Anne Canfield and Chris Harrington, Consumer Mortgage Coalition

Transcription

1 MEMORANDUM TO: FROM: RE: Joe Devlin David Hixson Laura Johnson Laurie Maggiano Amy Quester Joel Singerman Derek Standarowski Diane Thompson Anne Canfield and Chris Harrington, Consumer Mortgage Coalition Successors in Interest Docket Number CFPB DATE: cc: Mortgage Servicers Working Group This memorandum follows up on successors in interest issues that the Consumer Financial Protection Bureau ( CFPB ) staff and the Mortgage Servicer Working Group discussed, and answers questions the CFPB posed, at our meeting on July 20, We very much appreciate your taking the time to meet with us and to consider our follow-up memorandum. Successorship claims are not new. Every servicer has always had procedures in place to handle successorship claims. Servicers handle successorship claims in conformity with applicable federal and state laws, investor requirements, and with the need to prevent fraud. Servicers and investors provide loss mitigation to successors when it is appropriate and cost-effective. The CFPB s goal is to make loss mitigation more available to successors. In our meeting, the CFPB asked for recommendations on how the CFPB could improve the proposed regulation. We recommended at the meeting that one improvement would be to eliminate the requirement to make successorship determinations when they are not necessary. In this memorandum, we describe several specific circumstances in which the proposal would or could require successorship determinations that would not make any difference to the borrower or the successor. Especially if successorship determinations could lead to liability, servicers should not be required to make them when they are unnecessary.

2 Page 2 of 48 Regulation P can be an obstacle to immediate communication of account information to claimed successors. We discuss in Section V below a new Texas privacy law that is aimed at alleviating this obstacle in the case of a deceased borrower s surviving spouse. Additionally, the CFPB can provide consumer education about how to ensure that successors have access to account information before a borrower dies, such as the account number and the servicer s phone number. In addition, we provide an example of the process of confirming a successorship claim to illustrate how confirmation accumulates over time rather than occurring at a specific moment. If the CFPB were to require confirmation by a deadline, it is not clear where in the confirmation process the deadline would apply. This example also illustrates that even when loss mitigation is necessary to keep a home from foreclosure, successorship determination on an emergency basis is unnecessary if the person claiming to be a successor in interest ( claimant ) is willing and able to make at least partial payments in the interim. We also discuss why a reset of the 120-day clock for pre-foreclosure review would be impermissible, unnecessary, and inadvisable. Any such reset would also require several protections against abuse, which we list. We suggest an alternative approach that would allow loss mitigation to successors while deterring and preventing fraud, in a manner that may reduce investor insistence on pursuing delinquency remedies protected by the Garn- St. Germain Act. At our meeting, the CFPB expressed appreciation for our pointing out technical issues a successorship regulation could create. In this memorandum, we take the opportunity to walk through several provisions of law and note a list of issues that you may wish to consider. We present them in order by citation so they will be readily navigable, but we are particularly concerned that the CFPB may create a situation where successors could try to rescind a loan or mortgage. This would have the potential to promote extensive litigation, as well as to create a strong incentive not to confirm successors. Any litigation risk, whether in connection with a rescission attempt, under the Real Estate Settlement Practices Act ( RESPA ), or from a claim of an unfair, deceptive, or abusive act or practice ( UDAAP ), the effect would be the same it would increase the potential cost and reduce the availability of loss mitigation. A risk of litigation has the potential to defeat the purpose of the successors in interest proposal. We also provide information the CFPB requested about laws that prevent some servicers from originating loans. In the discussion about , we describe some transfers that are protected from due-on-sale enforcement but that involve residential mortgage transactions and assumptions, in the (b) sense. While these situations are rare, they are possible. When they arise, servicers who cannot originate loans cannot permit

3 Page 3 of 48 the successor to become obligated on the loan in the typical sense, but these servicers do not foreclose as long as the successor keeps the loan reasonably free of default. We continue to urge the CFPB to hold a public roundtable through which the CFPB can obtain additional public input because of the many areas of uncertainty. The potential for successors to rescind is one such concern. Treating non-borrowers as borrowers for some purposes would use lending laws for purposes for which they were not designed, and unintended issues would certainly arise. This rulemaking has the potential to disrupt loss mitigation, and we believe the CFPB should have an in-depth and interactive discussion on the many potential consequences before finalizing a regulation.

