Mortgage Servicing Rules and Regulations

Mortgage servicing rules and regulations can be complex, but understanding them is crucial for homeowners and lenders alike.

The Consumer Financial Protection Bureau (CFPB) oversees mortgage servicing rules to protect consumers.

The CFPB requires mortgage servicers to provide clear and timely communication to borrowers, including regular statements and notices of payment due.

Mortgage servicers must also handle complaints and disputes fairly and transparently.

In 2013, the CFPB issued a rule requiring mortgage servicers to follow specific procedures when dealing with loan modifications and forbearance agreements.

Explore further: Are Phone Calls Hipaa Compliant

The proposed rule removes the completed loss mitigation application requirement, instead focusing on a continuous loss mitigation review cycle triggered by a borrower's request for assistance.

Servicers must review borrowers for all available loss mitigation options if requested at least 37 days before foreclosure. This process-based approach ensures consumer protections against foreclosure remain in place.

Borrowers are protected from premature foreclosure by procedural safeguards, which include:

Servicers must provide annual statements within 30 days of the end of the escrow account computation year, reflecting the application of all payments during the period.

Servicers are now required to credit late payments to interest, principal, taxes, insurance, and other fees before collecting a late fee.

This means that borrowers will see their payments being applied directly to their outstanding balances, reducing the amount of interest they owe.

Late payments will be credited to the correct accounts, ensuring that borrowers' payments are being applied correctly.

Servicers must issue periodic statements for each billing cycle, providing borrowers with a clear picture of their account activity.

These statements will help borrowers stay on top of their payments and avoid any potential issues with late fees.

Intriguing read: Mortgage Interest Rate

Under the new mortgage servicing rules, servicers must now issue periodic statements for each billing cycle. This is a change from the old rule, which only required an annual statement and payment histories upon borrower request.

Servicers must include the DFS Consumer Assistance Unit's contact information on every welcome packet, periodic statement, annual statement, and website maintained by the servicer. This information helps borrowers know who to reach out to for assistance.

The periodic statements must contain required information, but the specific details of this information are not specified in the text.

Subpart C—Mortgage Servicing is a crucial part of the proposed changes to Regulation X. It's essential to understand what's exempt from this subpart, as it will impact how mortgage servicers operate.

Except as otherwise provided in § 1024.41(j), §§ 1024.38 through 1024.41 of this subpart shall not apply to the following:

These exemptions are important to note, as they will affect how mortgage servicers handle certain types of transactions. For example, reverse mortgage transactions are exempt from certain requirements, which means servicers will need to follow different procedures when dealing with these types of loans.

Mortgage servicing is a complex process, but let's break down the basics.

A mortgage servicer is a company that handles the day-to-day tasks associated with a mortgage loan. This can include collecting monthly payments, paying property taxes and insurance, and responding to borrower inquiries.

A mortgage servicer is not the same as the original lender. The original lender is the company that provided the loan, while the servicer is the company that handles the loan's day-to-day activities.

Expand your knowledge: 60 Day Rule

The servicer's main goal is to collect payments from the borrower and keep the loan current. This includes sending out statements and notices to the borrower, as well as handling any late payments or delinquencies.

A mortgage servicer must also comply with federal regulations, such as the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).

Force-Placed Insurance is a type of insurance policy that is automatically added to a mortgage holder's policy when their lender determines that their existing insurance coverage is not sufficient.

The lender typically requires force-placed insurance when the borrower has not maintained adequate insurance coverage, such as when the policy lapses or is canceled.

The cost of force-placed insurance is usually higher than the borrower's original insurance premium, and the lender may charge back the cost to the borrower's mortgage account.

Force-placed insurance is often provided by a single insurer or a limited number of insurers, which can limit competition and drive up prices.

Expand your knowledge: When Can You Refinance a Mortgage

Policies and procedures are crucial in mortgage servicing, and the new regulation expands on the previous requirement to establish written policies and procedures for payment overages and shortages.

You'll need to address how to handle payment overages and shortages, including unapplied funds and payments held in suspense accounts. This involves creating a clear plan for dealing with these situations.

A key aspect of these policies is to specify what happens when a servicer retains but doesn't apply a partial payment. If the accumulated funds in a suspense or unapplied funds account cover a periodic payment, the servicer must treat those funds as a payment and credit it to the borrower's loan.

Here are the specific aspects your policies should cover:

Written policies and procedures are essential for addressing payment overages and shortages. They must address how to handle unapplied funds and payments held in suspense accounts.

The policies should specify what to do when a servicer retains but doesn't apply a partial payment. If there are sufficient funds in a suspense or unapplied funds account to cover a periodic payment, the servicer must treat the accumulated funds as a periodic payment and credit it to the borrower's loan.

