Mortgage Servicing: Loss Mitigation (12 CFR 1024.41)

Mortgage Servicing: Loss Mitigation (12 CFR 1024.41) The Consumer Financial Protection Bureau s (CFPB) new mortgage servicing rule includes requirements and restrictions relating to communicating with borrowers, about and the evaluation of, applications for loss mitigation options. *This CompNOTES has been revised and is current as of December 6, 2013 Revised: December 6, 2013 For the latest information please see CUNA s eguide to Federal Laws and Regulations Colleen Kelly Regulatory Compliance CREDIT UNION NATIONAL ASSOCIATION

1 TABLE OF CONTENTS Small Servicers: Partial Exemption 2 Types of Mortgage Loans Covered 2 What is a Loss Mitigation Application? 2 Receipt of a Loss Mitigation Application 3 Complete Loss Mitigation Application 3 Incomplete Loss Mitigation Application 8 Foreclosure Process Implications 12 Appeals Process for Loss Mitigation Determinations 14 Compliance Check List 16 Appendix A: Small Servicer Exemption 18

2 Small Servicers: Partial Exemption Small Servicers are exempt from most of the requirements and restrictions relating to communicating with borrowers about, and the evaluation of, applications for loss mitigation options. Except that a Small Servicer must not make the first notice or filing required by law for any foreclosure process unless a borrower s mortgage loan obligation is more than 120 days delinquent and must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing according to the terms of an agreement on a loss mitigation option. For more information regarding these prohibitions see Foreclosures Process Implications in this report. To determine whether your credit union is a small servicer, see Appendix A in this report. Types of mortgage loans covered by the loss mitigation provisions The mortgage loans affected by the loss mitigation provisions described in this document include: closed-end federally-related mortgage loans (first-liens and subordinate liens), that are secured by the borrower s principal residence. These provisions do not apply to open-end lines of credit, property of 25 acres or more, business purpose loans, temporary financing or loans secured by vacant land. WHAT IS A LOSS MITIGATION APPLICATION? A mortgage servicer is encouraged to provide borrowers with information about loss mitigation programs. If in giving information to the borrower, the borrower expresses an interest in applying for a loss mitigation option and provides information the mortgage servicer would evaluate in connection with a loss mitigation application, the borrower s inquiry has become a loss mitigation application. What constitutes a loss mitigation application is considered expansively by the CFPB and includes any prequalification for a loss mitigation option. For example, if a borrower requests that a mortgage servicer determine if the borrower is prequalified for a loss mitigation program by evaluating the borrower against preliminary criteria to determine eligibility for a loss mitigation option, the request constitutes a loss mitigation application. According to the CFPB s Examination Procedures, a loss mitigation application includes oral inquiries by the borrower where the borrower provides the information a servicer would evaluate in connection with a loss mitigation application. Examples of inquiries that are not loss mitigation applications The following examples illustrate situations in which only an inquiry has taken place and no loss mitigation application has been submitted: i. A borrower calls to ask about loss mitigation options and credit union personnel explain the loss mitigation options available to the borrower, as well as the criteria for determining the borrower s eligibility for the loss mitigation options. The borrower does not, however, provide any information that the credit union would consider for evaluating a loss mitigation application.

3 ii. A borrower calls to ask about the process for applying for a loss mitigation option but does not provide any information that the credit union would consider for evaluating a loss mitigation application. Loss mitigation applications not always required The CFPB notes in its Official Interpretation of the rule that mortgage servicers are not prohibited from offering loss mitigation options to a borrower who has not submitted a loss mitigation application. RECEIPT OF A LOSS MITIGATION APPLICATION The procedures differ depending on how far in advance of foreclosure a borrower submits a loss mitigation application. The regulation does not impose a duty on a servicer to provide any borrower with any specific loss mitigation option. Review and Notification If a mortgage servicer receives a loss mitigation application 45 days or more before a foreclosure sale, a servicer must: (A) Review the loss mitigation application promptly upon receipt of the application, to determine if it is complete. AND (B) Notify the borrower in writing within 5 days after receiving the loss mitigation application (excluding legal public holidays, Saturdays, and Sundays), acknowledging receipt of the application and stating whether the application is either complete or incomplete. What to do when a cease communication is in effect The CFPB s Bulletin 2013-12 provides an advisory opinion interpreting the Fair Debt Collection Practices Act (FDCPA) cease communication requirement in relation to the loss mitigation requirements. The FDCPA grants debtors the right generally to bar debt collectors from communicating with them. The CFPB concludes that the FDCPA cease communication option does not generally make servicers that are debt collectors liable under the FDCPA if they comply with certain provisions of Regulation X, including the loss mitigation provisions (as well as error resolution, requests for information, force-placed insurance, and Regulation Z s adjustable-rate mortgage (ARM) initial interest rate adjustment and periodic statement). This conclusion does not extend to the notices/communications required by the early Intervention Rule or the ARM Interest Rate Adjustment with Corresponding Payment Change Rule. According to the CFPB, no liability arises under the FDCPA for an act done or omitted in good faith in conformity with an advisory opinion of the CFPB while that advisory opinion is in effect. COMPLETE LOSS MITIGATION APPLICATION

