In keeping with its promise to provide further guidance to the industry on the mortgage loan rules that go into effect in January, the Consumer Financial Protection Bureau (CFPB) recently issued a press release, bulletin, and interim final rule amending the mortgage servicing rules and offering guidance under the existing rules. Comments on the interim final rule will be due 30 days after it is published in the Federal Register; the rule will be effective on January 10, 2014.
Interim Final Rule
The main thrust of the interim final rule is to clarify the interplay between the mortgage servicing rules, bankruptcy law, and the Fair Debt Collection Practices Act (FDCPA). The CFPB notes that it received a large number of questions from mortgage servicers asking how the servicing rules intersect with bankruptcy law, and requesting clarification on how to comply with the servicing rules’ notice requirements while also complying with bankruptcy law.
To address these concerns, the interim final rule exempts servicers from both the periodic statement and the early intervention requirements of the servicing rules for borrowers who have filed for bankruptcy. This change will be a relief for mortgage servicers that have been struggling to reconcile the requirements of the servicing rules with bankruptcy law.
The revisions relating to the interplay between the mortgage servicing rules and the FDCPA are enacted in the final interim rule and further discussed in the bulletin referenced below. When a borrower has properly invoked the FDCPA’s “cease communications” protections, servicers are exempt from providing ongoing notices of rate change for adjustable-rate mortgages and early intervention contacts to delinquent borrowers.
The CFPB believes, however, that certain communications are still required even if the borrower sends a general “cease communications” request, although borrowers can expressly request that the servicer cease these specific communications. As stated in the bulletin, if the consumer has simply provided a general “cease communications” request, servicers must still communicate with the borrower regarding initial interest rate adjustment of adjustable-rate mortgages, information requests, error resolution, requests for loss mitigation, lender-placed insurance, and periodic statements.
The CFPB stated in the interim final rule that it will “engage in further analysis of how these servicing requirements intersect with bankruptcy law and how to ensure that servicer communications do not confuse borrowers regarding their status.” Because the current amendments within the rule are open to public comments, it is possible that some aspects of the rule will change.
Bulletin 2013-12
In addition to issuing the new interim final rule, the CFPB issued Bulletin 2013-12, which provides guidance on how servicers can implement some of the mortgage servicing rules.
The bulletin clarifies how a servicer can comply with the early intervention requirements of the servicing rules to establish live contact with the borrower. In the bulletin, the CFPB states that “once the rule goes into effect, for each billing cycle for which a borrower is delinquent for at least 36 days, servicers are required to make good faith efforts to establish live contact with the borrower by the 36th day and, if appropriate, to inform the borrower about the availability of loss mitigation options.” If a borrower stops paying under a loss mitigation plan or becomes delinquent after curing a prior default, the servicer is required to make good faith efforts to contact the borrower within 36 days of delinquency.
“Good faith efforts” to establish live contact will vary based on the situation. An example of this is given in the bulletin: “‘[G]ood faith efforts’ to establish live contact with regard to delinquencies occurring after six or more consecutive delinquencies might require no more than making a single telephone call or including a sentence requesting the borrower to contact the servicer with regard to the delinquencies in the periodic statement or in an electronic communication.” This standard also may be applicable if a borrower is unresponsive, and particularly where loss mitigation options have been exhausted.
The CFPB also clarified that establishing live contact may be done in conjunction with other activities. For example, the CFPB will consider maintaining ongoing contact with the borrower regarding the borrower’s loss mitigation application to be reasonable steps to establish live contact. Similarly, communicating with the borrower in conjunction with another contact can count as taking reasonable steps to do so, including adding information to collection calls to inform borrowers of possible loss mitigation options.
Lastly, the bulletin clarifies a servicer’s responsibility to conduct home retention efforts after a borrower dies. Servicers must have policies and procedures in place to ensure that family members, heirs, or other parties with a legal interest in the home are promptly identified and contacted. Examples of such policies and procedures include “allowing for continued payment on the mortgage as well as evaluating the heir (or whomever the legal interest in the home passes to) for assumption of the mortgage and, if appropriate, for loss mitigation measures,” according to the CFPB’s press release.
The CFPB is attempting to aid in home retention efforts concerning heirs of deceased borrowers, but because it takes the position that the ability-to- repay rule applies to assumptions, the efforts may not succeed unless the CFPB provides some relief—many heirs likely will not be approved to assume the loan.
