Skip to Content

Rule

Amendments to the 2013 Mortgage Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z)

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble Start Printed Page 72160

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is amending certain mortgage servicing rules issued by the Bureau in 2013. This final rule clarifies, revises, or amends provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and prompt crediting and periodic statement requirements under Regulation Z's servicing provisions. The final rule also addresses proper compliance regarding certain servicing requirements when a person is a potential or confirmed successor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. The final rule also makes technical corrections to several provisions of Regulations X and Z. The Bureau is issuing concurrently with this final rule an interpretive rule under the Fair Debt Collection Practices Act relating to servicers' compliance with certain mortgage servicing rules.

DATES:

This final rule is effective on October 19, 2017, except that the following amendments are effective on April 19, 2018: Amendatory instructions 5, 6.b, 7, 8, 9, 11.b, 17.a.ii, 17.b.ii, 17.c, 17.d.ii, 17.f.i, 17.i.i, 17.k, 19, 20, 22, 23.c, 25.a, 25.b, 25.c.ii, and 25.d.ii. For additional discussion regarding the effective date of the rule, see part VI of the SUPPLEMENTARY INFORMATION below.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Dania L. Ayoubi, David H. Hixson, Alexandra W. Reimelt, or Joel L. Singerman, Counsels; or William R. Corbett, Laura A. Johnson, or Amanda E. Quester, Senior Counsels; Office of Regulations, at (202) 435-7700.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

In January 2013, the Bureau issued several final rules concerning mortgage markets in the United States (2013 Title XIV Final Rules), pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).[1] Two of these rules were (1) the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing Final Rule); [2] and (2) the Mortgage Servicing Rules Under the Truth in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule).[3]

The Bureau clarified and revised those rules through notice and comment rulemaking during the summer and fall of 2013 in the (1) Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) (July 2013 Mortgage Final Rule) [4] and (2) Amendments to the 2013 Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), Real Estate Settlement Procedures Act (Regulation X), and the Truth in Lending Act (Regulation Z) (September 2013 Mortgage Final Rule).[5] In October 2013, the Bureau clarified compliance requirements in relation to successors in interest, early intervention requirements, bankruptcy law, and the Fair Debt Collection Practices Act (FDCPA),[6] through an Interim Final Rule (October 2013 IFR or IFR) [7] and a contemporaneous compliance bulletin (October 2013 Servicing Bulletin).[8] In addition, in October 2014, the Bureau added an alternative definition of small servicer in the Amendments to the 2013 Mortgage Rules under the Truth in Lending Act (Regulation Z).[9] The purpose of each of these updates was to address important questions raised by industry, consumer advocacy groups, and other stakeholders. The 2013 RESPA Servicing Final Rule and the 2013 TILA Servicing Final Rule, as amended in 2013 and 2014, are collectively referred to herein as the 2013 Mortgage Servicing Final Rules.

On November 20, 2014, the Bureau issued a proposed rule that would have further amended the 2013 Mortgage Servicing Final Rules.[10] The proposal covered nine major topics, and focused primarily on clarifying, revising, or amending provisions regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under Regulation X's servicing provisions; and prompt crediting and periodic statement requirements under Regulation Z's servicing provisions. The proposal also addressed proper compliance regarding certain servicing requirements when a person is a potential or confirmed successor in interest, is a debtor in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act.

The Bureau is now finalizing the proposed amendments, with additional clarifications and revisions, to revise regulatory provisions and official interpretations relating to the Regulation X and Z mortgage servicing rules.[11] The final rule also covers nine major topics, summarized below, generally in the order they appear in the final rule. More details can be found in the section-by-section analysis below.

1. Successors in interest. The Bureau is finalizing three sets of rule changes relating to successors in interest. First, the Bureau is adopting definitions of successor in interest for purposes of Regulation X's subpart C and Regulation Z that are modeled on the categories of transfers protected under section 341(d) of the Garn-St Germain Act. Second, the Bureau is finalizing rules relating to Start Printed Page 72161how a mortgage servicer confirms a successor in interest's identity and ownership interest.[12] Third, the Bureau is applying the Regulation X and Z mortgage servicing rules to successors in interest once a servicer confirms the successor in interest's status.

2. Definition of delinquency. The Bureau is finalizing a general definition of delinquency that applies to all of the servicing provisions of Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Delinquency means a period of time during which a borrower and a borrower's mortgage loan obligation are delinquent. A borrower and a borrower's mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid, until such time as no periodic payment is due and unpaid.

3. Requests for information. The Bureau is finalizing amendments that change how a servicer must respond to requests for information asking for ownership information for loans in trust for which the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac) is the owner of the loan or the trustee of the securitization trust in which the loan is held.

4. Force-placed insurance. The Bureau is finalizing amendments to the force-placed insurance disclosures and model forms to account for when a servicer wishes to force-place insurance when the borrower has insufficient, rather than expiring or expired, hazard insurance coverage on the property. Additionally, servicers now will have the option to include a borrower's mortgage loan account number on the notices required under § 1024.37. The Bureau also is finalizing several technical edits to correct discrepancies between the model forms and the text of § 1024.37.

5. Early intervention. The Bureau is clarifying the early intervention live contact obligations for servicers to establish or make good faith efforts to establish live contact so long as the borrower remains delinquent. The Bureau is also clarifying requirements regarding the frequency of the written early intervention notices, including when there is a servicing transfer. In addition, regarding certain borrowers who are in bankruptcy or who have invoked their cease communication rights under the FDCPA, the Bureau is finalizing exemptions for servicers from complying with the live contact obligations but requiring servicers to provide written early intervention notices under certain circumstances.

6. Loss mitigation. The Bureau is finalizing several amendments relating to the loss mitigation requirements. The final rule: (1) Requires servicers to meet the loss mitigation requirements more than once in the life of a loan for borrowers who become current on payments at any time between the borrower's prior complete loss mitigation application and a subsequent loss mitigation application; (2) modifies an existing exception to the 120-day prohibition on foreclosure filing to allow a servicer to join the foreclosure action of a superior or subordinate lienholder; (3) clarifies how servicers select the reasonable date by which a borrower should return documents and information to complete an application; (4) clarifies that, if the servicer has already made the first notice or filing, and a borrower timely submits a complete loss mitigation application: (i) The servicer must not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, even where the sale proceedings are conducted by a third party, unless one of the specified circumstances is met (i.e., the borrower's loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement); (ii) that absent one of the specified circumstances, conduct of the sale violates the rule; (iii) that the servicer must instruct foreclosure counsel promptly not to make any further dispositive motion, to avoid a ruling or order on a pending dispositive motion, or to prevent conduct of a foreclosure sale, unless one of the specified circumstances is met; and (iv) that the servicer is not relieved from its obligations by counsel's actions or inactions; (5) requires that servicers provide a written notice to a borrower within five days (excluding Saturdays, Sundays, or legal holidays) after they receive a complete loss mitigation application and requires that the notice: (i) Indicate that the servicer has received a complete application; (ii) provide the date of completion, a statement that the servicer expects to complete its evaluation within 30 days from the date it received the complete application, and an explanation that the borrower is entitled to certain specific foreclosure protections and may be entitled to additional protections under State or Federal law; (iii) clarify that the servicer might need additional information later, in which case the evaluation could take longer and the foreclosure protections could end if the servicer does not receive the information as requested; (6) sets forth how servicers must attempt to obtain information not in the borrower's control and evaluate a loss mitigation application while waiting for third party information; requires servicers to exercise reasonable diligence to obtain the information and prohibits servicers from denying borrowers solely because a servicer lacks required information not in the borrower's control, except under certain circumstances; requires servicers in this circumstance to complete all possible steps in the evaluation process within the 30 days, notwithstanding the lack of the required third-party information; requires that servicers promptly provide a written notice to the borrower if the servicer lacks required third party information 30 days after receiving the borrower's complete application and cannot evaluate the application in accordance with applicable requirements established by the owner or assignee of the mortgage loan; and requires servicers to notify borrowers of their determination on the application in writing promptly upon receipt of the third party information it lacked; (7) permits servicers to offer a short-term repayment plan based upon an evaluation of an incomplete loss mitigation application; (8) clarifies that servicers may stop collecting documents and information from a borrower for a particular loss mitigation option after receiving information confirming that, pursuant to any requirements established by the owner or assignee, the borrower is ineligible for that option; and clarifies that servicers may not stop collecting documents and information for any loss mitigation option based solely upon the borrower's stated preference but may stop collecting documents and information for any loss mitigation option based on the borrower's stated preference in conjunction with other information, as prescribed by requirements established by the owner or assignee of the mortgage loan; and (9) addresses and clarifies how loss mitigation procedures and timelines apply when a transferee servicer receives a mortgage loan for which there is a loss mitigation application pending at the time of a servicing transfer.

7. Prompt payment crediting. The Bureau is clarifying how servicers must treat periodic payments made by consumers who are performing under either temporary loss mitigation programs or permanent loan modifications. Periodic payments made Start Printed Page 72162pursuant to temporary loss mitigation programs must continue to be credited according to the loan contract and could, if appropriate, be credited as partial payments, while periodic payments made pursuant to a permanent loan modification must be credited under the terms of the permanent loan agreement.

8. Periodic statements. The Bureau is finalizing several requirements relating to periodic statements. The final rule: (1) Clarifies certain periodic statement disclosure requirements relating to mortgage loans that have been accelerated, are in temporary loss mitigation programs, or have been permanently modified, to conform generally the disclosure of the amount due with the Bureau's understanding of the legal obligation in each of those circumstances, including that the amount due may only be accurate for a specified period of time when a mortgage loan has been accelerated; (2) requires servicers to send modified periodic statements (or coupon books, where servicers are otherwise permitted to send coupon books instead of periodic statements) to consumers who have filed for bankruptcy, subject to certain exceptions, with content varying depending on whether the consumer is a debtor in a chapter 7 or 11 bankruptcy case, or a chapter 12 or 13 bankruptcy case; and includes proposed sample periodic statement forms that servicers may use for consumers in bankruptcy to ensure compliance with § 1026.41; and (3) exempts servicers from the periodic statement requirement for charged-off mortgage loans if the servicer will not charge any additional fees or interest on the account and provides a periodic statement including additional disclosures related to the effects of charge-off.

9. Small servicer. The Bureau is finalizing certain changes to the small servicer determination. The small servicer exemption generally applies to servicers who service 5,000 or fewer mortgage loans for all of which the servicer is the creditor or assignee. The final rule excludes certain seller-financed transactions and mortgage loans voluntarily serviced for a non-affiliate, even if the non-affiliate is not a creditor or assignee, from being counted toward the 5,000 loan limit, allowing servicers that would otherwise qualify for small servicer status to retain their exemption while servicing those transactions.

In addition to the changes discussed above, the final rule also makes technical corrections and minor clarifications to wording throughout several provisions of Regulations X and Z that generally are not substantive in nature.

II. Background

Title XIV Rules Under the Dodd-Frank Act

In response to an unprecedented cycle of expansion and contraction in the mortgage market that sparked the most severe U.S. recession since the Great Depression, Congress passed the Dodd-Frank Act, which was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress established the Bureau and generally consolidated the rulemaking authority for Federal consumer financial laws, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), in the Bureau.[13] At the same time, Congress significantly amended the statutory requirements governing mortgages with the intent to restrict the practices that contributed to and exacerbated the crisis.[14] Under the statute, most of these new requirements would have taken effect automatically on January 21, 2013, if the Bureau had not issued implementing regulations by that date.[15] To avoid uncertainty and potential disruption in the national mortgage market at a time of economic vulnerability, the Bureau issued several final rules in January 2013 to implement these new statutory provisions and provide for an orderly transition. These rules included the 2013 RESPA Servicing Final Rule and the 2013 TILA Servicing Final Rule, issued on January 17, 2013. Pursuant to the Dodd-Frank Act, which permitted a maximum of one year for implementation, these rules became effective on January 10, 2014. The Bureau issued additional corrections and clarifications to the 2013 RESPA Servicing Final Rule and the 2013 TILA Servicing Final Rule in the summer and fall of 2013 and in the fall of 2014.

III. Summary of the Rulemaking Process

A. Implementation Plan for New Mortgage Rules

On February 13, 2013, the Bureau announced an initiative to support implementation of the new mortgage rules (Implementation Plan),[16] under which the Bureau would work with the mortgage industry to ensure that the 2013 Title XIV Final Rules could be implemented accurately and expeditiously. The Implementation Plan included: (1) Coordination with other agencies; (2) Publication of plain-language guides to the new rules; (3) Ongoing conversations with stakeholders involved in implementation with respect to questions and concerns they had identified; (4) Publication of additional interpretive guidance and corrections or clarifications of the new rules as needed; (5) Publication of readiness guides for the new rules; and (5) Education of consumers on the new rules.

In the course of the implementation process, the Bureau identified a number of respects in which the 2013 Mortgage Servicing Final Rules posed implementation challenges. As a result, in July 2013 and September 2013, following notice and comment, the Bureau issued two final rules amending discrete aspects of the 2013 Mortgage Servicing Final Rules. Among other things, the July 2013 Mortgage Final Rule clarified, corrected, or amended provisions on the relation to State law to Regulation X's servicing requirements; implementation dates for certain adjustable-rate mortgage servicing notices under Regulation Z; and the small servicer exemption from certain servicing rules. Among other things, the September 2013 Mortgage Final Rule modified provisions of Regulation X related to error resolution, information requests, and loss mitigation procedures. In October 2013, the Bureau issued an IFR, which among other things, provisionally suspended the effectiveness of certain requirements of the 2013 Mortgage Servicing Final Rules with respect to consumers in bankruptcy and consumers who had exercised their rights under the FDCPA to direct that debt collectors cease Start Printed Page 72163contacting them with respect to outstanding debts. In the October 2013 Servicing Bulletin, the Bureau also clarified compliance requirements regarding successors in interest, early intervention live contact requirements, and the FDCPA. In addition, in October 2014, the Bureau issued a final rule that, among other things, added an alternative definition of small servicer that applies to certain nonprofit entities that service, for a fee, only loans for which the servicer or an associated nonprofit entity is the creditor.

B. Ongoing Monitoring

After the January 10, 2014 effective date of the rules, the Bureau has continued to engage in ongoing outreach and monitoring with industry, consumer advocacy groups, and other stakeholders. As a result, the Bureau has identified further issues that continue to pose implementation challenges or require clarification. The Bureau has also recognized that there are instances in which the rules are creating unintended consequences or failing to achieve desired objectives.

The Bureau recognizes that industry has incurred costs in the implementation of the 2013 Mortgage Servicing Final Rules. The Bureau believes that the majority of the provisions in this final rule would impose, at most, minimal new compliance burdens, and in many cases would reduce the compliance burden relative to the existing rules. Where the Bureau is adding new requirements to the 2013 Mortgage Servicing Final Rules, the Bureau is doing so after careful weighing of incremental costs and benefits.

This final rule adopts the proposed amendments with some additional clarifications and revisions. The purpose of these updates is to address important questions raised by industry, consumer advocacy groups, and other stakeholders.

C. Testing of Bankruptcy Periodic Statement Sample Forms

In the proposed rule, the Bureau indicated that it would conduct consumer testing of the proposed sample periodic statement forms for consumers who have filed for bankruptcy and would publish and seek comment on a report summarizing the methods and results of such testing prior to finalizing any sample forms. Following publication of the proposed rule, the Bureau engaged Fors Marsh Group (FMG), a research and consulting firm that specializes in designing disclosures and consumer testing, to conduct one-on-one cognitive interviews to test the Bureau's proposed sample periodic statement forms for consumers who have filed for bankruptcy. As described in detail in the report summarizing the testing,[17] between May 2015 and August 2015, the Bureau worked with the firm to conduct three rounds of one-on-one cognitive interviews with a total of 51 consumers in Arlington, Virginia, Fort Lauderdale, Florida, and Chicago, Illinois. Efforts were made to recruit a significant number of participants who had filed for bankruptcy, who had a mortgage (preferably when they filed for bankruptcy), and who had trouble making mortgage payments in the last two years.

During the interviews, participants were shown sample modified periodic statements. In general, participants who had filed for chapter 7 bankruptcy reviewed statements tailored to borrowers who are debtors in a chapter 7 or chapter 11 bankruptcy case, while participants who had filed for chapter 13 bankruptcy reviewed statements tailored to borrowers who are debtors in a chapter 12 or chapter 13 bankruptcy case. Participants were asked specific questions to test their understanding of the information presented in the sample statements and how easily they could find various pieces of information presented in the sample statements, as well as to learn about how they would use the information presented in the sample statements. The Bureau and FMG jointly developed revisions to all of the forms between rounds to address any apparent usability or comprehension issues and in response to public comments the Bureau received on the proposed rule.

The Bureau conducted the consumer testing after the close of the original comment period. The notice seeking public comment specifically on the report summarizing the methods and results of the testing was published in the Federal Register on April 26, 2016.[18]

D. Comments on the Proposed Rule and Testing of Bankruptcy Periodic Statement Sample Forms

The Bureau issued the proposed rule on November 20, 2014, and the proposal was published in the Federal Register on December 15, 2014.[19] The comment period ended on March 16, 2015. The comment period on the report summarizing the results of the consumer testing of bankruptcy periodic statement sample forms ended on May 26, 2016. The Bureau received more than 160 comments on the proposed rule and approximately 20 comments on the testing report. The comments were received from consumers, consumer advocacy groups, government agencies, servicers, industry trade associations, and others. As discussed in more detail below, the Bureau has considered these comments in adopting this final rule.

The Bureau notes that a number of consumer advocacy group commenters discussed language access and communications with consumers with limited English proficiency (LEP) and indicated that this is an area that needs further action and attention from the Bureau. One commenter urged the Bureau to consider additional rulemaking to require servicers to respond effectively to the needs of LEP borrowers. Another commenter stated that servicers' failure to communicate effectively with LEP homeowners remains a major unresolved issue, and said that servicers fail to provide written communication in the homeowner's preferred non-English language, fail to provide adequate oral translation for LEP homeowners, and refuse to accept official government documents in non-English languages. The commenter suggested that the Bureau should ensure that materials and points of contact are available in homeowners' preferred languages.

The Bureau takes seriously the important considerations of language access. The Bureau believes that LEP consumers should be served fairly, equitably, and in a nondiscriminatory manner. The Bureau recognizes that LEP consumers face particular challenges and obstacles in accessing effective loss mitigation. The Bureau believes that servicers should communicate with borrowers clearly, including in the consumer's preferred language, where possible, and especially when lenders advertise in the consumer's preferred language.

The Bureau has not had the opportunity, however, to test either the new disclosures that the Bureau is adopting in this final rule or the pre-existing RESPA and TILA servicing disclosures in languages other than English. Nor has the Bureau had the opportunity to take comment from all interested parties about the significant operational challenges implicated in addressing language access in the mortgage servicing context. Accordingly, the Bureau is not imposing Start Printed Page 72164mandatory language translation requirements or other language access requirements at this time with respect to the mortgage servicing disclosures and other mortgage servicing requirements.

Although the Bureau declines at this time to implement requirements regarding language access, the Bureau reiterates the importance of servicers communicating clearly and in a non-discriminatory manner with all consumers, including those with limited English proficiency. Servicers should ensure they are in compliance with all applicable law. For instance, servicers may have separate responsibilities under State law, which may, in certain circumstances, require that financial institutions provide foreign language services. As the Bureau has previously noted, the Final Servicing Rules do not have the effect of prohibiting State law from affording borrowers broader consumer protections relating to mortgage servicing than those conferred under the mortgage servicing rules.[20] The Bureau will continue to consider language access generally in connection with mortgage servicing, including access to effective loss mitigation. The Bureau continues to explore the obstacles that LEP consumers face when attempting to access credit, as well as the challenges that servicers and creditors face when interacting with those consumers.[21] The Bureau will consider further requirements on servicer communications with LEP consumers in the mortgage servicing context, if appropriate.

IV. Legal Authority

As discussed more fully in the section-by-section analysis, the Bureau is issuing this final rule pursuant to RESPA, TILA, the FDCPA, and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board of Governors of the Federal Reserve System (Board). The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.” Section 1061 of the Dodd-Frank Act also transferred to the Bureau all of the Department of Housing and Urban Development's (HUD's) consumer protection functions relating to RESPA. Title X of the Dodd-Frank Act, including section 1061 of the Dodd-Frank Act, along with RESPA, TILA, the FDCPA, and certain subtitles and provisions of title XIV of the Dodd-Frank Act, are Federal consumer financial laws.[22]

A. RESPA

Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA, which include its consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12 U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe regulations that are appropriate to carry out RESPA's consumer protection purposes. As identified in the 2013 RESPA Servicing Final Rule, the consumer protection purposes of RESPA include ensuring that servicers respond to borrower requests and complaints in a timely manner and maintain and provide accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees and facilitating review for foreclosure avoidance options. Each of the amendments or clarifications to Regulation X is intended to achieve some or all these purposes.

Additionally, as explained below, certain of the amendments to Regulation X implement specific provisions of RESPA.

This final rule also includes amendments to the official Bureau commentary in Regulation X. Section 19(a) of RESPA authorizes the Bureau to make such reasonable interpretations of RESPA as may be necessary to achieve the consumer protection purposes of RESPA. Good faith compliance with the interpretations affords servicers protection from liability under section 19(b) of RESPA.

B. TILA

Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to prescribe regulations to carry out the purposes of TILA. Under section 105(a), such regulations may contain such additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. Under section 102(a), 15 U.S.C. 1601(a), the purposes of TILA include assuring the meaningful disclosure of credit terms to enable consumers to compare more readily the various credit terms available and avoid the uninformed use of credit and to protect consumers against inaccurate and unfair credit billing practices. The Bureau's amendments to Regulation Z carry out TILA's purposes and such additional requirements, adjustments, and exceptions as, in the Bureau's judgment, are necessary and proper to carry out the purposes of TILA, prevent circumvention or evasion thereof, or to facilitate compliance therewith.

Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to exempt from all or part of TILA any class of transactions if the Bureau determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. For the reasons discussed in this notice, the Bureau exempts certain transactions from the requirements of TILA pursuant to its authority under section 105(f) of TILA.

Additionally, as explained below, certain of the amendments to Regulation Z implement specific provisions of TILA.

This final rule also includes amendments to the official Bureau commentary in Regulation Z. Good faith compliance with the interpretations affords protection from liability under section 130(f) of TILA.Start Printed Page 72165

C. FDCPA

As explained in the section-by-section analysis, the Bureau also is issuing an FDCPA interpretive rule in a separate notice issued concurrently with this Final Rule.[23] The Bureau exercises its authority to prescribe rules with respect to the collection of debts by debt collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C. 1692l(d), and its power to issue advisory opinions under section 813(e) of the FDCPA, 15 U.S.C. 1692k(e). Under that section, “[n]o provision of [the FDCPA] imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.” The Bureau relies on this authority to issue an FDCPA interpretive rule interpreting the exceptions set forth in section 805(c)(2) and (3) of the FDCPA to include the written early intervention notice required by proposed § 1024.39(d)(2)(iii) as well as providing that loss mitigation information or assistance provided in response to a borrower-initiated communication should be considered outside the scope of a borrower's invocation of the cease communication right. The interpretive rule also interprets the term consumer for purposes of FDCPA section 805 to include a confirmed successor in interest, as that term is defined in Regulation X § 1024.31 and Regulation Z § 1026.2(a)(27)(ii).

D. The Dodd-Frank Act

Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1), authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” RESPA, TILA, the FDCPA, and title X of the Dodd-Frank Act are Federal consumer financial laws.

Section 1032(a) of the Dodd-Frank Act, 12 U.S.C. 5532(a), provides that the Bureau “may prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.” The authority granted to the Bureau in section 1032(a) of the Dodd-Frank Act is broad and empowers the Bureau to prescribe rules regarding the disclosure of the “features” of consumer financial products and services generally. Accordingly, the Bureau may prescribe rules containing disclosure requirements even if other Federal consumer financial laws do not specifically require disclosure of such features.

Section 1032(c) of the Dodd-Frank Act, 12 U.S.C. 5532(c), provides that, in prescribing rules pursuant to section 1032 of the Dodd-Frank Act, the Bureau “shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.” Accordingly, in amending provisions authorized under section 1032(a) of the Dodd-Frank Act, the Bureau has considered available studies, reports, and other evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services.

V. Section-by-Section Analysis

A. Overview of Sections Relating to Successors in Interest in Regulations X and Z

Introduction

Several aspects of the final rule affect provisions in both Regulations X and Z. For example, the definition of delinquency in § 1024.31 affects requirements in §§ 1024.39 through 1024.41 of Regulation X, as well as § 1026.41 of Regulation Z. Generally, the Bureau discusses each section of the final rule under the heading designating the applicable regulation below—part V.B. for Regulation X and part V.C. for Regulation Z. However, because the final rule and commentary relating to successors in interest are interspersed throughout Regulations X and Z and many commenters addressed multiple sections of the proposal at once, this combined part V.A. provides an overview of the successor in interest provisions in the final rule and related issues raised by commenters for both Regulations X and Z. The Bureau then discusses each specific section of the final rule relating to successors in interest in more detail under the heading designating the applicable regulation below.

Current § 1024.38(b)(1)(vi) provides that servicers are required to maintain policies and procedures that are reasonably designed to ensure that the servicer can, upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property securing the deceased borrower's mortgage loan. The Bureau adopted this requirement in the 2013 RESPA Servicing Final Rule because it understood that successors in interest may encounter challenges in communicating with mortgage servicers about a deceased borrower's mortgage loan account.[24]

The Bureau provided guidance about this requirement in the October 2013 Servicing Bulletin. The Bureau noted that it had received reports of servicers either refusing to speak to a successor in interest or demanding documents to prove the successor in interest's claim to the property that either did not exist or were not reasonably available.[25] The Bureau stated that these practices often prevented a successor in interest from pursuing assumption of the mortgage loan and, if applicable, loss mitigation options.[26] The October 2013 Servicing Bulletin provided examples of servicer practices and procedures that would accomplish the objectives set forth in § 1024.38(b)(1)(vi) and alleviate these problems.[27]

Despite the Bureau's guidance regarding the requirements of the existing rule, housing counselors and consumer advocacy groups continue to report, in both published reports and their comments on this rulemaking, that Start Printed Page 72166successors in interest face a variety of challenges, including difficulties in obtaining information about the status of mortgage loans on their homes or the monthly payment amount, getting servicers to accept their payments, and finding out their options to avoid foreclosure.[28] Housing counselors and consumer advocacy groups have also reported that servicers often refuse to speak with successors in interest, tell them they must assume the loan before they can apply for a loss mitigation option, or accept payments for several months before telling a successor in interest that the servicer will no longer accept payments because the successor in interest is not a borrower.

Consumer advocacy groups emphasized in their comments that successors in interest also continue to face problems establishing their successor status. For example, when surveyed by one consumer advocacy organization about their experiences assisting successors in interest, a large number of elder advocates including legal services attorneys and housing counselors reported that they had been asked for probate documents despite having provided the servicer with a right of survivorship deed, had been asked to supply the same documents regarding proof of successor status multiple times, had experienced a servicer refusing to communicate with a successor in interest at all, or had dealt with a servicer that was unclear about what documents were needed to establish successor status. These reports suggest that widespread confusion remains about the rights and options of successors in interest.

Moreover, the protections established in the Bureau's existing rules do not apply to many categories of successors in interest in need of assistance. The office of a State Attorney General commented that it continues to receive complaints on behalf of non-borrowers who obtain property through divorce or other types of family transfers that are not covered under the current rules.

The ability of successors in interest to sell, encumber, or make improvements to their property is limited by the lien securing the mortgage loan. As homeowners of property securing a mortgage loan, successors in interest typically must satisfy the loan's payment obligations to avoid foreclosure, even though a successor in interest will not necessarily have assumed liability for the mortgage debt under State law. A foreclosure or threatened foreclosure imperils a successor in interest's ownership interest and poses significant risk of consumer harm. Successors in interest, like other homeowners, can face serious adverse consequences from foreclosure. These consumer harms may include loss of the home and accumulated equity, displacement, and damage to credit scores.

Successors in interest may also have difficulty, beyond that of other homeowners, in avoiding foreclosure and may be more likely than other homeowners to have experienced recently or to be experiencing an income disruption due to death or divorce. Successors in interest may also have more difficulty than other homeowners obtaining information about the status of the mortgage loan, options for loss mitigation, and payoff information and may be more likely than other homeowners to experience difficulty with the prompt crediting of their payments, resulting in unnecessary foreclosure. For all these reasons, successors in interest are a particularly vulnerable group at risk of substantial harms.

These difficulties present significant problems related to the consumer protection purposes of RESPA and TILA and are similar to many of the problems that prompted the Bureau to adopt the 2013 Mortgage Servicing Rules. As the Bureau noted in its 2013 RESPA Servicing Final Rule, RESPA's consumer protection purposes include ensuring that servicers respond to borrower requests and complaints in a timely manner and maintain and provide accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees, and facilitating review for foreclosure avoidance options. The Dodd-Frank Act provides the Bureau authority to establish prohibitions on servicers of federally related mortgage loans appropriate to carry out the consumer protection purposes of RESPA.[29] As the proposal explained, the Bureau believes that further modifications to Regulation X's mortgage servicing rules relating to successors in interest serve these purposes, in particular with respect to preventing unnecessary foreclosure and other homeowner harms, much as the 2013 RESPA Servicing Final Rule served these consumer protection purposes.

The purposes of TILA are to assure a meaningful disclosure of credit terms so that the consumers will be able to compare more readily the various credit terms available and avoid the uninformed use of credit and to protect consumers against inaccurate and unfair credit billing practices.[30] The Bureau believes these purposes are served by extending the protections of Regulation Z's mortgage servicing rules to confirmed successors in interest, who, as owners of dwellings securing mortgage loans, have an interest in obtaining timely and accurate account information as to the mortgage secured by their dwelling. The Dodd-Frank Act authorizes the Bureau to modify or create an exemption from the disclosure requirements of TILA regarding residential mortgage loans if the Bureau determines that such exemption or modification is in the interest of consumers and in the public interest.[31]

As explained in more detail in the discussion that follows and in the section-by-section analysis of the final rule sections,[32] the Bureau proposed three sets of rules relating to successors in interest. First, the Bureau proposed rules to define successors in interest for Start Printed Page 72167purposes of Regulation X's subpart C and Regulation Z as those persons who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Depository Institutions Act of 1982 (the Garn-St Germain Act).[33] Second, the Bureau proposed rules relating to how a mortgage servicer confirms a successor in interest's identity and ownership interest in the property. Third, the Bureau proposed to apply certain mortgage servicing rules to successors in interest whose identity and ownership interest in the property have been confirmed by the servicer.

The Bureau received more comments on the successor in interest provisions than on any other aspect of the proposal. As noted above, in their comments, consumer advocacy groups reported that successors in interest continue to face challenges with respect to the servicing of mortgage loans secured by their property. These commenters generally expressed support for the Bureau's proposal and, in many instances, urged the Bureau to adopt additional or broader protections for successors in interest. Servicers, trade associations, and other industry commenters, however, raised a variety of concerns about the Bureau's proposal, including operational challenges, privacy concerns, and questions about the Bureau's legal authority and the proposal's interaction with other laws.

As explained in more detail in the discussion that follows and in the section-by-section analysis of the final rule sections, the Bureau is finalizing the three sets of rules relating to successors in interest with significant adjustments to address concerns raised in the comments. The Bureau believes that the successor in interest provisions in the final rule are necessary to address the significant problems successors in interest continue to encounter with respect to the servicing of mortgage loans secured by their property, such as lack of access to information about the mortgage loan. The Bureau also believes that the rule, as finalized, addresses the operational, privacy, and other significant concerns raised by commenters.

As explained below, the final rule defines successor in interest and establishes requirements relating to confirming successors in interest. It also extends to confirmed successors in interest the protections of the mortgage servicing rules that the Bureau identified in the proposal (Regulation X's subpart C and §§ 1026.20(c), (d), and (e), 1026.36(c), and 1026.41), as well as two additional protections that were not part of the proposal (§§ 1024.17 and 1026.39). These provisions are referred to herein collectively as the Mortgage Servicing Rules.[34]

Consistent with the proposal, coverage under the final rule does not depend on whether a successor in interest has assumed the mortgage loan obligation (i.e., legal liability for the mortgage debt) under State law. Whether a successor in interest has assumed a mortgage loan obligation under State law is a fact-specific question. The final rule does not affect this question but applies with respect to a successor in interest regardless of whether that person has assumed the mortgage loan obligation under State law.[35] As explained in comment 30(d)-2 to Regulation X and in comment 2(a)(11)-4 to Regulation Z, if a successor in interest assumes a mortgage loan obligation under State law or is otherwise liable on the mortgage loan obligation, the protections the successor in interest enjoys under Regulations X and Z are not limited to the protections that apply under §§ 1024.30(d) and 1026.2(a)(11) to a confirmed successor in interest.

Scope of Successor in Interest Rules

The Bureau proposed changes regarding who is considered a successor in interest for purposes of Regulation X's subpart C and Regulation Z. Current § 1024.38(b)(1)(vi) refers to the successor in interest of the deceased borrower. The Bureau proposed to define successor in interest using definitions based on section 341(d) of the Garn-St Germain Act, which generally prohibits the exercise of due-on-sale clauses with respect to certain protected transfers.[36] The Act protects certain types of transfers involving the death of a borrower.[37] In addition, the Garn-St Germain Act protects other categories of transfers: A transfer where the spouse or children of the borrower become an owner of the property; a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; and any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.[38]

The Bureau proposed that, to the extent that certain mortgage servicing rules apply to successors in interest, the rules would apply to all successors in interest who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act, rather than only successors in interest who acquired an ownership interest upon a borrower's death. Accordingly, for the purposes of Regulation X, the Bureau proposed to define successor in interest in § 1024.31 as a member of any of the categories of successors in interest who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act. The Bureau also proposed to modify current § 1024.38(b)(1)(vi) to account for all transfers to successors in interest meeting this definition. Similarly, for the purposes of Regulation Z, proposed § 1026.2(a)(27) would have defined successor in interest to cover all categories of successors in interest who acquired an ownership interest in the dwelling securing a mortgage loan in a transfer protected by the Garn-St Germain Act.

For the reasons that follow and that are explained in the section-by-section analyses of §§ 1024.31 and 1026.2(a)(27)(i), the final rule includes definitions of successor in interest in §§ 1024.31 and 1026.2(a)(27)(i) that are modeled on categories of transfers protected in the Garn-St Germain Act, but the definitions do not cross-reference the Garn-St Germain Act itself. Specifically, after reviewing the comments, the Bureau is defining successor in interest for purposes of subpart C of Regulation X in § 1024.31 to mean a person to whom an ownership interest in a property Start Printed Page 72168securing a mortgage loan subject to subpart C is transferred from a borrower, provided that the transfer falls in one or more of the following categories:

  • A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  • A transfer to a relative resulting from the death of a borrower;
  • A transfer where the spouse or children of the borrower become an owner of the property;
  • A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or
  • A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.[39]

The Bureau is finalizing an analogous definition for Regulation Z in § 1026.2(a)(27)(i).[40]

Whether to use the Garn-St Germain Act categories at all in defining successor in interest. Commenters offered different views on whether the Bureau should use the Garn-St Germain Act categories at all in defining the term successor in interest. Consumer advocacy groups and some State and local government commenters expressed support for including the Garn-St Germain Act categories in the definition.[41] For example, one consumer advocacy group indicated that, for a large percentage of the successors in interest it has assisted, the servicers' refusal to provide any information about the status of the account to the successor in interest has led to prolonged delinquency and unnecessary foreclosure proceedings. This group stated that it believes that the proposed definition of successor in interest would offer important protections to prevent unnecessary foreclosures and reduce unnecessary delays in reaching agreements. Another consumer advocacy group indicated that extending the rules to include all protected transfers under the Garn-St Germain Act would significantly benefit its vulnerable clients.

The office of a State Attorney General expressed support for extending protections to the Garn-St Germain Act categories and indicated that servicers often refuse to communicate with divorcees and other family transferees. A local government commenter also expressed strong support for including in the definition successors in interest who meet the criteria set forth in the Garn-St Germain Act based on its experience running a mortgage foreclosure diversion program over the past seven years.

Some industry commenters objected to the use of the Garn-St Germain Act framework in defining who is a successor in interest. Two trade associations stated that Congress did not intend for the Garn-St Germain Act to protect against any consequences of delinquency. These commenters stated that section 341 of the Garn-St Germain Act was designed to address when lenders may and may not require a loan modification. One of these trade associations suggested that the Garn-St Germain Act categories are not well-suited for use in the successor in interest definitions because a child who buys a property from a parent would be protected but a parent who buys a property from a child would not. Another trade association stated that the sole purpose of the Garn-St Germain Act was to preempt acceleration based on certain transfers of ownership on residential properties.

Despite the concerns expressed by some commenters, the Bureau continues to believe that it is appropriate to align the successor in interest definitions in Regulations X and Z in large part with the categories in section 341(d) of the Garn-St Germain Act. Although a few industry commenters attempted to characterize this provision differently, the text of section 341(d) clearly provides a broad exemption from due-on-sale enforcement for various categories of transfers. The legislative history of the Garn-St Germain Act reflects that Congress chose to create this broad exemption because it deemed such enforcement unfair and inappropriate.[42] For the same reasons that due-on-sale enforcement would be inappropriate in the context of these transfers, the Bureau believes it is also important to ensure that servicers do not interfere in other ways with the transferees' ability to take advantage of their ownership interest in the property. For example, just as due-on-sale enforcement can result in a successor in interest losing a property, a servicer's failure to provide information to a successor in interest about the status of a mortgage loan or to evaluate the successor in interest for available loss mitigation options could result in unnecessary foreclosure and loss of the successor in interest's ownership interest.

Congress identified in the Garn-St Germain Act the categories that it felt warranted protection from one type of foreclosure risk. The Bureau agrees that these general categories include the most vulnerable classes of transferees and has concluded that it is important to protect such transferees from other types of foreclosure risk and servicing abuses.

Notwithstanding the suggestion of one commenter to the contrary, the Bureau also believes that the categories established in section 341(d) of the Garn-St Germain Act provide adequate protection for transfers from child to parent. Section 341(d)(5) includes transfers from a relative (including from a child to a parent or from a parent to a child) that occur upon the death of a borrower. Section 341(d)(6) also includes ownership transfers from a parent to a child and between spouses that occur during the life of the borrower. The fact that section 341(d) does not include transfers from a child to a parent that occur during the life of the transferor reflects Congress's determination that transfers from parent to child need greater protection from due-on-sale enforcement. The Bureau Start Printed Page 72169believes that the same policy choice is appropriate in defining successor in interest in Regulations X and Z because lifetime transfers to children and spouses are both more common than lifetime transfers to parents and more central to ensuring that familial homesteads and wealth will be available to the next generation.[43]

Whether to cross-reference the Garn-St Germain Act in the definitions and whether to incorporate limitations imposed by the Garn-St Germain Act implementing regulations. Industry commenters asked whether the Bureau intended to incorporate the occupancy requirements of the Garn-St Germain Act implementing regulations administered by the Office of the Comptroller of the Currency (OCC), 12 CFR 191.5(b). The implementing regulations impose certain occupancy requirements and expressly exclude reverse mortgages from the scope of Garn-St Germain due-on-sale protection.[44] Commenters indicated uncertainty about whether the Bureau intended to apply the occupancy requirements that appear only in the Garn-St Germain Act implementing regulations and not in the Garn-St Germain Act.

An industry commenter suggested that the Bureau should omit reference to the Garn-St Germain Act in Regulations X and Z and instead enumerate the categories of transfers of ownership that would qualify for regulatory protection, in order to avoid unintended consequences. Other industry commenters asked the Bureau to clarify in the final rule how the existing exemptions and scope limitations in Regulations X and Z would apply to the servicing of a mortgage loan with respect to a successor in interest.

A trade association urged the Bureau to exempt reverse mortgages entirely. It stated that existing guidelines, protocols, and timelines governing Home Equity Conversion Mortgages insured by the Federal Housing Administration (FHA) require servicers of such reverse mortgages to reach out to and deal with persons who might fall within the Bureau's definition of successor in interest. This trade association said that its membership indicated that servicers of non-FHA-insured reverse mortgages follow similar processes. It also noted that reverse mortgages are exempt from many of the mortgage servicing requirements in Regulations X and Z. It suggested that applying the successor in interest requirements to reverse mortgage servicers would be burdensome and would provide little if any practical benefits given the servicing protocols and requirements already in place in the reverse mortgage industry.

A trade association requested that small servicers be exempted from complying with the prescriptive requirements of the successor in interest provisions. It stated that tracking successors in interest could require costly system modifications. The commenter indicated that an exemption for small servicers would be consistent with the Bureau's approach to other general servicing requirements for small servicers. By contrast, several consumer advocacy groups urged the Bureau to expand the requirements for small servicers beyond those in the proposal to require small servicers to comply with all of the proposed requirements of § 1024.38(b)(1)(vi).

Upon consideration, the Bureau has decided to incorporate the relevant categories of transfers directly into the final rule, rather than relying on a cross-reference to the Garn-St Germain Act. Accordingly, the final rule lists the specific categories of transfers that qualify a transferee to be a successor in interest, using categories that are modeled on categories protected by the Garn-St Germain Act. To ensure that the scope of the final rule does not change over time without further rulemaking by the Bureau, the Bureau has omitted the Garn-St Germain Act category that protects from due-on-sale enforcement any other transfer or disposition described in the Garn-St Germain Act implementing regulations.[45] The Bureau believes that listing the specific categories rather than including a cross-reference makes the definitions in Regulations X and Z clearer and easier to apply.

In restating the categories in the final rule, the Bureau has not incorporated certain scope limitations imposed by the Garn-St Germain Act itself or its implementing regulations. The Bureau notes that many of those limitations are similar in nature to those in the Mortgage Servicing Rules themselves and believes that it will be easier for servicers and more protective for consumers to let the Mortgage Servicing Rules' limitations determine the scope of coverage consistently for confirmed successors in interest as for other borrowers under the Mortgage Servicing Rules, rather than to import slightly varying limitations in the Garn-St Germain Act or OCC regulations.[46] The Mortgage Servicing Rules thus generally apply to confirmed successors in interest in the same manner that they do to other borrowers.

For example, section 341(d) of the Garn St-Germain Act by its terms only applies with respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home.[47] For ease of application and to align with other parts of Regulations X and Z, the Bureau has not incorporated these limitations into the definitions of successor in interest in the final rule. Instead, the definitions of successor in interest in the final rule incorporate the scope limitations from Regulations X and Z respectively by, for example, referring to a mortgage loan in the definition of successor in interest in § 1024.31 and to a dwelling securing a closed-end consumer credit transaction in § 1026.2(a)(27)(i).[48]

The Bureau has also decided not to incorporate certain limitations imposed by the Garn-St Germain Act implementing regulations. The implementing regulations issued by the OCC's predecessor, the Federal Home Start Printed Page 72170Loan Bank Board, exempt reverse mortgages from the due-on-sale protections in Garn-St Germain Act section 341(d).[49] They also impose certain occupancy requirements, which limit protection from due-on-sale enforcement to circumstances where the property was occupied or was to be occupied by the borrower.[50] The implementing regulations further limit protection from due-on-sale enforcement to circumstances where the transferee occupies or will occupy the property if it is an intra-familial transfer and to circumstances where the borrower is and remains an occupant of the property if it is a transfer to an inter vivos trust.[51]

Rather than incorporating these scope limitations into the final rule, the Bureau has decided to apply the exemptions and scope limitations in the existing Mortgage Servicing Rules to the servicing of a mortgage loan with respect to a confirmed successor in interest, as it proposed to do. For example, § 1024.30(b) exempts small servicers from §§ 1024.38 through 1024.41 (except § 1024.41(j)). Likewise, § 1024.30(b) provides an exemption from these sections with respect to reverse mortgage transactions and mortgage loan for which the servicer is a qualified lender as that term is defined in 12 CFR 617.7000. Accordingly, except as otherwise provided in § 1024.41(j), and consistent with the generally applicable scope limitations of the Mortgage Servicing Rules, §§ 1024.38 through 1024.41 do not apply to confirmed successors in interest with respect to small servicers, reverse mortgage transactions, and mortgage loans for which the servicer is a qualified lender. Similarly, § 1024.30(c) provides that § 1024.33(a) only applies to reverse mortgage loan transactions and that §§ 1024.39 through 1024.41 only apply to mortgage loans secured by property that is a borrower's principal residence. Accordingly, with respect to confirmed successors in interest, § 1024.33(a) only applies to reverse mortgage loan transactions, and §§ 1024.39 through 1024.41 only apply to mortgage loans secured by property that is the confirmed successor in interest's principal residence.[52]

The Mortgage Servicing Rules in Regulation Z contain similar exemptions and scope limitations, which also apply to the treatment of confirmed successors in interest under the final rule. For example, creditors, assignees, and servicers are exempt from § 1026.41's periodic statement requirements for mortgage loans serviced by a small servicer, as defined in § 1026.41(e)(4).[53]

Applying these existing exemptions and scope limitations to the servicing of a mortgage loan with respect to a confirmed successor in interest promotes clarity and consistency with other aspects of Regulations X and Z, making the rules easier to apply. It also furthers the policy goals that led to the adoption of those exemptions and scope limitations in the existing Mortgage Servicing Rules. In adopting the 2013 Mortgage Servicing Rules, the Bureau weighed relevant considerations for the exemptions and scope limitations and made a series of carefully calibrated judgments about the circumstances under which each of the rule's protections should apply.[54] For example, in limiting the scope of §§ 1024.39 through 1024.41 to mortgage loans that are secured by a borrower's principal residence in § 1024.30(c), the Bureau noted that the purpose of the early intervention requirement, the continuity of contact requirement, and the loss mitigation procedures is to help borrowers stay in their principal residences, where possible, while mitigating the losses of loan owners and assignees, by ensuring that servicers use clear standards of review for loss mitigation options.[55] The Bureau did not believe that this purpose would be furthered by extending those protections to mortgage loans for investment, vacation, or other properties that are not principal residences.[56] These same considerations support applying the same exemptions and scope limitations in the context of confirmed successors in interest.

Applying occupancy requirements from the Garn-St Germain Act implementing regulations to successors in interest would make Regulations X and Z more complex and difficult to implement and administer and would offer less protection to successors in interest. While certain Mortgage Servicing Rules will not apply due to existing exemptions and scope limitations,[57] the Bureau believes that successors in interest will benefit from other protections of the Mortgage Servicing Rules even if they do not occupy or intend to occupy the property, just as non-occupant borrowers currently do. For example, successors in interest, whether occupants or non-occupants, often encounter difficulties accessing information about the mortgage account and making payments and will benefit from the ability to submit requests for information and request payoff statements once they are confirmed.

The Bureau also believes it is appropriate to include reverse mortgages to the same extent that they are covered under the existing Mortgage Servicing Rules. The Bureau recognizes that there are many ways in which reverse mortgages differ from other mortgages. The exemptions and scope limitations in the existing Mortgage Servicing Rules are already tailored to these differences and ensure that consumers with reverse mortgages benefit from the protections that are relevant to their situations and that reverse mortgage servicers are not required to comply with Regulation X and Z protections that are not relevant to reverse mortgages. When a reverse mortgage is secured by a property that is acquired by a successor in interest, the successor in interest will benefit upon confirmation from the ability to invoke the Mortgage Servicing Rules that apply to reverse mortgages, just as the transferor borrower might benefit. For example, in many instances, successors in interest to properties that are secured by reverse mortgages will need to pay off the reverse mortgage in order to protect their ownership interest and will benefit from the information in a payoff statement available under § 1026.36(c). The Bureau believes that it will be easier for servicers to follow consistent rules with regard to reverse mortgages regardless of whether there has been a succession of interest with respect to a particular property and that such an approach provides greater protections to consumers that are Start Printed Page 72171calibrated to the context of the Mortgage Servicing Rules.

The final rule also applies the same exemptions for small servicers that currently apply under the Mortgage Servicing Rules. Although a trade association suggested that it would be consistent with other mortgage servicing requirements to exempt small servicers entirely from the successor in interest provisions, the Bureau believes that the most consistent approach is to apply the same exemptions that exist in current Regulations X and Z to the final rule's new successor in interest provisions. These exemptions reflect the unique circumstances of small servicers, which may not have systems in place to implement certain requirements in a cost-effective way given their size. Although some consumer advocacy groups suggested that the Bureau should subject small servicers to the policies and procedures requirements in § 1024.38(b)(1)(vi), the Bureau believes that requiring small servicers to develop such policies and procedures could cause small servicers to incur incremental expenses which, because of their size, would be burdensome for them. Under the final rule, as under the proposal, § 1024.36(i), but not § 1024.38(b)(1)(vi), applies to small servicers. Accordingly, small servicers, for example, must respond to requests for information under § 1024.36(i) by providing a written description of the documents the servicer reasonably requires to confirm the person's identity and ownership interest in the property within the timeframe set forth in § 1024.36, even though small servicers are not required to maintain policies and procedures to determine promptly what documents the servicer reasonably requires to confirm the successor in interest's identity and ownership interest in the property. The Bureau believes that this approach appropriately balances the burden on small servicers with confirmed successors in interest's need to receive this information.

Whether to limit the Garn-St Germain Act categories to situations involving death, to persons who have assumed the loan obligation, or in other significant ways. Some industry commenters suggested narrowing the scope of the successor in interest provisions in various ways. A number of industry commenters suggested limiting the categories to situations involving the death of an obligor, as the current rule does, or the death of all obligors. These commenters said that providing loan-related information to a successor in interest who is not liable on the note could violate the financial privacy of living obligors and result in liability for servicers.

Other industry commenters suggested limiting the scope to successors in interest who obtain their interest through death or divorce, sometimes with additional triggering criteria. An industry commenter suggested limiting the scope to situations involving a mortgage transaction where either the borrower is deceased or the loan is in default due to delinquency and the borrower is unwilling to work with the servicer to resolve the default. A trade association suggested that the definition should be limited to circumstances where the successor inherits property after death, has been awarded property in a divorce action, or has received a quitclaim deed from the borrower.

Some industry commenters suggested other limiting factors for recognizing successors in interest. A trade association stated that transfers where the transferor borrower retains ownership rights and remains obligated on the loan do not actually involve a succession of interest. Some industry commenters also suggested that the Bureau should impose occupancy restrictions in the definition—for example, by limiting the definition to individuals who occupy the property as a primary residence. Two industry commenters urged the Bureau to exclude from the definition of successors in interest third parties who become successors in interest through “take over the payments,” contracts for deed, wrap notes, and similar sales transactions that are unauthorized by mortgagees and are in violation of due-on-sale clauses in the mortgage instruments.

In suggesting these limitations, some commenters expressed concern about excessive regulatory burden. Other industry commenters asserted that the scope of the successor in interest definitions in the proposal would allow borrowers to transfer the property solely to delay foreclosure and to influence whose income is considered in loss mitigation, which would impose additional costs on the holder of the mortgage. Others suggested that the definition should not include transfers while the transferor borrower is living (such as transfers where the child of a borrower becomes an owner or transfers into an inter vivos trust) because living transferor borrowers always have the option to create authority in a transferee through a power of attorney or other means should they wish to do so.

A number of industry commenters suggested that the Bureau should exclude anyone who has not assumed the mortgage loan obligation from the definitions of successor in interest in order to address their concerns about being required to interact with a person not legally obligated on the note. One commenter stated that it would not be appropriate to grant statutory rights to a person who is a legal stranger to the owner of the loan and against whom the owner of the loan may not proceed if the loan becomes delinquent. Another suggested that the primary reason that borrowers receive many protections under the mortgage servicing rules is because they have undertaken a substantial obligation to repay a loan and could suffer significant negative ramifications if they fail to meet that obligation. Some commenters expressed concern that the proposal would allow someone who is not a party to the loan agreement to modify its terms. A trade association indicated that treating people who have not assumed the loan as successors in interest would raise serious privacy concerns and suggested that the Bureau should provide a safe harbor if the final rule requires disclosure of nonpublic borrower information to non-obligated co-owners. Other industry commenters urged the Bureau to provide clarification, potentially in commentary, on the privacy implications of the proposed provision's coverage of successors-in-interest who have not assumed the mortgage loan obligation under State law.

By contrast, consumer advocacy groups and government commenters emphasized in their comments the need for broad coverage. A State Attorney General's office noted that it often must intervene on behalf of vulnerable non-borrowers who obtain an interest in a property through divorce or otherwise. It observed that servicers fail to communicate with these homeowners even when the loans at issue are owned by Fannie Mae and Freddie Mac, both of which have long directed servicers to work with divorcees. Several consumer advocacy groups reported that a large number of attorneys and housing counselors representing homeowners across the United States have been asked to supply a quitclaim deed to the servicer, even where the successor in interest had already provided a copy of a divorce decree that clearly transferred the property. One consumer advocacy group noted that it has seen cases involving divorced spouses and other intra-family transfers, as well as heirs, and that a large percentage of its successor in interest cases have led to prolonged delinquency and unnecessary foreclosure proceedings due to the servicers' refusal to provide any Start Printed Page 72172information about the status of the account to the successor in interest.

Another consumer advocacy group expressed particular concern about the need to protect successors in interest who have experienced intimate partner violence. This commenter explained that, for example, survivors of spousal abuse often receive the marital home in a divorce only to have mortgage servicers refuse to provide them with information about the mortgage loan if the loan is in the name of the former spouse. It also noted that survivors of spousal abuse often need to request loss mitigation assistance because of their changed economic circumstances after a divorce but are told they cannot apply for loss mitigation without the participation of the former spouse. The commenter noted that giving abusers sole access to necessary information about the loan or requiring their participation for loss mitigation applications perpetuates the dynamics of power and control inherent in abusive relationships.

A consumer advocacy group stated that assumption should not be a requirement for confirmation because successors in interest cannot evaluate whether it is in their best interests to assume a loan unless they have information about the status of the loan and whether it will be possible to avoid foreclosure. This commenter noted that successors in interest are harmed if they assume liability on a loan that is in default or foreclosure only to discover that there is no feasible loss mitigation option. The office of a State Attorney General raised similar concerns.

The Bureau is not limiting the scope, as industry commenters suggested, and is expanding the scope beyond the current rule's limitation to situations involving death. In issuing current § 1024.38(b)(1)(vi), the Bureau relied on information about difficulties faced by surviving spouses, children, and other relatives who succeed in the interest of a deceased borrower to a property that the successor in interest also occupied as a principal residence, when that property is securing a mortgage loan account solely in the name of the deceased borrower.[58] Since that time, the Bureau has received additional information that other categories of successors in interest who acquire an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act, such as divorced spouses, face similar difficulties to those identified by the Bureau in issuing the original policies and procedures requirement.[59] Many commenters confirmed that successors in interest who are transferred an ownership interest in property securing a mortgage loan upon divorce and through other protected transfers face similar challenges to those faced by successors in interest after a borrower's death, including, for example, difficulty obtaining information about the mortgage loan. In light of the information received through comments and published reports and the Bureau's market knowledge, the Bureau concludes that many successors in interest in the Garn-St Germain Act categories that do not involve a borrower's death face the same risk of unnecessary foreclosure and other consumer harm with respect to the mortgage loan and property as successors in interest who receive an ownership interest upon a borrower's death.

The Bureau does not believe it would be appropriate to limit the scope of the definition to transfers occurring upon death or to impose any of the alternative limitations suggested by commenters. As many commenters noted, divorcees and individuals who are legally separated from their spouses often need to communicate with servicers regarding mortgage loans that encumber property they have obtained through the divorce or legal separation process. Similarly, children or spouses who receive an ownership interest during the life of the transferor borrower and beneficiaries of inter vivos trusts may need information about the mortgage loan in order to ensure the property does not go into default or foreclosure. This can be particularly important in cases where the transferor borrower is unwilling or unable to handle financial matters relating to the property. Congress included these categories in the Garn-St Germain Act, as well as various categories occurring on the death of the transferor borrower, because it concluded that due-on-sale enforcement would be unfair and inappropriate with respect to these transferees.[60] The Bureau believes that these transferees are also at risk of losing the home or falling behind on the mortgage if they do not receive timely information from the servicer and are unable to communicate with the servicer about the mortgage loan. The Bureau, therefore, has decided not to exclude from the scope of the final rule's successor in interest protections the various Garn-St Germain Act categories of ownership interest transfers that occur during the life of the transferor borrower.

The Bureau has also decided not to limit the definitions of successor in interest to those who have assumed the loan obligation. As some commenters noted, successors in interest must have access to information about the loan in order to evaluate the viability of a legal assumption of the mortgage loan obligation. The Bureau recognizes the potential privacy concerns expressed by commenters raised by sharing information with successors in interest who are not obligated on the loan. However, the Bureau does not believe that these concerns warrant narrowing the scope of the successor in interest definitions. Instead, the Bureau is authorizing servicers to withhold certain types of sensitive information in response to requests for information and notices of error that involve successors in interest, as discussed below.

Commenters also expressed concern that defining successors in interest to include persons who are not obligated on the loan might needlessly delay foreclosure proceedings. The Bureau does not believe that this is a significant risk and does not believe that borrowers are likely to transfer ownership of real property simply as a delay tactic. Moreover, the final rule does not extend dual tracking protections during the pendency of the confirmation process. The final rule does, however, require servicers to review and evaluate loss mitigation applications from confirmed successors in interest in accordance with the procedures set forth in § 1024.41 if the property is the confirmed successor in interest's principal residence and the procedures set forth in § 1024.41 are otherwise applicable. The Bureau recognizes that, as with reviews and evaluations for other borrowers, these reviews and evaluations could result in short delays in some cases but believes it is important to extend these foreclosure protections to confirmed successors in interest for the reasons discussed in this discussion and in the section-by-section analysis of § 1024.30(d).

As noted above, two commenters suggested that the Bureau exclude from the definitions of successor in interest third parties who become successors in Start Printed Page 72173interest through “take over the payments,” contracts for deed, wrap notes, and similar sales transactions. The final rule's definitions of successor in interest include transfers during the life of the transferor only if the recipient is a spouse, former spouse, or child of the transferor, or the beneficiary of an inter vivos trust. Third parties who do not fall into these categories and acquire the property during the life of the transferor are not successors in interest for the purpose of the final rule, regardless of how they obtain the property. Conversely, recipients who are spouses, former spouses, or children of the transferor or who are the beneficiaries of an inter vivos trust can be successors in interest even if they obtain the property through the types of contracts for deed or similar transactions to which the commenters are referring. For the reasons stated in this discussion and in the section-by-section analyses of §§ 1024.31 and 1026.2(a)(27)(i), the Bureau believes that it is appropriate to treat the categories of transferees described in §§ 1024.31 and 1026.2(a)(27)(i) as successors in interest for purposes of the final rule regardless of how they obtain an interest in the property, while not treating other transferees as successors in interest.

Whether to include in the successor in interest definitions additional categories, beyond those protected by the Garn-St Germain Act. The Bureau also solicited comment on whether additional categories of successors in interest, beyond those protected by the Garn-St Germain Act, should be covered by the Bureau's definitions of successor in interest. Consumer advocacy groups urged the Bureau to broaden the definition to include various categories that are not covered by the Garn-St Germain Act but that are similar to the Garn-St Germain Act categories. They suggested, for example, that the definition should include same-sex partners, as well as parents, siblings, and grandchildren who obtain an interest in the home through a quitclaim deed. Several consumer advocacy groups suggested that, in addition to the Garn-St Germain Act categories, the definition should cover any instance where there is not an enforceable due-on-sale clause, including situations where there is no due-on-sale clause in the mortgage.[61]

A number of consumer advocacy groups urged the Bureau to expand the definitions of successor in interest to include co-homeowners who did not sign the original note. They indicated that homeowners who are not borrowers on the note experience the same frustrations, problems, and potential harms as successors in interest.

Industry commenters stated that mortgagors may have elected not to sign the note. An industry commenter also stated that mortgagors always have the option to refinance the loan in their own name should they choose to do so.

The final rule does not cover categories of successors in interest beyond the categories established in the Garn-St Germain Act. Some of the categories that consumer advocacy groups suggested adding are already covered in part by the final rule categories that are modeled on the Garn-St Germain Act. For example, co-owners who did not sign the note will be covered upon the death of their co-owner if they are a joint tenant, a spouse who owns the property as a tenant by the entirety, or a relative who inherits an additional interest in the property. As finalized, the definitions also include transfers made where there is no due-on-sale clause in the mortgage instrument as long as the transfer falls within one of the specified categories listed in the definitions (such as a transfer to a relative resulting from the death of the transferor).

The Bureau considered adding certain additional categories to the scope of the definitions, such as non-relatives who receive property upon the death of a borrower, but decided not to do so for several reasons. Because the Bureau is applying the Mortgage Servicing Rules to confirmed successors in interest in large part to prevent unnecessary foreclosure, the Bureau believes that it is appropriate to align generally the successor in interest definitions with Congress's policy choice about which categories of successors in interest should be protected from foreclosure based on a lender's exercise of a due-on-sale clause. The Bureau also believes that the Garn-St Germain Act categories capture the most vulnerable classes of transferees that warrant successor in interest protection. Basing the definitions on the Garn-St Germain Act categories should assist servicers in identifying successors in interest, since servicers already need to comply with the Garn-St Germain Act. Further expansion of the scope of the successor in interest definitions beyond the Garn-St Germain Act categories might not be helpful to the property owners who would be added because, in the absence of due-on-sale protection, a servicer might be able to accelerate and foreclose independent of the final rule's successor in interest protections.

How to address the rights of transferor borrowers and their estates. A large number of commenters of various types described as confusing or inaccurate the use of the terms prior borrower and prior consumer in the proposal to refer to the person who transferred an ownership interest to the successor in interest.[62] Many of these commenters noted that a borrower who transfers an interest typically remains obligated on the mortgage loan. An industry commenter suggested substituting “transferor-borrower” for “prior borrower.” A number of commenters asserted that borrowers who retain ownership and remain obligated under the mortgage loan should continue to receive mortgage servicing rule protections, while a trade association suggested that the transferor borrower should stop receiving communications when a successor in interest is confirmed.

A number of commenters expressed concern that the Bureau's proposal would not provide adequate protection for the estates of transferor borrowers. Several consumer advocacy groups explained that estate representatives are protected by TILA and RESPA. These groups suggested that estates and their representatives should be able to obtain information and have payments applied correctly until the estate is closed. A trade association agreed with two caveats: It indicated that: (1) The servicer needs to verify that a person purporting to act as administrator or executor is properly acting in that capacity, and (2) If the estate is released from the loan obligation Regulation P may limit the estate's ability to access future loan information. Another trade association noted that the executor of an estate may ultimately be legally obligated to dispose of property and needs information in order to fulfill the executor's responsibilities. Other industry commenters suggested that protection for the estate should Start Printed Page 72174terminate upon confirmation of a successor in interest.

The final rule substitutes “borrower” for “prior borrower” and “consumer” for “prior consumer” in the definitions of successor in interest and in other successor in interest provisions. As many commenters noted, a borrower who transfers an ownership interest typically remains obligated on the loan, making the word “prior” inapposite. In light of concerns raised by commenters regarding the need to protect transferor borrowers and their estates, the Bureau is also clarifying in comment 30(d)-3 to Regulation X and comment 2(a)(11)-4.iii to Regulation Z that, even after a servicer's confirmation of a successor in interest, the servicer is still required to comply with all applicable requirements of Regulations X and Z with respect to the borrower who transferred the ownership interest to the successor in interest. This final rule does not take away any existing rights of transferor borrowers or their estates under Regulations X and Z.

Confirming a Successor in Interest's Status

The Bureau proposed modifications to the Mortgage Servicing Rules in Regulation X relating to how a mortgage servicer confirms a successor in interest's identity and ownership interest in the property securing the mortgage loan.[63] Proposed § 1024.36(i) would have generally required a servicer to respond to a written request that indicates that the person making the request may be a successor in interest by providing that person with information regarding the documents the servicer requires to confirm the person's identity and ownership interest in the property. Proposed § 1024.38(b)(1)(vi) would have added several related modifications to the current policies and procedures provision involving successors in interest.

Proposed § 1024.38(b)(1)(vi)(A) would have required servicers to maintain policies and procedures that are reasonably designed to ensure that the servicer can, upon notification of the death of a borrower or of any transfer of the property securing a mortgage loan, promptly identify and facilitate communication with any potential successors in interest regarding the property. Proposed § 1024.38(b)(1)(vi)(B) would have required servicers to maintain policies and procedures reasonably designed to ensure that the servicer can, upon identification of a potential successor in interest, promptly provide to that person a description of the documents the servicer reasonably requires to confirm the person's identity and ownership interest in the property and how the person may submit a written request under § 1024.36(i) (including the appropriate address). Proposed § 1024.38(b)(1)(vi)(C) would have required servicers to maintain policies and procedures reasonably designed to ensure that, upon the receipt of such documents, the servicer can promptly notify the person, as applicable, that the servicer has confirmed the person's status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest. For the reasons set forth in this discussion and in the section-by-section analyses of §§ 1024.36(i) and 1024.38(b)(1)(vi), the Bureau is finalizing §§ 1024.36(i) and 1024.38(b)(1)(vi) with a number of adjustments to clarify the parties' obligations during the confirmation process.

