MAINE BANKERS ASSOCIATION

BANK EXPO 2017

CFPB Amendments to Mortgage Servicing Rules

April 13, 2017

Ryan S. Stinneford

BACKGROUND:

• CFPB issued its original mortgage Servicing Rules in January 2013 (78 Fed. Reg. 10695 (Feb. 14, 2013)), including rules governing:

– Periodic statements (12 CFR § 1026.41)

– Interest rate adjustment notices for ARMs (12 CFR §§ 1026.20(d) & (e))

– Crediting of mortgage payments and responses to requests for payoffamounts (12 CFR § 1026.36(c))

– Error resolution and information requests (12 CFR §§ 1024.35 & 1024.36)

– Force-placed insurance (12 CFR § 1024.37)

– General servicing policies, procedures, and requirements (12 CFR § 1024.38)

– Early intervention with delinquent consumers (12 CFR § 1024.39)

– Continuity of contact with delinquent consumers (12 CFR § 1024.40)

– Loss mitigation (12 CFR § 1024.41)

• Most of the Servicing Rules implemented specific provisions of Title XIV of the Dodd-Frank Act.

BACKGROUND:

• The Servicing Rules became effective on January 10, 2014

• In late 2013, the CFPB issued amendments to provide clarityand temporarily exempt loans in bankruptcy or subject to a FDCPA cease communications request from specific requirements, most notably periodic statements (78 Fed. Reg. 60382 (Oct. 1, 2013); 78 Fed. Reg. 62993 (Oct. 23, 2013))

• Notice of proposed rulemaking for most recent amendments first issued in November 2014 (79 Fed. Reg.74176 (Dec. 15, 2014))

BACKGROUND:

• Final Rule issued August 4, 2016, along with an InterpretiveRule providing safe harbors from selected FDCPA provisions(81 Fed. Reg. 72160 (Oct. 19, 2016)):

– “The Consumer Bureau is committed to ensuring that homeownersand struggling borrowers are treated fairly by mortgage servicers andthat no one is wrongly foreclosed upon,” said CFPB Director RichardCordray. “These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members andother successors in interest, who often are especially vulnerable.”

– Resolves some of the ambiguities in the Servicing Rules, whilegenerally expanding the obligations of servicers

– Most provisions effective after 12 months, but certain provisionseffective after 18 months

AMENDMENTS TO SERVICING RULES:

• Five Key Amendments:

– Treatment of confirmed successors in interest

– Loss mitigation requirements

– Live contact and early intervention notice requirements

– Periodic statements and coupon books

– Servicing transfers

• Miscellaneous additional amendments

SUCCESSORS IN INTEREST:

• Effective Date: April 19, 2018

• Scope of Amendments: Confirmed successors in interest (successors) are “borrowers” and “consumers” entitled to the protections of the Servicing Rules (12 CFR § 1024.30(d); 12 CFR § 1026.2(a)(11))

– “Successors in interest” are defined broadly to include most of the personsprotected by the Garn-St. Germain Act (12 CFR § 1024.31; 12 CFR §1026.2(a)(27))

– Servicers must act promptly to confirm the identity of potential successors ininterest, but need not actively search for them (12 CFR § 1024.38(b)(1)(vi)(A))

• Impact of Amendments: Servicers must generally treat a confirmedsuccessor the same as the borrower, and successors will have the sameprivate rights of action as borrowers

SUCCESSORS IN INTEREST:

– Potential Successors: Upon learning of the existence of a potential successor, the servicer must tell the potential successor the documents the servicer needs to confirm the person’s identity and ownership interest in the property (12 CFR§ 1024.38(b)(1)(vi)(B); Comments 38(b)(1)(vi)-2 & 3)

– Confirmation of Successor: Upon receiving documents, theservicer must make a determination and promptly notify theperson that the status is confirmed, more documents areneeded, or that the person is not a successor in interest (12CFR § 1024.38(b)(1)(vi)(C))

SUCCESSORS IN INTEREST:

– Loss Mitigation: Servicers must consider confirmed successor ’s lossmitigation application (Comment 1024.41(b)-1)

– Notices: In general, confirmed successors are entitled to receive mostservicing notices as if they are borrowers (12 CFR § 1024.32(c))

