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Aldrich &
Bonnefin
Mortgage Loan Servicing (For the Small Servicer)
Robert K. Olsen
Principal
Aldrich & Bonnefin, PLC
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This presentation is intended solely for educational purposes to provide you general information about laws and regulations and not to provide legal advice. There is no attorney-client relationship intended or formed between you and the presenters or you and the authors of these materials. Consult your institution’s legal counsel for advice about how this information impacts your institution.
Disclaimer
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• Who is a “Small Servicer”
• ARM Rate & Payment Change Notices
• Fair Debt Collection Practices Act
• Fair Credit Reporting Act
• Servicemembers Civil Relief Act
• Cancellation of PMI
• RESPA/Reg X Mortgage Servicing Requirements
• CFPB Expectations for Managing Service Providers
Agenda
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Who is a “Small” Servicer
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Outline Page
• Small servicer defined:
– A servicer who is a Housing Finance
Agency or
– A servicer who is below the “5,000
Threshold”
Who is a “Small” Servicer
1
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Outline Page
• Servicer services (together w/any
affiliates) no more than 5,000
mortgage loans AND
• Servicer (or affiliate) is the creditor or
assignee of all of those mortgage
loans
“5,000 Threshold”
1
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Outline Page
•Mortgage loans to be considered:
– Closed-end consumer credit transactions
secured by a dwelling
•Mortgage loans not to be considered:
– Loans serviced voluntarily and for free
– Reverse mortgages
– Timeshare plans
“5,000 Threshold”
1
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Outline Page
• Based on mortgage loans
• Serviced by the servicer and any
affiliates
•As of January 1 for the remainder of
the calendar year
Small Servicer Determination
2
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Outline Page
• If servicer ceases to qualify
– It must comply with any previously exempt
requirements beginning as of
• Six months or
• The next January 1
Whichever is earlier
Small Servicer Determination
2
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Outline Page
• Servicer not eligible for small servicer
exemption if:
– It services any mortgage loan the servicer
or its affiliate:
• Did not originate; OR
• Does not own.
– It does not matter if the servicer services ≤
5,000 loans overall
Small Servicer Eligibility
2
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Outline Page
• Touch the Mountain Tops
• Leave the Valleys for Later
Purpose of this Talk
2
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ARM Rate & Payment
Change Notices
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Outline Page
•ARMs originated before and after
January 10, 2014
• Servicers not required to comply until
January 10, 2014
Effective Date
2
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Outline Pages
•Closed-end, variable-rate loans
• Secured by a consumer’s principal
dwelling
•With a term greater than one year
Small servicers are not exempt!
Coverage
2-3
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Outline Page
•General rule
– Provide when interest rate adjusts for the
first time
– Initial Rate Adjustment Notice
Initial Rate
Adjustment Notice
3
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Outline Page
• Timing
– 210 to 240 days before the first payment
at the adjusted level is due
– Special rule if first payment due within 210
days of consummation
• Provide notice at consummation
•Contents
– Refer to Sample Forms H-4(D)(3) and
H-4(D)(4)
Initial Rate
Adjustment Notice
3
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Outline Page
•Applies to any rate and payment
adjustment that occurs after the initial
rate adjustment
Payment Change Notice
3
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Outline Page
• Timing
– 60 to 120 days before first payment at
adjusted level is due
•Contents
– Refer to Sample Form H-4(D)(1) and
H-4(D)(2)
Payment Change Notice
4
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Outline Page
•Not required if Initial Rate Adjustment
Notice:
– Is given at consummation and
– Was not an estimate
Payment Change Notice
4
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Fair Debt Collection
Practices Act
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Outline Page
• Back on regulators’ radar
•Deceptive and unfair debt collection
practices prohibited
– Federal FDCPA – Applies to persons who
collect debts on another’s behalf
– Cal. FDCPA – Applies to any person who
engages in debt collection on behalf of:
• Himself/herself or
• Others
Fair Debt Collection
Practices Act
4
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Outline Page
•No exemption for small servicers!
