New Servicing Rules under Regulation Z Periodic Statements & Adjustable Rate Mortgages Notices FIS Regulatory Advisory Services www.fisregulatoryservices.com
New Servicing i Rules under Regulation Z Periodic Statements & Adjustable Rate Mortgages Notices FIS Regulatory Advisory Services www.fisregulatoryservices.com com 2013 FIS and/or its subsidiaries. All Rights Reserved. Agenda Some Basics Periodic Statement Requirements Adjustable Rate Mortgages 2
How Did This Happen? National Mortgage Settlement www.nationalmortgagesettlement.com Discussion and development of national mortgage servicing standards Foreclosure & bankruptcy information & documentation Loss mitigation Restrictions on servicing fees Force place Insurance Dodd Frank Act 1420 requires periodic statements 1418 requires notices prior to the reset of ARMs Plusothers others, such asforce placed insurancenotices, responding to errors andrequests for info, crediting of payments, and responding to payoff amounts. 3 Who Is Affected? Mortgage Servicers: Depository institutions Non depository institutions Exceptions: Creditors and Assignees that do not own the mortgage loan or the servicing rights Small Servicers (for periodic statement requirement only) 4
Periodic Statements Required by Dodd Frank Act 1420 Certain timing, form, content, layout, and exemptions 5 Who Receives Periodic Statement? Borrowers who have closed end consumer credit secured by a dwelling Servicers must transmit the periodic statement More than merely making statement available Can consider security concerns for electronic statements No E SIGN requirement; just need consent Joint borrowers can send one statement addressed to both 6
What Is A Billing Cycle? Corresponds to the frequency of payments Established by legal obligation What if payments are bi weekly? If billing cycle shorter than 31 days, a statement covering an entire month may be used. Monthly Due Date = 25 th One Billing Cycle 7 Content of Periodic Statement Clear & conspicuous In a form the consumer can keep Model forms Appendix H 30 Content = Statutorily required Prescribed by regulation If not applicable, can omit Must use terminology that is commonly understood. 8
Content of Periodic Statement Amount Due Includes: Amount due Must be more prominent Placed on the top of first page Payment due date Amount of any fee charged for a late payment Date late payment fee will be imposed Payment option loans Must display info for each payment option Refer to model form H 30(C) 9 Content of Periodic Statement Explanation of Amount Due Includes: Breakdown of amount due Showing allocation to principal, interest, and escrow Totaling of any fees or charges imposed Any past due amount Payment option loans: Must include information specific to each payment option. Refer to model form H 30(C) 10
Content of Periodic Statement Past Payment Breakdown Shows: Breakdown of how previous payments were applied Payments received since last statement cycle and year to date Total of all payments received since last statement Breakdown of the application of payment to principal, interest, escrow, fees, & charges Partial Payments: Comment 41(d)(3) 1 provides guidance on reflecting partial payment amounts 11 Content of Periodic Statement Transaction Activity Includes: Listing of activity that credits or debits amount currently due Date of transaction Description of transaction Amount of transaction Partial Payments: If returned does not debit or credit account If held show in transaction activity in unapplied funds section 12
Content of Periodic Statement Other Information Contact info for servicers Include toll free number Include email address if available Must appear on first page of statement Account information required by statute Amount of principal outstanding balance Current interest rate. If can change, a disclosure of when Information on prepayment penalties & late fees Website/phone number for counseling information Delinquency Disclosures if 45 days past due Date of delinquency & risks of delinquency Account history, modification acceptance, referred to foreclosure Total amount to bring current & reference info for housing counselors 13 Combined Statements & Additional Information Additional information can be included Cannot override statement groupings with additional info Can combine disclosures 14
Timing for Providing Periodic Statements Required for each billing cycle At least monthly for shorter billing cycles Delivered or placed in mail within a reasonable prompt p time after the payment py due date or the end of any courtesy period. Reasonably prompt = 4 days after the close of any courtesy period of the prior billing cycle 15 Coupon Book Exemption Only available for fixed rate loans Must make inquiry process available to consumer to inquire about dynamic information Each coupon must contain: Payment due date Amount due Amount and date that any late fee will be incurred Each coupon book must contain Amount of principal loan balance Interest rate in effect for the loan Amount of any prepayment fee Contact info for servicer and housing counselor information How to obtain dynamic information 16
Small Servicer Exemption Small servicer = a servicer who: Services 5000 or fewer mortgage loans in which the servicer is the creditor or assignee of all mortgage loans or A Housing Finance Agency (24 CFR 266.5) Measured based on its size as of January 1 st for the remainder of calendar year Once cross the threshold have six months or until the beginning of the next calendar year, whichever is later. 17 Other Exemptions Timeshares Do not meet the definition of residential mortgage loan Reverse Mortgages Would need massive alterations to final forms and regulation 18
