Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), 79 Fed. Reg. 74,176 (Dec. 15, 2014).The undersigned organizations appreciate the thoughtful and deliberate work of the CFPB (Bureau) in preparing these proposed rules and believe that, with a few revisions, these rules can go a long way towards ensuring a more fair servicing market for consumers. Further, we appreciate the Bureau’s consideration of the views of housing counselors and legal service offices in California in crafting the provisions relating to successors in interest.
Overall, we applaud the Bureau’s efforts to respond to continuing concerns about servicing abuses. The proposed rules will significantly improve protections for consumers from longstanding and pernicious problems. At the same time, the proposal includes some gaps that may allow servicers to continue to take advantage of consumers, permitting unnecessary foreclosure and other harms. We commend the Bureau for the strong steps it has proposed, while urging certain, specific refinements, including:
Successors in Interest. We appreciate the important proposed enhancements to successors in interest protections. We hope we will see a significant reduction in the number of grieving widows and other family members who struggle to fight foreclosure on the family home. But to achieve that goal, the Bureau must extend protections to representatives of deceased borrowers’ estates. Additionally, servicers should be required to respond to successors’ written and verbal inquiries. Importantly, the Bureau must provide stronger rules to protect successors from foreclosure prior to a servicer’s confirmation of the successor’s status. Specifically, successors should have a clear private right of action if they are improperly foreclosed upon before servicers confirm
their status as a successor. If the Bureau fails to address these gaps, it runs the risk of enabling the continuation of the worst servicer abuses.
Preemption. The Bureau’s proposed rules must explicitly state that nothing in the rules
preempts state laws that provide stronger borrower protections. This is critical. While the current regulatory framework may suggest that more protective state laws will not be preempted by these rules, we know that banks, lenders and servicers will continue to argue that they are immune to our state laws. Such is currently the case with California’s strong Homeowner Bill of Rights (HBOR), and we fear this servicer practice will continue with a pending state bill refining HBOR’s “borrower” definition to further clarify protections for successors in interest.
Mortgage Servicing Transfers. We commend the Bureau for providing furtherprotections for consumers during the transfer process, where all too often borrowers fall through the cracks due to no fault of their own. We support the Bureau’s proposals to impose additional and reasonable requirements on transferee servicers as a method of protecting consumers. At the same time, we urge the Bureau to require that transferee servicers accept certain timelines and complete application determinations by transferor servicers, and provide additional notices to borrowers, including a notice within 10 days of transfer regarding the status of any pending loss mitigation application by the borrower. We also urge the Bureau to allow for the imposition of some liability for transfer abuses on the transferor servicers, as most servicing abuses originate with the transferor and can be perpetuated when the transferor hands off mismanaged loss mitigation files to transferee servicers.
Applying Loss Mitigation Procedures More than Once Over Life of Loan. We support the Bureau’s proposal to enable consumers to seek loan modifications and other forms of loss mitigation more than once, given the reality that lives and circumstances change frequently. We urge against imposing arbitrary limitations on when consumers can avail themselves of these additional protections. We also encourage the Bureau to open up the full breadth of servicing protections to consumers who sought loss mitigation relief prior to the enactment of the servicing rules, regardless of whether they secured a loan modification, as servicing practices prior to the current rules were particularly ineffective and harmful.
Complete Loan Modification Application. We support the Bureau’s proposal to require notification when loan modification applications become “complete.” Such notification will alert borrowers of critical deadlines and when certain protections, under both these rules and state analogues such as California’s HBOR, become effective.
Bankruptcy. We support the Bureau’s proposals to enhance consumer notice and information rights during bankruptcy, consistent with HAMP and FHA programs, as promoting the interest of consumer education and knowledge vital to debtors in bankruptcy. We urge the Bureau to go further and require that servicers provide
consumers with periodic statements unless the consumer discloses a desire to surrender the property, is in default, and has been denied all loss mitigation options.
Definition of Delinquency. We support the creation of one definition of “delinquency” for purposes of these rules, and the Bureau’s efforts to ensure that consumers are protected against selective servicer determinations as to delinquency in a manner that benefits servicer interests at the expense of consumers. But all servicers should be required, not permitted, to apply payments to the oldest outstanding periodic payment in a consumer’s account.
Forced Place Insurance. We support the Bureau’s proposal to clarify the notices that servicers must provide to consumers if the servicer believes the property is underinsured. We urge the Bureau to require servicers to include in the notice an appraisal or other report or evidence that supports the servicer’s belief.
Trial Plan Accounting. Servicers should not be allowed to treat full consumer performance under a temporary loss mitigation plan as a partial payment. The Bureau needs to rein in any and all opportunities for servicers to begin an unending spiral of misapplied payments and inaccurate accounting that can push consumers towards unfair and unnecessary frustration and foreclosure.
Small Servicers. While small servicers may be subject to fewer obligations, they should be required to provide periodic statements to borrowers upon request.
- Successors in Interest
We applaud and appreciate the CFPB’s focus on the important issue of how survivors who are not “borrowers” on the mortgage loan are treated by servicers when the loved one on the loan has died. We understand that the Bureau proposes to protect not only people in this position, but to also extend protections to people who have an ownership interest in the subject property as a result of divorce (an additional category of people subject to Garn-St. Germain Act antiacceleration protections). We also understand the Bureau proposes that all mortgage servicing rules apply to successors in interest once the servicer has confirmed the successor’s identity and
ownership interest in the property, and that servicers follow certain new rules as to how to confirm identity.
The Bureau’s first step some months ago in requiring servicers to maintain policies and procedures “reasonably designed to ensure that the servicer can, upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property securing the deceased borrower’s mortgage loan” was important.2 Perhaps some mortgage servicers complied with the mandate. However, we know that many servicers are not following through on policies, even if they have policies in
place. Servicers routinely fail to implement policies pertaining to survivors under Fannie Mae and Freddie Mac rules, and routinely provide misleading, incorrect information to survivors, which frequently leads to foreclosure on the family home. Servicers still refuse to share information about the mortgage with survivors, claiming this would violate the privacy of the deceased borrower. Servicers routinely demand survivors already on title, or who have already provided proof that they inherited the property, probate the property. And servicers persistently refuse to assist survivors with loan assumption, much less loss mitigation and loan modifications.
