On January 17, 2013, the Consumer Financial Protection Bureau (CFPB) issued its final servicing rules amending Regulation X and Regulation Z. The Regulation X reforms are more expansive in scope and create more affirmative obligations than the Regulation Z reforms, which merely create new disclosure requirements. These final rules create a myriad of additional disclosure requirements for companies servicing federally-related mortgage loans, and they also create a comprehensive, if not confusing, new scheme of loss mitigation and error resolution mechanisms. Unfortunately, the amendments to Regulation X eschew a clear and straight-forward statement of responsibilities for servicers by creating a dizzying maze of cross-references between various sections. The CFPB has also included model forms for each of the disclosures and statements that are required under the new rules. We recommend use of these model forms to comply with these rules, as the rule itself contains many potential pitfalls and cross-referencing errors.
The new servicing rules do not go into effect until January 10, 2014, in order to give servicers and the mortgage industry time to adjust to these comprehensive new requirements.
Regulation X Revisions
Scope of Rules
The new rules generally apply to any federally-related mortgage loan. The rules define federally-related mortgage loan very broadly, to include any loan secured by a first or subordinate lien on real property which contains a one to four family unit, or on which a one to four family unit is to be constructed, including manufactured housing. Additionally, the rules apply to a loan that is: made by a federally-insured depository institution; insured or guaranteed by any federal institution; intended to be sold by the originating lender to Fannie Mae, Freddie Mac, Ginnie Mae, or a financial institution that intends to sell it to Freddie Mac; made by a mortgage broker that intends to sell to any of the above institutions; or made in whole or in part by a “creditor” that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. The definition also has been revised to specifically include a home equity conversion mortgage, also frequently called a “reverse mortgage,” issued by any of the above-specified entities.
All timelines set forth in the rules, unless explicitly stated otherwise, are calculated by using calendar days.
All disclosures given pursuant to these rules must be clear and conspicuous, in writing, and in a form that the consumer may keep. Disclosures may be provided electronically, subject to compliance with the E-Sign Act, and a servicer may use commonly understood abbreviations in its correspondence. Disclosure may be made in foreign languages, but must be made available in English upon request. Finally, unless explicitly prohibited by other laws, such as the Truth in Lending Act, a servicer may include additional information with these disclosures, or combine the disclosures with other required disclosures.
Mortgage Servicing Transfers
The new rules revise already existing disclosure requirements for mortgage servicing transfers, including (1) the Servicing Disclosure Statement, and (2) the Transfer of Loan Servicing Disclosure. These provisions have been renumbered and now appear in a new Subpart C of Regulation X that covers mortgage servicing. The new rules eliminate the term “mortgage servicing loan” from Regulation X. Under the final rules, the Servicing Disclosure Statement only applies to mortgage loans that are secured by a first lien. The Transfer of Loan Servicing Disclosure, however, applies to any federally-related mortgage loan, which includes first and subordinate lien loans. The Servicing Disclosure Statement and the Loan Servicing Disclosure do not apply to open-end lines of credit. Note that the CFPB anticipates that these requirements for servicers will be further amended in the future, when the CFPB finalizes the TILA-RESPA Integrated Disclosure.
- Servicing Disclosure Statement: This disclosure requires the lender to provide to the consumer a statement whether the servicing of the loan may be assigned, sold, or transferred to any other person at any time. This disclosure must be made within 3 days after a person applies for a first-lien mortgage loan, excluding public holidays, Saturdays, and Sundays. Appendix MS-1 contains a model form containing this disclosure.
- Transfer of Loan Servicing Disclosure: Each transferring and receiving servicer must provide this notice. The transferring servicer must provide this notice not less than 15 days prior to the effective date of the transfer, and the receiving servicer must provide its notice not more than 15 days after the effective date of the transfer. The two parties may provide a unified notice, which must be provided no less than 15 days prior to the effective date of the transfer. Notices provided at settlement by either the transferring or receiving servicer satisfy the timing requirements. Appendix MS-2 contains the model form for this disclosure. The notice must contain:
- The effective date of the transfer;
- The name, address, and a collect-call or toll-free telephone number for someone at both the transferring and receiving servicers whom the borrower may call for information regarding the transfer;
- The date on which the transferring servicer will cease to accept payments and the date on which the receiving servicer will begin to accept payments. These dates must either be the same date, or consecutive dates;
- Whether the transfer will affect the terms or the continued availability of any optional insurance and the action the borrower must take to maintain coverage; and
- A statement that the transfer of servicing does not affect any term or condition of the loan.
