[Federal Register Volume 77, Number 180 (Monday, September 17, 2012)]
[Proposed Rules]
[Pages 57200-57315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19974]



[[Page 57199]]

Vol. 77

Monday,

No. 180

September 17, 2012

Part II





Bureau of Consumer Financial Protection





-----------------------------------------------------------------------





12 CFR Part 1024





2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage 
Servicing Proposal; Proposed Rule

  Federal Register / Vol. 77 , No. 180 / Monday, September 17, 2012 / 
Proposed Rules  

[[Page 57200]]


-----------------------------------------------------------------------

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1024

[Docket No. CFPB-2012-0034]
RIN 3170-AA14


2012 Real Estate Settlement Procedures Act (Regulation X) 
Mortgage Servicing Proposal

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for public comment.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Consumer Financial Protection (the Bureau) is 
proposing to amend Regulation X, which implements the Real Estate 
Settlement Procedures Act of 1974 (RESPA) and the official 
interpretation of the regulation. The proposed amendments implement the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act) provisions regarding mortgage loan servicing. Specifically, this 
proposal requests comment regarding proposed additions to Regulation X 
to address seven servicer obligations: To correct errors asserted by 
mortgage loan borrowers; to provide information requested by mortgage 
loan borrowers; to ensure that a reasonable basis exists to obtain 
force-placed insurance; to establish reasonable information management 
policies and procedures; to provide information about mortgage loss 
mitigation options to delinquent borrowers; to provide delinquent 
borrowers access to servicer personnel with continuity of contact about 
the borrower's mortgage loan account; and to evaluate borrowers' 
applications for available loss mitigation options.
    This proposal would also modify and streamline certain existing 
servicing-related provisions of Regulation X. For instance, the 
proposal would revise provisions relating to a mortgage servicer's 
obligation to provide disclosures to borrowers in connection with a 
transfer of mortgage servicing, and a mortgage servicer's obligation to 
manage escrow accounts, including the obligation to advance funds to an 
escrow account to maintain insurance coverage and to return amounts in 
an escrow account to a borrower upon payment in full of a mortgage 
loan.
    Published elsewhere in today's Federal Register, the Bureau 
proposes companion regulations implementing amendments to the Truth In 
Lending Act (TILA) in Regulation Z (the 2012 TILA Servicing Proposal).

DATES: Comments must be received on or before October 9, 2012, except 
that comments on the Paperwork Reduction Act analysis in part IX of 
this Federal Register notice must be received on or before November 16, 
2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0034 or RIN 3170-AA14, by any of the following methods:
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail/Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1700 G 
Street NW., Washington, DC 20552.
    Instructions: All submissions must include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. In general, all comments received will be posted without 
change to http://www.regulations.gov. In addition, comments will be 
available for public inspection and copying at 1700 G Street NW., 
Washington, DC 20552, on official business days between the hours of 10 
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect 
the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or Social 
Security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

e-Rulemaking Initiative

    The Bureau is working with the Cornell e-Rulemaking Initiative 
(CeRI) on a pilot project, Regulation Room, to use different web 
technologies and approaches to enhance public understanding and 
participation in Bureau rulemakings and to evaluate the advantages and 
disadvantages of these techniques. The TILA and RESPA proposed 
rulemakings on mortgage servicing are the subject of the project. The 
Bureau has undertaken this project to increase effective public 
involvement in the rulemaking process and strongly encourages all 
parties interested in this rulemaking to visit the Regulation Room Web 
site, http://www.regulationroom.org, to learn about the Bureau's 
proposed mortgage servicing rules and the rulemaking process, to 
discuss the issues in the rules with other persons and groups, and to 
participate in drafting a summary of that discussion that CeRI will 
submit to the Bureau.
    Note that Regulation Room is sponsored by CeRI, and is not an 
official United States Government Web site. Participating in the 
discussion on that site will not result in individual formal comments 
that will be included in the Bureau's rulemaking record. If you would 
like to add a formal comment, please do so through the means identified 
above. The Bureau anticipates that CeRI will submit to the Bureau's 
rulemaking docket a summary of the discussion that occurs on the 
Regulation Room site and that participants will have a chance to review 
a draft and suggest changes before the summary is submitted. For 
questions about this project, please contact Whitney Patross, Attorney, 
Office of Regulations, at (202) 435-7700.

FOR FURTHER INFORMATION CONTACT: Regulation X (RESPA): Jane Gao, 
Mitchell E. Hochberg, and Michael Scherzer, Counsels at (202) 435-7700; 
Office of Regulations, Division of Research, Markets, and Regulations, 
Bureau of Consumer Financial Protection; 1700 G Street NW., Washington, 
DC 20552.
    Regulation Z (TILA): Whitney Patross, Attorney and Marta Tanenhaus, 
Senior Counsel at (202) 435-7700; Office of Regulations, Division of 
Research, Markets, and Regulations, Bureau of Consumer Financial 
Protection; 1700 G Street NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Overview

A. Background

    The recent financial crisis exposed pervasive consumer protection 
problems across major segments of the mortgage servicing industry. As 
millions of borrowers fell behind on their loans, many servicers failed 
to provide the level of service necessary to serve the needs of those 
borrowers. Many servicers simply had not made the investments in 
resources and infrastructure necessary to service large numbers of 
delinquent loans. Existing weaknesses in servicer practices, including 
inadequate recordkeeping and document management and lack of oversight 
of service providers, made it harder to sort out borrower problems to 
achieve optimal results. In addition, many servicers took short cuts 
that made things even worse. As one review of fourteen major servicers 
found, companies ``emphasize[d] speed and cost efficiency over quality 
and accuracy'' in their foreclosure processes.\1\
---------------------------------------------------------------------------

    \1\ Federal Reserve System, Office of the Comptroller of the 
Currency, & Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices, at 5 (Apr. 2011) (Interagency 
Foreclosure Report), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.

---------------------------------------------------------------------------

[[Page 57201]]

    The Dodd-Frank Act (Pub. L. 111-203, July 21, 2010) adopts several 
new servicing protections.\2\ The Bureau has the authority to 
promulgate regulations to implement the new servicing protections. 
These changes will significantly improve disclosures to make it easier 
for consumers to monitor their mortgage loans and servicers' 
activities. The changes also address critical servicer practices, 
including error resolution, prompt crediting of payments, and ``force-
placing'' insurance where borrowers have allowed their hazard insurance 
policies to lapse.
---------------------------------------------------------------------------

    \2\ See Dodd-Frank Act sections 1418, 1420, 1463, and 1464.
---------------------------------------------------------------------------

    The Dodd-Frank Act also gives the Bureau discretionary authority to 
develop additional servicing rules. The Bureau proposes to use this 
authority to adopt requirements relating to reasonable information 
management policies and procedures, early intervention with delinquent 
borrowers, continuity of contact, and procedures for evaluating and 
responding to loss mitigation applications when the servicer makes loss 
mitigation options available in the ordinary course of business. These 
proposals address fundamental problems that underlie many consumer 
complaints and recent regulatory and enforcement actions. The Bureau 
believes these changes will reduce avoidable foreclosures and improve 
general customer service. The proposals cover nine major topics, as 
summarized below.
    The Bureau's proposal is split into two parts because Congress 
imposed some requirements under TILA and some under RESPA.\3\ This 
proposed rule would amend Regulation X, which implements RESPA, to 
implement section 1463 of the Dodd-Frank Act concerning error 
resolution and force-placed insurance and to impose additional 
requirements concerning reasonable information management policies and 
procedures, early intervention with delinquent borrowers, continuity of 
contact, and procedures for evaluating and responding to loss 
mitigation applications.
---------------------------------------------------------------------------

    \3\ Note that TILA and RESPA differ in their terminology. 
Consumers and creditors are the defined terms used in Regulation Z. 
Borrowers and lenders are the defined terms used in Regulation X.
---------------------------------------------------------------------------

B. Scope of Coverage

    The proposed rules generally apply to closed-end mortgage loans, 
with certain exceptions. Under the proposed amendments to Regulation X, 
open-end lines of credit and certain other loans, such as construction 
loans and business-purpose loans, are excluded. Under the proposed 
amendments to Regulation Z, the periodic statement and adjustable-rate 
mortgage (ARM), disclosure provisions apply only to closed-end mortgage 
loans, but the prompt crediting and payoff statement provisions apply 
both to open-end and closed-end mortgage loans. In addition, reverse 
mortgages and timeshares are excluded from the periodic statement 
requirement, and certain construction loans are excluded from the ARM 
disclosure requirements. As discussed below, the Bureau is seeking 
comment on whether to exempt small servicers from certain requirements 
or modify certain requirements for small servicers.

C. Summary

    The proposals cover nine major topics, summarized below. More 
details can be found in the proposed rules, which are split into two 
notices issued under the Truth in Lending Act (TILA) and Real Estate 
Settlement Procedures Act (RESPA), respectively.
    1. Periodic billing statements. The Dodd-Frank Act generally 
mandates that servicers of closed-end residential mortgage loans (other 
than reverse mortgages) must send a periodic statement for each billing 
cycle. These statements must meet the timing, form, and content 
requirements provided for in the rule. The proposal contains sample 
forms that servicers could use. The periodic statement requirement 
generally would not apply for fixed-rate loans if the servicer provides 
a coupon book, so long as the coupon book contains certain information 
specified in the rule and certain other information is made available 
to the consumer. The proposal also includes an exception for small 
servicers that service 1000 or fewer mortgage loans and service only 
mortgage loans that they originated or own.
    2. Adjustable-rate mortgage interest-rate adjustment notices. 
Servicers would have to provide a consumer whose mortgage has an 
adjustable rate with a notice 60 to 120 days before an adjustment which 
causes the payment to change. The servicer would also have to provide 
an earlier notice 210 to 240 days prior to the first rate adjustment. 
This first notice may contain an estimate of the rate and payment 
change. Other than this initial notice, servicers would no longer be 
required to provide an annual notice if a rate adjustment does not 
result in an increase in the monthly payment. The proposal contains 
model and sample forms that servicers could use.
    3. Prompt payment crediting and payoff payments. As required by the 
Dodd-Frank Act, servicers must promptly credit payments from borrowers, 
generally on the day of receipt. If a servicer receives a payment that 
is less than a full contractual payment, the payment may be held in a 
suspense account. When the amount in the suspense account covers a full 
installment of principal, interest, and escrow (if applicable), the 
proposal would require the servicer to apply the funds to the oldest 
outstanding payment owed. A servicer also would be required to send an 
accurate payoff balance to a consumer no later than seven business days 
after receipt of a written request from the borrower for such 
information.
    4. Force-placed insurance. As required by the Dodd-Frank Act, 
servicers would not be permitted to charge a borrower for force-placed 
insurance coverage unless the servicer has a reasonable basis to 
believe the borrower has failed to maintain hazard insurance and has 
provided required notices. One notice to the borrower would be required 
at least 45 days before charging for forced-place insurance coverage, 
and a second notice would be required no earlier than 30 days after the 
first notice. The proposal contains model forms that servicers could 
use. If a borrower provides proof of hazard insurance coverage, then 
the servicer would be required to cancel any force-placed insurance 
policy and refund any premiums paid for periods in which the borrower's 
policy was in place. In addition, if a servicer makes payments for 
hazard insurance from a borrower's escrow account, a servicer would be 
required to continue those payments rather than force-placing a 
separate policy, even if there is insufficient money in the escrow 
account. The rule would also provide that charges related to forced 
place insurance (other than those subject to State regulation as the 
business of insurance or authorized by Federal law for flood insurance) 
must relate to a service that was actually performed. Additionally, 
such charges would have to bear a reasonable relationship to the 
servicer's cost of providing the service.
    5. Error resolution and information requests. Pursuant to the Dodd-
Frank Act, servicers would be required to meet certain procedural 
requirements for responding to information requests or complaints of 
errors. The proposal defines specific types of claims which constitute 
an error, such as a claim that the servicer misapplied a payment or 
assessed an improper fee. A borrower

[[Page 57202]]

could assert an error either orally or in writing. Servicers could 
designate a specific phone number and address for borrowers to use. 
Servicers would be required to acknowledge the request or complaint 
within five days. Servicers would have to correct or respond to the 
borrower with the results of the investigation, generally within 30 to 
45 days. Further, servicers generally would be required to acknowledge 
borrower requests for information and either provide the information or 
explain why the information is not available within a similar amount of 
time. A servicer would not be required to delay a scheduled foreclosure 
sale to consider a notice of error unless the error relates to the 
servicer's improperly proceeding with a foreclosure sale during a 
borrower's evaluation for alternatives to foreclosure.
    6. Information management policies and procedure. Servicers would 
be required to establish reasonable information management policies and 
procedures. The reasonableness of a servicer's policies and procedures 
would take into account the servicer's size, scope, and nature of its 
operations. A servicer's policies and procedures would satisfy the rule 
if the servicer regularly achieves the document retention and servicing 
file requirements, as well as certain objectives specified in the rule. 
Examples of such objectives include providing accurate and timely 
information to borrowers and the courts or enabling servicer personnel 
to have prompt access to documents and information submitted in 
connection with loss mitigation applications. In addition, a servicer 
must retain records relating to each mortgage until one year after the 
mortgage is discharged or servicing is transferred and must create a 
mortgage servicing file for each loan containing certain specified 
documents and information.
    7. Early intervention with delinquent borrowers. Servicers would be 
required to make good faith efforts to notify delinquent borrowers of 
loss mitigation options. If a borrower is 30 days late, the proposal 
would require servicers to make a good faith effort to notify the 
borrower orally and to let the borrower know that loss mitigations 
options may be available. If the borrower is 40 days late, the servicer 
would be required to provide the borrower with a written notice with 
certain specific information, including examples of loss mitigation 
options available, if applicable, and information on how to obtain more 
information about loss mitigation options. The notice would also 
provide information to the borrower about the foreclosure process. The 
rule contains model language servicers could use for these notices.
    8. Continuity of contact with delinquent borrowers. Servicers would 
be required to provide delinquent borrowers with access to personnel to 
assist them with loss mitigation options where applicable. The proposal 
would require servicers to assign dedicated contact personnel for a 
borrower no later than five days after providing the early intervention 
notice. Servicers would be required to establish reasonable policies 
and procedures designed to ensure that the servicer personnel perform 
certain specified functions where applicable, such as access the 
borrower's records and provide the borrower with information about how 
and when to apply for a loss mitigation option and about the status of 
the application.
    9. Loss mitigation procedures. Servicers that offer loss mitigation 
options to borrowers would be required to implement procedures to 
ensure that complete loss mitigation applications are reasonably 
evaluated before proceeding with a scheduled foreclosure sale. The 
proposal would require servicers to exercise reasonable diligence to 
secure information or documents required to make an incomplete loss 
mitigation application complete. In certain circumstances, this could 
include notifying the borrower within five days of receiving an 
incomplete application. Within 30 days of receiving a borrower's 
complete application, the servicer would be required to evaluate the 
borrower for all available options, and, if the denial pertains to a 
requested loan modification, notify the borrower of the reasons for the 
servicer's decision, and provide the borrower with at least a 14-day 
period within which to appeal the decision. The proposal would require 
that appeals be decided within 30 days by different personnel than 
those responsible for the initial decision. A servicer that receives a 
complete application for a loss mitigation option could not proceed 
with a foreclosure sale unless (i) the servicer had denied the 
borrower's application and the time for any appeal had expired; (ii) 
the servicer had offered a loss mitigation option which the borrower 
declined or failed to accept within 14 days of the offer; or (iii) the 
borrower failed to comply with the terms of a loss mitigation 
agreement. The proposal would require that deadlines for submitting an 
application for a loss mitigation option be no earlier than 90 days 
before a scheduled foreclosure sale.

D. Small Servicers

    As discussed below, the Bureau convened a Small Business Regulatory 
Enforcement Fairness Act (SBREFA) panel to assess the impact of the 
possible rules on small servicers and to help the Bureau determine to 
what extent it may be appropriate to consider adjusting these standards 
for small servicers, to the extent permitted by law. Informed by this 
process, the 2012 TILA Servicing Proposal contains an exemption from 
the periodic statement requirement for certain small servicers. The 
Bureau seeks comment on whether other exemptions might be appropriate 
for small servicers.

E. Effective Date

    As discussed below, the Bureau is seeking comment on when this 
final rule should be effective. Because the final rule will provide 
important benefits to consumers, the Bureau seeks to make it effective 
as soon as possible. However, the Bureau understands that the final 
rules will require servicers to make revisions to their software and to 
retrain their staff. In addition, some entities will be required to 
implement other Dodd-Frank Act provisions, which are subject to 
separate rulemaking deadlines under the statue and will have separate 
effective dates. Therefore, the Bureau is seeking comment on how much 
time industry needs to make these changes.

II. Background

A. Overview of the Mortgage Servicing Market and Market Failures

    The mortgage market is the single largest market for consumer 
financial products and services in the United States, with 
approximately $10.3 trillion in loans outstanding.\4\ Mortgage 
servicers play a vital role within the broader market by undertaking 
the day-to-day management of mortgage loans on behalf of lenders who 
hold the loans in their portfolios or (where a loan has been 
securitized) investors who are entitled to the loan proceeds.\5\ Over

[[Page 57203]]

60% of mortgage loans are serviced by mortgage servicers for investors.
---------------------------------------------------------------------------

    \4\ Inside Mortgage Finance, Outstanding 1-4 Family Mortgage 
Securities, Mortgage Market Statistical Annual (2012). For general 
background on the market and the recent mortgage crisis, see the 
2012 TILA-RESPA Proposal available at: http://www.consumerfinance.gov/knowbeforeyouowe/.
    \5\ As of the end of 2011, approximately 33% of outstanding 
mortgage loans were held in portfolio, 57% of mortgage loans were 
owned through mortgage-backed securities issued by government 
sponsored enterprises (GSEs), and 11% of loans were owned through 
private label mortgage-backed securities. Inside Mortgage Finance, 
Issue 2012:13, at 11 (March 30, 2012). A securitization results in 
the economic separation of the legal title to the mortgage loan and 
a beneficial interest in the mortgage loan obligation. In a 
securitization transaction, a securitization trust is the owner or 
assignee of a mortgage loan. An investor is a creditor of the trust 
and is entitled to cash flows that are derived from the proceeds of 
the mortgage loans. In general, certain investors (or an insurer 
entitled to act on behalf of the investors) may direct the trust to 
take action as the owner or assignee of the mortgage loans for the 
benefit of the investors or insurers. See, e.g., Adam Levitin & Tara 
Twomey, Mortgage Servicing, 28 Yale J. on Reg., 1, 11 (2011) 
(Levitin & Twomey).
---------------------------------------------------------------------------

    Servicers' duties typically include billing borrowers for amounts 
due, collecting and allocating payments, maintaining and disbursing 
funds from escrow accounts, reporting to creditors or investors, and 
pursuing collection and loss mitigation activities (including 
foreclosures and loan modifications) with respect to delinquent 
borrowers. Indeed, without dedicated companies to perform these 
activities, it is questionable whether a secondary market for mortgage-
backed securities would exist in this country.\6\
---------------------------------------------------------------------------

    \6\ See, e.g., Levitin & Twomey at 11 (``All securitizations 
involved third-party servicers * * * [m]ortgage servicers provide 
the critical link between mortgage borrowers and the SPV and RMBS 
investors, and servicing arrangements are an indispensable part of 
securitization.'').
---------------------------------------------------------------------------

    Several aspects of the mortgage servicing business make it uniquely 
challenging for consumer protection purposes. Given the nature of their 
activities, servicers can have a direct and profound impact on 
borrowers. However, industry compensation practices and the structure 
of the mortgage servicing industry create wide variations in servicers' 
incentives to provide effective customer service to borrowers. Also, 
because borrowers cannot choose their own servicers, it is particularly 
difficult for them to protect themselves from shoddy service or harmful 
practices.
    Mortgage servicing is performed by banks, thrifts, credit unions, 
and non-bank servicers under a variety of business models. In some 
cases, creditors service mortgage loans that they originate or purchase 
and hold in portfolio. Other creditors sell the ownership of the 
underlying mortgage loan, but retain the mortgage servicing rights in 
order to retain the relationship with the borrower, as well as the 
servicing fee and other ancillary income. In still other cases, 
servicers have no role at all in origination or loan ownership, but 
rather purchase mortgage servicing rights on securitized loans or are 
hired to service a portfolio lender's loans.\7\
---------------------------------------------------------------------------

    \7\ See, e.g., Diane E. Thompson, Foreclosing Modifications: How 
Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 
755, 763 (2011) (Thompson), available at http://digital.law.washington.edu/dspace-law/bitstream/handle/1773.1/1074/86WLR755.pdf.
---------------------------------------------------------------------------

    These different servicing structures can create difficulties for 
borrowers if a servicer makes mistakes, fails to invest sufficient 
resources in its servicing operations, or does not properly service the 
borrower's loan. Although the mortgage servicing industry has numerous 
participants, the industry is highly concentrated, with the five 
largest servicers servicing approximately 55 percent of outstanding 
mortgage loans in this country.\8\ Small servicers generally operate in 
discrete segments of the market, for example, by specializing in 
servicing delinquent loans, or by servicing loans that they 
originate.\9\
---------------------------------------------------------------------------

    \8\ See, e.g, Inside Mortgage Finance, Issue 2012:13, at 12 
(Mar. 30, 2012). As of the end of the fourth quarter of 2011, the 
top five largest servicers serviced $5.66 trillion of mortgage 
loans. See id. at 12.
    \9\ See, e.g., Fitch Ratings, U.S. Residential and Small Balance 
Commercial Mortgage Servicer Rating Criteria, at 14-15 (Jan. 31, 
2011), available at http://www.fitchratings.com.
---------------------------------------------------------------------------

    Contracts between the servicer and the mortgage loan owner specify 
the rights and responsibilities of each party. In the context of 
securitized loans, the contracts may require the servicer to balance 
the competing interests of different classes of investors when 
borrowers become delinquent. Certain provisions in servicing contracts 
may limit the servicer's ability to offer certain types of loan 
modifications to borrowers. Such contracts also may limit the 
circumstances under which investors can transfer servicing rights to a 
different servicer.
    Compensation structures vary somewhat for loans held in portfolio 
and securitized loans,\10\ but have tended to make pure mortgage 
servicing (where the servicer has no role in origination) a high-
volume, low-margin business in which servicers have little incentive to 
invest in customer service. A servicer will expect to recoup its 
investment in purchasing mortgage servicing rights and earn a profit 
through a net servicing fee (which is expressed as a constant rate 
assessed on unpaid mortgage balances),\11\ fees assessed on borrowers, 
interest float on payment accounts between receipt and disbursement, 
and cross-marketing other products and services to borrowers. Under 
this business model, servicers act primarily as payment collectors and 
processors, and provide minimal customer service to ensure 
profitability. Servicers also have an incentive to look for 
opportunities to impose fees on borrowers to enhance revenues and are 
generally not subject to market discipline because consumers have no 
opportunity to switch providers. Additionally, servicers may have 
financial incentives to foreclose rather than engage in loss 
mitigation.\12\
---------------------------------------------------------------------------

    \10\ At securitization, the cash flow that was part of interest 
income is bifurcated between the loan and the mortgage servicing 
right (MSR). The MSR represents the present value of all the cash 
flows, both positive and negative, related to servicing a mortgage. 
Prime MSRs are largely created by the GSE minimum servicing fee 
rate, which is calculated as 25 basis points (bps) per annum. The 
servicing fee rate is typically paid to the servicer monthly and the 
monthly amount owed is calculated by multiplying the pro rata 
portion of the servicing fee rate by the stated principal balance of 
the mortgage loan at the payment due date. Accounting rules require 
that a capitalized asset be created if the ``compensation'' for 
servicing (including float/ancillary) exceeds ``adequate 
compensation.'' For loans held in portfolio, there is no bifurcation 
of the interest income from the loan. The owner of the loan simply 
negotiates pricing, terms, and standards with the servicer, which, 
at larger institutions, is typically a separate affiliate or 
subsidiary of the owner of the loans. Keefe, Bruyette & Woods, 
Mortgage Servicing Primer, at 3 (Apr. 17, 2012).
    \11\ See, e.g., Thompson, 86 Wash. L. Rev. 755, 767.
    \12\ National Consumer Law Center, Why Servicers Foreclose When 
They Should Modify and Other Puzzles of Servicer Behavior, at v 
(Oct. 2009) (``Servicers, unlike investors or homeowners, do not 
generally lose money on foreclosure. Servicers may even make money 
on a foreclosure.''); see also, The Need for National Mortgage 
Servicing Standards: Hearing Before the Subcomm. on Housing, 
Transportation, and Community Affairs of the Senate Comm. on 
Banking, Housing and Urban Affairs, S. Hrg. 112-139, 112th Cong. 126 
(2011) (statement of Diane E. Thompson, National Consumer Law 
Center), at 15 (``...modification will also likely reduce future 
income, cost more in the present in staffing, and delay recovery of 
expenses. Moreover, the foreclosure process itself generates 
significant income for servicers.''), available at http://www.nclc.org/images/pdf/pr-reports/report-servicers-modify.pdf.
---------------------------------------------------------------------------

    These attributes of the servicing market created problems for 
certain borrowers even prior to the national mortgage crisis. For 
example, borrowers experienced problems with mortgage servicers even 
during regional mortgage market downturns that preceded the mortgage 
crisis.\13\ Borrowers were subjected to improper fees that servicers 
had no reasonable basis to impose on borrowers, improper force-placed 
insurance practices, and improper foreclosure and bankruptcy 
practices.\14\
---------------------------------------------------------------------------

    \13\ See Problems in Mortgage Servicing From Modification to 
Foreclosure: Hearings Before the Comm. on Banking, Housing and Urban 
Affairs, S. Hrg. 111-987, 111th Cong. 53-54 (2010) (statement of 
Thomas J. Miller, Iowa Attorney General) (Miller Testimony). See 
also, Kurt Eggert, Limiting Abuse and Opportunism by Mortgage 
Servicers 15:3 Housing Policy Debate (2004), available at http://ssrn.com/abstract=992095
    \14\ See Kurt Eggert, Limiting Abuse and Opportunism by Mortgage 
Servicers 15:3 Housing Policy Debate (2004), available at http://ssrn.com/abstract=992095 (collecting cases).
---------------------------------------------------------------------------

    When the mortgage crisis erupted, many servicers were ill-equipped 
to handle the high volumes of delinquent mortgages, loan modification 
requests,

[[Page 57204]]

and foreclosures they were required to process. These servicers lacked 
the infrastructure, trained staff, controls, and procedures needed to 
manage effectively the flood of delinquent mortgages they were forced 
to handle. Consumer harm has manifested in many different areas, and 
major servicers have entered into significant settlement agreements 
with Federal and State governmental authorities. For example, in April 
2011, the Office of the Comptroller of the Currency and the Federal 
Reserve Board undertook formal enforcement actions against several 
major servicers for unsafe and unsound residential mortgage loan 
servicing practices.\15\ These enforcement actions generally focused on 
practices relating to (1) filing of foreclosure documents without, for 
example, proper affidavits or notarizations; (2) failing to always 
ensure that loan documents were properly endorsed or assigned and, if 
necessary, in the possession of the appropriate party at the 
appropriate time; (3) failing to devote sufficient financial, staffing, 
and managerial resources to ensure proper administration of 
foreclosures processes; (4) failing to devote adequate oversight, 
internal controls, policies and procedures, compliance risk management, 
internal audit, third party management, and training, to foreclosure 
processes; and (5) failing to sufficiently oversee outside counsel and 
other third-party providers handling foreclosure-related services.\16\ 
Congress has held significant detailed hearings on the issue of 
servicer ``robo-signing'' of foreclosure related documentation.\17\
---------------------------------------------------------------------------

    \15\ OCC Press Release, OCC Takes Enforcement Action Against 
Eight Servicers for Unsafe and Unsound Foreclosure Practices (April 
13, 2011), available at: http://www.occ.treas.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html, and Federal Reserve Board 
Press Release, Federal Reserve Issues Enforcement Actions Related to 
Deficient Practices in Residential Mortgage Loan Servicing (April 
13, 2011), available at: http://www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm, and accompanying documents. In 
addition to enforcement actions against major servicers, Federal 
agencies have also undertaken formal enforcement actions against 
major service providers to mortgage servicers. See id.
    \16\ See id. None of the servicers admitted or denied the OCC's 
or Federal Reserve Board's findings.
    \17\ See, e.g., Problems in Mortgage Servicing From Modification 
to Foreclosure: Hearings Before the Comm. on Banking, Housing and 
Urban Affairs, S. Hrg. 111-987, 111th Cong. 53-54 (2010) (statement 
of Diane E. Thompson, NCLC) (Thompson Testimony).
---------------------------------------------------------------------------

    Servicers have also misled, or failed to communicate with, 
borrowers, lost or mishandled borrower-provided documents supporting 
loan modification requests, and generally provided inadequate service 
to delinquent borrowers. These problems became pervasive in broad 
segments of the mortgage servicing industry and had profound impacts on 
borrowers, particularly delinquent borrowers.\18\
---------------------------------------------------------------------------

    \18\ See U.S. Government Accountability Office, Troubled Asset 
Relief Program: Further Actions Needed to Fully and Equitably 
Implement Foreclosure Mitigation Actions, at 14-16 (Jun, 2010); 
Miller Testimony at 54.
---------------------------------------------------------------------------

    The Bureau further understands from mortgage investors that there 
is a pervasive belief that servicers are making discretionary decisions 
based on the best interests of the servicer rather than to achieve 
results that will benefit owners or assignees of mortgages loans. When 
servicers hold a second lien that is behind a first lien owned by a 
different owner or assignee, one study has found a lower likelihood of 
liquidation and modification, and a higher likelihood of inaction by a 
servicer.\19\ Specifically, ``liquidation and modification of 
securitized first mortgages are 60% [to] 70% less likely respectively 
and no action is 13% more likely when the servicer of that securitized 
first mortgage holds on its portfolio the second lien attached to the 
first mortgage.'' \20\ These failures to take actions that may benefit 
both consumers and owners or assignees of first lien mortgage loans 
harm consumers.
---------------------------------------------------------------------------

    \19\ Sumit Agarwal et al., Second Liens and the Holdup Problem 
in First Mortgage Renegotiation (Dec, 2011), available at http://ssrn.com/abstract=2022501.
    \20\ Id.
---------------------------------------------------------------------------

    The mortgage servicing industry, however, is not monolithic. Some 
servicers provide high levels of customer service. Some of these 
servicers may be compensated by investors in a way that incentivizes 
them to provide high levels of customer service in order to optimize 
investor outcomes. Other servicers provide high levels of customer 
service because they rely on providing other products and services to 
consumers and thus have an interest in preserving their reputations and 
relationships with their consumers. For example, as discussed further 
below, small servicers that the Bureau consulted as part of a process 
required under SBREFA described their businesses as requiring a ``high 
touch'' model of customer service both to ensure loan performance and 
maintain a strong reputation in their local communities.\21\
---------------------------------------------------------------------------

    \21\ See Final Report of the Small Business Review Panel on 
CFPB's Proposals Under Consideration for Mortgage Servicing 
Rulemaking (Small Business Review Panel Report) (Jun, 11, 2012). A 
copy of the report is available at: http://www.consumerfinance.gov.
---------------------------------------------------------------------------

B. Mortgage Servicing Consumer Protection Regulation Before the Recent 
Crisis

    Prior to the adoption of the Dodd-Frank Act, the mortgage servicing 
industry was subject to limited Federal consumer financial protection 
regulation. RESPA set forth basic protections with respect to mortgage 
servicing that were implemented by the U.S. Department of Housing and 
Urban Development (HUD). These included required disclosures at 
application concerning whether the lender intended to service the 
mortgage loan and disclosures upon an actual transfer of servicing 
rights.\22\ RESPA further imposed substantive and disclosure 
requirements for escrow account management and required servicers to 
respond to ``qualified written requests''--written error resolution or 
information requests relating to a restricted definition of the 
``servicing'' of the borrower's mortgage loan.\23\
---------------------------------------------------------------------------

    \22\ See 12 U.S.C. 2605(a)-(e).
    \23\ See 12 U.S.C. 2605(e) and 2609.
---------------------------------------------------------------------------

    TILA set forth requirements on creditors that were implemented by 
servicers, including disclosures regarding interest rate adjustments on 
adjustable rate mortgage loans. Regulation Z, which implements TILA, 
was amended by the Board of Governors of the Federal Reserve System 
(the Board) to include certain limited requirements directly on 
servicers, such as requirements to timely credit payments, provide 
payoff balances and prohibit pyramiding of late fees.\24\ Servicers 
also had some obligations under other Federal laws, including, for 
example, the Servicemembers Civil Relief Act.\25\
---------------------------------------------------------------------------

    \24\ See 12 CFR 1026.36(c).
    \25\ See 50 U.S.C. App. 501 et seq.
---------------------------------------------------------------------------

    Although TILA and RESPA did not impose many requirements on 
servicers, servicers were still required to navigate overlapping 
requirements governing their servicing responsibilities. In addition to 
Federal law, servicers were required to consider the impact of State 
and even local regulation on mortgage servicing. Servicers also had to 
comply with investor requirements to the extent they serviced loans 
owned or guaranteed by various types of entities. These include (1) 
servicing guidelines required by Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac), together known as the government-sponsored enterprises (GSEs), as 
well as servicing guidelines required by the Government National 
Mortgage Association (Ginnie Mae); (2) government insured program

[[Page 57205]]

guidelines issued by the Federal Housing Administration (FHA), 
Department of Veterans Affairs (VA), and the Rural Housing Service; (3) 
contractual agreements with investors (such as pooling and servicing 
agreements and subservicing contracts); and (4) bank or institution 
policies. All those requirements remain in effect today and going 
forward.

