Mortgage industry legal experts recently tackled changes to mortgage servicing regulations and had some advise for servicers that have not yet acted.
As National Mortgage News’ ninth annual Mortgage Servicing Conference convened after lunch on April 23, interested attendants trickled into the first compliance and regulation track session.
Here, three mortgage industry legal experts — Nanci Weissgold, partner at Alston & Bird LLP; Greg Kuroda, vice president and assistant counsel in legal and compliance at Cenlar FSB; and Jason Johnson, senior vice president and servicing counsel at MB Financial Bank, N.A. — led the Mortgage Servicing 2.0 panel.
The panelists tackled proposed amendments to the Mortgage Servicing Rule and current developments with servicing transfers.
The 429-page proposed servicing rule amendments, which were issued last year by the Consumer Financial Protection Bureau and closed for comment last month, fall under and Regulation Z, which implements the Truth in Lending Act, and Regulation X, which implements the Real Estate Settlement Procedures Act.
Specifically, the proposed amendments affect the following nine areas for mortgage servicers: successors in interest, delinquency definitions, information requests, forced-place insurance, early intervention, loss mitigation, periodic statements, prompt payment crediting and small servicer exemption.
Under each of the affected areas, the panel highlighted issues the proposed servicing rule amendments raised for servicers. Some issues pertained to definitions.
For instance, the amendment for loan delinquency, which is not defined under current CFPB rules, proposed to define when delinquency begins. The proposed guideline followed Fannie Mae’s and Freddie Mac’s definition. If finalized, delinquency would begin the day the periodic payment sufficient to cover principal payment, interest and escrow are due but not paid. Unfortunately, this definition could create new problems for loan servicers.
“One of the issues with regard to delinquency and servicing is really the question of well, is that the same as default,” Weissgold said. “The definition of default is very significant for FDCPA [Fair Debt Collection Practices Act] purposes for determining when a loan is subject to those additional protections. When is the servicer or subservicer considered a debt collector? Unfortunately, the CFPB didn’t really give any guidance on that question in this proposed rule making.”
Panelists also pointed out operational challenges some of the proposed amendments raised for mortgage servicers.
One potential change to the scope of successors in interest, for example, dealt with same-sex marriage. According to Kuroda, the CFPB issued commentary that said it would recognize this union in states where it was legally approved, thereby making those spouses legal successors in interest.
“What about states that don’t approve same sex marriages, but people were married in that state?” Kuroda said. “I think you have an issue there, and you’re going to have to train your staff to recognize that and really probably get clarification and even outside counsel opinion.”
According to Weissgold, the CFPB currently is reviewing the collected comments and has yet to issue the finalized amendments, which will take effect 280 days after they are published in The Federal Register. The amendments covering the requirements for periodic statements for borrowers in bankruptcy, however, will take affect one year from their publication date.
Kuroda suggested servicers look at their current programming and work with their vendors now. When the final rules are published, he said 280 days was a short turn-around time for servicers to perform quality control checks. So, working with service providers and getting software up-to-date and accurate were immediate and imperative action items.
Before Mortgage Servicing 2.0 finished, Johnson closed with a brief discussion on servicing. Johnson said any business involved with acquiring or transferring servicing would be affected by the proposed amendments. Johnson suggested businesses that had not reviewed or operationalized guidance in CFPB Bulletin 2014-01 should do so immediately and adjust their policies and procedures.
Johnson pointed to Green Tree Servicing LLC as an example of what could happen if the proposed amendments are not addressed now within a servicing transfer business. Green Tree recently agreed to a $63 million settlement levied by the CFPB for alleged illegal practices in loan servicing and debt collection.
“Out of that $63 million, $30 million was allocated toward the punishment and redress of conduct, which I thought directly related to issues arising out of the mortgage servicing transfer context,” Johnson said. “A lot of common violations, things that you would think people wouldn’t be doing at this stage — requesting documents for loan mods all over again, not honoring loan mods that were in flight for the prior servicer and so on — leading to that sort of harm.”
