The Consumer Financial Protection Bureau finalized clarifications Tuesday to its mortgage servicing rules in an effort to ease concerns servicers had about communicating with struggling or bankrupt borrowers who invoke certain legal protections.
The notice clarified several ways for servicers to contact a struggling borrower during a required early intervention period as well as the family of a deceased borrower. The clarifications also detail how to work with a borrower in bankruptcy.
The mortgage servicing rules, which take effect in January, hold servicers responsible for contacting struggling borrowers in a timely manner.
“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,” said CFPB director Richard Cordray, in the press release. “When mortgage servicers better understand the rules they have to follow, that is better for consumers.”
Among the biggest concerns servicers had with the rule was with regard to how they should deal with a borrower in the process of bankruptcy since there are greater legal protections for consumers under the bankruptcy code.
The CFPB said that servicers are not required to send periodic account statements or take certain early intervention with bankrupt borrowers. However, the agency added that “further assessment is warranted” with regard to how its new mortgage servicing rule intersects with bankruptcy law.
The CFPB also added that servicers are still required to send certain notices to a borrower who requests not to be contacted under the Fair Debt Collection Practices Act unless it involves an ongoing defaulted borrower.
"Specifically, servicers must communicate with the borrower with regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages and periodic statements," the notice said. "However, servicers will not be required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them."
Part of the CFPB’s new rule requires servicers to intervene early with delinquent borrowers by attempting to contact the borrower every time a payment is missed and offer prevention assistance. However, the CFPB’s clarification expanded what it considers appropriate contact to include when a collection call is made or when the borrower is being evaluated for loss mitigation.
The agency also gave examples for how servicers must communicate with next of kin when a borrower dies who was in the process of home retention. This includes evaluating the heir’s ability to take on the mortgage payments or proceed with loss mitigation efforts when necessary.
The mortgage servicing rules are among a series of regulations, including the qualified mortgage rule, that take effect Jan. 10.