C. The National Mortgage Settlement and Other Regulatory Actions

    In response to the unprecedented mortgage crisis and pervasive 
problems in mortgage servicing, including the systemic violation of 
State foreclosure laws by many of the largest servicers, State and 
Federal regulators have engaged in a number of individual servicing 
related enforcement and regulatory actions over the last few years and 
have begun discussions about comprehensive national standards.
    For example, 49 State attorneys general,\26\ joined by numerous 
Federal agencies including the Bureau, entered into a National Mortgage 
Settlement (National Mortgage Settlement) with the nation's five 
largest servicers in February 2012.\27\ The National Mortgage 
Settlement applies to loans held in portfolio and serviced by the five 
largest servicers. Loans owned by GSEs, private investors, or smaller 
servicers are not covered by the settlement.
---------------------------------------------------------------------------

    \26\ Oklahoma elected not to join the settlement.
    \27\ The National Mortgage Settlement is available at: http://www.nationalmortgagesettlement.com/. The five servicers subject to 
the settlement are Bank of America, JP Morgan Chase, Wells Fargo, 
CitiMortgage, and Ally/GMAC.
---------------------------------------------------------------------------

    Exhibit A to each of the settlements is a Settlement Term Sheet, 
which sets forth standards that each of the five largest servicers must 
follow to comply with the terms of the settlement.\28\ The settlement 
standards contained in the Settlement Term Sheet are sub-divided into 
the following eight categories: (1) Foreclosure and bankruptcy 
information and documentation; (2) third-party provider oversight; (3) 
bankruptcy; (4) loss mitigation; (5) protections for military 
personnel; (6) restrictions on servicing fees; (7) force-placed 
insurance; and (8) general servicer duties and prohibitions.
---------------------------------------------------------------------------

    \28\ See http://www.nationalmortgagesettlement.com/.
---------------------------------------------------------------------------

    In addition to the settlement, other Federal regulatory agencies 
have issued guidance on mortgage servicing and loan modifications,\29\ 
conducted coordinated reviews of the nation's largest servicers,\30\ 
and taken enforcement actions against individual companies.\31\ The 
Bureau and other Federal agencies have also engaged since spring 2011 
in informal discussions about the potential development of national 
mortgage servicing standards through regulations and guidance.
---------------------------------------------------------------------------

    \29\ Office of the Comptroller of the Currency, Bulletin 2011-29 
(Jun. 30, 2011), available at: http://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-29.html; Letter from Edward J. DeMarco, 
Acting Director of FHFA, to Hon. Elijah E. Cummings, Ranking Member, 
Committee on Oversight and Government Reform, U.S. House of 
Representatives (Jan. 20, 2012), available at: http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf; Guidance, Home 
Affordable Modification Program, available at: https://www.hmpadmin.com/portal/programs/guidance.jsp. FHFA, Frequently 
Asked Questions--Servicing Alignment Initiative, available at: 
http://www.fhfa.gov/webfiles/21191/FAQs42811Final.pdf.
    \30\ See Interagency Foreclosure Report, a joint review of 
foreclosure processing of 14 federally regulated mortgage servicers 
during the fourth quarter of 2010 by the Federal Reserve System, 
Office of the Comptroller of the Currency, and Office of Thrift 
Supervision.
    \31\ See Interagency Foreclosure Report at 5; Federal Reserve 
Board, Press Release (May 24, 2012), available at: http://www.federalreserve.gov/newsevents/press/enforcement/20120524a.htm; 
Federal Reserve Board, Press Release (Feb. 27, 2012), available at: 
http://www.federalreserve.gov/newsevents/press/enforcement/20120227a.htm; Office of the Comptroller of the Currency, News 
Release 2011-47 (Apr. 13, 2011), available at: http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html.
---------------------------------------------------------------------------

    The Bureau's proposed rules under Regulation Z and X represent 
another important step towards establishing uniform minimum national 
standards. When adopted in final form, the Bureau's rules will apply to 
all mortgage servicers, whether depository institutions or non-
depository institutions, and to all segments of the mortgage market, 
regardless of the ownership of the loan. The proposals focus both on 
implementing the specific mortgage servicing requirements of the Dodd-
Frank Act and on addressing broader systemic problems that the Bureau 
believes are critical to ensure that the mortgage servicing market 
functions to serve consumer needs. To that end, the proposed TILA and 
RESPA mortgage servicing rules incorporate elements from four 
categories of the National Mortgage Settlement--(1) foreclosure and 
bankruptcy information and documentation, (4) loss mitigation, (6) 
restrictions on servicing fees, and (7) force-placed insurance. In 
addition, the proposed requirement to maintain reasonable information 
management policies and procedures addresses oversight of service 
providers, which impacts category (2) of the settlement.
    The Bureau continues to consider whether to incorporate other 
settlement standards into rules or guidance, either alone or in 
conjunction with other Federal regulatory agencies; certain requests 
for comment in this proposal reflect these considerations. The Bureau 
is also continuing ongoing discussions with other regulators to ensure 
appropriate coordination of rulemaking and other initiatives relating 
to mortgage servicing issues.

D. The Statutory Requirements and Additional Proposals

    The Dodd-Frank Act mandates several protections for homeowners in 
the servicing of their loans. The Act requires new disclosures, 
specifically periodic statements (unless coupon books are provided in 
certain circumstances), notices prior to the reset of adjustable-rate 
mortgages, and force-placed insurance notices. These disclosures are 
designed to provide consumers with comprehensive and comprehensible 
information when they need it and in a form they can use, so they can 
better manage their obligations and avoid unnecessary problems.
    The Dodd-Frank Act also imposes new requirements on servicers to 
respond in a timely way to borrowers who assert that their servicer 
made an error. The statue also requires servicers to respond in a 
timely way to borrower requests for information.
    The Dodd-Frank Act contains requirements relating to the prompt 
crediting of payments, so that consumers are not wrongly penalized with 
late fees or other fees because servicers did not credit their payments 
quickly. The statute also requires servicers to provide timely 
responses to consumer requests for payoff amounts, so consumers can get 
this information when they need it, such as when refinancing.
    The Bureau is proposing additional standards to improve the way 
servicers treat all borrowers, including delinquent borrowers. Some 
servicers have made it very difficult for delinquent borrowers to 
explore and take advantage of potential alternatives to foreclosure. 
For example, servicers have frequently neglected to reach out or 
respond to such borrowers to discuss alternatives to foreclosure, lost 
or misplaced the documents of borrowers who have sought modifications 
or other relief, failed to keep track of borrower communications, and 
forced borrowers who have invested substantial time communicating with 
an employee of the servicer to repeat the process with a different 
employee.\32\
---------------------------------------------------------------------------

    \32\  See, e.g., Larry Cordell et al., The Incentives of 
Mortgage Servicers: Myths and Realities, at 9 (Federal Reserve 
Board, Working Paper No. 2008-46, Sept. 2008).
---------------------------------------------------------------------------

    To address these concerns, the Bureau is proposing new servicing 
standards in

[[Page 57206]]

four areas. First, servicers would have to establish and maintain 
information management policies and procedures that would have to be 
reasonably designed to achieve certain objectives and address certain 
obligations, including accessing and providing accurate information, 
evaluating borrowers for loss mitigation options, facilitating 
oversight of, and compliance by, service providers, and facilitating 
servicing transfers. Second, servicers would have to intervene early 
with delinquent borrowers to provide them with information about, and 
encourage them to explore, available alternatives to foreclosure. 
Third, servicers would have to provide delinquent borrowers with a 
point of contact on the servicer's staff that provides continuity in 
the borrowers' dealings with the servicer. At such point of contact, 
staff must have access to complete records about that borrower, 
including records of prior communications with the borrower, and be 
able to assist the borrower in pursuing loss mitigation options.
    Fourth, servicers that offer loss mitigation options in the 
ordinary course of business would be required to follow certain 
procedures to ensure that borrowers' completed loss mitigation 
applications are evaluated in a timely manner, that borrowers are 
notified of the results, and that borrowers have a right to appeal the 
denial of a loan modification option. Servicers would also be required 
to provide borrowers who submit incomplete loss mitigation applications 
with timely notice about the additional documents or information needed 
to make a loss mitigation application complete.
    The Bureau recognizes that a one-size-fits-all approach may not be 
optimal with regard to either the mandated or additional requirements. 
As discussed below, the Bureau seeks comment on to what extent it may 
be appropriate to adjust these standards for small servicers.

III. Summary of Statute and Rulemaking Process

A. Overview of the Statute

    The Dodd-Frank Act imposes certain new requirements related to 
mortgage servicing. Some of these new requirements are amendments to 
RESPA addressed in this proposal and others are amendments to TILA.
    RESPA amendments. Section 1463 of the Dodd-Frank Act imposes a 
number of new servicing related requirements under RESPA that broadly 
relate to force-placed insurance and error resolution/responses to 
requests for information. First, the statute prohibits a servicer from 
obtaining force-placed hazard insurance, unless there is a reasonable 
basis to believe the borrower has failed to comply with the loan 
contract's requirement to maintain property insurance. A servicer may 
not impose any charge on any borrower for force-placed insurance with 
respect to any property secured by a federally related mortgage, unless 
the servicer sends, by first-class mail, two written notices to the 
borrower, at least 30 days apart. The notices must remind borrowers of 
their obligation to maintain hazard insurance on the property, alert 
borrowers to the servicer's lack of evidence of insurance coverage, 
tell borrowers what they must do to demonstrate that they have 
coverage, and state that the servicer may obtain coverage at the 
borrower's expense if the borrower fails to provide evidence of 
coverage. Servicers must terminate force-placed insurance coverage and 
refund to borrowers any premiums charged during any period when the 
borrower had private insurance coverage. The statute also provides that 
all charges imposed on the borrower related to force-placed insurance, 
apart from charges subject to State regulation as the business of 
insurance, must be bona fide and reasonable.
    Second, the statute prohibits certain acts and practices by 
servicers of federally related mortgages with regard to resolving 
errors and responding to requests for information. Specifically, the 
statute prohibits servicers of federally related mortgages from 
charging fees for responding to valid qualified written requests. The 
statute also provides that a servicer of a federally related mortgage 
must not fail to take timely action to respond to a borrower's requests 
to correct errors relating to: Allocation of payments, final balances 
for purposes of paying off the loan, avoiding foreclosure, or other 
standard servicer duties.
    Finally, the statue requires a servicer of a federally related 
mortgage to respond within ten business days to a request from a 
borrower to provide the identity, address, and other relevant contact 
information about the owner or assignee of the loan. The statue also 
reduces the amount of time that servicers of federally related 
mortgages have to correct errors and respond to inquiries generally, as 
well as refund escrow accounts upon payoff.\33\
---------------------------------------------------------------------------

    \33\ Other changes in section 1463 of the Dodd-Frank Act relate 
to increases in penalties for violations. These provisions are not 
addressed in this rulemaking.
---------------------------------------------------------------------------

    In addition, the statute provides that a servicer of a federally 
related mortgage must ``comply with any other obligation found by the 
Consumer Financial Protection Bureau, by regulation, to be appropriate 
to carry out the consumer protection purposes of this Act.'' \34\ This 
provision gives the Bureau broad authority to adopt additional 
regulations to govern the conduct of servicers of federally related 
mortgage loans. In light of the systemic problems in the mortgage 
servicing industry, the Bureau is proposing to exercise this authority 
to require servicers of federally related mortgages to: Establish 
reasonable information management policies and procedures; undertake 
early intervention with delinquent borrowers; provide delinquent 
borrowers with continuity of contact with staff equipped to assist 
them; and require servicers that offer loss mitigation options in the 
ordinary course of business to follow certain procedures when 
evaluating loss mitigation applications.
---------------------------------------------------------------------------

    \34\ 12 U.S.C. 2605(k)(1)(E).
---------------------------------------------------------------------------

    TILA amendments. There are three new mortgage servicing 
requirements under TILA. First, for closed-end credit transactions 
secured by a consumer's principal residence, section 1418 of the Dodd-
Frank Act adds a new section 128A to TILA. TILA section 128A states 
that, for hybrid ARMs with a fixed interest rate for an introductory 
period that adjusts or resets to a variable interest rate at the end of 
such period, a notice must be provided six months prior to the initial 
adjustment of the interest rate for closed-end credit transactions 
secured by a consumer's principal residence. Section 1418 of the Dodd-
Frank Act permits the Bureau to extend this requirement to ARMs that 
are not hybrid ARMs.
    Second, section 1420 of the Dodd-Frank Act, which adds section 
128(f) to TILA, requires the creditor, assignee, or servicer of any 
residential mortgage loan to transmit to the borrower, for each billing 
cycle, a periodic statement that sets forth certain specified 
information in a conspicuous and prominent manner. The statute also 
gives the Bureau the authority to require additional content to be 
included in the periodic statement. The statute provides an exception 
to the periodic statement requirement for fixed-rate loans where the 
borrower is given a coupon book containing substantially the same 
information as the statement.
    Third, section 1464 of the Dodd-Frank Act adds sections 129F and 
129G to TILA, which generally codify existing Regulation Z requirements 
for the prompt crediting of mortgage payments received by servicers in 
connection with

[[Page 57207]]

consumer credit transactions secured by a consumer's dwelling. The 
statute also requires a creditor or servicer to send accurate and 
timely responses to borrower requests for payoff amounts for home 
loans.
    The statutory provisions with enumerated mortgage servicing 
requirements become effective on January 21, 2013, unless final rules 
are issued on or before that date.

B. Outreach and Consumer Testing

    The Bureau has conducted extensive outreach in developing the 
mortgage servicing proposals. Bureau staff met with mortgage servicers, 
force-placed insurance carriers, industry trade associations, consumer 
advocates, other Federal regulatory agencies, and other interested 
parties to discuss various aspects of the statute and the servicing 
industry.
    In preparing this proposed rule, the Bureau solicited input from 
small servicers through a Small Business Review Panel (Small Business 
Review Panel) with the Chief Counsel for Advocacy of the Small Business 
Administration (SBA) and the Administrator of the Office of Information 
and Regulatory Affairs within the Office of Management and Budget 
(OMB).\35\ The Small Business Review Panel's findings and 
recommendations are contained in the Final Report of the Small Business 
Review Panel on CFPB's Proposals Under Consideration for Mortgage 
Servicing Rulemaking (Small Business Review Panel Report).\36\
---------------------------------------------------------------------------

    \35\ The Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) requires the Bureau to convene a Small Business Review 
Panel before proposing a rule that may have a significant economic 
impact on a substantial number of small entities. See Public Law 
104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Public 
Law 110-28, sec. 8302 (2007)).
    \36\ See Small Business Review Panel Report (Jun. 11, 2012). A 
copy of the report is available at: http://www.consumerfinance.gov.
---------------------------------------------------------------------------

    The Bureau also engaged in other meetings and roundtables with a 
variety of other stakeholders to gather factual information about the 
servicing industry and to discuss various elements of the Bureau's 
proposals as they were being developed. As discussed above and in 
connection with section 1022 of the Dodd-Frank Act below, the Bureau 
has also consulted with relevant Federal regulators both regarding the 
Bureau's specific proposals and the need for and potential contents of 
national mortgage servicing standards in general. As it considers 
public comment and works to develop final rules on mortgage servicing, 
the Bureau will continue to seek input from all interested parties.
    In addition, the Bureau engaged ICF Macro (Macro), a research and 
consulting firm that specializes in designing disclosures and consumer 
testing, to conduct one-on-one cognitive interviews regarding 
disclosures connected with mortgage servicing. During the first quarter 
of 2012, the Bureau and Macro worked closely to develop and test 
disclosures that would satisfy the requirements of the Dodd-Frank Act 
and provide information to consumers in a manner that would be 
understandable and useful. These disclosures related to the ARM 
notices, the force-placed insurance notices, and the periodic 
statements. Macro conducted three rounds of one-on-one cognitive 
interviews with a total of 31 participants in the Baltimore, Maryland 
metro area (Towson, Maryland), Memphis, Tennessee, and Los Angeles, 
California. Participants were all consumers who held a mortgage loan 
and represented a range of ages and education levels. Efforts were made 
to recruit a significant number of participants who had trouble making 
mortgage payments in the last two years. During the interviews, 
participants were shown disclosure forms for periodic statements, ARM 
interest rate adjustment notices for the new disclosures required by 
Dodd-Frank Act section 1418, and force-placed insurance notices. 
Participants were asked specific questions to test their understanding 
of the information presented in each of the disclosures, how easily 
they could find various pieces of information presented in each of the 
disclosures, as well as to learn about how they would use the 
information presented in each of the disclosures. The disclosures were 
revised after each round of testing. Specific findings from the 
consumer testing are discussed in detail throughout the SUPPLEMENTARY 
INFORMATION where relevant.\37\
---------------------------------------------------------------------------

    \37\ A copy of the Macro report on consumer testing is available 
at: http://www.consumerfinance.gov/notice-and-comment/.
---------------------------------------------------------------------------

C. Other Dodd-Frank Act Mortgage-Related Rulemakings

    Including this proposal, the Bureau currently is engaged in seven 
rulemakings relating to mortgage credit to implement requirements of 
the Dodd-Frank Act:
     TILA-RESPA Integration: On July 9, 2012, the Bureau 
released proposed rules and forms combining the TILA mortgage loan 
disclosures with the Good Faith Estimate (GFE) and settlement statement 
required under RESPA, pursuant to Dodd-Frank Act section 1032(f) as 
well as sections 4(a) of RESPA and 105(b) of TILA, as amended by Dodd-
Frank Act sections 1098 and 1100A, respectively. 12 U.S.C. 2603(a); 15 
U.S.C. 1604(b) (the 2012 TILA-RESPA Proposal).\38\
---------------------------------------------------------------------------

    \38\ Available at: http://www.consumerfinance.gov/notice-and-comment/.
---------------------------------------------------------------------------

     HOEPA: On July 9, 2012, the Bureau released proposed rules 
to implement Dodd-Frank Act requirements expanding protections for 
``high-cost'' mortgage loans under HOEPA, pursuant to TILA sections 
103(bb) and 129, as amended by Dodd-Frank Act sections 1431 through 
1433. 15 U.S.C. 1602(bb) and 1639.\39\ Such loans have requirements on 
servicers of ``high-cost'' mortgage loans related to payoff statements, 
late fees, prepayment penalties, and fees for loan modifications or 
deferrals.
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

     Loan Originator Compensation: The Bureau is in the process 
of developing a proposal to implement provisions of the Dodd-Frank Act 
requiring certain creditors and mortgage loan originators to meet duty 
of care qualifications and prohibiting mortgage loan originators, 
creditors, and the affiliates of both from receiving compensation in 
various forms (including based on the terms of the transaction) and 
from sources other than the consumer, with specified exceptions, 
pursuant to TILA section 129B as established by Dodd-Frank Act sections 
1402 through 1405. 15 U.S.C. 1639b.
     Appraisals: The Bureau, jointly with Federal prudential 
regulators and other Federal agencies, is in the process of developing 
a proposal to implement Dodd-Frank Act requirements concerning 
appraisals for higher-risk mortgages, appraisal management companies, 
and automated valuation models, pursuant to TILA section 129H as 
established by Dodd-Frank Act section 1471, 15 U.S.C. 1639h, and 
sections 1124 and 1125 of the Financial Institutions Reform, Recovery, 
and Enforcement Act of 1989 (FIRREA) as established by Dodd-Frank Act 
sections 1473(f), 12 U.S.C. 3353, and 1473(q), 12 U.S.C. 3354, 
respectively. In addition, the Bureau is developing rules to implement 
section 701(e) of the Equal Credit Opportunity Act (ECOA), as amended 
by Dodd-Frank Act section 1474, to require that creditors provide 
applicants with a free copy of written appraisals and valuations 
developed in connection with applications for loans secured by a first 
lien on a dwelling (collectively, Appraisals Rulemaking). 15 U.S.C. 
1691(e).

[[Page 57208]]

     Ability to Repay: The Bureau is in the process of 
finalizing a proposal issued by the Board to implement provisions of 
the Dodd-Frank Act requiring creditors to determine that a consumer can 
repay a mortgage loan and establishing standards for compliance, such 
as by making a ``qualified mortgage,'' pursuant to TILA section 129C as 
established by Dodd-Frank Act sections 1411 and 1412 (ATR Rulemaking). 
15 U.S.C. 1639c.
     Escrows: The Bureau is in the process of finalizing a 
proposal issued by the Board to implement provisions of the Dodd-Frank 
Act requiring certain escrow account disclosures and exempting from the 
higher-priced mortgage loan escrow requirement loans made by certain 
small creditors, among other provisions, pursuant to TILA section 129D 
as established by Dodd-Frank Act sections 1461 and 1462 (Escrows 
Rulemaking). 15 U.S.C. 1639d.
    With the exception of the requirements being implemented in the 
2012 TILA-RESPA Proposal, the Dodd-Frank Act requirements referenced 
above generally will take effect on January 21, 2013, unless final 
rules implementing those requirements are issued on or before that date 
and provide for a different effective date. To provide an orderly, 
coordinated, and efficient comment process, the Bureau is generally 
setting the deadlines for comments on this and other proposed mortgage 
rules based on the date the proposal is issued, instead of the date 
this notice is published in the Federal Register. Therefore, the Bureau 
is providing 60 days for comment on those proposals, which will ensure 
that the Bureau receives comments with sufficient time remaining to 
issue final rules by January 21, 2013. Because the precise date this 
notice will be published cannot be predicted in advance, setting the 
deadlines based on the date of issuance will allow interested parties 
that intend to comment on multiple proposals to plan accordingly.
    The Bureau regards the foregoing rulemakings as components of a 
larger undertaking; many of them intersect with one or more of the 
others. Accordingly, the Bureau is coordinating carefully the 
development of the proposals and final rules identified above. Each 
rulemaking will adopt new regulatory provisions to implement the 
various Dodd-Frank Act mandates described above. In addition, each of 
them may include other provisions the Bureau considers necessary or 
appropriate to ensure that the overall undertaking is accomplished 
efficiently and that it ultimately yields a regulatory scheme for 
mortgage credit that achieves the statutory purposes set forth by 
Congress, while avoiding unnecessary burdens on industry.
    Thus, many of the rulemakings listed above involve issues that 
extend across two or more rulemakings. In this context, each rulemaking 
may raise concerns that might appear unaddressed if that rulemaking 
were viewed in isolation. For efficiency's sake, however, the Bureau is 
publishing and soliciting comment on a proposed approach to certain 
issues raised by two or more of its mortgage rulemakings in whichever 
rulemaking is most appropriate, in the Bureau's judgment, for 
addressing each specific issue. Accordingly, the Bureau urges the 
public to review this and the other mortgage proposals identified 
above, including those previously published by the Board, together. 
Such a review will ensure a more complete understanding of the Bureau's 
overall approach and will foster more comprehensive and informed public 
comment on the Bureau's several proposals, including provisions that 
may have some relation to more than one rulemaking but are being 
proposed for comment in only one of them.

D. Small Servicers

    The small entity representatives (SERs) who provided feedback to 
the SBREFA panel generally emphasized that their business models 
required a ``high touch'' approach to customer service and that they 
did not engage in many of the practices that contributed to the 
mortgage market process. The SERs indicated that they take a proactive 
approach to providing consumer information, resolving errors and 
working with delinquent borrowers to find alternatives to foreclosure. 
Nevertheless, they indicated that some elements of the proposals under 
consideration were not consistent with their current business practices 
and expressed concern about the need to begin providing extensive 
documentation to prove compliance with the proposed standards. The SERs 
urged the Bureau to adopt standards that would allow small servicers to 
stay in the market and provide choices to consumers.\40\ The SERs were 
particularly concerned about the costs and burdens of complying with 
the periodic statement requirements, as well as certain aspects of the 
process for resolving errors and responding to inquiries.\41\
---------------------------------------------------------------------------

    \40\ Small Business Review Panel Report at 16, 21.
    \41\ Id. at 16-19, 21, and 23-24.
---------------------------------------------------------------------------

    Informed by this process, the Bureau is proposing in the 2012 TILA 
Servicing Proposal to exempt certain small servicers from the periodic 
statement requirement. The Bureau is also proposing that certain 
requirements, such as the requirement to maintain reasonable 
information management policies and procedures under Regulation X, 
should be applied in light of the scale of the servicer's operations as 
well as other contextual factors. The Bureau does not believe that 
these provisions, described more fully in the section-by-section 
analysis of the applicable proposal, would impair consumer protection. 
The Bureau is also seeking comment more broadly on whether other 
exemptions or adjustments for small servicers would be warranted to 
reduce regulatory burden while appropriately balancing consumer 
protections.

E. Request for Comment on Effective Date

    The Bureau specifically requests comment on the appropriate 
effective date for each of the servicing-related rules contained in 
this proposal and the 2012 TILA Servicing Proposed Rule. As discussed 
above, the Dodd-Frank Act servicing requirements take effect 
automatically on January 21, 2013, unless final rules are issued on or 
before that date.\42\ Where rules are required to be issued, the Dodd-
Frank Act permits the Bureau to provide up to 12 months for 
implementation. For all other rules, the implementation period is left 
to the discretion of the Bureau.
---------------------------------------------------------------------------

    \42\ Public Law 111-203, 124 Stat. 1376, section 1400(c) (2010).
---------------------------------------------------------------------------

    Given the significant consumer benefits offered by the proposals 
and the challenges faced by delinquent borrowers in dealing with their 
servicers, the Bureau generally believes that the final rules should be 
made effective as soon as possible. However, the Bureau understands 
that various elements of the final rules would require servicers to 
adopt or revise existing software to generate compliant disclosures, 
retrain staff, assess and revise policies and procedures, and/or take 
other implementation measures. The Bureau therefore seeks detailed 
comment on the nature and length of implementation process for each 
individual servicing rule and in light of interactions between the 
rules. The Bureau is particularly interested in analyzing the impacts 
on both consumers and servicers of a staggered implementation sequence 
as compared to imposing a single date by which all rules must be 
implemented.
    The Bureau also notes that some companies may also need to 
implement

[[Page 57209]]

other new requirements under other parts of the Dodd-Frank Act, as 
described above. The Bureau believes based on conversations and 
analysis to date that there is more overlap and interaction among the 
various proposals relating to mortgage origination than there is 
between the servicing proposals and the origination proposals. However, 
the Bureau seeks comment specifically on this issue and on whether the 
general cumulative burden on entities that are subject to both sets of 
rules will complicate implementation.
    Finally, the Bureau seeks comment on any particular implementation 
challenges faced by small servicers, and on whether an extended 
implementation period would be appropriate or useful. For instance, to 
the extent that small servicers rely heavily on outside software 
vendors, the Bureau seeks comment on whether a delayed effective date 
would provide significant relief if the vendors will have to develop 
software solutions for larger servicers on a shorter timeline anyway. 
The Bureau also seeks comment on the impacts of delayed implementation 
on consumers and on other market participants.