We agree with the Bureau’s assessment that successors in interest “are a particularly vulnerable
2 12 C.F.R. § 1024.38(b)(1)(vi) (2014).
group at risk of substantial harms.” In light of these realities, it is appropriate and necessary for the Bureau to impose further rules to protect consumers.
Scope of Proposed Successors Coverage
We agree with the Bureau’s proposed application of mortgage servicing rules to successors in interest who acquire an ownership interest in property secured by a mortgage through a transfer protected by the Garn-St. Germain Depository Institutions Act of 1982 (the Garn-St. Germain Act). We understand that the Bureau has received information from advocates indicating that former spouses or other property owners are having difficulty obtaining information about the mortgage loan from servicers, when the borrower is still alive.
How to Confirm Successor Identity
The Bureau’s proposed Section 1024.36(i) would require servicers to respond to a written inquiry from someone claiming to be a successor in interest. We appreciate the Bureau’s intention that “proposed § 1024.36(i) would apply to a broad range of written communication from potential successors in interest,” but we encourage the Bureau to explicitly require servicers to respond to potential successor’s verbal inquiries as well; compiling a written request may prove difficult for a successor due to age, infirmity, or distress after great personal loss. We understand that servicers must request documents from the successor to confirm the person’s identity and ownership interest in the property. We agree with the Bureau that servicers should be required to put that list of required documents in writing, not only for clarity, but because servicers are notorious for verbally communicating requests and confirmations to consumers, and later denying those conversations.
Written Confirmation. Once confirmation is complete, servicers should absolutely be required to
inform successors of this in writing, since confirmation triggers many additional rights under the Bureau’s proposal. And without written confirmation, the successor has no way of knowing or proving a servicer’s stance on the successor’s status, or on any other issue related to the subject property.
Reasonable Documentation. We appreciate the Bureau’s commentary to delineate what types of documents may be deemed reasonable documentation of successor status. We suspect this area will require vigilant supervision and aggressive enforcement to protect successors.
Meaningful Access to Information for Confirmed Successors
Requests for Information. We appreciate that the Bureau recognizes the importance of successors being able to obtain basic information about the mortgage loan(s) on the subject property, and the importance of error correction.3 Since assumption of the loan is not required under the Bureau’s proposed definition of a successor, children of a deceased borrower, for example, will be able to obtain important information about the loan’s terms and status. With that information, successors may determine whether or not holding onto the home is a financial possibility, or if selling the property makes more sense.
Error Correction. Similarly, a widow who is dutifully making mortgage payments but has not
assumed the mortgage loan will be able to challenge a servicer’s failure to properly credit her ontime payments.
Applicability of All Loss Mitigation Protections to Successors
We also agree with the Bureau that the loss mitigation procedures contained in 12 C.F.R. § 1024.41 should apply to confirmed successors in interest. A confirmed successor should be evaluated for all options that could help that successor avoid foreclosure. Current mortgage servicing rules under RESPA would permit the successor to submit a complete loss mitigation application more than 37 days before a foreclosure sale. And, equally important, anti-dual tracking protections under §§ 1024.41(f) and (g) would apply to successors.
We note that California’s HBOR anti-dual tracking timing requirements are more protective than RESPA’s current requirements, and that CRC and HERA currently have a pending proposal to extend HBOR protection to successors in interest in the California legislature. Since mortgage servicers and the whole financial services industry have relentlessly and shamelessly raised claims that HBOR is preempted, despite the Bureau’s clear statement that RESPA and TILA servicing rules represent a protective floor and do not preempt more protective state laws, it would be important for the Bureau to reiterate this fact in the commentary to the final rules.
Applicability of other Servicing Rules to Successors
We agree that the protective blanket of the rules codified in 12 C.F.R. §§ 1024.39, .40, .33, .34, and .37 should also cover successors in interest. These protections could save the family home, the largest asset most Americans will ever possess. Additional costs to servicers in complying with these protections will be negligible compared to this important goal of asset preservation. It is also simply unconscionable and cruel that servicers would do anything less than what the Bureau proposes.
3 See 79 Fed. Reg. 74,185-86 (“The Bureau believes that §§ 1024.35 [Notices of Error] and 1024.36 [Requests for
Information] should apply to confirmed successors in interest.”).
Importance of Personal Representative of Estate
The estate and its personal representative must be able to enforce mortgage servicing rules. Contrary to the Bureau’s statement that it is not useful to a borrower’s estate to invoke mortgage servicing rules, it can be incredibly important for the estate to access correct information about any encumbrances on the subject property as this may enable the estate to preserve the property for the successors. Determining what property is subject to probate and protecting it from waste is one of the fundamental elements of probate, along with determining the identity of the successor(s) in interest. The estate itself, or whoever is appointed as Personal Representative of the Estate (name/title may vary by state), must have this information to present to the probate court. Often, the Personal Representative is also a successor in interest. But until that person’s ownership interest is “confirmed” (even under the Bureau’s proposed rules regarding the confirmation process), the prior borrower’s estate and the Personal Representative of the Estate must be protected by the mortgage servicing rules so that this category of successors in interest are not put at risk of foreclosure. The Bureau’s proposal to eliminate the estate, as well as the Bureau’s failure to include the Personal Representative for the estate, will unintentionally create great harm.
Misnomer of the “Prior Consumer”
Finally, the Bureau requests comment as to whether a periodic statement should go to a “prior consumer.” This terminology is a complete misnomer that does not address the reality of survivor situations. To the extent the Bureau proposes to extend mortgage servicing protections to individuals who are divorced or have an ownership interest in the subject property, but the current borrower (usually the ex-spouse) is still alive, the Bureau’s proposed comment 30(d)-2 referring to “prior borrowers” seems most important. The Bureau is proposing to apply the confusing term “prior borrower” to borrowers who are existing borrowers. This would seem to arise in the context of the Bureau’s proposed coverage of an ex-spouse who is on the mortgage loan when the other spouse is not.
The Bureau acknowledges that the ex-spouse may still be liable on the loan, but rather than use a clear and accurate term to refer to this person, the Bureau refers to him/her as a ‘prior borrower.’ In this case, with a borrower who is still alive and financially obligated for the loan in question, it is an existing borrower, not a prior borrower, who needs the servicing rule protections. In fact, the existing borrower is already covered by servicing rule protections. It is not clear why the Bureau is developing this confusing and inaccurate nomenclature, calling existing borrowers ‘prior borrowers’ just because of a divorce. A divorce does not usually end the financial obligation of the spouse who is already a borrower on the loan.
