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May ABI Journal Article Finds New Mortgage Servicing Regulations Take a Sensible Approach

Alexandria, Va. — New mortgage-servicing rules established by the Consumer Financial Protection Bureau (CFPB) should have a dramatic impact on homeowners, especially those who are curing a default and paying a mortgage in a chapter 13 case, according to an article in the May ABI Journal. In “New Servicing Regulations Adopt Sensible Approach,” John Rao of the National Consumer Law Center Inc. (Boston) explains that, under the Real Estate Settlement Procedures Act (RESPA), lenders were sometimes allowed to sidestep federal statutes intended to protect consumers during bankruptcy procedures. Rule-making authority over the two key federal statutes that apply to mortgage servicing, the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), was transferred to the CFPB under the Dodd-Frank Act. “A much different approach to bankruptcy has been adopted by the new agency given authority to oversee mortgage servicing regulation, the Consumer Financial Protection Bureau (CFPB),” Rao writes. In his article, Rao hightlights some of the key changes. They include: Periodic Mortgage Statements “The CFPB noted that while certain laws such as the Bankruptcy Code and the Fair Debt Collection Practices Act may prevent the collection of a debt, these laws do not prevent a servicer from sending a periodic statement that is tailored to the particular circumstances of the bankruptcy case,” Rao writes. “The final rule allows servicers to make changes to the statement as they believe are necessary when a borrower is in bankruptcy, so as to reflect the payment obligations of the debtor in the bankruptcy proceeding.” Payment Change Notices “Under the final rule issued by the CFPB, a consumer with an ARM must be provided with a notice between 210 and 240 days before the first payment is due after the first rate adjustment,” according to Rao. He said that a notice must also be sent between 60 and 120 days before payment at a new amount is due when the payment change is caused by a rate adjustment. Prompt Crediting of Payments “The CFPB took the position that debtors should not be treated differently than consumers outside of bankruptcy, and that the separate treatment of cure amounts was not an insurmountable barrier to prompt payment crediting,” Rao writes. Payoff Statements Rao writes that the CFPB’s final rule implementing this provision requires that an accurate statement of the total outstanding balance is needed to pay the obligation in full and must be sent no more than seven business days after the request is received from the borrower. Force-Placed Insurance In response to the numerous problems with insurance obtained by a servicer when a borrower’s policy lapses or is canceled, Congress created new restrictions in the Dodd-Frank Act on this “force-placed insurance,” according to Rao. “Servicers are prohibited from obtaining FPI and must instead pay the borrower’s existing insurance policy if there is an escrow account on the mortgage.” Early Intervention “As part of its early intervention efforts, a servicer must provide a borrower by the 45th day of delinquency a written notice containing information about available loss-mitigation options.” Loss-Mitigation Procedures “The CFPB was careful to note that it is not requiring mortgage creditors to offer loan modifications or any particular loss-mitigation program; rather the rules are designed to compel proper access by borrowers to such programs when they exist,” according to Rao. Continuity of Contact Rao said that the CFPB explains that “if the requirement would otherwise apply to a borrower who has filed for bankruptcy, a servicer may assign personnel with specialized knowledge in bankruptcy law to assist the borrower.” As the Dodd-Frank Act called upon the CFPB to issue a large volume of regulations in a relatively short timeframe, Rao was not surprised that the CFPB did not have enough time to fix problems with existing regulations that were not impacted by the Dodd-Frank Act. “Hopefully, the CFPB at some point soon will apply its new thinking on bankruptcy to the existing Regulation X provisions [of RESPA] that include expansive bankruptcy exemptions, such as the duty to provide annual escrow account statements,” Rao writes. To obtain a copy of “New Servicing Regulations Adopt Sensible Approach,” published in the May issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org. ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.