aldrich & bonnefin · this presentation is intended solely for educational purposes to provide...

Aldrich &

Bonnefin

Mortgage Loan Servicing (For the Small Servicer)

Robert K. Olsen

Principal

Aldrich & Bonnefin, PLC

This presentation is intended solely for educational purposes to provide you general information about laws and regulations and not to provide legal advice. There is no attorney-client relationship intended or formed between you and the presenters or you and the authors of these materials. Consult your institution’s legal counsel for advice about how this information impacts your institution.

Disclaimer

• Who is a “Small Servicer”

• ARM Rate & Payment Change Notices

• Fair Debt Collection Practices Act

• Fair Credit Reporting Act

• Servicemembers Civil Relief Act

• Cancellation of PMI

• RESPA/Reg X Mortgage Servicing Requirements

• CFPB Expectations for Managing Service Providers

Agenda

Who is a “Small” Servicer

Outline Page

• Small servicer defined:

– A servicer who is a Housing Finance

Agency or

– A servicer who is below the “5,000

Threshold”

Who is a “Small” Servicer

1

Outline Page

• Servicer services (together w/any

affiliates) no more than 5,000

mortgage loans AND

• Servicer (or affiliate) is the creditor or

assignee of all of those mortgage

loans

“5,000 Threshold”

1

Outline Page

•Mortgage loans to be considered:

– Closed-end consumer credit transactions

secured by a dwelling

•Mortgage loans not to be considered:

– Loans serviced voluntarily and for free

– Reverse mortgages

– Timeshare plans

“5,000 Threshold”

1

Outline Page

• Based on mortgage loans

• Serviced by the servicer and any

affiliates

•As of January 1 for the remainder of

the calendar year

Small Servicer Determination

2

Outline Page

• If servicer ceases to qualify

– It must comply with any previously exempt

requirements beginning as of

• Six months or

• The next January 1

Whichever is earlier

Small Servicer Determination

2

Outline Page

• Servicer not eligible for small servicer

exemption if:

– It services any mortgage loan the servicer

or its affiliate:

• Did not originate; OR

• Does not own.

– It does not matter if the servicer services ≤

5,000 loans overall

Small Servicer Eligibility

2

Outline Page

• Touch the Mountain Tops

• Leave the Valleys for Later

Purpose of this Talk

2

ARM Rate & Payment

Change Notices

Outline Page

•ARMs originated before and after

January 10, 2014

• Servicers not required to comply until

January 10, 2014

Effective Date

2

Outline Pages

•Closed-end, variable-rate loans

• Secured by a consumer’s principal

dwelling

•With a term greater than one year

Small servicers are not exempt!

Coverage

2-3

Outline Page

•General rule

– Provide when interest rate adjusts for the

first time

– Initial Rate Adjustment Notice

Initial Rate

Adjustment Notice

3

Outline Page

• Timing

– 210 to 240 days before the first payment

at the adjusted level is due

– Special rule if first payment due within 210

days of consummation

• Provide notice at consummation

•Contents

– Refer to Sample Forms H-4(D)(3) and

H-4(D)(4)

Initial Rate

Adjustment Notice

3

Outline Page

•Applies to any rate and payment

adjustment that occurs after the initial

rate adjustment

Payment Change Notice

3

Outline Page

• Timing

– 60 to 120 days before first payment at

adjusted level is due

•Contents

– Refer to Sample Form H-4(D)(1) and

H-4(D)(2)

Payment Change Notice

4

Outline Page

•Not required if Initial Rate Adjustment

Notice:

– Is given at consummation and

– Was not an estimate

Payment Change Notice

4

Fair Debt Collection

Practices Act

Outline Page

• Back on regulators’ radar

•Deceptive and unfair debt collection

practices prohibited

– Federal FDCPA – Applies to persons who

collect debts on another’s behalf

– Cal. FDCPA – Applies to any person who

engages in debt collection on behalf of:

• Himself/herself or

• Others

Fair Debt Collection

Practices Act

4

Outline Page

•No exemption for small servicers!