IV. Summary of Proposed Rule

    The proposal contains a number of significant revisions to 
Regulation X. As a preliminary matter, the Bureau proposes to 
reorganize Regulation X to include three distinct subparts. Subpart A 
(General) would include general provisions of Regulation X, including 
provisions that apply to both subpart B and subpart C. Subpart B 
(Mortgage settlement and escrow accounts) would include provisions 
relating to settlement services and escrow accounts, including 
disclosures provided to borrowers relating to settlement services. 
Subpart C (Mortgage servicing) would include provisions relating to 
obligations of mortgage servicers. The Bureau also proposes to set 
forth a commentary that includes official Bureau interpretations of 
Regulation X.
    With respect to mortgage servicing-related provisions, the proposed 
rule would amend existing provisions currently published in 12 CFR 
1024.21, which relate to disclosures of mortgage servicing transfers 
and servicer obligations to borrowers. The Bureau is proposing to 
include these provisions within the proposed subpart C as proposed 
Sec. Sec.  1024.33-1024.34. The Bureau also proposes to move certain 
clarifications in these provisions that were previously published in 12 
CFR 1024.21 to the commentary to conform the organization of these 
provisions with the proposed additions to Regulation X.
    The proposed rule would establish procedures for investigating and 
resolving alleged errors and responding to requests for information. 
The requirements would be set forth in proposed Sec. Sec.  1024.35-
1024.36. As proposed, these sections would require servicers to respond 
to errors and information requests from borrowers, which would include 
qualified written requests. The Bureau's goal is to conform and 
consolidate the pre-existing procedures applicable to qualified written 
requests with the new requirements imposed by the Dodd-Frank Act to 
respond to errors and information requests under section 6(k)(1)(C) and 
6(k)(1)(D) of RESPA. The Bureau proposes to create a unified 
requirement for servicers to respond to errors and information requests 
provided by borrowers, without regard to whether the request 
constitutes a qualified written request.\43\ To that end, the proposed 
rule would implement the Dodd-Frank Act amendments to RESPA section 
6(e) by adjusting the timeframes applicable to respond to qualified 
written requests, as well as errors and information requests generally, 
to conform to the new requirements.
---------------------------------------------------------------------------

    \43\ RESPA sets forth a ``qualified written request'' mechanism 
through which a borrower can assert an error to a servicer or 
request information from a servicer. Section 6(k)(1)(C) and 
6(k)(1)(D) of RESPA set forth separate obligations for servicers to 
correct certain types of errors or to provide information regarding 
an owner or assignee of a mortgage loan without reference to the 
``qualified written request'' process. The Bureau's proposal would 
integrate all error resolution and information request processes, 
including requirements applicable to ``qualified written requests.'' 
Although a borrower would still be able to submit a ``qualified 
written request,'' under the proposed rule, a ``qualified written 
request'' would be subject to the same error resolution or 
information request requirements applicable to any other type 
written error notice or information request to a servicer and a 
servicer's liability for failure to respond to a qualified written 
request would be the same as for any other written error or 
information request notice.
---------------------------------------------------------------------------

    The proposed rule would implement limitations on servicers 
obtaining force-placed insurance in Sec.  1024.37. The proposed rule 
would require servicers to provide notices to borrowers at certain 
timeframes before a servicer could impose a charge on a borrower. See 
proposed Sec.  1024.37. Further, the proposed rule would require that 
charges related to force-placed insurance, other than charges subject 
to State regulation as the business of insurance or authorized by 
Federal flood laws must be bona fide and reasonable. Finally, and as 
set forth in more detail below, the proposed rule would also reduce the 
instances in which force-placed insurance would be needed by amending 
current Sec.  1024.17 to require that where a borrower has escrowed for 
hazard insurance, servicers must generally advance funds to maintain 
the borrowers' own hazard insurance policies even if the loan is 
delinquent.
    The proposed rule would also implement the Dodd-Frank Act amendment 
to RESPA section 6(g) in proposed Sec.  1024.34(b) by proposing 
requirements on servicers for the refund or transfer of funds in an 
escrow account when a mortgage loan is paid in full.
    The proposed rule would also impose obligations on servicers in 
four additional areas not specifically required by the Dodd-Frank Act: 
Reasonable information management policies and procedures, early 
intervention for delinquent borrowers, continuity of contact, and loss 
mitigation procedures. See proposed Sec. Sec.  1024.38-1024.41. The 
Bureau is proposing rules in these areas to address significant 
problems in the mortgage servicing industry and the difficulties that 
borrowers, particularly delinquent borrowers, have encountered when 
dealing with servicers. The early intervention for delinquent borrower 
provisions would require servicers to contact borrowers at an early 
stage of delinquency and provide information to borrowers about 
available loss mitigation options and the foreclosure process. The 
continuity of contact provisions would require servicers to make 
available to borrowers direct phone access to personnel who could 
assist borrowers in pursuing loss mitigation options. The reasonable 
information management policies and procedures would require servicers 
to implement policies and procedures to manage documents and 
information to achieve defined objectives that ensure borrowers are not 
harmed by servicers' information management operations. These 
objectives include providing accurate information to borrowers, 
correcting errors on borrower accounts, providing oversight of service 
providers, protecting borrowers from lost information during servicing 
transfers, and ensuring that servicers have access to all information 
necessary to evaluate loss mitigation options, as appropriate. The 
information management policies and procedures would also have to 
include standard requirements. Policies and procedures would satisfy 
the requirements if they do not result in a pattern or practice of 
failing to comply with the standard requirements or achieving the 
objectives. The loss mitigation procedures would require servicers that 
offer loss mitigation

[[Page 57210]]

options to borrowers to evaluate complete and timely applications for 
loss mitigation options. Servicers would be required to permit 
borrowers to appeal denials of loss mitigation applications for loan 
modification programs. A servicer that receives a complete application 
for a loss mitigation option may not proceed with a foreclosure sale 
unless (i) the servicer has denied the borrower's application and the 
time for any appeal has expired; (ii) the servicer has offered a loss 
mitigation option which the borrower has declined or failed to accept 
within 14 days of the offer; or (iii) the borrower fails to comply with 
the terms of a loss mitigation agreement.
    The proposed new protections would significantly improve the 
transparency of mortgage servicing operations, provide substantive 
protections, enhance borrowers' ability to obtain information from and 
assert errors to servicers, and provide borrowers, particularly 
delinquent borrowers, with information and options necessary to 
undertake informed actions with respect to mortgage loan obligations.

V. Legal Authority

    Section 1463 of the Dodd-Frank Act creates statutory mandates under 
new sections 6(k), 6(l) and 6(m) of RESPA. Section 1463 of the Dodd-
Frank Act also amends certain consumer protection provisions set forth 
in sections 6(e), 6(f) and 6(g) of RESPA.
    Regarding the statutory mandates, section 6(k) of RESPA contains 
prohibitions on servicers for servicing of federally related mortgage 
loans. Pursuant to section 6(k) of RESPA, servicers are prohibited 
from: (i) Obtaining force-placed insurance unless there is a reasonable 
basis to believe the borrower has failed to comply with the loan 
contract's requirements to maintain property insurance; (ii) charging 
fees for responding to valid qualified written requests; (iii) failing 
to take timely action to respond to correct certain types of errors; 
(iv) failing to respond within ten business days to a request from a 
borrower to provide certain information about the owner or assignee of 
a mortgage loan; or (v) failing to comply with any other obligation 
found by the Bureau to be appropriate to carry out the consumer 
protection purposes of RESPA. See RESPA section 6(k).
    Section 6(l) of RESPA sets forth specific requirements for 
determining if a servicer has a reasonable basis to obtain force-placed 
insurance coverage. Section 6(l) of RESPA requires servicers to provide 
written notices to a borrower before a charge for a force-placed 
insurance policy may be imposed on the borrower. Section 6(l) of RESPA 
also requires a servicer to accept any reasonable form of written 
confirmation from a borrower of existing insurance coverage. Section 
6(l) of RESPA further requires a servicer, within 15 days of the 
receipt of such confirmation, to terminate force-placed insurance and 
refund any premiums and fees paid during the period of overlapping 
coverage. See RESPA section 6(l).
    Section 6(m) of RESPA requires that charges related to force-placed 
insurance, other than charges subject to State regulation as the 
business of insurance, must be bona fide and reasonable. See RESPA 
section 6(m).
    The Dodd-Frank Act also amends sections 6(e), 6(f), and 6(g) of 
RESPA. Section 6(e) is amended by decreasing the response times 
currently applicable to a servicer's obligation to respond to a 
qualified written request. Section 6(f) is amended to increase the 
penalty amounts servicers may incur for violations of section 6 of 
RESPA. Further, section 6(g) is amended to protect borrowers by 
obligating servicers to refund escrow balances to borrowers when a 
mortgage loan is paid in full or to transfer the escrow balance in 
certain refinancing related situations.
    In addition to the statutory mandates and amendments, RESPA section 
6(k) authorizes the Bureau to prescribe regulations that are 
appropriate to carry out the consumer protection purposes of the title. 
RESPA is a remedial consumer protection statute and imposes obligations 
upon servicers for servicing federally related mortgage loans that are 
intended to protect borrowers. RESPA has established a consumer 
protection paradigm of requiring disclosures to consumers, and 
establishing servicer obligations, all of which are intended to protect 
consumers regarding servicer actions. The disclosures include, for 
example, disclosures regarding escrow account balances and 
disbursements, transfers of mortgage servicing among mortgage 
servicers, and force-placed insurance. Obligations limiting servicer 
actions include obligations for servicers to respond to qualified 
written requests from borrowers and obligations with respect to escrow 
account payments. Servicers incur liability for failure to comply with 
such requirements.
    Considered as a whole, RESPA, as amended by the Dodd-Frank Act, 
reflects at least two significant consumer protection purposes: (1) To 
establish requirements that ensure that servicers have a reasonable 
basis for undertaking actions that may harm borrowers and (2) to 
establish servicers' duties to borrowers with respect to the servicing 
of federally related mortgage loans. Each of the provisions proposed in 
this rulemaking address these purposes. RESPA section 19(a) authorizes 
the Bureau to prescribe such rules and regulations, to make such 
interpretations, and to grant such reasonable exemptions for classes of 
transactions, as may be necessary to achieve the purposes of RESPA, 
which includes the consumer protection purposes laid out above. In 
addition, RESPA section 6(j)(3) authorizes the Bureau to establish any 
requirements necessary to carry out the purposes of section 6 of RESPA.
    The Bureau uses the specific statutory authorities set forth above, 
as well as the broader authorities set forth in sections 6(j)(3), 6(k), 
and 19(a) of RESPA in issuing this proposal. As described in more 
detail elsewhere in the SUPPLEMENTARY INFORMATION, the provisions 
proposed in part or in whole pursuant to the Bureau's authority in 
RESPA sections 6(j)(3), 6(k) and 19(a) include: Sec. Sec.  
1024.17(k)(5), 1024.30--1024.41.\44\
---------------------------------------------------------------------------

    \44\ Throughout the SUPPLEMENTARY INFORMATION, the Bureau is 
citing its authority under RESPA sections 6(j)(3), 6(k), and 19(a) 
for purposes of simplicity. The Bureau notes, however, that with 
respect to some of the provisions referenced in the text, use of 
only one of the authorities may be sufficient.
---------------------------------------------------------------------------

    The Bureau's proposal also includes official Bureau interpretations 
in a supplement to Regulation X. RESPA section 19(a) authorizes the 
Bureau to make such reasonable interpretations of RESPA as may be 
necessary to achieve the consumer protection purposes of RESPA. Good 
faith compliance with the interpretations would afford servicers 
protection from liability under section 19(b) of RESPA. The Bureau's 
proposed practice of setting forth official Bureau interpretations in 
the supplement substitutes for the prior practice of the HUD of 
publishing Statements of Policy with respect to interpretations of 
RESPA.\45\
---------------------------------------------------------------------------

    \45\ The Bureau recognizes that the proposed supplement, which 
sets forth interpretations that relate to the proposed mortgage 
servicing rulemakings, is not inclusive of all interpretations of 
RESPA, including interpretations previously issued by the HUD. The 
Bureau does not intend that the publication of the supplement would 
withdraw or otherwise affect the status of any prior interpretations 
of RESPA not set forth in the supplement.
---------------------------------------------------------------------------

Dodd-Frank Act Section 1032(a)
    As discussed in the section-by-section analysis for proposed Sec.  
1024.37, the Bureau is proposing disclosures and model forms for force-
placed insurance notices pursuant to its authority under RESPA sections 
6(k), 6(j)(3), 19(a), as well as its authority under Dodd-Frank Act 
section 1032. Section 1032(a) of the

[[Page 57211]]

Dodd-Frank Act provides that the Bureau ``may prescribe rules to ensure 
that the features of any consumer financial product or service, both 
initially and over the term of the product or service, are fully, 
accurately, and effectively disclosed to consumers in a manner that 
permits consumers to understand the costs, benefits, and risks 
associated with the product or service, in light of the facts and 
circumstances.'' 12 U.S.C. 5532(a). The authority granted to the Bureau 
in section 1032(a) is broad, and empowers the Bureau to prescribe rules 
regarding the disclosure of the ``features'' of consumer financial 
products and services generally. Accordingly, the Bureau may prescribe 
rules containing disclosure requirements even if other Federal consumer 
financial laws do not specifically require disclosure of such features.
    Dodd-Frank Act section 1032(c) provides that, in prescribing rules 
pursuant to section 1032, the Bureau ``shall consider available 
evidence about consumer awareness, understanding of, and responses to 
disclosures or communications about the risks, costs, and benefits of 
consumer financial products or services.'' 12 U.S.C. 5532(c). In 
developing proposed rules under Dodd-Frank Act section 1032(a) for this 
proposal, the Bureau has considered available studies, reports, and 
other evidence about consumer awareness, understanding of, and 
responses to disclosures or communications about the risks, costs, and 
benefits of consumer financial products or services. The Bureau has 
considered the evidence developed through its consumer testing of the 
force-placed insurance notices.
    In addition, Dodd-Frank Act section 1032(b)(1) provides that ``any 
final rule prescribed by the Bureau under this [section 1032] requiring 
disclosures may include a model form that may be used at the option of 
the covered person for provision of the required disclosures.'' 12 
U.S.C. 5532(b)(1). Any model form issued pursuant to that authority 
shall contain a clear and conspicuous disclosure that, at a minimum, 
uses plain language that is comprehensible to consumers, using a clear 
format and design, such as readable type font, and succinctly explains 
the information that must be communicated to the consumer. Dodd-Frank 
Act 1032(b)(2); 12 U.S.C. 5532(b)(2). As discussed in the section-by-
section analysis for proposed Sec.  1024.37, the Bureau is proposing 
model forms for force-placed insurance notices. As discussed in this 
notice, the Bureau is proposing these model forms pursuant to its 
authority under Dodd-Frank Act section 1032(b)(1).

VI. Section-by-Section Analysis

Subpart A--General

    The Bureau proposes to create three distinct subparts within 
Regulation X. Subpart A titled ``General'' would include general 
provisions as well as provisions that are applicable to both subpart B 
and subpart C of Regulation X. Subpart B titled ``Mortgage settlement 
and escrow accounts'' would include provisions relating to settlement 
services and escrow accounts, including disclosures required to be 
provided to borrowers with respect to settlement service providers. 
Subpart C titled ``Mortgage servicing'' would include provisions 
relating to mortgage servicing and would include most of the provisions 
in this proposal.
    In order to organize the general provisions of Regulation X, as 
well as the provisions that would be applicable to both subpart B and 
subpart C, the Bureau proposes placing Sec. Sec.  1024.1 through 1024.5 
in subpart A.
    Current Sec.  1024.1 sets forth the designation and applicability 
of Regulation X and would be republished without change. Current Sec.  
1024.2 sets forth definitions that are applicable to transactions 
covered by this regulation, including the definition of federally 
related mortgage loan that is referenced in the proposed definition of 
the term ``mortgage loan'' in subpart C. See proposed Sec.  1024.31. 
Current Sec.  1024.2 would generally be republished without changed, 
except for a deletion from the definitions of ``Federally related 
mortgage loan'' and ``Mortgage broker'' and additions to the 
definitions of ``Public Guidance Documents'' and ``Servicer.''
    The deletion to the definition of ``Federally related mortgage 
loan'' eliminates the use of the short term ``mortgage loan'' as a 
substitute for ``Federally related mortgage loan'' in light of the 
definition of the term ``mortgage loan'' in proposed Sec.  1024.31. 
Conforming edits have also been proposed for the definitions of 
``Origination service,'' ``Servicer,'' and ``Servicing.'' Conforming 
edits have also been proposed for current Sec. Sec.  1024.7(f)(3), 
1024.17(c)(8), 1024.17(f)(2)(ii), 1024.17(f)(4)(iii), 1024.17(i)(2), 
and 1024.17(i)(4)(iii).
    The deletion to the definition of ``Mortgage broker'' removes a 
reference to loan correspondents that are approved under 24 CFR 202.8. 
HUD amended 24 CFR 202.8 on April 20, 2010 to eliminate the FHA 
approval process for loan correspondents and determined that loan 
correspondents would no longer be approved participants in FHA 
programs.\46\ The deletion of the reference to FHA approved loan 
correspondents in the definition of ``Mortgage broker'' removes the now 
obsolete reference.
---------------------------------------------------------------------------

    \46\ See 75 FR 20718.
---------------------------------------------------------------------------

    The addition to the definition of ``Public Guidance Documents'' 
provides that such documents are available from the Bureau upon request 
and provides an address that could be used to request the ``Public 
Guidance Documents.''
    The addition to the definition of ``Servicer'' is intended to 
clarify the treatment of the National Credit Union Administration 
(NCUA) as conservator or liquidating agent of a servicer or in its role 
of providing special assistance to an insured credit union. The 
definition of ``Servicer'' currently provides that the Federal Deposit 
Insurance Corporation (FDIC) is not a servicer (1) with respect to 
assets acquired, assigned, sold, or transferred pursuant to section 
13(c) of the Federal Deposit Insurance Act or as receiver or 
conservator of an insured depository institution or (2) in any case in 
which the assignment, sale, or transfer of the servicing of the 
mortgage loan is preceded by commencement of proceedings by the FDIC 
for conservatorship or receivership of a servicer (or an entity by 
which the servicer is owned or controlled). The addition to the 
definition of ``servicer'' clarifies similarly that the NCUA is not a 
servicer (1) with respect to assets acquired, assigned, sold, or 
transferred, pursuant to section 208 of the Federal Credit Union Act or 
as conservator or liquidating agent of an insured credit union or (2) 
in any case in which the assignment, sale, or transfer of the servicing 
of the mortgage loan is preceded by commencement of proceedings by the 
NCUA for appointment of a conservator or liquidating agent of a 
servicer (or an entity by which the servicer is owned or controlled). 
The definition of ``servicer'' also has been edited to clarify that it 
relates to servicers of federally related mortgage loans.
    With respect to the additions to the definition of ``Servicer,'' 
the Bureau relies on its authority in section 19(a) of RESPA to make 
such interpretations and to grant such reasonable exemptions for 
classes of transactions as may be necessary to achieve the consumer 
protection purposes of the Act. The Bureau does not believe there is a 
basis to impose on the NCUA, when it is providing assistance to an 
insured credit union or in its role as conservator or liquidating agent 
of an insured credit union, the obligations of a servicer in light of 
the fact that Congress has

[[Page 57212]]

specifically stated that the FDIC, when it is providing assistance to 
an insured depository institution or in its role as conservator or 
receiver of an insured deposition institution, should not be considered 
a servicer.
    Current Sec.  1024.3 would be removed and the substance of Sec.  
1024.23 would be moved to proposed Sec.  1024.3. Current Sec.  1024.3 
sets forth the process for the public to submit questions or 
suggestions regarding RESPA or to receive copies of Public Guidance 
Documents. Although the Bureau welcomes questions and suggestions from 
the public regarding Regulation X, the Bureau does not believe a 
provision of Regulation X must be specifically designated for that 
purpose. The public may contact the Bureau to request documents, 
suggest changes to Regulation X, or submit questions, including 
questions concerning the interpretation of RESPA by mail to the 
Associate Director, Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, 1700 G St. NW., Washington, DC 20552 or 
by email to [email protected]. Further, the Bureau has 
proposed including contact information to request copies of Public 
Guidance Documents in the definition of Public Guidance Documents in 
proposed Sec.  1024.2 as discussed above.
    Current Sec.  1024.23 states that provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act), which 
permits electronic disclosures to consumers if certain conditions are 
met, apply to Regulation X. The Bureau believes that the E-Sign Act 
provisions are applicable to all provisions in the regulation, and, 
therefore, should be moved to subpart A. The Bureau has made technical 
edits to the language of the provision to conform to the language of 
other similar Bureau regulations.
    Current Sec.  1024.4 sets forth provisions relating to reliance 
upon rules, regulations, or interpretations by the Bureau. The Bureau 
proposes to remove current Sec.  1024.4(b) and redesignate current 
Sec.  1024.4(c) as proposed Sec.  1024.4(b). Current Sec.  1024.4(b) 
provides that the Bureau may, in its discretion, provide unofficial 
staff interpretations but that such interpretations do not provide 
protection under section 19(b) of RESPA and that staff will not 
ordinarily provide such interpretations on matters adequately covered 
by Regulation X, official interpretations or commentaries. The Bureau's 
policy is to assist the public in understanding the Bureau's 
regulations, including, but not limited to, Regulation X. The Bureau 
believes that this provision, which states Bureau policy, is more 
appropriate for the commentary and, accordingly, proposes to include 
the substance of this provision in the introduction to the commentary.
    Current Sec.  1024.5 sets forth exemptions with respect to the 
applicability of Regulation X. The Bureau proposes to make a technical 
correction to current Sec.  1024.5(b)(7) to reflect that mortgage 
servicing related provisions of Regulation X will be included in the 
new subpart C and will no longer be placed in current Sec.  1024.21.
    The Bureau further proposes to remove current Sec.  1024.22. 
Current Sec.  1024.22 states that if any particular provision of 
Regulation X, or its application to any particular person or 
circumstance is held invalid, the remainder of Regulation X or the 
application of such provision to any other person or circumstance shall 
not be affected. The Bureau is proposing removing current Sec.  1024.22 
because the section is unnecessary and the inclusion of the current 
section in Regulation X is inconsistent with the drafting of other 
Bureau regulations. A court reviewing Regulation X should presume that 
provisions of Regulation X are severable in the absence of an 
indication that the Bureau intended the provisions to be non-
severable.\47\ The Bureau intends that the provisions of Regulation X 
are severable and believes that if any particular provision of 
Regulation X, or its application to any particular person or 
circumstance is held invalid, the remainder of Regulation X or the 
application of such provision to any other provision or circumstance 
should not be affected. The Bureau's proposal to remove current Sec.  
1024.22 should not be construed to indicate a contrary position.
---------------------------------------------------------------------------

    \47\ See Regan v. Time, 468 U.S. 641, 653 (1984) (stating that 
the presumption regarding the review of statutes is always in favor 
of severability); Community for Creative Non-Violence v. Turner, 893 
F.2d 1387, 1394 (D.C. Cir. 1990) (applying presumption against 
severability in Regan to administrative regulations); Stupak-Thrall 
v. United States, 89 F.3d 1269, 1289 (6th Cir. 1996) (same).
---------------------------------------------------------------------------

Subpart B--Mortgage Settlement and Escrow Accounts

    The Bureau proposes to establish the provisions of Regulation X 
relating to settlement services and escrow accounts within subpart B of 
Regulation X. These provisions include Sec. Sec.  1024.6 through 
1024.21.
Section 1024.17 Escrow Accounts
17(k) Timely Payments
    The Bureau proposes to modify Sec.  1024.17(k), which, pursuant to 
proposed Sec.  1024.34(a) discussed below, sets forth requirements a 
servicer must follow when making payments from a borrower's escrow 
account. The Bureau proposes to add a new Sec.  1024.17(k)(5) to 
Regulation X to address circumstances in which servicers are required 
to make payments from a borrower's escrow account to continue a 
borrower's hazard insurance policy. The Bureau has reviewed a number of 
issues concerning force-placed insurance in order to implement the new 
Dodd-Frank Act requirements on force-placed insurance discussed below. 
During that process, for reasons set forth below, the Bureau concluded 
that if a borrower has escrowed for hazard insurance (i.e. established 
an escrow account for the payment of hazard insurance premiums), it 
would be appropriate to require servicers to continue paying for the 
borrower's existing hazard insurance when practicable. The Bureau 
understands that it is practicable for a servicer to pay the hazard 
insurance premium of such borrower unless the borrower's hazard 
insurance has been canceled or not renewed for reasons other than 
nonpayment of premium charges. Under proposed Sec.  1024.37(a)(2)(ii) 
discussed below, the Bureau is proposing that hazard insurance obtained 
by a borrower but renewed by the borrower's servicer as required by 
Sec.  1024.17(k)(1), (k)(2), or (k)(5) is not considered to be force-
placed insurance under Sec.  1024.37.
    Current Sec.  1024.17(k)(1) and (k)(2) require servicers to make 
timely disbursements from a borrower's escrow account, and to advance 
funds if necessary, as long as the borrower's mortgage payment is not 
more than 30 days past due. Proposed Sec.  1024.17(k)(5) would amend 
the requirements of Sec.  1024.17(k)(1) and (k)(2) with respect to the 
timely payment of hazard insurance premiums. Proposed Sec.  
1024.17(k)(5) provides that notwithstanding Sec.  1024.17(k)(1) and 
(k)(2), a servicer must make payments from a borrower's escrow account 
in a timely manner to pay the premium charge on a borrower's hazard 
insurance, as defined in Sec.  1024.31, unless the servicer has a 
reasonable basis to believe that such insurance has been canceled or 
not renewed for reasons other than nonpayment of premium charges. The 
proposal would require the servicer to advance funds to pay the premium 
charge if the borrower's escrow account does not contain sufficient 
funds.
    Proposed comment 17(k)(5)-1 clarifies that the receipt by a 
servicer of a notice of cancellation or non-renewal from the borrower's 
insurance company before the insurance premium is due provides a 
servicer with a reasonable

[[Page 57213]]

basis to believe that the borrower's hazard insurance has been canceled 
or not renewed for reasons other than nonpayment of premium charges.
    Proposed comment 17(k)(5)-2 contains three examples of a borrower's 
hazard insurance being canceled or not renewed for reasons other than 
the nonpayment of premium charges, to the extent permitted by State or 
other applicable law. Proposed comment 17(k)(5)-2.i describes a 
situation in which the borrower cancels the hazard insurance before its 
expiration date or chooses to not renew the insurance. Proposed comment 
17(k)(5)-2.ii describes a situation in which the insurance company 
cancels the hazard insurance before its expiration date or chooses not 
to renew the insurance because it decides to stop writing insurance for 
all properties in the community where the borrower's property is 
located. Proposed comment 17(k)(5)-2.iii describes a situation in which 
the insurance company cancels or chooses not to renew the borrower's 
hazard insurance based on its underwriting criteria, which may include, 
for example, a borrower's claim history, a change in the occupancy 
status of the property, or a change in the probability of the property 
being exposed to loss caused by certain hazards (e.g., a change in the 
property's exposure to loss caused by wind).
    Proposed comment 17(k)(5)-3 clarifies that a servicer that advances 
the premium payment as required by Sec.  1024.17(k)(5) may advance the 
payment on a month-to-month basis, if permitted by State or other 
applicable law and accepted by the borrower's hazard insurance company.
    As discussed above, the Bureau's review of issues concerning force-
placed insurance has led the Bureau to conclude that it would be 
appropriate to require servicers to continue paying for a borrower's 
existing hazard insurance when practicable if the borrower has an 
escrow account established to pay for hazard insurance. As discussed in 
greater detail in the discussion of the Bureau's proposed definition of 
``force-placed insurance'' in proposed Sec.  1024.37(a)(1), a servicer 
is already contractually required to obtain alternative hazard 
insurance to protect the interest that the owner or assignee of a 
mortgage loan has in the property securing such loan if the servicer is 
unable to obtain evidence of acceptable borrower-purchased hazard 
insurance for such property. Additionally, a servicer typically makes 
payments for force-placed insurance with its own funds.\48\ Because the 
servicer would have to obtain some type of hazard insurance to protect 
the interest of the mortgage loan owner or assignee (and to advance 
payment with its own funds, if necessary), requiring servicers to 
continue paying for an escrowed borrower's existing hazard insurance 
when practicable would provide borrowers with greater protection than a 
servicer obtaining force-placed insurance. For reasons discussed in 
greater detail in the Bureau's proposed definition of force-placed 
insurance, servicer's purchase of force-placed insurance under certain 
circumstances could harm borrowers. The Bureau also believes that the 
approach the Bureau is proposing would be generally more cost-effective 
for the owner or assignee of the mortgage loan.\49\ As discussed above, 
when servicers obtain force-placed insurance, they typically advance 
the force-placed insurance premium charges, which are then added to the 
amount of the loan. If a borrower cannot reimburse a servicer for the 
advancement of force-placed insurance charges, then when a loan is 
liquidated, the servicer will mostly likely be paid for the 
unreimbursed force-placed insurance charges before the owner or 
assignee of the mortgage loan gets paid.\50\
---------------------------------------------------------------------------

    \48\ See e.g., Force-Placed Insurance Hearings: Testimony of 
Justin Crowley on Behalf of Select Portfolio Servicing, Inc., et al. 
Before the New York State Department of Financial Services, at 3 
(May 2012), available at: http://www.dfs.ny.gov/insurance/hearing/fp_052012_testimony.htm.
    \49\ One mortgage analyst has suggested that incentives to 
obtain force-placed insurance are such that it would be 
``unrealistic to expect a servicer to make an unbiased decision on 
when to buy [force-placed insurance],'' and hence, national 
servicing standards should be established to require servicers to 
maintain a borrower's hazard insurance ``as long as possible.'' The 
Need for National Mortgage Servicing Standards: Hearing Before the 
Subcomm. on Housing, Transportation, and Community Affairs of the 
Senate Comm. on Banking, Housing and Urban Affairs, S. Hrg. 112-139, 
112th Cong. 126 (2011) (statement of Laurie Goodman).
    \50\ National Consumer Law Center, Why Servicers Foreclose When 
They Should Modify, at 25.
---------------------------------------------------------------------------