We distinguish this new proposed category of ‘prior borrowers’ from successors in interest, who need for existing protections to continue, and the estate of the borrower its representative which still needs protections to be established. The Bureau should clearly address when certain rules will affect existing borrowers who are alive, versus affecting the estate of a borrower, versus affecting the surviving successor in interest to the property.
TILA Definitions and Rules of Construction (§ 1026.2)
We agree with the Bureau that, for consistency and the protection of successors in interest, it is necessary for the term “consumer” to include successors in interest. And we understand the Bureau’s position that servicers should have a chance to confirm successor in interest status to trigger Regulation Z protections. We want to echo our concerns, however, related to “prior consumers” (summarized above). The Bureau’s proposal excludes the estate of the borrower and (unintentionally, we hope), the Personal Representative of the borrower’s estate from relevant
TILA benefits that could help preserve the estate, such as a pay-off statement. The estate and the Personal Representative of the estate require access to Regulation Z mortgage servicing protections if the protections are to fulfill the purpose of protecting successors in interest from unnecessary loss of the family home.
AB244 Language. To illustrate the problem, we want to highlight relevant language from AB244
(Eggman), the proposed “widows and orphans” amendment to California’s HBOR, defining successor in interest as follows:
(i) “Successor in interest” means a natural person who provides the mortgage servicer with notification of the death of the mortgagor or trustor and reasonable documentation showing that the person is one of the following:
(I) The personal representative, as defined in Section 58 of the Probate Code, of the mortgagor’s or trustor’s estate,
(II) The surviving joint tenant of the mortgagor or trustor,
(III) The surviving spouse of the mortgagor or trustor if the real property that secures the mortgage or deed of trust was held as community property with right of survivorship pursuant to Section 682.1 of the Civil Code,
(IV) The trustee of the trust that owns the real property that secures the mortgage or deed of trust or the beneficiary of that trust.
(ii) “Notification of the death of the mortgagor or trustor” means provision to the mortgage servicer of a death certificate, or, if a death certificate is not available, of other written evidence of the death of the mortgagor or trustor deemed sufficient by the mortgage servicer.
(iii) “Reasonable documentation” means copies of the following documents, as may be applicable, or if the relevant documentation listed is not available, other written evidence of the person’s status as successor in interest to the real property that secures the mortgage or deed of trust deemed sufficient by the mortgage servicer:
(I) In the case of a personal representative, letters as defined in Section 52 of the Probate Code,
(II) In the case of a surviving joint tenant, an affidavit of death of the joint tenant or a grant deed showing joint tenancy,
(III) In the case of a surviving spouse where the real property was held as community property with right of survivorship, an affidavit of death of the spouse or a deed showing community property with right of survivorship,
(IV) In the case of a trust, a certification of trust pursuant to 18100.5 of the Probate Code,
(V) In the case of a beneficiary of a trust, relevant trust documents related to the beneficiary’s interest. The above language provides a more inclusive alternative to the Bureau’s current proposal. The Bureau’s proposed rules do not address the critically important time period before a successor in interest is “confirmed:” our proposed language above does. We ask the Bureau to please consider this important issue and to state affirmatively that the borrower’s estate may enforce the mortgage servicing rules. The Bureau specifically requested comment on whether the proposed Regulation X rule changes as to successors would protect successors from unnecessary foreclosure prior to “confirmation” of successor status. The rules do not. The rules need to address the issues we have raised above.
And we reiterate that a deceased borrower and a “prior” borrower (meaning the existing borrower who is the ex-spouse) are not the same. They do not stand in the same position or have the same interests. We would implore the Bureau not to confuse the two.
Multiple Successors. Sometimes, especially in lower wealth communities where borrowers may
not routinely make wills or trusts, a property may need to be probated. Additionally, in cases where a property passes to a non-spouse, there may be more than one successor in interest. This interim probate period, while ownership and successor status is being determined in court, is critically important. That is why AB244 includes personal representatives of the estate or administrators of the estate in HBOR protections. This representative is court-approved, which helps provide clarity and simplicity to servicers in determining who should receive periodic statements and other information regarding the subject property. We strongly encourage the Bureau to include representatives of the estate as confirmed successors in interest for purposes of application of servicing rules.
Foreclosure Before Confirmation of Successor Status
Though we touched on this problem in various sections above, this issue is important enough to highlight separately. Servicers foreclose on successors before confirming, or sometimes even investigating, the successor’s relationship to the subject property. The Bureau’s commentary is an excellent move in the right direction towards explaining how servicers should appropriately confirm successor status. But unless the Bureau establishes further protections, such as those proposed in California, foreclosures will continue to happen before confirmation is undertaken or completed. Confirmation files will be the new graveyard for documents in the mortgage servicing process, where successors send in proof of their status and servicers refuse to acknowledge receipt, verbally ask for new documents, and string successors along until foreclosure is completed.
Loss Mitigation Efforts. We understand the Bureau’s proposed comment 41(b)-1.ii requiring
servicers to review loss mitigation applications from a potential successor in interest, and requiring servicers to treat the applications as if they were received the day the servicer confirmed the successor’s status. By the same token, servicers do not want to undertake loss mitigation, so delaying confirmation of a successor’s identity can, and likely will, become another servicer excuse for not pursuing loss mitigation—a pretense for not following the rule. If the Bureau will not protect successors from foreclosure before the servicer completes the confirmation process, we ask the Bureau to use its supervisory authority to scrutinize servicers that seem to have high failure rates for confirming successor status.
Private Right of Action
One of the most important protections missing from the current proposal is a clear private right of action for aggrieved successors in interest. We anticipate that the goals of these proposals will likely be frustrated by the failure of servicers to confirm successor status for eligible consumers. Establishing a clear right of action for harmed successors would be an effective deterrent to servicers from using and abusing the confirmation process as an opportunity to avoid or forestall consumer protections. It would assist successors in avoiding or redressing improper foreclosures. This concern cannot be overstated.
