What CFPB's Latest Rules Will Mean

Just two weeks after issuing new mortgage rules, the Consumer Financial Protection Bureau added 1,800 pages of regulations covering mortgage servicing, which one analyst says will have an impact on systems and staffing at credit unions.

Richard J. Andreano Jr., a partner in Ballard Spahr LLP's business and finance department, told Credit Union Journal the CFPB took elements that were required under the Dodd-Frank Act and added some "general authority" of its own when formulating the mortgage servicing rules.

Just seven days earlier Andreano had said the bureau's new mortgage rules reflected an understanding that overly restrictive rules would have been more harmful to consumers than no regulations, but the CFPB did not hold back on the servicing rules.

In Andreano's view portions of the new mortgage servicing regulations that go beyond what was called for in the Dodd-Frank Act will turn out to be the "most significant operationally," and may lead to the mortgage industry asking for a delay in the implementation.

Currently, the new servicing rules are scheduled to take effect in January 2014.

"Dodd-Frank mandated implementation in one year," he explained. "Even though several provisions were not part of Dodd-Frank, the bureau still used the one-year rule."

Many of the new procedures laid down by the CFPB focus on what takes place after borrowers become delinquent. Andreano noted several specific loss-mitigation requirements were added, including mandating that servicers initiate "early engagement" with the borrower to get information, along with other steps that must be followed when managing the process.

"There is a requirement for continuity of contact, which was not mandated by Dodd-Frank," he noted. "For servicers, that relates to systems and staffing and it cannot be done overnight. Overall it might end up being a good thing for the industry and consumers, but it will take a while for the industry to get it right.

"There will be a significant effect on the industry with staffing and systems," he added.

Other provisions of the new servicing rules will have an effect on loan products. Dodd-Frank required an earlier notice on any adjustment for an ARM loan to give consumers time to consider alternatives. At present, notice is required 25 days before the payment is due, with the new requirement stretching that out to 60 days. The issue, Andreano pointed out, is many loans have a 45-day look-back period, "which requires a time machine," he said with a laugh.

"The resolution was taking loans with a longer look-back period and grandfathering them to the 25-day period," he said. "But after Jan. 10, 2015 loans no longer will have a 45-day look-back to determine the index value, the loan documents will have to be rewritten. This means a lot of loan products will be affected."

In general, the mechanism for error resolution was changed by the CFPB's new servicing rules, Andreano continued. He noted Dodd-Frank had shortened some times in the error resolution process, but said the new rules were extended to a much broader group of error claims and information requests.

The result is a "broader duty" on servicers when consumers make an error claim or request for information to at least acknowledge the claim or request, he explained.

"This is another staffing and systems issue that will have a real world impact," he assessed.

At press time Ballard Spahr's business and finance department was still going through some of the more detailed provisions to decide how impactful they will be on the mortgage servicing industry, Andreano said, adding, "there are other sections where we need guidance from the bureau."

If anyone believes the servicing rules are the last CUs will hear from the CFPB for a while, Andreano said they should think again.

"People ask me if this is the end of regulations, but I tell them this is the first wave of regulations," he warned. "I expect there will be more, plus the regulations put in place over time will be analyzed and changes will be made."

Case in point: on Jan. 17 the CFPB advised the financial services industry to expect rules on mortgage servicing transfers will be released in a month or so. Andreano expects transfers of loans that are delinquent will be a particular focus, since the bureau feels those borrowers are not getting the loss mitigation assistance they need.

Asked if the continuing flood of new regulations means job security for attorneys such as him, Andreano joked, "It is keeping us busy, but we are hoping there is still an industry around. The industry knew it was in for some years of implementation and the difficulties that will come with it, but I think the industry will come out stronger for it."