4 Page 4 of 48 I. SUCCESSORSHIP AND OTHER DETERMINATIONS ARE OFTEN UNNECESSARY... 6 A. FRAUD, PAYOFF, OR THE ESTATE CAN REPAY... 6 B. LOAN REMAINS REASONABLY FREE OF DEFAULT... 7 C. LOSS MITIGATION DOES NOT ALWAYS REQUIRE A SUCCESSORSHIP DETERMINATION... 8 D. SUCCESSORS BECOMING OBLIGATED MAY NOT REQUIRE A SUCCESSORSHIP DETERMINATION... 9 E. DIVORCE WITHOUT RELEASE F. NECESSARY INFORMATION UNAVAILABLE II. SUCCESSORSHIP DETERMINATION REACH AND PROCEDURES A. REACH OF THE GARN-ST. GERMAIN ACT Successors Without Due-on-Sale Protection Defining Borrower to Include Any Owner B. SUCCESSORSHIP PROCEDURES Private Right of Action a. Litigation Risk Would Be Contrary to the Goal of the Proposal b. No Authority for Right of Action Successorship Determinations Need a Basis When Successorship is Relevant, Servicers Need Documentation A Designated Address Is a Reasonable Burden for Claims of Title to Real Property Need to Verify Claimant s Agent Common Example Illustrates That the Proposal Is Undeveloped III. POSSIBLE RESET OF THE 120-DAY CLOCK A. CLOCK RESET IS IMPERMISSIBLE, UNNECESSARY, AND INADVISABLE Impermissible Unnecessary Inadvisable B. DUAL TRACK PROTECTION BEFORE SUCCESSORSHIP CONFIRMATION WOULD INVITE FRAUD C. FORBEARANCE PLANS MAY BE APPROPRIATE FOR SUCCESSORS D. FRAUD AND ABUSE PROTECTIONS IN THE EVENT OF A CLOCK RESET IV. SERVICERS WILL AVOID LIABILITY FOR SUCCESSORSHIP DETERMINATIONS V. TEXAS PRIVACY LAW VI. COMMENTS ON SEVERAL LAWS A. REGULATION X , Coverage of RESPA , Mailing , Fees and RESPA 10, Escrow Accounts , Error Resolution Procedures , Information Requests and 36, Duplicative and Untimely Requests , Early Intervention , Loss Mitigation Procedures and Due-on-Sale Enforcement B. REGULATION Z , Assumptions, and ARM and Escrow Cancellation Notices , Credit Balances... 39

5 Page 5 of , Rescission , , , and , High-Cost Mortgages , Mortgage Transfer Disclosures C. FCRA AND REGULATION V D. FAIR DEBT COLLECTION PRACTICES ACT E. SERVICEMEMBERS CIVIL RELIEF ACT F. REGULATION O, MORTGAGE ASSISTANCE RELIEF SERVICE VII. LAWS THAT PREVENT SOME SERVICERS FROM ORIGINATING LOANS... 47

6 Page 6 of 48 I. Successorship and Other Determinations Are Often Unnecessary The CFPB proposes to require servicers to provide, upon request by a claimant, information regarding the documents the servicer requires to confirm the person s identity and ownership interest in the property. All the information would be required in no more than 45 days regardless of the circumstances, and even if the servicer does not have the information it needs to answer the question. The CFPB proposes to define a successor in interest as a person who acquires title to a mortgaged property through a transfer that the Garn-St. Germain Act protects from due-on-sale enforcement. Successorship determinations are necessary when a servicer will enforce a due-on-sale clause. When the servicer will not enforce a due-on-sale clause, whether the successor has title to the property may or may not be relevant. The proposed regulation would require successorship determination procedures when that determination is unnecessary. The Garn-St. Germain Act, the loan contract, and the servicer-investor contract govern due-on-sale enforcement regardless of whether the loan is current 1 not RESPA. The CFPB does not have authority to alter or delay due-on-sale enforcement. Thus, it is not advisable for the CFPB to write any regulation concerning due-on-sale enforcement or construing the Garn-St. Germain Act because any such regulation would not be binding or enforceable. Due-on-sale enforcement, however, is not the target of this rulemaking. The purpose of this rulemaking is to protect successors, who are not subject to due-on-sale enforcement, from foreclosure by making loss mitigation available. Whether a claimant owns a property, occupies it, or is obligated on the loan obligation may affect loss mitigation, but how a person acquired title is generally irrelevant to loss mitigation. We suggest several ways the CFPB can narrow the inquiries Regulation X will require servicers to make when a servicer will not pursue due-on-sale enforcement. A. FRAUD, PAYOFF, OR THE ESTATE CAN REPAY If the loan, a successorship claim, or a loan or loss mitigation application, is or was based on apparent fraud, no successorship or loss mitigation determination should be required. This is consistent with the Treasury Department s HAMP program. 2 1 The Federal Housing Administration requires servicers to enforce due-on-sale clauses when permissible under applicable law and the loan contract. 24 C.F.R (d). 2 The Making Home Affordable Handbook for Servicers of Non-GSE Mortgages, v. 4.5, II.5.5, p. 96 (June 1, 2015) ( HAMP Handbook ) provides, [s]ervicers should not modify a mortgage loan if there is reasonable evidence indicating the borrower submitted income information that is false or misleading or if the borrower otherwise engaged in fraud in connection with the modification.