Periodic Statements for Successors
Whether or not a servicer should be obligated to send more than one periodic statement to multiple “confirmed successors in interest” should be considered in light of how successor situations usually play out. If the Bureau is proposing to extend protections of the servicing rules to all persons with an ownership interest in the subject property, then all those persons should receive a periodic statement, provided they have given their contact information to the servicer. The periodic statement is one of the first clues to the consumer as to whether there is a problem with the account. Early notice of potential problems becomes critical when more than one person may hold title and more than person may be obligated to make payments. People inheriting a property are not in the same position as joint obligors who, presumably, entered into ownership willingly. Additional costs to a servicer for providing multiple notices is negligible compared to the benefit to the consumer.
- Protections for Borrowers During Servicing Transfers
Managing the Transition between Servicers
We appreciate that the Bureau is proposing to codify the protections extended to borrowers during servicing transfers, as well as clarifying the obligations of transferee servicers. We believe that, in general, requiring transferees to stand in the shoes of transferors, as modified by the deadline extensions described in 12 C.F.R. § 1024.41(k), is a fair compromise for both borrowers and transferee servicers.
Transferors Should Retain Liability. We want to express concern, however, that transferor
servicers can seemingly escape all RESPA liability if they improperly or negligently transition a borrower’s loan to a transferee servicer. While the Bureau correctly observes that both the transferor and transferee servicers “share . . . responsibility for enabling a transferee servicer to comply with [the proposed loss mitigation protections,]”4 a borrower may only enforce those protections against the transferee servicer. The transferor’s statutory requirements are currently relegated only to a RESPA section without a private right of action.5 The transferor should share liability since it shares responsibility for transitioning the loan, but also because the transferor servicer occupies a special position within the servicing transfer. Often, it is the transferor servicer that has already mismanaged the borrower’s account or modification negotiations, putting the transferee servicer in a compromised position and setting the transferee up for failure.
Handing off a mismanaged or inaccurate loan account should, by itself, serve as a basis for a borrower’s distinct claim against the transferor servicer. Also, transferor servicers are often larger institutions than transferee servicers, enjoying more resources and personnel that should (but often fails to) make accurate and timely loan transitions possible. In some cases, then, a transferor could be more at fault for a mishandled servicing hand-off than the transferee servicer.
4 79 Fed. Reg. 74,229.
5 12 C.F.R. § 1024.38(b)(4) (2014).
As a policy and practical matter, if transferor servicers shoulder at least some potential liability, they will ideally take greater care in shepherding borrowers’ loans through the servicing transition and fewer borrowers will fall through the cracks. We encourage the Bureau to give borrowers a private right of action to enforce the protections currently codified in 12 C.F.R. § 1024.38(b)(4). At the very least, we support the Bureau’s goal of continuing to “monitor whether transferor servicers’ practices raise consumer protection concerns that should be addressed through formal guidance or rulemaking.”6
We appreciate that the Bureau is concerned with placing burdensome and unnecessary requirements on transferee servicers during the servicing transfer process. We understand, for example, the Bureau’s intent behind proposed Comment 39(b)(1)-6, which only requires transferee servicers to send delinquent borrowers an early intervention notice under 12 C.F.R. § 1024.39(b) if the transferor servicer did not already send the required notice, or if the borrower remains delinquent, or becomes delinquent again, 45 days after the servicing transfer. And we support the Bureau’s decision to lift the 180-day cap on this notice as applied to transferee servicers. We want to caution, however, that there are circumstances where borrowers would be significantly more protected if the transferee servicer sent the early intervention notice soon after the transfer date, as the following timeline demonstrates:
Day 45 of delinquency: transferor servicer sends borrower written notice outlining potential loss mitigation programs; the borrower concludes he will not qualify for any program, so he does not start the application process
Day 47 of delinquency: servicing is transferred to transferee servicer
Day 50 of delinquency: borrower misses another mortgage payment
Day 95 of delinquency: transferee servicer provides borrower with the requisite 45-day early intervention notice because the borrower has been delinquent for 45 days posttransfer.
The transferee servicer offers more loss mitigation programs than the transferor servicer, and/or the borrower’s financial position has changed since day 45 of the delinquency. In any case, the borrower decides that he now can qualify for one or more of the loss mitigation programs offered by the transferee servicer Under this scenario, the borrower has 26 days to submit a “complete” loss mitigation application before the 121st day of delinquency and secure the strongest dual tracking protections under 12 C.F.R. § 1024.41. Had the transferee servicer provided the early intervention notice soon after the servicing transfer, however, the borrower could have had up to 75 days to submit a complete application. Servicers are notorious for dragging the application process out. Any extra time a borrower has to comply with duplicative document requests, obtain additional documents, and
6 79 Fed. Reg. 74,229.
otherwise engage in the protracted back-and-forth exchange with the transferee servicer will significantly impact the borrower’s future dual tracking protections. Early Intervention within 15 Days of Transfer. Mandating that a transferee servicer comply with early intervention notice requirements within, for example, 15 business days of a servicing transfer, should not prove too burdensome. Transferee servicers are already required to send borrowers written notice of the servicing transfer within those 15 days.7 That notice could easily include general information about the loss mitigation programs offered by the transferee servicer, basic instructions on the application process, and stock HUD counseling information. Nothing in the early intervention requirements of 12 C.F.R. § 1024.39(b) requires a servicer to outline the specific programs a particular borrower may qualify for; simply noting all available foreclosure alternatives will therefore create minimal costs for the transferee servicer, but could significantly impact borrowers by alerting them to their loss mitigation options with ample time to submit a complete application. We strongly encourage the Bureau to require transferee servicers to comply with the early intervention requirements of § 1024.39 within 15 days of the servicing transfer, if the borrower has a pending delinquency as of the transfer date.
Protecting Borrowers with Pending, Complete Applications During Servicing Transfer
Timelines. We strongly support the Bureau’s decision to generally require transferee servicers to
comply with loss mitigation requirements according to the deadlines established for the transferor servicer. Servicing transfers happen through no fault of borrowers, who should not be penalized or disadvantaged by the transfer. We request, however, that the Bureau require transferee servicers to abide by any time extensions for a borrower to which the transferor agreed, even when not otherwise required by Regulation X. Servicers sometimes agree to postpone foreclosure to grant borrowers more time to gather information, acquire funds to cure a default, or perform other tasks prior to entering a loss mitigation plan. A servicing transfer should not affect the time made available to the borrower, and the mortgage investor to whom the servicer answers should not be able to invalidate the promises made by the transferor servicer on its behalf by suddenly transferring the servicing rights.
