Get Ready to Implement the Mortgage Servicing Rule

Transcription

1 Get Ready to Implement the Mortgage Servicing Rule Presenter: Jeni Butler, J.D., Compliance Controller Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.

2 Disclaimers The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. While efforts have been made to ensure the content is accurate, the user should not rely on the information contained herein as authority and should consult with a licensed professional to obtain advise related to any particular situation. The user also is cautioned that this material may not be applicable to, or suitable for, the user s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein. 2

3 Housekeeping If you are experiencing technical difficulties, please dial: Q&A session will be held at the end of the presentation. Your questions can be submitted via the Questions Function at any time during the presentation. The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days. Please complete our online survey. 3

4 CPE Requirements Answer the polling questions Remain logged in for at least 50 minutes If you are participating in a group, complete the CPE sign-in sheet and return within two business days Contact webmaster@claconnect.com Allow four weeks for receipt of your certificate; it will be sent to you via * This webinar, once recorded, has not been developed into a self study course. Therefore, watching the recording will not qualify for CPE credit. 4

5 About CliftonLarsonAllen A professional services firm with three distinct business lines Wealth Advisory Outsourcing Audit, Tax, and Consulting More than 5,000 employees Offices coast to coast Serve 1,400 financial institutions Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC. 5

6 Speaker Introduction Jeni Butler, J.D. Jeni joined CLA s financial institution s team in 2016 as a compliance consultant. She supports financial institution clients in all aspects of federal regulatory compliance, and specializes in testing and monitoring internal compliance controls as well as training and development of staff members. Prior to joining CLA, Jeni worked in regulatory intelligence product development, creating legal databases to assist compliance officers. She also has a lengthy career history at Wells Fargo Bank, working in a number of capacities over her tenure including, Banker, Licensed Banker, and Service Manager at branches in the Minneapolis area. 6

7 Learning Objectives At the end of this session, you will be able to: Describe the new Mortgage Servicing Rule requirements Identify the changes your institution will have to make to comply with the new rule 7

8 Legal Disclaimer: This presentation is current as of September 15, It does not serve as a substitute for the 2016 Mortgage Servicing Rule. Only the Rule and its Official Interpretations can provide complete and definitive information regarding requirements. 8

9 2016 Amendment: Background The Consumer Financial Protection Bureau (CFPB) has issued a final rule amending the 2013 mortgage rules under the Real Estate Settlement Procedures Act and the Truth in Lending Act. Two implementation dates: 10/19/2017 (Couple provisions: 04/19/2018) 9

10 Non-Binding Policy Guidance Both implementation dates fall mid-week (Thursday). CFPB in June issued non-binding policy guidance stating servicers and consumers are likely to benefit from servicers having the weekend prior to implementation to test systems. Therefore, no enforcement action will be taken against servicers who comply with the new Rule up to 3 days prior. Monday, October 16th; Monday, April 16th 10

11 2016 Amendment: Why the Change? The CFPB received numerous requests to clarify the comprehensive changes to Regulation X and Z that took effect in January The 2016 amendments codify many Bureau responses to requested clarifications, and provide new protections for both borrowers in bankruptcy and successors in interest. 11

12 Changes Effective: October 19, 2017 Small Servicer Definition; ( (e)(4)) Force-Placed Insurance Notice Modifications; ( & ) Added Contouring to Delinquency Definition; Early Intervention & Continuity of Contact; ( & ) Loss Mitigation Requirements; ( ) Prompt Payment Crediting; ( (c)) Periodic Statement Requirements; ( ) 12

13 Changes Effective: April 19, 2018 Borrowers in Bankruptcy: ( (e)(5) and (f)) Live Contact; Written notices; and Resuming Compliance Successors In Interest: ; ( & Subpart C of Regulation X) Definition of Successor In Interest; Provides structure for communicating with a Successor In Interest; Rule extends to Successors the same rights extended to borrowers under Regulation X and Z. 13

14 Small Servicer Expanded Scope 2016 Rule Potentially Expands The Scope Of Servicers Who Qualify For Small Servicer Exemptions: The small servicer exemption has generally applied to servicers who service 5,000 or fewer loans for all of which the servicer is the creditor/assignee. The Rule allows servicers to exclude from this count: Loans you voluntarily service for a non-affiliate; Transactions you service for a seller financer. 14

15 Small Servicer Expanded Scope Seller Financer Classification: 3 Criteria Must be a natural person, estate, or trust that provides seller financing for the sale of one property in any 12- month period to purchasers of the property, which is owned by the natural person, estate or trust; The seller financer cannot have constructed, or acted as a contractor for the construction of, a residence on the property ; The financing must have a repayment schedule that does not result in negative amortization, and it must have a fixed rate, or an adjustable rate that does not adjust until after year 5. 15

