Cheat Sheet: How CFPB Is Changing Mortgage Servicing (Again)

The Consumer Financial Protection Bureau on Thursday issued a final rule for mortgage servicers that provides greater protections to struggling borrowers, surviving family members and borrowers in bankruptcy.

The changes also add protections to consumers when their mortgage is transferred to another servicer, a major pain point for the industry.

"The consumer bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon," CFPB Director Richard Cordray said in a press release. "These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable."

The CFPB first issued mortgage servicing rules in 2014 to address widespread problems after the financial crisis, but the agency wanted to go further to protect troubled borrowers. The new requirements have been in the works since late 2014.

They make several big changes. Among them, mortgage servicers would have to offer loss mitigation to borrowers more than once over the life of the loan, but only if the borrower became current on their mortgage and ran into trouble again, perhaps years later.

The final rule clarifies when a borrower becomes delinquent and how a servicer can prevent wrongful foreclosures and avoid dual tracking of borrowers. The rule also specifies several requirements for early intervention, loss mitigation, information requests and prompt crediting of payments, as well as the small servicer exemption. Additionally, it exempts servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage.

Under the final rule, if a borrower dies, servicers would be required to promptly communicate with surviving family members or other "successors in interest," who have a legal right to the home.

Following is a detailed list of the added requirements for servicers in the final rule:

• Mortgage servicers would have to expand foreclosure protections more than once over the life of the loan. Borrowers used to only have "one bite at the apple" of obtaining a loan modification. But the final rule would help consumers who get a permanent loan modification and later suffer another hardship to avoid foreclosure. The caveat is that consumers would have to be current on their mortgage before submitting a complete loss mitigation application.
  
• Servicers must create policies and procedures to promptly communicate with "successors in interest," if the borrower dies. Those who have a legal interest in the home are given the same protections as the original borrower.
  
• Servicers must provide borrowers in bankruptcy with periodic statements including specific information tailored for bankruptcy, as well as a modified written early intervention notice about loss mitigation options. Previously, servicers did not have to provide periodic statements of loss information to borrowers in bankruptcy.
  
• Servicers are required to notify borrowers promptly and in writing when a loss mitigation application is complete, so that borrowers know the status of the application and have more information about their protections.
  
• When servicing is transferred the new servicer must comply with loss mitigation requirements within the same timeframes that applied to the former servicer. The rule sets specific timeframes if a borrower submits a loss mitigation application before servicing is transferred, and borrowers retain some foreclosure protections in the meantime.

Most provisions in the final rule will take effect 12 months after its publication in the Federal Register, which is expected soon. However, provisions on successor in interest and periodic statements for borrowers in bankruptcy take effect 18 months after publication in the Federal Register.
The CFPB also issued an interpretive rule under the Fair Debt Collection Practices Act relating to servicers’ compliance with certain mortgage servicing provisions.