4 A completed loss mitigation application means an application with which a mortgage servicer has received all the information that is needed from a borrower to evaluate which loss mitigation options, if any, are available to the borrower. A loss mitigation application is complete when a borrower provides all the information the credit union requires from the borrower regardless of any additional information that may be required that is not in the control of a borrower. For example, if the credit union requires a consumer report for a loss mitigation evaluation, a loss mitigation application is considered complete if a borrower has submitted all of the information required from the borrower regardless of whether the credit union has obtained a consumer report that has been requested from a consumer reporting agency. The CFPB notes in the Official Interpretation of the rule that a mortgage servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options. Although a mortgage servicer has this flexibility, a servicer must exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. Furthermore, a mortgage servicer must request information necessary to make a loss mitigation application complete promptly after receiving the loss mitigation application. Reasonable diligence includes, without limitation, the following actions: i. A mortgage servicer requires additional information from the applicant, such as an address or a telephone number to verify employment; the servicer contacts the applicant promptly to obtain such information after receiving a loss mitigation application; and ii. Servicing for a mortgage loan is transferred to a mortgage servicer and the borrower makes an incomplete loss mitigation application to the transferee servicer after the transfer; the transferee servicer reviews documents provided by the transferor servicer to determine if information required to make the loss mitigation application complete is contained within documents transferred by the transferor servicer to the transferee servicer. Evaluation and Notification If a credit union receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days of receiving the borrower s complete loss mitigation application, a credit union must: (i) Evaluate the borrower for all loss mitigation options available to the borrower, and (ii) Provide the borrower with a written notice stating: (1) the mortgage servicer s determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage loan; (2) if applicable, the amount of time the borrower has to accept or reject an offer of a loss mitigation program, and

5 (3) if applicable: (a) a notification that the borrower has the right to appeal the denial of any loan modification option, (b) the amount of time the borrower has to file such an appeal, and (c) any requirements for making an appeal. Evaluation is at the discretion of the mortgage servicer According to the Official Interpretation of the rule, the conduct of a mortgage servicer s evaluation with respect to any loss mitigation option is in the sole discretion of a mortgage servicer. A mortgage servicer meets these requirements if the mortgage servicer makes a determination regarding the borrower s eligibility for a loss mitigation program. Nothing in this provision should be construed to permit a borrower to enforce the terms of any agreement between a mortgage servicer and the owner or assignee of a mortgage loan, including with respect to the evaluation for, or provision of, any loss mitigation option. This provision does not require that an evaluation meet any standard other than the discretion of the mortgage servicer. Available loss mitigation options The loss mitigation options available to a borrower are those options offered by an owner or assignee of the borrower s mortgage loan. According to the CFPB s Official Interpretation of the rule, loss mitigation options administered by a mortgage servicer for an owner or assignee of a mortgage loan other than the owner or assignee of the borrower s mortgage loan are not available to the borrower solely because such options are administered by the mortgage servicer. For example: i. A mortgage servicer services mortgage loans for two different owners or assignees of mortgage loans. Those entities each have different loss mitigation programs. Loss mitigation options not offered by the owner or assignee of the borrower s mortgage loan are not available to the borrower; or ii. The owner or assignee of a borrower s mortgage loan has established pilot programs, temporary programs, or programs that are limited by the number of participating borrowers. A mortgage servicer evaluates whether a borrower is eligible for any such program consistent with criteria established by an owner or assignee of a mortgage loan. So, for example, if an owner or assignee has limited a pilot program to a certain geographic area or to a limited number of participants, and the mortgage servicer determines that a borrower is not eligible based on this criteria, the mortgage servicer must inform the borrower that the investor requirement for the program is the basis for the denial. Non-home retention loss mitigation option (ie: short-sale): The CFPB explains in the Official Interpretation of the rule that a mortgage servicer s offer of a non-home retention option may be conditional upon receipt of further information not in the borrower s possession and necessary to establish the parameters of a mortgage servicer s offer. For example, a mortgage servicer complies with the requirement for evaluating the borrower for a short sale option if the mortgage servicer offers the borrower the opportunity to enter into a listing or marketing period

6 agreement but indicates that specifics of an acceptable short sale transaction may be subject to further information obtained from an appraisal or title search. Denial of loan modification options: A mortgage servicer s determination not to offer a borrower a loan modification that is available to the borrower constitutes a denial of the borrower for that loan modification option, regardless of whether a mortgage servicer offers a borrower a different loan modification option or other loss mitigation option. If a borrower s complete loss mitigation application is denied for any trial or permanent loan modification option available to the borrower, a servicer must state in the notice sent to the borrower: and (1) The specific reasons for the servicer s determination for each trial or permanent loan modification option; (2) If applicable, that the borrower was not evaluated on other criteria. A mortgage servicer may combine this notice with other notices required by law, such as an adverse action notice required by Regulation B, or a notice required by the Fair Credit Reporting Act, unless otherwise prohibited by law. If denial is due to owner/assignee requirement: The Official Interpretation of the rule states that if a trial or permanent loan modification option is denied because of a requirement of an owner or assignee of a mortgage loan, the specific reasons in the notice provided to the borrower must identify the owner or assignee of the mortgage loan and the requirement that is the basis of the denial. A statement that the denial of a loan modification option is based on an investor requirement, without additional information specifically identifying the relevant investor or guarantor and the specific applicable requirement, is insufficient. Ranking or Waterfall: However, where an owner or assignee has established an evaluation criteria that sets an order ranking for evaluation of loan modification options (commonly known as a waterfall) and a borrower has qualified for a particular loan modification option in the ranking established by the owner or assignee, it is sufficient for the mortgage servicer to inform the borrower, with respect to other loan modification options ranked below any option offered to a borrower, that the investor s requirements include the use of such a ranking and that an offer of a loan modification option necessarily results in a denial for any other loan modification options below the option for which the borrower is eligible in the ranking. The CFPB explains in the Official Interpretation of the rule that a mortgage servicer is required to disclose the actual reason(s) for the denial. If a servicer s systems establish a hierarchy of eligibility criteria and reach the first criterion that causes a denial but do not evaluate the borrower based on additional criteria, a servicer complies with the rule by providing only the reason(s) with response to which the borrower was actually evaluated and rejected as well as notification that the borrower was not evaluated on other criteria. A mortgage servicer is not required to determine or disclose whether a borrower would have been denied on the basis of additional criteria if such criteria, were not actually considered. Denial due to net present value calculation: If a trial or permanent loan modification is denied because of a net present value calculation, the specific reasons in the notice provided to the borrower must include the inputs used in the net present value calculation.