Further, during the 60 days after the effective date of transfer, a payment may not be treated as late for any purpose if the transferring servicer receives the payment prior to the applicable due date.
Escrow Payments and Account Balances
The new rules cross-reference and reiterate the existing requirement to make timely payment from escrow accounts, if required by the terms of the loan contract and as long as the borrower’s payment is not more than 30 days overdue. The payment generally must be made on or before the applicable deadline in order to avoid penalties. If the borrower’s mortgage payment is more than 30 days overdue, the servicer may not purchase force-placed insurance, unless the servicer is unable to disburse funds from the borrower’s escrow account. Note that an exception and different requirements apply to certain small servicers, defined as a servicer that services less than 5,000 mortgage loans and only services mortgage loans owned or originated by the servicer or an affiliate.
The new rules also require repayment of excess escrow funds to the borrower within 20 days of payment in full, exclusive of public holidays, Saturdays, and Sundays. The servicer may credit any excess escrow funds to an escrow account for a new mortgage loan, if the borrower agrees, and if the new lender is the same, the new owner or assignee of the loan is the same, or the servicer is the same as the prior mortgage loan.
Error Resolution and Information Requests
The final rules implement new requirements for error resolution and information requests. The rules replace the existing requirements for responding to qualified written requests. As described below, the new rules are broader in scope and impose shorter timelines for responses than required under the existing qualified written request process.
Error Resolution Procedures
The new rules require a servicer to respond to written notices from the borrower asserting an error in the servicing of the borrower’s loan. The written notice must include the name of the borrower, information that allows the servicer to identify the borrower’s loan account, and the error the borrower believes has occurred. Statements written on payment coupons are not considered proper notices of error. Note that this rule revises and replaces existing requirements for qualified written requests. A servicer that receives a qualified written request asserting an error regarding the servicing of a mortgage loan will be required to comply with the new rules for error resolution.
The term “error” is defined broadly to include any complaint submitted by a borrower regarding the servicing of the loan. The CFPB states that the servicer “may” establish an address to which borrowers must submit any such complaints, the notice of which must include a statement that the borrower must use that address to submit complaints. This address must also be posted on the servicer’s website, if it has one.
The servicer must acknowledge receipt of the complaint within 5 days, excluding public holidays, Saturdays, and Sundays. A servicer must also conduct an investigation into the complaint, and provide the borrower with a written notice of the results of its investigation, which must include the reason for its determination, a statement of the borrower’s right to receive documentation relied upon by the servicer in making the determination, information regarding how the borrower may request such documentation, and contact information for further assistance.
If during its investigation the servicer finds additional errors, it must correct those errors as well, and provide the borrower with a written notice of the actions taken by the servicer, including the error identified, and contact information for further assistance.
Servicers may request information supporting an alleged error from a borrower, but the servicer may not reject the borrower’s assertions of errors solely on the fact that the borrower failed to supply any supporting documentation, or condition the servicer’s investigation on receipt of such documentation.
The timing requirements on responding to these complaints differ depending on what type of complaint the borrower submits. If the complaint is about a failure to provide an accurate payoff balance, the servicer must respond with 7 days, excluding public holidays, Saturdays, and Sundays. If the complaint is about foreclosure proceedings, the servicer must respond within 30 days of receipt, excluding public holidays, Saturdays, and Sundays, or prior to the date of foreclosure, whichever is earlier. For all other asserted errors, the servicer must respond within 30 days, excluding public holidays, Saturdays, and Sundays. The servicer may extend the time for these other asserted errors, i.e., not foreclosure or payoff related, by an additional 15 days if they notify the borrower of the extension and the reasons for the extension within the originally allotted time period.
A servicer is also required to provide copies of documents relied upon in the investigation with 15 days of request, excluding public holidays, Saturdays, and Sundays, unless such information is confidential, proprietary, or privileged. If a servicer withholds such documents on the basis of their confidential, proprietary, or privileged nature, then it must send a notice to that effect to the borrower within the same 15 day time period.
