CFPB Final Amendments to Mortgage Servicing Rules April

CFPB Final Amendments to Mortgage Servicing Rules April 4, 2017 Presented by: John R. Chiles, Esq.

Timeline October 19, 2016 October 19, 2017 April 19, 2018 CFPB Final Mortgage Servicing Rule Amendments were Published in the Federal Register Most provisions become effective Provisions related to successors in interest and periodic statements for borrowers in bankruptcy become effective

Successors In Interest • Successors in interest are a broad class of transferees and receive all protections in the rules. Ø Confirmed successors in interest are “borrowers” and “consumers” entitled to the protections of the servicing rules in Regulation Z and in subpart C (Mortgage Servicing) and 12 C. F. R. § 1024. 17 (Escrow Accounts) of Regulation X. • Successors in interest include persons who receive an ownership interest in the property securing the mortgage by: Ø (i) devise or descent, or by inheritance from a deceased relative; Ø (ii) right of survivorship from a deceased joint tenant; Ø (iii) transfer from a spouse or parent; Ø (iv) transfer incident to a divorce, legal separation, and/or property settlement; and Ø (v) transfer into an inter vivos trust for the benefit of the successor in interest • To confirm a person’s status as successor in interest, the servicer must: Ø Act promptly to communicate with a possible successor in interest who contacts the servicer Ø Provide a written list of information the servicer reasonably needs to confirm the person’s status Ø Confirm the person’s status Ø Have policies and procedures to facilitate compliance with these requirements NOTE: A servicer does not have to proactively search for or solicit possible successors in interest

Successors In Interest • • Servicers must consider a confirmed successor’s application for loss mitigation. Ø A servicer may not condition its loss mitigation application on a confirmed successor’s assumption of the loan, but may condition a modification on the confirmed successor’s assumption. If the servicer is providing the following notices to another borrower it is not required to provide duplicative notices to a confirmed successor in interest: Ø (i) escrow disclosures and statements under § 1024. 17 and 1024. 34 of Reg X; (ii) notices regarding transfer under § 1024. 33 of Reg X and § 1026. 39 of Reg Z; (iii) notices regarding forced-placed insurance under § 1024. 37 of Reg X; (iv) early intervention notices under § 1024. 39(b) or Reg X; (v) rate adjustment and escrow cancellation notices under § 1026. 20 of Reg Z; and (v) periodic statements or coupon books under § 1026. 41 of Reg Z. • Servicers may adjust the notices sent to a confirmed successor who has not assumed the loan to avoid the implication that the successor is liable to account for the FDCPA anti-harassment provisions. • A servicer may disclose nonpublic personal information related to the mortgage loan with confirmed successors in interest, but may limit the information to exclude financial, contact, or location information about other borrowers. • Regulation X’s error resolution and information requests are available to confirmed successors in interest.

Delinquency • Definition: The period of time during which a borrower and a borrower’s mortgage loan obligation are delinquent. Ø Begins the date a periodic payment (PITI) is due and unpaid, until such time as no periodic payment is due and unpaid. Ø If a servicer applies payments to the oldest outstanding periodic payment, a payment by a delinquent borrower advances the date the borrower’s delinquency began.

Loss Mitigation Requirements • A borrower is entitled to the loss mitigation procedures and protections more than once in the life of the loan. Ø Servicer must apply loss mitigation procedures a second time for borrowers who become current on payments between the borrower’s prior complete loss mitigation application and a subsequent application. Ø A transferee servicer must comply with loss mitigation procedures even if the borrower was previously evaluated by the transferor servicer. • Servicers must affirmatively prevent foreclosure judgments and/or sales while complete loss mitigation applications are pending NOTE: Servicers are not absolved of responsibility if counsel fails to follow servicer’s instructions. • Modifies an existing exception to the 120 -day prohibition on foreclosure filing to allow a servicer of a subordinate lien to join the existing foreclosure action of a superior lienholder. • A “reasonable date” for a servicer to require borrower to return documents and information needed to complete a loss mitigation application is the earlier of 30 days or the next “milestone” (the date a document would be stale, the 120 th day of the borrower’s delinquency, the 90 th day before a foreclosure sale, or the 38 th day before a foreclosure sale) NOTE: In NO CASE may the servicer provide the borrower with less than 7 days to return information.

