CFPB Report January 18, 2013

CFPB Issues Final Rules on Mortgage Servicing

On Thursday, January 17, 2013, the CFPB issued its final rules on mortgage servicing, which are scheduled to take effect on January 10, 2014. The servicing rules were published in two notices amending Regulation Z, which implements the Truth in Lending Act, and Regulation X, which implements the Real Estate Settlement Procedures Act. 

CBA will hold an exclusive members-only call on Tuesday, January 22, 2013, at 2:00 p.m. ET to discuss the impact of these rules and the anticipated mortgage compensation rule on retail banks. 

The following is an initial analysis by the CBA advocacy team:

  • Servicers must send a notice to borrowers who have missed two consecutive payments. This must be sent within 15 days of the second missed payment, explain loss mitigation options, and provide information about housing counseling.
  • Servicers must maintain policies and procedures to provide borrowers who are two months delinquent with direct and ongoing access to employees who would be responsible for helping them avoid foreclosure.
  • The foreclosure process may not begin until the mortgage loan is more than 120 days delinquent.
  • If a borrower submits an application for loss mitigation, the servicer must inform the borrower, within five days of receipt, whether the application is complete. The servicer must then review and respond within 30 days after the application is submitted if it is received more than 37 days before a foreclosure sale. The foreclosure process may not proceed if the servicer has agreed to a loss mitigation agreement.
  • Servicers may also not start a foreclosure proceeding if an application is pending.
    • The rule includes the following requirements for “force-placed” insurance:
    • The borrower must be notified twice before he or she may be charged for force-placed insurance; the first must be at least 45 days before the charge is made and the second must be at least 15 days before the charge is made. The second notice must have an estimate of the cost of the insurance.
    • The servicer must terminate the insurance within 15 days of receiving evidence that the borrower has his or her own insurance and must refund the premium for any overlapping coverage periods.
  • If the borrower has an escrow account for insurance payments, the servicer may not charge for force-placed insurance when the servicer can continue the borrower’s insurance, even when the servicer must advance funds to the borrower’s escrow account to do so.
  • Servicers must provide monthly statements to borrowers with specific information. The CFPB has provided sample forms that may be used for compliance.
  • Servicers must also provide notices in connection with the first rate adjustment, as well as subsequent adjustments. The CFPB has also provided model forms for these notices.
  • The borrower’s account must be credited on the date a payment is received. Servicers may place partial payments in a “suspense account” but the servicer must credit the payment when the amount in the suspense account equals a full payment.
  • If a borrower makes a request as to the balance of the mortgage loan, the servicer must provide the information within seven days.
  • The following applies when a borrower submits a written notice with regard to errors or a request for information:
    • The servicer must acknowledge the notice within five days.
    • Within 30-45 days of receiving the notice, the servicer must either correct the error or provide the requested information, conduct an investigation and notify the borrower that no error occurred, or notify the borrower that the requested information is unavailable.
  • Servicers must maintain borrower records for at least one year after the loan is paid off or transferred. They must also maintain policies and procedures to ensure they can access and provide timely information to interested parties.
  • There are exemptions from certain of the provisions of these rules for small servicers, defined as those who service no more than 5000 mortgage loans in which the loans were owned or originated by the servicer or an affiliate. These include the requirements for the monthly statement as well as certain requirements with regard to force-placed insurance, outreach to borrowers, and loss mitigation procedures.

CFPB Adopts Appraisal Rules

On Friday, January 18, 2013, the CFPB issued two rules in connection with appraisals for mortgage loans. 

The first is a rule issued jointly with other banking agencies that establish new appraisal requirements for “higher-priced” mortgage loans, which will be effective as of January 18, 2014. For these loans, the rule requires lenders to use a licensed or certified appraiser who prepares a written appraisal report based on a physical inspection of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report. In conjunction with this rule, the agencies will issue a supplemental proposal to request additional comment on possible exemptions for “streamlined” refinance programs and small dollar loans, as well as to seek clarification on whether the rule should apply to loans secured by existing manufactured homes and certain other property types. 

The second appraisal rule, which will also be effective as of January 18, 2014, will require lenders to provide applicants with free copies of all appraisals and other home-value estimates for first lien mortgage loans. Lenders must inform consumers within three days of receiving an application for a loan of their right to receive copy of all appraisals. Lenders will then be required to provide the copies of appraisal reports and other written home-value estimates to consumers promptly, or three days before closing, whichever is earlier.

CBA Files Comment on Delay of Remittance Rule

On Tuesday, January 15, 2013, CBA, along with several other trades, filed a comment letter with the CFPB concerning the agency’s proposed changes to its final rule on international money transfers (remittances). As of now, the Final Rule, published in February 2012, is scheduled to take effect on February 7, 2013. However, on December 21, 2012, the Bureau published proposed changes that would revise certain aspects of the Final Rule. The proposed changes would temporarily delay the effective date of the Final Rule and would establish a new effective date, which is currently proposed to be 90 days after the December proposed changes are finalized. 

The group wrote, “we believe that the Temporary Delay is essential while the Bureau considers potential amendments to the Final Rule. The changes that remittance transfer providers must make to their systems and processes in order to comply with the rule are complex and time intensive, and we agree with the Bureau’s statement that “regardless of how or whether the Final Rule is changed, remittance transfer providers’ preparations for its implementation may be affected until the Bureau finalizes the rule.” Accordingly, the Associations support the Temporary Delay.” The group also urged the agency to allow for amble implementation time and wrote that the proposed 90 day period may not be sufficient to allow remittance transfer providers to develop, implement and test changes in accordance with their compliance and risk management programs. 

Substantive amendments to the Final Rule concerning national tax/recipient bank fee disclosures and strict liability for sender error, among others, where also proposed in the changes to the final rule. Comment on those issues are due to the agency on January 30, 2013. CBA is working as part of a joint-trade effort to address these issues and will be submitting comments.