the new servicing requirements regulations b, z and x

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The New Servicing RequirementsRegulations B, Z and X

Compliance Manager/EGRC

May ?, 2013

• Furnishing Copies of Appraisals and Other Valuations – no request required

• Prompt Crediting of Payments and Response to Payoff Statement Requests• New Periodic Statement Requirements• New Rate Adjustment Disclosures – Initial-Post-Consummation and Post-

Consummation-with-Payment-Change• Record Retention: Evidence of Compliance for Loan Originator Compensation

and Minimum Standards for Transactions Secured by a Dwelling

• Notice of Servicing Transfer – Revised Language• Borrower Payments During Transfer of Servicing – Transferor Responsibilities• Escrow Balance Refund Timeliness and Treatment of Discretionary Payments• Notice-of-Error: Categories and Action(s) Upon Receipt

New Expectations

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• Requests-for-Information: Categories and Action(s) Upon Receipt• Action Taken for Requests for Information• Force Placed Insurance – Disclosures and Premium Assessment• General Servicing – Establish Policy and Procedures for Specific Processes /

Topics• Early Intervention – Notice of Loss Mitigation Options and Live Contact• Continuity of Contact – Provide Borrowers with access to people who can

assist with Loss Mitigation• Loss Mitigation – Written Notification to the Borrower, Processing Loss

Mitigation Applications and Appeals, “Dual Tracking” and starting the Foreclosure Process

New Expectations (cont.)

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• Under Regulation B - Effective January 18, 2014First Lien, Dwelling-Secured Loans and Lines, including:

• Open End Loans• Closed End Loans• Consumer and Commercial• Loss Mitigation Applications regardless if the option applied for is extended, denied, incomplete or

withdrawn.

• Under Regulation Z - Effective January 10, 2014– Generally, Dwelling-Secured Loans

E.g., Crediting of Payments and Payoff Statement Provisions Apply to Closed End and Open End Loans and Lines

– Periodic Statements and ARM Disclosure Provisions• Apply to Closed End only• Reverse Mortgages and Time Shares are exempt from periodic statements• ARMs with terms of one year or less are exempt from ARM disclosures

Scope

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• Under Regulation X - Effective January 10, 2014Generally applies to closed end federally regulated mortgage loans – Allows for same exemptions currently defined in RESPA– Open End lines of credit are generally exempt– Allows for a number of exemptions for Small Servicers

• Service 5,000 or fewer mortgage loans, and• Only service loans they or an affiliate originated or own

Scope (cont.)

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Appraisal RequirementsRegulation B12 CFR 1002.14

Regulation B Requirements

• Section 14 changed from “. . . appraisal reports” to “. . . appraisals and other valuations”

• Providing a Copy of Appraisal and Other Written Valuations – To be mailed or delivered not later than the earlier of:

• “promptly upon completion,” or• three business days prior to consummation of the transaction (for closed-end credit) or account opening

(for open-end credit).– Consumer can waive the timing requirement (i.e., agree to receive any copy as late as “at or

before consummation or account opening,” unless otherwise prohibited by law)– Must be given to primary applicant, if one is apparent (otherwise, only must be given to one

applicant)– No charges are allowed for provision (e.g., making copies), though reasonable cost-of-

appraisal can be charged– Can be delivered by electronic means (subject to E-Sign Act requirements if it is not delivered

as part of an application)– Regulation B is silent on modification-related valuations. However, they are discussed in the

CFPB Preamble, and MOD-related documents were specifically not carved-out.

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Regulation B - Appraisals and Valuations

• Valuations include, but are not limited to: – A report prepared by an appraiser, including the appraiser’s estimate or opinion of the

property’s value;– A document prepared by the creditor’s staff that assigns value to the property;– A report approved by a government-sponsored enterprise for describing to the applicant the

estimate of the property’s value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise;

– A report generated by use of an automated valuation model to estimate the property’s value’– A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the

property’s value;– Any attachments and exhibits that are an integrated part of the valuation

Source: Reg. X, §1002.14, commentary for §14(b)(3).

Provide Promptly Upon Completion ????

– “Provide” means “Deliver”: Delivery occurs:• three business days after mailing or delivering copies to

the last known address of the applicant, or • when evidence indicates actual receipt, whichever is

earlier. The applicant must receive the copies no later than three business days before consummation.

– Promptly: Sending the copy of the appraisal or other valuation to the applicant: • within seven days of completion, • with sufficient time before consummation.

– Completion: Occurs once the creditor has: • reviewed and accepted the appraisal or other written

valuation, • to include any changes or corrections required.

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Examples of Compliance with “Promptly Upon Completion”

• On day 15 after receipt of the application, the creditor’s underwriting department

reviews an appraisal and determines it is acceptable.

• One week later, the creditor sends a copy of the appraisal to the applicant.

• The applicant actually receives the copy more than three business days before the

date of consummation (or account opening).

• The creditor has provided the copy of the appraisal promptly upon completion.

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Examples of Non-Compliance…

• On day 12 after receipt of the application, the creditor’s underwriting department

reviews an appraisal and determines it is acceptable.

• Although the creditor has determined the appraisal is complete, the creditor waits to

provide a copy to the applicant until day 42, when the creditor schedules the

consummation (or account opening) to occur on day 50.

• The creditor has not provided the copy of the appraisal promptly upon completion.

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Regulation B - Waiver

• An applicant has the right to waive the timing requirement for receiving the appraisal reports promptly (except where otherwise prohibited by law).

• To waive the right:– An applicant needs to provide the creditor with an affirmative oral or written statement

waiving the timing requirement;– An applicant needs to provide the waiver no later than three business days before

consummation or account opening;– An applicant must agree to receiving copies of appraisal reports at or before consummation

or account opening;– Creditor must provide the copies at or before consummation or account opening.

• If the applicant provides a proper waiver and the transaction is not consummated or the account is not opened, the creditor must provide the copies within 30 days of the determination not to consummate or open the account.