Industry commenters asserted that the proposal would require servicers to know the intricacies of real property law, contract law, estate law, and family law in each of the fifty States; to apply the applicable State's law to each successor in interest's factual circumstances; and to provide legal advice to people claiming to be successors in interest. One commenter indicated that servicers can assist potential successors in interest by explaining, in general terms, what information the servicer may need before the servicer can recognize a successor as an owner, but servicers cannot give the impression to potential successors in interest that the servicer's determination resolves their property interest with finality or provides the best outcome based on their particular situation. Some commenters were also concerned that proposed § 1024.38(b)(1)(vi)(A) might require them to seek out potential successors in interest even in the absence of affirmative notification. Other commenters stated that broadening the scope of successor in interest rules would further increase the complexity of confirming a successor in interest's status. Many industry commenters requested greater precision about the confirmation process and servicers' responsibilities with respect to potential successors in interest. Some also requested that the Bureau provide a safe harbor for confirmation decisions or indicate that incorrect successorship determinations or non-determinations do not give rise to claims of unfair, deceptive, or abusive acts or practices in violation of the Dodd-Frank Act or other litigation.

As explained above, consumer advocacy groups reported in their comments that successors continue to face problems establishing their successor status. These groups urged the Bureau to create a private right of action to allow potential successors in interest to enforce the requirements of proposed §§ 1024.36(i) and 1024.38(b)(1)(vi) and a privately enforceable notice of error requirement related to successorship determinations. They suggested that rights under the final rule should be triggered by a homeowner's submission of documentation, rather than by the servicer's additional step of confirming the successor in interest's status.[64] They also encouraged the Bureau to establish time limits for the confirmation process and to institute other protections for potential successors in interest.

After reviewing the comments received, the Bureau is finalizing §§ 1024.36(i) and 1024.38(b)(1)(vi) with adjustments to clarify the parties' obligations during the confirmation process. As finalized, § 1024.36(i) generally requires a servicer to respond to a written request that indicates that the person making the request may be a successor in interest by providing that person with a written description of the documents the servicer reasonably requires to confirm the person's identity and ownership interest in the property. Section 1024.38(b)(1)(vi)(A) requires servicers to maintain policies and procedures reasonably designed to ensure that the servicer can, upon receiving notice of the death of a borrower or of any transfer of the property, promptly facilitate communication with any potential or confirmed successors in interest regarding the property. Section Start Printed Page 721751024.38(b)(1)(vi)(B) requires servicers to maintain policies and procedures reasonably designed to ensure that the servicer can, upon receiving notice of the existence of a potential successor in interest, promptly determine the documents the servicer reasonably requires to confirm the person's identity and ownership interest in the property and promptly provide to the potential successor in interest a description of those documents and how the person may submit a written request under § 1024.36(i) (including the appropriate address). Section 1024.38(b)(1)(vi)(C) requires servicers to maintain policies and procedures reasonably designed to ensure that the servicer can, upon the receipt of such documents, promptly make a confirmation determination and promptly notify the person, as applicable, that the servicer has confirmed the person's status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest.

In response to the concerns raised by commenters, the Bureau has made a number of adjustments to the proposed confirmation process to delineate more clearly the parties' responsibilities during the confirmation process. For example, final § 1024.38(b)(1)(vi) makes clear that servicers do not need to search for potential successors in interest if the servicer has not received actual notice of their existence. The comments on the confirmation process set forth in proposed §§ 1024.36(i) and 1024.38(b)(1)(vi) and the changes that the Bureau has made in response to those comments are discussed in more detail in the section-by-section analyses of §§ 1024.36(i) and 1024.38(b)(1)(vi).

Like the proposal, the final rule does not require servicers to provide legal advice. The final rule does, however, require a servicer to have policies and procedures in place that are reasonably designed to ensure that the servicer can identify and communicate to potential successors in interest the documents that the servicer will accept as confirmation of the potential successor in interest's identity and ownership interest in the property. While confirmation determinations can in some cases raise complex issues, the relevant determinations regarding identity and ownership interest are determinations that servicers make on a regular basis in the course of their work already. Servicers routinely need to determine who has an ownership interest in the properties that secure their mortgage loans—for example, in identifying who to serve in a foreclosure action or who should receive other notices required by State law. Moreover, as explained in the section-by-section analysis of § 1024.38(b)(1)(vi), the final rule allows servicers to request additional documentation if they reasonably determine that they cannot make a determination of the potential successor in interest's status based on the documentation provided.

The Bureau is not creating a safe harbor from liability for claims alleging unfair, deceptive, or abusive acts or practices in violation of the Dodd-Frank Act related to successorship determinations. Although some industry commenters requested this type of protection, the Bureau does not believe it is appropriate to shield a servicer categorically from liability for unfair, deceptive, or abusive practices that may occur during the confirmation process or otherwise in the servicer's treatment of potential successors in interest.

Despite the urging of consumer advocacy groups, the final rule does not provide potential successors in interest a private right of action or a notice of error procedure for claims that a servicer made an inaccurate determination about successorship status or failed to comply with § 1024.36(i) or § 1024.38(b)(1)(vi).[65] The Bureau expects that the confirmation process established by the final rule will address the problems that many successors in interest have experienced to date in trying to get servicers to recognize their status. The Bureau and other Federal and State agencies will review servicers' compliance with respect to potential successors in interest through the agencies' supervision and enforcement authority and through complaint monitoring. Through that review, the Bureau can assess whether any additional enforcement mechanisms are necessary.

The Bureau is finalizing the confirmation process in §§ 1024.36(i) and 1024.38(b)(1)(vi) largely as proposed because it continues to believe that successors in interest have difficulty demonstrating their identity and ownership interest in the property to servicers' satisfaction.[66] The risk of harm to successors in interest is highest when a servicer does not promptly confirm a successor in interest's identity and ownership interest in the property. During this period, successors in interest may have difficulty obtaining information about the loan or finding out about loss mitigation options. Accordingly, when confirmation is delayed, the potential risk of foreclosure and other harms to the successor in interest increase. The difficulties faced by successors in interest with respect to confirmation of their status have thus caused successors in interest to face unnecessary problems with respect to the mortgage loans secured by the property, which may lead to unnecessary foreclosure on the property.

The Bureau's October 2013 Servicing Bulletin addressed these problems for a subset of successors in interest by requiring servicers to have policies and procedures in place to facilitate the provision of information to successors in interest who had inherited a property securing a deceased borrower's mortgage loan. The October 2013 Servicing Bulletin indicated that servicers should have a practice of promptly providing to any party claiming to be a successor in interest a list of all documents or other evidence the servicer requires, which should be reasonable in light of the laws of the relevant jurisdiction, for the party to establish (1) the death of the borrower and (2) the identity and legal interest of the successor in interest.[67] Nonetheless, consumer advocacy groups indicated in their comments that servicers continue to ask for unnecessary documents or multiple copies of the same documents or refuse to communicate with successors in interest at all. In addition, commenters reported that the categories of successors in interest as defined in the proposal, including those who inherit the property upon death of a family member, continue to experience difficulties in having servicers confirm the successor in interest's legal status.

Changes to the rules themselves are appropriate and necessary to clarify servicers' obligations and to ensure that the requirements are widely understood and enforceable. The rule changes establishing a more structured and defined confirmation process are particularly important to enable successors in interest to demonstrate efficiently their status to servicers and, where they do, to require servicers to Start Printed Page 72176confirm promptly this status. Such prompt confirmation is critical to reduce the risk of unnecessary foreclosures and other consumer harm. Because the Bureau is applying the Mortgage Servicing Rules to confirmed successors in interest, enabling successors in interest to demonstrate their status to servicers efficiently and requiring servicers to confirm this status promptly will allow successors in interest to access the Mortgage Servicing Rules' protections as quickly as possible.

Applying Mortgage Servicing Rules to Confirmed Successors in Interest

The Bureau proposed to apply certain mortgage servicing rules in Regulations X and Z to confirmed successors in interest. Accordingly, proposed § 1024.30(d) would have provided that a successor in interest would be considered a borrower for purposes of Regulation X's subpart C once a servicer confirms the successor in interest's identity and ownership interest in a property that secures a mortgage loan covered by subpart C. Similarly, proposed § 1026.2(a)(11) would have provided that a confirmed successor in interest is a consumer for purposes of §§ 1026.20(c) through (e), 1026.36(c), and 1026.41. Under the proposal, these specified mortgage servicing rules would have applied with respect to a confirmed successor in interest regardless of whether that person has assumed the mortgage loan obligation (i.e., legal liability for the mortgage debt) under State law. For the reasons that follow and that are discussed in the section-by-section analyses of §§ 1024.30(d) and 1026.2(a)(11), the Bureau is finalizing these provisions and related commentary with a number of adjustments to address concerns raised by commenters. The adjustments include changes to ensure that confirmed successors in interest can benefit from the escrow-related protections in § 1024.17 and mortgage transfer disclosures in § 1026.39, to clarify that the final rule generally does not require servicers to provide multiple copies of the same notice, to authorize servicers to withhold certain types of sensitive information in responding to requests under §§ 1024.35 or 1024.36, and to allow servicers to require confirmed successors in interest to return an acknowledgment form before the servicer sends servicing notices to them.[68]

Whether confirmed successors in interest need the protections of the Mortgage Servicing Rules. Many commenters of all types expressed support for the Bureau's general objectives in this rulemaking. Industry commenters were divided on whether successors in interest need or will benefit from the protections of the mortgage servicing rules. A trade association asserted that servicers restrict account information due to restrictions in the FDCPA, the GLBA, and Regulation P and that making changes to Regulations X and Z would not remove these restrictions. It also suggested that, under current law, successors in interest can obtain full account access by requesting it through a borrower or the borrower's estate.

An industry commenter suggested that the additional requirements and prohibitions could increase the cost of compliance by providing protections and rights to individuals that do not have a contractual obligation with the lender or servicer. This commenter suggested that finalizing the proposal could therefore have a chilling effect on consumer lending in the real estate market.

Some industry commenters raised specific concerns about extending loss mitigation protections to confirmed successors in interest. A trade association suggested, for example, that extending protections to successors in interest who acquire an ownership interest in property as a result of divorce, legal separation, transfers to a family trust, or a transfer to a spouse or a child could disrupt and delay the foreclosure process, as discussed above. Another industry commenter suggested that a servicer should not be required to engage in loss mitigation efforts with a successor in interest when the servicer is actively working with the primary borrower concerning a delinquency or loss mitigation effort involving the loan.[69]

Consumer advocacy groups took a different view. In their comments, they stated that surveys of attorneys and housing counselors representing homeowners indicate that successor in interest problems are widespread. They identified successor in interest problems as among the most difficult problems that attorneys and counselors representing homeowners face as they work to save homes from foreclosure. They stated that the actions taken by Federal agencies to date have not resolved the problems faced by successors in interest and that homeowners' advocates still report widespread stonewalling and obfuscation by servicers as they attempt to help successors obtain information about the mortgage and apply for needed loan modifications.

A number of consumer advocacy group commenters predicted that the number of successors in interest facing foreclosure or otherwise in need of protection is likely to grow given demographic trends, including the aging of baby boomers. They stated that, due to longer life expectancies, women often experience the death of a spouse or partner and that a large number of women who become the sole owner of a home upon the death of a spouse will not have been an original borrower on the loan. These consumer advocacy groups also noted that refinancing is unlikely to be an option for an increasing number of successors in interest because a significant percentage of homes now carry mortgage debt in excess of the value of the property.

One consumer advocacy group stated that servicers routinely provide misleading and incorrect information to survivors, which frequently leads to foreclosure on the family home. It also stated that servicers still refuse to share information about the mortgage with survivors and routinely demand that successors in interest who are already on the title or who have already provided proof that they inherited the property probate the property. It also stated that servicers persistently refuse to assist survivors with loan assumption, much less loss mitigation and loan modifications.

A number of consumer advocacy groups explained that many successors Start Printed Page 72177are eligible for loan modifications under applicable program rules but are experiencing unnecessary delays, frustrations, and an elevated risk of foreclosure due to servicers' unwillingness to review them properly for these loan modification programs. These groups indicated that, during each month of delay imposed by servicers in recognizing the status of a successor in interest or processing a loan modification application, the interest arrearage grows at the currently applicable note rate rather than at a modified rate. They noted that these delays can eat away at the equity in the home, push the loan further into default, and make it more difficult for successors in interest to qualify for a loan modification.

Another consumer advocacy group noted that the proposal might assist in resolving a paralyzing Catch-22, in which successors in interest are told that they cannot apply for loss mitigation without assuming the loan and that they cannot assume the loan without its being current, but they cannot bring the loan current without access to loss mitigation. The office of a State Attorney General noted in its comment that, by ensuring that servicers do not condition the review and evaluation of a loss mitigation application on the successor in interest's assumption of the mortgage obligation, the proposal would address a longstanding dilemma faced by successors in interest: Whether to assume a delinquent mortgage loan without knowing the terms of a prospective loan modification or even whether a modification is possible. This commenter explained that assuming any mortgage, especially a distressed one, is a major financial decision and successors in interest cannot know whether it is in their financial interest to assume the loan without knowing whether they qualify for a modification. It indicated that the initial loss mitigation review required by the proposal would allow successors in interest to make a more informed decision regarding whether to assume the mortgage loan obligation.

The Bureau is particularly concerned about reports from commenters and others indicating that successors in interest continue to have difficulty receiving information about the mortgage loan secured by the property or correcting errors regarding the mortgage loan account and that servicers sometimes refuse to accept, or may misapply, payments from successors in interest.[70] The Bureau is also concerned about reports that successors in interest often encounter difficulties when being evaluated for loss mitigation options, including that servicers often require successors in interest to assume the mortgage loan obligation under State law before evaluating the successor in interest for loss mitigation options.[71] Applying the Mortgage Servicing Rules in Regulation X to successors in interest provides these homeowners with access to information about the mortgage, helps successors in interest avoid unwarranted or unnecessary costs and fees, and prevents unnecessary foreclosure.

As many consumer advocacy groups recognized in their comments, it is especially important for the loss mitigation procedures in § 1024.41 to apply to successors in interest. When the Bureau issued the 2013 RESPA Servicing Final Rule, the Bureau observed that establishing national mortgage servicing standards ensures that borrowers have a full and fair opportunity to receive an evaluation for a loss mitigation option before suffering the harms associated with foreclosure.[72] The Bureau also recognized that these standards are appropriate and necessary to achieve the consumer protection purposes of RESPA, including facilitating borrowers' review for loss mitigation options, and to further the goals of the Dodd-Frank Act to ensure a fair, transparent, and competitive market for mortgage servicing.[73] These same consumer protection purposes are served by applying the loss mitigation procedures in § 1024.41 to confirmed successors in interest who, as homeowners of property securing a mortgage loan, may need to make payments on the loan to avoid foreclosure.

Successors in interest are a particularly vulnerable group of consumers, who often must make complex financial decisions with limited information during a period of extreme emotional stress. Successors in interest may be more likely than other homeowners to experience a disruption in household income and therefore may be more likely than other homeowners to need loss mitigation to avoid foreclosure. The Bureau therefore concludes that requiring servicers to evaluate a complete loss mitigation application received from a confirmed successor in interest under § 1024.41's procedures serves RESPA's consumer protection purposes.

Further, because a successor in interest's ability to repay the mortgage loan generally was not considered in originating the mortgage loan, successors in interest are particularly dependent on a prompt loss mitigation evaluation to assess the mortgage loan's long-term affordability as to the successor in interest.[74] Requiring servicers to evaluate a complete loss mitigation application received from a confirmed successor in interest supports the successor in interest in making a fully informed decision about whether to assume the mortgage loan obligation under State law.

The Bureau also believes that requiring servicers to comply with Start Printed Page 72178§ 1024.41's procedures with respect to confirmed successors in interest will not impose significant costs on servicers. Although some commenters expressed concern about the costs of originating loans, the final rule, like the proposal, does not require servicers to originate any loans. The Bureau is not providing confirmed successors in interest any protections that are not already available to borrowers and therefore does not anticipate the final rule will result in any unusual disruption of the foreclosure process. Both industry and consumer advocacy group commenters indicated that servicers are often already subject to other non-regulatory requirements to communicate with successors in interest and evaluate them for loan modifications. The costs imposed by the final rule should therefore largely be limited to ensuring that such requirements are met in a consistent and timely way. The Bureau therefore does not expect any chilling effect on consumer lending in the real estate market.

Notwithstanding the concerns expressed by industry commenters regarding potential delays, confirmation of a successor in interest will not reset the 180-day period in § 1024.39(b) or the 120-day period in § 1024.41(f)(1)(i). Section 1024.39(b) provides that a servicer is not required to provide a written early intervention notice more than once during any 180-day period. Section 1024.41(f) provides that a servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless a borrower's mortgage loan obligation is more than 120 days delinquent or another specified condition is met. Confirmation of a successor in interest does not change the date when a loan obligation becomes delinquent.

With respect to Regulation Z, applying the Mortgage Servicing Rules in Regulation Z to confirmed successors in interest will protect them against inaccurate and unfair payment crediting practices by the servicer of the mortgage loan on which they may be making payments and which encumbers their property. It will also help prevent unnecessary foreclosure by, for example, keeping confirmed successors in interest informed of the status of the mortgage loan. Moreover, the amendments to Regulation Z will help ensure that confirmed successors in interest receive prompt information about the amount necessary to pay off the mortgage loan, as other homeowners do under Regulation Z.

Whether to apply or clarify additional laws or regulations not discussed in the proposal. Some commenters identified additional sections of Regulations X and Z or of other laws or regulations that they believed the Bureau should address in the final rule's provisions relating to successors in interest. A number of consumer advocacy groups stated that, in order to achieve the Bureau's goal of applying all the mortgage servicing regulations to successors in interest, the final rule should also define successors in interest as borrowers for purposes of § 1024.17. These groups suggested that successors in interest are particularly likely to face escrow issues due to the transfer of ownership. They indicated that a transfer of ownership requires the new owner to take steps to obtain homeowner's insurance and, usually, to apply for the property tax homestead exemption in the new owner's own name.

A trade association also stated that a confirmed successor in interest should be a borrower for purposes of the escrow requirement in § 1024.17 and a consumer for purposes of the mortgage transfer disclosure requirements of § 1026.39. This commenter also identified various other laws and regulations that it suggested could be affected by a regulation addressing successors in interest, including additional provisions of Regulations X and Z; the Fair Credit Reporting Act and its implementing regulation, Regulation V; the FDCPA; the Servicemembers Civil Relief Act; and the Mortgage Assistance Relief Services regulation, Regulation O.

As these commenters noted, successors in interest confront the same types of escrow issues as borrowers protected by § 1024.17 and are particularly likely to experience escrow problems due to the transfer of ownership through which they acquired their ownership interest in the property. In issuing the proposal, the Bureau intended to include all of the mortgage servicing protections of Regulations X and Z, which, as the commenters noted, should include the escrow protections of § 1024.17. For the reasons set forth in this discussion and in the section-by-section analysis of § 1024.30(d), the Bureau is expanding the protections applicable to confirmed successors in interest in § 1024.30(d) to include § 1024.17. This effectuates the Bureau's stated intent in the proposal to apply all of the mortgage servicing rules in Regulation X to confirmed successors in interest and will ensure that confirmed successors in interest can obtain necessary escrow information.

The Bureau also believes that a confirmed successor in interest should be treated as a consumer for purposes of the mortgage transfer disclosure requirement in § 1026.39, as a trade association commenter suggested. The mortgage transfer disclosure notifies consumers of valuable information regarding certain transfers of ownership of a mortgage loan, including the name and contact information for the new owner of the mortgage loan and an agent or party authorized to resolve issues concerning the consumer's payments on the loan (if the owner's information cannot be used for that purpose).[75] Information of this nature will be helpful to confirmed successors in interest in many of the same ways that it is helpful to other borrowers—for example, if they seek to engage in loss mitigation, to ensure that payments on the account are properly applied, or to identify who has a security interest in their property. For the reasons set forth in this discussion and in the section-by-section analysis of § 1026.39, the Bureau is defining the term consumer in § 1026.2(a)(11) to include confirmed successors in interest for purposes of § 1026.39.

The Bureau has reviewed the other laws and regulations that commenters suggested that the Bureau should address and has concluded that they are largely outside the scope of this rulemaking.[76] Except as specifically addressed elsewhere in this final rule, the Bureau does not believe that further discussion or clarification is necessary with respect to these other laws and regulations as part of this rulemaking. However, the Bureau will continue to engage in ongoing outreach and monitoring with industry, consumer advocacy groups, and other stakeholders to identify issues that pose implementation challenges, create a risk of consumer harm, or require clarification.

Two industry commenters also suggested that the final rule should incorporate into Regulation Z or its commentary the Bureau's July 17, 2014, interpretive rule relating to the application of the Ability-to-Repay Rule to certain situations involving Start Printed Page 72179successors in interest.[77] One commenter indicated that doing so would increase servicer awareness. The Bureau plans to incorporate the interpretive rule into the commentary to Regulation Z at a later date.

Whether to require servicers to send duplicate copies of Mortgage Servicing Rule notices to confirmed successors in interest. Proposed Regulation Z comment 41(a)-5.ii would have provided that, if a servicer sends a periodic statement meeting the requirements of § 1026.41 to another consumer, the servicer need not also send a periodic statement to a successor in interest. The proposal did not address specifically whether servicers must provide duplicate copies of other types of required servicing notices.

A number of commenters asked the Bureau to clarify whether servicers must send multiple copies of required servicing notices after a successor in interest is confirmed. One industry commenter explained that most servicing platforms only allow for automated delivery of correspondence to one address. It indicated that a requirement to send items to multiple addresses or through differing communication channels (electronic or non-electronic) would create significant operational and systems challenges with concomitant costs. Another industry commenter suggested that the Bureau adopt, in Regulation X, language similar to proposed Regulation Z comment 41(a)-5.ii, providing that servicers need not send duplicative periodic statements to confirmed successors in interest. Another industry commenter suggested that a servicer should not be required to make live contact with a successor in interest when the servicer is actively working with the primary borrower concerning a delinquency or loss mitigation effort involving the loan.

Several consumer advocacy groups challenged the assumption that successors in interest receive copies of notices provided to the transferor borrower. They noted, for example, that the successor in interest and transferor borrower may not have any form of communication in a divorce or separation, especially in situations involving domestic violence. These groups encouraged the Bureau to require servicers to send additional copies of written early intervention notices to confirmed successors in interest. Another consumer advocacy group also suggested that anyone with an ownership interest should receive a copy of the periodic statement, provided they have given their contact information to the servicer.

The Bureau believes that it would be unnecessarily burdensome to require a servicer to send additional copies of notices required by the Mortgage Servicing Rules if the servicer is already providing the notice to another borrower or consumer on the account. As explained in the section-by-section analyses of §§ 1024.32(c)(4) and 1026.2(a)(11), the Bureau is adding § 1024.32(c)(4) and new commentary to § 1026.2(a)(11) to address whether duplicative notices are required for confirmed successors in interest for all of the Mortgage Servicing Rules. Section 1024.32(c)(4) provides that, except as required by § 1024.36, a servicer is not required to provide to a confirmed successor in interest any written disclosure required by § 1024.17, § 1024.33, § 1024.34, § 1024.37, or § 1024.39(b) if the servicer is providing the same specific disclosure to another borrower on the account. Section 1024.32(c)(4) also provides that a servicer is not required to comply with the live contact requirements set forth in § 1024.39(a) with respect to a confirmed successor in interest if the servicer is complying with those requirements with respect to another borrower on the account. Comment 2(a)(11)-4.iv clarifies that, except in response to an information request as required by § 1024.36, a servicer is not required to provide to a confirmed successor in interest any written disclosure required by § 1026.20(c), (d), or (e), § 1026.39, or § 1026.41 if the servicer is providing the same specific disclosure to another consumer on the account. These provisions clarify servicers' obligations under the final rule and should alleviate the concern that many commenters raised regarding the potential burden of providing duplicative notices to confirmed successors in interest.

The Bureau recognizes, however, that successors in interest do not in all cases have access to notices received by the transferor borrower and may need such notices. The provisions discussed above with regard to the servicer's obligations to send duplicative notices do not limit the ability of any confirmed successor in interest to request copies of notices and other information through an information request under § 1024.36. Thus, if a confirmed successor in interest is not in contact with a borrower on the account who is receiving the disclosures, the confirmed successor in interest can request information as needed through the information request process.

Gramm-Leach-Bliley Act and privacy concerns. In the proposal, the Bureau indicated that it believed that applying Regulation X's subpart C to confirmed successors in interest does not present privacy concerns. The proposal explained that the Bureau believed that a confirmed successor in interest's ownership interest in the property securing the mortgage loan is sufficient to justify enabling the successor in interest to receive information about the mortgage loan. However, because some people representing themselves as successors in interest may not actually have an ownership interest in the property, the Bureau recognized that requiring servicers to apply the communication, disclosure, and loss mitigation requirements from Regulations X and Z to successors in interest before servicers have confirmed the successor in interest's identity and ownership interest in the property might present privacy and other concerns. The Bureau solicited comment on whether any information that could be provided to successors in interest under §§ 1024.35 and 1024.36 presents privacy concerns and whether servicers should be permitted to withhold any information from successors in interest out of such privacy concerns.

Various industry commenters expressed concern that the proposal would require them to violate privacy laws, including the Gramm-Leach-Bliley Act (GLBA) and Regulation P, and would otherwise interfere with borrowers' privacy rights.[78] They noted Start Printed Page 72180that sharing information about the mortgage—including even the limited information about document requirements that would be available to potential successors in interest—would constitute a disclosure of nonpublic personal information to a nonaffiliated third party for purposes of the GLBA and Regulation P. Some requested clarity regarding what information they should release under the proposal, while others suggested that an interagency GLBA rulemaking would be required to adjust applicable privacy rules.

Some industry commenters provided specific examples of situations that might raise concern—for example, releasing contact information or sensitive information such as paystubs from a prior loss mitigation application in the context of a divorce or a domestic violence situation. Other industry commenters indicated that they were most concerned about giving a party that is not obligated on the loan access to financial records, especially in circumstances where the primary obligor remains fully obligated to the loan transaction or where there is litigation relating to the property and attendant obligation.

One industry commenter stated that these privacy concerns apply to the disclosure of the confirmed successor in interest's personal, private information to the existing borrower as well as to the disclosure of an existing borrower's personal, private information to the confirmed successor in interest. This commenter suggested that the final rule should not require servicers to comply with the requirements in §§ 1024.35 and 1024.36 relating to notices of error and requests for information if communicating with a confirmed successor in interest is otherwise prohibited under applicable law, including the FDCPA, or if the servicer reasonably determines that the response to the asserted error or information request would result in the disclosure of any personal, private information of the existing borrower or of the successor in interest. Alternatively, this commenter urged the Bureau to provide servicers a safe harbor from liability under the FDCPA with respect to disclosing information regarding the debt and other Federal and State laws with respect to disclosing personal, private information for an existing borrower or a confirmed successor in interest. It noted, for example, that the former husband of an existing borrower could submit a request for information seeking copies of loss mitigation efforts by his former wife, which might include her contact information and copies of her paystubs. Other industry commenters provided additional examples of types of sensitive information that should not be disclosed, such as Social Security numbers.

Some consumer advocacy groups and the office of a State Attorney General asserted that there are no privacy concerns raised by the proposal because of the successor in interest's ownership interest in the property securing the mortgage loan. One of these consumer advocacy groups stated that the original borrower's private financial information, including credit score, income, or expenses, is not relevant to the successor homeowner and need not be disclosed. This group also indicated that no successor in interest should have a need for the original borrower's location or contact information.[79] It stated that a successor in interest should not need access to other financial information of the borrower, as it will not be relevant to loss mitigation sought by the successor in interest.

The Bureau concludes that complying with the final rule does not cause servicers to violate the GLBA or its implementing regulations but recognizes the potential privacy and related concerns raised by commenters and has made adjustments in the final rule to address these concerns. Disclosing information to successors in interest as required under the final rule will not cause a servicer to violate the GLBA or Regulation P because the GLBA and Regulation P permit financial institutions to disclose information to comply with a Federal law or regulation.[80]

The Bureau continues to believe that a confirmed successor in interest's ownership interest in the property securing the mortgage loan is sufficient to warrant that person's access to information about the mortgage loan. The Bureau also believes it is important for confirmed successors in interest to be able to obtain information about the terms, status, and payment history of the mortgage loan. However, the Bureau agrees with commenters that confirmed successors in interest are unlikely to need information regarding the location or contact information of an original borrower or financial information of an original borrower other than the mortgage terms, status, and payment history. As commenters noted, providing additional financial, contact, or location information of other borrowers could raise privacy concerns and is not likely to assist the confirmed successor in interest in maintaining the property. The Bureau believes that this is especially true with respect to a borrower's Social Security number.

The Bureau believes that similar potential privacy concerns could arise when borrowers request information about potential and confirmed successors in interest. A potential or confirmed successor in interest could, for example, submit a loss mitigation application containing a Social Security number, contact information, and paystubs. Borrowers on the account who are not the person to whom the information pertains are unlikely to need to obtain from the servicer these types of information about potential or confirmed successors in interest.

To address the potential privacy concerns raised in the comments, the Bureau is adding new §§ 1024.35(e)(5) and 1024.36(d)(3). Pursuant to these provisions, a servicer responding to a request for information or a notice of error request for documentation may omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan) if: (i) The information pertains to a potential or confirmed successor in interest who is not the requester; or (ii) The requester is a confirmed successor in interest and the information pertains to any borrower who is not the requester. These Start Printed Page 72181provisions allow servicers to limit the information that confirmed successors in interest may obtain about other borrowers (including other confirmed successors in interest) and that borrowers may obtain about potential and confirmed successors in interest who are not the requesting party.

FDCPA and related concerns. A number of industry commenters indicated in their comments that the requirement to send servicing notices and share information about the mortgage loan with confirmed successors in interest could subject them to liability under the FDCPA. While many mortgage servicers are not subject to the FDCPA, mortgage servicers that acquired a mortgage loan at the time that it was in default are subject to the FDCPA with respect to that mortgage loan.[81] Two specific areas of concern raised by commenters are discussed in turn below: (1) Whether the proposal would cause servicers that are debt collectors for purposes of the FDCPA to violate FDCPA section 805(b)'s general prohibition on communicating with third parties in connection with the collection of a debt, and (2) Whether providing periodic statements and other servicing notices to confirmed successors in interest who have not assumed the loan obligation under State law would be confusing or harassing.

Some commenters expressed concern that sharing information about the debt, such as periodic statements and responses to requests for information, with confirmed successors in interest who are not obligated on the loan could violate FDCPA section 805(b). They suggested that, if the proposal is adopted, the Bureau should create an FDCPA exemption or include commentary providing a safe harbor under the FDCPA when a servicer contacts a successor in interest regarding a debt that is not assumed by the successor in interest.

FDCPA section 805(b) generally prohibits debt collectors from communicating with third parties in connection with the collection of a debt, in the absence of a court order or prior consumer consent given directly to the debt collector.[82] FDCPA section 805(b) permits debt collectors to communicate with a person who is a consumer for purposes of section 805. FDCPA section 805(d), in turn, states that the term consumer for purposes of section 805 includes the consumer's spouse, parent (if the consumer is a minor), guardian, executor, or administrator.[83] The use of the word “includes” indicates that section 805(d) is an exemplary rather than exhaustive list of the categories of individuals that are “consumers” for purposes of FDCPA section 805.

The Bureau is issuing concurrently with this final rule an interpretive rule that constitutes an advisory opinion under FDCPA section 813(e) [84] interpreting consumer for purposes of FDCPA section 805 to include a confirmed successor in interest, as that term is defined in Regulation X § 1024.31 and Regulation Z § 1026.2(a)(27)(ii).[85] As provided in FDCPA section 813(e), no liability arises under the FDCPA for an act done or omitted in good faith in conformity with an advisory opinion of the Bureau while that advisory opinion is in effect. The Bureau's interpretive rule provides a safe harbor from liability under FDCPA section 805(b) for servicers communicating with a confirmed successor in interest about a mortgage loan secured by property in which the confirmed successor in interest has an ownership interest, in compliance with Regulations X and Z.

As the interpretive rule explains, given their relationship to the obligor, the mortgage loan, and the property securing the mortgage loan and the Bureau's extension of certain protections of Regulations X and Z to them, confirmed successors in interest are—like the narrow categories of persons enumerated in FDCPA section 805(d)—the type of individuals with whom the servicer needs to communicate. Interpreting consumers in section 805 to include confirmed successors in interest permits debt collectors to communicate with them about the mortgage loan without engaging in a third-party communication in violation of section 805(b). It also helps to ensure that confirmed successors in interest benefit from the protections for “consumers” in FDCPA section 805—including the debt collector generally being prohibited from communicating at a time or place the collector knows or should know is inconvenient and being required to cease communication upon written request from the consumer. The Bureau therefore has concluded that consumer as defined in section 805(d) includes a confirmed successor in interest, as that term is defined in Regulations X and Z.[86] The Bureau's interpretive rule should resolve commenters' concerns regarding potential liability under FDCPA section 805(b) for disclosures to confirmed successors in interest.[87]

An industry commenter suggested that successors who are not liable on the debt might be confused if they start receiving periodic statements. Another industry commenter suggested that sending loss mitigation-related letters and trying to establish right party contact with individuals not liable on a delinquent loan could be viewed as abusive or harassing debt collection efforts, in violation of FDCPA section 806.[88]

Under the final rule, confirmed successors in interest will receive servicing notices only after they have proceeded through the confirmation process. The servicing notices provide important information that will assist confirmed successors in interest in preserving their ownership interests in the properties secured by the relevant mortgage loans. Given this context, the Bureau does not believe that simply providing periodic statements and other servicing notices to the confirmed successor in interest pursuant to Regulations X and Z would be viewed as having the natural consequence of harassing, oppressing, or abusing the confirmed successor in interest under FDCPA section 806.

The Bureau recognizes, however, that some language appearing in the model and sample form notices in Regulations X and Z could suggest that the recipient of the notice is liable on the mortgage loan obligation and that it is possible Start Printed Page 72182that this language, on its own without modification, could confuse confirmed successors in interest who have not assumed the mortgage loan obligation under State law and are not otherwise liable for it as to whether they are liable on the mortgage loan obligation. For example, some of these forms state: “your loan,” “your interest rate,” “[y]ou are late on your mortgage payments,” “[y]ou must pay us for any period during which the insurance we buy is in effect but you do not have insurance,” and “you could be charged a penalty.” [89]

As modified by the final rule, Regulations X and Z offer servicers various means that they can employ to ensure that communications required by the Mortgage Servicing Rules do not mislead confirmed successors in interest who have not assumed the mortgage loan obligation under State law and are not otherwise liable for it. One option available to servicers is to adjust the language in the notices to replace any terminology that might suggest liability. Regulation Z already permits modification of certain model and sample forms for ARM disclosures to remove language regarding personal liability to accommodate particular consumer circumstances or transactions not addressed by the forms,[90] and the final rule clarifies in revised comment 2 to Regulation X's appendix MS and new comments 20(e)(4)-3 and 41(c)-5 to Regulation Z that similar changes may be made to other model and sample form notices. For example, as revised, comment appendix MS to part 1024-2 permits servicers to substitute “this mortgage” or “the mortgage” in place of “your mortgage” in notices sent to a confirmed successor in interest who has not assumed the mortgage loan obligation under State law or is not otherwise liable on the mortgage loan obligation.

Another option available to servicers to reduce the risk of any potential confusion is to add an affirmative disclosure to the Mortgage Servicing Rule notices that clarifies that a confirmed successor in interest who has not assumed the mortgage loan obligation under State law and is not otherwise liable for it has no personal liability. For some of the required servicing notices, this type of disclosure could be added into the notice,[91] while for other types of notices the rules prohibit additional information in the notice but would permit an explanatory cover letter in the same transmittal.[92]

The Bureau recognizes that the foregoing options would require servicers to incur some costs because these options would involve customizing certain materials for confirmed successors in interest. To address this concern, and for the reasons stated in the section-by-section analyses of §§ 1024.32(c), 1026.20(f), 1026.39(f), and 1026.41(g), new § 1024.32(c)(1) allows servicers to provide an initial explanatory written notice and acknowledgment form to confirmed successors in interest who have not assumed the mortgage loan obligation under State law and are not otherwise liable on it. The notice explains that the confirmed successor in interest is not liable unless and until the confirmed successor in interest assumes the mortgage loan obligation under State law. The notice also indicates that the confirmed successor in interest must return the acknowledgment to receive servicing notices under the Mortgage Servicing Rules. Sections 1024.32(c), 1026.20(f), 1026.39(f), and 1026.41(g) relieve servicers that send this type of notice and acknowledgment form of the obligations to provide Mortgage Servicing Rule notices and to engage in live contacts with the confirmed successor in interest until the confirmed successor in interest provides the servicer an executed acknowledgment indicating a desire to receive the notices or assumes the mortgage loan obligation under State law.

These provisions relieve servicers of the costs associated with sending the notices to confirmed successors in interest who are not liable on the mortgage loan obligation and do not want them. However, the Bureau believes that when a confirmed successor in interest assumes a mortgage loan obligation under State law there is no longer any reason to suspend a servicer's obligation to provide notices and other communications that are otherwise required by the Mortgage Servicing Rules.[93] Additionally, the Bureau expects that servicers will provide additional copies of the written notice and acknowledgment form to confirmed successors in interest upon request; the Bureau recognizes that confirmed successors in interest who choose not to receive servicing notices at the time of confirmation may later wish to receive such notices and believes that servicers should facilitate subsequent requests from confirmed successors in interest to receive the notices.[94]

The final rule does not mandate that servicers use the initial notice and acknowledgment option or either of the two other options mentioned above but instead gives servicers the flexibility to use any of these options as the servicer deems appropriate to ensure clarity in its communications with confirmed successors in interest. Offering servicers these options will allow servicers to use their business judgment to determine the best approach in light of their particular situations and operational considerations.

The Bureau considered providing a safe harbor from UDAAP claims or FDCPA deception claims related to representations in notices about whether a confirmed successor in interest is liable on the mortgage loan obligation. The Bureau believes that such a safe harbor is unnecessary. The Bureau believes that UDAAP claims are unlikely to arise solely from servicers providing to confirmed successors in interest notices and information required by and in compliance with Regulations X or Z, particularly if servicers implement one of the approaches described above. The Bureau also believes that a safe harbor insulating servicers from liability related to their communications to confirmed successors in interest could undermine incentives for servicers to ensure that the overall effect of their communications with successors in interest is not deceptive and does not create consumer harm. The options that the Bureau is providing to servicers should allow servicers to choose the most cost-effective way to ensure that their communications do not confuse or deceive successors in interest who are not liable on the mortgage loan obligation under State law.

Legal Authority

Based on its experience and expertise with respect to mortgage servicing, the Bureau believes that the amendments relating to successors in interest promote the purposes of RESPA and TILA effectuated by the Mortgage Servicing Rules. As discussed below, Start Printed Page 72183the Mortgage Servicing Rules apply to borrowers (for the Regulation X rules) and consumers (for the Regulation Z rules). As further discussed below, the Bureau believes that the terms borrowers in RESPA and consumers in TILA, as used in the relevant portions of the Mortgage Servicing Rules, should be understood to include confirmed successors in interest. In addition, the amendments relating to successors in interest are authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA with respect to the Mortgage Servicing Rules in Regulation X and under section 105(a) of TILA with respect to the Mortgage Servicing Rules in Regulation Z. The amendments are also authorized under section 1022(b) of the Dodd-Frank Act, which authorizes the Bureau to prescribe regulations necessary or appropriate to carry out the purposes and objectives of Federal consumer financial laws.

Regulation X amendments relating to successors in interest. Some trade associations raised questions about whether RESPA permits the Bureau to regulate a servicer's conduct towards non-obligors and to create a private right of action for non-obligors. Two trade associations indicated that it is not clear that RESPA applies to servicers unless the servicer receives “payments from a borrower” who signed a federally related mortgage loan.[95]

Other commenters asserted that the Bureau's rulemaking appeared well within its legal authority. A consumer advocacy group noted that the Bureau relied on its rulemaking authority under the Dodd-Frank Act and RESPA to mandate a uniform loss mitigation framework that establishes appropriate mortgage servicing standards in the private market. It noted that RESPA already contained provisions with private rights of action and said that the Bureau's servicing regulations and proposed additions, including those related to successors in interest, simply further that existing scheme. It stated that by integrating successors in interest into the existing loss mitigation framework, the Bureau is faithfully executing its mission to implement and enforce consumer financial protection laws without imposing undue burdens on servicers who are already following the loss mitigation rules.

As explained below in the section-by-section analysis of § 1024.30(d), the final rule provides that a confirmed successor in interest shall be considered a borrower for purposes of § 1024.17 and subpart C of Regulation X. In light of its experience and expertise with respect to mortgage servicing, the Bureau believes that this interpretation promotes the purposes of RESPA effectuated through the provisions of the Mortgage Servicing Rules in Regulation X, which in turn were issued under, among other provisions, sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA. Therefore, because the Bureau concludes that confirmed successors in interest are borrowers for purposes of the Mortgage Servicing Rules in Regulation X, these amendments are authorized under the same authorities on which the applicable Mortgage Servicing Rules are based.

Although a confirmed successor in interest will not necessarily have assumed the mortgage loan obligation under State law, the successor in interest, after the transfer of ownership of the property, will have stepped into the shoes of the transferor borrower for many purposes. As noted above, the successor in interest will typically need to make payments on the loan in order to avoid foreclosure on the property. The successor in interest's ability to sell, encumber, or make improvements to the property will also be limited by the lien securing the loan. In other words, the property rights of the confirmed successor in interest, like those of the transferor borrower, are subject to the mortgage loan.

The Bureau believes that State property law, which provides the context for RESPA, also supports treating confirmed successors in interest as borrowers. At common law, a successor in interest “retains the same rights as the original owner, with no change in substance.” [96] As a matter of State law, successors in interest have historically been afforded many of the same rights and responsibilities as the transferor borrower. For example, there is a significant amount of State law indicating that a successor in interest, like the transferor borrower, possesses the right to redeem following the mortgagee's foreclosure on the property.[97] Moreover, there is significant State law providing that the contractual rights and obligations under the mortgage loan of the transferor borrower are freely assignable to successors in interest.[98] Further, before the enactment of the Garn-St Germain Act, several States had longstanding prohibitions on the exercise of due-on-sale clauses, thereby limiting servicers to the same contractual remedies with respect to successors in interest as were available against the transferor borrower, whether or not the successor in interest under State law assumed the legal obligation to pay the mortgage.[99] Additionally, while successors in interest may not be personally liable on the mortgage note, absent their express assumption of such liability under State law, in a significant number of mortgages, the borrower on the note is also, under State law, not personally liable for the debt upon foreclosure because a deficiency judgment is not allowed.[100] Accordingly, under State law, a successor in interest is often in virtually the same legal position as the borrower on the note with respect to foreclosure.[101]

The Bureau also believes that this treatment of successors in interest is consistent with other aspects of Federal law. The Garn-St Germain Act protects successors in interest from foreclosure based on the mortgage loan due-on-sale clause after transfer of homeownership to them. Additionally, several bankruptcy courts have held that successors in interest are entitled to the same treatment as transferor borrowers, for example, with respect to curing an Start Printed Page 72184arrearage on a mortgage and reinstating the loan.[102]

In addition, the amendments relating to successors in interest to the Mortgage Servicing Rules in Regulation X are independently authorized under sections 6(j)(3), 6(k)(1)(E), and 19(a) of RESPA. RESPA section 6(j)(3) authorizes the Bureau to establish any requirements necessary to carry out section 6 of RESPA; RESPA section 6(k)(1)(E) authorizes the Bureau to create obligations for servicers through regulation that it finds appropriate to carry out the consumer protection purposes of RESPA; and RESPA section 19(a) authorizes the Bureau to prescribe such rules and regulations as may be necessary to achieve the purposes of RESPA.[103]

Considered as a whole, RESPA, as amended by the Dodd-Frank Act, reflects at least two significant consumer protection purposes: (1) To establish requirements that ensure that servicers have a reasonable basis for undertaking actions that may harm borrowers, and (2) To establish servicers' duties to borrowers with respect to the servicing of federally related mortgage loans.[104] Specifically, with respect to mortgage servicing, the consumer protection purposes of RESPA include responding to borrower requests and complaints in a timely manner, maintaining and providing accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees, and facilitating review for foreclosure avoidance options.

The Bureau believes that establishing procedures for confirmation of successors in interest and extending various protections in Regulation X to confirmed successors in interest achieves these purposes of RESPA.[105] As noted above, successors in interest are a vulnerable group of consumers. As owners of property securing a mortgage loan, they may face foreclosure unless they satisfy the loan's payment obligations. But, as also noted above, successors in interest often cannot obtain information about the loan, including options for loss mitigation, and may thus have difficulty avoiding foreclosure. The Bureau therefore believes that applying servicing protections in Regulation X to confirmed successors in interest is necessary and appropriate to assist confirmed successors in interest with the types of servicing problems and issues that are within the scope of RESPA's consumer protection purposes. Specifically, as explained in the section-by-section analysis of § 1024.30(d), extending the various Regulation X protections to confirmed successors in interest will establish procedures by which servicers must respond to confirmed successors in interest's requests and complaints in a timely manner, will require servicers to maintain and provide accurate information with respect to confirmed successors in interest, and will establish safeguards to help confirmed successors in interest avoid unwarranted or unnecessary costs and fees and to facilitate review of confirmed successors in interest's applications for foreclosure avoidance options.[106]

The Bureau also notes that confirmed successors in interest will have a private right of action under RESPA to enforce these rules. Under section 6(f) of RESPA, 12 U.S.C. 2605(f), “[w]hoever fails to comply with any provision of this section shall be liable to the borrower for each such failure.” For the reasons discussed above, the Bureau believes that the term borrower as used in the mortgage servicing provisions of RESPA should be understood to encompass confirmed successors in interest.

Regulation Z amendments relating to successors in interest. As noted in the section-by-section analysis of § 1026.2(a)(11), the Bureau is defining the term consumer to include a confirmed successor in interest for purposes of §§ 1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41. Those provisions establish certain protections for consumers with respect to their mortgage loans, and, as explained above in the context of the Regulation X, confirmed successors in interest step into the shoes of the transferor consumer for many purposes once they have obtained an ownership interest in the property. In light of its experience and expertise, the Bureau believes the term consumer in those provisions should be interpreted to include confirmed successors in interest. The Mortgage Servicing Rules in Regulation Z were authorized by, among other provisions, section 105(a) of TILA. Therefore, because the Bureau concludes that confirmed successors in interest are consumers for purposes of the Mortgage Servicing Rules in Regulation Z, these amendments are authorized under the same authorities on which the Mortgage Servicing Rules are based.

In addition, the amendments relating to successors in interest to the Mortgage Servicing Rules in Regulation Z are independently authorized under section 105(a) of TILA. That provision allows the Bureau to issue regulations that may contain such additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. 15 U.S.C. 1604(a). The purposes of TILA include assuring the meaningful disclosure of credit terms to enable consumers to compare more readily the various credit Start Printed Page 72185terms available and avoid the uninformed use of credit and to protect consumers against inaccurate and unfair credit billing practices. 15 U.S.C. 1601(a).

The Bureau believes that the amendments to Regulation Z relating to successors in interest are necessary or proper to effectuate TILA's purposes. Successors in interest are owners of dwellings securing mortgage loans and must typically meet the payment obligations on the loan in order to avoid foreclosure on their property. Successors in interest thus have a strong interest in obtaining timely and accurate account information from servicers as to the mortgage loan secured by their dwelling. As explained in the section-by-section analysis of § 1026.2(a)(11), to achieve TILA's purposes, confirmed successors in interest warrant the protections of §§ 1026.20(c) through (e), 1026.36(c), 1026.39, and 1026.41.

Some trade associations stated that it is not clear that TILA can apply to those who do not borrow. However, Regulation Z has defined consumer for decades to include non-obligors for purposes of rescission under §§ 1026.15 and 1026.23.[107] The Bureau is now interpreting the term consumer to include confirmed successors in interest for purposes of the Mortgage Servicing Rules in Regulation Z.[108]

B. Regulation X

Section 1024.6 Special Information Booklet at Time of Loan Application

6(d) Permissible Changes

Although the Bureau did not propose to amend § 1024.6(d), for the reasons set forth below, the Bureau is revising current § 1024.6(d)(1)(i) and renumbering it as § 1024.6(d)(1), eliminating § 1024.6(d)(1)(ii), and revising § 1024.6(d)(2).

Under § 1024.6(a), a lender must provide a copy of a special information booklet to certain applicants for a federally related mortgage loan. The special information booklet, adopted pursuant to section 5 of RESPA, helps mortgage loan applicants understand the nature and costs of settlement services.[109] The Bureau's publication entitled “Your Home Loan Toolkit: A Step-by-Step Guide,” updated the special information booklet to incorporate statutory amendments, the Bureau's Integrated Mortgage Disclosures Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) (TILA-RESPA Final Rule),[110] and additional contact information, online tools, and information on how to submit complaints.[111] Current § 1024.6(d)(i) and (ii) set forth the permissible changes that may be made to the special information booklet. The Bureau is revising the final sentence of current § 1024.6(d)(1)(i) to update the address to which requests for changes to the booklet beyond those permitted by the rule must be submitted.

Currently, § 1024.6(d)(1)(i) provides in relevant part that a request to the Bureau for the approval of certain changes to the booklet shall be submitted in writing to the address indicated in § 1024.3. However, § 1024.3 no longer includes this address. As revised and renumbered, final § 1024.6(d)(1) instead provides that a request to the Bureau for approval of certain changes shall be submitted in writing to the address indicated in the definition of Public Guidance Documents in § 1024.2.

Current § 1024.6(d)(1)(ii) sets forth three permissible changes that may be made to the special information booklet. Current § 1024.6(d)(1)(ii)(A) provides that, in the Complaints section of the booklet, it is a permissible change to substitute “the Bureau of Consumer Financial Protection” for “HUD's Office of RESPA” and “the RESPA office.” Current § 1024.6(d)(1)(ii)(B) provides that, in the Avoiding Foreclosure section of the booklet, it is a permissible change to inform homeowners that they may find information on and assistance in avoiding foreclosures at http://www.consumerfinance.gov. It further explains that the deletion of the reference to the HUD Web page, http://www.hud.gov/​foreclosure/​, in the Avoiding Foreclosure section of the booklet, is not a permissible change. Current § 1024.6(d)(1)(ii)(C) provides that, in the appendix to the booklet, it is a permissible change to substitute “the Bureau of Consumer Financial Protection” for the reference to the “Board of Governors of the Federal Reserve System” in the No Discrimination section of the appendix to the booklet. It also explains that, in the Contact Information section of the appendix to the booklet, it is a permissible change to add the following contact information for the Bureau: “Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006; www.consumerfinance.gov/​learnmore.” Finally, it provides that it is also a permissible change to remove the contact information for HUD's Office of RESPA and Interstate Land Sales from the Contact Information section of the appendix to the booklet.

To reflect the Bureau's exclusive authority with regard to the special information booklet, the final rule eliminates § 1024.6(d)(1)(ii). The Bureau is removing the references to permissible changes that are no longer relevant because the stated language for which substitutions are authorized does not in appear in the special information booklet currently prescribed by the Bureau. A lender will not be permitted to change the special information booklet in the ways described above to reference the Department of Housing and Urban Development and the Board of Governors of the Federal Reserve System. Accordingly, the Bureau is renumbering § 1024.6(d)(1)(i) as § 1024.6(d)(1); removing § 1024.6(d)(1)(ii)(A), (B), and (C); and replacing the references to § 1024.6(d)(1)(ii) in § 1024.6(d)(1) with references to § 1024.6(d)(2).

For similar reasons, the Bureau is removing the final sentence of current § 1024.6(d)(2), which provides that references to HUD on the cover of the booklet may be changed to references to the Bureau.

Section 1024.9 Reproduction of Settlement Statements

9(a) Permissible Changes—HUD-1

Although the Bureau did not propose to amend § 1024.9(a), for the reasons set forth below, the Bureau is revising § 1024.9(a). Section 1024.9(a) sets forth the permissible changes and insertions that may be made when the HUD-1 settlement statement is reproduced. The HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) is defined in § 1024.2 as “the statement that is prescribed in this part for setting Start Printed Page 72186forth settlement charges in connection with either the purchase or the refinancing (or other subordinate lien transaction) of 1- to 4-[person] family residential property.” [112] Current § 1024.9(a)(5) explains that certain variations in layout and format to the HUD-1 are within the discretion of persons reproducing the HUD-1 and do not require prior HUD approval.

To reflect the Bureau's exclusive authority with regard to the HUD-1, the final rule revises § 1024.9(a)(5). Final § 1024.9(a)(5) explains that certain variations in layout and format to the HUD-1 are within the discretion of persons reproducing the HUD-1 and do not require prior Bureau approval.

9(c) Written Approval

The Bureau is revising § 1024.9(c) to update the address to which requests for deviations in the HUD-1 or HUD-1A forms beyond those permitted by the rule must be submitted. Currently, § 1024.9(c) provides in relevant part that a request to the Bureau for the approval of certain deviations shall be submitted in writing to the address indicated in § 1024.3. However, § 1024.3 no longer includes this address. Thus, as revised, § 1024.9(c) instead provides that a request to the Bureau for approval of the certain changes shall be submitted in writing to the address indicated in the definition of Public Guidance Documents in § 1024.2.

Section 1024.17 Escrow Accounts

17(h) Format for Initial Escrow Account Statement

17(h)(1)

Although the Bureau did not propose to amend § 1024.17(h)(1), for the reasons set forth below, the Bureau is revising § 1024.17(h)(1). Currently, § 1024.17(h)(1) provides that the format and a completed example for an initial escrow account statement are set out in Public Guidance Documents entitled “Initial Escrow Account Disclosure Statement—Format” and “Initial Escrow Account Disclosure Statement—Example,” available in accordance with § 1024.3. However, § 1024.3 no longer specifies how the public may request copies of Public Guidance Documents. Thus, as revised, § 1024.17(h)(1) instead provides that the format and a completed example for an initial escrow account statement are set out in Public Guidance Documents entitled “Initial Escrow Account Disclosure Statement—Format” and “Initial Escrow Account Disclosure Statement—Example,” available in accordance with the direction in the definition of Public Guidance Documents in § 1024.2.

Section 1024.30 Scope

30(c) Scope of Certain Sections

Paragraph 30(c)(2)

Although the Bureau did not propose to add comment 30(c)(2)-1, for the reasons set forth below, the Bureau is adopting new comment 30(c)(2)-1 to provide further clarification on the determination of whether a property is a principal residence for purposes of Regulation X.

Pursuant to § 1024.30(c)(2), the procedures set forth in §§ 1024.39 through 1024.41 regarding early intervention, continuity of contact, and loss mitigation only apply to a mortgage loan secured by a property that is a borrower's principal residence. Consequently, a borrower's protections under Regulation X depend on whether or not the property securing the loan is the borrower's principal residence. The Bureau has previously explained that the determination of whether a property is the borrower's principal residence is a fact specific inquiry, particularly when a property may appear to be vacant.[113] Several servicers have indicated to the Bureau that they remain uncertain as to the applicability of, for example, the 120-day foreclosure referral waiting period in § 1024.41(f)(1)(i) when a property is vacant.

Accordingly, the Bureau is adopting comment 30(c)(2)-1, which clarifies that, if a property ceases to be a borrower's principal residence, the procedures set forth in §§ 1024.39 through 1024.41 do not apply to a mortgage loan secured by that property. The comment further explains that the determination of principal residence status will depend on the specific facts and circumstances regarding the property and applicable State law. It further clarifies this explanation with an example explaining that a vacant property may still be a borrower's principal residence.

The Bureau understands that a vacant property may still be the principal residence of a borrower in certain circumstances. For example, the Bureau understands that a property may still be the borrower's principal residence where a servicemember relocates pursuant to permanent change of station orders, was occupying the property as his or her principal residence immediately prior to displacement, intends to return to the property at some point in the future, and does not own any other residential property.[114] Comment 30(c)(2)-1 clarifies that the vacancy of a property does not necessarily mean that the property is no longer the borrower's principal residence. Accordingly, a vacant property may still be covered by § 1024.41, meaning that the 120-day foreclosure referral waiting period could still apply to the mortgage loan securing that property.

New comment 30(c)(2)-1 provides servicers, borrowers, and other stakeholders with additional guidance as to the applicability of servicers' responsibilities under §§ 1024.39 through 1024.41. It should help ensure that borrowers do not lose critical protections under the mortgage servicing rules to which they are entitled. At the same time, the Bureau is not establishing a bright-line test in comment 30(c)(2)-1, as the determination of principal residence status will depend on the specific facts and circumstances regarding the property and applicable State law.

30(d) Successors in Interest

As explained in part V.A., the Bureau proposed to apply subpart C of Regulation X to confirmed successors in interest (as defined by the proposed definition of successor in interest, discussed in the section-by-section analysis of § 1024.31). Proposed § 1024.30(d) accordingly would have provided that a successor in interest must be considered a borrower for the purposes of subpart C of Regulation X once a servicer confirms the successor in interest's identity and ownership interest in a property that secures a mortgage loan covered by Regulation X's mortgage servicing rules. For the reasons set forth in part V.A. and in this discussion, the Bureau is finalizing § 1024.30(d) with only one substantive change. That change expands the scope of protections that apply to confirmed successors in interest to include the escrow-related requirements in § 1024.17. The Bureau has also made technical changes to incorporate the new definition of confirmed successor Start Printed Page 72187in interest in § 1024.31 into § 1024.30(d). As under the proposal, the exemptions and scope limitations in Regulation X's mortgage servicing rules apply to the servicing of a mortgage loan with respect to a confirmed successor in interest under the final rule.[115]

Commenters raised a number of concerns about the scope of the definition of successor in interest, which are discussed in part V.A. and the section-by-section analysis of § 1024.31. A number of industry commenters urged the Bureau not to finalize the rule. These commenters suggested, for example, that the Bureau might consider other approaches, such as best practices, guidance, and consumer education, or that the Bureau could delay action in order to solicit further comment or conduct further outreach to industry, governmental offices, and other stakeholders. Some industry commenters urged the Bureau to narrow the protections that would apply to confirmed successors in interest and not to add additional protections. For example, one industry commenter suggested that the Bureau limit the successor in interest rules and commentary to facilitating communication with successors in interest, while another suggested that the Bureau adopt only enhanced policies and procedures requirements setting forth objectives for servicers to meet. A number of industry commenters also urged the Bureau not to extend the protections of the mortgage servicing rules to potential successors in interest, noting that doing so could allow someone without a true ownership interest to initiate actions that might jeopardize the interests of the true owner or the privacy of any borrowers on the account.

One trade association submitted a comment listing a large number of additional regulatory provisions that the Bureau should address from Regulations X and Z and other regulations. As part of this list, this commenter stated that a confirmed successor in interest should be a borrower for purposes of § 1024.17.

A number of consumer advocacy group commenters also urged the Bureau to extend the protections of § 1024.17 to successors in interest. As discussed in part V.A. and the section-by-section analyses of §§ 1024.36(i) and 1024.38(b)(1)(vi), various consumer advocacy groups also suggested that successors in interest should receive additional protections prior to confirmation. Some consumer advocacy groups urged the Bureau to create a privately enforceable right triggered by the homeowner's submission of documentation, not the servicer's additional step of confirming the person's status. They also urged the Bureau to provide a limited notice of error procedure related to successor status before a foreclosure sale and to make both the request for information and notice of error procedures privately enforceable. Consumer advocacy groups also stated that the final rule should extend dual tracking protections to successors in interest even prior to confirmation, to ensure that the house is not lost to foreclosure before successor in interest status is determined. In their view, once a successor in interest has submitted a complete loan modification application, including reasonable documentation establishing the successor in interest's identity and ownership interest, within the timelines contained in § 1024.41(f) and (g), a servicer should not be permitted to initiate or continue with foreclosure until it has reviewed the proof of successor status and the application.

A large number of commenters of various types expressed concern about the proposal's use of the term prior borrower because the borrower who transfers an interest may still be liable on the loan obligation (absent a release) and a borrower for purposes of Regulation X.

For the reasons set forth in part V.A. and this discussion, the Bureau is expanding the protections applicable to confirmed successors in interest to include § 1024.17. The Bureau agrees that successors in interest confront the same types of escrow issues as borrowers who are currently protected by § 1024.17. As consumer advocacy groups noted in their comments, successors in interest are particularly likely to experience escrow problems due to the transfer of ownership through which they acquired their ownership interest in the property. In issuing the proposal, the Bureau intended to include all of the mortgage servicing protections of Regulations X and Z, which, as commenters noted, should include the escrow protections of § 1024.17. Expanding the protections afforded to confirmed successors in interest to include § 1024.17 effectuates the Bureau's stated intent in the proposal to extend all of the Regulation X mortgage servicing protections to confirmed successors in interest and ensures that confirmed successors in interest can obtain necessary escrow information.

The Bureau has reviewed the other sections of Regulation X that commenters suggested that the Bureau should address and does not believe that it is appropriate to add them to the regulatory provisions listed in § 1024.30(d). For example, a trade association stated that the final rule should define a confirmed successor in interest as a borrower for purposes of § 1024.11, which governs mailing of documents under Regulation X. However, it is not necessary to do so because § 1024.11 does not use the term borrower and, by its terms, already applies to any provision of Regulation X that requires or permits mailing of documents.

Although many industry commenters questioned the need to extend the protections of the Regulation X mortgage servicing rules to confirmed successors in interest, the Bureau concludes that such protections are necessary and appropriate. As numerous consumer advocacy groups, a local government commenter, and the office of a State Attorney General explained and illustrated in their comments, successors in interest face many of the challenges that Regulation X's mortgage servicing rules were designed to prevent. These comments are consistent with various published reports and the Bureau's market knowledge.[116] The same reasons that Start Printed Page 72188supported the Bureau's adoption of the 2013 RESPA Servicing Final Rule also support § 1024.30(d): Successors in interest are homeowners whose property is subject to foreclosure if the mortgage loan obligation is not satisfied, even though the successor in interest may not have assumed that obligation under State law or otherwise be liable on the obligation. In addition to § 1024.17 as discussed above, the Bureau has considered each section of subpart C of Regulation X and believes that each section should apply to confirmed successors in interest.[117]

Specifically, the Bureau concludes that §§ 1024.35 and 1024.36 should apply to confirmed successors in interest.[118] When the Bureau issued §§ 1024.35 and 1024.36 in the 2013 RESPA Servicing Final Rule, the Bureau acknowledged that both borrowers and servicers would be best served if the Bureau were to define clearly a servicer's obligation to correct errors or respond to information requests.[119] Clearly defining a servicer's obligation with respect to a confirmed successor in interest will similarly benefit both servicers and confirmed successors in interest. Under current § 1024.38(b)(1)(vi), servicers are required to have policies and procedures reasonably designed to ensure that the servicer can identify and communicate with successors in interest upon notification of the death of a borrower. Because §§ 1024.35 and 1024.36 do not currently necessarily apply to successors in interest, however, the extent of the obligation to communicate with successors in interest and how a successor in interest may obtain information from a servicer are not clear. Sections 1024.35 and 1024.36 will provide important protections to confirmed successors in interest. For instance, § 1024.35 will provide confirmed successors in interest with protections regarding a servicer's failure to accept payments conforming to the servicer's written requirements for payments. Additionally, § 1024.36's requirements to provide information about the mortgage loan will help prevent unnecessary foreclosure on the confirmed successor in interest's property by, for example, ensuring that a confirmed successor in interest can obtain information about the payment history of the loan. Because confirmed successors in interest, like transferor borrowers, bear the risk of unnecessary foreclosure as homeowners of the property, §§ 1024.35 and 1024.36 should apply to confirmed successors in interest.