7 Deadline for borrower s acceptance or rejection If a complete loss mitigation application is received 90 days or more before a foreclosure sale, a mortgage servicer may give the borrower no less than 14 days after the servicer provides the offer to accept or reject the offer of a loss mitigation option. If a complete loss mitigation application is received less than 90 days before a foreclosure sale, but more than 37 days before the sale, a servicer may give the borrower no less than 7 days after the servicer provides the offer of a loss mitigation option to accept or reject the offer. Borrower s Rejection: A servicer may consider a borrower that has not accepted an offer of a loss mitigation option within the deadline to have rejected the offer. Exceptions to rejection: Trial Loan Modification Plan: A borrower who does not satisfy the servicer s requirements for accepting a trial loan modification plan, but submits the payments that would be owed according to the plan within the deadline, will be provided a reasonable period of time to fulfill any remaining requirements of the servicer for acceptance of the trial loan modification plan beyond the deadline. Appeal Process Deadline extension: If a borrower appeals the mortgage servicer s determination to deny a borrower s loss mitigation application for any trial or permanent loan modification program available to the borrower, the borrower s deadline for accepting a loss mitigation option will be extended until 14 days after the servicer provides the notice stating the servicer s final determination based on the appeal. No Duplicative Applications A mortgage servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower s mortgage loan account. Transfer of Servicing According to the Official Interpretation of the rule, a transferee servicer is required to comply with the loss mitigation requirements regardless of whether a borrower received an evaluation of a complete loss mitigation application from a transferor servicer. Documents and information transferred from a transferor servicer to a transferee servicer may constitute a loss mitigation application to the transferee servicer and may cause a transferee servicer to be required to comply with the loss mitigation requirements with respect to a borrower s mortgage loan account. A transferee servicer must obtain documents and information submitted by a borrower in connection with a loss mitigation application during a servicing transfer, consistent with the general policies and procedures required by this rule ( 1024.38(b)(4)). A mortgage servicer that obtains the servicing of a mortgage loan for which an evaluation of a complete loss mitigation option is in process should continue the evaluation to the extent practicable. For purposes of:

8 the borrowers response ( 1024.41(e)(1)), foreclosure proceedings ( 1024.41(f),1024.41(g)), and the appeals process ( 1024.41(h)), a transferee servicer must consider documents and information received from a transferor servicer, that constitute a complete loss mitigation application for the transferee servicer, to have been received by the transferee servicer as of the date such documents and information were provided to the transferor servicer. RECEIPT OF AN INCOMPLETE LOSS MITIGATION APPLICATION Notice to Borrower If a loss mitigation application is incomplete, the required notice to the borrower must state: the additional documents and information the borrower must submit to make the loss mitigation application complete; a reasonable date by which the additional material must be submitted; that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.

9 The CFPB explains in the Official Interpretation of the rule that when determining a reasonable date, a mortgage servicer should use the four milestones listed below to preserve the maximum loss mitigation rights for the borrowers. Exception: An exception is allowed when using the milestones listed below would be impracticable to permit the borrower sufficient time to obtain and submit the type of documentation needed, such as, generally speaking, less than seven days. In the Supplemental Information to the rule, the CFPB notes that the Bureau appreciates the challenges of determining what would be impracticable less than seven days but notes this is a minimum number of days, and that a servicer may extend this timeline if it believes the borrower would need more time to gather the information. Milestones: In setting a date, the following milestones should be considered: (1) The date by which any document or information submitted by a borrower will be considered stale or invalid according to any requirements applicable to any loss mitigation option available to the borrower; (2) The date that is the 120th day of the borrower s delinquency; (3) The date that is 90 days before a foreclosure sale, (4) The date that is 38 days before a foreclosure sale. If the foreclosure date is unknown: If the date of a foreclosure sale is not known, a mortgage servicer may use a reasonable estimate of the date for which a foreclosure sale may be scheduled. While the regulation does not permit servicers to estimate foreclosure sale dates in other contexts, such as for purposes of determining whether a borrower will be granted an appeal when no foreclosure sale has actually been scheduled, the Bureau believes it is appropriate to allow servicers to estimate a foreclosure sale date for the narrow purpose of this provision. The Bureau notes that servicers may have information about when a foreclosure sale is likely to be scheduled and that allowing a servicer to use this information in determining the time by which a borrower should complete the application would provide the most useful date for borrowers. The CFPB notes that it is in the best interest of borrowers to complete loss mitigation applications as early in the delinquency and foreclosure process as possible. That is why the goal of this provision is to inform borrowers of the time by which they should complete their loss mitigation applications to receive the greatest set of protections available, without discouraging borrowers who miss this time frame from later submitting an application to receive at least a subset of the protections. Borrowers should not be discouraged from completing a loss mitigation application merely because they cannot complete a loss mitigation application by the date that would be most advantageous in terms of securing the protections available by the loss mitigation regulation. Determining whether an application is submitted on time: A determination of whether protections under this rule apply to a borrower is made on the basis of the number of days between when a complete loss mitigation application is received and when a foreclosure sale occurs. The CFPB clarifies in the Official Interpretation of the rule that if no foreclosure sale has been scheduled as of the date that a complete loss mitigation application is received, the application is considered to have been received more than 90 days before any foreclosure sale. The loss mitigation protections that have been determined to apply to a borrower by this section of the rule remain in effect thereafter, even if a foreclosure sale is later scheduled or rescheduled. If foreclosure is scheduled less than 90 days after receipt of complete application: According to the Supplemental Information to the rule, the CFPB does not believe that these provisions will cause inappropriate delays in the foreclosure process. Mortgage servicers control many of the timelines in the process, including the