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Regulation B - Restrictions on Fees

• Creditors may charge a reasonable fee for reimbursement.

• Creditors may not upcharge or charge for photocopies, postage, or other costs

incurred in providing a copy of an appraisal or other written valuation.

• Fee may include an administration fee, if charged to the creditor by an appraisal

management company

• Creditors may not charge a consumer a fee for the performance of a second appraisal

if the second appraisal is required.

Questions?

Mortgage Servicing RequirementsRegulation Z12 CFR 1026

Prompt Crediting of Payments (12 CFR 1026.36(c)(1))

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• Scope: Applies to principal dwelling loans, closed end or open end loans or lines.- No Small Servicer Exemption

• Credit date is the date of receipt for “periodic payment”: the amount sufficient to cover principal, interest, and escrow (if applicable) for a given

billing cycle; a payment qualifies as a periodic payment even if it does not include late fees, other

fees, or non-escrow payments that a servicer has advanced on a consumer's behalf.

• Exception: a delay in crediting can occur if it does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency

• Partial Payments- May keep partial payment in a suspense account and disclose the amount in suspense

on periodic statement- Promptly apply to oldest outstanding payment when full contractual payment is

accumulated

• Non-Conforming Payments- If a servicer specifies requirements in writing for making payments, but accepts non-

conforming payment, credit payment 5 days after receipt.

• Late charges cannot be pyramided.

Payoff Statement Requests (12 CFR 1026.36(c)(3))

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• Scope: Applies to dwelling secured loans, closed end or open end loans or lines.No Small Servicer Exemption

• Must respond to written requests for payoff statements within a “reasonable” time but not longer than 7 business days.

• In some instances, the 7-day requirement cannot be met; e.g., if the payoff statement can be provided “within a reasonable time” because: of bankruptcy or foreclosure, the loan is a reverse mortgage or shared appreciation mortgage, or of natural disasters or other similar circumstances.

• Request for payoff statements can be made by a representative; e.g., an attorney.

• Payoff statements must be accurate as of a specific date.

Periodic Statements (12 CFR 1026.41(c),(d))

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• Scope: Applies to closed-end, dwelling secured loans. Exemptions include:- Reverse Mortgages- Timeshare Plans- Coupon Books- Small Servicers

• Coverage includes a creditor, assignee, or servicer unless the mortgage loan or servicing rights have been sold.

• Timing: Periodic statements must be mailed/delivered to customers:- Within a “reasonably” prompt time (within 4 days) after the payment due date; or- At the end of any courtesy period provided for the previous billing cycle.

Note: If multiple borrowers, servicer is only required to provide one statement.

Periodic Statements (cont.)

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• Periodic statements must meet form and content requirements.- Must be in writing, clear and conspicuous, and a form the customer can keep.- Electronic statements are acceptable if the consumer agrees.- The Reg provides model forms H-30(A) Periodic Statement and H-30(B) Periodic

Statement and Delinquency Box. - Proper use of model forms is considered to comply with this requirement.


Form and Content

The Regulation contains specific content and layout requirements.

Top of first statement page must include the following information in close proximity:• Amount due

- Shown more prominently than all other information on the page.- For multiple payment options, show the amount due under each option.

• Payment due date• Late fee• Date late fee will be imposed

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Form and Content (cont.)

The statement must also include the following information:

• Explanation of Amount Due (grouped in close proximity, on the first page)– Monthly payment amount and breakdown

• Show the amount that will be applied to: – principal, – interest, and/or – escrow.

• For multiple payment options, a breakdown of each payment option. – Sum of fees or charges since last statement– Past due payment amount

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• Past Payment Breakdown (Grouped in close proximity on first page)– Total of payments received since the last statement and YTD. – Show the amount that was applied to principal, interest, escrow, and/or suspense account.

• Transaction Activity – List all transactions since last statement. – Include transaction date, description, and amount.

• Partial Payment (on first page)For a partial payment that has been placed in a suspense account, must disclose what must be done for the funds to be applied. This explanation may be provided: ─ on the first page, or ─ on a separate page enclosed with the statement, or ─ in a separate letter.

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• Contact Information (on first page)A toll-free phone number and email address, if applicable, where the consumer can obtain information about their account.

• Account Information – Loan balance; – Current interest rate (common error is provision of a percentage labeled as an APR);– Date interest rate may change;– Prepayment penalty; and– Website address needed to access:

• the CFPB list or HUD list of homeownership counselors and counselor organizations, and • the HUD toll-free number to access contact information for counselors or counseling organizations.

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• Delinquency Information The following information must be on the first page and in close proximity when the consumer is more than 45 days past due. The information may also be on a separate page enclosed with the statement or in a separate letter.– Date of delinquency;– Notification of possible risks (foreclosure, expenses, etc.) if delinquency is not cured;– Account history for the previous 6 months or the period since the account was last current

(whichever is shorter) showing: • Amount past due from each billing cycle or • The date any such payment fully paid was credited;

– Loss mitigation program the consumer has agreed to;– Notice of foreclosure filing;– Amount needed to make the loan current; and– Homeowner counselor information.

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Coupon Book ExemptionPeriodic statement requirement does not apply to fixed-rate loans where the consumers were provided with coupon books if:• “Top of Statement Information” is printed on each coupon (amount due, payment

due date, late fee);• Coupon book contains the following:

– Balance at beginning of coupon book period;– Current rate;– Rate change date; – Prepayment fee;– Counseling information; and– Contact information.

• Other periodic statement information is available upon request by telephone, in writing, in person, or electronically.

• Provides delinquency information in writing to customers who are more than 45 days past due.

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Small Servicer Exemption

Periodic statement requirements do not apply to mortgage loans serviced by a Small Servicer. A Small Servicer is defined as a servicer who services 5,000 or fewer mortgage loans for which the servicer or an affiliate is the creditor or assignee:

A servicer that services any loans for which the servicer is not the creditor or assignee is not considered to meet the Small Servicer exemption.

