New Servicing Rules under RESPA Early Intervention, Continuous Contact and Loss Mitigation FIS Regulatory Advisory Services Regulatory.Services@fisglobal.com
New Servicing Rules Under RESPA Early Intervention, Continuous Contact and Loss Mitigation FIS Regulatory Advisory Services Regulatory.Services@fisglobal.com 2013 FIS and/or its subsidiaries. All Rights Reserved. Agenda The New Mortgage Servicing Rules When a Borrower Becomes Delinquent Regulation X Part 1024 Small Servicer Steps to Comply Policies and Procedures Regulatory Guidance 2
Background 2010 Joint Agency review of largest 14 servicers 54 million mortgage loans 4.4 million in foreclosure or 90 days past due Average foreclosure process 450 days! Deficiencies: Governance Staff Legal Documents System 3 rd Parties Internal Audit 3 Regulatory Response RESPA Rules Effective January 10, 2014 Early Intervention 1024.39 Continuity of Contact 1024.40 Loss Mitigation 1024.41 Strict timing requirements When is a borrower delinquent? 4
Delinquent Borrower Early Intervention Early Intervention concepts Starts well before borrower becomes delinquent Qualified Mortgages Ability to repay Home Ownership Counseling Closed end mortgages Periodic Billing Statements Interest Rate Adjustment Notices 5 RESPA Early Intervention Section 1024.39 By 36th day after delinquency Must make good faith efforts Document! Establish live contact In person or by telephone Send certified mail Merely leaving a message does not count Live contact may be with a borrower representative Timeliness Earlier warning flags Monthly cycles result in volume overload Be prepared to discuss details with the borrower or assignee 6
RESPA Early Intervention By 45 th day after delinquency Written notice of loss mitigation options Required one time in 180 day period Content Statement encouraging borrower to contact servicer Number to contact servicer personnel assigned Mailing address Brief description of loss mitigation options if applicable Application instructions or how to obtain more information Website to access CFPB or HUD list of Homeownership counselors HUD toll free number (satisfies HUD Counseling Notice) Other information Model Clauses Appendix MS 4(A), (B), & (C) 7 Borrowers In Bankruptcy Servicer communication should adhere to applicable bankruptcy laws Notify borrowers of loss mitigation options as allowed 8
Other Notices RESPA Early Intervention Letter HUD Delinquent Homeownership Counseling Notice HUD Servicemembers Civil Relief Act Notice Timing requirements for notices is same 45 days after delinquency No format requirements for any of the notices Send all 3 together to comply 9 RESPA Continuity of Contact Part 1024.40 Establish a relationship At least through two consecutive on time payments Provide timely access to personnel via telephone to assist with loss mitigation options Same contacts in 45 day letter assign by 36 day live contact Focal point of contact Person or group of persons assigned to the borrower 10
Continuity of Contact Required functions of servicer personnel Provide accurate information about Available loss mitigation options Actions borrower must take to be evaluated Completing an application Appeals Status of application Circumstances for referring foreclosure Deadlines Retrieve timely Complete payment history Written information provided in connection with a loss mitigation application Provide the written information to other persons to evaluate borrower Provide information about submitting notice of errors 11 Big or Small Same Principles Communication! Coordinate efforts across several departments Collections Loss Mitigation Collateral Management Foreclosure Accuracy and Consistency 12
RESPA Loss Mitigation Part 1024.41 Application Process Evaluation Loss mitigation options Loan modifications & workout strategies Affordable payments Sustainable over life of loan 13 Loss Mitigation Eligibility Early determination of eligibility for options Reasons for delinquency Temporary vs. permanent situation Investor requirements Waterfalls for eligibility of various options Retention or non retention options 14
Completed Applications May establish your own application & information requirements Inquiry or prequalification as an application Application received at least 45 days before foreclosure sale Acknowledge receipt of application within 5 days Complete or incomplete What information is needed to complete Consider contacting servicers of any other mortgage loans on property Borrower should submit necessary information to complete application by earliest of: The date by which any document or information submitted by a borrower will be considered stale or invalid for the loss mitigation option; or The date that is the 120 days, 90 days, or 38 days before the foreclosure sale. 15 Pre foreclosure Applications Completed Application Servicer Responsibilities 90 days or more A servicer may require the borrower to accept or reject an offer of a loss mitigation option no earlier than 14 days after the servicer provides the offer. Between 37 and 90 days A servicer may require the borrower accept or reject an offer of a loss mitigation option no earlier than 7 days after the servicer provides the offer. 45 days or more Review the application for completeness and within 5 days notify the borrower with a written receipt acknowledging the application More than 37 days Within 30 days the servicer must evaluate the borrower for available options and provide the borrower with a written notice stating the determination of which loss mitigation options, if any, it will offer to the borrower. 37 days or less The servicer is not required to comply with section 1024.41, but must still evaluate and notify the borrower of any loss mitigation options available. 16
