CFPB Clarifies Rules for Borrower Contact

The Consumer Financial Protection Bureau (CFPB) released a bulletin today in response to requests for further clarification on three servicing issues.  Two of the clarifications are as follows:

• The January servicing rules require that policies and procedures be in place that ensure that servicers, upon the death of a borrower, contact the deceased's family members, heirs or other parties with a legal interest in the home. Today's bulletin provides examples of these policies and procedures to promote retention of the home such as procedures for continued payments, possible mortgage assumption, or loss mitigation measures.
• A second clarification concerns a requirement the servicer attempt to contact the borrower when he misses a payment. CFPB says such contact, intended to provide information to get the borrower back on track, can occur jointly with that made for another purpose such as a collection call. Also, the method of attempted contact may vary depending on how long a borrower is delinquent or whether the borrower has responded to earlier servicer attempts to communicate.

The third and most complex clarification involves the interplay between the servicing rules, the bankruptcy code, and the Fair Debt Collection Practices Act (FDCPA) where both of the latter provide significant protections to borrowers, allowing them to restrict certain types of communications about their debt. 

CFPB says that even if delinquent but non-bankrupt borrowers have invoked these protections and have instructed servicers to stop communicating with them certain notices and communications mandated by the CFPB servicing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act are still required.

These include responses to borrower requests for information, loss mitigation, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages, and periodic statements.  Servicers will not be required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to borrowers who have requested no communication.

Where borrowers have filed for bankruptcy, servicers are exempted at this time from CFPB requirements to provide periodic account statements and certain early intervention contacts.  CFPB says it will further assess how bankruptcy protections intersect with these servicing requirements and how to ensure that the servicing communications do not confuse consumers about the status of their loans.

"As servicing implementation enters its final phases, we heard from many sources that it was important to address these remaining issues to ensure a smooth transition and provide certainty to the market," said CFPB Director Richard Cordray. "When mortgage servicers better understand the rules they have to follow, that is better for consumers."

The Bureau is also releasing an interim final rule which, among other issues, clarifies a requirement that borrowers receive housing counseling before taking out a high-cost mortgage.  The interim rule will be available late Tuesday afternoon.