Servicers are not required to comply with these provisions if one of the following conditions applies:
- If a borrower asserts an error in foreclosure procedures and the servicer receives notice of that error 7 or less days prior to the foreclosure sale. A servicer shall make a good faith effort to resolve the error, and notify the borrower either orally or in writing of such efforts;
- The complaint is duplicative of one already resolved by the servicer;
- The complaint is overly broad and the servicer cannot ascertain the reason for the complaint;
- The complaint is submitted more than one year after the loan was paid in full, or more than one year after the servicing rights were transferred to another company.
If the servicer determines that the complaint is duplicative, overly broad, or submitted more than one year after payment in full or transfer of servicing, then the servicer is required to send a notice to the borrower stating the reasons for that determination within 5 days, excluding holidays, Saturdays, and Sundays.
Servicers are not allowed to charge a fee to the borrower for these responsibilities as a condition of responding. Further, a servicer may not furnish any adverse information that is the subject of a complaint to a credit reporting agency for 60 days after receipt of any complaint.
Requests for Information
The rules set forth a similar scheme for servicers to respond to requests for information from a borrower. The request for information must include the borrower’s name, sufficient information to identify the borrower’s account, and must state the information being requested. Requests made on payment coupons are not valid under the rule. Note that this rule revises and replaces existing requirements for qualified written requests. A servicer that receives a qualified written request containing a request for information regarding the servicing of a mortgage loan will be required to comply with the new rules for information requests.
The servicer may establish an address for borrowers to submit such information requests, and must notify the borrower in writing that the borrower must submit such requests to that address. If the servicer decides to establish such an address, the address must be the same for borrowers to submit requests for error resolution. This address must also be posted on the servicer’s website, if it has one.
The servicer must acknowledge receipt of the request within 5 days, excluding holidays, Saturdays, and Sundays. The servicer must conduct a reasonable investigation into the request, and respond with the information requested, or state that after conducting a reasonable investigation, the information is not available. The servicer must provide notification in writing of its determination to the borrower within 10 days, excluding holidays, Saturdays, and Sundays, for all requests of the identity and contact information for the owner or assignee of a loan. The servicer must provide notification in writing of its determination within 30 days, excluding holidays, Saturdays, and Sundays, for all other information requests. The servicer may extend its time to respond to requests for non-assignee or owner requests by 15 days if it notifies the borrower in writing of the reasons for doing so within the originally allotted time period.
Servicers are not required to comply with these provisions if one of the following conditions applies:
- The request is duplicative of previous requests;
- The information requested is confidential, proprietary, or privileged;
- The information requested is irrelevant to the borrower’s account;
- The borrower requests an unreasonable volume of documents or information, which is defined as being unable to respond within the required timelines or incurring costs that are not reasonable in light of the circumstances of the request;
- The request is received more than one year after the loan was paid in full, or one year after transfer of servicing to another company;
- If the servicer determines that any of these conditions apply, it must notify the borrower within 5 days, excluding holidays, Saturdays, and Sundays, of such determination.
The servicer cannot require the borrower to pay a fee as a condition of responding to the request.
The final servicing rules require servicers to have a reasonable basis to believe that the borrower has failed to maintain hazard insurance as required by the mortgage loan contract before charging the borrower for force-placed insurance. The new rules prohibit assessment of premium fees for force-placed insurance unless:
- The servicer has delivered a letter to the borrower at least 45 days prior to assessment of the fee, stating:
- The date of the notice;
- The servicer’s name and mailing address;
- The borrower’s name and mailing address;
- A request to the borrower to promptly provide hazard insurance information for the borrower’s property, and identifies the property by address (must be in bold);
- A statement that identifies the borrower’s hazard insurance and states that it is expiring, or has expired, and that the servicer does not have evidence that the borrower has obtained coverage past the expiration date;
- A statement that hazard insurance is required, and that the servicer has purchased or will purchase it for the property (must be in bold);
- A description of the requested insurance information and how the borrower may provide it;
- Notification to the borrower that the new insurance purchased by the servicer may cost significantly more than the original coverage and may not provide as much coverage as the original plan (must be in bold); and
- The servicer’s telephone number for inquiries.
- A servicer may use model form MS-3A to comply with these requirements.