Prohibition on Foreclosure First filing or notice of foreclosure may not be made sooner than 120 days after delinquency Application received before foreclosure first filing or notice Stops the foreclosure process May start foreclosure process if: Servicer informs borrower not eligible Borrower rejects all loss mitigation offers Borrower fails to comply with terms of loss mitigation option such as a trial modification Dual track processing Suspend foreclosure proceedings for successfully performing trial modifications 17 Application Denials and Appeals Denial Lender does not offer borrower a loan modification, or Borrower has not accepted an offer within stated deadlines Notice to borrower Include Adverse Action notices as applicable Specific reasons that are basis for denying a trial or permanent loan modification option If denial is based on an investor requirement, identifying investor and specific requirement If servicer uses a ranking system and if borrower qualifies for some options and not others, and requirements for options If trial or permanent option is denied due to net present value calculations and the inputs used in the calculation 18
Appeals & Denials Evaluation One time for a particular loss mitigation offer Independent evaluation Determination provided within 30 days Timing requirements of appeals: Application 90 days prior foreclosure sale or notice of first filing borrower must appeal within 14 days after denial Borrower must appeal within 14 days after receiving an offer A servicer may not require that borrower accept or reject an offer earlier than 14 days after providing a subsequent offer 19 Completed Trial Modifications Trial modification for timely payments Successful completion suspends foreclosure proceedings Successful completion allows a borrower additional reasonable time to fulfill other requirements 20
Loss Mitigation Exceptions Option offered without receiving a completed application or performing an evaluation Requirements of 1024.41 do not apply If an evaluation is performed then no exception to this section Small servicers are exempt from compliance with 1024.41 except for: Comply with first notice or filing for foreclosure process unless borrower is at least 120 delinquent, and May not proceed to foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing pursuant to the terms of a loss mitigation agreement. Why exempt? Expected to provide adequate customer service Standards should be similar to requirements for large servicers 21 Small Servicers 5,000 or fewer mortgage loans that the servicer owns or originated Determined as of January 1 for remainder of calendar year Regulation Z 1026.41 proposed amendments subsequent release of final ruling clarify small servicer RESPA includes only federally related mortgage loans serviced while Reg Z is not limited to federally related mortgage loans Includes loans in which an affiliate services a loan The servicer be either the creditor or assignee of the mortgage loan it services it must either own or have originated the mortgage loan Master servicer/subservicer relationships examples 22
Servicing Transfers The transferee servicer must obtain all documents submitted by the borrower Timelines and dates for transferee are same as those for transferor Seamless loss mitigation process Delays in transferring information do not affect borrower evaluation Smooth transition requires communication with all involved parties 23 Non retention Options Loss mitigation option Borrower does not remain in home Short Sale Includes a marketing or listing period under which a borrower is deemed to be performing under a loss mitigation agreement Must be approved by servicer, other affected parties, lien holders, insurers, etc. If not completed within time period, then borrower is not deemed to have performed under the loss mitigation agreement Consider pending offers Proof of funds or financing 24
Making Home Affordable Programs Making Home Affordable Programs Home Affordable Modification Program (HAMP) For employed owners and non owners, up to 4 unit rental property Owners do not have to be delinquent to be eligible Home Affordable Refinance Program (HARP) Current on a Fannie or Freddie owned loan and LTV > 80% FHA Refinance for Borrowers with Negative Equity Home Affordable Unemployment Program (UP) Lower payment to 31% of income or 12 month suspension of payments Principal Reduction Alternative (PRA) Not Fannie or Freddie owned loan Home Affordable Foreclosure Alternatives (HAFA) Short sell and Deed in lieu 25 Loss Mitigation Standards Policies and procedures as set forth by RESPA 1024.38 and Regulation Z 1026.41 Agency guidelines issued individually and jointly Comply with foreclosure laws for RESPA and your state Conduct your foreclosure processing in a safe and sound manner Business practices that promote accountability and appropriate treatment of borrowers 26