Loss Mitigation Requirements • Servicers must notify borrowers within 5 days when loss mitigation applications are complete and provide: Ø Date the application is complete Ø A statement that review will be complete within 30 days Ø Explanation of foreclosure protections Ø A statement that additional documents may be needed • Servicers may offer a short-term repayment plan based upon an evaluation of an incomplete loss mitigation application. • Servicers are required to use reasonable diligence to obtain third party information and may not deny a borrower solely because such information is lacking unless the servicer is unable to obtain the information for a “significant period of time. ” Ø “Significant period of time” has not yet been defined. • Servicers must collect information for all loss mitigation options even if the borrower states a preference for one single option. Ø A servicer may only stop collecting information after learning that the borrower is ineligible for an option. • Servicers may suspend efforts to complete an application during short term forbearance and repayment plans, but must resume their efforts immediately if the borrower defaults or requests assistance.

Force-Placed Insurance • The Final Rule amends the model forms to account for situations when a servicer wishes to force-place insurance because the borrower has insufficient, rather than expiring or expired, hazard insurance on the property. • Also gives servicers the option to include a borrower’s mortgage loan account number on the force-placed insurance notices. • Modified language to not mislead confirmed successors in interest who have not assumed the mortgage loan obligation and not otherwise liable for it.

Live Contact Requirements • Servicers are NOT required to make live contact attempts if: Ø 1) any borrower on the loan is in bankruptcy Ø 2) servicer is covered by the FDCPA and any borrower on the loan has invoked the cease communication provisions. • When a live contact attempt is required, a “good faith effort” to establish live contact should be made no later than 36 days after each missed payment due date. Ø However, the length of delinquency and the borrower’s responsiveness are taken into account in determining whether a servicer’s efforts are in “good faith”. Ø If the borrower is in the process of loss mitigation, the servicer must not make attempts to achieve live contact.

Early Intervention Notice Requirements • Servicers must send an early intervention notice if a borrower is in bankruptcy and is more than 45 days delinquent, but must modify the notice so that it does not include a request for payment. Ø The servicer is not required to send more than one notice during the bankruptcy. • Servicers are NOT required to send the modified early intervention notice if : Ø Any borrower on the loan has filed for bankruptcy AND either 1) No loss mitigation option is available OR 2) The servicer is subject to the FDCPA and a borrower on the loan has invoked the FDCPA’s cease communication right. Ø Any borrower has invoked cease communication rights AND the servicer is subject to the FDCPA if either 1) A borrower on the loan has also filed for bankruptcy protection 2) No loss mitigation option is available. NOTE: Regular compliance must be resumed once bankruptcy is dismissed. • Servicers must provide the early intervention notice at least once every 180 days to a borrower who is 45 days or more delinquent.

Periodic Statements and Coupon Books: EXCEPTIONS • A servicer is NOT required to send periodic statements or coupon books if the consumer has filed for bankruptcy protection under any chapter AND one or more of the following occurs: Ø The customer requests the servicer to cease sending statements; Ø The bankruptcy plan provides that the consumer will surrender the home securing the loan, will avoid the lien, or otherwise does not provide for payment of pre-bankruptcy arrearage or maintenance of payments due under the loan Ø The bankruptcy court orders the lien avoided, lifts the automatic stay, or requires the servicer to stop providing statements; or Ø The consumer files a statement of intent to surrender the home securing the loan and has not made any payment on the loan after filing for bankruptcy. • A servicer need not send periodic statements or coupon books for a loan that is charged off, provided that the servicer will not impose additional fees or interest and sends a final statement to the consumer.