The Bureau solicited comment on whether any information that could be provided to successors in interest under §§ 1024.35 and 1024.36 presents privacy concerns and whether servicers should be permitted to withhold any information from successors in interest out of such privacy concerns. A number of commenters expressed concerns regarding privacy issues, which are discussed in more detail in part V.A. In light of these concerns, the Bureau is amending §§ 1024.35 and 1024.36 to allow servicers to limit the information that confirmed successors in interest may obtain about other borrowers and that all borrowers may obtain about potential and confirmed successors in interest, as discussed in the section-by-section analyses of §§ 1024.35 and 1024.36.[120]

As explained in part V.A., after considering the comments received, the Bureau has decided that the loss mitigation procedures contained in § 1024.41 should apply to confirmed successors in interest and that servicers should be required to evaluate confirmed successors in interest for loss mitigation options to prevent unnecessary foreclosure. Significant consumer harm flows from a servicer's failure to afford a confirmed successor in interest the same access to loss mitigation as other homeowners. The Bureau also believes that requiring servicers to evaluate confirmed successors in interest for loss mitigation prior to the confirmed successor in interest's assumption of liability for the mortgage debt under State law is consistent with Fannie Mae and Freddie Mac guidelines and serves RESPA's purposes as discussed in part V.A.[121]

Consistent with the proposal and with § 1024.41's treatment of borrowers generally, the final rule does not require a servicer to offer a successor in interest any particular loss mitigation option.[122] The final rule also does not prevent a servicer from conditioning an offer for a loss mitigation option on the successor in interest's assumption of the mortgage loan obligation under State law or from offering loss mitigation options to the successor in interest that differ based on whether the successor in interest would simultaneously assume the mortgage loan obligation. Under the final rule, however, a servicer cannot condition review and evaluation of a loss mitigation application on a confirmed successor in interest's assumption of the mortgage obligation. If the property is the confirmed successor in interest's principal residence and the procedures set forth in § 1024.41 are otherwise applicable, a servicer is, for example, required under § 1024.41(b) to respond to a loss mitigation application from the confirmed successor in interest and exercise reasonable diligence in obtaining documents and information to complete the loss mitigation application. The foreclosure prohibitions under § 1024.41(f) and (g) may also apply.

For similar reasons, the early intervention and continuity of contact requirements contained in §§ 1024.39 and 1024.40 should apply to confirmed Start Printed Page 72189successors in interest.[123] In issuing these provisions in the 2013 RESPA Servicing Final Rule, the Bureau stated that §§ 1024.39 and 1024.40 are appropriate to achieve the consumer protection purposes of RESPA, including to help borrowers avoid unwarranted or unnecessary costs and fees and to facilitate review of borrowers for foreclosure avoidance options.[124] The Bureau further determined that §§ 1024.39 and 1024.40 are necessary and appropriate to carry out the purposes of the Dodd-Frank Act of ensuring that markets for consumer financial products and services are fair, transparent, and competitive; that consumers are provided with timely and understandable information to make responsible decisions about financial transactions; and that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.[125] These same consumer protection purposes are served by applying §§ 1024.39 and 1024.40 to confirmed successors in interest, who, as homeowners of a property securing a mortgage loan, may be required to make payments on the loan to avoid foreclosure. In particular, the protections provided by §§ 1024.39 and 1024.40 serve to prevent unnecessary foreclosure by alerting confirmed successors in interest to any delinquency on the mortgage loan secured by their property and assisting with the process of applying for loss mitigation options.

Finally, the Bureau concludes that the requirements contained in § 1024.33 (regarding mortgage servicing transfers), § 1024.34 (regarding escrow payments and account balances), and § 1024.37 (regarding force-placed insurance) should apply to confirmed successors in interest. The same rationale for applying these rules to any borrower applies with respect to confirmed successors in interest, who are also homeowners and may be required to make payments on the loan to avoid foreclosure. Confirmed successors in interest, like other borrowers, need to know where to send their mortgage payments in the event of a servicing transfer. They also need to know the balance of the escrow loan account, how their payments into that account are applied, and the status of tax and homeowner's insurance payments made from the escrow account. Like other borrowers, they also need information about any force-placed insurance the servicer has taken out on their property. Moreover, it would add unnecessary complexity to the rules to apply the rest of the Mortgage Servicing Rules in Regulation X to confirmed successors in interest but not to apply §§ 1024.33, 1024.34, and 1024.37 to them. The Bureau believes it is preferable to apply all of the Mortgage Servicing Rules in Regulation X to confirmed successors in interest, unless there is a compelling reason not to apply a particular rule. The Bureau solicited comment as to whether any such compelling reasons exist with respect to §§ 1024.33, 1024.34, and 1024.37. After reviewing the comments, the Bureau has not identified any compelling reasons not to apply a particular provision of the Mortgage Service Rules in Regulation X to confirmed successors in interest.

While industry commenters expressed a number of concerns relating to the cost of complying with the Regulation X mortgage servicing requirements with respect to confirmed successors in interest, many of the requirements that they identified as particularly burdensome or costly are not part of the final rule. For example, a number of industry commenters indicated that it would be costly and might require systems changes if the final rule required servicers to send confirmed successors in interest duplicate copies of mortgage servicing rule notices that the servicer was also sending to another borrower on the account. The final rule includes new § 1024.32(c)(4), which clarifies that such duplicate notices are generally not required. Other industry commenters expressed concern that it would be costly if the final rule required servicers to preserve until confirmation information requests from potential successors in interest who request information other than a list of documents required for confirmation. Section 1024.36(i) does not require servicers to preserve this type of request. Similarly, a number of industry commenters said that it would be burdensome if the final rule allowed requests for information under § 1024.36(i) to be sent to any address for the servicer. Like the proposal, the final rule permits the servicer to establish an exclusive address. Some trade associations suggested that the Bureau should have considered the costs for servicers to become equipped to originate mortgage loans. Because the final rule does not require servicers to originate mortgage loans, this type of cost, like many others mentioned by commenters, is not one imposed by the final rule.[126]

Nevertheless, the Bureau recognizes that providing confirmed successors in interest with protections under § 1024.17 and subpart C will cause servicers to incur some costs. As many industry commenters noted, servicers may need to devote additional resources to assessing the identity and ownership interest of potential successors in interest as part of the confirmation process established by the final rule. The Bureau expects that these additional costs will be limited because servicers already routinely make these types of determinations. For example, servicers confirm the identity of potential successors in interest and other third parties when such parties assume the mortgage loan obligation under State law. Prior to bringing a foreclosure action, servicers also generally have to determine who owns the property at issue, in order to ensure that all proper parties are notified. Moreover, the final rule allows a servicer to require additional documentation from a potential successor in interest if it reasonably determines that it cannot make a confirmation determination based on the documentation provided by the potential successor in interest.[127] The Start Printed Page 72190Bureau anticipates that these considerations will mitigate any additional costs associated with making confirmation determinations in conformance with the final rule.

Servicers may also have to devote additional resources to tracking successors in interest, providing responses to information requests from confirmed successors in interest, handling error resolution, responding to and evaluating loss mitigation applications from successors in interest, and otherwise communicating with successors in interest. Providing confirmed successors in interest with § 1024.41's protections may delay foreclosure on the property securing the mortgage loan in some cases, as discussed above. However, because servicers are already required to comply with the requirements of § 1024.17 and subpart C with respect to transferor borrowers, the additional cost to servicers to apply these requirements to confirmed successors in interest should be limited. Moreover, applying these protections may result in the avoidance of unnecessary foreclosures where loss mitigation options are available, thus providing benefits to all parties.

The final rule limits the application of § 1024.30(d) to confirmed successors in interest.[128] Because some people representing themselves as successors in interest may not actually have an ownership interest in the property, requiring servicers to apply Regulation X's communication, disclosure, and loss mitigation requirements to successors in interest before the servicer has confirmed the successor in interest's identity and ownership interest in the property could present privacy and other concerns, as many commenters noted. The Bureau also believes it would be inappropriate to require servicers to incur substantial costs before confirming the successor in interest's identity and ownership interest in the property. The final rule includes, however, a new information request for potential successors in interest and revised policies and procedures requirements relating to potential successors in interest, which are discussed in the section-by-section analyses of §§ 1024.36(i) and 1024.38(b)(1)(vi), as well as new Regulation Z commentary related to payments by successors in interest, which is discussed in the section-by-section analysis of § 1026.36(c).

Proposed comment 30(d)-1 would have clarified the requirement in proposed § 1024.30(d) that a successor in interest must be considered a borrower for the purposes of Regulation X's subpart C once a servicer confirms the successor in interest's identity and ownership interest in the property. The proposed comment included an example of the application of § 1024.41's loss mitigation procedures to successors in interest and a cross-reference to § 1024.36(i)'s requirement that a servicer must respond to written requests for certain information from a potential successor in interest.

The Bureau is finalizing proposed comment 30(d)-1 with a number of changes. To conform to final § 1024.30(d), the final version of comment 30(d)-1 identifies § 1024.17 as a protection applicable to confirmed successors in interest. As finalized, comment 30(d)-1 explains that a confirmed successor in interest must be considered a borrower for purposes of subpart C and § 1024.17, regardless of whether the successor in interest assumes the mortgage loan obligation under State law. An industry commenter suggested that the Bureau clarify that the treatment of a successor in interest may depend on whether the property is the successor in interest's principal residence, noting that, under § 1024.30(c)(2), §§ 1024.39 through 1024.41 only apply to mortgage loans that are secured by a property that is a borrower's principal residence. In illustrating how § 1024.41's loss mitigation procedures apply to confirmed successors in interest, the final version of comment 30(d)-1 indicates that the property must be the confirmed successor in interest's principal residence and that the procedures set forth in § 1024.41 must otherwise be applicable. Because comment 30(d)-1 addresses the treatment of confirmed successors in interest, the Bureau has eliminated the cross-reference to § 1024.36(i) that appeared in proposed comment 30(d)-1 and has added the word confirmed in the comment heading. The final version of comment 30(d)-1 also includes technical changes to incorporate the new definition of confirmed successor in interest.

The final version of comment 30(d)-1 also clarifies that treatment of a confirmed successor in interest as a borrower for purposes of § 1024.17 and subpart C does not affect whether the confirmed successor in interest is subject to the contractual obligations of the mortgage loan agreement, which is determined by applicable State law. This addition clarifies that confirmation of a successor in interest who has not assumed the loan obligation and is not otherwise liable on the obligation does not make the successor in interest a “borrower” for liability purposes.[129] Consistent with an interpretive rule that the Bureau is issuing concurrently with this final rule, comment 30(d)-1 also clarifies that communications in compliance with Regulation X to a confirmed successor in interest as defined in § 1024.31 do not violate FDCPA section 805(b) because the term consumer for purposes of FDCPA section 805 includes any person who meets the definition in Regulation X of confirmed successor in interest.

The final rule also adds new comment 30(d)-2 relating to assumption of the mortgage loan obligation under State law. This new comment clarifies that a servicer may not require a confirmed successor in interest to assume the mortgage loan obligation under State law to be considered a borrower for purposes of § 1024.17 and subpart C. As explained in part V.A., the Bureau believes that it is important to make the protections of the Mortgage Servicing Rules available to confirmed successors in interest who have not assumed the mortgage loan obligation under State law because confirmed successors in interest may need information about the loan in order to decide whether to assume the loan obligation and to protect their ownership interest.

New comment 30(d)-2 further explains that, if a successor in interest assumes a mortgage loan obligation under State law or is otherwise liable on the mortgage loan obligation, the protections that the successor in interest enjoys under Regulation X are not limited to the protections that apply under § 1024.30(d) to a confirmed Start Printed Page 72191successor in interest. This addition clarifies that § 1024.30(d) does not abrogate the Regulation X protections that already exist for persons (including potential or confirmed successors in interest) who assume a mortgage loan obligation under State law.

Proposed comment 30(d)-2 addressed how a servicer's confirmation of a successor in interest's identity and ownership interest in the property would affect the borrower who transferred the ownership interest. The proposed comment would have provided that, even after a servicer's confirmation of a successor in interest's identity and ownership interest in the property, the servicer would still be required to comply with the requirements of Regulation X's subpart C with respect to the prior borrower, unless that borrower also had either died or been released from the obligation on the mortgage loan. The proposed comment also would have provided that the prior borrower would retain any rights under Regulation X's subpart C that accrued prior to the confirmation of the successor in interest to the extent these rights would otherwise survive the prior borrower's death or release from the obligation. For the reasons stated in part V.A. and in this discussion, the Bureau is finalizing proposed comment 30(d)-2, renumbered as comment 30(d)-3, with substantial revisions to make it clear that confirmation of a successor in interest does not strip the borrower who transferred the ownership interest of any protections under Regulation X.[130]

As explained in part V.A., the Bureau received many comments objecting to the use of the term prior borrower on the grounds that it was confusing and inaccurate. A number of commenters also expressed concern that the Bureau's proposal would not provide adequate protection to transferor borrowers or the estates of transferor borrowers.

As many commenters noted, the term prior borrower is inapt because a transferor borrower may still be liable on the mortgage note and may have significant legal interests at stake with respect to the mortgage loan. For example, the servicer may continue to report the performance of the loan on the transferor borrower's credit report, and, in the event of foreclosure, the transferor borrower could be liable for any deficiency, depending on the contract terms and applicable State law. The Bureau also recognizes that, when a transferor borrower dies, the estate and its representative have an important role to play and that Regulation X can provide valuable information and protections to estates even after confirmation of a successor in interest.

In light of these considerations, the Bureau does not intend for the final rule to take away the protections that Regulation X currently provides for living transferor borrowers or for estates of transferor borrowers and their representatives and has significantly revised proposed comment 30(d)-2 to make this clear. As finalized, comment 30(d)-3 provides that, even after a servicer's confirmation of a successor in interest, the servicer is still required to comply with all applicable requirements of Regulation X with respect to the borrower who transferred the ownership interest to the successor in interest.

The Bureau acknowledges that, under the final rule, servicers will sometimes be required to comply with the Mortgage Servicing Rules in Regulation X with respect to more than one person—such as the transferor borrower or the transferor borrower's estate and the confirmed successor in interest, as well as, in some cases, multiple confirmed successors in interest who each acquire an ownership interest in a property. Although some commenters expressed concern about this, the Bureau notes that the Mortgage Servicing Rules already may apply with respect to more than one borrower for a particular mortgage loan. Spouses, for example, are commonly jointly obligated on the mortgage note, and the Mortgage Servicing Rules apply with respect to each borrower in such cases. In addition, the final rule includes new § 1024.32(c)(4), which makes it clear that servicers generally do not need to send Regulation X notices to confirmed successors in interest if the notices would be duplicative of notices sent to another borrower on the account. Accordingly, the Bureau does not believe that applying the Mortgage Servicing Rules in Regulation X to confirmed successors in interest presents novel challenges for servicers in this regard.

Section 1024.31 Definitions

Confirmed Successor in Interest

For clarity and ease of reference, the Bureau is adding a definition of confirmed successor in interest to § 1024.31 in the final rule. As finalized, § 1024.31 defines confirmed successor in interest for purposes of subpart C of Regulation X as a successor in interest once a servicer has confirmed the successor in interest's identity and ownership interest in a property that secures a mortgage loan subject to subpart C of Regulation X. This new definition was not part of the proposal but is consistent with how the Bureau used the term confirmed successor in interest in the preamble to the proposal. The Bureau is also finalizing a definition of successor in interest, as discussed below.

Delinquency

Section 1024.31 contains definitions for various terms that are used throughout the provisions of subpart C of Regulation X. It does not contain a generally-applicable definition of the term “delinquency.” However, delinquency is defined for the specific purposes of §§ 1024.39(a) and (b) and 1024.40(a) as beginning “on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee.” [131] Delinquency is not defined for purposes of other sections of subpart C, including § 1024.41(f)(1), which prohibits a servicer from making the first notice or filing for foreclosure unless “[a] borrower's mortgage loan obligation is more than 120 days delinquent.”

To ensure that the term “delinquency” is interpreted consistently throughout Regulation X's mortgage servicing rules, the Bureau proposed to remove the current definition of delinquency applicable to §§ 1024.39(a) and (b) and 1024.40(a) and to add a general definition of delinquency in § 1024.31 that would apply to all sections of subpart C.[132] The Bureau proposed to define delinquency as a period of time during which a borrower and the borrower's mortgage loan obligation are delinquent. The proposed definition would have provided that a borrower and a borrower's mortgage loan obligation are delinquent beginning on the day a periodic payment sufficient to cover principal, interest, and, if applicable, escrow, became due and unpaid, until such time as the outstanding payment is made.[133] Delinquency under the Start Printed Page 72192proposed definition would not have been triggered by a borrower's failure to pay a late fee, consistent with current comments 39(a)-1.i and 40(a)-3. The Bureau believed that it was unlikely that servicers would initiate foreclosure on borrowers who are current with respect to principal, interest, and escrow payments solely because of a failure to pay accumulated late charges. In contrast with the definition of delinquency currently found in comments 39(a)-1.i and 40(a)-3, the proposed definition would not have included the phrase “for a given billing cycle.” The proposal explained that, as used in the context of the live contact and continuity of contact requirements under §§ 1024.39 and 1024.40, respectively, “for a given billing cycle” was intended to ensure that the servicer met the respective requirements of those rules during each billing cycle in which the borrower was delinquent. However, such a definition would have created incongruities if applied to the 120-day foreclosure referral waiting period in § 1024.41(f)(1)(i).

The Bureau sought to provide servicers, borrowers, and other stakeholders with clear guidance on how to determine whether a borrower is delinquent for purposes of Regulation X's servicing provisions and when the borrower's delinquency began. Since the publication of the 2013 RESPA Servicing Final Rule, the Bureau had received numerous inquiries about how servicers should calculate delinquency with respect to those provisions of the Mortgage Servicing Rules that refer to delinquency but do not define delinquency. In particular, stakeholders had asked the Bureau how servicers should calculate the 120-day foreclosure referral waiting period set forth in § 1024.41(f)(1)(i).[134]

The Bureau also proposed three new comments to the proposed definition of delinquency. Proposed comment 31 (Delinquency)-1 essentially restated existing comments 39(a)-1.i and 40(a)-3 by stating that a borrower becomes delinquent beginning the day on which the borrower fails to make a periodic payment, even if the servicer grants the borrower additional time after the due date to pay before charging the borrower a late fee.

Proposed comment 31 (Delinquency)-2 addressed how delinquency should be calculated if a servicer applies a borrower's payments to the oldest outstanding periodic payment. Proposed comment 31 (Delinquency)-2 would have clarified that, if a servicer applies payments to the oldest outstanding periodic payment, the date of the borrower's delinquency must advance accordingly. The proposed comment included an example illustrating this concept. The Bureau understood from its outreach that many servicers credit payments made to a delinquent account to the oldest outstanding periodic payment; in fact, the Fannie Mae's and Freddie Mac's model deeds of trust require this.[135] The Bureau also understood that most servicers already do not treat such a borrower as seriously delinquent and do not initiate loss mitigation procedures or seek to foreclose on that borrower. As such, the Bureau explained that the proposed comment would not place a significant additional burden on most servicers. Moreover, because the proposed comment would not have required servicers to apply payments to the oldest outstanding periodic payment, consistent with the Bureau's decision in the context of the 2013 TILA Servicing Final Rule, servicers who do not apply payments to the oldest outstanding periodic payment would be unaffected.

Proposed comment 31 (Delinquency)-3 would have permitted servicers to apply a payment tolerance to partial payments under certain circumstances. The Bureau learned from its pre-proposal outreach that some servicers elect or are required to treat borrowers as having made a timely payment even if they make payments that are less than the amount due by some small amount (perhaps as a result of a scrivener's error or a recent ARM payment adjustment), such that the account is reflected as current in the servicer's systems. Proposed comment 31 (Delinquency)-3 would have permitted servicers that elect to advance outstanding funds to a borrower's mortgage loan account to treat the borrower's insufficient payment as timely, and therefore not delinquent, for purposes of Regulation X's mortgage servicing rules. The comment would have clarified, however, that if a servicer chooses not to treat the borrower as delinquent for purposes of subpart C of Regulation X, the borrower is not delinquent as defined in § 1024.31. This clarification was intended to prevent servicers from selectively applying a payment tolerance only where doing so benefits the servicer. The Bureau sought comment on whether it should limit servicers' use of a payment tolerance to a specific dollar amount or percentage of the periodic payment amount and, if so, what the specific amount or percentage should be.

The Bureau sought comment regarding whether the proposed definition of delinquency had the potential of interfering with industry's existing policies and procedures and on whether there were better ways to articulate the proposed definition. The Bureau received a number of comments. Most commenters generally supported the proposal, and some stated that it reflected industry's general understanding of the term. One industry commenter expressed concern with the proposal's treatment of a borrower as delinquent until such time as the outstanding payment is made. The commenter noted that, in the section-by-section analysis of § 1024.41(i) discussing duplicative requests, the Bureau assumed that a borrower who is performing on a permanent loan modification does not meet the definition of delinquency that the Bureau was proposing. The commenter stated that a borrower performing on a permanent loan modification may not have made all outstanding payments and therefore would be considered delinquent under the proposal, contrary to the Bureau's assumption.

Several industry commenters expressed concern that the proposal addressed only breaches of the mortgage loan obligation regarding the borrower's periodic payment obligation and did not specifically address other breaches of the mortgage loan obligation. They stated that, in addition to delinquency, borrowers may breach mortgage contracts in other ways, including through, for example, non-occupancy of the property, waste, damage to the property, and civil or criminal violations that could result in forfeiture of the property.[136] A few industry Start Printed Page 72193commenters expressed concern that a borrower's failure to pay taxes or insurance outside of escrow would not meet the proposed definition of delinquency. Some industry commenters requested that the Bureau clarify whether these types of contractual defaults would be considered a delinquency that would trigger the 120-day period under § 1024.41(f)(1)(i) during which a servicer may not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure. Several industry commenters requested that the 120-day foreclosure referral waiting period under § 1024.41(f)(1)(i) not apply when borrowers commit “waste” or abandonment in violation of the underlying mortgage contract because these forms of default impair the value of the collateral.

Many industry commenters also expressed concern that the proposal did not specifically address “rolling delinquencies.” These commenters described rolling delinquencies as situations where the borrower becomes delinquent, resumes making payments but does not make all outstanding payments to cure the delinquency, and the servicer's application of payments to the oldest outstanding payment advances the borrower's delinquency. A primary concern among commenters was a situation where a servicer would never be able to pursue foreclosure because a borrower is delinquent but never become more than 120 days delinquent because of the rolling delinquency. In this circumstance, § 1024.41(f)(1)(i), as described above, would prohibit the servicer from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure. Industry commenters urged the Bureau to provide clarity on the application of § 1024.41(f)(1)(i) to rolling delinquencies. A few commenters suggested the Bureau permit servicers to file for foreclosure when a borrower has been continuously delinquent for a period of time, but does not becomes more than 120 days delinquent. Two commenters requested that the Bureau clarify that servicers have the right to accelerate the mortgage loan if permitted by State law and the contract and can then refer the mortgage loan to foreclosure if the accelerated amount is not paid after 120 days.

One consumer advocacy group expressed support for the clarification in proposed comment 31 (Delinquency)-2 that, if a servicer applies payments to the oldest outstanding periodic payment, a payment by a delinquent borrower advances the date the borrower's delinquency began. This commenter recommended the Bureau consider requiring servicers to apply borrower payments to the oldest outstanding periodic payment. This commenter said that this guidance is consistent with Fannie Mae and Freddie Mac guidelines and, as such, should not impose significant costs on industry.

Several industry commenters and one consumer advocacy group expressed support for proposed comment 31 (Delinquency)-3. Some industry commenters stated that servicers do not always advance outstanding funds to address the insufficient payment. They said, for example, that servicers may use escrow funds to make up the delinquency. One consumer advocacy group recommended that the Bureau limit servicers' use of a payment tolerance to 10 dollars. Several industry commenters requested that a limit on payment tolerances not be set, but recommended that, if the Bureau did set a limit, such a limit should be set at a dollar amount rather than a percentage. One industry commenter suggested that any limit be set at an amount not to exceed five dollars.

For the reasons discussed below, the Bureau is adopting the definition of delinquency in § 1024.31 with changes from the proposal. The Bureau is adopting a revised definition of delinquency in § 1024.31 and adopting comments 31 (Delinquency)-1 and -2 with revisions for clarity. The Bureau is making minor revisions to comment 31 (Delinquency)-3 in light of comments, and is adopting new comment 31 (Delinquency)-4 for further clarity.

As adopted, the definition of delinquency in § 1024.31 explains that delinquency means a period of time during which a borrower and a borrower's mortgage loan obligation are delinquent. It further explains that a borrower and a borrower's mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid.

The Bureau recognizes that the proposed language indicating that the delinquency ends when the outstanding payment is made may have caused uncertainty as to whether a borrower performing on a permanent loan modification would have been delinquent under the proposed definition of delinquency. Accordingly, the Bureau is revising the definition of delinquency to clarify that a borrower and a borrower's mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. By providing that the delinquency exists only until no periodic payment is due and unpaid, the revised definition of delinquency addresses a situation where a borrower may not have made the outstanding payment, but no periodic payment is due and unpaid. For example, a borrower performing under a permanent loan modification agreement may not have made all outstanding payments but may be making all periodic payments due and owing under the modified contract terms. Thus, a borrower performing on a permanent loan modification is not delinquent under § 1024.31.

The definition of delinquency in § 1024.31 applies only for purposes of the mortgage servicing rules in Regulation X. It is not intended to affect industry's existing policies and procedures for identifying and working with borrowers who are late or behind on their payments, or existing requirements imposed by other laws or regulations, such as the Fair Credit Reporting Act and Regulation V. Servicers may use different definitions of “delinquency” for operational purposes. Servicers may also use different or additional terminology when referring to borrowers who are late or behind on their payments—for example, servicers may refer to borrowers as “past due” or “in default,” and may distinguish between borrowers who are “delinquent” and “seriously delinquent.”

The Bureau is finalizing comment 31 (Delinquency)-1 to provide further clarity and reflect the changes to § 1024.31. Comment 31 (Delinquency)-1 explains that a borrower's delinquency begins on the date an amount sufficient to cover a periodic payment of principal, interest, and, if applicable, escrow becomes due and unpaid, and lasts until such time as no periodic payment is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee. Comment 31 (Delinquency)-1 clarifies that the delinquency lasts until no periodic payment is due and unpaid.

The Bureau is finalizing comment 31 (Delinquency)-2 substantially as proposed, with minor revisions for clarity. Comment 31 (Delinquency)-2 provides that if a servicer applies payments to the oldest outstanding periodic payment, a payment by a Start Printed Page 72194delinquent borrower advances the date the borrower's delinquency began. It provides an illustrative example. The Bureau notes that some commenters asked about how proposed comment 31 (Delinquency)-2 would impact a servicer's obligations under the 120-day foreclosure referral waiting period in § 1024.41(f)(1)(i). Because the definition of delinquency in § 1024.31 applies to all provisions of subpart C of Regulation X, it applies to § 1024.41(f)(1)(i). Therefore, if a servicer credits a payment by a delinquent borrower to the oldest missed payment, the result is that the 120-day foreclosure referral waiting period in § 1024.41(f)(1)(i) is advanced.

The Bureau declines to adopt a requirement in the final rule that servicers must apply payments to the oldest outstanding periodic payment. As the Bureau has previously explained, such a requirement would provide limited consumer benefit and may pose a conflict with State law.[137] The Bureau continues to believe, however, as it stated in the 2012 TILA Servicing Proposal, that this method of crediting payments provides greater consumer protection.[138] The Bureau will continue to monitor the market to evaluate servicers' payment crediting practices and those practices' effects on consumers.

The Bureau is finalizing comment 31 (Delinquency)-3 with changes from the proposal. Final comment 31 (Delinquency)-3 provides that, for any given billing cycle for which a borrower's payment is less than the periodic payment due, if a servicer chooses not to treat a borrower as delinquent for purposes of any section of subpart C, that borrower is not delinquent as defined in § 1024.31. Comment 31 (Delinquency)-3 thus does not specify a method by which a servicer covers a payment tolerance, unlike the proposal. The Bureau received comments indicating that servicers may cover a payment tolerance in a variety of ways, including by advancing the outstanding payment amount to a borrower's account, as suggested in the proposal, and applying escrow funds to make up the delinquency. The Bureau understands that these servicers would prefer not to initiate early intervention communications, continuity of contact requirements, or loss mitigation procedures with those borrowers for that given billing cycle. The Bureau does not intend to mandate how servicers cover a payment tolerance. Servicers are permitted to use any method permitted by applicable law to cover a payment tolerance. However, the Bureau reminds servicers of their obligations to make full and timely payments from escrow [139] and cautions that reliance on application of a payment tolerance to escrow funds should not, for example, occasion a default in the payment of property taxes.

The Bureau understands that servicers may collect the amounts included in a payment tolerance from the borrower at a later date. The Bureau believes that such a practice would still fall within the scope of the comment but cautions that a servicer may not cancel or rescind a payment tolerance applied for a given billing cycle for purposes of determining the date on which the borrower's delinquency began.

The Bureau declines to set a tolerance limit in the rule. The Bureau understands that the maximum amount servicers use for a payment tolerance is generally relatively small, ranging from $10 to $50.[140] It is not clear from the comments that a tolerance limit should be adopted, or what an appropriate limit would be. As a servicer's application of a payment tolerance is voluntary and, as noted above, prevents a borrower from becoming delinquent, the Bureau does not believe a tolerance limit is necessary to protect against borrower harm.

Finally, in light of comments, the Bureau is adopting new comment 31 (Delinquency)-4 to address a creditor's right to accelerate payment under the contract. Comment 31 (Delinquency)-4 provides that subpart C of Regulation X does not prevent a creditor from exercising a right provided by a mortgage loan contract to accelerate payment for a breach of that contract. Comment 31 (Delinquency)-4 further explains that failure to pay the amount due after the creditor accelerates the mortgage loan obligation in accordance with the mortgage loan contract would begin or continue delinquency.

As noted above, several industry commenters requested that the final rule address breaches of the underlying mortgage agreement other than the borrower's monthly periodic payment obligation or rolling delinquencies where the borrower is delinquent but does not become more than 120 days delinquent. Two commenters requested that the final rule clarify the right to accelerate the mortgage loan if permitted by State law and the contract. The Bureau previously explained the relationship between acceleration and delinquency in the preamble to the 2013 TILA Servicing Final Rule. The Bureau explained that, because the definition of “periodic payment” is intended to reflect the consumer's contractual obligation, to the extent a consumer's mortgage loan has been accelerated (such that the periodic payment constitutes the total amount owed for all principal and interest), this total accelerated amount may be appropriately accounted for within this definition of a periodic payment,[141] and would constitute the new amount due. Comment 31 (Delinquency)-4 applies to permissible acceleration permitted based on any breach of the underlying mortgage loan obligation. Depending on the contract, this could include, for example, the borrower's failure to pay the monthly periodic payment amount on the payment due date as well as the borrower's failure to comply with other components of the contract, such as requirements to pay property taxes, maintain insurance, or pay late fees. If the borrower reinstates the loan or otherwise cures the arrearage following acceleration, the borrower would no longer be delinquent under the definition set forth in § 1024.31.

Certain industry commenters requested an exemption from the 120-day foreclosure referral waiting period under § 1024.41(f)(1)(i) where there is a breach of the underlying mortgage agreement other than the borrower's monthly periodic payment obligation. Section 1024.41(f)(1) prohibits a servicer from making the first notice or filing required under applicable law for any judicial or non-judicial foreclosure process unless one of three circumstances occurs: The mortgage loan obligation is more than 120 days delinquent, the foreclosure is based on a borrower's violation of a due-on-sale clause, or the servicer is joining the foreclosure of a superior or subordinate lienholder.[142] The Bureau is not providing exemptions from the Start Printed Page 72195requirements of § 1024.41(f)(1) for breaches of the contract other than the borrower's monthly periodic payment obligation. In the Amendments to the 2013 Mortgage Rules, the Bureau declined to exempt servicers from the borrower protections set forth in § 1024.41 for delinquent borrowers simply because these borrowers may have breached other components of the underlying mortgage, such as requirements to pay property taxes, maintain insurance, or pay late fees.[143] The Bureau expressed concern that additional exemptions would create uncertainty and could potentially be construed in a manner to permit evasion of the requirements of § 1024.41(f). Additionally, the Bureau explained that an exemption from the pre-foreclosure review period is not appropriate merely because foreclosure is based upon an obligation other than the borrower's monthly payment.[144] In many instances, these borrowers are experiencing financial distress and may benefit from time to seek loss mitigation.[145]

For similar reasons, the Bureau again declines to adopt a specific exemption from § 1024.41(f)(1) for situations where a borrower may be committing “waste” in violation of an underlying mortgage agreement. The Bureau explained in the Amendments to the 2013 Mortgage Rules that it was concerned that such an exemption could be used to circumvent the 120-day prohibition for borrowers who are also delinquent.[146] The Bureau also noted that what constitutes waste is a very fact-specific determination.[147] The Bureau recognizes that, as some commenters suggested, § 1024.41(f)(1) may disadvantage servicers in situations where the property deteriorates during the 120-day foreclosure referral waiting period. However, the Bureau continues to believe that borrowers may be harmed by the risks associated with a broader set of exemptions from the requirements of § 1024.41(f)(1).

Additionally, the Bureau declines to adopt an exception to § 1024.41(f)(1) for rolling delinquencies. The Bureau does not want to encourage servicers to proceed to foreclosure in situations, where, as explained above, a borrower may have only missed one or two payments. Additionally, the Bureau believes that servicers may have alternative means for addressing situations where a borrower is delinquent but does not become more than 120 days delinquent, including acceleration of the loan where permitted under the contract and applicable law, as discussed in comment 31 (Delinquency)-4.

Successor in Interest

The Bureau proposed to add a definition of successor in interest to § 1024.31 that would be broader than the category of successors in interest contemplated by current § 1024.38(b)(1)(vi) and would cover all categories of successors in interest who acquired an ownership interest in the property securing a mortgage loan in a transfer protected by the Garn-St Germain Act. The proposed definition stated that a successor in interest is a person to whom an ownership interest in a property securing a mortgage loan is transferred from a prior borrower, provided that the transfer falls under an exemption specified in section 341(d) of the Garn-St Germain Act. The Bureau is finalizing the definition of successor in interest with several adjustments to address concerns raised by commenters.

As explained in part V.A., some industry commenters objected to the use of the Garn-St Germain Act framework, and many industry commenters urged the Bureau to narrow the scope of the definition of successor in interest substantially—for example, to limit the scope to just situations involving death or death or divorce. Others urged the Bureau to exclude anyone who has not assumed the mortgage loan obligation from the definition of successor in interest. Some suggested excluding certain types of transactions, such as reverse mortgages.

Consumer advocacy group commenters generally supported use of the Garn-St Germain Act framework and urged the Bureau to broaden the definition to include various categories that are not covered by the Garn-St Germain Act but that are similar to the Garn-St Germain Act categories. They suggested, for example, that the definition should include unmarried partners, relatives other than a spouse or child of the borrower who obtain an interest in the home through a quitclaim deed, unrelated transferees, and co-homeowners who did not sign the original loan.

Some commenters raised questions about whether the Bureau intended to incorporate the occupancy requirements of the Garn-St Germain Act implementing regulations administered by the OCC in 12 CFR part 191. An industry commenter suggested that the Bureau should omit reference to the Garn-St Germain Act and instead enumerate the categories of transfer of ownership that would qualify for regulatory protection, in order to avoid unintended consequences.

A large number of commenters of various types expressed concern about the use of the term prior borrower. These commenters noted that the borrower who transfers an interest may still be liable on the loan obligation (absent a release) and may still be a borrower for purposes of Regulation X.

For the reasons explained in part V.A. and in this discussion, the Bureau is finalizing the definition of successor in interest in § 1024.31 using the Garn-St Germain Act framework but with both substantive and technical changes. The Bureau continues to believe that it is appropriate to use the categories of transfers of ownership interest protected under section 341(d) of the Garn-St Germain Act in defining successors in interest for purposes of subpart C of Regulation X. Congress recognized that it would be inappropriate to allow lenders to exercise a due-on-sale clause with respect to these transferees, and the Bureau has concluded that it would also be inappropriate to allow these categories of transferees to lose their ownership interests because they were unable to avail themselves of the protections of the Mortgage Servicing Rules with respect to a mortgage loan on their property. As explained in part V.A., the Bureau has considered commenters' suggestions about substantially broadening or narrowing the Garn-St Germain Act categories but has concluded that the Garn-St Germain Act categories remain the best framework to use in defining successor in interest in the final rule.

Because a transferor borrower may still be a borrower after the transfer, the final rule substitutes “borrower” where “prior borrower” appeared in the proposed definition of successor in interest. For clarity and ease of reference, the final rule does not include a cross-reference to the Garn-St Germain Act but instead lists the specific categories of transfers that could render a transferee a successor in interest. The categories are modeled on categories protected by section 341(d) of the Garn-St Germain Act. To ensure that the scope of the final rule does not change without further rulemaking by the Bureau, the Bureau has omitted the Garn-St Germain Act category that protects from due-on-sale enforcement any other transfer or disposition described in the Garn-St Germain Act implementing regulations.148 Start Printed Page 72196Additionally, in restating the categories in the final rule, the Bureau has not incorporated certain scope limitations imposed by the Garn-St Germain Act or its implementing regulations, such as the exclusion for reverse mortgages and certain occupancy requirements in 12 CFR 191.5(b). As explained in part V.A., these adjustments promote clarity and consistency with other aspects of Regulation X and with the final definition of successor in interest in Regulation Z. The final rule thus provides that the term successor in interest means a person to whom an ownership interest in a property securing a mortgage loan subject to subpart C is transferred from a borrower, provided that the transfer is:

  • A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  • A transfer to a relative resulting from the death of a borrower;
  • A transfer where the spouse or children of the borrower become an owner of the property;
  • A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or
  • A transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.

The final rule adds new comment 31 (Successor in interest)-1 to the § 1024.31 definition of successor in interest to clarify how the definition applies when property is held in a joint tenancy or a tenancy by the entirety. A trade association questioned whether the proposal would protect a non-borrower owner who holds property in a tenancy by the entirety when the borrower owner dies if there is not a transfer under state law. This commenter stated that, if property is held in a tenancy by the entirety, it is not clear that there is a property transfer when one owner dies because State law may provide that the survivor continues to own an undivided interest in the entire property and that the late spouse's property interest simply terminates.

The Bureau believes it is important to extend protections to a tenant by the entirety upon the death of a borrower spouse and to a joint tenant upon the death of a borrower joint tenant. The Bureau is adding comment 31 (Successor in interest)-1 to the definition of successor in interest in § 1024.31 to clarify that, if a borrower who has an ownership interest as a joint tenant or tenant by the entirety in a property securing a mortgage loan subject to Regulation X's subpart C dies, a surviving joint tenant or tenant by the entirety with a right of survivorship in the property is a successor in interest as defined in § 1024.31.

The final rule also adds new comment 31 (Successor in interest)-2 to the definition of successor in interest, which clarifies how the definition applies to inter vivos trusts. The comment explains that, in the event of a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property, the beneficiaries of the inter vivos trust rather than the inter vivos trust itself are considered to be the successors in interest for purposes of § 1024.31. This clarification ensures that a trust is not a successor in interest under these circumstances. It is also consistent with comment 3(a)-10 to Regulation Z, which explains that credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.

Section 1024.32 General Disclosure Requirements

32(c) Successors in Interest

Several commenters raised concerns as to how disclosures required under various mortgage servicing rules in Regulation X apply to successors in interest. To address these concerns, the final rule includes new § 1024.32(c) relating to general disclosure requirements for successors in interest. Section 1024.32(c)(1) through (3) relates to an optional notice and acknowledgment form that servicers may provide upon confirmation to confirmed successors in interest who have not assumed the mortgage loan obligation and are not otherwise liable on the mortgage loan obligation. Section 1024.32(c)(4) generally relieves a servicer of the obligation to provide disclosures to a confirmed successor in interest and to engage in live contacts with a confirmed successor as required by §§ 1024.17, 1024.33, 1024.34, 1024.37, and 1024.39 if the servicer is complying with those requirements with respect to another borrower on the account.

32(c)(1) Optional Notice With Acknowledgment Form

Some commenters expressed concern about the requirement to send mortgage servicing notices to confirmed successors in interest who are not liable on the loan obligation under State law, suggesting that such contact could be viewed as confusing or harassing or could result in liability under the FDCPA. The Bureau believes that the notices and other communications required by the Mortgage Servicing Rules in Regulation X provide critical information that successors in interest will generally want to receive. However, the Bureau also recognizes that the language typically used in many of the required notices could suggest that the recipient is liable on the loan obligation. As explained in part V.A., the Bureau is therefore providing servicers with various options they can use to help ensure that confirmed successors in interest who are not liable on the mortgage loan obligation are not confused or deceived about their status. For the reasons set forth in part V.A. and in this discussion, § 1024.32(c) provides one such option, authorizing servicers, upon confirming such a successor in interest, to provide a written notice that explains the confirmed successor in interest's status together with a separate acknowledgment form for the confirmed successor in interest to return.

Section 1024.32(c)(1) provides that the written notice must clearly and conspicuously explain:

  • The servicer has confirmed the successor in interest's identity and ownership interest in the property;
  • Unless the successor in interest assumes the mortgage loan obligation under State law, the successor in interest is not liable for the mortgage debt and cannot be required to use the successor in interest's assets to pay the mortgage debt, except that the lender has a security interest in the property and a right to foreclose on the property, when permitted by law and authorized under the mortgage loan contract;
  • The successor in interest may be entitled to receive certain notices and communications about the mortgage loan if the servicer is not providing them to another confirmed successor in interest or borrower on the account;
  • In order to receive such notices and communications, the successor in interest must execute and provide to the servicer an acknowledgment form that:

○ Requests receipt of such notices and communications if the servicer is not providing them to another Start Printed Page 72197confirmed successor in interest or borrower on the account; and

○ Indicates that the successor in interest understands that such notices do not make the successor in interest liable for the mortgage debt and that the successor in interest is only liable for the mortgage debt if the successor in interest assumes the mortgage loan obligation under State law; and

○ Informs the successor in interest that there is no time limit to return the acknowledgment but that the servicer will not begin sending such notices and communications to the confirmed successor in interest until the acknowledgment is returned; and

  • Whether or not the successor in interest executes the acknowledgment form, the successor in interest is entitled to submit notices of error under § 1024.35, requests for information under § 1024.36, and requests for a payoff statement under § 1026.36 with respect to the mortgage loan account, with a brief explanation of those rights and how to exercise them, including appropriate address information. Section 1024.32(c)(1) also provides that the acknowledgment form may not require acknowledgment of any items other than those identified in § 1024.32(c)(1)(iv).

Comment 32(c)(1)-1 explains that a servicer may identify in the acknowledgment form examples of the types of notices and communications that the successor in interest may be entitled to receive, such as periodic statements and mortgage servicing transfer notices. The comment clarifies that any examples provided should be the types of notices or communications that would be available to a confirmed successor in interest if the confirmed successor in interest executed the acknowledgment and returned it to the servicer.

As explained in the section-by-section analysis of § 1024.32(c)(2), a servicer that provides a written notice and acknowledgment form meeting these requirements need not send any further disclosures under the Mortgage Servicing Rules in Regulation X to the confirmed successor in interest until the confirmed successor in interest either assumes the mortgage loan obligation under State law or executes an acknowledgment and provides it to the servicer. As discussed in part V.A., the Bureau believes that, together with § 1024.32(c)(2), § 1024.32(c)(1) provides servicers a cost-effective means that they can use to help ensure that confirmed successors in interest understand their status.

32(c)(2) Effect of Failure To Execute Acknowledgment

New § 1024.32(c)(2) addresses the consequences if a servicer provides a written notice and acknowledgment form in compliance with § 1024.32(c)(1) to a confirmed successor in interest who is not liable on the mortgage loan obligation. In that event, § 1024.32(c)(2) provides that the servicer is not required to provide to the confirmed successor in interest any written disclosure required by § 1024.17, § 1024.33, § 1024.34, § 1024.37, or § 1024.39 or to comply with the live contact requirements in § 1024.39(a) with respect to the confirmed successor in interest until the confirmed successor in interest either assumes the mortgage loan obligation under State law or executes an acknowledgment and provides it to the servicer.[149] The Bureau believes it is appropriate for § 1024.32(c)(2) to excuse servicers from the requirement to send notices required by the Mortgage Servicing Rules in Regulation X if the servicers have not received an acknowledgment back from a confirmed successor in interest, because doing so relieves servicers of the costs associated with sending notices to confirmed successors in interest who are not liable on the mortgage loan obligation and do not want notices. However, if a confirmed successor in interest assumes a mortgage loan obligation under State law, the information in the initial notice and acknowledgment form is no longer applicable, and § 1024.32(c)(2) accordingly does not suspend the servicer's obligation to provide notices required by the Mortgage Servicing Rules in Regulation X.

Comment 32(c)(2)-1 explains that a confirmed successor in interest may provide an executed acknowledgment that complies with § 1024.32(c)(1)(iv) to the servicer at any time after confirmation. This ensures that confirmed successors in interest who have received an initial written notice and acknowledgment form pursuant to § 1024.32(c)(1) do not lose the opportunity to receive Regulation X mortgage servicing disclosures due to lapse of time.

Comment 32(c)(2)-2 explains the effect of a successor in interest's revocation of an acknowledgment. If a confirmed successor in interest who is not liable on the mortgage loan obligation executes and then later revokes an acknowledgment pursuant to § 1024.32(c)(1)(iv), the servicer is not required to provide to the confirmed successor in interest any written disclosure required by § 1024.17, § 1024.33, § 1024.34, § 1024.37, or § 1024.39 or to comply with the live contact requirements in § 1024.39(a) with respect to the confirmed successor in interest from the date the revocation is received until the confirmed successor in interest either assumes the mortgage loan obligation under State law or executes a new acknowledgment that complies with § 1024.32(c)(1)(iv) and provides it to the servicer.

32(c)(3) Additional Copies of Acknowledgment

As comment 32(c)(2)-1 explains, confirmed successors in interest may return an executed acknowledgment that complies with § 1024.32(c)(1)(iv) to the servicer at any time after confirmation. Once a confirmed successor in interest has returned an executed acknowledgment form, the servicer must provide to the confirmed successor in interest any written disclosures required by §§ 1024.17, 1024.33, 1024.34, 1024.37, and 1024.39 (as well as any required by Regulation Z) and comply with the live contact requirements in § 1024.39(a) unless and until the confirmed successor in interest revokes the acknowledgment. The Bureau wants to ensure that confirmed successors in interest who have received an initial written notice and acknowledgment form pursuant to § 1024.32(c)(1) are able to avail themselves of these protections at any time, even if they are unable to locate the original acknowledgment form they received. Accordingly, § 1024.32(c)(3) specifies that, if a servicer provides a confirmed successor in interest with a written notice and acknowledgment form in accordance with § 1024.32(c)(1), the servicer must make additional copies of the written notice and acknowledgment form available to the confirmed successor in interest upon written or oral request.

32(c)(4) Multiple Notices Unnecessary

The Bureau is adding new § 1024.32(c)(4) to the final rule to make it clear that servicers generally do not need to provide a duplicate copy of a notice required by the Mortgage Servicing Rules in Regulation X to a confirmed successor in interest if the servicer is providing the same notice to another borrower. A number of commenters asked the Bureau to clarify whether servicers must send multiple copies of notices required by the Mortgage Servicing Rules in Regulation X after a successor in interest is confirmed. One industry commenter explained that most servicing platforms Start Printed Page 72198only allow for automated delivery of correspondence to one address. It indicated that a requirement to send items to multiple addresses or through differing communication channels would create significant operational and systems challenges with concomitant costs. Another industry commenter suggested that the Bureau could adopt commentary to the Mortgage Servicing Rules in Regulation X that is similar to proposed Regulation Z comment 41(a)-5.ii, which indicated that servicers do not need to send duplicative periodic statements to confirmed successors in interest.

The Bureau agrees that it would be unnecessarily burdensome to require servicers to provide the notices or communications required by the Mortgage Servicing Rules in Regulation X to a confirmed successor in interest if the same notice is already being provided to another borrower on the account. Section 1024.32(c)(4) accordingly clarifies that, except as required by § 1024.36, a servicer is not required to provide to a confirmed successor in interest any written disclosure required by § 1024.17, § 1024.33, § 1024.34, § 1024.37, or § 1024.39(b) if the servicer is providing the same specific disclosure to another borrower on the account. Section 1024.32(c)(4) also provides that a servicer is not required to comply with the live contact requirements set forth in § 1024.39(a) with respect to a confirmed successor in interest if the servicer is complying with those requirements with respect to another borrower on the account.[150] Section 1024.32(c)(4) thus reduces the burden imposed on servicers by Regulation X's successor in interest provisions.

Section 1024.32(c)(4) does not, however, limit the ability of any confirmed successor in interest to request copies of notices and other information through an information request under § 1024.36. Thus, confirmed successors in interest who are not receiving the required servicing communications because the servicer is providing them to another borrower on the account can request additional information as needed through the information request process.

Comment 32(c)(4)-1 explains that a servicer may rely on § 1024.32(c)(4) if the servicer provides a specific written disclosure required by § 1024.17, § 1024.33, § 1024.34, § 1024.37, or § 1024.39(b) to another borrower. The comment notes, for example, that a servicer is not required to provide a force-placed insurance notice required under § 1024.37 to a confirmed successor in interest if the servicer is providing the same force-placed insurance notice to a transferor borrower or to another confirmed successor in interest.

Legal Authority

The Bureau relies on section 19(a) of RESPA, 12 U.S.C. 2617(a), to implement new § 1024.32(c). For the reasons explained above, the Bureau believes that these amendments are necessary to provide a cost-effective process by which servicers can provide confirmed successors in interest the information required by this final rule.

Section 1024.35 Error Resolution Procedures

35(e) Response to Notice of Error

35(e)(5) Omissions in Responding to Requests for Documentation

Section 1024.35 sets forth error resolution requirements that servicers must follow to respond to errors asserted by borrowers. When a servicer determines that no error occurred, § 1024.35(e)(4) generally requires the servicer to provide in response to the borrower's request, at no charge, copies of documents and information relied upon by the servicer in making that determination. As explained in part V.A., the Bureau proposed to apply § 1024.35 as well as the information request requirements of § 1024.36 to confirmed successors in interest. The Bureau requested comment on whether any information that could be provided to successors in interest under §§ 1024.35 and 1024.36 presents privacy concerns and whether servicers should be permitted to withhold any information from successors in interest out of such privacy concerns. In light of the concerns expressed in the comments received, as discussed in part V.A. and in this discussion, the Bureau is adding new § 1024.35(e)(5) to allow servicers to limit the information that confirmed successors in interest may obtain under § 1024.35(e)(4) about other borrowers and to limit the information that borrowers may obtain under § 1024.35(e)(4) about potential and confirmed successors in interest who are not the requesting party.

As noted in part V.A., some industry commenters recommended that disclosures under §§ 1024.35 and 1024.36 be limited due to privacy concerns. An industry commenter suggested that these privacy concerns apply not only to the disclosure of the existing borrower's personal, private information to the confirmed successor in interest, but also to the disclosure of the confirmed successor in interest's personal, private information to the existing borrower. A consumer advocacy group commented that the original borrower's private financial information is not relevant to the successor in interest and that no successor in interest should have a need for information about the original borrower's location or contact information.

The Bureau continues to believe that it is important for confirmed successors in interest to be able to obtain information about the terms, status, and payment history of the mortgage loan. However, the Bureau recognizes that providing additional financial information about other borrowers or contact or location information for them could raise privacy concerns and is not likely to assist the confirmed successor in interest in maintaining the property. The Bureau believes that this is especially true with respect to a borrower's Social Security number. Based on similar potential privacy concerns, the Bureau also believes that it is appropriate to allow servicers to withhold certain information provided by potential and confirmed successors in interest from borrowers on the account who are not the person to whom the information pertains.

To address these potential privacy concerns, § 1024.35(e)(5) provides that, in responding to a request for documentation under § 1024.35(e)(4), a servicer may omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan) if: (1) The information pertains to a potential or confirmed successor in interest who is not the requester; or (2) the requester is a confirmed successor in interest and the information pertains to any borrower who is not the requester. This provision allows servicers to limit the information that confirmed successors in interest can obtain about other borrowers (including other confirmed successors in interest) and to protect certain sensitive information about potential and confirmed successors in interest from disclosure to borrowers who are not the person to whom the information pertains.[151] The Bureau Start Printed Page 72199believes the restrictions in § 1024.35(e)(5) appropriately balance potential privacy concerns with the need to make mortgage information available to confirmed successors in interest and other borrowers.

Section 1024.36 Requests for Information

36(a) Information Request

Section 1463(a) of the Dodd-Frank Act amended RESPA to add section 6(k)(1)(D), which states that a servicer shall not fail to provide information regarding the owner or assignee of a mortgage loan within ten business days of a borrower's request. Currently, when a borrower submits a request for information under § 1024.36(a) asking for the owner or assignee of a mortgage loan held by a trust in connection with a securitization transaction and administered by an appointed trustee, comment 36(a)-2 provides that the servicer complies with § 1024.36(d) by identifying both the name of the trust and the name, address, and appropriate contact information for the trustee. The comment provides that, among other examples, if a mortgage loan is owned by Mortgage Loan Trust, Series ABC-1, for which XYZ Trust Company is the trustee, the servicer complies with § 1024.36(d) by responding to a request for information regarding the owner or assignee of the mortgage loan by identifying the owner as Mortgage Loan Trust, Series ABC-1, and providing the name, address, and appropriate contact information for XYZ Trust Company as the trustee. Proposed amendments to comment 36(a)-2 would have changed how a servicer must respond to such requests when Fannie Mae or Freddie Mac is the trustee, investor, or guarantor. The Bureau is adopting comment 36(a)-2 with changes.

In advance of the proposal, the Bureau received information from industry that providing borrowers with detailed information about the trust when Fannie Mae or Freddie Mac is the trustee, investor, or guarantor could be unnecessarily burdensome on servicers. According to industry, servicers' systems do not typically track the name of the trust for each such loan, so a servicer must ask the trustee for this information each time it receives an information request asking for the loan's owner or assignee. Moreover, because the loss mitigation provisions for loans sold to Fannie Mae or Freddie Mac are determined by Fannie Mae or Freddie Mac and not by the trust, the trust-identifying information may be of less value to borrowers when Fannie Mae or Freddie Mac is the trustee, investor, or guarantor. Industry requested that the Bureau reconsider the requirement for a servicer to provide specific trust-identifying information for loans governed by Fannie Mae's or Freddie Mac's servicing guidelines.

In the proposal, the Bureau stated its belief that, with respect to a loan for which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor, servicers may not need to identify both the trustee and the trust in response to all requests for information seeking ownership information. If a borrower knows that Fannie Mae or Freddie Mac is the trustee, investor, or guarantor, the borrower could look to the Fannie Mae or Freddie Mac servicing guide and related bulletins to learn what loss mitigation options are available, what foreclosure processes the servicer must follow, how the servicer is compensated, and a wide variety of other information applicable to the loan, without distinction based on the particular trust. Borrowers can also access the appropriate Web site to learn more information once they know which entity's guidelines apply; both Fannie Mae and Freddie Mac maintain Web sites containing a considerable amount of information relating to standards affecting borrowers' mortgage loans. Fannie Mae and Freddie Mac also maintain dedicated telephone lines for borrower inquiries. Thus, requiring a servicer to identify Fannie Mae or Freddie Mac as the owner or assignee of the loan (without also identifying the name of the trust) could give borrowers access to the critical information about loss mitigation options and other investor requirements.

At the same time, the Bureau sought to preserve a borrower's right to obtain the identity of the trust by submitting a request for information under § 1024.36(a). Prior to the proposal, consumer advocacy groups informed the Bureau that borrowers need trust-identifying information in order to raise certain claims or defenses during litigation, as well as to exercise the extended right of rescission under § 1026.23(a)(3) when applicable. Further, the Bureau understood that, for loans held in a trust for which Fannie Mae or Freddie Mac is not the trustee, investor, or guarantor, a borrower would need the trust-identifying information to determine what loss mitigation options are available.

Accordingly, the Bureau proposed to revise comment 36(a)-2 to provide that, for loans for which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor, a servicer could comply with § 1024.36(d) by responding to requests for information asking only for the owner or assignee of the loan by providing only the name and contact information for Fannie Mae or Freddie Mac, as applicable, without also providing the name of the trust. However, proposed comment 36(a)-2 would have also provided that, if a request for information expressly requested the name or number of the trust or pool, the servicer would comply with § 1024.36(d) by providing the name of the trust and the name, address, and appropriate contact information for the trustee, regardless of whether or not Fannie Mae or Freddie Mac is the trustee, investor, or guarantor.

The Bureau believed that proposed comment 36(a)-2 would preserve a borrower's access to information while reducing burden on servicers by no longer requiring them to obtain trust-identifying information for loans for which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor. Further, the Bureau believed that, by requiring servicers to provide specific trust-identifying information upon a request expressly seeking such information, proposed comment 36(a)-2 would ensure that borrowers who do need specific trust-identifying information could obtain it. The proposed amendments also restructured comment 36(a)-2 for clarity. The proposed changes would not have affected a servicer's existing obligations with respect to loans not held in a trust for which an appointed trustee receives payments on behalf of the trust, or with respect to any loan held in a trust for which neither Fannie Mae nor Freddie Mac is the trustee, investor, or guarantor.

Proposed comment 36(a)-2.i would have also clarified that a servicer would not be the owner or assignee for purposes of § 1024.36(d) if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the mortgage loan obligation. This change was intended to bring the § 1024.36(d) commentary clearly in line with the Regulation Z provisions in § 1026.39 related to transfer of ownership notices. As to loans held in a trust for which Fannie Mae or Freddie Mac is not the investor, guarantor, or trustee, proposed comments 36(a)-2.ii.A and 36(a)-2.ii.B would have preserved the obligation in existing comment 36(a)-2.ii that servicers comply with § 1024.36(d) by identifying both the trust and the trustee of such loans to the borrower, regardless of how the borrower phrased the request for ownership information.

Similarly, the proposed amendments would not have changed a servicer's Start Printed Page 72200requirements for responding to requests for ownership information for loans for which the Government National Mortgage Association (Ginnie Mae) is the guarantor. As noted in both current comment 36(a)-2 and proposed comment 36(a)-2.ii.B, Ginnie Mae is not the owner or assignee of the loan solely as a result of its role as a guarantor. In addition, servicing requirements for those loans are governed by the Federal agency insuring the loan—such as the Federal Housing Association, the Department of Veterans Affairs, the Rural Housing Services, or the Office of Public and Indian Housing—not by Ginnie Mae itself.

Industry commenters generally expressed strong support for the Bureau's proposal to permit servicers to respond to nonspecific requests for information about the owner or assignee of the loan by providing only the name and contact information for Fannie Mae and Freddie Mac, as applicable. These commenters stated that permitting servicers to provide this more limited information for loans where Fannie Mae or Freddie Mac was the investor, guarantor, or trustee would reduce the burden on servicers without adversely affecting a borrower's ability to obtain information on the owner or assignee of the mortgage loan. Certain industry commenters requested limits on the proposed requirement for a servicer to provide the name and number of the trust or pool even when borrowers expressly request such information. One commenter stated that providing this specific information would be burdensome and not relevant to the transaction and requested that the final rule include a list of legitimate reasons or conditions that a borrower must certify exist before a servicer would be required to provide this trust-identifying information.

Freddie Mac expressed general support for proposed comment 36(a)-2 but said that the language “investor, guarantor, or trustee” could refer to loans that were not covered by Freddie Mac's servicing guide. The commenter explained that Freddie Mac's servicing guide applies when Freddie Mac is the trustee of a trust that owns a mortgage loan, because servicers of loans held by such trusts are required to service those loans in accordance with the servicing guide. However, the commenter stated that where Freddie Mac is acting as an investor or guarantor, rather than a trustee, the servicer is not necessarily required to comply with all of the requirements of the servicing guide with respect to that loan. The commenter recommended that the Bureau remove the reference to “investor” or “guarantor” in proposed comment 36(a)-2.

Consumer advocacy groups urged the Bureau not to adopt the proposed revisions to comment 36(a)-2. These commenters stated that there is a distinction between guarantors and owners of a loan, and that the Fannie Mae servicing guide does not fully apply to all loans that Fannie Mae guarantees. These commenters stated that borrowers may not be able to obtain all relevant information regarding loss mitigation options in Fannie Mae's servicing guide.

The Bureau conducted further outreach with FHFA, Freddie Mac, and Fannie Mae. According to these stakeholders, where Fannie Mae or Freddie Mac is the owner of the loan or the trustee of the securitization trust in which the loan is held, the loan is subject to the servicing requirements of Fannie Mae's or Freddie Mac's servicing guide. Fannie Mae or Freddie Mac are the owner or trustee for the overwhelming majority of loans in which they have an interest. Both Fannie Mae and Freddie Mac, however, are investors in other loans, often through a securitization trust, for which they are not the trustee, and, in these cases, the requirements of the servicing guides may not necessarily apply. Where loans are held in such securitization trusts, the Bureau understands that servicers would be able to identify the name of the trust that holds the loan.

The Bureau is finalizing comment 36(a)-2 with changes. Comment 36(a)-2.i explains that, when a loan is not held in a trust for which an appointed trustee receives payments on behalf of the trust, a servicer complies with § 1024.36(d) by responding to a request for information regarding the owner or assignee of a mortgage loan by identifying the person on whose behalf the servicer receives payments from the borrower. The comment further explains that a servicer is not the owner or assignee for purposes of § 1024.36(d) if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the mortgage loan obligation. Comment 36(a)-2.i also explains that Ginnie Mae is not the owner or assignee for purposes of such requests for information solely as a result of its role as the guarantor of the security in which the loan serves as the collateral.

Comment 36(a)-2.ii explains that, when the loan is held in a trust for which an appointed trustee receives payments on behalf of the trust, a servicer complies with § 1024.36(d) by responding to a borrower's request for information regarding the owner, assignee, or trust of the mortgage loan with the information, as applicable, as set forth in comment 36(a)-2.ii.A through C.

The Bureau is finalizing comment 36(a)-2.ii.A with changes. Comment 36(a)-2.ii.A explains that, for any request for information where Fannie Mae or Freddie Mac is not the owner of the loan or the trustee of the securitization trust in which the loan is held, the servicer complies with § 1024.36(d) by responding to a borrower's request for information by providing information on: The name of the trust and the name, address, and appropriate contact information for the trustee. It provides an illustrative example. Comment 36(a)-2.ii.A makes clear that, where Fannie Mae or Freddie Mac is not the owner or trustee of the securitization trust in which the loan is held, a servicer must respond to even a nonspecific request for the identity of the owner or assignee by providing information about the trust and contact information for the trustee.

The Bureau is also finalizing comment 36(a)-2.ii.B with changes. The Bureau proposed comment 36(a)-2.ii.B to provide a limited exception where a borrower makes a nonspecific request for information regarding the owner or assignee of a loan for which Fannie Mae or Freddie Mac is the investor, guarantor, or trustee. As explained in the proposal, the Bureau understood that such loans would be subject to servicing requirements set forth in Fannie Mae's or Freddie Mac's respective servicing guide. However, the Bureau now understands that this reasoning may not apply to loans for which Fannie Mae or Freddie Mac is the investor or guarantor of the loan, but not the trustee or owner of the loan.

Accordingly, the Bureau is finalizing comment 36(a)-2.ii.B to explain that, if the request for information did not expressly request the name or number of the trust or pool and Fannie Mae or Freddie Mac is the owner of the loan or the trustee of the securitization trust in which the loan is held, the servicer complies with § 1024.36(d) by responding to a borrower's request for information by providing the name and contact information for Fannie Mae or Freddie Mac, as applicable, without also providing the name of the trust. The Bureau's intent, by referring to the “owner or the trustee of the securitization trust in which the loan is held” in comment 36(a)-2.ii.B, is to permit a servicer to respond to a nonspecific request for information by providing only the name and contact Start Printed Page 72201information for Fannie Mae or Freddie Mac, as applicable, for only those loans that are subject to Fannie Mae's or Freddie Mac's servicing guide but not for other loans.

The Bureau is adding comment 36(a)-2.ii.C to explain that if the request for information did expressly request the name or number of the trust or pool and Fannie Mae or Freddie Mac is the owner of the loan or the trustee of the securitization trust in which the loan is held, the servicer complies with § 1024.36(d) by responding to a borrower's request for information by providing the name of the trust and the name, address, and appropriate contact information for the trustee, as in comment 36(a)-2.ii.A above.

The Bureau is not adopting additional requirements for borrowers making specific information requests, as some commenters suggested. Requiring borrowers to provide additional detail regarding their requests would not alleviate any burden on servicers associated with providing required trust-identifying information but would impose a burden on borrowers in obtaining information.

36(d) Response to Information Request

36(d)(3) Omissions in Responding to Requests

Section 1024.36 sets forth servicers' obligations in responding to a request for information from a borrower. As explained in part V.A., the Bureau proposed to apply § 1024.36 as well as the notice of error requirements of § 1024.35 to confirmed successors in interest. The Bureau requested comment on whether any information that could be provided to successors in interest under §§ 1024.35 and 1024.36 presents privacy concerns and whether servicers should be permitted to withhold any information from successors in interest out of such privacy concerns. In light of the concerns expressed in the comments received, as discussed in part V.A. and in this discussion, the Bureau is adding new § 1024.36(d)(3) to allow servicers to limit the information that confirmed successors in interest may obtain under § 1024.36 about other borrowers and to limit the information that borrowers may obtain under § 1024.36 about potential and confirmed successors in interest who are not the requesting party.

