Mortgage Servicing Rules (RESPA) Proprietary (non-hamp) Loss Mitigation

Transcription

1 Mortgage Servicing Rules (RESPA) Proprietary (non-hamp) Loss Mitigation Generally Regulation X does not require a servicer to provide any specific loss mitigation option, including the opportunity to apply for a loan modification. (This is different from HAMP, where participating servicers are required to consider a loan modification application and follow HAMP guidelines). However, if a servicer chooses to offer certain loss mitigation options, RESPA via Regulation X requires that the servicer have policies and procedures in place for the homeowner s benefit. Loss mitigation procedures do not apply to small servicers, 1 reverse mortgage transactions, or loans for which the servicer is a qualified lender. Loss Mitigation Procedures 12 C.F.R Review of loss mitigation application 12 C.F.R (b) o If servicer receives a loss mit package from a homeowner at least 45 days prior to a scheduled foreclosure sale 2, the servicer must: 3 Review the application to determine if it is complete ; Notify the borrower in writing within five business days to acknowledge receipt of the application and to advise the homeowner it has reviewed to determine if it is complete or incomplete; and If it is incomplete, provide list to borrower of what documents are required to complete the package and include a reasonable date 4 by which borrower should submit documents Complete application 12 C.F.R (c) o If the servicer receives a complete application from a homeowner at least 37 days before a scheduled foreclosure sale, then, within 30 days of receiving the application, the servicer must: Evaluate the borrower for all available loss mitigation options; Provide the homeowner a notice of which loss mitigation options, if any, the servicer will offer the homeowner 1 An institution is a small servicer if (1) it services 5,000 or fewer mortgages, for all of which the institution is the creditor or assignee, or (2) is a Housing Finance Agency under 25 C.F.R (i.e., agency created by state or local municipality). 2 See Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, which clarifies that if no foreclosure sale has been scheduled as of the date a complete loss mitigation application is received, the application is considered to have been received more than 90 days before any foreclosure sale. 3 The servicer must exercise reasonable diligence in obtaining documents to complete a loss mitigation application. 12 C.F.R See Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, for staff commentary providing guidelines for servicers in setting a reasonable date and noting that [g]enerally, it would be impracticable for a borrower to obtain and submit documents in less than seven days.

2 Denial of Loan Modification Options 12 C.F.R (d) o If the servicer denies the homeowner a loan modification, the servicer must state in the (c) notice: The specific reason each modification option was denied; 5 and The deadline for the homeowner to make an appeal, and any requirements for such appeal Borrower response 12 C.F.R (e) o If a completed loss mit application is submitted: prior to 90 days before a foreclosure sale, the servicer may require that the borrower accept or reject a loss mit offer no earlier than 14 days after the servicer provides the loss mitigation option less than 90 days before a foreclosure sale but prior to 37 days before the sale date, the servicer may require that the borrower accept or reject a loss mit offer no earlier than 7 days after the servicer provides the loss mitigation option o Rejection if the borrower has not accepted a loss mitigation offer within the aforementioned timeframes, the servicer may deem the loss mitigation offer rejected Pre-foreclosure Referral 12 C.F.R (f) o Pre-foreclosure review: Borrower must be 120 days delinquent before servicer refers for foreclosure o Loss mit application received before referral Servicer shall not initiate foreclosure proceedings, unless: Servicer has sent borrower a notice in accordance with the aforementioned regulations stating that borrower is ineligible for any loss mit options, borrower has been denied options for which she would have been ineligible, borrower has rejected options offered, and any appeal dates have expired Prohibition on Foreclosure Sale 12 C.F.R (g) o If a borrower submits a loss mit package after foreclosure has been initiated but more than 37 days before a foreclosure sale, a servicer shall not move for a judgment or order of sale 6 unless: Servicer has sent borrower a notice in accordance with the aforementioned regulations stating that borrower is ineligible for any loss mit options, borrower has been denied options for which she would have been ineligible, borrower has rejected options offered, and any appeal dates have expired 5 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, provides the degree of specificity required of the servicer in denying a borrower for a loan modification. For example, if the denial is based on investor requirements, the servicer must identify the owner or assignee of the loan and the requirement that is the basis of the denial. Additionally, if a loan modification is denied because of a net present value calculation, the servicer must provide the borrower with the inputs used in the calculation. 6 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, clarifies that [t]he prohibition on a servicer moving for judgment or order of sale includes making a dispositive motion for foreclosure judgment, such as a motion for default judgment, judgment on the pleadings, or summary judgment,, which may directly result in a judgment of foreclosure or order of sale. Further, the servicer is responsible for instructing its counsel not to proceed with filing for foreclosure judgment or order of sale, and not to conduct a foreclosure sale in violation of 12 C.F.R (g).