10 30-day evaluation window, and the time to process an appeal. If a foreclosure sale is rescheduled to occur in less than 90 days after a borrower submitted a complete application, a servicer does have the option to review the application quickly and in doing so, the servicer may avoid the need to postpone the foreclosure sale. In a situation where there is a conflict (a later scheduled foreclosure sale that does not allow a servicer or borrower sufficient time to complete the procedures required by the loss mitigation rules), the Bureau expects a servicer to take the necessary steps to avoid having the foreclosure sale occur before the loss mitigation review procedures run their course, including asking a court to move a scheduled foreclosure sale, if necessary. Evaluating an incomplete application Servicers must not evade the evaluation of a complete application: A mortgage servicer must not evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based upon information provided by a borrower in connection with an incomplete application. If efforts to obtain a complete application are unsuccessful: If a mortgage servicer has exercised reasonable diligence in obtaining documents and information to complete a loss mitigation application, but the application remains incomplete for a significant period of time under the circumstances without further progress by the borrower to make it complete, a servicer is not prohibited from evaluating an incomplete loss mitigation application and offering the borrower a loss mitigation option. Any such evaluation and offer is not subject to the requirements of this section of the rule and will not constitute an evaluation of a complete loss mitigation application. Significant period of time under the circumstances : The CFPB explains that a significant period of time under the circumstances may include consideration of the timing of the foreclosure process. For example, if a borrower is less than 50 days before a foreclosure sale, an application remaining incomplete for 15 days may be a more significant period of time under the circumstances than if the borrower is still less than 120 days delinquent on a mortgage loan obligation. Payment Forbearance: A mortgage servicer may offer a short-term payment forbearance program to a borrower based on an evaluation of an incomplete loss mitigation application. A mortgage servicer must not make the first notice or filing required by law for any foreclosure process, and must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing according to the terms of a payment forbearance program. According to the Official Interpretation of the rule, a payment forbearance program is a loss mitigation option for which a mortgage servicer allows a borrower to forgo making certain payments or portions of payments for a period of time. A short-term payment forbearance program allows the forbearance of payments due over periods of no more than six months. Such a program would be short-term regardless of the amount of time a servicer allows the borrower to make up the missing payment. An incomplete loss mitigation application is still subject to other loss mitigation obligations. For example: the obligation to review the application to determine if it is complete, the obligation to exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application, and the obligation to provide the borrower with the notice that the servicer acknowledges the receipt of the application and has determined the application is incomplete.

11 Even if a mortgage servicer offers a borrower a payment forbearance program based on an evaluation of an incomplete loss mitigation application, the servicer must still comply with all of the loss mitigation requirements if the borrower completes his or her loss mitigation application. Offer is not based on an application: The CFPB notes in the Official Interpretation of the rule that a mortgage servicer is not prohibited from offering a loss mitigation option to a borrower who has submitted an incomplete loss mitigation application where the offer of the loss mitigation option is not based on any evaluation of information submitted by the borrower in connection with the loss mitigation application. For example, if a mortgage servicer offers trial loan modification programs to all borrowers who become 150 days delinquent without an application or consideration of any information provided by a borrower in connection with a loss mitigation application, the mortgage servicer s offer of this type of program does not violate this section of the rule, and a mortgage servicer is not required to comply with the loss mitigation requirements for such a program. Facially complete application: If a borrower submits all the missing documents and information as required by the notice sent by the mortgage servicer, or no additional information is requested in the notice, the application must be considered facially complete. If the mortgage servicer later discovers that additional information or corrections to a previously submitted document are required to complete the application, the mortgage servicer must promptly request the missing information or corrected documents and treat the application as complete for the purposes of the requirements for: complete applications received before the servicer makes the first notice or filing of foreclosure, and complete applications received after foreclosure begins but more than 37 days before the sale, until the borrower is given a reasonable opportunity to complete the application. In the Supplemental Information to the rule, the Bureau explains that certain protections must be provided to borrowers who have submitted all the missing documents and information requested in the notice, even if a servicer later determines additional information is necessary. According to the Official Interpretation, a reasonable opportunity requires the mortgage servicer to notify the borrower of what additional information or corrected documents are required, and to afford the borrower sufficient time to gather the information and documentation necessary to complete the application and submit it to the servicer. The amount of time that is sufficient for this purpose will depend on the facts and circumstances. If the borrower fails to complete the application within the timeframe, the application must be considered incomplete. If the borrower completes the application within the reasonable opportunity provided by the servicer, the application must be considered complete as of the date it was facially complete, for the purposes of the following requirements: (1) denial of the loan modification options, (2) borrower s acceptance or rejection, (3) completed applications received before foreclosure,