    Additionally, the Bureau understands that servicers currently 
advance hazard insurance premiums for a borrower with an escrow account 
established to pay for hazard insurance even if they are not required 
by Regulation X to do so. The Bureau notes that when it solicited input 
from small servicers through the Small Business Review Panel, most SERs 
did not raise specific concerns with the Bureau's proposal to require 
servicers to advance funds to pay a borrower's hazard insurance. There 
were two SERs who expressed concern about advancing funds to renew a 
borrower's hazard insurance because the borrower could cancel the 
hazard insurance and keep the refund.\51\ The Small Business Review 
Panel recommended that the Bureau reduce the incentives for borrowers 
to take such action by allowing servicers to advance premium payment in 
30-day installments. Proposed comment 17(k)(5)-3, discussed above, 
reflects the panel's recommendation. The Bureau also notes that to the 
extent that the servicer is permitted by applicable law to seek 
reimbursement for advancing a borrower's hazard insurance premium 
payment, the Bureau's proposal would not prohibit a servicer from 
seeking such reimbursement.
---------------------------------------------------------------------------

    \51\ See Small Business Review Panel Report at 22.
---------------------------------------------------------------------------

    The Bureau, however, invites comment on an alternative to the 
requirement in proposed Sec.  1024.17(k)(5) that servicers must advance 
funds to pay a borrower's hazard insurance premium. The alternative 
approach would be in Sec.  1024.37 and would simply make it a condition 
of charging a borrower who has an escrow account established to pay 
hazard insurance, that the force-placed insurance be less expensive to 
the borrower than the servicer advancing funds to continue the 
borrower's hazard insurance policy. The Bureau further requests whether 
the condition should be adjusted to require that the force-placed 
insurance policy protect the borrower's interest.
    Borrower's insurance canceled for reasons other than nonpayment of 
premiums. As discussed above, the Bureau understands that for a 
borrower who has escrowed for hazard insurance, it is practicable for a 
servicer to pay such borrower's hazard insurance premium unless the 
borrower's hazard insurance has been canceled or not renewed for 
reasons other than nonpayment of premium charges. In other words, the 
Bureau recognizes that there could be situations where it would not be 
practicable for a servicer to continue paying for a borrower's existing 
hazard insurance even though the borrower has escrowed for hazard 
insurance because the borrower's hazard insurance has been canceled or 
not renewed for reasons other than nonpayment of premium charges. 
Accordingly, as discussed above, proposed Sec.  1024.17(k)(5) clarifies 
that a servicer's obligation to make payments from a borrower's escrow 
account in a timely manner to pay the premium charge on a borrower's 
hazard insurance rests on whether the servicer has a reasonable basis 
to believe that a borrower's hazard insurance has been canceled or not 
renewed for reasons other than nonpayment of premium charges. If the 
servicer has such basis,

[[Page 57214]]

then the servicer would not be required to make such payments. The 
Bureau notes that for such servicer, the servicer is subject to 
proposed Sec.  1024.37's consumer protections with respect to 
servicer's purchase of force-placed insurance. The Bureau believes that 
``reasonable basis'' rather than actual knowledge should be the 
standard for determining whether the servicer is required to make 
timely payments. The Bureau understands that notices of cancellation or 
non-renewal vary in the level of detail. Hence a servicer may not be 
able to determine why a borrower's hazard insurance was canceled or not 
renewed based on information provided in a notice of cancellation or 
non-renewal. Additionally, the Bureau notes that the new Dodd-Frank 
requirements, discussed below, only require a servicer to have a 
``reasonable basis'' to believe a borrower has failed to maintain 
hazard insurance pursuant to the terms of the borrower's mortgage loan 
contract before the servicer obtains force-placed insurance.
    Proposed comment 17(k)(5)-1, discussed above, clarifies what 
constitutes a ``reasonable basis'' for the purposes of proposed Sec.  
1024.17(k)(5). The Bureau believes that providing an illustration of 
what constitutes ``a reasonable basis'' to believe that a borrower's 
hazard insurance has been canceled or not renewed for reasons other 
than nonpayment of premium charges facilitates compliance. The Bureau 
invites comment on whether additional circumstances may provide a 
servicer with a ``reasonable basis'' to believe that a borrower's 
hazard insurance has been canceled or not renewed for reasons other 
than nonpayment of premium charges. Proposed comment 17(k)(5)-2, 
discussed above, contains three examples of a borrower's hazard 
insurance being canceled or not renewed for reasons other than the 
nonpayment of premium charges.
    Legal authority. Section 6(k)(1)(E) of RESPA authorizes the Bureau 
to prescribe regulations that are appropriate to carry out the consumer 
protection purposes of RESPA. As previously discussed in part V above, 
RESPA has established a consumer protection paradigm of establishing 
servicer obligations intended to protect consumers regarding servicer 
actions. As noted, servicers are contractually required to obtain 
alternative hazard insurance--advancing their own funds as necessary--
if they do not have evidence that the borrower has hazard insurance in 
place. The Bureau has determined that requiring servicers to continue 
paying for escrowed borrowers' existing hazard insurance, when 
practicable, is more protective of the borrower's interest than 
providing servicers with the opportunity to obtain force-placed 
insurance. Accordingly, the Bureau proposes Sec.  1024.17(k)(5) 
pursuant to its authority under RESPA section 6(k)(1)(E) of RESPA. The 
Bureau has additional authority pursuant to section 6(j)(3) of RESPA to 
establish any requirements necessary to carry out section 6 of REPSA 
and has authority pursuant to section 19(a) of RESPA to prescribe such 
rules and regulations, and to make such interpretations, and to grant 
such reasonable exemptions for classes of transactions, as may be 
necessary to achieve the consumer protection purposes of RESPA.
    To the extent proposed Sec.  1024.17(k)(5) would require servicers 
to make timely payments for a borrower whose mortgage payment is more 
than 30 days past due, but whose escrow account contains sufficient 
funds to pay the hazard insurance premium, the Bureau additionally 
relies on its authority under RESPA section 6(g). RESPA section 6(g) 
provides that when a borrower is required by the terms of a federally 
related mortgage loan to pay into an escrow account to assure payment 
of taxes, insurance premiums, and other charges with respect to the 
property, the borrower's servicer must make timely payments out of the 
borrower's escrow account for such taxes, insurance premiums, and other 
charges. As discussed above, the Bureau recognizes that under certain 
circumstances, it may not be practicable for a servicer to continue 
paying a borrower's existing hazard insurance. Pursuant to its 
interpretive authority under RESPA section 19(a), discussed above, the 
Bureau believes it is appropriate to clarify that a servicer's 
obligation to make timely payment from a borrower's escrow account to 
pay for the borrower's hazard insurance premium does not apply when a 
servicer has a reasonable basis to believe that the borrower's existing 
hazard insurance has been canceled or not renewed for reasons other 
than nonpayment of premium charges. The Bureau notes that for such 
servicer, the servicer would have to comply with proposed Sec.  
1024.37's consumer protections if the servicer obtains force-placed 
insurance. Additionally, the Bureau notes that RESPA section 19(a) 
provides the Bureau with authority to grant reasonable exemptions for 
classes of transactions as may be necessary to achieve the consumer 
protection purposes of RESPA.
    Borrowers not escrowed for hazard insurance. Proposed Sec.  
1024.17(k)(5) would apply in situations where a borrower has 
established an escrow account for the payment of hazard insurance 
premiums. Where a borrower has not done so, whether because the 
borrower has not established an escrow account at all, or has 
established an escrow account to pay for other items but not for hazard 
insurance premiums, the Bureau is proposing to set forth that hazard 
insurance obtained by a borrower but renewed at the servicer's 
discretion is not force-placed insurance under proposed Sec.  1024.37 
in proposed Sec.  1024.37(a)(2)(iii) discussed below. The Bureau notes 
that there is an on-going debate among consumer advocates, servicers, 
the GSEs, and regulators on whether it is practicable to require 
servicers to pay insurance premiums for borrowers who have not escrowed 
for hazard insurance. Consumer advocates have urged the Bureau to 
require servicers to advance funds to pay insurance premiums for such 
borrowers.\52\ But servicers have testified that requiring servicers to 
pay insurance premiums for borrowers who have not escrowed for hazard 
insurance is often not possible.\53\
---------------------------------------------------------------------------

    \52\ See The National Consumer Law Center and the Center for 
Economic Justice, The Consumer Financial Protection Bureau Should 
Rein in Mortgage Servicers' Use of Force-Placed Insurance, at 4 (May 
2012), available at: http://www.nclc.org/images/pdf/regulatory_reform/ib-force-placed-insurance.pdf.
    \53\ See supra note 42, at 2-3.
---------------------------------------------------------------------------

    The National Mortgage Settlement, discussed in part II.C above, 
requires servicers to ``continue to advance payments for the 
homeowner's existing policy [for borrowers who have escrowed for hazard 
insurance], unless the borrower or insurance company cancels the 
existing policy.''\54\ On the other hand, Fannie Mae has revised its 
servicing guide to require servicers to pay a borrower's hazard 
insurance premium even if the borrower has not escrowed for hazard 
insurance, stating:
---------------------------------------------------------------------------

    \54\ See, e.g., United States of America et al. v. Bank of 
America Corp. et al (National Mortgage Settlement)., at A-38, 
available at: http://nationalmortgagesettlement.com.

    When a mortgage loan payment includes escrows, they must advance 
funds for the timely payment of the borrower's property insurance 
premiums. Additionally, when the servicer has waived the escrow 
deposit account for a specific borrower, it remains responsible for 
the timely payment of the insurance premiums. Therefore, if a 
borrower fails to pay a premium, the servicer must advance its own 
funds to pay the past-due premium and reinstate the borrower 
insurance coverage, revoke the waiver and begin escrow deposit 
---------------------------------------------------------------------------
collections to pay further premiums.\55\

    \55\ Fannie Mae, Servicing Guide Announcement SVC-2012-04 
(Fannie Mae March 2012 Servicing Announcement) (March 14, 2012), 
available at https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1204.pdf. Fannie Mae originally required that servicers 
implement the revised requirements no later than June 1, 2012. In 
May 2012, however, Fannie Mae announced that it is postponing the 
implementation date. See Fannie Mae, Servicing Notice (May 23, 
2012), available at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/ntce052312.pdf.

---------------------------------------------------------------------------

[[Page 57215]]

    With respect to a borrower who has not escrowed for hazard 
insurance, the National Mortgage Settlement only requires a servicer to 
disclose in the notices it sends to such borrower that the servicer 
would establish an escrow account for the borrower to pay the 
borrower's hazard insurance premium with the borrower's consent. 
Furthermore, the Bureau notes that in contrast to Fannie Mae, Freddie 
Mac only requires a servicer that services loans for Freddie Mac to 
obtain insurance if a borrower fails to maintain insurance coverage 
required by Freddie Mac. Freddie Mac does not require the servicer to 
advance funds to maintain a borrower's hazard insurance coverage. The 
guidelines state, ``[if] the borrower does not or cannot obtain such 
coverage, then the servicer must do so. The servicer must then adjust 
the Borrower's escrow payment accordingly or bill the borrower to 
recover the advance if the servicer does not maintain an escrow account 
for the borrower.'' \56\ In light of the existence of competing views 
about: (1) A servicer's obligation to a borrower who has not escrowed 
for hazard insurance with respect to paying the borrower's hazard 
insurance premium on the borrower's behalf; and (2) the practicality of 
a servicer being able to pay the hazard insurance premium of such a 
borrower, the Bureau seeks comment on whether it should require 
servicers to pay the hazard insurance premiums of borrowers who have 
not escrowed for hazard insurance. The Bureau also seeks comment on 
whether servicers should be required to ask borrowers who have not 
escrowed for hazard insurance whether they would consent to servicers 
renewing the borrower-obtained hazard insurance, and then be required 
to pay the hazard insurance premiums if the borrowers give consent.
---------------------------------------------------------------------------

    \56\ See Freddie Mac Single Family Seller/Servicer Guide, Vol. 2 
Sec.  58.9 (2007).
---------------------------------------------------------------------------

17(l) System of Recordkeeping
    The Bureau proposes to remove current Sec.  1024.17(l). Current 
Sec.  1024.17(l) generally requires that a servicer maintain for five 
years records regarding the payment of amounts into and from an escrow 
account and escrow account statements provided to borrowers. Current 
Sec.  1024.17(l) further mandates that the Bureau may request 
information contained in the servicer's records for an escrow account 
and a servicer's failure to provide such information may be deemed to 
be evidence of the servicer's failure to comply with its obligations 
with respect to providing escrow account statements to borrowers.
    The Bureau believes that, in light of this proposal, and the 
substantially different authorities available to the Bureau, as opposed 
to HUD, the obligations set forth in current Sec.  1024.17(l) are no 
longer required. HUD proposed adding current Sec.  1024.17(l) to 
Regulation X in 1993 and finalized the rule in 1994.\57\ Current Sec.  
1024.17(l) reflects requirements relating to HUD's authority to require 
information from mortgage servicers and compel compliance with the 
requirements of Regulation X at the time it was implemented.
---------------------------------------------------------------------------

    \57\ See 58 FR 64065 (December 3, 1993); 59 FR 53890 (October 
26, 1994).
---------------------------------------------------------------------------

    Proposed Sec.  1024.38(a) would require servicers to establish 
policies and procedures that include a standard requirement to retain 
records that document actions taken by a servicer with respect to a 
borrower's mortgage loan account until one year after the date a 
mortgage loan is discharged or servicing of a mortgage loan is 
transferred by the servicer to a transferee servicer. Such documents 
include those relating to escrow accounts. Further, proposed Sec. Sec.  
1024.35-1024.36 provide tools available to borrowers to require the 
correction of misapplied escrow account payments or to request 
information regarding a borrower's escrow account. Moreover, the Bureau 
has authority to supervise mortgage servicers and determine whether 
mortgage servicers are complying with their obligations under 
Regulation X with respect to escrow accounts. For these reasons, the 
Bureau proposes to remove current Sec.  1024.17(l). The Bureau requests 
comment regarding whether current Sec.  1024.17(l) should be removed 
from Regulation X.

Subpart C--Mortgage Servicing

    Currently, section 6 of RESPA sets forth protections for borrowers 
with respect to the servicing of federally related mortgage loans. 
These protections include disclosures to borrowers about whether 
servicing for a mortgage loan may be transferred, as well as 
disclosures regarding the prior and new servicers in the event of a 
transfer. See RESPA section 6(a)--6(c). Section 6 of RESPA further 
provides protections regarding misdirected payments during a servicing 
transfer. See RESPA section 6(d).
    Section 6 of RESPA also currently requires a servicer to respond to 
qualified written requests asserting errors or requesting information 
regarding the servicing of a mortgage loan and sets forth obligations 
on servicers regarding the administration of escrow accounts. See RESPA 
sections 6(e), 6(g). Servicers are liable to borrowers for violations 
of section 6 of RESPA. See RESPA section 6(f).
    Section 1463 of the Dodd-Frank Act created new sections 6(k), 6(l), 
and 6(m) of RESPA, which set forth new obligations on servicers for 
federally related mortgage loans. Section 6(k) of RESPA prohibits 
servicers from: (i) Obtaining force-placed insurance unless there is a 
reasonable basis to believe the borrower has failed to comply with the 
loan contract's requirements to maintain property insurance; (ii) 
charging fees for responding to valid qualified written requests; (iii) 
failing to take timely action to respond to correct certain types of 
errors; (iv) failing to respond within ten business days to a request 
from a borrower to provide certain information about the owner or 
assignee of a mortgage loan; or (v) failing to comply with any other 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. See RESPA section 6(k). Further, 
section 6(l) of RESPA requires servicers: (i) To provide written 
notices to a borrower before a charge for a force-placed insurance 
policy may be imposed on the borrower; (ii) to accept any reasonable 
form of written confirmation from a borrower of existing insurance 
coverage; and (iii) within 15 days of the receipt of such confirmation, 
to terminate force-placed insurance and refund any premiums and fees 
paid during the period of overlapping coverage. See RESPA section 6(l).
    Section 6(m) of RESPA requires that charges related to force-placed 
insurance, other than charges subject to State regulation as the 
business of insurance, must be bona fide and reasonable. See RESPA 
section 6(m).
    Section 1463 of the Dodd-Frank Act also amends sections 6(e) and 
6(g) of RESPA with respect to a servicer's obligation to respond to 
qualified written requests and a servicer's administration of an escrow 
account. Further, section 1463 of the Dodd-Frank Act amended section 
6(f) of RESPA to increase the dollar amounts of damages for which a 
servicer may be liable for violations of section 6 of RESPA. See RESPA 
section 6(e)-(g); Dodd-Frank Act sections 1463(b)-(d).

[[Page 57216]]

    In order to implement these provisions in a consistent and clear 
manner, the Bureau proposes to reorganize Regulation X to include 
provisions relating to mortgage servicing within a new subpart C.
Section 1024.21 Mortgage Servicing Transfers
    To incorporate mortgage servicing-related provisions within subpart 
C, the proposed rule would remove Sec.  1024.21 and would implement the 
provisions of Sec.  1024.21, subject to proposed changes as discussed 
below, in proposed Sec. Sec.  1024.31-1024.34 within subpart C. Compare 
Sec.  1024.21 with proposed Sec. Sec.  1024.31-1024.34.
Section 1024.30 Scope
    Proposed Sec.  1024.30 sets forth the scope of proposed subpart C. 
Currently, Sec.  1024.21, which implements section 6 of RESPA, applies 
to a ``mortgage servicing loan'' as that term is defined in current 
Sec.  1024.21(a). The term ``mortgage servicing loan'' means a 
federally related mortgage loan, as that term is defined in Sec.  
1024.2, subject to the exemptions in Sec.  1024.5, when the mortgage 
loan is secured by a first lien. The term ``mortgage servicing loan'' 
does not include subordinate-lien loans or open-end lines of credit 
(home equity plans) covered by TILA and Regulation Z, including open-
end lines of credit secured by a first lien. See Sec.  1024.21(a) 
(defining mortgage servicing loan).
    Proposed Sec.  1024.30 would eliminate the term ``mortgage 
servicing loan'' from Regulation X and would set forth the scope of 
subpart C. Subpart C would apply to any mortgage loan, as that term is 
defined in proposed Sec.  1024.31. ``Mortgage loan'' in Sec.  1024.31 
would mean a federally related mortgage loan, as that term is defined 
in Sec.  1024.2, subject to the exemptions in Sec.  1024.5. Unlike the 
previous term ``mortgage servicing loan,'' the term ``mortgage loan'' 
would include subordinate-lien closed-end mortgage loans. The term 
``mortgage loan'' would maintain the exclusion for open-end lines of 
credit (home-equity plans) covered by TILA and Regulation Z, including 
open-end lines of credit secured by a first lien, currently set forth 
in the definition of ``mortgage servicing loan.'' As a result, the 
elimination of the term ``mortgage servicing loan,'' the proposed 
definition of ``mortgage loan'' in proposed Sec.  1024.31, and the 
proposed scope of subpart C in proposed Sec.  1024.30 would create new 
servicer obligations with respect to subordinate-lien closed-end 
mortgage loans under Regulation X.
    The Bureau believes that borrowers of subordinate lien closed-end 
mortgage loans should be entitled to the protections that would be set 
forth in subpart C.
    The use of subordinate-lien closed-end mortgage loans grew 
substantially during the housing boom. Subordinate-lien closed-end 
mortgage loans were commonly originated as ``piggyback loans''--that 
is, a subordinate-lien mortgage loan originated concurrently with a 
first-lien mortgage loan to finance a home purchase in excess of an 80% 
loan-to-value ratio.\58\ By taking ``piggyback loans,'' a borrower 
could avoid a requirement to purchase a mortgage insurance policy. 
During 2006, subordinate-lien closed-end mortgage loans were used as 
``piggyback loans'' for 22% of one-to-four family owner-occupied home 
purchases, with higher percentages reported in high-cost housing 
areas.\59\ Because borrowers with simultaneously-originated 
subordinate-lien closed-end mortgage loans are more highly levered, 
such borrowers are at a greater risk of having negative equity when 
home prices decline and may be more susceptible to default (depending 
on the credit quality of the borrower).\60\ Further, such loans 
complicate loss mitigation processes if the first-lien and subordinate-
lien loans are owned by separate entities or serviced by separate 
servicers.
---------------------------------------------------------------------------

    \58\ Michael LaCour-Little et al., What Role Did Piggyback 
Lending Play in the Housing Bubble and Mortgage Collapse?, at 3 
(Oct. 5, 2010), available at: http://ssrn.com/abstract=1688033.
    \59\ Id. at 3 (stating that ``piggyback loans'' accounted for 
30% of home purchases in New York City and 37.3% of home purchases 
in California in 2006).
    \60\ See id. at 26-27.
---------------------------------------------------------------------------

    There are no unique characteristics of subordinate-lien closed-end 
mortgage loans that should require servicers to treat a borrower of 
such a mortgage loan differently than a first-lien mortgage loan 
borrower with respect to protections for mortgage servicing transfers, 
error resolution, information requests, force-placed insurance, 
reasonable information management policies and procedures, early 
intervention for delinquent borrowers, continuity of contact, or loss 
mitigation procedures. To the contrary, because of the difficulty of 
achieving loss mitigation options when a borrower has a subordinate-
lien closed-end mortgage loan, such borrower may be more likely to 
benefit from certain protections in proposed subpart C.
    Accordingly, the Bureau's proposal would remove the exclusion for 
subordinate-lien closed-end mortgage loans that was previously included 
in Regulation X but which was not required by RESPA. The Bureau has not 
identified any countervailing reasons why borrowers of subordinate-lien 
closed-end mortgage loans should not benefit from the protections 
afforded by the provisions of proposed subpart C. However, the Bureau 
requests comment regarding whether subordinate-lien closed-end mortgage 
loans should be included within the scope of proposed subpart C.
    The Bureau proposes to maintain the exclusion for open-end lines of 
credit (home-equity plans) covered by TILA and Regulation Z, including 
open-end lines of credit secured by a first lien, from the servicer 
requirements of Regulation X. Home equity lines of credit (HELOCs) tend 
to reflect better credit quality than subordinate-lien closed-end 
mortgage loans and share risk characteristics more similar to other 
open-end consumer financial products, such as credit cards, because of 
the access to additional unutilized credit provided by a HELOC.\61\ The 
Bureau understands from discussions with servicers and industry 
representatives that the servicing of HELOCs tends to differ 
significantly from closed-end mortgage loans, including with respect to 
information systems used, lender remedies (including restricting access 
to the line of credit), and borrower behavior. Further, the Bureau 
understands that although a household may finance a property solely 
with an open-end line of credit, the proportion that do so is very 
small.\62\
---------------------------------------------------------------------------

    \61\ See Donghoon Lee et al., A New Look at Second Liens, 3, 19 
(Feb. 2012), available at: http://ssrn.com/abstract=2014570 (chapter 
in Housing and the Financial Crisis, Edward Glaeser and Todd Sinai, 
eds.)
    \62\ See, e.g., Julapa Jagtiani and William W. Lang, Strategic 
Default on First and Second Lien Mortgages During The Financial 
Crisis, at n.5 (Federal Reserve Bank of Philadelphia, Working Paper 
No. 11-3, Dec. 9, 2010), available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1724947.
---------------------------------------------------------------------------

    Open-end lines of credit have been historically excluded from 
regulations applicable to mortgage servicing under Regulation X. See 
current Sec.  1024.21(a) (defining ``mortgage servicing loan''). 
Further, open-end lines of credit are already regulated under 
Regulation Z. Certain provisions of Regulation Z would duplicate the 
servicer obligations that would be set forth in subpart C, including, 
for example, billing error resolution procedures. See 12 CFR 1026.13.
    In addition, the protections proposed in Regulation X may not 
necessarily be appropriate for open-end lines of credit. A borrower is 
in control of an open-end line of credit and can draw from that line as 
necessary to meet financial obligations. Many borrowers that have

[[Page 57217]]

become delinquent on a first lien closed end mortgage loan keep current 
on payments for subordinate lien open-end lines of credit in order to 
maintain their access to the line of credit.\63\ Conversely, when 
borrowers experience difficulty meeting their obligations, lenders have 
the ability to cut off access to unutilized draws from the open-end 
line of credit. These features of open-end lines of credit may weigh 
against imposing the requirements set forth for early intervention with 
delinquent borrowers, continuity of contact, and loss mitigation 
procedures on servicers for open-end lines of credit. Further, open-end 
lines of credit tend to differ from closed-end mortgage loans with 
respect to servicing information systems utilized and servicer 
processes, such that information management policies and procedures may 
be better targeted toward different objectives for open-end lines of 
credit than those set forth in proposed Sec.  1024.38(b) with respect 
to closed-end mortgage loans. Finally, and as discussed below, the 
Bureau has learned that servicers generally do not obtain force-placed 
insurance on behalf of open-end lines of credit because such lines of 
credit are typically secured by a subordinate lien. Accordingly, the 
Bureau believes that exempting open-end lines of credit (home-equity 
plans) from the Bureau's proposed force-placed insurance regulations is 
appropriate.
---------------------------------------------------------------------------

    \63\ Id. at 11.
---------------------------------------------------------------------------

    Although the Bureau believes that maintaining the current exclusion 
of open-end lines of credit (home-equity plans) covered by TILA and 
Regulation Z, from the servicer requirements of Regulation X is 
consistent with consumer protection purposes of RESPA, the Bureau 
requests comment regarding whether open-end lines of credit (home-
equity plans) should be excluded from any of the provisions of proposed 
subpart C.
    The Bureau proposes to interpret the application of the servicer 
obligations and prohibitions in section 6 of RESPA pursuant to its 
authority in section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations, and to grant such reasonable 
exemptions for classes of transactions as may be necessary to achieve 
the consumer protection purposes of RESPA. The Bureau further relies on 
its authority in section 6(j)(3) of RESPA to set forth requirements 
necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of 
RESPA to set forth obligations appropriate to carry out the consumer 
protection purposes of RESPA.
Section 1024.31 Definitions
    Proposed Sec.  1024.31 contains definitions for the following 
terms: Consumer reporting agency, day, hazard insurance, loss 
mitigation application, loss mitigation options, master servicer, 
mortgage loan, qualified written request, reverse mortgage transaction, 
subservicer, service provider, transferee servicer, and transferor 
servicer.
    Consumer reporting agency. The Bureau proposes to define the term 
``consumer reporting agency'' to have the same meaning set forth in 
section 603 of the Fair Credit Reporting Act, 15 U.S.C. 1681a. This 
proposed definition is the same as the definition of the term 
``consumer reporting agency'' set forth in the relevant provisions of 
RESPA that would be implemented by this proposed rulemaking. See RESPA 
section 6(e)(3).
    Day. The Bureau proposes to define the term ``day'' for purposes of 
subpart C to mean calendar day. ``Day'' is not defined by RESPA. RESPA 
generally uses the terms ``day'' and ``day (excluding legal public 
holidays, Saturdays, and Sundays).'' Because Congress excluded legal 
public holidays, Saturdays, and Sundays in certain circumstances, the 
Bureau believes that Congress intended the term ``day'' by itself to 
include these days, and therefore, believes a definition of ``day'' as 
a calendar day reflects Congress's intent.
    The Dodd-Frank Act, however, amended section 6(g) and added section 
6(k)(1)(D) to RESPA and, in these provisions, used the term ``business 
day.'' The term ``business day'' is not defined by RESPA and does not 
otherwise appear in section 6 of RESPA.\64\ Rather, section 6 of RESPA 
uses the terms ``day'' and ``day (excluding legal public holidays, 
Saturdays, and Sundays).'' Accordingly, the Bureau proposes to 
interpret the term ``business day'' in sections 6(g) and 6(k)(1)(D) of 
RESPA to mean ``day (excluding legal public holidays, Saturdays, and 
Sundays)'' consistent with other usage of the term ``day'' within 
section 6 of RESPA and RESPA generally. The Bureau believes that a 
consistent interpretation of the definition of the term ``day'' will 
provide certainty that benefits borrowers by clarifying their rights 
under subpart C and benefits servicers by easing compliance burden 
associated with different understandings of the meaning of the term 
``day.''
---------------------------------------------------------------------------

    \64\ The term is used three times elsewhere in RESPA, once in 
section 4(b) and twice in section 8(c) of RESPA.
---------------------------------------------------------------------------

    The Bureau relies on its authority in section 6(j)(3) of RESPA to 
set forth requirements necessary to carry out section 6 of RESPA and in 
section 19(a) of RESPA to make such interpretations necessary to 
achieve the consumer protection purposes of RESPA.
    Hazard insurance. The Bureau proposes to define ``hazard 
insurance'' to mean insurance on the property securing a mortgage loan 
that protects the property against losses caused by fire, wind, flood, 
earthquake, theft, falling objects, freezing, and other similar hazards 
for which the owner or assignee of such loan requires insurance. The 
Bureau believes that defining ``hazard insurance'' is necessary to 
implement the new Dodd-Frank requirements on force-placed insurance, 
set forth in new RESPA section 6(k)-(m). Accordingly, the Bureau 
proposes to define ``hazard insurance'' pursuant to its authority under 
section 6(j)(3) of RESPA, which authorizes the Bureau to establish any 
requirements necessary to carry out the purposes of RESPA. The Bureau 
additionally relies on its authority pursuant to sections 6(k)(1)(E) 
and 19(a) of RESPA. Section 6(k)(1)(E) of RESPA authorizes the Bureau 
to prescribe regulations that are appropriate to carry out the consumer 
protection purposes of RESPA, and section 19(a) of RESPA gives the 
Bureau the authority to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
    As discussed below in the Bureau's discussion of proposed Sec.  
1024.37(a)(1), Dodd-Frank Act section 1463 defines ``force-placed 
insurance'' for the purposes of RESPA section 6(k)-(m) as a type of 
hazard insurance. Although Dodd-Frank Act section 1463 does not define 
``hazard insurance,'' it provides that a servicer of a federally 
related mortgage must not obtain ``force-placed hazard insurance unless 
there is a reasonable basis to believe the borrower has failed to 
comply with the loan contract's requirements to maintain property 
insurance.'' In other words, force-placed ``hazard insurance'' simply 
refers to ``property insurance'' the borrower has failed to maintain. 
Under the typical mortgage loan contract, property insurance is defined 
broadly to mean insurance that protects a mortgaged property against 
loss by ``fire, hazards included within the term `extended coverage', 
and any other hazards including, but not limited to, earthquakes and 
floods, for which

[[Page 57218]]

Lender requires insurance.'' \65\ Accordingly, the proposed definition 
of ``hazard insurance'' in proposed Sec.  1024.31 is equally broad.
---------------------------------------------------------------------------

    \65\ See, e.g., California Single Family Fannie Mae/Freddie Mac 
Uniform Instrument, Form 3005, (Fannie Mae/Freddie Mac Note), at ] 
5.
---------------------------------------------------------------------------

