Small servicers must comply with some, but not all, of the Mortgage 
Servicing Rules, and the final rule requires small servicers to comply 
with that same set of rules with respect to confirmed successors in 
interest. Small servicers must comply, at least in part, with 
Regulation X's requirements regarding escrow accounts (Sec. Sec.  
1024.17 and 1024.34), general disclosure requirements (Sec.  1024.32), 
mortgage servicing transfers (Sec.  1024.33), error resolution 
procedures (Sec.  1024.35), requests for information (Sec.  1024.36), 
force-placed insurance (Sec.  1024.37), and certain prohibitions on 
initiating foreclosure proceedings and moving for foreclosure judgment 
or order of sale (Sec.  1024.41(f)(1) and (j)), and with Regulation Z's 
requirements regarding ARM disclosures (Sec.  1026.20(c) and (d)), 
regarding escrow account cancellation notices (Sec.  1026.20(e)), 
regarding payment processing, the prohibition on pyramiding of late 
fees, and the requirement to provide payoff statements (Sec.  
1026.36(c)), and regarding mortgage transfer disclosures (Sec.  
1026.39). The final rule requires small servicers to comply with each 
of these provisions with respect to successors in interest once a 
servicer has confirmed the successor in interest's identity and 
ownership interest in the property.
    The Bureau does not believe that the application of these 
requirements to confirmed successors in interest will have a 
significant impact on the small entities subject to the Mortgage 
Servicing Rules. While the Bureau does not have representative data on 
the number of loans that are serviced by small servicers and for which 
the underlying property has been transferred to a successor in 
interest, the Bureau expects that such loans make up a small fraction 
of the total loans serviced by any small servicer. The final rule does 
not require small servicers to develop new policies and procedures, but 
rather to continue to apply existing policies and procedures for 
servicing loans subject to the servicing rules to what the Bureau 
believes is a relatively small set of loans previously subject to the 
Mortgage Servicing Rules before the interest in the property was 
transferred to a successor in interest.
    In addition, given that under the Garn-St Germain Act small 
servicers are effectively obligated to service loans secured by 
property that has been transferred to a successor in interest, many 
small servicers are likely servicing such loans using the same policies 
and procedures that they use to service other mortgage loans that are 
already subject to the Mortgage Servicing Rules. Given that there are 
fixed costs associated with developing servicing policies and 
procedures and systems to implement those policies and procedures, it 
may be less costly for servicers to apply the same policies and 
procedures with respect to successors in interest that they apply to 
all other loans they service, rather than developing separate policies, 
procedures and systems to service loans for successors in interest. 
Moreover, as discussed in the 2013 RESPA Servicing Final Rule and the 
2013 TILA Servicing Final Rule, the Bureau believes that small 
servicers generally depend on a relationship-based business model that 
depends on repeat business and could suffer significant harm from any 
major failure to treat customers properly because small servicers are 
particularly vulnerable to ``word of mouth.'' \435\ A servicer that had 
a practice of servicing loans for confirmed successors in interest 
using lower standards than those used to service other loans would risk 
reputational harm and an associated loss of business.
---------------------------------------------------------------------------

    \435\ 78 FR 10696, 10843 (Feb. 14, 2013); 78 FR 10902, 10978 
(Feb. 14, 2013).
---------------------------------------------------------------------------

    Small servicers are also subject to Sec.  1024.36(i), which 
generally requires a servicer to respond to a written request that 
indicates that the person making the request may be a successor in 
interest by providing the person with a description of the documents 
the servicer reasonably requires to confirm the person's identity and 
ownership interest in the property. Small servicers are required to 
treat the person making the request as a borrower for the purposes of 
the procedural requirements of Sec.  1024.36(c) through (g)--that is, 
servicers must respond to these requests the way they must respond to 
other written information requests, by generally acknowledging receipt 
of the request within five days and responding within 30 or 45 days 
without charge.
    However, because small servicers are exempt from Sec.  1024.38, 
they are not subject to Sec.  1024.38(b)(1)(vi), which requires 
servicers to have policies and procedures in place to provide promptly 
upon request a description of what documents the servicer reasonably 
requires to confirm the person's status, and, upon the receipt of such 
documents, notify the person promptly, as applicable, that the servicer 
has confirmed the person's status, has determined that additional 
documents are required (and what those documents are), or has 
determined that the person is not a successor in interest. Therefore, 
the final rule does not necessarily require small servicers to make any 
changes to their policies and procedures for identifying successors in 
interest, but only to communicate to potential successors, using the 
same procedures they use to respond to other borrower requests, what 
documents they reasonably need to confirm a person's status as a 
successor in interest. Because small servicers may not need to make any 
changes to the documents they require and will already have

[[Page 72366]]

procedures in place for responding to borrower requests generally, the 
Bureau believes that the costs to small servicers of complying with 
Sec.  1024.36(i) will be small.

C. Definition of Delinquency

    The final rule adds a general definition of delinquency in Sec.  
1024.31 that applies to all sections of subpart C of Regulation X, 
replacing the existing definition of delinquency for purposes of 
Sec. Sec.  1024.39 and 1024.40(a). Under the final rule, delinquency is 
defined as a period of time during which a borrower and a borrower's 
mortgage loan obligation are delinquent, and a borrower and a 
borrower's mortgage loan obligation are delinquent beginning on the 
date a periodic payment sufficient to cover principal, interest, and, 
if applicable, escrow, becomes due and unpaid, until such time as no 
periodic payment is due and unpaid. Comment 31 (Delinquency)-2 
clarifies that, if a servicer applies payments to the oldest 
outstanding periodic payment, a payment by a delinquent borrower 
advances the date the borrower's delinquency began. The Bureau 
understands from its pre-proposal outreach and from comments that the 
majority of servicers credit payments made to a delinquent account to 
the oldest outstanding periodic payment. The Bureau also understands 
that some servicers that use this method may be concerned about how to 
calculate the length of a borrower's delinquency without increased 
certainty from the Bureau.\436\
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    \436\ See Am. Bankers Ass'n. Letter to Bureau of Consumer Fin. 
Prot. (Oct. 24, 2014), available at https://www.aba.com/Advocacy/commentletters/Pages/default.aspx#2014.
---------------------------------------------------------------------------

    The Bureau believes that the final rule's definition will clarify 
the application of the servicing rules--thereby reducing the costs to 
small servicers of complying with the rules--without imposing 
significant new burdens on servicers. The Bureau recognizes that, in 
principle, the definition could affect the circumstances under which a 
servicer may initiate foreclosure proceedings, because the definition 
of ``delinquency'' affects the application of Sec.  1024.41(f)(1)'s 
prohibition on initiating foreclosure proceedings unless ``a borrower's 
mortgage loan obligation is more than 120 days delinquent.'' \437\ In 
particular, Comment 31 (Delinquency)-2 implies that a servicer that 
otherwise applies payments to the oldest outstanding periodic payment 
may not initiate foreclosure proceedings unless the borrower has missed 
the equivalent of at least four monthly payments. In contrast, the 
current rule could be interpreted to permit the servicer to commence 
foreclosure even if the borrower has missed only one payment, so long 
as the payment was missed more than 120 days ago and the borrower has 
not become current since. However, information gathered in pre-proposal 
industry outreach indicates that the majority of servicers generally do 
not initiate foreclosure proceedings in the case of consumers that are 
behind by three or fewer payments. In addition, Fannie Mae and Freddie 
Mac servicing guidelines generally prevent servicers from initiating 
foreclosure if a loan is delinquent by fewer than four monthly 
payments. For servicers that do not apply payments to the oldest 
outstanding periodic payment, the final rule will not affect their 
application of the 120-day pre-foreclosure review period.
---------------------------------------------------------------------------

    \437\ Small servicers, while otherwise exempt from the 
provisions of Sec.  1024.41, are not exempt from Sec.  1024.41(f)(1) 
pursuant to Sec.  1024.41(j).
---------------------------------------------------------------------------

    In addition, the Bureau believes that it is particularly unlikely 
that a small servicer would initiate foreclosure proceedings with 
respect to a borrower who is not at least four payments behind. As the 
Bureau stated in the 2013 RESPA Servicing Final Rule, the vast majority 
of small servicers are community banks and credit unions that generally 
maintain a ``relationship'' model that depends on repeat business and 
are particularly vulnerable to reputational harm from a failure to 
treat customers well. The Bureau believes that such servicers would be 
particularly unlikely to initiate foreclosure proceedings in a case 
where a consumer had fallen behind by a few mortgage payments but 
continued to make regular payments going forward. For these reasons, 
the Bureau expects that the final rule's definition will not impose 
meaningful new constraints on servicers.

D. Changes to Force-Placed Insurance Notices

    The final rule includes changes to force-placed insurance notices, 
which pursuant to Sec.  1024.37 servicers must deliver to borrowers 
before they can charge borrowers for force-placed insurance, to modify 
the prescribed notices slightly to accommodate the circumstance where a 
consumer's hazard insurance coverage is insufficient, rather than 
expiring or expired. This change is intended to reduce the burden on 
servicers and borrowers by providing greater clarity in circumstances 
where the form of notice that is currently required does not accurately 
describe the deficiency in the borrower's insurance coverage. The 
change represents a minor amendment to the required force-placed 
insurance notice and the Bureau does not believe that it will impose 
any significant burden on servicers.
Certification
    Accordingly, the undersigned certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities.

IX. Paperwork Reduction Act

    Certain provisions of the final rule contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 \438\ (Paperwork Reduction Act or PRA). The 
collection of information contained in the final rule, and identified 
as such, has been submitted to OMB for review under section 3507(d) of 
the PRA. Notwithstanding any other provision of law, under the PRA, the 
Bureau may not conduct or sponsor, and a person is not required to 
respond to, this information collection unless the information 
collection displays a currently valid control number.
---------------------------------------------------------------------------

    \438\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------

    The final rule amends 12 CFR part 1024 (Regulation X), which 
implements the Real Estate Settlement Procedures Act (RESPA), and 12 
CFR part 1026 (Regulation Z), which implements the Truth in Lending Act 
(TILA). Regulations X and Z currently contain collections of 
information approved by OMB. The Bureau's OMB control number for 
Regulation X is 3170-0016 and for Regulation Z is 3170-0015. 
Information collections for the final rule would be authorized under 
OMB control numbers 3170-0027 for Regulation X and 3170-0028 for 
Regulation Z.
    On December 15, 2014, notice of the proposed rule was published in 
the Federal Register. The Bureau invited comment on: (1) Whether the 
proposed collections of information are necessary for the proper 
performance of the functions of the Bureau, including whether the 
information will have practical utility; (2) the accuracy of the 
estimated burden associated with the proposed collections of 
information; (3) how to enhance the quality, utility, and clarity of 
the information to be collected; and (4) how to minimize the burden of 
complying with the proposed collections of information, including the 
application of automated collection techniques or other forms of 
information technology. The comment period for the proposed information 
collection expired on March 16, 2015.

[[Page 72367]]

    The Bureau received two comments addressing the PRA notice. An 
industry commenter noted the Bureau's estimate of the one-time hourly 
burden of complying with the proposed rule's successor in interest 
provisions and noted that the estimated time would not be sufficient 
for a servicer to become equipped to originate mortgage loans. However, 
the final rule does not require servicers to originate mortgage loans. 
Another industry commenter noted the Bureau's estimate of the one-time 
and ongoing burden of providing two new notices: The notice to 
consumers when a loss mitigation application is complete and the notice 
provided when evaluation of a loss mitigation application is delayed 
because necessary information from third parties has not been 
submitted. This commenter expressed concern that the estimated costs 
would increase the cost of servicing, and that this would have negative 
implications for consumers. The Bureau discusses the impacts of these 
notices on consumers and servicers in the Dodd-Frank Act section 
1022(b) discussion above.
    The Bureau is requiring six new information collection 
requirements, or changes to existing information collection 
requirements, in Regulation X:
    1. Provisions requiring servicers to communicate with potential 
successors in interest about their requirements for confirming a 
successor in interest's identity and ownership interest in the property 
and to treat confirmed successors in interest as borrowers for purposes 
of the Mortgage Servicing Rules in Regulation X.
    2. Minor changes to force-placed insurance notices to address the 
circumstance in which a borrower's hazard insurance coverage is 
insufficient (rather than expired or expiring) and permit the 
consumer's account number to be included on the notice.
    3. Provisions requiring servicers to provide early intervention 
written notices to consumers in bankruptcy and to consumers who have 
provided the servicer with a cease communications notice under the 
FDCPA.
    4. Requirement that servicers provide a notice to consumers when a 
loss mitigation application is complete.
    5. Requirement that servicers provide a notice to consumers if 
their determination with respect to a loss mitigation application is 
delayed beyond a date that is 30 days after receipt of a complete loss 
mitigation application because information from third parties required 
to evaluate the application has not been submitted.
    6. Requirement that servicers comply with the loss mitigation 
provisions of Regulation X with respect to multiple loss mitigation 
applications from the same borrower. Servicers that offer loss 
mitigation options in the ordinary course of business are required to 
follow certain procedures when evaluating loss mitigation applications, 
including (1) providing a notice telling the borrower if the loss 
mitigation application is incomplete, approved, or denied (and, for 
denials of loan modification requests, a more detailed notice of the 
specific reason for denial and appeal rights), (2) providing a notice 
of the appeal determination, and (3) providing servicers of senior or 
second liens encumbering the property that is the subject of the loss 
mitigation application copies of the loss mitigation application.
    The Bureau is also requiring two new information collection 
requirements, or changes to existing information collection 
requirements, in Regulation Z:
    7. Requirement that servicers treat confirmed successors in 
interest as consumers for purposes of the Mortgage Servicing Rules in 
Regulation Z.
    8. Requirement that servicers provide periodic statements to 
consumers in bankruptcy.
    These information collections are required to provide benefits for 
consumers and are mandatory.\439\ Because the Bureau does not collect 
any information, no issue of confidentiality arises. The likely 
respondents would be federally insured depository institutions (such as 
commercial banks, savings banks, and credit unions) and non-depository 
institutions (such as mortgage brokers, real estate investment trusts, 
private-equity funds, etc.) that service consumer mortgages.\440\
---------------------------------------------------------------------------

    \439\ See 15 U.S.C. 1601 et seq.; 12 U.S.C. 2601 et seq.
    \440\ For purposes of this PRA analysis, references to 
``creditors'' or ``lenders'' shall be deemed to refer collectively 
to commercial banks, savings institutions, credit unions, and 
mortgage companies (i.e., non-depository lenders), unless otherwise 
stated. Moreover, reference to ``respondents'' shall generally mean 
all categories of entities identified in the sentence to which this 
footnote is appended, except as otherwise stated or if the context 
indicates otherwise.
---------------------------------------------------------------------------

    Under the rule, the Bureau accounts for the entire paperwork burden 
for respondents under Regulation X. The Bureau generally also accounts 
for the paperwork burden associated with Regulation Z for the following 
respondents pursuant to its administrative enforcement authority: 
Insured depository institutions with more than $10 billion in total 
assets, their depository institution affiliates, and certain non-
depository institutions. The Bureau and the FTC generally both have 
enforcement authority over non-depository institutions for Regulation 
Z. Accordingly, the Bureau has allocated to itself half of the 
estimated burden to non-depository institutions. Other Federal agencies 
are responsible for estimating and reporting to OMB the total paperwork 
burden for the institutions for which they have administrative 
enforcement authority. They may, but are not required to, use the 
Bureau's burden estimation methodology.
    Using the Bureau's burden estimation methodology, the Bureau 
believes the total estimated industry burden under Regulation X for the 
approximately 10,730 respondents subject to the final rule will be 
approximately 128,000 hours for one time changes and 64,000 hours 
annually. Using the Bureau's burden estimation methodology, the total 
estimated industry burden under Regulation Z for the approximately 
10,730 banks, savings institutions, credit unions, and mortgage 
companies subject to the final rule, including Bureau respondents,\441\ 
is approximately 7,000 hours for one-time changes and 8,300 hours 
annually. The estimates presented in this part IX represent weighted 
averages across respondents. The Bureau expects that the amount of time 
required to implement each of the changes for a given institution may 
vary based on the size, complexity, and practices of the respondent.
---------------------------------------------------------------------------

    \441\ For purposes of this PRA analysis, the Bureau's depository 
respondents with respect to the changes to Regulation Z are 120 
depository institutions and depository institution affiliates that 
service closed-end consumer mortgages. The Bureau's non-depository 
respondents are an estimated 862 non-depository servicers. Unless 
otherwise specified, all references to burden hours and costs for 
the Bureau respondents for the collection requirements under the 
changes to Regulation Z are based on a calculation of the burden 
from all of the Bureau's depository respondents and half of the 
burden from the Bureau's non-depository respondents.
---------------------------------------------------------------------------

    For purposes of this PRA analysis, the Bureau estimates that there 
are 9,868 depository institutions and credit unions subject to the 
final rule, and an additional 862 non-depository institutions. Based on 
discussions with industry, the Bureau assumes that all depository 
respondents except for one large entity and 95% of non-depository 
respondents (and 100% of small non-depository respondents) use third-
party software and information technology vendors. Under existing 
contracts, vendors would absorb the one-time software and information 
technology costs associated with complying with the final rule for 
large- and medium-

[[Page 72368]]

sized respondents but not for small respondents.

A. Information Collection Requirements--Regulation X

    The Bureau believes the following aspects of the final rule are 
information collection requirements under the PRA.
1. Successors in Interest
    Under the final rule, servicers are generally required (1) to 
respond to a written request from a person that indicates that the 
person may be a successor in interest by providing that person with a 
description of the documents the servicer reasonably requires to 
confirm the person's identity and ownership interest in the property 
and (2) to have policies and procedures reasonably designed to ensure 
that the servicer can provide promptly upon request a description of 
what documents the servicer reasonably requires to confirm the person's 
identity and ownership interest in the property, and, upon the receipt 
of such documents, notify the person promptly, as applicable, that the 
servicer has confirmed the person's status, has determined that 
additional documents are required (and what those documents are), or 
has determined that the person is not a successor in interest. 
Servicers are also subject to Regulation X's mortgage servicing 
requirements, including loss mitigation requirements, with respect to 
confirmed successors in interest.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. Certain respondents will have one-time burden in hours from 
training personnel in compliance with the requirement. The Bureau 
estimates that one-time hourly burden to comply with the disclosure 
requirements to be eight hours and forty-five minutes, on average, per 
respondent.
    Respondents will have ongoing burden in hours and vendor costs 
associated with the information technology used in producing the 
required disclosures. All respondents will have ongoing vendor costs 
associated with distributing (e.g., mailing) the required disclosures 
and some will have production costs associated with the new 
disclosures. The Bureau estimates this ongoing burden to be 10 minutes 
and $0.44, on average, for each respondent.
2. Changes to Force-Placed Insurance Disclosures
    The final rule makes minor changes to the content of required 
force-placed insurance notices, which are required before a servicer 
may charge a borrower for force-placed insurance.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. All respondents will also have one-time burden in hours or vendor 
costs from changing existing systems to accommodate the required new 
disclosure. The Bureau estimates the one-time hourly burden to comply 
with the disclosure requirements to be one hour and 15 minutes and $70, 
on average, per respondent.
    Because the content of the required notices will not change 
substantially under the final rule and the circumstances under which 
the disclosures are required will not change, there will not be an 
ongoing burden under the final rule.
3. Early Intervention Written Notices
    The final rule requires that servicers send written early 
intervention notices to borrowers in bankruptcy and borrowers who have 
exercised their cease communication rights under the FDCPA. These 
notices must meet certain requirements that do not apply to the early 
intervention notices that must be sent to other borrowers. Borrowers 
have rights under the FDCPA only with respect to accounts that were 
delinquent at the time the servicer acquired the servicing rights. 
Therefore, servicers that do not acquire servicing rights in the course 
of their business are not subject to these modified disclosure 
requirements.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. Certain respondents will have one-time burden in hours or vendor 
costs from changing existing systems to accommodate the required new 
disclosure. The Bureau estimates the one-time hourly burden to comply 
with the disclosure requirements to be nine hours and 30 minutes, on 
average, per respondent.
    Respondents will have ongoing burden in hours and vendor costs 
associated with the information technology used in producing the 
disclosure. All respondents will have ongoing vendor costs associated 
with distributing (e.g., mailing) the disclosure and some will have 
production costs associated with the new disclosure. The Bureau 
estimates this ongoing burden to be four hours and $380, on average, 
for each respondent.
4. Notice of Complete Loss Mitigation Application
    The final rule requires a servicer to provide a written notice to a 
borrower within five days (excluding legal public holidays, Saturdays, 
and Sundays) after receiving the borrower's complete application. The 
Bureau understands that the practice of providing borrowers with a 
written notice informing them that their loss mitigation application is 
complete is a common business practice (i.e., a ``usual and customary'' 
business practice) today for most mortgage servicers. However, the 
Bureau understands that the specific content of the required notices 
may not reflect existing common practices.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. In addition, while the Bureau considers borrower notifications 
that loss mitigation applications are complete as the normal course of 
business, institutions may still have to incur one-time costs 
associated with modifying their existing disclosures to comply with the 
final rule's disclosure provisions. As a result, the Bureau's one-time 
burden incorporates these costs. The Bureau estimates this one-time 
burden to be ten hours and 20 minutes, on average, for each respondent.
5. Notice Regarding Outstanding Third-Party Information
    The final rule requires written notice to borrowers within thirty 
days following receipt of a complete loss mitigation application if the 
servicer has not received information from a party other than the 
servicer or the borrower that is necessary to make a determination of 
which loss mitigation options, if any, to offer the borrower.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. Certain respondents will have one-time burden in hours or vendor 
costs from creating software and information technology capability to 
produce the disclosure. The Bureau estimates that one-time hourly 
burden to comply with the disclosure requirements to be ten hours and 
20 minutes, on average, per respondent.
    Respondents will have ongoing burden in hours and vendor costs 
associated with the information technology used in producing the 
disclosure. All respondents will have ongoing vendor costs associated 
with distributing (e.g., mailing) the disclosure

[[Page 72369]]

and some will have production costs associated with the new disclosure. 
The Bureau estimates this ongoing burden to be 10 minutes and $12, on 
average, for each respondent.
6. Requirement To Evaluate Multiple Loss Mitigation Applications
    Currently, servicers (other than small servicers) are required to 
comply with the loss mitigation provisions of Sec.  1024.41 only once 
during the life of a loan, including the provision of up to three 
notices per loss mitigation application. Under the final rule, 
servicers must comply with the loss mitigation provisions of Sec.  
1024.41 for borrowers who have previously completed a loss mitigation 
application, so long as the borrower has become current in the period 
following the completion of the prior application.
    All respondents will have a one-time burden under this requirement 
associated with reviewing the regulation and developing a compliance 
plan. Certain respondents will have a one-time burden from revising 
their systems to provide for evaluation of borrowers for subsequent 
loss mitigation applications. The Bureau estimates this one-time burden 
to be four hours and 30 minutes, on average, for each respondent. The 
Bureau estimates the ongoing burden to be 103 hours and $181, on 
average, for each respondent.

B. Information Collection Requirements--Regulation Z

1. Successors in Interest Under Regulation Z
    Under the final rule, servicers are subject to Regulation Z's 
mortgage servicing requirements with respect to confirmed successors in 
interest. All respondents will have a one-time burden under this 
requirement associated with reviewing the regulation and developing a 
compliance plan. The Bureau estimates that one-time hourly burden to 
comply with the disclosure requirements to be one hour and 50 minutes, 
on average, per respondent.
    Certain respondents will have ongoing vendor costs associated with 
distributing (e.g., mailing) the required disclosures and some will 
have production costs associated with the new required disclosures. The 
Bureau estimates this ongoing burden to be 10 minutes and $7, on 
average, for each respondent.
2. Periodic Statements
    Under the final rule, respondents that are not small servicers must 
provide periodic statements to certain consumers in bankruptcy.
    All respondents that are not small servicers will have a one-time 
burden under this requirement associated with reviewing the regulation 
and developing a compliance plan. Certain respondents will have one-
time burden in hours or vendor costs from changing existing systems to 
produce the required new disclosure. The Bureau estimates that one-time 
hourly burden to comply with the disclosure requirements to be 31 
hours, on average, per respondent.
    Respondents will have ongoing burden in hours and vendor costs 
associated with the information technology used in producing the 
disclosure. Certain respondents will have ongoing vendor costs 
associated with distributing (e.g., mailing) the disclosure and some 
will have production costs associated with the new disclosure. The 
Bureau estimates this ongoing burden to be 43 hours and $4,273, on 
average, for each respondent.