As noted in part V.A., some industry commenters recommended that disclosures under §§ 1024.35 and 1024.36 be limited due to privacy concerns. An industry commenter suggested that these privacy concerns apply not only to the disclosure of the existing borrower's personal, private information to the confirmed successor in interest, but also to the disclosure of the confirmed successor in interest's personal, private information to the existing borrower. A consumer advocacy group commented that the original borrower's private financial information is not relevant to the successor homeowner and that no successor in interest should have a need for information about the original borrower's location or contact information.

The Bureau continues to believe that it is important for confirmed successors in interest to be able to obtain information about the terms, status, and payment history of the mortgage loan. However, the Bureau recognizes that providing additional financial information about other borrowers or contact or location information for them could raise privacy concerns and is not likely to assist the confirmed successor in interest in maintaining the property. The Bureau believes that this is especially true with respect to a borrower's Social Security number. Based on similar potential privacy concerns, the Bureau also believes that it is appropriate to allow servicers to withhold certain information provided by potential and confirmed successors in interest from borrowers on the account who are not the person to whom the information pertains.

To address these potential privacy concerns, § 1024.36(d)(3) provides that, in responding to a request for information, a servicer may omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan) if: (1) The information pertains to a potential or confirmed successor in interest who is not the requester; or (2) the requester is a confirmed successor in interest and the information pertains to any borrower who is not the requester. This provision allows servicers to limit the information that confirmed successors in interest can obtain about other borrowers (including other confirmed successors in interest) and to protect certain sensitive information about potential and confirmed successors in interest from disclosure to borrowers who are not the person to whom the information pertains.[152] The Bureau believes the restrictions in § 1024.36(d)(3) appropriately balance potential privacy concerns with the need to make mortgage information available to confirmed successors in interest and other borrowers.

36(i) Successors in Interest

The Bureau proposed a new request for information requirement regarding the confirmation of a successor in interest's identity and ownership interest in the property. Proposed § 1024.36(i) would have required a servicer to respond to a written request that indicates that the person may be a successor in interest and that includes the name of the prior borrower and information that enables the servicer to identify that borrower's mortgage loan account. Under the proposal, a servicer would have to respond to such a request by providing the person with information regarding the documents the servicer requires to confirm the person's identity and ownership interest in the property. With respect to the written request, the proposal would have required the servicer to treat the person as a borrower for the purposes of the procedural requirements of § 1024.36(c) through (g). The proposal also would have provided that, if a servicer has established an address that a borrower must use to request information pursuant to § 1024.36(b), a servicer must comply with the requirements of § 1024.36(i) only for requests received at the established address. Servicers would have been required to comply with proposed § 1024.36(i) before confirming the successor in interest's identity and ownership interest in the property. For the reasons set forth in part V.A. and in this discussion, the Bureau is finalizing § 1024.36(i) with adjustments to clarify the parties' obligations during the confirmation process.

Commenters expressed divergent views regarding proposed § 1024.36(i). Consumer advocacy groups suggested that the Bureau should not limit the provision to written requests. They suggested that successors in interest are unlikely to know about the request for information procedure due to their lack of prior contact with the servicer. They also suggested that a successor in interest should not need to use specific wording to trigger a response under § 1024.36(i). A consumer advocacy group suggested that a servicer should have to respond if the information provided is sufficient to put the servicer on notice that the person is a potential successor in interest.

A number of consumer advocacy groups also objected to the requirement in the proposal that a potential successor in interest use a specific address if a servicer has established one. Start Printed Page 72202One such group indicated that expecting a successor in interest, who often is handling many complicated personal, legal, and financial affairs in a time of grieving, to ascertain and use the servicer's established contact address would be unreasonable and overly burdensome. This group also suggested that the Bureau could require servicers, upon hearing of the death of a borrower, to send a letter to the home containing information about how successors in interest can confirm their status and explaining the servicer's obligations under § 1024.36(i). Another consumer advocacy group suggested that, if a servicer receives a request for information at a non-designated location, it should respond by notifying the potential successor in interest of the correct address for submission of requests for information.

This commenter indicated that successors in interest need prompt information identifying specific documents and that vague references to “probate documents” or “legal documents,” without further elaboration, are not sufficient. It noted that delays cause significant problems because loans may become delinquent to the point that loss mitigation options that would have been available earlier are no longer viable. It suggested that, for purposes of servicers responding to requests for information under § 1024.36(i), the final rule should define promptly as within 15 days for clarity.

Consumer advocacy groups also urged the Bureau not to require resubmission of requests that seek information other than the description of documents required for confirmation, suggesting that requiring successors in interest to resubmit such requests would cause unnecessary delay and could be confusing. These commenters suggested that servicers should be required to respond to requests for information on other issues related to the servicing of the mortgage once they have received proof of successor in interest status, with time running from the date the successor in interest provides necessary documentation showing successor in interest status. A consumer advocacy group stated that this would save time and streamline the process, where time is often of the essence.[153] Another consumer advocacy group urged the Bureau to clarify how § 1024.36(f)(1)(i)'s rule on duplicative information relates to § 1024.36(i). This group suggested that § 1024.36(f)(1)(i)'s rule should only apply if duplicative information was requested by the same person.

Industry commenters raised a variety of different concerns related to the requirements in § 1024.36(i), with some suggesting that the Bureau should not finalize the provision at all and others suggesting changes. Some industry commenters supported the proposal's requirement that requests must be in writing to trigger the requirements of § 1024.36(i). For example, a trade association stated that allowing oral requests would create a risk of fraud.

A number of industry commenters also indicated that the Bureau should clarify what it means by “indicates that a person may be a successor in interest” or should substitute narrower language. For example, one trade association suggested § 1024.36(i) should only apply if the requester specifically asks for information on how to confirm the requestor's status as a successor in interest, although the commenter did not think that the final rule should require use of the term successor in interest.[154] Another industry commenter suggested that a servicer should be required to provide information regarding the documents the servicer requires to confirm a person's identity and ownership interest in the property in response to a request that affirmatively states that there has been a transfer of the property, a divorce, legal separation, or death of a borrower, or that the writer has become the owner of the property. This commenter also stated that a servicer should not be required to respond to a request from a non-borrower that does not include any statement that indicates the non-borrower may have an interest in the property.

Industry commenters also requested that, where a servicer has established an address, the final rule should limit servicers' obligation to requests received at that address. They suggested that it would be burdensome for servicers to respond to inquiries from potential successors in interest received at an address other than the established address because it would require servicers to monitor every location where a request for information could be sent. An industry commenter noted that requiring use of the established address would align treatment of requests for information under § 1024.36(i) with how other requests for information are treated under § 1024.36. Other industry commenters suggested that it would facilitate servicers' tracking of requests and that servicers would not be able to respond quickly unless they receive requests through an established address.

A number of industry commenters responded to the Bureau's request for comment regarding what requirements should apply if a potential successor in interest submits a request for information other than a description of the documents required for confirmation. Industry commenters generally urged the Bureau not to require a response unless the successor in interest resubmits the request upon confirmation, and some suggested that the final rule should require servicers to inform potential successors in interest that they would need to resubmit such requests upon confirmation. An industry commenter suggested that it might confuse successors in interest to get a response to an outdated request. Another suggested that resubmission would be much more efficient, in part because any number of variables could have changed the information that the successor in interest is seeking during the elapsed time between initial submission and confirmation. Various industry commenters noted that it would be a significant burden and might require costly systems changes to preserve requests until confirmation. An industry commenter suggested that there is nothing analogous in the servicing requirements that requires a servicer to keep consumer information requests prior to the establishment of a relationship. By contrast, one trade association suggested that the final rule should require servicers to provide confirmed successors in interest information requested prior to confirmation and that the timelines servicers must meet to provide such information should run from time of confirmation.

Industry commenters expressed concerns relating to the timeframes specified in § 1024.36(i) and indicated that the process described in the proposal was too rigid. Some trade associations suggested that there should be no deadline imposed. They noted that, with only the loan identified, the servicer may not know, for example, who the claimant is, the nature of the claim, the basis of the claim, whether the claim will be contested, whether the claimant is a minor, or where the Start Printed Page 72203borrower lived when the claim arose.[155] These commenters suggested that several rounds of communication are required in all or almost all instances because servicers need to start with basic questions and then move to more detailed questions. These commenters also suggested that servicers might deny claims unnecessarily if the final rule imposes a deadline that does not provide enough time. They also provided a sample model form for the first iteration of servicer requests for information from claimants. They indicated that servicers do not currently maintain the list of documents required by proposed § 1024.36(i) and suggested that a complete list of all documents a servicer might need would overwhelm potential successors in interest. One of these commenters also stated that servicers need to be able to verify a claimant's agent.[156]

An industry commenter also expressed concern that proposed comment 36(i)-1 might be inconsistent with the proposed regulation. It noted that the proposed commentary stated that servicers do not have to provide any additional information that may be requested by the potential successor in interest, while proposed § 1024.36(i) stated that, with respect to the written request, a servicer shall treat the person as a borrower for the purposes of the requirements of § 1024.36(c) through (g).

The Bureau is finalizing the requirements of proposed § 1024.36(i) in § 1024.36(i)(1) and (4), with adjustments in response to the comments received and technical changes for clarity.[157] Like proposed § 1024.36(i), § 1024.36(i)(4) provides that, if a servicer has established an address that a borrower must use to request information pursuant to § 1024.36(b), a servicer must comply with the requirements of § 1024.36(i)(1) only for requests received at the established address.

In light of industry comments indicating that more than one round of communication may be required in some instances, the Bureau has also added language in § 1024.36(i)(2) addressing circumstances where servicers are not able to respond fully based on the information provided in a request under § 1024.36(i)(1). As with other requests under § 1024.36, the Bureau anticipates that servicers may contact the requestor informally to clarify the request and obtain additional relevant information that may be needed to respond to the request. Through such contacts, servicers may be able to obtain any missing information that they need to respond fully within the time limits. However, if a request under § 1024.36(i)(1) does not provide sufficient information to enable the servicer to identify the documents the servicer reasonably requires to confirm the person's identity and ownership interest in the property, § 1024.36(i)(2) allows the servicer to provide a response that includes examples of documents typically accepted to establish identity and ownership interest in a property; indicates that the person may obtain a more individualized description of required documents by providing additional information; specifies what additional information is required to enable the servicer to identify the required documents; and provides contact information, including a telephone number, for further assistance. A servicer's response under § 1024.36(i)(2) must otherwise comply with the requirements of § 1024.36(i)(1). Notwithstanding the duplicative request rule of § 1024.36(f)(1)(i), if a potential successor in interest subsequently provides the required information specified by the servicer pursuant to § 1024.36(i)(2) either orally or in writing, the servicer must treat the new information, together with the original request, as a new, non-duplicative request under § 1024.36(i)(1), received as of the date the required information was received, and must respond accordingly. These changes should help ensure that servicers can comply with their obligations under § 1024.36(i) in responding to requests that provide very limited information about a potential successor in interest's circumstances.

The Bureau has also incorporated the substance of proposed comment 36(i)-1 into § 1024.36(i)(3), which provides that, in responding to a request under § 1024.36(i)(1) prior to confirmation, the servicer is not required to provide any information other than the information specified in § 1024.36(i)(1) and (2). Section 1024.36(i)(3) also provides that, in responding to a written request under § 1024.36(i)(1) that requests other information, the servicer must indicate that the potential successor in interest may resubmit any request for information once confirmed as a successor in interest. The Bureau believes that addressing these issues in this manner in § 1024.36(i)(3) rather than in the commentary obviates the concern expressed by an industry commenter that the commentary might be inconsistent with the regulation.

As indicated in part V.A., § 1024.36(i) addresses problems faced by successors in interest in confirming their identity and ownership interest in the property securing the mortgage loan and may help them avoid unnecessary foreclosure on the property. Section 1024.36(i) is complemented by § 1024.38(b)(1)(vi), which requires servicers to maintain certain policies and procedures relating to potential successors in interest. Section 1024.38(b)(1)(vi)(B) requires servicers to have policies and procedures to determine promptly what documents are reasonable to require from successors in interest in particular circumstances, so that the servicer is prepared to provide promptly a description of those documents, while § 1024.36(i) gives potential successors in interest a mechanism to obtain this information from servicers. The separate requirement in § 1024.36(i) is appropriate, in addition to the policies and procedures requirement in § 1024.38(b)(1)(vi), because information regarding the documents the servicer requires to confirm a successor in interest's status may be of importance to each individual potential successor in interest.

As the Bureau explained in the proposal, § 1024.36(i) applies to a broad range of written communications from potential successors in interest. A potential successor in interest does not need to request specifically that the servicer provide information regarding the documents the servicer requires to confirm the person's identity and ownership interest in the property. As with other requests for information, the successor in interest also does not need to indicate specifically that the request is a written request under § 1024.36 or to make the request in any particular Start Printed Page 72204form. Accordingly, servicers are required to provide the information in response to any written communication indicating that the person may be a successor in interest that is accompanied by the name of the transferor borrower and information that enables the servicer to identify that borrower's mortgage loan account and that is received at the address established by the servicer under § 1024.36(b) if the servicer has established one.

This broad coverage is appropriate because some successors in interest may not be aware that they need to confirm their identity and ownership interest in the property. As consumer advocacy groups noted, successors in interest may not know the exact words to use in framing their requests. Requiring servicers to respond only to a written communication that actually requests a description of the documents required for confirmation would deprive many successors in interest of the information they need to protect their ownership interest and could subject them to unnecessary foreclosures.

Section 1024.36(i) applies with respect to the servicer's receipt of written communication from any potential successor in interest.[158] Even though a servicer may be unaware at the time of initial contact with a potential successor in interest whether the potential successor in interest is in fact a successor in interest as defined in this final rule, in these situations the servicer should still communicate with the potential successor in interest about confirmation and should not wait until it has reason to believe that the definition of successor in interest is met.

Many requests under § 1024.36(i) may indicate the nature of the transfer of the ownership interest from the transferor borrower to the successor in interest. In those cases, servicers will respond with information that is relevant to that potential successor in interest's specific situation. If the potential successor in interest does not indicate the nature of the transfer of the ownership interest to the potential successor in interest, the final rule allows the servicers to provide a response that includes examples of documents typically accepted to establish identity and ownership interest in a property, indicates that the requestor may obtain a more individualized description of required documents by providing additional information, specifies what additional information is required to enable the servicer to identify the required documents, and provides contact information for further assistance. As with other situations where servicers are responding to customer inquiries, the Bureau believes that servicers will in many instances contact the potential successor in interest for clarifying information before providing the formal notice required under § 1024.36(i).

Section 1024.36(c) through (g) establishes various requirements governing servicers' responses to requests for information under § 1024.36, such as acknowledgment requirements and time limits. Except as otherwise provided in the final rule, the Bureau believes it is appropriate for servicers to handle requests for information under § 1024.36(i) in the same way that they handle other requests for information under § 1024.36 and therefore has decided to apply the requirements of § 1024.36(c) through (g) to requests under § 1024.36(i). For example, the final rule requires servicers to respond to a request under § 1024.36(i) in writing, as they would for any other request for information. As a result, the information servicers provide will be memorialized, which should help to avoid uncertainty.

The Bureau also concludes that it is appropriate to limit servicers' obligation to respond under § 1024.36(i) to those requests received at an established address if a servicer has established one under § 1024.36(b), as § 1024.36 does for other requests for information. As many industry commenters noted, servicers would have difficulty responding promptly and efficiently to requests for information from potential successors in interest at locations other than the established address. Because servicers that have established an address are not ordinarily required to respond to requests for information received at other locations, servicers would need to train staff and set up systems at these locations to comply with § 1024.36(i). Further, the Bureau anticipates that most successors in interest will be able to send information requests to the established address. Successors in interest may in some circumstances have access to written communications provided to the transferor borrower that identify the established address. Additionally, under § 1024.36(b), a servicer that establishes an address for receipt of information requests must post the established address on any Web site maintained by the servicer if the Web site lists any contact address for the servicer. Furthermore, as explained in the section-by-section analysis of § 1024.38(b)(1)(vi), servicers subject to § 1024.38(b)(1)(vi) must have policies and procedures reasonably designed to ensure that they are able to respond promptly with information that includes the appropriate address for a § 1024.36(i) request upon receiving notice of the existence of a potential successor in interest, even if the notice is oral or received at an address that is not the address a servicer has established for requests under § 1024.36.

Because § 1024.36(c) through (g) applies to requests under § 1024.36(i), § 1024.36(f)(1)(i)'s rule on duplicative information applies to requests under § 1024.36(i). Section 1024.36(i) does not require a servicer to respond to a request if the information requested is substantially the same as information previously requested by the borrower for which the servicer has previously complied with its obligation to respond. The fact that information was previously requested by a different borrower would not excuse a servicer from compliance under § 1024.36(f)(1)(i) because, in that situation, the information would not have been requested “by the borrower” for purposes of § 1024.36(f)(1)(i).[159] Except as provided in § 1024.36(i)(2), a servicer need not respond to repeated requests under § 1024.36(i) for substantially the same information from the same potential successor in interest, if the servicer has previously complied with its obligation to respond to that potential successor in interest.[160]

Start Printed Page 72205

Proposed comment 36(i)-1 would have provided that, for the purposes of requests under § 1024.36(i), a servicer would only have been required to provide information regarding the documents the servicer requires to confirm the person's identity and ownership interest in the property, not any other information that may also be requested by the person. As explained above, the Bureau has decided to address this issue in regulation text. As finalized, § 1024.36(i)(3) indicates that, prior to confirmation, the servicer is not required to provide any information the person may request, other than the information specified in § 1024.36(i)(1) and (2). The Bureau is not finalizing proposed comment 36(i)-1 because it would be redundant of § 1024.36(i)(3).

As noted above, industry commenters requested that the Bureau clarify what types of communications might indicate that a person may be a successor in interest for purposes of § 1024.36(i). As finalized, comment 36(i)-1 provides examples of written requests that indicate that a person may be a successor in interest, including a written statement from a person other than a borrower indicating that there has been a transfer of ownership or of an ownership interest in the property to the person or that a borrower has been divorced, legally separated, or died; or a written loss mitigation application received from a person other than a borrower. Providing this non-exhaustive list of examples in the commentary will assist servicers in understanding the types of contacts that constitute requests for information under § 1024.36(i).

The Bureau is also adding comment 36(i)-2, which addresses the time limits for servicers to respond to a request for information under § 1024.36(i). The comment notes that a servicer must respond to a request under § 1024.36(i) not later than the time limits set forth in § 1024.36(d)(2). It explains that servicers subject to § 1024.38(b)(1)(vi)(B) must also maintain policies and procedures reasonably designed to ensure that, upon receiving notice of the existence of a potential successor in interest, the servicer can promptly determine the documents the servicer reasonably requires to confirm that person's identity and ownership interest in the property and promptly provide to the potential successor in interest a description of those documents and how the person may submit a written request under § 1024.36(i) (including the appropriate address). The comment also explains that, depending on the facts and circumstances of the request, responding promptly may require a servicer to respond more quickly than the time limits established in § 1024.36(d)(2).

The Bureau considered, as an alternative, imposing a rigid, shorter time period, such as 15 days, that would apply to all requests under § 1024.36(i), as some consumer advocacy groups had suggested. The Bureau believes that such a rigid deadline might be difficult to meet for more complex requests and has therefore chosen to impose the same time limits established for other requests for information in § 1024.36, with the expectation that the policies and procedures established pursuant to § 1024.38(b)(1)(vi)(B) will provide for faster responses in appropriate cases when the facts and circumstances make that feasible, in order to avoid the harms that can result from confirmation delays, including unnecessary foreclosures. In light of those harms, the Bureau also declines to allow servicers more time to respond to requests for information from potential successors in interest than servicers have to respond to other requests for information or to set no time limit, as some industry commenters suggested.

The Bureau is also adding comment 36(i)-3, which addresses agents of potential successors in interest. Once a servicer confirms a successor in interest, the confirmed successor in interest can take various steps through an agent because the confirmed successor in interest is treated as a borrower or consumer for purposes of a number of provisions in Regulations X and Z that permit borrowers or consumers to operate through agents.[161] The proposal, however, did not address agents of potential successors in interest. Existing comment 36(a)-1 addresses agents for purposes of information requests under § 1024.36 but does not apply to information requests that potential successors in interest submit under § 1024.36(i).

The Bureau believes that potential successors in interest should be able to submit requests pursuant to § 1024.36(i) through an agent and is adding comment 36(i)-3 to that end. Comment 36(i)-3 clarifies that an information request pursuant to § 1024.36(i) is submitted by a potential successor in interest if it is submitted by an agent of the potential successor in interest. As a trade association noted in its comment, servicers must be able to verify the agents of potential successors in interest. Comment 36(i)-3 therefore states that servicers may undertake reasonable procedures to determine if a person that claims to be an agent of a potential successor in interest has authority from the potential successor in interest to act on the potential successor in interest's behalf, for example, by requiring that a person that claims to be the agent provide documentation from the potential successor in interest stating that the purported agent is acting on the potential successor in interest's behalf. The comment explains that, upon receipt of such documentation, the servicer shall treat the request for information as having been submitted by the potential successor in interest.

The Bureau anticipates that it will be easy for servicers to implement the process described in comment 36(i)-3 because it is modeled on that of comment 36(a)-1, which applies to other types of requests for information under § 1024.36. The Bureau believes comment 36(i)-3 is necessary and helpful because potential successors in interest who are experiencing difficulty in the confirmation process or in understanding the mortgage obligations that encumber their property may turn, for example, to housing counselors or other knowledgeable persons to assist them in addressing such issues.[162]

Section 1024.37 Force-Placed Insurance

37(c) Requirements Before Charging Borrower for Force-Placed Insurance

37(c)(2) Content of Notice

37(c)(2)(v)

Under § 1024.37(b), a servicer may not charge a borrower for force-placed insurance “unless the servicer has a reasonable basis to believe that the borrower has failed to comply with the mortgage loan's contract requirement to maintain hazard insurance.” Section 1024.37(c)(1) requires a servicer to provide to a borrower an initial notice and a reminder notice before assessing a fee or charge related to force-placed insurance. Sections 1024.37(c)(2) and 1024.37(d)(2) specify the notices' content. Current § 1024.37(c)(2)(v) requires the initial notice to include a statement that, among other things, “the Start Printed Page 72206borrower's hazard insurance is expiring or has expired, as applicable, and that the servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date. . . .” Section 1024.37(d)(2)(i)(C) requires the reminder notice to include the same statement if, after providing the initial notice, a servicer does not receive any evidence of hazard insurance. These provisions do not specify what a notice must state if a borrower has insufficient coverage, such as when the borrower's insurance provides coverage in a dollar amount less than that required by the mortgage loan contract. The Bureau proposed to amend § 1024.37(c)(2)(v) to address situations in which a borrower has insufficient, rather than expiring or expired, hazard insurance. The Bureau is finalizing § 1024.37(c)(2)(v) as proposed.

In advance of the proposal, the Bureau was concerned that the statements required by § 1024.37(c)(2)(v) and (d)(2)(i)(C) may not afford servicers flexibility to address circumstances in which a borrower has insufficient coverage. When a borrower has hazard insurance that is insufficient under the mortgage loan contract's requirements, a statement that coverage has expired or is expiring may not be applicable. Similarly, the notices must state that the servicer does not have evidence that the borrower has hazard insurance past the coverage date, but § 1024.37 does not permit the notices to instead state that the servicer lacks evidence that the borrower's hazard insurance provides sufficient coverage. Moreover, § 1024.37(c)(4) and (d)(4) prohibit a servicer from including in the force-placed insurance notices any information other than that required by § 1024.37(c)(2) or (d)(2). A servicer cannot explain on the notice itself that the borrower's hazard insurance is insufficient rather than expired or expiring. Although a servicer could include such an explanation on a separate piece of paper in the same transmittal as the force-placed insurance notice,[163] the Bureau believed that servicers and borrowers could benefit if servicers were able to state on the notice itself that the servicer lacks evidence of sufficient coverage.

Accordingly, the Bureau proposed to amend § 1024.37(c)(2)(v) to provide that the force-placed insurance notices must include a statement that the borrower's hazard insurance is expiring, has expired, or provides insufficient coverage, as applicable, and that the servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date or evidence that the borrower has hazard insurance that provides sufficient coverage, as applicable. The Bureau believed that this amendment might enable servicers to provide borrowers with notices that are more accurately tailored for their precise circumstances and potentially avoid confusing a borrower whose coverage is not expiring but is insufficient under the mortgage loan contract. The Bureau solicited comment on whether other modifications to the required content of the force-placed insurance notices are necessary or appropriate to address circumstances in which a servicer force-places insurance for reasons other than expired or expiring coverage.

The Bureau received a number of comments from industry and consumer advocacy groups on its proposal to revise the notices under § 1024.37 to include a statement regarding insufficient coverage. The vast majority of commenters expressed support for the proposed revisions and agreed that a statement regarding insufficient coverage on the notices required by § 1024.37 would provide greater clarity to borrowers. One industry commenter recommended that the notices also include a statement to address a situation where the borrower purchases insurance through a company that the lender or servicer does not allow.

The Bureau is finalizing § 1024.37(c)(2)(v) as proposed. Section 1024.37(c)(2)(v) provides that the force-placed insurance notices must include a statement that the borrower's hazard insurance is expiring, has expired, or provides insufficient coverage, as applicable, and that the servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date or evidence that the borrower has hazard insurance that provides sufficient coverage, as applicable. The Bureau declines to further modify the notices to specifically address a circumstance raised by one commenter in which a servicer force-places insurance because the borrower purchases insurance through a company that the lender or servicer does not allow. Where a borrower's hazard insurance does not satisfy the requirements of the mortgage loan contract, a servicer may explain on the force-placed insurance notices that the borrower's hazard insurance provides insufficient coverage. Any additional detail regarding the borrower's specific circumstances may be included with the force-placed insurance notice, on a separate piece of paper, as permitted under § 1024.37(c)(4).

37(c)(4) Additional Information

Section 1024.37(c) currently requires servicers to provide a borrower a notice at least 45 days before assessing a fee or charge related to force-placed insurance. Section 1024.37(c)(4) prohibits a servicer from including in the notice any information other than that required by § 1024.37(c)(2), though a servicer may provide a borrower with additional information on separate pieces of paper in the same transmittal. In the 2013 RESPA Servicing Final Rule, the Bureau explained that providing required information along with additional information in the same notice could obscure the most important information or lead to information overload. The Bureau instead permitted servicers to provide additional information on separate pieces of paper in the same transmittal.[164]

However, in advance of the proposal, the Bureau received questions regarding whether servicers may include a borrower's mortgage loan account number in the notices required by § 1024.37, including the initial notice required by § 1024.37(c)(1)(i). As indicated in the proposal, the Bureau believed it could be appropriate to give servicers the flexibility to include a borrower's mortgage loan account number in the notices required by § 1024.37. An account number is a customary disclosure on communications between a servicer and a borrower. The Bureau also believed that including the borrower's mortgage loan account number could help facilitate communications between a borrower and a servicer regarding a notice provided under § 1024.37. Therefore, the Bureau proposed to amend § 1024.37(c)(4) to grant servicers flexibility to include a borrower's mortgage loan account number in the notices required by § 1024.37.

The Bureau received numerous comments on the proposal to permit the inclusion of the mortgage loan account number in the notices required by § 1024.37. The Bureau received several comments from industry and consumer advocacy groups expressing support for the proposal to allow servicers to include the mortgage loan account number in the written notice required by § 1024.37(c)(1)(i). One industry commenter representing credit unions stated that including the mortgage loan account number in the written notices would help borrowers identify the loan for which the written notice applies and would facilitate communication between the borrower and the credit Start Printed Page 72207union. Another industry commenter stated that permitting servicers to include the mortgage loan account number in the notices required by § 1024.37(c)(1)(i) and (ii), and (e)(1)(i) would improve clarity and continuity in the communications between borrowers and servicers. A consumer advocacy group requested that the inclusion of the mortgage loan account number in the written notices be made mandatory to avoid confusion that may occur when servicers manage two or more accounts that pertain to the same borrower. One industry commenter recommended that such inclusion remain discretionary.

Several commenters urged the Bureau to allow other additional information to be included in the notices required by § 1024.37. One industry commenter requested that § 1024.37(c)(4) permit servicers to include information that would improve borrower understanding of the notices, while another recommended that the rule permit additional information so long as it was related to the general content of the notice. One consumer advocacy group stated that the notices under § 1024.37 would provide borrowers greater clarity if they included information on the dollar amount of coverage the servicer claims is needed and the fair market value of the home that the servicer used to determine the amount of coverage needed. The commenter stated that this information would help borrowers understand why the servicer was delivering a notice resulting from insufficient insurance coverage. Several industry commenters requested that § 1024.37(c)(4) also permit the notices to include information on force-placed insurance required by State law. These commenters stated that delivering the notices required by § 1024.37(c) and State law separately increases costs to servicers and may result in borrower confusion.

The Bureau is adopting § 1024.37(c)(4) as proposed. Section 1024.37(c)(4) provides that, except for the mortgage loan account number, a servicer may not include any information other than the information required by § 1024.37(c)(2) in the written notice required by § 1024.37(c)(1)(i). It further explains that a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal. The Bureau declines to make the inclusion of the mortgage loan account number in the notices required by § 1024.37 mandatory, as one commenter recommended. Servicers should have flexibility to determine when the inclusion of the mortgage loan account number in the notices would be helpful to facilitating communication and borrower understanding.

The Bureau is not permitting additional types of information to be included in the notices required by § 1024.37, as some commenters recommended. In contrast to the mortgage loan account number, the Bureau believes that including information such as the dollar amount of coverage the servicer claims is needed or information on force-placed insurance required by State law, as suggested by some commenters, could obscure the required notices or create information overload in the required notices that could result in borrower uncertainty. Although such information may be helpful to borrowers, the Bureau believes it is more appropriately included on separate pieces of paper in the same transmittal under § 1024.37(c)(4).

37(d) Reminder Notice

37(d)(2) Content of the Reminder Notice

37(d)(2)(ii) Servicer Lacking Evidence of Continuous Coverage

The Bureau proposed to amend § 1024.37(d)(2)(ii), which specifies the information a force-placed insurance reminder notice must contain if a servicer does not have evidence that the borrower has had hazard insurance in place continuously. Currently, this provision does not address the scenario in which a servicer receives evidence that the borrower has had hazard insurance in place continuously, but the servicer lacks evidence that the continued hazard insurance is sufficient under the mortgage loan contract. While a servicer could include on a separate piece of paper a statement clarifying that it is purchasing insurance due to insufficient coverage, the Bureau believed it may be preferable for the notice itself to be clear in this regard.

In order to align the requirements of § 1024.37(d)(2)(ii) with the proposed changes to § 1024.37(c)(2)(v), the Bureau proposed to amend § 1024.37(d)(2)(ii) to clarify that the provision applies when a servicer has received hazard insurance information after providing the initial notice but has not received evidence demonstrating that the borrower has had sufficient hazard insurance coverage in place continuously. The Bureau solicited comment on whether other modifications to the required contents of the force-placed insurance notices are necessary or appropriate to address circumstances in which a servicer force-places insurance for reasons other than expired or expiring coverage.

The majority of commenters discussing the proposed revisions to § 1024.37 expressed support for the Bureau's proposal to address situations in which a borrower has insufficient, rather than expiring or expired, hazard insurance. A discussion of these comments is included in the section-by-section analysis of § 1024.37(c)(2).

The Bureau is finalizing § 1024.37(d)(2)(ii) as proposed. Final § 1024.37(d)(2)(ii) explains that this provision applies when a servicer has received hazard insurance information after delivering to a borrower or placing in the mail the notice required by § 1024.37(c)(1)(i), but has not received, from the borrower or otherwise, evidence demonstrating that the borrower has had sufficient hazard insurance coverage in place continuously. The requirements of final § 1024.37(d)(2)(ii) align with the requirements of final § 1024.37(c)(2)(v), discussed in the section-by section analysis of § 1024.37(c)(2)(v).

37(d)(2)(ii)(B)

The Bureau proposed to correct the statement in § 1024.37(d)(2)(ii)(B) that the notice must set forth the information required by § 1024.37(c)(2)(ii) through (iv), (x), (xi), and (d)(2)(i)(B) and (D). Section 1024.37(d)(2)(ii)(B) should state that the notice must also set forth information required by § 1024.37(c)(2)(ix). The Bureau did not receive comments on this proposed correction and is finalizing § 1024.37(d)(2)(ii)(B) as proposed.

37(d)(3) Format

Section 1024.37(d)(3) sets forth certain formatting requirements for the reminder notice required by § 1024.41(c)(1)(ii). The reminder notice contains some of the same information as the initial notice provided under § 1024.37(c)(1)(i). The proposal would have made a technical correction to § 1024.37(d)(3) to state that the formatting instructions in § 1024.37(c)(3), which apply to information set forth in the initial notice, also apply to the information set forth in the reminder notice provided pursuant to § 1024.37(d). The purpose of this change was to clarify that, when the same information appears in both the initial and the reminder notice, that information must be formatted the same in both notices. The Bureau did not receive comments in response to the proposed technical correction to § 1024.37(d)(3) and is finalizing as proposed.Start Printed Page 72208

37(d)(4) Additional Information

The Bureau proposed two amendments with respect to § 1024.37(d)(4). First, the Bureau proposed to amend § 1024.37(d)(4) to give servicers the flexibility to include a borrower's mortgage loan account number in the notice required by § 1024.37(c)(1)(ii). For the reasons discussed in the section-by-section analysis of § 1024.37(c)(4), the Bureau believed that giving servicers flexibility to include the account number might benefit servicers and borrowers without obscuring other information on the notice or leading to information overload. The Bureau sought comment on this proposal to grant servicers flexibility to include a borrower's mortgage loan account number in the notices required by § 1024.37 and whether there are other types of information that servicers should be allowed to include that would not obscure the required disclosures or create information overload. The Bureau also proposed technical corrections to renumber comment 37(d)(4)-1 as comment 37(d)(5)-1 and to correct an erroneous reference in that comment to § 1024.37(d)(4), which instead should be a reference to § 1024.37(d)(5).

The Bureau received numerous comments in response to its proposal to permit servicers to include a borrower's mortgage loan account number in the notices required by § 1024.37. The Bureau has included a discussion of these comments in the section-by-section analysis of § 1024.37(c)(4).

The Bureau is finalizing § 1024.37(d)(4) as proposed, and is renumbering comment 37(d)(4)-1 as comment 37(d)(5)-1 with certain changes for clarity. Section 1024.37(d)(4) explains that, except for the borrower's mortgage loan account number, a servicer may not include any information other than information required by § 1024.37(d)(2)(i) or (ii), as applicable, in the written notice required by § 1024.37(c)(1)(ii). It further explains that a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal. Final § 1024.37(d)(4) is consistent with final § 1024.37(c)(4), which allows servicers to include the borrower's mortgage loan account number in the written notice required by § 1024.37(c)(1)(i).

37(d)(5) Updating Notice With Borrower Information

For the reasons discussed above, the Bureau is renumbering comment 37(d)(4)-1 as comment 37(d)(5)-1 and is finalizing comment 37(d)(5)-1 substantially as proposed. Comment 37(d)(5)-1 explains that, if the written notice required by § 1024.37(c)(1)(ii) was put into production a reasonable time prior to the servicer delivering or placing the notice in the mail, the servicer is not required to update the notice with new insurance information received. It clarifies that, for purposes of § 1024.37(d)(5), a reasonable time is no more than five days (excluding legal holidays, Saturdays, and Sundays). The final rule revises current comment 37(d)(5)-1 to remove superfluous language regarding a servicer preparing a written notice in advance of delivering or placing the notice in the mail and that the information received is about the borrower, and to make clear that five days is the maximum period of time that would be considered a reasonable time for purposes of § 1024.37(d)(5).

37(e) Renewing or Replacing Force-placed Insurance

37(e)(4) Additional Information

The Bureau proposed two amendments with respect to § 1024.37(e)(4). First, the Bureau proposed to amend § 1024.37(e)(4) to give servicers the flexibility to include a borrower's mortgage loan account number in the notice required by § 1024.37(e)(1)(i). For the reasons discussed in the section-by-section analysis of § 1024.37(c)(4), the Bureau explained that giving servicers flexibility to include the account number may benefit servicers and borrowers without obscuring other information on the notice or leading to information overload. Second, the Bureau proposed a technical correction to remove the unnecessary words “[a]s applicable” from § 1024.37(e)(4).

Numerous commenters discussed the Bureau's proposal to permit the inclusion of the mortgage loan account number in the notices required by § 1024.37. The Bureau has included a discussion of these comments in the section-by-section analysis of § 1024.37(c)(4).

The Bureau is finalizing § 1024.37(e)(4) substantially as proposed, with a technical correction. Section 1024.37(e)(4) provides that, except for the borrower's mortgage loan account number, a servicer may not include any information other than information required by § 1024.37(e)(2) in the written notice required by § 1024.37(e)(1). It further explains that a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal. The Bureau is making a technical correction in this final rule to add a missing “the” to the second sentence of § 1024.37(e)(4).

Legal Authority

These amendments and clarifications to § 1024.37 implement sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.

Section 1024.38 General Servicing Policies, Procedures, and Requirements

38(b) Objectives

38(b)(1)(vi) Successors in Interest

Current § 1024.38(b)(1)(vi) provides that servicers shall maintain policies and procedures that are reasonably designed to achieve the objective of, upon notification of the death of a borrower, promptly identifying and facilitating communication with the successor in interest of the deceased borrower with respect to the property securing the deceased borrower's mortgage loan. The Bureau proposed several modifications to this requirement.

Proposed § 1024.38(b)(1)(vi) would have expanded the current policies and procedures requirement regarding identifying and communicating with successors in interest. Proposed § 1024.38(b)(1)(vi)(A) would have required servicers to maintain policies and procedures that are reasonably designed to ensure that the servicer can promptly identify and facilitate communication with any potential successors in interest upon notification either of the death of a borrower or of any transfer of the property securing a mortgage loan. Proposed § 1024.38(b)(1)(vi)(B) would have required servicers to maintain policies and procedures that are reasonably designed to ensure that the servicer can, upon identification of a potential successor in interest—including through any request made by a potential successor in interest under § 1024.36(i) or any loss mitigation application received from a potential successor in interest—provide promptly to the potential successor in interest a description of the documents the servicer reasonably requires to confirm that person's identity and ownership interest in the property and how the person may submit a written request under § 1024.36(i) (including the appropriate address). Proposed § 1024.38(b)(1)(vi)(C) would have required servicers to maintain policies and procedures that are reasonably designed to ensure that the servicer can, upon the receipt of such documents (i.e., those the servicer reasonably requires to confirm that person's identity and ownership interest in the Start Printed Page 72209property), promptly notify the person, as applicable, that the servicer has confirmed the person's status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest. Proposed commentary to § 1024.38(b)(1)(vi) would have clarified these requirements, including providing examples illustrating documents a servicer may require under certain circumstances. For the reasons stated in part V.A. and this discussion, the Bureau has decided to finalize proposed § 1024.38(b)(1)(vi) and related commentary with a number of changes.

In their comments, consumer advocacy groups generally supported the substance of the proposed changes to § 1024.38(b)(1)(vi), noting that they would bring greater clar i ty to the process and specificity regarding servicers' obligations. A number of these groups urged the Bureau to move all of the requirements of § 1024.38(b)(1)(vi) to a privately enforceable section of Regulation X and to require small servicers to comply with them. Some commenters also suggested that the final rule should create an appeal process or notice of error procedure, with a private right of action, that successors in interest could use to challenge unfavorable determinations relating to successor status. Consumer advocacy groups also encouraged the Bureau to establish specific time limits for the confirmation process.

Consumer advocacy groups emphasized the need for servicers to identify promptly the specific documents required for confirmation. The office of a State Attorney General commented that, in its experience, servicers do not consider the successor in interest's circumstances or State-specific requirements and instead impose the same requirements on all potential successors in interest, forcing them to expend time and resources needlessly to establish their ownership interest in the property. This commenter supported requiring servicers to implement State-specific policies relating to necessary proof to establish an ownership interest under proposed § 1024.38(b)(1)(vi)(B). It stated that the required documents should take into account the relevant jurisdiction, the successor in interest's specific situation, and the documents already in the servicer's possession.

A number of industry commenters urged the Bureau to provide greater clarity regarding servicers' obligations in confirming successors in interest. These commenters requested clear and reasonable requirements for identifying and communicating with successors in interest. Some of these industry commenters urged the Bureau to lay out a process for identifying and communicating with potential successors and to provide a safe harbor in the final rule for servicers that comply with that process.

Various industry commenters expressed concern that the proposal might require them to provide legal advice to potential successors in interest. A trade association suggested that it would be a monumental task to create and maintain over time policies and procedures appropriate for each jurisdiction to address the varying situations that might arise. Another industry commenter urged the Bureau to indicate that the burden of determining the appropriate jurisdictionally valid documents lies with the successor in interest. It recommended that the final rule limit a servicer's obligation to a potential successor in interest to providing general examples of documents typically accepted to establish identity and ownership interest in the property, similar to the examples provided in proposed comment 38(b)(1)(vi)-2.

Industry commenters also stated that servicers should not be put in the position of having to adjudicate the validity of a potential successor's ownership interest, particularly when there are competing claims from other parties. These commenters indicated that they did not want to get drawn into contentious divorce disputes or other civil litigation.

Two trade associations stated that the Bureau should permit servicers to adjust their practices to the actual and potential risks of illegal activity or erroneous information. They referred to requirements under the Bank Secrecy Act to verify the identity of persons who seek to open accounts and stated that servicers need to be able to decline to recognize a claimant as a borrower, where appropriate.

A number of industry commenters expressed concern about the requirement in proposed § 1024.38(b)(1)(vi)(A) to identify potential successors in interest. An industry commenter suggested that a requirement to identify any potential successors in interest could open servicers up to civil liability where the servicer has not identified all potential successors in interest. Other industry commenters expressed concern that proposed § 1024.38(b)(1)(vi)(A) might require servicers to seek out potential successors in interest. Some industry commenters suggested that the Bureau should not extend the scope of the obligation in § 1024.38(b)(1)(vi) beyond the scope of the definition of successor in interest in proposed § 1024.31. At least one industry commenter found the interplay between proposed § 1024.38(b)(1)(vi) and proposed § 1024.36(i) confusing.

Commenters expressed widely divergent views on whether § 1024.38(b)(1)(vi) should require servicers to respond to potential successors in interest in writing. Consumer advocacy groups and the office of a State Attorney General recommended requiring a written response, given the continuing problems they have seen successors in interest encounter in establishing their status. The office of a State Attorney General stated that requiring a written response would prevent miscommunications and provide clear documentation in the event of a transfer of servicing. This commenter noted that it has worked with homeowners who have had to reestablish their successor in interest status after a transfer of servicing rights. It also indicated that a homeowner who has written confirmation from a previous servicer is less likely to have to repeat the successor identification process with the new servicer. Consumer advocacy groups suggested that a written response might be helpful if a potential successor in interest is seeking assistance from an advocate. These groups indicated that, if a potential successor in interest is not confirmed, the servicer should include in its written response an explanation of reasons for the determination as well as an explanation of how to submit a written notice of error.

In contrast, industry commenters indicated that the Bureau should not require a written response. Some industry commenters suggested that servicers should have the flexibility to decide whether confirmation of the successor in interest should be in writing, oral, or both. One industry commenter noted that, if there is a danger of foreclosure, for example, a servicer could communicate a confirmation determination verbally to avoid mailing delays.

Commenters also expressed divergent views on whether the final rule should define the term promptly for purposes of § 1024.38(b)(1)(vi) and, if so, how. Several consumer advocacy groups suggested that promptly for purposes of § 1024.38(b)(1)(vi) should mean within five business days. Another consumer advocacy group suggested that, for purposes of notifying successors in interest of confirmation, promptly should be defined as within 30 days. This commenter noted that delays in Start Printed Page 72210confirmation determinations can cause or increase delinquencies and harm prospects for loss mitigation. A consumer advocacy group suggested that the Bureau should consider the loss mitigation timetable that requires notices for an incomplete application, a complete application, and a deadline for review as a reference in defining promptly for purposes of § 1024.38(b)(1)(vi).

An industry commenter urged the Bureau not to define promptly, noting that what should be considered promptly may vary depending on the scenario. It suggested that servicers should have a reasonable amount of time, not less than 30 days, to make confirmation decisions. Another industry commenter suggested 60 days, while a trade association suggested that the final rule should provide a reasonable time of up to 90 calendar days, unless a dispute is being litigated. Another industry commenter suggested that 10 business days from determination of confirmation would suffice.[165]

The Bureau agrees with the various commenters that emphasized the need for greater specificity regarding the policies and procedures that servicers need to implement with regard to successors in interest. In light of the comments received, the Bureau has made adjustments to the proposed regulation text and commentary and has added additional commentary in the final rule. As finalized, § 1024.38(b)(1)(vi)(A) requires servicers to maintain policies and procedures reasonably designed to ensure that, upon receiving notice of the death of a borrower or of any transfer of the property securing a mortgage loan, the servicer can promptly facilitate communication with any potential or confirmed successors in interest regarding the property. Section 1024.38(b)(1)(vi)(B) requires servicers to maintain policies and procedures reasonably designed to ensure that, upon receiving notice of the existence of a potential successor in interest, the servicer can promptly determine the documents it reasonably requires to confirm that person's identity and ownership interest in the property and promptly provide to the potential successor in interest a description of those documents and how the person may submit a written request under § 1024.36(i) (including the appropriate address). Section 1024.38(b)(1)(vi)(C) requires servicers to maintain policies and procedures reasonably designed to ensure that, upon the receipt of such documents, the servicer can promptly make a confirmation determination and promptly notify the person, as applicable, that the servicer has confirmed the person's status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest.

In light of the other requirements that it is finalizing in § 1024.38(b)(1)(vi), the Bureau has concluded that there is no need to finalize the aspect of proposed § 1024.38(b)(1)(vi)(A) that would have required a servicer to have policies and procedures in place reasonably designed to identify promptly any potential successors in interest upon notification of the death of a borrower or of any transfer of the property securing a mortgage loan. In lieu of finalizing the proposed requirement to identify potential successors in interest that raised concerns for many industry commenters, the Bureau has provided illustrative examples in new comment 38(b)(1)(vi)-1 of how a servicer may be notified of the existence of a potential successor in interest. The Bureau believes that these revisions clarify servicers' responsibilities under § 1024.38(b)(1)(vi) without undermining the protections provided for potential successors in interest.

The Bureau recognizes, as it did at the proposal stage, that the policies and procedures requirement must apply to a broader category of persons than the definition of successor in interest under the final rule. As many consumer advocacy groups and other commenters noted, a potential successor in interest may come to the attention of the servicer in a variety of ways. The policies and procedures requirements in § 1024.38(b)(1)(vi) are triggered as soon as a servicer receives notice of the existence of a potential successor in interest, even if the servicer does not know at the time of initial contact whether a potential successor in interest in fact meets the Regulation X definition of successor in interest. A servicer may not wait until it has reason to believe that the transfer falls within the scope of the definition to engage in the communications required by § 1024.38(b)(1)(vi). Thus, for example, a servicer's policies and procedures should require the servicer to facilitate communication regarding the proof required to establish successor in interest status with any person who indicates that a borrower has died, even if the servicer is not certain whether the person is in fact a successor in interest.

The final rule, like the proposal, does not require servicers to provide legal advice to successors in interest. As explained in part V.A., the final rule does, however, require a servicer to have policies and procedures in place that are reasonably designed to ensure that the servicer can promptly describe to the successor in interest the documents that the servicer will accept to confirm the potential successor in interest's identity and ownership interest in the property. The types of determinations necessary for a confirmation decision are ones that servicers routinely make for a variety of purposes—for example, in identifying who to serve in a foreclosure action and who should receive other notices required by State law.

As some industry commenters indicated, there may be circumstances where it is not possible for a servicer to make a confirmation determination based on the information submitted, due to competing successorship claims or other reasons. In light of concerns raised by commenters, the Bureau has added commentary to § 1024.38(b)(1)(vi) addressing circumstances where additional documentation is required for confirmation, as discussed below.[166]

Although a number of consumer advocacy group commenters urged the Bureau to require servicers to provide written confirmation decisions, the final rule follows the proposal in leaving the means of communication to servicers' discretion. Servicers will likely find it beneficial to communicate their decisions in writing in many cases to prevent ambiguity and memorialize decisions. However, as industry commenters noted, there may be circumstances where oral notification is advantageous due to time constraints, and the Bureau has concluded that the best approach is to allow the servicer to choose the appropriate mode of communication based on the particular facts and circumstances of each case.

The Bureau has decided not to adopt a definition of promptly for purposes of Start Printed Page 72211§ 1024.38(b)(1)(vi) because whether an action is prompt under § 1024.38(b)(1)(vi) will depend on the facts and circumstances of the request. In many instances, providing information promptly may require a servicer to respond more quickly than the time limits established in § 1024.36(d)(2) for responding to a request for information under § 1024.36(i). For example, if a non-borrowing spouse informs the servicer of the borrowing spouse's mortgage that the borrowing spouse has died and that the borrowing spouse and non-borrowing spouse owned the property jointly as tenants by the entirety, the Bureau expects that a servicer would respond to the non-borrowing spouse with a description of the documents required for confirmation within a significantly shorter period of time than 30 days.

The Bureau has made specific adjustments in the final rule to ensure that it is clear that servicers must act promptly both in determining the documents the servicer reasonably requires and in providing to the potential successor in interest a description of those documents and how the person may submit a written request under § 1024.36(i). Similarly, the Bureau has made adjustments to ensure that it is clear that both the servicer's confirmation determination and the notification to the potential successor in interest of that determination are to be done promptly. The Bureau recognizes that delays in the confirmation process can have significant deleterious consequences for successors in interest, including unnecessary foreclosures. The Bureau will monitor carefully how servicers implement the policies and procedures requirement to provide information promptly.

Although some industry commenters expressed concern regarding the possibility of fraud, identity theft, or similar malfeasance, the Bureau does not anticipate that the final rule will result in any significant increase in these problems. Revised § 1024.38(b)(1)(vi) lays out a process for confirmation of a potential successor in interest's identity and ownership interest. Neither § 1024.38(b)(1)(vi) nor § 1024.36 requires a servicer to provide any account-specific information to a potential successor in interest prior to confirmation, other than a description of the documents required for confirmation. Further, nothing in the final rule prevents compliance with the GLBA information security requirements or, if applicable, the Bank Secrecy Act. As discussed below, the Bureau has added a new comment clarifying that, prior to confirmation, servicers may request documents that the servicer reasonably believes are necessary to prevent fraud or other criminal activity.[167]

For the reasons stated in part V.A., the final rule does not create a private right of action for potential successors in interest relating to confirmation determinations, nor does it provide a safe harbor from UDAAP claims relating to confirmation determinations. A trade association urged the Bureau more generally to protect servicers from RESPA liability as to non-obligor successors in the final rule. However, as explained in part V.A., confirmed successors in interest are borrowers for purposes of Regulation X subpart C and § 1024.17 and, as such, should enjoy the same protections as other borrowers, including, where applicable, a right of action under 12 U.S.C. 2605.

The final rule includes a new comment 38(b)(1)(vi)-1, which explains that a servicer may be notified of the existence of a potential successor in interest in a variety of ways. Comment 38(b)(1)(vi)-1 provides a non-exclusive list of examples of ways in which a servicer could be notified of the existence of a potential successor in interest, including that a person could indicate that there has been a transfer of ownership or of an ownership interest in the property or that a borrower has been divorced, legally separated, or died, or a person other than a borrower could submit a loss mitigation application. The comment also explains that a servicer must maintain policies and procedures reasonably designed to ensure that the servicer can retain this information and promptly facilitate communication with potential successors in interest when a servicer is notified of their existence. The comment clarifies that a servicer is not required to conduct a search for potential successors in interest if the servicer has not received actual notice of their existence. This comment addresses questions that commenters raised regarding servicers' responsibilities in identifying and communicating with potential successors in interest.

Proposed comment 38(b)(1)(vi)-1 stated that the documents a servicer requires to confirm a potential successor in interest's identity and ownership interest in the property must be reasonable in light of the laws of the relevant jurisdiction, the successor in interest's specific situation, and the documents already in the servicer's possession. The proposed comment would have provided that the required documents may, where appropriate, include, for example, a death certificate, an executed will, or a court order.

The Bureau is finalizing this comment, renumbered as comment 38(b)(1)(vi)-2, with additional language to address concerns raised by commenters relating to the possibility of fraud or criminal activity. As finalized, comment 38(b)(1)(vi)-2 indicates that the documents a servicer requires to confirm that person's identity and ownership interest in the property may also include documents that the servicer reasonably believes are necessary to prevent fraud or other criminal activity (for example, if a servicer has reason to believe that documents presented are forged).

Proposed comment 38(b)(1)(vi)-2 included examples illustrating documents that a servicer may require to confirm a potential successor in interest's identity and ownership interest in the property and that generally would be reasonable, subject to the relevant law governing each situation, in four common situations involving potential successors in interests. The Bureau is finalizing this proposed comment with a number of clarifying changes and renumbering it as comment 38(b)(1)(vi)-3.

Some industry commenters urged the Bureau not to finalize these examples and expressed concern that they might limit the information that servicers could request from potential successors in interest. Some trade associations stated that the type of documents required to prove a transfer of ownership depends on State law and urged the Bureau not to finalize a regulation that could interfere or conflict with State law. These trade associations also suggested that servicers might need to request additional documents not described in the examples listed to protect against the possibility that the claimant is engaging in fraud, that a third party may claim an ownership interest in the property through adverse possession or an undisclosed transfer, that tenants by the entirety may have divorced, or that there has been a probate proceeding not required by applicable law.

Other commenters indicated that they found the examples identified in the proposed comment helpful. Several consumer advocacy groups stated in their comments that servicers continue to request documentation to prove the successor in interest's identity and ownership interest in the property that is unreasonable in the successor in interest's particular situation. For instance, a large number of elder Start Printed Page 72212advocates, including legal services attorneys and housing counselors, reported to one consumer advocacy group that they had been asked for probate documents despite having provided the servicer with a right of survivorship deed.

In light of the challenges that successors in interest continue to face, as described in part V.A., the Bureau believes that it is necessary to provide guidance on the documents a servicer would generally reasonably require to confirm a potential successor in interest's identity and ownership interest in the property. However, in light of the concerns expressed regarding the proposed examples, the Bureau has made adjustments to the comment to emphasize that the relevant law governing each situation may vary from State to State, that the examples are illustrative only, and that the examples illustrate documents that it would generally be reasonable for a servicer to require to confirm a potential successor in interest's identity and ownership interest in the property under the specific circumstances described.

The Bureau appreciates commenters' concerns that there may be factual scenarios that appear similar to one of the examples listed in comment 38(b)(1)(vi)-3 where a servicer needs to request documents that are not identified in the example due to particular circumstances not discussed in the example. As comment 38(b)(1)(vi)-3 indicates, the examples are intended to provide general guidance, and a servicer may reasonably require additional or different documents when warranted by the circumstances. Any such requests must be tailored to and appropriate for the potential successor in interest's particular circumstances.

A number of industry commenters and consumer advocacy groups highlighted various ways in which the applicable law described in the examples is not consistent with the law of one or more particular States.[168] The Bureau believes that these comments reflect a misunderstanding of the purpose of the examples and how the term applicable law was used in proposed comment 38(b)(1)(vi)-2. Each of the examples in the comment discusses the law of a hypothetical jurisdiction. In using the term applicable law, the Bureau did not mean to suggest that any particular State law principle described applies universally. To clarify this point, the final commentary replaces “applicable law” with “the applicable law of the relevant jurisdiction” in each example provided.

The situations identified in comment 38(b)(1)(vi)-3 are:

1. Tenancy by the entirety or joint tenancy. Assume that a servicer knows that the potential successor in interest and the transferor borrower owned the property as tenants by the entirety or joint tenants and that the transferor borrower has died. Assume further that, upon the death of the transferor borrower, the applicable law of the relevant jurisdiction does not require a probate proceeding to establish that the potential successor in interest has sole interest in the property but requires only that there be a prior recorded deed listing both the potential successor in interest and the transferor borrower as tenants by the entirety (e.g., married grantees) or joint tenants. Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it would be reasonable for the servicer to require the potential successor in interest to provide documentation of the recorded instrument, if the servicer does not already have it, and the death certificate of the transferor borrower. The comment also explains that it generally would not be reasonable for the servicer to require documentation of a probate proceeding because, in this situation, a probate proceeding is not required under the applicable law of the relevant jurisdiction.

2. Affidavits of heirship. Assume that a potential successor in interest indicates that an ownership interest in the property transferred to the potential successor in interest upon the death of the transferor borrower through intestate succession and offers an affidavit of heirship as confirmation. Assume further that, upon the death of the transferor borrower, the applicable law of the relevant jurisdiction does not require a probate proceeding to establish that the potential successor in interest has an interest in the property but requires only an appropriate affidavit of heirship. Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it would be reasonable for the servicer to require the potential successor in interest to provide the affidavit of heirship and the death certificate of the transferor borrower. The comment also explains that it generally would not be reasonable for the servicer to require documentation of a probate proceeding because a probate proceeding is not required under the applicable law of the relevant jurisdiction to recognize the transfer of title.

3. Divorce or legal separation. Assume that a potential successor in interest indicates that an ownership interest in the property transferred to the potential successor in interest from a spouse who is a borrower as a result of a property agreement incident to a divorce proceeding. Assume further that the applicable law of the relevant jurisdiction does not require a deed conveying the interest in the property but accepts a final divorce decree and accompanying separation agreement executed by both spouses to evidence transfer of title. Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it would be reasonable for the servicer to require the potential successor in interest to provide documentation of the final divorce decree and an executed separation agreement. The comment indicates that, generally, it would not be reasonable for the servicer to require a deed because the applicable law of the relevant jurisdiction does not require a deed.

4. Living spouses or parents. Assume that a potential successor in interest indicates that an ownership interest in the property transferred to the potential successor in interest from a living spouse or parent who is a borrower by quitclaim deed or act of donation. Comment 38(b)(1)(vi)-3 indicates that, under these circumstances, it would be reasonable for the servicer to require the potential successor in interest to provide the quitclaim deed or act of donation. The comment explains that it generally would not be reasonable, however, for the servicer to require additional documents.

Comment 38(b)(1)(vi)-3 provides specific guidance about what are reasonable documents to require from a potential successor in interest to confirm the person's status as a successor in interest in very common and straightforward situations. In those situations, the Bureau expects that servicers generally will not need potential successors in interest to produce any additional documents beyond those specified in comment 38(b)(1)(vi)-3. This comment does not cover all possible situations involving successors in interest, however, and additional documents may be required in certain less straightforward situations or due to facts or legal requirements that are not addressed in the examples. The Bureau will continue to monitor implementation of these policies and procedures requirements to see if there are further clarifications in this area that would be helpful.Start Printed Page 72213

The final rule also includes new comment 38(b)(1)(vi)-4, which explains that, if a servicer reasonably determines that it cannot make a determination of the potential successor in interest's status based on the documentation provided, it must specify what additional documentation is required. The comment notes, for example, that, if there is pending litigation involving the potential successor in interest and other claimants regarding who has title to the property at issue, a servicer may specify that documentation of a court determination or other resolution of the litigation is required. Servicers should not generally, however, request documentation of a court determination or other resolution of litigation absent knowledge of such litigation.

Proposed comment 38(b)(1)(vi)-3 explained proposed § 1024.38(b)(1)(vi)(C)'s requirement that servicers maintain policies and procedures reasonably designed to ensure that the servicer can, upon the receipt of the documents that the servicer reasonably requires, promptly notify the person, as applicable, that the servicer has confirmed the person's status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest. The proposed comment would have provided that, upon the receipt of the documents, the servicer's confirmation and notification must be sufficiently prompt so as not to interfere with the successor in interest's ability to apply for loss mitigation options according to the procedures provided in § 1024.41. The proposed comment also would have provided that, in general, a servicer's policies and procedures must be reasonably designed to ensure that confirmation of a successor in interest's status occurs at least 30 days before the next applicable milestone provided in proposed comment 41(b)(2)(ii)-2.[169] The Bureau proposed comment 38(b)(1)(vi)-3 because it recognized that successors in interest may have difficulty pursuing loss mitigation options to avoid foreclosure when the servicer does not promptly confirm the successor in interest's identity and ownership interest in the property. Miscommunication and delay in the process of confirming successors in interest's identity and ownership interest in the property can prevent successors in interest from successfully applying for loss mitigation.

Various commenters objected to the linkage of confirmation in proposed comment 38(b)(1)(vi)-3 with the milestones in proposed comment 41(b)(2)(ii)-2. Some of these commenters noted that tying promptness to the next milestone could either result in an unreasonably long period or an unreasonably short one and predicted that it would lead to errors and confusion.

The final rule addresses these issues in comment 38(b)(1)(vi)-5, which clarifies servicers' obligations under § 1024.38(b)(1)(vi)(C) to maintain policies and procedures that are reasonably designed to ensure that the servicer can promptly notify the potential successor in interest that the servicer has confirmed the potential successor in interest's status. In light of the concerns raised by commenters, comment 38(b)(1)(vi)-5 omits any reference to the milestones. Instead, comment 38(b)(1)(vi)-5 clarifies that notification is not prompt for purposes of the requirement in § 1024.38(b)(1)(vi)(C) if it unreasonably interferes with a successor in interest's ability to apply for loss mitigation options according to the procedures provided in § 1024.41.

Legal Authority

The Bureau is issuing these amendments to § 1024.38 pursuant to its authority under section 19(a) of RESPA. As explained above, the servicing policies, procedures, and requirements set forth in these amendments are necessary to achieve the purposes of RESPA, including to avoid unwarranted or unnecessary costs and fees, to ensure that servicers are responsive to consumer requests and complaints, to ensure that servicers provide accurate and relevant information about the mortgage loan accounts that they service, and to facilitate the review of borrowers for foreclosure avoidance options. The Bureau believes that, without sound policies and procedures and without achieving certain standard requirements, servicers will not be able to achieve those purposes.

The Bureau is also issuing these amendments to § 1024.38 pursuant to its authority under section 1022(b) of the Dodd-Frank Act to prescribe regulations necessary or appropriate to carry out the purposes and objectives of Federal consumer financial laws. Specifically, these amendments to § 1024.38 are necessary and appropriate to carry out the purposes under section 1021(a) of the Dodd-Frank Act of ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation. The Bureau additionally is relying on its authority under section 1032(a) of the Dodd-Frank Act, which authorizes the Bureau to prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances.

38(b)(2) Properly Evaluating Loss Mitigation Applications

38(b)(2)(vi)

Proposed § 1024.38(b)(2)(vi) provided that a servicer must maintain policies and procedures reasonably designed to ensure that the servicer can promptly identify and obtain documents or information not in the borrower's control that the servicer requires to determine which loss mitigation options, if any, to offer the borrower in accordance with the requirements of proposed § 1024.41(c)(4), discussed below.[170] The Bureau received no comments on proposed § 1024.38(b)(2)(vi) and is adopting the provision as proposed, for the reasons discussed below.

Under current § 1024.41(c)(1), if a servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale, the servicer shall, within 30 days of receipt, evaluate the borrower for all loss mitigation options available to the borrower and provide the notice required under § 1024.41(c)(1)(ii). Section 1024.41(b)(1) defines a complete loss mitigation application to include information that the servicer requires from the borrower in evaluating applications for the loss mitigation options available to the borrower. Thus, a loss mitigation application can be complete even if a servicer requires additional information that is not in the control of the borrower.[171]

Through outreach efforts in advance of the proposal, the Bureau learned that servicers cannot always obtain necessary third-party information in time to evaluate a borrower's complete loss mitigation application within 30 Start Printed Page 72214days of receipt, as required by § 1024.41(c)(1). Servicers and Federal agencies informed the Bureau that this can occur either because a servicer delays requesting the information, or because a third party delays providing it. Current § 1024.41 does not specifically address this circumstance—when a servicer is unable to obtain information not in the borrower's control by a date that will enable the servicer to make a determination as to which loss mitigation options, if any, to offer the borrower within 30 days of receiving a complete application as required by § 1024.41(c)(1).

As explained in the section-by-section analysis of new § 1024.41(c)(4), the Bureau is addressing these issues by adding requirements with respect to the servicer's obligation to pursue necessary information not in the borrower's control and the servicer's responsibilities if unable to obtain such information within 30 days of receiving a complete loss mitigation application. Servicers often need to access information from parties other than the borrower at different points during a loss mitigation application process, and § 1024.41(c)(4) (among other things) ensures that they pursue that information timely. Servicers' efficiency in obtaining such information will benefit borrowers by facilitating compliance with § 1024.41(c)(1)'s requirement to evaluate complete loss mitigation applications within 30 days.