- The servicer has delivered a second letter at least 15 days prior to assessment of the fee, and not less than 30 days after delivering the first letter, that states:
- The date of the notice;
- A statement that it is the second and final notice (must be in bold);
- The same information required in the original notice; and
- The cost of the force-placed insurance as an annual premium, or a reasonable estimate if the servicer does not know the actual cost (must be in bold);
- A servicer may use model form MS-3B to comply with these requirements;
- If the servicer receives some information in response to the first letter, but not enough to conclude continuous coverage, then model form MS-3C should be used for the second notice; and
- The servicer has not received evidence of continuous coverage from the borrower within 15 days of the second notice.
Similarly, the rule prohibits assessment of fees for renewal or replacement of force-placed insurance unless:
- The servicer delivers to the borrower a written notice at least 45 days before assessment of the fee that includes:
- The date of the notice;
- The servicer’s name and mailing address;
- The borrower’s name and mailing address;
- A request to the borrower to update the hazard insurance information for the borrower’s property and identifies the borrower’s property by its address (must be in bold);
- A statement that the servicer previously purchased force-placed insurance on the property and assessed those costs against the borrower because the servicer did not have evidence of continuous coverage;
- A statement that the previously purchased insurance has expired or is expiring, and that the servicer intends to maintain insurance through renewal or replacement of the force-placed policy (must be in bold);
- A statement that this force-placed policy may cost significantly more than what is available to the borrower (must be in bold);
- That the force-placed policy may not provide as much coverage as policies available to the borrower (must be in bold);
- The cost of the force-placed insurance stated as an annual premium (must be in bold);
- A request that the borrower promptly provide information about any policy the borrower purchases;
- A description of the requested information and how the borrower may provide it;
- The servicer’s telephone number for inquiries.
A servicer may use model form MS-3D to comply with these requirements.
If the borrower submits evidence demonstrating that he has had in place hazard insurance coverage that complies with the loan contract’s requirements, the servicer must cancel the force-placed insurance policy and refund to the borrower all premiums charged to the borrower within 15 days of receipt of such evidence. Any charges assessed to the borrower must be bona fide and reasonable, which is defined as bearing a reasonable relationship to the servicer’s cost of providing the service.
Finally, for any borrower who is more than 30 days overdue on their payments, and who has an escrow account for the payment of hazard insurance established as part of their loan, a servicer may not purchase force-placed insurance unless it has a reasonable basis to believe that the borrower’s hazard insurance has been canceled or was not renewed for reasons other than nonpayment of premium charges or that the property is vacant. Insufficient funds in the escrow account is not a reasonable basis, and the servicer may recoup any funds it advances to pay such premiums.
General Servicing Requirements
The new rules require servicers to create policies and procedures that adequately address the following subjects:
- Ability to access and provide timely and accurate information regarding a borrower’s loan;
- Ability to properly evaluate loss mitigation applications, including:
- Providing accurate information regarding what loss mitigation options are available, and providing specific information regarding each option;
- Providing prompt access to documents and information submitted by a borrower in connection with a loss mitigation option;
- Identifying documents required for loss mitigation options; and
- Properly evaluating borrowers for loss mitigation options;
- Third party service provider oversight;
- Transfer of information during servicing transfers;
- Informing borrowers of the written error resolution and information request procedures;
- Record retention until one year after payment in full or discharge of an account or transfer of servicing;
- Maintenance of certain documents and data regarding each account in a manner which shall be retrievable within 5 days, including;
- A schedule of all credits and debits to any account, including escrow and suspense;
- A copy of the security instrument;
- Servicing notes regarding communications with borrowers;
- Data fields regarding the account created by the servicer’s systems in connection with servicing practices (the CFPB does not define what these fields should be);
- Copies of document submitted by the borrower.
These requirements to do not apply to small servicers or reverse mortgage servicers. Small servicers are defined generally as a company that services less than 5000 loans. Small servicers, or an affiliate of the small servicer, must either be the creditor or assignee of the loans it services, and the 5000 limit is determined on January 1 of each calendar year. If the servicer crosses the 5000 loans threshold within that calendar year, it has until the later of the following January 1 or six months after the date it crosses the threshold to begin compliance with these rules.
Early Intervention Requirements and Continuity of Contact (aka Single Point of Contact)
Servicers will be required to establish live contact with a delinquent borrower, or make a good faith effort to do so, no later than the 36th day of delinquency, and promptly notify the delinquent borrower of any loss mitigation options available. Servicers must send a written notice no later than the 45th day of delinquency that states:
- Encouragement that the borrower contact the servicer;
- The telephone number at which the borrower may contact the servicer, as well as the servicer’s mailing address;
- A brief description of any loss mitigation options available, if any;
- Instructions to the borrower on how to apply or receive more information regarding the available loss mitigation options;
- The website to access either the CFPB or HUD list of approved housing counseling agencies, and the HUD toll-free telephone number to access counselors.
