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CUNA urges CFPB for further changes to TILA-RESPA
WASHINGTON, DC (March 16, 2015) — CUNA submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) today regarding 2013 Regulation X (RESPA) and Regulation Z (TILA) Mortgage Servicing Rules, urging the CFPB to adopt changes and clarifications recommended in CUNA’s letter.
See the full letter below:
March 16, 2015
Ms. Monica Jackson
Office of the Executive Secretary
Consumer Financial Protection Bureau
1275 First Street NE
Washington, DC 20552
Re: Proposed Amendments to 2013 TILA-RESPA Mortgage Servicing Rules;
RIN 3170-AA49; Docket No. CFPB–2014–0033
Dear Ms. Jackson:
The Credit Union National Association (CUNA) appreciates the opportunity to submit comments on the Consumer Financial Protection Bureau’s (CFPB) proposed amendments to the 2013 Mortgage Servicing Rules, Regulation Z, which implements the Truth in Lending Act (TILA), and Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA). By way of background, CUNA is the national trade association for America’s state and federally chartered credit unions. CUNA represents approximately 90% of America’s 6,500 credit unions and their 102 million memberships.
CUNA appreciates the Bureau’s efforts to clarify and amend certain portions of the 2013 Regulation X and Regulation Z Mortgage Servicing Rules to provide additional assistance to credit unions and other financial institutions in complying with the rules. We recognize that adjustments and clarifications are inevitable when dealing with such voluminous regulations. However, we urge the Bureau to be cognizant of the fact that any changes and/or “clarifications” to its rules impose a burden on entities in order to understand the impact of such revisions and to make any relevant updates to the institutions’ systems or policies, as necessary. Thus, we ask the CFPB to work closely with CUNA, credit unions, and credit union leagues as it develops rules so that any subsequent revisions or “clarifications” maximize regulatory relief without undermining statutory objectives.
The Bureau is proposing several changes to its rule on successors in interest—people who inherit or receive property—when there is still an outstanding mortgage loan on the property.
Currently, servicers must promptly confirm the identity and ownership interest of the family members or heirs known as “successors in interest.” The proposed amendments expand the circumstances under which a person could be considered a successor in interest to include situations where a property is transferred after a divorce or legal separation, through a family trust, from a living spouse or a parent, or when a borrower who is a joint tenant dies. After confirmation of identity and ownership interest, the successor in interest, including those who obtain ownership through a transfer protected from acceleration and foreclosure, will generally have the same protections under the Mortgage Servicing Rules as the original borrower.
According to the Bureau, these proposed changes are “necessary to address the significant problems successors in interest continue to encounter with respect to the servicing of mortgage loans secured by their property.” While we fully support the Bureau’s stated objective in proposing changes to the successors in interest rule, we have concerns that the changes are likely to cause implementation and compliance challenges for many credit unions.
Expanding the scope of this rule will likely cause operational challenges for servicers, particularly with regard to accurately confirming the status of a successor in interest. The documents a servicer can request to confirm a potential successor in interest’s identity and ownership interest in the property must be specific to the potential successor in interest. Servicers will be required to apply these requirements to: potential and confirmed successors in interest, persons who possess an ownership interest in the property but have not assumed the mortgage, and to borrowers who previously had an ownership in the property. We ask the CFPB to help mitigate the impact of these changes by laying out a process under which servicers can and should identify and communicate with successors in interest. Compliance with such a process as articulated by the Bureau should then afford servicers a form of “safe harbor” under the rule.
Another provision of the proposal CUNA has concern with relates to the Bureau’s acknowledgement that successors in interest covered by the proposed rule would not necessarily have assumed the mortgage loan obligation under state law. “The proposed rule would not affect this question but would apply with respect to a successor in interest regardless of whether that person has assumed the mortgage loan obligation under state law.” We have concern with the implications this proposed provision could have with regard to privacy laws, including under the Gramm-Leach-Bliley Act. We are unclear whether and/or how the proposal will conflict with such privacy laws, but we ask the Bureau to provide clarification—potentially in the form of staff commentary—on this issue.
The Bureau is proposing to add a general definition of delinquency that would apply to all of the servicing provisions in Regulation X and the provisions regarding periodic statements for mortgage loans in Regulation Z. Under the proposed definition, a borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a payment sufficient to cover principal, interest, and, if applicable, escrow, becomes due and unpaid, and the borrower remains delinquent until such time as the payment is made.