C. Summary of Burden Hours--Regulation X

    The estimated burden on Bureau respondents from the changes to 
Regulation X is summarized below. Under the final rule, the Bureau 
accounts for the entire paperwork burden for respondents under 
Regulation X.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Disclosures per    Hours burden     Total burden     Total vendor
                                                                       Respondents       respondent     per disclosure       hours            costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing:
    Successors in Interest--Regulation X...........................           10,730                6            0.016            1,086           $4,731
    Force-Placed Insurance.........................................           10,730                0                0                0                0
    Early Intervention Written Notices.............................              592            1,261            0.003            2,239          223,890
    Notice of Complete Loss Mitigation Application.................              592                0                0                0                0
    Third-Party Information........................................              592               44            0.003               67            6,681
    Loss Mitigation--Subsequent Applications.......................              592              709            0.144           60,571          107,100
One-Time:
    Successors in Interest--Regulation X...........................           10,730                1            8.745           93,830                0
    Force-Placed Insurance.........................................           10,730                1            1.272           13,652          729,936
    Early Intervention Written Notices.............................              592                1            9.514            5,632                0
    Notice of Complete Loss Mitigation Application.................              592                1           10.277            6,084                0
    Third-Party Information........................................              592                1           10.327            6,114           60,000
    Loss Mitigation--Subsequent Applications.......................              592                1            4.505            2,667                0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.

D. Summary of Burden Hours--Regulation Z

    The estimated burden on Bureau respondents from the changes to 
Regulation Z is summarized below. The Bureau accounts for the paperwork 
burden associated with Regulation Z for the following respondents 
pursuant to its administrative enforcement authority: Insured 
depository institutions with more than $10 billion in total assets, 
their depository institution affiliates, and certain non-depository 
institutions. The Bureau and the FTC generally both have enforcement 
authority over non-depository institutions for Regulation Z. 
Accordingly, the Bureau has allocated to itself half of the estimated 
burden to non-depository institutions.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Total  burden    Total  vendor
                                                                          Bureau        Disclosures      Hours burden      hours  for       costs  for
                                                                       respondents       per bureau     per disclosure       bureau           bureau
                                                                                         respondent                       respondents      respondents
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ongoing:
    Successors in Interest--Regulation Z...........................              551               35            0.003               56           $5,678
    Periodic Statements in Bankruptcy..............................              193           23,938            0.002            8,247          824,670

[[Page 72370]]

 
One-Time:
    Successors in Interest--Regulation Z...........................              551                1            1.842            1,015                0
    Periodic Statements in Bankruptcy..............................              193                1           30.935            5,971                0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.

List of Subjects

12 CFR Part 1024

    Condominiums, Consumer protection, Housing, Insurance, Mortgages, 
Mortgagees, Mortgage servicing, Reporting and recordkeeping 
requirements.

12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau amends 12 CFR 
parts 1024 and 1026 as follows:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

0
1. The authority citation for part 1024 continues to read as follows:

    Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532, 
5581.

Subpart B--Mortgage Settlement and Escrow Accounts

0
2. Section 1024.6 is amended by revising paragraphs (d)(1) and (2) to 
read as follows:


Sec.  1024.6  Special information booklet at time of loan application.

* * * * *
    (d) Permissible changes. (1) No changes to, deletions from, or 
additions to the special information booklet currently prescribed by 
the Bureau shall be made other than the permissible changes specified 
in paragraphs (d)(2) and (3) of this section or changes as otherwise 
approved in writing by the Bureau in accordance with the procedures 
described in this paragraph (d). A request to the Bureau for approval 
of any changes other than the permissible changes specified in 
paragraphs (d)(2) and (3) of this section shall be submitted in writing 
to the address indicated in the definition of Public Guidance Documents 
in Sec.  1024.2, stating the reasons why the applicant believes such 
changes, deletions, or additions are necessary.
    (2) The cover of the booklet may be in any form and may contain any 
drawings, pictures, or artwork, provided that the words ``settlement 
costs'' are used in the title. Names, addresses and telephone numbers 
of the lender or others and similar information may appear on the 
cover, but no discussion of the matters covered in the booklet shall 
appear on the cover.
* * * * *

0
3. Section 1024.9 is amended by revising paragraphs (a)(5) and (c) to 
read as follows:


Sec.  1024.9  Reproduction of settlement statements.

    (a) * * *
    (5) The following variations in layout and format are within the 
discretion of persons reproducing the HUD-1 and do not require prior 
Bureau approval: Size of pages; tint or color of pages; size and style 
of type or print; vertical spacing between lines or provision for 
additional horizontal space on lines (for example, to provide 
sufficient space for recording time periods used in prorations); 
printing of the HUD-1 contents on separate pages, on the front and back 
of a single page, or on one continuous page; use of multicopy tear-out 
sets; printing on rolls for computer purposes; reorganization of 
sections B through I, when necessary to accommodate computer printing; 
and manner of placement of the HUD number, but not the OMB approval 
number, neither of which may be deleted. The expiration date associated 
with the OMB number listed on the form may be deleted. Any changes in 
the HUD number or OMB approval number may be announced by notice in the 
Federal Register, rather than by amendment of this part.
* * * * *
    (c) Written approval. Any other deviation in the HUD-1 or HUD-1A 
forms is permissible only upon receipt of written approval of the 
Bureau; provided, however, that notwithstanding contrary instructions 
in this section or appendix A of this part, reproducing the HUD-1 or 
HUD-1A forms with the Bureau's OMB approval number displayed in place 
of HUD's OMB approval number does not require the written approval of 
the Bureau. A request to the Bureau for approval shall be submitted in 
writing to the address indicated in the definition of Public Guidance 
Documents in Sec.  1024.2 and shall state the reasons why the applicant 
believes such deviation is needed. The prescribed form(s) must be used 
until approval is received.

0
4. Section 1024.17 is amended by revising paragraph (h)(1) to read as 
follows:


Sec.  1024.17  Escrow accounts.

* * * * *
    (h) Format for initial escrow account statement. (1) The format and 
a completed example for an initial escrow account statement are set out 
in Public Guidance Documents entitled ``Initial Escrow Account 
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure 
Statement--Example,'' available in accordance with the direction in the 
definition of Public Guidance Documents in Sec.  1024.2.
* * * * *

Subpart C--Mortgage Servicing

0
5. Effective April 19, 2018, Sec.  1024.30 is amended by adding 
paragraph (d) to read as follows:


Sec.  1024.30   Scope.

* * * * *
    (d) Successors in interest. A confirmed successor in interest shall 
be considered a borrower for purposes of Sec.  1024.17 and this 
subpart.

0
6. Section 1024.31 is amended by:
0
a. Adding a definition of Delinquency in alphabetical order; and
0
b. Effective April 19, 2018, adding definitions of Confirmed successor 
in interest and Successor in interest in alphabetical order.
    The additions read as follows:


Sec.  1024.31  Definitions.

* * * * *
    Confirmed successor in interest means a successor in interest once 
a servicer has confirmed the successor in interest's identity and 
ownership interest in a

[[Page 72371]]

property that secures a mortgage loan subject to this subpart.
* * * * *
    Delinquency means a period of time during which a borrower and a 
borrower's mortgage loan obligation are delinquent. A borrower and a 
borrower's mortgage loan obligation are delinquent beginning on the 
date a periodic payment sufficient to cover principal, interest, and, 
if applicable, escrow becomes due and unpaid, until such time as no 
periodic payment is due and unpaid.
* * * * *
    Successor in interest means a person to whom an ownership interest 
in a property securing a mortgage loan subject to this subpart is 
transferred from a borrower, provided that the transfer is:
    (1) A transfer by devise, descent, or operation of law on the death 
of a joint tenant or tenant by the entirety;
    (2) A transfer to a relative resulting from the death of a 
borrower;
    (3) A transfer where the spouse or children of the borrower become 
an owner of the property;
    (4) A transfer resulting from a decree of a dissolution of 
marriage, legal separation agreement, or from an incidental property 
settlement agreement, by which the spouse of the borrower becomes an 
owner of the property; or
    (5) A transfer into an inter vivos trust in which the borrower is 
and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property.
* * * * *

0
7. Effective April 19, 2018, Sec.  1024.32 is amended by adding 
paragraph (c) to read as follows:


Sec.  1024.32  General disclosure requirements.

* * * * *
    (c) Successors in interest--(1) Optional notice with acknowledgment 
form. Upon confirmation, a servicer may provide a confirmed successor 
in interest who is not liable on the mortgage loan obligation with a 
written notice together with a separate acknowledgment form that meets 
the requirements of paragraph (c)(1)(iv) of this section and that does 
not require acknowledgment of any items other than those identified in 
paragraph (c)(1)(iv) of this section. The written notice must clearly 
and conspicuously explain that:
    (i) The servicer has confirmed the successor in interest's identity 
and ownership interest in the property;
    (ii) Unless the successor in interest assumes the mortgage loan 
obligation under State law, the successor in interest is not liable for 
the mortgage debt and cannot be required to use the successor in 
interest's assets to pay the mortgage debt, except that the lender has 
a security interest in the property and a right to foreclose on the 
property, when permitted by law and authorized under the mortgage loan 
contract;
    (iii) The successor in interest may be entitled to receive certain 
notices and communications about the mortgage loan if the servicer is 
not providing them to another confirmed successor in interest or 
borrower on the account;
    (iv) In order to receive such notices and communications, the 
successor in interest must execute and provide to the servicer an 
acknowledgment form that:
    (A) Requests receipt of such notices and communications if the 
servicer is not providing them to another confirmed successor in 
interest or borrower on the account; and
    (B) Indicates that the successor in interest understands that such 
notices do not make the successor in interest liable for the mortgage 
debt and that the successor in interest is only liable for the mortgage 
debt if the successor in interest assumes the mortgage loan obligation 
under State law; and
    (C) Informs the successor in interest that there is no time limit 
to return the acknowledgment but that the servicer will not begin 
sending such notices and communications to the confirmed successor in 
interest until the acknowledgment is returned; and
    (v) Whether or not the successor in interest executes the 
acknowledgment described in paragraph (c)(1)(iv) of this section, the 
successor in interest is entitled to submit notices of error under 
Sec.  1024.35, requests for information under Sec.  1024.36, and 
requests for a payoff statement under Sec.  1026.36 with respect to the 
mortgage loan account, with a brief explanation of those rights and how 
to exercise them, including appropriate address information.
    (2) Effect of failure to execute acknowledgment. If, upon 
confirmation, a servicer provides a confirmed successor in interest who 
is not liable on the mortgage loan obligation with a written notice and 
acknowledgment form in accordance with paragraph (c)(1) of this 
section, the servicer is not required to provide to the confirmed 
successor in interest any written disclosure required by Sec.  1024.17, 
Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, or Sec.  1024.39 or to 
comply with the live contact requirements in Sec.  1024.39(a) with 
respect to the confirmed successor in interest until the confirmed 
successor in interest either assumes the mortgage loan obligation under 
State law or executes an acknowledgment that complies with paragraph 
(c)(1)(iv) of this section and provides it to the servicer.
    (3) Additional copies of acknowledgment form. If a servicer 
provides a confirmed successor in interest with a written notice and 
acknowledgment form in accordance with paragraph (c)(1) of this 
section, the servicer must make additional copies of the written notice 
and acknowledgment form available to the confirmed successor in 
interest upon written or oral request.
    (4) Multiple notices unnecessary. Except as required by Sec.  
1024.36, a servicer is not required to provide to a confirmed successor 
in interest any written disclosure required by Sec.  1024.17, Sec.  
1024.33, Sec.  1024.34, Sec.  1024.37, or Sec.  1024.39(b) if the 
servicer is providing the same specific disclosure to another borrower 
on the account. A servicer is also not required to comply with the live 
contact requirements set forth in Sec.  1024.39(a) with respect to a 
confirmed successor in interest if the servicer is complying with those 
requirements with respect to another borrower on the account.

0
8. Effective April 19, 2018, Sec.  1024.35 is amended by adding 
paragraph (e)(5) to read as follows:


Sec.  1024.35  Error resolution procedures.

* * * * *
    (e) * * *
    (5) Omissions in responses to requests for documentation. In its 
response to a request for documentation under paragraph (e)(4) of this 
section, a servicer may omit location and contact information and 
personal financial information (other than information about the terms, 
status, and payment history of the mortgage loan) if:
    (i) The information pertains to a potential or confirmed successor 
in interest who is not the requester; or
    (ii) The requester is a confirmed successor in interest and the 
information pertains to any borrower who is not the requester.
* * * * *

0
9. Effective April 19, 2018, Sec.  1024.36 is amended by adding 
paragraphs (d)(3) and (i) to read as follows:


Sec.  1024.36  Requests for information.

* * * * *
    (d) * * *
    (3) Omissions in responses to requests. In its response to a 
request for information, a servicer may omit location and contact 
information and personal financial information (other than information 
about the terms, status,

[[Page 72372]]

and payment history of the mortgage loan) if:
    (i) The information pertains to a potential or confirmed successor 
in interest who is not the requester; or
    (ii) The requester is a confirmed successor and the information 
pertains to any borrower who is not the requester.
* * * * *
    (i) Potential successors in interest. (1) With respect to any 
written request from a person that indicates that the person may be a 
successor in interest and that includes the name of the transferor 
borrower from whom the person received an ownership interest and 
information that enables the servicer to identify the mortgage loan 
account, a servicer shall respond by providing the potential successor 
in interest with a written description of the documents the servicer 
reasonably requires to confirm the person's identity and ownership 
interest in the property and contact information, including a telephone 
number, for further assistance. With respect to the written request, a 
servicer shall treat the potential successor in interest as a borrower 
for purposes of the requirements of paragraphs (c) through (g) of this 
section.
    (2) If a written request under paragraph (i)(1) of this section 
does not provide sufficient information to enable the servicer to 
identify the documents the servicer reasonably requires to confirm the 
person's identity and ownership interest in the property, the servicer 
may provide a response that includes examples of documents typically 
accepted to establish identity and ownership interest in a property; 
indicates that the person may obtain a more individualized description 
of required documents by providing additional information; specifies 
what additional information is required to enable the servicer to 
identify the required documents; and provides contact information, 
including a telephone number, for further assistance. A servicer's 
response under this paragraph (i)(2) must otherwise comply with the 
requirements of paragraph (i)(1). Notwithstanding paragraph (f)(1)(i) 
of this section, if a potential successor in interest subsequently 
provides orally or in writing the required information specified by the 
servicer pursuant to this paragraph (i)(2), the servicer must treat the 
new information, together with the original request, as a new, non-
duplicative request under paragraph (i)(1), received as of the date the 
required information was received, and must respond accordingly.
    (3) In responding to a request under paragraph (i)(1) of this 
section prior to confirmation, the servicer is not required to provide 
any information other than the information specified in paragraphs 
(i)(1) and (2) of this section. In responding to a written request 
under paragraph (i)(1) that requests other information, the servicer 
must indicate that the potential successor in interest may resubmit any 
request for information once confirmed as a successor in interest.
    (4) If a servicer has established an address that a borrower must 
use to request information pursuant to paragraph (b) of this section, a 
servicer must comply with the requirements of paragraph (i)(1) of this 
section only for requests received at the established address.

0
10. Section 1024.37 is amended by revising paragraphs (c)(2)(v), 
(c)(4), (d)(2)(ii) introductory text, (d)(2)(ii)(B), (d)(3), (d)(4), 
and (e)(4) to read as follows:


Sec.  1024.37  Force-placed insurance.

* * * * *
    (c) * * *
    (2) * * *
    (v) A statement that:
    (A) The borrower's hazard insurance is expiring, has expired, or 
provides insufficient coverage, as applicable;
    (B) The servicer does not have evidence that the borrower has 
hazard insurance coverage past the expiration date or evidence that the 
borrower has hazard insurance that provides sufficient coverage, as 
applicable; and
    (C) If applicable, identifies the type of hazard insurance for 
which the servicer lacks evidence of coverage;
* * * * *
    (4) Additional information. Except for the mortgage loan account 
number, a servicer may not include any information other than 
information required by paragraph (c)(2) of this section in the written 
notice required by paragraph (c)(1)(i) of this section. However, a 
servicer may provide such additional information to a borrower on 
separate pieces of paper in the same transmittal.
    (d) * * *
    (2) * * *
    (ii) Servicer lacking evidence of continuous coverage. A servicer 
that has received hazard insurance information after delivering to a 
borrower or placing in the mail the notice required by paragraph 
(c)(1)(i) of this section, but has not received, from the borrower or 
otherwise, evidence demonstrating that the borrower has had sufficient 
hazard insurance coverage in place continuously, must set forth in the 
notice required by paragraph (c)(1)(ii) of this section the following 
information:
* * * * *
    (B) The information required by paragraphs (c)(2)(ii) through (iv) 
and (ix) through (xi) and (d)(2)(i)(B) and (D) of this section;
* * * * *
    (3) Format. A servicer must set the information required by 
paragraphs (d)(2)(i)(B) and (D) of this section in bold text. The 
requirements of paragraph (c)(3) of this section apply to the 
information required by paragraph (d)(2)(i)(C) of this section. A 
servicer may use form MS-3B in appendix MS-3 of this part to comply 
with the requirements of paragraphs (d)(1) and (d)(2)(i) of this 
section. A servicer may use form MS-3C in appendix MS-3 of this part to 
comply with the requirements of paragraphs (d)(1) and (d)(2)(ii) of 
this section.
    (4) Additional information. Except for the borrower's mortgage loan 
account number, a servicer may not include any information other than 
information required by paragraph (d)(2)(i) or (ii) of this section, as 
applicable, in the written notice required by paragraph (c)(1)(ii) of 
this section. However, a servicer may provide such additional 
information to a borrower on separate pieces of paper in the same 
transmittal.
* * * * *
    (e) * * *
    (4) Additional information. Except for the borrower's mortgage loan 
account number, a servicer may not include any information other than 
information required by paragraph (e)(2) of this section in the written 
notice required by paragraph (e)(1) of this section. However, a 
servicer may provide such additional information to a borrower on 
separate pieces of paper in the same transmittal.
* * * * *

0
11. Section 1024.38 is amended by:
0
a. Adding paragraph (b)(2)(vi); and
0
b. Effective April 19, 2018, revising paragraph (b)(1)(vi).
    The addition and revision read as follows:


Sec.  1024.38  General servicing policies, procedures, and 
requirements.

* * * * *
    (b) * * *
    (1) * * *
    (vi)(A) Upon receiving notice of the death of a borrower or of any 
transfer of the property securing a mortgage loan, promptly facilitate 
communication with any potential or confirmed successors in interest 
regarding the property;

[[Page 72373]]

    (B) Upon receiving notice of the existence of a potential successor 
in interest, promptly determine the documents the servicer reasonably 
requires to confirm that person's identity and ownership interest in 
the property and promptly provide to the potential successor in 
interest a description of those documents and how the person may submit 
a written request under Sec.  1024.36(i) (including the appropriate 
address); and
    (C) Upon the receipt of such documents, promptly make a 
confirmation determination and promptly notify the person, as 
applicable, that the servicer has confirmed the person's status, has 
determined that additional documents are required (and what those 
documents are), or has determined that the person is not a successor in 
interest.
* * * * *
    (2) * * *
    (vi) Promptly identify and obtain documents or information not in 
the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, to offer the borrower in accordance 
with the requirements of Sec.  1024.41(c)(4).
* * * * *

0
12. Section 1024.39 is amended by revising paragraphs (a), (b)(1), (c), 
and (d) to read as follows:


Sec.  1024.39  Early intervention requirements for certain borrowers.

    (a) Live contact. Except as otherwise provided in this section, a 
servicer shall establish or make good faith efforts to establish live 
contact with a delinquent borrower no later than the 36th day of a 
borrower's delinquency and again no later than 36 days after each 
payment due date so long as the borrower remains delinquent. Promptly 
after establishing live contact with a borrower, the servicer shall 
inform the borrower about the availability of loss mitigation options, 
if appropriate.
    (b) Written notice--(1) Notice required. Except as otherwise 
provided in this section, a servicer shall provide to a delinquent 
borrower a written notice with the information set forth in paragraph 
(b)(2) of this section no later than the 45th day of the borrower's 
delinquency and again no later than 45 days after each payment due date 
so long as the borrower remains delinquent. A servicer is not required 
to provide the written notice, however, more than once during any 180-
day period. If a borrower is 45 days or more delinquent at the end of 
any 180-day period after the servicer has provided the written notice, 
a servicer must provide the written notice again no later than 180 days 
after the provision of the prior written notice. If a borrower is less 
than 45 days delinquent at the end of any 180-day period after the 
servicer has provided the written notice, a servicer must provide the 
written notice again no later than 45 days after the payment due date 
for which the borrower remains delinquent.
* * * * *
    (c) Borrowers in bankruptcy--(1) Partial exemption. While any 
borrower on a mortgage loan is a debtor in bankruptcy under title 11 of 
the United States Code, a servicer, with regard to that mortgage loan:
    (i) Is exempt from the requirements of paragraph (a) of this 
section;
    (ii) Is exempt from the requirements of paragraph (b) of this 
section if no loss mitigation option is available, or if any borrower 
on the mortgage loan has provided a notification pursuant to the Fair 
Debt Collection Practices Act (FDCPA) section 805(c) (15 U.S.C. 
1692c(c)) with respect to that mortgage loan as referenced in paragraph 
(d) of this section; and
    (iii) If the conditions of paragraph (c)(1)(ii) of this section are 
not met, must comply with the requirements of paragraph (b) of this 
section, as modified by this paragraph (c)(1)(iii):
    (A) If a borrower is delinquent when the borrower becomes a debtor 
in bankruptcy, a servicer must provide the written notice required by 
paragraph (b) of this section not later than the 45th day after the 
borrower files a bankruptcy petition under title 11 of the United 
States Code. If the borrower is not delinquent when the borrower files 
a bankruptcy petition, but subsequently becomes delinquent while a 
debtor in bankruptcy, the servicer must provide the written notice not 
later than the 45th day of the borrower's delinquency. A servicer must 
comply with these timing requirements regardless of whether the 
servicer provided the written notice in the preceding 180-day period.
    (B) The written notice required by paragraph (b) of this section 
may not contain a request for payment.
    (C) A servicer is not required to provide the written notice 
required by paragraph (b) of this section more than once during a 
single bankruptcy case.
    (2) Resuming compliance. (i) Except as provided in paragraph 
(c)(2)(ii) of this section, a servicer that was exempt from paragraphs 
(a) and (b) of this section pursuant to paragraph (c)(1) of this 
section must resume compliance with paragraphs (a) and (b) of this 
section after the next payment due date that follows the earliest of 
the following events:
    (A) The bankruptcy case is dismissed;
    (B) The bankruptcy case is closed; and
    (C) The borrower reaffirms personal liability for the mortgage 
loan.
    (ii) With respect to a mortgage loan for which the borrower has 
discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 
1328, a servicer:
    (A) Is not required to resume compliance with paragraph (a) of this 
section; and
    (B) Must resume compliance with paragraph (b) of this section if 
the borrower has made any partial or periodic payment on the mortgage 
loan after the commencement of the borrower's bankruptcy case.
    (d) Fair Debt Collection Practices Act--partial exemption. With 
regard to a mortgage loan for which any borrower has provided a 
notification pursuant to the Fair Debt Collection Practices Act (FDCPA) 
section 805(c) (15 U.S.C. 1692c(c)), a servicer subject to the FDCPA 
with respect to that borrower's loan:
    (1) Is exempt from the requirements of paragraph (a) of this 
section;
    (2) Is exempt from the requirements of paragraph (b) of this 
section if no loss mitigation option is available, or while any 
borrower on that mortgage loan is a debtor in bankruptcy under title 11 
of the United States Code as referenced in paragraph (c) of this 
section; and
    (3) If the conditions of paragraph (d)(2) of this section are not 
met, must comply with the requirements of paragraph (b) of this 
section, as modified by this paragraph (d)(3):
    (i) In addition to the information required pursuant to paragraph 
(b)(2) of this section, the written notice must include a statement 
that the servicer may or intends to invoke its specified remedy of 
foreclosure. Model clause MS-4(D) in appendix MS-4 to this part may be 
used to comply with this requirement.
    (ii) The written notice may not contain a request for payment.
    (iii) A servicer is prohibited from providing the written notice 
more than once during any 180-day period.

0
13. Section 1024.41 is amended by:
0
a. Revising paragraphs (c)(1) introductory text and (c)(2)(iii) and 
(iv);
0
b. Adding paragraphs (c)(3) and (4);
0
c. Revising paragraphs (f)(1)(iii) and (i); and
0
d. Adding paragraph (k).
    The revisions and additions read as follows:


Sec.  1024.41  Loss mitigation procedures.