• If small servicers collect on their own
consumer loans:
– Covered by Cal. FDCPA and
– Most of the federal FDCPA
Fair Debt Collection
Practices Act
5
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Outline Page
•CMS weaknesses
– Debt collection staff training
– Complaint management
– Lack of comprehensive compliance
audits
CFPB Supervisory Highlights
5
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Outline Pages
• Reg X prohibits proceeding with
foreclosure while borrower performs
w/workout agreement
– Small servicers are not exempt
– CFPB: some servicers violated rule by
sending foreclosure notices
Violations of Loss Mitigation &
Foreclosure Processes Rules
5-6
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Fair Credit Reporting Act
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Outline Page
• “Furnishers” = persons who regularly
report info to consumer reporting
agencies
• FCRA Section 623 dictates how a
furnisher must respond to a dispute
Duty to Investigate Disputed
Information
6
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Outline Page
•Notice from credit bureau, furnisher
must:
– Investigate
– Review all relevant info from credit
bureau
– Report results to credit bureau
Duty to Investigate Disputed
Information
6
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Outline Pages
– If info is • Incomplete or
• Inaccurate – report to all other nationwide consumer reporting agencies info was furnished to
– If info is • Inaccurate
• Incomplete or
• Cannot be verified - promptly – Modify info
– Delete the item or
– Permanently block the reporting of that item
Duty to Investigate Disputed
Information
6-7
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Outline Page
•Notice from consumer directly
– Similar steps to responding to notice from
credit bureau required
Duty to Investigate Disputed
Information
7
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Outline Pages
•CFPB Bulletin 2013-09
– Sets forth Bureau’s expectations
– Mainly repeats duties just discussed
•CFPB Bulletin 2014-01
– Reasonable investigation required
– Cannot simply tell credit bureau to delete
inform
– Exposure of “systemic problems”
CFPB Bulletins Address FCRA
Investigation Duties
7-8
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Servicemembers Civil Relief Act
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Outline Page
• Former foreclosure protection
– Active duty + 90 days
•Current foreclosure protections
– Active duty + 12 months
– Set to expire 12/31/2014
– Dec. 2014 Act extended to 12/31/2015
•Come 12/31/2015, back to active
duty + 90 days
Foreclosure Relief and Extension
of Servicemembers Act
8
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Outline Page
• Foreclosure Relief Act made changes
•HUD updated in late December 2014
HUD SCRA Notice Disclosure
8
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Outline Pages
• Bank of America, N.A.
• Security National Automotive
Acceptance Company
Recent SCRA Enforcement
Actions
9-10
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Cancellation of
Private Mortgage Insurance
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Outline Page
• Requires servicers to cancel PMI
– Upon request and
– Automatically terminate PMI
• Based on specified LTV ratios
•Applies to residential mortgage made
on or after July 29, 1999
Homeowners Protection
Act of 1998
10
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Outline Page
•Outlines HPA provisions
– Borrower-requested PMI cancellation
(80% LTV)
– Automatic PMI termination (78% LTV)
– Final PMI termination
– PMI refunds
– Annual PMI disclosures
CFPB Bulletin 2015-03
10
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Outline Page
• Provides HPA noncompliance
examples
– Final termination requirements began to
impact standard 30-year loans in August
2014
– Reminder to have appropriate P&P in
place to comply with final termination
reqs
CFPB Bulletin 2015-03
11
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RESPA/Regulation X Mortgage
Servicing Requirements
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Outline Page
• Same small servicer exemption under
RESPA/Regulation X
Small Servicer Exemption
11
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Outline Page
• Entirely exempt from:
– General servicing policies, procedures
and requirements (§1024.38)
– Early intervention provisions (§1024.39)
– Continuity of contact provisions (§1024.40)
Small Servicer Exemption
11
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Outline Pages
• Exempt from only one of the force-
placed insurance provisions (we’ll
discuss this later)
• Exempt from the loss mitigation
provisions, with one exception (we’ll
discuss this later too)
Small Servicer Exemption
11-12
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Mortgage Servicing Transfers
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Outline Page
• Federally related mortgage loans
subject to RESPA
• Secured by first liens
•HELOCs not covered
•NO small servicer exemption
Coverage
12
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Outline Page
•Condition #1: All of these must remain
the same
– Payee
– Payment address
– Account number
– Payment amount
Exempt Transfers
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Outline Page
•Condition #2: The transfer must be
one of the following:
– Between affiliates
– Product of merger or acquisition
– Between master servicers
Exempt Transfers
12
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Outline Page
• Send notice of transfer of loan
servicing
• Proper treatment of payments during
the 60-day transfer of servicing period
Two Basic Requirements
13
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Outline Page
•General rule
– Transferor and transferee servicer
– Each provide a notice of transfer
– Any assignment, sale or transfer of the
servicing
Notice of Transfer of Loan
Servicing
13
