Pwc cfpb-mortgage-servicing-loss-mitigation-procedures(1)
- 1. The loss mitigation procedure rules require servicers to evaluate borrowers’ applications for available loss mitigation options. In addition, the rules prescribe certain requirements servicers must meet prior to initiating any foreclosure actions.2 Although the CFPB has established their standards and expectations as it relates to loss mitigation procedures (discussed in more detail below), it is important to remember that other rules already exist. For example, even though the CFPB standards do not prescribe the need to assess completed packages received within 37 days of the foreclosure sale date, investors (such as GSEs) may require servicers to conduct expedited reviews. In preparing for CFPB compliance, servicers should consider looking holistically at all governing rules to manage compliance. PwC’s CFPB Mortgage Servicing Standards Perspectives Issue 3/August 2013 CFPB Mortgage Servicing Standards Understanding loss mitigation procedures Introduction This is the third edition of PwC’s perspectives on the Consumer Finance Protection Bureau’s (CFPB) Mortgage Servicing Standards. This edition focuses on the standards related to loss mitigation procedures1 (including dual tracking) which is currently an area of much industry discussion. Requirements and implications – Loss mitigation procedures 1 The CFPB issued new mortgage servicing rules on January 17, 2013, with an effective date of January 10, 2014. Those rules implement Dodd-Frank Act amendments to RESPA that added the new procedural standards for Loss mitigation procedures 2 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation- x#p-2302 Figure 1: CFPB loss mitigation procedure provisions
- 2. Stage 1 – Receipt of Loss Mitigation Applications The CFPB has defined a loss mitigation application as any oral or written request that is accompanied by any information required by a servicer for the evaluation of loss mitigation options.3 Once an application is received, the CFPB servicing standards prescribe detailed requirements, including the need to send a 5-day acknowledgement letter to the borrower communicating whether the application is complete. If the application is incomplete, the letter must list all of the missing documentation and provide the deadline for submission of remaining documentation. The definition of a loss mitigation option4 is intentionally broad and covers both retention and liquidation options. Collection strategies such as short-term forbearance programs are also considered to be a loss mitigation option under the CFPB rules. This is likely to have some impact on existing default management processes, given these programs are generally managed by the collections teams and do not usually link into the standard loss mitigation processes. Servicers may need to cross-train staff, and ensure system workflow is available to track and align these two distinct processes. Stage 2 – Borrower Communication Borrower communication forms an important part of the loss mitigation requirements. CFPB’s rules around continuity of contact5 also prescribe certain responsibilities of the personnel assigned to assist borrower with loss mitigation. During the process of assessing the loss mitigation application, servicers are expected to have various borrower touch-points. Other than the 5-day acknowledgement letter, servicers must be prepared to demonstrate that “reasonable diligence” has been performed to evaluate a borrower’s application. This involves tracking progress against deadlines communicated to borrowers. The amount of diligence will depend on the needs of the borrower, as short-term forbearance options may be quickly deployed but may not be appropriate under all circumstances. In the event that a short-term forbearance program is offered to the borrower, proposed changes issued by the CFPB on June 216 provide that servicers do not need to wait for a completed application package from the borrower. However, the information offering the borrower the option to apply for long-term loss mitigation programs still needs to be supplied to the borrower in the 5-day acknowledgement letter. While these are still proposed changes, it is important for servicers to understand the implications on their current process so that changes can be made promptly when rules are finalized. Stage 3 – Loss Mitigation Application Decisioning The CFPB rules require servicers to decision within 30 days of receipt of a completed application package. Whatever the outcome, servicers must send a written notice to the borrower that must include decisions regarding options that enable the borrower to retain their home (such as a loan modification) and liquidation options (such as a short sale). In addition, for any offer made to the borrower, the servicer is required to provide a due date and procedures the borrower must follow when responding to a loss mitigation option offer. In practice, liquidation options may not always be communicated at this juncture, therefore servicers must ensure that the 30-day response includes this information. The CFPB clarifies that liquidation options may be offered on a conditional basis, pending full valuation and existing offer. However, servicers will likely need to use net present value (NPV) tools to forecast liquidation options within investor eligibility rules. If the borrower is denied for any of the loss mitigation options offered, the servicer must provide an explanation of the reasons for denying the borrower for any loan modification option along with any inputs used to make an NPV calculation, to the extent such inputs were the basis for the denial. This notice must also inform the borrower of his or her right to appeal the loan modification denial decision, as well as the procedures to follow and deadlines for doing so. 3 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation-x#p-1705 4 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation-x#p-2090 5 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation-x#p-1927 6 page 40, http://files.consumerfinance.gov/f/201306_cfpb_proposed-modifications_mortgage-rules.pdf Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Loss mitigation procedures