* * * * *
    (c) * * *
    (1) Complete loss mitigation application. Except as provided in

[[Page 72374]]

paragraph (c)(4)(ii) of this section, if a servicer receives a complete 
loss mitigation application more than 37 days before a foreclosure 
sale, then, within 30 days of receiving the complete loss mitigation 
application, a servicer shall:
* * * * *
    (2) * * *
    (iii) Short-term loss mitigation options. Notwithstanding paragraph 
(c)(2)(i) of this section, a servicer may offer a short-term payment 
forbearance program or a short-term repayment plan to a borrower based 
upon an evaluation of an incomplete loss mitigation application. 
Promptly after offering a payment forbearance program or a repayment 
plan under this paragraph (c)(2)(iii), unless the borrower has rejected 
the offer, the servicer must provide the borrower a written notice 
stating the specific payment terms and duration of the program or plan, 
that the servicer offered the program or plan based on an evaluation of 
an incomplete application, that other loss mitigation options may be 
available, and that the borrower has the option to submit a complete 
loss mitigation application to receive an evaluation for all loss 
mitigation options available to the borrower regardless of whether the 
borrower accepts the program or plan. A servicer shall not make the 
first notice or filing required by applicable law for any judicial or 
non-judicial foreclosure process, and shall not move for foreclosure 
judgment or order of sale or conduct a foreclosure sale, if a borrower 
is performing pursuant to the terms of a payment forbearance program or 
repayment plan offered pursuant to this paragraph (c)(2)(iii). A 
servicer may offer a short-term payment forbearance program in 
conjunction with a short-term repayment plan pursuant to this paragraph 
(c)(2)(iii).
    (iv) Facially complete application. A loss mitigation application 
shall be considered facially complete when a borrower submits all the 
missing documents and information as stated in the notice required 
under paragraph (b)(2)(i)(B) of this section, when no additional 
information is requested in such notice, or once the servicer is 
required to provide the borrower a written notice pursuant to paragraph 
(c)(3)(i) of this section. If the servicer later discovers that 
additional information or corrections to a previously submitted 
document are required to complete the application, the servicer must 
promptly request the missing information or corrected documents and 
treat the application as complete for the purposes of paragraphs (f)(2) 
and (g) of this section until the borrower is given a reasonable 
opportunity to complete the application. If the borrower completes the 
application within this period, the application shall be considered 
complete as of the date it first became facially complete, for the 
purposes of paragraphs (d), (e), (f)(2), (g), and (h) of this section, 
and as of the date the application was actually complete for the 
purposes of this paragraph (c). A servicer that complies with this 
paragraph (c)(2)(iv) will be deemed to have fulfilled its obligation to 
provide an accurate notice under paragraph (b)(2)(i)(B) of this 
section.
    (3) Notice of complete application. (i) Except as provided in 
paragraph (c)(3)(ii) of this section, within 5 days (excluding legal 
public holidays, Saturdays, and Sundays) after receiving a borrower's 
complete loss mitigation application, a servicer shall provide the 
borrower a written notice that sets forth the following information:
    (A) That the loss mitigation application is complete;
    (B) The date the servicer received the complete application;
    (C) That the servicer expects to complete its evaluation within 30 
days of the date it received the complete application;
    (D) That the borrower is entitled to certain foreclosure 
protections because the servicer has received the complete application, 
and, as applicable, either:
    (1) If the servicer has not made the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process, that the servicer cannot make the first notice or filing 
required to commence or initiate the foreclosure process under 
applicable law before evaluating the borrower's complete application; 
or
    (2) If the servicer has made the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process, 
that the servicer has begun the foreclosure process, and that the 
servicer cannot conduct a foreclosure sale before evaluating the 
borrower's complete application;
    (E) That the servicer may need additional information at a later 
date to evaluate the application, in which case the servicer will 
request that information from the borrower and give the borrower a 
reasonable opportunity to submit it, the evaluation process may take 
longer, and the foreclosure protections could end if the servicer does 
not receive the information as requested; and
    (F) That the borrower may be entitled to additional protections 
under State or Federal law.
    (ii) A servicer is not required to provide a notice pursuant to 
paragraph (c)(3)(i) of this section if:
    (A) The servicer has already provided the borrower a notice under 
paragraph (b)(2)(i)(B) of this section informing the borrower that the 
application is complete and the servicer has not subsequently requested 
additional information or a corrected version of a previously submitted 
document from the borrower pursuant to paragraph (c)(2)(iv) of this 
section;
    (B) The application was not complete or facially complete more than 
37 days before a foreclosure sale; or
    (C) The servicer has already provided the borrower a notice 
regarding the application under paragraph (c)(1)(ii) of this section.
    (4) Information not in the borrower's control--(i) Reasonable 
diligence. If a servicer requires documents or information not in the 
borrower's control to determine which loss mitigation options, if any, 
it will offer to the borrower, the servicer must exercise reasonable 
diligence in obtaining such documents or information.
    (ii) Effect in case of delay. (A)(1) Except as provided in 
paragraph (c)(4)(ii)(A)(2) of this section, a servicer must not deny a 
complete loss mitigation application solely because the servicer lacks 
required documents or information not in the borrower's control.
    (2) If a servicer has exercised reasonable diligence to obtain 
required documents or information from a party other than the borrower 
or the servicer, but the servicer has been unable to obtain such 
documents or information for a significant period of time following the 
30-day period identified in paragraph (c)(1) of this section, and the 
servicer, in accordance with applicable requirements established by the 
owner or assignee of the borrower's mortgage loan, is unable to 
determine which loss mitigation options, if any, it will offer the 
borrower without such documents or information, the servicer may deny 
the application and provide the borrower with a written notice in 
accordance with paragraph (c)(1)(ii) of this section. When providing 
the written notice in accordance with paragraph (c)(1)(ii) of this 
section, the servicer must also provide the borrower with a copy of the 
written notice required by paragraph (c)(4)(ii)(B) of this section.
    (B) If a servicer is unable to make a determination within the 30-
day period identified in paragraph (c)(1) of this section as to which 
loss mitigation options, if any, it will offer to the borrower because 
the servicer lacks required documents or information from

[[Page 72375]]

a party other than the borrower or the servicer, the servicer must, 
within such 30-day period or promptly thereafter, provide the borrower 
a written notice, informing the borrower:
    (1) That the servicer has not received documents or information not 
in the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, it will offer to the borrower on 
behalf of the owner or assignee of the mortgage;
    (2) Of the specific documents or information that the servicer 
lacks;
    (3) That the servicer has requested such documents or information; 
and
    (4) That the servicer will complete its evaluation of the borrower 
for all available loss mitigation options promptly upon receiving the 
documents or information.
    (C) If a servicer must provide a notice required by paragraph 
(c)(4)(ii)(B) of this section, the servicer must not provide the 
borrower a written notice pursuant to paragraph (c)(1)(ii) of this 
section until the servicer receives the required documents or 
information referenced in paragraph (c)(4)(ii)(B)(2) of this section, 
except as provided in paragraph (c)(4)(ii)(A)(2) of this section. Upon 
receiving such required documents or information, the servicer must 
promptly provide the borrower with the written notice pursuant to 
paragraph (c)(1)(ii) of this section.
* * * * *
    (f) * * *
    (1) * * *
    (iii) The servicer is joining the foreclosure action of a superior 
or subordinate lienholder.
* * * * *
    (i) Duplicative requests. A servicer must comply with the 
requirements of this section for a borrower's loss mitigation 
application, unless the servicer has previously complied with the 
requirements of this section for a complete loss mitigation application 
submitted by the borrower and the borrower has been delinquent at all 
times since submitting the prior complete application.
* * * * *
    (k) Servicing transfers--(1) In general--(i) Timing of compliance. 
Except as provided in paragraphs (k)(2) through (4) of this section, if 
a transferee servicer acquires the servicing of a mortgage loan for 
which a loss mitigation application is pending as of the transfer date, 
the transferee servicer must comply with the requirements of this 
section for that loss mitigation application within the timeframes that 
were applicable to the transferor servicer based on the date the 
transferor servicer received the loss mitigation application. All 
rights and protections under paragraphs (c) through (h) of this section 
to which a borrower was entitled before a transfer continue to apply 
notwithstanding the transfer.
    (ii) Transfer date defined. For purposes of this paragraph (k), the 
transfer date is the date on which the transferee servicer will begin 
accepting payments relating to the mortgage loan, as disclosed on the 
notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv).
    (2) Acknowledgment notices--(i) Transferee servicer timeframes. If 
a transferee servicer acquires the servicing of a mortgage loan for 
which the period to provide the notice required by paragraph 
(b)(2)(i)(B) of this section has not expired as of the transfer date 
and the transferor servicer has not provided such notice, the 
transferee servicer must provide the notice within 10 days (excluding 
legal public holidays, Saturdays, and Sundays) of the transfer date.
    (ii) Prohibitions. A transferee servicer that must provide the 
notice required by paragraph (b)(2)(i)(B) of this section under this 
paragraph (k)(2):
    (A) Shall not make the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process 
until a date that is after the reasonable date disclosed to the 
borrower pursuant to paragraph (b)(2)(ii) of this section, 
notwithstanding paragraph (f)(1) of this section. For purposes of 
paragraph (f)(2) of this section, a borrower who submits a complete 
loss mitigation application on or before the reasonable date disclosed 
to the borrower pursuant to paragraph (b)(2)(ii) of this section shall 
be treated as having done so during the pre-foreclosure review period 
set forth in paragraph (f)(1) of this section.
    (B) Shall comply with paragraphs (c), (d), and (g) of this section 
if the borrower submits a complete loss mitigation application to the 
transferee or transferor servicer 37 or fewer days before the 
foreclosure sale but on or before the reasonable date disclosed to the 
borrower pursuant to paragraph (b)(2)(ii) of this section.
    (3) Complete loss mitigation applications pending at transfer. If a 
transferee servicer acquires the servicing of a mortgage loan for which 
a complete loss mitigation application is pending as of the transfer 
date, the transferee servicer must comply with the applicable 
requirements of paragraphs (c)(1) and (4) of this section within 30 
days of the transfer date.
    (4) Applications subject to appeal process. If a transferee 
servicer acquires the servicing of a mortgage loan for which an appeal 
of a transferor servicer's determination pursuant to paragraph (h) of 
this section has not been resolved by the transferor servicer as of the 
transfer date or is timely filed after the transfer date, the 
transferee servicer must make a determination on the appeal if it is 
able to do so or, if it is unable to do so, must treat the appeal as a 
pending complete loss mitigation application.
    (i) Determining appeal. If a transferee servicer is required under 
this paragraph (k)(4) to make a determination on an appeal, the 
transferee servicer must complete the determination and provide the 
notice required by paragraph (h)(4) of this section within 30 days of 
the transfer date or 30 days of the date the borrower made the appeal, 
whichever is later.
    (ii) Servicer unable to determine appeal. A transferee servicer 
that is required to treat a borrower's appeal as a pending complete 
loss mitigation application under this paragraph (k)(4) must comply 
with the requirements of this section for such application, including 
evaluating the borrower for all loss mitigation options available to 
the borrower from the transferee servicer. For purposes of paragraph 
(c) or (k)(3) of this section, as applicable, such a pending complete 
loss mitigation application shall be considered complete as of the date 
the appeal was received by the transferor servicer or the transferee 
servicer, whichever occurs first. For purposes of paragraphs (e) 
through (h) of this section, the transferee servicer must treat such a 
pending complete loss mitigation application as facially complete under 
paragraph (c)(2)(iv) as of the date it was first facially complete or 
complete, as applicable, with respect to the transferor servicer.
    (5) Pending loss mitigation offers. A transfer does not affect a 
borrower's ability to accept or reject a loss mitigation option offered 
under paragraph (c) or (h) of this section. If a transferee servicer 
acquires the servicing of a mortgage loan for which the borrower's time 
period under paragraph (e) or (h) of this section for accepting or 
rejecting a loss mitigation option offered by the transferor servicer 
has not expired as of the transfer date, the transferee servicer must 
allow the borrower to accept or reject the offer during the unexpired 
balance of the applicable time period.

0
14. Revise the heading for appendix MS--Mortgage Servicing to read as 
follows:

[[Page 72376]]

Appendix MS to Part 1024--Mortgage Servicing

* * * * *

0
15. Revise appendix MS-3 to part 1024 to read as follows:

Appendix MS-3 to Part 1024

Model Force-Placed Insurance Notice Forms

Table of Contents

MS-3(A)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(c)(2)
MS-3(B)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(d)(2)(i)
MS-3(C)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(d)(2)(ii)
MS-3(D)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(e)(2)

MS-3(A)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(c)(2)

[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please provide insurance information for [Property Address]
Dear [Borrower's Name]:

    Our records show that your [hazard] [Insurance Type] insurance 
[is expiring] [expired] [provides insufficient coverage], and we do 
not have evidence that you have obtained new coverage. Because 
[hazard] [Insurance Type] insurance is required on your property, 
[we bought insurance for your property] [we plan to buy insurance 
for your property]. You must pay us for any period during which the 
insurance we buy is in effect but you do not have insurance.
    You should immediately provide us with your insurance 
information. [Describe the insurance information the borrower must 
provide]. [The information must be provided in writing.]
    The insurance we [bought] [buy]:
     May be significantly more expensive than the 
insurance you can buy yourself.
     May not provide as much coverage as an 
insurance policy you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(B)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(d)(2)(i)

[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice--please provide insurance 
information for [Property Address]
Dear [Borrower's Name]:

    This is your second and final notice that our records show that 
your [hazard] [Insurance Type] insurance [is expiring] [expired] 
[provides insufficient coverage], and we do not have evidence that 
you have obtained new coverage. Because [hazard] [Insurance Type] 
insurance is required on your property, [we bought insurance for 
your property] [we plan to buy insurance for your property]. You 
must pay us for any period during which the insurance we buy is in 
effect but you do not have insurance.
    You should immediately provide us with your insurance 
information. [Describe the insurance information the borrower must 
provide]. [The information must be provided in writing.]
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an 
estimated $[premium charge]] annually, which may be significantly 
more expensive than insurance you can buy yourself.
     May not provide as much coverage as an 
insurance policy you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(C)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(d)(2)(ii)

[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Second and final notice--please provide insurance 
information for [Property Address]
Dear [Borrower's Name]:

    We received the insurance information you provided, but we are 
unable to verify coverage from [Date Range].
    Please provide us with insurance information for [Date Range] 
immediately.
    We will charge you for insurance we [bought] [plan to buy] for 
[Date Range] unless we can verify that you have insurance coverage 
for [Date Range].
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an 
estimated $[premium charge]] annually, which may be significantly 
more expensive than insurance you can buy yourself.
     May not provide as much coverage as an 
insurance policy you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(D)--Model Form for Force-Placed Insurance Notice Containing 
Information Required by Sec.  1024.37(e)(2)

[Name and Mailing Address of Servicer]
[Date of Notice]
[Borrower's Name]
[Borrower's Mailing Address]
Subject: Please update insurance information for [Property Address]
Dear [Borrower's Name]:

    Because we did not have evidence that you had [hazard] 
[Insurance Type] insurance on the property listed above, we bought 
insurance on your property and added the cost to your mortgage loan 
account.
    The policy that we bought [expired] [is scheduled to expire]. 
Because [hazard][Insurance Type] insurance] is required on your 
property, we intend to maintain insurance on your property by 
renewing or replacing the insurance we bought.
    The insurance we buy:
     [Costs $[premium charge]] [Will cost an 
estimated $[premium charge]] annually, which may be significantly 
more expensive than insurance you can buy yourself.
     May not provide as much coverage as an 
insurance policy you buy yourself.
    If you buy [hazard] [Insurance Type] insurance, you should 
immediately provide us with your insurance information.
    [Describe the insurance information the borrower must provide]. 
[The information must be provided in writing.]
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

0
16. In appendix MS-4 to part 1024, MS-4(D) is added to read as follows:

Appendix MS-4 to Part 1024--Model Clauses for the Written Early 
Intervention Notice

* * * * *

MS-4(D)--Written Early Intervention Notice for Servicers Subject to 
FDCPA (Sec.  1024.39(d)(2)(iii))

    This is a legally required notice. We are sending this notice to 
you because you are behind on your mortgage payment. We want to 
notify you of possible ways to avoid losing your home. We have a 
right to invoke foreclosure based on the terms of your mortgage 
contact. Please read this letter carefully.


0
17. In supplement I to part 1024--Official Bureau Interpretations:
0
a. Under Sec.  1024.30--Scope, after the entry 30(b) Exemptions:
0
i. The heading Paragraph 30(c)(2) is added, and paragraph 1 under that 
heading is added.
0
ii. Effective April 19, 2018, the heading 30(d) Successors in interest 
is added, and paragraphs 1 through 3 under that heading are added.
0
b. Under Sec.  1024.31-Definitions:
0
i. The heading Delinquency is added, in alphabetical order, and 
paragraphs 1 through 4 under that heading are added.
0
ii. Effective April 19, 2018, the heading Successor in interest is 
added, in alphabetical order, and paragraphs 1 and 2 under that heading 
are added.
0
c. Effective April 19, 2018, after the entry for Sec.  1024.31--
Definitions, add the entry Sec.  1024.32--General Disclosure 
Requirements.
0
d. Under Sec.  1024.36--Requests for Information:
0
i. Under 36(a) Information request, paragraph 2 is revised.
0
ii. Effective April 19, 2018, after the entry for Paragraph 
36(f)(1)(iv), the

[[Page 72377]]

heading 36(i) Potential successors in interest is added, and paragraphs 
1 through 3 under that heading are added.
0
e. Under Sec.  1024.37--Force-Placed Insurance:
0
i. The heading 37(d)(4) Updating notice with borrower information is 
redesignated as 37(d)(5) Updating notice with borrower information.
0
ii. Under newly redesignated heading 37(d)(5) Updating notice with 
borrower information, paragraph 1 is revised.
0
f. The heading for Section 1024.38 is revised and under that heading:
0
i. Effective April 19, 2018, after the entry for Paragraph 
38(b)(1)(iv), the heading Paragraph 38(b)(1)(vi) is added, and 
paragraphs 1 through 5 under that heading are added.
0
ii. After the entry for Paragraph 38(b)(2)(v), the heading 38(b)(3) 
Facilitating oversight of, and compliance by, service providers, the 
heading Paragraph 38(b)(3)(iii), and paragraph 1 under that heading are 
added.
0
g. Under Sec.  1024.39--Early Intervention Requirements for Certain 
Borrowers:
0
i. Under 39(a) Live contact, paragraphs 1 introductory text, 1.i., and 
2 are revised; paragraphs 3 and 4 are redesignated as paragraphs 4 and 
5; a new paragraph 3 is added; newly redesignated paragraphs 4 and 5 
are revised; and paragraph 6 is added.
0
ii. Under 39(b)(1) Notice required, paragraphs 2 and 3 are revised and 
paragraph 5 is added.
0
iii. After the entry for Paragraph 39(b)(2)(iv), the heading 39(c) 
Borrowers in bankruptcy is added, and paragraphs 1 and 2 under that 
heading are added.
0
iv. Under 39(c) Borrowers in bankruptcy:
0
A. The heading 39(c)(1) Borrowers in bankruptcy--Partial exemption is 
added, and paragraph 1 under that heading is added.
0
B. The heading Paragraph 39(c)(1)(ii) is added, and paragraphs 1 and 2 
under that heading are added.
0
C. The heading Paragraph 39(c)(1)(iii) is added, and paragraph 1 under 
that heading is added.
0
D. The heading 39(c)(2) Resuming compliance is added, and paragraph 1 
under that heading is added.
0
v. The heading 39(d) Fair Debt Collection Practices Act--partial 
exemption is added, and paragraphs 1 and 2 under that heading are 
added.
0
vi. The heading 39(d)(1) Borrowers in bankruptcy is removed, and 
paragraphs 1 through 3 under that heading are removed.
0
vii. The heading Paragraph 39(d)(2) is added, and paragraph 1 under 
that heading is added.
0
h. Under Sec.  1024.40--Continuity of Contact, under 40(a) In general, 
paragraph 3 is revised.
0
i. Under Sec.  1024.41--Loss Mitigation Procedures:
0
i. Effective April 19, 2018, under 41(b) Receipt of a loss mitigation 
application, paragraph 1 is added.
0
ii. Under 41(b)(1) Complete loss mitigation application, paragraph 1 is 
revised, the introductory text to paragraph 4 is revised, and paragraph 
4.iii is revised.
0
iii. Under 41(b)(2)(i) Requirements, paragraph 1 is added.
0
iv. Under 41(b)(2)(ii) Time period disclosure, paragraph 1 is revised, 
and paragraphs 2 and 3 are added.
0
v. The heading for 41(c) is revised.
0
vi. Under 41(c)(1) Complete loss mitigation application, paragraph 4 is 
added.
0
vii. The heading for 41(c)(2)(iii) is revised, paragraphs 1 through 3 
under that heading are revised, and paragraphs 4 through 6 under that 
heading are added.
0
viii. After the entry for 41(c)(2)(iv) Facially complete application, 
the heading 41(c)(3) Notice of complete application is added.
0
ix. The heading Paragraph 41(c)(3)(i) is added, and paragraphs 1 
through 3 under that heading are added.
0
x. The heading 41(c)(4) Information not in the borrower's control is 
added.
0
xi. The heading 41(c)(4)(i) Diligence requirements is added, and 
paragraphs 1 and 2 under that heading are added.
0
xii. The heading 41(c)(4)(ii) Effect in case of delay is added, and 
paragraphs 1 and 2 under that heading are added.
0
xiii. Under 41(d) Denial of loan modification options, paragraph 
(c)(1)(4) is removed.
0
xiv. Under 41(g) Prohibition on foreclosure sale, paragraph 3 is 
revised, and paragraph 5 is added.
0
xv. Under 41(i) Duplicative requests, paragraphs 1 and 2 are revised.
0
xvi. The heading 41(k) Servicing transfers is added, and paragraph 1 
under that heading is added.
0
xvii. The heading 41(k)(1) In general is added.
0
xviii. The heading 41(k)(1)(i) Timing of compliance is added, and 
paragraphs 1 through 3 under that heading are added.
0
xix. The heading 41(k)(1)(ii) Transfer date defined is added, and 
paragraph 1 under that heading is added.
0
xx. The heading 41(k)(2) Acknowledgment notices is added.
0
xxi. The heading 41(k)(2)(ii) Prohibitions is added, and paragraphs 1 
through 3 under that heading are added.
0
xxii. The heading 41(k)(3) Complete loss mitigation applications 
pending at transfer is added, and paragraphs 1 and 2 under that heading 
are added.
0
xxiii. The heading 41(k)(4) Applications subject to appeal process is 
added, and paragraphs 1 and 2 under that heading are added.
0
xxiv. The heading 41(k)(5) Pending loss mitigation offers is added, and 
paragraph 1 under that heading is added.
0
j. The heading for Appendix MS is revised.
0
k. Effective April 19, 2018, under the heading for Appendix MS, 
paragraph 2 is revised.
    The revisions and additions read as follows:

Supplement I to Part 1024--Official Bureau Interpretations

* * * * *

Subpart C--Mortgage Servicing


Sec.  1024.30  Scope.

* * * * *
    Paragraph 30(c)(2).
    1. Principal residence. If a property ceases to be a borrower's 
principal residence, the procedures set forth in Sec. Sec.  1024.39 
through 1024.41 do not apply to a mortgage loan secured by that 
property. Determination of principal residence status will depend on 
the specific facts and circumstances regarding the property and 
applicable State law. For example, a vacant property may still be a 
borrower's principal residence.
    30(d) Successors in interest.
    1. Treatment of confirmed successors in interest. Under Sec.  
1024.30(d), a confirmed successor in interest must be considered a 
borrower for purposes of this subpart and Sec.  1024.17, regardless of 
whether the successor in interest assumes the mortgage loan obligation 
under State law. For example, if a servicer receives a loss mitigation 
application from a confirmed successor in interest, the servicer must 
review and evaluate the application and notify the confirmed successor 
in interest in accordance with the procedures set forth in Sec.  
1024.41 if the property is the confirmed successor in interest's 
principal residence and the procedures set forth in Sec.  1024.41 are 
otherwise applicable. Treatment of a confirmed successor in interest as 
a borrower for purposes of this subpart and Sec.  1024.17 does not 
affect whether the confirmed successor in interest is subject to the 
contractual obligations of the mortgage loan agreement, which is 
determined by applicable State law. Communications in compliance with 
this part to a confirmed successor in interest as defined in Sec.  
1024.31 do not violate

[[Page 72378]]

section 805(b) of the Fair Debt Collection Practices Act (FDCPA) 
because consumer for purposes of FDCPA section 805 includes any person 
who meets the definition in this part of confirmed successor in 
interest.
    2. Assumption of the mortgage loan obligation. A servicer may not 
require a confirmed successor in interest to assume the mortgage loan 
obligation under State law to be considered a borrower for purposes of 
Sec.  1024.17 and this subpart. If a successor in interest assumes a 
mortgage loan obligation under State law or is otherwise liable on the 
mortgage loan obligation, the protections that the successor in 
interest enjoys under this part are not limited to the protections that 
apply under Sec.  1024.30(d) to a confirmed successor in interest.
    3. Treatment of transferor borrowers. Even after a servicer's 
confirmation of a successor in interest, the servicer is still required 
to comply with all applicable requirements of this subpart with respect 
to the transferor borrower.