7 Page 7 of 48 If a claimant or estate will pay off the loan, through credit or life insurance proceeds, other assets, or by selling the property, there is no need to determine either successorship or loss mitigation. If a borrower dies and the claimant requests loss mitigation, the servicer should be permitted to request information about whether the estate has assets or income to repay the loan. This is important because if a successor is willing to sign a HAMP modification agreement, the successor would need to certify the need for loss mitigation. 3 Any prior information may be obsolete. If the estate can repay the loan without loss mitigation, no successorship determination is necessary because loss mitigation is not necessary. B. LOAN REMAINS REASONABLY FREE OF DEFAULT If a claimant, or claimant with any prior borrower or estate, keeps the loan current and the servicer will not pursue due-on-sale enforcement, there is no need to determine successorship. The servicer will not pursue delinquency or default remedies when all of the following are true: a borrower dies or transfers an interest in the property; the servicer cannot or will not enforce a due-on-sale clause; the claimant will not or cannot take over the loan obligation; and the loan remains reasonably free of default. There is no reason for Regulation X to require the servicer to determine successorship in these circumstances because any servicer s determination would not affect the loan, the mortgage, loss mitigation, or any owner or borrower. In the same fact pattern, but where there are competing claimants to the property or title is otherwise unclear, the servicer cannot determine successorship or title because servicers are not courts. For current loans, determining which competing claimant owns the property is irrelevant to loan servicing. Who owns the property is highly relevant to the competing claimants, but requiring a servicer s successorship determination could be unfair to one of the claimants if the other rushes to the servicer to be deemed the successor for the servicer s purposes, then uses that status to deter the competing claimant from pursuing even legitimate rights to the property. Competing claimants need legal advice, not servicing advice. 3 The Home Affordable Modification Agreement requires the signer to certify, among other things, that: I do not have sufficient income or access to sufficient liquid assets to make the monthly mortgage payments now or in the near future;... I have provided documentation for all income that I receive.... Under penalty of perjury, all documents and information I have provided to Lender in connection with this Agreement, including the documents and information regarding my eligibility for the Program, are true and correct[.] HAMP Permanent Modification Agreement, Form 3157 (emphasis in original).

8 Page 8 of 48 C. LOSS MITIGATION DOES NOT ALWAYS REQUIRE A SUCCESSORSHIP DETERMINATION If a claimant, or claimant with any prior borrower or estate, cannot keep the loan reasonably free of default and the servicer will not pursue due-on-sale enforcement, there is no per se need to determine successorship. Of course, there may be a need to determine loss mitigation. Loss mitigation may or may not require the servicer to determine whether the claimant has title to the mortgaged property. Even when loss mitigation requires a title determination, it does not necessarily require determination of whether a claimant acquired title through a transfer that is protected from due-on-sale enforcement. If the claimant wishes to pursue a short sale, the purchaser needs to know whether the claimant owns the property. Servicers cannot give legal advice about title to claimants or purchasers because servicers are not attorneys licensed to represent consumers. Servicers may need to determine title for safety and soundness considerations, such as to protect themselves from participating in a claimant s fraudulent sale, so this should remain permissible. Any such title determination is for safety and soundness purposes and is unrelated to consumer protection, and therefore should not be governed by Regulation X. Regulation X should not require servicers to make title determinations in connection with short sales. If a claimant, or claimant with any prior borrower or estate, requires loss mitigation to avoid foreclosure, but loss mitigation is not available, there is no need to make a successorship determination. For example, successorship determinations should not be required if loss mitigation is necessary to keep the loan from foreclosure, when: Loss mitigation is only available to owner-occupants and the claimant does not occupy or intend to occupy the property. Loss mitigation is limited to loans with an unpaid principal balance under a cap and the loan in question exceeds the cap. Loss mitigation requires a certification of no fraud convictions and the claimant or any co-borrower cannot make the certification, or the servicer is aware that a certification is false. Loss mitigation is available only for a senior loan but the loan in question is subordinate. Loss mitigation is unavailable because the property is in the redemption period after a foreclosure. A successor does not need to own the property to qualify for loss mitigation, such as when a prior borrower remains obligated on the loan. A successor may need to own the property to qualify for a loan modification. In this case, the servicer needs to determine whether the claimant owns the property and whether the claimant has sufficient income for a modification. When the servicer determines that

9 Page 9 of 48 either is lacking, the servicer should not be required to continue determining the other requirement. If the servicer determines that the claimant does not own the property before the claimant submits a complete loan modification application, loan modification should be deemed unavailable. D. SUCCESSORS BECOMING OBLIGATED MAY NOT REQUIRE A SUCCESSORSHIP DETERMINATION A successor may need to become obligated on the loan to qualify for loan modification. If a borrower (or estate) requests to be released from the loan obligation and there is no other borrower on the loan, the servicer will need a replacement borrower before permitting a release. In these cases, and when the servicer will not pursue due-on-sale enforcement, successorship determination may or may not be necessary, as follows. Before permitting a claimant to become obligated on the loan, the servicer will need to determine whether the claimant is able to make loan payments and whether the claimant is willing and able to take over the loan obligation. If either is lacking, there is no need for the servicer to continue pursuing the other. In this event, and if the claimant needs to be obligated on the loan to keep the loan from foreclosure, no successorship determination is necessary. If the loan is not assumable under its terms, the claimant will not be able to sign the note, and no additional inquiry about the claimant signing the note, or about successorship, is necessary. If the servicer is unable to originate loans and the claimant becoming obligated on the loan would constitute loan origination (see discussion of (b) in Section V below), no inquiry about the claimant signing the note, or about successorship, is necessary. In this case, the claimant or successor to makes loan payments and retains the property. If the claimant is not a minor and the loan is assumable, the servicer may need to determine whether the claimant can make loan payments and whether the claimant is otherwise eligible and able to become obligated on the loan. If either is lacking, there should be no need to determine the other requirement. For example: If the claimant is unwilling or unable to become obligated on the loan, no inquiry about that issue, or about successorship, is necessary. If the claimant will rely on funds that risk money laundering, or if the servicer cannot adequately identify the claimant, no further successorship inquiry is necessary. If a claimant requests loss mitigation that requires the claimant to be obligated on the loan, the question is whether the servicer will accept the claimant as an obligor. If it does

