The new year will be bringing many new changes to the mortgage servicing industry thanks to the implementation of portions of the Dodd-Frank Act.
In perhaps one of the most significant but least talked about changes, mortgage servicers will be facing revised statutes governing qualified written requests (more commonly known as QWRs) under the Real Estate Settlement Procedures Act. Although not as glamorous as many of the other changes ushered in by the Dodd-Frank Act, these modifications to RESPA may expose mortgage servicers to increased litigation for the failure to respond to a borrower's correspondence within a specific timeframe.
Consistent with the overall theme of the act, Section 1463(c) modifies RESPA and allows borrowers to obtain faster responses to their QWRs as well as heftier damages for a servicer's failure to respond. In fact, the timeframe for acknowledging and responding to QWRs will decrease significantly, and the allowable statutory damages for a QWR violation will double.
Section 1463(c) will go into effect on Jan. 10, 2014, and will contain three noteworthy modifications to the QWR statute:
- First, a mortgage servicer's timeframe in which to acknowledge receipt of a QWR will change from 20 days to five days (excluding public holidays, Saturdays and Sundays). Essentially, a mortgage servicer will have five business days in which to acknowledge, in writing, its receipt of a borrower's QWR, as opposed to the 20 days previously allowed.
- Second, a servicer will have only 30 days (excluding public holidays and weekends) to provide a substantive, detailed response to the QWR, as opposed to the 60 days previously allowed.
- Third, servicers will be able to obtain an extension of time in which respond to a QWR: according to the brand new 12 U.S.C. 2605(e)(4), a servicer can now obtain a 15-day extension to the 30-day period in which to respond a QWR. The only things a servicer must to do to receive the extension is notify the borrower and provide the reasons for its delay in responding. Even with the extension, however, servicers will have a maximum of 45 days in which to substantively respond to a borrower's QWR starting in January.
All three of the above changes are significant and will certainly impact mortgage servicers across the country. Perhaps the most significant change, however, is the drastically reduced timeframe in which a servicer must acknowledge receipt of a QWR. Servicers will now have mere days to both process receipt of a QWR and provide a written acknowledgement to the borrower. Some servicers may experience significant strain while trying to refashion their QWR procedures to comply with the updated RESPA provision.
Also, keep in mind that the tight timeframe for acknowledgment begins upon receipt of a QWR by the servicer. Servicers who do not have a foolproof, automated method for determining the date on which it received correspondence from a borrower are well-advised to retool their procedures accordingly.
Servicers will also have to retool their procedures in order to be able to rely on the new extension provided by the new 12 U.S.C. 2605(e)(4). In the past, servicers were given 60 days in which to provide a substantive, detailed response to a borrower's QWR.
Starting in January, however, servicers will have only 30 days to provide that same response. If the servicer cannot provide that response within 30 days, it may obtain a 15-day extension, but only if it notifies the borrower and provides the reasons for its delay. Although the language of the statute does not specify that the notification be in writing, written notices certainly provide a cleaner record in the event the borrower makes a RESPA claim in the future. Servicers will need to retool their procedures to contemplate the option of generating written notifications claiming the extension.
The tough news for servicers does not stop there. In addition to the tighter timeframe for responding to QWRs, the statutory damages available to a borrower will increase sharply. As of January 2014, an individual borrower may obtain statutory damages, in additional to actual damages, of as much as $2,000. Prior to the Dodd-Frank amendment, statutory damages available for a servicer's failure to respond to a QWR in a timely manner were capped at $1,000.
Furthermore, in the case of a class action lawsuit, the maximum allowable amount of statutory damages available will double from $500,000 to $1 million.
In conclusion, servicers are wise to take this time to review their current procedures for processing and responding to correspondence from borrowers. Although they have not garnered much attention, the new changes to RESPA could result in a significantly increased legal budget for the unsuspecting mortgage servicer.
Amy Hanna is a mortgage litigation attorney in Baker Donelson's Atlanta office.