For example, a servicer that owns servicing rights for mortgages that are not owned by the servicer, or the servicer was not the creditor to whom the mortgage was initially payable to, does not meet the definition of a Small Servicer.

Both master servicer and sub-servicers must meet the definition of a Small Servicer to be covered under the exemption.

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Small Servicer Exemption (cont.)

• Small Servicer determination is based on the number of mortgage loans serviced by the servicer and any of its affiliates as of January 1 for the remainder of the calendar year.Mortgage loans obtained by merger or acquisition should be considered as mortgage loans for which the servicer or affiliate is the creditor to which the mortgages were initially payable.

• An exempt servicer that crosses the 5,000 loan threshold will have 6 months after crossing the threshold or until January 1, whichever is later, to comply with requirements from which the servicer is no longer exempt.For example, a servicer that begins to service more than 5,000 loans on October 1 and services more than 5,000 on January 1 of the following year, will no longer meet the definition of a Small Servicer on April 1 of the following year.

• A servicer that begins to service more than 5,000 loans on February 1, but services less than 5,000 on January 1 of the following year, meets the definition of a Small Servicer for the following year.

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Initial Post-Consummation Rate Adjustment Disclosure (12 CFR 1026.17(a)(1),(20)(d))

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Disclosure is triggered by the initial rate adjustment.

Scope • Applies to closed end principal dwelling secured adjustable-rate loans. Includes

reverse mortgages, purchases, and home equity loans. Coverage applies to creditor, assignee, or servicer.

• If an ARM closes before the effective date, but first adjustment is after the effective date, must comply.

• Does not apply to loan modification adjustment; however, the initial rate adjustment pursuant to the modified contract is covered.

• Not applicable to step-rate, preferred-rate, shared-appreciation loans if structured as a fixed-rate loan and not an ARM based on an index or formula.

• There is no Small Servicer exemption.• Exemptions include:

- HELOCs- ARMs with terms of one year or less

Initial Post-Consummation Rate Adjustment Disclosure (cont.)

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Format • Notice must be in writing and provided as a separate and distinct document:

The notice may be mailed with other disclosures but cannot be incorporated into a periodic statement.

Emailed notices must be a separate attachment.

Timing• Servicer must deliver the notice or place it in the mail between 210 and 240 days

prior to the due date of the first payment at the adjusted rate.• For payments that adjust within 210 days of origination, disclose at

consummation.

Estimate• If the new interest rate or payment is unknown on disclosure date, use an

estimate based on the index within 15 business days of the disclosure.


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Content Disclosure must contain the following information:

• Date of disclosure

• A statement providing:- Explanation that under the terms of the mortgage, the time period in which the current

rate in effect is ending and any change in the interest rate may result in a change in the mortgage payment;

- The effective date of the rate adjustment and when future rate adjustments are scheduled; and

- Any other changes to loan terms, features, or options taking effect on the same date as the rate adjustment (e.g., expiration of interest-only feature).

• Table containing the following:- Current and new interest rates;- Current and new payments and date of first new payment; and- For interest-only or negatively-amortizing payments, the amount of current (for the last

payment prior to the disclosure date) and new payment (the first payment for which the new rate will apply) allocated to principal, interest, and escrow.


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Content (cont.)

• Explanation of how the interest rate is determined including:- Specific index or formula used and source of information about the index or formula;

and- Type and amount of any adjustment to the index.

• Any limits on interest rate or payment increases at each adjustment and over the life of the loan including:

- The extent to which the Servicer foregoes any increase in the rate; and- The earliest date such foregone rate increases may apply to future rate adjustments.

• Explanation of how the new payment is determine including:- Index or formula used;- Any adjustments to the index or formula; - Loan balance expected on the date of the rate adjustment;- Length of remaining loan term expected on date or rate adjustment, and any change in

loan terms caused by the adjustment; and- If the new rate or payment is an estimate, a statement that another disclosure

containing the actual new rate and payment will be provided to the consumer between 2 and 4 months before the first payment at the adjusted rate is due.


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Content (cont.)

• If applicable, a statement that the new payment will not be allocated to pay principal and will not reduce the balance.

- For new payments that result in negative amortization, a statement that the new payment will not be allocated to pay principal and will pay interest only.

- For new payments that result in negative amortization due to the rate adjustment, the statement must state the payment required to fully amortize the remaining balance at the new rate over the remaining term.

• Circumstances any prepayment penalty may be imposed; time period penalty can be imposed; and a statement the consumer may contact the Servicer for additional information.

• Telephone number of the Servicer if the consumer will not be able to make their new payment.

• The following alternatives to paying at the new rate and an explanation of each alternative, stated in simple and clear terms:

- Refinancing the loan;- Selling the property and paying the loan in full; - Modifying loan terms; and- Arranging payment forbearance.


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Content (cont.)

• Other information such as:- Website to access CFPB list or HUD list of homeownership counselors and counseling

organizations;- HUD toll-free telephone number to access homeownership counselors and counseling

organizations; and- CFPB website for contact information for State housing finance authorities.

FormatDisclosures should be provided in the form of a table and in the same format as the model discloses in Appendix H-4(D)(3) and (4).

Post-Consummation Rate Adjustment with Corresponding Payment Change (12 CFR 1026.20(c))

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The notice is triggered when rate adjustments cause changes in payment amounts and for certain conversions. The new rules eliminate the existing annual rate disclosure when there is no corresponding payment change.

Scope • Applies to closed end, principal dwelling secured, adjustable-rate loans. Coverage

applies to creditor, assignee, or servicer.• Conversion from an ARM to a fixed-rate mortgage is covered if the rate adjustment

results in a payment change.• Does not apply to loan modification adjustment; however, the initial rate

adjustment pursuant to the modified contract is covered.• Not applicable to step-rate, preferred-rate, shared-appreciation loans if structured

as a fixed-rate loan and not an ARM based on an index or formula. • There is no Small Servicer exemption.• Exemptions include:

- ARMs with terms of one year or less; and- ARMs where the first rate adjustment occurs within 210 days of consummation and the

new interest rate disclosed at consummation was not an estimate.