– No Safe Harbor from GLBA or Regulation P: The Final Rule did notgrant industry requests for safe harbor from privacy rules; instead, a servicer may disclose non-public personal information relating to themortgage loan with confirmed successors, but can limit theinformation to exclude financial, contact, or location informationabout other borrowers (12 CFR §§ 1024.35(e)(5), 1024.36(d)(3))

SUCCESSORS IN INTEREST:

– FDCPA:

• No safe harbor from FDCPA’s prohibitions on harassing or abusive conduct in § 806: The final rule does not provide safe harbor; instead, aservicer may avoid FDCPA liability when it sends a required notice to aconfirmed successor who has not yet assumed the obligation by eitheradjusting the periodic statements and other servicing notices to avoidthe implication that the successor is liable or using the notice andacknowledgment form in new § 1024.32(c) (Preamble)

• Safe harbor from FDCPA’s prohibition on third party disclosure in§ 805(b): CFPB’s interpretive rule provides that servicers who communicate with confirmed successors in interest as required by Regulations X and Z do not violate § 805(b) (81 Fed. Reg. 72160 (Oct. 19, 2016))

SUCCESSORS IN INTEREST:

• Impact of Amendments

– Duplicative notices: Certain notices are not required for confirmed successors if servicers are providing them to other borrowers (12 CFR § 1024.32(c))

– Live contact: The servicer need not attempt live contact withthe successor if good faith efforts are underway with another borrower on the loan (12 CFR § 1024.32(c)(4))

– Error resolution and information request procedures: Servicers must respond to confirmed successors as if they were borrowers, subject to certain limitations (12 CFR §1024.32(c)(1)(v))

LOSS MITIGATION REQUIREMENTS:• Effective: October 19, 2017 (12 months after publication)

• Scope of Amendments: Impacts the obligations of servicers with respect to loss mitigation applications and borrowers in foreclosure

• Impact of Amendments:

– Foreclosure prevention: Servicers must affirmatively prevent foreclosure judgmentsand/or sales while complete loss mitigation applications are pending (Comment41(g)-3 and -5)

– Repeat loss mitigation requests: Servicers must apply the loss mitigation proceduresin § 1024.41 again for borrowers who become current on payments after a priorapplication and request loss mitigation (12 CFR § 1024.41(i))

– First notice or filing during repayment plans: Servicers cannot make the first notice or filingif a borrower is performing under a short term repayment plan offered after the borrowersubmits an incomplete loss mitigation application (12 CFR § 1024.41(c)(2)(iii))

– Exception to the 120-day prohibition on foreclosure filing: A servicer of a subordinatelien may join the existing foreclosure action of a superior lienholder (12 CFR §1024.41(f)(1)(iii))

LOSS MITIGATION REQUIREMENTS:• Impact of Amendments: Loss Mitigation Applications

– Notice of complete application, including date of completion, must be sent within 5 days(12 CFR § 1024.41(c)(3))

– Servicer may stop collecting documents and information once it determines borrower is ineligible for an option but cannot stop based on borrower ’s state preference (Comment 41(b)(1)-1)

– Reasonable dates for borrower to provide documents are the earlier of 30 days or thenext “milestone,” but never less than 7 days (Comments 41(b)(2)(ii)-1 to -3)

– Lack of third party information cannot be the sole reason for denial of a loss mitigation request unless the servicer is unable to obtain the information for a “significant period of time” (12 CFR § 1024.41(c)(4))

– Short term repayment plans can be offered based on incomplete applications, but theservicer must advise borrowers of other available options and the opportunity to submit acomplete application (12 CFR § 1024.41(c)(2)(iii))

– Reasonable diligence to complete an application may be suspended during short termforbearance and repayment plans, but the servicer must resume efforts immediately ifthe borrower defaults or requests assistance (Comment 41(b)(1)- 4.iii)

LIVE CONTACT AND EARLY INTERVENTION NOTICE REQUIREMENTS:• Effective: October 19, 2017 (12 months after publication)

• Scope of Amendments: Impacts obligations of servicers where a borrower is in bankruptcy or has exercised cease communications rights under the FDCPA; clarifies obligations regarding good faith efforts at live contact