12 (4) completed applications received after foreclosure begins but more than 37 days before sale, and (5) the appeals process and as of the date the application was actually complete for purposes of evaluating an application for loss mitigation options. A mortgage servicer that complies with this provision will be considered to have fulfilled its obligation to provide an accurate loss mitigation notice. Owner or Assignee of a mortgage loan may require review of an incomplete application In the Official Interpretation of the rule, the CFPB notes that although a review of a borrower s incomplete loss mitigation application is within a mortgage servicer s discretion, and is not required by this rule, a mortgage servicer may be required to do so due to requirements established by the owner or assignee of the borrower s mortgage loan. The general policies and procedures section of this rule ( 1024.38(b)(2)) requires mortgage servicers to properly evaluate a borrower who submits an application for a loss mitigation option for all loss mitigation options available to the borrower by the owner and assignee of the mortgage loan. Such evaluation requirements may include loss mitigation applications that would be considered incomplete under this rule. FORECLOSURE PROCESS IMPLICATIONS A servicer must not make the first notice or filing required by law for any foreclosure process unless: (1) a borrower s mortgage loan obligation is more than 120 days delinquent, referred to as the preforeclosure review period. (2) the foreclosure is based on the borrower s violation of a due-on-sale clause; or (3) the mortgage servicer is joining the foreclosure action of a subordinate lienholder. Small servicer requirements A small servicer must not make the first notice or filing required by law for any foreclosure process unless a borrower s mortgage loan obligation is more than 120 days delinquent. A small servicer must not make the first notice or filing required by law for any foreclosure process and must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing according to the terms of an agreement on a loss mitigation option. First notice or filing : The CFPB explains in the Official Interpretation of the rule that whether a document is considered the first notice or filing is determined on the basis of foreclosure procedures under applicable State law. For example: (i) (ii) Where a foreclosure procedure requires a court action or proceeding, a document is considered the first notice or filing if it is the earliest document required to be filed with a court or other judicial body to commence the action or proceeding (ie: a complaint, petition, order to docket, or notice of hearing). Where a foreclosure procedure does not require an action or court proceeding, such as under a power of sale, a document is considered the first notice or filing if it is the earliest document required to be recorded or published to initiate the foreclosure process.

13 (iii) (iv) Where a foreclosure procedure does not require any court filing or proceeding, and also does not require any document to be recorded or published, a document is considered the first notice or filing if it is the earliest document that establishes, acts, or schedules a date for the foreclosure sale. A document provided to the borrower but not initially required to be filed, recorded, or published is not considered the first notice or filing on the sole basis that the document must later be included as an attachment accompanying another document that is required to be filed, recorded, or published to carry out a foreclosure. Dispositive motions default judgment, judgment on pleadings or summary judgment: The prohibition on a mortgage 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. A mortgage servicer that has made any such motion before receiving a complete loss mitigation application, but has taken reasonable steps to avoid a ruling on the motion or issuance of order prior to completing the loss mitigation procedures, regardless of whether their action successfully avoids a ruling, will not be considered to have moved for a foreclosure judgment or order of sale. Complete Application Received before Foreclosure If a borrower submits a complete loss mitigation application during the pre-foreclosure review period, or before a mortgage servicer has made the first notice or filing required for any foreclosure process, a servicer must not make the first notice or filing unless: (1) The mortgage servicer has sent the borrower a notice that the borrower is not eligible for any loss mitigation option and the appeal process is not applicable - the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower s appeal has been denied; (2) The borrower rejects all loss mitigation options offered by the servicer; or (3) The borrower fails to perform under an agreement on a loss mitigation option. According to the CFPB s Official Interpretation of the rule, a mortgage servicer is responsible for promptly instructing foreclosure counsel retained by the mortgage servicer not to proceed with filing for foreclosure judgment or order of sale, or to conduct a foreclosure sale, when a servicer has received a complete loss mitigation application. This may include instructing counsel to move for a continuance with respect to the deadline for filing a dispositive motion. Additionally, nothing in this section prevents a mortgage servicer from proceeding with the foreclosure process, including any publication, arbitration, or mediation requirements established by applicable law, when the first notice or filing for a foreclosure proceeding occurred before a mortgage servicer receives a complete loss mitigation application, so long as the steps in the foreclosure process do not cause or directly result in the issuance of a foreclosure judgment or order of sale, or the conduct of a foreclosure sale. Complete Application Received after Foreclosure Begins but more than 37 days before Sale If a borrower submits a complete loss mitigation application after a mortgage servicer has made the first notice or filing required by law for any foreclosure process but more than 37 days before a foreclosure sale, a mortgage servicer must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless:

