Recently, the Bureau of Consumer Financial Protection (Bureau) issued proposed rules (Proposal) to amend Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA) and the official interpretation of the regulation.
The proposed amendments implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) provisions regarding mortgage loan servicing.
Specifically, this proposal requests comment regarding proposed additions to Regulation X to address seven servicer obligations:
1) Correct errors asserted by mortgage loan borrowers;
2) Provide information requested by mortgage loan borrowers;
3) Ensure that a reasonable basis exists to obtain force-placed insurance;
4) Establish reasonable information management policies and procedures;
5) Provide information about mortgage loss mitigation options to delinquent borrowers;
6) Provide delinquent borrowers access to servicer personnel with continuity of contact about the borrower's mortgage loan account; and
7) Evaluate borrowers' applications for available loss mitigation options.
The Proposal would modify and streamline certain existing servicing-related provisions of Regulation X.
For instance, it would revise provisions relating to:
1) A mortgage servicer's obligation to provide disclosures to borrowers in connection with a transfer of mortgage servicing, and
2) A mortgage servicer's obligation to manage escrow accounts (including the obligation to advance funds to an escrow account to maintain insurance coverage and to return amounts in an escrow account to a borrower upon payment in full of a mortgage loan).
The Bureau proposes 'companion' regulations implementing amendments to the Truth In Lending Act (TILA) in Regulation Z (the 2012 TILA Servicing Proposal). We will provide an outline of the 2012 TILA Servicing Proposal in a subsequent newsletter.
Comments Due: On or before October 9, 2012.
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IN THIS ARTICLE
Scope
Nine Major Topics
Small Servicers
Library
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Scope
- The Proposal generally applies to closed-end mortgage loans, with certain exceptions.
- Under the Proposal, open-end lines of credit and certain other loans, such as construction loans and business-purpose loans, are excluded.
- Under the 2012 TILA Servicing Proposal, the periodic statement and adjustable-rate mortgage (ARM), disclosure provisions apply only to closed-end mortgage loans, but the prompt crediting and payoff statement provisions apply both to open-end and closed-end mortgage loans.
- Reverse mortgages and timeshares are excluded from the periodic statement requirement, and certain construction loans are excluded from the ARM disclosure requirements.
- The Bureau is seeking comment on whether to exempt small servicers from certain requirements or modify certain requirements for small servicers.
Nine Major Topics
The Proposal covers nine major topics, as follows:
1. Periodic billing statements.
1. Periodic billing statements.
Dodd-Frank generally mandates that servicers of closed-end residential mortgage loans (other than reverse mortgages) must send a periodic statement for each billing cycle. These statements must meet the timing, form, and content requirements provided for in the rule. The Proposal contains sample forms that servicers could use.
The periodic statement requirement generally would not apply for fixed-rate loans if the servicer provides a coupon book, so long as the coupon book contains certain information specified in the rule and certain other information is made available to the consumer. The proposal also includes an exception for small servicers that service 1000 or fewer mortgage loans and service only mortgage loans that they originated or own.
2. Adjustable-rate mortgage interest-rate adjustment notices.
2. Adjustable-rate mortgage interest-rate adjustment notices.
Servicers would have to provide a consumer whose mortgage has an adjustable rate with a notice 60 to 120 days before an adjustment which causes the payment to change. The servicer would also have to provide an earlier notice 210 to 240 days prior to the first rate adjustment. This first notice may contain an estimate of the rate and payment change. Other than this initial notice, servicers would no longer be required to provide an annual notice if a rate adjustment does not result in an increase in the monthly payment. The Proposal contains model and sample forms that servicers could use.