Post-Consummation Rate Adjustment with Corresponding Payment Change (cont.)

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Timing• Disclosures must be provided to consumers as soon as practicable but no less

than 25 days before the due date of the first adjusted payment for the first adjustment if:

- The first adjustment occurs within 60 days of consummation; and- The new rate disclosed at consummation was an estimate.

• Disclosures must be provided to consumers at least 25, but no more than 120, days before the due date of the first adjusted payment for:

- ARMs with uniformly scheduled rate adjustments occurring every 60 days or more frequently and

- ARMs originated prior to 1/10/2015 where the loan contract requires the adjusted rate and payment to be calculated based on the index available as of a date that is less than 45 days prior to rate adjustment.

• Otherwise, disclosures are to be delivered at least 60 but no more than 120 days before the first adjusted payment is due.

• Disclosures must be delivered to consumers or placed in the mail within the timeframes indicated.


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Content Disclosure must contain the following information:

• A statement providing:- Explanation that under the terms of the mortgage, the time period in which the current

rate in effect is ending and the interest rate and mortgage payment will change;- The effective date of the rate adjustment and when future rate adjustments are

scheduled; and- Any other changes to loan terms, features, or options taking effect on the same date as

the rate adjustment (e.g., expiration of interest-only feature).

• Table containing the following:- Current and new interest rates;- Current and new payments and date of first new payment; and- For interest-only or negatively-amortizing payments, the amount of current (for the last

payment prior to the disclosure date) and new payment (the first payment for which the new rate will apply) allocated to principal, interest, and escrow.


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Content (cont.)

• Explanation of how the interest rate is determined including:- Specific index or formula used and source of information about the index or formula;

and- Type and amount of any adjustment to the index.

• Any limits on interest rate or payment increases at each adjustment and over the life of the loan including:

- The extent to which the Servicer foregoes any increase in the rate; and- The earliest date such foregone rate increases may apply to future rate adjustments.

• Explanation of how the new payment is determine including:- Index or formula used;- Any adjustments to the index or formula; - Loan balance expected on the date of the rate adjustment; and- Length of remaining loan term expected on date or rate adjustment, and any change in

loan terms caused by the adjustment.


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Content (cont.)

• If applicable, a statement that the new payment will not be allocated to pay principal and will not reduce the balance.

- For new payments that result in negative amortization, a statement that the new payment will not be allocated to pay principal and will pay interest only.

- For new payments that result in negative amortization due to the rate adjustment, the statement must state the payment required to fully amortize the remaining balance at the new rate over the remaining term.

• Circumstances any prepayment penalty may be imposed; time period penalty can be imposed; and a statement the consumer may contact the Servicer for additional information.

FormatDisclosures should be provided in the form of a table and in the same format as the model discloses in Appendix H-4(D)(1) and (2).

Record Retention (12 CFR 1026.25(a), (c))

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• Generally, retain evidence of compliance with Regulation Z, other than advertising requirements (under sections 1026.16, .24), for two years after the date disclosures are required to be made or action is required to be taken;

• Additionally, retain evidence of compliance as follows:- Records sufficient to evidence all compensation paid to loan originators, and the

compensation agreement(s) that govern those payments, for three (3) years after the date of payment; and

- Evidence of compliance with minimum standards for any transaction secured by a dwelling (other than exceptions under Reg. Z, §1026.43(a)) for three (3) years after consummation of a transaction covered by that section.

Questions?

Mortgage Servicing RequirementsRegulation X12 CFR 1024

Notice of Servicing Transfer (12 CFR 1024.33(b)(4))

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Transferor and Transferee Servicers must provide the borrower with a notice of transfer when servicing is transferred (single, coordinated joint notice is still allowable). Required content/format of the notice was revised in the amendment.

• Content of Notice - Effective date of transfer;- Name, address, toll-free phone number of transferee Servicer for borrower’s questions;- Name, address, toll-free phone number of transferor Servicer for borrower’s questions;- Date transferor Servicer will no longer accept payment and date transferee Servicer will

begin to accept payments;- If the transfer will impact terms or availability of mortgage life or disability insurance or

other insurance, and how to maintain coverage; and- Statement that transfer does not impact terms of the mortgage other than servicing.

• Notice must contain the information in the model form in Appendix MS-2.

Borrower Payments During Transfer of Servicing (12 CFR 1024.33(c))

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• Treatment of Payment Transferor Servicers that receive payments after the transfer of servicing must:

- Transfer the payment to the Transferee Servicer; or- Return the payment and notify the borrower of:

- The Transferee Servicer; and- The Transferee Servicer’s contact information.

Escrow Balance Refunds (12 CFR 1024.34(b))

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• Servicer must refund balance of escrow account within 20 business days of payoff.

• Credit Funds to New Escrow Account Servicer may credit the balance of an escrow account to a new escrow account if the new mortgage is provided by a lender that:

- Was the lender of the prior mortgage; - Is the owner of the prior mortgage; or- Uses the same Servicer that serviced the prior mortgage.

Escrow Payments & Accounts (12 CFR 1024.17 and.34)

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Amendments to Regulation X provided clarifying language for certain provisions concerning escrow accounts including surpluses and escrow statements.

• Surpluses Servicer must refund surplus from an escrow account within 30 days of the escrow

analysis if the surplus is equal to or greater than $50. Surpluses less than $50 may be credited to the escrow account.

This provision applies if the borrower is current at the time of escrow analysis. A borrower is current if the Servicer receives payment within 30 days of the due date. If payment is not received within 30 days of due date, then the Servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents.

Escrow Payments & Accounts (cont.)

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• Deficiencies Servicer may require the borrower to pay additional monthly deposits to an escrow

account when the escrow analysis indicates a deficiency.

This provision applies if the borrower is current at the time of escrow analysis.

