The Consumer Financial Protection Bureau on Oct. 15 issued an interim final rule and a bulletin refining and making technical changes to certain provisions of its January 2013 mortgage rules.
The interim rule tackled three areas of concern: the conflict between the servicing rules and protections afforded to consumers by bankruptcy law and the Fair Debt Collection Practices Act, "early intervention" requirements for delinquent borrowers, and policies which guide identification and evaluation of and communications with a deceased borrower's heirs.
The public has 30 days to provide comments on the amendments to the mortgage servicing rules upon publication of the amendments in the Federal Register. After considering the public comments and adjusting the rules accordingly, the final form of these amendments will take effect with the mortgage servicing rules on Jan. 10, 2014.
The interim rule is intended to resolve
The CFPB proposes to resolve the conflict between the servicing rules' notice requirements with bankruptcy law by exempting servicers from both the periodic statements and the early intervention requirements of the servicing rules for borrowers who have filed for bankruptcy.
Yet, certain communications are still required when a borrower simply provides a general "cease communications" request: notices 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, however, did not go so far as to analyze when bankruptcy law or the FDCPA may prohibit certain communications required by the servicing rules. Instead, it encouraged servicers to continue communicating with delinquent borrowers even in instances when compliance with the servicing rules is not required.
Further analysis of the interplay between the servicing rules and the FDCPA is expected in an upcoming rulemaking on debt collection.
The bulletin additionally provided guidance on how a servicer can comply with the early intervention requirements of the servicing rules to establish live contact with the borrower. 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.
While the bulletin provided specific guidance, the CFPB acknowledged that contact methods should be tailored to the particular circumstances, and, thus, the rule is designed to give servicers flexibility in developing and implementing communication processes.
To clarify the CFPB’s expectations, the bulletin provided illustrative examples of what the CFPB would consider “reasonable steps” to reach delinquent and unresponsive borrowers.
For example, in cases where a borrower falls delinquent under a loss mitigation plan or becomes delinquent after curing a default, the servicer must resume efforts—telephone calls and written communications—to contact the borrower within 36 days of the delinquency and continue those efforts so long as the borrower remains in default. Nevertheless, after six or more consecutive delinquencies, “good faith” efforts may consist of no more than a single telephone call or a sentence in a periodic statement or other written communication asking the borrower to contact the servicer.
Such minimal efforts, the CFPB advised, should be limited to circumstances where all loss mitigation options have been exhausted and there is little to no hope of home retention.
Additionally, servicers may meet the live contact requirement by establishing and maintaining ongoing communications with a delinquent borrower regarding the borrower's loss mitigation application or the servicer’s evaluation of that application.
The CFPB also explained that the live contact requirement may be satisfied by piggy-backing “good faith” efforts onto other communications with the borrower, such as adding information on loss mitigation options to collection calls or including a sentence in a written communication requesting that the borrower contact the servicer.
The final area in which the CFPB provided clarification pertained to a servicer’s responsibility under the mortgage servicing rules to develop and implement home retention efforts after a borrower dies. Policies and procedures must be in place to ensure that family members, heirs or other parties with a legal interest in the property are promptly identified and contacted.
Pursuant to the bulletin, after a borrower’s death is confirmed, sufficient home retention efforts would be designed to promptly identify the borrower’s successor in interest and provide the successor with information on the current status of the mortgage. Servicers must then provide a successor with any documents, forms or other materials that are needed to allow the successor to continue making payments on the mortgage and, where appropriate, for servicers to evaluate the successor for loss mitigation options or assumption of the mortgage.
Clearly, these refinements to the mortgage servicing rules are intended to increase the rate of home retention by family members or other heirs after the death of borrowers.
Yet, because many successors in interest are likely to be unable to qualify for assumption—given the CFPB’s current application of the ability-to-repay rule to assumptions—these efforts may not succeed.
Tracy Starr is a financial and environmental litigation attorney in the Atlanta office of Baker Donelson.
