Written by Shereefat Balogun, Regulatory Compliance Counsel
On August 4, 2016, the CFPB amended its mortgage servicing requirements. Since then, NAFCU has been combing through and analyzing the 900+ page rule to help our members better understand the changes and new requirements. We have already blogged on the changes relating to Successors in Interest, Force-Placed Insurance, and Loss Mitigation. Today, we will highlight some of the notable changes made to the periodic statement requirements under Regulation Z’s servicing provisions.
Before getting into the specifics though, here are some resources from the CFPB that break down the final rule to make it easier to digest:
- Here’s a link to the Final Rule. This final regulation includes the preamble with rulemaking background, and a section-by section analysis with the provisions of the final rule and public comments.
- There’s a 9-page summary of the major changes which gives a high-level discussion of the major provisions of the rule. View the overview here.
- The actual amended rule with model forms and commentary (and 100+ pages), can be found here.
Moving on…the final rule makes several significant changes to the periodic statement requirements under Regulation Z, including:
Clarifies certain periodic statement disclosure requirements relating to mortgage loans that have been accelerated, have been permanently modified, or are in temporary loss mitigation programs (12 C.F.R. Part 1026, comment 1026.41(d)(1)). Section 1026.41(d)(1)(iii) provides that the periodic statement required by §1026.41(d) must include the amount due. The CFPB added commentary to clarify that:
- If the balance of a mortgage loan has been accelerated but the servicer has agreed to accept a lesser amount to reinstate the loan, the servicer MUST disclose the LESSER amount, i.e. the reinstatement amount, on the periodic statement; not the entire accelerated balance. In the preamble, the CFPB reasoned that displaying the lesser amount rather than the full accelerated balance would make the consumer more likely to pay the reinstatement amount, thereby preventing foreclosure. The CFPB further explained that having the full acceleration amount on the periodic statement will cause confusion, particularly if the consumer was told previously that he/she was only required to pay a lesser reinstatement amount.
- If the loan contract has been permanently modified, the servicer MUST disclose the amount due under the modified loan contract; not the pre-modified amount.
- If the consumer has agreed to a temporary loss mitigation program, the servicer MAY disclose either: (i) the payment due under the temporary loss mitigation program; or (ii) the amount due according to the original loan contract.
Requires servicers to send periodic statements to borrowers in bankruptcy or who have discharged the loan, subject to a limited exemption (12 C.F.R. §1026.41(e)(5)). Currently, §1026.41(e)(5) provides a blanket exemption from the requirement to send a periodic statement if a consumer is in bankruptcy or has discharged a mortgage loan through bankruptcy. The final rule changes that, and now generally requires servicers to send periodic statements to borrowers, unless otherwise exempted. Section 1026.41(f) of the final rule requires servicers to send modified statements to certain borrowers in bankruptcy or who have discharged the loan. The content of the statement will vary depending on whether the borrower is in bankruptcy under Chapter 12 or 13. These changes were driven by a general concern that borrowers in bankruptcy often lack important information about their mortgage loan account if a servicer does not send the periodic statement. Here are some takeaways:
- The final rule limits the circumstances in which a servicer is exempted from providing a periodic statement. Under the final rule, a servicer is exempted from providing the periodic statement if a two-prong test is satisfied. A servicer is not required to provide a periodic statement if: (1) any borrower on the loan is a debtor in bankruptcy or has discharged personal liability for the mortgage loan through bankruptcy; and (2) any of the following occurs: (i) the borrower requests in writing that the servicer cease providing a periodic statement; (ii) the borrower’s bankruptcy plan provides that the borrower 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; (iii) the bankruptcy court order provides for the avoidance of the lien, lifts the automatic stay, or requires the servicer to stop providing statements; or (iv) the borrower 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.
- The final rule applies the exemption at the loan level. Thus, a servicer is exempt with respect to all consumers on a mortgage loan if the exemption criteria are met with respect to any borrower on the loan.
- Servicers are required to provide modified periodic statements for certain borrowers in bankruptcy. Section 1026.41(f) lays out certain omissions and additions for these modified statements. For example, the statement may omit information about late payment fees, certain delinquency information, and the notice of whether the servicer has issued the first notice or filing for foreclosure. On the other hand, the periodic statement must include a statement identifying the borrower’s status as a borrower or the discharged status of the loan, as well as a statement that the periodic statement is for informational purposes only. There are additional provisions relating to borrowers in bankruptcy under Chapter 12 or 13. For example, these periodic statements may omit the information regarding delinquency. Similarly, there are certain required additions as well. For example, the statement must show all the payments received since the last statement, as well as all charges the servicer has imposed since the last statement. Additionally, these periodic statement must disclose a statement that, as applicable: (i) the amount due includes only post-petition payments and no other payments due under the bankruptcy plan; (ii) the borrower should send post-petition payments to the trustee, and not the servicer, if the borrower’s plan so requires; (iii) the information disclosed on the periodic statement may not include payments the borrower made to the trustee, and may be inconsistent with the trustee’s records; (iv) encourages the borrower to contact his/her attorney or trustee with questions; and (v) if the borrower is more than 45 days delinquent on post-petition payments, the servicer has not received all payments that became due since the bankruptcy filing.
Exempts servicers from sending periodic statements if the loan is charged off, provided the servicer meets certain conditions (12 C.F.R. §1026.41(e)(6)). The final rule exempts servicers from the periodic statement requirements of §1026.41 for charged-off loans if: (i) the servicer will not charge additional fees or interest on the account; and (ii) the servicer provides a final periodic statement, clearly and conspicuously labeled “Suspension of Statement & Notice of Charge Off- Retain This Copy for Your Records.” This final periodic statement must contain certain disclosures, including statements that the loan has been charged off, the servicer will not impose new fees or interest, the lien on the property remains in place and that the borrower is liable for the loan and related obligations such as taxes, and that the lien is not being cancelled or forgiven. In the preamble, the CFPB stated that these disclosures were important to help borrowers better understand the meaning and consequence of charge-off, including the borrower’s ongoing payment obligations. Also, the Bureau concluded that this final statement will provide important consumer protections while easing the burden for servicers associated with providing ongoing periodic statements.
Provides sample periodic statement forms. The final rule provides sample forms that servicers may use for borrowers in bankruptcy to ensure compliance with the requirements under §1026.41.
Rule’s Effective Date: The changes regarding the bankruptcy periodic statement exemption and modified statements for borrowers in bankruptcy are effective 18 months after publication in the Federal Register, and the other periodic statement changes are effective 12 months after publication in the Federal Register. And yes, we’re still waiting for the rule to be published. Not there yet!
In the meantime, while preparing for the new compliance requirements, credit unions may want to consider reviewing their policies and procedures to make sure they reflect the new servicing requirements.
As always, if you have any questions relating to this article or any other issues concerning the amended mortgage servicing rules, please contact NAFCU’s regulatory compliance team. We’re here for you!