    The Bureau's proposed definition of ``hazard insurance'' would 
include, but not be limited to, homeowner's insurance. Virtually all 
borrowers are required to have homeowner's insurance in place as a 
condition of obtaining a mortgage loan. Homeowner's insurance policies 
typically insure mortgaged properties against loss caused by all 
hazards other than those specifically excluded by the policies. The 
Bureau understands that borrowers may be required by the terms of the 
mortgage loan contract to obtain separate insurance policies that 
protect the property against loss caused by hazards specifically 
excluded from coverage by homeowner's insurance policies. The Bureau 
understands that losses caused by earthquake or flood hazards, and in 
many coastal areas, losses caused by wind, are typically excluded.\66\ 
Insurance written to cover loss caused by specifically-excluded hazards 
is typically narrowly written to protect a mortgaged property against 
loss caused by a single, specifically-excluded hazard. A single hazard 
insurance policy, such as a hazard insurance policy to protect against 
flood loss, would also be included within the Bureau's proposed 
definition of ``hazard insurance.'' \67\ The Bureau recognizes that a 
servicer could be required to obtain force-placed hazard insurance to 
protect against flood loss by the Flood Disaster Protection Act of 1973 
(FDPA). As discussed in greater detail below, the Bureau proposes to 
exempt hazard insurance to protect against flood loss obtained by a 
servicer as required by the FDPA from the definition of ``force-placed 
insurance'' in proposed Sec.  1024.37. The Bureau, however, invites 
comment on whether a definition of ``hazard insurance'' that 
specifically excludes hazard insurance to protect against flood loss 
would be more appropriate than the Bureau's proposed definition of 
``hazard insurance.''
---------------------------------------------------------------------------

    \66\ See National Association of Insurance Commissioners, A 
Consumer Quick Guide to Home Insurance, at 2-5 (2010), available at: 
http:\\www.naic.org/documents/consumer_guide_home_quick.pdf).).
    \67\ The Bureau acknowledges that Dodd-Frank Act section 1461, 
which added a new section 129D to TILA, lists ``hazard insurance'' 
and ``flood insurance'' as two separate categories of insurance. See 
TILA section 129D(i); however, the Dodd-Frank Act provides that the 
definitions in TILA section 129D(i) apply only to TILA section 129D. 
The Bureau does not interpret the definitions to apply to RESPA 
section 6(k)-(m). The Bureau also acknowledges that in current 
Regulation X, the provision of settlement services involving hazard 
insurance is separate from the provision of services involving flood 
insurance pursuant to the definition of ``settlement service'' in 
Sec.  1024.2. Further, for purposes of current Regulation X, the 
Bureau further acknowledges that: (1) In appendix A's instructions 
on how to prepare a HUD-1 Settlement statement, the settlement agent 
must list homeowner's insurance premiums separately from flood 
insurance premiums; and (2) appendix C's instructions on how to 
prepare a good faith estimate (GFE) form treat hazard insurance 
separately from flood insurance. The Bureau's proposed definition of 
``hazard insurance'' would only apply to proposed subpart C of RESPA 
and Sec.  1024.17(k)(5). It would not apply to Sec.  1024.2, 
appendix A, or appendix C.
---------------------------------------------------------------------------

    Loss mitigation application. The Bureau proposes to define a ``loss 
mitigation application'' as an application from a borrower requesting 
evaluation for a loss mitigation option, as that term is defined in 
proposed Sec.  1024.31, in accordance with procedures established by 
the servicer for the submission of such requests. The Bureau has set 
forth a separate definition of loss mitigation application to indicate 
that a loss mitigation application is separate from an ``application'' 
as that term is defined in current Sec.  1024.2(b). Proposed comment 
31(loss mitigation application)-1 clarifies that a loss mitigation 
application may be submitted by a representative of a borrower and that 
a servicer may undertake reasonable procedures to determine if a 
purported representative actually represents a borrower.
    Loss mitigation options. As defined in proposed Sec.  1024.31, 
``loss mitigation options'' are ``alternatives available from the 
servicer to the borrower to avoid foreclosure.'' Proposed comment 31 
(loss mitigation options)--1 clarifies that loss mitigation options 
include temporary and long-term relief, and options that allow 
borrowers to remain in or leave their homes, such as, without 
limitation, refinancing, trial or permanent modification, repayment of 
the amount owed over an extended period of time, forbearance of future 
payments, short-sale, deed-in-lieu of foreclosure, and loss mitigation 
programs sponsored by a State or the Federal Government. Proposed 
comment 31 (loss mitigation options)--2 clarifies that loss mitigation 
options ``available from the servicer'' include options offered by the 
owner or assignee of the loan that are made available through the 
servicer.
    The Bureau's proposed definition of ``loss mitigation option'' is 
broad to account for the wide variety of options that may be available 
to a borrower. The Bureau believes that borrowers are best served when 
they are aware of all of their options. Thus, the proposed definition 
sets forth examples of loss mitigation options ``without limitation.'' 
The Bureau has not defined each of the examples of loss mitigation 
options to account for alternatives that may vary depending on the 
underlying loan documents, any servicer obligations to the lender or 
assignee of the loan, the borrower's particular circumstances, and the 
flexibility the servicer has in arranging alternatives with the 
borrower.
    The Bureau recognizes that not every loss mitigation option will be 
available to each individual borrower. Thus, the Bureau has limited the 
proposed definition of ``loss mitigation options'' to alternatives 
``available to the borrower.'' The Bureau invites comment on the 
appropriateness of the proposed definition of ``loss mitigation 
options,'' and whether revision or further clarification is warranted.
    Mortgage loan. As set forth in the discussion above on proposed 
Sec.  1024.30, the term ``mortgage loan'' in proposed Sec.  1024.31 
would generally mean a federally related mortgage loan, as that term is 
defined in Sec.  1024.2, subject to the exemptions in Sec.  1024.5 and 
an exemption for open-end lines of credit (home equity plans). For the 
reasons discussed above on proposed Sec.  1024.30, the term ``mortgage 
loan'' would not exclude subordinate-lien closed-end mortgage loans but 
would maintain the exclusion for open-end lines of credit (home-equity 
plans) covered by TILA and Regulation Z, including open-end lines of 
credit secured by a first lien, currently set forth in the definition 
of ``mortgage servicing loan.'' As a result, the elimination of the 
term ``mortgage servicing loan,'' the proposed definition of ``mortgage 
loan'' in proposed Sec.  1024.31, and the proposed scope of subpart C 
in proposed Sec.  1024.30 would create new servicer obligations with 
respect to subordinate-lien closed-end mortgage loans under Regulation 
X.
    The Bureau proposes to interpret the application of the servicer 
obligations and prohibitions in section 6 of RESPA pursuant to its 
authority in section 19(a) to prescribe such rules and regulations, to 
make such interpretations, and to grants such reasonable exemptions for 
classes of transactions as may be necessary to achieve the consumer 
protection purposes of RESPA.
    Reverse mortgage transaction. The Bureau proposes to add a 
definition for the term ``reverse mortgage transaction.'' A ``reverse 
mortgage transaction'' would have the same definition used in 
Regulation Z, which implements TILA, to maintain consistency with other 
Bureau definitions applicable to reverse

[[Page 57219]]

mortgages. See 12 CFR 1026.33(a). The Bureau is proposing to include a 
definition for a ``reverse mortgage transaction'' in Regulation X to 
implement the requirements for mortgage servicing disclosure statements 
in proposed Sec.  1024.33(a).
    Proposed Sec.  1024.33(a) sets forth the requirements applicable to 
disclosures to applicants about assignment, sale, or transfer of loan 
servicing that must be provided to applicants within three days 
(excluding legal public holidays, Saturdays, and Sundays). If the 2012 
TILA-RESPA Proposal, which was published by the Bureau on July 9, 2012, 
is adopted as proposed with respect to the implementing of the 
disclosures required by sections 6(a) of RESPA, the only mortgage loans 
that would not receive the disclosure through the 2012 TILA-RESPA 
Proposal would be reverse mortgage transactions. Accordingly, the 
Bureau proposes to apply the current requirements of Sec.  1024.21(b)-
(c) only to reverse mortgage transactions, and proposed Sec.  
1024.33(a) would require the disclosure for reverse mortgage 
transactions.
    Service provider. The Bureau proposes to add a definition for the 
term ``service provider.'' A service provider means any party retained 
by a servicer that interacts with a borrower or provides a service to a 
servicer for which a borrower may incur a fee. Proposed comment 31 
(service provider)--1 clarifies that service providers may include 
attorneys retained to represent a servicer or an owner or assignee of a 
mortgage loan in a foreclosure proceeding, as well as other 
professionals retained to provide appraisals or property inspections.
    Definitions of master servicer, qualified written request, 
subservicer, transferee servicer, and transferor servicer. Currently, 
definitions of the terms ``master servicer,'' ``subservicer,'' 
``transferee servicer,'' and ``transferor servicer,'' are set forth in 
Sec.  1024.21(a). The proposed rule would include the definitions of 
these terms currently set forth in Sec.  1024.21(a), without change, in 
proposed Sec.  1024.31.
    The definition of ``qualified written request'' would be revised to 
state that a qualified written request is a written correspondence from 
the borrower to the servicer that enables the servicer to identify the 
name and account of the borrower, and (1) states the reasons the 
borrower believes an error relating to the servicing of the loan has 
occurred, or (2) provides sufficient detail to the servicer regarding 
information relating to the servicing of the mortgage loan sought by 
the borrower. The definition further states that a qualified written 
request (i) must be in writing, (ii) must not be written on a payment 
coupon or other payment form from a servicer, and (iii) must be 
delivered less than one year after servicing of a mortgage loan is 
transferred or a mortgage loan is paid in full, whichever date is 
applicable. All of the elements of this definition are currently set 
forth in Sec.  1024.21(e)(2) and the proposed definition of ``qualified 
written request'' in proposed Sec.  1024.32 is not intended to alter 
the meaning of the term. Proposed comment 32 (qualified written 
request)--1 clarifies that a qualified written request may request 
information without asserting an error with respect to the servicing of 
a mortgage loan (and vice versa).
    A ``qualified written request'' is just one form that a written 
notice of error or information request may take. As set forth above, 
although RESPA sets forth a ``qualified written request'' mechanism 
through which a borrower can assert an error to a servicer or request 
information from a servicer, the Bureau's proposal would integrate all 
error resolution and information request processes, including 
``qualified written requests.'' A borrower may still submit a 
``qualified written request,'' under the proposed rule, however a 
``qualified written request'' would be subject to the same error 
resolution or information request requirements applicable to any other 
form of written notice of error or information request to a servicer. 
Further, a servicer's liability for failure to respond to a qualified 
written request would be the same as for any other written notice of 
error or information request. Accordingly, there would be no greater 
benefit to a borrower, nor additional burden to a servicer, to respond 
to a ``qualified written request'' than would exist for a written 
notice of error or written information request pursuant to proposed 
Sec. Sec.  1024.35-1024.36.
Section 1024.32 General Disclosure Requirements
    Proposed Sec.  1024.32 would set forth requirements applicable to 
disclosures required by subpart C. Specifically proposed Sec.  
1024.32(a)(1) would require that disclosures provided by servicers be 
clear and conspicuous, in writing, and in a form the consumer may keep. 
This standard is consistent with disclosure standards applicable in 
other regulations issued by the Bureau, including, for example, 
Regulation Z. See, e.g., 12 CFR 1026.17(a)(1). Proposed Sec.  
1024.32(a)(2) would permit disclosures to be provided in languages 
other than English, so long as disclosures are made available in 
English upon a borrower's request. Further, proposed Sec.  1024.32(b) 
would permit disclosures required under subpart C to be combined with 
disclosures required by applicable laws, including State laws, as well 
as disclosures required pursuant to the terms of an agreement between 
the servicer and a federal or state regulatory agency.
    The Bureau believes this provision is appropriate to enable 
servicers to integrate disclosures required by subpart C with 
requirements imposed by other federal regulatory agencies, including 
through the National Mortgage Settlement, and with applicable State 
law. The Bureau proposes to exercise its authority under sections 
6(j)(3) of RESPA to set forth requirements necessary to carry out 
section 6 of RESPA. The Bureau further relies on its authority in 
section 19(a) of RESPA to make such rules and regulations necessary to 
achieve the consumer protection purposes of RESPA.
Section 1024.33 Mortgage Servicing Transfers
    Proposed Sec.  1023.33 implements the mortgage servicing transfer 
disclosure requirements in section 6(a)-(d) of RESPA. The mortgage 
servicing transfer disclosure requirements are currently in Sec.  
1024.21(b)-(d) of Regulation X.
    As a preliminary matter, the Bureau proposes to implement certain 
provisions currently set forth in Sec.  1024.21(b)-(d) of Regulation X 
through commentary to proposed Sec.  1024.33 rather than as text of the 
regulation itself. This change is proposed to conform the organization 
of proposed Sec.  1024.33 with other proposed provisions of subpart C.
    Proposed Sec.  1024.33(a) makes changes to the requirements 
currently set forth in Sec.  1024.21(b)-(c). Proposed Sec.  1024.33(a) 
sets forth the requirements applicable to disclosures to applicants 
about assignment, sale, or transfer of loan servicing that must be 
provided to applicants within three days (excluding legal public 
holidays, Saturdays, and Sundays) of application. If the 2012 TILA-
RESPA Proposal, which was published by the Bureau on July 9, 2012, is 
adopted as proposed with respect to the implementing the disclosures 
required by section 6(a) of RESPA, the only mortgage loans that 
currently receive mortgage servicing transfer disclosures that would 
not receive the disclosure through the new integrated TILA/RESPA 
disclosure form would be closed-end reverse mortgage

[[Page 57220]]

transactions.\68\ Accordingly, the Bureau proposes to apply the current 
requirements of Sec.  1024.21(b)-(c) only to reverse mortgage 
transactions, and proposed Sec.  1024.33(a) reflects the limited scope 
of this provision.
---------------------------------------------------------------------------

    \68\ Currently, mortgage servicing transfer disclosures are 
required for ``mortgage servicing loans.'' See current Sec.  
1024.21(b)(1). The only ``mortgage servicing loans'' that would not 
be covered by the 2012 TILA-RESPA Proposal rulemaking are closed-end 
reverse mortgage transactions. Open-end reverse mortgage 
transactions are not ``mortgage servicing loans'' as that term is 
defined in current Sec.  1024.21(a).
---------------------------------------------------------------------------

    Further, the Bureau proposes to implement through commentary a 
clarification relating to providing a servicing disclosure statement 
for co-applicants. Regulation X currently provides that if co-
applicants provide the same address on an application, one copy of the 
servicing disclosure statement delivered to that address is sufficient, 
but if different addresses are shown by co-applicants, a copy of the 
servicing disclosure statement should be provided to each of the co-
applicants. The Bureau believes this requirement is unduly burdensome, 
especially in light of the reduced scope of the servicing disclosure 
statement to closed-end reverse mortgage transactions. The Bureau 
proposes instead to require that if co-applicants provide different 
addresses, a servicing disclosure statement need only be provided to 
the primary applicant. This requirement is consistent with disclosure 
requirements applicable to other Bureau regulations. See 12 CFR 
1002.9(f).
    The Bureau does not believe this change will have a meaningful 
impact on consumers. The only situation that would be covered by this 
commentary is when multiple applicants for a closed-end reverse 
mortgage transaction indicate separate addresses on an application. 
Closed-end reverse mortgage transactions typically require funds to be 
dispersed in a single lump-sum payment and are typically only available 
for borrower-occupied residences. The servicer of a closed-end reverse 
mortgage transaction is not responsible for making on-going payments to 
reverse mortgage borrowers, and borrowers of closed-end reverse 
mortgage transactions do not have on-going mortgage loan payment 
obligations during the life of the loan. The Bureau believes that 
removing the requirement that borrowers with different addresses 
receive a separate mortgage servicing disclosure statement will remove 
a burden for reverse mortgage lenders and will not remove any 
meaningful protection for consumers.
    Proposed Sec.  1024.33(b)-(c) sets forth the requirements 
applicable to notices of transfer of mortgage loan servicing. The 
Bureau proposes to remove the requirement that the transferor and 
transferee servicers provide collect-call telephone numbers (but retain 
the requirement to provide toll-free telephone numbers). The Bureau 
believes the collect-call telephone number requirement is obsolete. The 
Bureau also proposes to remove the requirement currently set forth in 
Sec.  1024.21(d)(3)(vii) for a statement of the borrower's rights in 
connection with complaint resolution. The expanded error resolution and 
information request requirements set forth in proposed Sec. Sec.  
1024.35-1024.36 provide tools for borrowers to assert errors and 
request information in connection with a servicing transfer. A 
transferee servicer will either identify for borrowers a phone number 
and address that must be used for asserting errors or requesting 
information pursuant to the requirements of Sec. Sec.  1024.35-1024.36 
when servicing is transferred or will be required to respond to a 
notice of error or information request received at any office of the 
servicer.
    Further, the Bureau proposes to conform the requirements that 
extend the time for the disclosure to treat institutions for which the 
NCUA has commenced proceedings to appoint a conservator or liquidating 
agent similarly to those for which the FDIC has commenced proceedings 
to appoint a conservator or receiver. The Bureau does not believe that 
the timing for providing a servicing transfer disclosure should differ 
for an insured credit union in the process of conservatorship of 
liquidation by the NCUA as opposed to an insured depository institution 
in the process of conservatorship or receivership by the FDIC.
    The Bureau also proposes to conform proposed Sec.  1024.33(c) with 
the requirements in proposed Sec.  1024.39 by clarifying that a 
borrower's account may be considered late for purposes of contacting 
the borrower for early intervention, but may not be considered late for 
any other purpose, including imposing late fees.
    The Bureau proposes to add a requirement in proposed Sec.  
1024.33(c)(2) that, in connection with a servicing transfer, a 
transferor servicer shall promptly either transfer a payment it has 
received incorrectly to the transferee servicer for application to a 
borrower's mortgage loan account or return the payment to the person 
that made the payment to the transferor servicer. The Bureau 
understands that many servicers already transfer misdirected payments 
to the appropriate servicer in connection with a servicing transfer. 
The Bureau requests comment regarding whether servicers should be 
required to transfer funds received for a borrower's mortgage loan 
account to the appropriate servicers. The Bureau also solicits comment 
on whether the Bureau should implement requirements on the timing and 
method by which payments are returned to consumers.
    The Bureau also proposes to add comment 33(b)(3)-2 to clarify how a 
notice of servicing transfer should be delivered to a borrower. 
Proposed comment 33(b)(3)-2 clarifies that a notice of transfer should 
be delivered to the mailing address listed by the borrower in the 
mortgage loan documents, unless the borrower has notified the servicer 
of a new address pursuant to the servicer's requirements for receiving 
a notice of a change of address. This requirement is consistent with 
current law.\69\ Proposed comment 33(b)(3)-2 further clarifies that 
when a mortgage loan has more than one borrower, the notice of transfer 
need only be given to one borrower, but must be given to the primary 
borrower when one is readily apparent.
---------------------------------------------------------------------------

    \69\ Rodriguez v. Countrywide Homes et al., 668 F. Supp. 2d 
1239, 1245 (E.D. Ca. 2009) (``Countrywide submits, and the Court 
agrees, that RESPA requires a lender to send a Good Bye letter to 
the Mailing Address listed by the borrower in the loan documents. 
When the borrower submits an express change of mailing address, the 
lender is required to send the Good Bye letter to the new 
address.'').
---------------------------------------------------------------------------

    The Bureau also proposes to amend the model form set forth in 
appendix MS-2 to reflect the proposed requirements in proposed Sec.  
1024.33(b)(4) and to streamline the contents of the form. The Bureau 
believes that borrowers are best served by reducing the content of the 
form so that borrowers receive a form that clearly sets forth the 
required content regarding the transfer of servicing and the address to 
which the next payment should be sent.
    The Bureau proposes to exercise its authority under section 6(j)(3) 
of RESPA to set forth requirements necessary to carry out section 6 of 
RESPA. The Bureau further relies on its authority in section 19(a) of 
RESPA to make such rules and regulations necessary to achieve the 
consumer protection purposes of RESPA.
Section 1024.34 Timely Payments by Servicer
    Proposed Sec.  1024.34(a) would require a servicer to pay amounts 
owed for taxes, insurance premiums, and other charges from an escrow 
account in a timely manner, pursuant to the requirements of

[[Page 57221]]

current Sec.  1024.17(k), including the amendments proposed in this 
rule. Further, proposed Sec.  1024.34(b) would implement the Dodd-Frank 
Act amendment to section 6(g) of RESPA by requiring a servicer to 
refund to a borrower any amounts remaining in an escrow account when a 
mortgage loan is paid in full. Section 6(g) of RESPA also permits a 
servicer to credit the escrow account balance to an escrow account for 
a new mortgage loan to the borrower with the same lender. ``Lender'' is 
defined in Regulation X to mean, generally, the secured creditor or 
creditors named in the debt obligation and document creating the lien. 
For loans originated by a mortgage broker that closes a federally 
related mortgage loan in its own name in a table funding transaction, 
the lender is the person to whom the obligation is initially assigned 
at or after settlement.
    The Bureau believes the purpose of the provision allowing a 
servicer to credit funds in an escrow account to an escrow account for 
a new mortgage loan is intended to allow the amounts to be smoothly 
transferred without the need for the borrower to expend funds to fund a 
new escrow account and wait for a refund of a prior escrow account. 
Consistent with the Bureau's proposal to clarify that subpart C may 
relate to secondary market transactions, which is implemented by the 
amendment to current Sec.  1024.5(b)(7), the Bureau proposes to 
interpret the language ``account with the same lender'' consistent with 
secondary market practices. Accordingly, for purposes of section 6(g), 
the Bureau believes that a servicer should be able to credit an escrow 
account for a prior mortgage loan to a new mortgage loan where the 
lender for the new mortgage loan is (i) the same as the lender for the 
prior mortgage loan, (ii) the same as the current owner or assignee of 
the prior mortgage loan, or (iii) intends to use as its agent the same 
servicer that services the prior mortgage loan.
    Accordingly, proposed Sec.  1024.34(b) is intended to clarify three 
points. First, a servicer may credit an escrow account balance to an 
escrow account for a new mortgage loan if the lender for the new 
mortgage loan is the owner or assignee of the prior mortgage loan, even 
if that entity was not the lender for the prior mortgage loan named in 
the debt obligation and document creating the lien. Second, a servicer 
may credit an escrow account balance to an escrow account for a new 
mortgage loan if the servicer for the new mortgage loan is the same as 
the servicer for the prior mortgage loan. Third, the 20-day allowance 
for section 6(g) only applies if the servicer refunds the escrow 
account balance to the borrower. If the servicer credits the funds in 
the escrow account to an escrow account for a new mortgage loan, the 
credit should occur as of the settlement of the new mortgage loan.
    Proposed comment 34(b)(2)-1 clarifies that a servicer is not 
required to credit an escrow account balance to a new mortgage loan in 
any circumstance in which it would be permitted to do so. A servicer 
may determine, in all circumstances, to return funds in an escrow 
account to the borrower pursuant to proposed Sec.  1024.34(a).
    The Bureau requests comments regarding whether the Bureau has 
identified proper instances where servicers may credit funds to a new 
escrow account and how such crediting should occur.
    The Bureau is proposing these requirements to implement section 
6(g) of RESPA pursuant to its authority in section 6(j)(3) of RESPA to 
set forth requirements necessary to carry out section 6 of RESPA. The 
Bureau further relies on its authority in section 19(a) of RESPA to 
make such rules and regulations, to make such interpretations, and to 
grant such reasonable exemptions for classes of transactions as may be 
necessary to achieve the consumer protection purposes of RESPA.
Section 1024.35 Error Resolution Procedures
    Proposed Sec.  1024.35 states the error resolution requirements 
that servicers would be required to follow for a notice of error from a 
borrower. In general, this proposal provides an opportunity to clarify 
servicer obligations to correct errors and respond to information 
requests to provide certainty to borrowers regarding their rights and 
to servicers regarding their obligations.
    Currently, section 6(e) of RESPA requires servicers to respond to 
``qualified written requests.'' Qualified written requests must be in 
writing and must relate to the ``servicing'' of the mortgage loan, as 
that term is defined in RESPA. Although the Bureau believes that 
qualified written requests may be used to either assert an error or to 
request information, there has been confusion among courts regarding 
whether both types of requests are necessary to set forth a qualified 
written request.\70\
---------------------------------------------------------------------------

    \70\ See Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 
2011); Pettie v. Saxon Mortgage Services, No. C08-5089, 2009 U.S. 
Dist. LEXIS 41496 (W.D. Wa. May 12, 2009).
---------------------------------------------------------------------------

    The Dodd-Frank Act adds another layer of complexity. Section 
1463(a) of the Dodd-Frank Act amends RESPA to add section 6(k)(1)(C), 
which states that a servicer shall not fail to take timely action to 
``correct errors relating to allocation of payments, final balances for 
purposes of paying off the loan, or avoiding foreclosure, or other 
standard servicer's duties.'' Further, section 1463(a) of the Dodd-
Frank Act amends RESPA to add section 6(k)(1)(D) which states that a 
servicer shall not fail to provide information regarding the owner or 
assignee of a mortgage loan within ten business days of a borrower's 
request. Neither section indicates whether the request to correct an 
error or the request for information must be in the form of a qualified 
written request.
    In light of these disparate obligations, the Bureau believes that 
both borrowers and servicers would be better served if the Bureau were 
to clearly define a servicer's obligation to correct errors or respond 
to information requests. To that end, the Bureau proposes Sec. Sec.  
1024.35 (Error resolution procedures) and 1024.36 (Requests for 
information) to establish separate but parallel obligations for 
servicers to respond to notices of error and information requests. 
Further, the Bureau's intention is to establish servicer procedural 
requirements for error resolution and information requests that are 
consistent with the requirements applicable to a qualified written 
request under RESPA. Through this, the Bureau intends to make the 
restrictions and circumlocutions inherent in the language of the 
qualified written request provisions obsolete. Any valid qualified 
written request is a valid notice of error or information request. An 
invalid qualified written request may still be a valid notice of error 
or information request.\71\
---------------------------------------------------------------------------

    \71\ Notably, a notice of error may also constitute a direct 
dispute under Regulation V, which implements the Fair Credit 
Reporting Act, if it complies with the requirements in 12 CFR 
1022.43.
---------------------------------------------------------------------------

    Proposed Sec.  1024.35 establishes the rules implementing the 
servicer prohibitions set forth in section 6(k)(1)(B), (C), and (E) of 
RESPA. These prohibitions make it unlawful for a servicer to charge a 
fee for responding to valid qualified written requests, to fail to take 
timely action to respond to a borrower's requests to correct errors 
relating to allocation of payments, final balances for purposes of 
paying off the loan, avoiding foreclosure, or other standard servicer's 
duties, and to fail to comply with any other obligation found by the 
Bureau to be appropriate to carry

[[Page 57222]]

out the consumer protection purposes of RESPA.
35(a) Notice of Error
    Proposed Sec.  1024.35(a) states that a notice of error may be made 
orally or in writing and must include the name of the borrower, 
information that enables a servicer to identify the borrower's mortgage 
loan account, and the error the borrower believes has occurred.
    Section 6(k)(1)(C) of RESPA, as added by section 1463(a) of the 
Dodd-Frank Act, refers generically to servicers' failures to respond to 
requests of borrowers to correct certain errors. However, unlike 
section 6(e) of RESPA, which contains the statutory language regarding 
qualified written requests, section 6(k)(1)(C) of RESPA does not 
specify that borrowers' requests to correct errors must be submitted in 
any particular format.
    Oral notices of error. The Bureau proposes to allow a borrower to 
make a notice of error either orally or in writing. The Bureau believes 
this approach is warranted because, based on its discussions with 
consumers, consumer advocates, servicers, and industry trade 
associations, it appears that the vast majority of borrower complaints 
are generated orally instead of in writing. A requirement that a notice 
of error must be in writing generally serves as a barrier that unduly 
restricts the ability of a borrower to have errors resolved. The Bureau 
believes it is important for consumers to receive the benefit of 
required correction or investigation from servicers of orally asserted 
errors.
    Servicers and servicer representatives stated that allowing a 
notice of error to be provided orally would create new burdens for 
servicers regarding tracking the notices of error and monitoring that a 
borrower receives written acknowledgements and responses. In addition, 
small entity representatives with whom the Small Business Review Panel 
conducted outreach reiterated these burdens on behalf of small 
servicers. The Small Business Review Panel recommended that the CFPB 
consider requiring small servicers to comply with the error resolution 
procedures only when borrowers provided error notices in writing.\72\ 
The Small Business Review Panel also recommended that the Bureau 
consider adopting a more flexible process for tracking errors and 
demonstrating compliance that could be used by small servicers.\73\
---------------------------------------------------------------------------

    \72\ See Small Business Review Panel Report at 30.
    \73\ Id.
---------------------------------------------------------------------------

    The Bureau recognizes the burdens on servicers to ensure compliance 
with this proposed rule for notices of error received orally. In order 
to implement this section, servicers may adopt systems to ensure that a 
borrower's notice of error is tracked and receives the required 
acknowledgement and response. In light of the concerns express in the 
Small Business Review Panel Report, the Bureau has declined to specify 
any particular requirement that a servicer must undertake to track 
notices of error. Further, ensuring that borrower assertions of errors 
are investigated, responded to, and, as appropriate, corrected, is an 
objective of the reasonable information management policies and 
procedures set forth below in proposed Sec.  1024.38. The Bureau has 
created that proposal to provide flexibility to servicers, including 
small servicers, to design policies and procedures that are appropriate 
to the particular circumstances of each servicer. The Bureau believes 
this flexibility reflects that Small Business Review Panel 
recommendation that the Bureau create flexibility in the manner in 
which small servicers comply with the error resolution requirements.
    The Bureau further believes that elements of the proposed rule 
assist in mitigating burden for all servicers. These elements include, 
for example, a limitation on the types of errors that servicers would 
be required to resolve to a finite list, as well as a proposal to allow 
servicers to designate a specific telephone number for receiving oral 
notices of error.
    The Bureau believes the error resolution (as well as the 
information management) requirement provides appropriate flexibility 
for small servicers to implement policies and procedures to comply with 
this objective that make sense for their organizations and responds to 
the findings and recommendations in the Small Business Review Panel 
Report.\74\
---------------------------------------------------------------------------

    \74\ See Small Business Review Panel Report at 29.
---------------------------------------------------------------------------