The servicer must follow these procedures to ensure timely and accurate payment processing. This includes treating accumulated funds as a periodic payment and crediting it to the borrower's loan.

The new regulation also allows for electronic notice to be provided to borrowers, as long as they have agreed to accept paperless billing. This can be done in accordance with Article III of the New York Technology Law.

Written policies and procedures are essential for servicers to handle payment overages and shortages effectively. These policies must address how to address payment overages and shortages, including unapplied funds and payments held in suspense accounts.

Servicers must also have procedures in place to handle partial payments. If a servicer retains but does not apply a partial payment, they must treat the accumulated funds as a periodic payment and credit that payment to the borrower's loan once sufficient funds are accumulated.

Servicers can now provide the required notice electronically, as long as the borrower has agreed to accept paperless billing.

Here are the key aspects that written policies and procedures for payment overages and shortages must address:

Servicers are required to publish a fee schedule that includes a "plain language" explanation of when and why each fee will be charged. This schedule must also state the amount of the fee or range of amounts, or explain how the fee is calculated or determined.

A servicer may only charge fees that are "reasonably related to the cost of rendering service" and meet one of three conditions: the fee is expressly authorized and disclosed by the loan instruments, it is expressly permitted by law, or it is for a specific service requested by the borrower.

Here are the three conditions for authorized fees:

Late fees are subject to certain restrictions, including a 2% limitation on late fees for most loans. However, this limitation does not apply to loans insured by the federal housing commissioner or loans insured or guaranteed under the Servicemen's Readjustment Act of 1944.

Servicers are also prohibited from charging a property valuation fee more than once during a 12-month period, unless the borrower requests the valuation, is given prior written notice of the fee, and consents to pay the fee.

Borrowers can expect their servicers to have detailed procedures for handling complaints and inquiries, similar to those under federal Regulation X.

A servicer must assign personnel to a delinquent borrower within 45 days of delinquency, and this person should be available to respond to inquiries and assist with loss mitigation options until the borrower has made two consecutive payments without incurring a late charge.

If a borrower contacts the assigned personnel and doesn't receive a live response immediately, the servicer must provide a live response in a timely manner.

The new regulation, Section 419.6, prescribes very detailed procedures for handling borrower complaints and inquiries, which are similar to those under federal Regulation X.

Servicers must comply with these procedures, but it's unclear whether the coverage of this section is broader than what is considered a "Qualified Written Request" asserting errors relating to the servicing of mortgage loans under Regulation X.

Section 419.6 does not define "complaint" and "inquiry", which can lead to confusion about what types of requests servicers must respond to.

Unlike Regulation X, Section 419.6 does not contain an express exemption for responding to duplicative, overbroad or untimely complaints.

Servicers are required to respond to all complaints, even if they are deemed duplicative, overbroad or untimely, which can be a significant administrative burden.

Expand your knowledge: What Not to Do When Applying for a Mortgage?

A single point of contact, or SPOC, must be assigned to borrowers who are at least 30 days delinquent or have requested a loss mitigation application. This SPOC must have direct and immediate access to personnel with the authority to stop foreclosure proceedings.

The old rule only required a servicer to maintain and make available to borrowers the current contact information of designated loss mitigation staff. In contrast, the new rule requires a servicer to assign personnel to a delinquent borrower within 45 days of delinquency.

Additional reading: Divisibility Rule

A servicer must maintain policies and procedures to ensure that assigned personnel are available to respond to borrower inquiries and assist with loss mitigation options. This includes providing accurate information about loss mitigation options, the borrower's status, and applicable deadlines.

A servicer must also ensure that assigned personnel can provide a live response in a timely manner if a borrower contacts them. This means that a borrower should not have to leave a voicemail or wait an excessive amount of time to receive a response.

Assigned personnel must provide borrowers with accurate information about loss mitigation options, the borrower's status, and applicable deadlines. They must also retrieve a complete record of the borrower's payment history and written information provided in connection with a loss mitigation application.

Servicers are now prohibited from commencing a residential foreclosure action against a borrower if they submit a complete loss mitigation application, unless certain conditions are met.

A servicer can't initiate a foreclosure action if a borrower is being considered for a loss mitigation option, as long as they're not more than 30 days in default under the modification agreement.

If a borrower submits an incomplete loss mitigation application, the servicer can't initiate a foreclosure action unless the borrower fails to provide the necessary documents within 15 days after receiving the incomplete application acknowledgment notice.

A servicer must provide a late payment notice within 17 days of a payment becoming due and remaining unpaid, and an early intervention notice within 45 days of a borrower's delinquency, containing information about loss mitigation options and the servicer's protocols.

