The 2016 Final Rule clarified certain areas and provided additional guidance to help ensure consistency across the industry.
For instance, in the dual tracking context, the Regulation X official
commentary was revised to strengthen foreclosure protections
for consumers and to clarify that a foreclosure sale, when prohibited by the loss mitigation rules, is not permitted. This is the
case even if the sale is conducted or administered by someone
other than the servicer. As a result, there will be no doubt that
a bank or mortgage servicer is responsible for violations of law
or regulation committed by service providers.
Notice of Complete Application
Although most of the loss mitigation-related provisions of the
2016 Final Rule went into effect on October 19, 2017, certain
aspects pose risk as time passes. One such requirement relates to
sending a specific notice whenever a borrower submits a complete
loss mitigation application. It is important to note that, for the
purposes of Regulation X and the loss mitigation procedures, an
application is considered to be complete whenever the servicer
has everything it needs from the borrower (even if information
needed from a third party to fully evaluate the application is still
missing). This standard is in contrast to Regulation B, which
considers an application for an extension of credit to be complete
when the creditor has everything it regularly obtains and considers
in evaluating applications.
When a servicer receives a loss mitigation application from a
borrower that is complete, the servicer must provide the borrower
with a written notice that includes:
■ ■ ■ Confirmation that the application is complete;
■ ■ ■ Information related to dual tracking restrictions; and
■ ■ ■ Information regarding what might happen if the servicer determines later that additional information is needed to complete
Most of these content requirements shouldn’t be difficult to
program and operationalize. However, the date the servicer received the complete application is required content. While the
inclusion of the date seems like a simple requirement, identifying
the correct date may be more difficult than expected. Multiple
days may pass while the documentation is categorized, routed
to the appropriate department, reviewed and evaluated by a loss
mitigation processor, and then deemed incomplete or complete.
The servicer must determine whether the “date the servicer received the complete application” is the date the application landed
in the servicer’s possession (likely in a mailroom), or whether it is
received on the date the servicer made its complete or incomplete
determination. The Bureau has not publicly opined on this matter
or provided guidance one way or the other, leaving the industry
to make its own determination.
To further complicate matters, borrowers have the ability to
utilize Section 6 of the Real Estate Settlement Procedures Act to
enforce the loss mitigation requirements in Regulation X through
private litigation. As such, just like almost every other loss mitigation-related obligation, borrowers can file suit for a servicer’s
failure strictly to comply with the notice of complete application
requirements, including both the timing and content parameters.
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.