The policies and procedures requirements in § 1024.38(b)(2)(vi) will facilitate compliance with the requirements for gathering information not in the borrower's control under § 1024.41(c)(4). Maintaining such policies and procedures will ensure that servicers have appropriate mechanisms in place to identify and obtain such information efficiently. Section 1024.38(b)(2)(vi) also contributes to the goals of § 1024.38(b)(2) more generally. Section 1024.38(b)(2) requires servicers to maintain policies and procedures regarding various aspects of evaluation of loss mitigation applications, including (among others) document collection and proper evaluation. The Bureau believes that these and other requirements of § 1024.38(b)(2) facilitate servicer compliance with § 1024.41 and lead to loss mitigation processes that better protect consumers.[172] Requiring servicers to maintain policies and procedures regarding the identification and collection of information not in the borrower's control under § 1024.38(b)(2)(vi) similarly protects borrowers by facilitating compliance with § 1024.41(c)(4) and the evaluation timelines provided under § 1024.41(c)(1).

38(b)(3) Facilitating Oversight of, and Compliance by, Service Providers

38(b)(3)(iii)

The Bureau proposed and is adopting a new comment to § 1024.38(b)(3)(iii) to clarify the requirements for policies and procedures regarding servicers' communications with service provider personnel, including foreclosure counsel, as they relate to the prohibition in § 1024.41(g). As discussed in the section-by-section analysis of § 1024.41(g) below, the Bureau received no comments that raised concerns about the proposed comment.

Section 1024.39 Early Intervention Requirements for Certain Borrowers

39(a) Live Contact

The Bureau proposed several clarifications, revisions, and amendments to § 1024.39(a) and its commentary. The proposed changes were intended to clarify that a servicer's early intervention live contact obligations recur in each billing cycle while a borrower is delinquent, and to provide additional examples illustrating how the live contact requirements apply in certain circumstances, such as when a borrower is unresponsive or is in the process of applying for loss mitigation pursuant to § 1024.41. The Bureau is finalizing § 1024.39(a) substantially as proposed, with a change to clarify its applicability. The Bureau is finalizing comments 39(a)-1, -2, and -3 substantially as proposed, with certain revisions for clarity. The Bureau is finalizing comments 39(a)-4 and -5 with minor revisions for clarity.

Repeated Attempts to Establish Live Contact

Section 1024.39(a) currently requires a servicer to establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower's delinquency. Current comment 39(a)-1 states that a borrower's delinquency begins “on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid . . . .” [173] The Bureau has always understood these provisions to require servicers to make repeated attempts to contact a borrower who remains delinquent for more than one billing cycle. The Bureau proposed to revise § 1024.39(a) to codify this interpretation and expressly require servicers to establish or make good faith efforts to establish live contact with a delinquent borrower no later than the 36th day after each payment due date for the duration of the borrower's delinquency.

As stated in the 2012 RESPA Servicing Proposal, the Bureau intended the live contact provisions to create an ongoing obligation for a servicer to attempt to communicate with a delinquent borrower. In its discussion of the decision to limit a servicer's obligation to provide written notice under § 1024.39(b)(1) to once every 180 days, the Bureau noted that it was not including a similar limitation in § 1024.39(a) because it expected a servicer to contact a borrower during each period of delinquency.[174] In the 2013 RESPA Servicing Final Rule, the Bureau confirmed that it expected servicers to attempt to make live contact on a recurring basis and stated that servicers must establish live contact or make good faith efforts to do so, “even with borrowers who are regularly delinquent, by the 36th day of a borrower's delinquency.” [175] In the October 2013 Servicing Bulletin, the Bureau again clarified that servicers have an obligation to make good faith efforts to contact a borrower within 36 days of when a borrower first becomes delinquent “and for each of any subsequent billing periods for which the borrower's obligation is due and unpaid.” [176] The Bureau still believes that borrowers who remain delinquent for more than one billing cycle benefit from receiving repeated live contact and that relieving a servicer of its obligations to establish live contact after the initial delinquent billing cycle would undermine the intent of § 1024.39(a).

To provide additional guidance, the Bureau proposed to revise and re-order comment 39(a)-1 and its subsections. First, the Bureau proposed to remove the language in current comment 39(a)-1.i. As discussed in the section-by-section analysis of § 1024.31, the Bureau proposed a new definition of delinquency applicable to all of subpart C, which would make the language in current comment 39(a)-1.i superfluous. Second, the Bureau proposed to revise current comment 39(a)-1 and 39(a)-1.i and add comment 39(a)-1.i.A and 39(a)-1.i.B with examples to illustrate how a servicer may comply with the recurring live contact obligation when a borrower is delinquent for one or more billing cycles. The Bureau also proposed to revise comment 39(a)-2 to codify Start Printed Page 72215guidance from the October 2013 Servicing Bulletin, which clarified that servicers are permitted to combine their live contact attempts with their attempts to contact borrowers for other purposes, including, for example, by providing a borrower with information about available loss mitigation options when contacting the borrower for purposes of collection.[177]

Finally, the Bureau proposed to add comment 39(a)-3 to clarify that, while the Bureau expects servicers to continue to attempt to make live contact with borrowers who are regularly delinquent, a borrower's failure to respond to such attempts, as well as the length of the borrower's delinquency, are relevant circumstances to consider when evaluating a servicer's good faith. To this end, the Bureau proposed to add an example it first provided in the October 2013 Servicing Bulletin. The example would have provided that, in the case of a borrower with six or more consecutive delinquencies, good faith efforts to establish live contact might include adding a sentence in the borrower's periodic statement or another communication encouraging the borrower to contact the servicer. The Bureau proposed to re-designate current comments 39(a)-3 and 39(a)-4 as, respectively, comments 39(a)-4 and 39(a)-5 to accommodate the addition of proposed comment 39(a)-3.

The Bureau received several comments from industry and consumer advocacy group commenters expressing general support for the proposed revisions to § 1024.39(a). Two industry commenters stated that the proposed revisions would clarify the current requirements for early intervention and generally reflect common practices among credit unions.

A few industry commenters stated that the proposal would impose burdensome requirements on servicers because it would require them to comply with the live contact requirements under § 1024.39(a) every 36 days. These commenters expressed concern that the proposal could require such live contact efforts to continue even after a loan has been referred to foreclosure, and they noted that the foreclosure process can continue for years in judicial foreclosure States. One commenter expressed concern that the proposed revisions would not define what constitutes good faith efforts to establish live contact. Another industry commenter said that the proposal could require servicers to make live contact with borrowers in bankruptcy, which would be inconsistent with the goals of bankruptcy protection and could cause borrower confusion. This commenter also suggested that the live contact requirements could cause confusion for borrowers who are receiving State-mandated pre-foreclosure notices or the first notice or filing for foreclosure. This commenter urged the Bureau to restrict the live contact requirements of proposed § 1024.39(a) to the first 120 days of the borrower's delinquency.

The Bureau is finalizing § 1024.39(a) substantially as proposed, with a change to clarify its applicability. The Bureau is finalizing comments 39(a)-1,-2, and -3 substantially as proposed, with certain revisions for clarity. The Bureau is finalizing comments 39(a)-4 and -5 with minor revisions for clarity.

Section 1024.39(a) explains that, except as otherwise provided in § 1024.39, a servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower no later than the 36th day of a borrower's delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. It further provides that, promptly after establishing live contact with a borrower, the servicer shall inform the borrower about the availability of loss mitigation options, if appropriate.

Some commenters expressed specific concern over the burden associated with the live contact requirements in situations where a loan has been referred to foreclosure, noting that the foreclosure process may take several years. As discussed in more detail below, comment 39(a)-3 accounts for the burden associated with § 1024.39(a) where there is a prolonged delinquency. It clarifies that the length of a borrower's delinquency may be a factor to consider in the determination of what constitutes good faith efforts to establish live contact.

The Bureau declines to adopt additional exemptions to the live contact requirements based on the length of a borrower's delinquency, as requested by one commenter. Additional exemptions could harm borrowers by limiting their communications with servicers and their awareness of possible alternatives to foreclosure. The Bureau continues to believe that borrowers at all stages of delinquency benefit from live contact.

The Bureau notes that one commenter expressed concern over the live contact requirements in proposed § 1024.39(a) when a borrower is in bankruptcy. Section 1024.39 includes an exemption from the live contact requirements for borrowers in bankruptcy in § 1024.39(c). To clarify the applicability of the live contact requirements in § 1024.39(a) in light of the bankruptcy exemption in § 1024.39(c) and a similar one in § 1024.39(d) when a borrower has invoked certain rights under the FDCPA, the Bureau is finalizing § 1024.39(a) to explain that the live contact requirements of § 1024.39(a) apply, except as otherwise provided in § 1024.39.

The Bureau is finalizing comment 39(a)-1 substantially as proposed, with certain non-substantive revisions for clarity. Comment 39(a)-1 explains that § 1024.39 requires a servicer to establish or attempt to establish live contact no later than the 36th day of a borrower's delinquency. Comment 39(a)-1.i.A illustrates this provision through an example. Comment 39(a)-1.i.B explains that the servicer may time its attempts to establish live contact such that a single attempt will meet the requirements of § 1024.39(a) for two missed payments and provides an illustrative example.

The Bureau is finalizing comment 39(a)-2 substantially as proposed, with certain changes for clarity. Comment 39(a)-2 explains that live contact provides servicers an opportunity to discuss the circumstances of a borrower's delinquency. Live contact with a borrower includes speaking on the telephone or conducting an in-person meeting with the borrower but not leaving a recorded phone message. Comment 39(a)-2 states that a servicer may rely on live contact established at the borrower's initiative to satisfy the live contact requirement in § 1024.39(a). Finally, it provides that servicers may also combine contacts made pursuant to § 1024.39(a) with contacts made with borrowers for other reasons, for instance, by telling borrowers on collection calls that loss mitigation options may be available.

The Bureau is finalizing comment 39(a)-3 with changes. Comment 39(a)-3 explains that good faith efforts to establish live contact consist of reasonable steps, under the circumstances, to reach a borrower and may include telephoning the borrower on more than one occasion or sending written or electronic communication encouraging the borrower to establish live contact with the servicer. The length of a borrower's delinquency, as well as a borrower's failure to respond to a servicer's repeated attempts at communication pursuant to § 1024.39(a), are relevant circumstances to consider. For example, whereas “good faith efforts” to establish live contact with regard to a borrower with two consecutive missed payments might require a telephone call, “good faith Start Printed Page 72216efforts” to establish live contact with regard to an unresponsive borrower with six or more consecutive missed payments might require no more than including a sentence requesting that the borrower contact the servicer with regard to the delinquencies in the periodic statement or in an electronic communication. The comment explains that comment 39(a)-6 discusses the relationship between live contact and the loss mitigation procedures set forth in § 1024.41.

Final comment 39(a)-3 omits language from the proposal regarding the good faith efforts that might be sufficient where there is little or no hope of home retention, such as may occur in the later stages of foreclosure. The Bureau now believes it more appropriate to calibrate good faith efforts to the duration of the delinquency rather than a subjective judgment on the possibility of home retention, regardless of the stage of foreclosure.

The Bureau is declining to adopt a specific definition of what constitutes good faith efforts in comment 39(a)-3, as requested by one commenter. What constitutes good faith efforts is based on circumstances specific to the borrower and the borrower's mortgage loan obligation. The comment provides examples demonstrating the fact-specific nature of this determination.

The Bureau is finalizing comment 39(a)-4 as proposed. The final rule renumbers current comment 39(a)-3 as 39(a)-4, with no further changes. The final rule renumbers current comment 39(a)-4 as 39(a)-5, with a technical correction to add an omitted “to.”

Relationship Between Live Contact and Loss Mitigation Procedures

The Bureau also proposed to add comment 39(a)-6 to illustrate how a servicer could meet its early intervention live contact requirements when it is working with a borrower pursuant to the loss mitigation procedures set forth in § 1024.41. Proposed comment 39(a)-6 would have codified guidance the Bureau provided in its October 2013 Servicing Bulletin, explaining that, under current comment 39(a)-2, good faith efforts to establish live contact consist of “reasonable steps under the circumstances to reach a borrower . . . . ” The Bureau provided several examples of reasonable steps, including the example of a servicer that has established and is maintaining live contact with a borrower “with regard to the borrower's completion of a loss mitigation application and the servicer's evaluation of that borrower for loss mitigation options.” [178]

Proposed comment 39(a)-6 therefore would have clarified that a servicer that has established and is maintaining ongoing contact with regard to a borrower's completion of a loss mitigation application, or in connection with the servicer's evaluation of the borrower's complete loss mitigation application, would comply with the requirements of § 1024.39(a). In addition, the proposed comment would have clarified that a servicer that has evaluated and denied a borrower for all available loss mitigation options has complied with the requirements of § 1024.39(a). The Bureau explained that, once a servicer has complied with the requirements of § 1024.41 with respect to a specific borrower, and has determined that the borrower does not qualify for any available loss mitigation options, continued live contact between a borrower and a servicer no longer serves the purpose of § 1024.39(a). Indeed, at that point, continued attempts by the servicer to establish live contact may frustrate or even harass a borrower who was recently denied for loss mitigation.

The Bureau explained, however, that a borrower who cures a prior delinquency but subsequently becomes delinquent again would benefit from the servicer resuming compliance with the live contact requirement. Therefore, proposed comment 39(a)-6 also would have clarified that a servicer is again subject to the requirements of § 1024.39(a) with respect to a borrower who becomes delinquent after curing a prior delinquency.

Several consumer advocacy group commenters expressed support for proposed comment 39(a)-6. The commenters stated that live contact is unnecessary when a borrower is in contact with a servicer with regard to a loss mitigation application and expressed agreement with the Bureau's explanation that a servicer's repeated attempts to establish live contact may frustrate or even harass a borrower who was recently denied for loss mitigation. These commenters supported requiring a servicer to renew live contact for a borrower who experiences a delinquency subsequent to curing a prior delinquency.

The Bureau is finalizing comment 39(a)-6 with certain changes to improve clarity and consistency with other provisions in Regulation X. Comment 39(a)-6 explains that if the servicer has established and is maintaining ongoing contact with the borrower under the loss mitigation procedures under § 1024.41, including during the borrower's completion of a loss mitigation application or the servicer's evaluation of the borrower's complete loss mitigation application, or if the servicer has sent the borrower a notice pursuant to § 1024.41(c)(1)(ii) that the borrower is not eligible for any loss mitigation options, the servicer complies with § 1024.39(a) and need not otherwise establish or make good faith efforts to establish live contact. It further provides that a servicer must resume compliance with the requirements of § 1024.39(a) for a borrower who becomes delinquent again after curing a prior delinquency.

The Bureau is changing the last sentence of proposed comment 39(a)-6 to improve clarity in the final rule and align language in Regulation X. Unlike the proposal, which referred to a borrower's “prior default,” the final comment refers to a borrower's prior delinquency, as newly defined in § 1024.31.

39(b) Written Notice

39(b)(1) Notice Required

The Bureau proposed certain revisions to § 1024.39(b)(1) and its commentary to clarify the frequency with which a servicer must provide the written early intervention notice and to ensure consistency with the proposed revisions to the live contact requirements in § 1024.39(a). Under the proposed revision, a servicer would have had to send a written notice to a delinquent borrower no later than the 45th day of the borrower's delinquency, but a servicer would not have had to send such a notice more than once in any 180-day period. If the borrower remains delinquent or becomes 45 days delinquent again after the 180-day period expires, the proposed revision would have required the servicer to provide the written notice again. The Bureau is adopting § 1024.39(b)(1) with revisions. The Bureau is finalizing comment 39(b)(1)-2 with certain changes for clarity, making a technical correction to comment 39(b)(1)-3, and finalizing comment 39(b)(1)-6 but renumbering it as comment 39(b)(1)-5 and making certain changes for clarity.

Current comment 39(b)(1)-1 references the definition of delinquency in current comment 39(a)-1.i. As explained in the section-by-section analysis of § 1024.39(a), the definition of delinquency included in current comment 39(a)-1.i and referenced in comment 39(b)(1)-1 states that a borrower's delinquency begins on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid. As with § 1024.39(a), the Start Printed Page 72217inclusion of the phrase “for a given billing cycle” in the definition of delinquency for purposes of § 1024.39(b)(1) creates a recurring obligation on the part of servicers to provide a delinquent borrower with a written notice. In contrast with the recurring obligation to make live contact under § 1024.39(a), however, servicers only have to comply with the requirement to send a written notice once in a 180-day period.[179] This is because, as the Bureau explained in the 2012 RESPA Servicing Proposal, the Bureau did not believe “that borrowers who are consistently delinquent would benefit from receiving the same written notice every month.” [180]

As discussed in the section-by-section analysis of § 1024.31, the Bureau's proposed definition of delinquency in § 1024.31 did not use the phrase “for a given billing cycle.” The Bureau proposed revisions to § 1024.39(b)(1) and comment 39(b)(1)-2 to preserve the recurring nature of the written notice requirement, as well as the limitation that a servicer has to send a written notice only once during any 180-day period. Under the proposed revision, a servicer would have been required to send a written notice to a delinquent borrower no later than the 45th day of the borrower's delinquency but no more than once in any 180-day period. If the borrower either remained delinquent or became delinquent again at some point after the 180-day period expires, the proposed revision would have required the servicer to provide the borrower with another written notice 45 days from the date of the borrower's most recent missed payment.

In addition, the Bureau proposed to clarify through a revision to comment 39(b)(1)-2 that a servicer would again be required to send written notice to a borrower who remains delinquent more than 180 days after the servicer sent the first notice. The Bureau proposed to revise the example in comment 39(b)(1)-2 to illustrate this concept. The proposal also made a minor technical change to comment 39(b)(1)-2 to correct an erroneous reference to § 1024.39(a), which should instead be a reference to § 1024.39(b).

Finally, the Bureau proposed to add comment 39(b)(1)-6 to clarify the obligation of a transferee servicer to provide the written notice required by § 1024.39(b). Proposed comment 39(b)(1)-6 stated that a transferee servicer is not required to provide a second written notice to a borrower who already received a written notice from the transferor servicer on or before the borrower's 45th day of delinquency. The comment would have further clarified, however, that a servicer would be required to comply with § 1024.39(b) regardless of whether the transferor servicer sent the borrower a written notice in the preceding 180-day period. In other words, if the transferor servicer provided a first written notice after an initial missed payment and, following the transfer, the borrower remains or becomes 45 days delinquent again, the transferee servicer would have to provide a written notice again no later than 45 days after the payment due date, regardless of whether or not 180 days had passed since the date the transferor servicer provided the first written notice to the borrower.

The Bureau proposed this clarification because it believed that the rationale that justified applying the 180-day limitation to mortgage loans serviced by a single servicer may not apply in the case of a loan whose servicing rights are transferred to another servicer. In the case of a transferred loan, the Bureau believed that a transferee servicer may provide additional and different information to a delinquent borrower and that a borrower would benefit from receiving this information sooner rather than later following a transfer. Accordingly, the Bureau believed it was appropriate to clarify that the 180-day limitation in § 1024.39(b)(1) would not apply where the prior notice triggering the 180-day waiting period was provided by the transferor servicer prior to transfer.

Several commenters expressed general support for the written notice requirements set forth in proposed § 1024.41(b)(1). As with proposed § 1024.39(a), several industry commenters stated that these requirements would provide further clarity and reflected common practice in the industry. One industry commenter and several consumer advocacy group commenters recommended that the 180-day limitation should not apply when borrowers cure a delinquency following receipt of the written notice but become delinquent again during the 180-day period that follows. These commenters stated that requiring the written notice within 45 days of each delinquency would improve borrower access to timely information.

Several industry commenters suggested that that the written notice may be confusing, or provide limited benefit, when it is provided to seriously delinquent borrowers or borrowers engaged in loss mitigation. One industry commenter provided an example, stating that the proposal could result in a written notice being provided on day 225 of a borrower's delinquency, at which point a borrower may already be in foreclosure or completing a short sale or deed-in-lieu of foreclosure. This commenter recommended that a servicer only be required to provide a subsequent written notice if the borrower had been current for at least 180 days following the provision of the previous written notice. Another industry commenter requested an exemption from § 1024.39(b)(1) in situations where the scheduled foreclosure sale is within 37 days of the date a servicer would be required to provide the written notice or where no loss mitigation options are available to the borrower. This commenter stated that in such situations, provision of the written notice could cause borrower confusion. One industry commenter said that it would be unnecessary, and potentially confusing, for borrowers performing on a trial loan modification to be provided the written notice required by § 1024.39(b)(1).

Several consumer advocacy groups expressed support for proposed comment 39(b)(1)-6. They stated that borrowers would benefit if the 180-day limitation in § 1024.39(b)(1) did not apply where the prior written notice was provided by the transferor servicer. One of these commenters recommended that transferee servicers must provide the written notice within 15 days of the transfer date, stating that this would improve the borrower's ability to obtain certain foreclosure protections.

The Bureau is adopting § 1024.39(b)(1) with revisions. The Bureau is finalizing comment 39(b)(1)-2 with certain changes for clarity, making a technical correction to comment 39(b)(1)-3, and finalizing comment 39(b)(1)-6 but renumbering it as comment 39(b)(1)-5 and making certain changes for clarity.

As finalized, § 1024.39(b)(1) explains that, except as otherwise provided in § 1024.39, a servicer shall provide to a delinquent borrower a written notice with the information set forth in § 1024.39(b)(2) no later than the 45th day of the borrower's delinquency and again no later than 45 days after each payment due date so long as the borrower remains delinquent. Final § 1024.39(b)(1) further explains that a servicer is not required to provide the written notice, however, more than once during any 180-day period. It provides that if a borrower is 45 days or more delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 180 days after the provision of the Start Printed Page 72218prior written notice. Finally, it provides that, if a borrower is less than 45 days delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 45 days after the payment due date for which the borrower remains delinquent.

The Bureau is finalizing § 1024.39(b)(1) to add more clarity regarding when the written notice must be provided. The Bureau has always understood that servicers are required to provide the written notice with the information set forth in § 1024.39(b)(2) once every 180 days to borrowers who consistently carry a short-term delinquency.[181] When a borrower is 45 days or more delinquent at the end of any 180-day period after the servicer has provided the written notice, the servicer must provide the written notice not later than 180 days after providing the prior written notice. A servicer need not provide the written notice more than once during that 180-day period, regardless of whether the borrower remains delinquent throughout the 180-day period or the borrower cures the delinquency but becomes 45 days delinquent again during the 180-day period. When a borrower is less than 45 days delinquent at the end of any 180-day period after the servicer has provided the written notice, but later becomes 45 days delinquent, the servicer must provide the written notice no later than 45 days after the payment due date for which the borrower remains delinquent.

The Bureau declines to revise the 180-day limitation in § 1024.39(b)(1), as requested by some commenters. The Bureau continues to believe that the requirement to provide the written notice once every 180 days, as well as the live contact requirements set forth in § 1024.39(a), adequately address situations where a borrower experiences multiple delinquencies.

The Bureau also declines to exempt servicers from the written notice requirements where § 1024.39(b)(1) may require the servicer to provide the written notice close in time to a scheduled foreclosure sale or where the borrower may be performing on a temporary loss mitigation program. The Bureau notes that current comment 39(b)(2)-1 clarifies that servicers may include information on the written notice relevant to the circumstances specific to the borrower. Comment 39(b)(2)-1 explains that § 1024.39(b)(2) sets forth minimum content requirements for the written notice and that a servicer may provide additional information in the written notice that would be helpful or which may be required by applicable law or the owner or assignee of the mortgage loan. Accordingly, a servicer may include in the written notice additional, relevant information that would benefit borrowers even in the later stages of foreclosure or when performing on a temporary loss mitigation program.

The Bureau is making certain changes to proposed comment 39(b)(1)-2 to clarify the requirements for providing a written notice during and after any 180-day period. As finalized, comment 39(b)(1)-2 provides that a servicer need not provide the written notice under § 1024.39(b) more than once during a 180-day period beginning on the date on which the written notice is provided. A servicer must provide the written notice under § 1024.39(b) at least once every 180 days to a borrower who is 45 days or more delinquent. Comment 39(b)(1)-2 provides an illustrative example.

The Bureau is revising final comment 39(b)(1)-3, which currently cross references comment 39(a)-4, to reflect the renumbering of the comments. Final comment 39(b)(1)-3 provides that comment 39(a)-5 explains how a servicer may satisfy the requirements under § 1024.39 with a person authorized by the borrower to communicate with the servicer on the borrower's behalf.

The Bureau is adopting proposed comment 39(b)(1)-6 but renumbering it as comment 39(b)(1)-5 and making certain changes for clarity and to correct a typographical error. Final comment 39(b)(1)-5 provides that a transferee servicer is required to comply with the requirements of § 1024.39(b) regardless of whether the transferor servicer provided a written notice to the borrower in the preceding 180-day period. Comment 39(b)(1)-5 further explains, however, that a transferee servicer is not required to provide a written notice under § 1024.39(b) if the transferor servicer provided the written notice under § 1024.39(b) within 45 days of the transfer date. It provides an example to illustrate this provision.

The Bureau declines to require, as suggested by one commenter, that transferee servicers provide the written notice within 15 days of the transfer date. Comment 39(b)(1)-5 is consistent with the timing of the notice required under § 1024.39(b)(1) for a borrower with a new delinquency, and clarifies an additional requirement on transferee servicers beyond that imposed on servicers in the absence of a transfer. The Bureau is clarifying in final comment 39(b)(1)-5 that the 180-day limitation in § 1024.39(b)(1) does not apply where the prior written notice triggering the 180-day waiting period was provided by the transferor servicer prior to transfer.

Successors in Interest

Proposed § 1024.30(d) would have provided that a confirmed successor in interest must be considered a borrower for the purposes of the Mortgage Servicing Rules in Regulation X, including the early intervention requirements of § 1024.39. Proposed comment 39(b)(1)-5 would have provided that, where a servicer has already provided a written early intervention notice to a prior borrower under § 1024.39(b) before confirming a successor in interest's status, the servicer would not be required also to provide that notice to the unconfirmed successor in interest, but the servicer would be required to provide the confirmed successor in interest with any additional written early intervention notices required after confirming the successor in interest's status.

Several consumer advocacy group commenters suggested that the Bureau eliminate proposed comment 39(b)(1)-5. They urged the Bureau to indicate instead that the 180-day limitation does not apply to a successor in interest where the prior notice triggering the 180-day waiting period was provided to the transferor borrower.

Confirmation of a successor in interest does not restart the 180-day period specified by § 1024.39(b)(1) if the prior notice triggering the 180-day waiting period was provided to a transferor borrower. Section 1024.39(b)(1) provides that a servicer is not required to provide a written notice with the information set forth in § 1024.39(b)(2) more than once during any 180-day period. The Bureau believes that it would be unnecessarily burdensome to require servicers to provide to a confirmed successor in interest an additional copy of a written early intervention notice that servicer has already provided to a transferor borrower. The Bureau also believes that, in many cases, confirmed successors in interest may have received the original notice that the servicer mailed to the transferor borrower. Further, confirmed successors in interest may obtain information from servicers using a request for information, to which servicers must respond.

The Bureau is not finalizing proposed comment 39(b)(1)-5. The Bureau is addressing in new § 1024.32(c)(4) the questions about whether servicers must provide confirmed successors in interest with duplicative copies of notices Start Printed Page 72219required by the Mortgage Servicing Rules in Regulation X, including § 1024.39(b).

39(b)(2) Content of the Written Notice

The Bureau proposed to clarify when a servicer must include the disclosures under § 1024.39(b)(2)(iii) and (iv) in the written early intervention notice. Section 1024.39(b)(2)(iii) and (iv) state that, “if applicable,” the written notice must include a statement providing a brief description of examples of loss mitigation options that may be available and either application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer. The Bureau proposed to add a comment to clarify when such disclosures are “applicable” and when a servicer is therefore required to include them in the written early intervention notice. Proposed comment 39(b)(2)-4 would have provided that, if loss mitigation options are available, a servicer must include in the written notice the disclosures set forth in § 1024.39(b)(2)(iii) and (iv). Further, the proposed comment would have provided that loss mitigation options are available if the owner or assignee of a borrower's mortgage loan offers an alternative to foreclosure that is made available through the servicer. Additionally, the proposed comment would have provided that the availability of loss mitigation options does not depend upon a particular borrower's eligibility for those options but only on whether the owner or assignee of a borrower's mortgage loan generally offers loss mitigation options through the servicer. Proposed comment 39(b)(2)-4 was generally intended to assist servicers in determining when they are exempt from providing the written notice under proposed § 1024.39(d)(1)(ii) or (d)(2)(ii) for, respectively, borrowers in bankruptcy or borrowers who have invoked cease communication protections under FDCPA section 805(c).

One industry commenter requested the Bureau further clarify when loss mitigation options are available. One consumer advocacy group raised concerns with proposed comment 39(b)(2)-4 not expressly stating that it is applicable to the exemption under proposed § 1024.39(d)(2)(ii) for borrowers who have invoked cease communication protections under FDCPA section 805(c).

The Bureau is not finalizing proposed comment 39(b)(2)-4. Although proposed comment 39(b)(2)-4 would have explained when the disclosures required by § 1024.39(b)(2)(iii) and (iv) are “applicable,” the comment was intended to clarify whether a servicer would be exempt from providing the written notice under proposed § 1024.39(d)(1)(ii) for borrowers in bankruptcy or under proposed § 1024.39(d)(2)(ii) for borrowers who have invoked their cease communication protections pursuant to FDCPA section 805(c). The Bureau is finalizing revised explanations in comments 39(c)(1)-2 and 39(d)-1, to place the comments with the respective partial exemptions for borrowers in bankruptcy or borrowers who have invoked their cease communication rights, as detailed below in the section-by-section analyses of § 1024.39(c) and (d).

39(c) Conflicts With Other Law

Current § 1024.39(c) provides that nothing in § 1024.39 requires a servicer to communicate with a borrower in a manner otherwise prohibited by applicable law. Although the Bureau did not propose to address this paragraph in the proposal, for the reasons discussed below, the Bureau is removing current § 1024.39(c) from the final rule and renumbering the rest of § 1024.39 accordingly.

The Bureau adopted current § 1024.39(c) as part of the 2013 RESPA Servicing Rule in response to industry commenters' concerns raised in response to the 2012 RESPA Servicing Proposal related to potential conflicts between the early intervention requirements and existing law, including State law, the Bankruptcy Code, and the FDCPA.[182] Following issuance of the 2013 RESPA Servicing Rule, the Bureau determined that it was appropriate to address more specifically the interplay between the early intervention requirements and the Bankruptcy Code as well as the FDCPA. The Bureau therefore issued the IFR in October 2013 to implement current § 1024.39(d)(1) and (2), which exempt servicers from complying with the early intervention requirements when the borrower is in bankruptcy or has invoked the FDCPA's cease communications protections, respectively.[183] In providing these exemptions, the Bureau did not modify § 1024.39(c).

In response to proposed § 1024.39(d)(2) to require that servicers provide a modified written early intervention notice to borrowers who have invoked their FDCPA cease communication protections, several industry commenters noted the interplay of state debt collection laws, which they stated may prohibit servicers from providing the written early intervention notice to borrowers who have invoked their cease communication rights even if it would be permissible under Federal law. One commenter explained that at least two States, Florida and West Virginia, prohibit debt collection communication directly with borrowers who are represented by attorneys, even when the borrower has not elected to cease communication. As a result, some industry commenters requested a safe harbor from State law liability for sending the modified written early intervention notice that the Bureau proposed to require notwithstanding a borrower's invocation of the cease communication right. One industry commenter requested the Bureau provide an explicit safe harbor from the FDCPA that permits servicers to comply with all applicable State and local laws without risk of FDCPA liability.

After the close of the comment period, the Bureau conducted additional outreach to both servicers and consumer advocacy groups to further understand the scope of any such conflict between State debt collection laws and the proposal's requirement that servicers provide a modified written early intervention notice to borrowers who have provided a cease communication notification pursuant to FDCPA section 805(c).[184] The Bureau sought information related to whether the early intervention requirements under § 1024.39 conflict with State early intervention requirements, State cease communication laws, or State foreclosure laws.

Servicers generally reported not experiencing conflicts with State laws while meeting their early intervention requirements under § 1024.39. One servicer noted that West Virginia's debt collection laws require communication with counsel if a borrower is represented. Consumer advocacy groups also generally indicated that they are not encountering conflicts between State laws and the early intervention requirements under § 1024.39.

The Bureau concludes that removing current § 1024.39(c) regarding conflicts Start Printed Page 72220with other law is appropriate. Neither commenters nor the Bureau's additional outreach indicated any specific conflict between State laws and the early intervention requirements under proposed § 1024.39(d)(2)(iii) as set forth in the proposal or as adopted in this final rule under new § 1024.39(d)(3). Industry commenters expressed concerns generally related to potential conflicts with State debt collection laws but did not point to any specific State laws posing an actual conflict with the Bureau's proposal. With respect to State laws that require that a servicer communicate with the borrower's representative instead of directly with a represented borrower, the Bureau reminds servicers that providing early intervention communications to a person authorized by the borrower to communicate with the servicer on the borrower's behalf is permitted under § 1024.39.[185]

The Bureau removes current § 1024.39(c) to provide servicers with clarity about their early intervention obligations. To the extent there may be any actual conflict between a State law and a servicer's requirements under § 1024.39, a servicer is required to comply with its obligations under § 1024.39. Additionally, as discussed in the section-by-section analyses of revised § 1024.39(c) and (d), the Bureau resolves the questions posed by the intersection of the early intervention requirements under § 1024.39 with the Bankruptcy Code and the FDCPA.

The Bureau reminds servicers of § 1024.5(c)(1), which states, in relevant part, that RESPA and Regulation X do not annul, alter, affect, or exempt any person subject to their provisions from complying with the laws of any State with respect to settlement practices, except to the extent that a State law is inconsistent with RESPA and Regulation X.[186] Comment 5(c)(1)-1 explains that State laws that are inconsistent with the requirements of RESPA or Regulation X may be preempted, while State laws that give greater protection to consumers are not inconsistent with and are not preempted by RESPA or Regulation X. The Bureau believes that early intervention provides critically important benefits to borrowers and therefore, to the extent that a State law would prevent early intervention as required under § 1024.39, that State law is preempted. The Bureau knows of no such conflicts and notes that certain State law requirements, for example requiring communication through counsel where a borrower is represented, do not conflict with the requirement to provide early intervention. Where Regulation X affords a method of complying with both the State law and with the requirements of § 1024.39, servicers should avail themselves of that opportunity. Generally, State laws that give greater protection to consumers are not inconsistent with § 1024.39 and would not be preempted.

39(c) Borrowers in Bankruptcy

Under current § 1024.39(d)(1), a servicer is exempt from the requirements of § 1024.39 for a mortgage loan while the borrower is a debtor in bankruptcy under title 11 of the United States Code. The Bureau proposed to revise current § 1024.39(d)(1) to narrow the scope of the bankruptcy exemption from the early intervention requirements. The proposed revisions would have preserved the current exemption from the live contact requirements of § 1024.39(a) as it relates to a borrower in bankruptcy but would have required live contact for a borrower who is jointly liable on the mortgage loan with someone who is a debtor in a chapter 7 or chapter 11 bankruptcy case.[187] The proposal also would have partially removed the exemption from the written notice requirements of § 1024.39(b) for a borrower in bankruptcy and would have required a servicer to provide the written notice unless no loss mitigation options are available, the borrower's confirmed plan of reorganization provides for surrendering the property or avoidance of the lien securing the mortgage loan, the borrower files a Statement of Intention in the bankruptcy case identifying an intent to surrender the mortgage loan, or a court enters an order avoiding the lien securing the mortgage loan or lifting the Bankruptcy Code's automatic stay with respect to the property securing the mortgage loan. Additionally, the proposal would have required a servicer to resume compliance with the requirements of § 1024.39 with respect to a borrower who has not discharged the mortgage debt under certain conditions.

For the reasons discussed below, the Bureau is finalizing proposed § 1024.39(d)(1), but renumbering it as new § 1024.39(c)(1), and making certain adjustments to implement the partial exemption on a loan level and for debtors in any chapter of bankruptcy to address concerns raised by commenters. The Bureau is adopting modifications regarding the frequency of the written notice required under new § 1024.39(c)(1). The Bureau is also exempting a servicer from providing the written early intervention notice with regard to a mortgage loan for which any borrower on the mortgage loan invokes the FDCPA's cease communications protections while any borrower on the mortgage loan is a debtor in bankruptcy. The Bureau is finalizing proposed comment 39(d)(1)-1 in new § 1024.39(c)(2) as proposed, with modifications to require a servicer to resume compliance with the early intervention requirements under certain conditions and subject to certain exemptions.

39(c)(1) Partial Exemption

Based upon its review of the comments received in response to the October 2013 IFR and its study of the intersection of the early intervention requirements and bankruptcy law, as stated in the proposal, the Bureau believed it would be appropriate to reinstate the early intervention requirements with respect to borrowers in bankruptcy under certain circumstances. The Bureau proposed to do so in this final rule because, as noted in the IFR, the Bureau believed that it would be preferable to use notice and comment rulemaking, rather than simply finalizing the IFR with Start Printed Page 72221modifications, to reinstate the early intervention requirements with respect to such borrowers.[188] The Bureau believed that this approach would allow stakeholders a more robust opportunity to consider and comment on the Bureau's specific proposal. The Bureau addressed in the proposal comments it received on this issue in response to the IFR, including those received after the IFR's official comment period ended.[189] As discussed further below, in light of those comments as well as the comments received in response to the proposal, the Bureau is finalizing the live contact exemption as proposed, with modifications to implement the exemption at the loan level and for debtors in any chapter of bankruptcy. The Bureau is also finalizing the proposed written notice partial exemption as proposed, with similar and additional modifications. The live contact and written notice exemptions are discussed in turn below.

Live Contact

The Bureau proposed to maintain the exemption from the live contact requirements with respect to a borrower who is in bankruptcy, has discharged personal liability for the mortgage loan, or shares liability on a mortgage loan with a person who is a debtor in a chapter 12 or chapter 13 bankruptcy case. As the Bureau explained in the proposal, when a debtor files for protection under chapter 12 or chapter 13, the Bankruptcy Code implements a co-debtor stay, which prohibits creditors from engaging in collection efforts against certain of the debtor's joint obligors, such as a joint obligor on the debtor's mortgage loan, even though the joint obligor has not filed for bankruptcy.[190] Because contacting a borrower covered by the co-debtor stay raises some of the same concerns as contacting a borrower covered by the automatic stay, the Bureau explained in the proposal that it may be appropriate to exempt servicers from compliance with § 1024.39(a) with respect to non-bankrupt borrowers who are jointly liable on a mortgage loan with a debtor in a chapter 12 or chapter 13 bankruptcy case. However, the proposed exemption would have excluded borrowers who are jointly liable on a mortgage loan with a debtor in a chapter 7 or chapter 11 case because the Bankruptcy Code does not prevent collection attempts against such joint obligors, and servicers do not violate the automatic stay by contacting them.[191] This was a departure from current § 1024.39(d)(1), in which the Bureau crafted a broad exemption from § 1024.39, making the exemption applicable to any joint obligor of a debtor in bankruptcy, regardless of whether the joint obligor was in bankruptcy or protected against collection attempts by the co-debtor stay under 11 U.S.C. 1201(a) or 1301(a). The Bureau is finalizing this exemption from live contact as proposed, with modifications to apply the exemption on a loan level and for debtors in any chapter of bankruptcy.

Comments on Live Contact, Including Borrower-Specific and Chapter-Specific Exemption

The Bureau received comments from servicers, credit unions, consumer advocacy groups, trade associations, and the U.S. Trustee Program. Similar to comments received in response to the October 2013 IFR, commenters generally agreed that servicers should be exempt from the early intervention live contact requirements as to a borrower in bankruptcy or a borrower who has discharged personal liability for a mortgage loan. Industry commenters generally raised concerns with the proposed requirement that servicers provide live contact to non-debtor co-borrowers when a borrower files for chapter 7 or 11 bankruptcy, while supporting the loan-level exemption for borrowers who file under chapter 13. Numerous industry commenters strongly opposed a borrower-specific exemption in favor of a loan-level exemption, citing three major concerns. First, industry expressed concerns related to circumstances in which co-borrowers live together and only one files for bankruptcy. Servicers explained that they fear violating the automatic stay if the servicer's phone calls are answered by the debtor borrower instead of the non-debtor co-borrower. Second, servicers cited the burden of keeping track of which chapter of bankruptcy each borrower is in rather than just applying a single bankruptcy flag to the account. One commenter noted that bankruptcy cases commonly switch from one chapter to another, which under the proposal would affect whether the servicer would be required to comply with the early intervention requirements. Third, industry commenters explained that servicers' systems currently track mortgage loans at the loan level. Servicers explained that they would be required to undergo burdensome systems upgrades to change how they track mortgage loans to distinguish communications as between borrowers on the same loan. One industry commenter also stated that it would be misleading and potentially violate the automatic stay for a servicer to make live contact with the non-debtor co-borrower to discuss loss mitigation options because the property could not be disposed of without bankruptcy court permission. Therefore, the commenter stated, the risks to the servicer are high while offering no benefits to the non-debtor co-borrowers.

Consumer advocacy groups generally supported the proposal's approach to live contact for non-debtor co-borrowers and expressed their position that, under certain circumstances, live contact with a borrower in bankruptcy can be appropriate and would not violate the Bankruptcy Code's automatic stay. Consumer advocacy groups requested that the Bureau include commentary to the rule that would explain the Bureau does not take a position on whether early intervention efforts might violate the automatic stay or discharge injunction and that clarifies that the exemption from live contact with respect to borrowers in bankruptcy is permissive.

After the close of the comment period, the Bureau conducted additional outreach with servicers to gain insight into their mortgage processing systems and capabilities to implement proposed changes to the servicing of loans in bankruptcy. Servicers continued to express the same three broad concerns with the proposal's approach as outlined above.

Final Rule

The Bureau is finalizing the live contact exemption as proposed, with modifications to implement the exemption at the loan level and for debtors in any chapter of bankruptcy. The Bureau is adopting an exemption from the live contact early intervention requirements for borrowers in Start Printed Page 72222bankruptcy and renumbering it as new § 1024.39(c)(1)(i) instead of as proposed in § 1024.39(d)(1)(i). New § 1024.39(c)(1)(i) provides that, while any borrower on a mortgage loan is a debtor in bankruptcy under title 11 of the United States Code, a servicer, with regard to that mortgage loan, is exempt from the live contact early intervention requirements of § 1024.39(a). The Bureau has also modified the final commentary to align with and provide additional guidance on this provision.

Borrower-specific and chapter-specific exemption rationale. The Bureau considered commenters' concerns related to the difficulty of administering the proposal's borrower-specific approach. Although the proposal attempted to strike an appropriate balance by limiting the partial exemptions from § 1024.39 to only those borrowers protected by the Bankruptcy Code's automatic stay and discharge provisions, the Bureau is persuaded by the practical considerations industry commenters cited in favor of adopting a loan-level exemption. In particular, the Bureau recognizes the challenges presented by providing live or written early intervention to a non-debtor co-borrower who lives with the debtor borrower and the possibility of disputes about whether a servicer has violated the automatic stay if those communications inadvertently reach the wrong borrower. The Bureau also believes that applying the partial exemption from § 1024.39 with regard to a mortgage loan while any borrower on that loan is a debtor under any bankruptcy chapter generally simplifies the exemption, reduces servicer burden, and facilitates servicer compliance.

Therefore, the Bureau adopts a loan-level exemption from the live contact early intervention requirements rather than a borrower-specific exemption as proposed. The final rule does not draw distinctions between the chapter of bankruptcy under which the borrower filed for purposes of the partial exemption. Instead, new § 1024.39(c)(1) applies the exemption with regard to a mortgage loan while any borrower on that loan is a debtor in bankruptcy under title 11 of the United States Code generally. Additionally, because this final rule does not adopt the borrower-specific approach in the proposal, the Bureau declines to adopt proposed comment 39(d)(1)(i)-1 related to live contact and proposed comment 39(d)(1)(ii)-1 related to a borrower's plan of reorganization under chapters 11, 12, and 13 of the Bankruptcy Code. Instead, the Bureau adopts comment 39(c)(1)-1 which explains that § 1024.39(c)(1) applies once a petition is filed under title 11 of the United States Code, commencing a case in which the borrower is a debtor in bankruptcy.

Live contact exemption rationale. In addition to the issues identified in the comments, two other factors inform the Bureau's decision to maintain the exemption from the live contact early intervention requirements. First, as the Bureau explained in the proposal, live contact may be perceived as more intrusive and of less value to a borrower in bankruptcy. As discussed in the section-by-section analysis of § 1024.39(a), the live contact requirements are ongoing and generally require a servicer to make continued efforts to establish live contact with a borrower so long as a borrower remains delinquent. In addition, compliance with § 1024.39(a) is not limited to, and does not in every case require, a discussion of available loss mitigation options. Section 1024.39(a) requires a servicer to inform a borrower of loss mitigation options “if appropriate.” More broadly, live contact provides servicers an opportunity to discuss the circumstances of a borrower's delinquency,[192] and, based on this discussion, a servicer may determine not to inform a borrower of loss mitigation options. Current comment 39(a)-3.i.B provides an example of when a servicer makes a reasonable determination not to provide information about the availability of loss mitigation options to a borrower. In that example, the borrower has missed a January 1 payment and notified the servicer that full late payment will be transmitted to the servicer by February 15.[193] As the comment demonstrates, live contact could serve as a reminder to a borrower who inadvertently missed a payment, or it could give the servicer an opportunity to discuss when the borrower would cure a temporary delinquency; it would not necessarily involve a discussion of loss mitigation options. Borrowers who seek protection under the Bankruptcy Code, however, may do so in part to obtain a reprieve from unwelcome creditor communications about outstanding payment obligations during which the borrower can reorganize financial obligations comprehensively rather than interacting with individual creditors. For such borrowers, a servicer's repeated attempts to establish live contact, which may not lead to a discussion of available loss mitigation options between the parties, may be of diminished value to the borrower.

Second, while some courts have determined that a creditor may properly contact a borrower in bankruptcy, including by telephone, to inform the borrower about loss mitigation options or to negotiate the terms of a loss mitigation agreement,[194] other courts have found that a creditor violated the automatic stay by making live contact with a borrower to discuss loss mitigation.[195] As the Bureau noted in the proposal, these violations appear to involve extreme facts, such as creditors making dozens of phone calls, some of which threatened legal action, to borrowers who had requested that the creditor stop contacting them and either had already decided to surrender the property or were not interested in the offered loss mitigation options.[196]

The Bureau does not believe that compliance with the live contact requirement under § 1024.39(a) would generally violate the stay. The Bureau is concerned, however, that, given the interactive and potentially unscripted nature of live contact, as well as the fact that live contact does not necessarily require a discussion of loss mitigation options, borrowers or courts may view a servicer's attempts to establish live contact as a communication prohibited by the Bankruptcy Code's automatic Start Printed Page 72223stay under certain circumstances. Accordingly, the Bureau concludes that it is appropriate to exempt servicers from engaging in live contact with borrowers in bankruptcy.

Consumer advocacy groups requested that the Bureau include commentary to explain that it does not take a position on whether early intervention efforts might violate the Bankruptcy Code and to clarify that the exemption from live contact with respect to borrowers in bankruptcy is permissive. The Bureau concludes that its statements in the IFR and in this final rule are sufficient and it declines to include the commentary requested by consumer advocacy groups. As the Bureau previously explained in the IFR and in the proposal, the Bureau does not take a position as to whether early intervention efforts might violate the Bankruptcy Code's automatic stay or discharge injunction. The partial exemption set forth in the final rule is indeed permissive, not prohibitive, and the Bureau once again encourages servicers that have been communicating with borrowers in bankruptcy about loss mitigation options to continue doing so. The Bureau believes that borrowers in bankruptcy may benefit from receiving tailored loss mitigation information that is appropriate to their circumstances.

Written Notice

The Bureau proposed to revise the exemption in current § 1024.39(d)(1) from the written early intervention notice requirements with respect to a delinquent borrower who is in bankruptcy or has discharged personal liability for the mortgage loan. The proposal would have limited the exemption to instances where there are no loss mitigation options available or where the borrower is surrendering the property or avoiding the lien securing the mortgage loan. Proposed § 1024.39(d)(1)(ii)(B) through (D) would have exempted a servicer from the written early intervention notice requirement in several situations where the borrower in bankruptcy surrenders the property securing the mortgage loan or avoids (i.e., renders unenforceable) the lien securing the mortgage loan. First, proposed § 1024.39(d)(1)(ii)(B) would have provided that a servicer is exempt if the borrower's confirmed plan of reorganization provides for the borrower to surrender the property, provides for the avoidance of the lien securing the mortgage loan, or otherwise does not provide for, as applicable, the payment of pre-bankruptcy arrearages or the maintenance of payments due under the mortgage loan. Second, proposed § 1024.39(d)(1)(ii)(C) would have provided that a servicer is exempt if the borrower files a statement of intention with the bankruptcy court that identifies an intent to surrender the property securing the mortgage loan. Third, proposed § 1024.39(d)(1)(ii)(D) would have provided that a servicer is exempt if the bankruptcy court enters an order providing for the avoidance of the servicer's lien or lifting the automatic stay with respect to the property securing the mortgage loan.

The Bureau is finalizing this exemption as proposed, with modifications to simplify triggering the exemption based on the availability of loss mitigation options and to apply uniformly the exemption on a loan level and for debtors in any chapter of bankruptcy. The Bureau is adopting modifications regarding the frequency of this modified written notice. The Bureau is also adding a new provision that exempts a servicer from providing the written early intervention notice with regard to a mortgage loan for which any borrower on the mortgage loan invokes the FDCPA's cease communications protections while any borrower on the mortgage loan is a debtor in bankruptcy.

Comments on Written Notice

The Bureau requested comment on the proposed partial exemption from the written early intervention notice, including the scope of the exemption, the criteria for qualifying for the exemption, and how communications could be tailored to meet the particular needs of borrowers in bankruptcy. Most industry commenters objected to the proposed requirement to provide the written early intervention notice, with certain exceptions, to a delinquent borrower who is in bankruptcy or has discharged personal liability for the mortgage loan. As explained above with respect to live contact, industry commenters raised concerns with the borrower-specific exemption and instead favored a blanket, loan-level exemption. Servicers commented that, while written communications may be more easily tailored to individual borrowers, servicers cannot avoid situations where an early intervention letter or email reaches the wrong borrower (such as where one spouse routinely opens all the mail). In addition, servicers reported that they maintain a single address for providing written notices related to the mortgage loan and, while some servicers may be able to provide duplicate copies of notices to a second borrower at another address, they generally cannot automate a process for providing only some written notices to one borrower while providing other or modified notices to another borrower at a different address. Industry commenters also explained that servicers do not always know when co-borrowers live apart or, if so, the alternative mailing addresses and that, therefore, servicers would bear the burden of researching this information.

After the close of the comment period, the Bureau conducted additional outreach to servicers to gain insight into their mortgage processing systems and capabilities to implement proposed changes to the servicing of loans in bankruptcy. Servicers reiterated the system difficulties associated with tracking additional mailing addresses as well as the manual burden that would be required to provide communications to a co-borrower at a different address.

Several industry commenters objected to the proposed exemption's complexity, citing the multiple different events during the bankruptcy case that can trigger the exemption, before assessing each factor for each co-borrower. Servicers commented that they would incur significant burden to determine correctly when the exemption applies. One servicer commented that it would be very difficult to apply the exemption correctly and consistently. Industry commenters also stated that the compliance burden is unwarranted for the few borrowers they believe would be helped by early intervention. Industry commenters said that many borrowers in bankruptcy likely would have already received multiple early intervention notices prior to the bankruptcy and exhausted all of their loss mitigation options, making additional notices of little value. Several industry commenters asserted more generally that the written early intervention notice offers minimal value to a borrower in bankruptcy and should therefore not be provided.

Several industry commenters noted the particular problems posed for borrowers in chapter 13. Delinquent borrowers may repay their arrearages over three to five years in chapter 13. Commenters explained that assessing the delinquency can be difficult because a missed payment may be due to a delay in the bankruptcy trustee forwarding funds to the servicer or the result of a dispute about how much the servicer is owed. Commenters also stated that providing the written notice at least once in every 180-day period as proposed could confuse a borrower who is making all payments due under the chapter 13 bankruptcy plan but contractually delinquent on the mortgage loan.Start Printed Page 72224

Additionally, numerous industry commenters stated that sending the notice could violate the automatic stay given the lack of a safe harbor and expressed concern about the prospect of litigation. One commenter noted that HUD's 2008 mortgagee letter required servicers to provide loss mitigation information to borrowers in bankruptcy only if the borrower had counsel who could receive the notice. Two other commenters explained that bankruptcy courts in Florida, for example, have adopted mortgage modification mediation procedures and prohibit written communication about the mediation outside the bankruptcy court portal. Some commenters contended that the Bureau was inappropriately attempting to interpret the Bankruptcy Code.[197]

The Bureau received comments from consumer advocacy groups, two industry members, and the U.S. Trustee Program generally supporting the proposal's requirement to provide the written notice, with certain exceptions, to a delinquent borrower who is in bankruptcy or has discharged personal liability for the mortgage loan. Consumer advocacy groups generally favored the proposed borrower-specific exemptions from the written notice requirements. Several consumer advocacy groups supported the proposal on the basis that members of a particularly at-risk population who have difficulty meeting their financial obligations would receive loss mitigation information; one consumer advocacy group stated that the availability of loss mitigation options should not determine whether a borrower in bankruptcy is provided the written early intervention notice. Another consumer advocacy group stated that the proposal is consistent with FHA loss mitigation guidance and HAMP rules. A different consumer advocacy group supported the proposal but noted that, when completing bankruptcy court filings in several jurisdictions, debtors often must check a box identifying an intent to surrender their homes even when they actually plan to keep the property; as a result, these borrowers would not receive early intervention under the proposal. One trade association said it viewed the proposal's written notice requirements for borrowers in bankruptcy as reasonable when compared against permissible bankruptcy and loss mitigation options. The U.S. Trustee Program agreed with the proposal's approach, noting that debtors in bankruptcy have difficulty meeting their financial obligations and that therefore these debtors may often benefit substantially from opportunities for loss mitigation.

Comments on Timing of Written Notice

The Bureau requested comment on whether the timing of the written early intervention notice should be different for a borrower in bankruptcy, such as whether a servicer should be required to provide the written notice to a borrower in bankruptcy within 45 days after the bankruptcy case commences, rather than by the 45th day of the borrower's delinquency. One industry commenter suggested requiring the notice within 45 days after the petition date at the point in time when the borrower is determining whether to keep the home. Another industry commenter suggested that, if the Bureau required a written early intervention notice for borrowers in bankruptcy, the Bureau should require just one written early intervention notice in bankruptcy for the life of the loan.

The Bureau conducted additional outreach on the timing of the written notice after the close of the comment period. One servicer stated that it currently provides loss mitigation information to the borrower, counsel, and bankruptcy trustee within one week of the bankruptcy filing, regardless of the period of the borrower's delinquency (if any), and considers this to be a best practice. This servicer explained that, even if the mortgage is current, it assumes a borrower who has filed for bankruptcy is experiencing some financial difficulty and wants to inform the borrower that help is available. Another servicer stated that it likely would be easier to provide a single written early intervention notice immediately following notification of a new bankruptcy. One consumer advocacy group advised that servicers subject to HUD's requirement to provide loss mitigation information appear to provide that information at different times, such that borrowers sometimes receive it months after filing for bankruptcy.

Comments on Overlap Between Borrowers in Bankruptcy and FDCPA

The Bureau proposed comment 39(d)(2)(iii)-2 to address the situation of a borrower in bankruptcy who has invoked cease communication rights under FDCPA section 805(c). The Bureau requested comment on whether it should require a servicer to provide the written early intervention notice to a borrower's representative, instead of the borrower, to the extent the FDCPA applies to a servicer's communications with a borrower in bankruptcy and the borrower has provided a notification pursuant to FDCPA section 805(c). The Bureau sought comment on whether there may be a conflict between the language of proposed model clause MS-4(D) and applicable bankruptcy laws when a borrower has exercised cease communication rights under the FDCPA and is also a borrower in bankruptcy and on the scope of any such conflict.

Industry commenters said that most borrowers file for bankruptcy as a last resort, after all loss mitigation options have been exhausted. Consequently, they said, providing another written notice will do little for the borrower and possibly subject the servicer to liability under the Bankruptcy Code. Industry commenters stated that tracking whether the borrower has a representative, along with tracking FDCPA and bankruptcy case status, would increase servicer burden and the likelihood of mistakes. Industry commenters also noted that the model language in proposed Model Clause MS-4(D) could be inaccurate because the automatic stay is a legal impediment to foreclosure.[198]

Consumer advocacy groups, including a group of consumer bankruptcy attorneys, supported the Bureau's proposal to require a written early intervention notice when a borrower has both invoked the FDCPA's cease communication protections and is a debtor in bankruptcy. However, they opposed an exemption when the borrower is not represented. They explained that unrepresented borrowers have the same need for loss mitigation information as represented borrowers. They also stated that the written notice would not violate the Bankruptcy Code's automatic stay when sent directly to the borrower. Consumer advocacy groups expressed general concern that servicers will often erroneously conclude that borrowers are not represented.

The U.S. Trustee Program commented that the modified written notice, including the proposed model language, may be seen by some bankruptcy judges or borrowers as violating the Bankruptcy Code's automatic stay even when sent to the borrower's representative. The commenter suggested that the Bureau consider modifying the proposed language in Model Clause MS-D(4) or exempting Start Printed Page 72225servicers from the requirement to provide a written early intervention notice unless the borrower requests it when the borrower has invoked the FDCPA's cease communication protections and is also a debtor in bankruptcy.[199]

Final Rule

In light of the comments received and for the reasons set forth below, the Bureau is adopting a partial exemption from the written early intervention notice for borrowers in bankruptcy and renumbering it as new § 1024.39(c)(1)(ii) and (iii) instead of as proposed in § 1024.39(d)(1)(ii), with modifications to implement the partial exemption on a loan level and for debtors in any chapter of bankruptcy and with modifications to the frequency of the written notice. As finalized, new § 1024.39(c)(1)(ii) provides that, while any borrower on a mortgage loan is a debtor in bankruptcy under title 11 of the United States Code, a servicer, with regard to that mortgage loan, is exempt from the written early intervention notice requirements if no loss mitigation option is available or if any borrower on the mortgage loan has provided a cease communication notification pursuant to FDCPA section 805(c) with respect to that mortgage loan as referenced in § 1024.39(d). As explained above in the discussion of the live contact exemption, the Bureau also adopts a loan-level exemption from the written early intervention notice requirements rather than a borrower-specific exemption as proposed. The final rule does not draw distinctions between the chapter of bankruptcy under which the borrower filed for purposes of the partial exemption. Instead, new § 1024.39(c)(1) applies the exemption with regard to a mortgage loan while any borrower on that loan is a debtor in bankruptcy under title 11 of the United States Code generally.

New § 1024.39(c)(1)(iii) provides that if the conditions of § 1024.39(c)(1)(ii) are not met, a servicer, with regard to that mortgage loan, must comply with the written early intervention notice requirements, as modified by § 1024.39(c)(1)(iii). Therefore, if any loss mitigation option is available and no borrower on the mortgage loan has invoked FDCPA section 805(c)'s cease communication protections, a servicer is required to provide the modified written early intervention notice as described in § 1024.39(c)(1)(iii). Section 1024.39(c)(1)(iii) also provides that, if a borrower is delinquent when the borrower becomes a debtor in bankruptcy, a servicer must provide the written notice not later than the 45th day after the borrower files a bankruptcy petition under title 11 of the United States Code. If the borrower is not delinquent when the borrower files a bankruptcy petition, but subsequently becomes delinquent while in bankruptcy, the servicer must provide the written notice not later than the 45th day of the borrower's delinquency. A servicer must comply with these timing requirements regardless of whether the servicer provided the written notice in the preceding 180-day period. Section 1024.39(c)(1)(iii) further provides that the written notice may not contain a request for payment and that a servicer is not required to provide the written notice more than once during a single bankruptcy case. The final commentary has also been modified.

Written notice rationale. As the Bureau explained in the proposal, a primary value of the written early intervention notice to a delinquent borrower in bankruptcy is to inform the borrower of potential loss mitigation options to avoid foreclosure. The Bureau considered comments that it should require the written early intervention notice for all borrowers in bankruptcy, regardless of whether any loss mitigation option is available. However, a notice that does not contain information related to loss mitigation options serves primarily as a payment reminder, which is of significantly diminished value to a borrower in bankruptcy and precisely the type of communication to a borrower in bankruptcy that the automatic stay is intended to prevent. Therefore, the Bureau concludes that it is not appropriate to require servicers to provide the written early intervention notice to borrowers in bankruptcy if no loss mitigation option is available. The final rule retains the exemption from § 1024.39(b) if no loss mitigation option is available or if any borrower on the mortgage loan has invoked the FDCPA's cease communication protections while requiring the provision of a modified form of the written early intervention notice to borrowers in bankruptcy if those conditions are not met.

To assist servicers in determining whether any loss mitigation option is available and thus whether the servicer is required to provide the modified written early intervention notice under new § 1024.39(c)(1)(iii), the Bureau is adopting new comment 39(c)(1)(ii)-1. New comment 39(c)(1)(ii)-1 states that in part, § 1024.39(c)(1)(ii) exempts a servicer from the requirements of § 1024.39(b) if no loss mitigation option is available. The comment then explains that a loss mitigation option is available if the owner or assignee of a mortgage loan offers an alternative to foreclosure that is made available through the servicer and for which a borrower may apply, even if the borrower ultimately does not qualify for such option. As explained in the section-by-section analysis of § 1024.39(b)(2), the Bureau is not adopting proposed comment 39(b)(2)-4, which would have explained when a loss mitigation option is available for purposes of § 1024.39(b) generally, but is instead adopting new comment 39(c)(1)(ii)-1 to explain when a loss mitigation option is available for purposes of § 1024.39(c).

The Bureau believes that delinquent borrowers in bankruptcy would benefit from receiving the written notice required under § 1024.39(b) if any loss mitigation option is available. The Bureau believes that the content of the notice, including the statement providing a brief description of loss mitigation options that may be available from the servicer and the application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer, are of particular value to a delinquent borrower in bankruptcy. Borrowers who have filed for bankruptcy should not be denied an opportunity to obtain information about available loss mitigation options, as this information may be uniquely critical for borrowers in bankruptcy making decisions about how best to reduce, eliminate, or reorganize their debts. The Bureau understands that borrowers sometimes initially determine to surrender their property only to reconsider that decision upon receiving loss mitigation information.

Although industry commenters generally opposed providing a written early intervention notice to borrowers in bankruptcy, the Bureau concludes that requiring the notice, as modified in new § 1024.39(c)(1)(iii), strikes the appropriate balance for several reasons. First, the Bureau does not agree with those industry commenters who claimed that the written notice would be of little value to borrowers in bankruptcy. While it may be the case that some borrowers exhaust their loss mitigation options before bankruptcy, many borrowers file for bankruptcy precisely to avoid losing their home, and for those borrowers, continuing to receive information about available loss mitigation options is vital. Comments from consumer advocacy groups, including consumer bankruptcy Start Printed Page 72226attorneys, and the U.S. Trustee Program all emphasized the importance of providing loss mitigation information to borrowers in bankruptcy, noting that they are, by definition, experiencing financial hardships. The Bureau believes that delinquent borrowers in bankruptcy would benefit from information about available loss mitigation options.

HUD, Treasury, and many local bankruptcy courts have similarly recognized that borrowers in bankruptcy have a need for loss mitigation assistance. In 2008, HUD issued guidance requiring servicers of FHA mortgage loans to provide loss mitigation information to bankrupt borrowers represented by counsel, while also recommending that servicers provide that information to pro se borrowers.[200] Although Treasury does not require servicers to solicit borrowers in bankruptcy actively for loss mitigation, it has made clear that such borrowers are eligible for HAMP.[201] Numerous bankruptcy courts, including in Florida, Nevada, New Jersey, New York, and Wisconsin, have adopted mortgage modification programs or procedures.

Second, the Bureau believes that this final rule appropriately addresses industry commenters' concerns that determining when the exemption applies could be particularly difficult or burdensome. The Bureau understands that servicers often review borrowers' initial court filings as part of their efforts in monitoring borrowers' bankruptcy cases, and the information servicers would have needed to determine whether or not an exemption applied, such as whether or not the borrower is represented and the chapter of bankruptcy under which relief is sought, is usually contained in those filings. Nonetheless, as explained above, the Bureau is finalizing new § 1024.39(c)(1)(iii) to take a uniform approach for borrowers in any chapter of bankruptcy under title 11 of the United States Code, thus obviating any need for servicers to distinguish the chapter of bankruptcy filed by the borrower. Moreover, as finalized, § 1024.39(c)(1)(iii) requires that a servicer provide the notice only once during a single bankruptcy case, further alleviating servicer burden. Additionally, new comment 39(c)-2 provides that § 1024.39(c) does not require a servicer to communicate with a borrower in a manner that would be inconsistent with applicable bankruptcy law or a court order in a bankruptcy case, and that, if necessary to comply with such law or court order, a servicer may adapt the requirements of § 1024.39 as appropriate.