“Complete” vs. “Facially Complete” Applications. We also agree with extending the dual protections in 12 C.F.R. § 1024.41(e)-(h) after the transfer, to borrowers who were protected pretransfer. Aspects of comments 41(k)-1 and 41(k)(1)(i)-1(i), however, are ambiguous and possibly at odds with comment 41(k)(3)(i)-1. Comment 41(k)-1 ensures that, for purposes of § 1024(k), a pending application is considered a “complete” application if it was complete as of the transfer date under the transferor servicer’s criteria. Comment 41(k)(1)(i)-1(i) instructs, that for purposes of § 1024.41(e)-(h), transferee servicers must treat a “complete” application, as assessed by the transferor servicer, as “facially complete” if the transferee servicer considers the
7 12 C.F.R. § 1024.33(b)(3)(ii) (2014).
application incomplete. By omission then, the protections contained in § 1024.41(b)-(d) should apply to applications considered “complete” by the transferor servicer but “incomplete” by the transferee servicer. These protections include those in § 1024.41(c), which require servicers to evaluate a borrower’s application if received at least 37 days pre-sale. Conversely, comment 41(k)(3)(i)-1 instructs that if a pending application is “complete” according to the transferor servicer, yet “incomplete” according to the transferee, the application must be considered “facially complete” for purposes of § 1024.41(c)(2)(iv).
To easily avoid this confusion and possible discrepancy, we suggest that the Bureau instruct transferee servicers to treat applications considered “complete” by the transferor servicer as complete, rather than facially complete. If the servicer requires more information from the borrower to competently evaluate an application (if the transferee considers the application “incomplete,” in other words) the 30-day evaluation period required by § 1024.41(c) could be extended, while also ensuring that the foreclosure is not allowed to continue under §1024.41(f)(2) and (g). California’s HBOR imposes no timeframe on servicers to complete loss mitigation reviews; it simply prevents servicers from moving forward with foreclosure while the application is pending.8 This is a clear, uncomplicated rule that protects borrowers without imposing burdensome time requirements on servicers. A similar framework could work for the Bureau’s rules related to servicing transfers: ensure that borrowers receive all protections due a “complete” application –if the transferor servicer deemed it “complete” – while allowing a transferee servicer more time to supplement that application if necessary.
Relatedly, transferee servicers should be required to treat borrowers as if a complete loss mitigation application was pending until the transferee’s review of loan file is complete. The transferee should not assume it has the full loan file until either: a) the transferor has certified that it has provided the transferee servicer the entire loan file, including any loss mitigation applications and workout options offered or under review; or b) 60 days have elapsed since the transfer date, during which neither the transferor nor the borrower has provided documents which indicate the existence of a pending loss mitigation application or plan. Requiring the transferee to treat borrowers as if a complete loss mitigation application is pending causes the transferee servicers to give borrowers the benefit of the doubt until the loan file is reviewed.
Once the file is reviewed, which could happen immediately if the transferor and transferee act quickly, the transferee can proceed with any actions allowed under 12 C.F.R. § 1024.41. For the borrower, this requirement will ensure that foreclosure sales are not conducted while the transferee is ignorant of any loss mitigation activity or agreements with the transferor. Written Notices Required by § 1024.41. We also want to highlight a potential problem with comment 41(k)(1)(i)-3, which provides that if a transferor servicer provided any written notice in compliance with § 1024.41, the transferee servicer need not repeat the notice. What should
8 See CAL. CIV. CODE § 2923.6 (2013).
happen, however, if a transferee servicer disagrees with the transferor’s analysis articulated in a pre-transfer notice? If a transferor servicer, for example, acknowledged an application as “complete” in the written acknowledgment notice, but the transferee servicer considers the application incomplete, we believe the transferee servicer should be obligated to quickly send borrower a new notice identifying the additional documents required for an evaluation. Comment 41(k)(1)(i)-3 seems to discourage this type of timely action, but Comment 41(k)(1)(i)-1(ii) seems to require it. Under comment 41(k)(1)(i)-1(ii), a transferee servicer must try to complete a borrower’s loss mitigation application, in accordance with §1024.41(b), by identifying and requesting missing documents. Requiring a transferee servicer to timely send any notices required by § 1024.41 after the transfer, regardless of whether the transferor servicer provided that notice, would solve this problem and not impose burdensome administrative costs on the transferee servicer.
Transfers During the Acknowledgment Period
The undersigned agree with the Bureau’s decision to limit the extension of time a transferee servicer has to provide a 12 C.F.R. § 1024.41(b)(2)(i)(B) notice acknowledging the receipt of an application to only an extra five days. Those notices are crucial to borrowers seeking to submit complete loss mitigation applications before the 37-day cutoff for preventing foreclosure under § 1024.41(g). As any extension to a transferee in providing these notices could result in a borrower missing this cutoff, it is vital that the window of time in which servicers must notify borrowers under (b)(2)(i)(B) be as brief as possible.
Transferee Servicer’s Time to Evaluate Pending, Complete Applications We generally agree with and support all the proposed protections contained in § 1024.41(k)(3) and the corresponding Bureau interpretations. We want to reiterate, however, the potential discrepancy between Comment 41(k)(3)(i)-1 and Comments 41(k)-1 and 41(k)(1)(i)-1(i), explained above.
Pending Appeal During Servicing Transfer
We also generally support the proposals contained in § 1024.41(k)(4) related to servicing transfers that occur during a pending appeal, or during a borrower’s window of time to appeal a denial. Requiring a transferee that is unable to competently evaluate a pending appeal to treat that appeal as a pending, complete application is a creative alternative that will hopefully protect borrowers. We encourage the Bureau to improve upon this requirement by allowing borrowers an option in this scenario: they can either agree to allow the transferee servicer to treat their existing application as a complete loss mitigation application, subject to a fresh review; OR the borrowers can choose to submit a new application, which is permitted under existing commentary and proposed rule § 1024.41(i). This choice could prove critically beneficial to borrowers whose income significantly changed during the transferor’s application evaluation and denial. The borrower could now qualify for the loss mitigation program already applied for, or could possibly qualify for other loss mitigation programs offered by the transferee servicer.Granting borrowers this option would not create additional burdens for the transferee servicer, which is already required to evaluate borrower’s existing application and/or work with the borrower to complete that application.