Sec.  1024.31  Definitions.

    Delinquency.
    1. Length of delinquency. A borrower's delinquency begins on the 
date an amount sufficient to cover a periodic payment of principal, 
interest, and, if applicable, escrow becomes due and unpaid, and lasts 
until such time as no periodic payment 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.
    2. Application of funds. If a servicer applies payments to the 
oldest outstanding periodic payment, a payment by a delinquent borrower 
advances the date the borrower's delinquency began. For example, assume 
a borrower's mortgage loan obligation provides that a periodic payment 
sufficient to cover principal, interest, and escrow is due on the first 
of each month. The borrower fails to make a payment on January 1 or on 
any day in January, and on January 31 the borrower is 30 days 
delinquent. On February 3, the borrower makes a periodic payment. The 
servicer applies the payment it received on February 3 to the 
outstanding January payment. On February 4, the borrower is three days 
delinquent.
    3. Payment tolerance. For any given billing cycle for which a 
borrower's payment is less than the periodic payment due, if a servicer 
chooses not to treat a borrower as delinquent for purposes of any 
section of this subpart, that borrower is not delinquent as defined in 
Sec.  1024.31.
    4. Creditor's contract rights. This subpart does not prevent a 
creditor from exercising a right provided by a mortgage loan contract 
to accelerate payment for a breach of that contract. Failure to pay the 
amount due after the creditor accelerates the mortgage loan obligation 
in accordance with the mortgage loan contract would begin or continue 
delinquency.
* * * * *
    Successor in interest.
    1. Joint tenants and tenants by the entirety. If a borrower who has 
an ownership interest as a joint tenant or tenant by the entirety in a 
property securing a mortgage loan subject to this subpart dies, a 
surviving joint tenant or tenant by the entirety with a right of 
survivorship in the property is a successor in interest as defined in 
Sec.  1024.31.
    2. Beneficiaries of inter vivos trusts. In the event of a transfer 
into an inter vivos trust in which the borrower is and remains a 
beneficiary and which does not relate to a transfer of rights of 
occupancy in the property, the beneficiaries of the inter vivos trust 
rather than the inter vivos trust itself are considered to be the 
successors in interest for purposes of Sec.  1024.31. For example, 
assume Borrower A transfers her home into such an inter vivos trust for 
the benefit of her spouse and herself. As of the transfer date, 
Borrower A and her spouse would be considered successors in interest 
and, upon confirmation, would be borrowers for purposes of certain 
provisions of Regulation X. If the lender has not released Borrower A 
from the loan obligation, Borrower A would also remain a borrower more 
generally for purposes of Regulation X.


Sec.  1024.32  General Disclosure Requirements.

    32(c) Confirmed successors in interest.
    32(c)(1) Optional notice with acknowledgment form.
    1. A servicer may identify in the acknowledgment form examples of 
the types of notices and communications identified in Sec.  
1024.32(c)(1)(iii), such as periodic statements and mortgage servicing 
transfer notices. Any examples provided should be the types of notices 
or communications that would be available to a confirmed successor in 
interest if the confirmed successor in interest executed the 
acknowledgment and returned it to the servicer.
    32(c)(2) Effect of failure to execute acknowledgment.
    1. No time limit to return acknowledgment. A confirmed successor in 
interest may provide an executed acknowledgment that complies with 
Sec.  1024.32(c)(1)(iv) to the servicer at any time after confirmation.
    2. Effect of revocation of acknowledgment. If a confirmed successor 
in interest who is not liable on the mortgage loan obligation executes 
and then later revokes an acknowledgment pursuant to Sec.  
1024.32(c)(1)(iv), the servicer is not required to provide to the 
confirmed successor in interest any written disclosure required by 
Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, or Sec.  
1024.39 or to comply with the live contact requirements in Sec.  
1024.39(a) with respect to the confirmed successor in interest from the 
date the revocation is received until the confirmed successor in 
interest either assumes the mortgage loan obligation under State law or 
executes a new acknowledgment that complies with Sec.  
1024.32(c)(1)(iv) and provides it to the servicer.
    32(c)(4) Multiple notices unnecessary.
    1. Specific written disclosure. A servicer may rely on Sec.  
1024.32(c)(4) if the servicer provides a specific written disclosure 
required by Sec.  1024.17, Sec.  1024.33, Sec.  1024.34, Sec.  1024.37, 
or Sec.  1024.39(b) to another borrower. For example, a servicer is not 
required to provide a force-placed insurance notice required under 
Sec.  1024.37 to a confirmed successor in interest if the servicer is 
providing the same force-placed insurance notice to a transferor 
borrower or to another confirmed successor in interest.
* * * * *


Sec.  1024.36  Requests for Information.

    36(a) Information request.
* * * * *
    2. Owner or assignee of a mortgage loan. i. When a loan is not held 
in a trust for which an appointed trustee receives payments on behalf 
of the trust, a servicer complies with Sec.  1024.36(d) by responding 
to a request for information regarding the owner or assignee of a 
mortgage loan by identifying the person on whose behalf the servicer 
receives payments from the borrower. A servicer is not the owner or 
assignee for purposes of Sec.  1024.36(d) if the servicer holds title 
to the loan, or title is assigned to the servicer, solely for the 
administrative convenience of the servicer in servicing the mortgage 
loan obligation. The Government National Mortgage Association is not 
the owner or assignee for purposes of such requests for information 
solely as a result of its role as the guarantor of the security in 
which the loan serves as the collateral.

[[Page 72379]]

    ii. When the loan is held in a trust for which an appointed trustee 
receives payments on behalf of the trust, a servicer complies with 
Sec.  1024.36(d) by responding to a borrower's request for information 
regarding the owner, assignee, or trust of the mortgage loan with the 
following information, as applicable:
    A. For any request for information where the Federal National 
Mortgage Association or the Federal Home Loan Mortgage Corporation is 
not the owner of the loan or the trustee of the securitization trust in 
which the loan is held: The name of the trust, and the name, address, 
and appropriate contact information for the trustee. Assume, for 
example, a mortgage loan is owned by Mortgage Loan Trust, Series ABC-1, 
for which XYZ Trust Company is the trustee. The servicer complies with 
Sec.  1024.36(d) by identifying the owner as Mortgage Loan Trust, 
Series ABC-1, and providing the name, address, and appropriate contact 
information for XYZ Trust Company as the trustee.
    B. If the request for information did not expressly request the 
name or number of the trust or pool and the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation is the owner 
of the loan or the trustee of the securitization trust in which the 
loan is held: The name and contact information for the Federal National 
Mortgage Association or the Federal Home Loan Mortgage Corporation, as 
applicable, without also providing the name of the trust.
    C. If the request for information did expressly request the name or 
number of the trust or pool and the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation is the owner 
of the loan or the trustee of the securitization trust in which the 
loan is held: The name of the trust, and the name, address, and 
appropriate contact information for the trustee, as in comment 36(a)-
2.ii.A above.
* * * * *
    36(i) Potential successors in interest.
    1. Requests that indicate that the person may be a successor in 
interest. Section 1024.36(i) requires a servicer to respond to certain 
written requests received from a person that indicate the person may be 
a successor in interest. Examples of written requests that indicate 
that the person may be a successor in interest include, without 
limitation, a written statement from a person other than a borrower 
indicating that there has been a transfer of ownership or of an 
ownership interest in the property to the person or that a borrower has 
been divorced, legally separated, or died, or a written loss mitigation 
application received from a person other than a borrower.
    2. Time limits. A servicer must respond to a request under Sec.  
1024.36(i) not later than the time limits set forth in Sec.  
1024.36(d)(2). Servicers subject to Sec.  1024.38(b)(1)(vi)(B) must 
also maintain policies and procedures reasonably designed to ensure 
that, upon receiving notice of the existence of a potential successor 
in interest, the servicer can promptly determine the documents the 
servicer reasonably requires to confirm that person's identity and 
ownership interest in the property and promptly provide to the 
potential successor in interest a description of those documents and 
how the person may submit a written request under Sec.  1024.36(i) 
(including the appropriate address). Depending on the facts and 
circumstances of the request, responding promptly may require a 
servicer to respond more quickly than the time limits established in 
Sec.  1024.36(d)(2).
    3. Potential successor in interest's representative. An information 
request pursuant to Sec.  1024.36(i) is submitted by a potential 
successor in interest if the information request is submitted by an 
agent of the potential successor in interest. A servicer may undertake 
reasonable procedures to determine if a person that claims to be an 
agent of a potential successor in interest has authority from the 
potential successor in interest to act on the potential successor in 
interest's behalf, for example, by requiring that a person that claims 
to be an agent of the potential successor in interest provide 
documentation from the potential successor in interest stating that the 
purported agent is acting on the potential successor in interest's 
behalf. Upon receipt of such documentation, the servicer shall treat 
the request for information as having been submitted by the potential 
successor in interest.


Sec.  1024.37  Force-placed insurance.

* * * * *
    37(d)(5) Updating notice with borrower information.
    1. Reasonable time. If the written notice required by Sec.  
1024.37(c)(1)(ii) was put into production a reasonable time prior to 
the servicer delivering or placing the notice in the mail, the servicer 
is not required to update the notice with new insurance information 
received. For purposes of Sec.  1024.37(d)(5), a reasonable time is no 
more than five days (excluding legal holidays, Saturdays, and Sundays).
* * * * *


Sec.  1024.38  General servicing policies, procedures, and 
requirements.

* * * * *
    38(b)(1) Accessing and providing timely and accurate information.
* * * * *
    Paragraph 38(b)(1)(vi).
    1. Identification of potential successors in interest. A servicer 
may be notified of the existence of a potential successor in interest 
in a variety of ways. For example, a person could indicate that there 
has been a transfer of ownership or of an ownership interest in the 
property or that a borrower has been divorced, legally separated, or 
died, or a person other than a borrower could submit a loss mitigation 
application. A servicer must maintain policies and procedures 
reasonably designed to ensure that the servicer can retain this 
information and promptly facilitate communication with potential 
successors in interest when a servicer is notified of their existence. 
A servicer is not required to conduct a search for potential successors 
in interest if the servicer has not received actual notice of their 
existence.
    2. Documents reasonably required. The documents a servicer requires 
to confirm a potential successor in interest's identity and ownership 
interest in the property must be reasonable in light of the laws of the 
relevant jurisdiction, the specific situation of the potential 
successor in interest, and the documents already in the servicer's 
possession. The required documents may, where appropriate, include, for 
example, a death certificate, an executed will, or a court order. The 
required documents may also include documents that the servicer 
reasonably believes are necessary to prevent fraud or other criminal 
activity (for example, if a servicer has reason to believe that 
documents presented are forged).
    3. Examples of reasonable requirements. Because the relevant law 
governing each situation may vary from State to State, the following 
examples are illustrative only. The examples illustrate what documents 
it would generally be reasonable for a servicer to require to confirm a 
potential successor in interest's identity and ownership interest in 
the property under the specific circumstances described.
    i. Tenancy by the entirety or joint tenancy. Assume that a servicer 
knows that the potential successor in interest and the transferor 
borrower owned the property as tenants by the entirety or joint tenants 
and that the transferor borrower has died. Assume further that, upon 
the death of the transferor borrower, the applicable law of the

[[Page 72380]]

relevant jurisdiction does not require a probate proceeding to 
establish that the potential successor in interest has sole interest in 
the property but requires only that there be a prior recorded deed 
listing both the potential successor in interest and the transferor 
borrower as tenants by the entirety (e.g., married grantees) or joint 
tenants. Under these circumstances, it would be reasonable for the 
servicer to require the potential successor in interest to provide 
documentation of the recorded instrument, if the servicer does not 
already have it, and the death certificate of the transferor borrower. 
Because in this situation a probate proceeding is not required under 
the applicable law of the relevant jurisdiction, it generally would not 
be reasonable for the servicer to require documentation of a probate 
proceeding.
    ii. Affidavits of heirship. Assume that a potential successor in 
interest indicates that an ownership interest in the property 
transferred to the potential successor in interest upon the death of 
the transferor borrower through intestate succession and offers an 
affidavit of heirship as confirmation. Assume further that, upon the 
death of the transferor borrower, the applicable law of the relevant 
jurisdiction does not require a probate proceeding to establish that 
the potential successor in interest has an interest in the property but 
requires only an appropriate affidavit of heirship. Under these 
circumstances, it would be reasonable for the servicer to require the 
potential successor in interest to provide the affidavit of heirship 
and the death certificate of the transferor borrower. Because a probate 
proceeding is not required under the applicable law of the relevant 
jurisdiction to recognize the transfer of title, it generally would not 
be reasonable for the servicer to require documentation of a probate 
proceeding.
    iii. Divorce or legal separation. Assume that a potential successor 
in interest indicates that an ownership interest in the property 
transferred to the potential successor in interest from a spouse who is 
a borrower as a result of a property agreement incident to a divorce 
proceeding. Assume further that the applicable law of the relevant 
jurisdiction does not require a deed conveying the interest in the 
property but accepts a final divorce decree and accompanying separation 
agreement executed by both spouses to evidence transfer of title. Under 
these circumstances, it would be reasonable for the servicer to require 
the potential successor in interest to provide documentation of the 
final divorce decree and an executed separation agreement. Because the 
applicable law of the relevant jurisdiction does not require a deed, it 
generally would not be reasonable for the servicer to require a deed.
    iv. Living spouses or parents. Assume that a potential successor in 
interest indicates that an ownership interest in the property 
transferred to the potential successor in interest from a living spouse 
or parent who is a borrower by quitclaim deed or act of donation. Under 
these circumstances, it would be reasonable for the servicer to require 
the potential successor in interest to provide the quitclaim deed or 
act of donation. It generally would not be reasonable, however, for the 
servicer to require additional documents.
    4. Additional documentation required for confirmation 
determination. Section 1024.38(b)(1)(vi)(C) requires a servicer to 
maintain policies and procedures reasonably designed to ensure that, 
upon receipt of the documents identified by the servicer, the servicer 
promptly notifies a potential successor in interest that, as 
applicable, the servicer has confirmed the potential successor in 
interest's status, has determined that additional documents are 
required, or has determined that the potential successor in interest is 
not a successor in interest. If a servicer reasonably determines that 
it cannot make a determination of the potential successor in interest's 
status based on the documentation provided, it must specify what 
additional documentation is required. For example, if there is pending 
litigation involving the potential successor in interest and other 
claimants regarding who has title to the property at issue, a servicer 
may specify that documentation of a court determination or other 
resolution of the litigation is required.
    5. Prompt confirmation and loss mitigation. A servicer's policies 
and procedures must be reasonably designed to ensure that the servicer 
can promptly notify the potential successor in interest that the 
servicer has confirmed the potential successor in interest's status. 
Notification is not prompt for purposes of this requirement if it 
unreasonably interferes with a successor in interest's ability to apply 
for loss mitigation options according to the procedures provided in 
Sec.  1024.41.
* * * * *
    38(b)(3) Facilitating oversight of, and compliance by, service 
providers.
    Paragraph 38(b)(3)(iii).
    1. Sharing information with service provider personnel handling 
foreclosure proceedings. A servicer's policies and procedures must be 
reasonably designed to ensure that servicer personnel promptly inform 
service provider personnel handling foreclosure proceedings that the 
servicer has received a complete loss mitigation application and 
promptly instruct foreclosure counsel to take any step required by 
Sec.  1024.41(g) sufficiently timely to avoid violating the prohibition 
against moving for judgment or order of sale, or conducting a 
foreclosure sale.
* * * * *


Sec.  1024.39  Early intervention requirements for certain borrowers.

    39(a) Live contact.
    1. Delinquency. Section 1024.39 requires a servicer to establish or 
attempt to establish live contact no later than the 36th day of a 
borrower's delinquency. This provision is illustrated as follows:
    i. Assume a mortgage loan obligation with a monthly billing cycle 
and monthly payments of $2,000 representing principal, interest, and 
escrow due on the first of each month.
    A. The borrower fails to make a payment of $2,000 on, and makes no 
payment 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., on or before February 6.
    B. The borrower makes no payments during the period January 1 
through April 1, although payments of $2,000 each on January 1, 
February 1, and March 1 are due. Assuming it is not a leap year, the 
borrower is 90 days delinquent as of April 1. The servicer may time its 
attempts to establish live contact such that a single attempt will meet 
the requirements of Sec.  1024.39(a) for two missed payments. To 
illustrate, the servicer complies with Sec.  1024.39(a) if the servicer 
makes a good faith effort to establish live contact with the borrower, 
for example, on February 5 and again on March 25. The February 5 
attempt meets the requirements of Sec.  1024.39(a) for both the January 
1 and February 1 missed payments. The March 25 attempt meets the 
requirements of Sec.  1024.39(a) for the March 1 missed payment.
* * * * *
    2. Establishing live contact. Live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's delinquency. 
Live contact with a borrower includes speaking on the telephone or 
conducting an in-person meeting with the borrower but not leaving a 
recorded phone message. A servicer may rely on live contact established 
at the borrower's initiative to satisfy the live contact requirement in

[[Page 72381]]

Sec.  1024.39(a). Servicers may also combine contacts made pursuant to 
Sec.  1024.39(a) with contacts made with borrowers for other reasons, 
for instance, by telling borrowers on collection calls that loss 
mitigation options may be available.
    3. Good faith efforts. 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 length of a 
borrower's delinquency, as well as a borrower's failure to respond to a 
servicer's repeated attempts at communication pursuant to Sec.  
1024.39(a), are relevant circumstances to consider. For example, 
whereas ``good faith efforts'' to establish live contact with regard to 
a borrower with two consecutive missed payments might require a 
telephone call, ``good faith efforts'' to establish live contact with 
regard to an unresponsive borrower with six or more consecutive missed 
payments might require no more than including a sentence requesting 
that the borrower contact the servicer with regard to the delinquencies 
in the periodic statement or in an electronic communication. Comment 
39(a)-6 discusses the relationship between live contact and the loss 
mitigation procedures set forth in Sec.  1024.41.
    4. Promptly inform if appropriate. i. Servicer's determination. 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 following examples 
demonstrate when a servicer has made a reasonable determination 
regarding the appropriateness of providing information about loss 
mitigation options.
    A. A servicer provides information about the availability of loss 
mitigation options to a borrower who 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.
    B. 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.
    ii. Promptly inform. If appropriate, a servicer may inform 
borrowers about the availability of loss mitigation options orally, in 
writing, or through electronic communication, but the servicer must 
provide such information promptly after the servicer establishes live 
contact. A servicer need not notify a borrower about any particular 
loss mitigation options at this time; if appropriate, a servicer need 
only inform borrowers generally that loss mitigation options may be 
available. If appropriate, a servicer may satisfy the requirement in 
Sec.  1024.39(a) to inform a borrower about loss mitigation options by 
providing the written notice required by Sec.  1024.39(b)(1), but the 
servicer must provide such notice promptly after the servicer 
establishes live contact.
    5. Borrower's representative. Section 1024.39 does not prohibit a 
servicer from satisfying its requirements by establishing live contact 
with and, if applicable, providing information about loss mitigation 
options to a person authorized by the borrower to communicate with the 
servicer on the borrower's behalf. 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 a person that claims to be an agent 
of the borrower to provide documentation from the borrower stating that 
the purported agent is acting on the borrower's behalf.
    6. Relationship between live contact and loss mitigation 
procedures. If the servicer has established and is maintaining ongoing 
contact with the borrower under the loss mitigation procedures under 
Sec.  1024.41, including during the borrower's completion of a loss 
mitigation application or the servicer's evaluation of the borrower's 
complete loss mitigation application, or if the servicer has sent the 
borrower a notice pursuant to Sec.  1024.41(c)(1)(ii) that the borrower 
is not eligible for any loss mitigation options, the servicer complies 
with Sec.  1024.39(a) and need not otherwise establish or make good 
faith efforts to establish live contact. A servicer must resume 
compliance with the requirements of Sec.  1024.39(a) for a borrower who 
becomes delinquent again after curing a prior delinquency.
* * * * *
    39(b)(1) Notice required.
* * * * *
    2. Frequency of the written notice. A servicer need not provide the 
written notice under Sec.  1024.39(b) more than once during a 180-day 
period beginning on the date on which the written notice is provided. A 
servicer must provide the written notice under Sec.  1024.39(b) at 
least once every 180 days to a borrower who is 45 days or more 
delinquent. This provision is illustrated as follows: Assume a borrower 
becomes delinquent on March 1, the amount due is not fully paid during 
the 45 days after March 1, and the servicer provides the written notice 
on the 45th day after March 1, which is April 15. Assume the borrower 
also fails to make the payment due on April 1 and the amount due is not 
fully paid during the 45 days after April 1. The servicer need not 
provide the written notice again until after the 180-day period 
beginning on April 15--i.e., no sooner than on October 12--and then 
only if the borrower is at that time 45 days or more delinquent.
    i. If the borrower is 45 days or more delinquent on October 12, the 
date that is 180 days after the prior provision of the written notice, 
the servicer is required to provide the written notice again on October 
12.
    ii. If the borrower is less than 45 days delinquent on October 12, 
the servicer must again provide the written notice 45 days after the 
payment due date for which the borrower remains delinquent. For 
example, if the borrower becomes delinquent on October 1, and the 
amount due is not fully paid during the 45 days after October 1, the 
servicer will need to provide the written notice again no later than 45 
days after October 1--i.e., by November 15.
    3. Borrower's representative. Comment 39(a)-5 explains how a 
servicer may satisfy the requirements under Sec.  1024.39 with a person 
authorized by the borrower to communicate with the servicer on the 
borrower's behalf.
* * * * *
    5. Servicing transfers. A transferee servicer is required to comply 
with the requirements of Sec.  1024.39(b) regardless of whether the 
transferor servicer provided a written notice to the borrower in the 
preceding 180-day period. However, a transferee servicer is not 
required to provide a written notice under Sec.  1024.39(b) if the 
transferor servicer provided the written notice under Sec.  1024.39(b) 
within 45 days of the transfer date. For example, assume a borrower has 
monthly payments, with a payment due on March 1. The transferor 
servicer provides the notice required by Sec.  1024.39(b) on April 10. 
The loan is transferred on April 12. Assuming the borrower remains 
delinquent, the transferee servicer is not required to provide another 
written notice until 45 days after May 1, the first post-transfer 
payment due date--i.e., by June 15.
* * * * *
    39(c) Borrowers in bankruptcy.