    The Bureau solicits comments regarding whether servicers should be 
required to apply the error resolution requirements to notices of error 
received orally. The Bureau further solicits comments regarding whether 
small servicers (as that term is defined in the 2012 TILA Servicing 
Proposal) should be exempt from a requirement to apply the error 
resolution procedures in proposed Sec.  1024.35 to notices of error 
received orally.
    Qualified written requests. Proposed Sec.  1024.35(a) would require 
a servicer to treat notices of error, whether oral or written, the same 
way it treats a qualified written request that asserts an error. The 
Bureau's intention is to propose servicer obligations applicable to a 
notice of error that are exactly the same as obligations applicable to 
a qualified written request. For example, as set forth below, a 
servicer may not charge a fee for responding to a notice of error, a 
servicer must acknowledge receipt of a notice of error within five days 
(excluding legal public holidays, Saturdays, and Sundays) and must 
respond to the notice of error within 30 days (excluding legal public 
holidays, Saturdays, and Sundays). Moreover, a servicer's potential 
liability for failure to respond to a notice of error is the same as 
the potential liability for failure to respond to a qualified written 
request. Thus, under proposed Sec.  1024.35(a), there is no reason for 
a borrower to send a qualified written request as opposed to an oral or 
written notice of error nor is there a reason for a servicer to reject 
a qualified written request because it does not meet the requirements 
for a qualified written request in section 6(e) of RESPA when such 
request constitutes a valid notice of error. Even if a borrower does 
not comply with all the requirements of a qualified written request, 
including, for instance, by asserting an error orally, or by asserting 
an error that is defined in Sec.  1024.35(b) but does not constitute 
``servicing'' as defined in RESPA, the obligations for the servicer to 
respond to the borrower are the same and the liability for the 
servicer's failure to respond to the borrower is the same.
    Proposed comment 35(a)-1 would clarify that a notice of error 
submitted by a person acting on behalf of the borrower is considered a 
notice of error pursuant to proposed Sec.  1024.35(b). This 
clarification is substantially the same as the current requirement 
existing under section 6(e)(1)(A) of RESPA with respect to a qualified 
written request.\75\ Servicers may undertake reasonable procedures to 
determine if a person that claims to be an agent of a borrower has 
authority from the borrower to act on the borrower's behalf.
---------------------------------------------------------------------------

    \75\ Section 6(e)(1)(A) of RESPA states that a qualified written 
request may be provided by a ``borrower (or an agent of the 
borrower).''
---------------------------------------------------------------------------

    Proposed comment 35(a)-2 would clarify that the substance of the 
notice of error would determine the servicer's obligation to comply 
with the error resolution requirements. No particular language (such as 
``qualified written request'' or ``notice of error'') is necessary to 
set forth a notice of error.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(C) and 6(k)(1)(E) of RESPA to implement the

[[Page 57223]]

notice of error requirements. Further, to the extent the requirements 
are also applicable to qualified written requests, the Bureau relies on 
its authority in sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau 
further has authority pursuant to section 6(j)(3) of RESPA to establish 
any requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
35(b) Scope of Error Resolution
    Proposed Sec.  1024.35(b) provides a finite list of errors to which 
the error resolution provisions would relate (covered errors). A finite 
list of covered errors provides certainty to both borrowers and 
servicers regarding the types of errors that are subject to the error 
resolution process. Further, a finite list of covered errors is 
intended to ensure that servicer resources can be dedicated to 
responding to errors that are capable of correction, to the benefit of 
a borrower. For example, the Bureau considered whether to define as a 
covered error a servicer's failure to accurately and timely provide a 
disclosure to a borrower as required by applicable law. The Bureau 
determined that such a failure was not appropriate as a covered error 
because the information request provisions provide the borrower the 
ability to obtain the underlying information. Further, the Bureau 
believes that a servicer's action to attempt to correct the failure, 
such as by sending the untimely disclosure after the deadline, would 
not actually correct the timeliness error and would not be helpful or 
useful to borrowers. In that circumstance, the error resolution request 
would create burden and impose costs on servicers without offering 
concomitant benefit for borrowers.
    The Bureau further considered the impact of the proposed error 
resolution requirements if the types of covered errors were not 
limited. The proposal expands servicer's obligations to respond to 
error notices and information requests from borrowers. Borrowers may 
initiate an error resolution process orally, not just in writing. 
Further, in general, the proposal reduces the time period within which 
a servicer must respond to a borrower (from 60 days to 30 days), 
consistent with the Dodd-Frank Act amendments to section 6(e)(2) of 
RESPA. For certain types of covered errors, the time period to respond 
to the borrower is even more limited. The Bureau believes that the 
added costs and burden created by having an open-ended definition of an 
error could substantially increase the costs to servicers with limited 
additional benefit to consumers. The Bureau further believes that 
requiring servicers to respond to potentially any assertion of an error 
could, as a practical matter, lead to servicers using disproportionate 
resources to respond to every asserted error. That practice may cause 
servicers to expend fewer resources to address errors that may be far 
more significant to borrowers.
    The Small Business Review Panel received feedback from SERs 
regarding whether the error resolution procedures should include a 
catch-all provision to the enumerated list of errors. In general, the 
SERs commented favorably on the Bureau's proposal to include a finite 
list of errors. The SERs indicated that if the Bureau were to consider 
adding a catch-all provision, then the Bureau should request comment on 
whether to not include such a provision. Accordingly, for the reasons 
above, proposed Sec.  1024.35(b) provides a finite list of covered 
errors to which the error resolution provisions would relate. The 
Bureau requests comment regarding whether (1) the finite list of 
covered errors should include any other specific types of errors that 
are not addressed in the list and (2) whether the list of covered 
errors should not be finite and should include a catch-all provision 
for other types of errors not set forth in the rule.
    Covered errors. Paragraph 35(b) defines the types of covered errors 
for which the error resolution procedures apply. As discussed below, 
the proposed rule sets forth a finite list of nine types of covered 
errors based on the statutory language prohibiting servicers from 
failing to take timely action to respond to a borrower's request to 
correct errors ``relating to allocation of payments, final balances for 
purposes of paying off the loan, or avoiding foreclosure, or other 
standard servicer's duties.'' See RESPA section 6(k)(1)(C).
    Proposed comment 35(b)-1 clarifies that a servicer would not be 
required to comply with the requirements of proposed Sec.  1024.35(d)-
(e) if a notice relates to something other than one of the types of 
covered errors in proposed Sec.  1024.35(b). The proposed comment 
provides examples of categories of excluded errors that would not be 
considered covered errors pursuant to proposed Sec.  1024.35(b). These 
include matters relating to the origination or underwriting of a 
mortgage loan, matters relating to a subsequent sale or securitization 
of a mortgage loan, and matters relating to a sale, assignment, or 
transfer of the servicing of a mortgage loan other than the transfer of 
information for a borrower's mortgage loan account. The Bureau believes 
that a mortgage servicer is generally not in a position to investigate 
or resolve borrower complaints regarding potential errors that may have 
occurred during an origination, underwriting, sale, or securitization 
process. The Bureau requests comment regarding whether any errors that 
may fall within the examples of excluded errors should instead be 
included as covered errors.
Paragraph 35(b)(1)
    Proposed paragraph 35(b)(1) includes as a covered error a 
servicer's failure to accept a payment that conforms to the servicer's 
written requirements for the borrower to follow in making payments.
    Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to 
take timely action to respond to a borrower's request to correct errors 
relating to the allocation of payments for a borrower's account. 
Paragraph 35(b)(1) is an example of one type of error that fits within 
the broad statutory prohibition. A failure to accept a proper payment 
will necessarily have implications for the correct application of 
borrower payments. Further, proper acceptance of payments is, by 
definition, ``servicing,'' as that term is defined in section 6(i)(3) 
of RESPA and already subject to the qualified written request procedure 
set forth in section 6(e) of RESPA and current Sec.  1024.21(e) of 
Regulation X.
    The Bureau further believes that proper acceptance of borrower 
payments is a standard servicer duty as set forth in section 6(k)(1)(C) 
of RESPA. Section 6(k)(1)(C) of RESPA states that a servicer shall not 
fail to take timely action to respond to a borrower's request to 
correct errors relating three specific categories as well as those 
relating to ``other standard servicer duties.'' The Bureau believes 
that standard servicer duties are those typically undertaken by 
servicers in the ordinary course of business. Such duties include not 
only the obligations that are specifically identified in section 
6(k)(1)(C), but also those duties that are defined as ``servicing'' by 
RESPA, as well as duties customarily undertaken by servicers to 
investors and consumers in connection with the servicing of a mortgage 
loan. These include duties that may not be contemplated within the 
definition of ``servicing'' in RESPA, such as duties to comply with 
investor agreements and servicing program guides, to advance payments 
to investors, to process and pursue mortgage insurance claims, to 
monitor coverage for insurance (e.g. hazard

[[Page 57224]]

insurance), to monitor tax delinquencies, to respond to borrowers 
regarding mortgage loan problems, to report data on loan performance to 
investors and guarantors, and to work with investors and borrowers on 
options to mitigate losses for defaulted mortgage loans. Throughout 
this proposal, the Bureau refers to these standard servicer duties, in 
the parlance of section 6(k)(1)(C) of RESPA, as typical servicer duties 
to reflect the plain language connotation that such duties are those 
typically performed by servicers in the normal course of business.
    As set forth above, the Bureau is proposing Sec.  1024.35(b)(1) to 
implement section 6(k)(1)(C) of RESPA. The Bureau also relies on its 
authority in section 6(j)(3) of RESPA to set forth requirements 
necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of 
RESPA to set forth obligations appropriate to carry out the consumer 
protection purposes of RESPA. Further, the Bureau relies on its 
authority in section 19(a) of RESPA to make such rules and regulations 
and to make such interpretations as may be necessary to achieve the 
consumer protection purposes of RESPA.
Paragraph 35(b)(2)
    Proposed paragraph 35(b)(2) would include as a covered error a 
servicer's failure to apply an accepted payment to the amounts due for 
principal, interest, escrow, or other items pursuant to the terms of 
the mortgage loan and applicable law.
    Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to 
take timely action to respond to a borrower's request to correct errors 
relating to the allocation of payments for a borrower's account. 
Paragraph 35(b)(2) implements the prohibition in section 6(k)(1)(C) of 
RESPA. The Bureau also relies on its authority in section 6(j)(3) of 
RESPA to set forth requirements necessary to carry out section 6 of 
RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations 
appropriate to carry out the consumer protection purposes of RESPA. 
Further, the Bureau relies on its authority in section 19(a) of RESPA 
to make such rules and regulations and to make such interpretations as 
may be necessary to achieve the consumer protection purposes of RESPA.
Paragraph 35(b)(3)
    Proposed paragraph 35(b)(3) includes as an error a servicer's 
failure to credit a payment to a borrower's mortgage loan account as of 
the date of receipt, where such failure has resulted in a charge to the 
consumer or the furnishing of negative information to a consumer 
reporting agency.
    Proper crediting of payments to consumers is required by section 
129F of TILA, which was added by section 1464 of the Dodd-Frank Act and 
would be implemented by proposed Sec.  1026.36(c) in the 2012 TILA 
Servicing Proposal. For a mortgage loan secured by a principal 
dwelling, TILA section 129F mandates that servicers shall not fail to 
credit a payment to a consumer's loan account as of the date of 
receipt, except when a delay in crediting does not result in any charge 
to the consumer, or in the furnishing of negative information to a 
consumer reporting agency. See 15 U.S.C. 1639f. TILA section 129F 
provides a specific exception for payments that do not conform to a 
servicer's written requirements, but nonetheless are accepted by the 
servicer, in which case the servicer shall credit the payment as of 
five days after receipt. See 15 U.S.C. 1639(f)(b). Servicers of 
mortgage loans covered by TILA section 129F have a duty to comply with 
that provision.
    Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to 
take timely action to respond to a borrower's request to correct errors 
relating to the allocation of payments for a borrower's account. 
Paragraph 35(b)(3) implements this prohibition. A failure to credit a 
payment will necessarily have implications for the correct application 
of borrower payments. A servicer's failure to properly credit a payment 
will cause the servicer to report to a borrower improper information 
regarding the amounts owed by the borrower and may cause a servicer to 
misapply other payments received by the borrower. Further, a servicer's 
failure to properly credit borrower payments may generate improper late 
fees and other charges.
    The Bureau also observes that proper crediting of borrower payments 
is, by definition, ``servicing,'' as that term is defined in section 
6(i)(3) of RESPA and, therefore, is subject to the qualified written 
request procedure set forth in section 6(e) of RESPA and current Sec.  
1024.21(e) of Regulation X.
    For these reasons, the Bureau proposes to implement section 
6(k)(1)(C) of RESPA by prohibiting servicers from failing to correct 
errors relating to proper crediting of borrower payments. The Bureau 
also relies on its authority in section 6(j)(3) of RESPA to set forth 
requirements necessary to carry out section 6 of RESPA and in section 
6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out 
the consumer protection purposes of RESPA. Further, the Bureau relies 
on its authority in section 19(a) of RESPA to make such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
Paragraph 35(b)(4)
    Proposed paragraph 35(b)(4) includes as an error a servicer's 
failure to make disbursements from an escrow account for taxes, 
insurance premiums (including flood insurance), or other charges, 
including charges that the borrower and servicer have voluntarily 
agreed that the servicer should collect and pay, as required by current 
Sec.  1024.17(k), or to refund an escrow account balance in a timely 
manner as required by proposed Sec.  1024.34(b).
    In the normal course of business, servicers typically engage in 
collecting payments from borrowers to fund escrow accounts and disburse 
payments from escrow accounts to pay borrower obligations for taxes, 
insurance premiums, and other charges. Servicers typically undertake 
this obligation on behalf of investors because a borrower's maintenance 
of an escrow account reduces risk for investors that unpaid taxes may 
generate tax liens that are higher in priority than a lender's mortgage 
lien and that unpaid insurance may cause lapses in insurance coverage 
that present risk for investors in the event of a loss. Servicers are 
required to make disbursements from escrow accounts in a timely manner 
pursuant to section 6(g) of RESPA and are required to account for the 
funds credited to an escrow account pursuant to section 10 of RESPA. 
The Bureau further observes that proper disbursement of escrow funds 
is, by definition, ``servicing,'' as that term is defined in section 
6(i)(3) of RESPA and, therefore, is currently subject to the qualified 
written request procedure set forth in section 6(e) of RESPA and 
current Sec.  1024.21(e) of Regulation X.
    Proposed paragraph 35(b)(4) would require a servicer to correct 
errors relating to a typical servicer duty and implements section 
6(k)(1)(C) of RESPA. The Bureau also relies on its authority in section 
6(j)(3) of RESPA to set forth requirements necessary to carry out 
section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth 
obligations appropriate to carry out the consumer protection purposes 
of RESPA. Further, the Bureau relies on its authority in section 19(a) 
of RESPA to make such rules and regulations and to make such 
interpretations as may be necessary to achieve the consumer protection 
purposes of RESPA.

[[Page 57225]]

Paragraph 35(b)(5)
    Proposed paragraph 35(b)(5) includes as an error a servicer's 
imposition of a fee or charge that the servicer lacks a reasonable 
basis to impose upon the borrower.
    Servicers should not impose fees on borrowers that are not bona 
fide--that is, fees that a servicer does not have a reasonable basis to 
impose upon a borrower. Examples of non-bona fide charges include such 
common sense errors as late fees for payments that were not late, 
default property management fees for borrowers that are not in a 
delinquency status that would justify the charge, charges for services 
from service providers that were not actually rendered with respect to 
a borrower's mortgage loan account, and charges for force-placed 
insurance where a servicer lacks a reasonable basis to impose the 
charge on the borrower as set forth in proposed Sec.  1024.37.
    Improper fees harm both mortgage loan borrowers and the investors 
that are mortgage servicers' principals. Improper and uncorrected fees 
harm borrowers by taking funds that may otherwise be used to keep a 
mortgage loan current. Further, improper fees reduce recovery values 
available to investors from foreclosures or loss mitigation activities.
    Servicers that operate in good faith in the normal course of 
business refrain from imposing charges on borrowers that the servicer 
does not have a reasonable basis to impose and correct errors relating 
to those fees when they arise. The Bureau believes that it is a typical 
servicer duty, both to the borrower and to the servicer's principal, to 
ensure that the servicer has a reasonable basis to impose a charge on a 
borrower.
    Proposed paragraph 35(b)(5) would require a servicer to correct 
errors relating to a typical servicer duty and implements section 
6(k)(1)(C) of RESPA. The Bureau also relies on its authority in section 
6(j)(3) of RESPA to set forth requirements necessary to carry out 
section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth 
obligations appropriate to carry out the consumer protection purposes 
of RESPA. Further, the Bureau relies on its authority in section 19(a) 
of RESPA to make such rules and regulations and to make such 
interpretations as may be necessary to achieve the consumer protection 
purposes of RESPA.
Paragraph 35(b)(6)
    Proposed paragraph 35(b)(6) includes as an error a servicer's 
failure to provide an accurate payoff balance to a borrower upon 
request pursuant to 12 CFR 1026.36(c)(1)(iii).
    Borrowers require accurate payoff statements to manage their 
mortgage loan obligations. A payoff statement is necessary anytime a 
borrower repays a mortgage loan and servicers routinely provide payoff 
statements for borrowers to refinance or pay in full mortgage loan 
obligations. However, consumer advocates have indicated servicers have 
failed, or refused, to provide payoff statements to certain borrowers 
or have required borrowers to make a payment on a mortgage loan as a 
condition of fulfilling the borrower's request for a payoff 
statement.\76\ Any such conduct has the perverse effect of impeding a 
borrower's ability to pay a mortgage loan obligation in full.
---------------------------------------------------------------------------

    \76\ See, e.g., Mortgage Servicing: An Examination of the Role 
of Federal Regulators in Settlement Negotiations and the Future of 
Mortgage Servicing Standards: Joint Hearing Before the Subcommittee 
on Financial Institutions and Consumer Credit and Subcommittee on 
Oversight and Investigations of the House Financial Services Comm., 
No. 112-44, 112th Cong. 76 (July 7, 2011) (statement of Mike 
Calhoun, President, Center for Responsible Lending).
---------------------------------------------------------------------------

    Servicers already have an obligation to comply with the timing 
requirements of section 129G of TILA with respect to any mortgage loan 
that constitutes a ``home loan'' as used in section 129G of TILA. The 
Bureau believes that, in order to implement the prohibition set forth 
in section 6(k)(1)(C) of RESPA regarding a servicer's failure to 
correct errors relating to final balances for purposes of paying off 
the loan, a servicer should be required to comply with the requirements 
within a reasonable time frame. Because servicers will be required to 
comply with the timeframes set forth in 12 CFR 1026.36(c)(1)(iii) with 
respect to certain mortgage loans they service, the Bureau does not 
believe that requiring servicers to correct errors for mortgage loans 
that may not constitute home loans as that term is used in section 129G 
of TILA within error resolution timeframes imposes additional burden on 
servicers.
    Proposed paragraph 35(b)(6) implements section 6(k)(1)(C) of RESPA 
with respect to a servicer's obligation to correct errors relating to 
final balance for purposes of paying of a mortgage loan. The Bureau 
also relies on its authority in section 6(j)(3) of RESPA to set forth 
requirements necessary to carry out section 6 of RESPA and in section 
6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out 
the consumer protection purposes of RESPA. Further, the Bureau relies 
on its authority in section 19(a) of RESPA to make such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
Paragraph 35(b)(7)
    Proposed paragraph 35(b)(7) includes as an error a servicer's 
failure to provide accurate information to a borrower with respect to 
loss mitigation options available to the borrower and foreclosure 
timelines that may be applicable to the borrower's mortgage loan 
account, as required by proposed Sec. Sec.  1024.39-1024.40.
    In order to pursue loss mitigation options that may benefit both 
the borrower and the owner or assignee of the borrower's mortgage loan, 
a borrower requires accurate information about the loss mitigation 
options available to the borrower, the requirements for receiving an 
evaluation for any such loss mitigation option, and the applicable 
timelines relating to both the evaluation of the borrower for the loss 
mitigation options and any potential foreclosure process. Although the 
Bureau does not generally believe a failure to provide a required 
disclosure to a borrower should constitute an error requiring 
compliance with the error resolution procedures in proposed Sec.  
1024.35, borrowers may benefit from asserting errors with respect to a 
servicer's failure to provide information regarding loss mitigation 
options that may be available to the borrower but for which the 
servicer has not provided information to the borrower. By correcting 
this error and providing the borrower with accurate information 
regarding loss mitigation options that may be available to the 
borrower, a servicer can help a borrower receive an evaluation for the 
loss mitigation option pursuant to proposed Sec.  1024.41 and may be 
able to reach agreement with the borrower on a loss mitigation option 
that is mutually beneficial to the borrower and the owner or assignee 
of the borrower's mortgage loan.
    Proposed paragraph 35(b)(7) implements section 6(k)(1)(C) of the 
Dodd-Frank Act. Specifically, proposed paragraph 35(b)(7) implements a 
servicer's obligation to correct errors relating to avoiding 
foreclosure. Further, the Bureau believes that the National Mortgage 
Settlement, servicer participation in Home Affordable Modification 
Program (HAMP) sponsored by the U.S. Department of the Treasury 
(Treasury) and HUD, and service participation in other loss mitigation 
programs required by Fannie Mae and Freddie Mac demonstrate that 
servicers typically provide borrowers with information regarding loss 
mitigation options and foreclosure and

[[Page 57226]]

that providing such information to borrowers is a typical servicer 
duty.
    The Bureau also relies on its authority in section 6(j)(3) of RESPA 
to set forth requirements necessary to carry out section 6 of RESPA and 
in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to 
carry out the consumer protection purposes of RESPA. Further, the 
Bureau relies on its authority in section 19(a) of RESPA to make such 
rules and regulations and to make such interpretations as may be 
necessary to achieve the consumer protection purposes of RESPA.
Paragraph 35(b)(8)
    Proposed paragraph 35(b)(8) would include as an error a servicer's 
failure to accurately and timely transfer information relating to a 
borrower's mortgage loan account to a transferee servicer.
    In the normal course of business, servicers typically anticipate 
that they will be required to transfer servicing for some mortgage 
loans they service. Owners or assignees of mortgage loans typically 
have rights to transfer servicing for a mortgage loan pursuant to the 
requirements set forth in mortgage servicing agreements. Servicers are 
required to develop capacity for transferring information to transferee 
servicers in order to comply with such obligations to owners or 
assignees of mortgage loans. Further, servicers are required to develop 
capacity to onboard data for transferred mortgage loans onto the 
servicer's servicing platform.
    Borrowers may be harmed, however, if information that is 
transferred to transferee servicers is not accurate or current. In 
certain circumstances, such failure may cause errors to occur relating 
to allocating payments, calculating final balances for purposes of 
paying off a mortgage loan, or avoiding foreclosure.
    Pursuant to proposed Sec.  1024.38(a), servicers would be required 
to have policies and procedures to achieve the objectives set forth in 
proposed Sec.  1024.38(b), which includes an objective of facilitating 
servicing transfers. An objective of the servicer's policies and 
procedures would be to timely transfer all information and documents 
relating to a transferred mortgage loan to a transferee servicer in a 
form and manner that ensures the accuracy of the information and 
documents transferred and that enables a transferee servicer to comply 
with the requirements of this subpart and the terms of the transferee 
servicer's contractual obligations to the owner or assignee of the 
mortgage loan.
    The Bureau believes that by defining a servicer's failure to 
accurately and timely transfer information relating to a borrower's 
mortgage loan account to a transferee servicer, a borrower will have a 
remedy to ensure that a transferor servicer will update the information 
transferred to provide information to a transferee servicer that 
accurately reflects the borrower's account consistent with the 
obligations applicable to a servicer's information management policies 
and procedures.
    Proposed paragraph 35(b)(8) implements a servicer's obligation to 
take timely action to correct errors relating to typical servicer 
duties pursuant to section 6(k)(1)(C) of RESPA. The Bureau also relies 
on its authority in section 6(j)(3) of RESPA to set forth requirements 
necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of 
RESPA to set forth obligations appropriate to carry out the consumer 
protection purposes of RESPA. Further, the Bureau relies on its 
authority in section 19(a) of RESPA to make such rules and regulations 
and to make such interpretations as may be necessary to achieve the 
consumer protection purposes of RESPA.
Paragraph 35(b)(9)
    Proposed paragraph 35(b)(9) would include as an error a servicer's 
failure to suspend a scheduled foreclosure sale in the circumstances 
described in proposed Sec.  1024.41(g). Pursuant to proposed Sec.  
1024.41(g), a servicer that offers loss mitigation options to borrowers 
in the ordinary course of business would be prohibited from proceeding 
with a foreclosure sale when a borrower has submitted a complete 
application for a loss mitigation option unless the servicer denies the 
borrower's application for a loss mitigation option (including any 
appeal thereof), the borrower rejects the servicer's offer of a loss 
mitigation option, or the borrower fails to perform an agreement on a 
loss mitigation option. For further information, see discussion of 
proposed section Sec.  1024.41 below.
    The Bureau continues to consider whether to include as an error a 
servicer's evaluation of a borrower for a loss mitigation option. The 
Bureau observes that the manner in which a borrower is evaluated for a 
loss mitigation option is complex and includes factors that are 
subjective.\77\ Further, the Bureau believes that the appeal process 
provided in proposed Sec.  1024.41(h) provides an appropriate 
procedural means for borrowers to address issues relating to a 
servicer's evaluation of a borrower for a loan modification program.
---------------------------------------------------------------------------

    \77\ See, e.g., Special Inspector General for the Troubled Asset 
Relief Program, The Net Present Value Test's Impact on the Home 
Affordable Modification Program, at 7-8 (Jun.. 18, 2012), available 
at: http://www.sigtarp.gov/Audit%20Reports/NPV_Report.pdf 
(demonstrating that major HAMP servicers differed in their 
determinations regarding whether to apply a risk premium to the 
discount rate used to calculate net present value for determining 
eligibility for HAMP loan modifications).
---------------------------------------------------------------------------

    The Bureau requests comment regarding whether to include as an 
error a servicer's failure to correctly evaluate a borrower for a loss 
mitigation option. The Bureau further requests comment regarding 
standards for determining if a borrower has been correctly evaluated 
for a loss mitigation option, including whether a servicer should be 
required to comply with the servicer's own standards, standards 
promulgated by major investors and guarantors, and standards 
promulgated in connection with Federal- or State-sponsored loss 
mitigation options.
    Proposed paragraph 35(b)(9) implements section 6(k)(1)(C) of the 
Dodd-Frank Act. Specifically, proposed paragraph 35(b)(9) implements a 
servicer's obligation to correct errors relating to avoiding 
foreclosure. The Bureau also relies on its authority in section 6(j)(3) 
of RESPA to set forth requirements necessary to carry out section 6 of 
RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations 
appropriate to carry out the consumer protection purposes of RESPA. 
Further, the Bureau relies on its authority in section 19(a) of RESPA 
to make such rules and regulations and to make such interpretations as 
may be necessary to achieve the consumer protection purposes of RESPA.
35(c) Contact Information for Borrowers To Assert Errors
    Proposed Sec.  1024.35(c) permits a servicer to establish a 
telephone number and address that a borrower must use to assert an 
error. If a servicer chooses to establish a separate telephone number 
and address for receiving errors, a servicer must provide the borrower 
a written notice that states that the borrower may assert an error at 
the telephone number and address established by the servicer for that 
purpose. Proposed comment 35(c)-2 would clarify that the written notice 
to the borrower may be set forth in another written notice provided to 
the borrower, such as a notice of transfer, periodic statement, or 
coupon book.
    The purpose of establishing a telephone number and address that a 
borrower must use to assert an error is