16 Small Servicer Expanded Scope No New Small Servicer Exemptions under the Rule: Small Servicers must continue compliance with: Rules related to potential successors in interest; The ARM disclosure provisions; The prompt crediting and payoff statement provisions; The force-placed insurance provisions; The error resolution and information request provisions; Some of the loss mitigation provisions (dealing with foreclosure). 16

17 Force-Placed Insurance Notice: ( ) Notice Content: More Flexibility Servicers are now permitted to address on notices circumstances in which a borrower has insufficient hazard insurance coverage. Specifically, servicers are permitted to provide a force-placed insurance notice and reminder notice which include a statement that the borrower s hazard insurance is expiring, has expired, or provides insufficient coverage. 17

18 Appendix MS-3 to Part 1024 (MS-3(A)-Model Form For Force-Placed Insurance Notice In-Part will now read: Our records show that your [hazard] [Insurance Type] insurance [is expiring] [expired] [provides insufficient coverage], and we do not have evidence that you have obtained new coverage. 18

19 Definitional Contouring: Delinquency Delinquency: a period of time during which a borrower and the borrower s mortgage loan obligation are delinquent. The Rule further stipulates a borrower and a borrower s mortgage loan are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and (if applicable) escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. 19

20 Definitional Contouring: Delinquency This definition applies irrespective of any potential grace period afforded a borrower. Example: Borrower s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow by the first of each month. However, borrower will not incur a late fee if borrower makes the periodic payment by the 15th of the month. If borrower fails to make the January periodic payment, the period of delinquency for purposes of Regulation X s specified mortgage servicing provisions and Regulation Z s periodic statement provision begins the 2nd, not the 16th. 20

21 Delinquency Calculation Changes If A Servicer Has A Policy Of Treating Partial Payments As Timely, The Servicer Must Re-Calculate The Date Of Delinquency Under The New Rule: CFPB Example: A borrower s payment of $1010 per month is due on January 1 but the borrower sends a check for $1001. If the servicer agrees to accept the $1001 and advances the due date for the next payment, the early intervention requirements would not apply because the loan is considered current. If the servicer is unable to collect the $9, the servicer can t decide in April that the borrower was actually delinquent on January 1. 21

22 Rolling Delinquency The New Rule Does Not Require Servicers To Apply Borrower s Payments To The Oldest Outstanding Periodic Payments. However, If Servicers Choose This Payment Application, The New Rule States: The servicer must advance the date that the next payment is due or the date that the delinquency began, as applicable. 22

23 Rolling Delinquency Example: Borrower s mortgage loan requires borrower to make periodic payments of principal, interest, and escrow by the first of each month. Borrower does not make the payment that is due on January 1. On January 31, borrower is 30 days delinquent. On February 3, borrower makes a periodic payment. The servicer applies payments to the oldest outstanding periodic payment (i.e., the periodic payment that was due on January 1). On February 4, borrower is 3 days delinquent 23

24 Definitional Contouring: Delinquency Why the New Definition Matters: Could affect amount of force placed insurance: For example, a mortgage investor s requirements may provide that the amount of coverage for force-placed insurance depends on the borrower s delinquency status (the actual number of days the borrower is past due). Time measurement sets the clock toward the 36 day early intervention requirements set forth in ( a servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower no later than the 36th day of a borrower s delinquency ). 24

25 Early Intervention: What s New? New prong to the 36-day requirement: must establish live contact at 36 days delinquent, and also at each subsequent 36 day-period of delinquency; Imposition of a written intervention requirement for borrowers in bankruptcy; (later slide) Timing for early intervention is now calculated from the new definition of delinquency. New model language for the written notice requirement (45 days delinquent) 25

26 MS-4(D)-Written Early Intervention Notice This is a legally required notice. We are sending this notice to you because you are behind on your mortgage payment. We want to notify you of possible ways to avoid losing your home. We have a right to invoke foreclosure based on the terms of your mortgage contract. Please read this letter carefully. 26

27 Loss Mitigation: Significant Changes Expands Protections: Extends the loss mitigation protections under the rule to consumers more than once during the life of the loan for borrowers who become current any time after submitting the loss mitigation application. 120 Day Exception: A servicer may join existing foreclosure action of a SUPERIOR OR subordinate lienholder(s) prior to 120 days delinquent. 27

28 Loss Mitigation: Significant Changes Short-Term Repayment Plan: The Rule affords servicers the option to offer borrowers repayment plans prior to evaluating a complete loss mitigation application under the following conditions: The plan allows for the repayment of up to 3 months of past due payments; The plan will bring the loan current in 6 months or less; The servicer provides the borrower written notice of the repayment terms. 28