[[Page 72382]]

    1. Borrower's representative. If the borrower is represented by a 
person authorized by the borrower to communicate with the servicer on 
the borrower's behalf, the servicer may provide the written notice 
required by Sec.  1024.39(b), as modified by Sec.  1024.39(c)(1)(iii), 
to the borrower's representative. See comment 39(a)-5. In general, 
bankruptcy counsel is the borrower's representative. A servicer's 
procedures for determining whether counsel is the borrower's 
representative are generally considered reasonable if they are limited 
to, for example, confirming that the attorney's name is listed on the 
borrower's bankruptcy petition or other court filing.
    2. Adapting requirements in bankruptcy. Section 1024.39(c) does not 
require a servicer to communicate with a borrower in a manner that 
would be inconsistent with applicable bankruptcy law or a court order 
in a bankruptcy case. If necessary to comply with such law or court 
order, a servicer may adapt the requirements of Sec.  1024.39 as 
appropriate.
    39(c)(1) Borrowers in bankruptcy--Partial exemption.
    1. Commencing a case. Section 1024.39(c)(1) applies once a petition 
is filed under title 11 of the United States Code, commencing a case in 
which the borrower is a debtor in bankruptcy.
    Paragraph 39(c)(1)(ii).
    1. Availability of loss mitigation options. In part, Sec.  
1024.39(c)(1)(ii) exempts a servicer from the requirements of Sec.  
1024.39(b) if no loss mitigation option is available. A loss mitigation 
option is available if the owner or assignee of a mortgage loan offers 
an alternative to foreclosure that is made available through the 
servicer and for which a borrower may apply, even if the borrower 
ultimately does not qualify for such option.
    2. Fair Debt Collections Practices Act. i. Exemption. To the extent 
the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) 
applies to a servicer's communications with a borrower in bankruptcy 
and any borrower on the mortgage loan has provided a notification 
pursuant to FDCPA section 805(c) notifying the servicer that the 
borrower refuses to pay a debt or that the borrower wishes the servicer 
to cease further communications, with regard to that mortgage loan, 
Sec.  1024.39(c)(1)(ii) exempts a servicer from providing the written 
notice required by Sec.  1024.39(b).
    ii. Example. For example, assume that two spouses jointly own a 
home and are both primarily liable on the mortgage loan. Further assume 
that the servicer is subject to the FDCPA with respect to that mortgage 
loan. One spouse is a debtor in bankruptcy under title 11 of the United 
States Code subject to Sec.  1024.39(c). The other spouse provided the 
servicer a notification pursuant to FDCPA section 805(c). Section 
1024.39(c)(1)(ii) exempts the servicer from providing the written 
notice required by Sec.  1024.39(b) with respect to that mortgage loan.
    Paragraph 39(c)(1)(iii).
    1. Joint obligors. When two or more borrowers are joint obligors 
with primary liability on a mortgage loan subject to Sec.  1024.39, if 
any of the borrowers is a debtor in bankruptcy, a servicer may provide 
the written notice required by Sec.  1024.39(b), as modified by Sec.  
1024.39(c)(1)(iii), to any borrower.
    39(c)(2) Resuming compliance.
    1. Bankruptcy case revived. If the borrower's bankruptcy case is 
revived, for example if the court reinstates a previously dismissed 
case or reopens the case, Sec.  1024.39(c)(1) once again applies. 
However, Sec.  1024.39(c)(1)(iii)(C) provides that a servicer is not 
required to provide the written notice more than once during a single 
bankruptcy case. For example, assume a borrower's bankruptcy case 
commences on June 1, the servicer provides the written notice on July 
10 in compliance with Sec.  1024.39(b) as modified by Sec.  
1024.39(c)(1)(iii), and the bankruptcy case is dismissed on August 1. 
If the court subsequently reopens or reinstates the borrower's 
bankruptcy case and the servicer does not provide a second written 
notice for that bankruptcy case, the servicer has complied with Sec.  
1024.39(b) and (c)(1)(iii).
    39(d) Fair Debt Collection Practices Act--partial exemption.
    1. Availability of loss mitigation options. In part, Sec.  
1024.39(d)(2) exempts a servicer from providing the written notice 
required by Sec.  1024.39(b) if no loss mitigation option is available. 
A loss mitigation option is available if the owner or assignee of a 
mortgage loan offers an alternative to foreclosure that is made 
available through the servicer and for which a borrower may apply, even 
if the borrower ultimately does not qualify for such option.
    2. Early intervention communications under the FDCPA. To the extent 
the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) 
applies to a servicer's communications with a borrower, a servicer does 
not violate FDCPA section 805(c) by providing the written notice 
required by Sec.  1024.39(b) as modified by Sec.  1024.39(d)(3) after a 
borrower has provided a notification pursuant to FDCPA section 805(c) 
with respect to that borrower's loan. Nor does a servicer violate FDCPA 
section 805(c) by providing loss mitigation information or assistance 
in response to a borrower-initiated communication after the borrower 
has invoked the cease communication right under FDCPA section 805(c). A 
servicer subject to the FDCPA must continue to comply with all other 
applicable provisions of the FDCPA, including restrictions on 
communications and prohibitions on harassment or abuse, false or 
misleading representations, and unfair practices as contained in FDCPA 
sections 805 through 808 (15 U.S.C. 1692c through 1692f).
    Paragraph 39(d)(2).
    1. Borrowers in bankruptcy. To the extent the Fair Debt Collection 
Practices Act (FDCPA) (15 U.S.C. 1692 et seq.) applies to a servicer's 
communications with a borrower and the borrower has provided a 
notification pursuant to FDCPA section 805(c) notifying the servicer 
that the borrower refuses to pay a debt or that the borrower wishes the 
servicer to cease further communications, with regard to that mortgage 
loan, Sec.  1024.39(d)(2) exempts a servicer from providing the written 
notice required by Sec.  1024.39(b) while any borrower on the mortgage 
loan is also a debtor in bankruptcy under title 11 of the United States 
Code. For an example, see comment 39(c)(1)(ii)-1.ii.


Sec.  1024.40  Continuity of contact.

    40(a) In general.
* * * * *
    3. Delinquency. See Sec.  1024.31 for the definition of delinquency 
applicable to subpart C of Regulation X.
* * * * *


Sec.  1024.41  Loss mitigation procedures.

    41(b) Receipt of a loss mitigation application.
    1. Successors in interest. i. If a servicer receives a loss 
mitigation application from a potential successor in interest before 
confirming that person's identity and ownership interest in the 
property, the servicer may, but need not, review and evaluate the loss 
mitigation application in accordance with the procedures set forth in 
Sec.  1024.41. If a servicer complies with the requirements of Sec.  
1024.41 for a complete loss mitigation application submitted by a 
potential successor in interest before confirming that person's 
identity and ownership interest in the property, Sec.  1024.41(i)'s 
limitation on duplicative requests applies to that person, provided the 
servicer's evaluation of loss mitigation options available to the 
person would not have resulted in a different determination due to the 
person's confirmation as a successor in interest if it had been

[[Page 72383]]

conducted after the servicer confirmed the person's status as a 
successor in interest.
    ii. If a servicer receives a loss mitigation application from a 
potential successor in interest and elects not to review and evaluate 
the loss mitigation application before confirming that person's 
identity and ownership interest in the property, the servicer must 
preserve the loss mitigation application and all documents submitted in 
connection with the application, and, upon such confirmation, the 
servicer must review and evaluate the loss mitigation application in 
accordance with the procedures set forth in Sec.  1024.41 if the 
property is the confirmed successor in interest's principal residence 
and the procedures set forth in Sec.  1024.41 are otherwise applicable. 
For purposes of Sec.  1024.41, the servicer must treat the loss 
mitigation application as if it had been received on the date that the 
servicer confirmed the successor in interest's status. If the loss 
mitigation application is incomplete at the time of confirmation 
because documents submitted by the successor in interest became stale 
or invalid after they were submitted and confirmation is 45 days or 
more before a foreclosure sale, the servicer must identify the stale or 
invalid documents that need to be updated in a notice pursuant to Sec.  
1024.41(b)(2).
    41(b)(1) Complete loss mitigation application.
    1. In general. A servicer has flexibility to establish its own 
application requirements and to decide the type and amount of 
information it will require from borrowers applying for loss mitigation 
options. In the course of gathering documents and information from a 
borrower to complete a loss mitigation application, a servicer may stop 
collecting documents and information for a particular loss mitigation 
option after receiving information confirming that, pursuant to any 
requirements established by the owner or assignee of the borrower's 
mortgage loan, the borrower is ineligible for that option. A servicer 
may not stop collecting documents and information for any loss 
mitigation option based solely upon the borrower's stated preference 
but may stop collecting documents and information for any loss 
mitigation option based on the borrower's stated preference in 
conjunction with other information, as prescribed by any requirements 
established by the owner or assignee. A servicer must continue to 
exercise reasonable diligence to obtain documents and information from 
the borrower that the servicer requires to evaluate the borrower as to 
all other loss mitigation options available to the borrower. For 
example:
    i. Assume a particular loss mitigation option is only available for 
borrowers whose mortgage loans were originated before a specific date. 
Once a servicer receives documents or information confirming that a 
mortgage loan was originated after that date, the servicer may stop 
collecting documents or information from the borrower that the servicer 
would use to evaluate the borrower for that loss mitigation option, but 
the servicer must continue its efforts to obtain documents and 
information from the borrower that the servicer requires to evaluate 
the borrower for all other available loss mitigation options.
    ii. Assume applicable requirements established by the owner or 
assignee of the mortgage loan provide that a borrower is ineligible for 
home retention loss mitigation options if the borrower states a 
preference for a short sale and provides evidence of another applicable 
hardship, such as military Permanent Change of Station orders or an 
employment transfer more than 50 miles away. If the borrower indicates 
a preference for a short sale or, more generally, not to retain the 
property, the servicer may not stop collecting documents and 
information from the borrower pertaining to available home retention 
options solely because the borrower has indicated such a preference, 
but the servicer may stop collecting such documents and information 
once the servicer receives information confirming that the borrower has 
an applicable hardship under requirements established by the owner or 
assignee, such as military Permanent Change of Station orders or 
employment transfer.
* * * * *
    4. Although a servicer has flexibility to establish its own 
requirements regarding the documents and information necessary for a 
loss mitigation application, the servicer must act with reasonable 
diligence to collect information needed to complete the application. A 
servicer must request information necessary to make a loss mitigation 
application complete promptly after receiving the loss mitigation 
application. Reasonable diligence for purposes of Sec.  1024.41(b)(1) 
includes, without limitation, the following actions:
* * * * *
    iii. A servicer offers a borrower a short-term payment forbearance 
program or a short-term repayment plan based on an evaluation of an 
incomplete loss mitigation application and provides the borrower the 
written notice pursuant to Sec.  1024.41(c)(2)(iii). If the borrower 
remains in compliance with the short-term payment forbearance program 
or short-term repayment plan, and the borrower does not request further 
assistance, the servicer may suspend reasonable diligence efforts until 
near the end of the payment forbearance program or repayment plan. 
However, if the borrower fails to comply with the program or plan or 
requests further assistance, the servicer must immediately resume 
reasonable diligence efforts. Near the end of a short-term payment 
forbearance program offered based on an evaluation of an incomplete 
loss mitigation application pursuant to Sec.  1024.41(c)(2)(iii), and 
prior to the end of the forbearance period, if the borrower remains 
delinquent, a servicer must contact the borrower to determine if the 
borrower wishes to complete the loss mitigation application and proceed 
with a full loss mitigation evaluation.
* * * * *
    41(b)(2)(i) Requirements.
    1. Foreclosure sale not scheduled. For purposes of Sec.  
1024.41(b)(2)(i), if no foreclosure sale has been scheduled as of the 
date a servicer receives a loss mitigation application, the servicer 
must treat the application as having been received 45 days or more 
before any foreclosure sale.
* * * * *
    41(b)(2)(ii) Time period disclosure.
    1. Thirty days is generally reasonable. In general and subject to 
the restrictions described in comments 41(b)(2)(ii)-2 and -3, a 
servicer complies with the requirement to include a reasonable date in 
the written notice required under Sec.  1024.41(b)(2)(i)(B) by 
including a date that is 30 days after the date the servicer provides 
the written notice.
    2. No later than the next milestone. For purposes of Sec.  
1024.41(b)(2)(ii), subject to the restriction described in comment 
41(b)(2)(ii)-3, the reasonable date must be no later than the earliest 
of:
    i. The date by which any document or information submitted by a 
borrower will be considered stale or invalid pursuant to any 
requirements applicable to any loss mitigation option available to the 
borrower;
    ii. The date that is the 120th day of the borrower's delinquency;
    iii. The date that is 90 days before a foreclosure sale;
    iv. The date that is 38 days before a foreclosure sale.
    3. Seven-day minimum. A reasonable date for purposes of Sec.  
1024.41(b)(2)(ii)

[[Page 72384]]

must never be less than seven days from the date on which the servicer 
provides the written notice pursuant to Sec.  1024.41(b)(2)(i)(B).
* * * * *
    41(c) Evaluation of loss mitigation applications.
    41(c)(1) Complete loss mitigation application.
* * * * *
    4. Other notices. A servicer may combine other notices required by 
applicable law, including, without limitation, a notice with respect to 
an adverse action required by Regulation B, 12 CFR part 1002, or a 
notice required pursuant to the Fair Credit Reporting Act, with the 
notice required pursuant to Sec.  1024.41(c)(1), unless otherwise 
prohibited by applicable law.
* * * * *
    41(c)(2)(iii) Short-term loss mitigation options.
    1. Short-term payment forbearance program. The exemption in Sec.  
1024.41(c)(2)(iii) applies to, among other things, short-term payment 
forbearance programs. For purposes of Sec.  1024.41(c)(2)(iii), a 
payment forbearance program is a loss mitigation option pursuant to 
which a servicer allows a borrower to forgo making certain payments or 
portions of payments for a period of time. A short-term payment 
forbearance program for purposes of Sec.  1024.41(c)(2)(iii) allows the 
forbearance of payments due over periods of no more than six months. 
Such a program would be short-term regardless of the amount of time a 
servicer allows the borrower to make up the missing payments.
    2. Short-term loss mitigation options and incomplete applications. 
Section 1024.41(c)(2)(iii) allows a servicer to offer a borrower a 
short-term payment forbearance program or a short-term repayment plan 
based on an evaluation of an incomplete loss mitigation application. 
The servicer must still comply with the other requirements of Sec.  
1024.41 with respect to the incomplete loss mitigation application, 
including the requirement in Sec.  1024.41(b)(2) to review the 
application to determine if it is complete, the requirement in Sec.  
1024.41(b)(1) to exercise reasonable diligence in obtaining documents 
and information to complete a loss mitigation application (see comment 
41(b)(1)-4.iii), and the requirement in Sec.  1024.41(b)(2)(i)(B) to 
provide the borrower with written notice that the servicer acknowledges 
the receipt of the application and has determined that the application 
is incomplete.
    3. Short-term loss mitigation options and complete applications. 
Even if a servicer offers a borrower a short-term payment forbearance 
program or a short-term repayment plan based on an evaluation of an 
incomplete loss mitigation application, the servicer must still comply 
with all applicable requirements in Sec.  1024.41 if the borrower 
completes a loss mitigation application.
    4. Short-term repayment plan. The exemption in Sec.  
1024.41(c)(2)(iii) applies to, among other things, short-term repayment 
plans. For purposes of Sec.  1024.41(c)(2)(iii), a repayment plan is a 
loss mitigation option with terms under which a borrower would repay 
all past due payments over a specified period of time to bring the 
mortgage loan account current. A short-term repayment plan for purposes 
of Sec.  1024.41(c)(2)(iii) allows for the repayment of no more than 
three months of past due payments and allows a borrower to repay the 
arrearage over a period lasting no more than six months.
    5. Specific payment terms and duration. i. General requirement. 
Section 1024.41(c)(2)(iii) requires a servicer to provide the borrower 
a written notice stating, among other things, the specific payment 
terms and duration of a short-term payment forbearance program or a 
short-term repayment plan offered based on an evaluation of an 
incomplete application. Generally, a servicer complies with these 
requirements if the written notice states the amount of each payment 
due during the program or plan, the date by which the borrower must 
make each payment, and whether the mortgage loan will be current at the 
end of the program or plan if the borrower complies with the program or 
plan.
    ii. Disclosure of payment amounts that may change. At the time a 
servicer provides the written notice pursuant to Sec.  
1024.41(c)(2)(iii), if the servicer lacks information necessary to 
determine the amount of a specific payment due during the program or 
plan (for example, because the borrower's interest rate will change to 
an unknown rate based on an index or because an escrow account 
computation year as defined in Sec.  1024.17(b) will end and the 
borrower's escrow payment might change), the servicer complies with the 
requirement to disclose the specific payment terms and duration of a 
short-term payment forbearance program or short-term repayment plan if 
the disclosures are based on the best information reasonably available 
to the servicer at the time the notice is provided and the written 
notice identifies which payment amounts may change, states that such 
payment amounts are estimates, and states the general reason that such 
payment amounts might change. For example, if an escrow account 
computation year as defined in Sec.  1024.17(b) will end during a 
borrower's short-term repayment plan, the written notice complies with 
Sec.  1024.41(c)(2)(iii) if it identifies the payment amounts that may 
change, states that those payment amounts are estimates, and states 
that the affected payments might change because the borrower's escrow 
payment might change.
    6. Timing of notice. Generally, a servicer acts promptly to provide 
the written notice required by Sec.  1024.41(c)(2)(iii) if the servicer 
provides such written notice no later than five days (excluding legal 
public holidays, Saturdays, and Sundays) after offering the borrower a 
short-term payment forbearance program or short-term repayment plan. A 
servicer may provide the written notice at the same time the servicer 
offers the borrower the program or plan. A written offer that contains 
all the required elements of the written notice also satisfies Sec.  
1024.41(c)(2)(iii).
* * * * *
    41(c)(3) Notice of complete application.
    Paragraph 41(c)(3)(i).
    1. Completion date. A servicer complies with Sec.  
1024.41(c)(3)(i)(B) by disclosing on the notice the most recent date 
the servicer received the complete loss mitigation application. For 
example, assume that a borrower first submits a complete loss 
mitigation application on March 1. The servicer must disclose March 1 
as the date the servicer received the application under Sec.  
1024.41(c)(3)(i)(B). Assume the servicer discovers on March 10 that it 
requires additional information or corrected documents to complete the 
application and promptly requests such additional information or 
documents from the borrower pursuant to Sec.  1024.41(c)(2)(iv). If the 
borrower subsequently completes the application on March 21, the 
servicer must provide another notice in accordance with Sec.  
1024.41(c)(3)(i) and disclose March 21 as the date the servicer 
received the complete application. See comment 41(c)(3)(i)-3.
    2. First notice or filing. Section 1024.41(c)(3)(i)(D)(1) and (2) 
sets forth different requirements depending on whether the servicer has 
made the first notice or filing under applicable law for any judicial 
or non-judicial foreclosure process at the time the borrower submits a 
complete loss mitigation application. See comment 41(f)-1 for a 
description of

[[Page 72385]]

whether a document is considered the first notice or filing under 
applicable law.
    3. Additional notices. Except as provided in Sec.  
1024.41(c)(3)(ii), Sec.  1024.41(c)(3)(i) requires a servicer to 
provide a written notice every time a loss mitigation application 
becomes complete. For example, assume that a borrower first submits a 
complete loss mitigation application on March 1, and the servicer 
provides the notice under Sec.  1024.41(c)(3)(i). Assume the servicer 
discovers on March 10 that it requires additional information or 
corrected documents regarding a source of income that the borrower 
previously identified. The servicer must promptly request such 
additional information or documents from the borrower pursuant to Sec.  
1024.41(c)(2)(iv). If the borrower subsequently completes the 
application on March 21, the servicer must provide another notice in 
accordance with Sec.  1024.41(c)(3)(i), unless an exception applies 
under Sec.  1024.41(c)(3)(ii). See comment 41(c)(3)(i)-1.
    41(c)(4) Information not in the borrower's control.
    41(c)(4)(i) Diligence requirements.
    1. During the first 30 days following receipt of a complete loss 
mitigation application. Section 1024.41(c)(4)(i) requires a servicer to 
act with reasonable diligence to obtain documents or information not in 
the borrower's control, which includes information in the servicer's 
control, that the servicer requires to determine which loss mitigation 
options, if any, it will offer to the borrower. At a minimum and 
without limitation, a servicer must request such documents or 
information from the appropriate party:
    i. Promptly upon determining that the servicer requires the 
documents or information to determine which loss mitigation options, if 
any, the servicer will offer the borrower; and
    ii. By a date that will enable the servicer to complete the 
evaluation within 30 days of receiving the complete loss mitigation 
application, as set forth in Sec.  1024.41(c)(1), to the extent 
practicable.
    2. More than 30 days following receipt of a complete loss 
mitigation application. If a servicer has not, within 30 days of 
receiving a complete loss mitigation application, received the required 
documents or information from a party other than the borrower or the 
servicer, the servicer acts with reasonable diligence pursuant to Sec.  
1024.41(c)(4)(i) by heightening efforts to obtain the documents or 
information promptly, to minimize delay in making a determination of 
which loss mitigation options, if any, it will offer to the borrower. 
Such heightened efforts include, for example, promptly verifying that 
it has contacted the appropriate party and determining whether it 
should obtain the required documents or information from a different 
party.
    41(c)(4)(ii) Effect in case of delay.
    1. Third-party delay. Notwithstanding delay in receiving required 
documents or information from any party other than the borrower or the 
servicer, Sec.  1024.41(c)(1)(i) requires a servicer to complete all 
possible steps in the process of evaluating a complete loss mitigation 
application within 30 days of receiving the complete loss mitigation 
application. Such steps may include requirements imposed on the 
servicer by third parties, such as mortgage insurance companies, 
guarantors, owners, or assignees. For example, if a servicer can 
determine a borrower's eligibility for all available loss mitigation 
options based on an evaluation of the borrower's complete loss 
mitigation application subject only to approval from the mortgage 
insurance company, Sec.  1024.41(c)(1)(i) requires the servicer to do 
so within 30 days of receiving the complete loss mitigation application 
notwithstanding the need to obtain such approval before offering the 
borrower any loss mitigation options.
    2. Offers not prohibited. Section 1024.41(c)(4)(ii)(A)(2) permits a 
servicer to deny a complete loss mitigation application (in accordance 
with applicable investor requirements) if, after exercising reasonable 
diligence to obtain the required documents or information from a party 
other than the borrower or the servicer, the servicer has been unable 
to obtain such documents or information for a significant period of 
time and the servicer cannot complete its determination without the 
required documents or information. Section 1024.41(c)(4)(ii)(A)(2) does 
not require a servicer to deny a complete loss mitigation application 
and permits a servicer to offer a borrower a loss mitigation option, 
even if the servicer does not obtain the requested documents or 
information.
* * * * *
    41(g) Prohibition on foreclosure sale.
* * * * *
    3. Interaction with foreclosure counsel. The prohibitions in Sec.  
1024.41(g) against moving for judgment or order of sale or conducting a 
sale may require a servicer to act through foreclosure counsel retained 
by the servicer in a foreclosure proceeding. If a servicer has received 
a complete loss mitigation application, the servicer must instruct 
counsel promptly not to make a dispositive motion for foreclosure 
judgment or order of sale; where such a dispositive motion is pending, 
to avoid a ruling on the motion or issuance of an order of sale; and, 
where a sale is scheduled, to prevent conduct of a foreclosure sale, 
unless one of the conditions in Sec.  1024.41(g)(1) through (3) is met. 
A servicer is not relieved of its obligations because foreclosure 
counsel's actions or inaction caused a violation.
* * * * *
    5. Conducting a sale prohibited. Section 1024.41(g) prohibits a 
servicer from conducting a foreclosure sale, even if a person other 
than the servicer administers or conducts the foreclosure sale 
proceedings. Where a foreclosure sale is scheduled, and none of the 
conditions under Sec.  1024.41(g)(1) through (3) are applicable, 
conduct of the sale violates Sec.  1024.41(g).
* * * * *
    41(i) Duplicative requests.
    1. Applicability of loss mitigation protections. Under Sec.  
1024.41(i), a servicer must comply with Sec.  1024.41 with respect to a 
loss mitigation application unless the servicer has previously done so 
for a complete loss mitigation application submitted by the borrower 
and the borrower has been delinquent at all times since submitting the 
prior complete application. Thus, for example, if the borrower has 
previously submitted a complete loss mitigation application and the 
servicer complied fully with Sec.  1024.41 for that application, but 
the borrower then ceased to be delinquent and later became delinquent 
again, the servicer again must comply with Sec.  1024.41 for any 
subsequent loss mitigation application submitted by the borrower. When 
a servicer is required to comply with the requirements of Sec.  1024.41 
for such a subsequent loss mitigation application, the servicer must 
comply with all applicable requirements of Sec.  1024.41. For example, 
in such a case, the servicer's provision of the notice of determination 
of which loss mitigation options, if any, it will offer to the borrower 
under Sec.  1024.41(c)(1)(ii) regarding the borrower's prior complete 
loss mitigation application does not affect the servicer's obligations 
to provide a new notice of complete application under Sec.  
1024.41(c)(3)(i) regarding the borrower's subsequent complete loss 
mitigation application.
    2. Servicing transfers. Section 1024.41(i) provides that a servicer 
need not comply with Sec.  1024.41 for a subsequent loss mitigation 
application

