MBA Compliance Essentials National Servicing Standards Resource Guide


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MBA Compliance Essentials National Servicing Standars Resource Guide gives a thorough analysis of the RESPA and TILA mortgage servicing rules. Learn more here

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MBA Compliance Essentials National Servicing Standards Resource Guide

  1. 1. MBA Compliance MBA Compliance Essentials Essentials SM sm .m w w w uc ed ba CFPB’s Mortgage Servicing Rules Resource Guide io at Updated January 3, 2014 David A. Tallman Partner K&L Gates LLP Resources from the Mortgage Bankers Association 12424 13438 g Kerri M. Smith Associate K&L Gates LLP or n. Nanci L. Weissgold Partner K&L Gates LLP
  2. 2. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide DISCLAIMER Unauthorized reproduction, distribution or display of this copyrighted work is subject to criminal and civil penalties under federal law. This book is being provided with a limited license. No part of this copyrighted work may be reproduced, forwarded, or otherwise distributed, in any form or by any means, without the prior written consent of K&L Gates LLP except that Purchasers may download (print) pages for their own enterprise’s use and forward the link to the copyrighted work within Purchaser’s enterprise; provided that: (i) neither the link to the copyrighted work, nor the downloaded content, may be forwarded, reproduced, distributed, or otherwise used, in any form or by any means, outside Purchaser’s enterprise; and (ii) only with the written consent of K&L Gates LLP may the link or content be forwarded and downloaded into Purchaser’s computers, reproduced, or distributed within an enterprise in excess of ten times. w w w For permission to quote any portion of this work in a commercial publication or otherwise outside Purchaser’s company, or to download, reproduce, distribute, or display the copyrighted work in excess of ten times, please submit a written request to: ba .m Jeffrey Schummer Vice President, MBA Education Mortgage Bankers Association 1919 M Street, NW Washington, DC 20036 (202) 557-2887 © 2013 K&L Gates LLP uc ed If you would like to order additional copies of this publication or would like to inquire regarding discounts for quantity purchases, please contact MBA. io at MBA is not responsible for the content of these materials g or n.
  3. 3. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide AUTHOR BIOGRAPHIES AND INFORMATION ABOUT THE FIRM Nanci L. Weissgold Partner Washington, D.C. T 202.778.9314 F 202.778.9100 w w w uc ed ba .m Ms. Weissgold’s national regulatory compliance practice advises financial institutions and financial service providers on issues relating to mortgage lending and mortgage servicing, valuation, and other consumer lending issues. Ms. Weissgold is a frequent speaker and presenter at legal and industry conferences and webinars, and has published numerous articles and blog posts on mortgage banking, valuation, and consumer finance related topics. She served as primary outside counsel for the Women and Housing and Finance Foundation from 2007 to 2009. Ms. Weissgold sits on K&L Gates’ Hiring Committee for the firm’s Washington D.C. office. She is a past co-chair of the Women’s Attorney group for the firm’s Washington, D.C. office and a past member of the Washington, D.C. office associate committee. Ms. Weissgold received her J.D. from the American University, Washington College of Law, 1992 (Articles Editor, Administrative Law Journal), and a B.A. from the University of Massachusetts at Amherst, 1989 (summa cum laude; Phi Beta Kappa). Ms. Weissgold is peer rated in the Martindale-Hubbell® directory as AV® Preeminent, the highest level of professional excellence. io at g or n. Her representative tasks include:  Counsel clients on compliance with state and federal laws affecting lending and servicing activities, including: the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Equal Credit Opportunity Act (ECOA), the Fair Debt Collection Practices Act (FDCPA), and others;  Conduct enterprise-wide Consumer Financial Protection Bureau (CFPB) readiness review of a company’s business lines, operations, and products to assess the level of potential risks to consumers and evaluate the company’s compliance management program;  Defend administrative enforcement actions (including state government audits, single or multi-state examinations, and investigations) and assist in litigation involving regulatory compliance issues;  Advise on compliance with federal and state valuation laws, including appraisal independence requirements under TILA, Interagency Appraisal and Evaluation Guidelines, Financial Institutions Reform, Recovery and Enforcement Act, Fannie Mae and Freddie Mac Appraisal Independence Requirements, ECOA, and state appraisal management company laws, appraiser laws, and real estate broker laws;  Work with state regulators to obtain approvals, licenses or regulatory guidance;  Counsel state-chartered banks on state licensing and filing requirements to make and service residential mortgage loans and assist in obtaining necessary business registrations and permissions to establish loan production offices;  Report on state and federal foreclosures and loss mitigation requirements;