Otherwise, the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents.

• Annual Escrow Account Statement If the borrower is more than 30 days past due when the escrow analysis is conducted,

or the Servicer has brought action for foreclosure under the underlying federally related mortgage loan, the Servicer is not required to provide the annual escrow statement.

The Servicer must provide a history of the escrow account within 90 days of the loan becoming current.


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• Short Year Statements Servicer must provide a short year statement to the borrower within 60 days after federally related loan payoff.

• Timely Payment For borrowers who have escrow for hazard insurance and whose mortgage is more than

30 days past due, Servicer cannot purchase force-placed insurance unless it is unable to disburse funds from the escrow account.

- Servicer is considered unable to disburse funds if it has reasonable belief that:- hazard insurance has been canceled for reasons other than nonpayment, or- the borrower’s property is vacant.

- Inability to disburse does not include insufficient funds in the escrow account. A Small Servicer may purchase force-placed hazard insurance if the cost to the

borrower is less than the amount the Servicer would disburse from the escrow account to pay hazard insurance premiums timely.


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• Discretionary Payments

Any borrower's discretionary payment (such as credit life or disability insurance) made as part of a monthly mortgage payment, if lender-mandated or paid through an escrow account, must be noted on the initial and annual escrow statements.

If a lender-mandated or paid-through-an-escrow-account discretionary payment is established or terminated during the escrow account computation year, this change should be noted on the next annual statement

Notes: A discretionary payment is not part of the escrow account unless:

the payment is required by the lender, in accordance with the definition of a “settlement service” (see RESPA §1024.2), or

the servicer chooses to place the discretionary payment in the escrow account.

If a servicer has not established an escrow account for a federally related mortgage loan and only receives payments for discretionary items, these requirements are not applicable

Notice of Error (12 CFR 1024.35(b))

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• Servicer must acknowledge, investigate, and respond to covered written Notices of Error within required timeframes.

• Scope: Applies to closed-end federally regulated mortgage loans.- No Small Servicer Exemption

• Notice of Error- Must be written, and- Contain borrower’s name, account information, and nature of error

• A Qualified Written Request (QWR) is considered a Notice of Error; categories are:- Failure to provide accurate payoff- A QWR- Failure to accept a payment - Failure to apply a payment- Failure to credit a payment timely- Failure to pay taxes, insurance, or other charges timely- Imposition of fee without basis- Failure to provide information on loss mitigation options and foreclosure- Failure to transfer servicing information- Foreclosure during loss mitigation- Any servicing related error

Notice of Error (cont.)

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• Contact Information Servicer may establish contact information for Notice of Error by written notice. Must post designated address for receipt of Notice of Error on websites that contain

any contact information.

• Requirements Not Applicable- Servicers are not required to comply if the following are determined:

- Borrower communicates error on payment coupon - Duplicative Notice of Error, unless new and material is provided- Notice of Error is overbroad (Servicer cannot reasonably determine error)- Untimely Notice of Error – delivered more than 1 year after transfer or payoff

- Servicer must notify the borrower of the determination:- In writing and no later than 5 business days of the determination and- Describe the reason for determination.

• Acknowledgement of Receipt - Written acknowledgement of receipt of Notice of Error must be provided within 5

business days (i.e., excludes legal public holidays , Saturdays, and Sundays). - The acknowledgement should contain both the statement acknowledging receipt and

contact information.


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Investigation and Response

• Servicer is required to respond to a Notice of Error by:- Correcting the error and notifying the borrower in writing of the following:

- Notification of correction; - Date of correction; and - Contact information.

- Or -- Conducting a reasonable investigation and notifying the borrower in writing of the

following:- No error occurred;- Reason for determination;- Right to documentation;- How to request documentation; and- Contact information.

• If the Servicer determines a different or additional error occurred, the Servicer must correct the error and give the borrower writing notification that includes:

- The error;- Corrective action;- Date of correction; and - Contact information.


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Investigation and Response (cont.)

• Requesting Additional Information – A Servicer cannot:- Require the information as a condition of investigating the error; or- Determine no error occurred because the information was not provided without

completing a reasonable investigation.

• Time Limits- Servicers must respond to a Notice of Error within the following time limits:

- For inaccurate payoffs, within 7 business days.- For foreclosure filing errors:

- The earlier of the foreclosure sale date or within 30 days. - Timing requirement does not have to be met if the Notice of error is

received 7 or fewer days before foreclosure sale.- For other errors, within of 30 days of receipt.

Servicer may extend response time by 15 days if, before the end of the 30 day period, written notification of the extension and the reasons are provided to the borrower.

Response times cannot be extended for errors related to payoffs or foreclosures.


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Investigation and Response (cont.)

• Supplying DocumentationServicer may satisfy the requirement to supply documentation relied upon to determine an error did not occur by:

- Providing copies of documents and information used to make the determination at no charge to the borrower; or

- Providing or placing the documentation in the mail within 15 business days of receiving the borrower’s request.

- The Servicer is not required to provide confidential, proprietary, or privileged information relied upon to make its determination if it:

- Chooses not to release information; and - Provides written notification to the borrower within 15 business days of receiving

the request.

• Early CorrectionServicers may comply with the Acknowledgement of Receipt and Investigation and Response requirements if the Servicer corrects and responds to the borrower in

writing within 5 business days of receipt.


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Prohibited Practices

Servicers are prohibited from the following:• Charging a fee or requiring a payment as a condition of responding to a Notice of

Error; or• Furnishing adverse information to consumer reporting agency for any payment

subject to the Notice of Error for 60 days.

Request for Information (12 CFR 1024.36)

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• Servicer must acknowledge and respond to covered written Requests for Information (RFI) within required timeframes.


• Request for Information- Must be written, and- Contain borrower’s name, account information, and information requested

• A Qualified Written Request (QWR) can be considered a RIF, if it is a request for information related to the servicing of the mortgage loan.

Request for Information (cont.)

