The CFPB will not allow early compliance with the new regulations, which leaves the mortgage servicing industry left questioning how and when the sector should respond to the regulation. That question may not be answered until the general effective date of Oct. 29, 2017. We may even have to wait until the successor in interest, and periodic statements for debtors in bankruptcy provisions take effect on April 19, 2018.
Previously, the CFPB has allowed servicers an option to begin early compliance for new rules. However, the CFPB has stated that they are not offering an early adaptation of the rule due to a risk of confusion for both regulators and consumers, considering not all of the provisions would be included with early compliance. The agency is hoping that this decision will prevent any unwarranted litigation caused by inconsistent implementation policies.
However, there are three instances recognized by the Bureau where early compliance is permitted, making CFPB’s decision not to allow early compliance in this instance even more questionable by industry insiders.
First, the CFPB permits servicers to maintain current operations provided the new rule adopts new commentary on an existing regulation that “clarifies, reinforces or does not conflict with the existing rule and commentary.”
So, in these unconfirmed situations, the agency is allowing servicers to continue normal operations if the new rule merely reinforces or enhances the existing regulations. By taking this approach, the Bureau leaves open the possibility that servicers might also decline to participate in particular aspects of the rule if it is not deemed improper or illegal.
The ambiguity of some portions of the new rule leaves servicers with the duty of interpreting current practices against the commentary of the new rule, in determining how they will approach the servicing requirements of a loan. Industry stakeholders worry that this gap in direction will cause confusion and uncertainty in how new loans should be structured prior to the full rule going into effect.
A second instance, according to the CFPB, calls for servicers to be able to continue to provide beneficial practices for customers even though it is not mandated by the current regulation, while being careful not to infringe upon the new rule. Non-required practices that follow the new rule may include offering periodic statements to consumers in bankruptcy, reassessing debtors for loss mitigation options, or providing notices of submission of a complete loan modification application. While these seem like reasonable practices, the concern remains that part of these practices may be questioned with changes from the new rule.
The third situation is meant to include circumstances not covered in the previous examples. The CFPB acknowledges “practices that will be mandated by the final rule are in compliance with the current rule or are not in violation of the current rule, servicers may continue those practices in accordance with the existing rule without necessarily adopting all of the specific requirements of the final rule before their effective dates.”
Although the bureau is attempting to provide some guidance before the effective date, some of the new rule requirements are not included on the list – such as the allowance of a servicer to take up to 10 days to acknowledge a pending loss mitigation application at a servicing transfer. Current regulations do not offer that grace period, and if a servicer that takes ten days before the new rule goes into effect, it could be in violation of current regulations. There are other similar situations that are giving pause to servicers regarding compliance with the new rule.
Servicers should take the extra time to review the details of the new rule before the Oct. 2017 effective date. Because there is no guarantee the CFPB will offer early compliance, servicers should evaluate current practices, assess what procedures fall in line with the new rule and which will need to be modified to meet the regulations, and make changes to any documents or practices as needed. While it is not entirely known all the changes that will come with implementation and when compliance will be permitted, a sound operational plan would be to identify areas of risk and prepare your IT and compliance departments for the changes that will ultimately arrive sometime in 2017.