The CFPB’s recent amendments to the mortgage servicing rules in Regulations X and Z will soon force servicers to significantly change the way they currently do business. Without limitation, the amended mortgage servicing rules fundamentally change how servicers are required to interact and communicate with borrowers in bankruptcy by imposing certain periodic billing statement requirements and revising the early intervention bankruptcy exemption. Servicers likely will face substantial technological and procedural challenges in the coming months as they implement the bankruptcy-specific aspects of the amended rules.
If this is an area you would like to learn more about, we encourage you to join us for Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series, which is scheduled for Tuesday, September 27, and will focus entirely on the new rules related to borrowers in bankruptcy. More information on the webinar can be found at the end of this post.
Under the current regulatory framework, servicers are able to take advantage of a broad exemption from the early intervention live contact and written notice requirements with respect to borrowers in active bankruptcy and those who have received a bankruptcy discharge. Under the amended mortgage servicing rules, the live contact exemption remains largely intact. However, the amended mortgage servicing rules contain only a partial exemption for the written notice obligation. Going forward, a modified early intervention written notice requirement will apply unless a consumer has submitted a cease communication request pursuant to section 805(c) of the FDCPA or no loss mitigation options are available. The new rule also includes unique timing and frequency requirements for the written notice when a borrower’s bankruptcy case is active.
Periodic Billing Statements
Like the early intervention requirements described above, the current regulatory framework includes a blanket exemption from the closed-end periodic billing statement obligation for borrowers in active bankruptcy and those who have received a bankruptcy discharge. Going forward, the general rule in Regulation Z will instead be that billing statements are required, irrespective of a pending bankruptcy case, unless certain limited exceptions apply. When a consumer is in bankruptcy, the rule requires significantly modified content, some of which depends upon the type of bankruptcy case. The CFPB has provided sample forms that demonstrate compliance with these new requirements. Finally, the rule provides specific guidance on when to transition to, or from, a modified periodic statement, or, in the case of conversion from one type of bankruptcy to another, between modified periodic statements.
The aspects of the 2016 final rule that are specifically related to borrowers in bankruptcy likely will be challenging for mortgage servicers to successfully implement. The CFPB listened to the comments received from the industry and ultimately recognized that implementation of these rules will require significant efforts. As such, they have provided longer implementation periods than they originally proposed. Once the final rule is published in the Federal Register, servicers will have 12 months to implement the early intervention requirements described above, and 18 months to implement the periodic billing statement requirements for consumers in bankruptcy. With respect to the statement requirements, the CFPB acknowledged that “servicers and third-party service providers need sufficient time to coordinate, develop, and test systems required to modify periodic statements for consumers in bankruptcy. They also need sufficient time to train employees regarding the bankruptcy periodic statement requirements.”
To ensure compliance with these new communication requirements, servicers will likely be forced to diligently track information about a borrower’s bankruptcy that previously may not have been necessary. As such, servicers would be well-advised to begin digesting and planning out the necessary system and operational changes necessary for implementation as soon as possible.
Register to attend Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series
In Part 3 of our “CFPB Mortgage Servicing Amendments” Webinar Series, we will discuss the requirements related to borrowers in bankruptcy and the implications these rules may have. We will also address emerging areas of concern and challenges that are likely to be encountered. Finally, we will provide practical implementation tips—such as suggested terminology adjustments—based upon prior experience in this area.
Please join us on Tuesday, September 27 from 11:30 a.m. to 12:30 p.m. CT to learn “What You Need to Know” about the new requirements related to borrowers in bankruptcy. Click here to RSVP to the webinar. Webinar login information will be provided one day prior to the event.