Though not as daunting as the initial 2014 servicing rules, the
Rule requires servicers to properly plan for changes that impact
various roles within the servicing function. Servicers should include
third parties providing servicing support in their implementation
planning, such as print vendors for disclosures and billing statements and third-party law firms. Significant changes are likely
needed to update related internal procedures, and business-line
training is needed to address the related revisions. This should
include consideration of any state law requirements that may
conflict with the Rule. A rigorous first line of defense, where
there is a quality assurance process over the servicing function,
will help identify issues early. It will also ensure any potential or
inadvertent consumer harm is averted or addressed promptly.
Lastly, establishing a cohesive “tone at the top” will reap benefits
throughout the entire implementation process. The Rule provides
additional clarifications and revisions resulting from industry
and consumer feedback that addresses the following key areas.
Definition of Delinquency
Within the Rule, the Bureau clarified the definition of “
delinquency” to facilitate consistency in how servicers address the
various servicing disclosure requirements for delinquent loans.
The early intervention, continuity of contact, and the 120-day
foreclosure filing prohibitions are addressed within Regulation X,
while required periodic payment statement disclosures on delinquency status are included within Regulation Z. This clarification
directly impacts any of the revisions included in the Rule where
there is a reference to delinquency period or status.
Delinquency begins “on the date a periodic payment sufficient
to cover principal, interest, and escrow (if applicable), becomes
due and unpaid, until such time as no periodic payment is due and
unpaid”. The delinquency begins at the unpaid due date, regardless
of whether the servicer provides a grace period or assesses a late fee.
The Rule does not prohibit a servicer from accepting a payment
that does not fully cover principal, interest, and escrow (partial payment) as timely. However, if the servicer regards a partial payment
as a timely remittance, then the servicer cannot report the borrower
as delinquent for the applicable payment period. The servicer can
continue to collect deficient balances, but cannot at any time, rescind
or revise the decision to treat the accepted partial payment in the
servicer’s calculation of the delinquency period for the borrower.
Since many servicers tend to accept payments that differ slightly
from the scheduled payment amount, the Rule does not specify that
payment differences need to be within a required dollar range. To
ensure consistency in customer treatment, the institution should
establish and communicate its procedures, including acceptable
dollar ranges for payment differences, to servicing personnel.
In the case where the borrower is more than one month delinquent, the industry commonly applies a borrower’s payment
to the oldest outstanding payment due. While the Rule does not
require servicers to adopt this practice, if they do, servicers must
advance the date the borrower’s delinquency began, regardless of
any additional periodic payment that may be due and unpaid. For
example, if payments are due on the first of the month and the
borrower does not make the January 1 payment, the borrower
is 30 days delinquent as of January 31. A payment is received on
February 3 that the servicer applies to the January 1 outstanding
payment. Assuming the February 1 payment was not made, on
February 4, the borrower is three days delinquent.
Servicers (except small servicers as defined in Regulation Z)
must ensure that a delinquent borrower is assigned a servicer
contact no later than the 45th day of delinquency. Continuity of
contact will ensure the borrower receives accurate and complete
information regarding their loan and related loss mitigation efforts.
All servicers, including small servicers, must comply with the
Rule’s definition of delinquency when referring foreclosures based
upon the 120-day delinquency period as it relates to the initial
filing or first notice requirement applicable to either the judicial
or non-judicial foreclosure process.
Once a borrower is more than 45 days delinquent, servicers must
notify the borrower of the length of delinquency dependent on
how the servicer provides payment information to the customer.
Disclosures must be included in periodic statements if one is
provided. Alternatively, if the servicer relies on coupon books, it
must provide a written notice. The length of delinquency disclosed
in either the periodic statement or written notice, must comply
with the definition of delinquency in the Rule.
Prompt Payment Crediting
For permanent loan modifications, the periodic payment due is
the amount stated in the executed modification agreement. In the
case of a temporary loss mitigation agreement, the existing loan
contract dictates the periodic payment amount. The borrower can
continue to be considered delinquent per the terms of the prior loan
agreement throughout a temporary loss mitigation arrangement.
Requests for Information
If the servicer receives a request for ownership information on a
loan owned by Fannie Mae or Freddie Mac, or where these entities are the trustee of the securitization trust holding the loan, the
servicer may respond differently based on the request. Borrower
inquiries that do not specifically request the name and number of
the pool or trust involved, only require the servicer to provide the
name and contact information for Fannie Mae or Freddie Mac.
Should the borrower specifically request the name or number
of the trustee of the securitization in which their loan is held,
then the name of the trust, trustee’s name, address and contact
information must be included in the servicer’s response.
For requests for ownership where Fannie Mae or Freddie Mac
is not the owner of the loan, or is not the trustee of the securitization trust in which the loan is held, then the servicer should
Live contact with a delinquent borrower is
deemed critical to helping the borrower work
through his or her payment issues and for the
servicer to ultimately collect the deficiency.