• Impact of Amendments on live contact “good faith efforts”:

– The longer the delinquency and the less responsive the borrower, the less isexpected of the servicer (Comment 39(a)-3)

– Servicers are not required to make live contact attempts if any borrower on the loan is in bankruptcy (12 CFR § 1024.39(c))

– Servicers covered by the FDCPA need not make live contact attempts for anyborrower on the loan who has invoked the FDCPA’s cease communicationprovisions (12 CFR § 1024.39(c))

LIVE CONTACT AND EARLY INTERVENTION NOTICE REQUIREMENTS:

• Impact of Amendments on Notices:

– Early intervention notices are required during prolongeddelinquencies; every 180 days for borrowers 45 days or moredelinquent (12 CFR § 1024.39(b)(1))

– Modified early intervention notices are generally required forborrowers who are in bankruptcy and/or have invoked the FDCPA

• Borrower in bankruptcy (12 CFR § 1024.39(c)):

– No early intervention notice if (i) no loss mitigation option is available or(ii) the servicer is subject to the FDCPA and a borrower on the loan hasinvoked the FDCPA’s cease communication rights

– In all other cases, the servicer must send the early intervention notice ifthe borrower is more than 45 days delinquent, but must modify the noticeso that it does not include a request for payment

LIVE CONTACT AND EARLY INTERVENTION NOTICE REQUIREMENTS:

• Impact of Amendments on Notices (cont’d):

– Modified early intervention notices (cont’d)

• Borrower has invoked cease communication rights under the FDCPA (12 CFR § 1024.49(d)):

– No early intervention notice if (i) a borrower on the loan has alsofiled for bankruptcy protection or (ii) no loss mitigation option isavailable

– In all other cases, the servicer must send the early intervention notice,without a request for payment, but with a statement that the servicer mayor will pursue foreclosure

PERIODIC STATEMENTS / COUPON BOOKS:

• Bankruptcy Statement Changes Effective: April 19, 2018

• Impact of Amendments:

– Bankruptcy: With some exceptions, servicers must send periodicstatements or coupon books to borrowers in bankruptcy or who havedischarged the loan, with content that varies depending on the bankruptcy chapter (12 CFR § 1026.41(e)(5)(i))

– Timing: If a triggering event occurs (filing, dismissal, reaffirmation,certain requests or court orders) the servicer must provide the correctstatement within one single billing cycle when the payment due datefor that billing cycle is no more than 14 days after the triggering event(12 CFR § 1026.41(e)(5)(iv)(B))

PERIODIC STATEMENTS / COUPON BOOKS:

• Impact of Bankruptcy Amendments

– Prescribes statement modifications for all borrowers in bankruptcyor who have discharged personal liability for the loan (12 CFR §1026.41(f))

– Additional modifications for borrowers in bankruptcy under Chapters12 and 13 relating to separating pre-petition and post-petition activityand amounts due:

• Post-petition delinquency information

• Post-petition amount due• Post-petition transaction activity• Pre-petition arrearage

• Additional required disclosures (12CFR § 1026.41(f)(3))

PERIODIC STATEMENTS / COUPON BOOKS:

• Additional Statement Changes Effective: October 19, 2017

– Charge off: Provides circumstances under which the servicer is excusedfrom providing periodic statements or coupon books if the loan ischarged off, provided that the servicer will not impose additional fees orinterest and sends a final statement to the consumers that containsprescribed information (12 CFR § 1026.41(e)(6))

– Acceleration: If a mortgage has been accelerated but the servicer willaccept a lesser amount to reinstate the loan, the periodic statementmust show only the lesser amount the servicer will accept to reinstate the loan (Comment 41(d)(1)- 1; 41(d)(2)-1))

PERIODIC STATEMENTS / COUPON BOOKS:

– Special rules for temporary and permanent loss mitigationprograms (Comments 41(d)-4; 41(d)(1)-2 & 3; 41(d)(2)-2 & 3))

• For consumers in permanent loss mitigation programs, the servicer should show payments according to the permanentloss mitigation program

• For consumers in temporary loss mitigation programs, the periodic statement or coupon book must show paymentsaccording to the loan contract—without regard to thetemporary loss mitigation program