14 (1) The servicer has sent the borrower a notice that the borrower is not eligible for any loss mitigation option and the appeal process is not applicable, the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower s appeal has been denied; (2) The borrower rejects all loss mitigation options offered by the servicer; or (3) The borrower fails to perform under an agreement on a loss mitigation option. Short sale transactions: The Official Interpretation of the rule states that an agreement for a short sale transaction, or other similar loss mitigation option, typically includes marketing or listing periods during which a mortgage servicer will allow a borrower to market a short sale transaction. A borrower is deemed to be performing under an agreement on a short sale, or other similar loss mitigation option, during the term of a marketing or listing period. If a borrower has not obtained an approved short sale transaction at the end of any marketing or listing period, a mortgage servicer may determine that a borrower has failed to perform under an agreement on a loss mitigation option. An approved short sale transaction is a short sale transaction that has been approved by all relevant parties, including the mortgage servicer, other affected lienholders, or insurers, if applicable, and the mortgage servicer has received proof of funds or financing, unless circumstances otherwise indicate that an approved short sale transaction is not likely to occur. Loss mitigation applications submitted 37 days or less before foreclosure sale Although a mortgage servicer is not required to comply with the loss mitigation requirements with respect to a loss mitigation application submitted 37 days or less before a foreclosure sale, the Official Interpretation of the rule notes that a mortgage servicer is required separately, according to the policies and procedures provision to properly evaluate a borrower who submits an application for a loss mitigation option for all loss mitigation options available to the borrower according to any requirements established by the owner or assignee of the borrower s mortgage loan. Such evaluation may be subject to requirements applicable to a review of a loss mitigation application submitted by a borrower 37 days or less before a foreclosure sale. APPEALS PROCESS FOR LOSS MITIGATION DETERMINATIONS If a mortgage servicer receives a complete loss mitigation application 90 days or more before a foreclosure sale or during the 120 pre-foreclosure review period, a mortgage servicer must permit a borrower to appeal the servicer s determination to deny a borrower s loss mitigation application for any trial or permanent loan modification program available to the borrower. A mortgage servicer must permit a borrower to make an appeal within 14 days after the mortgage servicer provides the borrower with written notice regarding the servicer s determination. Independent evaluation An appeal must be reviewed by different personnel than those responsible for evaluating the borrower s complete loss mitigation application. The Official Interpretation of the rule clarifies that the appeal may be evaluated by supervisory personnel that are responsible for oversight of the personnel that conducted the initial evaluation, as long as the supervisory personnel were not directly involved in the initial evaluation of the borrower s complete loss mitigation application.

15 Appeal determination Within 30 days of a borrower making an appeal, the mortgage servicer must provide a notice to the borrower stating the mortgage servicer s determination of whether the servicer will offer the borrower a loss mitigation option based upon the appeal, and if applicable, how long the borrower has to accept or reject such an offer or prior offer of a loss mitigation option. A mortgage servicer may require that a borrower accept or reject an offer of a loss mitigation option after an appeal no earlier than 14 days after the servicer provides the notice to a borrower. A mortgage servicer s determination after appeal is not subject to any further appeal.

16 Compliance Check List Applications Received at Least 45 Days before a Foreclosure Sale (Review for Completeness) Did you promptly determine whether the application was complete? Did you provide written acknowledgement to the borrower within five days (excluding legal public holidays, Saturdays, and Sundays) after receiving the loss mitigation application? If the application was complete, did the acknowledgement state that the application was complete and include a statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options? If the application was incomplete, did the acknowledgement (1) state that the application was incomplete, (2) identify the additional information needed to complete the application, (3) identify the deadline by which the borrower must submit the additional information, and (4) include a statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options. If the application was incomplete, did you exercise reasonable diligence in obtaining documents and information to complete the application? Complete Applications Received More Than 37 Days before a Foreclosure Sale Did you, within 30 days, (i) evaluate the borrower for all available loss mitigation options, and (ii) provided the borrower with a notice stating which loss mitigation options (if any) the credit union would offer the borrower? If you denied the application for any trial or permanent loan modification options, did the notice (i) state the specific reasons for denying each option, and (ii) advise of the borrower s right to appeal and the procedures for doing so, including any deadline (if the borrower submitted a complete application at least 90 days before a foreclosure sale)? If you denied the application for a loan modification option for failure to meet investor guidelines, did the notice identify (i) the owner or assignee of the mortgage loan, and (ii) the specific criteria the borrower failed to meet? If you denied the application for a loss mitigation option due to a net present value calculation, did you disclose the inputs used in that calculation? Acceptance of an offered loss mitigation option

17 For any complete loss mitigation applications received at least 90 days before a foreclosure sale, did you provide the borrower with at least 14 days to accept or reject any offered loan modification option? (The acceptance period can be extended if, within 14 days, the borrower makes an appeal of a denial of any loan modification option. In the event of an appeal, the borrower s time for acceptance is extended to 14 days after you provide a notice of the determination of the appeal.) For any complete loss mitigation application received less than 90 days before a foreclosure sale but more than 37 days before the sale, did you provide the borrower with at least seven days to accept or reject any offered loss mitigation options? If you offered a borrower a trial loan modification plan, but the borrower did not respond within the required time period, although the borrower did submit payments in accordance with the offered plan, did you give the borrower a reasonable period of time to fulfill any remaining requirements to accept the plan? Foreclosure Proceedings Did you make any first judicial or non-judicial foreclosure notices or filings before the borrower was more than 120 days delinquent? If you received a complete loss mitigation application after initiating foreclosure but more than 37 days before a foreclosure sale, did you improperly conduct a foreclosure sale or move for foreclosure judgment or sale before one of the following occurred: (i) you notified the borrower that you had denied the loss mitigation application for any loss mitigation option and if an appeal is available, either the appeal period had expired or the appeal had been denied; (ii) the borrower rejected all the offered loss mitigation options; or (iii) the borrower failed to perform under a loss mitigation agreement? Appeal Process For any borrower who timely appealed a denial of an available loan modification option, did you grant or deny the appeal within 30 days? Did you use different personnel to evaluate the appeal than the personnel who had evaluated the borrower s loss mitigation application? For any appeal that you granted, did you allow the borrower 14 days to accept or reject any offered loan modification option? Small Servicers Did you make the first foreclosure notice or filing before the borrower was more than 120 days delinquent? If the borrower is performing according to the terms of a loss mitigation agreement, did you (i) make the first foreclosure notice or filing, (ii) move for a foreclosure judgment or order of sale, or (iii) conduct a foreclosure sale.