ARM Disclosures Disclosures for the Initial Adjustment of Interest Required by Dodd Frank Act 1418 New notice must be provided 6 to 7 months in advance of first interest rate adjustment (Note: regulation refers to days) Changes to existing notices required by 1026.20 are made pursuant to the CFPB s authority to make changes needed to improve usefulness of such disclosures Changes are follow up to improvements proposed by Federal Reserve in 2009 19 ARM Notice Changes ARM? ARM = Variable rate mortgage With limited defined exceptions Section 20 (c) Old rate change notice standards upgraded With revised timing to make them more useful Section 20(d) New rate change notice standards created for the Initial rate adjustment notice 20
What Loans are Covered by These Disclosures? Adjustable rate Mortgage ( ARM ) is now defined as A closed end Consumer credit transaction Secured by the consumer s principal dwelling With an APR that may increase after consummation Exemptions from Section 1026.20(c) required disclosures include only: Arms with terms of one year or less, and The first adjustment to an ARM if the first payment at the adjusted level is due within 210 days after consummation and the actual, not estimated, new interest rate was disclosed at consummation 21 Combined or Separate Disclosures? Regular rate change disclosures required by 1026.20(c) may be provided along with other disclosures. They must be clear and conspicuous, but need not be provided in a separate mailer So the 20(c) disclosures can be provided in or with the new periodic statement disclosures if you wish Initial rate change disclosures required by 1026.20(d) must be provided as separate and distinct disclosures apart from all other correspondence May be included in same envelope as other disclosures or separate attachment from other disclosures if delivered electronically 22
Harmonization of Content To avoid confusion, the CFPB has harmonized the content of the initial and ongoing interest rate adjustment notices Required content of the 1026.20(c) and 1026.20(d) notices are therefore very similar The initial notice will however allow use of interest estimates since the notice is given 210 to 240 days before the rate change The regular notices will require use of accurate interest rate information since they can be given as late as 2 months prior to the first payment at the new rate 23 Grandfathering provisions Needed for existing contracts with longer look back periods when setting rates 24
Notice Content Standards A statement indicating An explanation that under the terms of the loan, the period under which the current interest rate has been in effect is ending and that the rate and payment will change, The effective date of the interest rate adjustment and when future rate changes are scheduled, and Any other changes to loan terms, features, or options taking effect on the same date as the interest rate adjustment (such as the expiration of an interest only or payment option feature 25 Contents Continued A table containing: The current and new interest rates The current and new payments and the date the first new payment is due, and For interest only or negatively amortizing payments, the amount of the current and new payment allocated to principal, interest, and taxes and insurance in escrow, as applicable. An explanation of how the interest rate is determined, including: The specific index or formula used and a source of information about the index or formula, Any adjustment to the index, including the amount of any margin and an explanation that the margin is the addition of a certain number of percentage points to the index. 26
Contents Continued Any limits on the interest rate or payment increases at each adjustment and over the life of the loan, including the extent to which such limits result in the forgoing of any increase in the interest rate and the earliest date such foregone interest may apply to additional future interest rate adjustments, and: An explanation of how the new payment is determined, The index or formula used, The amount of any adjustment to the index or formula, for example by the addition of a margin or application of previously foregone interest increase, The loan balance expected on the date of the interest rate adjustment, The length of the remaining loan term expected on the date of the interest rate adjustment and at change in the term of the loan caused by an adjustment, and For interest only or negatively amortizing loans, a statement that the new payment will not be allocated to pay loan principal. If negative amortization occurs as a result of the adjustment, the statement must disclose the payment required to fully amortize the loan at the new interest rate over the remainder of the loan term without extending the loan term 27 Contents Continued The circumstances under which any prepaid penalty may be imposed when consumers fully repay the mortgage, such as when selling or refinancing their principal residence, the time period during which the penalty may be imposed, and the maximum amount (in dollars) of the penalty possible during that time period. 28
Model Clause H 4(D)(1) 29 Specific Standards for Initial Rate Change Disclosures Form of disclosure: Must be in a separate and distinct disclosure document Timing of disclosure: Must be provided at least 210 days but not more than 240 days before the first payment at the adjusted level is due Exception: Not required to be given for ARMs with terms of one year or less Use of estimates: If the new interest rate or payment calculated from the new rate is not known as of the date of the disclosure, an estimate shall be disclosed and labeled as such 30
Initial Rate Change Notices on Loans with the Initial Change Less Than 210 Days After Loan Origination You have missed the 210 to 240 day notice window So you simply provide the initial notice at loan closing Still have to provide separate and distinct disclosures 31 Content Standards for Initial Rate Change Notice Essentially identical to the content standards just discussed for regular interest trate adjustment t notices Model form is provided in Appendix H at H 4(D)(3) with a sample completed form illustrated at H 4(D)(4) 32
Content Differences Added Warnings for initial disclosure only! 33 Content Differences 34
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