10 Page 10 of 48 not matter whether the claimant owns the property, no successorship or title determination should be required. For example, if borrower and mortgagor A transfers a partial interest in the property to B and loss mitigation is necessary, there is already one borrower on the loan and mortgage, A. The servicer may not need to determine whether B owns any interest in the property to offer loss mitigation. In this case, the preforeclosure review should begin when A first became delinquent if that predates the partial transfer to B. Investors may not permit successors or claimants who cannot bring the loan current without loss mitigation to become obligated on the loan. In this case, if becoming obligated on the loan and loss mitigation are necessary to keep the loan out of foreclosure, and if the loan is not current, the servicer should not be required to process a loss mitigation application or to determine successorship because loss mitigation is unavailable. When a claimant must be obligated on the loan for loss mitigation and loss mitigation is necessary to keep a loan out of foreclosure, the CFPB should not require an unwilling investor or servicer to permit the claimant to become obligated on the loan. The investor or servicer would enter into the agreement under duress, so there would be no contract under state law. Further, RESPA 17 does not permit the CFPB to interfere with the enforceability of any loan, loan agreement, mortgage, or lien. Additionally, the Garn-St. Germain Act fully protects all delinquency remedies in all cases and the CFPB cannot narrow Garn-St. Germain rights. 4 E. DIVORCE WITHOUT RELEASE In the case of a divorce, there is no need to determine successorship for loss mitigation purposes because loss mitigation does not change due to the divorce itself. The servicer will not release the original borrower unless the successor credit-qualifies and takes over the loan obligation, meaning no loss mitigation is necessary. In a divorce, successorship may be relevant if the original borrower requests a release from the loan obligation, but release is not a loss mitigation question. If both borrowers were on the loan before the transfer and remain on the loan thereafter, any loss mitigation after the divorce would be the same as it was before the divorce, barring some unrelated change in circumstances. 4 The Garn-St. Germain Act prohibits due-on-sale enforcement is some cases, and is explicit that the loan contract otherwise governs all rights and remedies of the lender and borrower: Except as otherwise provided in [the due-on-sale protections in] subsection (d), the exercise by the lender of its option pursuant to such a clause shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the lender and the borrower shall be fixed and governed by the contract. Garn St. Germain 341(b)(2), 12 U.S.C. 1701j-3(b)(2) (emphasis added). This statute bars a CFPB regulation from altering the lenders or borrowers contractual rights in mortgage loans. See also 12 C.F.R (b) and 191.4(b).

11 Page 11 of 48 F. NECESSARY INFORMATION UNAVAILABLE When a successorship determination is appropriate, the servicer should not be required to make the determination when the servicer cannot. For example, if title to the property is the subject of litigation, the servicer must wait until the end of the litigation before knowing who owns the property. In the meantime, the servicer should be able to pursue all delinquency and default remedies. Otherwise, successors could use litigation to inappropriately delay foreclosures. If a claimant or third party does not provide information a servicer needs to make a necessary successorship determination, servicers should not be required to delay delinquency or default remedies. Otherwise, claimants would have an incentive to withhold, and cause third parties to withhold, relevant information as an inappropriate means of delaying a foreclosure. II. Successorship Determination Reach and Procedures A. REACH OF THE GARN-ST. GERMAIN ACT 1. Successors Without Due-on-Sale Protection Consumer groups advocate that post-transfer relief should be available to transferees who are not protected from due-on-sale enforcement. 5 Advocates urged the Bureau to go beyond Garn to the principle of Garn. 6 The Garn-St. Germain Act is clear that property transfers do not provide any protection from the timely repayment obligation. Servicers are not, and cannot be required to delay a foreclosure due to a transfer that is not protected from due-on-sale enforcement. Moreover, expanding a requirement to delay foreclosure for any successor would create a new method of preventing foreclosure by transferring a property repeatedly while never making a loan payment and never paying taxes or insurance. Servicers simply cannot comply with such a scheme. Servicers can and do permit a delay to consider loss mitigation to successors because loss mitigation may be more cost-effective than foreclosure. However, this must remain voluntary because the CFPB does not have authority to require servicers to tolerate delinquent loans. 5 Comment letter from the National Consumer Law Center ( NCLC ) et al., to the CFPB (March 16, 2015) (the NCLC Letter ) p ( Limiting the definition of successor in interest to Garn-exempt transferees would omit a substantial group of homeowners.... The CFPB should expand the definition of successor in interest to include both Garn-St Germain exempt transferees and any other transfer where there is not an enforceable due-on-sale clause. ) Effectively, this seeks to restrict enforcing repayment obligations, in contravention of the Garn-St. Germain Act. 6 Ex Parte Communication between the Americans for Financial Reform and the CFPB (June 11, 2015) ( AFR Ex Parte Communication ).

