The Consumer Financial Protection Bureau (CFPB) released a bulletin and interim final rule Tuesday to provide greater clarity to the market concerning mortgage servicing rules that take effect January 2014.
The clarifications address contact with delinquent borrowers, communications with family members after a borrower dies, and treatment of consumers who have filed for bankruptcy or invoked certain protections under the Fair Debt Collection Practices Act (FDCPA).
Stressing that many borrowers still Ã¢â‚¬Å“continue to experience serious problems seeking loan modifications or other alternatives to avoid foreclosure,Ã¢â‚¬Â the CFPB said these new rules are intended to establish strong protections for struggling homeowners and protect them from Ã¢â‚¬Å“costly surprises and runarounds by their servicers.Ã¢â‚¬Â
Guidance issued by the CFPB Tuesday is in response to public requests for further explanation on three specific servicing issues: early intervention requirements; home retention efforts after a borrower dies; and interplay between the servicing rules, bankruptcy code, and FDCPA.
Ã¢â‚¬Å“As servicing implementation enters its final phases, we heard from many sources that it was important to address these remaining issues to ensure a smooth transition and provide certainty to the market,Ã¢â‚¬Â said CFPB Director Richard Cordray.
The new rules require servicers to attempt contact with borrowers each time they miss a payment. CFPBÃ¢â‚¬â„¢s latest bulletin clarifies that this requirement may be satisfied by other contact servicers have with such borrowers, for example, when evaluating them for loss mitigation options or during collection calls. The CFPB noted that the method of contact can vary depending on number of days delinquent or on whether the borrower has responded to earlier communication attempts by the servicer.
In cases in which a borrower dies, the new rules require servicers to have policies and procedures in place to promptly identify and communicate with family members, heirs, or other parties who have a legal interest in the home. TuesdayÃ¢â‚¬â„¢s guidance provides examples of such policies and procedures, including allowing for continued payment on the mortgage as well as evaluating the person with legal interest in the home for assumption of the mortgage and, if appropriate, for loss mitigation measures.
Both FDCPA and bankruptcy law provide significant protections for consumers who decide to invoke them and restrict certain types of communications regarding their debts. The CFPB said it has received Ã¢â‚¬Å“a large numberÃ¢â‚¬Â of questions about how these protections work with the new servicing rules.
The agencyÃ¢â‚¬â„¢s newly issued guidance clarifies that even if delinquent borrowers have instructed servicers to stop communicating with them pursuant to FDCPA, certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Act are still required. Specifically, servicers must communicate with the borrower with regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial rate adjustments on adjustable-rate mortgages (ARMs), and periodic statements.
Servicers are not required, however, to make certain early intervention contacts or provide ongoing notices of interest rate adjustments. In addition, the CFPB said further assessment is needed regarding how bankruptcy protections intersect with its requirements for early intervention contact and providing periodic account statements in order to ensure these servicing communications do not confuse consumers on the status of their loans.
The CFPBÃ¢â‚¬â„¢s interim final rule also clarifies regulations issued to implement a provision of the Dodd-Frank Act that requires consumers to receive housing counseling before taking out a high-cost mortgage. The rule specifies which federally required disclosure must be used as the basis for counseling for a small subset of closed-end loans that are not subject to the Real Estate Settlement Procedures Act (RESPA).
The bureau maintains a regulatory implementation website that consolidates all of the new mortgage rules and related implementation materials. TuesdayÃ¢â‚¬â„¢s bulletin and the CFPBÃ¢â‚¬â„¢s interim final rule are also available on the agencyÃ¢â‚¬â„¢s website.