A mortgage servicing rule has been finalized that addresses concerns that the industry has about communicating with bankrupt borrowers.
Servicing rules from the Consumer Financial Protection Bureau that went into effect
in January 2014 provided a number of protections for distressed borrowers.
But a final rule issued in 2016
amended the rules. Among the amendments was a requirement for servicers to provide bankrupt borrowers with periodic statements tailored for bankruptcy.
Then, in October 2017, the bureau sought public comment on a proposed rule that would provide
greater certainty to help servicers comply.
But the proposed rule
conflicted with well-settled bankruptcy law that prohibits a creditor from collecting debt from consumers who are in an active bankruptcy case or who have previously been discharged from personal liability in a prior bankruptcy case, according to a January 2018 letter to CFPB Acting Director Mick Mulvaney from the Consumer Mortgage Coalition.
The rule as proposed also attempted to address a mistakenly perceived issue that the Bankruptcy Code and Federal Rules of Bankruptcy Procedure fail to provide consumers with an appropriate level of transparency into the status of their loans, according to the letter.
In addition, the CMC said that the proposed rule failed to
address other serious issues that have been presented to the CFPB.
On Thursday, the CFPB issued a final rule that it says gives mortgage servicers more latitude in providing periodic statements to borrowers entering or exiting bankruptcy.
The final rule considered public feedback indicating
certain technical aspects of the timing of the transition could create unintended challenges and be subject to different legal interpretations.
Based on the feedback, the final rule
provides a clear single-statement exemption for servicers to make the transition. It supersedes the single-billing-cycle exemption included in the 2016 rule.
The effective date of the final rule is April 19.