[[Page 72386]]

from a borrower where certain conditions are met. A transferee servicer 
and a transferor servicer, however, are not the same servicer. 
Accordingly, a transferee servicer is required to comply with the 
applicable requirements of Sec.  1024.41 upon receipt of a loss 
mitigation application from a borrower whose servicing the transferee 
servicer has obtained through a servicing transfer, even if the 
borrower previously received an evaluation of a complete loss 
mitigation application from the transferor servicer.
    41(k) Servicing transfers.
    1. Pending loss mitigation application. For purposes of Sec.  
1024.41(k), a loss mitigation application is pending if it was subject 
to Sec.  1024.41 and had not been fully resolved before the transfer 
date. For example, a loss mitigation application would not be 
considered pending if a transferor servicer had denied a borrower for 
all options and the borrower's time for making an appeal, if any, had 
expired prior to the transfer date, such that the transferor servicer 
had no continuing obligations under Sec.  1024.41 with respect to the 
application. A pending application is considered a pending complete 
application if it was complete as of the transfer date under the 
transferor servicer's criteria for evaluating loss mitigation 
applications.
    41(k)(1) In general.
    41(k)(1)(i) Timing of compliance.
    1. Obtaining loss mitigation documents and information. i. In 
connection with a transfer, a transferor servicer must timely transfer, 
and a transferee servicer must obtain from the transferor servicer, 
documents and information submitted by a borrower in connection with a 
loss mitigation application, consistent with policies and procedures 
adopted pursuant to Sec.  1024.38(b)(4). A transferee servicer must 
comply with the applicable requirements of Sec.  1024.41 with respect 
to a loss mitigation application received as a result of a transfer, 
even if the transferor servicer was not required to comply with Sec.  
1024.41 with respect to that application (for example, because Sec.  
1024.41(i) precluded applicability of Sec.  1024.41 with respect to the 
transferor servicer). If an application was not subject to Sec.  
1024.41 prior to a transfer, then for purposes of Sec.  1024.41(b) and 
(c), a transferee servicer is considered to have received the loss 
mitigation application on the transfer date. Any such application is 
subject to the timeframes for compliance set forth in Sec.  1024.41(k).
    ii. A transferee servicer must, in accordance with Sec.  
1024.41(b)(1), exercise reasonable diligence to complete a loss 
mitigation application, including a facially complete application, 
received as a result of a transfer. In the transfer context, reasonable 
diligence includes ensuring that a borrower is informed of any changes 
to the application process, such as a change in the address to which 
the borrower should submit documents and information to complete the 
application, as well as ensuring that the borrower is informed about 
which documents and information are necessary to complete the 
application.
    iii. A borrower may provide documents and information necessary to 
complete an application to a transferor servicer after the transfer 
date. Consistent with policies and procedures maintained pursuant to 
Sec.  1024.38(b)(4), the transferor servicer must timely transfer, and 
the transferee servicer must obtain, such documents and information.
    2. Determination of rights and protections. For purposes of Sec.  
1024.41(c) through (h), a transferee servicer must consider documents 
and information that constitute a complete loss mitigation application 
for the transferee servicer to have been received as of the date such 
documents and information were received by the transferor servicer, 
even if such documents and information were received by the transferor 
servicer after the transfer date. See comment 41(k)(1)(i)-1.iii. An 
application that was facially complete under Sec.  1024.41(c)(2)(iv) 
with respect to the transferor servicer remains facially complete under 
Sec.  1024.41(c)(2)(iv) with respect to the transferee servicer as of 
the date it was facially complete with respect to the transferor 
servicer. If an application was complete with respect to the transferor 
servicer, but is not complete with respect to the transferee servicer, 
the transferee servicer must treat the application as facially complete 
under Sec.  1024.41(c)(2)(iv) as of the date the application was 
complete with respect to the transferor servicer.
    3. Duplicative notices not required. A transferee servicer is not 
required to provide notices under Sec.  1024.41 with respect to a 
particular loss mitigation application that the transferor servicer 
provided prior to the transfer. For example, if the transferor servicer 
provided the notice required by Sec.  1024.41(b)(2)(i)(B) prior to the 
transfer, the transferee servicer is not required to provide the notice 
again for that application.
    41(k)(1)(ii) Transfer date defined.
    1. Transfer date. Section 1024.41(k)(1)(ii) provides that the 
transfer date is the date on which the transferee servicer will begin 
accepting payments relating to the mortgage loan, as disclosed on the 
notice of transfer of loan servicing pursuant to Sec.  
1024.33(b)(4)(iv). The transfer date is the same date as that on which 
the transfer of the servicing responsibilities from the transferor 
servicer to the transferee servicer occurs. The transfer date is not 
necessarily the same date as either the effective date of the transfer 
of servicing as disclosed on the notice of transfer of loan servicing 
pursuant to Sec.  1024.33(b)(4)(i) or the sale date identified in a 
servicing transfer agreement.
    41(k)(2) Acknowledgment notices.
    41(k)(2)(ii) Prohibitions.
    1. Examples of prohibitions. Section 1024.41(k)(2)(ii)(A) and (B) 
adjusts the timeframes for certain borrower rights and foreclosure 
protections where Sec.  1024.41(k)(2)(i) applies. These provisions are 
illustrated as follows: Assume a transferor servicer receives a 
borrower's initial loss mitigation application on October 1, and the 
loan is transferred five days (excluding legal public holidays, 
Saturdays, or Sundays) later, on October 8. Assume that Columbus Day, a 
legal public holiday, occurs on October 14, and the transferee servicer 
provides the notice required by Sec.  1024.41(b)(2)(i)(B) 10 days 
(excluding legal public holidays, Saturdays, or Sundays) after the 
transfer date, on October 23. Assume the transferee servicer discloses 
a 30-day reasonable date, November 22, under Sec.  1024.41(b)(2)(ii).
    i. If the transferor servicer receives the borrower's initial loss 
mitigation application when the borrower's mortgage loan is 101 days 
delinquent, the borrower's mortgage loan would be 123 days delinquent 
on October 23, the date the transferee servicer provides the notice 
required by Sec.  1024.41(b)(2)(i)(B). Pursuant to Sec.  
1024.41(k)(2)(ii)(A), the transferee servicer cannot make the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process until after November 22, the reasonable 
date disclosed under Sec.  1024.41(b)(2)(ii), and then only if the 
borrower has not submitted a complete application by that date.
    ii. If the transferor servicer receives the borrower's initial loss 
mitigation application 55 days before the foreclosure sale, the date 
that the transferee servicer provides the notice required by Sec.  
1024.41(b)(2)(i)(B), October 23, is 33 days before the foreclosure 
sale. Pursuant to Sec.  1024.41(k)(2)(ii)(B), the transferee servicer 
must comply with Sec.  1024.41(c), (d), and (g) if the borrower submits 
a complete loss mitigation application on

[[Page 72387]]

or before November 22, the reasonable date disclosed under Sec.  
1024.41(b)(2)(ii).
    2. Applicability of loss mitigation provisions. Section 
1024.41(k)(2)(ii)(A) prohibits a servicer from making the first notice 
or filing required by applicable law for any judicial or non-judicial 
foreclosure process until a date that is after the reasonable date 
disclosed to the borrower pursuant to Sec.  1024.41(b)(2)(ii), 
notwithstanding Sec.  1024.41(f)(1). Section 1024.41(k)(2)(ii)(B) 
requires a servicer to comply with Sec.  1024.41(c), (d), and (g) if a 
borrower submits a complete loss mitigation application on or before 
the reasonable date disclosed in the notice required by Sec.  
1024.41(b)(2)(i)(B), even if the servicer would otherwise not be 
required to comply with Sec.  1024.41(c), (d), and (g) because the 
application is submitted 37 days or fewer before a foreclosure sale. 
Section 1024.41(k)(2)(ii) provides additional protections for borrowers 
but does not remove any protections. Servicers remain subject to the 
requirements of Sec.  1024.41 as applicable and so, for example, must 
comply with Sec.  1024.41(h) if the servicer receives a complete loss 
mitigation application 90 days or more before a foreclosure sale. 
Similarly, a servicer is prohibited from making the first notice or 
filing before the borrower's mortgage loan obligation is more than 120 
days delinquent, even if that is after the reasonable date disclosed to 
the borrower pursuant to Sec.  1024.41(b)(2)(ii).
    3. Reasonable date when no milestones remain. Generally, a servicer 
does not provide the notice required under Sec.  1024.41(b)(2)(i)(B) 
after the date that is 38 days before a foreclosure sale, so at least 
one milestone specified in comment 41(b)(ii)-1 always remains 
applicable. When Sec.  1024.41(k)(2)(i) applies, however, the 
transferee servicer may sometimes provide the notice after the date 
that is 38 days before a foreclosure sale. When this occurs, the 
transferee servicer must determine the reasonable date when none of the 
four specified milestones remain. The other requirements of Sec.  
1024.41(b)(2)(ii) continue to apply. In this circumstance, a reasonable 
date may occur less than 30 days, but not less than seven days, after 
the date the transferee servicer provides the written notice pursuant 
to Sec.  1024.41(b)(2)(i)(B).
    41(k)(3) Complete loss mitigation applications pending at transfer.
    1. Additional information or corrections to a previously submitted 
document. If a transferee servicer acquires the servicing of a mortgage 
loan for which a complete loss mitigation application is pending as of 
the transfer date and the transferee servicer determines that 
additional information or a correction to a previously submitted 
document is required based upon its criteria for evaluating loss 
mitigation applications, the application is considered facially 
complete under Sec.  1024.41(c)(2)(iv) as of the date it was first 
facially complete or complete, as applicable, with respect to the 
transferor servicer. Once the transferee servicer receives the 
information or corrections necessary to complete the application, Sec.  
1024.41(c)(3) requires the transferee servicer to provide a notice of 
complete application.
    2. Applications first complete upon transfer. If the borrower's 
loss mitigation application was incomplete based on the transferor 
servicer's criteria prior to transfer but is complete based upon the 
transferee servicer's criteria, the application is considered a pending 
loss mitigation application complete as of the transfer date for 
purposes of Sec.  1024.41(k)(3). Consequently, the transferee servicer 
must comply with the applicable requirements of Sec.  1024.41(c)(1) and 
(4) within 30 days of the transfer date. For purposes of Sec.  
1024.41(c) through (h), the application is complete as of the date the 
transferor servicer received the documents and information constituting 
the complete application. See comment 41(k)(1)(i)-2. In such 
circumstances, Sec.  1024.41(c)(3) requires the transferee servicer to 
provide a notice of complete application that discloses the date the 
transferor servicer received the documents and information constituting 
the complete application.
    41(k)(4) Applications subject to appeal process.
    1. Obtaining appeal. A borrower may submit an appeal of a 
transferor servicer's determination pursuant to Sec.  1024.41(h) to the 
transferor servicer after the transfer date. Consistent with policies 
and procedures maintained pursuant to Sec.  1024.38(b)(4), the 
transferor servicer must timely transfer, and the transferee servicer 
must obtain, documents and information regarding such appeals.
    2. Servicer unable to determine appeal. A transferee servicer may 
be unable to make a determination on an appeal when, for example, the 
transferor servicer denied a borrower for a loan modification option 
that the transferee servicer does not offer or when the transferee 
servicer receives the mortgage loan through an involuntary transfer and 
the transferor servicer failed to maintain proper records such that the 
transferee servicer lacks sufficient information to review the appeal. 
In that circumstance, the transferee servicer is required to treat the 
appeal as a pending complete application, and it must permit the 
borrower to accept or reject any loss mitigation options offered by the 
transferor servicer, even if it does not offer the loss mitigation 
options offered by the transferor servicer, in addition to the loss 
mitigation options, if any, that the transferee servicer determines to 
offer the borrower based on its own evaluation of the borrower's 
complete loss mitigation application. For example, assume a transferor 
servicer denied a borrower for all loan modification options but 
offered the borrower a short sale option, and assume that the 
borrower's appeal of the loan modification denial was pending as of the 
transfer date. If the transferee servicer is unable to determine the 
borrower's appeal, the transferee servicer must evaluate the borrower 
for all available loss mitigation options in accordance with Sec.  
1024.41(c) and (k)(3). At the conclusion of such evaluation, the 
transferee servicer must permit the borrower to accept the short sale 
option offered by the transferor servicer, even if the transferee 
servicer does not offer the short sale option, in addition to any loss 
mitigation options the transferee servicer determines to offer the 
borrower based upon its own evaluation.
    41(k)(5) Pending loss mitigation offers.
    1. Obtaining evidence of borrower acceptance. A borrower may 
provide an acceptance or rejection of a pending loss mitigation offer 
to a transferor servicer after the transfer date. Consistent with 
policies and procedures maintained pursuant to Sec.  1024.38(b)(4), the 
transferor servicer must timely transfer, and the transferee servicer 
must obtain, documents and information regarding such acceptances and 
rejections, and the transferee servicer must provide the borrower with 
any timely accepted loss mitigation option, even if the borrower 
submitted the acceptance to the transferor servicer.

Appendix MS to Part 1024--Mortgage Servicing Model Forms and Clauses

* * * * *
    2. Permissible changes. Servicers may make certain changes to 
the format or content of the forms and clauses and may delete any 
disclosures that are inapplicable without losing the protection from 
liability so long as those changes do not affect the substance, 
clarity, or meaningful sequence of the forms and clauses. Servicers 
making revisions to that effect will lose their protection from 
civil liability. Except as otherwise specifically required, 
acceptable changes include, for example:
    i. Use of ``borrower'' and ``servicer'' instead of pronouns.

[[Page 72388]]

    ii. Substitution of the words ``lender'' and ``servicer'' for 
each other.
    iii. Addition of graphics or icons, such as the servicer's 
corporate logo.
    iv. Modifications to remove language that could suggest 
liability under the mortgage loan agreement if such language is not 
applicable. For example, in the case of a confirmed successor in 
interest who has not assumed the mortgage loan obligation under 
State law and is not otherwise liable on the mortgage loan 
obligation, this could include:
    A. Use of ``the mortgage loan'' or ``this mortgage loan'' 
instead of ``your mortgage loan'' and ``the monthly payments'' 
instead of ``your monthly payments.''
    B. Use of ``Payments due on or after [Date] may be sent to'' 
instead of ``Send all payments due on or after [Date] to'' in 
notices of transfer.
    C. Use of ``We will charge the loan account'' instead of ``You 
must pay us'' in notices relating to force-placed insurance.
* * * * *

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
18. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511, 
5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart A--General

0
19. Effective April 19, 2018, Sec.  1026.2 is amended by revising 
paragraph (a)(11) and adding paragraph (a)(27) to read as follows:


Sec.  1026.2  Definitions and rules of construction.

* * * * *
    (a) * * *
    (11) Consumer means a cardholder or natural person to whom consumer 
credit is offered or extended. However, for purposes of rescission 
under Sec. Sec.  1026.15 and 1026.23, the term also includes a natural 
person in whose principal dwelling a security interest is or will be 
retained or acquired, if that person's ownership interest in the 
dwelling is or will be subject to the security interest. For purposes 
of Sec. Sec.  1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41, 
the term includes a confirmed successor in interest.
* * * * *
    (27)(i) Successor in interest means a person to whom an ownership 
interest in a dwelling securing a closed-end consumer credit 
transaction is transferred from a consumer, provided that the transfer 
is:
    (A) A transfer by devise, descent, or operation of law on the death 
of a joint tenant or tenant by the entirety;
    (B) A transfer to a relative resulting from the death of the 
consumer;
    (C) A transfer where the spouse or children of the consumer become 
an owner of the property;
    (D) A transfer resulting from a decree of a dissolution of 
marriage, legal separation agreement, or from an incidental property 
settlement agreement, by which the spouse of the consumer becomes an 
owner of the property; or
    (E) A transfer into an inter vivos trust in which the consumer is 
and remains a beneficiary and which does not relate to a transfer of 
rights of occupancy in the property.
    (ii) Confirmed successor in interest means a successor in interest 
once a servicer has confirmed the successor in interest's identity and 
ownership interest in the dwelling.
* * * * *

Subpart C--Closed-End Credit

0
20. Effective April 19, 2018, Sec.  1026.20 is amended by adding 
paragraph (f) to read as follows:


Sec.  1026.20  Disclosure requirements regarding post-consummation 
events.

* * * * *
    (f) Successor in interest. If, upon confirmation, a servicer 
provides a confirmed successor in interest who is not liable on the 
mortgage loan obligation with a written notice and acknowledgment form 
in accordance with Regulation X, Sec.  1024.32(c)(1) of this chapter, 
the servicer is not required to provide to the confirmed successor in 
interest any written disclosure required by paragraphs (c), (d), and 
(e) of this section unless and until the confirmed successor in 
interest either assumes the mortgage loan obligation under State law or 
has provided the servicer an executed acknowledgment in accordance with 
Regulation X, Sec.  1024.32(c)(1)(iv) of this chapter, that the 
confirmed successor in interest has not revoked.

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
21. Section 1026.36 is amended by revising the introductory text of 
paragraphs (c)(1) and (2) to read as follows:


Sec.  1026.36  Prohibited acts or practices and certain requirements 
for credit secured by a dwelling.

* * * * *
    (c) * * *
    (1) Payment processing. In connection with a closed-end consumer 
credit transaction secured by a consumer's principal dwelling:
* * * * *
    (2) No pyramiding of late fees. In connection with a closed-end 
consumer credit transaction secured by a consumer's principal dwelling, 
a servicer shall not impose any late fee or delinquency charge for a 
payment if:
* * * * *

0
22. Effective April 19, 2018, Sec.  1026.39 is amended by adding 
paragraph (f) to read as follows:


Sec.  1026.39  Mortgage transfer disclosures.

* * * * *
    (f) Successor in interest. If, upon confirmation, a servicer 
provides a confirmed successor in interest who is not liable on the 
mortgage loan obligation with a written notice and acknowledgment form 
in accordance with Regulation X, Sec.  1024.32(c)(1) of this chapter, 
the servicer is not required to provide to the confirmed successor in 
interest any written disclosure required by paragraph (b) of this 
section unless and until the confirmed successor in interest either 
assumes the mortgage loan obligation under State law or has provided 
the servicer an executed acknowledgment in accordance with Regulation 
X, Sec.  1024.32(c)(1)(iv) of this chapter, that the confirmed 
successor in interest has not revoked.

0
23. Section 1026.41 is amended by:
0
a. Revising paragraphs (d)(8)(i) and (e)(4)(iii)(A);
0
b. Adding paragraphs (e)(4)(iii)(D) and (e)(6); and
0
c. Effective April 19, 2018:
0
i. Revising paragraph (e)(5); and
0
ii. Adding paragraphs (f) and (g).
    The revisions and additions read as follows:


Sec.  1026.41  Periodic statements for residential mortgage loans.

* * * * *
    (d) * * *
    (8) * * *
    (i) The length of the consumer's delinquency;
* * * * *
    (e) * * *
    (4) * * *
    (iii) * * *
    (A) Mortgage loans voluntarily serviced by the servicer for a non-
affiliate of the servicer and for which the servicer does not receive 
any compensation or fees.
* * * * *
    (D) Transactions serviced by the servicer for a seller financer 
that meets all of the criteria identified in Sec.  1026.36(a)(5).
    (5) Certain consumers in bankruptcy--(i) Exemption. Except as 
provided in paragraph (e)(5)(ii) of this section, a servicer is exempt 
from the

[[Page 72389]]

requirements of this section with regard to a mortgage loan if:
    (A) Any consumer on the mortgage loan is a debtor in bankruptcy 
under title 11 of the United States Code or has discharged personal 
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, 
or 1328; and
    (B) With regard to any consumer on the mortgage loan:
    (1) The consumer requests in writing that the servicer cease 
providing a periodic statement or coupon book;
    (2) The consumer's bankruptcy plan provides that the consumer will 
surrender the dwelling securing the mortgage loan, provides for the 
avoidance of the lien securing the mortgage loan, or otherwise does not 
provide for, as applicable, the payment of pre-bankruptcy arrearage or 
the maintenance of payments due under the mortgage loan;
    (3) A court enters an order in the bankruptcy case providing for 
the avoidance of the lien securing the mortgage loan, lifting the 
automatic stay pursuant to 11 U.S.C. 362 with regard to the dwelling 
securing the mortgage loan, or requiring the servicer to cease 
providing a periodic statement or coupon book; or
    (4) The consumer files with the court overseeing the bankruptcy 
case a statement of intention pursuant to 11 U.S.C. 521(a) identifying 
an intent to surrender the dwelling securing the mortgage loan and a 
consumer has not made any partial or periodic payment on the mortgage 
loan after the commencement of the consumer's bankruptcy case.
    (ii) Reaffirmation or consumer request to receive statement or 
coupon book. A servicer ceases to qualify for an exemption pursuant to 
paragraph (e)(5)(i) of this section with respect to a mortgage loan if 
the consumer reaffirms personal liability for the loan or any consumer 
on the loan requests in writing that the servicer provide a periodic 
statement or coupon book, unless a court enters an order in the 
bankruptcy case requiring the servicer to cease providing a periodic 
statement or coupon book.
    (iii) Exclusive address. A servicer may establish an address that a 
consumer must use to submit a written request under paragraph 
(e)(5)(i)(B)(1) or (e)(5)(ii) of this section, provided that the 
servicer notifies the consumer of the address in a manner that is 
reasonably designed to inform the consumer of the address. If a 
servicer designates a specific address for requests under paragraph 
(e)(5)(i)(B)(1) or (e)(5)(ii) of this section, the servicer shall 
designate the same address for purposes of both paragraphs 
(e)(5)(i)(B)(1) and (e)(5)(ii) of this section.
    (iv) Timing of compliance following transition--(A) Triggering 
events for transitioning to modified and unmodified periodic 
statements. A servicer transitions to providing a periodic statement or 
coupon book with the modifications set forth in paragraph (f) of this 
section or to providing a periodic statement or coupon book without 
such modifications when one of the following three events occurs:
    (1) A mortgage loan becomes subject to the requirements of 
paragraph (f) of this section;
    (2) A mortgage loan ceases to be subject to the requirements of 
paragraph (f) of this section; or
    (3) A servicer ceases to qualify for an exemption pursuant to 
paragraph (e)(5)(i) of this section with respect to a mortgage loan.
    (B) Transitional single-billing-cycle exemption. A servicer is 
exempt from the requirements of this section with respect to a single 
billing cycle when the payment due date for that billing cycle is no 
more than 14 days after the date on which one of the events listed in 
paragraph (e)(5)(iv)(A) of this section occurs.
    (C) Timing of first modified or unmodified statement after 
transition. When one of the events listed in paragraph (e)(5)(iv)(A) of 
this section occurs, a servicer must provide the next modified or 
unmodified periodic statement or coupon book that complies with the 
requirements of this section by delivering or placing it in the mail 
within a reasonably prompt time after the first payment due date, or 
the end of any courtesy period for the payment's corresponding billing 
cycle, that is more than 14 days after the date on which the applicable 
event listed in paragraph (e)(5)(iv)(A) of this section occurs.
    (6) Charged-off loans. (i) A servicer is exempt from the 
requirements of this section for a mortgage loan if the servicer:
    (A) Has charged off the loan in accordance with loan-loss 
provisions and will not charge any additional fees or interest on the 
account; and
    (B) Provides, within 30 days of charge-off or the most recent 
periodic statement, a periodic statement, clearly and conspicuously 
labeled ``Suspension of Statements & Notice of Charge Off--Retain This 
Copy for Your Records.'' The periodic statement must clearly and 
conspicuously explain that, as applicable, the mortgage loan has been 
charged off and the servicer will not charge any additional fees or 
interest on the account; the servicer will no longer provide the 
consumer a periodic statement for each billing cycle; the lien on the 
property remains in place and the consumer remains liable for the 
mortgage loan obligation and any obligations arising from or related to 
the property, which may include property taxes; the consumer may be 
required to pay the balance on the account in the future, for example, 
upon sale of the property; the balance on the account is not being 
canceled or forgiven; and the loan may be purchased, assigned, or 
transferred.
    (ii) Resuming compliance. (A) If a servicer fails at any time to 
treat a mortgage loan that is exempt under paragraph (e)(6)(i) of this 
section as charged off or charges any additional fees or interest on 
the account, the obligation to provide a periodic statement pursuant to 
this section resumes.
    (B) Prohibition on retroactive fees. A servicer may not 
retroactively assess fees or interest on the account for the period of 
time during which the exemption in paragraph (e)(6)(i) of this section 
applied.
    (f) Modified periodic statements and coupon books for certain 
consumers in bankruptcy. While any consumer on a mortgage loan is a 
debtor in bankruptcy under title 11 of the United States Code, or if 
such consumer has discharged personal liability for the mortgage loan 
pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, the requirements of 
this section are subject to the following modifications with regard to 
that mortgage loan:
    (1) Requirements not applicable. The periodic statement may omit 
the information set forth in paragraphs (d)(1)(ii) and (d)(8)(i), (ii), 
and (v) of this section. The requirement in paragraph (d)(1)(iii) of 
this section that the amount due must be shown more prominently than 
other disclosures on the page shall not apply.
    (2) Bankruptcy notices. The periodic statement must include the 
following:
    (i) A statement identifying the consumer's status as a debtor in 
bankruptcy or the discharged status of the mortgage loan; and
    (ii) A statement that the periodic statement is for informational 
purposes only.
    (3) Chapter 12 and chapter 13 consumers. In addition to any other 
provisions of this paragraph (f) that may apply, with regard to a 
mortgage loan for which any consumer with primary liability is a debtor 
in a chapter 12 or chapter 13 bankruptcy case, the requirements of this 
section are subject to the following modifications:
    (i) Requirements not applicable. In addition to omitting the 
information set