Unaddressed Concerns Related to Servicing Transfers
Although we appreciate the protections proposed in 12 C.F.R. § 1024.41(k), the proposed rule does nothing to address the largest problem with servicing transfers for borrowers facing foreclosure. As front-line advocates assisting homeowners in various stages of the foreclosure process, CRC members have seen what happens to borrowers in the midst of a loss mitigation negotiation when the servicing is transferred. Transferee servicers often proceed with foreclosure immediately upon transfer, but prior to receiving the complete loan file with the information on pending loss mitigation applications and options with the borrower. If the transfer occurs close enough to a foreclosure sale in a non-judicial foreclosure state, the transferee may conduct a sale of the borrower’s home before it even becomes aware of any application or option pending with the transferor. In those states, such a borrower may not discover that the transferee foreclosed in violation of § 1024.41(g) until after the sale is conducted. While borrowers can enforce the transferee’s obligations under 12 USC 2605(f), the remedies available are limited to damages only. A borrower in a non-judicial foreclosure state who discovers the transferee’s wrongful foreclosure after the sale must drag the transferee into court and prove that the foreclosure was unauthorized under other legal claims. In jurisdictions like California, the borrower may also be required to cure the default as a prerequisite to unwinding a sale by the transferee. If the sale passed title to a bona fide purchaser, it may be impossible for the borrower to unwind the foreclosure, depending on the specific facts.
To prevent such unfortunate results, we ask the CFPB to impose extra safeguards before a transferee may proceed with foreclosure. Transferees should be required to send a notice to borrowers within 10 business days of the transfer date, describing the status of any loss mitigation application or option and any additional information that is needed to complete an application. Requiring such a notice will force transferees to review the entire loan file soon after the transfer date, which will in turn encourage transferees to work with, or even pressure, transferors to timely transmit loan files for review.
We strongly support the sentiment behind the Bureau’s “belie[f that] the requirements contained in 12 C.F.R. § 1024.33 . . . should apply to confirmed successors in interest.”9 We feel, however, that this sentiment should be codified in the proposed rule.
The Bureau has not proposed changes to the existing preemption language.10 While we support the Bureau’s decision to continue to allow borrowers to take advantage of more protective state and local laws governing most mortgage servicing and loss mitigation issues, we encourage the Bureau to remove the exception to the preemption rule that allows servicers to escape stricter notice requirements related to servicing transfers.11 It is critical that more protective state and local laws apply to every aspect of mortgage servicing, including the frequent transferring of servicing rights. At the very least, the new rules should explicitly provide that while the notice requirements related to servicing transfers under 12 C.F.R. § 1024.33 preempt more restrictive state laws, the proposed loss mitigation rules under 12 C.F.R. § 1024.41(k) and early intervention interpretation in Comment 39(b)(1)-6 do not preempt more protective state or localregulations related to servicing transfers.
- Applying Loss Mitigation Procedures More than Once Over Life of Loan
We agree with the Bureau’s proposal to require servicers to comply with loss mitigation rules as applied to a borrower’s application submitted after previously receiving a loss mitigation plan. Existing loan modification programs, such as the Home Affordable Modification Program, already recognize that a homeowner may receive more than one loan modification over the life of a loan. The proposed change recognizes that borrowers may become current, yet experience a subsequent hardship that may require consideration for a second (or any subsequent) loan
The Bureau should not make the right to a reevaluation contingent upon whether the borrower was current for a minimum period of time since the borrower’s previous application. There is no reason to place an arbitrary line on how long a borrower must be current to qualify for the Bureau’s procedural protections. A borrower who complies with a permanent loan modification for 11 months and who may suffer a job loss should not be treated differently from a borrower who suffered a change in employment after being current for 13 months.
In addition, the Bureau should clarify that a borrower who applied for a loan modification before January 10, 2014, the effective date of the mortgage servicing rules, can still receive the full loss
9 79 Fed. Reg. 74,187.
10 See 12 C.F.R. § 1024.5(c) (2014).
11 See 12 C.F.R. §§ 1024.5(c)(4); 1024.33(d) (2014).
mitigation procedures under § 1024.41(i) even if the borrower remained delinquent since the prior application. Many servicers had inadequate loss mitigation procedures prior to the effective date of the servicing rules. A borrower should receive full protections under the new rules if the borrower received an inadequate review before the effective date of the rules.
- Notification of a “Complete” Application
We support the proposed amendment to require notification of a complete application when the borrower initially submits an incomplete application but subsequently provides additional documents requested by the servicer to complete the application. Not only do many loss mitigation protections hinge upon the submission of a complete application, but the protections under the rule’s state law analogues, including California’s HBOR, are triggered by the submission of a complete application.12 Notification of a complete application is also important because dual tracking protections under the rules depend on when the application is complete. Requiring the servicer to notify the borrower not only that an application is complete, but also when the application became complete allows borrowers to determine what rights they are entitled to under the regulations and whether the servicer complied with those protections.
We support the proposed requirement that servicers send modified periodic statements to consumers who have filed for bankruptcy, with content varying depending on the type of bankruptcy filing. This change would help address concerns that servicers often charge improper and inappropriate fees to borrowers in bankruptcy. Requiring periodic statements deter servicers from charging improper fees, or at the least provide borrowers with the information necessary to discern whether assessed fees are proper.
We also support proposed comment 39(d)(1)-1 which addresses a servicer’s duty to resume compliance with early intervention requirements following a borrower’s bankruptcy, including when the borrower makes a written request to continue receiving periodic statements or coupon books. However, we urge the CFPB to require that a consumer continue to receive periodic statements unless the consumer discloses an intent to surrender the property, is in default, and has been denied all loss mitigation options. Such an approach will ensure that a consumer
12 See, e.g., CAL. CIV. CODE § 2923.6(c) (upon borrower’s submission of a complete application, a servicer “shall notrecord a notice of default or notice of sale or conduct a trustee’s sale” while the application is pending).
receives a statement until all retention options have been exhausted. And any cost to servicers is diminished substantially by the Bureau’s intent to provide model forms for industry use.
