Bankers Seek Clarification of Mortgage Servicing Rules from CFPB

In efforts to ensure its compliance with mortgage servicing rules set forth by the Consumer Financial Protection Bureau (CFPB), the American Bankers Association (ABA) is requesting the federal regulator shed additional light on certain key regulations.

A letter sent last week by ABA Executive Vice President Robert Davis addressed to several CFPB Office of Regulations executives requests clarifications to several agency rules, including the 120-day rule for rolling delinquencies, charged-off loans and servicing rule exemptions in situations where a borrower has filed for bankruptcy.

The 120-day rule prohibits a servicer from making the first notice or filing for foreclosure unless a borrower’s mortgage loan obligation is more than 120 days delinquent.

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As part of their requests for clarification, ABA is inquiring as to how this rule applies to rolling delinquencies, which occur when delinquent borrowers resume making payments on a loan without making up for past missed payments. 

“Rather than leave it to the courts to determine whether a bank has correctly determined that a borrower is more than 120-days delinquent, we request that CFPB specify how the 120-Day Rule applies to rolling delinquencies,” Davis wrote in the letter. “Given the potential legal risks involved, banks are very hesitant to rely solely on oral, unofficial guidance from CFPB staff on the issue.”

On the topic of charged-off loans, ABA previously indicated in a comment letter from November 2013 that its members have encountered obstacles in creating periodic statements for mortgages that have been charged-off.

Such challenges involving periodic statements are continuing, ABA notes, because many banks did not interpret the requirement to apply to charged-off loans until late 2013 when the CFPB began to publicly share its interpretation of the rule. That, and it has not been industry standard or practice to provide such statements for charged-off loans, ABA stated.

If the CFPB continues to require periodic statements for charge-offs, ABA suggests the agency adopt a provision that states “a periodic statement need not be sent for an account if the creditor deems it uncollectible, if delinquency collection proceedings have been instituted, if the creditor has charged off the account in accordance with loan-loss provisions and will not charge any additional fees or interest on the account, or if furnishing the statement would violate Federal law.”

“This approach would align the periodic statement requirement with existing regulations and would take into account some of the difficulties associated with providing periodic statements for charged-off accounts,” Davis wrote. 

In October 2013, the CFPB issued an Interim Final Rule providing limited exemptions from the servicing rules in situations where a borrower has filed for bankruptcy.

Though further analysis was necessary to study the intersection of the Interim rule with bankruptcy law, the Fair Debt Collection Practices Act and CRPB rules, it could not be completed before the servicing rules took effect in January of this year.

“In the event that CFPB elects to issue a final rule that does not include the current exemptions, we strongly recommend that CFPB engage in a notice and comment process that will allow servicers to provide input on the rule before it is finalized,” Davis wrote in the ABA letter. 

As bankruptcy law and the associated servicer operational process are complex, ABA assures that a rulemaking on this issue that differs from the Interim Final Rule would benefit from a public comment period.

“As CFPB considers refining its servicing rules and contemporary or otherwise interpreting the new servicing rules, we reiterate the importance or making CFPB interpretations readily available to all servicers, their vendors and consultants, and other regulatory agencies,” wrote Davis. 

View the ABA letter.  

Written by Jason Oliva

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