On August 4, the CFPB issued Final Rules providing foreclosure protections.  The Rules, consisting of 901 pages, address foreclosure protections, successors in interest, borrowers in bankruptcy, loss mitigation, servicing transfers, and loss mitigation applications.  The Rules consist of a number of amendments to Regulation X and Regulation Z, their respective Official Interpretations, and model forms and clauses.  Along with the Final Rules, the CFPB also issued an Interpretive Rule providing safe harbors from liability under the Fair Debt Collection Practices Act that coincide with the Final Rule.

In conjunction with the Rules, the CFPB prepared a Press Release summarizing the changes that credit unions will need to follow.  Compliance with the majority of the changes will 12 months after the publication in the Federal Register.  Provisions regarding successors in interest and periodic statements for borrowers in bankruptcy will be effective 18 months after publication.

Since the Final Rule encompasses a number of consumer protections, NWCG is breaking them down into multiple blog posts, so you burn out slowly, rather than all at once.   Take a look at the CFPB’s Press Release, and then keep checking back here for our detailed evaluation of the new requirements.  This post will address defining when a borrower is delinquent for servicing rules, and providing foreclosure protections over the life of a loan –

Clarifying when a borrower becomes delinquent:  Several of the consumer protections under the CFPB’s existing rules depend upon how long a consumer has been delinquent on a mortgage. The final rule clarifies that delinquency, for purposes of the servicing rules, begins on the date a borrower’s periodic payment becomes due and unpaid. When a borrower misses a periodic payment but later makes it up, if the servicer applies that payment to the oldest outstanding periodic payment, the date the borrower’s delinquency began advances. The final rule also allows servicers the discretion, under certain circumstances, to consider a borrower as having made a timely payment even if the borrower’s payment falls short of a full periodic payment. The increased clarity will help ensure borrowers are treated uniformly and fairly.

In short – 

Delinquency begins on the day that a periodic payment sufficient to cover principal, interest, and escrow (if applicable) is due and unpaid, until such time as no periodic payment is due and unpaid. The rule provides that a servicer may consider a borrower not delinquent if the borrower makes only a partial payment. Unlike the proposal, the final rule does not specify how a servicer must make up the shortfall in the payment, but cautions servicers not to use escrow funds in such a way as to result in tax delinquency.

• Servicers may credit payments to the oldest missed payment, with the result that the borrower’s delinquency is advanced by the number of payments credited. In addition, the 120-day foreclosure referral waiting period in 1024.41(f) (1)(i) of Regulation X is advanced.
• A borrower’s failure to pay the full amount due following the servicer’s exercise of an acceleration clause would begin or continue a delinquency.

§ 1024.31 Definitions

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.

Official Bureau Interpretations

1. Length of delinquency. 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.
2. Application of funds. 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. For example, assume a borrower’s mortgage loan obligation provides that a periodic payment sufficient to cover principal, interest, and escrow is due on the first of each month. The borrower fails to make a payment on January 1 or on any day in January, and on January 31 the borrower is 30 days delinquent. On February 3, the borrower makes a periodic payment. The servicer applies the payment it received on February 3 to the outstanding January payment. On February 4, the borrower is three days delinquent.
3. Payment tolerance. 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.
4. Creditor’s contract rights. This subpart does not prevent a creditor from exercising a right provided by a mortgage loan contract to accelerate payment for a breach of that contract. 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.

Requiring servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan: Under the CFPB’s existing rules, a mortgage servicer must give borrowers certain foreclosure protections, including the right to be evaluated under the CFPB’s requirements for options to avoid foreclosure, only once during the life of the loan. Today’s final rule will require that servicers give those protections again for borrowers who have brought their loans current at any time since submitting the prior complete loss mitigation application. This change will be particularly helpful for borrowers who obtain a permanent loan modification and later suffer an unrelated hardship – such as the loss of a job or the death of a family member – that could otherwise cause them to face foreclosure.

In short – 

A borrower is entitled to the loss mitigation procedures and protections from foreclosure in Regulation X more than once in the life of the loan. Thus, a servicer must apply the loss mitigation procedures in § 1024.41 a second time for borrowers who become current on payments between the borrower’s prior complete loss mitigation application and a subsequent loss mitigation application. In addition, a transferee servicer must comply with § 1024.41– within the relevant timelines – even if a borrower was previously evaluated for loss mitigation by the transferor servicer.

§ 1024.41 Loss mitigation procedures.

Duplicative requests. A servicer must comply with the requirements of this section for a borrower’s loss mitigation application, unless the servicer has previously complied with the requirements of this section for a complete loss mitigation application submitted by the borrower and the borrower has been delinquent at all times since submitting the prior complete application.

Official Bureau Interpretations

41(i) Duplicative requests.

1. Applicability of loss mitigation protections. Under § 1024.41(i), a servicer must comply with § 1024.41 with respect to a loss mitigation application unless the servicer has previously done so for a complete loss mitigation application submitted by the borrower and the borrower has been delinquent at all times since submitting the prior complete application. Thus, for example, if the borrower has previously submitted a complete loss mitigation application and the servicer complied fully with § 1024.41 for that application, but the borrower then ceased to be delinquent and later became delinquent again, the servicer again must comply with § 1024.41 for any subsequent loss mitigation application submitted by the borrower. When a servicer is required to comply with the requirements of § 1024.41 for such a subsequent loss mitigation application, the servicer must comply with all applicable requirements of § 1024.41. For example, in such a case, the servicer’s provision of the notice of determination of which loss mitigation options, if any, it will offer to the borrower under § 1024.41(c)(1)(ii) regarding the borrower’s prior complete loss mitigation application does not affect the servicer’s obligations to provide a new notice of complete application under § 1024.41(c)(3)(i) regarding the borrower’s subsequent complete loss mitigation application.
2. Servicing transfers. Section 1024.41(i) provides that a servicer need not comply with § 1024.41 for a subsequent loss mitigation application from a borrower where certain conditions are met. A transferee servicer and a transferor servicer, however, are not the same servicer.

Accordingly, a transferee servicer is required to comply with the applicable requirements of § 1024.41 upon receipt of a loss mitigation application from a borrower whose servicing the transferee servicer has obtained through a servicing transfer, even if the borrower previously received an evaluation of a complete loss mitigation application from the transferor servicer.

The Final Rule also includes updates to model forms and clauses along with updates to Official Bureau Interpretations, which are not included in these posts.  (If they were, you would have quit reading long ago.)  Refer to the Final Rule for these changes.