We appreciate the Bureau’s efforts to clarify and define terminology within its rules. Thus, we support the proposed definition of “delinquency” and accompanying commentary. CUNA would like to take the opportunity to reiterate concerns expressed previously in regard to aspects of the Bureau’s 120-day foreclosure rule under section 1024.41. Specifically, CUNA asks the CFPB to permit additional exceptions to the 120-day rule. Borrowers who violate a “Preservation, Maintenance & Protection of Property” covenant in a security instrument could remain current on their mortgage (or less than 120 days delinquent) while the property continues to deteriorate. This could be evidenced by unused insurance damage proceeds, notices of code violations from local authorities, cancellation of homeowner insurance policies due to condition of the property, etc. If the servicer is unable to initiate foreclosure prior to the loan becoming 120 days delinquent, the condition of the property could worsen and cause further losses to the creditor.
Additionally, an exception to the pre-foreclosure review period should be allowed when borrowers decide to voluntarily default or walk away from the home and have advised the servicer that they no longer wish to be considered for loss mitigation efforts. This typically results in the home being left vacant and susceptible to vandalism, theft, and increased risk of damage from the elements. In such instances, if the servicer can validate from the borrower that there is no further interest in loss mitigation, the servicer should be able to proceed with the foreclosure prior to the loan becoming 120 days delinquent.
Finally, CUNA continues to urge the Bureau to do more to exempt credit unions from the general 120-day foreclosure ban, as credit unions work closely with their members so that foreclosure is an absolute last option, and is of no surprise to the borrower after all other loss mitigation efforts have failed.
Currently, when a borrower submits a request for information (RFI) under section 1024.36(a) asking for the owner or assignee of a mortgage loan held by a trust in connection with a securitization transaction, the servicer is required to respond and provide the name of the trust, and the name, address and appropriate contact information for the trustee. The proposal would revise comment 36(a)-2 to require that for loans where Fannie Mae or Freddie Mac is the trustee, investor, or guarantor, servicers could respond to the RFI by providing only the name and contact information for Fannie Mae or Freddie Mac, without providing the name of the trust.
CUNA supports the proposed revised commentary to allow the servicer to respond to an RFI simply by providing the name and contact information for Fannie Mae or Freddie Mac, as applicable. We believe this proposed change will make it somewhat easier for servicers to reply to such requests. In addition, we agree with the Bureau that this proposed change is unlikely to have an adverse impact on the borrower’s ability to obtain information regarding the owner or assignee of a mortgage loan described above.
Currently, servicers are required to deliver force-placed insurance notices prior to charging borrowers for force-placed insurance. While the current regulation provides language within these notices where borrowers have expired or expiring hazard insurance, there is not a corresponding provision for instances where a borrower’s hazard insurance is insufficient in amount.
The CFPB is proposing to amend section 1024.37(c)(2)(v) to address situations in which a borrower has insufficient, rather than expired or expiring hazard insurance. The proposal would require force-placed insurance notices to include a statement that the borrower’s hazard insurance is expiring, has expired, or provides insufficient coverage, as applicable. Additionally, a statement would be required that the servicer does not have evidence that the borrower has hazard insurance past the expiration date or evidence that the borrower has hazard insurance that provides sufficient coverage, as applicable.
CUNA generally supports the proposed amendment to the force-placed insurance regulation. We believe it is an important change that will benefit both the servicer and the borrower by allowing the servicer to force-place adequate insurance coverage where such coverage is lacking. We appreciate this proposed change and ask the Bureau to consider other similar changes to provide credit unions with increased flexibility as they work to comply with the Bureau’s mortgage regulations.
However, we ask the Bureau to provide clarification on how logistically creditors can force-place insurance in instances where existing coverage is insufficient. In situations in which a borrower’s insurance coverage has or will expire, the creditor can simply purchase a new policy and charge the borrower for such coverage. However, in situations, as described in the proposal, in which an existing policy is insufficient in amount, it is unclear whether the creditor should purchase an additional, separate policy, or whether the creditor should (or would be permitted to) increase the borrower’s existing policy. We ask the Bureau to clarify this issue so that credit unions have the ability to force-place adequate insurance coverage when existing coverage is insufficient.
In addition, the proposal would allow servicers to include a borrower’s mortgage loan account number on the force-placed insurance notices. CUNA supports this proposed change to the force-placed insurance regulation.