• If small servicers collect on their own

consumer loans:

– Covered by Cal. FDCPA and

– Most of the federal FDCPA

Fair Debt Collection

Practices Act

5

Outline Page

•CMS weaknesses

– Debt collection staff training

– Complaint management

– Lack of comprehensive compliance

audits

CFPB Supervisory Highlights

5

Outline Pages

• Reg X prohibits proceeding with

foreclosure while borrower performs

w/workout agreement

– Small servicers are not exempt

– CFPB: some servicers violated rule by

sending foreclosure notices

Violations of Loss Mitigation &

Foreclosure Processes Rules

5-6

Fair Credit Reporting Act

Outline Page

• “Furnishers” = persons who regularly

report info to consumer reporting

agencies

• FCRA Section 623 dictates how a

furnisher must respond to a dispute

Duty to Investigate Disputed

Information

6

Outline Page

•Notice from credit bureau, furnisher

must:

– Investigate

– Review all relevant info from credit

bureau

– Report results to credit bureau

Duty to Investigate Disputed

Information

6

Outline Pages

– If info is • Incomplete or

• Inaccurate – report to all other nationwide consumer reporting agencies info was furnished to

– If info is • Inaccurate

• Incomplete or

• Cannot be verified - promptly – Modify info

– Delete the item or

– Permanently block the reporting of that item

Duty to Investigate Disputed

Information

6-7

Outline Page

•Notice from consumer directly

– Similar steps to responding to notice from

credit bureau required

Duty to Investigate Disputed

Information

7

Outline Pages

•CFPB Bulletin 2013-09

– Sets forth Bureau’s expectations

– Mainly repeats duties just discussed

•CFPB Bulletin 2014-01

– Reasonable investigation required

– Cannot simply tell credit bureau to delete

inform

– Exposure of “systemic problems”

CFPB Bulletins Address FCRA

Investigation Duties

7-8

Servicemembers Civil Relief Act

Outline Page

• Former foreclosure protection

– Active duty + 90 days

•Current foreclosure protections

– Active duty + 12 months

– Set to expire 12/31/2014

– Dec. 2014 Act extended to 12/31/2015

•Come 12/31/2015, back to active

duty + 90 days

Foreclosure Relief and Extension

of Servicemembers Act

8

Outline Page

• Foreclosure Relief Act made changes

•HUD updated in late December 2014

HUD SCRA Notice Disclosure

8

Outline Pages

• Bank of America, N.A.

• Security National Automotive

Acceptance Company

Recent SCRA Enforcement

Actions

9-10

Cancellation of

Private Mortgage Insurance

Outline Page

• Requires servicers to cancel PMI

– Upon request and

– Automatically terminate PMI

• Based on specified LTV ratios

•Applies to residential mortgage made

on or after July 29, 1999

Homeowners Protection

Act of 1998

10

Outline Page

•Outlines HPA provisions

– Borrower-requested PMI cancellation

(80% LTV)

– Automatic PMI termination (78% LTV)

– Final PMI termination

– PMI refunds

– Annual PMI disclosures

CFPB Bulletin 2015-03

10

Outline Page

• Provides HPA noncompliance

examples

– Final termination requirements began to

impact standard 30-year loans in August

2014

– Reminder to have appropriate P&P in

place to comply with final termination

reqs

CFPB Bulletin 2015-03

11

RESPA/Regulation X Mortgage

Servicing Requirements

Outline Page

• Same small servicer exemption under

RESPA/Regulation X

Small Servicer Exemption

11

Outline Page

• Entirely exempt from:

– General servicing policies, procedures

and requirements (§1024.38)

– Early intervention provisions (§1024.39)

– Continuity of contact provisions (§1024.40)

Small Servicer Exemption

11

Outline Pages

• Exempt from only one of the force-

placed insurance provisions (we’ll

discuss this later)

• Exempt from the loss mitigation

provisions, with one exception (we’ll

discuss this later too)

Small Servicer Exemption

11-12

Mortgage Servicing Transfers

Outline Page

• Federally related mortgage loans

subject to RESPA

• Secured by first liens

•HELOCs not covered

•NO small servicer exemption

Coverage

12

Outline Page

•Condition #1: All of these must remain

the same

– Payee

– Payment address

– Account number

– Payment amount

Exempt Transfers

12

Outline Page

•Condition #2: The transfer must be

one of the following:

– Between affiliates

– Product of merger or acquisition

– Between master servicers

Exempt Transfers

12

Outline Page

• Send notice of transfer of loan

servicing

• Proper treatment of payments during

the 60-day transfer of servicing period

Two Basic Requirements

13

Outline Page

•General rule

– Transferor and transferee servicer

– Each provide a notice of transfer

– Any assignment, sale or transfer of the

servicing

Notice of Transfer of Loan

Servicing

13

Outline Page

• Timing

– Goodbye notice

• Provided at settlement or

• Not less than 15 days before the effective date

of the transfer

Notice of Transfer of Loan

Servicing

13

Outline Page

• Timing (cont’d)