12 Page 12 of 48 The CFPB cannot restrict enforcement of due-on-sale clauses because the Garn-St. Germain Act protects their enforceability. 2. Defining Borrower to Include Any Owner Consumer groups advocate defining as a borrower a person who owns an interest in the home but did not sign a promissory note and did not receive a property interest from the original borrower. A mortgagor who is not obligated on the note should be a borrower under RESPA without having to establish or confirm successor status.... It is critical that the CFPB clarify that these co-owners are borrowers for purposes of RESPA.... This group of homeowners... face[s] the same elevated risk of foreclosure when the original borrower is not available or not communicating with the servicer for a variety of reasons perhaps because the original borrower has abandoned the home, or, in some cases, been ordered to refrain from contacting the co-owner under a domestic violence restraining order. 7 Owners who do not sign a note do so by election and for a reason to avoid liability on the loan obligation. To treat them as borrowers for purposes of preventing foreclosure, but not for purposes of requiring them to repay the loan according to its terms, would turn contract law on its head. Investors and servicers are entitled to rely on and to enforce their contractual rights in mortgages and in promissory notes. The CFPB does not have authority to rewrite or preempt state contract law or to interfere with mortgage contracts. The Garn-St. Germain Act expressly preserves contractual rights in mortgages and mortgage loans other than its exceptions to due-on-sale enforcement. RESPA protects all contractual rights. Moreover, this approach would create an incentive for owner-borrowers to fail to communicate with servicers or co-owners for the purpose of enabling the non-borrower owner and the borrower-owner to retain the property while not making full loan payments. Borrowers who sign a promissory note, and who accept and use the loan proceeds, have an obligation to repay the loan. They cannot avoid this obligation by the simple expedient of failing to communicate with the servicer or the co-owner. Refusal or inability to communicate is not a basis for loss mitigation it interferes with loss mitigation. Interfering with loss mitigation would be contrary to the purpose of the successors in interest proposal. 7 NCLC Letter p. 14 (footnote omitted).

13 Page 13 of 48 B. SUCCESSORSHIP PROCEDURES 1. Private Right of Action Consumer groups advocate that successors should have a private right of action to enforce servicer compliance with successorship determination requirements. 8 A private right of action would undermine the purposes of the successors in interest proposal by encouraging servicers to deny successorship claims. A private right of action would also encourage investors to decline loss mitigation to successors and to insist on enforcement of the repayment obligation as authorized by the Garn-St. Germain Act, regardless of whether the successor has due-on-sale protection. a. Litigation Risk Would Be Contrary to the Goal of the Proposal If confirming successors were to create a risk of litigation, it would alter loss mitigation calculations to successors detriment. Loss mitigation exists because it is often more cost-effective than foreclosure. Federal law cannot mandate loss mitigation because it requires investors to relinquish valid contractual rights unilaterally. By definition, loss mitigation is voluntary on the part of investors. The fact that loss mitigation is voluntary is central to the design of the Administration s loss mitigation programs. These programs use investor and servicer incentives to make loss mitigation more attractive. The net present value ( NPV ) test is central to determining which loans qualify for loss mitigation the NPV question is whether loss mitigation or foreclosure is more cost effective to the investor. The voluntary nature of loss mitigation is similarly central to the national mortgage settlement ( NMS ). As with the Administration s programs, the NMS provides loss mitigation incentives to investors, and uses an NPV test to determine when loss mitigation should be available. There is no question that the Administration s loss mitigation programs and the NMS have resulted in unprecedented, nationwide, access to loss mitigation. A risk of litigation risks reversing that trend by increasing the cost or estimated cost of loss mitigation. If servicers could face rescission attempts, liability, or Regulation X violations for successorship determinations or for missing a successorship determination deadline, the cost of loss mitigation would increase. If a violation or other liability were possible even when successorship is irrelevant, the increase would be inappropriate. A risk of litigation under RESPA, UDAAP claims, attempted rescission, or any other law 8 NCLC Letter p. 11; AFR ex parte communication ( Advocates called for a private right of action for failure to comply with the successor in interest rules to be made available once a putative successor provides documents to the servicer. )

14 Page 14 of 48 would cause investors to pull back on their willingness to offer loss mitigation. A risk of litigation has the potential to defeat the purpose of the successors in interest proposal. b. No Authority for Right of Action The CFPB does not have authority to create a private right of action for loss mitigation or successorship. Successors have protections against due-on-sale enforcement, but not delinquency enforcement, under the Garn-St. Germain Act, but Garn-St. Germain does not provide or create a right of action. The CFPB cannot write a Garn-St. Germain regulation, so the CFPB cannot create a right of action under the Garn-St. Germain Act. Nor does the CFPB have authority to create a private right of action under RESPA. The CFPB relies on RESPA 6(k) and 19(a) for the private right of action it wrote into current (a). 9 However, this right of action could be authorized only if RESPA authorized the underlying loss mitigation regulation. Nothing in RESPA authorizes the CFPB to write loss mitigation or successorship regulations, or rights of action. RESPA 6(k)(1) authority has two limits. First, 6(k)(1) lists several specific servicer prohibitions, relating to: force-placed insurance absent a default; fees for responses to valid qualified written requests; failure to timely correct errors; and failure to provide owner contact information. At the end of the list, 6(k)(1)(E) has a general prohibition on failure to comply with any other obligation the CFPB finds, by regulation to be appropriate to carry out the consumer protection purposes of RESPA. This 6(k)(1)(E) general prohibition cannot expand on the specific items in the list. The ejusdem generis canon of statutory construction holds that when a general phrase follows a list of specific items, the general phrase must be construed to include only items of the same class as those in the list. Otherwise, the specific list would have no meaning whatsoever. [W]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words. 10 The specific items Congress included in the 6(k)(1) list are unrelated to loss mitigation, property transfers, due-on-sale clauses, or successorship. Any private right of action the CFPB created or may create related to loss mitigation or successorship is therefore beyond 6(k)(1) authority. The second limit on 6(k)(1) is that its authority to create additional prohibitions is limited to matters appropriate to carry out the consumer protection purposes of RESPA. A similar limit also constrains 19(a) authority 19(a) authorizes regulations, but they also must be necessary to achieve the purposes of RESPA. RESPA does not authorize 9 78 Fed. Reg , (February 14, 2013). 10 Washington State Dept. of Social and Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 384 (2003) (citations omitted).