Mortgage Servicing Policies and Procedures Required under RESPA 1024.38 & Regulation Z 1026.41 Provide accurate and timely disclosures to a borrower; Investigate, respond to, and, as needed, make corrections in response to borrower complaints; Respond to borrower requests with accurate and timely information and documents; Provide owners or assignees of mortgage loans with accurate and current information and documents about all mortgage loans they own; Submit accurate and current documents or filings required by applicable law for a foreclosure process, required by the court; and If notified of the borrower s death, promptly identify and communicate with the deceased borrower s estate concerning the property secured by the deceased borrower s mortgage loan. 27 Loss Mitigation Policies and Procedures Loss mitigation policies and procedures must include: Providing accurate information regarding loss mitigation options available to a borrower from the owner or assignee of the borrower s mortgage loan; Identifying with specificity all loss mitigation options for which borrowers may be eligible for under the requirements established by an owner or assignee of the borrower s mortgage loan; Providing prompt access to all borrower submitted documents and information in connection with a loss mitigation option to servicer personnel assigned to assist the borrower; Identifying documents and information that a borrower is required to submit to complete a loss mitigation application and provide appropriate application notices; and Properly evaluating a loss mitigation applicant for all eligible loss mitigation options. 28
Service Provider Oversight Policies Oversight of service providers: Provide appropriate servicer personnel with access to accurate and current service provider documents and information that reflect service provider performance; Perform periodic reviews of service providers, and provide appropriate servicer personnel with documents and information necessary to audit service provider compliance with the servicer s contractual obligations to the borrower and under applicable law; and Share accurate and current information among appropriate servicer personnel regarding the status of any evaluation of a borrower s loss mitigation application and the status of any foreclosure proceeding. 29 Loss Mitigation Policies and Procedures Specific to your institutions Loss Mitigation policies should document: Requirements and training for home counseling personnel What constitutes a 'completed' loss mitigation application for the particular institution and what documentation and information needs to be gathered. Procedures, timing and notifications to the borrower in the event of incomplete applications. The institution's policy on what to do with an application received 37 days or less prior to foreclosure Borrower application review, approval, denial and appeal processes. Criteria for participation in loss mitigation programs ECOA and FCRA adverse action notices, or notice of an alternative option in the event of denial to a loss mitigation program applied for. 30
Guidance Loss Mitigation Governance Assess and control risks through all phases of foreclosure process Operational Compliance Legal Reputation Standards for vendor management Audit and quality control standards Sufficient staffing, structure and training 31 Guidance Affidavits and Documentation Attestations in foreclosure related affidavits Truthful Accurate Supported in loan files Affiants must sufficiently review loan files to make attestations No robo signing Notary practices conform to state legal requirements Documentation maintained Clear audit trail Accurate records, statements and verifiable information 32
Guidance Legal Compliance and 3rd Parties Certain borrowers receive additional foreclosure protection under Servicemembers Civil Relief Act and bankruptcy provisions 3rd Party vendor management and monitoring Default Management Service Providers (DMSPs) Mortgage Electronic Registration Systems (MERS) Review contracts for performance standards Determine experience and capacity to perform functions Inspect what you expect Arrangements with outside law firms Dealings with borrower assignees 33 Self Assessments Be Proactive Conduct self assessment to identify and correct weaknesses Make remediations if necessary 34
Conclusion Loss mitigation compliance is extensive Costly to comply with Staffing Resources Information Systems Final proposed amendments Making Home Affordable Programs www.makinghomeaffordable.gov Agency Guidance www.occ.gov/news issuances/bulletins/2011/bulletin 2011 29.html www.occ.gov/news issuances/news releases/2011/nr occ 2011 47a.pdf www.federalreserve.gov/boarddocs/rptcongress/interagency/interagency.htm www.fdic.gov/regulations/examinations/supervisory/insights/sise11/foreclosure.html 35 Questions?
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