  4. 4. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide    Advise financial institutions regarding the pre- and post Dodd-Frank Act rules of federal preemption of state consumer finance laws and survey applicable state law requirements; On a 50-state basis, analyze and provide regulatory counseling, memoranda, opinions and surveys and fee charts on applicable laws impacting the origination, servicing and sale of mortgage loans and consumer loan products; and Advise secondary mortgage market participants on legal liability arising from federal and state anti-predatory and other abusive lending laws and defending state examination and enforcement actions. Partner Dallas, TX T 214.939.4946 F 214.939.5849 .m w w w David A. Tallman ba uc ed Mr. Tallman is a partner in the mortgage banking and consumer credit group. He represents a broad range of consumer financial service providers, including mortgage lenders, servicers and investors; credit card companies; student loan companies; consumer finance companies; and payments systems providers. His practice focuses on regulatory compliance matters, with an emphasis on mortgage and consumer lending issues, financial privacy and information security requirements. Mr. Tallman also advises financial and non-financial companies with respect to privacy and information security requirements and advertising/marketing issues, including under the CANSPAM Act and the Telephone Consumer Protection Act. Mr. Tallman is a Certified Information Privacy Professional. Mr. Tallman received his J.D. from the Georgetown University Law Center, 2003 (cum laude, Dean’s List) and a B.A. from Macalester College, 2000 (magna cum laude; Phi Beta Kappa). g or Associate n. io at Kerri M. Smith Washington, D.C. T 202.778.9445 F 202.778.9100 Ms. Smith concentrates her practice on federal and state regulatory compliance matters affecting consumer financial service providers. Her practice includes advising clients on compliance with federal and state laws governing the licensing and practices of financial institutions, including mortgage lenders, money service businesses, prepaid card issuers, mobile banking service providers, consumer finance companies, loan servicers, and loan originators.
  5. 5. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide She regularly counsels clients on requirements applicable to default servicing, loss mitigation, and foreclosure, and provides ongoing advice regarding the servicing requirements of Fannie Mae and Freddie Mac. Ms. Smith has also assisted investor and loan servicer clients in developing loan modification programs and related policies to address compliance with the Home Affordable Modification Program. She has advised on matters related to the federal banking agencies’ Independent Foreclosure Review process, and servicers’ involvement in the states’ Hardest Hit Fund programs. Ms. Smith received her J.D. from the Duke University School of Law, 2005 (Managing Editor, Duke Law and Technology Review), and a B.A. from Duke University, 1999 (cum laude). * * * * ba .m w w w K&L Gates LLP’s Financial Services practice area includes one of the largest and most experienced consumer financial services practices in the United States. The Consumer Financial Services group divides its work among transactional, regulatory compliance, government enforcement, licensing and approvals, public policy and governmental affairs, and litigation (including class action defense). With an exceptional depth of knowledge and experience, the group leads the way in assisting clients with navigating the complex array of federal and state laws that regulate their businesses, structuring transactions, and defending private and government actions. uc ed Our strong presence in Washington, D.C. enhances our ability to work with the various federal agencies that supervise financial service providers. Our close proximity to those agencies is particularly useful in our efforts to obtain agency approvals and defend against administrative enforcement actions. A number of our lawyers have worked at various federal and state agencies including the Department of Justice, the Department of Housing and Urban Development, and state Offices of the Attorney General, and maintain good working relationships with senior regulatory officials and key industry leaders. or n. io at Our clients represent a cross-section of the financial services industry, including traditional financial services companies (such as depository institutions, mortgage banks, consumer finance companies, loan servicers, broker dealers, investment banks, money services businesses, prepaid card issuers and sellers, and payment systems providers), as well as non-financial companies that might incidentally provide financial services to their customers (such as homebuilders, retailers, title insurers and agencies, real estate brokers, relocation service companies, and technology companies). g We also represent companies that support the consumer financial services industry, but which do not provide services directly to consumers. For example, we represent venture capital firms and hedge funds that invest in providers of consumer financial services, rating agencies, vendor and appraisal management companies, technology vendors to the financial services industry, and document preparation companies. K&L Gates LLP comprises more than 2,000 lawyers who practice in 48 offices located on five continents: Anchorage, Austin, Beijing, Berlin, Boston, Brisbane, Brussels, Charleston, Charlotte, Chicago, Dallas, Doha, Dubai, Fort Worth, Frankfurt, Harrisburg, Hong Kong, Houston, London, Los Angeles, Melbourne, Miami, Milan, Moscow, Newark, New York, Orange County, Palo Alto, Paris, Perth, Pittsburgh, Portland, Raleigh, Research Triangle Park, San Diego, San Francisco, São Paulo, Seattle, Seoul, Shanghai, Singapore, Spokane, Sydney, Taipei, Tokyo, Warsaw, Washington and Wilmington.
