On November 20, 2014, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule expanding protections offered to borrowers who have defaulted on residential mortgages.  The proposed rule, if adopted following a 90 day comment period, would add to the agency’s mortgage servicing rules that became effective earlier this year.  A central part of the proposal would require that mortgage servicers provide additional foreclosure protections to borrowers who have already taken advantage of loss mitigation opportunities and subsequently defaulted.  The rule would also add additional servicing transfer requirements on loan servicers, and add protections for surviving family members and others who inherit or receive property.  The CFPB’s press release summarized the new servicer obligations.

  • Require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan: Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Under the proposed rule, servicers would have to give those protections again for borrowers who have brought their loans current at any time since the last loss mitigation application and again defaulted.
  • Expand consumer protections to surviving family members and other homeowners: If a borrower dies, CFPB rules currently require that servicers promptly identify and communicate with family members, heirs, or other parties, known as “successors in interest,” who have a legal interest in the home. The proposal would expand the circumstances in which consumers would be considered successors under the rules and the protections offered to such successors.
  • Require servicers to notify borrowers when loss mitigation applications are complete: The proposal would require servicers to notify borrowers promptly that the application is complete.
  • Loss mitigation obligations of new servicer during servicing transfers:  The proposal provides that generally a transferee servicer must comply with the loss mitigation requirements within the same timeframes that applied to the transferor servicer. If the borrower’s application was complete prior to the transfer, the new servicer generally must evaluate it within 30 days of when the prior servicer received it. For involuntary transfers, the proposal would give the new servicer at least 15 days after the transfer date to evaluate a complete application. If the new servicer needs more information in order to evaluate the application, the borrower would retain some foreclosure protections in the meantime.
  • Clarify servicers’ obligations to avoid dual-tracking and prevent wrongful foreclosures: The rules currently prohibit a servicer from proceeding to foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days prior to a scheduled sale. The proposal purports to clarify what steps servicers and their foreclosure counsel must take to protect borrowers from a wrongful foreclosure sale.
  • Clarify when a borrower becomes delinquent: The proposed rule attempts to clarify that delinquency, for purposes of the servicing rules, begins on the day a borrower fails to make a periodic payment. Under the proposal, when a borrower misses a payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date of delinquency advances. The proposal also would allow servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full payment by a small amount.
  • Provide more information to borrowers in bankruptcy: Currently, servicers do not have to provide periodic statements or loss mitigation information to borrowers in bankruptcy. The proposal would generally require servicers to provide periodic statements to those borrowers, with specific information tailored for bankruptcy. Servicers also currently do not have to provide certain disclosures to borrowers who have told the servicer to stop contacting them under the Fair Debt Collection Practices Act. The proposal would require servicers to provide written early intervention notices to let those borrowers know about loss mitigation options.

The proposed rule is subject to a 90 day comment period.  A full copy of the rule is available at the following link:  Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act.