[[Page 57227]]

to allow servicers to direct oral and written errors to appropriate 
personnel that have been trained to ensure that the servicer responds 
appropriately. At larger servicers with other consumer financial 
service affiliates, many personnel simply do not typically deal with 
mortgage servicing-related issues. For instance, at a major bank 
servicer, a borrower may incorrectly believe that local bank branch 
staff will be required to comply with error resolution requirements for 
mortgage servicing errors. If a servicer establishes a telephone number 
and address that a borrower must use, a servicer would not be required 
to comply with the error resolution requirements for errors that may be 
received by the servicer through a different method. Proposed comment 
35(c)-1 clarifies, however, that if a servicer has not designated a 
telephone number and address that a borrower must use to assert an 
error, then a servicer will be required to comply with the error 
resolution requirements for any notice of error received by any office 
of the servicer.
    The Bureau believes it is reasonable, especially in light of the 
expanded burden of requiring compliance with error resolution for oral 
notices of error, to allow servicers to manage the intake of notices of 
error to designated telephone numbers and addresses. Further, allowing 
a servicer to designate a specific telephone number and address is 
consistent with current requirements of Regulation X with respect to 
qualified written requests. Current Sec.  1024.21(e)(1) permits a 
servicer to designate a ``separate and exclusive office and address for 
the receipt and handling of qualified written requests.'' Moreover, the 
Bureau believes that identifying a specific telephone number and 
address for receiving errors and information requests will benefit 
consumers as well. By providing a specific telephone number and 
address, servicers will identify to consumers the office capable of 
addressing errors identified by consumers. The Bureau is proposing in 
the concurrent 2012 TILA Servicing Proposal to require that any 
telephone number or address identified by a servicer must appear on the 
periodic statement or other payment form supplied by the servicer. See 
2012 TILA Servicing Proposal at proposed Sec.  1026.41(d)(6).
    Multiple offices. Proposed Sec.  1024.35(c) would require a 
servicer to use the same telephone number and address it designates for 
receiving notices of error for receiving information requests pursuant 
to proposed Sec.  1024.36(b), and vice versa. The Bureau believes that 
if servicers designate separate telephone numbers and addresses for 
notices of error and information requests, borrower attempts to provide 
notices of error and information requests to servicers could be 
impeded. Further, proposed comment 35(c)-3 clarifies that any telephone 
numbers or address designated by a servicer for any borrower may be 
used by any other borrower to submit a notice of error. This clarifies 
that a servicer may not determine that a notice of error is invalid if 
it was received at any telephone number or address designated by the 
servicer for receipt of notices of error just because it was not 
received by the specific phone number or address identified to a 
specific borrower. Proposed comment 35(c)-5 clarifies that a servicer 
may use automated systems, such as an interactive voice response 
system, to manage the intake of borrower calls. Prompts for asserting 
errors must be clear and provide the borrower the option to connect to 
a live representative.
    Internet intake of notices of error. Proposed comment 35(c)-4 would 
clarify that a servicer is not required to establish a process for 
receiving notices of error through email, Web site, or other online 
methods. If a servicer establishes a process for receiving notices of 
error through online methods, comment 35(c)-4 is intended to clarify 
that the process established is the only online intake process that a 
borrower can use to assert an error. Thus, a servicer would not be 
required to provide a written notice to a borrower in order to gain the 
benefit of the online process being considered the exclusive online 
process for receiving notices of error. Proposed comment 35(c)-4 
further clarifies that a servicer's decision to accept notices of error 
through an online intake method shall not have any impact on a 
servicer's obligation to comply with the requirements of Sec.  1024.35 
with respect to notices of error received in writing or orally.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(C) and 6(k)(1)(E) of RESPA to implement the notice of error 
requirements. Further, to the extent the requirements are also 
applicable to qualified written requests, the Bureau relies on its 
authority in section 6(e) and 6(k)(1)(B) of RESPA. The Bureau further 
has authority pursuant to section 6(j)(3) of RESPA to establish any 
requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
35(d) Acknowledgment of Receipt
    Proposed Sec.  1024.35(d) would require a servicer to provide a 
borrower a written acknowledgement of a notice of error within five 
days (excluding legal public holidays, Saturdays, and Sundays) of 
receiving a notice of error. Proposed Sec.  1024.35(d) would implement 
section 1463(c) of the Dodd-Frank Act which amended the current 
acknowledgement deadline of 20 days for qualified written requests to 
five days. Proposed Sec.  1024.35(d) further applies the same timeline 
applicable to a qualified written request to any notice of error.
    The Bureau relies on its authority in section 6(k)(1)(C) and 
6(k)(1)(E) of RESPA to implement the notice of error requirements. 
Further, to the extent the requirements are also applicable to 
qualified written requests, the Bureau relies on its authority in 
sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
35(e) Response to Notice of Error
    Proposed Sec.  1024.35(e) would set forth requirements on servicers 
for responding to notices of error.
35(e)(1) Investigation and Response Requirements
    Proposed paragraph 35(e)(1) would require a servicer to correct an 
error within 30 days unless the servicer concludes after a reasonable 
investigation that no error occurred.
    Notices to borrower. If a servicer corrects the error identified by 
the borrower, it must provide the borrower with written notification 
that indicates that the error was corrected, the effective date of the 
correction, and a telephone number the borrower can use to get further 
information.
    If a servicer determines that no error occurred, it is required to 
have conducted a reasonable investigation and to provide the borrower a 
notice that the servicer has determined that no error has occurred, the 
reason(s) the servicer believes that no error has occurred, and contact 
information for servicer personnel that can provide further assistance. 
A servicer would also be required to inform the borrower in the notice 
that the borrower may request

[[Page 57228]]

documents relied on by the servicer in reaching its determination and 
how the borrower can request such documents.
    Borrower right to request documents. Proposed Sec.  1024.35(e)(4) 
would require that if a servicer determines no error occurred, the 
servicer is required to include a statement in its response that the 
borrower can request documents relied upon by the servicer. A servicer 
must provide the documents within 15 days of the servicer's receipt of 
the borrower's request. The Bureau believes that this requirement 
strikes an appropriate balance that does not subject the servicer to 
undue paperwork burden while assuring that the borrower can access the 
underlying documentation if necessary. Further, in certain cases, a 
borrower may determine that the servicer's response resolves an issue 
and that reviewing documents would be unnecessary and requiring a 
servicer to provide documents only upon a borrower's request limits 
burden. Proposed comment 35(e)(4)-1 clarifies that a servicer need only 
provide documents actually relied upon by the servicer to determine 
that no error occurred, not all documents reviewed by a servicer. 
Further, the proposed comment states that where a servicer relies upon 
entries in its collection systems, a servicer should provide print-outs 
reflecting the information entered into the system.
    A servicer would be required to provide information regarding the 
right to receive documents only if a servicer determines that no error 
has occurred. Proposed paragraph 35(e)(1)(i) would not require a 
servicer who determines that an error has occurred, and corrects the 
error, to provide documents to a borrower that were the basis for that 
determination or to provide a statement in the notice to the borrower 
about requesting documents. The Bureau believes that the purpose of the 
proposed rule is to facilitate the prompt correction of errors and 
borrowers likely do not need documents and information when errors are 
corrected per the borrower's request. The Bureau does not believe it is 
necessary to require servicers to provide documents to a borrower if a 
servicer corrects an asserted error.
    Multiple responses. Proposed comment 35(e)(1)(i)-1 clarifies that 
if a notice of error asserts multiple errors, a servicer may respond to 
those errors through a single or separate written responses that 
address the alleged errors. The Bureau believes that the purpose of the 
rule, which is to require prompt resolution of errors, is facilitated 
by allowing a servicer to respond to multiple errors set forth in a 
single notice of error through separate communications. For example, a 
servicer could correct one error, and send a notice regarding the 
correction of that error, while an investigation is in process 
regarding another error that is the subject of the same notice of 
error. Further, a servicer's obligation to provide a borrower with 
documents relied upon by the servicer only relates to any asserted 
errors that the servicer determines are not errors. A servicer is not 
required to provide documents with respect to any other errors in a 
notice of error that the servicer corrects.
    Different or additional error. Proposed paragraph 35(e)(1)(ii) 
would provide that if a servicer, during the course of a reasonable 
investigation, determines that a different or additional error has 
occurred, a servicer is required to correct that different or 
additional error and provide a borrower a written notice about the 
error, the corrective action taken, the effective date of the 
corrective action, and contact information for further assistance. 
Because the servicer would be correcting an error, a servicer would not 
be required to provide documents to the borrower regarding the error 
identified for the reasons discussed above.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(C) and 6(k)(1)(E) of RESPA to implement the notice of error 
requirements. Further, to the extent the requirements are also 
applicable to qualified written requests, the Bureau relies on its 
authority in sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further 
has authority pursuant to section 6(j)(3) of RESPA to establish any 
requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
35(e)(2) Requesting Documentation From Borrower
    Proposed Sec.  1024.35(e)(2) states that a servicer could request 
that a borrower provide documentation if needed to investigate an error 
but may not require the borrower to provide such documentation as a 
condition of investigating the asserted error. Nor may the servicer 
determine that no error occurred because the borrower failed to provide 
the requested documentation. The purpose of this provision is to allow 
servicers to obtain information that may assist in resolving notices of 
error. However, the Bureau believes that the process for obtaining that 
information should not prejudice the ability of the borrower to seek 
the resolution of the error.
35(e)(3) Time Limits
Paragraph 35(e)(3)(i)
    Proposed paragraph 35(e)(3)(i) would require a servicer to respond 
to a notice of error not later than 30 days (excluding legal public 
holidays, Saturdays, and Sundays) after the borrower notifies the 
servicer of the asserted error, with two exceptions: Errors relating to 
accurate payoff balances and errors relating to failure to suspend a 
scheduled foreclosure sale where a borrower has submitted a complete 
application for a loss mitigation option.
    Shortened time limit to correct errors relating to payoff balances. 
Pursuant to proposed paragraph 35(e)(3)(i)(A), if a borrower submits a 
notice of error asserting that a servicer has failed to provide an 
accurate payoff balance as set forth in proposed paragraph 35(b)(6), a 
servicer must respond to the notice of error not later than five days 
(excluding legal public holidays, Saturdays, and Sundays) after the 
borrower notifies the borrower of the alleged error. The Bureau 
believes that a 30-day deadline for responding to this type of notice 
of error does not provide adequate protection for a borrower because 
the servicer's failure to correct the error will prevent a borrower 
from pursuing options that protect the borrower, including, for 
example, a refinancing transaction. Based on discussions with 
servicers, the Bureau believes that a five day timeframe is reasonable 
for a servicer to correct an error with respect to calculating a payoff 
balance.
    The Bureau relies on its authority in sections 6(e) and 6(k)(1)(B) 
of RESPA with respect to qualified written requests, as well as its 
authority in sections 6(k)(1)(C) and 6(k)(1)(E) with respect to error 
resolution requirements to mandate a shorter time period for responding 
to notices that assert errors with respect to accurate payoff balances. 
The Bureau further has authority pursuant to section 6(j)(3) of RESPA 
to establish any requirements necessary to carry out section 6 of RESPA 
and has authority under section 19(a) of RESPA to prescribe such rules 
and regulations, to make such interpretations, and to make such 
exemptions for classes of transactions as may be necessary to achieve 
the consumer protection purposes of RESPA.
    The Bureau requests comment regarding whether five days (excluding 
legal public holidays, Saturdays, and Sundays) is an appropriate 
timeframe

[[Page 57229]]

for a servicer to correct an error with respect to a payoff balance.
    Shortened time limit to correct certain errors relating to 
foreclosure. Pursuant to proposed paragraph 35(e)(3)(i)(B), if a 
borrower submits a notice of error asserting that a servicer has failed 
to suspend a scheduled foreclosure sale, a servicer would be required 
to investigate and respond to the notice of error by the earlier of 30 
days (excluding legal public holidays, Saturdays, and Sundays) or the 
date of a scheduled foreclosure sale. The Bureau believes that a 
timeframe that allowed a servicer to investigate and respond to the 
notice of error after the date of a scheduled foreclosure sale would 
cause irreparable harm to a borrower. Proposed comment 35(e)(3)(i)(B)-1 
would clarify that a servicer could maintain a 30-day timeframe to 
respond to the notice of error if it cancels or postpones the scheduled 
foreclosure sale and a subsequent sale is not scheduled before the 
expiration of the 30-day deadline.
    Extensions of time limits. Proposed Sec.  1024.35(e)(3)(ii) would 
permit a servicer to extend the time period for investigating and 
responding to a notice of error by 15 days (excluding legal public 
holidays, Saturdays, and Sundays) if, before the end of the 30-day 
period set forth in proposed Sec.  1024.35(e)(3)(i)(C), the servicer 
notifies the borrower of the extension and the reasons for the delay in 
responding. Proposed comment 35(e)(3)(ii)-1 clarifies that if a notice 
of error asserts multiple errors, a servicer may extend the time period 
for investigating and responding to those errors for which extensions 
are permissible pursuant to proposed Sec.  1024.35(e)(3)(ii). Section 
1463(c)(3) of the Dodd-Frank Act amended section 6(e) of RESPA to 
provide a 15-day extension of time and proposed Sec.  1024.35(e)(3)(ii) 
would implement this provision.
    The Bureau proposes not to apply the extension allowance of 
proposed Sec.  1024.35(e)(3)(ii) to investigate and respond to errors 
relating to payoff statement or to a servicer's failure to suspend a 
scheduled foreclosure sale. For the reasons set forth above, the Bureau 
does not believe that allowing a servicer to extend the time period for 
investigating and responding to these types of errors will provide 
timely resolution of errors.
    Legal authority. The Bureau relies on its authority in sections 
6(e) and 6(k)(1)(B) of RESPA with respect to qualified written 
requests, as well as its authority in sections 6(k)(1)(C) and 
6(k)(1)(E) with respect to error resolution requirements to mandate a 
shorter time period for responding to notices that assert errors for a 
servicer's failure to suspend a scheduled foreclosure sale. The Bureau 
further has authority pursuant to section 6(j)(3) of RESPA to establish 
any requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations, and to make such exemptions 
for classes of transactions as may be necessary to achieve the consumer 
protection purposes of RESPA.
35(f) Alternative Compliance
    Proposed Sec.  1024.35(f) states that a servicer is not required to 
comply with paragraphs (d) and (e) of proposed Sec.  1024.35 in two 
situations. First, a servicer that corrects the error identified by the 
borrower within five days of receiving the notice of error, and 
notifies the borrower of the correction in writing, is not required to 
comply with paragraphs (d) and (e). Because such errors are corrected, 
an investigation would not be required. Second, a servicer that 
receives a notice of error for failure to suspend a scheduled 
foreclosure sale, pursuant to paragraph 35(b)(9), seven days or less 
before a scheduled foreclosure, is not required to comply with 
paragraphs (d) and (e), if, within the time period set forth in 
paragraph (e)(3)(i)(B), the servicer responds to the borrower, orally 
or in writing, and corrects the error or states the reason the servicer 
has determined that no error has occurred.
    The Bureau proposes these alternative compliance methods for two 
reasons. First, feedback from servicers, and especially small 
servicers, indicates that the majority of errors are addressed promptly 
after a borrower's communication and generally within five days. SERs 
communicated to the Small Business Review Panel that small servicers 
have a high-touch customer service model, which made it very easy for 
borrowers to report errors or make inquiries, and to receive real-time 
responses.\78\ The Bureau believes the alternative compliance method is 
appropriate to reduce unnecessary burden of an acknowledgement on 
servicers, and especially small servicers, that are able to correct 
borrower errors within five days consistent with the Small Business 
Review Panel recommendation that the Bureau consider requirements that 
provide flexibility to small servicers.
---------------------------------------------------------------------------

    \78\ See Small Business Review Panel Report at 30.
---------------------------------------------------------------------------

    Second, the Bureau believes that reduced requirements are 
appropriate when servicers receive a notice of error that may impact a 
scheduled foreclosure scale less than five days before a scheduled 
foreclosure sale. Only notices of errors identified in proposed 
paragraph 35(b)(9) implicate this concern. Numerous entities, including 
other federal agencies and SERs during the Small Business Review Panel 
outreach, expressed concern about borrower use of error resolution 
requirements as a procedural tool to impede proper foreclosures and 
promote litigation.\79\ The Bureau believes that reducing the 
procedural requirements for servicers to follow when a notice asserting 
an error identified in paragraph (b)(9) is submitted less than 5 days 
before a scheduled foreclosure sale mitigates this concern while 
maintaining protection for consumers. The Bureau believes that this 
alternative compliance method is also consistent with the Small 
Business Review Panel recommendation that the Bureau provide 
flexibility to small servicers and responds to SERs' concern that error 
resolution procedures may be used in unwarranted litigation.\80\ 
Further, the Bureau understands the timing to be consistent with 
account reviews required by the GSEs to document that all required 
actions have occurred permitting the servicer to proceed with a 
scheduled foreclosure sale.\81\
---------------------------------------------------------------------------

    \79\ See Small Business Review Panel Report at 30.
    \80\ See Small Business Review Panel Report at 29-30.
    \81\ See, e.g., Fannie Mae Announcement SVC-2011-08R (September 
7, 2011).
---------------------------------------------------------------------------

    The Bureau relies on its authority in section 6(k)(1)(C) and 
6(k)(1)(E) of RESPA to implement the notice of error requirements. 
Further, to the extent the requirements are also applicable to 
qualified written requests, the Bureau relies on its authority in 
sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
    The Bureau requests comment regarding whether the Bureau should 
consider other alternative compliance methods or should adjust the 
requirements of the proposed alternative compliance methods.
35(g) Requirements Not Applicable
    Proposed Sec.  1024.35(g) would state that the error resolution 
requirements of proposed Sec.  1024.35 would not apply to

[[Page 57230]]

certain types of notices of error if the servicer complies with 
proposed Sec.  1024.35(g)(2). The types of notice of error to which the 
requirements would not apply would be set forth in Sec.  1024.35(g)(1). 
The Bureau solicits comments regarding whether additional types of 
notices of error should be identified in proposed Sec.  1024.35(g)(1).
35(g)(1) In General
    Proposed paragraph 35(g)(1) would state that a servicer is not 
required to comply with the requirements of Sec.  1024.35(d) and (e) if 
the servicer reasonably makes certain determinations specified in 
paragraphs (g)(1)(i), (ii), or (iii). A servicer may be liable to the 
borrower for its unreasonable determination and resulting failure to 
comply with proposed Sec.  1024.35(d) and (e).
Paragraph 35(g)(1)(i)
    Proposed paragraph 35(g)(1)(i) would state that a servicer is not 
required to comply with the notice of error requirements in proposed 
Sec.  1024.35(d) and (e) with respect to a notice of error where the 
asserted error is substantially the same as an error previously 
asserted by or on behalf of the borrower for which the servicer has 
previously complied with its obligation to respond to the notice of 
error pursuant to Sec.  1024.35(e)(1), unless the borrower provides new 
and material information. New and material information means 
information that was not reviewed by the servicer in connection with 
investigating the prior notice of error and is reasonably likely to 
change a servicer's determination with respect to the existence of an 
error. The Bureau believes that both elements of this requirement are 
important. First, the information must not have been reviewed by the 
servicer. If the information was reviewed by the servicer, then such 
information is not new and requiring a servicer to re-open an 
investigation will create unwarranted burden and delay. Second, even if 
the information is new, it must be material to the asserted error. A 
servicer may not have reviewed information because the information may 
not have been material to the error asserted by the borrower.
    The purpose of this proposed paragraph is to ensure that a servicer 
is not required to expend resources conducting duplicative 
investigations of notices of error unless there is a reasonable basis 
for re-opening a prior investigation because of new and material 
information.
    Proposed comment 35(g)(1)(i)-1 clarifies that a dispute regarding a 
servicer's interpretation of information previously reviewed, including 
the materiality of that information, does not itself constitute new and 
material information and, consequently, does not require a servicer to 
re-open a prior, resolved investigation of a notice of error.
Paragraph 35(g)(1)(ii)
    Proposed paragraph 35(g)(1)(ii) provides that a servicer is not 
required to comply with the notice of error requirements in proposed 
Sec.  1024.35(d) and (e) with respect to a notice of error that is 
overbroad or unduly burdensome. The rule defines ``overbroad'' and 
``unduly burdensome'' for this purpose. A notice of error is overbroad 
if a servicer cannot reasonably determine from the notice of error the 
specific covered error that a borrower asserts has occurred on a 
borrower's account. A notice of error is unduly burdensome if a 
diligent servicer could not respond to the notice of error without 
either exceeding the maximum timeframe permitted by paragraph 
(e)(3)(ii) or incurring costs (or dedicating resources) that would be 
unreasonable in light of the circumstances.
    Consumers, consumer advocates, servicers, and servicing industry 
representatives have indicated to the Bureau that the current qualified 
written request process is not typically utilized by consumers to 
resolve errors. Rather, the process is more frequently used 
strategically to obtain documents and a servicer's responses to claims 
as a preliminary form of civil litigation discovery. During the Small 
Business Review Panel outreach, SERs expressed that typically qualified 
written requests received from borrowers were vague forms found online 
or forms used by advocates as a form of pre-litigation discovery.\82\ 
Servicers and servicing industry representatives indicated that these 
types of qualified written requests are unreasonable and unduly 
burdensome. SERs in the Small Business Review Panel outreach requested 
that the Bureau consider an exemption for abusive requests, or requests 
made with the intent to harass the servicer.\83\
---------------------------------------------------------------------------

    \82\ See Small Business Review Panel Report at 23.
    \83\ Id.
---------------------------------------------------------------------------

    The Bureau is likewise concerned that, in light of the expanded 
requirements for servicers to respond to notices of error, including 
adding new categories of covered errors that do not specifically relate 
to ``servicing'' as defined in RESPA as well as errors asserted orally, 
a requirement for servicers to respond to notices of error that are 
overbroad or unduly burdensome may harm consumers and frustrate 
servicers' ability to comply with the new error resolution 
requirements. The effect of the proposed rule is to expand a servicer's 
obligation to undertake the obligations similar to those currently 
applicable to qualified written requests to a broader universe of 
potential notices of error, including notices of error made orally to a 
servicer. Requiring servicers to respond to overbroad or unduly 
burdensome notices of error from some borrowers may cause servicers to 
expend fewer resources to address other errors that may be more clearly 
stated and more clearly require servicer attention. Further, the Bureau 
does not believe that the error resolution procedures are the 
appropriate forum for borrowers to prosecute wide-ranging complaints 
against mortgage servicers that are more appropriate for resolution 
through litigation.
    Proposed paragraph 35(g)(1)(ii) provides that if a servicer 
determines that a notice of error is overbroad or unduly burdensome, 
the servicer is required to notify the borrower, pursuant to proposed 
Sec.  1024.35(g)(2), that it is not required to comply with the 
requirements of proposed Sec.  1024.35(d) and (e). Further, the notice 
must state that the notice of error was overbroad or unduly burdensome, 
but does not need to state the specific basis for such a determination. 
Proposed comment 35(g)(1)(ii)-1 sets forth characteristics that may 
indicate if a notice of error is overbroad or unduly burdensome. If a 
servicer can identify a proper assertion of a covered error in a notice 
of error that is otherwise overbroad or unduly burdensome, a servicer 
would be required to respond to the covered error submissions it can 
identify.
    The Bureau requests comment regarding whether a servicer should not 
be required to undertake the error resolution procedures in proposed 
Sec.  1024.35(d) and (e) for notices of error that are overbroad or 
unduly burdensome. The Bureau further requests comment on the 
appropriate definition of overbroad or unduly burdensome notices of 
error and on the appropriate indicia for identifying notices of error 
that should be subject to the exclusion.
Paragraph 35(g)(1)(iii)
    Proposed paragraph 35(g)(1)(iii) provides that a servicer is not 
required to comply with the notice of error requirements in proposed 
Sec.  1024.35(d) and (e) for an untimely notice of error--that is, a 
notice of error received by a

[[Page 57231]]

servicer more than one year after either servicing for the mortgage 
loan that is the subject of the notice of error was transferred by that 
servicer to a transferee servicer or the mortgage loan amount was paid 
in full, whichever date is applicable. The purpose of this proposed 
paragraph is to set a specific and clear time that a servicer may be 
responsible for correcting errors for a mortgage loan.
    The purpose of the proposed paragraph is to achieve the same goal 
that currently exists in Regulation X with respect to qualified written 
requests. Specifically, current Sec.  1024.21(e)(2)(ii) states that ``a 
written request does not constitute a qualified written request if it 
is delivered to a servicer more than one year after either the date of 
transfer of servicing or the date that the mortgage servicing loan 
amount was paid in full, whichever date is applicable.''
35(g)(3) Notice to Borrower
    Proposed Sec.  1024.35(g)(3) states that if a servicer determines 
it is not required to comply with the notice of error requirements in 
proposed Sec.  1024.35(d) and (e) with respect to a notice of error, 
the servicer must provide a notice to the borrower informing the 
borrower of the servicer's determination. The notice must be sent not 
later than five days (excluding legal public holidays, Saturdays, and 
Sundays) after the servicer's determination and must set forth the 
basis upon which the servicer has made the determination and the 
applicable provision of proposed Sec.  1024.35(g)(1).
    The Bureau believes that borrowers should be notified that a 
servicer does not intend to take any action on the asserted error. The 
Bureau also believes borrowers should know the basis for the servicer's 
determination. By providing borrowers with notice of the basis for the 
servicer's determination, a borrower will know the servicer's basis and 
will have the opportunity to bring a legal action to challenge that 
determination where appropriate. The Bureau requests comment regarding 
the requirement that servicers provide a notice to the borrower and the 
appropriate content for the notice.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(C) and 6(k)(1)(E) of RESPA to implement the notice of error 
requirements in proposed Sec.  1024.35(g). Further, to the extent the 
requirements are also applicable to qualified written requests, the 
Bureau relies on its authority in sections 6(e) and 6(k)(1)(B) of 
RESPA. The Bureau further has authority pursuant to section 6(j)(3) of 
RESPA to establish any requirements necessary to carry out section 6 of 
RESPA and has authority under section 19(a) of RESPA to prescribe such 
rules and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions as may be necessary 
to achieve the consumer protection purposes of RESPA.
35(h) Payment Requirements Prohibited
    Proposed Sec.  1024.35(h) would prohibit a servicer from charging a 
fee, or requiring a borrower to make any payment that may be owed on a 
borrower's account, as a condition of investigating and responding to a 
notice of error. The Bureau is implementing this provision for three 
reasons. First, section 1463(a) of the Dodd-Frank Act added section 
6(k)(1)(B) to RESPA, which prohibits a servicer from charging fees for 
responding to valid qualified written requests. Proposed Sec.  
1024.35(h) would implement that provision with respect to qualified 
written requests. Second, the Bureau believes that a servicer's 
practice of charging for responding to a notice of error impedes 
borrowers from pursuing valid notices of error. Third, the Bureau 
understands that, in some instances, servicer personnel have demanded 
that borrowers make payments before the servicer will correct errors or 
provide information requested by a borrower. The Bureau believes that a 
servicer should be required to correct errors notwithstanding the 
payment status of a borrower's account.
    The Bureau relies on its authority in section 6(k)(1)(B), (C), and 
(E) of RESPA to implement the notice of error requirements. The Bureau 
further has authority pursuant to section 6(j)(3) of RESPA to establish 
any requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations, and to grant such reasonable 
exemptions for classes of transactions as may be necessary to achieve 
the consumer protection purposes of RESPA.
35(i) Effect on Servicer Remedies
    Adverse Information. Proposed Sec.  1024.35(i)(1) states that a 
servicer may not furnish adverse information regarding any payment that 
is the subject of a notice of error to any consumer reporting agency 
for 60 days after receipt of a notice of error. RESPA section 6(e) sets 
forth this prohibition on servicers with respect to a qualified written 
request that asserts an error. Proposed Sec.  1024.35(i)(1) would 
implement Section 6(e) of RESPA with respect to qualified written 
requests.
    The Bureau proposes to maintain the 60-day timeframe set forth in 
section 6(e)(3) of RESPA. Even though a notice of error may be resolved 
by no later than 45 days pursuant to proposed Sec.  1024.35(e)(3)(ii), 
the Bureau believes that the 60-day timeframe is appropriate in the 
event that there are follow-up inquiries or additional information 
provided to the borrower.
    The Bureau relies on its authority in section 6(e)(3), 6(k)(1)(C), 
and 6(k)(1)(E) of RESPA to implement the adverse information 
requirements for qualified written requests and notices of error. The 
Bureau further has authority pursuant to section 6(j)(3) of RESPA to 
establish any requirements necessary to carry out section 6 of RESPA 
and has authority under section 19(a) of RESPA to prescribe such rules 
and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions as may be necessary 
to achieve the consumer protection purposes of RESPA.
    Ability to pursue foreclosure. Proposed Sec.  1024.35(i)(2) states 
that a servicer's obligation to comply with the requirements of 
proposed Sec.  1024.35 would not prohibit a lender or servicer from 
pursuing any remedies, including proceeding with a foreclosure sale, 
permitted by the applicable mortgage loan instrument, with one 
exception. The purpose of this provision is to clarify that, in 
general, a notice of error could not be used to require a servicer to 
suspend a scheduled foreclosure sale. The purpose of requiring prompt 
correction of errors is not furthered by allowing a notice of error to 
impede a lender's or servicer's ability to pursue remedies permitted by 
the applicable mortgage loan instrument.
    The Bureau is proposing one exception because it believes it is 
inappropriate for a servicer to proceed with a scheduled foreclosure 
sale in the circumstances described in proposed Sec.  1024.41(g). 
Failure to suspend a potential foreclosure sale during such periods has 
caused borrower harm, as discussed below.
    Defining as an error a servicer's failure to suspend a scheduled 
foreclosure sale in the circumstances described in proposed Sec.  
1024.41(g) is consistent with section 17 of RESPA. The Bureau observes 
that the requirements of proposed Sec.  1024.41 would not impede a 
lender's or servicer's ability to pursue a foreclosure action, or 
maintain a scheduled foreclosure sale. Rather, the requirements in 
proposed Sec.  1024.41 establish procedures that servicers must

[[Page 57232]]

follow for reviewing loss mitigation applications. Servicers are 
capable of complying with the requirements prior to a scheduled 
foreclosure sale. Nothing in this proposed requirement affects the 
validity or enforceability of the mortgage loan or lien. Further, a 
servicer has the opportunity to retain its remedies when a borrower 
submits a completed application for a loss mitigation option. A 
servicer may establish a deadline by which a borrower must submit a 
completed application for a loss mitigation option, and, so long as the 
servicer fulfills its duty to evaluate the borrower for a loss 
mitigation option before the date of a scheduled foreclosure sale, a 
servicer may comply with the requirements of Sec.  1024.35 without 
suspending the scheduled foreclosure sale.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(C), and 6(k)(1)(E) of RESPA to implement the error resolution 
requirements. To the extent the error resolution requirements relate to 
qualified written requests, the Bureau also relies on its authority in 
sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations, to make 
such interpretations, and to grant such reasonable exemptions for 
classes of transactions as may be necessary to achieve the consumer 
protection purposes of RESPA.
Section 1024.36 Requests for Information
    Proposed Sec.  1024.36 contains requirements servicers would be 
required to follow for information requests received from borrowers. 
Proposed Sec.  1024.36 implements the servicer prohibitions set forth 
in section 6(k)(1)(B) and 6(k)(1)(D) of RESPA, as well as other 
obligations the Bureau believes to be appropriate to carry out the 
consumer protection purposes of RESPA pursuant to section 6(k)(1)(E) of 
RESPA.
36(a) Information Requests
    Proposed Sec.  1024.36(a) would require a servicer to comply with 
the requirements of proposed Sec.  1024.36 for an information request 
from a borrower that includes the borrowers name, enables the servicer 
to identify the borrower's mortgage loan account, and states the 
information the borrower is requesting for the borrower's mortgage loan 
account.
    The Bureau proposes to allow a borrower to make an information 
request either orally or in writing. Based on the Bureau's discussions 
with consumers, consumer advocates, servicers, and industry trade 
associations, it appears that the vast majority of borrowers orally 
request information from servicers. As is the case for notices of 
error, a requirement that an information request must be in writing 
generally serves as a barrier that unduly restricts the ability of 
borrower to have errors resolved. Further, as with notices of error, 
servicers and servicer representatives stated that allowing an 
information request to be provided orally would create new burdens for 
servicers. The Bureau recognizes the burdens on servicers to ensure 
compliance with this proposed rule and incorporates the discussion 
above with respect to oral notices of error. Responding to oral 
information requests will impose costs on servicers to ensure that such 
requests receive responses, but the Bureau believes it is important for 
consumers to receive the benefit of a requirement that servicers 
provide information requested by the borrowers.
    The Bureau further believes that elements of the proposed rule 
would assist in mitigating servicer burden. These elements include, for 
example, a proposal to allow servicers to designate a specific 
telephone number for receiving oral information requests and an 
alternative compliance provision that allows a servicer to provide 
information orally if the information is provided within five days of 
the borrower's request. The Bureau has learned from discussions with 
servicers, including the SERs in the Small Business Review Panel 
outreach, that most information requests are responded to by servicers 
either on the same telephone call with the borrower or within an hour 
of a borrower's communication.\84\ The Bureau believes that allowing 
servicers to respond to information requests orally significantly 
reduces burden associated with the proposed information request 
requirements on servicers. Further, the Bureau believes that this 
requirement provides flexibility for small servicers consistent with 
the recommendations of the Small Business Review Panel and mitigates 
concerns by the SERs regarding compliance costs.\85\
---------------------------------------------------------------------------