15 Page 15 of 48 the CFPB to first create new purposes of RESPA, and then to regulate and create a private right of action for them. If RESPA authorized the CFPB to write any regulation unrelated to RESPA s enumerated purposes, the statute would have no meaning at all because there would be no limit on the CFPB s authority. Congress set out the purposes of RESPA. They relate to settlement processes, disclosure of settlement costs, kickbacks and referral fees in settlement services, escrow cushions, and modernizing land title information. 11 Settlement practices and settlement services are wholly unrelated to defaults that can only occur after closing. The statutory purposes of RESPA have been federal law for four decades, and Congress has never seen a need to amend them. When Congress first added the 6 servicing and right of action provision to RESPA, it elected not to amend the purposes of RESPA. 12 Most recently, Congress amended RESPA in the Dodd-Frank Act, but again elected not to amend the purposes of RESPA. This Dodd-Frank Act election is particularly significant because the Dodd-Frank Act is the law that created the CFPB s 6(k)(1)(E) authority to create new obligations appropriate to carry out the consumer protection purposes of RESPA that are subject to the 6(f) right of action. Had the Dodd-Frank Act intended to authorize the CFPB to write regulations that exceed the long-standing and familiar statutory purposes, it could have amended the purposes in the Dodd-Frank Act. Or, Congress could have worded 6(k)(1)(E) as follows: (1) IN GENERAL A servicer of a federally related mortgage shall not * * * (E) fail to comply with any other obligation found by the Bureau of Consumer Financial Protection, by regulation, to be appropriate to carry out the consumer protection purposes of [RESPA] any purpose related to any matter the CFPB chooses even if unrelated either to the 2 purposes of RESPA or to paragraphs (A) through (D) above. Congress elected neither of these. This decision means that the purposes of RESPA, as they have for decades, exclude matters even remotely related to loss mitigation or to successorship determinations, and that the CFPB has no authority to create rights of action for loss mitigation or successorship. If the CFPB were to create a private right of action related to successorship determinations, it would need to define as purposes of RESPA the repeal of Garn-St. Germain 341 and the preemption of state mortgage law, state mortgage foreclosure laws, and state contract law. The CFPB would also need to ignore all the specific items in the list in RESPA 6(k)(1), and the limited statutory purposes in RESPA 2. There is 11 RESPA 2(b), 12 U.S.C. 2601(b). 12 See the Cranston-Gonzalez National Affordable Housing Act, Pub. L. No , 941 and 942, 104 Stat. 4079, (1990).

16 Page 16 of 48 simply no legal basis for a private right of action for loss mitigation or for successors in interest. The CFPB also cites RESPA 6(j)(3) as a basis for the loss mitigation right of action. 13 This provision requires the CFPB to establish any regulations necessary to carry out this section. Any 6(j)(3) authority to create a right of action is narrower than any 6(k)(1) authority, in two ways. First, Congress enacted 6(j)(3) in 1991, and HUD never issued any loss mitigation or successorship regulations in the intervening decades. If such 6(j)(3) regulations were necessary, they would have existed for decades. Even if the recent foreclosure crisis necessitated such regulations, HUD would have written them years before the CFPB existed, but did not do so. Clearly, the chronic lack of regulations establishes that regulations are not necessary. Second, any 6(j)(3) regulations must be necessary to the purposes of 6. The purposes of 6 cannot be broader than the purposes of all of RESPA, by definition, and the purposes of RESPA do not relate to loss mitigation or to successorship. Finally, the CFPB cites general authorities in Dodd-Frank Act 1021(a), 1022(b), and 1032(a) as bases for the loss mitigation right of action. 14 Where the more specific authorities discussed above prohibit the CFPB from creating a private right of action, it is illogical to rely on general authority to permit what the specific provisions prohibit. In describing the CFPB s general powers, Dodd-Frank 1021(a) provides that the CFPB shall implement consumer financial laws consistently: The Bureau shall seek to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. Implementing consumer financial law consistently for specified purposes has nothing whatsoever to do with creating a private right of action. Rather, it means that the CFPB cannot favor one group of consumers or one group of financial services providers over another. This requires the CFPB to ensure that all have the same rights, not that the CFPB can create new rights for one set of consumers who are not protected by RESPA. Section 1022(b) provides: The Director may prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the Fed. Reg , (February 14, 2013) Fed. Reg , (February 14, 2013).