- 3. Figure 2 below summarizes the CFPB rules related to foreclosure referral and foreclosure sale. The rules prescribe when a borrower is to be held from further foreclosure related activities, or released to continue foreclosure related activities. The June 21 proposed changes11 seek to address this, for example, by clarifying that breach letters sent for the general purpose of notifying borrower of their delinquency are permitted to continue prior to 120 days delinquency. However, if the breach letter is sent as the formal notification of default to begin foreclosure proceedings in non-judicial states, this would not be permitted. While uncertainty remains, it is clear that the CFPB is expecting servicers to be monitoring these at the state level, as state regulations may impact what is defined as “first notice or filing.” Servicers will need to ensure release points are set for the referral documents based on the definition of “referral” for each State, specifically, what is considered evidence of legal compliance with foreclosure practices required pursuant to state law. As part of the Loss mitigation procedures (section 1024.41)7 , the CFPB has implemented rules preventing the servicer from referring a borrower to foreclosure while simultaneously evaluating loss mitigation options. “The Bureau believes that such provisions are necessary and appropriate to achieve the consumer protection purposes of RESPA, including ensuring that consumers in all jurisdictions have an opportunity to submit a complete loss mitigation and avoid certain of the harms resulting from dual tracking.” 8 Based on the timeline prescribed in the final servicing rules (Figure 2 shown above), it was unclear what the servicer needed to do in the event foreclosure sale dates are not yet available. In the June 219 proposed changes, the CFPB clarified that servicers should treat these cases as if the foreclosure sale date is greater than 90 days away. The challenge for servicers now is to ensure that assessments can be made promptly, given foreclosure sale dates are sometimes scheduled with less than 90 days remaining. The other area of concern for the industry relates to the rule preventing servicers to “make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.”10 Servicers had difficulty interpreting what the rule intends a “first notice or filing” to mean. Figure 2: CFPB dual tracking provisions Triggers to Hold ForeclosurePre-foreclosure/referral Cannot refer mortgages to foreclosure until 120 days delinquent First notice or filing not performed 120 days delinquent Servicer received complete application (review within 30 days) Scenario #2 ≥ 90 days to Foreclosure Sale Servicer received complete application (review within 30 days) Scenario #3 > 37 days to Foreclosure Sale None of the loss mitigation procedures apply to a loan mitigation application, including a complete loss mitigation application, received 37 days or less before a FCL sale Scenario #4 Foreclosure Sale Servicer received complete application (review within 30 days) Scenario #1 Triggers to Release Borrower does not accept loan mod within 14 days Borrower declines loan mod offer Borrower misses a trial payment Expiration of 30-day appeal period Expiration of 14-day borrower response appeal period Borrower does not accept loan mod within 14 days Borrower declines loan mod offer Borrower misses a trial payment Expiration of 30-day appeal period Expiration of 14-day borrower response appeal period Borrower does not accept loan mod within 7 days 7 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation-x#p-1943 8 https://www.federalregister.gov/articles/2013/02/14/2013-01248/mortgage-servicing-rules-under-the-real-estate-settlement-procedures-act-regulation-x#p-1094 9 page 35 http://files.consumerfinance.gov/f/201306_cfpb_proposed-modifications_mortgage-rules.pdf 10 https://www.federalregister.gov/articles/2013/07/02/2013-15466/amendments-to-the-2013-mortgage-rules-under-the-equal-credit-opportunity-act-regulation- b-real#p-295 11 page 51 http://files.consumerfinance.gov/f/201306_cfpb_proposed-modifications_mortgage-rules.pdf Requirements & implications – Dual tracking
- 4. © 2013 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. The dual tracking provisions will likely need to be addressed through active and robust management of communication with the attorney network through communication channels (e.g., LPS Desktop Process Management for LPS users). It is critical that servicers have accurate data about application receipt dates, borrower decision and appeal status, and borrower delinquency information. Enhanced reporting and workflow management systems will likely minimize the risk of non-compliance. In addition, servicers should consider the need to conduct staff training to clearly communicate these requirements and educate staff to ensure compliance. Conclusion Of the areas impacted by the CFPB mortgage servicing standards, the loss mitigation procedures is one that may have the highest inherent risk of non-compliance given the manual nature of these procedures. As servicers continue to work towards compliance against the CFPB rules, effective January 10, 2014, there are a few items to keep in mind: • The CFPB is still issuing changes to the rules, and therefore close monitoring of CFPB announcements is important to ensure servicers are implementing the rules correctly. However, given the tight timeframe remaining, servicers should be in a position to design solutions (such as reviewing the referral to foreclosure process & triggers based on State driven requirements) which can be easily modified once CFPB finalizes their interpretation; • There are likely to be systems limitations to automate workflow management, since historically, functions such as collections, loss mitigation and foreclosure, may not utilize the same system. Given the heightened risks of non-compliance, this is a good opportunity for servicers to review their systems capabilities to determine if a new default management workflow system may be the go-forward strategy. This may take longer than a few months to implement, hence interim solutions will need to be designed with monitoring controls to compensate the manual processes; and • Other CFPB rules such as early intervention, continuity of contact, servicing files and even transfer servicing requirements, may be impacted by changes in loss mitigation procedures. Given the manual nature of this process, as part of change management, it is important to consider potential downstream or upstream impacts to ensure that there are no unintended consequences. www.pwcregulatory.com www.pwc.com/consumerfinance PwC Consumer Finance contacts Roberto Hernandez Principal roberto.g.hernandez@us.pwc.com 940 367 2386 Martin Touhey Principal martin.e.touhey@us.pwc.com 206 790 8751 Annie Liao Senior Manager annie.liao@us.pwc.com 646 256 1825 Lucian Licata Manager lucian.licata@us.pwc.com 646 471 2726 Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Loss mitigation procedures PwC Regulatory contacts Jeff Lavine Partner jeff.lavine@us.pwc.com 703 918 1379 Anthony Ricko Managing Director anthony.ricko@us.pwc.com 978 692 1701 Bruce S. Oliver Director bruce.oliver@us.pwc.com 703 918 6990 Follow us on Twitter @PwC_US_FinSrvcs