Some mortgage servicers might not be aware that they could be subject to a new rule involving home valuations.
While servicers are preparing to comply with new requirements of the mortgage servicing rules from the Consumer Financial Protection Bureau, some might be missing one that could kick in when they receive applications for loan modifications.
Servicers have been busy ensuring that they execute the new servicing requirements in the CFPB’s Regulation Z and Regulation X amendments by the Jan. 10, 2014, implementation date.
But the law firm of K&L Gates LLP says that servicers might not be as familiar with the CFPB’s Equal Credit Opportunity Act Valuation Rule, which amends Regulation B.
According to a report written by K&L Partner Nanci L. Weissgold and K&L Associate Kerri M. Smith, some servicers might be mistakenly assuming that the ECOA rule applies only to loan originations.
“But the scope is not so limited,” the report states. “The bureau has stated in its Small Business Compliance Guide that the rule applies to ‘loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, if they are credit transactions covered by Regulation B.’ The CFPB also affirms in the preamble to its ECOA Valuation Rule that ‘some loan modifications can be subject to the provisions of Regulation B.'”
The CFPB has effectively placed on servicers the burden of determining whether an application for an extension of credit triggers the Reg B requirements. But it’s not the same analysis that servicers use to determine whether an adverse action notice is required for certain loss mitigation denials.
According to the Washington, D.C.-based firm, “adverse action” in Reg B doesn’t include actions on delinquent loans, and there isn’t any comparable exception in the determination of what is an “application” for an extension of credit under Reg B.
“Since the CFPB signaled that at least ‘some loan modifications’ can be subject to the ECOA Valuation Rule, servicers will need to brush up on these valuation-related requirements effective for applications received on or after Jan. 18, 2014,” the attorneys wrote.
K&L has published a brief description of the ECOA Valuation Rule online at www.consumerfinancialserviceswatch.com.