18 APPENDIX A SMALL SERVICER EXEMPTION Small Servicers are exempt from some of the new mortgage lending regulations: Periodic statements ( 1026.41): The requirement to provide periodic statements for residential mortgage loans; Force-placed insurance ( 1024.37): In general, there is no Small Servicer exemption to the force-placed insurance provisions. There is, however, a limited Small Servicer exemption to the prohibition on the purchase of force-placed insurance for consumers with escrow accounts under certain circumstances. A Small Servicer may purchase force-placed insurance for a consumer with an escrow account whose mortgage loan obligation is more than 30 days overdue, if the cost of the force-placed insurance to the consumer is less than the amount the Small Servicer would need to disburse from the consumer s escrow account to pay the consumer s hazard insurance. Policies & procedures ( 1024.38): The general servicing policies, procedures and requirements provisions of the mortgage servicing rule; Early Intervention and continuity of contact ( 1024.39 & 1024.40): Establishing live contact with a delinquent borrower within 36 days, providing written notice within 45 days and assigning personnel to assist with inquiries and loss mitigation options. Loss mitigation ( 1024.41): Most of the requirements and restrictions relating to communicating with borrowers about, and the evaluation of applications for, loss mitigation options. Except that a Small Servicer must not make the first notice or filing required by law for any foreclosure process unless a borrower s mortgage loan obligation is more than 120 days delinquent and must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing according to the terms of an agreement on a loss mitigation option. SMALL SERVICER DEFINED To qualify as a Small Servicer, a mortgage servicer must: 1. Service, together with any affiliates, 5,000 or fewer mortgage loans, and must service only mortgage loans for which the mortgage servicer (or an affiliate) is the creditor or assignee. Or 2. Be a Housing Finance Agency. Housing finance agency or HFA means any public body, agency, or instrumentality created by a specific act of a State legislature or local municipality empowered to finance activities designed to provide housing and related facilities, through land acquisition, construction or rehabilitation. The term State includes the several States, Puerto Rico, the District of Columbia, Guam, the Trust Territory of the Pacific Islands, American Samoa and the Virgin Islands.

19 Creditor or Assignee : To be the creditor or assignee of a mortgage loan, the servicer (or an affiliate) must either currently own the mortgage loan or must have been the originator of the mortgage loan. The CFPB reiterates that a mortgage servicer is NOT a Small Servicer if it services any mortgage loans for which the servicer or an affiliate is not the owner or was not the originator. Affiliate : Any company that controls, is controlled by, or is under common control with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C 1841 et seq.). The Bank Holding Company Act describes control as: Any company has control over a bank or over any company if (A) the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the bank or company; (B) the company controls in any manner the election of a majority of the directors or trustees of the bank or company; or (C) the Board determines, after notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the management or policies of the bank or company. CFPB s examples of mortgage servicers that DO NOT qualify as Small Servicers i. A mortgage servicer services 3,000 mortgage loans, all of which it or an affiliate owns or originated. An affiliate of the mortgage servicer services 4,000 other mortgage loans, all of which it or an affiliate owns or originated. Because the number of mortgage loans serviced by a mortgage servicer is determined by counting the mortgage loans serviced by a servicer together with any affiliates, both of these servicers are considered to be servicing 7,000 mortgage loans and neither servicer is a Small Servicer. iii. A mortgage servicer services 3,100 mortgage loans 3,000 mortgage loans it owns or originated and 100 mortgage loans it neither owns nor originated, but for which it owns the mortgage servicing rights. The servicer is not a Small Servicer because it services mortgage loans for which the servicer (or an affiliate) is not the creditor or assignee, even though the mortgage servicer services fewer than 5,000 mortgage loans. SMALL SERVICER DETERMINATION Types of loans considered in the determination The mortgage loans considered in determining status as a Small Servicer are closed-end consumer credit transactions secured by a dwelling (except charitably serviced mortgage loans, reverse mortgages and mortgage loans secured by time share plans). Loans obtained by merger or acquisition: Any mortgage loans obtained by a mortgage servicer or an affiliate as part of a merger or acquisition, or as part of the acquisition of all of the assets or liabilities of a branch office of a lender, should be considered mortgage loans for which the servicer or an affiliate is the creditor to which the mortgage loan is initially payable. As such, these loans will be considered when determining status as a Small Servicer. Coupon Book Loans: Although coupon book loans are exempt from some of the periodic statement requirements, these loans must be considered in determining whether a mortgage servicer is a Small Servicer.