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• Contact Information Servicer may establish contact information for RFI by written notice. If an address is designated for RFIs, then the same address must be designated for

receipt of Notice of Errors. Servicer must post designated address for receipt of RFI on websites that contain any

contact information.

• Requirements Not Applicable- Servicers are not required to comply if the following are determined:

- Borrower communicates request on payment coupon - Borrower requests payoff- Duplicative requests for information - Requests for confidential, proprietary and privileged information- Requests for irrelevant information- Request is overbroad (unreasonable volume, time, and costs)- Untimely Notice of Error – delivered more than 1 year after transfer or payoff

- Servicer must notify the borrower of the determination:- In writing and no later than 5 business days of the determination and- Describe the reason for determination.


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• Acknowledgement of Receipt - Written acknowledgement of receipt of RFI must be provided within 5 business days

(i.e., excludes legal public holidays , Saturdays, and Sundays). - The acknowledgement should contain a statement acknowledging receipt and contact

information.

Investigation and Response• Servicer is required to respond to RFI by:

- Providing requested information and contact information; or - Conducting a reasonable search for the information and providing written notification

to the borrower that includes:- A statement that the information is unavailable to the Servicer; - Basis for determination; and- Contact information.

• Servicer is not required to respond to RFI: - Notice of Error is overbroad (Servicer cannot reasonably determine error)- Untimely Notice of Error – delivered more than 1 year after transfer or payoff


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Investigation and Response (cont.)• Time Limits

- Servicers must respond to RFIs within the following time limits: - For requests for the identify of the mortgage owner or assignee, within 10 business days. - For all other RFIs, within 30 days of receipt.

- Response times cannot be extended for requests for the mortgage owner/assignee identity or contact information.

- Servicer may extend response time by 15 business days for all other requests if, before the end of the 30 day period, written notification of the extension and the reasons are provided to the borrower.

• Early Response

Servicers may comply with the Acknowledgement of Receipt and Investigation and Response requirements if the Servicer provided the requested information, contact information, and responds to the borrower in writing within 5 business days of

receipt.

Prohibited PracticesServicers are prohibited from charging a fee or requiring a payment as a condition of responding to a RFI.

Force-Placed Insurance (12 CFR 1024.37)

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• Servicer cannot charge a borrower for forced-placed insurance that is required by the loan contract without complying with requirements to provide written notice and observing required timeframes.


• Force-Placed Insurance is defined as hazard insurance obtained by the Servicer on behalf of the mortgage owner or assignee. Does not include:

- Flood Insurance, or- Renewal of an existing policy.

• Basis for Charging for Forced-Place InsuranceServicer cannot charge for force-placed insurance unless it has a reasonable basis to believe the borrower failed to maintain required coverage and failed to comply with notification requirements.

Force-Placed Insurance (cont.)

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Notice Requirements

• Prior to assessing any force-place insurance fees, the servicer must:- Deliver or mail an initial written notice to the borrower 45 days before any fee is

assessed- If no insurance information is received after providing the initial notice, the Servicer

must deliver or mail a Reminder Notice:- At least 15 days before assessing a fee for force-placed insurance; but- No earlier than 30 days after providing the initial notice.


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Notice Requirements (cont.)• Content of Initial Notice

- Notice Date;- Servicer’s name and mailing address;- Borrower’s name and mailing address;- Statement requesting borrower to provide hazard insurance information;- Statement the hazard insurance is expiring or has expired expiring and Servicer does

not have renewal information;- Statement that hazard insurance is required and the Servicer is purchasing or will

purchase insurance at the borrower’s expense;- Statement requesting the borrower promptly provide insurance information;- Description of requested information and how it can be provided;- Statement that insurance the Servicer purchases or has purchased

- May cost significantly more than insurance purchased by borrower - Not provide as much coverage as insurance purchased by borrower;

- Servicer’s telephone number; and- Statement for the borrower to review other information provided with the notice, if

applicable.• The initial notice should contain the information included in, and look substantially

similar to, Model Form MS-3(A).


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Notice Requirements (cont.)• Additional information cannot be provided on the notice but can be provided on

separate pages within the same envelope.• Content of Reminder Notice - When no Insurance Information is Received

- Notice Date;- Statement the notice is the second and final; - Information required on the initial notice; and- Annual cost of the force-place insurance, or if the actual cost is unknown, a reasonable

estimate and a statement it is an estimate.

• Content of Reminder Notice – When Partial Information Received- Notice Date;- Information Required on the initial and reminder (when no information received)

notices;- Statement the Servicer has received insurance information provided;- Statement requesting missing information; and- Statement the borrower will be charged for insurance purchased for the time period

the Servicer is unable to verify coverage.• The notice should contain the information included in and look substantially similar to Model

Form MS-3(B) and (C).


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Notice Requirements (cont.)• Additional information cannot be provided on the notice but can be provided on

separate pages within the same envelope.• Renewing Force-Placed Insurance

Before a Servicer can charge a borrower for renewing or replacing force-placed insurance, the Servicer must deliver or mail a written Renewal Notice at least 45 days before assessing the charge.

If a Servicer has renewed or replaced force-placed insurance and receives evidence the borrower lacked coverage for some time period after expiration, then the Servicer may promptly assess the charge related to renewing the existing force-placed insurance for that time period.

A Renewal Notice must be provided before each anniversary but no more than once a year.


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Notice Requirements (cont.)• Content of Renewal Notice

- Notice Date;- Servicer’s name and mailing address;- Borrower’s name and mailing address;- Statement requesting the borrower update the insurance information; - Statement the Servicer previously purchased insurance and charged the cost to the

borrower as the Servicer did not have evidence the borrower had insurance coverage;- Statement that the insurance the Servicer purchased is expiring or will expire and that

the Servicer will renew the insurance;- Statement indicating insurance the Servicer purchases:

- May cost significantly more than insurance purchased by borrower - Not provide as much coverage as insurance purchased by borrower- Annual cost of the force-place insurance, or if the actual cost is unknown, a reasonable

estimate and a statement it is an estimate;- Statement if the borrower purchases insurance, the borrower should promptly provide

insurance information to the Servicer;- Description of requested information and how it can be provided;- Servicer’s telephone number; and - Statement informing the borrower to review other information provided with the

notice.


