Proposed CFPB Rule Changes: Clarifications, Additional Requirements, and where Small Loan Servicers Fit
The Consumer Finance Protection Bureau (“the Bureau”) has proposed new regulations to clarify a number of issues that the Bureau felt remain unresolved under existing rules. The new rules are voluminous and address loss mitigation, small servicer definitions, and service transfer deadlines. You should contact our office if you have questions about how the rules may apply to you. In the meantime here are some highlights:
Clarifications:
- Servicers may set a reasonable date by which borrowers must return loss mitigation documents to complete applications;
- If an application is incomplete a servicer may propose a short term repayment plan in the interim;
- Servicer may stop collecting payments and documents after confirming a borrower is not eligible for loss mitigation;
- Servicer with a junior interest may join in a senior’s foreclosure, even if the borrower is not 120 days delinquent, or even if the junior would otherwise be barred from foreclosure;
- In the event of an involuntary service transfer, the transferee (new servicer) may take an additional 15 days from the transfer date to provide an acknowledgement notice.
Additional Requirements:
- Servicers must notify a borrower in writing when a loss mitigation application is complete;
- If Information from a third party is missing from a loss mitigation application 30 days after the receipt of an otherwise complete, the servicer must send the borrower written notice and a complete evaluation upon receipt;
- In the event of a voluntary service transfer, the transferee (new servicer) must complete review of a complete loss mitigation application within 30 days of its original receipt.
Small Servicers: The CFPB is also seeking comment on an expansion of the definition of a small servicer. Currently under 12 CFR 1024.41(4)(ii)(A) a small servicer includes a lending institution that services 5000 or fewer mortgage loans. Under 12CFR 1024.41(4)(iii) reverse mortgages, timeshares, and voluntarily serviced loans for which no fees or compensation are received have been excluded from this count. The proposed change would further exclude seller financed loans, when the seller financer sells only one property per year. It would be rare in any case under 12 CFR 1024(2)(b) for a seller financer to be subject to federal regulations, because in order to be considered a “creditor” a seller financer would have to loan more than one million dollars in residential mortgages. However, the Bureau has been concerned that were an otherwise small servicer to undertake the servicing of a single seller financed loan, they would be subjecting themselves to broader regulations for their entire portfolio of loans.