Early Intervention Notices
As to the question of whether written early intervention notices should be different for a borrower in bankruptcy, we believe that the earlier the notice is delivered, the better. As such, we recommend language that would require the written notice be provided by the 45th day of delinquency, or the 45th day after the bankruptcy commenced, whichever is earlier.
Limiting the Bankruptcy Exemptions
We further support the Bureau’s efforts to: 1) narrow the scope of the bankruptcy exemption from the rules’ requirements; 2) to remove the exemption to the live contact requirements for borrowers who are jointly liable with borrowers in Chapter 7 or Chapter 11 bankruptcy; and 3) to partially lift the written early intervention notice requirements where loss mitigation options are available, with certain exceptions. Such limitations further the consumer’s interest in receiving information about loss mitigation options, which may be particularly helpful to borrowers in bankruptcy trying to gain control over their finances. This approach is consistent with FHA loss
mitigation guidance and HAMP rules which both contemplate borrowers in bankruptcy having access to loss mitigation information.
- Definition of Delinquency
We support the Bureau’s proposal to define delinquency in 12 C.F.R. § 1024.31 as applied to all of the servicing provisions under Regulation X and the provisions regarding periodic statements for mortgage loans under Regulation Z. We support the Bureau’s proposed definition establishing delinquency beginning on the date a payment sufficient to cover principal, interest and if applicable, escrow, becomes due and unpaid.
The Bureau proposes three comments to the proposed definition. First, proposed comment 31 (Delinquency)-1 confirms that delinquency is not delayed merely because a servicer allows the borrower additional time before assessing a late fee. We support this clarifying comment as a way to encourage loan agreements that provide for a grace period.
Second, comment 31 (Delinquency)-2 clarifies that IF a servicer applies borrower’s payments to the oldest outstanding periodic payment, the date of the borrower’s delinquency must advance accordingly. Most servicers treat payments in this manner. In these cases, the proposed comment would clarify that servicers that choose this method of applying payments cannot initiate foreclosure proceedings unless the borrower is the equivalent of four months delinquent. As the Bureau notes, most servicers would not treat borrowers who are behind three or four months as
seriously delinquent. This approach is consistent with GSE guidelines as well. As such, this proposed comment should not impose significant costs on the industry. We would go further and urge the Bureau to consider requiring that servicers apply borrower payments to the oldest outstanding periodic payment.
Finally, proposed comment 31 (Delinquency)-3 PERMITS servicers that elect to advance outstanding funds to a borrower’s mortgage loan account to treat the borrower’s insufficient payment as timely, and therefore not delinquent for purposes of the mortgage servicing rules. We support the intent of the rule to prevent a servicer from treating a borrower as current in order toavoid early intervention, continuity of contact or loss mitigation requirements, while treating the same borrower as delinquent for purposes of initiating foreclosure. In response to the question posed in the Federal Register, we urge CFPB to limit servicer use of payment tolerance to a specific dollar amount, and propose that this amount be set at $10.
We agree with the Bureau’s proposal regarding disclosure of the length of a consumer’s delinquency per § 1026.41(d)(8) if a servicer applies a borrower’s payment to the oldest outstanding delinquency first. Again, we think that servicers should always have to apply a consumer’s payment to the oldest outstanding delinquency. And, we think it is of great benefit to the consumer to know how long a servicer believes a delinquency has existed, potentially prompting consumers to verify records sooner rather than later. We agree with the proposal to require disclosure of the length of a consumer’s delinquency as of the date of the periodic
- Force-Placed Insurance
We understand that the Bureau is proposing rules regarding the content of notices as to forceplaced insurance that would clarify and create flexibility for servicers to provide notices that include a statement of whether or not the servicer believes the property is under-insured. Weunderstand this clarification applies to both the initial notice and reminder notice from theservicer to the borrower. We believe this is a reasonable addition to the rule to help servicerscomply with § 1024.37 (b)-(c) requirements regarding the need to have a reasonable belief about a borrower’s failure to comply with hazard insurance requirements, and to send notices to the borrower regarding that belief before assessing a related fee or charge.
In cases in which a servicer believes insufficient hazard insurance is being carried, we believenotice should also include a copy of the appraisal report or other document upon which theservicer is relying for its determination of insufficiency. Including the borrower’s mortgage loan account number on the notice is also important, as we have occasionally encountered servicers managing two or more separate loans that pertain to a borrower and confusing account information. Inclusion should be mandatory.
- Trial Plan Accounting
Timely Payments as “Partial” Payments
We understand that for consumers performing under a temporary loss mitigation plan, the Bureau is proposing to allow servicers to treat timely payments as partial payments. We believe that proposal cuts against basic contract principles, a matter of state law. For years now, consumers have been fighting servicers that have claimed that final modification agreements were only temporary. Servicers have made that claim to try to extricate themselves out of the contractual obligations of loss mitigation plans they entered into. The temporary loss mitigation program is, in fact, a contract that the consumer has the legal right to enforce under basic principles of contract. The Bureau’s proposed comment 36(c)(1)(i)-4, suggesting that a servicer can treat payments per a temporary plan as partial payments is at odds with those basic principles.
The Bureau then states “[I]t would be unnecessarily burdensome for servicers to treat the payment due under a temporary loss mitigation program as a periodic payment, and then to have to undo that treatment if the consumer later fails to comply with the terms of the temporary loss mitigation program.” The reality is that loss mitigation agreements are achieved at great risk to both the servicer and the homeowner. It is highly burdensome for homeowners to chase after mortgage servicers who are erroneously reporting on-time payments in an incorrect fashion to the credit reporting bureaus, and who are incorrectly logging on-time payments in their own system, without regard to the governing temporary agreement. Homeowners should be able to rely on servicers’ accurately maintaining a record of temporary loss mitigation plans, and giving proper credit for payments made per the terms of the agreements. We can tell you from the arduous experience of working on modification applications for
consumers that mortgage servicers frequently misconstrue or misinterpret numbers that we provide them, and stare at incorrect figures on-screen, even after we have alerted them to their errors. Consumers experience the same problem when they do not have advocates to assist. Convincing mortgage servicers to correct their often faulty math then becomes part of the process of issuing a final modification. The Bureau should not find it acceptable that servicers refuse to track the terms of agreements they entered into and to accurately report and apply payments made per the terms of that temporary contract.
