Don’t get served! CFPB issues revised mortgage servicing regulations

In early August of this year, the Consumer Financial Protection Bureau (CFPB) finalized a number of important changes to their regulations concerning mortgage service providers. It has become standard practice for many lenders and loan purchasers to utilize servicers to handle customer service, collections, loan modifications and foreclosures. Expanding on the mortgage servicing rules that initially went into effect in January 2014, the CFPB, after public comment, has enacted changes to the initial rules that include, among other changes, providing flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements, clarifying requirements regarding early intervention, loss mitigation, information requests, and requiring services to provide periodic statements under certain circumstances when the servicer has charged off the mortgage. Most changes will become effective 12 months after publication of the revised rules in the Federal Register.

One major change to the regulations relates to how many opportunities a borrower may have to avail themselves of loss mitigation options. Under the CFPB’s existing rules, a mortgage servicer must give borrowers certain foreclosure protections, including the right to be evaluated for loss mitigation options to avoid foreclosure set forth by the CFPB, but only once during the term of the loan. The revised regulations mandate that servicers provide those protections multiple times for borrowers who have brought their loans current at any time since submitting the first completed loss mitigation application.

Under the prior regulations, servicers did not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy. The revised regulations now require, subject to certain exemptions, that servicers provide those borrowers periodic statements with specific information tailored for bankruptcy, as well as a modified early intervention notice to let those borrowers know about loss mitigation options.

Finally, the CFPB expanded on foreclosure protections for borrowers who have commenced loss mitigation with the servicer. Once a borrower has submitted a complete loss mitigation application, the servicer may not proceed with judgment or judicial sale of the subject property. Whether a borrower is entitled to key foreclosure protections depends, in part, on the date a borrower completes a loss mitigation application. The revised regulations now require servicers to notify borrowers promptly and in writing that the application is complete, so that borrowers know the status of the application and have more information about their protections.

Consumer lenders should become familiar with all of the CFPB regulations for mortgage service providers. While there is a one-year period before these go into effect, it is essential that lenders and servicers alike understand these regulations and implement systems to ensure full compliance.

Feel free to contact us for additional information regarding these new regulations. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Evan D. Blewett, Associate

This alert originally appeared in the Winter 2016 Banking Focus newsletter.