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Outline Page
• Timing
– Goodbye notice
• Provided at settlement or
• Not less than 15 days before the effective date
of the transfer
Notice of Transfer of Loan
Servicing
13
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Outline Page
• Timing (cont’d)
– Hello notice
• No more than 15 days after the effective date
of the transfer
– Single notice
• Not less than 15 days before the effective date
of the transfer
Notice of Transfer of Loan
Servicing
13
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Outline Page
•Contents
– Refer to Reg X Appendix MS-2
Notice of Transfer of Loan
Servicing
13
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Outline Page
• Treatment of payments during 60-day
transfer of servicing period
– Late fees prohibited
– Transferor must transfer or return payments
•CFPB Bulletin 2014-01
Notice of Transfer of Loan
Servicing
14
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General Escrow
Administration Rules
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Outline Page
• Servicers may require
– Monthly payment of 1/12 of expected
annual escrow disbursements
– Plus, 2-month cushion
Limits on Escrowed Accounts
14
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Outline Page
•Must be performed
– At loan origination and
– Annually thereafter
•Only aggregate analysis method of
accounting may be used
Escrow Analysis
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Outline Page
•Must give borrower certain amounts
of time to repay deficiencies or
shortages
• Surpluses over $50 must be refunded
• Required escrow accounting
statements
Additional Escrow Requirements
15
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Timely Escrow Payments and
Treatment of Escrow Balances
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Outline Page
•Must make payments
– On or before deadline
– To avoid a penalty
Timely Escrow Disbursements
Required
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Outline Pages
•When borrower pays mortgage in full
• Servicer must
– Refund the escrow balance
– Within 20 days of payment in full
•May net any escrow funds against
borrower’s outstanding balance (but
first review legal docs)
Refund of Escrow Balance
15-16
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Error Resolution Procedures
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Outline Page
• Federally related mortgage loans
subject to RESPA
•Not HELOCs
• Small servicers are not exempt
Coverage
16
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Outline Page
•When a servicer receives a notice of
error, it must:
– Acknowledge the notice
– Respond to the notice
General Rule
16
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Outline Page
• Timing
– Within 5 days
– In writing
Acknowledge the
Notice of Error
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Outline Page
•Option #1
– Correct the error and
– Provide written notification of the
correction
•Option #2
– Conduct an investigation and
– Provide written notification that no error
occurred
Respond to the
Notice of Error
16
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Outline Pages
•Any written notice from the borrower
• That includes:
– Borrower’s name and
– Information that enables the servicer to
identify the consumer’s mortgage loan
account and
•Asserts a specified error
“Notice of Error”
17-19
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Outline Page
•What is considered a notice of error
– A QWR that asserts an error relating to
mortgage servicing
•What is not considered a notice of
error:
– Notice on a payment coupon or
– Notice on other payment form supplied
by the service
Examples of Notice of Error
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Outline Page
•May establish an address for
submission of notice of errors
• Requires written notice to borrower of
established address
Designation of an Address for
Notice of Error
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Outline Page
• Failed to provide an accurate payoff
balance amount – 7 days
• If servicer has violated certain provisions
relating to loss mitigation procedures,
respond prior to the earlier of
– Date of the foreclosure sale or
– Within 30 days of receiving the notice of error
• All other errors – within 30 days of
receiving the notice (may be extended)
Timing for Responding to
Notice of Error
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Outline Page
•When asserted error is duplicative
•When notice is so overbroad
•Notice received more than one year
after:
– Servicing transferred to another servicer or
– Loan has been discharged
Exceptions
20
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Requests for Information
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Outline Page
• Federally related mortgage loans
subject to RESPA
•HELOCs not covered
• Small servicers are not exempt
Coverage
21
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Outline Page
•Must be in writing
• That includes
– Borrower’s name and
– Information that enables the servicer to
identify the mortgage loan account
•And states the requested information
“Request for Information”
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Outline Page
•Does not include
– A request on a payment coupon
– Request for a payoff balance
“Requests for Information”
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Outline Page
•Acknowledge the request
– Within 5 days
– In writing
Requests for Information
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Outline Page
• Respond to the request
– Option #1: Provide
• Requested information and
• Servicer’s contact information
Requests for Information
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Outline Page
• Respond to the request (cont’d)
– Option #2
• Conduct a reasonable search and
• Provide written notification stating
– Information is not available to servicer
– Basis for determination and
