CFPB Updates Mortgage Servicing Rules and Foreclosure Protections
The Consumer Financial Protection Bureau (CFPB) recently adopted a final rule that updates mortgage servicing rules and expands foreclosure protections for struggling borrowers and other homeowners.
The CFPB’s final rule, which amends Reg. X—Real Estate Settlement Procedures (12 CFR Part 1024) and Reg. Z—Truth in Lending (12 CFR Part 1026), is the result of a November 2014 proposed rulemaking that addressed nine major mortgage-related topics. The CFPC is giving servicers a year (and for some changes longer) to implement the updates.
The new rule includes many changes, but below are some highlights:
- The rule updates the way servicers have to communicate with borrowers who have applied for loss mitigation. Loss mitigation is a process where the servicer works with a struggling borrower to try and find alternatives to foreclosure. For example, the rule requires servicers to let borrowers know when their application for loss mitigation is complete.
- The rule also requires servicers to give the protections of the loss mitigation rules to certain borrowers more than once during the life of the loan. Currently, a servicer is only required to give those protections under the rule once to a struggling borrower. When the new rule goes into effect, certain borrowers who received help under the prior rule may be eligible for help again.
- The rule also provides more protections for successors in interest, individuals who didn’t borrow the money originally but who acquire ownership rights to a home, often when the borrower dies or as a result of a divorce. The rule defines successors in interest broadly. It includes someone receiving the ownership interest when a property is transferred upon the death of a relative, as a result of a divorce or legal separation, through certain trusts, between spouses, from a parent to a child, or when a borrower who is a joint tenant dies.
- The rule requires servicers to provide information to potential successors in interest about the documents that are needed to confirm their status. The rule also requires that confirmed successors in interest are given access to many of the same notices and documents that the original borrower would receive.
- Under the CFPB’s existing mortgage rules, servicers do not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy. The new rules require servicers to provide statements to these borrowers in certain circumstances, with specific information tailored for bankruptcy, as well as a modified early intervention notice to let them know about loss mitigation options.
The Primmer Banking Group continues to review this voluminous final rule (over 900 pages), and will have further comments in the future.