– Hello notice

• No more than 15 days after the effective date

of the transfer

– Single notice

• Not less than 15 days before the effective date

of the transfer

Notice of Transfer of Loan

Servicing

13

Outline Page

•Contents

– Refer to Reg X Appendix MS-2

Notice of Transfer of Loan

Servicing

13

Outline Page

• Treatment of payments during 60-day

transfer of servicing period

– Late fees prohibited

– Transferor must transfer or return payments

•CFPB Bulletin 2014-01

Notice of Transfer of Loan

Servicing

14

General Escrow

Administration Rules

Outline Page

• Servicers may require

– Monthly payment of 1/12 of expected

annual escrow disbursements

– Plus, 2-month cushion

Limits on Escrowed Accounts

14

Outline Page

•Must be performed

– At loan origination and

– Annually thereafter

•Only aggregate analysis method of

accounting may be used

Escrow Analysis

15

Outline Page

•Must give borrower certain amounts

of time to repay deficiencies or

shortages

• Surpluses over $50 must be refunded

• Required escrow accounting

statements

Additional Escrow Requirements

15

Timely Escrow Payments and

Treatment of Escrow Balances

Outline Page

•Must make payments

– On or before deadline

– To avoid a penalty

Timely Escrow Disbursements

Required

15

Outline Pages

•When borrower pays mortgage in full

• Servicer must

– Refund the escrow balance

– Within 20 days of payment in full

•May net any escrow funds against

borrower’s outstanding balance (but

first review legal docs)

Refund of Escrow Balance

15-16

Error Resolution Procedures

Outline Page

• Federally related mortgage loans

subject to RESPA

•Not HELOCs

• Small servicers are not exempt

Coverage

16

Outline Page

•When a servicer receives a notice of

error, it must:

– Acknowledge the notice

– Respond to the notice

General Rule

16

Outline Page

• Timing

– Within 5 days

– In writing

Acknowledge the

Notice of Error

16

Outline Page

•Option #1

– Correct the error and

– Provide written notification of the

correction

•Option #2

– Conduct an investigation and

– Provide written notification that no error

occurred

Respond to the

Notice of Error

16

Outline Pages

•Any written notice from the borrower

• That includes:

– Borrower’s name and

– Information that enables the servicer to

identify the consumer’s mortgage loan

account and

•Asserts a specified error

“Notice of Error”

17-19

Outline Page

•What is considered a notice of error

– A QWR that asserts an error relating to

mortgage servicing

•What is not considered a notice of

error:

– Notice on a payment coupon or

– Notice on other payment form supplied

by the service

Examples of Notice of Error

19

Outline Page

•May establish an address for

submission of notice of errors

• Requires written notice to borrower of

established address

Designation of an Address for

Notice of Error

19

Outline Page

• Failed to provide an accurate payoff

balance amount – 7 days

• If servicer has violated certain provisions

relating to loss mitigation procedures,

respond prior to the earlier of

– Date of the foreclosure sale or

– Within 30 days of receiving the notice of error

• All other errors – within 30 days of

receiving the notice (may be extended)

Timing for Responding to

Notice of Error

20

Outline Page

•When asserted error is duplicative

•When notice is so overbroad

•Notice received more than one year

after:

– Servicing transferred to another servicer or

– Loan has been discharged

Exceptions

20

Requests for Information

Outline Page

• Federally related mortgage loans

subject to RESPA

•HELOCs not covered

• Small servicers are not exempt

Coverage

21

Outline Page

•Must be in writing

• That includes

– Borrower’s name and

– Information that enables the servicer to

identify the mortgage loan account

•And states the requested information

“Request for Information”

21

Outline Page

•Does not include

– A request on a payment coupon

– Request for a payoff balance

“Requests for Information”

21

Outline Page

•Acknowledge the request

– Within 5 days

– In writing

Requests for Information

22

Outline Page

• Respond to the request

– Option #1: Provide

• Requested information and

• Servicer’s contact information

Requests for Information

22

Outline Page

• Respond to the request (cont’d)

– Option #2

• Conduct a reasonable search and

• Provide written notification stating

– Information is not available to servicer

– Basis for determination and

– Servicer’s contact information

Requests for Information

22

Outline Page

• Timing for responding to the request

– Within 10 days if request asks for:

• Owner or assignee’s identity or

• Owner or assignee’s address or other relevant

contact information

– Within 30 days – all other requests

• May be extended

Requests for Information

23

Outline Pages

• Exempt requests

– The information requested is:

• Duplicative

• Confidential, proprietary or privileged

information or

• Irrelevant

– The request is:

• Overbroad

• Unduly burdensome or

• Untimely

Requests for Information

23-24

Force-placed Insurance

Outline Page

• Federally related mortgage loans

subject to RESPA

•HELOCs not covered

• Small servicers are subject to force-

placed insurance requirements

– Except for one requirement

Coverage

24

Outline Page

•Hazard insurance

•Obtained by the servicer

•On behalf of the owner or assignee

• Insures the property securing the loan

“Force-placed Insurance”

24

Outline Pages

• Flood insurance required by FDPA;

• For borrowers with escrow accounts

for hazard insurance, hazard

insurance:

– Borrower obtains, but

– Servicer renews:

• As required under the escrow account rules

(discussed later) or

• At its discretion, if the borrower agrees

What is Not Considered

Force-Placed Insurance

24-25

Outline Pages

•Depends on whether

– Escrow account has not been established

OR

– Escrow account has been established

Charging for Force-placed

Insurance

25-27

Outline Page

• In order to charge for force-placed

insurance:

– Servicer must have “reasonable basis to

believe”

– That borrower has failed to maintain

required hazard insurance

When Escrow Account Not

Established

25

Outline Pages

• “Reasonable basis to believe”

– Send 45-Day Notice

– Send Reminder Notice

– By the end of the 15-day period set forth

in the Reminder Notice, servicer has not

received evidence that borrower has had

hazard insurance in place continuously

– Then servicer MAY force place insurance

When Escrow Account Not

Established

25-26

Outline Pages

• 45-Day Notice

• Reminder Notice

•Waiting Period

• PLUS special escrow account rule. . .

Escrow Account Is Established

26-27

Outline Pages

• If

– Borrower’s mortgage payment is +30 days

overdue

– Servicer is unable to disburse funds from

escrow account

• This means the servicer must have a

reasonable basis to believe

– Hazard insurance cancelled for reasons other than

nonpayment or

– Borrower’s property is vacant

Special Escrow Account Rule

26-27

Outline Page

•What this means

– Unable to disburse funds ≠ insufficient

funds

– Servicer will have to advance funds

• May add this cost to escrow balance or

• Otherwise seek reimbursement

Special Escrow Account Rule

27

Outline Pages

• If loan has escrow account for hazard insurance premiums: – Mortgage loan obligation is >30 days

overdue and

– Cost of force-placed insurance < amount servicer would need to disburse to cover borrower’s hazard insurance premium

• Then small servicer may: – Force place insurance and

– Charge borrower for the cost of force-placed insurance

Partial Small Servicer Exemption

27-28

Outline Page

•Additional requirements exist for

– Renewing or

– Replacing force-placed insurance

Renewing or Replacing

Force-placed Insurance

28

Prohibition on

Foreclosure Referral

Outline Page

• Federally related mortgage loans

subject to RESPA

•Not HELOCs or reverse mortgages

Coverage

28

Outline Page

• Exempt from the loss mitigation

requirements

• Except for the following . . .

Small Servicers

28

Outline Page

• Small servicers may not initiate the

foreclosure process unless:

– Mortgage is >120 days delinquent

– Foreclosure based on a borrower’s

violation of a due-on-sale clause or

– Joining the foreclosure action of a

subordinate lienholder

Prohibition on

Foreclosure Referral

28

Outline Page

•No dual-tracking

• If borrower is performing under a loss

mitigation agreement, servicer may

not:

– Initiate foreclosure process

– Move for foreclosure judgment or order of

sale or

– Conduct a foreclosure sale

Prohibition on

Foreclosure Referral

28

Suppose You Outsource:

CFPB Expectations for

Managing Servicer Providers

Outline Page

• Ensuring servicer provider

– Understands and is able to comply with

federal consumer financial laws

– Gives adequate employee training

– Maintains adequate oversight

CFPB Expectations for

Outsourcing

29

Outline Pages

•Using contract terms that provide:

– Clear expectations for compliance

– Appropriate, enforceable consequences

for compliance deficiencies

– Monitoring third party’s performance

– Taking prompt action to remedy any

problems uncovered through monitoring

• Includes relationship termination, if appropriate

CFPB Expectations for

Outsourcing

29-30

Robert K. Olsen, Esq.

Principal

Aldrich & Bonnefin, PLC

949-474-1944

ROlsen@ABLawyers.com

Contact Information