SERVICING TRANSFERS:• Effective: October 19, 2017 (12 months after publication)

• Scope of Amendments: Impacts obligations of both transferee and transferor servicers with respect to loss mitigation, notices of error and firstnotices or filings in foreclosure

• Impacts of Amendments:

– General rule: Transferee servicers must meet all of the deadlines and requirements for lossmitigation under § 1024.41 of Regulation X based on the date the application was receivedby the transferor servicer (12 CFR § 1024.41(k)(1))

– Exceptions to the general rule include that pending complete loss mitigationapplications as of the transfer date must be evaluated for all loss mitigation optionswithin 30 days of the transfer date (the date the transferee servicer will acceptpayments) (12 CFR § 1024.41(k)(3))

– Loss mitigation options: Transferee servicers must allow a borrower to accept a lossmitigation option that was pending as of the transfer date, during the unexpired balance ofthe time the transferor servicer had given the borrower to accept the offer (12 CFR §1024.41(k)(5))

SERVICING TRANSFERS:• Impacts of Amendments

– Pending appeals: A transferee must make a determination on an appeal if it isable to, within the later of 30 days of the transfer date or 30 days of the appeal date (12 CFR § 1024.41(k)(4))

• If the servicer is not able to make a decision, it must treat the appeal as a pendingcomplete loss mitigation application (12 CFR § 1024.41(k)(4)(ii))

– Unexpired acknowledgement period: If the acknowledgement period has notexpired as of the transfer date and the transferor servicer has not provided the notice, the transferee servicer must send the acknowledgement notice within 10days of the transfer date (12 CFR § 1024.41(k)(2)(i))

– No first notice or filing: A transferee servicer may not make the first notice or filing for foreclosure until after the date disclosed to the borrower forsubmitting the documents the transferee servicer requires for a complete lossmitigation application (12 CFR § 1024.41(k)(2)(ii))

OTHER PROVISIONS:• Effective: October 19, 2017 (12 months from publication)

– “Delinquency” begins on the day that a periodic payment sufficient to cover principal,interest, and escrow (if applicable) is due and unpaid, until such time as no periodicpayment is due and unpaid (12 CFR § 1024.31)

– Requests for information about ownership of loans: owner may be identified to borrowers as Fannie or Freddie (if held by either) unless the requesting partyspecifically requests the name or number of the trust or pool (Comment 1024, 36(a)-2)

– Force-placed insurance: Model forms and disclosures amended to accommodatecircumstances where insurance is placed because borrower’s coverage is insufficient (12CFR § 1024.37(c)(2)(v), (c)(4), (d)(2)(ii), (d)(2)(ii)(B), (d)(3), (d)(4), (e)(4))

– Small servicer exemption provisions revised to exclude certain seller-financed transactions and mortgage loans voluntarily serviced for a non-affiliate, even if the non-affiliate is not a creditor or assignee, from being counted toward the 5,000 loan limit (12CFR § 1026.41(e)(4)(iii))

– Vacant property and “Principal Residence”: if a property securing a loan ceases to bea borrower’s principal residence, the protections under Regulation X would not apply;the commentary notes that a vacant property may still be a borrower’s principalresidence (Comment 30(c)(2)-1)

QUESTIONS?

WRAP-UP:

CONTACT INFORMATION

Ryan S. Stinneford

Hudson Cook, LLP

22 Free Street Suite 205

Portland, Maine 04101

207-541-9553

207-274-0627

rstinneford@hudco.com

LEGAL STUFF:

This presentation may be construed as an advertisement or solicitation. It should not be construed as legal advice or a legal opinion on any specific facts or circumstances, nor does it create an attorney-client relationship or any attorney-client privilege.

Because of its generality, the information provided in this program may not be applicable to all situations and should not be acted upon without specific advice from legal counsel.

If you have any questions concerning this program, please contact Ryan Stinneford.

©2017 Hudson Cook, LLP

CONTACT INFORMATION:

Ryan S. Stinneford

Hudson Cook, LLP

22 Free Street Suite 205

Portland, Maine 04101

207-541-9553

207-274-0627

rstinneford@hudco.com