Third, while industry commenters expressed concerns that providing the written early intervention notice to borrowers in bankruptcy would violate the automatic stay, courts have found no violation under similar circumstances. Of the handful of cases cited by industry commenters finding stay or discharge injunction violations for any reason related to a mortgage loan, all involved extreme facts and only one involved loss mitigation communications. In that case, the servicer had sent several ARM notices, two HAMP packets, and a letter offering workout options, but also engaged in collection attempts, such as making multiple phone calls requesting payment, after the borrower had long since surrendered the home and stopped making payments.[202] In finding a violation of the discharge injunction, the court noted that the totality of the servicer's collection efforts included at least 15 separate collection attempts and that the debtor had in fact vacated the home before filing for bankruptcy and moved to another address.[203] The final rule, in contrast, requires a single written notice containing information about available loss mitigation options, which may not include a request for payment. The Bureau is not aware of any reported decision in which a court sanctioned a servicer for providing a written notice about loss mitigation information with the content and frequency as adopted in this final rule. In fact, some industry commenters, consumer advocacy groups, bankruptcy attorneys, the U.S. Trustee Program, and two bankruptcy judges [204] all agreed that providing the written early intervention notice likely would not violate the automatic stay.

Additionally, the Bureau understands that, even after a borrower files for bankruptcy, a servicer is not categorically barred from communicating with the borrower.[205] Courts have found that, under appropriate circumstances, servicers may provide periodic statements, notices of change in payments, and other communications without violating the automatic stay.[206] As noted above, several courts have determined that a servicer may properly contact a borrower to inform the borrower about loss mitigation options or to negotiate the terms of a loss mitigation agreement.

The Bureau also does not believe that servicers' concerns about communicating with a borrower represented by counsel warrant a blanket exemption from providing the written early intervention notice to borrowers in bankruptcy. To the extent that a servicer is concerned about Start Printed Page 72227communicating with a borrower represented by counsel, it may communicate with the borrower's authorized representative instead.[207] New comment 39(c)-1 provides that, if the borrower is represented by a person authorized by the borrower to communicate with the servicer on the borrower's behalf, the servicer may provide the written notice required by § 1024.39(b), as modified by § 1024.39(c)(1)(iii), to the borrower's representative. The comment explains that, in general, bankruptcy counsel is the borrower's representative and that a servicer's procedures for determining whether counsel is the borrower's representative are generally considered reasonable if they are limited to, for example, confirming that the attorney's name is listed on the borrower's bankruptcy petition or other court filing.[208]

As evidenced by the numerous jurisdictions that provide special bankruptcy court rules for loss mitigation,[209] the Bureau continues to believe that bankruptcy courts often encourage loss mitigation efforts and that bankruptcy courts are unlikely to sanction a servicer for sending notices required by Regulation X unless the servicer engaged in other, more aggressive collection attempts. To address further commenters' concerns about the automatic stay, the Bureau is finalizing § 1024.39(c)(1)(iii) to specify that the written notice may not contain a request for payment and require that a servicer provide the notice only once during a single bankruptcy case. As explained more fully in the section-by-section analysis of § 1024.39(d), the prohibition on making a payment request ensures that the written early intervention notice is purely informational and does not serve as a pretext for collection attempts. The Bureau is also revising existing comment 39(d)(1)-3 and renumbering it as comment 39(c)(1)(iii)-1 to provide that, when two or more borrowers are joint obligors with primary liability on a mortgage loan subject to § 1024.39, if any of the borrowers is a debtor in bankruptcy, a servicer may provide the written notice required by § 1024.39(b), as modified by § 1024.39(c)(1)(iii), to any borrower who is primarily liable on the obligation. This comment should clarify servicers' obligations when there are multiple borrowers on a mortgage loan and only one of them is in bankruptcy.

The Bureau also proposed comment 39(d)(1)(ii)-2 to clarify servicers' obligations when the FDCPA applies to a servicer's communications with a borrower who is a debtor in bankruptcy if that borrower has also invoked the cease communication protections of FDCPA section 805(c). The Bureau revises and renumbers proposed comment 39(d)(1)(ii)-2 as new comment 39(c)(1)(ii)-2, which illustrates application of the exemption in § 1024.39(c)(1)(ii). Final comment 39(c)(1)(ii)-2.i provides that, to the extent the FDCPA applies to a servicer's communications with a borrower in bankruptcy and any borrower on the mortgage loan has provided a notification pursuant to FDCPA section 805(c) notifying the servicer that the borrower refuses to pay a debt or that the borrower wishes the servicer to cease further communications (a cease communications notice), with regard to that mortgage loan, § 1024.39(c)(1)(ii) exempts a servicer from providing the written notice required by § 1024.39(b). New comment 39(c)(1)(ii)-2.ii provides an illustrative example of the application of this exemption.

Timing of written notice rationale. New § 1024.39(c)(1)(iii)(A) requires that a servicer provide the written notice not later than the 45th day after a delinquent borrower files a bankruptcy petition under title 11 of the United States Code. The Bureau believes that requiring servicers to provide a single notice for delinquent borrowers who file for bankruptcy without having to review the borrower's bankruptcy filings or the bankruptcy court's orders reduces servicer burdens compared to the proposed approach. The Bureau believes that delinquent borrowers will benefit by having the notice provided shortly after the bankruptcy filing when they are making decisions about whether to retain the property, even if they received a version of the early intervention notice prior to the bankruptcy filing. The final rule's approach is consistent with HUD's 2008 FHA guidance, which requires servicers to provide loss mitigation information “upon receipt” of a borrower's filing.[210]

Overlap between borrowers in bankruptcy and FDCPA rationale. New § 1024.39(c)(1)(ii) provides that a servicer is exempt from the written early intervention notice requirements if § 1024.39(d) also applies with respect to that borrower's loan, meaning that a servicer subject to the FDCPA is exempt from providing the written early intervention notice with regard to a mortgage loan for which any borrower on the mortgage loan invokes the FDCPA's cease communications protections while any borrower on the mortgage loan is a debtor in bankruptcy. The Bureau agrees with commenters that there is tension between, on the one hand, the Bankruptcy Code's automatic stay, which prevents the servicer from pursuing foreclosure, and, on the other hand, a statement that the servicer may or intends to invoke its specified remedy of foreclosure, as required to be included under § 1024.39(d)(3)(i) in the notice to a borrower who has invoked the FDCPA's cease communication protections.[211]

Start Printed Page 72228

The Bureau believes that any potential borrower harm resulting from this exemption is mitigated because § 1024.39(d)(3) requires that, if any loss mitigation option is available, servicers must provide the written early intervention notice to delinquent borrowers outside of bankruptcy, even if those borrowers have invoked their cease communication rights. If any loss mitigation option is available, a servicer is exempt from providing the written early intervention notice only with respect to a mortgage loan for which any borrower on the loan has invoked the FDCPA cease communication right and while any borrower on that mortgage loan is a debtor in bankruptcy. Consequently, many borrowers among that subset of delinquent borrowers who have invoked their cease communication rights while any borrower on the mortgage loan is a debtor in bankruptcy will nonetheless receive an early intervention notice, either because they received such a notice before exercising their cease communication rights or because they received the modified written early intervention notice required to be provided to all borrowers outside of bankruptcy if any loss mitigation option is available. As commenters noted, many borrowers will be more than 45 days delinquent upon filing for bankruptcy and so will have received a written early intervention notice before entering bankruptcy, if any loss mitigation option is available.

39(c)(2) Resuming Compliance

The Bureau also proposed to revise current comment 39(d)(1)-2 and redesignate it as comment 39(d)(1)-1 (and remove existing comment 39(d)(1)-1). The proposed comment would have provided that, with respect to any borrower who has not discharged the mortgage debt, a servicer must resume compliance with § 1024.39(a) and (b), as applicable, as of the first delinquency that follows the earliest of the following outcomes in the bankruptcy case: (1) The case is dismissed, (2) the case is closed, (3) the borrower reaffirms the mortgage loan under 11 U.S.C. 524, or (4) the borrower receives a discharge under 11 U.S.C. 727, 1141, 1228, or 1328. Proposed comment 39(d)(1)-1 also clarified that the requirement to resume compliance with § 1024.39 would not require a servicer to communicate with a borrower in a manner that would be inconsistent with applicable bankruptcy law or a court order in a bankruptcy case. The proposed revisions would have provided that, to the extent necessary to comply with such law or court order, a servicer may adapt the requirements of § 1024.39 as appropriate.

In addition, proposed comment 39(d)(1)-1 would have provided that compliance with § 1024.39(a) is not required with respect to any borrower who has discharged the mortgage debt under applicable provisions of the Bankruptcy Code but continues to make mortgage payments to avoid foreclosure of the lien and retain the home. As to borrowers who use such a ride-through option, the proposal would have imposed the same requirements on a servicer both during and after the bankruptcy case: The servicer would be exempt from the live contact requirements of § 1024.39(a), but the servicer would have to continue to comply with the written notice requirements of § 1024.39(b) unless one of the conditions in proposed § 1024.39(d)(1)(ii) was satisfied. If the borrower's bankruptcy case was revived, for example, through the court's reinstating a previously dismissed case or reopening the case, the servicer would be exempt again from the requirements of proposed § 1024.39(a). As discussed further below, the Bureau is adopting clarifications to proposed comment 39(d)(1)-1 and codifying it in new § 1024.39(c)(2) and its related commentary to explain when a servicer is required to resume compliance with the early intervention requirements.

Comments on Resuming Compliance

Commenters expressed varied opinions about whether a servicer should be required to resume compliance with § 1024.39 if a borrower discharged the mortgage loan. One industry commenter explained that a bankruptcy case can remain open following the borrower's discharge, that the property securing the servicer's lien may remain property of the bankruptcy estate, and that the automatic stay could continue to apply to the property. The commenter recommended that a servicer not be required to resume compliance until the bankruptcy case is complete. Conversely, consumer advocacy groups stated that servicers should be required to resume compliance with the early intervention requirements for borrowers in chapter 7 bankruptcy who use the ride-through option referenced above. These consumer advocacy groups suggested that, for simplicity of administration, if the servicer is required to send the borrower periodic statements after a bankruptcy discharge, then the servicer should also be required to attempt live contact and provide a written early intervention notice to the borrower if the loan becomes delinquent.

In response to the Bureau's specific request for comment as to whether servicers have had difficulties receiving notices regarding the dismissal or closing of a bankruptcy case or of the debtor's discharge, one servicer stated that it encounters such problems. Another industry commenter stated that servicers incur expenses in monitoring bankruptcy cases for a case closing or for discharge of the mortgage loan. Both commenters suggested that the obligation to resume compliance be contingent on the servicer receiving notice from the bankruptcy court or the borrower.

Specifically regarding ride-through borrowers, the U.S. Trustee Program commented that the criteria for resuming compliance with early intervention should be clarified to recognize borrowers who have received a discharge of personal liability but whose homes are still subject to valid liens. The U.S. Trustee Program stated that the Bureau should make clear that servicers must comply with the written early intervention notice requirements if the servicer retains a valid security interest in the property—even if the debtor has obtained a discharge of personal liability.

The Bureau conducted additional outreach with servicers about how they monitor bankruptcy cases after the close of the comment period. Several servicers stated that they learn of new bankruptcy filings through electronic subscription monitoring services. One credit union explained that it learns of new bankruptcy filings either through mailings from the bankruptcy court or directly from the credit union member. In either case, servicers stated that they generally receive timely notice of new bankruptcy filings, in some cases within as little as one day of the filing. A number of servicers also explained that they track the status of bankruptcy cases electronically.

Final Rule

The Bureau is adopting clarifications to proposed comment 39(d)(1)-1 and codifying it in new § 1024.39(c)(2) and its related commentary. Specifically, part of proposed comment 39(d)(1)-1.i is finalized as new § 1024.39(c)(2)(i) with modifications and provides that, subject to certain exceptions in new § 1024.39(c)(2)(ii), a servicer that was exempt pursuant to § 1024.39(c)(1) must resume compliance with the early intervention requirements after the next payment due date that follows the Start Printed Page 72229earliest of the following events: The bankruptcy case is dismissed; the bankruptcy case is closed; and the borrower reaffirms personal liability for the mortgage loan. New § 1024.39(c)(2)(ii) finalizes part of proposed comment 39(d)(1)-1.ii with modifications and provides that, with respect to a mortgage loan for which the borrower has discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, a servicer is not required to resume compliance with the live contact early intervention requirements and must resume compliance with the written early intervention notice requirements if the borrower has made any partial or periodic payment on the mortgage loan after commencement of the borrower's bankruptcy case.

The Bureau considered whether the servicer's obligation to resume early intervention should be contingent on a servicer receiving notice that the bankruptcy case is dismissed or closed or that the borrower has reaffirmed personal liability for the mortgage loan. However, as the Bureau's outreach confirmed, servicers typically track the status of borrowers' bankruptcy cases already to ensure compliance with other Federal and State laws. Servicers generally have procedures in place to monitor outcomes in bankruptcy cases and already bear any costs associated with monitoring bankruptcy case outcomes. Additionally, a servicer that participates in the bankruptcy case, such as by filing a proof of claim or seeking relief from the automatic stay to pursue foreclosure, should receive automatic electronic notification of all case activity. Therefore, the Bureau concludes that any additional compliance burdens associated with new § 1024.39(c)(2) will be minimal and that servicers have access to timely information about the bankruptcy case.

The Bureau adopts part of proposed comment 39(d)(1)-1.ii in new comment 39(c)(2)-1, which explains that, if the borrower's bankruptcy case is revived, for example, if the court reinstates a previously dismissed case or reopens the case, § 1024.39(c)(1) once again applies. However, § 1024.39(c)(1)(iii)(C) provides that a servicer is not required to provide the written notice more than once during a single bankruptcy case. New comment 39(c)(2)-1 provides an illustrative example applying this provision.

The final rule does not include the proposed language requiring servicers to resume compliance with the early intervention provisions when the borrower receives a discharge of the mortgage loan. The Bureau believes it would be more appropriate to require servicers to resume compliance once the bankruptcy case is complete. The Bureau understands that the time between a borrower's discharge of personal liability for the mortgage loan and the closing of a bankruptcy case is typically brief and that, therefore, not requiring early intervention during this period generally should not have significant adverse consequences for borrowers. Additionally, the property securing the mortgage loan may remain property of the bankruptcy estate after the borrower discharges personal liability for the loan, and the Bureau believes it would be more appropriate for a servicer to resume providing early intervention after the bankruptcy case is complete with respect to both the borrower and the property.

The Bureau continues to believe that borrowers who exercise the ride-through option, like other borrowers who retain their homes, would benefit from early intervention. The Bureau is concerned, however, that in certain situations the borrower or bankruptcy court could view live contact as violating the discharge injunction. Therefore, with respect to a mortgage loan for which a borrower discharges personal liability, a servicer is not required to resume compliance with the live contact requirements of § 1024.39(a). The Bureau believes that, for the reasons discussed above, providing a written early intervention notice after the bankruptcy case to a borrower who has discharged personal liability for the mortgage loan is unlikely to raise similar concerns about the discharge injunction.[212] Accordingly, the final rule provides that, with respect to a borrower who has discharged personal liability for a mortgage loan, the servicer must resume compliance with § 1024.39(b) after the bankruptcy case concludes if the borrower has made any partial or periodic payment on the mortgage loan after commencement of the borrower's bankruptcy case. Consistent with comments the Bureau received from the U.S. Trustee Program regarding the ride-through option, the Bureau believes that a borrower's partial or periodic payment after commencement of the bankruptcy case indicates the borrower's desire to retain the property and therefore that the written early intervention notice may continue to be helpful under those circumstances. Even if a servicer were to return a borrower's partial payment or hold it in suspense, the servicer would still be required to resume compliance with § 1024.39(b) after the bankruptcy case concludes pursuant to § 1024.39(c)(2)(ii)(B) because the borrower made the payment.

Legal Authority

The Bureau is exercising its authority under sections 6(j)(3) and 19(a) of RESPA to exempt servicers from the early intervention live contact requirements in § 1024.39(a) for a mortgage loan while any borrower on a mortgage loan is a debtor in bankruptcy under any chapter in title 11 of the United States Code. The Bureau exercises its authority under sections 6(j)(3) and 19(a) of RESPA to exempt a servicer from the written early intervention notice requirements in § 1024.39(b) if any borrower on the mortgage loan is a debtor in bankruptcy and no loss mitigation option is available or if § 1024.39(d) also applies with respect to that borrower's loan. The Bureau also exercises its authority under sections 6(j)(3) and 19(a) of RESPA to exempt a servicer from resuming compliance with § 1024.39(a) with respect to a mortgage loan for which the borrower has discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, and to require a servicer to resume compliance with § 1024.39(b) if the borrower has made any partial or periodic payment on the mortgage loan after commencement of the borrower's bankruptcy case. For the reasons discussed above, the Bureau does not believe that the consumer protection purposes of RESPA are furthered by requiring servicers to comply with § 1024.39(a) or (b) under those bankruptcy-related circumstances.

The Bureau is exercising its authority under sections 6(k)(1)(E), 6(j)(3), and 19(a) of RESPA to require that a servicer provide the written early intervention notice as set forth in § 1024.39(c)(1)(iii) not later than the 45th day after the borrower files a bankruptcy petition under title 11 of the United States Code or not later than the 45th day of the borrower's delinquency, as applicable. The Bureau also exercises its authority under sections 6(k)(1)(E), 6(j)(3), and 19(a) of RESPA to require that a servicer resume compliance with § 1024.39(a) and (b) after the next payment due date that follows the earliest of the following Start Printed Page 72230events: The bankruptcy case is dismissed; the bankruptcy case is closed; or the borrower reaffirms personal liability for the mortgage loan. The Bureau believes that the early intervention rules under § 1024.39 provide necessary consumer protections and that servicers are capable of providing such protections without negative consequences for borrowers, including borrowers in bankruptcy. The Bureau finds, consistent with RESPA section 6(k)(1)(E), that § 1024.39(c)(1)(iii) and (c)(2) is appropriate to achieve the consumer protection purposes of RESPA, including to help borrowers avoid unwarranted or unnecessary costs and fees and to facilitate review of borrowers for foreclosure avoidance options. For the same reasons, § 1024.39(c)(1)(iii) and (c)(2) is authorized under section 6(j)(3) of RESPA as necessary to carry out section 6 of RESPA and under section 19(a) of RESPA as necessary to achieve the purposes of RESPA, including borrowers' avoidance of unwarranted or unnecessary costs and fees and the facilitation of review of borrowers for foreclosure avoidance options. For the reasons discussed above, the Bureau concludes that the consumer protection purposes of RESPA are furthered by requiring servicers to provide the written early intervention notice as set forth in § 1024.39(c)(1)(iii) and to resume compliance with § 1024.39(a) and (b) for borrowers in bankruptcy under the circumstances set forth in § 1024.39(c)(2).

39(d) Fair Debt Collection Practices Act—Partial Exemption

The Bureau proposed to revise the scope of the existing exemption from the early intervention requirements for servicers subject to the FDCPA with respect to a borrower who has sent a notification pursuant to FDCPA section 805(c), as set forth in current § 1024.39(d)(2).[213] The proposal would have maintained the current exemption from the live contact requirements of § 1024.39(a) while partially removing the exemption from the written early intervention notice requirements of § 1024.39(b). The latter exemption would have been only partially removed in that it would remain in place for certain cases but would have added a requirement that a servicer provide a modified written notice if loss mitigation options are available. To the extent proposed § 1024.39(d)(2)(iii) would have required a servicer to provide a modified written notice, the proposal contemplated a safe harbor for the servicer from liability under the FDCPA. FDCPA section 805 provides limitations on communications with borrowers, including the cease communication provision under which a borrower may notify a debt collector that the borrower refuses to pay a debt or that the borrower wishes the debt collector to cease further communication with the consumer.

For the reasons discussed below, the Bureau is adopting proposed § 1024.39(d)(2) generally as proposed, renumbered as § 1024.39(d), with technical corrections and modifications to adopt it on a loan level. The Bureau is adopting these modifications to ease servicer burden and to facilitate servicer compliance, in a manner and for several reasons that parallel those explained in the section-by-section analysis of § 1024.39(c). The Bureau is also adding a new provision that exempts a servicer that is a debt collector from providing the written early intervention notice with regard to a mortgage loan for which any borrower invokes the FDCPA's cease communication protections while any borrower on the mortgage loan is a debtor in bankruptcy.

Consistent with the discussion in this section-by-section analysis, the Bureau is issuing concurrently with this final rule an interpretive rule interpreting the FDCPA cease communication requirement in relation to the mortgage servicing rules. This interpretation constitutes an advisory opinion under FDCPA section 813(e) (15 U.S.C. 1692k(e)).[214] For the reasons discussed below, the Bureau is providing a safe harbor from liability under the FDCPA for the written notice that servicers that are debt collectors are required to provide under § 1024.39(d)(3), notwithstanding a borrower's invocation of the cease communication right. Additionally, the Bureau is providing a safe harbor from liability under the FDCPA for certain communications by a servicer to a borrower notwithstanding a borrower's invocation of the cease communication right.

Comments on Partially Removing Exemption Generally

The Bureau received comments on the proposed partial exemption from servicers, consumer advocacy groups, trade associations, credit unions, and the U.S. Trustee Program. Some industry commenters expressed concern with the Bureau's proposed approach, stating that it would be inconsistent to require that a servicer provide early intervention after receiving a borrower's cease communication notice. Two industry commenters stated that the better approach would be for the FDCPA not to apply to mortgage loans at all and for early intervention requirements to apply equally to all mortgage borrowers. Another industry commenter explained that, to ease operational burdens, the exemption should apply to any loans that a servicer chooses to treat as subject to the FDCPA and for which the borrower has provided a cease communication notification.

Consumer advocacy groups generally supported the proposal, commenting that borrowers need and are interested in loss mitigation information notwithstanding invocation of their cease communication rights. Consumer advocacy groups explained that borrowers should not be forced to make a choice between exercising their rights under the FDCPA and receiving information about potential loss mitigation options.

Comments on Live Contact

Industry commenters generally supported the exemption from live contact for a borrower who has provided a cease communication notification. Consumer advocacy groups stated that the Bureau should clarify that the exemption does not apply if the borrower has initiated contact with the servicer and has sought assistance with a delinquency or requested information about potential loss mitigation options.

Comments on Written Notice

Industry commenters generally objected to the burden of providing a modified written early intervention notice on a modified schedule to a narrow subset of borrowers. They noted their difficulty in determining when the FDCPA applies to a mortgage loan and thus the difficulty they would have in Start Printed Page 72231determining when to send the modified notice.

Consumer advocacy groups generally supported a requirement that borrowers who invoke cease communication protections receive a written notice. However, consumer advocacy groups commented that the availability of loss mitigation options should not be the condition that determines whether a borrower receives the written notice. They stated that a servicer may make a mistake in its determination as to whether a borrower who has provided a servicer a cease communication notification would be eligible for some loss mitigation options. Therefore, consumer advocacy groups supported requiring that servicers provide a written notice to all borrowers who have invoked cease communication rights, regardless of whether loss mitigation options are available.

Comments on Frequency of Written Notice

With respect to the frequency of the written early intervention notice, two industry group commenters indicated that, despite the option under the current rule to provide the early intervention notice no more than once in a 180-day period, servicers find it easier to provide the notice more frequently, sometimes monthly. The commenters suggested that the rule should allow servicers to provide a written notice monthly or once in connection with two missed payments during a calendar year to tie the notice requirement to a late payment rather than to the time between notices. The same commenters also said that a servicer should be permitted to provide a written notice upon the borrower's request.

On the other hand, consumer advocacy groups suggested that, in limited circumstances, the Bureau should permit a servicer to provide a written early intervention notice more than once during a 180-day period. They stated that a servicer should be required to provide a written notice more than once during any 180-day period if there has been a cure of a default and subsequent re-default by the borrower within the 180-day period.

Comments on Safe Harbor and Advisory Opinion

Industry commenters stated that the Bureau's overall proposed safe harbor approach failed to take into account the fluid nature of discussions between servicers and borrowers in the loss mitigation context. These commenters stated that assessing a borrower's eligibility for loss mitigation may require asking the borrower to pay a reinstatement amount or otherwise make an immediate payment. One industry commenter stated that loss mitigation is itself a form of debt collection and that servicing personnel are trained to explore options for collection. This commenter suggested that, with respect to any specific borrower-initiated communication, the cease communication notice should be deemed temporarily or permanently withdrawn. Accordingly, industry commenters suggested the Bureau modify the safe harbor to cover more discussions of loss mitigation options.

Although consumer advocacy groups generally supported the proposal to require that a servicer provide a written early intervention notice to a borrower who has provided the servicer a cease communication notification, they opposed the proposed safe harbor from liability under the FDCPA. They stated that the proposal appeared to provide servicers with blanket FDCPA protection any time they provide a written notice required by proposed § 1024.39(d)(2)(iii), under all circumstances, regardless of what is contained in the notice. Consumer advocacy groups also expressed concern with the proposal's discussion of borrower-initiated communications in a separate advisory opinion interpreting the FDCPA cease communication requirement. Rather than issue a separate advisory opinion interpreting the FDCPA cease communication requirement, consumer advocacy groups requested that the Bureau issue guidance in Regulation X itself, either as an amendment to proposed § 1024.39(d)(2)(i) or in a comment. These consumer advocacy groups also opposed the Bureau's plan to provide servicers with a safe harbor from liability under the FDCPA for an act done or omitted in good faith in conformity with the advisory opinion.

Final Rule

For the reasons set forth below and in light of the comments received, the Bureau is adopting a partial exemption from the early intervention requirements for borrowers who have invoked their FDCPA cease communication protections as proposed in § 1024.39(d)(2), renumbered as § 1024.39(d), with technical corrections and modifications to adopt it on a loan level instead of a borrower-specific level. The Bureau is also adding a new provision that exempts a servicer that is a debt collector from providing the written early intervention notice with regard to a mortgage loan for which any borrower invokes the FDCPA's cease communication protections while any borrower on the mortgage loan is a debtor in bankruptcy.

As finalized, § 1024.39(d) provides that, with regard to a mortgage loan for which any borrower has provided a notification pursuant to FDCPA section 805(c), a servicer subject to the FDCPA with respect to that borrower's loan: (1) Is exempt from the live contact requirements of § 1024.39(a); (2) is exempt from the written notice requirements of § 1024.39(b) if no loss mitigation option is available or while any borrower on that mortgage loan is a debtor in bankruptcy under title 11 of the United States Code as referenced in § 1024.39(c); and (3) if those conditions are not met (meaning that any loss mitigation option is available and no borrower on the mortgage loan is a debtor in bankruptcy), must comply with the written notice requirements of § 1024.39(b), as modified by new § 1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of § 1024.39(b) under these circumstances to provide that, in addition to the information required pursuant to § 1024.39(b)(2), the written notice must include a statement that the servicer may or intends to invoke its specified remedy of foreclosure. Model clause MS-4(D) in appendix MS-4 may be used to comply with this requirement.[215] Revised § 1024.39(d)(3) also finalizes two other aspects of the proposed rule: (1) The written notice may not contain a request for payment, and (2) a servicer is prohibited from providing the written notice more than once during any 180-day period.

While many mortgage servicers are not subject to the FDCPA, mortgage servicers that acquired a mortgage loan at the time that it was in default are subject to the FDCPA with respect to that mortgage loan. The FDCPA generally grants consumers the right to bar debt collectors from communicating with them regarding a debt by sending a written cease communication notification pursuant to FDCPA section 805(c). Section 805(c) of the FDCPA provides that if a consumer refuses in writing to pay a debt or requests that a debt collector cease communicating with the consumer about the debt, the debt collector must discontinue communicating with the consumer, subject to enumerated exceptions. However, even after a borrower sends a Start Printed Page 72232servicer a cease communication notification, a servicer that is a debt collector is not categorically barred under the FDCPA from all communication with the borrower. FDCPA section 805(c) contains specific exceptions that allow further communications with the borrower with respect to a debt. As relevant here, the prohibition does not apply where a debt collector communicates with a consumer who has invoked the cease communication right to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor [216] or, where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.[217]

The Bureau provisionally adopted the exemption in current § 1024.39(d)(2) in the IFR and indicated that the Bureau expected to explore the potential utility and application of such requirements in comparison to the FDCPA protections in the future.[218] The Bureau now partially removes the exemption to require that a servicer that is a debt collector provide a modified written early intervention notice if any loss mitigation option is available and no borrower on the mortgage loan is a debtor in bankruptcy. The Bureau is issuing simultaneously with this final rule an interpretive rule that constitutes an advisory opinion under FDCPA section 813(e) interpreting the section 805(c)(2) and (3) exceptions to the cease communication right. No liability arises under the FDCPA for an act done or omitted in good faith in conformity with an advisory opinion of the Bureau while that advisory opinion is in effect.[219] After careful consideration, the Bureau concludes that, because failure to provide the written early intervention notice required by § 1024.39(d)(3) is closely linked to a servicer's ability to invoke its specified remedy of foreclosure, the notice falls within the exceptions in FDCPA sections 805(c)(2) and (3).

39(d)(1)

The Bureau is adopting proposed § 1024.39(d)(2)(i) generally as proposed, renumbered as § 1024.39(d)(1), with modifications to adopt the exemption on a loan level. Accordingly, new § 1024.39(d)(1) maintains the current exemption from the live contact requirements of § 1024.39(a) for a servicer subject to the FDCPA with respect to a borrower's mortgage loan for which any borrower has provided a cease communication notification under FDCPA section 805(c). For reasons similar to those explained in the section-by-section analysis of § 1024.39(c), the Bureau is adopting this partial exemption on a loan level to ease servicer burden and facilitate servicer compliance.

As the Bureau explained in the proposal, the Bureau understands that the nature of live contact and the information conveyed may be highly variable. The information conveyed, the manner for conveying that information, and whether any loss mitigation information is conveyed depends on the borrower's circumstances, the servicer's perception of those circumstances, and the servicer's exercise of reasonable discretion.[220] The servicer may contact the borrower in person, by telephone, or not at all, if the servicer's good faith efforts to reach the borrower fail.[221] By their nature, discussions or conversations resulting from live contact are not and cannot be closely prescribed.[222] Such variability is inconsistent with the narrow exceptions in FDCPA section 805(c)(2) and (3), which permit a debt collector to communicate further with a borrower for extremely limited purposes after a borrower has provided a servicer a cease communication notification. Because the information conveyed and the manner for conveying such information may be highly variable in the context of live contact, the Bureau concludes that requiring a servicer that is a debt collector to comply with the live contact requirements with regard to a mortgage loan for which a borrower has provided a notification pursuant to FDCPA section 805(c) is inappropriate and may put a servicer subject to the FDCPA with respect to that borrower's loan at risk of violating the FDCPA. The Bureau adopts no general rule about whether oral versus written communications are more likely to violate the FDCPA but notes only that the live contact requirements of § 1024.39(a) are less susceptible to standard, uniform delivery in compliance with the cease communication exceptions in FDCPA section 805(c)(2) and (3) than are the modified written early intervention notice requirements required under this final rule.

The Bureau also concludes that live contact may be of less value to a delinquent borrower who has properly invoked the FDCPA's cease communication protections. Compliance with the live contact requirements in § 1024.39(a) is not limited to, and does not in every case require, a discussion of available loss mitigation options. Section 1024.39(a) requires that a servicer inform the borrower about the availability of loss mitigation options, “if appropriate.” More broadly, comment 39(a)-2 states that live contact provides servicers an opportunity to discuss the circumstances of a borrower's delinquency, and, based on this discussion, a servicer may determine not to inform a borrower of loss mitigation options. As current comment 39(a)-3.i explains, servicers have discretion to determine whether informing a borrower about the availability of loss mitigation options is appropriate under the circumstances. A servicer may determine that promptly informing the borrower about the availability of loss mitigation options is not appropriate under certain circumstances. Current comment 39(a)-3.i.B provides an example of a servicer's reasonable determination not to provide information about the availability of loss mitigation options to a borrower who has missed a January 1 payment and notified the servicer that full late payment will be transmitted to the servicer by February 15.[223] The purpose of such a conversation could be to remind a borrower who perhaps inadvertently missed a payment of a past due amount, or to give the servicer an opportunity to discuss when the borrower may cure a temporary delinquency, but the conversation need not involve a discussion of loss mitigation options.

The early intervention live contact requirement is a recurring obligation that generally requires servicers to make continued efforts to establish live contact with a borrower so long as a borrower remains delinquent.[224] A Start Printed Page 72233borrower who has provided a servicer a cease communication notification may perceive a servicer's early intervention live contact under § 1024.39(a) as an intrusive and unwanted communication. The Bureau concludes that repeated attempts to establish live contact, which may not lead to a discussion of available loss mitigation options, with a borrower who has instructed a servicer that is a debt collector to stop communicating with the borrower about the debt pursuant to the FDCPA may be unwanted and in contravention of the purposes of the FDCPA's cease communication protections. Therefore, the Bureau is finalizing proposed § 1024.39(d)(2)(i) in new § 1024.39(d)(1) to maintain the current exemption from the live contact requirements of § 1024.39(a) for a servicer subject to the FDCPA with respect to a borrower's mortgage loan for which any borrower has provided a cease communication notification under FDCPA section 805(c) with regard to that mortgage loan.

39(d)(2)

The Bureau is adopting proposed § 1024.39(d)(2)(ii), renumbered as § 1024.39(d)(2), to exempt a servicer from the written notice requirements of § 1024.39(b) with regard to a mortgage loan for which any borrower has provided a notification pursuant to FDCPA section 805(c) if no loss mitigation option is available, or while any borrower on that mortgage loan is a debtor in bankruptcy under title 11 of the United States Code as referenced in § 1024.39(c). In the limited circumstances where no loss mitigation option is available, the Bureau believes that the written notice may be of significantly less value to a borrower and is not as closely tied to the servicer's right to invoke foreclosure due to the limited impact of the dual tracking restrictions in the absence of loss mitigation options. The Bureau considered comments that it should require the written early intervention notice for all borrowers who have exercised cease communication rights under the FDCPA, regardless of whether any loss mitigation option is available. However, the Bureau concludes that it is not appropriate to require servicers that are debt collectors to provide the written early intervention notice to borrowers who have exercised their FDCPA cease communication rights if no loss mitigation option is available. In light of these considerations, if no loss mitigation option is available, the Bureau retains the exemption from the requirements of § 1024.39(b) for a servicer subject to the FDCPA with respect to a mortgage loan for which any borrower has provided a cease communication notification with regard to that mortgage loan. The Bureau adopts this exemption on a loan level to ease servicer burden and further facilitate servicer compliance as explained in the section-by-section analysis of § 1024.39(c).

Overlap Between Borrowers in Bankruptcy and FDCPA Rationale

Additionally, revised § 1024.39(d)(2) exempts a servicer from the written notice requirements of § 1024.39(b) with regard to a mortgage loan for which any borrower has provided a notification pursuant to FDCPA section 805(c) while any borrower on the mortgage loan is a debtor in bankruptcy under title 11 of the United States Code as referenced in § 1024.39(c). Based on the comments received and for the reasons set forth in the section-by-section analysis of § 1024.39(c), the Bureau declines to finalize proposed comment 39(d)(2)(iii)-2, which would have explained that a servicer subject to the FDCPA with respect to a borrower who invokes the FDCPA's cease communication protections and is also a debtor in bankruptcy would only be required to provide the modified written early intervention notice if the borrower is represented by a person authorized to communicate with the servicer on the borrower's behalf. Comment 39(d)(2)-1 explains that to the extent the FDCPA applies to a servicer's communications with a borrower and the borrower has provided a notification pursuant to FDCPA section 805(c) notifying the servicer that the borrower refuses to pay a debt or that the borrower wishes the servicer to cease further communications, with regard to that mortgage loan, § 1024.39(d)(2) exempts a servicer from providing the written notice required by § 1024.39(b) while any borrower on the mortgage loan is also a debtor in bankruptcy under title 11 of the United States Code. Comment 39(d)(2)-1 also cites the illustrative example in comment 39(c)(1)(ii)-1.ii for further guidance.

39(d)(3)

New § 1024.39(d)(3) provides that with regard to a mortgage loan for which any borrower has provided a notification pursuant to FDCPA section 805(c), a servicer subject to the FDCPA with respect to that borrower's loan must comply with the requirements of § 1024.39(b), as modified by new § 1024.39(d)(3), if the conditions of § 1024.39(d)(2) are not met. Therefore, if any loss mitigation option is available and no borrower on the mortgage loan is a debtor in bankruptcy, a servicer that is a debt collector is required to provide the modified written early intervention notice described in § 1024.39(d)(3). Section 1024.39(d)(3) modifies the requirements of § 1024.39(b) under these circumstances to provide that, in addition to the information required pursuant to § 1024.39(b)(2), the written notice must include a statement that the servicer may or intends to invoke its specified remedy of foreclosure. Model clause MS-4(D) in appendix MS-4 to this part may be used to comply with this requirement.[225] Revised § 1024.39(d)(3) also finalizes two other aspects from the proposed rule: (1) The written notice may not contain a request for payment, and (2) a servicer is prohibited from providing the written notice more than once during any 180-day period.

The Bureau concludes that, because failure to provide the written early intervention notice required by § 1024.39(d)(3) is closely linked to a servicer's ability to invoke its specified remedy of foreclosure, the notice falls within the exceptions to FDCPA section 805(c)(2) and (3). A servicer is legally required to provide a delinquent borrower with the written notice not later than the 45th day of the borrower's delinquency under current § 1024.39(b). As a general matter, this written notice must be provided well before the servicer may initiate foreclosure: In most cases, the servicer is legally required to wait until a borrower's mortgage loan obligation is more than 120 days delinquent, after the written notice has been sent, to make the first notice or filing to initiate the foreclosure process.[226] As the Bureau explained in the 2013 RESPA Servicing Final Rule, the purpose of the written notice is to provide more information to a borrower who has not cured by the 45th day of delinquency. Additionally, the written notice generally provides more information than likely would have been provided through live contact and provides the borrower with information that may be reviewed and discussed Start Printed Page 72234with a housing counselor or other advisor.[227]

The Bureau understands that, in most cases, there may be some loss mitigation option available. Therefore, in most cases, a borrower who exercised the cease communication right will receive the written early intervention notice and will have an opportunity to respond to the written notice by applying for loss mitigation, should the borrower so choose. Where a borrower responds to the written notice by applying for loss mitigation, the dual tracking restrictions of the 2013 RESPA Servicing Final Rule apply, further limiting the servicer's ability to invoke the remedy of foreclosure. Pursuant to § 1024.41(f)(2) and (g), respectively, a servicer may not make the first notice or filing for foreclosure if a borrower submits a complete loss mitigation application before foreclosure referral and cannot move for foreclosure judgment or order of sale or conduct a foreclosure sale if a borrower submits a complete loss mitigation application more than 37 days before a foreclosure sale.

The failure to provide a borrower with the written early intervention notice may impede a servicer's ability to invoke foreclosure, particularly if any loss mitigation option is available. For example, because failure to provide a borrower with the written early intervention notice may result in borrowers submitting requests for loss mitigation at a later point in time and presumably closer to the foreclosure sale, failure to provide the written early intervention notice may delay or otherwise interfere with the servicer's exercise of its specified remedy of foreclosure (for example, when the servicer is required to forego making a motion for judgment of sale or conducting the sale after receiving the borrower's complete loss mitigation application). In addition, the Bureau understands that some States require documentation of a servicer's efforts to modify the loan or require a servicer to provide the borrower with information substantially similar to the written early intervention notice prior to initiating foreclosure or conducting a foreclosure sale (e.g., California, Illinois). Therefore, when any loss mitigation option is available, the Bureau concludes that the written early intervention notice falls within the exceptions to FDCPA section 805(c)(2) and (3) because failure to provide the notice required by § 1024.39(d)(3) is closely linked to a servicer's ability to invoke its specified remedy of foreclosure. As discussed below, the Bureau is concurrently issuing an interpretive rule that explains that this interpretation is limited to the specific situation where a servicer that is a debt collector is required by § 1024.39(d)(3) to provide a modified written early intervention notice to a borrower who has invoked the cease communication right under FDCPA section 805(c). It is a narrow safe harbor, based only upon the interplay between these two specific Federal consumer protections—the early intervention requirements of § 1024.39 of Regulation X and the cease communication provision and statutory exceptions of section 805(c) of the FDCPA. All other provisions of the FDCPA, including the prohibitions contained in FDCPA sections 805 through 808, are unaffected by this interpretation and a servicer remains liable to the extent that anything in the notice violates any other provision of the FDCPA.[228]

If any loss mitigation option is available, as will generally be the case, the written early intervention notice may also be of significant value to borrowers, in addition to being closely linked to a servicer's ability to invoke its specified remedy of foreclosure. The Bureau has stated that the early intervention notice requirements were designed primarily to encourage delinquent borrowers to work with their servicers to identify options for avoiding foreclosure.[229] Specifically, the content of the written early intervention notice, including the statement providing a brief description of examples of loss mitigation options that may be available from the servicer and the application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer, may be of particular value and relevance to a delinquent borrower facing debt collection in informing the borrower of potentially available loss mitigation options.

Given its broad experience with consumers in debt, facing foreclosure, or dealing with other financial difficulties, the Bureau is issuing an interpretive rule that constitutes an advisory opinion under FDCPA section 813(e) explaining that, because failure to provide the written early intervention notice required by § 1024.39(d)(3) is closely linked to a servicer's ability to invoke its specified remedy of foreclosure, the Bureau concludes that the notice falls within the exceptions to FDCPA section 805(c)(2) and (3). The Bureau concludes that, in the limited circumstances where a servicer is subject to the FDCPA with respect to a borrower's mortgage loan and the borrower has invoked the cease communication right pursuant to FDCPA section 805(c) with regard to that mortgage loan, and where the servicer complies with the requirements of the modified written early intervention notice under § 1024.39(d)(3) of Regulation X, the modified written early intervention notice required under § 1024.39(d)(3) is within the statutory exceptions of FDCPA section 805(c)(2) and (3) and thus does not violate section 805(c) with respect to the mortgage loan.

The Bureau has also learned that consumer advocates, in some cases, may be advising borrowers to refrain from providing servicers cease communication notifications pursuant to FDCPA section 805(c) in order to preserve access to information about loss mitigation and to continue to receive early intervention communications from servicers. Borrowers should not have to choose between exercising their cease communication rights to be free from debt collection communications and obtaining information about potential loss mitigation options that could allow them to resolve the underlying delinquency.

The Bureau believes that servicers should be able to determine when the FDCPA applies to a mortgage loan. Regardless of the requirement in new § 1024.39(d)(3), servicers that are debt collectors must make this determination in order to comply with the FDCPA, including, for example, to provide the borrower a validation notice.[230] Additionally, the Bureau's servicer outreach confirmed that servicers are able to designate whether accounts in their systems are subject to the FDCPA. Identifying mortgage loans to which the FDCPA applies imposes no burdens beyond those required by existing law.

Servicers that are debt collectors may use model clause MS-4(D) in appendix MS-4 for the required statement that a servicer may or intends to invoke its specified remedy of foreclosure. As discussed in the section-by-section analysis of appendix MS-4 and in the FDCPA interpretive rule accompanying this final rule, use of this model clause or another statement in compliance with § 1024.39(d)(3)(i), on a written notice as required by and in compliance with the Start Printed Page 72235other requirements of § 1024.39(d)(3), provides a safe harbor from FDCPA liability under section 805(c) for providing the required statement.[231] The Bureau believes that any operational burdens associated with including this statement on the written notice will be minimal.

The Bureau intends this interpretation for a servicer subject to the FDCPA with respect to a borrower who has invoked the FDCPA's cease communication protections to be limited to the precise parameters of the legal and factual situation described by the Bureau. Accordingly, the Bureau intends this interpretation to be narrow and based only upon the interplay between two specific Federal consumer protections—the early intervention requirements of § 1024.39 of Regulation X and the cease communication provision and statutory exceptions of section 805(c) of the FDCPA. The Bureau concludes that, in the limited circumstance where a mortgage servicer is subject to the FDCPA with respect to a borrower's mortgage loan, and the borrower has provided the servicer a cease communication notification with regard to that mortgage loan, the written early intervention notice falls within the exceptions to FDCPA section 805(c)(2) and (3) because failure to provide the notice required by § 1024.39(d)(3) is closely linked to a servicer's ability to invoke its specified remedy of foreclosure.

The Bureau reminds servicers that they may only rely on the exemptions in new § 1024.39(d)(1) and (2) if both the servicer is subject to the FDCPA with respect to a borrower, meaning that the servicer of a defaulted mortgage loan is also acting as a debt collector under section 803(6) of the FDCPA (i.e., the servicer acquired the mortgage at the time that it was in default), and the borrower has properly provided the servicer a timely, written cease communication notification under section 805(c) of the FDCPA. Therefore, even if a servicer receives a written cease communication notification from a borrower, if the servicer is not also acting as a debt collector for purposes of the FDCPA with respect to that borrower's mortgage loan, the servicer must continue to comply with all of the early intervention requirements under § 1024.39 for that loan.

The Bureau has narrowly tailored this final rule and the accompanying interpretation to reduce the risk that servicers will circumvent a borrower's cease communication rights. Additionally, this final rule relates only to the modified written early intervention notice, while maintaining the exemption for early intervention live contact and the exemption for the written notice if no loss mitigation option is available. If no loss mitigation option is available or while any borrower on a mortgage loan is a debtor in bankruptcy if any borrower has invoked the cease communication right with respect to that loan, this final rule leaves the current exemption in place. Furthermore, this final rule requires that the modified written early intervention notice include a statement that the servicer may or intends to invoke its specified remedy of foreclosure, provides the written notice may not contain a request for payment, and prohibits a servicer from providing the written notice more than once during any 180-day period.

The Bureau considered comments that the Bureau should permit a servicer to provide the written notice more than once during any 180-day period for a borrower that cures and subsequently redefaults or that a servicer should be permitted to provide the written notice as often as monthly. However, the Bureau is concerned that a frequent, repeated notice may undermine a borrower's cease communication right. Limiting the final rule in this manner reduces the risk that the modified written early intervention notice will be used to undermine a borrower's cease communication right under FDCPA section 805(c). In response to one commenter's suggestion that servicers should be permitted to provide the written notice upon a borrower's request even if that were to result in providing more than one notice in any 180-day period, the Bureau notes that under the final rule, a servicer is not prohibited from providing the written notice at the borrower's request and must do so under § 1024.36 if the borrower properly submits a request for information regarding the notice.

The Bureau also considered a commenter's request that the Bureau issue guidance in Regulation X itself interpreting the FDCPA cease communication requirement rather than issue a separate advisory opinion. In addition to issuing the interpretive rule, the Bureau is also providing guidance in Regulation X comment 39(d)-2. The same commenter opposed the Bureau's proposed advisory opinion that would have provided a safe harbor from liability under the FDCPA for an act done or omitted in good faith in conformity with that advisory opinion. The Bureau notes, as further discussed above, that the safe harbor is limited to the precise factual and legal situation described and that the safe harbor is only granted to the extent the communication is required by and in compliance with § 1024.39(d)(3). Moreover, the safe harbor is limited to the cease communication provision in FDCPA section 805(c) and does not extend to other sections of the FDCPA. The Bureau determines that the safe harbor is necessary to facilitate servicer compliance with this provision and ensure that borrowers receive information about potentially available loss mitigation options.

Final § 1024.39(d)(3) requires that servicers that are debt collectors provide a modified form of the written early intervention notice to borrowers who have exercised their cease communication rights. To assist servicers in determining whether any loss mitigation option is available, the Bureau is adopting new comment 39(d)-1. New comment 39(d)-1 explains that § 1024.39(d)(2) exempts a servicer that is a debt collector from providing the written notice required by § 1024.39(b) if no loss mitigation option is available. New comment 39(d)-1 further provides that a loss mitigation option is available if the owner or assignee of a mortgage loan offers an alternative to foreclosure that is made available through the servicer and for which a borrower may apply, even if the borrower ultimately does not qualify for such option. As explained in the section-by-section analysis of § 1024.39(b)(2), the Bureau is adopting new comment 39(d)-1 instead of proposed comment 39(b)(2)-4.

The Bureau is finalizing proposed comment 39(d)(2)(iii)-1 in new comment 39(d)-2 with additional clarifications related to borrower-initiated communications as well as the restrictions contained in FDCPA sections 805 through 808. Revised comment 39(d)-2 offers servicers additional guidance on compliance with the modified written early intervention notice required by new § 1024.39(d)(3). As finalized, the comment explains that, to the extent the FDCPA applies to a servicer's communications with a borrower, a servicer does not violate FDCPA section 805(c) by providing the written notice required by § 1024.39(b) as modified by § 1024.39(d)(3) after a borrower has provided a notification pursuant to FDCPA section 805(c) with respect to that borrower's loan. New comment 39(d)-2 also provides that a servicer does not violate FDCPA section 805(c) by providing loss mitigation information or assistance in response to a borrower-initiated communication after the borrower has invoked the cease Start Printed Page 72236communication right under FDCPA section 805(c). Finally, new comment 39(d)-2 notes that a servicer subject to the FDCPA must continue to comply with all other applicable provisions of the FDCPA, including other restrictions on communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices as contained in FDCPA sections 805 through 808 (15 U.S.C. 1692c through 1692f).

Borrower-initiated communications for purposes of loss mitigation after invocation of cease communication rights. The Bureau is also issuing concurrently with this final rule an interpretive rule that constitutes an advisory opinion under FDCPA section 813(e) interpreting the cease communication provision of section 805(c) of the FDCPA in relation to the early intervention requirements of § 1024.39 of Regulation X. No liability arises under the FDCPA for an act done or omitted in good faith in conformity with an advisory opinion of the Bureau while that advisory opinion is in effect.[232]

Section 805(c) of the FDCPA empowers borrowers to direct debt collectors to cease contacting them with respect to a debt and thereby frees borrowers from the burden of being subject to unwanted communications regarding collection of a debt. Even after a borrower has invoked the cease communication right under section 805(c) of the FDCPA, the borrower may contact the servicer to discuss or apply for loss mitigation. For instance, as noted above, § 1024.39(d)(3) requires servicers that are debt collectors to provide a written early intervention notice to borrowers who have invoked the FDCPA's cease communication right if any loss mitigation option is available and no borrower on the mortgage loan is a debtor in bankruptcy under title 11 of the United States Code. The written notice must include a statement encouraging borrowers to contact the servicer.[233] The Bureau believes that, when borrowers respond to such a notice by contacting the servicer to discuss available loss mitigation options or otherwise initiate communication with the servicer concerning loss mitigation, such a borrower-initiated communication should not be understood as within the category of communication that borrowers generally preclude by invoking the cease communication right under FDCPA section 805(c). The Bureau therefore concludes that a borrower's invocation of the FDCPA's cease communication right does not prevent a servicer that is a debt collector from responding to borrower-initiated communications concerning loss mitigation.

Borrower-initiated communications are by their nature wanted communications. Moreover, borrower-initiated communications about loss mitigation options do not give rise to the burden of unwanted communications that FDCPA section 805(c) protects against and may provide valuable information to borrowers. Rather they are sought out by borrowers for this narrow purpose. Under the Bureau's interpretation, a borrower's cease communication notification pursuant to FDCPA section 805(c) should ordinarily be understood to exclude borrower-initiated communications with a servicer that is a debt collector concerning loss mitigation because the borrower has specifically requested the communication at issue to discuss available loss mitigation options. Accordingly, when a servicer that is a debt collector responds to a borrower-initiated communication concerning loss mitigation after the borrower's invocation of FDCPA section 805(c)'s cease communication protection, the servicer does not violate FDCPA section 805(c) with respect to such communications as long as the servicer's response is limited to a discussion of any potentially available loss mitigation option. For example, a servicer may discuss with a borrower any available loss mitigation option that the owner or assignee of the borrower's mortgage loan offers, instructions on how the borrower can apply for loss mitigation, what documents and information the borrower would need to provide to complete a loss mitigation application, and the potential terms or details of a loan modification program, including the monthly payment and duration of the program. These borrower-initiated communications, although variable, are unlikely to be perceived as within the scope of the cease communication request given the borrower's initiation of communications concerning loss mitigation information.

However, the Bureau's interpretation does not protect a servicer that is a debt collector from using such borrower-initiated communications concerning loss mitigation as a pretext for debt collection in circumvention of a borrower's invoked cease communication right under FDCPA section 805(c). Seeking to collect a debt under the guise of a loss mitigation conversation is not exempt from liability under FDCPA section 805(c) under the Bureau's interpretation. Thus, in subsequently communicating with a borrower concerning loss mitigation, a servicer that is a debt collector is strictly prohibited from making a request for payment or a suggestion of payment that is not immediately related to any specific loss mitigation option. Some examples of impermissible communications include initiating conversations with the borrower related to repayment of the debt that are not for the purpose of loss mitigation, demanding that the borrower make a payment, requesting that the borrower bring the account current or make a partial payment on the account, or attempting to collect the outstanding balance or arrearage, unless such communications are immediately related to a specific loss mitigation option.[234] The Bureau reiterates that servicers that are debt collectors may not misuse borrower-initiated communications concerning loss mitigation as an opportunity or pretext to direct or steer borrowers to a discussion of repayment or collection of the debt in circumvention of a borrower's cease communication protection. Additionally, a servicer that is a debt collector may not begin or resume contacting the borrower in contravention of the cease communication notification, unless the borrower consents to limit a prior cease communication request. As discussed above, all other provisions of the FDCPA, including restrictions on communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices as contained in sections 805 through 808 of the FDCPA, remain intact.

The Bureau considered concerns expressed by commenters related to the fluid nature of loss mitigation discussions with borrowers. The Bureau notes that this interpretation provides a safe harbor from FDCPA section 805(c) for servicers that are debt collectors communicating with the borrower in connection with a borrower's initiation of communications concerning loss mitigation. Preceding a borrower's loss mitigation application and during the evaluation process, a servicer that is a debt collector may respond to borrower inquiries about potentially available loss mitigation options and provide information regarding any available option. Similarly, if that borrower Start Printed Page 72237submits a loss mitigation application, the servicer's reasonable diligence obligations under § 1024.41(b)(1) require the servicer to request additional information from the borrower, including by contacting the borrower, and these communications by the servicer to complete a loss mitigation application do not fall within the cease communication prohibition. The servicer may also seek information that will be necessary to evaluate that borrower for loss mitigation, though the servicer may not seek a payment unrelated to the purpose of loss mitigation. Additionally, once the borrower's loss mitigation application is complete, a servicer's communications with a borrower in accordance with the procedures in § 1024.41 are not subject to liability under FDCPA section 805(c) because they arise from the borrower's application for loss mitigation. These communications include, for example, notifying the borrower of the servicer's determination of which loss mitigation options, if any, it will offer to the borrower, notifying the borrower of a denial for any trial or permanent loan modification option available, and notifying the borrower of whether the servicer will offer the borrower a loss mitigation option based upon an appeal.

The Bureau considered one commenter's suggestion that, with respect to any specific borrower-initiated communication, the borrower's cease communication request should be considered temporarily or permanently withdrawn during this period. The Bureau declines to adopt this approach. Instead, as the Bureau explained in the proposal, the Bureau believes that a borrower's cease communication notification pursuant to the FDCPA should ordinarily be understood to exclude borrower-initiated communications with a servicer for the purposes of loss mitigation, because the borrower has specifically requested the communication at issue. As the Bureau explained in the October 2013 Servicing Bulletin, even if the borrower provides a cease communication notification during the loss mitigation application and evaluation process under § 1024.41, the borrower usually should be understood to have excluded the loss mitigation application and evaluation process under § 1024.41 from the general request to cease communication, and therefore a servicer that is a debt collector should continue to comply with the procedures under § 1024.41. Thus, only if the borrower provides a communication to the servicer specifically withdrawing the request for loss mitigation does the cease communication prohibition apply to communicating about the specific loss mitigation action.[235]

Commenters requested clarity regarding a servicer's request that a borrower make a payment as a requirement or condition of a loss mitigation program and whether those requests would be covered under the safe harbor from FDCPA liability. One commenter explained that a servicer may request that a borrower make a payment as part of a loss mitigation program, including, for example, a reinstatement amount towards a repayment, forbearance, or trial modification plan. The Bureau understands that a servicer's discussions of an available loss mitigation option with a borrower may often require the servicer to assess a borrower's eligibility for a specific program and determine whether the borrower can afford to make a payment. The Bureau emphasizes, however, that the cease communication prohibition continues to apply to a servicer's communications with a borrower about payment of the mortgage loan that are outside the scope of loss mitigation conversations. The Bureau recognizes that in order for a borrower to engage in meaningful loss mitigation discussions with a servicer, the servicer may discuss repayment options, the borrower's ability to make a payment, and how much the borrower can afford to pay as part of a loss mitigation option for which the servicer is considering the borrower. Furthermore, the Bureau understands that any offer for a loan modification or repayment plan is likely to include a specific payment amount the borrower must pay under the terms of the loss mitigation agreement. Such communications, as long as for the purpose of loss mitigation, are permissible because they should not be understood as within the scope of the cease communication request.

Legal Authority

The Bureau is exercising its authority under sections 6(j)(3) and 19(a) of RESPA to exempt from the early intervention live contact requirements in § 1024.39(a) a servicer that is subject to the FDCPA with respect to a mortgage loan for which any borrower has exercised the FDCPA's cease communication right with regard to that mortgage loan. For the reasons discussed above, the Bureau concludes that the consumer protection purposes of RESPA would not be furthered by requiring compliance with § 1024.39(a) at a time when a borrower has specifically requested that the servicer stop communicating with the borrower about the debt. Accordingly, the Bureau implements new § 1024.39(d)(1) pursuant to its authority under sections 6(j)(3) and 19(a) of RESPA.

The Bureau is also exercising its authority under sections 6(j)(3) and 19(a) of RESPA to exempt from the written early intervention notice requirements in § 1024.39(b) a servicer that is subject to the FDCPA with respect to a mortgage loan for which any borrower has exercised the FDCPA's cease communication right with regard to that mortgage loan if no loss mitigation option is available or while any borrower on the mortgage loan is a debtor in bankruptcy. For the reasons discussed above, the Bureau concludes that the consumer protection purposes of RESPA would not be furthered by requiring compliance with § 1024.39(b) at a time when a borrower has specifically requested that the servicer stop communicating with the borrower about the debt and no loss mitigation option is available, or while any borrower on the mortgage loan is a debtor in bankruptcy. Accordingly, the Bureau implements new § 1024.39(d)(2) pursuant to its authority under sections 6(j)(3) and 19(a) of RESPA.

The Bureau is exercising its authority under section 6(k)(1)(E) of RESPA to add new § 1024.39(d)(3). The Bureau has authority to implement requirements for servicers to provide information about borrower options pursuant to section 6(k)(1)(E) of RESPA. In order for borrowers to have a meaningful opportunity to avoid foreclosure, they must timely receive information about loss mitigation options and the foreclosure process, housing counselors and State housing finance authorities, and disclosures encouraging servicers to work with borrowers to identify any appropriate loss mitigation options.[236]

The Bureau also exercises its authority to prescribe rules with respect to the collection of debts by debt collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). Pursuant to this authority, the Bureau is clarifying a borrower's cease communication protections under the FDCPA. Section 805(c) of the FDCPA sets forth both the cease communication requirement and its exceptions. Under section 805(c)(2) and (3) of the FDCPA, a borrower's cease communication request does not prohibit a debt Start Printed Page 72238collector from communicating with the borrower to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor or, where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy. For the reasons given above, the Bureau is interpreting section 805(c)(2) and (3) of the FDCPA to require a servicer to provide the written early intervention notice if any loss mitigation option is available and no borrower on the mortgage loan is a debtor in bankruptcy. The Bureau concludes that because the written early intervention notice will generally be closely linked to the invocation of foreclosure, such a notice informs a borrower that the servicer may invoke or intends to invoke the specified remedy of foreclosure and thus falls within the scope of the exceptions under section 805(c)(2) and (3) of the FDCPA. Accordingly, the Bureau implements new § 1024.39(d)(3) pursuant to its authority under section 6(k)(1)(E) of RESPA and section 814(d) of the FDCPA.

Section 1024.40 Continuity of Contact

40(a) In General

As explained in the section-by-section analysis of § 1024.31, the Bureau is adopting a single definition of delinquency that will apply to all provisions in subpart C of Regulation X. The proposal explained that the Bureau was removing the definitions of delinquency from the commentary to §§ 1024.39(a) and (b) and 1024.40(a). The Bureau omitted from its proposal any specific amendments to current comment 40(a)-3. The Bureau is revising comment 40(a)-3 to replace the current definition of delinquency in comment 40(a)-3 with a cross-reference to § 1024.31.

Section 1024.41 Loss Mitigation Procedures

41(b) Receipt of a Loss Mitigation Application

Successors in Interest

Proposed comment 41(b)-1.i stated that, if a servicer receives a loss mitigation application, including a complete loss mitigation application, from a potential successor in interest before confirming that person's identity and ownership interest in the property, the servicer may, but need not, review and evaluate the loss mitigation application in accordance with the procedures set forth in § 1024.41. The proposed comment also would have provided that, if a servicer complies with the requirements of § 1024.41 for a complete loss mitigation application submitted by a potential successor in interest before confirming that person's identity and ownership interest in the property, § 1024.41(i)'s limitation on duplicative requests applies to that person, provided that confirmation of the successor in interest's status would not affect the servicer's evaluation of the application. The Bureau is finalizing comment 41(b)-1.i as proposed with non-substantive changes for clarity.

A number of consumer advocacy groups suggested that the Bureau should eliminate the option to review loss mitigation applications prior to confirmation. These groups noted that loan modification rules imposed by the Making Home Affordable Program, the Federal Housing Administration, Fannie Mae, and Freddie Mac require a showing of proof of ownership of the home for a simultaneous modification and assumption.[237] A trade association also stated that the vast majority of servicers do not have loss mitigation options available for successors in interest. The Bureau notes that the loss mitigation requirements referenced by these commenters may change over time. Further, even if the review process set forth in comment 41(b)-1.i is not used often, the comment confirms that Regulation X does not prohibit servicers from considering successors in interest for loss mitigation prior to confirmation when appropriate. In some circumstances, consideration of potential successors in interest for loss mitigation options prior to confirmation may expedite full formal evaluation of those successors in interest upon confirmation. Comment 41(b)-1.i clarifies that Regulation X allows servicers to review and evaluate loss mitigation applications from potential successors in interest prior to confirmation in accordance with the procedures set forth in § 1024.41, even though servicers are not required to do so.

Comment 41(b)-1.i also explains how an evaluation of a potential successor in interest's loss mitigation application is treated for purposes of the duplicative request limitation in § 1024.41(i). If a servicer complies with the requirements of § 1024.41 for a complete loss mitigation application submitted by a potential successor in interest before confirming that person's identity and ownership interest in the property, § 1024.41(i)'s limitation on duplicative requests applies to that person, provided the servicer's evaluation of loss mitigation options available to the person would not have resulted in a different determination due to the person's confirmation as a successor in interest if it had been conducted after the servicer confirmed the person's status as a successor in interest. This provision is an exception to the general rule that servicers may only invoke § 1024.41(i)'s limitation on duplicative requests with respect to borrowers who have had a complete loss mitigation application reviewed by that servicer in compliance with the requirements of § 1024.41. Ordinarily, as a potential successor in interest is not yet treated as a borrower for all purposes of § 1024.41, the potential successor in interest's loss mitigation application would not count as a duplicative request. If the servicer's evaluation of loss mitigation options available to the person would have resulted in a different determination due to the person's confirmation as a successor in interest if it had been conducted after the servicer confirmed the person's status as a successor in interest, however, § 1024.41(i)'s limitation on duplicative requests does not apply to that application, and the servicer would consequently have to comply with § 1024.41's procedures for any subsequent loss mitigation application submitted by the potential successor in interest upon confirmation.

A number of consumer advocacy groups asked the Bureau to clarify that a previous loss mitigation application submitted by the transferor borrower rather than the successor in interest should not make a successor in interest's request duplicative for purposes of § 1024.41(i). Under the final rule, each confirmed successor in interest is a borrower for purposes of § 1024.41(i) and is not the same borrower as the transferor borrower. Except as specified in comment 41(b)-1, the duplicative request limitation applies to confirmed successors in interest in the same way that it applies to other borrowers under § 1024.41(i), as amended by this final rule.