[[Page 72390]]

forth in paragraph (f)(1) of this section, the periodic statement may 
also omit the information set forth in paragraphs (d)(8)(iii), (iv), 
(vi), and (vii) of this section.
    (ii) Amount due. The amount due information set forth in paragraph 
(d)(1) of this section may be limited to the date and amount of the 
post-petition payments due and any post-petition fees and charges 
imposed by the servicer.
    (iii) Explanation of amount due. The explanation of amount due 
information set forth in paragraph (d)(2) of this section may be 
limited to:
    (A) The monthly post-petition payment amount, including a breakdown 
showing how much, if any, will be applied to principal, interest, and 
escrow;
    (B) The total sum of any post-petition fees or charges imposed 
since the last statement; and
    (C) Any post-petition payment amount past due.
    (iv) Transaction activity. The transaction activity information set 
forth in paragraph (d)(4) of this section must include all payments the 
servicer has received since the last statement, including all post-
petition and pre-petition payments and payments of post-petition fees 
and charges, and all post-petition fees and charges the servicer has 
imposed since the last statement. The brief description of the activity 
need not identify the source of any payments.
    (v) Pre-petition arrearage. If applicable, a servicer must 
disclose, grouped in close proximity to each other and located on the 
first page of the statement or, alternatively, on a separate page 
enclosed with the periodic statement or in a separate letter:
    (A) The total of all pre-petition payments received since the last 
statement;
    (B) The total of all pre-petition payments received since the 
beginning of the consumer's bankruptcy case; and
    (C) The current balance of the consumer's pre-petition arrearage.
    (vi) Additional disclosures. The periodic statement must include, 
as applicable:
    (A) A statement that the amount due includes only post-petition 
payments and does not include other payments that may be due under the 
terms of the consumer's bankruptcy plan;
    (B) If the consumer's bankruptcy plan requires the consumer to make 
the post-petition mortgage payments directly to a bankruptcy trustee, a 
statement that the consumer should send the payment to the trustee and 
not to the servicer;
    (C) A statement that the information disclosed on the periodic 
statement may not include payments the consumer has made to the trustee 
and may not be consistent with the trustee's records;
    (D) A statement that encourages the consumer to contact the 
consumer's attorney or the trustee with questions regarding the 
application of payments; and
    (E) If the consumer is more than 45 days delinquent on post-
petition payments, a statement that the servicer has not received all 
the payments that became due since the consumer filed for bankruptcy.
    (4) Multiple obligors. If this paragraph (f) applies in connection 
with a mortgage loan with more than one primary obligor, the servicer 
may provide the modified statement to any or all of the primary 
obligors, even if a primary obligor to whom the servicer provides the 
modified statement is not a debtor in bankruptcy.
    (5) Coupon books. A servicer that provides a coupon book instead of 
a periodic statement under paragraph (e)(3) of this section must 
include in the coupon book the disclosures set forth in paragraphs 
(f)(2) and (f)(3)(vi) of this section, as applicable. The servicer may 
include these disclosures anywhere in the coupon book provided to the 
consumer or on a separate page enclosed with the coupon book. The 
servicer must make available upon request to the consumer by telephone, 
in writing, in person, or electronically, if the consumer consents, the 
information listed in paragraph (f)(3)(v) of this section, as 
applicable. The modifications set forth in paragraphs (f)(1) and 
(f)(3)(i) through (iv) and (vi) of this section apply to a coupon book 
and other information a servicer provides to the consumer under 
paragraph (e)(3) of this section.
    (g) Successor in interest. If, upon confirmation, a servicer 
provides a confirmed successor in interest who is not liable on the 
mortgage loan obligation with a written notice and acknowledgment form 
in accordance with Regulation X, Sec.  1024.32(c)(1) of this chapter, 
the servicer is not required to provide to the confirmed successor in 
interest any written disclosure required by this section unless and 
until the confirmed successor in interest either assumes the mortgage 
loan obligation under State law or has provided the servicer an 
executed acknowledgment in accordance with Regulation X, Sec.  
1024.32(c)(1)(iv) of this chapter, that the confirmed successor in 
interest has not revoked.

0
24. Appendix H to part 1026 is amended by:
0
a. Revising the entry for H-30(C) in the table of contents at the 
beginning of the appendix;
0
b. Adding entries for H-30(E) and H-30(F) in the table of contents at 
the beginning of the appendix;
0
c. Revising H-4(C), H-14, and H-30(C); and
0
d. Adding H-30(E) and H-30(F).
    The additions and revisions read as follows:

Appendix H to Part 1026--Closed-End Model Forms and Clauses

* * * * *
H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan 
(Sec.  1026.41)
* * * * *
H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 
or Chapter 11 Bankruptcy
H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 
or Chapter 13 Bankruptcy
* * * * *

H-4(C)--Variable Rate Model Clauses

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.

How Your Interest Rate and Payment Are Determined

     Your interest rate will be based on [an index plus a 
margin] [a formula].
     Your payment will be based on the interest rate, loan 
balance, and loan term.

--[The interest rate will be based on (identification of index) plus 
our margin. Ask for our current interest rate and margin.]
--[The interest rate will be based on (identification of formula). 
Ask us for our current interest rate.]
--Information about the index [formula for rate adjustments] is 
published [can be found] ___.
--[The initial interest rate is not based on the (index) (formula) 
used to make later adjustments. Ask us for the amount of current 
interest rate discounts.]

How Your Interest Rate Can Change

     Your interest rate can change (frequency).
     [Your interest rate cannot increase or decrease more 
than __ percentage points at each adjustment.]
     Your interest rate cannot increase [or decrease] more 
than __ percentage points over the term of the loan.

How Your Payment Can Change

     Your payment can change (frequency) based on changes in 
the interest rate.
     [Your payment cannot increase more than (amount or 
percentage) at each adjustment.]
     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the

[[Page 72391]]

adjustment, including the interest rate, payment amount, and loan 
balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]
     [For example, on a $10,000 [term] loan with an initial 
interest rate of __ [(the rate shown in the interest rate column 
below for the year 19 __)] [(in effect (month) (year)], the maximum 
amount that the interest rate can rise under this program is __ 
percentage points, to __%, and the monthly payment can rise from a 
first-year payment of $__ to a maximum of $__ in the __ year. To see 
what your payments would be, divide your mortgage amount by $10,000; 
then multiply the monthly payment by that amount. (For example, the 
monthly payment for a mortgage amount of $60,000 would be: $60,000 / 
$10,000 = 6; 6 x __ = $__ per month.)]

[Example

    The example below shows how your payments would have changed 
under this ARM program based on actual changes in the index from 
1982 to 1996. This does not necessarily indicate how your index will 
change in the future.
    The example is based on the following assumptions:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Amount...................................  $10,000.
Term.....................................  ----.
Change date..............................  ----.
Payment adjustment.......................  (frequency).
Interest adjustment......................  (frequency).
[Margin] *...............................  ----.
------------------------------------------------------------------------
Caps __ [periodic interest rate cap]....................................
__ [lifetime interest rate cap..........................................
__ [payment cap]........................................................
[Interest rate carryover]...............................................
[Negative amortization].................................................
[Interest rate discount].**.............................................
Index(identification of index or formula)...............................
------------------------------------------------------------------------
* This is a margin we have used recently, your margin may be different.
** This is the amount of a discount we have provided recently; your loan
  may be discounted by a different amount.]


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Margin
                           Year                                Index  (%)        (percentage       Interest  rate    Monthly  payment      Remaining
                                                                                   points)              (%)                ($)            balance  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1982.....................................................  .................  .................  .................  .................  .................
1983.....................................................  .................  .................  .................  .................  .................
1984.....................................................  .................  .................  .................  .................  .................
1985.....................................................  .................  .................  .................  .................  .................
1986.....................................................  .................  .................  .................  .................  .................
1987.....................................................  .................  .................  .................  .................  .................
1988.....................................................  .................  .................  .................  .................  .................
1989.....................................................  .................  .................  .................  .................  .................
1990.....................................................  .................  .................  .................  .................  .................
1991.....................................................  .................  .................  .................  .................  .................
1992.....................................................  .................  .................  .................  .................  .................
1993.....................................................  .................  .................  .................  .................  .................
1994.....................................................  .................  .................  .................  .................  .................
1995.....................................................  .................  .................  .................  .................  .................
1996.....................................................  .................  .................  .................  .................  .................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that
  amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x __ = $__ per
  month.)

* * * * *

H-14--Variable Rate Mortgage Sample

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.

How Your Interest Rate and Payment Are Determined

     Your interest rate will be based on an index rate plus 
a margin.
     Your payment will be based on the interest rate, loan 
balance, and loan term.
    --The interest rate will be based on the weekly average yield on 
United States Treasury securities adjusted to a constant maturity of 
1 year (your index), plus our margin. Ask us for our current 
interest rate and margin.
    --Information about the index rate is published weekly in the 
Wall Street Journal.
     Your interest rate will equal the index rate plus our 
margin unless your interest rate ``caps'' limit the amount of change 
in the interest rate.

How Your Interest Rate Can Change

     Your interest rate can change yearly.
     Your interest rate cannot increase or decrease more 
than 2 percentage points per year.
     Your interest rate cannot increase or decrease more 
than 5 percentage points over the term of the loan.

How Your Monthly Payment Can Change

     Your monthly payment can increase or decrease 
substantially based on annual changes in the interest rate.
     [For example, on a $10,000, 30-year loan with an 
initial interest rate of 12.41 percent in effect in July 1996, the 
maximum amount that the interest rate can rise under this program is 
5 percentage points, to 17.41 percent, and the monthly payment can 
rise from a first-year payment of $106.03 to a maximum of $145.34 in 
the fourth year. To see what your payment is, divide your mortgage 
amount by $10,000; then multiply the monthly payment by that amount. 
(For example, the monthly payment for a mortgage amount of $60,000 
would be: $60,000 / $10,000 = 6; 6 x 106.03 = $636.18 per month.)]
     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the adjustment, including the interest 
rate, payment amount, and loan balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]

[Example

    The example below shows how your payments would have changed 
under this ARM program based on actual changes in the index from 
1982 to 1996. This does not necessarily indicate how your index will 
change in the future. The example is based on the following 
assumptions:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Amount...................................  $10,000.
Term.....................................  30 years.
Payment adjustment.......................  1 year.
Interest adjustment......................  1 year.
Margin...................................  3 percentage points.
------------------------------------------------------------------------
Caps __ 2 percentage points annual interest rate........................
__ 5 percentage points lifetime interest rate...........................
Index __ Weekly average yield on U.S. Treasury securities adjusted to a
 constant maturity of one year..
------------------------------------------------------------------------


[[Page 72392]]


----------------------------------------------------------------------------------------------------------------
                                                     Margin *
 Year (as of 1st week ending in        Index        (percentage    Interest rate      Monthly        Remaining
              July)                                   points)           (%)         payment ($)     balance ($)
----------------------------------------------------------------------------------------------------------------
1982............................           14.41               3           17.41          145.90        9,989.37
1983............................            9.78               3       * * 15.41          129.81        9,969.66
1984............................           12.17               3           15.17          127.91        9,945.51
1985............................            7.66               3        ** 13.17          112.43        9,903.70
1986............................            6.36               3       *** 12.41          106.73        9,848.94
1987............................            6.71               3       *** 12.41          106.73        9,786.98
1988............................            7.52               3       *** 12.41          106.73        9,716.88
1989............................            7.97               3       *** 12.41          106.73        9,637.56
1990............................            8.06               3       *** 12.41          106.73        9,547.83
1991............................            6.40               3       *** 12.41          106.73        9,446.29
1992............................            3.96               3       *** 12.41          106.73        9,331.56
1993............................            3.42               3       *** 12.41          106.73        9,201.61
1994............................            5.47               3       *** 12.41          106.73        9,054.72
1995............................            5.53               3       *** 12.41          106.73        8,888.52
1996............................            5.82               3       *** 12.41          106.73        8,700.37
----------------------------------------------------------------------------------------------------------------
* This is a margin we have used recently; your margin may be different.
** This interest rate reflects a 2 percentage point annual interest rate cap.
*** This interest rate reflects a 5 percentage point lifetime interest rate cap.
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
  multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
  of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x $106.73 = $640.38.)]

     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the adjustment, including the interest 
rate, payment amount, and loan balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]
* * * * *
BILLING CODE 4810-AM-P

H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan

[[Page 72393]]

[GRAPHIC] [TIFF OMITTED] TR19OC16.000

* * * * *

H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or 
Chapter 11 Bankruptcy

[[Page 72394]]

[GRAPHIC] [TIFF OMITTED] TR19OC16.001

H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or 
Chapter 13 Bankruptcy

[[Page 72395]]

[GRAPHIC] [TIFF OMITTED] TR19OC16.002

BILLING CODE 4810-AM-C

0
25. In supplement I to part 1026:
0
a. Effective April 19, 2018, under Section 1026.2--Definitions and 
Rules of Construction:
0
i. Under 2(a)(11) Consumer, paragraph 4 is added.
0
ii. After the entry for 2(a)(25) Security Interest, the heading 
Paragraph 2(a)(27), the heading 2(a)(27)(i) Successor in interest, and 
paragraphs 1 and 2 under that heading are added.
0
b. Effective April 19, 2018, under Section 1026.20--Disclosure 
requirements regarding post-consummation events, under 20(e)(4) Form of 
disclosures, paragraph 3 is added.
0
c. Under Section 1026.36--Prohibited Acts or Practices and Certain 
Requirements for Credit Secured by a Dwelling:
0
i. Under Paragraph 36(c)(1)(i), paragraphs 4 and 5 are added.
0
ii. Effective April 19, 2018, under Paragraph 36(c)(1)(iii), paragraph 
2 is revised.
0
d. Under Section 1026.41--Periodic Statements for Residential Mortgage 
Loans:

[[Page 72396]]

0
i. Under 41(a) In general, paragraph 1 is revised.
0
ii. Under 41(c) Form of the periodic statement, paragraph 5 is added.
0
iii. Under 41(d) Content and layout of the periodic statement, 
paragraph 1 is revised, and paragraphs 4 and 5 are added.
0
iv. After the entry for 41(d), the heading 41(d)(1) Amount due is 
added, and paragraphs 1 through 3 under that heading are added.
0
v. The heading 41(d)(2) Explanation of amount due is added, and 
paragraphs 1 and 2 under that heading are added.
0
vi. After the entry for 41(d)(4), the heading 41(d)(8) Delinquency 
information is added, and paragraphs 1 and 2 under that heading are 
added.
0
vii. After the entry for 41(d)(8), the heading 41(e) Exemptions is 
added.
0
viii. The heading for 41(e)(5) is revised, and under that heading 
paragraphs 1 through 3 are revised, and paragraph 4 is added.
0
ix. The heading 41(e)(5)(i) Exemption is added, and paragraph 1 under 
that heading is added.
0
x. The heading Paragraph 41(e)(5)(i)(B)(2) is added, and paragraph 1 
under that heading is added.
0
xi. The heading Paragraph 41(e)(5)(i)(B)(4) is added, and paragraph 1 
under that heading is added.
0
xii. The heading 41(e)(5)(ii) Reaffirmation or consumer request to 
receive statement or coupon book is added, and paragraph 1 under that 
heading is added.
0
xiii. The heading 41(e)(5)(iv) Timing of compliance following 
transition is added.
0
xiv. The heading 41(e)(5)(iv)(A) Triggering events for transitioning to 
modified or unmodified statement or coupon book is added, and 
paragraphs 1 and 2 under that heading are added.
0
xv. The heading 41(e)(5)(iv)(B) Transitional single-billing-cycle 
exemption is added, and paragraph 1 under that heading is added.
0
xvi. The heading 41(e)(5)(iv)(C) Timing of first modified or unmodified 
statement or coupon book after transition is added, and paragraphs 1 
through 3 under that heading are added.
0
xvii. The heading 41(e)(6) Charged-off loans is added, and paragraphs 1 
and 2 under that heading are added.
0
xviii. Under 41(e)(6) Charged-off loans, the heading Paragraph 
41(e)(6)(i)(B) is added, and paragraph 1 under that heading is added.
0
xix. The heading 41(f) Modified periodic statements and coupon books 
for certain consumers in bankruptcy is added, and paragraphs 1 through 
6 under that heading are added.
0
xx. The heading 41(f)(3) Chapter 12 and chapter 13 consumers is added, 
and paragraphs 1 through 3 under that heading are added.
0
xxi. The heading 41(f)(3)(ii) Amount due is added, and paragraph 1 
under that heading is added.
0
xxii. The heading 41(f)(3)(iii) Explanation of amount due is added, and 
paragraph 1 under that heading is added.
0
xxiii. The heading 41(f)(3)(v) Pre-petition arrearage is added, and 
paragraph 1 under that heading is added.
0
xxiv. The heading 41(f)(4) Multiple obligors is added, and paragraphs 1 
and 2 under that heading are added.
    The additions and revisions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart A--General

* * * * *


Sec.  1026.2   Definitions and Rules of Construction.

* * * * *
    2(a)(11) Consumer
* * * * *
    4. Successors in interest. i. Assumption of the mortgage loan 
obligation. A servicer may not require a confirmed successor in 
interest to assume the mortgage loan obligation to be considered a 
consumer for purposes of Sec. Sec.  1026.20(c) through (e), 1026.36(c), 
1026.39, and 1026.41. If a successor in interest assumes a mortgage 
loan obligation under State law or is otherwise liable on the mortgage 
loan obligation, the protections the successor in interest enjoys under 
this part are not limited to Sec. Sec.  1026.20(c) through (e), 
1026.36(c), 1026.39, and 1026.41.
    ii. Communications with confirmed successors in interest. 
Communications in compliance with this part to a confirmed successor in 
interest as defined in Sec.  1026.2(a)(27)(ii) do not violate section 
805(b) of the Fair Debt Collection Practices Act (FDCPA) because 
consumer for purposes of FDCPA section 805 includes any person who 
meets the definition in this part of confirmed successor in interest.
    iii. Treatment of transferor consumer. Even after a servicer's 
confirmation of a successor in interest, the servicer is still required 
to comply with all applicable requirements of Sec. Sec.  1026.20(c) 
through (e), 1026.36(c), 1026.39, and 1026.41 with respect to the 
consumer who transferred an ownership interest to the successor in 
interest.
    iv. Multiple notices unnecessary. Except as required by Regulation 
X, 12 CFR 1024.36, a servicer is not required to provide to a confirmed 
successor in interest any written disclosure required by Sec.  
1026.20(c), (d), or (e), Sec.  1026.39, or Sec.  1026.41 if the 
servicer is providing the same specific disclosure to another consumer 
on the account. For example, a servicer is not required to provide a 
periodic statement required by Sec.  1026.41 to a confirmed successor 
in interest if the servicer is providing the same periodic statement to 
another consumer; a single statement may be sent in that billing cycle. 
If a servicer confirms more than one successor in interest, the 
servicer need not send any disclosure required by Sec.  1026.20(c), 
(d), or (e), Sec.  1026.39, or Sec.  1026.41 to more than one of the 
confirmed successors in interest.
* * * * *
    Paragraph 2(a)(27)
    2(a)(27)(i) Successor in interest
    1. Joint tenants and tenants by the entirety. If a consumer who has 
an ownership interest as a joint tenant or tenant by the entirety in a 
dwelling securing a closed-end consumer credit transaction dies, a 
surviving joint tenant or tenant by the entirety with a right of 
survivorship in the property is a successor in interest as defined in 
Sec.  1026.2(a)(27)(i).
    2. Beneficiaries of inter vivos trusts. In the event of a transfer 
into an inter vivos trust in which the consumer is and remains a 
beneficiary and which does not relate to a transfer of rights of 
occupancy in the property, the beneficiaries of the inter vivos trust 
rather than the inter vivos trust itself are considered to be the 
successors in interest for purposes of Sec.  1026.2(a)(27)(i). For 
example, assume Consumer A transfers her home into such an inter vivos 
trust for the benefit of her spouse and herself. As of the transfer 
date, Consumer A and her spouse are considered successors in interest 
and, upon confirmation, are consumers for purposes of certain 
provisions of this part. If the creditor has not released Consumer A 
from the loan obligation, Consumer A also remains a consumer more 
generally for purposes of this part.
* * * * *

Subpart C--Closed-End Credit

* * * * *


Sec.  1026.20  Disclosure requirements regarding post-consummation 
events.

* * * * *
    20(e)(4) Form of disclosures.
* * * * *
    3. Modifications of disclosures. The requirements of Sec.  
1026.20(e)(4) to

[[Page 72397]]

provide the Sec.  1026.20(e) disclosures with the headings, content, 
order, and format substantially similar to model form H-29 in appendix 
H to this part do not preclude creditors and servicers from modifying 
the disclosures to accommodate particular consumer circumstances or 
transactions not addressed by the form or from adjusting the statement 
required by Sec.  1026.20(e)(2)(ii)(A), concerning consequences if the 
consumer fails to pay property costs, to the circumstances of the 
particular consumer.
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *


Sec.  1026.36  Prohibited acts or practices and certain requirements 
for credit secured by a dwelling.

* * * * *
    Paragraph 36(c)(1)(i).
* * * * *
    4. Temporary loss mitigation programs. If a loan contract has not 
been permanently modified but the consumer has agreed to a temporary 
loss mitigation program, a periodic payment under Sec.  
1026.36(c)(1)(i) is the amount sufficient to cover principal, interest, 
and escrow (if applicable) for a given billing cycle under the loan 
contract, regardless of the payment due under the temporary loss 
mitigation program.
    5. Permanent loan modifications. If a loan contract has been 
permanently modified, a periodic payment under Sec.  1026.36(c)(1)(i) 
is an amount sufficient to cover principal, interest, and escrow (if 
applicable) for a given billing cycle under the modified loan contract.
* * * * *
    Paragraph 36(c)(1)(iii).
* * * * *
    2. Payment requirements--Limitations. Requirements for making 
payments must be reasonable; it should not be difficult for most 
consumers and potential successors in interest to make conforming 
payments. For example, it would be reasonable to require a cut-off time 
of 5 p.m. for receipt of a mailed check at the location specified by 
the servicer for receipt of such check.
* * * * *


Sec.  1026.41  Periodic Statements for Residential Mortgage Loans.

