Mortgage Servicing: What’s in Store?
New rule includes an exemption for small servicers.
The October issue of Credit Union Magazine covered the Consumer Financial Protection Bureau’s (CFPB) Regulation X mortgage servicing final rule. This month’s article continues along those lines and covers the agency’s Reg Z (Truth in Lending) mortgage servicing final rule.
The CFPB issued its Reg Z mortgage servicing final rule Jan. 17, 2013, and it becomes effective Jan. 10, 2014.
The CFPB's Regulation Z final rule implements sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act that address initial interest-rate adjustment notices for adjustable-rate mortgages (ARMs), periodic statements for residential mortgages, prompt crediting of mortgage payments, and responses to requests for payoff amounts.
Until now, only open-end loans have required periodic statements. As required by the Dodd-Frank Act, the CFPB has expanded this requirement to cover most closed-end mortgages.
Creditors, assignees, and servicers must provide a periodic statement for each billing cycle containing, among other things, information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors, and, where applicable, delinquency information.
These statements must meet the timing, form, and content requirements provided in the rule.
The periodic statement requirement generally does not apply to fixed-rate loans if the servicer provides a coupon book. That’s true as long as the coupon book contains certain information specified in the rule, and other information specified in the rule is made available to the consumer in writing, in person, by telephone, or electronically.
The rule also includes an exemption for small servicers— institutions that service 5,000 or fewer mortgages in a calendar year, including those granted by affiliates.
A periodic statement must be sent each billing cycle, which corresponds to the frequency of payments. Therefore, if a loan requires the consumer to make monthly payments, that consumer will have a monthly billing cycle.
The periodic statement must be mailed or delivered within a “reasonably prompt” time after the payment due date or the end of any courtesy period provided for the previous billing cycle. “Reasonably prompt” generally means delivering, emailing, or placing the periodic statement in the mail within four days of the close of the courtesy period of the previous billing cycle (comment 1026.41[b]-1).
The “courtesy period” is the time after the payment due date in which the creditor does not impose a late fee. If there is no courtesy period, the creditor must send the periodic statement no later than four days after the payment due date.
A creditor will no longer have to send periodic statements when the loan is:
►Transferred to another servicer;
►Fully paid or paid off through a refinance or sale of the house; or
►Discharged in a foreclosure sale.
A creditor must continue to send periodic statements even when consumers are delinquent or in bankruptcy. The periodic statement must include:
►Amount due information, including the payment due date, amount of any late payment fee, the date the fee will be imposed if the payment has not been received, and the actual amount due.
►Explanation of amount due, including a breakdown showing how much will be applied to principal, interest, and escrow; total fees or charges imposed since the last statement; and any payment amount past due.
►Past payment breakdown. This includes the total of all payments received since the last statement and the current calendar year, including a breakdown showing the amount applied to principal, interest, escrow, fees, and charges, and the amount sent to suspense or unapplied funds accounts.
►Transaction activity since the last statement.
►Partial payment information.
►Contact information, including a toll-free telephone number and an electronic mailing address the borrower may use to obtain information about the account.
►Account information. This includes the amount of the outstanding principal, current interest rate, the date when the interest rate may change, the existence of a prepayment penalty, and a website address to access either the CFPB list or the Department of Housing and Urban Development list of home ownership counselors and counseling organizations and the agency’s toll-free telephone number to access those resources.
►Delinquency information if the borrower is more than 45 days delinquent. This includes the date on which the borrower became delinquent, notification of possible risks, expenses that may be incurred if the delinquency is not cured, and more.
Several of these disclosures are required to be listed either at the top of the first page or somewhere on the first page of the periodic statement.
NEXT: Coupon book exemption
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.