  6. 6. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide MBA COMPLIANCE ESSENTIAL RESOURCE GUIDE TO THE CFPB’S MORTGAGE SERVICING RULES – OUTLINE Introduction & Statutory Background II. Applicability Chart III. Policies w I. Closed-End Servicing Disclosures Payment Crediting and Payoff Statement Servicing Transfer Force-Placed Insurance Error Resolution, Information Request and QWR Policy Early Intervention Continuity of Contact Loss Mitigation Investor Reporting Recordkeeping Successor In Interest ed ba .m Internal Compliance Audit Checklists g or G. H. I. J. n. C. D. E. F. Closed-End Servicing Disclosures Policy Compliance Checklist Payment Crediting and Payoff Statement Policy Compliance Checklist Servicing Transfer Policy Compliance Checklist Force-Placed Insurance Policy Compliance Checklist Written Request Policy Compliance Checklist Early Intervention and Continuity of Contact Policy Compliance Checklists Loss Mitigation Policy Compliance Checklist Investor Reporting Policy Compliance Checklist Recordkeeping Policy Compliance Checklist Successor In Interest Compliance Checklist io at A. B. uc IV. w w A. B. C. D. E. F. G. H. I. J. K.
  7. 7. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide INTRODUCTION This Guide operationalizes the final mortgage servicing rules published by the Bureau of Consumer Financial Protection (“CFPB” or “Bureau”) that establish national standards for the mortgage servicing industry. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended the Real Estate Settlement Procedures Act (“RESPA”) of 1974 and the Truth-in-Lending Act (“TILA”) with regard to the servicing of certain residential mortgage loans. .m w w w The CFPB’s mortgage servicing rules, issued in January 2013 to implement the Dodd-Frank Act amendments, address nine major topics, some covered by the Dodd-Frank Act (e.g., force-placed insurance and payoff statements) and some promulgated under the Bureau’s discretionary authority (e.g., general servicing policies, procedures, and requirements, and early intervention with distressed borrowers). The CFPB’s amendments to Regulation X implementing RESPA and Regulation Z implementing TILA imposing new national mortgage servicing standards will become effective January 10, 2014. The mortgage servicing rules can be found, in significant part, in the Federal Register at Regulation X at 78 FR 10696 (Feb. 14, 2013) and Regulation Z at 78 FR 10902 (Feb. 14, 2013). The nine major topics included in the final rules are: Periodic Billing Statements (TILA)  Interest Rate ARM Adjustments (TILA)  Payment Crediting and Payoff (TILA)  Force-placed Insurance (RESPA)  Error Resolution & Requests for Information (RESPA)  General Servicing Policies and Procedures (RESPA)  Early Intervention (RESPA)  Continuity of Contact (RESPA)  Loss Mitigation (RESPA) uc ed ba  io at or n. All of these new requirements in Regulation X and Regulation Z can be enforced by the Bureau under its examination authority. Of those six servicing standards implementing RESPA, four of them also can be enforced by individuals in a private right of action. These new standards will have a substantial impact on the mortgage servicing industry. g This Guide outlines the significant servicing requirements applicable to mortgage loan servicers under the CFPB’s servicing rules by providing a template for implementing appropriate policies to comply with such requirements. While this Guide is intended as an implementation starting point, it only addresses the CFPB’s mortgage servicing rules; consequently, it does not incorporate investor requirements, or other related federal or state laws that may apply. Although the focus of this Guide is to address the CFPB’s mortgage servicing rules, it also reflects the topics of heightened concern to the CFPB, based on CFPB guidance. In its “Supervisory Highlights,” the CFPB has emphasized the need for loan servicers to have robust “compliance management systems” that ensure that all federal consumer financial laws are 1 followed. This Guide takes account of those compliance management expectations. The CFPB 1 CFPB Supervisory Highlights (Aug. 2013), available at
  8. 8. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide 2 has also published a bulletin on the topic of servicing transfers. For that reason, the Guide addresses servicing transfers as a separate topic. The Guide begins with an overview of the national mortgage servicing standards’ statutory background. We then provide sample policies addressing the following key aspects of the CFPB’s final rule: Disclosures (including TILA ARM notices, periodic statements) Crediting of Payments Transfer of Servicing Force-placed Insurance Complaints/Requests for Information Early Intervention and Continuity of Contact Loss Mitigation Investor Reporting Information Management and Record Retention Sucessor In Interest w w w           Finally, sample Compliance Checklists for each of the sample policies are provided. .m ba