17 Page 17 of 48 purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof. This general authority to prescribe rules does not authorize the CFPB to write rules for any reason or purpose it can imagine. The rules must carry out the purposes and objectives of the laws the CFPB implements. A loss mitigation or successorship purpose is well beyond the specific purposes of RESPA. There are also purposes and objectives in Dodd-Frank Act 1021(b), but none have anything to do with creating a right of action. Section 1032(a) authorizes the CFPB to require disclosures to consumers. A private right of action is not a disclosure requirement. It can require or effectively require payments to consumers, not disclosures. Those are completely different things. These general Dodd-Frank Act authorities do not authorize the CFPB to create a private right of action. They cannot overwrite the more specific RESPA, which prohibits a right of action. Additionally, nothing in the Dodd-Frank Act or in RESPA permits the CFPB to require investors to abandon their contractual rights. Both RESPA 17 and Garn-St. Germain 341 are explicit that investors can enforce the timely and full repayment obligation in their loan contracts according to the contractual terms in all cases. To the extent a right of action would interfere with these federal statutes, it is unauthorized. 2. Successorship Determinations Need a Basis Consumer groups believe that the CFPB should extend RESPA s and TILA s protections to any successor who has established his or her identity and ownership interest by providing reasonable proof of successor status to the servicer even before a servicer verifies the information and the successorship claim. They believe the protections should be extended unless the servicer provides a timely and reasonable response stating that the potential successor will not be confirmed as a successor and the reason for lack of confirmation. 15 If successors were treated as borrowers simply by sending servicers what the claimants believe is sufficient information, the servicer would be unable to protect against fraudulent claims. Servicers must review successorship claims when they are relevant, and ask for any additional information they may need. If servicers are required to determine a claim before they have sufficient time or information to make a reasonable determination, they would need to deny the claim. Servicers commonly engage outside local counsel to review successorship claims that appear to have merit, an eminently reasonable practice. If outside counsel opines that a claimant has not sufficiently established successorship, the servicer will and should act on that advice even if the 15 NCLC Letter p. 10.

18 Page 18 of 48 claimant disagrees. It would be unreasonable for the CFPB to require servicers to act against the advice of their counsel. 3. When Successorship is Relevant, Servicers Need Documentation Consumer advocates believe servicers should not request certain documentation, such as probate documents when a successor acquired a property by survivorship, and a deed after a divorce decree affecting ownership. 16 Servicers request this information because it is relevant to confirming successorship. If a claimant is a successor, producing the information is not unreasonably burdensome. Even if a joint tenant with right of survivorship appears to acquire title upon the death of the co-owner, this does not necessarily mean no other person could assert or have an ownership interest in the property. It is possible that one of the joint tenants sold, or attempted to sell, an interest in the property, with or without recording this event. Even if nothing about an attempted sale is recorded in land records, there is still a risk that a third party could have a full or partial interest in the property. Servicers need to be able to request documentation of title even in the case of a joint tenant s death. In any case of death, there may be a probate proceeding, and a probate proceeding may determine who owns the mortgaged property. Servicers may need to verify whether there is a probate proceeding even if probate is unlikely. In the case of divorce, a divorce decree may require one spouse to transfer title to the other. A deed of transfer, rather than the divorce court decree, may actually make the transfer. To record the transfer, the spouse can record a simple deed rather than a divorce decree that contains unrelated, personal, information. A risk is that the spouse may simply fail or refuse to transfer the property as required. Additionally, the spouse may sell, or attempt to sell, the property to a third party, before or after the divorce decree. If the divorce decree orders a spouse to transfer the property, servicers need to verify that the transfer is properly made, is made to the correct person, and is properly recorded. This can reasonably include requiring a quitclaim deed. Producing a deed, probate documents, or other evidence of title, as properly recorded, is an entirely reasonable request from a claimant trying to document something as significant as ownership of real property. HAMP requires a recorded quitclaim deed when one co-borrower transfers title to another. 17 Inability or unwillingness to produce relevant information may indicate that the successorship claim is invalid. 16 See, e.g., AFR Ex Parte Communication ( Servicers are still requesting unreasonable documentation of successors, including probate documents when right of survivorship exists and a quit-claim deed when a divorce decree exists. ) 17 An occupying co-borrower may be considered for HAMP if a quitclaim deed evidencing that the nonoccupying co-borrower has relinquished all rights to the property has been recorded. HAMP Handbook II.1.2, p. 66.

