Just for fun, let’s break down the new mortgage servicing rules that are due to be implemented next January. In this series of articles, we are going to look at the new amendments in the Dodd-Frank Legislation that are collectively referred to as the Mortgage Servicing Rules. There are roughly eight amendments to Regulation X and four amendments to Regulation Z (depending on how you count). These “amendments” are actually new rules grafted onto the former RESPA and Truth in Lending framework. The use of the original framework contributes significantly to the confusion about the Rules.
Let’s start with the Error-Resolution and Information Requests Rule, which is exactly what its name implies. This rule establishes error-resolution procedural requirements for responding to (1) Notices of Error and (2) Information requests. Basically, there were a tremendous number of complaints during the mortgage foreclosure crisis about the lack of communication from lenders– horror stories about errors and borrowers unable to get basic information from lenders. Thus, we now have this rule. The rule applies to all federally related mortgage loans and closed-end lines of credit. It does not apply to HELOCs or open-end lines of credit. There is no small servicer exemption here.
The rule has specific definitions for what constitutes a “Notice of Error” and an “Information Request”. A notice of error is any written notice from the consumer that asserts specific errors and includes the consumer name along with enough information to identify the mortgage account and the error they believe has occurred. Similarly, an information request is any written request for information from a consumer relating to the servicing of their mortgage loan that includes: consumer name, enough information to identify the mortgage account, and a statement of the information requested. The Rule directly states that a note on a payment coupon or other payment form is not considered a notice of error or an information request.
Once the servicer has received a notice of error or an informational request, you have 5 days to acknowledge it and 30 days to investigate, correct or otherwise respond to the consumer. Your response must have your contact information including a telephone number.
This framework is very similar to the rules for handling errors for Electronic Funds Transfers. Whether this new requirement will be burdensome will depend primarily on the volume of requests/notices received.
The Rule goes on to provide a listing of categories of errors that are covered. These include:
- Failure to accept payment
- Failure to apply an accepted payment as dictated by terms or law
- Failure to pay any fee or charge escrowed
- Fees imposed inappropriately
- Failure to credit account in timely manner
- Failure to provide an accurate payoff balance within 7 days
- Failure to provide accurate information regarding loss mitigation options and foreclosures
- Failure to transfer accurately & timely information relating to change in mortgage servicer
- Making the first filing for any foreclosure process in violation of the loss mitigation procedures of this rule
- Moving for foreclosure judgment or sale in violation of the loss mitigation procedure of this rule
- Any other error relating to the mortgage servicing rules
Some of these categories might sound oddly familiar—or at least they will as you learn about the different mortgage servicing rules. The categories in italics above correspond to new requirements in the mortgage servicing rules themselves. In other words, this section can be seen as an enforcement mechanism for the rest of the mortgage servicing rules.
Stay tuned for more in this series on our blog or contact us to learn how AffirmX’s unique solution can help your financial institution simplify compliance.