Sample Form of Pre-Amendment Periodic Statement

Court’s Treatment of Periodic Statements Prior to the 2016 CFPB Amendments • While Periodic Statements are mandated by the Dodd-Frank Act [Public Law 111 -203 sec. 1420, 124 Stat. 1376 (2010)13], many courts have held that the language provided in the statements were an “attempt to collect a debt, ” in violation of the automatic stay of a consumer who has filed bankruptcy: Ø Leahy- Fernandez v. Bayview Loan Servicing, LLC, 159 F. Supp. 3 d 1294, 1303 (M. D. Fla. 2016) ( holding that a Periodic Statement was a plausible attempt to collect a debt because it included the total due, a payment coupon, and said that a fee would be charged for a late payment). Ø Goodin v. Bank of Am. , N. A. , 114 F. Supp. 3 d 1197, 1205 (M. D. Fla. 2015) (same). Ø Roth v. Nationstar Mortgage, LLC, 2016 WL 3570991 (M. D. Florida July 1, 2016) (holding that because sending a periodic statement is permissive not required, a debt collector who elects to send a periodic statement regarding a discharged debt exposes itself to a lawsuit under the FDCPA). • Other courts held that a Periodic Statement was federally mandated, and as such was not an attempt to “collect a debt. ” Ø Marshall v. Deutsche Bank Nat. Trust Co. , 4: 10 CV 00754 -BRW, 2011 WL 345988, at *3 (E. D. Ark. Feb. 1, 2011), aff'd, 445 Fed. Appx. 900 (8 th Cir. 2011) (“A loan statement is. . . not a communication from a debt collector for the purposes of collecting a debt. ”) Ø Vanecek v. Discover Financial Services LLC, COCE 14023621; 2015 WL 6775633 (Fla. Cir. Ct. 2015) (holding “the monthly billing statement was not an attempt to collect a debt as a matter of law, but rather an informational disclosure whose delivery to the consumer is required by the Federal Truth in Lending Act. ”) Ø Wilson v. Seterus, Inc. , 2017 WL 1093646 (Fla. Cir. Ct. March 23, 2017) (holding “the Court finds that a monthly mortgage statement is a federally mandated informational disclosure, not an attempt to collect a debt. ”)

Bankruptcy Disclaimers in Periodic Statements • While the interim final rule exempted servicers from periodic statement requirements for borrowers while they are in bankruptcy, the Amended Final Rule sets new standards, requiring periodic statements to be sent to those consumers in bankruptcy (minus those covered by the exemptions) but making subtle changes to clarify that it is not an “attempt to collect a debt. ” • Prior to the Final Amendments, some creditors included a general bankruptcy caveat in their periodic statements stating that if the creditor was in bankruptcy, they should ignore the statement or that it was for informational purposes only: • In many cases courts held that the bankruptcy disclaimer language alone, did not shield creditors from FDCPA claims for violations of the automatic stay. Ø In re Draper, 237 B. R. 502 (M. D. Fla. 1999) (holding that creditor violated automatic stay when, with knowledge of debtor’s bankruptcy, it repeatedly sent invoices to debtor advising it of amount of its delinquency and requesting payment in that amount, notwithstanding paragraph in invoices in which creditor acknowledged debtor’s bankruptcy and stated that, in light of debtor’s petition, invoices were intended for information purposes only). Ø In re Bruce, No. 00 -50556 C-7, 2000 WL 33673773 *2 (M. D. N. C. Nov. 7, 2000)(holding that creditor violated the bankruptcy discharge when it sent debtor, who had been discharged in bankruptcy, mortgage loan statements, even though the statements acknowledged the bankruptcy and indicated that they were not demands for payment but included payment coupons).

Periodic Statements and Coupon Books • The Final Amended Rules have set forth samples of periodic statements to be sent to debtors in Chapter 7, 11, 12 & 13 Bankruptcies, making slight changes in the language in the disclaimers to avoid results such as those in the cases previously discussed. • Servicers must send modified periodic statements or coupon books to borrowers in bankruptcy who have discharged the loan, and it must include: Ø A statement identifying the consumer’s status as a debtor in bankruptcy or the discharged status of the loan, and noting that the periodic statement is provided for informational purposes only. Ø The statement may omit : Information about late payment fees, certain delinquency information, the notice of whether the servicer has issued the first notice or filing foreclosure.