19 Page 19 of 48 The documentation that is reasonable varies from case to case. It is not possible for the CFPB to specify by regulation what servicers may and must not request in every possible situation because there are too many possible scenarios. Regulation X does not determine or govern ownership of real property, state law does. Nor does RESPA govern probate or divorce determinations. We strongly urge the CFPB not to dictate how servicers must or may not verify ownership of real property. A Regulation X prohibition on asking for documentation servicers need would effectively be a regulatory prohibition on confirming successorship in each of those cases. 4. A Designated Address Is a Reasonable Burden for Claims of Title to Real Property Consumer groups simultaneously want servicers to respond quickly to claims of successorship, by explaining how to establish successor status within five days, 18 and to require servicers to respond to such claims even if claimants do not send them to a designated address. 19 These are inconsistent. If servicers are to respond quickly, they will need to quickly know when they have received a claim of successorship. If a claimant sends a claim to the wrong office, the response will be delayed. Designated addresses speed response times. Five days is not enough time for servicers to respond, however, even with a designated address. We disagree that there is a reason to require servicers to respond to claims of successorship on an emergency basis. In many cases, a successorship determination is irrelevant and unnecessary. There is no need for an emergency response because a successor who wants to keep the property without paying off the loan will need to make continuing payments, or at least partial payments, on the loan. A claimant can and should make payments while a successorship claim and a loss mitigation application are being prepared or are pending. If the servicer has enough confirming information, the servicer will accept payments even while the servicer is reviewing loss mitigation, a successorship claim, or after a servicer determines successorship is irrelevant. The fact that a claimant continues to make payments and the original borrower does not, itself, may help establish that the claim is valid. If the claimant and original borrower do not make payments, a loan modification will not be available and successorship would be irrelevant. There is no reason to require servicers to determine successorship when it is irrelevant, and there is especially no reason to require servicers to determine the irrelevant on an emergency basis. 18 NCLC Letter p NCLC Letter p. 18.

20 Page 20 of 48 If there is any need for speed after a transfer of title, it is to keep the loan reasonably current to prevent a foreclosure. This is entirely up to the claimant and the original borrower (or estate), not the servicer. When a loan modification may be available to a successor, the hurdle is usually getting a claimant to produce timely and complete loss mitigation application information, not title information. If a claimant can produce loss mitigation information, a title determination may not be necessary. Servicers should be permitted to require claims to be in writing and to be sent to a designated address. A claimant who resists putting a claim in writing may indicate a risk of an invalid claim. Written claims are an important, and minimally burdensome, fraud protection. If a claimant does not make the minimal effort to find the designated address, there is not much reason to believe the claimant is able or wants to retain the property. Given that title to real property is in question, a serious matter, requiring successorship claims to be in writing and to be sent to a designated address is reasonable, and is a minimal burden to valid claimants. 5. Need to Verify Claimant s Agent If a claimant is represented by an agent, the servicer should be able to verify this. The servicer should be able to undertake reasonable procedures to determine if a person that claims to be an agent of a [claimant] has authority from the [claimant] to act on the [claimant s] behalf, for example, by requiring that a person that claims to be an agent of the [claimant] provide documentation from the [claimant] stating that the purported agent is acting on the [claimant s] behalf Common Example Illustrates That the Proposal Is Undeveloped We provide a common example of a successorship claim to illustrate how successorship determinations and permitting account access is a process that evolves over time rather than a strictly yes-no decision. The CFPB proposes to require servicers to provide, by a deadline, information regarding the documents the servicer requires to confirm the person s identity and ownership interest in the property. 21 Even if this were feasible or possible, it appears to imply that once the claimant provides all information in the servicer s first response to a claim of successorship, the servicer must fully determine successorship and identity in all cases, possibly by a time certain, with no ability to request additional or different information or to reconcile inconsistent information. The process is not so certain and clear, and depends on many factors that vary from case to 20 From Regulation X comment 35(a)-1 regarding error assertions. 21 Proposed 12 C.F.R (i).

21 Page 21 of 48 case. We urge the CFPB not to put a deadline on full responses to successorship claims for many reasons, but the fact that it is not clear what would be required by any deadline is among the reasons. Importantly, the following example will illustrate why there is no need to determine successorship on an emergency basis even if the claimants will need a loan modification to keep the house out of foreclosure. Suppose a servicer receives notice from a stranger that a borrower, identified by name and address, died intestate and unmarried, with three surviving adult children. The claimant claims to be one of the children, and states that the children want to retain the property and cannot pay off the loan immediately. The servicer cannot provide accountspecific information to the claimant at this early point, but can tell a claimant where to send payments or how to make them by phone or electronically. The servicer can also tell the claimant that if the loan does not remain current, the servicer may exercise default remedies. Servicers cannot provide strangers with specific account information such as account numbers or payment amounts due. The servicer will tell claimants how to establish successorship if it is or may be relevant. If there is a foreclosure, the servicer will send each known claimant foreclosure papers that are required for property owners. If the claimant is a successor, the claimant will probably have at least some access to the deceased s papers, such as loan papers, monthly statements or coupon book, and the borrower s deposit account from which the borrower made loan payments. A valid successor may be able to obtain enough information this way to be able to know the current loan status and payment amount. Even if the claimants cannot make full loan payments, if they will qualify for home retention loss mitigation, by definition they are able to make partial payments. They can make those partial payments to the servicer who may put them in suspense. Or, the claimants can put the payments aside in a separate deposit account while they are confirming their right to access account information. Either way, this will demonstrate to the servicer that they are making payments, which may be evidence that the successorship claim is valid. The claimants ability and willingness to make at least partial payments both increases the chance that a modification will be available and that successorship does not need to be determined on an emergency basis. Claimants who are unable or unwilling to make even partial payments will not be able to obtain a loan modification. The servicer will initially continue sending information to the deceased borrower s address. The NCLC Letter states, [t]he estate of a borrower steps into the borrower s shoes, and should always be entitled to obtain information regarding the mortgage loan and to have payments applied correctly. The estate representative should be able to