We generally support the proposed changes to the early intervention regulation, as they clarify the current requirements and generally reflect common practices among credit unions. We do not support the proposed amendments to section 1024.39(d)(1), Borrowers in Bankruptcy. This proposal would narrow the scope of the bankruptcy exemption. While the live contact exemption as it relates to a borrower in bankruptcy would be preserved, the exemption would no longer apply to a borrower who is jointly liable on the mortgage loan with someone who is a debtor in a Chapter 7 or Chapter 11 bankruptcy case.
Removal of the joint borrower exemption would place additional burdens on lenders or services to parse the bankruptcy status of all borrowers before providing notices. This notice should be optional as to the borrower that is jointly liable to allow lenders the ability to send the notice when a borrower’s bankruptcy status is in question.
We appreciate that the Bureau does not want borrowers to be negatively impacted by servicing transfers. We support giving the transferee in voluntary and involuntary transfers at least 15 days after the transfer date to evaluate a completed application. Transferee servicers complying with the loss mitigation requirements within the same timeframes that apply to the transferor servicer is equally difficult for both voluntary and involuntary transfers.
We also support the proposed amendment to the dual-tracking prohibitions under the current rules and the ability of a subordinate lienholder to join a foreclosure action filed by a senior lienholder. This would allow a servicer to join the foreclosure action of a senior lienholder, even if the borrower is not 120 days delinquent on the subordinate lien. Absent this proposed change, a subordinate servicer would be barred from initiating foreclosure under such circumstances.
The Bureau should clarify “periodic payment” as it relates to the crediting of late fees. Credit union vendors maintain that their data processors are unable to take late fees from payments in certain instances and must wait until a loan is paid off in order to take these late fees. We urge the CFPB to work with the vendors to ensure credit unions are not inadvertently caught in a data processing trap that undermines compliance.
Section 1026.36(c) defines a “periodic payment” as an amount sufficient to cover principal, interest, and escrow. A payment qualifies as a periodic payment even if it does not include amounts required to cover late fees, other fees, or non-escrow payments a lender or servicer has advanced on behalf of a consumer. The Regulation Z commentary in 36(c)(2) states that, “The method by which periodic payments shall be credited is based on the legal obligation between the creditor and consumer, subject to applicable law.”
Despite the statement in the commentary, many credit unions are confused whether the current rule permits them to take a late fee from the next payment received or if they must wait until the entire principal is paid at the end of the loan term before they can recover late fees. Some credit unions have been told by their data processors that they may not take a late fee until the end of the loan term—as long as 20 or 30 years later.
We ask the CFPB to clarify when late fees may be recovered.
CUNA’s position is that mortgage-servicing regulations should not require statements to be provided to bankruptcy-protected borrowers when such statements are prohibited by bankruptcy law. We support providing statements to borrowers to the extent allowed by bankruptcy law and the rules of the various courts that enforce the law.
The proposed rule would make several clarifications to the requirements regarding a servicer’s obligation to provide periodic statements under the mortgage servicing rules in certain bankruptcy situations. We are concerned with potential inconsistencies between the regulations regarding provision of periodic statements and the rights afforded bankruptcy-protected borrowers under bankruptcy. Specifically, there are instances under which creditors are prohibited from contacting borrowers in bankruptcy, whether in in-person or via notice.
CUNA supports the proposed amendments to the small servicer definition; however, we urge the Bureau to consider raising the loan limit from 5,000 to 10,000 as this would provide relief to a number of small credit unions impacted by the current 5,000-loan limit. Nonetheless, the proposal would exclude certain seller-financed transactions from being counted toward the 5,000-loan limit, allowing servicers that would otherwise exceed the limit for small servicer status to retain their exemption while servicing those transactions. We ask the Bureau to contemplate additional types of transactions that could appropriately be excluded from the transactions that count toward the small servicer loan limit.
Conclusion
CUNA appreciates the Bureau’s efforts to clarify and amend certain portions of the 2013 Regulation X and Regulation Z Mortgage Servicing Rules to provide additional assistance to credit unions and other financial institutions in complying with the rules. While several of the proposed changes included in the Bureau’s proposal would ease the burden on credit unions with regard to mortgage servicing, there are a number of proposed changes identified above that we believe would be problematic to credit unions as well as other servicers unless amended. We urge the Bureau to adopt the changes and clarifications we are recommending to alleviate the servicing-related burden on credit unions.
Thank you for the opportunity to express our views on the CFPB’s proposed amendments to the 2013 Mortgage Servicing Rules. If you have any questions about our comments, please do not hesitate to contact me at (202) 508-6743.