STATUTORY BACKGROUND AND THE CHANGING INDUSTRY uc ed The Dodd-Frank Act required disclosures for certain adjustable-rate mortgages as well as periodic statements for consumers’ mortgage loans. It also required prompt crediting of mortgage payments, providing payoff statements to consumers, and disclosures regarding force-placed insurance. The Dodd-Frank Act further required servicers to take action to correct certain errors asserted by borrowers regarding their mortgages and to respond to requests for certain information from borrowers regarding their mortgages. n. io at Since the Dodd-Frank Act’s enactment, the servicing industry has faced elevated scrutiny, and such scrutiny gave rise to the national mortgage settlement between the five largest servicers and state and federal regulators. Precipitating the settlement were allegations of defective default servicing, and the resulting settlement standards are quite detailed on this topic. By contrast, the Dodd-Frank Act’s TILA and RESPA amendments are silent on this issue. Instead, the Act addressed aspects of non-default mortgage servicing activity. g or The CFPB’s final mortgage servicing rules will implement the Dodd-Frank Act’s non-default related provisions noted above. In addition, the CFPB relied on its discretionary rulemaking authority to adopt default servicing standards as well. The CFPB used its discretionary authority to tackle default servicing reform by: (1) imposing a more robust operational process for tracking and storing borrower documents and information to facilitate loss mitigation efforts; (2) proposing early intervention procedures for troubled and delinquent borrowers; and (3) requiring the establishment of direct, ongoing access to staff who are dedicated to servicing troubled borrowers. Since the publication of the final mortgage servicing rules, the Bureau has amended the provisions of the rule, and may continue to issue proposed updates. For example, in April and June of 2013 the Bureau issued rules proposing to amend certain provisions of the servicing 2 CFPB Bulletin 2013-01, Mortgage Servicing Transfers (Feb. 11, 2013), available at
  9. 9. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide nd rules, among others. On July 10, 2013, the Bureau finalized the May 2 proposed rule addressing, among other topics, the smaller servicer exemption and the scope of Regulation X’s 3 nd preemption of state law. On September 13, 2013, the Bureau finalized the July 2 proposed rule addressing, among other topics, the use of a designated address for servicer complaints and 4 inquiries, and updates to the loss mitigation provisions. On October 15, 2013, the CFPB published an interim final rule and a contemporaneous compliance bulletin addressing, among other topics, the interplay between the mortgage servicing rules and other federal laws, such as 5 the Bankruptcy Code and the Federal Debt Collection Practices Act (“the FDCPA”). To the extent that the amendments have been finalized, they have been incorporated into the Guide. Otherwise, the proposed amendments have been noted in footnotes, where appropriate. w SUMMARY OF CFPB’S SERVICING REQUIREMENTS w TILA Amendments w PERIODIC BILLING STATEMENTS uc ed ba .m For closed-end consumer credit transactions secured by a dwelling, excluding reverse mortgages and timeshares, creditors, assignees, and servicers must provide a periodic statement for each billing cycle. A closed-end consumer credit transaction secured by a dwelling is referred to as a mortgage loan for purposes of the periodic billing statement requirements and the “small servicer” 6 exemption. The periodic statement must contain, among other things: (1) information on payments currently due and previously made, (2) fees imposed, (3) transaction activity, (4) application of past payments, and (5) where applicable, information regarding delinquencies. These statements must meet the timing, form, and content requirements provided in the rule, and the rule contains sample forms that may be used. There is no exemption from the periodic statement requirement for borrowers paying on a trial plan or borrowers who have been referred to foreclosure, but there is an exemption for borrowers in bankruptcy and a partial exemption applicable to fixed-rate loans if the servicer provides a coupon book. io at 3 4 See 78 FR 60382 (Oct. 1, 2013). 