* * * * *
    41(a) In general.
    1. Recipient of periodic statement. When two consumers are joint 
obligors with primary liability on a closed-end consumer credit 
transaction secured by a dwelling subject to Sec.  1026.41, the 
periodic statement may be sent to either one of them. For example, if 
spouses jointly own a home, the servicer need not send statements to 
both spouses; a single statement may be sent.
* * * * *
    41(c) Form of the periodic statement.
* * * * *
    5. Permissible changes. Servicers may modify the sample forms for 
periodic statements provided in appendix H-30 of this part to remove 
language that could suggest liability under the mortgage loan agreement 
if such language is not applicable. For example, in the case of a 
confirmed successor in interest who has not assumed the mortgage loan 
obligation under State law and is not otherwise liable on the mortgage 
loan obligation, a servicer may modify the forms to:
    i. Use ``this mortgage'' or ``the mortgage'' instead of ``your 
mortgage.''
    ii. Use ``The payments on this mortgage are late'' instead of ``You 
are late on your mortgage payments.''
    iii. Use ``This is the amount needed to bring the loan current'' 
instead of ``You must pay this amount to bring your loan current.''
    41(d) Content and layout of the periodic statement.
    1. Close proximity. Section 1026.41(d) requires several disclosures 
to be provided in close proximity to one another. To meet this 
requirement, the items to be provided in close proximity must be 
grouped together, and set off from other groupings of items. This may 
be accomplished in a variety of ways, for example, by presenting the 
information in boxes, or by arranging the items on the document and 
including spacing between the groupings. Items in close proximity may 
not have any unrelated text between them. Text is unrelated if it does 
not explain or expand upon the required disclosures.
* * * * *
    4. Temporary loss mitigation programs. If the consumer has agreed 
to a temporary loss mitigation program, the disclosures required by 
Sec.  1026.41(d)(2), (3), and (5) regarding how payments were and will 
be applied must identify how payments are applied according to the loan 
contract, regardless of the temporary loss mitigation program.
    5. First statement after exemption terminates. Section 
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) requires the disclosure of the 
total sum of any fees or charges imposed since the last statement, the 
total of all payments received since the last statement, including a 
breakdown of how payments were applied, and a list of all transaction 
activity since the last statement. For purposes of the first periodic 
statement provided to the consumer following termination of an 
exemption under Sec.  1026.41(e), the disclosures required by Sec.  
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be limited to account 
activity since the last payment due date that occurred while the 
exemption was in effect. For example, if mortgage loan payments are due 
on the first of each month and the servicer's exemption under Sec.  
1026.41(e) terminated on January 15, the first statement provided to 
the consumer after January 15 may be limited to the total sum of any 
fees or charges imposed, the total of all payments received, a 
breakdown of how the payments were applied, and a list of all 
transaction activity since January 1.
    41(d)(1) Amount due.
    1. Acceleration. If the balance of a mortgage loan has been 
accelerated but the servicer will accept a lesser amount to reinstate 
the loan, the amount due under Sec.  1026.41(d)(1) must identify only 
the lesser amount that will be accepted to reinstate the loan. The 
periodic statement must be accurate when provided and should indicate, 
if applicable, that the amount due is accurate only for a specified 
period of time. For example, the statement may include language such as 
``as of [date]'' or ``good through [date]'' and provide an amount due 
that will reinstate the loan as of that date or good through that date, 
respectively.
    2. Temporary loss mitigation programs. If the consumer has agreed 
to a temporary loss mitigation program, the amount due under Sec.  
1026.41(d)(1) may identify either the payment due under the temporary 
loss mitigation program or the amount due according to the loan 
contract.
    3. Permanent loan modifications. If the loan contract has been 
permanently modified, the amount due under Sec.  1026.41(d)(1) must 
identify only the amount due under the modified loan contract.
    41(d)(2) Explanation of amount due.
    1. Acceleration. If the balance of a mortgage loan has been 
accelerated but the servicer will accept a lesser amount to reinstate 
the loan, the explanation of amount due under Sec.  1026.41(d)(2) must 
list both the reinstatement amount that is disclosed as the amount due 
and the accelerated amount but not the monthly payment amount that 
would otherwise be required under Sec.  1026.41(d)(2)(i). The periodic 
statement must also include an explanation that the reinstatement 
amount will be accepted to reinstate the loan through the ``as of 
[date]'' or ``good through [date],'' as applicable, along

[[Page 72398]]

with any special instructions for submitting the payment. The 
explanation should be on the front page of the statement or, 
alternatively, may be included on a separate page enclosed with the 
periodic statement. The explanation may include related information, 
such as a statement that the amount disclosed is ``not a payoff 
amount.''
    2. Temporary loss mitigation programs. If the consumer has agreed 
to a temporary loss mitigation program and the amount due identifies 
the payment due under the temporary loss mitigation program, the 
explanation of amount due under Sec.  1026.41(d)(2) must include both 
the amount due according to the loan contract and the payment due under 
the temporary loss mitigation program. The statement must also include 
an explanation that the amount due is being disclosed as a different 
amount because of the temporary loss mitigation program. The 
explanation should be on the front page of the statement or, 
alternatively, may be included on a separate page enclosed with the 
periodic statement or in a separate letter.
* * * * *
    41(d)(8) Delinquency information.
    1. Length of delinquency. For purposes of Sec.  1026.41(d)(8), the 
length of a consumer's delinquency is measured as of the date of the 
periodic statement or the date of the written notice provided under 
Sec.  1026.41(e)(3)(iv). A consumer's delinquency begins on the date an 
amount sufficient to cover a periodic payment of principal, interest, 
and escrow, if applicable, becomes due and unpaid, even if the consumer 
is afforded a period after the due date to pay before the servicer 
assesses a late fee. A consumer is delinquent if one or more periodic 
payments of principal, interest, and escrow, if applicable, are due and 
unpaid.
    2. Application of funds. For purposes of Sec.  1026.41(d)(8), if a 
servicer applies payments to the oldest outstanding periodic payment, a 
payment by a delinquent consumer advances the date the consumer's 
delinquency began. For example, assume a mortgage loan obligation under 
which a consumer's periodic payment is due on the first of each month. 
A consumer fails to make a payment on January 1 but makes a periodic 
payment on February 3. The servicer applies the payment received on 
February 3 to the outstanding January payment. On February 4, the 
consumer is three days delinquent, and the next periodic statement 
should disclose the length of the consumer's delinquency using February 
2 as the first day of delinquency.
    41(e) Exemptions.
* * * * *
    41(e)(5) Certain consumers in bankruptcy.
    1. Consumer's representative. If an agent of the consumer, such as 
the consumer's bankruptcy counsel, submits a request under Sec.  
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii), the request is deemed to be 
submitted by the consumer.
    2. Multiple requests. A consumer's most recent written request 
under Sec.  1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) that the servicer 
cease or continue, as applicable, providing a periodic statement or 
coupon book determines whether the exemption in Sec.  1026.41(e)(5)(i) 
applies.
    3. Effective upon receipt. A consumer's written request under Sec.  
1026.41(e)(5)(i)(B)(1) or (e)(5)(ii) is effective as of the date of 
receipt by the servicer.
    4. Bankruptcy case revived. If a consumer's bankruptcy case is 
revived, for example, if the court reinstates a previously dismissed 
case or reopens a case, Sec.  1026.41(e)(5) may apply again, including 
the timing requirements in Sec.  1026.41(e)(5)(iv).
    41(e)(5)(i) Exemption.
    1. Multiple obligors. When two or more consumers are joint obligors 
with primary liability on a mortgage loan subject to Sec.  1026.41, 
Sec.  1026.41(e)(5)(i) applies if any one of the consumers meets its 
criteria. For example, assume that two spouses jointly own a home and 
are primary obligors on the mortgage loan. One spouse files for chapter 
13 bankruptcy and has a bankruptcy plan that provides for surrendering 
the dwelling that secures the mortgage loan. In part, Sec.  
1026.41(e)(5)(i) exempts the servicer from providing a periodic 
statement with regard to that mortgage loan, unless one of the spouses 
requests in writing that the servicer provide a periodic statement or 
coupon book pursuant to Sec.  1026.41(e)(5)(ii). If either spouse, 
including the one who is not a debtor in bankruptcy, submits a written 
request to receive a periodic statement or coupon book, the servicer 
must provide a periodic statement or coupon book for that mortgage loan 
account.
    Paragraph 41(e)(5)(i)(B)(2).
    1. Bankruptcy plan. For purposes of Sec.  1026.41(e)(5)(i)(B)(2), 
bankruptcy plan refers to the consumer's most recently filed bankruptcy 
plan under the applicable provisions of title 11 of the United States 
Code, regardless of whether the court overseeing the consumer's 
bankruptcy case has confirmed or approved the plan.
    Paragraph 41(e)(5)(i)(B)(4).
    1. Statement of intention. For purposes of Sec.  
1026.41(e)(5)(i)(B)(4), the statement of intention refers to the 
consumer's most recently filed statement of intention. For example, if 
a consumer files a statement of intention on June 1 identifying an 
intent to surrender the dwelling securing the mortgage loan but files 
an amended statement of intention on June 15 identifying an intent to 
retain the dwelling, the consumer's June 15 statement of intention is 
the relevant filing for purposes of Sec.  1026.41(e)(5)(i)(B)(4).
    41(e)(5)(ii) Reaffirmation or consumer request to receive statement 
or coupon book.
    1. Form of periodic statement or coupon book. Section 
1026.41(e)(5)(ii) generally requires a servicer, notwithstanding Sec.  
1026.41(e)(5)(i), to resume providing a periodic statement or coupon 
book if the consumer in bankruptcy reaffirms personal liability for the 
mortgage loan or any consumer on the mortgage loan requests in writing 
that the servicer provide a periodic statement or coupon book. Whether 
a servicer provides a periodic statement or coupon book as modified by 
Sec.  1026.41(f) or an unmodified periodic statement or coupon book 
depends on whether or not Sec.  1026.41(f) applies to that mortgage 
loan at that time. For example, Sec.  1026.41(f) does not apply with 
respect to a mortgage loan once the consumer has reaffirmed personal 
liability; therefore, following a consumer's reaffirmation, a servicer 
generally would provide a periodic statement or coupon book that 
complies with Sec.  1026.41 but without the modifications set forth in 
Sec.  1026.41(f). See comment 41(f)-6. Section 1026.41(f) does apply, 
however, with respect to a mortgage loan following a consumer's written 
request to receive a periodic statement or coupon book, so long as any 
consumer on the mortgage loan remains in bankruptcy or has discharged 
personal liability for the mortgage loan; accordingly, following that 
written request, a servicer must provide a periodic statement or coupon 
book that includes the modifications set forth in Sec.  1026.41(f).
    41(e)(5)(iv) Timing of compliance following transition.
    41(e)(5)(iv)(A) Triggering events for transitioning to modified and 
unmodified periodic statements.
    1. Section 1026.41(f) becomes applicable or ceases to apply. 
Section 1026.41(e)(5)(iv) sets forth the time period in which a 
servicer must provide

[[Page 72399]]

a periodic statement or coupon book for the first time after a mortgage 
loan either becomes subject to the requirements of Sec.  1026.41(f) or 
ceases to be subject to the requirements of Sec.  1026.41(f). A 
mortgage loan becomes subject to the requirements of Sec.  1026.41(f) 
when, for example, any consumer on the mortgage loan becomes a debtor 
in bankruptcy or discharges personal liability for the mortgage loan. A 
mortgage loan may cease to be subject to the requirements of Sec.  
1026.41(f) when, for example, the consumer in bankruptcy reaffirms 
personal liability for a mortgage loan or the consumer's bankruptcy 
case is closed or dismissed without the consumer having discharged 
personal liability for the mortgage loan. See comment 41(f)-6.
    2. Servicer ceases to qualify for an exemption. Section 
1026.41(e)(5)(iv) sets forth the time period in which a servicer must 
provide a periodic statement or coupon book for the first time after a 
servicer ceases to qualify for an exemption pursuant to Sec.  
1026.41(e)(5)(i) with respect to a mortgage loan. A servicer ceases to 
qualify for an exemption pursuant to Sec.  1026.41(e)(5)(i) with 
respect to a mortgage loan when, for example:
    i. The consumer's bankruptcy case is dismissed or closed without 
the consumer having discharged personal liability for the mortgage 
loan;
    ii. The consumer files an amended bankruptcy plan or statement of 
intention that provides, as applicable, for the maintenance of payments 
due under the mortgage loan and the payment of pre-petition arrearage 
or that the consumer will retain the dwelling securing the mortgage 
loan;
    iii. A consumer makes a partial or periodic payment on the mortgage 
loan despite the consumer in bankruptcy having filed a statement of 
intention identifying an intent to surrender the dwelling securing the 
mortgage loan, thus making Sec.  1026.41(e)(5)(i)(B)(4) inapplicable;
    iv. The consumer in bankruptcy reaffirms personal liability for the 
mortgage loan; or
    v. The consumer submits a written request pursuant to Sec.  
1026.41(e)(ii) that the servicer resume providing a periodic statement 
or coupon book.
    41(e)(5)(iv)(B) Transitional single-billing-cycle exemption.
    1. An exemption under Sec.  1026.41(e)(5)(iv) applies for only the 
first billing cycle that occurs after one of the events listed in Sec.  
1026.41(e)(5)(iv)(A) occurs. If a servicer is required to provide a 
periodic statement or coupon book, the servicer must do so beginning 
with the next billing cycle in accordance with the timing provisions of 
Sec.  1026.41(e)(5)(iv)(C).
    41(e)(5)(iv)(C) Timing of first modified or unmodified statement or 
coupon book after transition.
    1. Reasonably prompt time. Section 1026.41(e)(5)(iv)(C) requires 
that, when one of the events listed in Sec.  1026.41(e)(5)(iv)(A) 
occurs, a servicer must provide the next periodic statement or coupon 
book by delivering or placing it in the mail within a reasonably prompt 
time after the next payment due date, or the end of any courtesy period 
for the payment's corresponding billing cycle, that is more than 14 
days after the date on which the applicable event listed in Sec.  
1026.41(e)(5)(iv)(A) occurs. Delivering, emailing, or placing the 
periodic statement or coupon book in the mail within four days after 
the payment due date or the end of the courtesy period generally would 
be considered reasonably prompt. See comment 41(b)-1.
    2. Subsequent periodic statements or coupon books. Section 
1026.41(e)(5)(iv)(C) applies to the timing of only the first periodic 
statement or coupon book a servicer provides after one of the events 
listed in Sec.  1026.41(e)(5)(iv)(A) occurs. For subsequent billing 
cycles, a servicer must provide a periodic statement or coupon book in 
accordance with the timing requirements of Sec.  1026.41(a)(2) and (b), 
as applicable.
    3. Duplicate coupon books not required. With respect to coupon 
books, Sec.  1026.41 requires a servicer to provide a new coupon book 
after one of the events listed in Sec.  1026.41(e)(5)(iv)(A) occurs 
only to the extent the servicer has not previously provided the 
consumer with a coupon book that covered the upcoming billing cycle.
    41(e)(6) Charged-off loans.
    1. Change in ownership. If a charged-off mortgage loan is 
subsequently purchased, assigned, or transferred, Sec.  1026.39(b) 
requires a covered person, as defined in Sec.  1026.39(a)(1), to 
provide mortgage transfer disclosures. See Sec.  1026.39.
    2. Change in servicing. A servicer may take advantage of the 
exemption in Sec.  1026.41(e)(6)(i), subject to the requirements of 
that paragraph, and may rely on a prior servicer's provision to the 
consumer of a periodic statement pursuant to Sec.  1026.41(e)(6)(i)(B) 
unless the servicer provided the consumer a periodic statement pursuant 
to Sec.  1026.41(a).
    Paragraph 41(e)(6)(i)(B).
    1. Clearly and conspicuously. Section 1026.41(e)(6)(i)(B) requires 
that the periodic statement be clearly and conspicuously labeled 
``Suspension of Statements & Notice of Charge Off--Retain This Copy for 
Your Records'' and that it clearly and conspicuously provide certain 
explanations to the consumer, as applicable, but no minimum type size 
or other technical requirements are imposed. The clear and conspicuous 
standard generally requires that disclosures be in a reasonably 
understandable form and readily noticeable to the consumer. See comment 
41(c)-1.
    41(f) Modified periodic statements and coupon books for certain 
consumers in bankruptcy.
    1. Compliance after the bankruptcy case ends. Except as provided in 
Sec.  1026.41(e)(5), Sec.  1026.41(f) applies with regard to a mortgage 
loan for which any consumer with primary liability is a debtor in a 
case under title 11 of the United States Code. After the debtor exits 
bankruptcy, Sec.  1026.41(f) continues to apply if the consumer has 
discharged personal liability for the mortgage loan, but Sec.  
1026.41(f) does not apply if the consumer has reaffirmed personal 
liability for the mortgage loan or otherwise has not discharged 
personal liability for the mortgage loan.
    2. Terminology. With regard to a periodic statement provided under 
Sec.  1026.41(f), a servicer may use terminology other than that found 
on the sample periodic statements in appendix H-30, so long as the new 
terminology is commonly understood. See comment 41(d)-3. For example, a 
servicer may take into account terminology appropriate for consumers in 
bankruptcy and refer to the ``amount due'' identified in Sec.  
1026.41(d)(1), as the ``payment amount.'' Similarly, a servicer may 
refer to an amount past due identified in Sec.  1026.41(d)(2)(iii) as 
``past unpaid amount.'' Additionally, a servicer may refer to the 
delinquency information required by Sec.  1026.41(d)(8) as an ``account 
history,'' and to the amount needed to bring the loan current, referred 
to in Sec.  1026.41(d)(8)(vi) as ``the total payment amount needed to 
bring the account current,'' as ``unpaid amount.''
    3. Other periodic statement requirements continue to apply. The 
requirements of Sec.  1026.41, including the content and layout 
requirements of Sec.  1026.41(d), apply unless modified expressly by 
Sec.  1026.41(e)(5) or (f). For example, the requirement under Sec.  
1026.41(d)(3) to disclose a past payment breakdown applies without 
modification with respect to a periodic statement provided to a 
consumer in bankruptcy.

[[Page 72400]]

    4. Further modifications. A periodic statement or coupon book 
provided under Sec.  1026.41(f) may be modified as necessary to 
facilitate compliance with title 11 of the United States Code, the 
Federal Rules of Bankruptcy Procedure, court orders, and local rules, 
guidelines, and standing orders. For example, a periodic statement or 
coupon book may include additional disclosures or disclaimers not 
required under Sec.  1026.41(f) but that are related to the consumer's 
status as a debtor in bankruptcy or that advise the consumer how to 
submit a written request under Sec.  1026.41(e)(5)(i)(B)(1). See 
comment 41(f)(3)-1.ii for a discussion of the treatment of a bankruptcy 
plan that modifies the terms of the mortgage loan, such as by reducing 
the outstanding balance of the mortgage loan or altering the applicable 
interest rate.
    5. Commencing compliance. A servicer must begin to provide a 
periodic statement or coupon book that complies with paragraph (f) of 
this section within the timeframe set forth in Sec.  1026.41(e)(5)(iv).
    6. Reaffirmation. For purposes of Sec.  1026.41(f), a consumer who 
has reaffirmed personal liability for a mortgage loan is not considered 
to be a debtor in bankruptcy.
    41(f)(3) Chapter 12 and chapter 13 consumers.
    1. Pre-petition payments and post-petition payments. i. For 
purposes of Sec.  1026.41(f)(3), pre-petition payments are payments 
made to cure the consumer's pre-bankruptcy defaults, and post-petition 
payments are payments made to satisfy the mortgage loan's periodic 
payments as they come due after the bankruptcy case is filed. For 
example, assume a consumer is $3,600 in arrears as of the bankruptcy 
filing date on a mortgage loan requiring monthly periodic payments of 
$2,000. The consumer's most recently filed bankruptcy plan requires the 
consumer to make payments of $100 each month for 36 months to pay the 
pre-bankruptcy arrearage, and $2,000 each month to satisfy the monthly 
periodic payments. Assuming the consumer makes the payments according 
to the plan, the $100 payments are the pre-petition payments and the 
$2,000 payments are the post-petition payments for purposes of the 
disclosures required under Sec.  1026.41(f)(3).
    ii. If a consumer is a debtor in a case under chapter 12 or if a 
consumer's bankruptcy plan modifies the terms of the mortgage loan, 
such as by reducing the outstanding balance of the mortgage loan or 
altering the applicable interest rate, the disclosures under Sec.  
1026.41(d)(1) and (2) and (f)(3)(ii) and (iii) may disclose either the 
amount payable under the original terms of the mortgage loan, the 
amount payable under the remaining secured portion of the adjusted 
mortgage loan, or a statement that the consumer should contact the 
trustee or the consumer's attorney with any questions about the amount 
payable. In such cases, the remaining disclosures under Sec.  
1026.41(d) or (f)(3), as applicable, may be limited to how payments are 
applied to the remaining secured portion of the adjusted mortgage loan.
    2. Post-petition fees and charges. For purposes of Sec.  
1026.41(f)(3), post-petition fees and charges are those fees and 
charges imposed after the bankruptcy case is filed. To the extent that 
the court overseeing the consumer's bankruptcy case requires such fees 
and charges to be included as an amendment to a servicer's proof of 
claim, a servicer may include such fees and charges in the balance of 
the pre-petition arrearage under Sec.  1026.41(f)(3)(v)(C) rather than 
treating them as post-petition fees and charges for purposes of Sec.  
1026.41(f)(3).
    3. First statement after exemption terminates. Section Sec.  
1026.41(f)(3)(iii) through (v) requires, in part, the disclosure of 
certain information regarding account activity that has occurred since 
the last statement. For purposes of the first periodic statement 
provided to the consumer following termination of an exemption under 
Sec.  1026.41(e), those disclosures regarding account activity that has 
occurred since the last statement may be limited to account activity 
since the last payment due date that occurred while the exemption was 
in effect. See comment 41(d)-5.
    41(f)(3)(ii) Amount due.
    1. Amount due. The amount due under Sec.  1026.41(d)(1) is not 
required to include any amounts other than post-petition payments the 
consumer is required to make under the terms of a bankruptcy plan, 
including any past due post-petition payments, and post-petition fees 
and charges that a servicer has imposed. The servicer is not required 
to include in the amount due any pre-petition payments due under a 
bankruptcy plan or other amounts payable pursuant to a court order. The 
servicer is not required to include in the amount due any post-petition 
fees and charges that the servicer has not imposed. A servicer that 
defers collecting a fee or charge until after complying with the 
Federal Rule of Bankruptcy Procedure 3002.1 procedures, and thus after 
a potential court determination on whether the fee or charge is 
allowed, is not required to disclose the fee or charge until complying 
with such procedures. However, a servicer may include in the amount due 
other amounts due to the servicer that are not post-petition payments 
or fees or charges, such as amounts due under an agreed order, provided 
those other amounts are also disclosed in the explanation of amount due 
and transaction activity.
    41(f)(3)(iii) Explanation of amount due.
    1. Explanation of amount due. The explanation of amount due under 
Sec.  1026.41(d)(2) is not required to include any amounts other than 
the post-petition payments, including the amount of any past due post-
petition payments and post-petition fees and charges that a servicer 
has imposed. Consistent with Sec.  1026.41(d)(3)(i), the post-petition 
payments must be broken down by the amount, if any, that will be 
applied to principal, interest, and escrow. The servicer is not 
required to disclose, as part of the explanation of amount due, any 
pre-petition payments or the amount of the consumer's pre-bankruptcy 
arrearage. However, a servicer may identify other amounts due to the 
servicer provided those amounts are also disclosed in the amount due 
and transaction activity. See comment 41(d)-4.
    41(f)(3)(v) Pre-petition arrearage.
    1. Pre-petition arrearage. If the pre-petition arrearage is subject 
to dispute, or has not yet been determined by the servicer, the 
periodic statement may include a statement acknowledging the unresolved 
amount of the pre-petition arrearage. A servicer may omit the 
information required by Sec.  1026.41(f)(3)(v) from the periodic 
statement until such time as the servicer has had a reasonable 
opportunity to determine the amount of the pre-petition arrearage. The 
servicer may not omit the information required by Sec.  
1026.41(f)(3)(v) from the periodic statement after the date that the 
bankruptcy court has fixed for filing proofs of claim in the consumer's 
bankruptcy case.
    41(f)(4) Multiple obligors.
    1. Modified statements. When two or more consumers are joint 
obligors with primary liability on a mortgage loan subject to Sec.  
1026.41, a servicer may send the periodic statement to any one of the 
primary obligors. See comment 41(a)-1. Section 1026.41(f)(4) provides 
that a servicer may provide a modified statement under Sec.  
1026.41(f), if applicable, to any or all of the primary obligors, even 
if a primary obligor to whom the servicer provides the modified 
statement is not a debtor in bankruptcy. The servicer need not provide 
an unmodified statement to any

[[Page 72401]]

of the primary obligors. For example, assume that two spouses jointly 
own a home and are both primarily liable on the mortgage loan. One 
spouse files for chapter 13 bankruptcy, and that spouse's chapter 13 
bankruptcy plan provides that the same spouse will retain the home by 
making pre-petition and post-petition payments. The servicer complies 
with Sec.  1026.41 by providing the modified periodic statement under 
Sec.  1026.41(f) to either spouse.
    2. Obligors in different chapters of bankruptcy. If two or more 
consumers are joint obligors with primary liability on a mortgage loan 
subject to Sec.  1026.41 and are debtors under different chapters of 
bankruptcy, only one of which is subject to Sec.  1026.41(f)(3), a 
servicer may, but need not, include the modifications set forth in 
Sec.  1026.41(f)(3). For example, assume one joint obligor is a debtor 
in a case under chapter 7 and another joint obligor is a debtor in a 
case under chapter 13, and that the servicer is not exempt from the 
periodic statement requirement under Sec.  1026.41(e)(5). The periodic 
statement or coupon book is subject to the modifications set forth in 
Sec.  1026.41(f)(1) and (2), but the servicer may determine whether it 
is appropriate to include the modifications set forth in Sec.  
1026.41(f)(3).
* * * * *

    Dated: August 2, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-18901 Filed 10-18-16; 8:45 am]
 BILLING CODE 4810-AM-P