20 Types of loans NOT considered in the determination A) Mortgage loans voluntarily serviced by the mortgage servicer for a creditor or assignee that is not an affiliate and for which the servicer does not receive any compensation or fees ( charitably serviced mortgage loans); (B) Reverse mortgage transactions; and (C) Mortgage loans secured by consumers' interests in timeshare plans. These exceptions apply to both tests used to determine Small Servicer status: (1) whether a servicer, together with any affiliates, services 5,000 or fewer mortgage loans, as well as (2) whether a servicer is servicing only mortgage loans that it owns or originated. CFPB s examples of mortgage loans considered when determining Small Servicer status A mortgage servicer services 5,400 mortgage loans. Of these mortgage loans, the servicer owns or originated 4,800 mortgage loans, voluntarily services 300 mortgage loans that it does not own or did not originate for an unaffiliated nonprofit organization for which the servicer does not receive any compensation or fees, and services 300 reverse mortgage transactions that it does not own and did not originate. The servicer is considered a Small Servicer and qualifies for the Small Servicer exemption with regard to all 5,400 mortgage loans it services because the only mortgage loans considered are the 4,800 mortgage loans owned or originated by the servicer. Note: Reverse mortgages and mortgage loans secured by consumers' interests in timeshare plans, in addition to not being considered in determining Small Servicer qualification, are also exempt from the new periodic statement requirements. In contrast, although charitably serviced mortgage loans are not considered in determining Small Servicer qualification, they are not exempt from the periodic statement requirements. So, a mortgage servicer that does not qualify as a Small Servicer would still not have to provide periodic statements for reverse mortgages and timeshare plans because they are specifically exempt from that requirement, but the servicer would have to provide periodic statements for mortgage loans it charitably services. Timing in determining the threshold In determining whether a mortgage servicer is a Small Servicer, the servicer is evaluated based on the mortgage loans serviced as of January 1 for the remainder of the calendar year. A mortgage servicer that ceases to qualify as a Small Servicer will have six months from the time it ceases to qualify or until the next January 1, whichever is later, to comply with any requirements from which the mortgage servicer is no longer exempt as a Small Servicer. The calendar dates apply to both elements of the Small Servicer test - exceeding the allowable maximum number of loans serviced, OR servicing mortgage loans a servicer either does not own or did not originate. CFPB s examples for determining Small Servicer thresholds i. A mortgage servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on October 1, and services more than 5,000 mortgage loans (or services one or more mortgage loans it does not own or did not originate) as of January 1 of the following

21 year, would no longer be considered a Small Servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a Small Servicer on April 1 of that following year (which is six months from the date (October 1) that the servicer ceased to qualify as a Small Servicer.) ii. A mortgage servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, and services more than 5,000 mortgage loans (or services one or more mortgage loans it does not own or did not originate) as of January 1 of the following year, would no longer be considered a Small Servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a Small Servicer on that same January 1 (which is the later date between six months after the servicer ceased to qualify as a Small Servicer (August 1) or the next January 1.) iii. A mortgage servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, but services less than 5,000 mortgage loans (or no longer services mortgage loans it does not own or did not originate) as of January 1 of the following year, is considered a Small Servicer for that following year. Determining Small Servicer status for Regulation X exemptions The many provisions of the mortgage servicing rule are found in two regulations Regulation X (RESPA) and Regulation Z (Truth in Lending). The types of mortgages covered by each of these rules differ. Regulation X applies to federally related mortgage loans, which excludes some of the loans that are considered mortgage loans by Regulation Z. To qualify for the Small Servicer exemption for purposes of Regulation X, the mortgage servicer must qualify as a Small Servicer by applying the definition of mortgage loans found in Regulation Z. (This is a broader definition than used in Regulation X.) Although some mortgage loans not subject to Regulation X are considered for purposes of determining eligibility as a Small Servicer for Regulation X exemptions, mortgage servicers are not required to apply the Regulation X requirements to this broader group of mortgage loans. MASTER SERVICING/ SUBSERVICING Master Servicer: The owner of the right to perform mortgage servicing. A master servicer may perform the servicing itself or do so through a subservicer. Subservicer: A mortgage servicer that does not own the right to perform servicing, but that performs servicing on behalf of the master servicer. A mortgage servicer that qualifies as a Small Servicer does not lose its Small Servicer status if it retains a subservicer to service any of its mortgage loans. A subservicer can gain the benefit of the Small Servicer exemption only if: (1) the master servicer is a Small Servicer, and (2) the subservicer is a Small Servicer.

22 A subservicer generally will not qualify as a Small Servicer because it does not own or did not originate the mortgage loans it subservices unless it is an affiliate of a master servicer that qualifies as a Small Servicer. The CFPB notes that in any affiliate relationship with a CUSO, the total number of the mortgage loans of the affiliated entities must be considered in determining Small Servicer status. For example, for a credit union and its CUSO affiliate, the total number of mortgage loans serviced by both entities must be considered to determine the Small Servicer status for both the credit union and the CUSO. The same is true for credit unions that are deemed affiliates under the Bank Holding Company Act of 1956. (see affiliates definition on page 19.) CFPB s example of a CUSO subservicer A credit union services 4,000 mortgage loans, all of which it originated or owns. The credit union retains a credit union service organization, that is not an affiliate, to subservice 1,000 of the mortgage loans. The credit union is a Small Servicer and, thus, can gain the benefit of the Small Servicer exemption for the 3,000 mortgage loans the credit union services itself. The credit union service organization is not a Small Servicer because it services mortgage loans it does not own or did not originate. Accordingly, the credit union service organization does not gain the benefit of the Small Servicer exemption and, thus, must comply with any applicable mortgage servicing requirements for the 1,000 mortgage loans it subservices.