The 2016 Final Rule clarified certain areas and
provided additional guidance to help ensure
consistency across the industry.
Therefore, a servicer may face litigation if something related to
the notice of complete application doesn’t function properly, or if
a borrower disagrees with the servicer’s chosen approach.
In addition to ensuring that notices of complete applications
contain the appropriate date and are otherwise fully compliant,
servicers should also be cognizant of the fact that, even if the
new notice is fully compliant, it could serve significantly to benefit plaintiff’s lawyers and litigious borrowers. The date that a
complete application is received in large part determines what
the loss mitigation process must look like and how a borrower
must be treated.
Therefore, by providing the borrower with a written notice
containing the specific date upon which the servicer received the
application, servicers are, in many ways, providing a roadmap to
easily identify violations of the loss mitigation rules in Regulation X.
Elevated risk is not unique to the new loss mitigation obligations within the 2016 Final Rule. Even some of the places where
the Bureau intended to clarify existing requirements are likely
to challenge mortgage servicers. For example, when a servicer
receives an incomplete loss mitigation application from a borrower, it must respond by sending a written acknowledgment
letter back to the borrower. Since the servicing rules were first
put in place in January 2014, Regulation X has required that
servicers include in the acknowledgment letter, a reasonable date
by which the borrower should submit any missing documents
or information needed to complete the application. The initial
version of the servicing rules provided loose guidance on how
servicers should determine what the “reasonable date” was in a
particular scenario, and servicers across the country took vastly
different approaches to meet this obligation. The 2016 Final Rule
addresses that issue by providing much clearer guidance that
servicers can utilize and that should result in more uniformity
across the mortgage servicing industry.
Rather than institute a static amount of time that could be used
in all cases, the Bureau developed three principles that must be
followed when sending a loss mitigation acknowledgment letter.
1. The rule provides that a date that is 30 days away from the
date of the acknowledgment letter is generally reasonable.
2. The rule specifies that the reasonable date must never be less
than 7 days in the future.
3. Finally, the law highlights four milestones associated with
loss mitigation and foreclosure processes, and mandates that
the reasonable date not be later than the next approaching
milestone, subject to the aforementioned 7-day minimum.
There are several challenges servicers will likely face with the
acknowledgment letter, and actions they must take to ensure
■ ■ ■ There still is ambiguity in the new framework. For example, if a
milestone is approaching within 7 days, should the reasonable
date default to 7 days so that the borrower returns the missing
documentation as soon as possible after the milestone? Or,
perhaps the reasonable date should default back to 30 days. To
automate a process that generates a reliable reasonable date,
a servicer will have to ensure that all relevant milestones are
captured and incorporated into the necessary framework.
■ ■ ■ The servicer will also have to incorporate certain underlying
assumptions and rules to ensure that all possible scenarios
are accounted for. If a servicer’s system of record is unable to
automate the generation of a reasonable date for acknowledg-
ment letter purposes, outside vendors may help fill the void and
alleviate the need for servicer employees having to manually
calculate a date within a relatively complex framework.
■ ■ ■ Servicers will also need reliable ways to audit compliance with
Although the above-described loss mitigation requirements
have been in effect since October 19, 2017, certain aspects of
the new law pose unique risks and warrant additional attention by banks and mortgage servicers. Even if you felt secure
with the process during the implementation phase, it may be
prudent to keep a watchful eye on the downstream impact of
the new processes, and continually evaluate whether adjustments should be made going forward.
ABOUT THE AUTHOR
JONATHAN KOLODZIEJ, ESQ., is an attorney with Bradley Arant
Boult Cummings LLP. He represents all types of consumer financial service providers in regulatory compliance, examination and
enforcement matters. Through this work, he has assisted bank
and non-bank mortgage servicers, mortgage originators, debt
collectors, depository institutions, credit card issuers, small dollar lenders, reverse mortgage companies, investment firms, and
various industry trade associations. Jonathan’s regulatory compliance practice centers around helping clients ensure that their
operations are in compliance with applicable federal and state
consumer financial laws. In this role, he helps clients assess the
impact of new rules and regulations and adapt to changes in the
regulatory environment. When assessing an entity’s compliance or
beginning the implementation process for a regulatory change, he
leads clients through gap analyses, risk assessments and targeted
reviews. He routinely reviews and provides feedback on policy
and procedure documents, form notices, and training modules.
As necessary, Jonathan also helps clients develop and execute
appropriately tailored remediation plans. He can be reached at
firstname.lastname@example.org or (205) 521-8235.