5 See 78 FR 62993 (Oct. 23, 2013). g 6 or n. According to the CFPB’s final rule issued on July 10, 2013, the Commentary to Regulation X Section 1024.5 Paragraph 5(c)(1)-1 provides: “State laws that are inconsistent with the requirements of RESPA or Regulation X may be preempted by RESPA or Regulation X. State laws that give greater protection to consumers are not inconsistent with and are not preempted by RESPA or Regulation X. In addition, nothing in RESPA or Regulation X should be construed to preempt the entire field of regulation of the practices covered by RESPA or Regulation X, including the regulations in Subpart C with respect to mortgage servicers or mortgage servicing.” See 78 FR 44685 (July 24, 2013). Under the CFPB’s mortgage servicing rules, as amended by the final rule issued on July 10, 2013, a “small servicer” is one that either: (A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; or (B) Is a Housing Finance Agency, as defined in 24 CFR 266.5. Further, the final rule issued on July 10, 2013 clarifies that: (1) the number of loans serviced by a servicer or its affiliate is calculated as of January 1 for the remainder of the calendar year; and (2) the servicer or its affiliate must currently own or have originated the mortgage loans to qualify for the exemption; and (3) “mortgage loans” include closed-end consumer credit transactions secured by a dwelling, but not reverse mortgage loans or interests in time shares. Lastly, the mortgage servicing rules, as amended, allow a small servicer to exclude loans secured by the servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees. A small servicer is exempt from: (1) the periodic statement requirements; (2) certain requirements relating to obtaining force-placed insurance; (3) the general servicing policies, procedures and requirements; and (4) certain requirements and restrictions relating to communicating with borrowers about, and evaluation of applications for, loss mitigation options.
  10. 10. MBA Compliance Essentials℠: CFPB’s Mortgage Servicing Rules Resource Guide INTEREST RATE ARM ADJUSTMENTS For closed-end consumer credit transactions secured by consumer’s principal dwelling where APR may increase after consummation (except ARMs with terms of 1 year or less), creditors, assignees, and servicers must provide a consumer whose mortgage has an adjustable rate with a notice between 210 and 240 days prior to the first payment due after the rate first adjusts. Creditors, assignees, and servicers also must provide a notice between 60 and 120 days before payment at a new level is due when a rate adjustment causes the payment to change. A servicer is not obligated to send this rate adjustment notice if subject to the FDCPA and the borrower has exercised the “cease communication” right. The current annual notice that must be provided for ARMs when the interest rate, but not the payment, changes over the year is no longer required. w w PROMPT PAYMENT CREDITING AND PAYOFF STATEMENTS RESPA Amendments uc ed ba .m w For closed- end consumer credit transactions secured by a consumer's principal dwelling, 7 servicers must promptly credit periodic payments from borrowers as of the day of receipt. A periodic payment consists of principal, interest, and escrow (if applicable). A periodic payment is an amount sufficient to cover P&I, and T&I (if applicable), for a given billing cycle. It does not include amounts required to cover late fees, other fees, or non-escrowed payments. If a servicer receives a payment that is less than the amount due for a periodic payment, the payment may be held in a suspense account (or can be returned or credited). For closed- and open-end consumer credit transactions secured by a dwelling, creditors, assignees, and servicers must provide an accurate payoff balance to a consumer no later than seven business days after receipt of a written request from the borrower for such information. FORCE-PLACED INSURANCE io at An amendment to the final rule clarifies that the servicing provisions of Regulation X generally do not create field preemption. The Commentary will provide that state laws that give greater protection to consumers do not conflict with and are not preempted by RESPA or Regulation X. g or n. For closed-end loans secured by 1-4 family residential real property, servicers are prohibited from charging 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. An initial notice must be sent to the borrower at least 45 days before charging the borrower for force-placed insurance coverage, and a second reminder notice must be sent at least 30 days after the first notice and at least 15 days before charging the borrower for forceplaced insurance coverage. A servicer can charge for lender-placed insurance retroactive to the first day of any period in which the borrower did not have hazard insurance in place. Where the borrower has an escrow account for the payment of hazard insurance premiums, the servicer is prohibited from obtaining force-placed insurance where the servicer can continue the borrower’s homeowner insurance, even if the servicer needs to advance funds to the borrower’s escrow account to do so. The term “force-placed insurance” does not include flood insurance required by the Flood Disaster Protection Act of 1973. ERROR RESOLUTION AND INFORMATION REQUESTS 7 The CFPB’s mortgage servicing rules were amended on October 1, 2013 to clarify that the prompt payment crediting requirements do not apply to open-end transactions.
  11. 11. uc ed ba .m w w w g or n. io at View more MBA Compliance Essentials resource guides at