Proposed comment 41(b)-1.ii stated that, if a servicer receives a loss mitigation application from a potential successor in interest and elects not to review and evaluate it before confirming Start Printed Page 72239that person's status, upon such confirmation the servicer must review and evaluate the loss mitigation application in accordance with the procedures set forth in § 1024.41. The proposed comment indicated that, for purposes of § 1024.41, the servicer must treat the loss mitigation application as if it had been received on the date that the servicer confirmed the successor in interest's status. For the reasons that follow, the Bureau is finalizing comment 41(b)-1.ii with this commentary as proposed and additional commentary to clarify the operation of the loss mitigation procedures with respect to successors in interest.

Several industry commenters requested clarification regarding whether the principal residence requirement applicable to § 1024.41 applies to confirmed successors in interest. In proposing the rule, the Bureau indicated that the exemptions and scope limitations in the Mortgage Servicing Rules in Regulation X, including the principal residence requirement in § 1024.30(c), would also apply to the servicing of a mortgage loan with respect to a confirmed successor in interest. As finalized, comment 41(b)-1.ii explains that the procedures set forth in § 1024.41 apply only if the property is the confirmed successor in interest's principal residence and § 1024.41 is otherwise applicable.

As finalized, comment 41(b)-1.ii also indicates that the servicer must preserve the loss mitigation application and all documents submitted in connection with the application. Although some industry commenters expressed concern about the burden of having to preserve loss mitigation applications during the confirmation process, the Bureau concludes that it would be much more burdensome to require successors in interest to resubmit an entire loss mitigation application upon confirmation. As the Bureau indicated in the proposal, successors in interest may be unduly burdened if required to resubmit identical documents simply because the servicer has confirmed the successor in interest's status. The Bureau continues to believe that requiring servicers to preserve loss mitigation applications received from potential successors in interest is preferable, so that servicers can review and evaluate those loss mitigation applications expeditiously upon confirming the successor in interest's status.

Comment 41(b)-1.ii clarifies that servicers must preserve any loss mitigation application received from a potential successor in interest in order to facilitate the servicer's timely review and evaluation of the application upon confirmation of the successor in interest's status in accordance with the procedures of § 1024.41 and to ensure that the confirmed successor in interest does not have to resubmit the same loss mitigation application. For purposes of § 1024.41, the servicer must treat the loss mitigation application as if it had been received on the date that the servicer confirmed the successor in interest's status.

Another industry commenter asked the Bureau to confirm that servicers can request updated documents if they receive loss mitigation documents prior to confirming a successor in interest and those documents are expired or near expiration on the date of confirmation. As finalized, comment 41(b)-1.ii explains that, if the loss mitigation application is incomplete at the time of confirmation because documents submitted by the successor in interest became stale or invalid after they were submitted and confirmation is 45 days or more before a foreclosure sale, the servicer must identify the stale or invalid documents that need to be updated in a notice pursuant to § 1024.41(b)(2). This comment clarifies servicers' obligations with respect to loss mitigation applications received during the confirmation process that the servicer elects not to review or evaluate until confirmation.

41(b)(1) Complete Loss Mitigation Application

The Bureau proposed to revise two comments under § 1024.41(b)(1). First, the Bureau proposed to revise comment 41(b)(1)-1 to clarify that, in the course of gathering documents and information from a borrower to complete a loss mitigation application, a servicer may stop collecting documents and information pertaining to a particular loss mitigation option after receiving information confirming that the borrower is ineligible for that option. Second, the Bureau proposed to revise comment 41(b)(1)-4.iii, which relates to a servicer's obligation to exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application when a servicer offers a borrower a short-term loss mitigation option based on an evaluation of an incomplete loss mitigation application.

For the reasons set forth below, the Bureau is adopting both comment 41(b)(1)-1 and comment 41(b)(1)-4.iii with revisions to the proposal. The Bureau is also adopting minor revisions to the introductory text to comment 41(b)(1)-4 for clarity. This section-by-section analysis discusses comment 41(b)(1)-1. Comment 41(b)(1)-4, including the revisions to comment 41(b)(1)-4.iii, is addressed in the section-by-section analysis of § 1024.41(c)(2)(iii) within the discussion of reasonable diligence in the context of short-term loss mitigation options offered based upon an evaluation of an incomplete loss mitigation application.

Existing § 1024.41(b)(1) requires a servicer to exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. The provision defines a complete application as an application for which a servicer has received all the information the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower. Current comment 41(b)(1)-1 explains that a servicer has the flexibility to establish the type and amount of information that it will require from borrowers applying for loss mitigation options. The Bureau explained in the 2013 RESPA Servicing Final Rule that servicers have the flexibility to determine application requirements consistent with the variety of borrower circumstances or owner or assignee requirements that servicers must evaluate and to ensure that individual borrowers are not obligated to provide information or documents that are unnecessary and inappropriate for a loss mitigation evaluation.[238] In exercising reasonable diligence to obtain a complete application under § 1024.41(b)(1), therefore, a servicer may determine that an application is complete even when the borrower has not submitted certain information, so long as that information is irrelevant with respect to that particular borrower.

In advance of the proposal, the Bureau learned from servicers and consumer advocacy groups that some servicers have been attempting to collect a large number of documents from borrowers, including many documents that may be required for some borrowers but are irrelevant to determining whether a particular borrower is eligible for any loss mitigation option. The Bureau explained in the proposal that the good faith exercise of reasonable diligence under § 1024.41(b)(1) does not require the collection of unnecessary documents. Collection of documents or information after the servicer has confirmed that such documents cannot affect the outcome of an evaluation unnecessarily burdens both the servicer and the borrower and hinders efforts to complete the loss mitigation application.Start Printed Page 72240

Therefore, the Bureau proposed to amend comment 41(b)(1)-1. As proposed, the comment would have clarified that (1) a servicer may stop collecting a borrower's application materials for a particular loss mitigation option upon receiving information confirming that the borrower is ineligible for that option, (2) the servicer must continue its efforts to obtain documents and information that pertain to all other available options, and (3) a servicer may not stop collecting documents for a particular loss mitigation option based solely on the borrower's stated preference for a different option.

The Bureau received comments from industry stakeholders and consumer advocacy groups on the proposed amendments. Additionally, the Bureau conducted outreach with several servicers to learn more about how the proposed revisions would affect borrowers and servicers.

No commenters opposed the first two elements of the proposal—that a servicer may stop collecting application materials for a loss mitigation option upon learning that the borrower is ineligible for that option, and that the servicer must continue to pursue materials relating to all other available options. Several industry commenters and consumer advocacy groups opined that those elements would reduce unnecessary burden by clarifying that servicers do not need to collect application materials relating to loss mitigation options for which a borrower is ineligible. A trade association stated that the proposal would work in conjunction with the new written notice of complete application, under proposed § 1024.41(c)(3), to encourage best efforts from servicers in obtaining application materials from borrowers to complete an application.

Commenters' views on the third element of the proposal, that a servicer may not stop collecting application materials for a particular loss mitigation option based solely on the borrower's stated preference for a different option, were more diverse. Industry commenters generally objected to the third element of the proposal. For example, a servicer and a trade association stated that the proposal could conflict with FHA's loss mitigation waterfall, which the commenters stated requires a borrower to express interest in certain loss mitigation options to be eligible. The commenters suggested that requiring servicers to collect application materials relating to all available loss mitigation options would be burdensome, would cause borrowers to disengage, or would complicate the working relationship between borrowers and servicers. One servicer stated during outreach that doing so when a borrower already has a purchase contract could jeopardize the sale. Several servicers the Bureau spoke with during outreach reported that some of their borrowers have a purchase contract at the outset of the loss mitigation application process, although one servicer stated that its borrowers rarely do.

Industry commenters also stated that this third element of the proposal appeared to conflict with statements by the Bureau in a webinar in 2013. In that webinar, the Bureau explained that the mortgage servicing rules permit investors to set their own loss mitigation eligibility criteria, such that a servicer may deny a borrower for a loan modification if the investor provides that a borrower must be interested in remaining in the home to be eligible for a modification and the borrower has indicated that there is no such interest.

Some commenters made specific recommendations for amending the rule. For example, some industry trade associations recommended that servicers should be permitted to stop collecting application materials for a loan modification if the borrower indicates a need to sell the property, saying that such a borrower essentially has rejected a loan modification. A government-sponsored enterprise recommended allowing servicers greater flexibility when borrowers express a preference for a short sale and said the rule should allow borrowers to move toward a short sale while concurrently working to complete an application for retention options. The commenter suggested that, because the short sale process is lengthy, additional delay that stems from the requirement to complete an application may harm such borrowers.

Servicers informed the Bureau that relatively few borrowers request a short sale at the outset of a loss mitigation application. One servicer stated that borrowers who request short sales are typically significantly delinquent. Servicers said that most borrowers who do make such a request are approved for a short sale. However, the percentage of borrowers seeking a short sale who ultimately sell the property through a short sale varied greatly from servicer to servicer—estimates ranged from approximately 28% to approximately 85%.

During outreach, the Bureau asked several servicers about borrowers' ability to access other loss mitigation options if they pursue a short sale from the outset. Most of those servicers indicated that they discuss other loss mitigation options with borrowers who request a short sale at the outset of the application process. One suggested that it does not describe in detail all available options if the borrower states the intent not to retain the home. Most of the servicers stated that they process the application according to the borrower's preference, that they continue to work with these borrowers to pursue other loss mitigation solutions when a short sale is unsuccessful, and that, when borrowers change their minds during the loss mitigation application process, the servicer will process their applications accordingly. No servicers said that they did not work with borrowers when a short sale falls through or when borrowers change their minds. One servicer stated that, the longer a delinquency lasts, the less likely borrowers generally are able to obtain loss mitigation.

The Bureau also asked servicers about the documentation requirements for different loss mitigation options. Most servicers stated that they generally collect application materials sufficient to evaluate the borrower for both retention options and non-retention options, but servicers varied in how diligently they pursue documents supporting home retention options when the borrower requests a short sale. Among the reasons servicers gave for collecting documents for retention and non-retention options were investor requirements and a concern that borrowers may not understand their options. Some servicers explained that their collection of documents for home retention options when a borrower has requested a short sale may be more pro forma. One servicer indicated that, when a borrower requests a short sale, the servicer's collection of documents for home retention options is limited to providing the borrower with a list of all such documents; the servicer does not continue to make active attempts to collect documents to support a review for retention options if the borrower wants a short sale. Another servicer stated that it collects a complete application package when the borrower requests loss mitigation but, if the borrower provides a short sale contract, the servicer evaluates only for a short sale. One servicer stated that it does not collect application materials for home retention options at all if the borrower is uninterested in those options.

Consumer advocacy groups strongly supported the third element of the proposal, stating that reviewing a borrower for all available loss mitigation options would limit steering, address uneven access to information between Start Printed Page 72241borrowers and servicers, and provide borrowers with better access to home retention options.

The Bureau is revising comment 41(b)(1)-1 to clarify the prohibition against a servicer ceasing efforts to collect documents and information based upon a borrower's stated preference. The comment retains the key elements of the proposal but is restructured and edited for clarity. As revised, comment 41(b)(1)-1 provides that a 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. The comment provides that, in the course of gathering documents and information from a borrower to complete a loss mitigation application, a servicer may stop collecting documents and information for a particular loss mitigation option after receiving information confirming that, pursuant to any requirements established by the owner or assignee of the borrower's mortgage loan, the borrower is ineligible for that option. The comment clarifies that a servicer may not stop collecting documents and information for any loss mitigation option based solely upon the borrower's stated preference but may stop collecting documents and information for any loss mitigation option based on the borrower's stated preference in conjunction with other information, as prescribed by any requirements established by the owner or assignee. The comment then states that a servicer must continue to exercise reasonable diligence to obtain documents and information from the borrower that the servicer requires to evaluate the borrower as to all other loss mitigation options available to the borrower.

Comment 41(b)(1)-1 provides two examples for further clarity. The first example, slightly revised from the proposal, assumes that a particular loss mitigation option is only available for borrowers whose mortgage loans were originated before a specific date. The example explains that, once a servicer receives documents or information confirming that a mortgage loan was originated after that date, the servicer may stop collecting documents or information from the borrower that the servicer would use to evaluate the borrower for that loss mitigation option, but the servicer must continue its efforts to obtain documents and information from the borrower that the servicer requires to evaluate the borrower for all other available loss mitigation options.

The new second example in comment 41(b)(1)-1 clarifies how a borrower's stated preference might affect a loss mitigation application. The example assumes that applicable requirements established by the owner or assignee of the mortgage loan provide that a borrower is ineligible for home retention loss mitigation options if the borrower states a preference for a short sale and provides evidence of another applicable hardship, such as military Permanent Change of Station orders or an employment transfer more than 50 miles away. The example then explains that, if the borrower indicates a preference for a short sale or, more generally, not to retain the property, the servicer may not stop collecting documents and information from the borrower pertaining to available home retention options solely because the borrower has indicated such preference, but the servicer may stop collecting such documents and information once the servicer receives information confirming that the borrower has an applicable hardship under requirements established by the owner or assignee, such as military Permanent Change of Station orders or employment transfer. The example in comment 41(b)(1)-1.ii is intended to clarify how borrower preference can affect the way in which the servicer might exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application as required under § 10241.41(b)(1). The Bureau believes that guidelines established by owners or assignees of mortgage loans similarly generally do not allow borrower preference alone to drive the servicer's conduct but generally require both the borrower's expressed preference and the borrower's submission of additional information. The Bureau notes that the comment merely offers an example and does not create a new standard for compliance.

As revised, comment 41(b)(1)-1 does not alter a servicer's overall obligation to collect application materials it requires to evaluate a borrower for all available loss mitigation options before conducting the evaluation. It is, however, intended to clarify that a servicer has flexibility to determine which documents and information it needs to evaluate a borrower for each option. Servicers must exercise reasonable diligence to obtain a complete application, which includes all the information that the servicer requires from the borrower in evaluating the application for all options available to the borrower. The documents and information that satisfy this requirement for a given option may change depending on the information a servicer receives during the application process. If a servicer receives documents and information that render a borrower ineligible for a given option regardless of any additional information, the servicer is not required to continue collecting application materials for that option. For example, if a servicer receives information confirming that a borrower is ineligible for a loan modification, the servicer may no longer need to collect detailed information about the borrower's income if it does not require income information to evaluate the application for any other available loss mitigation option, such as a short sale. Within the confines of the rule, servicers may organize the collection of application materials accordingly, in a way that minimizes unnecessary burden.

Notwithstanding the above, the borrower's stated preference, without more, may not be the basis on which a servicer stops collecting application materials. In exercising reasonable diligence to obtain a complete application, a servicer may not stop collecting application materials relating to a home retention option, for example, solely because a borrower states a preference for a short sale or states a more general preference not to retain the property. Revised comment 41(b)(1)-1 is intended to clarify that servicers have sufficient flexibility under § 1024.41 to stop collecting documents or information after confirming that such application materials cannot affect the outcome of an evaluation, but that this determination cannot be based on a borrower's stated preference alone.

In finalizing these revisions, the Bureau sought to balance the ability of a borrower to indicate a preference for or against a loss mitigation option early in the process, thus allowing servicers the opportunity to collect application materials more efficiently during the application process, with the overarching goals of the 2013 Mortgage Servicing Final Rules to prevent unnecessary foreclosures.

The Bureau recognizes that, under final comment 41(b)(1)-1, some borrowers may be required to submit some additional documentation relating to loss mitigation options that they have indicated they do not want before the servicer can evaluate the application for the borrowers' preferred option under the rule. Nonetheless, the Bureau believes that the additional documentation that some borrowers may need to submit as a result of the rule, which the Bureau understands from outreach to be minimal in many instances, is justified. While the Bureau realizes that this approach may present Start Printed Page 72242some additional burden to both borrowers and servicers, the Bureau believes, for the reasons below, that it will produce the most efficient and optimal outcomes for borrowers and servicers alike in the long run.

Borrowers applying for loss mitigation are often operating under substantial financial distress and with limited information, and they may not be situated to make an optimal choice at the outset of the application process. Permitting servicers to stop collecting documents on the basis of a borrower's preference alone might allow servicers to influence inappropriately the borrower's preference during communications with the borrower toward the option that most benefits the servicer, even if it is not optimal for the borrower. Moreover, the Bureau notes that, even in situations in which borrowers are making fully informed, independent choices as to which options they prefer, borrowers sometimes do not ultimately obtain that option.

For example, the Bureau understands that the short sale process frequently takes months to complete. Over this time, a borrower's preferences may change, whether because the borrower comes to a better understanding of other available loss mitigation options or otherwise decides against seeking a short sale. Moreover, an attempted short sale may ultimately be unsuccessful, for a variety of reasons. As noted above, servicers report widely varying rates of successful short sales, in some cases less than one in three. If a borrower ultimately is not successful in securing a short sale, the delinquency will have increased in the meantime, possibly making any alternate loss mitigation option more difficult to achieve. If the servicer has also stopped collecting documents or information to support an evaluation of other loss mitigation options, the borrower could be left with a greater delinquency and greater need for evaluation for all available loss mitigation options but without the protections of § 1024.41.

As noted above, some commenters asserted that proposed comment 41(b)(1)-1 was in conflict with statements the Bureau made during a webinar in 2013. In the webinar, the Bureau explained that the mortgage servicing rules permit investors to set their own loss mitigation eligibility criteria, such that a servicer may deny a borrower for a loan modification if the investor criteria provide that a borrower must be interested in remaining in the home to be eligible for a modification and the borrower has indicated that there is no such interest. The Bureau believes that any perceived conflict between final comment 41(b)(1)-1's provision that servicers may not stop collecting documents based solely on the borrower's preference and the webinar's indication that investor criteria may include the borrower's preference, is theoretical. The Bureau is not aware of owner or assignee guidelines that render borrowers ineligible for a loss mitigation option solely because of the borrower's stated preference. Although some such guidelines may use a borrower's preference in addition to some other factor as an eligibility criterion, borrower preference alone generally does not appear to be the basis for determining that a borrower is ineligible.

41(b)(2) Review of Loss Mitigation Application Submission

41(b)(2)(i) Requirements

Proposed comment 41(b)(2)(i)-1 would have clarified the timelines on which a servicer must review and acknowledge a borrower's loss mitigation application when no foreclosure sale has been scheduled as of the date the loss mitigation application is received. For the reasons discussed below, the Bureau is adopting comment 41(b)(2)(i)-1 with minor revisions to improve clarity.

Under § 1024.41(b)(2)(i), if a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, the servicer must: (1) Promptly review the application to determine if it is complete; and (2) within five days (excluding legal public holidays, Saturdays, and Sundays) of receiving the application, notify the borrower in writing that the application was received, state whether it is complete or incomplete, and if the application is incomplete, state the additional documents and information needed to complete the application.

Section 1024.41(b)(2)(i) does not expressly address whether this requirement applies when an application is received before a foreclosure sale is scheduled.[239] As the Bureau explained in the proposal, the Bureau believes that, in that scenario, the application was still received “45 days or more before a foreclosure sale,” and the requirements of § 1024.41(b)(2)(i) still apply. To codify this interpretation, the Bureau proposed to add new comment 41(b)(2)(i)-1 to clarify that, for purposes of § 1024.41(b)(2)(i), if a foreclosure sale has not been scheduled as of the date an application is received, the application shall be treated as if it were received at least 45 days before a foreclosure sale. The proposal would have clarified that servicers must comply with all of the requirements of § 1024.41(b)(2)(i) even when no foreclosure sale has been scheduled as of the date a servicer receives a borrower's loss mitigation application.

The Bureau received several comments supporting proposed comment 41(b)(2)(i)-1. For example, a national trade association commented that the proposal adds clarity for both servicers and borrowers. A consumer advocacy group was similarly supportive.

The Bureau is adopting comment 41(b)(2)(i)-1 substantially as proposed, with minor, non-substantive revisions for clarity. As the Bureau explained in the proposal, the comment is intended to provide certainty to servicers and borrowers.

41(b)(2)(ii) Time Period Disclosure

Section 1024.41(b)(2)(ii) requires a servicer to include on the loss mitigation application acknowledgment notice required under § 1024.41(b)(2)(i)(B) a reasonable date by which the borrower should submit additional documents and information necessary to make the loan application complete. Current comment 41(b)(2)(ii)-1 clarifies how servicers should set that date, taking into consideration specific milestones that correspond to specific protections under § 1024.41. Proposed comments 41(b)(2)(ii)-1 through -3 would have further clarified that servicers have significant flexibility in selecting the reasonable date. Generally stated, the proposal would have clarified that servicers may select any date that it determines both maximizes borrower rights under § 1024.41 and allows the borrower a reasonable period of time to obtain and submit the documents and information. Although the proposed comments would have provided that a servicer should not select a reasonable date that is later than the nearest of the four milestones associated with the specified protections of § 1024.41, they also would have clarified that a servicer may select a reasonable date that is earlier than the nearest remaining milestone. For the reasons discussed below, the Start Printed Page 72243Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with substantial revisions. As revised, the comments provide more specific guidance about how a servicer selects a reasonable date in compliance with § 1024.41(b)(2)(ii).

The Bureau sought comment on three aspects of the proposal: Whether the proposal would provide servicers with sufficient guidance under § 1024.41(b)(2)(ii) in setting a reasonable date for the return of documents and information that maximizes borrower protections; whether to address those situations where the nearest remaining milestone will not occur for several months based on the date of a scheduled foreclosure sale and the documents the borrower has already submitted at the time the servicer selects the reasonable date under § 1024.41(b)(2)(ii); and whether to adopt a less flexible standard that would leave servicers with little or no discretion in setting a reasonable date under § 1024.41(b)(2)(ii) and, if so, what would constitute an appropriate standard under such an approach.

Several commenters supported the proposal. A credit union stated that the proposal would provide clear and transparent procedures beneficial to credit unions and borrowers. An industry trade association stated that the flexibility that the proposal would afford servicers in selecting a reasonable date would benefit both servicers and borrowers, particularly because each borrower's application is unique.

Some industry commenters supported an even more flexible approach. One servicer said that a reasonable date that is later than the nearest milestone could provide borrowers with even greater protections. Another cautioned that setting a return date as little as eight days away could create borrower confusion and panic and argued that servicers should have complete flexibility to select the date. This commenter also requested that the Bureau create a safe harbor for compliance with § 1024.41(b)(2)(i)(B), through the use of a model form with language describing the milestones.

In contrast, other industry commenters and some consumer advocacy groups recommended limiting servicer discretion in selecting a reasonable date. These industry commenters stated that a flexible approach would be difficult to apply and would open servicers to various risks, such as litigation, monetary penalties, or reputational harm. Industry commenters also expressed concern that borrowers are less likely to be responsive if they have too much time to submit documents and that a longer time to completion can increase the delinquency, thereby decreasing the likelihood of successful loss mitigation. Industry commenters expressed varying opinions about the right length of time to afford borrowers, ranging from 14 days to 45 days. One servicer recommended that the final rule allow servicers limited discretion to select a reasonable date between 30 and 45 days away. Another servicer recommended a two-tiered approach, with borrowers permitted 30 days to submit documents and then an additional 30 days to complete the application as long as the borrower has submitted some of the outstanding documents that the servicer requested by the end of the first 30-day period.

Consumer advocacy groups that recommended limiting servicer discretion suggested different approaches. One consumer advocacy group recommended selecting a reasonable date that is between seven and 30 days away. Other consumer advocacy groups recommended requiring the reasonable date to be no more than 30 days away if the nearest milestone is 45 days or more in the future. These commenters suggested that these timeframes would, for example, reduce processing times, borrower discouragement, and documents going stale and that borrowers would rarely, if ever, need more than 30 days to provide the requested information.

Several industry commenters expressed concern with tracking the milestones and maximizing borrower rights in the selection of a reasonable date. Industry commenters cited litigation risk and the operational difficulties in tracking when documents go stale, among other matters. One industry commenter stated that servicers must manually track when documents will go stale to comply with the first milestone in the list, the date by which any document or information that a borrower submitted will be considered stale or invalid pursuant to any requirements applicable to any available loss mitigation option.

The Bureau is adopting comments 41(b)(2)(ii)-1 through -3 with substantial revisions to the proposal. The final rule provides servicers with more specific guidance on how to select a reasonable date than the proposal would have provided. As explained in more detail below, the commentary explains that 30 days from the date the servicer provides the notice under § 1024.41(b)(2)(i)(B) is generally a reasonable date. If a milestone will occur within 30 days, however, the commentary specifies that the reasonable date must be no later than the earliest of the milestones, subject to a minimum of seven days, so that borrowers can return application materials. The Bureau believes that these clearer guidelines should aid compliance and improve borrower protections.

Comment 41(b)(2)(ii)-1 provides that, in general and subject to the restrictions described in comments 41(b)(2)(ii)-2 and -3, a servicer complies with the requirement to include a reasonable date in the written notice required under § 1024.41(b)(2)(i)(B) by including a date that is 30 days after the date the servicer provides the written notice. Comment 41(b)(2)(ii)-2 states that, for purposes of § 1024.41(b)(2)(ii), subject to the restriction described in comment 41(b)(2)(ii)-3, the reasonable date must be no later than the earliest of four milestone dates. The dates are the same as the milestones in the proposal and in existing comment 41(b)(2)(ii)-1: (1) The date by which any document or information submitted by a borrower will be considered stale or invalid pursuant 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; and (4) the date that is 38 days before a foreclosure sale. Comment 41(b)(2)(ii)-3 clarifies that a reasonable date for purposes of § 1024.41(b)(2)(ii) must never be less than seven days from the date on which the servicer provides the written notice pursuant to § 1024.41(b)(2)(i)(B).

As explained above, the proposal would have expressly stated that a servicer may select any date that it determines both maximizes borrower rights under § 1024.41 (in consideration of the milestones) and allows the borrower a reasonable period of time to obtain and submit the applicable documents and information. The final rule commentary, in contrast, states that a date that is 30 days after the date the servicer provides the written notice is generally compliant. The reasonable date must be no later than the nearest remaining milestone even if it will occur earlier than 30 days, subject to a minimum of seven days after the servicer provides the borrower with the notice. This increased specificity should afford borrowers sufficient time to obtain and submit application materials while reducing lengthy timelines for returning documents, which can lead to borrower disengagement, increased delinquency, or a diminished likelihood that the borrower will obtain a loss mitigation option. The Bureau believes that borrowers will rarely need more Start Printed Page 72244than 30 days to obtain and submit application materials. Further, as revised, the commentary to § 1024.41(b)(2)(ii) still preserves borrower protections under § 1024.41 by expressly prohibiting servicers from selecting a reasonable date that is later than the four milestone dates after which various protections end under the rule, subject to the seven-day minimum. In general, as each milestone passes before an application is complete, borrowers enjoy fewer protections under § 1024.41. A reasonable date too close to the next milestone would place consumers at risk of losing those protections. The Bureau believes this provision should increase borrowers' opportunity to complete their applications before any future milestones have passed. The Bureau also notes that servicers already must track the upcoming milestones to comply with § 1024.41.

The Bureau declines to adopt a more flexible standard than proposed, as some commenters suggested. As the Bureau explained in the proposal, and as both industry and consumer advocacy group commenters noted, servicers could select a date that is too far in the future under a more flexible standard. A date that is too far in the future would not be reasonable, and borrowers might be discouraged from promptly providing the requested documents and information.

Based on the comments received, the Bureau believes that the revisions may reduce industry burden, litigation risk, and the possibility of reputational harm associated with determining on a case-by-case basis what constitutes a reasonable date. Also, the Bureau understands that some servicers already provide a 30-day period for borrowers to obtain and submit documents and information necessary to complete a loss mitigation application, so the burden of amending business practices to comply with the final rule should be limited for these servicers. Although servicers may have to incur some costs to program their systems to ensure that the date selected complies with the revised comment, the Bureau believes the final rule will substantially benefit borrowers.

The Bureau is not adopting one commenter's suggestion to require a servicer to describe the milestones on the written notice under § 1024.41(b)(2)(i)(B). The Bureau believes this information would introduce significant burden for servicers. The Bureau also believes the additional information would not provide borrowers any significant benefit and could risk distracting borrowers from focusing on the critical information.

Finally, the Bureau reiterates that, pursuant to § 1024.41(b)(2)(ii), the reasonable date is not a hard deadline for the borrower to return the documents to the servicer.[240] As the Bureau explained in the 2013 RESPA Servicing Final Rule, servicers may still accept documents after the reasonable date, and the borrower may still be able to submit a complete loss mitigation application, even if the borrower does not submit the requested information by the reasonable date.[241]

41(c) Evaluation of Loss Mitigation Applications

41(c)(1) Complete Loss Mitigation Application

The Bureau proposed and is adopting a minor technical revision to § 1024.41(c)(1) to facilitate the addition of § 1024.41(c)(4), discussed below. The Bureau also sought comment as to whether the applicable timelines set forth in § 1024.41 allow borrowers sufficient time to accept or reject a loss mitigation offer if they complete a loss mitigation application near the foreclosure sale date. The Bureau did not make any specific proposal to address those concerns. The Bureau is not adopting any further revisions to § 1024.41(c)(1) to address those concerns at this time.

In response to the Bureau's request for comment, several commenters expressed concerns about the timing requirements in § 1024.41. A trade association suggested that a borrower may have little time to respond to a loss mitigation offer if the borrower submitted a complete loss mitigation application 38 days before a foreclosure sale and the servicer responds 30 days later notifying the borrower of which options the servicer will offer. A consumer advocacy group expressed concern that the amount of time the rule allows a borrower to respond to a loss mitigation offer or to exercise appeal rights is shortened by the amount of time it takes the borrower to receive the determination letter. Other consumer advocacy groups stated that the timing and method of communicating offers and appeals present problems for borrowers, including sometimes facing shorter response and appeal timeframes than intended, in part because of the delay in receiving a decision by standard (not first class) mail or because servicers sometimes backdate documents.

Commenters recommended different approaches for addressing their concerns about the timing requirements discussed above. A consumer advocacy group said that the Bureau should require servicers to mail notices promptly and should carve out additional time in the loss mitigation timeline for a servicer to mail the notices to the borrower. A trade association recommended that the Bureau consider allowing the borrower less time to decide whether to accept a loss mitigation offer or increasing the number of days before a foreclosure sale a servicer must receive a complete loss mitigation application and still be required to evaluate the application. A servicer requested a separate, 10-day timeframe to mail the determination letter, arguing that the additional time would permit servicers to obtain third-party information and ensure that the borrower receives the most accurate determination possible. The commenter also stated that a 10-day delay in mailing the determination letter would not harm the borrower because the servicer already contacts the borrower at the end of the existing 30-day evaluation period to inform the borrower of its determination.

Consumer advocacy groups recommended that the Bureau address timing problems by prohibiting servicers from backdating documents and regulating further the manner in which notices are delivered. For example, these commenters suggested requiring servicers to provide notices via first class mail; adding three days to certain timing deadlines if a notice is not sent by first class mail; providing that the time a borrower has to respond to a loss mitigation offer begins only when the borrower receives the decision notice; setting forth specific mailing requirements and deadlines; specifying how servicers must construe timing requirements under applicable deadlines; or requiring that notices display the same date as the date the notice is placed in the mail, even if a vendor sends the notice.

Consumer advocacy groups also advocated requiring servicers to postpone a foreclosure sale when they offer a borrower a loss mitigation option after receiving the complete loss mitigation application on or near the 38th day before the sale. They said that servicers can simply conduct the sale later if the borrower rejects the offer and that the slight inconvenience that this would cause does not justify denying the borrower's application simply because the offer and acceptance might be communicated by mail. Some industry commenters suggested that the Start Printed Page 72245rule's current structure may not pose timing problems in some cases. One state trade association stated that the 30-day evaluation timeline does not cause problems for its members because evaluations typically take less than 30 days. A servicer generally endorsed the timing and method of communicating loss mitigation offers and appeals and stated that servicers will take measures to provide borrowers with foreclosure protections when they receive a complete loss mitigation application more than 37 days before a scheduled foreclosure sale. However, one servicer stated that, although servicers take measures to provide foreclosure protections upon receiving a complete loss mitigation application more than 37 days before a foreclosure sale, the servicer cannot guarantee that the sale will be postponed.

The Bureau is not taking action on these issues at this time. The comments received suggest that, when servicers comply with the existing timing requirements, borrowers are protected from the most serious harms and that servicers are, in the main, able to comply with those timing requirements. The Bureau notes that, under § 1024.38(b)(1)(i), a servicer must maintain policies and procedures that are reasonably designed to ensure that the servicer can provide accurate and timely disclosures to a borrower as required by Regulation X's mortgage servicing rules, including § 1024.41, or other applicable law. Particularly when a scheduled foreclosure sale places pressure on a loss mitigation application timeline, the Bureau encourages servicers to provide borrowers with notices in the most efficient and effective manner possible to maximize the likelihood that the borrower can obtain loss mitigation and avoid foreclosure and unnecessary fees. Servicers must ensure that their policies and procedures are reasonably designed to provide accurate and timely disclosures to borrowers in all circumstances, even when a foreclosure sale has been scheduled. The Bureau will continue monitoring the market for these and related issues.

The Bureau is making a technical correction that redesignates a comment to § 1024.41(d) as new comment 41(c)(1)-4. The 2013 Mortgage Servicing Final Rules added a comment to § 1024.41(d) that provides that a servicer may combine other notices required by applicable law, including, without limitation, a notice with respect to an adverse action required by Regulation B, 12 CFR part 1002, or a notice required pursuant to the Fair Credit Reporting Act, with the notice required pursuant to § 1024.41(d), unless otherwise prohibited by applicable law.[242] Because § 1024.41(d) requires that certain disclosures be made in a notice sent pursuant to § 1024.41(c)(1), the Bureau sought to redesignate this comment as comment 41(c)(1)-4 in the September 2013 Mortgage Final Rule but inadvertently redesignated it instead as comment 41(d)-(c)(1)(4).[243] The Bureau is now removing comment 41(d)-(c)(1)(4) and replacing it with new comment 41(c)(1)-4. New comment 41(c)(1)-4 is identical to the comment that it replaces, except that the Bureau is making a technical, clarifying change that substitutes “notice required under § 1024.41(c)(1)” for “notice required under § 1024.41(d).”

41(c)(2) Incomplete Loss Mitigation Application Evaluation

41(c)(2)(iii) Payment Forbearance

Proposed § 1024.41(c)(2)(iii) would have allowed servicers to offer borrowers short-term repayment plans, as described in the proposal, based upon an evaluation of an incomplete loss mitigation application. This would have been an exception to the general rule under § 1024.41(c)(2), which generally prohibits a servicer from evading the requirement to evaluate a complete loss mitigation application by offering a loss mitigation option based upon an evaluation of any information provided by a borrower in connection with an incomplete application. Section 1024.41(c)(2)(iii) currently allows such an exception for short-term forbearance programs but does not specifically address short-term repayment plans. The proposal also would have set forth certain protections for borrowers with either or both of these short-term loss mitigation options, including limitations on dual tracking and a requirement that the servicer clearly specify the payment terms and duration of the program or plan in writing and provide that information to the borrower before the program or plan begins. Finally, the proposal would have described in commentary to § 1024.41(b)(1) a servicer's obligation to collect a borrower's application materials in the context of a short-term program or plan offered pursuant to § 1024.41(c)(2)(iii).

The Bureau received numerous comments on the proposal. Many consumer advocacy group and industry commenters expressed support for the proposal generally but expressed concern with specific elements of the proposal, as discussed below. Comments on most aspects of the proposal are summarized here, but comments relating to the proposed description of a servicer's reasonable diligence obligations under comment 41(b)(1)-4 are addressed below in this section-by-section analysis, under the heading Reasonable Diligence.

Consumer advocacy groups generally stated that the final rule should extend borrowers protections in addition to those existing for short-term forbearance plans. They recommended (1) tolling, during a borrower's short-term repayment plan, the 120-day pre-foreclosure period under § 1024.41(f)(1)(i) during which servicers must not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process; (2) prohibiting servicers from scheduling a foreclosure sale while the borrower is performing pursuant to a short-term repayment plan offered under § 1024.41(c)(2)(iii); and (3) requiring servicers to provide borrowers information necessary to understand that more affordable loss mitigation options may be available if the borrower completes the application.

Many comments addressed the proposed requirement that servicers clearly specify the payment terms and duration of the program or plan in writing and provide that information to the borrower before the program or plan begins. Consumer advocacy groups stated that providing this information in writing would be important because the agreements sometimes suggest that they are an initial step to a loan modification and borrowers sometimes believe erroneously that the short-term forbearance program or short-term repayment plan is a loan modification. The commenters said that, as a result, borrowers sometimes believe either that they need not apply for loss mitigation or that defaulting on the short-term option would render them ineligible for a loan modification. Consumer advocacy groups therefore recommended requiring servicers additionally to state in writing that the offer is being made based on a limited application and that, regardless of the outcome of the short-term program or plan, the borrower may seek a full loss mitigation review in the future.

Some industry commenters, including servicers and national trade associations, expressed concerns about the proposed requirement to clearly specify the terms and duration of the program or plan in writing before the program or plan begins. They recommended allowing the program or plan to begin before servicers must Start Printed Page 72246provide written information about the program or plan, as is common industry practice. Commenters stated that requiring servicers to provide written information before the program or plan begins could create ambiguity as to when a program or plan begins and delay the start of the program or plan. One servicer noted that some borrowers can make their first plan payment over the phone upon accepting the offer and that prohibiting a servicer from accepting such payment before providing the written information could lead to additional costs to the borrower. One servicer requested that the Bureau address how servicers would clearly specify the payment terms and duration when there may be a change in payment during the short-term repayment plan. The servicer stated that this could occur, for example, when the interest rate may change during the plan or when there may be an increase to the borrower's escrow payment during the plan.

The proposal also would have required that the short-term repayment plans permitted under § 1024.41(c)(2)(iii) must bring the loan current. One trade association expressly supported the proposal to require that such a plan cure the delinquency.

Many commenters discussed the proposed limitations on the maximum arrearage and maximum repayment period for such short-term repayment plans. Several industry commenters and consumer advocacy groups supported the proposed limitations from both a borrower protection and an operational vantage point. A credit union stated that the proposed limitations on arrearage and repayment period would not create operational difficulties for its affiliate lenders. A trade association stated that the most effective short-term repayment plans last between three and six months. During outreach, some servicers similarly stated that their repayment plans typically last no more than six months, depending on the borrower's circumstance or investor requirements. A servicer supported the six-month maximum repayment period for short-term repayment plans and noted that servicers can offer longer repayment plans, lasting up to 12 months, based on a complete application. Other industry commenters opposed the proposed limitations. Some industry commenters suggested that borrowers should have unlimited time to repay an arrearage under a short-term repayment plan and noted that borrowers may need more than six months to pay off the arrearage. Several industry commenters recommended allowing a repayment period of up to 12 months, suggesting that repayment plans of 12 months would be consistent with guidelines established by owners or assignees. A servicer suggested the Bureau leave it to investors to define repayment plan limitations, given that this involves an assessment of the risk of ultimate repayment. A government-sponsored enterprise stated that the Bureau should not limit the size of the arrearage or the repayment period, as long as the servicer discloses to the borrower that the plan would eliminate the delinquency upon completion and that the borrower may submit a complete application and as long as the servicer resumes efforts to obtain a complete application if the borrower defaults on the short-term repayment plan. Several industry commenters suggested aligning the maximum repayment durations for short-term repayment plans and short-term payment forbearance programs, noting that short-term payment forbearance programs currently may be offered regardless of the amount of time a servicer allows the borrower to make up the missing payments.[244] One servicer requested clarification that, in accordance with informal guidance the Bureau issued in 2013, a servicer may offer a short-term repayment plan and a short-term payment forbearance program simultaneously, as long as the combined arrangement does not incorporate more than six months of payments past due.

Servicers the Bureau spoke with during outreach reported varying cure rates for borrowers in their repayment plans. None of these servicers estimated a cure rate significantly higher than 50%. Two servicers stated that a significant proportion of their borrowers who do not complete a repayment plan fail within the first month or two. Servicers participating in the Bureau's outreach indicated that they encourage borrowers who fail to complete a repayment plan to apply for other loss mitigation options.

Industry commenters expressed other miscellaneous concerns about the proposal. For example, a trade association stated that a short-term repayment plan offered under § 1024.41(c)(2)(iii) might be considered a troubled-debt restructuring and could therefore result in increased burden and expense. A trade association cautioned against the Bureau expanding the proposal to require a servicer to provide a short-term solution if the borrower fails to complete a loss mitigation application.

The Bureau is adopting § 1024.41(c)(2)(iii) generally as proposed to permit explicitly servicers to offer short-term repayment plans based upon an evaluation of an incomplete loss mitigation application. The final rule includes revisions, however, as to the contents and timing of the written information that servicers must provide to borrowers. The final rule requires servicers to provide more information than the proposal and specifies that a servicer must provide a written notice promptly after offering the program or plan. The Bureau is also adopting commentary that describes what constitutes a short-term payment forbearance program and a short-term repayment plan for purposes of § 1024.41(c)(2)(iii), clarifies the application of § 1024.41 to such programs or plans, and clarifies various aspects of the written notice requirement. The Bureau is also adopting revisions to comment 41(b)(1)-4.iii, which clarifies a servicer's obligation under § 1024.41(b)(1) to exercise reasonable diligence when a servicer offers a borrower a short-term payment forbearance program or a short-term repayment plan based on an evaluation of an incomplete loss mitigation application. Among other things, these revisions to comment 41(b)(1)-4.iii clarify that a servicer must immediately resume exercising reasonable diligence to obtain a complete application if a borrower defaults on a short-term repayment plan.

The Bureau continues to believe that allowing servicers to offer short-term repayment plans based on an evaluation of an incomplete loss mitigation application can substantially benefit borrowers and servicers. It offers a relatively efficient way for borrowers to address temporary hardships without exhausting those protections under § 1024.41 determined as of the date a complete loss mitigation application is received. The same rationale underpins the existing exception for short-term forbearance programs under § 1024.41(c)(2)(iii). Although nothing in § 1024.41 requires a servicer to offer such forbearance programs or repayment plans based upon an incomplete application, § 1024.41(c)(2)(iii) permits servicers to offer temporary assistance to qualifying borrowers who may need only to address short-term financial difficulty.

However, the Bureau also notes that, without appropriate safeguards, permitting a servicer to offer loss mitigation based upon an evaluation of an incomplete application could have adverse consequences for a borrower. If Start Printed Page 72247a servicer inappropriately diverts a borrower into a loss mitigation program based upon an incomplete application, it could exacerbate the borrower's delinquency and put the borrower at risk of losing the opportunity to complete the application and receive the full protections of § 1024.41. A borrower who is offered a short-term payment forbearance program or short-term repayment plan may be experiencing a hardship for which other, longer-term loss mitigation solutions might be more appropriate for a particular borrower's circumstance.

As revised and adopted in final form, § 1024.41(c)(2)(iii) contains three key elements. First, it provides that, notwithstanding the rule's general prohibition against offering a loss mitigation option based upon an evaluation of an incomplete application, a servicer may offer a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application. Second, it provides that, promptly after offering a payment forbearance program or a repayment plan under § 1024.41(c)(2)(iii), unless the borrower has rejected the offer, the servicer must provide the borrower a written notice stating the specific payment terms and duration of the program or plan, that the servicer offered the program or plan based on an evaluation of an incomplete application, that other loss mitigation options may be available, and that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the offered program or plan.[245] Third, it prohibits a servicer from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, or moving for foreclosure judgment or order of sale or conducting a foreclosure sale, if a borrower is performing pursuant to the terms of a payment forbearance program or repayment plan offered pursuant to § 1024.41(c)(2)(iii). The final rule also specifies that a servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment plan pursuant to § 1024.41(c)(2)(iii).

The final rule retains the proposed disclosures relating to the payment terms and duration of the program or plan, which the Bureau believes should reduce misunderstandings between servicers and borrowers, including those that may result in borrowers making incorrect payments. Comment 41(c)(2)(iii)-5, discussed below, clarifies these requirements.

The final rule also requires several additional disclosures that were not proposed. Many of these disclosures are specified in current comment 41(b)(1)-4.iii as part of a servicer's obligation to exercise reasonable diligence. The Bureau is removing those specific disclosures from final comment 41(b)(1)-4.iii, as they would be duplicative of the new written notice requirements in final § 1024.41(c)(2)(iii). Final § 1024.41(c)(2)(iii) also introduces a new disclosure, that other loss mitigation options may be available.

After considering the comments, the Bureau believes that allowing a short-term payment forbearance program or short-term repayment plan to begin immediately following an oral offer is appropriate. The Bureau understands that some servicers already allow a short-term payment forbearance program or repayment plan to begin upon offer. Allowing commencement of the program or plan immediately upon an oral offer may benefit some borrowers by reducing the accrual of late fees, negative credit reporting, and the accumulation of further delinquency. Entering the short-term repayment plan also triggers the protections of § 1024.41(c)(2)(iii), which forbids the servicer from making the first notice or filing required under applicable law for any judicial or non-judicial foreclosure process, moving for foreclosure judgment or order of sale, or conducting a foreclosure sale.

The Bureau continues to believe, however, that borrowers will benefit from receiving a written notice describing the program or plan. The final rule therefore requires servicers to provide a written notice promptly after offering a payment forbearance program or a repayment plan under § 1024.41(c)(2)(iii), unless the borrower has rejected the offer. The Bureau continues to believe that receiving the written notice promptly will assist borrowers in understanding the terms and consequences of the program or plan and will allow borrowers to address any discrepancies more quickly. The Bureau notes that § 1024.41(c)(2)(iii) does not require servicers to provide the written notice if the borrower has rejected the offer. A notice after the borrower has rejected the offer would provide little benefit to the borrower and could introduce unnecessary burden for the servicer.

The Bureau is not adopting some commenters' suggestions to toll the loss mitigation timelines under § 1024.41 or to prohibit servicers from scheduling a foreclosure sale while a borrower is performing under a short-term repayment plan offered under § 1024.41(c)(2)(iii). The Bureau believes that the protections extended under § 1024.41(c)(2)(iii) and (b)(1) are sufficient. As detailed below, a short-term repayment plan for purposes of § 1024.41(c)(2)(iii) must have terms under which a borrower would be able to repay all past due payments over a specified period of time to cure the delinquency; and while a borrower is performing under such a plan, servicers may not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale, or conduct a foreclosure sale. Further, if the borrower fails to comply with the plan, servicers must immediately resume exercising reasonable diligence to obtain a complete application, as described in revised comment 41(b)(1)-4.iii. The Bureau will continue to monitor the marketplace regarding the sufficiency of these protections. The Bureau also is not addressing, as one commenter suggested, whether short-term repayment plans offered under § 1024.41(c)(2)(iii) might be considered troubled-debt restructurings.

The Bureau is adopting comments 41(c)(2)(iii)-1 through -4 substantially as proposed, with non-substantive revisions to improve clarity. Comment 41(c)(2)(iii)-1 clarifies what constitutes a short-term payment forbearance program for purposes of § 1024.41(c)(2)(iii). Comments 41(c)(2)(iii)-2 and -3 clarify that various protections under § 1024.41 apply notwithstanding a servicer's offer of a short-term payment forbearance program or short-term repayment plan under § 1024.41(c)(2)(iii). Comment 41(c)(2)(iii)-2 explains that, although § 1024.41(c)(2)(iii) allows a servicer to offer a borrower a short-term payment forbearance program or a short-term repayment plan based on an evaluation of an incomplete loss mitigation application, the servicer must still comply with the other requirements of § 1024.41 with respect to the incomplete loss mitigation application. The comment includes several examples of the protections. Comment 41(c)(2)(iii)-3 Start Printed Page 72248clarifies that the servicer must still comply with all applicable requirements in § 1024.41 if the borrower completes a loss mitigation application.

As finalized, comment 41(c)(2)(iii)-4 clarifies that repayment plans for purposes of § 1024.41(c)(4)(iii) have terms under which a borrower would repay all past due payments over a specified period of time to bring the mortgage loan account current. Repayment plans that are not intended to cure the delinquency risk merely prolonging the delinquency with consequent borrower harm, including negative credit reporting and a diminished ability to qualify for other loss mitigation options. Comment 41(c)(2)(iii)-4 explains that a short-term repayment plan for purposes of § 1024.41(c)(2)(iii) is one that allows for the repayment of no more than three months of past due payments and allows a borrower to repay the arrearage over a period lasting no more than six months.

The Bureau also believes that these specific limitations, to three months of past due payments and a repayment period of six months, reduce the risk of borrower harm. Allowing more than three months of past due payments or longer repayment periods could result in a higher default rate, and borrowers' prospects for loss mitigation may be diminished by a default on a short-term repayment plan. As noted above, servicers that the Bureau spoke with during outreach informed the Bureau that their borrowers in repayment plans frequently do not result in a cure; none of these servicers reported cure rates higher than approximately 50%.

Moreover, borrowers in short-term repayment plans under § 1024.41(c)(2)(iii) are at risk of losing various protections under § 1024.41. In general, the longer a delinquency exists without the borrower completing an application, the fewer borrower protections § 1024.41 is likely to provide if the borrower later completes the application. For example, certain protections apply only if the borrower completes a loss mitigation application more than a certain number of days before a scheduled foreclosure sale. As a result, a borrower could exit an unsuccessful short-term repayment plan to face a scheduled foreclosure sale with no right under § 1024.41 to have a complete loss mitigation application evaluated or to have the denial of loan modification options subject to appeal.

Given these potentially serious consequences for borrowers who are in short-term repayment plans based on an evaluation of an incomplete loss mitigation application, the Bureau believes that the limitations in the final rule, as explained by comment 41(c)(2)(iii)-4, are necessary. The final rule affords servicers sufficient flexibility to address borrowers' temporary hardships, while also ensuring that borrowers facing more substantial hardship will not lose time and protections under § 1024.41 by agreeing to a repayment plan that they may have little chance of completing.

The Bureau notes that nothing in § 1024.41 prevents a servicer from offering a repayment plan that exceeds the durational limitations set forth in comment 41(c)(2)(iii)-4. Rather, the rule simply prohibits a servicer from doing so without obtaining a complete loss mitigation application and evaluating the borrower for all available options. As discussed below, the Bureau is also revising comment 41(b)(1)-4.iii, which clarifies a servicer's obligation under § 1024.41(b)(1) to act with reasonable diligence in obtaining documents and information to complete a loss mitigation application when the servicer offers the borrower a short-term payment forbearance program or short-term repayment plan under § 1024.41(c)(2)(iii).

The Bureau is also adopting new comment 41(c)(2)(iii)-5 to clarify the written notice requirement for short-term loss mitigation options under § 1024.41(c)(2)(iii). Comment 41(c)(2)(iii)-5.i notes that § 1024.41(c)(2)(iii) requires a servicer to provide the borrower a written notice stating, among other things, the specific payment terms and duration of a short-term payment forbearance program or a short-term repayment plan offered based on an evaluation of an incomplete application. The comment explains that, generally, a servicer complies with these requirements if the written notice states the amount of each payment due during the program or plan, the date by which the borrower must make each payment, and whether the mortgage loan will be current at the end of the program or plan if the borrower complies with the program or plan. The Bureau believes that these guidelines clarify a servicer's obligations under § 1024.41(c)(2)(iii) and may help borrowers better understand short-term programs or plans offered based upon incomplete applications.

One commenter noted that servicers will not always know precisely how a borrower's payments will change during a short-term payment forbearance program or short-term repayment plan. New comment 41(c)(2)(iii)-5.ii clarifies how a servicer may comply with the requirement in this circumstance. The comment describes how a servicer complies when, at the time a servicer provides the written notice, the servicer lacks information necessary to determine the amount of a specific payment due during the program or plan (for example, because the borrower's interest rate will change to an unknown rate based on an index or because an escrow account computation year as defined in § 1024.17(b) will end and the borrower's escrow payment may change). The comment states that, in such circumstances the servicer complies with the requirement to disclose the specific payment terms and duration of a short-term payment forbearance program or short-term repayment plan if the disclosures are based on the best information reasonably available to the servicer at the time the notice is provided and the written notice identifies which payment amounts may change, states that such payment amounts are estimates, and states the general reason that such payment amounts might change. The comment provides an illustrative example.

The Bureau is also adopting new comment 41(c)(2)(iii)-6 to clarify the requirement that a servicer must provide the written notice promptly after offering a short-term payment forbearance program or short-term repayment plan. The comment explains that, generally, a servicer acts promptly to provide the written notice if the servicer provides it no later than five days (excluding legal public holidays, Saturdays, and Sundays) after offering the borrower a short-term payment forbearance program or short-term repayment plan. The comment also clarifies that a servicer may provide the written notice at the same time the servicer offers the borrower the program or plan. Finally, the comment states that a written offer that contains all the required elements of the written notice also satisfies § 1024.41(c)(2)(iii).

Reasonable Diligence

The Bureau is also revising the introductory text to comment 41(b)(1)-4 and the substance of comment 41(b)(1)-4iii to clarify a servicer's obligation under § 1024.41(b)(1) to act with reasonable diligence in obtaining documents and information to complete a loss mitigation application when the servicer offers the borrower a short-term payment forbearance program or short-term repayment plan under § 1024.41(c)(2)(iii). Current comment 41(b)(1)-4 describes the reasonable diligence obligation generally. The comment states that a servicer must request information necessary to make a loss mitigation application complete Start Printed Page 72249promptly after receiving the loss mitigation application. Comments 41(b)(1)-4.i through -4.iii clarify reasonable diligence for purposes of § 1024.41(b)(1) in specific circumstances. Comment 41(b)(1)-4.iii clarifies the standard when a servicer offers a short-term payment forbearance programs under § 1024.41(c)(2)(iii). Proposed revisions would have extended the comment to include short-term repayment plans.

The Bureau received many comments discussing the proposed amendments to a servicer's reasonable diligence obligations with respect to short-term loss mitigation options offered under § 1024.41(c)(2)(iii). Some consumer advocacy groups said that the Bureau should strengthen the applicable reasonable diligence standard a servicer must employ to obtain a complete application from the borrower. Under the proposal, servicers generally would have been allowed to suspend such efforts until near the end of the program or plan. The commenters recommended a rule that more clearly states that a servicer's reasonable diligence obligations resume if a borrower defaults on a short-term repayment plan and requires servicers to provide the borrower with a written notice stating that the borrower may submit a complete application and be considered for all loss mitigation options. These consumer advocacy groups stated that these protections are critical because a borrower might default on a repayment plan months before the plan will terminate under the terms of the agreement. They also suggested that additional protections are essential because the consequences of default for these borrowers could be severe.

Some industry commenters suggested, conversely, that the Bureau limit the applicable reasonable diligence requirements. For example, a trade association said that a full loss mitigation review under § 1024.41 is not necessary for all borrowers and that requiring servicers nonetheless to continue reasonable diligence and other applicable communication requirements under § 1024.41 assumes that borrowers are uninformed, would frustrate some borrowers, and would lead to negative perceptions of customer service. One servicer recommended suspending reasonable diligence requirements for borrowers in short-term repayment plans while continuing to require reasonable diligence for borrowers in short-term forbearance programs. This servicer suggested that reasonable diligence should be suspended for short-term repayment plans because, unlike short-term forbearance programs, short-term repayment plans are expected to bring the loans current. Another servicer advocated against requiring servicers to provide borrowers who receive a short-term repayment plan with information about remaining items needed to complete the application, reasoning that the plans are designed to cure delinquencies and borrowers would receive necessary information if they default on the plan.

As finalized, comment 41(b)(1)-4 contains minor revisions to the introductory text to improve clarity. Revised comment 41(b)(1)-4.iii contains several elements, which provide non-exhaustive descriptions of a servicer's reasonable diligence obligations during different phases of a short-term loss mitigation option offered under § 1024.41(c)(2)(iii).

First, comment 41(b)(1)-4.iii explains that a servicer exercises reasonable diligence by providing the borrower the written notice pursuant to § 1024.41(c)(2)(iii). The Bureau is not adopting proposed language that would have directed the servicer to inform the borrower, as part of its reasonable diligence obligations, that the offer of a payment forbearance program or repayment plan was based on an evaluation of an incomplete application, as the final rule incorporates that information as an express requirement in the written notice setting forth the terms and duration of the program or plan under § 1024.41(c)(2)(iii).

Second, as revised, comment 41(b)(1)-4.iii provides that, if the borrower remains in compliance with the short-term payment forbearance program or short-term repayment plan, and the borrower does not request further assistance, the servicer may suspend reasonable diligence efforts until near the end of the payment forbearance program or repayment plan. However, if the borrower fails to comply with the program or plan or requests further assistance, the servicer must immediately resume reasonable diligence efforts. Suspending reasonable diligence efforts to complete an application during a performing short-term payment forbearance program or short-term repayment plan may avoid borrower frustration and unnecessary burden, but servicers must resume those efforts immediately in the specified circumstances because of the substantial consequences borrowers may face in the absence of a complete application. Many of § 1024.41's protections do not apply until a borrower completes an application, and borrowers are generally at risk of losing additional protections under § 1024.41 the longer a delinquency lasts while an application remains incomplete. Borrowers who default on short-term loss mitigation option under § 1024.41(c)(2)(iii) may be particularly at risk. While § 1024.41(c)(2)(iii) prohibits servicers from making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, moving for foreclosure judgment or order of sale, or conducting a foreclosure sale, those protections may no longer apply once a borrower is not performing under a short-term loss mitigation option. Borrowers do not receive the similar protections available under § 1024.41(f)(2) or (g) until they complete an application and, by the time of default on the short-term loss mitigation option, they may have lost the possibility of obtaining those protections if they completed the application within 37 days of a scheduled foreclosure sale. The Bureau therefore believes it is vital that servicers not delay in resuming efforts to assist the borrower in completing an application, upon either the borrower's request or the borrower's failure of compliance with the short-term loss mitigation option.

Third, as revised, comment 41(b)(1)-4.iii makes more explicit that, near the end of a short-term payment forbearance program offered based on an evaluation of an incomplete loss mitigation application pursuant to § 1024.41(c)(2)(iii), and prior to the end of the forbearance period, if the borrower remains delinquent, a servicer must contact the borrower to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation. This aspect of the comment applies only to a short-term payment forbearance program and not to a short-term repayment plan as proposed because short-term repayment plans must be designed to cure the delinquency under comment 41(c)(2)(iii)-4. Consequently, as some commenters noted, as long as a borrower is performing under such a plan and does not request further assistance, requiring a servicer to engage in efforts to collect a complete loss mitigation application could create unnecessary burden and frustrate the borrower.

41(c)(2)(iv) Facially Complete Application

Current § 1024.41(c)(2)(iv) provides that, among other things, if a borrower submits all the missing documents and information as stated in the notice required pursuant to § 1026.41(b)(2)(i)(B), or no additional information is requested in such notice, an application shall be considered Start Printed Page 72250facially complete. If a servicer later discovers additional information or corrections to a previously submitted document are required to complete the application, certain protections under § 1024.41 that apply as of the date on which a servicer receives a complete application continue to run from the date the application became facially complete and continue until the borrower is given a reasonable opportunity to complete the application. If the borrower completes the application during this period, the servicer must treat the application as complete as of the date it was facially complete, for purposes of certain provisions under § 1024.41 and as of the date the application was actually complete for the purposes § 1024.41(c).

The Bureau proposed three revisions to § 1024.41(c)(2)(iv). First, the Bureau proposed a minor technical change to correct the erroneous reference to § 1026.41(b)(2)(i)(B), which should refer to § 1024.41(b)(2)(i)(B). Second, the Bureau proposed to provide that an application becomes facially complete when, in addition to the conditions described above, a servicer is required, under proposed § 1024.41(c)(3)(i), to send the borrower a notice of complete application. Section 1024.41(c)(3) requires servicers to provide a written notice informing the borrower, among other things, when the loss mitigation application becomes complete. However, the Bureau recognizes that, in certain circumstances, servicers might require additional documents or information from a borrower after sending a notice of complete application under § 1024.41(c)(3)(i). To clarify the status of an application in this circumstance, the Bureau proposed to extend expressly the facially complete application status described in § 1024.41(c)(2)(iv) to an application when the servicer is required to provide the notice of complete application under proposed § 1024.41(c)(3).

Third, the Bureau proposed to provide that, if a servicer requests the required additional information or corrections to a previously submitted document, and the borrower timely submits those materials to complete the application as described in 1024.41(c)(2)(iv), the application shall be considered complete as of the date it first became facially complete for purposes of specified provisions in § 1024.41, and as of the date the application was actually complete for the purposes § 1024.41(c). In proposing this revision, the Bureau recognized that an application may become complete more than once during a single cycle.

The Bureau received several comments on the proposed amendments. Consumer advocacy groups supported maintaining the initial date of completion as the date on which dual tracking protections under § 1024.41 begin to apply, saying that doing so should limit incentives for servicers to promote delay and seek additional fees from borrowers. They also expressed concern about ongoing servicer delays in the loss mitigation application and evaluation processes. One trade association commented that the proposal could harm servicers by providing borrowers with additional time to submit application materials without affording servicers a similar extension. The group suggested that the Bureau lengthen the amount of time a servicer has to evaluate a complete loss mitigation application.

The Bureau is finalizing § 1024.41(c)(2)(iv) substantially as proposed, with minor revisions. Under the revisions to § 1024.41(c)(2)(iv), a loss mitigation application is facially complete once the servicer receives the complete application, regardless of when the servicer determines that the application is complete. As a result, the protections under § 1024.41 that begin when an application becomes facially complete are in effect when a borrower submits all the missing documents and information as stated in the notice required under § 1024.41(b)(2)(i)(B), when no additional information is requested in such notice, or once the servicer is required to provide the borrower a written notice of complete application pursuant to § 1024.41(c)(3)(i).

Revised § 1024.41(c)(2)(iv) also requires that, if a servicer later discovers that additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents and treat the application as complete for purposes of § 1024.41(f)(2) and (g) until the borrower is given a reasonable opportunity to complete the application. Further, if the borrower timely submits those materials to complete the application, the servicer must treat the application as complete as of the date it first became facially complete for the purposes of § 1024.41(d), (e), (f)(2), (g), and (h), and as of the date the application was actually complete for the purposes of § 1024.41(c). Finally, a servicer that complies with § 1024.41(c)(2)(iv) will be deemed in the final rule to have fulfilled its obligation to provide an accurate notice under § 1024.41(b)(2)(i)(B).

Various protections under § 1024.41 depend on the timing of a complete application. For example, evaluation requirements, certain dual tracking protections, and appeal rights apply only if the servicer received a complete application a certain number of days before a foreclosure sale. Tying the date of completion to the date an application first became facially complete for purposes of specified provisions in § 1024.41 ensures that borrowers do not lose the protections associated with those provisions because a servicer has requested additional information. The protections apply as though the application was complete as of the original date it became facially complete.

As the Bureau explained in the proposal, the amendments to § 1024.41(c)(2)(iv) are intended to provide both borrowers and servicers with certainty about whether and when various protections apply under § 1024.41 when a servicer requires additional information for an application that the borrower previously completed. Also, continuing borrower protections under § 1024.41 encourages servicers to process loss mitigation applications efficiently.

To the extent that § 1024.41(c)(2)(iv) allows borrowers additional time to complete an application without providing corresponding extensions for servicers, as one commenter suggested, the Bureau believes that this is appropriate. The Bureau believes that borrowers have strong incentives not to delay the provision of application materials and expects servicers to be actively engaged with borrowers in all stages of the loss mitigation application process. If a borrower is actively engaged in the loss mitigation application process and has completed an application, the servicer should not be permitted to make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process or to move for foreclosure judgment or order of sale or conduct a foreclosure sale, as applicable, until the servicer evaluates the borrower for loss mitigation. The Bureau continues to believe that the loss mitigation rules afford servicers sufficient time to evaluate a complete application and does not believe that an extension is justified.

Nothing in § 1024.41(c)(2)(iv) alters the servicer's ability to request additional information or corrections to a previously submitted document that are required to complete the application. The Bureau recognizes that there are circumstances where servicers may need to request additional Start Printed Page 72251information or corrections to a previously submitted document when required to evaluate the borrower pursuant to § 1024.41(c)(1) and owner or assignee requirements. When they do so unnecessarily, however, it can prolong application timelines, increase costs for borrowers, and leave borrowers unsure of their application status. Repeated requests for additional documents and information by servicers could impede borrower protections under the rules. The Bureau will continue to monitor the market in this area.

41(c)(3) Notice of Complete Application

The Bureau proposed to require a servicer to provide a written notice of complete loss mitigation application under new § 1024.41(c)(3). The Bureau is adopting § 1024.41(c)(3) largely as proposed but with several revisions to the contents and timing of the written notice.

In advance of the proposal, the Bureau learned from consumer advocacy groups that, during the loss mitigation application process, borrowers are frequently uncertain about whether an application was complete. Current § 1024.41 requires a servicer to notify a borrower that an application is complete only if the application is complete when the servicer provides the notice acknowledging receipt of an application under § 1024.41(b)(2)(i)(B). The Bureau learned from pre-proposal outreach efforts that applications are rarely complete at that stage. Many borrowers who completed an application might not receive any notice specifying that the application was complete. Because the foreclosure protections under § 1024.41(f)(2) and (g) [246] are triggered based on when the borrower submits a complete loss mitigation application, clarity as to when the application is complete is vital.

