With the ability-to-repay rule and qualified mortgage rule release just a week ago, on Jan. 10, the Consumer Financial Protection Bureau has now released an additional set of rules for mortgage servicing. And, while the rule is less accommodating than the qualified mortgage rule, community banks were again given special treatment.
Mortgage servicers must now follow the CFPB’s timetable when pursuing foreclosure. For instance, the rule requires a servicer to wait for a minimum of four months after a loan is delinquent before initiating the foreclosure process. The rule also bans “dual tracking,” a practice in which the servicer pursues both a modification with the borrower and foreclosure at the same time.
Force-placed insurance also has been restricted. A servicer cannot charge for force-placed insurance unless it has given the borrower at least 45 days of notice, prior to the premium’s due date. The servicer must again send notice at least 15 days prior to charging any fee. And, if the borrower purchases their own hazard insurance, the servicer must cancel any force-placed insurance within 15 days and refund all premiums.
Servicers and investors are required to collaborate on delinquent loans. The servicer must check with the owning investor to confirm the loss mitigation options to offer the borrower. The borrower must be offered all options allowed by the investor and the servicers cannot steer borrowers to options most favorable to the servicer.
New disclosures are now required. While some are already common practice, the CFPB will begin to require much more detail and timeliness. For example:
- Borrowers must receive an adjustable-rate mortgage notice between 210 and 240 days before the first rate-adjustment payment is due. They also must receive notice between 60 and 120 days before a payment is due that has been adjusted because of an interest rate change.
- Servicers also must credit payments on the day of receipt.
While there were a handful of exemptions for community banks, only one was clearly stated in the rule. Exempt community banks, those which service less than 5,000 mortgage loans, may purchase force-placed insurance and they may also charge the cost of that insurance to the borrower without the notification requirement. However, the community bank can only do so if the borrower’s payment is less than the amount the bank would need to remove from the borrower’s escrow account to pay the premium.
Like the QM rule, the new servicing rules become effective Jan. 10, 2014.
More information is available through the CFPB press release.