Sample Form of Amended Periodic Statement for Consumer in Chapter 7 or 11 Bankruptcy Previously “Payment due date” Previously “Amount Due” Previously “Overdue Payment” Previously “Current Payment Due” Previously stating “you MUST pay this amount to bring your loan current”

Periodic Statements and Coupon Books Chapters 12 & 13 • With respect to a mortgage loan in which any consumer with primary liability is a debtor in a Chapter 12 or 13 case, additional modifications apply: Ø The periodic statement or coupon book may omit all delinquency information. Ø Amount Due on statement or coupon book may be limited to: (i) Date and amount of the post-petition payment due and any post-petition fees and charges (ii) Explanation of Amount Due on statement (or coupon book) to 1)Monthly post-petition amount (including a breakdown of principal interest, and escrow); 2) Post-petition charges imposed since the last statement; and 3) Any post-petition past due amount.

Periodic Statements and Coupon Books Chapters 12 & 13 Ø Transaction Activity on statement MUST INCLUDE: (i) All post-petition payments (ii) All pre-petition payments (iii) Payments of post-petition fees and charges (iv) Post-petition fees and charges the services has imposed since last statement Ø Servicer MUST disclose pre-petition arrearage for the: (i) Total of all pre-petition payments received since last statement (ii) Total of all pre-petition payments received since beginning of the consumer’s bankruptcy case (iii) current balance of the consumer’s pre-petition arrearage.

Periodic Statements and Coupon Books Chapters 12 & 13 • Statement or coupon book MUST include, as applicable: Ø A statement that the amount due includes only post-petition payments and does not include other payments that may be due under the terms of the consumer’s bankruptcy plan; Ø A statement that the consumer should make the payments to the trustee if the consumer’s plan so requires; Ø A statement that the information disclosed may be inconsistent with the trustee’s records and may not reflect payments made to the trustee;

Periodic Statements and Coupon Books Chapters 12 & 13 Ø A statement that encourages the consumer to contact her attorney or trustee with questions; Ø A statement that if the customer is more than 45 days delinquent on post-petition payments. The servicer has not received all the payments that became due since the bankruptcy filing.

Sample Form of Periodic Statement for Consumer in Chapter 12 or 13 Bankruptcy This message does not appear in the nonbankruptcy version of the periodic statement This summary does not appear in the nonbankruptcy version of the periodic statement

Periodic Statements and Coupon Books: Other Requirements • For consumers in temporary loss mitigation programs, the periodic statement or coupon book must show payments according to the loan contract. • For consumers in permanent loss mitigation programs, the services should show payments according to the permanent loss mitigation program. • If a mortgage has been accelerated but the servicer will accept a lesser amount to reinstate the loan, the periodic statement must show only the lesser amount the servicer will accept to reinstate the loan.

Servicing Transfers • Transferee servicers must meet all of the deadlines and requirements for loss mitigation under Regulation X based on the date the application was received by the transferor service. • Transferee servicer who receives a loan with a complete loss mitigation application pending as of the transfer date must evaluate the borrower for loss mitigation within 30 days of the transfer date. Ø If application is incomplete, transferor servicer must use reasonable diligence to obtain any information that is not in the borrower’s control and that is needed to evaluate the application. • Transferee servicer must allow a borrower to accept a loss mitigation option that was pending as of the transfer date (if unexpired). • Acknowledgment period is extended to 10 days.

Servicing Transfers • Transferee must make a determination on appeal if it is able to within the later of 30 days of the transfer date or 30 days of the appeal date – if it is not able to do so, it must treat the appeal as a pending complete loss mitigation application. • If the acknowledgement period has not expired as of the transfer date and transferor servicer has not provided the notice, the transferee servicer must send the acknowledgement notice within 10 days of the transfer date. • Transferee servicer may not make the first notice of filing foreclosure until after the date disclosed to the borrower for submitting the documents the transferee servicer requires for a complete loss mitigation application.

Small Servicers Exemptions • Servicers of 5, 000 or fewer loans for all which the servicer (or an affiliate) is the creditor or assignee. Ø Are exempt from certain mortgage servicing requirements. • Excludes: Ø Certain seller-financed transactions Ø Mortgage loans voluntarily serviced for a non-affiliate • Final Rule permits small servicers to maintain their status if they service transactions to seller financers for only one property in any 12 month period for the purchase of a property that they own, so long as they did not construct a residence on the property in the ordinary course of business and the financing meets certain restrictions.

Questions? John R. Chiles, Esq. (954) 414 -6203 jchiles@burr. com