Servicers may use model forms MS-4A, MS-4B, and MS-4C to comply with this requirement.
Additionally, servicers are required to establish a “single point of contact” for delinquent borrowers within 45 days of delinquency. Personnel at the servicer must be assigned specifically to the delinquent borrower, and the delinquent borrower must be given appropriate information to reach these personnel. These personnel assigned to the delinquent borrower must be able to:
- Provide the borrower with accurate information about loss mitigation options available, and the actions the borrower must take to be considered for these options;
- Provide the borrower with information about how the borrower may appeal loss mitigation decisions;
- Provide information regarding the status of the borrower’s loss mitigation application;
- Provide information regarding foreclosure;
- Retrieve a complete history of the borrower’s account, as well as all documents submitted by the borrower to the servicer or prior servicers in connection with loss mitigation applications;
- Provide a delinquent borrower with correct information about the procedures for submitting notices of error to the servicer.
These requirements apply only to loans on a borrower’s primary residence, and do not apply to reverse mortgage servicers or small servicers, as defined above.
Loss Mitigation Procedures
The new rules provide a private right of action to enforce these loss mitigation procedures, but do not impose a duty on a servicer to provide borrowers with any specific loss mitigation option. Further, this private right of action does not extend to enforcement of the agreement between the servicer and the owner or assignee of the loan.
If a servicer receives a loss-mitigation application 45 or more days prior to a scheduled foreclosure, then the servicer must:
- Review the application to determine if it is complete. A complete loss-mitigation application is defined as one in which the servicer has received all information it requires from the borrower in order to evaluate the loss mitigation options available to the borrower. The rule requires a servicer to exercise “reasonable diligence” to obtain such information;
- Notify the borrower within 5 days of receipt of the application, excluding holidays, Saturdays, and Sundays, of whether or not the application is complete. If it is incomplete, the notice must state the additional information required to make it complete;
- This notice must also contain a statement that the borrower should notify any other servicers of loans secured by the same property; and
- That information requested should be submitted by the earliest of the following dates:
- The date documents will be considered stale pursuant to the loss mitigation requirements for the option being considered;
- The 120th day of delinquency;
- The date that is 90 days prior to foreclosure;
- The date that is 38 days prior to foreclosure.
Upon receipt of a complete loss-mitigation application received more than 37 days prior to foreclosure, the servicer must evaluate the borrower within 30 days of receipt of the application and inform the borrower of the servicer’s determination in writing. A servicer may not offer loss mitigation options based upon an incomplete application unless, after reasonable diligence, the borrower has failed to provide a complete application after a significant period of time.
If the servicer denies the borrower’s loss-mitigation application, it must send a notice stating the specific reasons for the denial, and all information about the borrower’s ability to appeal that determination.
The rule creates an appeal process for any application received 90 or more days prior to foreclosure, or during the first 120 days of delinquency. The borrower must be allowed to submit an appeal within 14 days after the servicer makes its determination, and the appeal must be evaluated by someone not involved with the original determination. The servicer must make its determination on the appeal within 30 days of the borrower submitting the appeal. A servicer is not required to comply with these requirements for duplicative requests from borrowers.
Additionally, the rule creates a prohibition on referring loans to foreclosure within the first 120 days of delinquency. If the borrower submits a loss-mitigation application during this initial 120 day period, then the servicer may not refer the loan to foreclosure until the determination has been made on the application and the borrower has failed to appeal or exhausted his appeal process, or the borrower has rejected all loss mitigation options offered, or the borrower has failed to perform under a loss mitigation agreement. This effectively prohibits the practice of “dual-tracking.”
These requirements apply only to loans on a borrower’s primary residence, and do not apply to small servicers or reverse mortgage servicers. However, the rule specifically prohibits a small servicer from making the first notice or filing required for foreclosure unless the loan is more than 120 days delinquent. The rule also prohibits a small servicer from foreclosing if the borrower is performing pursuant to the terms of a loss-mitigation agreement.