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Notice Requirements (cont.)

• Content of Renewal Notice (cont.)

The notice should contain the information included in and look substantially similar to Model Form MS-3(D).

Additional information cannot be provided on the notice but can be provided on separate pages within the same envelope.


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• Cancellation of Force-Placed InsuranceWithin 15 days of receiving evidence that the borrower had appropriate hazard insurance coverage in place, the Servicer must:

- Cancel the force-placed insurance; and- Refund to borrower all force-placed charges paid by the borrower and remove all force-

placed insurance charges from the borrower’s account for the time period.

• Force-Placed Charges Except for charges subject to State insurance regulations, all charges related to force-placed insurance must be bona fide and reasonable.

• Flood Insurance NoticesFlood insurance notices may be sent with hazard insurance notices but on separate pieces of paper.

General Servicing (12 CFR 1024.38)

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• Servicer is required to develop and maintain applicable, reasonably-designed policy and procedures to achieve the following: accessing and providing timely & accurate information to borrowers, properly evaluating loss mitigation applications, overseeing service provider compliance, facilitating timely and complete transfer of information during servicing transfers, informing borrowers of error resolution and information request procedures, record retention, and documenting loan files.

• Policies and procedures should be appropriate to the size, nature, and scope of Servicer’s operation.

• Scope: Applies to mortgage loans secured with principal dwellings.- Small Servicer Exemption applies

General Servicing (cont.)

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For each of the seven areas in sub-points above, Reg. X provides details as to the objectives that the policy & procedure documents should achieve. For example, for “accessing and providing timely & accurate information” the policy & procedure documents “shall be reasonably designed to ensure that the servicer can”:

• Provide accurate and timely disclosures;• Investigate, respond to, and make corrections for complaints;• Provide accurate and timely responses to Requests for Information;• Provide owners/assignees of mortgages with accurate and current information• Provide accurate and complete documents for filings for foreclosure; and• Promptly facilitate communication with the successor in the event of the

borrower’s death.

Early Intervention (12 CFR 1024.39)

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• Servicer is required to make “live contact” with and provide written notification to delinquent borrowers concerning loss mitigation options.

• Delinquent BorrowerA borrower is considered delinquent the day the payment is due and unpaid, even if there is a grace period.

• Scope: Applies to mortgage loans secured with principal dwellings.Small Servicer Exemption applies

• Live Contact- Servicer must establish or make “good faith effort” to make “live contact” with

borrower not later than the 36th day of delinquency. Promptly after making live contact, the Servicer must inform the borrower of loss mitigation options.

- Servicer may make live contact by telephone or in person meeting, but leaving a voice message is not considered live contact.

- Good faith effort includes telephoning, writing, or emailing the borrower to make live contact with the Servicer.

Early Intervention (cont.)

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• Written Notice- Servicer is required to provide written notice to delinquent borrowers not later than

the 45th day of delinquency. The notice is not required to be provided more than once in a 180 day period.

- Content of Notice- Statement encouraging borrower to contact Servicer;- Servicer mailing address and phone number;- Examples of available loss mitigation options:

- No minimum number of examples,- Examples may be generic; and

- Website for homeownership counselors and HUD toll-free number.- Notice should contain the information included and be similar in appearance to Model

Clauses MS-4:- (A) – Statement Encouraging the Borrower to Contact the Servicer and Additional

Information About the Loss Mitigation Options, - (B) – Available Loss Mitigation Options, and - (C) – Housing Counselors.

Continuity of Contact (12 CFR 1024.40)

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• Servicer is required to: ensure people are assigned to delinquent borrowers . ensure people are available to respond to inquiries and assist with modifications, and maintain applicable policy and procedures.

• Delinquent Borrowers A borrower is not considered delinquent upon refinance, payoff, or transfer of title

(e.g., sale of property, deed-in-lieu of foreclosure, short sale).

• Scope: Applies to mortgage loans secured with principal dwellings.Small Servicer Exemption applies

• Assignment of Personnel- Servicer personnel must be assigned:

- By the time of the early intervention notice, or- Not later than the 45th day of delinquency.

- Servicer may assign a single person or a team.

Continuity of Contact (12 CFR 1024.40)

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• Availability of Personnel Assigned personnel must be available by telephone to respond to inquiries and to assist

with available loan modification options not later than the 45th day of the borrower’s delinquency.

If person(s) are unavailable for the borrower to make immediate live response, someone must respond in a “timely manner”.

Assigned person(s) remain in contact with the borrower until 2 consecutive timely payments have been received.

• Policy and Procedures must be designed to ensure that employees:- Are able to provide accurate information concerning:

- Available loss mitigation options;- How to apply for loss mitigation options and how to appeal denials;- Status of loss mitigation applications;- Circumstances the Servicer may refer to foreclosure; and- Loss mitigation deadlines.

- Can retrieve in a timely manner:- Borrower’s payment history, and- All documentation provided to the Servicer in connection with loss mitigation application.

- Are able to instruct borrowers how to submit a Notice of Error and a Request for Information

- Verify the authority of borrowers’ representatives prior to discussing details with them

Loss Mitigation (12 CFR 1024.41)

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• Servicer that offers loss mitigation is required to exercise ‘reasonable diligence’ when processing loss mitigation applications; e.g.: Servicer is required to observe prohibition from pre-foreclosure notice filing unless

borrower is 120 days delinquent Servicer is prohibited from foreclosure sale when a loss mitigation application has been

submitted, unless: notice has been provided, the borrower is not eligible for a loss mitigation option, and borrower is not eligible for, or takes no action to request, an appeal.