29 Loss Mitigation: Significant Changes New Time Requirements: Reasonable Date Upon receipt of a loss mitigation application, servicers must send an acknowledgment notice within 5 business days of receipt. This notice must include a reasonable date by which the borrower shall return necessary documents to complete the application. Generally, a servicer complies with the reasonable date standard by selecting a due date 30 calendar days from the date it provides the original notice. *Servicer shall not select a date later than the next milestone (120 days delinquent), unless the milestone is less than 7 calendar days away. 29

30 Loss Mitigation: Significant Changes Information Collection: Can now cease if/when the servicer receives information confirming the borrower is not eligible for that specific loss mitigation option. *Note: Servicers may not halt the process on the sole basis of a borrower s stated preference. 30

31 Loss Mitigation: Significant Changes CFPB Example: ( 2016 Amendments to the Mortgage Servicing Rules, Ginnie Mae Users Conference Sept. 2016): A servicemember submits a loss mitigation application and asks for a short sale. The servicer can t stop collecting documents and information needed to evaluate the application for all other loss mitigation options based solely on the borrower s stated preference. However, if requirements established by the investor provide that permanent change of station orders are sufficient evidence of hardship to justify a short sale, the servicer may consider the borrower s preference in conjunction with the PCS orders and may stop collecting documents needed for home retention options. 31

32 Loss Mitigation: Significant Changes New Written Notice Requirement: Servicers must now provide written notice to applicants within 5 business days of receiving a complete loss mitigation application. 32

33 Loss Mitigation: Significant Changes The New Notice Shall State: The fact that the application is complete; The date you received the complete application; That you expect to complete your evaluation within 30 days of the date you received the completed application; That the borrower is entitled to certain foreclosure protections because you have received a complete application; Either one of the following as applicable: 33

34 Loss Mitigation: Significant Changes Either: If you have not made the first notice or filing required for foreclosure, that you cannot make the first notice or filing before evaluating the borrower s complete application; OR If you have made the first notice or filing for any foreclosure, that you have begun foreclosure, and you are prohibited from conducting a foreclosure sale prior to evaluating the complete application. 34

35 Loss Mitigation: Significant Changes Required Third-Party Information: When servicers need more information from a non-borrowing party to make a loss mitigation decision, the servicer must exercise reasonable diligence to ascertain the information if it is not received within 30 days of receipt of the application. What Is Reasonable Diligence? Delay the loss mitigation decision; Provide written notice specifying documents required and that the evaluation will be completed when received. 35

36 What About Vacant Property? Comment 30(c)(2)-1 clarifies: If a property ceases to be a borrower s principal residence, the early intervention, continuity of contact, and loss mitigation provisions do not apply Vacant property can still be a principal residence in certain circumstances 36

37 Prompt Payment Crediting Payment Crediting Clarifications: Temporary Loss Mitigation Program: Payments made pursuant to temporary loss mitigation program shall be credited according to the original loan contract. You should generally treat the payment as a partial payment if it is less than the amount sufficient to cover P,I, and E under original contract. Permanent Loan Modification: Payments made in accordance with a permanent loan modification must be credited as stipulated by the terms of the permanent loan agreement. 37

38 Periodic Statements: New Disclosures Temporary Repayment Plans (Short-Term Repayment or Trial Modification): The amount due section of the periodic statement may reflect either the temporary payment or the contractual payment. If the amount due section of the statement reflects the temporary payment, the contractual payment must also be included in the explanation of amount due. Permanent Modifications periodic statement must reflect only the modified payment. 38

39 Periodic Statements: New Disclosures Accelerated Loans When A Loan Has Been Accelerated, The Periodic Statement Must: Generally, show the accelerated amount in amount due; If the servicer is willing to accept a reinstatement amount less than the accelerated amount, the lesser amount must be shown as the amount due. The accelerated amount must also be shown; Servicers may use a good through or as of date when disclosing the reinstatement amount. 39

40 Periodic Statements: New Disclosures Charge Offs Statement Not Required If: No new fees or interest will be charged; AND Servicer provides *clear and conspicuous notice within 30 days of charge off/most recent statement. Required Heading: Suspension of Statements & Notice of Charge Off Retain This Copy for Your Records, detailing: Loan has been charged off; A periodic statement will no longer be provided; Lien remains and consumer is still liable; Balance is not being forgiven; Loan may be purchased, assigned, or transferred. *No minimum type size or technical requirements imposed. 40

