MBA's Stevens Stresses Importance of Avoiding Unintened Consequences in Letter to CFPB

The Mortgage Bankers Association (MBA) has submitted comments to the Consumer Financial Protection Bureau (CFPB) regarding the CFPBs August 10 draft of Proposed Rules to amend regulations under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) regarding residential mortgage loan servicing.  The MBA's comments were submitted Wednesday by David H. Stevens, President and CEO, in a letter to Monica Jackson, Office of the Executive Secretary of CFPB.

MBA said that it appreciates CFPB's efforts to create reasonable national standards for mortgage servicing but stressed the importance of paying attention to cost/benefit change and being mindful of unintended consequences that could result in higher costs and fewer benefits for consumers and reduced access to credit.

MBA expressed a general concern that CFPB should limit the rulemaking to those requirements specified by the Dodd-Frank Act and use its exemption authority to avoid unduly burdensome requirements.  This, MBA said, is especially appropriate where servicers are already performing the activities to be regulated such as providing periodic statements or producing ARM disclosures. 

MBA also asks that the Bureau take appropriate time to formulate the final rule and establish a reasonable implementation period because of the numerous regulations that are being formulated and must be implemented, suggesting at least two years from the date of publication to implement the final rules with small servicers given an additional six months.

The definition of small servicers should be expanded to include companies that service portfolios smaller than $10 billion and that that amount be indexed to overall growth in outstanding mortgage debt.  Independent mortgage servicers should be eligible for the exemption and small servicers should be afforded other relief and alternatives beyond the periodic statement.

MBA provided a number of comments specific to RESPA.  First it objects to CFPB rules granting borrowers a private right of action against servicers for failing to follow requirements not authorized by Dodd Frank nor within the scope of RESPA or TILA.  MBA cites specifically the default servicing and information management provisions where the loss mitigation provisions state that CFPB does not impose a duty on a servicer to offer loss mitigation or to approve a particular borrower for it, but still imposes a right of action if the servicer fails to follow enumerated steps.

Loss mitigation provisions should not require that a borrower be evaluated for "all" loss mitigation options.  This would require the borrower to provide a substantial amount of information and potentially delay the submission of a loss mitigation application and likely result in more incomplete applications or the unnecessary evaluation of a borrower for an action in which he has no interest.

The requirement that servicers must share loss mitigation applications with other lienholders within five days violates privacy and could create unintended negative borrower consequences.  Also the proposed rule requiring oral loss mitigation contracts runs counter to other efforts to improve consumer understanding of their mortgage loans and are contrary to investor and federal agency requirements as well as some state laws.

Consumers should not have the option to submit oral requests for error resolution and information.  The Qualified Written Request (QWR) created by Congress ensures that servicers acknowledge a valid written request to correct account errors and deliver requested information and also provides a written audit trail as evidence of their compliance.  The oral request regulation could have a profound impact on servicer liability staffing, technology, and costs.

The requirement that servicers create a defined standard servicing file available to the borrower upon request would require providing the borrower with proprietary information that is generally not appropriate or helpful to them.  The requirement that servicers retain such files for the duration of their servicing plus 12 months must be applied prospectively after an appropriate implantation timeframe.  These information management provisions are not required by Dodd-Frank and should not carry a private right of action.

MBA agreed that borrowers should be adequately informed about lender-placed insurances and with the regulations on termination, verifications of coverage, and refunds but objected to the requirement that lenders provide borrowers with a good-faith estimate of costs because that information is not readily available to servicers, estimates might be incorrect and could confuse the borrower.  MBA asked that the good faith estimate be replaced with a statement reflecting the high cost of such coverage.

MBA asks that borrower outreach allow for collection actions.  Not all borrowers who go delinquent are at risk of foreclosure and servicers should be able to seek collection without resorting to loss mitigation protocols.  The early intervention provisions proposed by CFPB are not required by Dodd-Frank.   Likewise the continuity of contact provisions must be managed to ensure that the servicer uses resources on borrowers that most need assistance.

In its comments specific to TILA requirements MBA states that the changes to subsequent adjustable rate mortgage (ARM) rate change notices are unduly burdensome on servicers and suggests that CFPB not overhaul the notices and not expand the initial ARM reset notice beyond hybrid ARMS

The content and format changes to the periodic statement would require significant systems enhancements with no indication that the current statements are insufficient.  MBA asks that the changes be limited to those required by Dodd-Frank and that CFPB consider using its exemption authority to eliminate the requirement to identify a prepayment penalty amount.

MBA supports the ability, but not the requirement, to use suspense accounts for partial payments and recommends that the application of payments from suspense accounts recognize loans that are subject to statutory requirements for breach notices, acceleration, and bankruptcy.Finally, MBA says that while the proposal to provide payoff statements within seven days of a written request is acceptable additional time should be granted for reverse mortgages, shared appreciation loans, delinquent and accelerated loans, and loans in bankruptcy due the complexity of these situations.