Regulation Z Revisions
New ARM Payment Change Disclosures
The final rule substantially amends the existing provisions under Regulation Z concerning the interest rate adjustment disclosures for closed-end adjustable-rate mortgages (or “ARMs”) secured by the consumer’s principal dwelling. Among other things, the rule eliminates the annual notice for interest rate adjustments that do not result in a payment change. The rule amends existing disclosure requirements for interest rate adjustments that result in a payment change, and implements new requirements for initial ARM interest rate adjustment notices.
The initial rate adjustment disclosure must be provided separately from other documents provided by the servicer, and must be provided to borrowers at least 210 days, and no more than 240 days, prior to the first payment at the adjusted level being due. If the first payment at the adjusted level is due within the first 210 days after consummation, then the disclosure must be provided at consummation. These requirements do not apply to a loan with a term of one year or less. If the actual amount required to be disclosed is not available at the time of disclosure, then an estimate must be used and the disclosure must label it as an estimate. The disclosure must contain the following content:
- The date of the disclosure;
- An explanation of the terms of the ARM, including the specific time period in which the current rate is ending and that the change may result in a change in the mortgage payment;
- The effective date of the interest rate adjustment and when future adjustments are scheduled to occur;
- Any other terms that are changing on the same date;
- A table containing the current and new interest rates, the current and new payments, including the date the first new payment is due;
- For interest-only and negative-amortization loans, the amount of the new payment allocated to principal, interest, and taxes and insurance in escrow;
- An explanation of how the interest rate is determined, including the specific index or formula used, and the type and amount of adjustments made to the index;
- Any limits on the interest rate or payment increases at each interest rate adjustment over the life of the loan;
- An explanation of how the new payment is determined, including the index or formula used, and adjustments made to the index or formula, the loan balance expected on the date of adjustment, the length of the remaining loan term expected on the date of adjustment;
- If the disclosure includes an estimated payment, it must also include a statement that an additional disclosure will be provided containing the actual new rate and payment between two and four months prior to the first payment at the new level;
- Any prepayment penalty, including why it may be assessed;
- The telephone number of the servicer for the borrower to contact;
- Alternatives to payment of the new rate, including refinancing the loan, selling the property, modifying the terms of loan with the owner, or payment forbearance;
- The website containing the CFPB’s or HUD’s list of approved housing counselors.
This disclosure must be in the same or substantially similar form to model form H-4(D)(3) and H-4(D)(4).
The rule also creates new disclosures for other rate adjustments with a corresponding change in payment. Generally, the disclosure must be provided at least 60 days, but nor more than 120 days, prior to the first payment at the newly adjusted level. For ARMs that have uniformly scheduled adjustments occurring every 60 days, or more frequently, the disclosures must be provided at least 25, but not more than 120, days prior to the first payment at the newly adjusted level. These disclosures must contain the following information, where applicable:
- Explanation that under the terms of the contract, the current interest rate is ending and the rate and payment will change;
- The effective date of the interest rate change and when future interest rate adjustments are scheduled;
- Any other changes being made to the loan terms on the same date, such as the expiration of interest-only or payment-option features;
- A table containing the current and new interest rates, the current and new payments and the date the first new payment is due;
- For interest-only or negative-amortization loans, the amount of the current new payment allocated to principal, interest, taxes and insurance in escrow;
- An explanation of how the interest rate is determined, to include:
- The specific index or formula used and a source of information regarding that index or formula; and
- The type and amount of any adjustments to the index;
- Any limits on the interest rate or payment increases at each interest rate adjustment and over the life of the loan;
- An explanation of how the new payment is determined;
- If applicable, a statement that the new payment will not be allocated to pay loan principal and will not reduce the loan balance, and whether the payment increases the balance;
- The circumstances under which any prepayment penalty may be imposed.
Servicers must provide this information in the same or substantially similar format to model forms H-4(D)(1) and H-4(D)(2).
Prohibited Servicer Activities Regarding Consumer Payments
The final rule made several changes to existing provisions under Regulation Z regarding prompt crediting of payments, providing payoff balances, and the prohibition on pyramiding of late fees.
Prompt Crediting of Payments
The new rule clarifies that servicers must promptly credit a “periodic payment.” A periodic payment is defined as an amount sufficient to cover principal, interest, and any escrow amounts for a given billing cycle. The rule expands and clarifies the current requirements on servicers to credit periodic payments as of the date of receipt, unless a delay in crediting the payment would not result in any charge to the consumer or negative information reported to a credit reporting agency. Servicers cannot refuse to credit payment if the payment does not include late fees, other fees, or non-escrow payments a servicer has advanced on behalf of the consumer.