In allowing servicers to treat contractual payments as partial payments, the Bureau is perhaps thinking of forbearances, which are one form of temporary loss mitigation agreement, typically lasting 3-6 months. However, even such a short-term agreement is a contract, or represents a contractual modification of the underlying contract. Of particular concern are longer-term loss mitigation plans that do not last the entire life of the loan. Consider, for example, a 5-year loss mitigation plan applied to a 30-year mortgage with 23 years left. Consumers making on-time payments on such a long-term, but temporary agreement, are generally deemed to have made a contract, enforceable under state law, and entitled to the corresponding benefits. On-time payments made per the terms of the loss mitigation plan must then be treated as timely for purposes of the agreement. It is not rational to arbitrarily call payments under such a plan “partial” payments. We are also concerned about the implications that such a comment may have for purposes of fair and accurate credit reporting. We ask the Bureau to withdraw this proposecomment. Instead, we urge the Bureau to reconsider, and to enumerate exactly which situations this proposal properly applies to.
The Bureau also proposes that a servicer’s internal, inaccurate reporting of payments under a temporary loss mitigation plan is permissible as long as servicers do not assess a late fee to the consumer, reasoning that the consumer is not harmed. Consumers are harmed by this conduct. Servicers must accurately manage and track data entry and implementation of agreements for which they are responsible. The longer servicers are allowed to improperly track their own records and agreements, the more inaccurate their records become, and the consumer is left with
a nightmare to try to correct the errors.
If there is a servicing transfer somewhere in the middle, all bets are off, as transferor andtransferee servicers pass the buck back and forth, blaming one another for errors in the consumer’s account, rejecting consumer requests for assistance, and, most importantly, never correcting the problem unless a regulator or tenacious advocate intervenes.
We agree with the Bureau’s proposed commentary to 12 C.F.R. § 1026.41(d), clarifying certain periodic statement disclosure requirements relating to temporary loss mitigation programs to the extent that it would require full disclosure as to how payments are applied. Setting forth the application of payments under a temporary loss mitigation plan will help consumers identify errors and misunderstandings more quickly.
The language in the proposed comment regarding application of payments under the temporary plan to the underlying contract seems intended to apply only to one or two specific types of temporary loss mitigation tools, not to longer term but still temporary loss mitigation plans. To the extent that the temporary plan creates its own enforceable agreement, then disclosures should reflect how payments are applied per the terms of that agreement. To the extent that the application of payments per the temporary agreement may have other implications as to the
former, underlying agreement, we would welcome any clarifying disclosures. It seems to us that the Bureau may want to withdraw or modify this comment to reflect exactly which types of temporary agreements it is contemplating for this scenario.
In cases of temporary loss mitigation agreements, we ask simply that the periodic statement delivered to the consumer be accurate. A statement demanding an amount different than the amount specified in the temporary loss mitigation agreement is inaccurate. If the payment is due to change at some point from the amount due under the temporary agreement, then the servicer should send notice of that fact to the consumer before the change
date. That notice should be sent separately from the periodic statement to alert the consumer of the impending change, much the same way that the Bureau requires a notice of change date for adjustable rate mortgages, per § 1026.20(c). It could, in fact, be logical to include such a
requirement as a new subsection within § 1026.20.
- Small Servicers
Small servicers should be required to provide periodic statements at the request of the consumer. Such statements are the primary way consumers track the status of their loan and how payments are being applied. One statement per year is insufficient. We understand that this is currently the rule that the Bureau has promulgated, but we think it is inconsistent with the Bureau’s goal and mission of protecting consumers. The marginal cost savings for a small servicer from not
sending periodic statements can result in a huge loss to the consumer.
- Charged-off Loans
We agree with the Bureau that “where a servicer continues to charge a consumer fees and interest, the periodic statement may provide significant value to a consumer.” We also strongly
support the Bureau’s proposed rule requiring provision of a final periodic statement. Especially
with clear labeling (since consumers are inundated with servicer notices and/or fraudulent
foreclosure relief offers), this final statement will help consumers understand what has happened
to their debt. The information should also help consumers in their process of addressing tax
consequences, and it will provide clarity about final figures from the servicer’s perspective.
Moreover, as noted by the Bureau, the final notice could serve to clarify to consumers the
difference between charge-off, debt forgiveness and lien release. And we think that the Bureau’s
further clarification of the fact that this rule would not affect FCPA obligations and protections is
valuable and that the further comment 41(e)(6)-1 is needed.
- Balance Acceleration
We agree with the Bureau’s discussion of the fact that “if the balance of a mortgage loan has
been accelerated but the servicer will accept a lesser amount to reinstate the loan, the amount due
disclosed on the periodic statement under § 1026.41(d)(1) should identify only the lesser amount
that will be accepted to reinstate the loan.” And we agree with the Bureau’s concern that
information regarding the accelerated balance should be delivered to the consumer. Proposed
comment 41(d)(2)-1 suggests that it is the periodic statement that should elsewhere identify the
accelerated balance. As long as that information is clearly located somewhere that does not
confuse the borrower, whether on the periodic statement or in the same envelope as a separate
statement, this important goal would be achieved.
This proposal represents a great opportunity to advance consumer protections. With the
additional changes recommended here, we believe these proposed rules can go a long way
towards reducing industry abuses, and limiting household and neighborhood harm. We want to
thank the Bureau for its continuing efforts to protect consumers, and for its consideration of our
Should you have any questions, please feel free to contact Maeve Elise Brown of Housing and
Economic Rights Advocates at (5-1-0) 271-8443, Brittany McCormick of National Housing Law
Project at (6-1-2) 200-8441, Kent Qian of National Housing Law Project at (4-1-5) 546-7000 x.
3112, Charles Evans of Public Counsel at (2-1-3) 385-2977 x. 188, or Kevin Stein of California
Reinvestment Coalition at (4-1-5) 864-3980.
Very Truly Yours,
Asian Pacific Policy & Planning Council (A3PCON)
California Reinvestment Coalition
Fair Housing Council of the San Fernando Valley
Housing and Economic Rights Advocates
Montebello Housing Development Corporation
National Housing Law Project
Neighborhood Housing Services of the Silicon Valley
Northern Circle Indian Housing Authority
Law Foundation of Silicon Valley
Legal Services of Northern California