A unique perspective: Foreclosure Mortgage Loans

Late payments can have serious consequences, but now there's more clarity on how they're handled. Prior to collecting a late fee, servicers must credit late payments to interest, principal, taxes, insurance, and other fees.

The rules on late payments have changed, and servicers must now follow certain guidelines. The 2% limitation on late fees doesn't apply to loans or forbearances insured by the federal housing commissioner or for which a commitment to insure has been made.

Servicers must provide a late payment notice within 17 days of a payment becoming due and remaining unpaid. This notice must contain information about the delinquency and loss mitigation options.

If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, they must send an acknowledgment notice within five business days. This notice must include information about the completeness status of the application and key elements of the loss mitigation process.

Worth a look: Home Mortgage Loan Application

Residential Mortgage Loan Delinquencies and Loss Mitigation Efforts have become more stringent under the new regulation. The new rules generally conform to federal requirements but adopt more stringent requirements in certain aspects.

A servicer must now determine a borrower's ineligibility for loss mitigation before commencing a foreclosure action. This determination must be notified to the borrower, and the appeal process must be exhausted.

If a borrower submits an incomplete loss mitigation application, a servicer cannot initiate a foreclosure action unless the borrower fails to provide the necessary documents within 15 days. This 15-day period excludes legal public holidays, Saturdays, and Sundays.

Expand your knowledge: Rules of Reverse Mortgage

A notice granting a loss mitigation application must now include detailed disclosures. These disclosures include changes to the mortgage loan terms, a breakdown of the loan balance, and an itemization of any fees or charges assessed.

In the event of a loss mitigation denial, the servicer must specify the reasons for the declination of each loss mitigation option. The notice must also provide instructions on appeal and other loss mitigation options.

A borrower has 30 days to respond to available loss mitigation options when a complete loss mitigation application is received 90 days or more before a foreclosure sale. This is more than the 14-day period required by federal regulations.

If an initial loss mitigation is denied, an escalation process is available where a supervisory review will be performed.

See what others are reading: Fraud Mortgage Application

Regulators are proposing changes to Regulation X, which governs mortgage servicing rules. The Consumer Financial Protection Bureau (CFPB) has released a proposal to update these rules.

Consider reading: Mortgage Servicing Transfer Rules

The proposal removes COVID-related language from the redlined version of Regulation X, replacing it with a new, streamlined loss mitigation process. This change aims to simplify the process for struggling borrowers.

Regulation X rules have changed before, most recently to address the impact of COVID. The introduction of new forbearance obligations, modification programs, and temporary changes helped accommodate borrowers during a difficult time.

The proposed changes to Regulation X are likely to affect institutions that offer mortgage servicing. Compliance officers and executives should monitor the proposal and its implementation date.

The proposal's focus on a streamlined loss mitigation process suggests that regulators are looking to make the process more efficient and borrower-friendly.

Servicers must conduct an escrow account analysis upon establishing an escrow account, at completion of the escrow account computation year, and upon advancing funds in paying a disbursement which is not the result of a borrower’s payment default. This analysis will provide the borrower with a written explanation.

A fresh viewpoint: Can Debt Collectors Get Money from Your Bank Account

The new regulation requires servicers to wait 30 calendar days before seeking payment of the funds necessary to correct a deficiency in the escrow account. This means that borrowers have a 30-day window to address any issues with their escrow account before the servicer takes further action.

If a borrower has been granted a forbearance, the servicer may delay the escrow account analysis and borrower notice until the borrower is considering repayment or loan modification options.

Servicers must make payments from an escrow account in a timely manner, on or before the deadline to avoid a penalty. This is governed by the requirements in § 1024.17(k).

If a borrower pays off their mortgage in full, a servicer must return any remaining escrow balance within 20 days, excluding holidays and weekends. This is a requirement for all servicers.

A servicer may credit any remaining escrow balance to a new escrow account for a new mortgage loan, if the borrower agrees and the new loan is provided by the same lender or their assignee. The servicer must use the same servicer for the new loan.

Servicers must now issue periodic statements for each billing cycle, not just an annual statement. This is a new requirement under the regulation.

Transfers involve moving funds from one account to another, often through an intermediary like an escrow service. This process typically requires the sender to initiate the transfer and provide the necessary information, such as the recipient's account details.

The transfer process can be initiated online, by phone, or in-person, depending on the service being used. Online transfers are often the fastest and most convenient option.

Escrow services can hold funds until certain conditions are met, such as the completion of a transaction or the delivery of goods. This provides an added layer of security and protection for both parties involved.

In some cases, transfers may be subject to fees, which can vary depending on the service and the type of transfer being made.

Suggestion: Online Refinance Mortgage Loan