The new rule also creates new requirements for “partial payments.” For a partial payment, defined as any payment that does cover the periodic payment that the servicer holds in a suspense or unapplied funds account, the servicer must:
- Disclose to the consumer the total amount of funds held in the suspense or unapplied funds account on the periodic statement; and
- Once enough funds have been accumulated in the suspense or unapplied funds account to cover a periodic payment, the servicer must treat those funds as a periodic payment and apply those funds to the account.
The rule retained existing requirements regarding non-conforming payments. Servicers may specify in writing requirements for the consumer to follow in making payments. If a servicer specifies such requirements, but accepts a payment that does not conform to the requirements, the servicer must credit the payment as of 5 days after receipt.
No Pyramiding of Late Fees
The rule did not make any substantive changes to the prohibition against so-called “pyramiding” of late fees. The rule continues to prohibit the charging of late fees or delinquency fees if the fee is solely attributable to the failure to pay an earlier late fee or delinquency fee, and the consumer’s payment is a periodic payment received on the due date or within any applicable grace period.
The final rule revised existing requirements for providing payoff statements. The rule requires creditors, assignees or servicers, as applicable, to provide an accurate payoff statement to a consumer that requests it within a reasonable time, but in no case more than 7 business days of receipt of such a request. Note that the new rule applies to written requests for payoff amounts, while the current rule applies to all requests. Note, also, that under the Comments to the existing rule, 5 business days was considered to be a reasonable time to provide the payoff statement under most circumstances. By contrast, the new rule sets forth a maximum time of not more than 7 business days. In addition, unlike the current rule, the new rule is not limited to mortgage servicers and applies to creditors and assignees. Further, the new rule applies to loans secured by any dwelling of the borrower, rather than the principal dwelling under the current rule.
The rule also makes several exceptions, including for loans in bankruptcy or foreclosure proceedings, because the loan is a reverse mortgage or shared appreciation mortgage, or because of the occurrence of a natural disaster. In such cases, the payoff statement must be provided within a reasonable period of time. Entities that do not own the loan or the mortgage servicing rights are not subject to these requirements.
The final rule implements a new requirement to provide periodic statements for residential mortgage loans. This requirement applies to closed-end consumer credit transactions secured by a dwelling. The rule requires that servicers provide periodic billing statements to consumers for each billing cycle. Note that this requirement applies to the creditor, assignee or servicer, as applicable in the transaction. However, a creditor or assignee that does not own the loan or the mortgage servicing rights for the loan is not subject to this requirement.
This periodic billing statement must include:
- The amount due, displayed more prominently than the other disclosures;
- The payment due date;
- The amount of any late fee, and the date on which that fee will be imposed;
- If there are multiple payment options, the amount due under each payment option;
- An explanation of the amount due, including the amount paid to principal, interest, and escrow, for each payment option;
- The total sum of any fees or charges imposed since the last statement;
- Any payment amount past due;
- Past payment breakdown, including all payments received since the last statement, and the total of all payments received since the beginning of the calendar year;
- All transaction activity since the last statement;
- All partial payment information, if any;
- Contact information for the servicer;
- The outstanding principal balance;
- The current interest rate;
- The date after which the interest rate may next change;
- The existence of any prepayment penalty; and
- The CFPB’s or HUD’s housing counseling websites.
The rule places additional requirements for borrowers that are 45 days or more delinquent:
- The date on which the borrower became delinquent;
- Possible risks, such as foreclosure and expenses;
- An account history showing the amount remaining past due for the past 6 months, or since the last time the account was current, whichever is shorter;
- A notice indicating any loss mitigation program to which the consumer has agreed;
- A notice of whether the servicer has made the first notice or filing required for foreclosure;
- The total payment needed to bring the account current; and
- The CFPB’s and HUD’s housing counseling website information.
Model forms H-30(A)-(D) contain the appropriate information for periodic statements.
Small servicers, reverse mortgages, and timeshare plans are exempt from these requirements. Further, these requirements do not apply to fixed-rate loans for which the borrower has a coupon book that has the appropriate account information located in it.
 The rule does not clearly delineate between its provisions on “initial rate adjustments” and “rate adjustments with a corresponding change in payment.”