Compliance

Mortgage Servicing: What’s in Store?

New rule includes an exemption for small servicers.

November 01, 2013
KEYWORDS cfpb , dodd-frank , mortgage , reg z
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Coupon book exemption

Creditors are not required to provide periodic statements for closed-end, fixed-rate mortgages if the creditor or servicer provides the borrower with a coupon book that:

Includes on each coupon certain account and contact information required on the periodic statement;

Provides other required information elsewhere in the coupon book;

Provides delinquency information in writing to the borrower for any billing cycle during which the borrower is more than 45 days delinquent; and

Makes available upon request from the borrower certain information by telephone, in writing, in person, or electronically if the borrower consents.

Interest-rate adjustment notices

Creditors, assignees, and servicers must provide a consumer who has an ARM with a notice between 210 and 240 days prior to the first payment due after the rate first adjusts. This notice may contain an estimate of the new rate and new payment.

Creditors, assignees, and servicers also must provide a notice between 60 and 120 days before payment at a new level is due when a rate adjustment causes the payment to change.

No longer required is the current annual notice for ARMs that the interest rate, but not the payment, has changed over the course of the year.

All servicers are subject to these requirements.

Timing of ARM notices

This summer, the CFPB issued its Small Entity Compliance Guide for the mortgage servicing rule. The guide clarifies the timing of ARM notices and states that no ARM notices are required to be sent prior to the actual effective date for the final rule.

ARM regulations under Sections 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the Jan. 10, 2014, effective date. Under the new rule, 20(d) notices must be provided between 210 and 240 days before the first payment is due after the initial interest-rate adjustment.

Credit unions or servicers will only be required to provide these notices on or after Jan. 10, 2014, for any such payments that are due on or after Aug. 8, 2014. If the first payment at the adjusted level is due within the first 210 days after consummation, the disclosures shall be provided at consummation. The requirements of paragraph (d) do not apply to ARMs with terms of one year or less.

Also, under the new rule, when an interest-rate adjustment results in a payment change, 20(c) notices must be provided between 60 and 120 days before the first changed payment is due. Credit unions or servicers will only be required to provide notices, on or after Jan. 10, 2014, for any payment changes that occur on or after March 11, 2014.

Additionally, 20(c) notices must be provided to consumers at least 25, but no more than 120, days before the first payment adjustment is due for ARMs with uniformly scheduled interest-rate adjustments occurring every 60 days or more frequently. This also applies to ARMs originated prior to Jan. 10, 2015, where the loan contract requires the adjusted rate and payment to be calculated based on the index figure available less than 45 days prior to the adjustment date.

The disclosures must be provided to consumers not less than 25 days before the first payment at the adjusted level is due, for the first adjustment to an ARM if it occurs within 60 days of consummation and the new interest rate disclosed at consummation pursuant to § 1026.20(d) was an estimate.

Therefore, servicers must begin providing these notices on or after Jan. 10, 2014 for payment changes that occur on or after Feb. 4, 2014.

The requirements of paragraph (c) do not apply to ARMs with terms of one year or less or the first interest-rate adjustment to an ARM (if the first payment at the adjusted level is due within 210 days after consummation and the new interest rate disclosed at consummation pursuant to § 1026.20(d) was not an estimate).

Payment crediting and payoff statements

All servicers must credit periodic payments from borrowers as of the day of receipt except when a delay in crediting does not result in any charge to the consumer or in reporting of negative information to a consumer reporting agency.

A periodic payment consists of principal, interest, and escrow (if applicable). If a servicer receives a payment that is less than the amount due for a periodic payment, the payment may be held in a suspense account. When the amount in the suspense account covers a periodic payment, the servicer must apply the funds to the consumer’s account.

Servicers must also provide an accurate payoff balance to a borrower within seven business days after receipt of a written request from the borrower for that information. There is no small servicer exemption for these requirements.

When a servicer can’t provide the statement within seven business days of the request because the loan is in bankruptcy or foreclosure, because the loan is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the payoff statement must be provided within a reasonable time.

A creditor or assignee that does not currently own the servicing rights to the mortgage loan is not subject to this requirement.

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