More on the CFPB's Mortgage Servicing Proposals - RESPA (Part 1 of 2)

Written by Steve Van Beek

Yesterday, we looked at the first three proposed changes coming from the CFPB's mortgage servicing proposals.  Those three changes will amend Regulation Z (TILA).  There are also six proposed changes that will change Regulation X (RESPA).  This blog post will cover those first three RESPA changes and includes links to the preamble, regulatory text, official staff commentary and any model forms.

Note:  Of course, when we say "nine proposed changes" it is with regard to the major issues.  As with any proposed regulation, there will be numerous "smaller", technical changes that credit unions will need to review, analyze and implement.  As I like to say, the regulatory burden is in the details.  

Regulation X (RESPA)

(4) Force-placed insurance (RESPA proposal):  As required by the Dodd-Frank Act, servicers would not be permitted to charge a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices.  One notice to the borrower would be required at least 45 days before charging for forced-place insurance coverage, and a second notice would be required no earlier than 30 days after the first notice.  The proposal contains model forms that servicers could use.  If a borrower provides proof of hazard insurance coverage, then the servicer would be required to cancel any force-placed insurance policy and refund any premiums paid for periods in which the borrower’s policy was in place. In addition, if a servicer makes payments for hazard insurance from a borrower’s escrow account, a servicer would be required to continue those payments rather than force-placing a separate policy, even if there is insufficient money in the escrow account.  The rule would also provide that charges related to forced place insurance (other than those subject to State regulation as the business of insurance or authorized by federal law for flood insurance) must relate to a service that was actually performed.  Additionally, such charges would have to bear a reasonable relationship to the servicer’s cost of providing the service.

• Preamble to Force-Placed Insurance
• Proposed Regulatory Text for Force-Placed Insurance
• Proposed Official Staff Commentary for Force-Placed Insurance 
• Proposed Model Forms for Force-Placed Insurance

(5) Error resolution and information requests (RESPA proposal):  Pursuant to the Dodd-Frank Act, servicers would be required to meet certain procedural requirements for responding to information requests or complaints of errors.  The proposal defines specific types of claims which constitute an error, such as a claim that the servicer misapplied a payment or assessed an improper fee.  A borrower could assert an error either orally or in writing.  Servicers could designate a specific phone number and address for borrowers to use.  Servicers would be required to acknowledge the request or complaint within five days.  They would have to correct or respond to the borrower with the results of the investigation, generally within 30 to 45 days.  Further, servicers generally would be required to acknowledge borrower requests for information and either provide the information or explain why the information is not available within a similar amount of time.  A servicer would not be required to delay a scheduled foreclosure sale to consider a notice of error unless the error relates to the servicer’s improperly proceeding with a foreclosure sale during a borrower’s evaluation for alternatives to foreclosure.  

• Preamble for Error Resolution and Information Requests
• Proposed Regulatory Text for Error Resolution and Information Requests
• Official Staff Commentary for Error Resolution and Information Requests

(6) Information management policies and procedures (RESPA proposal):  Servicers would be required to establish reasonable information management policies and procedures.  The reasonableness of a servicer’s policies and procedures would take into account the servicer’s size, scope, and nature of its operations.  A servicer’s policies and procedures would satisfy the rule if the servicer regularly achieves the document retention and servicing file requirements, as well as certain objectives specified in the rule.  Examples of such objectives include providing accurate and timely information to borrowers and the courts or enabling service personnel to have prompt access to documents and information submitted in connection with loss mitigation applications.  In addition, a servicer must retain records relating to each mortgage until one year after the mortgage is discharged or servicing is transferred and must create a mortgage servicing file for each loan containing certain specified documents and information.

• Preamble for Information Management Policies & Procedures
• Proposed Regulatory Text for Information Management Policies & Procedures
• Proposed Official Staff Commentary for Information Management Policies & Procedures

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Comments

[WIlliam Tasker]

Do these changes pertain to Home Equity Loans and Lines of Credit?

[Steve Van Beek]

William,
Generally, the proposals will apply to closed-end home equity loans. Home equity lines of credit (HELOCs) seem to be exempted for the most part. The CFPB has indicated their intention to amend the HELOC regulations in the future as well.