3 Appealing Loss Mit Decision 12 C.F.R (h) o If borrower submits packet 90 days prior to foreclosure sale, she must be permitted at least 14 days to appeal Appeal must be performed by different personnel than those that evaluated the application Within 30 days, the servicer must notify borrower with results of appeal QUALIFIED WRITTEN REQUESTS: NOTICES OF ERROR AND REQUESTS FOR INFORMATION Error Resolution Procedures 12 C.F.R Notice of Error 12 C.F.R (a) o Any written notice that asserts an error, identifies the error the borrower believes to have occurred, and includes the name of the borrower and sufficient info to identify the borrower s account Notice on payment coupon or statement from servicer does not have to be treated as an NOE A Qualified Written Request asserting an error should be considered an NOE Scope of Error Resolution 12 C.F.R (b) o Errors include: Failure to accept payment Failure to apply accepted payment to principal, interest, escrow, or other charges Failure to credit a payment as of the date of receipt Failure to pay taxes, insurance, including charges that servicer as agreed to pay Imposition of fee or charge without reasonable basis for charge Failure to provide accurate payoff balance Failure to provide accurate info with regards to loss mit options Failure to transfer accurate and timely information to a transferee servicer Initiating or proceeding in foreclosure in violation of loss mitigation procedures outline at Other errors relating to mortgage servicing Contact Information 12 C.F.R (c) o Servicer may designate special address for NOE, but must post on website and in communications with borrower; must provide notice to borrower if designated address changes Acknowledgement of Receipt 12 C.F.R (d) o Service must respond within five business days of receipt of NOE Response to NOE 12 C.F.R (e) o If servicer identifies error, it must correct error and provide borrower with written notification of correction 7 7 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, clarifies that a servicer may provide separate responses to notices alleging multiple errors.

4 o Servicer must conduct reasonable investigation, and if servicer believes no error to have occurred, servicer must provide statement of reason to borrower and notify borrower that he or she has the right to request documents used by servicer in reaching that determination o Depending on what type of error (as enumerated at (b)), servicer has from 7 to 30 days to investigate error and notify borrower of results o Servicer may extend time period by an additional 15 days, if before the end of the 30 day period, the servicer notifies the borrower of the extension in writing Servicer may not request extension for NOEs regarding accurate payoff balance and violations of loss mit procedures with regards to initiating or proceeding with foreclosures Requirements not applicable 12 C.F.R (g) o Servicer does not have to comply if: NOE is duplicative NOE is overbroad 8 NOE is untimely (asserted more than a year after servicing for mortgage was transferred, or if mortgage loan balance has been paid in full) o If servicer determines it does not have to comply, it must provide notice to borrower within five days of making such a determination Payment requirements prohibited 12 C.F.R (h) o Servicer cannot require a charge from borrower as condition of responding to NOE Effect on servicer remedies 12 C.F.R (i) o Servicer cannot report adverse info to consumer reporting agency for 60 days after receipt of NOE o Except for NOEs related to violations of loss mitigation procedures with regards to initiating or proceeding with foreclosures, NOEs do not restrict lender or servicer from pursuing remedies under the law Request for Information 12 C.F.R Information request 12 C.F.R (a) Any request for information, that includes the name of the borrower and sufficient info to identify the borrower s account and states info borrower is requesting Notice on payment coupon or statement from servicer does not have to be treated as an RFI A Qualified Written Request requesting information should be considered an RFI Contact Information 12 C.F.R (b) o Servicer may designate special address for RFI, but must post on website and in communications with borrower; must provide notice to borrower if designated address changes Acknowledgement of Receipt 12 C.F.R (c) 8 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, provides examples of overbroad notices of error, including an assertion of errors regarding substantially all aspects of a mortgage loan, including errors relating to all aspects of mortgage origination, mortgage servicing, and foreclosure....

5 o Service must respond within five business days of receipt of RFI Response to information request 12 C.F.R (d) o Servicer must provide borrower with requested information and contact information, or o Conduct a reasonable search for information 9 and notify borrower with a written notification if it cannot locate the information, providing the basis for that determination and contact information so that the borrower can follow up for assistance o The servicer has 10 days to respond to RFIs for identity of, and contact info for, owner or assignee of a mortgage o The servicer has 30 days for all other requests o Servicer may extend time period by an additional 15 days, if before the end of the 30 day period, the servicer notifies the borrower of the extension in writing Servicer cannot request extension for RFIs regarding identity of and contact info for owner or assignee of a mortgage Requirements not applicable 12 C.F.R (f) o Servicer does not have to comply if: RFI is duplicative Info requested is confidential, proprietary, or irrelevant 10 RFI is overbroad or unduly burdensome 11 RFI is untimely (servicing for mortgage transferred more than a year ago or loan paid in full) o If servicer determines it does not have to comply, it must send notice to borrower within five business days of its determination and the basis for that determination Servicer remedies 12 C.F.R (h) o Servicer can still provide adverse info to consumer reporting agency (in contrast to NOE procedures) and RFI does not restrict servicer from pursuing any remedies, including judicial, available to it under law 9 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, provides illustrations of when information is or is not available to a servicer. Documents at an offsite facility would be available to the servicer assuming those documents could be found with reasonable efforts. Information stored on electronic back-up media not accessible by personnel in the ordinary course of business without undertaking extraordinary efforts to identify and restore the information would not be available to the servicer. 10 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, provides examples of confidential, proprietary, or privileged information, including information protected by attorney-client privilege, information regarding management or profitability of the servicer; compensation and bonus structures relating to servicer personnel; and records of examination reports, compliance audits, and borrower complaints. 11 Supplement I to 12 C.F.R. Part 1024, Official Bureau Interpretations, describes a request for information seeking documents relating to substantially all aspects of mortgage origination, mortgage servicing, mortgage sale or securitization, and foreclosure to be overbroad.

6 DAMAGES Damages 12 U.S.C. 2605(f) RESPA entitles borrowers to a private right of action based on violations of the Act o Damages for individuals include: Any actual damages to the borrower as the result of the failure Any additional damages, as the court may allow, in the case of a practice or pattern of noncompliance, an amount up to $2,000 for each such violation