The sixth in a series of posts on the new mortgage servicing rules.
CFPB has issued the Final Rule for Mortgage Servicing, which takes effect January 10, 2014. Among the numerous changes to mortgage servicing, the Loss Mitigation section contains specific guidelines to occur prior to the foreclosure process. This section follows similar sections dealing with delinquent borrowers (Early Intervention with Delinquent Borrowers and Continuity of Contact with Delinquent Borrowers). All three sections require servicers (owners) to take certain steps intended to encourage and help the consumer to take some sort of loss mitigation action prior to foreclosure.
All three sections have the same coverage and exemptions application. The Small Servicer Exemption does apply to Loss Mitigation section with some basic provisos. Also, these Rules do not apply to HELOCs and open-end lines of credit, reverse mortgage transactions, and loans for which the servicer is a qualified lender under the Farm Credit Act of 1971.
The Loss Mitigation requirements are very detailed. The provision requires the servicer to do the following:
- Help consumers complete applications for loss mitigation option.
- Evaluate complete and timely loss mitigation applications within 30 days of all loss mitigation options available to the applicant (Prior Section Rules).
- When applications are complete and timely, inform consumers of servicer decision to offer a loss mitigation offer or the reasons for denial of such offer.
- Evaluate timely appeals by independent personnel (not the same people who evaluated the original application)
- Refrain from beginning or completing the foreclosure process in certain circumstances when a consumer is being evaluated for loss mitigation options.
The rule does not require servicers to provide any specific loss mitigation options or use any particular criteria in the evaluation of consumers for loss mitigation. However, the rule does require servicers to maintain policies and procedures reasonably designed to achieve the objective of properly evaluating consumers for loss mitigation options. Servicers and Owners of mortgage loans are not liable to consumers for any particular loss mitigation option.
Small servicers are exempt from the Loss Mitigation rule except for the prohibitions to (1) not make a foreclosure filing unless the consumer is more than 120 days delinquent and (2) not to move on foreclosure if the consumer is performing pursuant to the terms of a loss mitigation agreement.
The process for handling loss mitigation applications is outlined in the Rule section. When a timely application is received, it must be acknowledge and the consumer must be informed as to whether the application is complete within 5 business days. Then, the application must be evaluated and the consumer must be notified of the result within 30 days of receipt of the loss mitigation application. Consumers must submit applications at least 45 days prior to a foreclosure sale.
Should the application be incomplete, the servicer is required to do the following:
- Determine what additional documents and information are required to complete the application.
- Select a date most beneficial to the consumer to submit the missing information with regard to the proximity of the foreclosure sale.
- Provide a statement to the consumer that they should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.
The proximity of a foreclosure sale determines how much time the servicer must give the consumer to respond to a loss mitigation offer. The time periods are as follows:
- When a consumer submits a loss mitigation application 90 days or more before a foreclosure sale, you must give the consumer 14 days to accept or reject a loss mitigation offer.
- When a consumer submits a loss mitigation application less than 90 days but more than 37 days before a foreclosure sale, you must give the consumer 7 days or more to accept or reject a loss mitigation offer.
- If the consumer doesn’t respond within the 7-day or 14-day deadline, you can deem that as a rejection of your loss mitigation offer (except when in the consumer has not accepted the trail loan modification plan, but has submitted payments the plan class for within the deadline.)
The consumer has the right to appeal any denial decision regarding a loan modification plans or programs, but not for other loss mitigation options. (This is a change from the original proposal). The appeal must include an independent evaluation (review by new personnel not involved in the original evaluation). The consumer must be informed of the decision to offer or reject the loan modification option subject to appeal. The consumer then has at least 14 days to accept or reject any offer made. The rules do not require any additional appeals to be provided.
Foreclosure proceedings cannot be started or completed until the consumer is more than 120 days delinquent (even for small servicers). If a consumer submits a complete loss mitigation application before the foreclosure process begins, then it cannot go forward until the consumer is given notice that they are not eligible for any loss mitigation option and the appeal process has been exhausted, or the consumer rejects all loss mitigation options or fails to perform under an agreement on a loss mitigation option.
If the foreclosure process has already begun and is not more than 37 days before a foreclosure sale, it cannot move forward (just as if the process had not started as above) until the consumer is given notice that they are not eligible for any loss mitigation option and the appeal process has been exhausted. Or the consumer rejects all loss mitigation options or fails to perform under an agreement on a loss mitigation option.
If a dispositive motion has already been filed when a timely application is received, then the servicer must take reasonable steps to avoid a ruling until after the application is evaluated and the process completed. The servicer is responsible for notifying foreclosure counsel not to proceed and to proceed with a foreclosure sale.