41 Bankruptcy April 19, Amendments Stipulate Increased Communication With Borrowers In Bankruptcy; Servicers required to provide periodic statements to borrowers in bankruptcy who intend to retain home; Consumers in bankruptcy who do not intend to keep their homes may opt in to receiving statements; Consumers in bankruptcy who do intend to keep their home may also opt-out of periodic statements. 41

42 H 30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or Chapter 13 Bankruptcy Bankruptcy: (H-30(F))/Chap. 12/13 42

43 Bankruptcy: (H-30(E)) / Chap. 7/11 43

44 Early Intervention and Bankruptcy Live Contact: A servicer is exempt from the general early intervention live contact requirements (36 days delinquent) while any borrower on the mortgage loan is a debtor in bankruptcy or any borrower on the mortgage has discharged through bankruptcy. Written Notice: Servicers must provide a single written early intervention notice to any delinquent borrower who files bankruptcy unless: No loss mitigation option available; or Borrower has invoked cease communication rights. 44

45 Bankruptcy and Exemptions Charge Offs- Statement/Coupon Book Not Required: No new fees or interest will be charged; AND Servicer provides *clear and conspicuous notice within 30 days of charge off/most recent statement, with the required heading: Suspension of Statements & Notice of Charge Off Retain This Copy for Your Records, detailing: Loan has been charged off; A periodic statement will no longer be provided; Lien remains and consumer is still liable; Balance is not being forgiven; Loan may be purchased, assigned, or transferred. *No minimum type size or technical requirements imposed. 45

46 Successors In Interest April 19, 2018 New definition of Successor in Interest; New structure for communication between successor and servicer; Rule extends to confirmed successors the same right borrowers and consumers have under Regulations X and Z mortgage servicing rules. 46

47 Who is a Successor? The 2016 Amendments Indicates A Successor Is Someone Who Has Acquired An Ownership Interest As A Result Of A Transfer: On the death of a joint tenant or tenant by the entirety, On the death of a relative, When the spouse or children of the borrower become an owner, Resulting from a divorce or legal separation, or Through an intervivos trust in which the borrower is and remains a beneficiary and retains occupancy rights. 47

48 Dealing With Potential Successors Information Requests: The Rule requires servicers provide potential successors in interest a description of the documents the servicer reasonably requires to confirm successor s status. Timely Delivery Same as other information requests under (5 days). 48

49 Dealing With Potential Successors Communication And Evaluation: Servicers Are Required To Establish Policies Reasonably Designed To Ensure: *Prompt communication with potential successors upon notice of borrower death or property transfer; *Prompt distribution to potential successors a description of the documents the servicer reasonably requires for confirmation of successor status; *Prompt notification to potential successors the servicer s confirmation decision. 49

50 Dealing With Potential Successors Reasonable Document Requirement: Example provided by the CFPB: Joe Smith and his friend Walt own a home as joint tenants but only Joe is on the mortgage. When Joe dies, Walt contacts the mortgage servicer and asks for loan information. The state where the property is located uses a recorded deed listing the parties as joint tenants as evidence of ownership. In this case, the servicer could reasonably require: A death certificate; A copy of the recorded deed; and An updated title report to verify that there have been no intervening deeds since origination. 50

51 Confirmed Successors: Servicer Requirements Ensure disclosures do not suggest that confirmed successors are liable for the mortgage obligation: (only liable unless/until they assume the loan obligation under State law) Remove language that might imply liability; Add a separate disclosure to each mailing or communication that disclaims liability; Provide an optional notice upon confirmation (next slide) Ensure confirmed successors receive communications about repayment of the loan. 51

52 Confirmed Successors: Optional Notice For confirmed successors who are not liable for the obligation, the Bureau recommends providing an optional notice highlighting the following (at minimum): The servicer has confirmed the successor; The successor is not liable for the debt; Receipt of the notice does not imply successor liability; The notice may be signed and returned at any time 52

53 Successors and Loss Mitigation The 2016 amendments permit but do not require servicers to evaluate loss mitigation applications submitted by potential successors; If a servicer elects not to evaluate a loss mitigation application submitted by a potential successor, the servicer must consider the application received as of the confirmation date, and evaluate it promptly following confirmation. Nothing in the rule prohibits a servicer from requiring assumption by a successor as a condition of a loss mitigation offer. 53

54 Resources Bureau s Factsheet on Delinquency: ments/ _cfpb_mortgage_servicing_factsheet_on_d elinquency.pdf Bureau s RESPA and TILA Mortgage Servicing Rules: ments/201611_cfpb_mortserv_guide_v3.pdf Bankers Advisory Implementation Guide: 54

55 Questions? 55

56 Thank you! Jeni Butler CLAconnect.com linkedin.com/company/ cliftonlarsonallen facebook.com/ cliftonlarsonallen twitter.com/claconnect 56