Proposed § 1024.41(c)(3)(i) would have required a servicer to provide a borrower a written notice, including specific information, promptly upon receiving the borrower's complete application. As proposed, the notice would have informed the borrower of: The application's completion; the date the servicer received the complete application; whether a foreclosure sale was scheduled as of the date the servicer received the complete application and, if so, the date of that scheduled sale; and the date the borrower's foreclosure protections began under § 1024.41(f)(2) and (g), as applicable, with a concise description of those protections. The notice also would have included a statement that the servicer expects to complete its evaluation within 30 days of the date it received the complete application and a statement that, although the application is complete, the borrower may need to submit additional information at a later date if the servicer determines that it is necessary. Finally, the notice would have informed the borrower, if applicable, of the borrower's rights to appeal the servicer's determination to deny the borrower for any trial or permanent loan modification under § 1024.41(h).

Proposed § 1024.41(c)(3)(ii) stated that a servicer need not provide the notice of complete application in three circumstances: If the servicer has already notified the borrower under § 1024.41(b)(2)(i)(B) that the application is complete and the servicer has not subsequently requested additional information or a corrected version of a previously submitted document from the borrower to complete the application, the application was not complete or facially complete more than 37 days before a foreclosure sale, or the servicer has already provided a notice approving or denying the application under § 1024.41(c)(1)(ii). These exceptions were intended to avoid unnecessary burden on servicers and prevent borrower confusion due to the receipt of conflicting or redundant information.

The Bureau also proposed commentary to explain certain aspects of the notice requirement under proposed § 1024.41(c)(3). Proposed comment 41(c)(3)(i)-1 would have explained that, generally, a servicer complies with the requirement to provide a borrower with written notice promptly by providing the notice within five days of receiving a complete application. However, the Bureau recognized that servicers might sometimes require more than five days to determine whether a loss mitigation application is complete. In the proposal, the Bureau explained its belief that the general five day standard would provide servicers with sufficient flexibility to make an accurate determination but prevent undue delay. Proposed comment 41(c)(3)(i)-2 would have provided that the date the borrower's protections began under § 1024.41(f)(2) and (g) must be the date on which the application became either complete or facially complete, as applicable.

Proposed comment 41(c)(3)(i)-3 would have explained that § 1024.41(c)(3)(i) requires a servicer to send a notification, subject to the exceptions under § 1024.41(c)(3)(ii), every time a loss mitigation application becomes complete. The proposed comment further would have clarified that, if after providing a notice under § 1024.41(c)(3)(i) a servicer requests additional information or corrections to a previously submitted document required to complete the application in accordance with § 1024.41(c)(2)(iv), the servicer might have to provide an additional notice under § 1024.41(c)(3)(i) if the borrower submits the additional information or corrected documents to complete the application. The Bureau explained in the proposal that requiring a servicer to send an additional notice under these circumstances would help ensure that a borrower has accurate and current information about the status of the loan and when to expect a servicer to complete the evaluation.

The Bureau explained in the proposal that requiring servicers to provide borrowers with the information in the notice of complete application under proposed § 1024.41(c)(3)(i) would ensure that borrowers are informed of the next steps in the evaluation process. The Bureau explained its belief that receiving notice of when to expect an offer or denial would permit the borrower to make better-informed decisions. Additionally, the Bureau stated that requiring the notice of complete application to indicate the date that the servicer received a complete application would help both servicers and borrowers in determining which protections apply under § 1024.41. The Bureau also indicated that the proposed disclosure that the servicer may need additional or updated information from the borrower after determining that the application was complete would reduce borrower confusion when and if the servicer requests such additional information.

The Bureau sought comment on whether the notice of complete application required under proposed § 1024.41(c)(3) should include additional or different disclosures than those listed above. The Bureau also sought comment on whether it should finalize a stricter timing requirement for Start Printed Page 72252providing the notice than proposed under § 1024.41(c)(3)(i) and, if so, what the specific number of days should be.

Numerous commenters, including servicers, trade associations, and consumer advocacy groups, expressed general support for the proposal to require servicers to provide a notice of complete application to borrowers. A trade association stated that requiring servicers to provide a notice of complete application would operate in conjunction with proposed comment 41(b)(1)-1, which, in part, would have clarified that servicers can generally stop collecting application materials for a given loss mitigation option upon learning that the consumer is ineligible for that option, to alleviate unnecessary burden on borrowers while concurrently requiring servicers to engage in best efforts to collect loss mitigation application materials from borrowers. One servicer commented that the notice of complete application as proposed would provide borrowers with more clarity about the loss mitigation process. A number of consumer advocacy groups urged the Bureau to base the onset of foreclosure protections on the submission of an initial application but stated that, if the Bureau retains the current approach to § 1024.41, it should require servicers to provide a notice of complete application to borrowers, to address borrower uncertainty and unjustified denials. One trade association stated that a notice of complete application would alert borrowers to critical protections and deadlines under State and Federal rules. Several commenters expressed general support for the notice but took issue with other elements of the proposal; those comments are addressed in the discussion of the relevant elements below.

Some commenters addressed cost-benefit considerations of requiring servicers to provide a notice of complete application. Several said that requiring the notice would not create significant additional burden for servicers, for example, because some jurisdictions already require servicers to send such notices. However, other commenters stated that the benefit to borrowers of receiving a notice of complete application would not justify the additional cost, burden, or risk for servicers. Some industry commenters suggested that the notice would not significantly benefit borrowers because they have other means to secure relevant information, they will have been in contact with servicers, or they might find the notice confusing due to the various other notices they receive relating to the delinquency and their rights. Industry commenters also stated that the new notice requirement would increase servicer cost or burden, as well as the risk of servicer liability. One trade association suggested that the additional cost of the notice requirement would make credit more expensive.

Some commenters addressed the proposed requirement to provide the written notice promptly, generally within five days of receiving the complete application. Consumer advocacy groups argued that the timing requirement should be short and inflexible because a flexible standard invites delay. Consumer advocacy groups also stated that a five-day standard would encourage servicers to evaluate complete applications earlier. They stated that it would not burden servicers or result in undue delay because the standard would align with the standard in § 1024.41(b)(2)(i)(B). One consumer advocacy group noted that, because servicers may need additional time in some cases, the Bureau should finalize a maximum time limit to reduce confusion and delay.

Numerous industry commenters requested that servicers have more than five days to provide the notice. Some said that a five-day standard would not leave servicers with sufficient time to review the application and determine whether it is complete, with one industry trade association saying that the standard would suffice only if the disclosures were generic and requesting 10 or 15 days to provide the notice. One servicer said that the notice should not state whether the application is complete but that servicers should be required to send a notice each time a borrower submits application materials to acknowledge receipt and specify which items remain outstanding.

Commenters also addressed the content of the written notice. Consumer advocacy groups stated that requiring the notice to contain the disclosures proposed under § 1024.41(c)(3)(i)(A) through (F) would create a bright-line, written record of when dual tracking protections begin and when other requirements under § 1024.41 apply. Several industry commenters recommended that the notice contain only standard disclosures that servicers do not need to adjust for each individual borrower, to reduce compliance burdens. For example, several servicers said that the notice should focus on informing the borrower of the application status, as borrowers can obtain the other information elsewhere. One of these servicers stated that the notice should include the following generic disclosures: That the application is complete; that the servicer expects to complete its evaluation within 30 days; that additional information may later be required; that, if additional information is required, the servicer will complete its evaluation within 30 days of receiving that additional information; and that the servicer will take measures to provide foreclosure protections.

A trade association expressed concern that the proposed contents of the written notice could potentially mislead some borrowers and result in FDCPA litigation. The association stated that: (1) State laws sometimes offer protections that the written notice under proposed § 1024.41(c)(3)(i) would not disclose, so the written notice could suggest that borrowers have fewer protections than they actually have; (2) the proposed disclosures might mislead borrowers into believing that a servicer cannot execute a foreclosure sale even after denying the application, particularly when a servicer is statutorily required to send a separate notice of sale; (3) borrowers could be misled by a notice containing both foreclosure-related disclosures and a statement that the application is complete; and (4) the Bureau could alleviate these concerns by drafting specific language for the notice under § 1024.41(c)(3)(i) and by introducing a safe harbor for the notices under the FDCPA.

Several commenters took issue with proposed § 1024.41(c)(3)(i)(C) in particular, which would have required servicers to disclose the date of a scheduled foreclosure sale as of when the servicer received the complete application. A servicer argued that disclosing the sale date is unnecessary because the borrower receives notification of the sale date when the sale is scheduled and postponed. Several trade associations suggested that the sale date disclosure might create difficulties when servicers are not in control of the sale date, such as when the servicer has filed a motion in court to postpone the sale but the court has yet to respond, when the sheriff responsible for delivering the notice of sale schedules the sale shortly after the servicer issues the notice under § 1024.41(c)(3), or when the sheriff has already scheduled the sale but delays informing the servicer. In these circumstances, the notice under § 1024.41(c)(3)(i) could be misleading or incorrect. A trade association further opposed disclosing a scheduled foreclosure sale date on the notice because State law may control how the delivery of sale date information must be displayed, although the association was unaware of specific conflicts with Start Printed Page 72253State law. The trade association also stated that, more generally, determining the foreclosure sale date at a particular point in time is often not straight-forward, and it expressed concern that an incorrect statement of sale date could invalidate the sale and lead to attorney and trustee liability. Consumer advocacy groups suggested that a final rule adopting the notice requirement should require a statement whether a scheduled foreclosure sale has been canceled or postponed.

Other commenters raised miscellaneous other issues relating to specific proposed disclosures. A trade association recommended that the Bureau clarify how servicers must describe the borrower's foreclosure protections under proposed § 1024.41(c)(3)(i)(D), saying it would be difficult for servicers to determine which protections apply at a given moment and how to describe those protections, particularly given the various protections that State law may provide. Several commenters expressed concerns about the disclosure proposed under § 1024.41(c)(3)(i)(G) relating to a borrower's appeal rights. One servicer said that the proposed disclosure would be particularly confusing to borrowers. Another servicer stated that information about a borrower's appeal rights is more appropriate in a loss mitigation determination letter provided under § 1024.41(c)(1)(ii) than at the time the servicer receives the complete application.

One consumer advocacy group supported proposed comment 41(c)(3)(i)-3, which would have clarified that servicers must provide a notice of complete application to borrowers each time an application becomes complete. The commenter stated that this requirement would avoid borrower uncertainty that occurs when a servicer fails to inform the borrower when the application is complete. Several industry commenters supported the requirement of a notice of complete application while opposing the proposal to require the servicer to send additional notices every time the borrower's application becomes complete. A servicer said that additional notices after the first notice would be unnecessary because a borrower's foreclosure protections under § 1024.41 begin when the application becomes facially complete and last through any appeal. A credit union suggested that receiving additional notices would confuse borrowers and result in unnecessary inquiries.

Commenters made other recommendations relating to the proposed notice of complete application. Consumer advocacy groups and a trade association recommended requiring servicers to provide the notice of complete application to the servicer's foreclosure counsel where applicable to prevent improper foreclosure filings. A trade association requested that the Bureau issue a model form for the notice. One consumer advocacy group argued that servicers should provide a list of borrower rights and protections under Regulation X. Consumer advocacy groups recommended that the Bureau require servicers to document the need for additional information after the application becomes complete or facially complete to curb dilatory tactics.

The Bureau is adopting § 1024.41(c)(3) and related commentary with several revisions to the content and timing of the written notice. First, the Bureau is revising the disclosures that a written notice must contain pursuant to § 1024.41(c)(3)(i). As revised, § 1024.41(c)(3)(i) requires that the written notice set forth the following information: (1) That the loss mitigation application is complete; (2) the date the servicer received the complete application; (3) that the servicer expects to complete its evaluation within 30 days of the date it received the complete application; (4) that the borrower is entitled to certain foreclosure protections because the servicer has received the complete application and, if the servicer has not made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer cannot make the first notice or filing required to commence or initiate the foreclosure process under applicable law before evaluating the borrower's complete application, or, if the servicer has made such first notice or filing, that the servicer has begun the foreclosure process, and that the servicer cannot conduct a foreclosure sale before evaluating the borrower's complete application; (5) that the servicer may need additional information at a later date to evaluate the application, in which case the servicer will request that information from the borrower and give the borrower a reasonable opportunity to submit it, the evaluation process may take longer, and the foreclosure protections could end if the servicer does not receive the information as requested; and (6) that the borrower may be entitled to additional protections under State or Federal law. Although these disclosures do not contain exclusively generic disclosures as some commenters requested, the Bureau has minimized the degree to which servicers will need to tailor the disclosures to individual borrowers or make complex determinations about a borrower's protections or application status.

The first three of these disclosures were included in the proposal, although the Bureau has made several non-substantive revisions to improve clarity. The remaining disclosures have been substantially revised or are new. First, for example, the disclosures relating to a borrower's foreclosure protections now consist of one of two standardized disclosures, depending on the foreclosure status. The proposal would have required servicers to state the date on which the borrower's protections began under § 1024.41(f)(2) and (g) and to describe those protections concisely. As one commenter noted, servicers may have had difficulty determining which protections apply at a given moment and how to describe those protections, particularly given the various protections that State law may provide. As revised (and as clarified in comment 41(c)(3)(i)-2, discussed further below), the disclosures provide borrowers with sufficient information about the status of the foreclosure and their foreclosure protections under Regulation X but eliminate much of the burden and risk that the proposal may have introduced. The Bureau believes that receiving these disclosures will help borrowers understand their rights. Although the revised disclosures do not restate verbatim the protections of § 1024.41(f)(2) and (g), the Bureau believes that they alert borrowers to the main contours of the foreclosure protections. While commenters expressed concern that disclosing these dual tracking protections would lead borrowers to believe that a servicer cannot execute a foreclosure sale even after denying the application, the Bureau believes that this is unlikely. The notice must expressly state that the servicer cannot take the applicable actions with respect to foreclosure before evaluating the application. The Bureau believes the notice will effectively communicate to the borrower that the dual tracking protections may end.

The Bureau is also revising the proposed disclosure relating to a servicer's potential need for additional information notwithstanding the complete application. Under § 1024.41(c)(3)(i)(E) as adopted, the written notice must disclose that the servicer may need additional information at a later date to evaluate the application, in which case the servicer will request that information from the borrower and give the borrower a reasonable opportunity to submit it, Start Printed Page 72254the evaluation process may take longer, and the foreclosure protections could end if the servicer does not receive the information as requested. Servicers sometimes request additional application materials from borrowers after an application becomes complete, and pursuant to § 1024.41(c)(2)(iv) a borrower might lose protections under § 1024.41 if the borrower fails to respond timely to such requests. Borrowers should be alerted to the possibility that servicers may require them to submit additional documents even after notifying them that an application is complete and that they will need to respond in a timely way to those requests for additional documents.

The Bureau also has decided, in response to concerns raised by commenters, to require an additional disclosure in § 1024.41(c)(3)(i)(F), stating that the borrower may be entitled to additional protections under State or Federal law. Disclosing only the foreclosure protections described above could suggest that borrowers have fewer protections than they in fact have under all applicable laws. This could discourage borrowers from researching or enforcing those other protections. Thus, the Bureau is adopting the new disclosure under § 1024.41(c)(3)(i)(F) to ensure that borrowers are aware that protections set forth on the written notice may not be an exhaustive enumeration of their legal rights and protections.

The Bureau has decided not to adopt two other proposed disclosures. The first of these is whether a foreclosure sale was scheduled as of the date the servicer received the complete application and, if so, the date of that scheduled sale. The second is the proposed disclosure that, if applicable, the borrower will have the opportunity to appeal the servicer's determination to deny the borrower for any trial or permanent loan modification pursuant to § 1024.41(h).

The Bureau is not requiring the first of these disclosures because, although the disclosure may have benefited some borrowers and enhanced servicers' ability to track borrowers' protections under § 1024.41, the Bureau believes that the operational complexities, costs of compliance, and resulting potential legal risks do not justify its inclusion. The Bureau understands that third parties sometimes schedule the foreclosure sale date, and that the date is sometimes subject to change. In these circumstances, servicers may have difficulty timely determining and disclosing the date accurately. The Bureau believes that borrowers generally receive the sale date disclosure on other notices and are often able to confirm the sale date through third parties or public records. The Bureau also expects that servicers, in the course of their loss mitigation communications with borrowers, ordinarily communicate the foreclosure sale date to borrowers. The Bureau may revisit requiring disclosure of the foreclosure sale date at a later time if the Bureau learns that borrowers in fact have difficulty ascertaining the scheduled foreclosure sale date. As the Bureau is not requiring servicers to disclose the date of a scheduled foreclosure sale, it also is not requiring servicers to disclose whether the sale date has been canceled or postponed, as consumer advocacy groups recommended. Again, the Bureau expects that this is information that servicers do ordinarily communicate to borrowers, and the Bureau will continue to monitor this area for consumer harm.

The second disclosure the Bureau is not requiring, as noted above, is the proposed language relating to a borrower's appeal rights. The Bureau has concluded that disclosing whether a borrower will have appeal rights under § 1024.41(h) on a notice of complete application would be premature. Borrowers will have just completed the application at this stage, and they may not have the opportunity to exercise their appeal rights for more than a month in some instances; they also in some cases never have any need to exercise their appeal rights and thus will not need the information at all. Borrowers still will learn of their appeal rights when the information is more salient: If and when an evaluation leads to a denial of a loan modification option and the servicer provides the written notice of determination pursuant to § 1024.41(c)(1)(ii).

The Bureau is also revising the amount of time a servicer has after receiving a complete application to provide a written notice to provide servicers with greater clarity and (in most cases) slightly more time for compliance. Proposed § 1024.41(c)(3)(i) would have required servicers to provide the notice promptly upon receiving a complete loss mitigation application, and proposed comment 41(c)(3)(i)-1 would have clarified that providing the notice within five calendar days would generally satisfy the requirement. Some commenters said that servicers should have more than five calendar days to provide the notice under § 1024.41(c)(3)(i) because it would be difficult to comply with the proposed requirements within that timeframe. As adopted in final form, the section requires servicers to provide the notice within five days, excluding legal public holidays, Saturdays, and Sundays. To ensure that servicers do not delay, this bright-line standard is more prescriptive than the proposal, but it should allow servicers in most cases slightly longer to comply with the requirement than the proposal would have allowed. In conjunction with limiting the complexity of the disclosures as described above, the Bureau believes that this new standard of five days (excluding legal public holidays, Saturdays, and Sundays) should afford servicers sufficient time to review a borrower's application for completion and produce an accurate written notice of complete application. Additionally, the Bureau notes that this timeframe aligns with the timeframe afforded to servicers to provide written notification of a borrower's application status under § 1024.41(b)(2)(i)(B).

At the same time, the Bureau does not believe that it would be appropriate to extend the time frame further. Some borrowers may need evidence that their loss mitigation application is complete to forestall a foreclosure action that would violate § 1024.41(g). As consumer advocacy groups noted in comments to the proposal, a more flexible standard could result in delay and the consequent reduction of borrower protections. Therefore, the Bureau declines to adopt the longer timelines for providing the notice that some commenters suggested.

The Bureau is adopting § 1024.41(c)(3)(ii) substantially as proposed, with minor revisions to improve clarity. Section 1024.41(c)(3)(ii) provides that a servicer is not required to provide a notice pursuant to § 1024.41(c)(3)(i) under three circumstances: (1) The servicer has already provided the borrower a notice under § 1024.41(b)(2)(i)(B) informing the borrower that the application is complete and the servicer has not subsequently requested additional information or a corrected version of a previously submitted document from the borrower pursuant to § 1024.41(c)(2)(iv); (2) the application was not complete or facially complete more than 37 days before a foreclosure sale; or (3) the servicer has already provided the borrower a notice regarding the application under § 1024.41(c)(1)(ii). As the Bureau explained in the proposal, these exceptions are intended to avoid unnecessary burden on servicers and prevent borrower confusion due to the receipt of conflicting or redundant information. The Bureau received no comments on this aspect of the proposal.Start Printed Page 72255

Proposed comment 41(c)(3)(i)-1 is no longer necessary, as it would have clarified the requirement that servicers must provide the notice under § 1024.41(c)(3)(i) promptly. As explained above, § 1024.41(c)(3)(i), as adopted, requires the servicer to provide the notice within five days (excluding Saturdays, Sundays, and legal holidays) after receiving a complete loss mitigation application. Thus, the Bureau is adopting entirely different content in new comment 41(c)(3)(i)-1. New comment 41(c)(3)(i)-1 clarifies that a servicer complies with § 1024.41(c)(3)(i)(B) (which requires the servicer to disclose on the written notice of complete application the date the servicer received the complete loss mitigation application) by disclosing the most recent date the servicer received the complete loss mitigation application. The comment provides an example illustrating this principle. The comment also includes a cross-reference to comment 41(c)(3)(i)-3, which discusses a servicer's obligation to provide additional notices.

The Bureau is adopting new comment 41(c)(3)(i)-1 to ensure that servicers understand that the section requires them to disclose the most recent date an application became complete, not the date the application initially became complete or facially complete. Consumer advocacy groups and servicers have informed the Bureau that servicers frequently require borrowers to submit additional information or corrected versions of previously submitted documents several times during the application process, both before and after an application becomes complete. Requiring the disclosure of the most recent date of completion will ensure that borrowers receive current information about the status of an application.

The Bureau is also significantly revising comment 41(c)(3)(i)-2. Proposed comment 41(c)(3)(i)-2 would have clarified proposed disclosures relating to the date on which a borrower's protections began under § 1024.42(f) and (g). As described above, the Bureau is not adopting those disclosures and is therefore replacing the substance of proposed comment 41(c)(3)(i)-2 in its entirety. New comment 41(c)(3)(i)-2 instead clarifies that the two disclosures in § 1024.41(c)(3)(i)(D)(1) and (2) sets forth different requirements depending on whether the servicer has made the first notice or filing under applicable law for any judicial or non-judicial foreclosure process, as described in § 1024.41(f). The comment also includes a cross-reference to comment 41(f)-1 for a description of whether a document is considered the first notice or filing under applicable law.

The Bureau is adopting comment 41(c)(3)(i)-3 substantially as proposed, with minor revisions to improve clarity. It explains that, except as provided in § 1024.41(c)(3)(ii), § 1024.41(c)(3)(i) requires a servicer to provide a written notice every time a loss mitigation application becomes complete. The comment provides an example illustrating this requirement. The comment also includes a cross-reference to comment 41(c)(3)(i)-1, which clarifies that a servicer complies with § 1024.41(c)(3)(i)(B) (which requires the servicer to disclose on the written notice of complete application the date the servicer received the complete loss mitigation application) by disclosing the most recent date the servicer received the complete loss mitigation application.

Although commenters disagreed as to the merits of providing additional notices of complete application after the servicer receives additional information or corrected documents, the Bureau continues to believe that such notices are warranted to ensure that borrowers receive information regarding the current status of their applications and when their dual tracking protections begin. Particularly given that the notices will suggest to borrowers that failure to respond to follow-up requests could cause the consumer to lose certain foreclosure protections, the Bureau believes that it is important for borrowers to receive further updates about application status. In addition, because some servicers already provide a written notice of complete application to borrowers, they should incur only limited increases in their costs of compliance. The Bureau has also minimized the degree to which servicers will need to tailor the disclosures to individual borrowers or make complex determinations about a borrower's protections or application status.

The Bureau is not adopting a requirement that servicers provide a notice of complete application to servicers' foreclosure counsel. Some commenters recommended this requirement as a means to reduce improper foreclosure filings that harm all parties. As discussed in the section-by-section analyses of § 1024.41(g), servicers must provide prompt instruction to foreclosure counsel upon receipt of a complete loss mitigation application. Similarly, as discussed in the section-by-section analysis of § 1024.38(b)(3)(iii), servicers must have policies and procedures reasonably designed to ensure that servicer personnel promptly inform foreclosure counsel that the servicer has received a complete application, among other things. The Bureau notes that the rule does not prohibit a servicer from voluntarily providing the notice of complete application required under § 1024.41(c)(3) to foreclosure counsel. Doing so may be part of an effective procedure for informing foreclosure counsel about a borrower's loss mitigation application status as part of servicers' efforts to comply with § 1024.41(g). The Bureau believes, however, that it is appropriate to permit servicers discretion in determining alternative means for compliance with §§ 1024.38(b)(3)(iii) and 1024.41(g) and therefore is not requiring servicers to provide the notice of complete application to foreclosure counsel. Whatever method a servicer chooses to instruct foreclosure counsel how to comply with § 1024.41(g), the servicer remains responsible for ensuring compliance with § 1024.41(g).

The Bureau is also not providing a safe harbor under the FDCPA for the written notice. The Bureau believes that the specific required disclosures in the notice, particularly as they have been further tailored in the final rule, should not prompt the filing of baseless FDCPA cases.

41(c)(4) Information Not in the Borrower's Control

The Bureau proposed to amend § 1024.41(c)(1) and to add § 1024.41(c)(4) to address a servicer's obligations with respect to information not in the borrower's control that the servicer requires to determine which loss mitigation options, if any, it will offer a borrower. Among other things, the proposal would have introduced standards governing a servicer's attempts to collect information not in the borrower's control, prohibited a servicer from denying the application because it lacks such information, and required servicers to provide a written notice if a delay in receiving third-party information precludes the servicer from making the determination within 30 days of receiving the complete application. Certain aspects of the proposal would have addressed third-party information, that is, information from a party other than the borrower or servicer, while other aspects would have addressed information not in the borrower's control, which could include third-party information or information within the servicer's control. For the reasons set forth below, the Bureau is adopting § 1024.41(c)(1) as proposed and is adopting § 1024.41(c)(4) largely as proposed but with revisions to the Start Printed Page 72256denial prohibition and the written notice requirement.

Under existing § 1024.41(c)(1), a servicer generally must evaluate a borrower's timely complete loss mitigation application within 30 days of receipt. A complete loss mitigation application includes all the information the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.[247] Thus, a loss mitigation application is considered complete under the current rule notwithstanding whether a servicer requires additional information that is within the control of the servicer or a third-party and not in the control of the borrower, such as investor approval, property tax information, or homeowner association payoff information.[248] While the rule is clear that servicers generally must exercise reasonable diligence in obtaining documents and information from a borrower to complete the application,[249] the rule currently does not address a servicer's obligations with respect to obtaining required information from other parties, including the servicer itself or third-parties.

Delay in obtaining non-borrower information that the servicer requires to determine which loss mitigation options, if any, it will offer a borrower could result in increased fees and negative credit reporting for borrowers and could increase a borrower's delinquency, thereby decreasing the likelihood of successful loss mitigation. It also could disrupt servicers' payments to investors. Servicers can obtain information within their own control at will, but the Bureau learned during pre-proposal outreach that they do not always timely receive third-party information, sometimes because the servicer did not request the information promptly, and sometimes because the party with the information delays in providing it. The Bureau understands that servicers sometimes do not receive necessary third-party information for 15 or 30 days after the initial 30-day evaluation period.

Servicers informed the Bureau before the proposal that they were unsure how to remain in compliance with § 1024.41 when lacking necessary third-party information at the end of the 30-day evaluation period. According to servicers, they have adopted different approaches. In pre-proposal outreach, the Bureau learned that some wait until the third-party provides the information before making any decision on the application, even if it results in a delay beyond the 30 days provided for in § 1024.41(c)(1). One servicer told the Bureau it sends denial notices to borrowers in these circumstances but also informs borrowers that it will reevaluate the application upon receipt of the third-party information. The Bureau explained in the proposal that, although neither of these solutions appears to preclude a borrower from receiving loss mitigation, neither provides borrowers with clear information about the status of the application, and the latter practice may erode borrower protections under § 1024.41. The Bureau expressed concern in the proposal that the absence of clear information about the status of the loss mitigation application may cause borrowers to abandon their pursuit of loss mitigation, or to be uncertain about their loss mitigation options and how they may pursue their rights under § 1024.41.

To address these concerns, the Bureau proposed amendments to § 1024.41 that would have required servicers to exercise reasonable diligence to gather necessary information not in the borrower's control and would have introduced requirements for when third-party delay prevents a servicer from completing the loss mitigation evaluation within 30 days of receiving a complete application. First, the Bureau proposed to amend § 1024.41(c)(1) to provide an exception to the general requirement that a servicer must evaluate a complete loss mitigation application received more than 37 days before a foreclosure sale within 30 days of receiving it from the borrower. Second, under proposed § 1024.41(c)(4)(i), if a servicer required documents or information not in the borrower's control, a servicer would have had to exercise reasonable diligence in obtaining such documents or information. Third, proposed § 1024.41(c)(4)(ii)(A) would have prohibited a servicer from denying a borrower's complete application solely because the servicer had not received documents or information not in the borrower's control. And proposed § 1024.41(c)(ii)(B) would have required that, if 30 days after a complete loss mitigation application is received a servicer is unable to determine which loss mitigation options, if any, it will offer the borrower because it lacks documents or information from a party other than the borrower or the servicer, the servicer must promptly provide the borrower a written notice stating: (1) That the servicer has not received documents or information not in the borrower's control that the servicer requires to determine which loss mitigation options, if any, the servicer will offer on behalf of the owner or assignee of the mortgage; (2) the specific documents or information that the servicer lacks; (3) the date on which the servicer first requested that documentation or information during the current loss mitigation application process; and (4) that the servicer will complete its evaluation of the borrower for all available loss mitigation options promptly upon receiving the documentation or information.

Finally, proposed § 1024.41(c)(4)(ii)(C) would have required that, if a servicer is unable to determine which loss mitigation options, if any, to offer a borrower within 30 days of receiving a complete application due to lack of documents or information from a party other than the borrower or the servicer, upon receiving such documents or information, the servicer must promptly provide the borrower a written notice stating the servicer's determination in accordance with § 1024.41(c)(1)(ii). Proposed comment 41(c)(4)(ii)(C)-1 would have clarified that, in this circumstance, the servicer should not provide the borrower a written notice stating the servicer's determination until the servicer receives the documentation or information.

The Bureau also proposed comments 41(c)(4)(i)-1 and -2 to explain a servicer's obligations under proposed § 1024.41(c)(4)(i)'s reasonable diligence standard with respect to gathering information not in the borrower's control. The proposed comments would have described a servicer's reasonable diligence obligations upon receipt of a complete loss mitigation application and provided for a heightened standard where a servicer has not received third-party information within 30 days of a complete application.

The Bureau sought comment on proposed § 1024.41(c)(4) to understand better the cause of delay in servicers receiving non-borrower information necessary to determine which loss mitigation options, if any, to offer a borrower. This information could include information within the servicer's control or third-party information. The Bureau sought comment on how servicers and third-parties contribute to the delay, as well as which categories of non-borrower information most frequently result in delay. Finally, the Bureau sought comment on whether to limit the amount of time that a servicer must exercise reasonable diligence in Start Printed Page 72257attempting to obtain information not in the borrower's control.

The Bureau received comments on various elements of proposed § 1024.41(c)(4) and engaged in additional outreach. Among other things, as described in greater detail below, commenters addressed the nature of the delay in obtaining necessary third-party information, the proposed requirement that servicers exercise reasonable diligence in obtaining information not in the borrower's control, the proposed prohibition on denying an application solely due to missing non-borrower information, and the proposal to require a written notice if the servicer cannot make a determination on the application within 30 days.

Several servicers reported that they request information from third parties at different stages of the application process, depending on the type of information. For example, some servicers stated that they wait to receive a complete application from the borrower before requesting certain information from a third party, such as valuation information, a title report, or investor approval. Some servicers reported that they request necessary third-party information shortly after receiving a borrower's application or complete application. One servicer stated that it may request some third-party information, such as title information or a credit report, upon receipt of a borrower's initial application, but that it typically waits to request other information, such as valuation information or real estate tax information, until it receives a complete application.

Several servicers stated that significant delay in obtaining necessary third-party information generally is rare. Several servicers stated that they sometimes find it difficult to obtain timely information from the local taxing authority in certain jurisdictions, timely approval from the mortgage insurance company or investor on the loan, or timely appraisal or valuation information. One servicer expressed difficulty in obtaining information about State loss mitigation programs, tax return information from the IRS, or approval from bankruptcy courts or trustees. Another servicer stated that it has had difficulty obtaining information from local taxing authorities but was still able to proceed in the review process by using estimates based on information from its escrow department. Some servicers noted that, although third parties sometimes delay the provision of necessary information, they always ultimately provide it.

Several commenters discussed the proposed requirement that servicers must exercise reasonable diligence in obtaining documents or information not in the borrower's control that the servicer requires to determine which loss mitigation options, if any, it will offer to the borrower. Consumer advocacy groups supported this element of the proposal, stating that it, in conjunction with the written notice requirement under proposed § 1024.41(c)(4)(i), would enhance transparency and accountability. However, a trade association stated that the requirement that a servicer must seek missing third-party information as quickly as possible after the first 30 days lacked clarity.

Some commenters addressed the prohibition in proposed § 1024.41(c)(4)(ii)(A) on denying a complete loss mitigation application solely because the servicer has not received documents or information not in the borrower's control. Several industry and consumer advocacy groups supported the prohibition. One servicer said that a denial at this stage would disadvantage otherwise engaged borrowers and could lead to ongoing requests for loss mitigation from borrowers that already should have received a loss mitigation determination. A consumer advocacy group stated that borrowers could misunderstand the denial as a denial on the merits of the application, which they said could lead to avoidable foreclosures. Another servicer recommended that the Bureau not limit the amount of time a servicer must exercise reasonable diligence in attempting to obtain third-party information.

Several industry commenters expressed concern that the denial prohibition would conflict with ECOA, which requires creditors to send notification of action taken within 30 days of receiving a completed application. Some of those commenters recommended that the Bureau either clarify that complying with the denial prohibition under proposed § 1024.41(c)(4) does not violate ECOA or allow servicers to deny the complete loss mitigation application due to a lack of third-party information, provided that they later make an offer, if appropriate, upon receipt of the third-party information. Another commenter requested that the Bureau clarify what constitutes a reasonable time for servicers to wait for third-party information.

Consumer advocacy groups and one servicer expressed support for the written notice under § 1024.41(c)(4)(ii)(B). The servicer argued that the notice would provide greater clarity for borrowers in loss mitigation. Some consumer advocacy groups maintained that the proposed written notice requirement would prompt the servicer to seek third-party information more quickly and keep a written record of its efforts to obtain the third-party information, help borrowers understand the application process, and perhaps help expedite the return of the third-party information where appropriate.

Several servicers stated, however, that the proposed written notice requirement would be costly. One servicer stated that one-time costs related to implementing the new notice requirement would be around $2,000 for its third-party vendor, in addition to internal costs for legal services, business process, and technology, and that the necessary implementation would take approximately 60 to 90 days. This commenter also asserted that the proposed content requirements of the written notice would be unlikely to be of much use to borrowers. Other servicers suggested that the benefits of the notice would not outweigh the costs because, for example, borrowers would have other means to secure relevant information. Servicers also expressed other concerns, including that the written notice would confuse or overwhelm a borrower or negatively affect credit availability generally by increasing the cost of servicing. One servicer opposed the notice on the grounds that it would increase the number of inquiries borrowers submit.

Several commenters opposed specific disclosure elements of the proposed notice. One servicer stated that disclosing the specific documents or information that the servicer lacks, as proposed under § 1024.41(c)(4)(ii)(B)(2), may prompt borrowers to contact the third-party to obtain the information. A servicer recommended not requiring disclosure of the name of the third party because such disclosure would sometimes not expedite the process and could cause consternation among all stakeholders. Two industry commenters opposed requiring disclosure of the date on which the servicer first requested the missing third-party information, as proposed under § 1024.41(c)(4)(ii)(B)(3). One stated that the disclosure would be of little use to borrowers and would increase burden, and the other maintained that it would introduce operational complexities because servicers' systems do not capture that information.

A consumer advocacy group recommended that the notice state Start Printed Page 72258whether a scheduled foreclosure sale will be postponed. Several industry commenters said that the notice should contain only generic disclosures, such as the following: That the servicer has received the information it requires from the borrower and is prepared to evaluate the application, that the servicer needs additional information from a third-party, that the servicer has requested such additional information, and that the borrower can contact the servicer for more information. One trade association said that a generic disclosure would prevent unnecessary costs and stated that servicers' systems do not necessarily capture the date a servicer requests the information from the third party. Another trade association stated that a notice containing more specific disclosures would not be of much use to borrowers and would expose servicers to the risk of making mistakes, some of which could cause borrowers undue anxiety.

Two industry commenters opposed the proposed requirement in comment 41(c)(4)(ii)-1 that, notwithstanding delay in receiving information from any third party, servicers must complete all possible steps in the evaluation process within 30 days of receiving a complete application, including by taking all steps mandated by mortgage insurance companies, guarantors, owners, and assignees. A servicer stated that the proposed comment appeared to require servicers to make conditional approvals or piecemeal determinations, which it said would be impractical. A government-sponsored enterprise said that it is not clear what steps a servicer would have to take before receiving the missing third-party information, especially given that such information is often necessary to evaluate the application.

Various industry commenters expressed more general concerns about proposed § 1024.41(c)(4). A credit union opposed what it referred to as the expansion of consumer rights relating to third-party information. A trade association expressed concern that, in the future, the Bureau will attempt to regulate when a bank may make a determination on a loss mitigation application absent third-party information, instead of allowing banks to determine whether such third-party information is necessary. One commenter requested clarification of what constitutes documents or information not in the borrower's control.

Several commenters made specific recommendations about how to accommodate a delay in receiving necessary third-party information. One consumer advocacy group recommended that the Bureau require servicers to postpone a foreclosure sale when a complete application is received more than 37 days before the sale but where necessary third-party information remains outstanding. One servicer requested 10 additional days to provide borrowers with the determination letter pursuant to § 1024.41(c)(1)(ii), saying this additional period would permit the servicer to obtain third-party information and would not harm the borrower because, once the underwriting process is complete, a representative of that servicer already calls to update the borrower as to the determination and appeal rights.

The Bureau is adopting § 1024.41(c)(1) as proposed and is adopting § 1024.41(c)(4) and associated commentary with the revisions described below. As revised, the final rule provides guidance for servicers and protections for borrowers when a servicer lacks required non-borrower information under certain circumstances. As revised, § 1024.41(c)(4)(i) sets forth a servicer's reasonable diligence requirements with respect to information not in the borrower's control, that is, third-party information or information within the servicer's control. It provides that, if a servicer requires documents or information not in the borrower's control to determine which loss mitigation options, if any, it will offer to the borrower, the servicer must exercise reasonable diligence in obtaining such documents or information.

Revised comments 41(c)(4)(i)-1 and -2 clarify the reasonable diligence requirements at different stages of the application process. The Bureau is finalizing comment 41(c)(4)(i)-1 largely as proposed, with minor revisions to improve clarity and accuracy. The comment reiterates the reasonable diligence requirements set forth in § 1024.41(c)(4)(i) and provides that, at a minimum and without limitation, a servicer must request such documents or information from the appropriate party promptly upon determining that the servicer requires the documents or information to determine which loss mitigation options, if any, the servicer will offer the borrower and, to the extent practicable, by a date that will enable the servicer to complete the evaluation within 30 days of receiving the complete loss mitigation application, as set forth in § 1024.41(c)(1). The Bureau notes that some servicers already take steps to do this by, for example, requesting certain information not in the borrower's control as soon as the borrower submits the initial application and requesting other such information within a week of the borrower's submission of all information and documents within the borrower's control.

The Bureau is making more substantive revisions to comment 41(c)(4)(i)-2, which clarifies the reasonable diligence standard when the servicer lacks required third-party information 30 days after receiving a complete application. The Bureau continues to believe that it is appropriate to require servicers to intensify efforts to obtain outstanding third-party information at this stage but believes that the proposed standard, requiring servicers to attempt to obtain documents or information from the appropriate person as quickly as possible, may not have provided servicers sufficient guidance. Thus, revised comment 41(c)(4)(i)-2 provides that, if a servicer has not received the required documents or information from a party other than the borrower or the servicer within 30 days of receiving a complete loss mitigation application, the servicer acts with reasonable diligence pursuant to § 1024.41(c)(4)(i) by heightening efforts to obtain the documents or information promptly, to minimize delay in making a determination of which loss mitigation options, if any, it will offer to the borrower. Such heightened efforts include, for example, promptly verifying that it has contacted the appropriate party and determining whether it should obtain the required documents or information from a different party. The Bureau believes that this standard is clearer for servicers than the proposed standard would have been and prompts servicers to complete the application process as close as possible to the 30-day evaluation period set forth in § 1024.41(c)(1).

The Bureau also notes that comment 41(c)(4)(i)-1 applies with respect to any type of non-borrower information, including third-party information or information within the servicer's control, whereas comment 41(c)(4)(i)-2 applies only when the servicer lacks third-party information. The reason for this distinction is that comment 41(c)(4)(i)-2 applies only after 30 days have passed since the servicer received the complete application, and § 1024.41(c)(4)(ii) (described below) contemplates servicers exceeding the 30-day mark only when the servicer lacks information from a third-party, not the servicer. Servicers should not exceed the 30-day timeline for lack of accessing information within their own control.Start Printed Page 72259

As noted above, the Bureau is limiting the prohibition on denying an application due to a servicer lacking required third-party information. Like the proposal, § 1024.41(c)(4)(ii)(A)(1) provides that a servicer must not deny a complete loss mitigation application solely because the servicer lacks required documents or information not in the borrower's control. However, unlike the proposal, the Bureau is adopting an exception to this prohibition under § 1024.41(c)(4)(ii)(A)(2). Section 1024.41(c)(4)(ii)(A)(2) provides that, if a servicer has exercised reasonable diligence to obtain required documents or information from a party other than the borrower or the servicer, but the servicer has been unable to obtain such documents or information for a significant period of time following the 30-day period identified in § 1024.41(c)(1), and the servicer, in accordance with applicable requirements established by the owner or assignee of the borrower's mortgage loan, is unable to determine which loss mitigation options, if any, it will offer the borrower without such documents or information, the servicer may deny the application and provide the borrower with a written notice in accordance with § 1024.41(c)(1)(ii). The provision also states that, when providing the written notice, the servicer must provide the borrower with a copy of the written notice required by § 1024.41(c)(4)(ii)(B). As described below, that notice includes disclosures about the cause of the delay.

The Bureau stresses that the reasonable diligence standard that a servicer must satisfy before denying an application under § 1024.41(c)(4)(ii)(A)(2) is the heightened standard in comment 41(c)(4)(ii)-2, described above. Borrowers should not lose the opportunity for loss mitigation at this stage due to missing third-party information unless a servicer is absolutely unable to obtain the information. Due to the significant harm of denial, the Bureau expects servicers to redouble efforts to obtain such information.

Nonetheless, the Bureau is adopting this exception because, in the highly unlikely event that a servicer is unable to obtain third-party information, it would be harmful to borrowers, servicers, and investors if the servicer was never able to deny the complete loss mitigation application. In this circumstance, borrowers would remain in uncertain status while waiting on a decision for an indefinite amount of time, and § 1024.41(g) may prohibit a servicer from ever foreclosing on the loan, even if the borrower did not resume making payments.

The Bureau expects that this exception will apply in exceedingly rare circumstances. Based on its outreach to servicers and government-sponsored enterprises, the Bureau is unaware of any instance in which a servicer has been unable to obtain information from a third-party that it requires to make a determination as to which loss mitigation options, if any, to offer the borrower after receiving a complete loss mitigation application from the borrower. As several commenters noted, and as the Bureau explained in the proposal, it would be unjust and significantly harmful to deny an engaged borrower who has completed a loss mitigation application solely because of a third party's delay. The Bureau continues to believe that, whenever possible, the borrower should not lose the opportunity for loss mitigation solely because of such delay. Among other harms, a borrower in this circumstance might lose the opportunity to obtain loss mitigation and thereby avoid foreclosure; and such a borrower may not have another opportunity to apply for loss mitigation with the protections of § 1024.41, pursuant to § 1024.41(i). Further, as one commenter pointed out, some borrowers may attempt to re-apply for loss mitigation following a denial due to the servicer lacking required third-party information, which could produce additional, unnecessary burden for borrowers and servicers.

The Bureau believes that two aspects of the denial prohibition exception provided in § 1024.41(c)(4)(ii)(A)(2) should mitigate the risks to borrowers associated with allowing servicers to deny an application due solely to the servicer lacking required third-party information. First, the exception applies only if, in accordance with requirements established by the owner or assignee of the mortgage loan, a servicer cannot evaluate the borrower without the information. For example, there may be instances in which investors may be willing to waive requirements for specific third-party information that servicers must otherwise obtain, in which case servicers should promptly pursue such waivers and evaluate the borrower upon receipt. Second, when sending a denial letter, the servicer must also send a copy of the written notice under § 1024.41(c)(4)(ii)(B), which describes generally the missing information and the servicer's efforts to obtain it. Receiving this information may enable borrowers to better protect their rights, including when filing an appeal after a denial, if appropriate. Also, upon receiving the notice of the missing information, some borrowers may be able to help acquire the information. The Bureau will monitor the industry to ensure that servicers do not inappropriately exploit this exception to the denial prohibition.

The Bureau declines to provide more specific guidance, as one commenter requested, as to how long a servicer must exercise reasonable diligence to attempt to obtain required third-party information before the servicer may deny the application. Reasonable diligence depends on the facts and circumstances of a particular loss mitigation application, and the Bureau is concerned that any specific deadline could negatively affect a servicer's efforts to obtain outstanding third-party information. The Bureau understands that, although § 1024.41(c)(4)(ii)(A)(2) will rarely apply, the response time of third parties will vary depending on the type of information or the identity of the third party, among other factors. However, the Bureau reiterates that servicers must intensify reasonable diligence efforts when lacking required third-party information after 30 days have passed, pursuant to comment 41(c)(4)(ii)-2, described above.

The Bureau notes that the denial prohibition does not prevent a servicer from complying with Regulation B § 1002.9(a)(1)(i), as some commenters suggested. Although servicers may be required to provide Regulation B § 1002.9(a)(1) notices relating to a borrower's loss mitigation application in certain circumstances, the denial prohibition under final § 1024.41(c)(4)(ii)(A) will not prevent a servicer from complying with the requirement in Regulation B § 1002.9(a)(1)(i) to provide such notices within 30 days after receiving a completed application because compliance with Regulation B and Regulation X requirements may operate on different timelines. Under Regulation B § 1002.2(f), a completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested. Regulation B's definition of application permits flexibility in determining what type and amount of information are required from applicants for different types of credit, and the information requirements for a completed application for different types of credit, including information Start Printed Page 72260from third parties.[250] Although a loss mitigation application may be considered complete under § 1024.41(b)(1) notwithstanding whether a servicer requires additional information that is not in control of the borrower, such an application may not yet be a completed application under Regulation B § 1002.2(f) if the creditor regularly obtains and considers information from third parties for that type of credit requested, and therefore a creditor would not yet be required to comply with Regulation B § 1002.9(a)(1)(i) for such an application.[251]

The Bureau is also adopting § 1024.41(c)(4)(ii)(B) with certain revisions. In addition to adopting revisions to improve clarity, the Bureau is amending the contents of the written notice that a servicer must provide a borrower if a servicer is unable to make a determination within the 30-day evaluation period under § 1024.41(c)(1) because the servicer lacks required documents or information from a party other than the borrower or the servicer. Under § 1024.41(c)(4)(ii)(B), the written notice must inform the borrower that the servicer has not received documents or information not in the borrower's control that the servicer requires to determine which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage; of the specific documents or information that the servicer lacks; that the servicer has requested such documents or information; and that the servicer will complete its evaluation of the borrower for all available loss mitigation options promptly upon receiving the documents or information. These disclosures inform borrowers of their application status.

Section 1024.41(c)(4)(ii)(B) retains the proposed requirement that the written notice disclose the specific documents or information that the servicer lacks and therefore does not contain entirely generic disclosures as recommended by some commenters. The Bureau believes providing this information in the notice may increase borrower understanding of the notice. The Bureau also believes that requiring this disclosure may limit the need for borrowers to make additional requests for information of the servicer prompted by uncertainty or lack of information about the status of an application. By providing borrowers timely, accurate information about the status of their applications, the notice could result in fewer inquiries to the servicer as to the status of a borrower's loss mitigation application. Finalizing an entirely generic notice would have inappropriately placed the onus on the borrower to obtain the relevant information from the servicer. Borrowers are unlikely to know what third-party information a servicer requires unless the servicer affirmatively tells them.

The Bureau acknowledges commenters' concerns about borrowers contacting third parties. The Bureau believes that, if borrowers can easily contact a third-party, such as a homeowner's association or their local taxing authority, they may be able to make their own attempts to obtain the missing information and could help expedite the process. The Bureau further notes that § 1024.41(c)(4)(ii)(B) does not require servicers to disclose the specific third-party from which they lack information, but only the specific information they lack. This should insulate many third-parties that may not be prepared for borrower communications, such as title companies or investors, from receiving them. Although some borrowers may contact their servicers to determine the specific identity of the third-party, on balance, these requests should not result in a significantly greater number of requests for information, as one commenter suggested, given that the Bureau expects that the provision of the written notice should reduce borrowers' overall need to make such requests.

The final rule does not require that the written notice disclose the date on which the servicer first requested the documentation or information during the current loss mitigation application, as proposed § 1024.41(c)(4)(ii)(B)(3) would have required. The Bureau believes that such a disclosure may have promoted compliance by making it easier for servicers and borrowers to determine whether the servicer exercised reasonable diligence in obtaining third-party information as § 1024.41(c)(4)(i) requires. However, upon consideration of the comments received, the Bureau is eliminating the proposed requirement because it may offer limited value for borrowers while imposing burden on servicers.

The Bureau declines to adopt other disclosures for the written notice as some commenters recommended. For example, the Bureau is not adopting a consumer advocacy group's recommendation that the notice state whether a foreclosure sale date will be postponed. Servicers may include such a disclosure, but the Bureau declines to mandate it. The Bureau believes that requiring this disclosure would add significant operational complexity for servicers with limited benefit to borrowers. The Bureau believes that borrowers who are concerned about the timing of the foreclosure sale may contact their servicers to obtain the information and notes that affected borrowers will already have certain foreclosure protections and are likely to have received notification of those protections. Among other protections, if § 1024.41(g) applies with respect to the complete application, a servicer is prohibited from moving for foreclosure judgment or order of sale, or conducting a foreclosure sale, unless certain conditions apply.[252] In addition, if a servicer must provide the notice of complete application to the borrower pursuant to § 1024.41(c)(3)(i), that notice will already have informed the borrower generally about these foreclosure protections. Although servicers are not required to inform borrowers in the notice under § 1024.41(c)(4)(ii)(B) whether they will postpone a foreclosure sale, this lack of disclosure should not significantly affect borrowers' ability to protect their interests.

The Bureau is also not adopting commenters' recommendation that the Bureau include a disclosure prompting the borrower to contact the servicer for more information. Commenters recommended this disclosure as part of a written notice that would contain only generic disclosures. Servicers may include such a disclosure, but the Bureau declines to mandate it. The Bureau believes that borrowers generally already know how to contact their servicers and notes that many servicers include contact information on all correspondence.

As revised, § 1024.41(c)(4)(ii)(B) requires servicers to provide the written notice (when required under the rule) within the 30-day determination period identified in § 1024.41(c)(1) or promptly thereafter. This timing requirement differs from the proposal, which would have required servicers to provide the written notice promptly if, 30 days after a complete application is received, the Start Printed Page 72261servicer is unable to make a determination on the application because the servicer lacks documents or information from a third party. Requiring servicers to provide the written notice within this 30-day period or promptly thereafter should more timely apprise borrowers of their application status.

Although servicers will incur costs to provide a notice to borrowers under § 1024.41(c)(4)(ii)(B), the Bureau is requiring it because it will provide substantial benefit to affected borrowers, as described above. To the extent that any additional cost may negatively affect the cost or availability of credit, as one commenter suggested, the Bureau believes that such impact will be negligible, in part because servicers have reported that inability to evaluate a loss mitigation application because of the lack of third party data is extremely uncommon. The incremental cost of providing the notice should be small.

The Bureau is not adopting one commenter's recommendation to allow servicers 10 additional days to obtain required third-party information and to provide the written notice of which loss mitigation options, if any, to offer to a borrower as required under § 1024.41(c)(1)(ii). As the Bureau explained when adopting § 1024.41(c)(1), a 30-day evaluation timeline is an industry standard.[253] In most cases, servicers should be able to complete the evaluation within this timeframe. Adding 10 days could lead to unnecessary delay, which could increase costs for the borrower during the application process. Further, even if the Bureau were to add 10 days, the extension still may not suffice. As described above, the Bureau understands that servicers sometimes do not receive necessary third-party information for 15 or 30 days after the initial 30-day evaluation period.

The Bureau is revising § 1024.41(c)(4)(ii)(C) to specify that, if a servicer must provide a notice required by § 1024.41(c)(4)(ii)(B), the servicer must not provide the borrower a written notice stating the servicer's determination pursuant to § 1024.41(c)(1)(ii) until the servicer receives the required documents or information referenced in § 1024.41(c)(4)(ii)(B)(2), except as provided under § 1024.41(c)(4)(ii)(A)(2). As described above, § 1024.41(c)(4)(ii)(A)(2) allows a servicer to deny an application for lack of third-party information in certain circumstances.

Section 1024.41(c)(4)(ii)(C) further provides that, upon receiving such third-party documents or information, the servicer must promptly provide the borrower with the written determination notice required under § 1024.41(c)(1)(ii). The provision is intended to ensure that servicers do not delay providing the determination notice. The Bureau also understands that servicers generally already provide the determination notice promptly upon receiving the third-party information that the servicers required. The Bureau proposed this provision as comment 41(c)(4)(ii)(C)-1 but is incorporating it into the regulatory text of § 1024.41(c)(4)(ii)(C) and eliminating the comment.

The Bureau is adopting comment 41(c)(4)(ii)-1 with certain revisions to improve clarity. That comment provides that, notwithstanding delay in receiving required documents or information from any party other than the borrower or the servicer, § 1024.41(c)(1)(i) requires a servicer to complete all possible steps in the process of evaluating a complete loss mitigation application within 30 days of receiving the complete loss mitigation application. The comment further provides that such steps may include requirements imposed on the servicer by third parties, such as mortgage insurance companies, guarantors, owners, and assignees. The comment also provides an example explaining that, if a servicer can determine a borrower's eligibility for all available loss mitigation options based on an evaluation of the borrower's complete loss mitigation application subject only to approval from the mortgage insurance company, § 1024.41(c)(1)(i) requires the servicer to do so within 30 days of receiving the complete loss mitigation application notwithstanding the need to obtain such approval before offering the borrower any loss mitigation options.

In other words, a servicer should not rely on the fact that it lacks third-party information as a reason to delay its evaluation. The Bureau believes that a servicer should be prepared to make a determination on a complete loss mitigation application upon receipt of the missing third-party information and make its determination as possible to the 30-day evaluation period set forth in § 1024.41(c)(1). As the Bureau explained in the proposal, any unnecessary delay of the evaluation process because of delayed third-party information increases the risk of harm to borrowers. For example, such delay increases the risk that a borrower's documents would go stale, possibly deferring the evaluation further while the hardship worsens, thereby reducing the likelihood that the servicer will offer the borrower a loss mitigation option. It also increases the likelihood that a borrower will incur additional fees or negative credit reporting or become disengaged from the loss mitigation process. To the extent that this comment results in servicers determining internally that a borrower is conditionally approved for loss mitigation pending receipt of the third-party information, or results in servicers making piecemeal determinations, as one commenter suggested, the Bureau believes that this is could result in improved outcomes for borrowers and is appropriate.

In response to one commenter's concern that comment 41(c)(4)(ii)-1 will not provide sufficient clarity as to the steps that a servicer must take before receiving the third-party information, the Bureau notes that the rule sets forth no standard list of steps that a servicer must take to evaluate any application. Servicers must take whatever steps they can in the evaluation process without having the missing third-party information. This is a fact-specific determination dependent on, among other things, investor requirements and what information the servicer is lacking. For example, when a servicer is waiting to receive investor approval, the Bureau expects the servicer to complete its evaluation subject only to investor approval.

The Bureau is also adopting new comment 41(c)(4)(ii)-2, which provides that § 1024.41(c)(4)(ii)(A)(2) permits a servicer to deny a complete loss mitigation application (in accordance with applicable investor requirements) if, after exercising reasonable diligence to obtain the required documents or information from a party other than the borrower or the servicer, the servicer has been unable to obtain such documents or information for a significant period of time and the servicer cannot complete its determination without the required documents or information. The comment further clarifies that § 1024.41(c)(4)(ii)(A)(2) does not require a servicer to deny a complete loss mitigation application and permits a servicer to offer a borrower a loss mitigation option, even if the servicer does not obtain the requested documents or information. This comment clarifies that § 1024.41(c)(4)(ii)(A)(2) addresses only whether a servicer is permitted to deny a complete loss mitigation application due to a lack of necessary third-party information and that the rule does not speak to when a servicer is permitted to Start Printed Page 72262make an offer after receiving a complete loss mitigation application.

The Bureau declines to define further what constitutes documents or information not in the borrower's control, as one commenter requested. A servicer must already determine what documents and information it requires from a borrower to complete a loss mitigation application. Whether documents and information are outside of the borrower's control will depend on the facts and circumstances of each case.

41(f) Prohibition on Foreclosure Referral

41(f)(1) Pre-Foreclosure Review Period

Section 1024.41(f)(1) generally prohibits a servicer from making the first notice or filing required by applicable law to begin the foreclosure process unless a borrower's mortgage loan obligation is more than 120 days delinquent, but it includes an exception in § 1024.41(f)(1)(iii) allowing a servicer to make the first notice or filing when the servicer is joining the foreclosure action of a subordinate lienholder. The Bureau proposed to revise § 1024.41(f)(1)(iii) to provide a parallel exception when a servicer is joining the foreclosure action of a superior lienholder. The Bureau is adopting § 1024.41(f)(1)(iii) as proposed.

In the September 2013 Mortgage Final Rule, the Bureau explained that, if a borrower is current on a mortgage secured by a senior lien but is being foreclosed on by a subordinate lienholder, it would be appropriate for the servicer of the mortgage secured by the superior lien to join the foreclosure action, even though the borrower may not be delinquent on the mortgage secured by the superior lien, because the first notice or filing would not be based upon a borrower's delinquency in this circumstance.[254]

The Bureau did not then consider the situation in which the servicer is joining the foreclosure action of a superior lienholder. After the issuance of the September 2013 Mortgage Final Rule, servicers asked the Bureau why the same rule does not apply to a foreclosure initiated by both a junior and a senior lienholder. In the proposal, the Bureau stated its belief that the same rationale justifies expanding the current exemption to circumstances in which the servicer is joining the foreclosure action of a superior lienholder. The Bureau explained that it would be appropriate for the servicer of the mortgage secured by the subordinate lien to join the foreclosure action, even though the borrower may not be delinquent on the mortgage secured by the subordinate lien, because the first notice or filing would not be based upon a borrower's delinquency with respect to the serviced loan. Further, the Bureau explained that expanding the exemption seems to present only minimal borrower protection concerns because the borrower would already be facing a foreclosure action on the property.

The proposed rule aimed to help servicers by making clear that the servicer of a subordinate lien may participate in the existing foreclosure action on a superior lien. The servicer's participation in the foreclosure action of a superior lienholder may allow the servicer to represent its interests in the existing foreclosure action more fully under some circumstances. Additionally, it may sometimes be necessary, when the same servicer is responsible for both the superior and subordinate liens, for the servicer to initiate foreclosure on the subordinate lien as part of the foreclosure action on the superior lien, to clear title to the property for the subsequent owner.[255]

The Bureau received numerous comments on proposed § 1024.41(f)(1)(iii). Commenters included servicers, trade associations, and credit unions. All commenters supported the proposal.

The Bureau is adopting § 1024.41(f)(1)(iii) as proposed to allow a servicer to make the first notice or filing before the loan obligation is 120 days delinquent when the servicer is joining the foreclosure action of a superior lienholder.

41(g) Prohibition on Foreclosure Sale

Under § 1024.41(g), if a borrower submits a complete loss mitigation application after a servicer has made the first notice or filing, but more than 37 days before a foreclosure sale, the servicer is prohibited from moving for foreclosure judgment or order of sale, or conducting a foreclosure sale, unless the borrower's loss mitigation application is properly denied, withdrawn, or the borrower fails to perform on a loss mitigation agreement.[256] Servicers and consumer advocacy groups had both expressed a desire for clarification of the prohibition on the conduct of a sale and whether a servicer was ever excused from the prohibition while a loss mitigation application was pending. To clarify the prohibition on the conduct of a foreclosure sale, the Bureau proposed to revise existing comments 41(g)-1 and -3 and add new comment 41(g)-5, as well as commentary to clarify the requirements for policies and procedures regarding communications with service provider personnel, including foreclosure counsel, under § 1024.38(b)(3)(iii) as they relate to the prohibition under § 1024.41(g).

For the reasons discussed below, the Bureau has substantially revised the proposed provisions. The Bureau believes that its final language is consonant with both the original rule and the proposal in affirming the absolute nature of the prohibition on conduct of a foreclosure sale. The Bureau is (1) not adopting the proposed revision to existing comment 41(g)-1 that would have required dismissal in certain circumstances, but instead is leaving the comment in its existing form; (2) adopting a revised comment 41(g)-3 clarifying servicers' responsibilities when acting through foreclosure counsel, with modifications to the proposal; (3) adopting new comment 41(g)-5 clarifying the prohibition on conduct of a foreclosure sale, with modifications to the proposal; and (4) adopting new comment 38(b)(3)(iii)-1 regarding communications with service providers, including foreclosure counsel, during the pendency of a foreclosure, with minor changes to the proposal. The Bureau is clarifying that the prohibition on conduct of a sale during the pendency of a loss mitigation application is absolute and that the servicer is not excused from compliance because it acts through a service provider, including foreclosure counsel. The Bureau recognizes that, to avoid the illegal conduct of a sale, servicers may Start Printed Page 72263need to dismiss foreclosure proceedings in some circumstances. As discussed below, the Bureau believes that dismissals to avoid conduct of an illegal foreclosure sale are rare. The Bureau believes that these clarifications will substantially assist servicers and their service providers in compliance with the rule.

Background

As noted above, § 1024.41(g)'s prohibition applies to two distinct types of actions in the foreclosure process: Moving for judgment or an order of sale and conducting a foreclosure sale. A servicer's obligations under § 1024.41(g) will vary depending on whether the foreclosure is non-judicial (requires no court action) or judicial (requires court action or order). If the applicable foreclosure procedure is non-judicial and does not require any court proceeding or order, then § 1024.41(g)'s prohibition on moving for judgment or order of sale is inapposite. Thus, in a non-judicial proceeding, when there is no court action, where § 1024.41(g) applies, it addresses only the conduct of a sale and not a non-existent court proceeding. However, where the foreclosure process requires court action or a court order and § 1024.41(g) is applicable, a servicer must comply with both the prohibition against moving for judgment or order of sale and the prohibition against conducting a foreclosure sale.

Existing comment 41(g)-1 addresses the servicer's obligation, where the foreclosure process requires such court action, with respect to the moving for judgment or order of sale and prior to the actual conduct of the sale. Existing comment 41(g)-1 explains that the 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. The comment further explains that a servicer that has made a dispositive motion before receiving a complete loss mitigation application has not moved for a foreclosure judgment or order of sale in violation of the rule if the servicer takes reasonable steps to avoid a ruling on such motion or issuance of such order prior to completing the procedures required by § 1024.41, notwithstanding whether any such step successfully avoids a ruling on a dispositive motion or issuance of an order of sale. Existing comment 41(g)-2 provides that § 1024.41(g) does not prevent a servicer from proceeding with any steps in the foreclosure process, so long as any such steps do not cause or directly result in the issuance of a foreclosure judgment or order of sale, or the conduct of a foreclosure sale, in violation of § 1024.41(g). Existing comment 41(g)-3 explains that a servicer is responsible for promptly instructing foreclosure counsel retained by the servicer not to proceed with filing for foreclosure judgment or order of sale, or to conduct a foreclosure sale, in violation of § 1024.41(g), when a servicer has received a complete loss mitigation application. Such instructions may include instructing counsel to move for continuance with respect to the deadline for filing a dispositive motion.

As the Bureau noted in the proposal, since the Mortgage Servicing Rules went into effect, borrowers have not always received the benefits of the protections intended by § 1024.41(g), specifically, that borrowers who timely submit a complete loss mitigation application would not lose their homes at a foreclosure sale while evaluation of that application was pending with the servicer. These instances of foreclosure proceedings continuing in spite of § 1024.41(g)'s prohibitions may occur for several reasons, including impeded communications between servicers and their counsel, confusion about the reasonable steps framework, and difficulties managing judicial expectations.

The Bureau has received reports that counsel retained by servicers to conduct the foreclosure proceeding sometimes have lacked current and accurate information about whether borrowers' loss mitigation applications are complete. Foreclosure counsel in some situations