CFPB 2016 Mortgage Servicing Rule Changes NAFCU Webinar November - PowerPoint PPT Presentation

CFPB 2016 Mortgage Servicing Rule Changes NAFCU Webinar November 30, 2016 Presented by John H. DeLoach Post Office Box 4128 · Tallahassee, Florida 32315 (800) 377-3325 jdeloach@wggdlaw.com www.williamsgautier.com

Disclaimer – No Legal Advice The information in this presentation is intended for general informational purposes only and does not constitute legal advice. DO NOT act upon this information without first consulting directly with your attorney regarding the specific application of the laws and regulations referenced herein to your specific circumstances. No attorney-client relationship is formed as a result of this presentation.

Mortgage Servicing Rule Changes  Promulgated by CFPB on November 20, 2014.  Final rule completed on August 4, 2016, and published in Federal Register on October 19, 2016.  Known as “2016 Mortgage Servicing Rule.”  Most provisions effective on October 19, 2017.  Successor-in-interest provisions effective on April 19, 2018.

Mortgage Servicing Rule Changes  10 major areas of changes:  Successors in interest.  Definition of delinquency.  Requests for information.  Force-placed insurance.  Early intervention.  Loss mitigation.  Prompt payment crediting.  Periodic statements.  Small servicers.  FDCPA Interpretive Rule.

Question #1  John Brown, the sole borrower on his home mortgage loan, dies. John’s son, Sam, continues to make all loan payments (including escrow). What are our options?  A. Declare the loan in default and foreclose.  B. Tell Sam he must assume the loan or we will foreclose.  C. Do nothing as long as Sam continues to make all payments.

Successors in Interest  New definition of “successor in interest” includes any person who receives an ownership interest in property securing a mortgage loan from an existing borrower/owner via transfer:  By devise, descent or law resulting from borrower’s death.  To a relative resulting from borrower’s death.  To borrower’s spouse or children.  To borrower’s spouse via divorce or separation.  To an inter vivos trust with borrower as a beneficiary and without a transfer of occupancy rights.

Successors in Interest  Servicers must adopt policies and procedures to confirm the identity and ownership interests of successors and promptly communicate such confirmation to successors.  Confirmed successors are considered borrowers under all Mortgage Servicing Rules (including information requests with limits on certain personal information on any other borrower).  Don’t forget the Garn -St. Germain Act.

Definition of Delinquency  “Delinquency” begins on the date a payment sufficient to cover principal, interest and (as applicable) escrow becomes due and unpaid (regardless of any late fee grace period).  Important for calculation of 120-day foreclosure waiting period.  New definition matches Fannie Mae/Freddie Mac note standards.

Definition of Delinquency  What about FDCPA “default” vs. “delinquency?  What about non-monetary defaults under mortgages?

Requests for Information  Requests for information regarding owner/assignee of mortgage loans if Fannie Mae/Freddie Mac owns loan or acts as trustee of securitization trust.  If no express request for the name or number of the trust/pool, servicer can comply by providing Fannie/Freddie name and contact information.  If express request for the name or number of the trust/pool, servicer must provide trust name, trustee’s name and contact information.

Force-Placed Insurance  New model form for initial notice to borrowers with insufficient (rather than expired or expiring) hazard insurance coverage.  New model form for reminder notice to borrowers with insufficient (rather than expired or expiring) hazard insurance coverage.  Servicers may include mortgage loan account number on new notices.

Question #2  How many mortgage loans does your Credit Union service?  A. None.  B. 5,000 or less.  C. More than 5,000.

Early Intervention  Only one written notice required in any given 180-day period.  If borrower is 45 days+ delinquent at end of any 180-day period, servicer must provide notice within 180 days following date of prior notice.  If borrower is less than 45 days delinquent at end of any 180-day period, servicer must provide notice within 45 days following the payment due date.

Early Intervention  Live contact exemption if:  Any borrower is in bankruptcy; or  Servicer is FDCPA debt collector, and any borrower invokes FDCPA cease communication protection.  If either exemption applies, servicer exempt from written notice requirements if no available loss mitigation option.  If any available loss mitigation option, no exemption from written notice requirements unless both exemptions apply.

Early Intervention  Early intervention requirements resume once bankruptcy case is closed/dismissed or borrower reaffirms personal liability for loan.  If “ride through” bankrupt borrower discharges personal liability, early intervention requirements resume if borrower makes any partial or periodic payment after commencement of bankruptcy.

Loss Mitigation  Requirements apply throughout the life of loan for borrower who cures delinquency at any time between prior application and subsequent application..  Junior lien servicer can join a foreclosure action by senior or junior lienholder even if borrower is not 120 days’ delinquent on servicer’s loan.  Servicer has reasonable flexibility in setting a deadline for returning documents for a loss mitigation application.

Loss Mitigation  Detailed description of steps required to delay or dismiss foreclosure action to avoid sale upon receipt of complete loss mitigation application more than 37 days before foreclosure sale.  Notification to borrower required within 5 business days following servicer’s receipt of a complete loss mitigation application with specific disclosures regarding expected time of review (30 days), borrower’s rights and protections and possible need for additional information.

Loss Mitigation  Servicer required to exercise reasonable diligence in obtaining all required information (including third party information). Denial of application generally not available based on servicer’s failure to receive third party information.  Notice of lacking information must be sent to borrower within 30 days after receipt of complete application.  Servicer permitted to offer short-term repayment plan based on incomplete application (up to 6 months). Notice following offer must provide specific plan terms.

Loss Mitigation  Servicer can stop collecting information from borrower for particular loss mitigation option if servicer confirms that borrower is ineligible for option.  Servicer may not stop collection information for any option based solely on borrower’s stated preference.  Servicer may only stop collecting information based on borrower’s preference in conjunction with other information set forth in loan owner’s requirements.

Loss Mitigation  Transfer of servicing does not affect loss mitigation rights and foreclosure protections. Transferee servicer subject to same timelines applied to transferor servicer except:  Additional 10 business days for acknowledgment notice.  30 days to evaluate application if application was complete before transfer.

Prompt Payment Crediting  Periodic payments under temporary loss mitigation programs must be credited according to loan agreement and can be applied as partial payments.  Periodic payments under permanent loan modifications made in accordance with the modification must be credited under terms of permanent loan agreement and cannot be applied as partial payments.

Periodic Statements  Amended periodic statement disclosures for closed-end mortgage loans that have been accelerated, are in temporary loss mitigation programs or have been permanently modified. Slightly different disclosure changes for each scenario (particularly “amount due” disclosures).  Periodic statements (or coupon books as applicable) generally required for bankrupt borrowers subject to specific exclusions related to cease communication requests, property surrender, lien avoidance and other circumstances.

Periodic Statements  No periodic statements required for charged-off loans if servicer will not charge additional fees or interest and provides final periodic statement with additional disclosures related to effects of charge-off.  Bankruptcy-related periodic statement changes effective April 19, 2018.

Small Servicer  Definition of “small servicer” revised to exclude certain seller- financed transactions from the “more than 5,000” count.  More importantly, the proposed rule does not expand the coverage of the Mortgage Servicing Rules as applied to small servicers. All existing small servicer exemptions remain in place.