CFPB Issues Interim Final Rule and Bulletin Clarifying Mortgage Servicing Requirements

On October 15^th, the CFPB issued an Interim Final Rule¹ and CFPB Bulletin 2013-12.²  Both provide clarification regarding certain aspects of the CFPB’s recently published Mortgage Servicing Rule (MSR).³  The Bulletin provides guidance regarding: (1) policies and procedures for successors in interest to the property of a deceased borrower; (2) communications with borrowers under the CFPB’s Early Intervention Rule;⁴ and (3) compliance with MSR requirements when borrowers issue a “cease communication” notice under the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from communicating with them.

The Bulletin’s guidance regarding policies and procedures for successors in interest sets out examples of what practices the Bureau would consider to be part of a compliant set of policies and procedures. For example, upon being notified of the death of a borrower, a servicer would promptly evaluate any issues to consider in identifying the proper successor in interest, such as receipt of acceptable proof of the successor in interest’s identity and legal interest in the property.

Under the FDCPA, borrowers may issue a “cease communication” notice to bar debt collectors from communicating with them.⁵  The Bulletin clarifies that when servicers who are debt collectors provide certain disclosures and communications required under the MSR after a borrower has issued a “cease communication” notice, the servicers are not violating the FDCPA (e.g., Reg. X §§ 1024.35 (error resolution), 1024.36 (requests for information), 1024.37 (force-placed insurance), and 1024.41 (loss mitigation), and Reg. Z §§ 1026.20(d) (ARM initial interest rate adjustment) and 1026.41 (periodic statement)).

Among other things, the Interim Final Rule also addresses concerns expressed by the industry that the MSR’s disclosure and communication requirements discussed above conflict with prohibitions under the Bankruptcy Code that, similar to the FDCPA, restrict communications with borrowers in bankruptcy. The Interim Final Rule clarifies which of the disclosures and communications required by the MSR are still required to be provided to borrowers in bankruptcy.

The Interim Final Rule also clarifies which disclosures are required to be provided by a creditor before the counseling required for high-cost mortgages under the 2013 Home Ownership and Equity Protections Act Rule⁶  can occur. In addition, the Interim Final Rule makes certain technical corrections to the mortgage servicing rules. The public will have 30 days to comment on the Interim Final Rule.

CFPB Deputy Director Discusses Future Plans for Supervision Office

In a wide-ranging interview with American Banker, Steven Antonakes, the CFPB’s Deputy Director, discussed the CFPB’s plans for the future of its Office of Supervision.

Antonakes explained that the Bureau plans to implement a “prioritization framework” to efficiently allocate its examination resources. In setting priorities, the Bureau will consider: “the size of a product market; a regulated entity’s market share in that product market; the potential for consumer harm related to a particular product market; and field and market intelligence that encompasses a range of issues including, but not limited to, the quality of a regulated entity’s management, the existence of other regulatory actions, default rates and consumer complaints.”

Antonakes also noted the Bureau’s plans to increase the size of the Office of Supervision by 20-30 percent to roughly 600 people by the end of 2014.

Addressing the Bureau’s efforts to improve the turn-around time for its examination reports, Antonakes said the Bureau wants to issue such reports within 90-120 days from the time when examiners finish their on-site work.

Finally, looking to future rulemakings, Antonakes noted that the CFPB hopes to issue its third larger participant proposed rule in the student loan servicing market by the end of the year.

Update on Work of the CFPB’s Inspector General

On October 15^th, the Federal Reserve Board’s Office of Inspector General – which is charged with auditing the CFPB – updated its work plan for the Bureau.⁷ The Inspector General is scheduled to issue several reports in the fourth quarter of 2013, including reports concerning: (1) the civil penalty fund; (2) the CFPB’s annual budget process; (3) the Bureau’s process for analyzing the impact of its regulations on small businesses; (4) the Bureau’s hiring process; and (5) the Bureau’s Supervision program. The work plan also outlines the Inspector General’s planned projects to begin this quarter, which include an audit of the CFPB’s public consumer complaint database.

CFPB Issues Report on Student Loans

On October 16^th, the CFPB Student Loan Ombudsman issued a report which analyzes consumer complaints received by the Bureau about the servicing of private student loans.⁸  Among other things, the report found improved treatment by servicers of military student loan borrowers. The report recommends that the CFPB determine “whether recent efforts to improve the servicing of mortgage and credit card obligations might also be applicable to the student loan market.”

The report also observed that often, student loan servicers do not, in absence of instructions by borrowers, allocate payments that borrowers pay in excess of the minimum amounts due in a manner that favors such borrowers – such as by paying down principal on the highest-interest loan first. To address this issue, the CFPB issued a Consumer Advisory in conjunction with the report which advises borrowers to send instructions to servicers to apply greater-than-minimum-payments in a manner most favorable to the borrower, and it includes a sample instruction letter to that effect.⁹

_{1 The Interim Final Rule is available here.}   

_{2 CFPB Bulletin 2013-12 is available here.}   

_{3 The “Mortgage Servicing Rule” includes the rules issued by the CFPB as required by amendments made to the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z) under the Dodd-Frank Act. See Reg. X at 78 Fed. Reg. 10696 (Feb. 14, 2013); Reg. Z at 78 Fed. Reg. 10902 (Feb. 14, 2013).}   

_{4 12 C.F.R. § 1024.39.}  

_{5 15 U.S.C. § 1692c(c).}  

_{6 Amendments to HOEPA under the Dodd-Frank Act, 78 Fed. Reg. 6855, imposed new counseling requirements for high-cost mortgage loans. See Reg. Z § 1026.34(a)(5)(ii); Cmt. ¶ 34(a)(5)(ii).}   

_{7 The Federal Reserve Board’s OIG Work Plan is available here.}   

_{8  The CFPB Student Loan Ombudsman’s Annual Report is available here.}   

_{9 The CFPB Consumer Advisory is available here.}