• Scope: Applies to mortgage loans secured with principal dwellings and to Servicers that offer

loss mitigation Small Servicer Exemption applies except for 2 prohibitions (no f/c filing prior to 120

days delinquent; no f/c filing, motion-for-judgment or conducting-of-sale if borrower is performing to an agreed-upon loss mitigation option)

• Loss Mitigation Application Complete Application is one where the Servicer has all documentation required to

evaluate a loss mitigation application. Servicer must take reasonable steps to obtain documents needed to complete the

application.

Loss Mitigation (cont.)

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• Loss Mitigation Application (cont.)If Servicer receives application 45 days or more before foreclosure sale, the Servicer must:

- Promptly review application for completeness;- Acknowledge receipt of application in writing within 5 business days and state:

- If the application is complete or not;- If incomplete, state the documents needed and due date to the customer. Due date is

earliest of:- Date information considered stale- Date that is the 120th day of delinquency;- Date that is 90 days before foreclosure sale; or- Date that is 38 days before foreclosure sale;

And- Advise borrower in writing to contact servicers of other loans secured by the same

property, to discuss loss mitigation.


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• Evaluating Loss Mitigation Application If Servicer receives application more than 37 days before foreclosure sale, within 30 days or receiving complete application the Servicer must:

- Evaluate the application for all options for which the borrower is eligible; and- Provide written notice of determination (e.g., offer of loss mitigation).

• Incomplete ApplicationsIf Servicer has exercised reasonable diligence to obtain documentation to complete an application but the application remains incomplete for a ‘significant period of time’, the Servicer may evaluate the application and offer a loss mitigation option at its discretion.


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• Denied Applications If a complete application is denied, Servicer must provide a notice to the borrower stating:

- Specific reasons for denial; and- Right to appeal, deadline, and appeal requirements.

• Borrower Response- For complete applications received 90 days or more before foreclosure sale, Servicer

cannot set acceptance deadline earlier than 14 days after notice of offer- For applications received less than 90 days but more than 37 days before foreclosure

sale, Servicer cannot set acceptance deadline earlier than 7 days after notice of offer.

• Borrower Rejection- Servicer may consider non acceptance by the deadline as a rejection.- Borrower that does not accept a trial modification plan within deadline but submits

payments subject within deadline, will be given a reasonable period of time to accept the trial modification plan.

- Deadline for acceptance of loss mitigation is extended until 14 days after the appeal decision notice is provided.


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• Prohibition of Foreclosure Referral

- Servicer is prohibited from first foreclosure filing until the borrower is more than 120 days delinquent (pre-foreclosure period).

- If a borrower submits a complete application during the pre-foreclosure period or before a Servicer has filed the first foreclosure notice, the Servicer cannot make the first foreclosure filing unless:

- The Servicer sent the borrower a denial notice and - The appeal process is not applicable;- The borrower has not requested an appeal within deadline; or - The appeal was denied;

- The borrower rejects loss mitigation; or- Borrower fails to perform under a loss mitigation agreement.


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• Prohibition of Foreclosure Sale If a borrower submits a complete application after the first foreclosure filing but more than 37 days before foreclosure sale, the Servicer is prohibited from moving for foreclosure judgment or sale unless:

- The Servicer sent the borrower a denial notice and- The appeal process is not applicable;- The borrower has not requested an appeal within deadlines; or- The appeal was denied;

or- The borrower rejects loss mitigation;

or- The borrower fails to perform under a loss mitigation agreement.


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• Appeal Process If the Servicer receives a complete application 90 days or more before foreclosure sale or during the 120 days of delinquency period, the Servicer that denies the application must permit an appeal:

- Deadline must be 14 days after denial.- There must be independent review of the appeal by different personnel.- Within 30 days of the appeal, Servicer must provide notice of decision on appeal.- Servicer cannot require the borrower accept or reject loss mitigation any earlier than

14 days after the notice.- Notes:

- Servicer’s decision is not subject to another appeal.- Servicer is only required to comply with requirements for a single complete application.

Questions?

Federally Related Mortgage Loan

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Federally Related Mortgage Loan means:

(1) Any loan (other than temporary financing, such as a construction loan):

(i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property, upon which there is either:

(A) Located or, following settlement, will be constructed using proceeds of the loan, a structure or structures designed principally for occupancy of from one to four families (including individual units of condominiums and cooperatives and including any related interests, such as a share in the cooperative or right to occupancy of the unit); or

(B) Located or, following settlement, will be placed using proceeds of the loan, a manufactured home; and

(ii) For which one of the following paragraphs applies. The loan:

(A) Is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government;

(B) Is made in whole or in part, or is insured, guaranteed, supplemented, or assisted in any way:

( 1 ) By the Secretary of the Department of Housing and Urban Development (HUD) or any other officer or agency of the Federal Government; or( 2 ) Under or in connection with a housing or urban development program administered by the Secretary of HUD or a housing or related program administered by any other officer or agency of the Federal Government;

Federally Related Mortgage Loan

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(C) Is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation (or its successors), or a financial institution from which the loan is to be purchased by the Federal Home Loan Mortgage Corporation (or its successors);

(D) Is made in whole or in part by a “creditor”, as defined in section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. For purposes of this definition, the term “creditor” does not include any agency or instrumentality of any State, and the term “residential real estate loan” means any loan secured by residential real property, including single-family and multifamily residential property;

(E) Is originated either by a dealer or, if the obligation is to be assigned to any maker of mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this definition, by a mortgage broker; or

(F) Is the subject of a home equity conversion mortgage, also frequently called a “reverse mortgage,” issued by any maker of mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this definition.

(2) Any installment sales contract, land contract, or contract for deed on otherwise qualifying residential property is a federally related mortgage loan if the contract is funded in whole or in part by proceeds of a loan made by any maker of mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this definition.

(3) If the residential real property securing a mortgage loan is not located in a State, the loan is not a federally related mortgage loan.

Thank youBonita L. [email protected]

the new servicing requirements regulations b, z and x

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