– Servicer’s contact information
Requests for Information
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Outline Page
• Timing for responding to the request
– Within 10 days if request asks for:
• Owner or assignee’s identity or
• Owner or assignee’s address or other relevant
contact information
– Within 30 days – all other requests
• May be extended
Requests for Information
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Outline Pages
• Exempt requests
– The information requested is:
• Duplicative
• Confidential, proprietary or privileged
information or
• Irrelevant
– The request is:
• Overbroad
• Unduly burdensome or
• Untimely
Requests for Information
23-24
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Force-placed Insurance
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Outline Page
• Federally related mortgage loans
subject to RESPA
•HELOCs not covered
• Small servicers are subject to force-
placed insurance requirements
– Except for one requirement
Coverage
24
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Outline Page
•Hazard insurance
•Obtained by the servicer
•On behalf of the owner or assignee
• Insures the property securing the loan
“Force-placed Insurance”
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Outline Pages
• Flood insurance required by FDPA;
• For borrowers with escrow accounts
for hazard insurance, hazard
insurance:
– Borrower obtains, but
– Servicer renews:
• As required under the escrow account rules
(discussed later) or
• At its discretion, if the borrower agrees
What is Not Considered
Force-Placed Insurance
24-25
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Outline Pages
•Depends on whether
– Escrow account has not been established
OR
– Escrow account has been established
Charging for Force-placed
Insurance
25-27
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Outline Page
• In order to charge for force-placed
insurance:
– Servicer must have “reasonable basis to
believe”
– That borrower has failed to maintain
required hazard insurance
When Escrow Account Not
Established
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Outline Pages
• “Reasonable basis to believe”
– Send 45-Day Notice
– Send Reminder Notice
– By the end of the 15-day period set forth
in the Reminder Notice, servicer has not
received evidence that borrower has had
hazard insurance in place continuously
– Then servicer MAY force place insurance
When Escrow Account Not
Established
25-26
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Outline Pages
• 45-Day Notice
• Reminder Notice
•Waiting Period
• PLUS special escrow account rule. . .
Escrow Account Is Established
26-27
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Outline Pages
• If
– Borrower’s mortgage payment is +30 days
overdue
– Servicer is unable to disburse funds from
escrow account
• This means the servicer must have a
reasonable basis to believe
– Hazard insurance cancelled for reasons other than
nonpayment or
– Borrower’s property is vacant
Special Escrow Account Rule
26-27
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Outline Page
•What this means
– Unable to disburse funds ≠ insufficient
funds
– Servicer will have to advance funds
• May add this cost to escrow balance or
• Otherwise seek reimbursement
Special Escrow Account Rule
27
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Outline Pages
• If loan has escrow account for hazard insurance premiums: – Mortgage loan obligation is >30 days
overdue and
– Cost of force-placed insurance < amount servicer would need to disburse to cover borrower’s hazard insurance premium
• Then small servicer may: – Force place insurance and
– Charge borrower for the cost of force-placed insurance
Partial Small Servicer Exemption
27-28
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Outline Page
•Additional requirements exist for
– Renewing or
– Replacing force-placed insurance
Renewing or Replacing
Force-placed Insurance
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Prohibition on
Foreclosure Referral
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Outline Page
• Federally related mortgage loans
subject to RESPA
•Not HELOCs or reverse mortgages
Coverage
28
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Outline Page
• Exempt from the loss mitigation
requirements
• Except for the following . . .
Small Servicers
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Outline Page
• Small servicers may not initiate the
foreclosure process unless:
– Mortgage is >120 days delinquent
– Foreclosure based on a borrower’s
violation of a due-on-sale clause or
– Joining the foreclosure action of a
subordinate lienholder
Prohibition on
Foreclosure Referral
28
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Outline Page
•No dual-tracking
• If borrower is performing under a loss
mitigation agreement, servicer may
not:
– Initiate foreclosure process
– Move for foreclosure judgment or order of
sale or
– Conduct a foreclosure sale
Prohibition on
Foreclosure Referral
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Suppose You Outsource:
CFPB Expectations for
Managing Servicer Providers
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Outline Page
• Ensuring servicer provider
– Understands and is able to comply with
federal consumer financial laws
– Gives adequate employee training
– Maintains adequate oversight
CFPB Expectations for
Outsourcing
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Outline Pages
•Using contract terms that provide:
– Clear expectations for compliance
– Appropriate, enforceable consequences
for compliance deficiencies
– Monitoring third party’s performance
– Taking prompt action to remedy any
problems uncovered through monitoring
• Includes relationship termination, if appropriate
CFPB Expectations for
Outsourcing
29-30
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Robert K. Olsen, Esq.
Principal
Aldrich & Bonnefin, PLC
949-474-1944
Contact Information