CFPB Updates Mortgage Guidelines

May 14, 2018 by Amy E. Martinez, Esq.

The Consumer Financial Protection Bureau (CFPB) recently announced it would be adjusting its mortgage servicing rules to assist providers in communicating with specific customers either entering or exiting bankruptcy. The agency issued a final rule only a day after requesting feedback on the Bureau’s overall rulemaking procedure.

The newly implemented rule changes the window of time that lenders have to begin or end issuing borrower statements regarding bankruptcy-related adjustments. The rule change is meant to address mortgage servicers’ expressed concern that the previous timing regulations were complex and difficult to follow. The CFPB stated it hopes the new rule will provide greater clarity for servicers to implement and comply without disadvantaging consumers.

The Truth in Lending Act requires mortgage servicers to provide borrowers with periodic statements indicating mortgage totals and interest payment amounts. Per a 2016 CFPB rule, mortgage providers had to send updated statements to borrowers who were in bankruptcy. However, the rule also allowed a single-billing-cycle exemption, providing the servicer with additional time to transition to modified statements once a borrower went into bankruptcy and then switch back to regular statements once the bankruptcy process was completed. The new rule replaced the 2016 rule with a single-statement exemption after several mortgage providers raised concerns regarding the difficulty to comply with the previous exemption procedure.

Mortgage industry stakeholders have made their concerns clear to the agency, hoping that under the leadership of Acting Director Mick Mulvaney, their concerns would illicit a response or at least get a delay in the implementation of the rules. Trade groups such as the Consumer Mortgage Coalition, the Credit Union National Association, and the Independent Community Bankers of America issued a joint letter requesting that the CFPB repeal the amendments and delay implementation.

Of major concern is the fact that if servicers send out notices to borrowers in bankruptcy that list the amounts owed, amounts in arrears, and fees incurred, they could be accused of violating the automatic stay afforded bankruptcy applicants. The CFPB supplied FAQs that conceded that it lacked the authority to exempt loan servicers from liability stemming from bankruptcy violations. However, the CFPB has stated that it believed it was unlikely that servicers would be held accountable for violating the automatic stay due to sending out mortgage statements.

The CFPB also recently posted a request for information (ROI) on its website seeking input to assist the agency in assessing the overall efficiency and effectiveness of its rulemaking protocol. The ROI contained a list of several topic suggestions for industry representatives, consumer advocacy groups, and others to comment on how the CFPB uses sources to gather input, the method the Bureau uses to notify the public regarding proposed rules, and the CFPB’s outreach initiatives with stakeholders.

This is the seventh ROI since Mick Mulvaney took charge as the agency’s acting director. Prior requests have centered on the Bureau’s consumer complaint reporting mechanisms, enforcement protocol, and interaction with administrative law judges. Mulvaney announced a comprehensive review of the agency’s processes, claiming that the CFPB is responsible for serving both the American people and the businesses it regulates. Mulvaney’s statements have sparked controversy, with some arguing that the acting director is attempting to undermine the Bureau. However, Mulvaney has explicitly denied these accusations.

The CFPB has stated that it will start accepting input on the most recent ROI after it is added to the Federal Register. The public will then have 90 days to submit their comments for consideration.

During this period where the CFPB examines the concerns of mortgage stakeholders, it is wise for mortgage servicers to consult with legal counsel to ensure they are in compliance with regard to servicing the loans of distressed borrowers and those who are engaged in bankruptcy proceedings.