    \84\ See, e.g., Small Business Review Panel Report at 30.
    \85\ See Small Business Review Panel Report at 23-24, 29.
---------------------------------------------------------------------------

    The Bureau requests comment regarding whether servicers should be 
required to apply the information request requirements to requests 
received orally from borrowers. The Bureau further requests comment 
regarding whether small servicers (as that term is defined in the 2012 
TILA Servicing Proposal) should be exempt from the information request 
requirements for information requests received orally.
    Qualified written requests. Similar to the proposed requirements 
for notices of error, proposed Sec.  1024.36(a) would require a 
servicer to treat information requests, whether oral or written, the 
same way it treats a qualified written request that requests 
information. The Bureau's intention is to propose servicer obligations 
applicable to an information request that are exactly the same as 
obligations applicable to a qualified written request. Thus, under 
proposed Sec.  1024.36(a), there is no reason for a borrower to send a 
qualified written request nor is there a reason for a servicer to 
reject a qualified written request because it does not meet the 
requirements for a qualified written request in section 6(e) of RESPA 
when the request would otherwise constitute an information request 
pursuant to proposed Sec.  1024.36.
    Borrower's representative. Proposed comment 36(a)-1 would clarify 
that an information request submitted by a person acting as an agent of 
the borrower is treated the same as a request by the borrower. This 
requirement is substantially similar as the current requirement 
existing under section 6(e)(1)(A) of RESPA for a qualified written 
request. Specifically, section 6(e)(1)(A) of RESPA states that a 
qualified written request may be provided by a ``borrower (or an agent 
of the borrower).'' See RESPA section 6(e)(1)(A).
    Information subject to information request procedures. In general, 
any information requested by a borrower is subject to the information 
request requirements in proposed Sec.  1024.36 unless such information 
is subject to proposed Sec.  1024.36(f). Proposed comment 36(a)-2 would 
clarify that if a borrower requests information regarding the owner or 
assignee of a mortgage loan, a servicer identifies the owner or 
assignee of the mortgage loan by identifying the entity that holds the 
legal right to receive payments from a mortgage loan. Proposed comments 
36(a)-2.i and 36(a)-2.ii provide examples of which party is the owner 
or assignee of a mortgage loan for different forms of mortgage loan 
ownership. These include situations when a mortgage loan is held in 
portfolio by an affiliate of a servicer, when a mortgage loan is owned 
by a trust in connection with a private label securitization 
transaction, and when a mortgage loan

[[Page 57233]]

is held in connection with a GSE or Ginnie Mae guaranteed 
securitization transaction. The Bureau believes that it would not 
provide additional consumer protection to impose an obligation on a 
servicer to identify entities that may have an interest in a borrower's 
mortgage loan other than the owner or assignee of the mortgage loan.
    Servicers generally have not expressed concerns to the Bureau 
regarding the obligation to provide borrowers with the type of 
information subject to the information request requirements. 
Specifically, in the Small Business Review Panel outreach, SERs 
indicated that they felt fairly comfortable with the types of 
information that would be subject to the requirements, indicating that 
this information was generally in the borrower's mortgage loan 
file.\86\
---------------------------------------------------------------------------

    \86\ See Small Business Review Panel Report at 24.
---------------------------------------------------------------------------

    The SERs did express concern regarding the obligation to provide 
information regarding the owner or assignee of a mortgage loan. The 
SERs stated that servicers may not have contact information for owners 
or assignees of mortgage loans, that such owners or assignees are not 
prepared to handle calls from borrowers, and that a typical servicer 
duty is to handle customer complaints so that owners or assignees of 
mortgage loans do not have to handle that responsibility.\87\ Certain 
owners, assignees, and guarantors of mortgage loans, including other 
federal agencies, have expressed similar concerns to the Bureau.
---------------------------------------------------------------------------

    \87\ Id.
---------------------------------------------------------------------------

    The Bureau understands the concerns asserted by servicers, owners, 
assignees, guarantors, and other federal agencies that requiring 
servicers to provide this information to borrowers may confuse 
borrowers and lead to attempts to communicate with owners or assignees 
that are unprepared or unwilling to engage in such communications. The 
requirement that servicers identify to the borrower the owner or 
assignee of a mortgage loan was added as section 6(k)(1)(D) of RESPA by 
the Dodd-Frank Act and is not a discretionary exercise of the Bureau's 
authority. The Dodd-Frank Act clearly requires that information 
regarding the owner or assignee of a mortgage loan must be provided to 
borrowers. The Bureau proposes comment 36(a)-2 to implement this 
requirement.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(E) of RESPA to implement the information request requirements. 
To the extent the information request requirements relate to qualified 
written requests, the Bureau also relies on its authority in sections 
6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant 
to section 6(k)(1)(D) of RESPA to implement information request 
requirements for requests for the identity of the owner or assignee of 
a mortgage loan. The Bureau further relies on section 6(j)(3) of RESPA 
to establish any requirements necessary to carry out section 6 of RESPA 
and has authority under section 19(a) of RESPA to prescribe such rules 
and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions as may be necessary 
to achieve the consumer protection purposes of RESPA.
36(b) Contact Information for Borrowers To Request Information
    Proposed Sec.  1024.36(b) permits a servicer to establish a 
telephone number and address that a borrower must use to request 
information. If a servicer chooses to establish a separate telephone 
number and address for receiving information requests, a servicer must 
provide the borrower a written notice that states that the borrower 
should only assert an error at the telephone number and address 
established by the servicer for that purpose. Proposed comment 36(b)-2 
would clarify that the written notice to the borrower may be set forth 
in another written notice provided to the borrower, such as a notice of 
transfer, periodic statement, or coupon book.
    As discussed above for proposed Sec.  1024.35(c), the purpose of 
establishing a telephone number and address that a borrower must use to 
request information is to allow servicers to direct oral and written 
errors to appropriate personnel that have been trained to ensure that 
the servicer responds appropriately. Proposed comment 36(b)-1 clarifies 
that if a servicer has not designated a telephone number and address 
that a borrower must use to request information then a servicer will be 
required to comply with the information request requirements for any 
information request received by any office of the servicer.
    The Bureau believes it is reasonable, especially in light of the 
expanded burden of requiring compliance with error resolution and 
information requests, to allow servicers to manage the intake of 
information requests to designated telephone numbers and addresses. 
Further, allowing a servicer to designate a specific telephone number 
and address is consistent with current requirements of Regulation X 
with respect to qualified written requests. Current Sec.  1024.21(e)(1) 
permits a servicer to designate a ``separate and exclusive office and 
address for the receipt and handling of qualified written requests.'' 
Moreover, the Bureau believes that identifying a specific telephone 
number and address for receiving errors and information requests will 
benefit consumers as well. By providing a specific telephone number and 
address, servicers will identify to consumers the office capable of 
responding to information requests. The Bureau is proposing in the 
concurrent 2012 TILA Servicing Proposal to require that any telephone 
number or address identified by a servicer must appear on the periodic 
statement or other payment form supplied by the servicer. See 2012 TILA 
Servicing Proposal at proposed Sec.  1026.41(d)(6).
    Internet intake of information requests. Proposed comment 36(b)-4 
would clarify that a servicer is not required to establish a process 
for receiving information requests through email, Web site, or other 
online methods. In the event a servicer establishes a process for 
receiving information requests through online methods, comment 36(b)-4 
is intended to clarify that the process established is the only online 
intake process that a borrower can use to make an information request. 
Thus, a servicer would not be required to provide a written notice to a 
borrower in order to gain the benefit of the online process being 
considered the exclusive online process for receiving information 
requests.
    Multiple offices. Proposed Sec.  1024.36(b), similar to proposed 
Sec.  1024.35(c) for notices of error, would require a servicer to use 
the same telephone number and address it designates for receiving 
notices of error for receiving information requests pursuant to 
proposed Sec.  1024.36(b), and vice versa. Further, proposed comment 
36(b)-3 clarifies that any telephone numbers or address designated by a 
servicer for any borrower may be used by any other borrower to submit 
an information request. This clarifies that a servicer may not 
determine that an information request is invalid if it was received at 
any telephone number or address designated by the servicer for receipt 
of information requests just because it was not received by the 
specific phone number or address identified to a specific borrower. 
Proposed comment 36(b)-5 clarifies that a servicer may use automated 
systems, such as an interactive voice response system, to manage the 
intake of borrower calls. Prompts for requesting information must be 
clear and provide

[[Page 57234]]

the borrower the option to connect to a live representative.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(E) of RESPA to implement the proposed information request 
requirements. To the extent the information request requirements relate 
to qualified written requests, the Bureau also relies on its authority 
in section 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has 
authority pursuant to section 6(k)(1)(D) of RESPA to implement 
information request requirements for requests for the identity of the 
owner or assignee of a mortgage loan. The Bureau further relies on 
section 6(j)(3) of RESPA to establish any requirements necessary to 
carry out section 6 of RESPA and has authority under section 19(a) of 
RESPA to prescribe such rules and regulations, to make such 
interpretations, and to grant such reasonable exemptions for classes of 
transactions as may be necessary to achieve the consumer protection 
purposes of RESPA.
36(c) Acknowledgment of Receipt
    Proposed Sec.  1024.36(c) would require a servicer to provide a 
borrower a written acknowledgement of an information request within 
five days (excluding legal public holidays, Saturdays, and Sundays) of 
receiving an information request. Proposed Sec.  1024.36(c) would 
implement section 1463(c) of the Dodd-Frank Act which amended the 
current acknowledgement deadline of 20 days for qualified written 
requests to five days. Proposed Sec.  1024.36(c) would further apply 
the same timeline applicable to a qualified written request to any 
information request.
    The Bureau relies on its authority in section 6(k)(1)(E) of RESPA 
to implement the information request requirements. Further, to the 
extent the requirements are also applicable to qualified written 
requests, the Bureau relies on its authority in section 6(e), including 
the amendment to section 6(e) of RESPA set forth in section 1463(c) of 
the Dodd-Frank Act, as well as section 6(k)(1)(B) of RESPA. The Bureau 
further has authority pursuant to section 6(j)(3) of RESPA to establish 
any requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
36(d) Response to Information Request
    Proposed Sec.  1024.36(d) would set forth requirements on servicers 
for responding to information requests.
36(d)(1) Investigation and Response Requirements
    Proposed paragraph 36(d)(1) would require a servicer to respond to 
an information request within 30 days by either (i) providing the 
borrower with the requested information and contact information for 
further assistance, or (ii) conducting a reasonable search for the 
requested information and providing the borrower with a written 
notification that states that the servicer has determined that the 
requested information is not available or cannot reasonably be obtained 
by the servicer, as appropriate, the basis for the servicer's 
determination, and contact information for further assistance. A 
servicer would only be required to provide a written notice to the 
borrower in response to the information request if the information 
requested by the borrower is not available or cannot reasonably be 
obtained by the servicer. A servicer would be able to respond either 
orally or in writing to the borrower (or electronically with the 
borrower's consent) if the servicer is providing the information 
requested by the borrower. The Bureau believes that the goal of 
providing information to borrowers is furthered by allowing servicers 
to respond orally. Additionally, allowing oral communication reduces 
burden on servicers.
    A servicer could demonstrate its compliance with this requirement 
by, for example, retaining a copy of any written correspondence to the 
borrower that includes the information, retaining tapes of telephone 
conversations during which the borrower is provided the requested 
information, or by making a notation in a collector's notes that the 
information requested was provided to the borrower. The Bureau believes 
that the flexibility for a servicer to develop systems that are 
appropriate for that servicer addresses the Small Business Review Panel 
recommendation that the Bureau consider adopting a more flexible 
process for small servicers to demonstrate compliance with the 
information request requirements.\88\
---------------------------------------------------------------------------

    \88\ Small Business Review Panel Report at 30.
---------------------------------------------------------------------------

    Information not available. Proposed comment 36(d)(1)(ii)-1 
clarifies that information should not be considered as available to a 
servicer if the information is not in the servicer's possession or 
control and the servicer cannot retrieve the information in the 
ordinary course of business through reasonable efforts.
    The purpose of the information request requirements is to provide 
an efficient means for borrowers to obtain information regarding their 
mortgage loan accounts and the Bureau believes that imposing 
obligations on servicers to provide information in response to an 
information request is an efficient means of achieving the goal of 
providing a borrower with access to requested information. The Bureau 
believes that burden for information requests will greatly increase, 
however, if a servicer is required to undertake an investigation for 
documents that are not in a servicer's possession or control. The same 
inefficiency exists even if information is in a servicer's possession 
or control but, for appropriate business reasons, is stored in a medium 
that is not accessible by a servicer in the ordinary course of 
business. The Bureau believes that the marginal benefit of additional 
information available to borrowers is outweighed by the significant 
burdens that such investigations may incur.
    Accordingly, the Bureau believes that servicers should not be 
required to provide documents in response to an information request 
that are not in the possession or control of the servicer and cannot be 
retrieved through reasonable efforts in the ordinary course of 
business. Proposed comment 36(d)(1)(ii)-1 provides examples of when 
documents should and should not be considered to be available to a 
servicer in response to an information request.
    The Bureau has authority pursuant to section 6(k)(1)(E) of RESPA to 
set forth servicer obligations to provide information in response to 
information requests. The Bureau further has authority pursuant to 
section 6(j)(3) of RESPA to set forth requirements necessary to carry 
out section 6 of RESPA. The Bureau further relies on its authority in 
section 19(a) of RESPA to make such rules and regulations necessary to 
achieve the consumer protection purposes of RESPA.
36(d)(2) Time Limits
Paragraph 36(d)(2)(i)
    Proposed paragraph 36(d)(2)(i) would require a servicer to respond 
to an information request not later than 30 days (excluding legal 
public holidays, Saturdays, and Sundays) after the servicer receives 
the information request, with one exception discussed below.
    Legal authority. Section 1463(b) of the Dodd-Frank Act amended 
section 6(e)(2) of RESPA to require a servicer to investigate and 
respond to a qualified written request within 30 days. Proposed 
paragraph 36(e)(e)(i) would implement this provision of RESPA

[[Page 57235]]

with respect to qualified written requests.
    Shortened time limit to provide information regarding the identity 
of the owner or assignee. Under proposed paragraph 36(d)(2)(i)(A), if a 
borrower submits a request for information regarding the identity of, 
and address or relevant contact information for, the owner or assignee 
of a mortgage loan, a servicer shall respond to the information request 
with ten days (excluding legal public holidays, Saturdays, and 
Sundays).
    Section 1463(a) of the Dodd-Frank Act added section 6(k)(1)(D) to 
RESPA, which sets forth a ten business day limitation on a servicer to 
respond to an information request with respect to the owner or assignee 
of a mortgage loan. Proposed paragraph 36(d)(2)(i)(A) implements this 
provision of RESPA. Proposed Sec.  1024.36(d)(2)(i)(A) would require a 
servicer to provide the requested information within ten days 
(excluding legal public holidays, Saturdays, and Sundays) instead of 
``10 business days.'' The Bureau interprets the ``10 business day'' 
requirement in section 6(k)(1)(D) of RESPA to mean ten calendar days 
with an exclusion for intervening legal public holidays, Saturdays, and 
Sundays, and proposes to implement that interpretation in proposed 
Sec.  1024.36(d)(2)(i)(A). Section 19(a) of RESPA provides the Bureau 
with authority to make interpretations that are necessary to achieve 
the consumer protection purposes of RESPA.
    Extensions of time limits. Proposed Sec.  1024.36(d)(2)(ii) permits 
a servicer to extend the time period for responding to an information 
request by 15 days (excluding legal public holidays, Saturdays, and 
Sundays) if, before the end of the 30-day period set forth in proposed 
Sec.  1024.36(d)(2)(i)(B), the servicer notifies the borrower of the 
extension and the reasons for the delay in responding. Section 
1463(c)(3) of the Dodd-Frank Act amended section 6(e) of RESPA to 
provide a 15-day extension of time and proposed Sec.  1024.36(d)(2)(ii) 
would implement this provision with respect to qualified written 
requests. The Bureau has authority pursuant to section 6(k)(1)(E) and 
6(j)(3) of RESPA to apply the extension of time provision to 
information requests as well. The Bureau further has authority under 
section 19(a) of RESPA to make such rules and regulations, and to make 
such interpretations necessary to achieve the consumer protection 
purposes of RESPA.
    The Bureau proposes not to apply the extension allowance of 
proposed Sec.  1024.36(d)(2)(ii) to information requests with respect 
to the owner or assignee of a mortgage loan. The Bureau does not 
believe that the burden of obtaining this information for any borrower 
will be significant enough to justify an extension beyond the ten days 
(excluding legal public holidays, Saturdays, and Sundays) established 
by Congress. Servicers generally have access to identification of 
investors as that information is necessary to determine where to direct 
mortgage loan payments and reports with respect to the performance of 
serviced assets. The benefit to the borrower of obtaining the 
information, which Congress has required, outweighs the costs to 
servicers of complying within ten days (excluding legal public 
holidays, Saturdays, and Sundays).
36(e) Alternative Compliance
    Proposed Sec.  1024.36(e) would provide that a servicer is not 
required to comply with the requirements of paragraphs (c) and (d) of 
proposed Sec.  1024.36 if the information requested by a borrower is 
provided to the borrower within five days along with contact 
information the borrower can use for further assistance. A servicer may 
provide the information requested either orally or in writing 
(including electronically, with the borrower's consent). A servicer's 
records should indicate that a servicer has provided the information 
requested to the borrower. A servicer may demonstrate its compliance 
with this requirement by, for example, retaining a copy of any written 
correspondence to the borrower that includes the information, retaining 
tapes of telephone conversations during which the borrower is provided 
the requested information, or by making a notation in a collector's 
notes that the information requested was provided to the borrower. As 
discussed above, the Bureau believes that the flexibility for a 
servicer to develop systems that are appropriate for that servicer 
addresses the Small Business Review Panel recommendation that the 
Bureau consider adopting a more flexible process for small servicers to 
demonstrate compliance with the information request requirements.\89\
---------------------------------------------------------------------------

    \89\ Small Business Review Panel Report at 30.
---------------------------------------------------------------------------

36(f) Requirements Not Applicable
    Proposed Sec.  1024.36(f) would state that the information request 
requirements of proposed Sec.  1024.36 would not apply to certain types 
of information requests if the servicer complies with proposed Sec.  
1024.36(f)(2). The types of information requests to which the 
requirements would not apply would be set forth in Sec.  1024.36(f)(1). 
The Bureau solicits comments regarding whether any forms of information 
requests should be removed from proposed Sec.  1024.36(f)(1) or whether 
additional potential forms of information requests should be identified 
in proposed Sec.  1024.36(f)(1).
36(f)(1) In General
Paragraph 36(f)(1)
    Proposed paragraph 36(f)(1) would state that a servicer is not 
required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) if the servicer reasonably makes 
certain determinations specified in paragraphs (f)(1)(i), (ii), (iii), 
(iv), or (v). A servicer may be liable to the borrower for its 
unreasonable determination and resulting failure to comply with 
proposed Sec.  1024.36(c) and (d).
Paragraph 36(f)(1)(i)
    Proposed paragraph 36(f)(1)(i) would state that a servicer is not 
required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) with respect to an information 
request that requests information that is substantially the same as 
information previously requested by or on behalf of the borrower, and 
for which the servicer has previously complied with its obligation to 
respond to the information request. The purpose of this proposed 
paragraph is to ensure that a servicer is not required to expend 
resources conducting duplicative searches for documents.
Paragraph 36(f)(1)(ii)
    Proposed paragraph 36(f)(1)(ii) provides that a servicer is not 
required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) with respect to an information 
request that requests confidential, proprietary, or general corporate 
information of a servicer.
    The Bureau believes that the purposes of the provision, which is to 
provide borrowers with a means to request information regarding a 
borrower's mortgage loan account, are not furthered by permitting 
borrowers to request confidential, proprietary, or general corporation 
information of a servicer. Proposed comment 36(f)(1)(ii)-1 provides 
examples of confidential, proprietary, or general corporate 
information. These include information requests regarding: Management 
and profitability of a servicer; other mortgage loans than the 
borrower's; investor reports; compensation, bonuses, and personnel 
actions for servicer personnel; the servicer's training programs; 
investor agreements; the evaluation or exercise of any owner or 
assignee remedy; the servicer's

[[Page 57236]]

servicing program guide; investor instructions or requirements 
regarding loss mitigation options, examination reports, compliance 
audits or other investigative materials.
    The Bureau believes the protection in proposed paragraph 
36(f)(1)(ii) is appropriate to fulfill the purpose of the proposed 
rule, which is to provide a means for borrowers to obtain information 
from servicers regarding their own mortgage loan accounts. Permitting 
information requests for confidential, proprietary, or general 
corporate information does not further the purposes of the proposed 
rule.
Paragraph 36(f)(1)(iii)
    Proposed paragraph 36(f)(1)(iii) would provide that a servicer is 
not required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) with respect to a request for 
information that is not directly related to the borrower's mortgage 
loan account. The Bureau believes the protection in proposed paragraph 
36(f)(1)(iii) is appropriate to fulfill the purpose of the proposed 
rule, which is to provide a means for borrowers to obtain information 
from servicers regarding their own mortgage loan accounts.
Paragraph 36(f)(1)(iv)
    Proposed paragraph 36(f)(1)(iv) provides that a servicer is not 
required to comply with the request for information requirements in 
proposed Sec.  1024.36(c) and (d) with respect to a request for 
information that is overbroad or unduly burdensome. The rule defines 
``overbroad'' and ``unduly burdensome'' for this purpose. An 
information request is overbroad if a borrower requests a servicer 
provide an unreasonable volume of documents or information to a 
borrower. A notice of error is unduly burdensome if a diligent servicer 
could not respond to the information request without either exceeding 
the maximum timeframe permitted by paragraph (e)(3)(ii) or incurring 
costs (or dedicating resources) that would be unreasonably in light of 
the circumstances.
    As discussed above for proposed paragraph 35(g)(1)(ii), consumers, 
consumer advocates, servicers, and servicing industry representatives 
have indicated to the Bureau that the current qualified written request 
process is not typically utilized by consumers to request information. 
During the Small Business Review Panel outreach, SERs expressed that 
typically qualified written requests received from borrowers were vague 
forms found online or forms used by advocates as a form of pre-
litigation discovery.\90\ Servicers and servicing industry 
representatives indicated that these types of qualified written 
requests are unreasonable and unduly burdensome. SERs in the Small 
Business Review Panel outreach requested that the Bureau consider an 
exemption for abusive requests, or requests made with the intent to 
harass the servicer.\91\
---------------------------------------------------------------------------

    \90\ See Small Business Review Panel Report at 23.
    \91\ Id.
---------------------------------------------------------------------------

    The Bureau is concerned that, in light of the expanded requirements 
for servicers to respond to information requests, a requirement for 
servicers to respond to information requests that are overbroad or 
unduly burdensome may harm consumers and frustrate servicers' ability 
to comply with the new information request requirements. The effect of 
the proposed rule is to expand a servicer's obligation to undertake the 
obligations similar to those currently applicable to qualified written 
requests to a broader universe of information requests, including 
requests made orally to a servicer and requests for information that do 
not specifically relate to ``servicing'' as defined in RESPA. Requiring 
servicers to respond to overbroad or unduly burdensome information 
requests from some borrowers may impose unjustified and unmanageable 
burdens on servicers. Further, the Bureau does not believe that the 
request for information requirements should replace or supplant civil 
litigation document requests and should not be used as a forum for pre-
litigation discovery.
    Proposed paragraph 36(f)(1)(iv) provides that if a servicer 
determines that an information request is overbroad or unduly 
burdensome, the servicer is required to notify the borrower, pursuant 
to proposed Sec.  1024.36(f)(2), that the servicer is not required to 
comply with the requirements of proposed Sec.  1024.36(c) and (d). 
Further, the servicer must identify the specific basis for the 
servicer's determination so that the borrower is informed that the 
basis of the servicer's determination was that the information request 
was overbroad or unduly burdensome. Proposed comment 36(f)(1)(iv)-1 
sets forth characteristics that may indicate if an information request 
is overbroad or unduly burdensome. A servicer bears the risk that its 
determination that an information request is overbroad or unduly 
burdensome is found to be unjustified. If a servicer can identify a 
proper information request from an information request that is 
otherwise overbroad or unduly burdensome, a servicer would be required 
to respond to those information requests it could identify.
    The Bureau requests comment regarding whether a servicer should not 
be required to undertake the information request requirements in 
proposed Sec.  1024.36(c) and (d) for information requests that are 
overbroad or unduly burdensome.
Paragraph 36(f)(1)(v)
    Proposed paragraph 36(f)(1)(v) would provide that a servicer is not 
required to comply with the information request requirements in 
proposed Sec.  1024.36(c) and (d) with respect to an information 
request that is delivered to a servicer more than one year after either 
servicing for the mortgage loan that is the subject of the information 
request was transferred from the servicer to a transferee servicer or 
the mortgage loan amount was paid in full, whichever date is 
applicable.
    The purpose of this proposed paragraph is to set a bound on the 
time that a servicer may be responsible for responding to information 
requests with respect to a mortgage loan. The effect of the proposed 
paragraph is to achieve the same limitation that currently exists in 
Regulation X with respect to qualified written requests. Specifically, 
current Sec.  1024.21(e)(2)(ii) states that ``a written request does 
not constitute a qualified written request if it is delivered to a 
servicer more than one year after either the date of transfer of 
servicing or the date that the mortgage servicing loan amount was paid 
in full, whichever date is applicable.'' The Bureau requests comment 
regarding the requirement that servicers provide a notice to the 
borrower and the appropriate content for the notice.
36(f)(2) Notice to Borrower
    Proposed Sec.  1024.36(f)(2) provides that if a servicer determines 
it is not required to comply with the information request requirements 
in proposed Sec.  1024.36(c) and (d) with respect to an information 
request because the information requests meets one of the categories in 
proposed Sec.  1024.36(f)(1), the servicer must provide a notice to the 
borrower informing the borrower of the servicer's determination. The 
notice must be sent not later than five days (excluding legal public 
holidays, Saturdays, and Sundays) after the servicer's determination 
and must set forth the basis upon which the servicer has made the 
determination, with a reference to the applicable provision of proposed 
Sec.  1024.36(f)(1).
    The Bureau's intention for proposing this requirement is to ensure 
that borrowers are notified that a servicer

[[Page 57237]]

does not intend to otherwise respond to the information requests and 
that borrowers are informed of the basis for the servicer's 
determination that it is not required to comply with the information 
request requirements in proposed Sec.  1024.36(c) and (d).
    By receiving a notice that sets forth for the servicer's 
determination, a borrower will have the opportunity to assert any 
claims the borrower may have with respect to the reasonableness of the 
servicer's determination that the servicer is not required to comply 
with the information request requirements in proposed Sec.  1024.36(c) 
and (d).
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to set forth information requests 
requirements. Further, to the extent the information request 
requirements apply to qualified written requests, the Bureau further 
relies on its authority in section 6(e) and 6(k)(1)(B) of RESPA with 
respect to qualified written requests. The Bureau has authority 
pursuant to section 6(j)(3) of RESPA to set forth requirements 
necessary to carry out section 6 of RESPA. The Bureau further relies on 
its authority in section 19(a) of RESPA to make such rules and 
regulations necessary to achieve the consumer protection purposes of 
RESPA.
36(g) Payment Requirement Limitations
    Proposed Sec.  1024.36(g) would prohibit a servicer from charging a 
fee, or requiring a borrower to make any payment that may be owed on a 
borrower's account, as a condition of responding to an information 
request. The Bureau is implementing this provision for three reasons. 
First, section 1463(a) of the Dodd-Frank Act added section 6(k)(1)(B) 
to RESPA, which prohibits a servicer from charging fees for responding 
to valid qualified written requests. Proposed Sec.  1024.36(g) would 
implement that provision with respect to qualified written requests 
that for information relating to the servicing of a mortgage loan. 
Second, the Bureau does not believe that a servicer practice of 
charging for responding to an information request facilitates the 
purpose of the information request requirements, which is to provide a 
tool for borrowers to obtain information regarding their mortgage loan 
accounts. Rather, such a practice would improperly impede borrowers 
from pursuing valid information requests. Third, the Bureau has learned 
from outreach with consumer advocates that, in some instances, 
servicers have demanded that borrowers make payments before the 
servicer will provide a borrower with information requested by the 
borrower or will correct errors identified by a borrower. The Bureau 
believes that a servicer is required to provide a borrower with 
information about the borrower's mortgage loan account notwithstanding 
the payment status of a borrower's account.
    Legal authority. The Bureau relies on its authority in section 
6(k)(1)(B) and 6(k)(1)(E) of RESPA. The Bureau believes the limitations 
of fees are appropriate to carry out the consumer protection purposes 
of RESPA, pursuant to section 6(k)(1)(E) of RESPA.
    In addition to the authority, the Bureau also has authority 
pursuant to section 6(j)(3) and 19(a) of RESPA to establish 
requirements to carry out section 6 of RESPA or to make such rules and 
regulations as appropriate to achieve the consumer protection purposes 
of RESPA.
    The Bureau requests comment regarding whether the Bureau should 
carve out from the prohibition on charging fees for responding to an 
information request any fees charged in connection with providing 
payoff statements or State law beneficiary notices. The Bureau further 
requests comment regarding whether other types of information requests 
should be excluded from a proposed prohibition on charging fees for 
responding to an information request.
36(h) Servicer Remedies
    Proposed Sec.  1024.36(h) states that the existence of an 
outstanding information request does not prohibit a servicer from 
furnishing adverse information to any consumer reporting agency or from 
pursuing any remedies, including proceeding with a foreclosure sale, 
permitted by the applicable mortgage loan instrument. This proposed 
requirement is consistent with section 6(e)(3) of RESPA and clarifies 
that prohibitions on furnishing adverse information only apply to 
qualified written requests that assert an error with respect to a 
mortgage loan, not to a qualified written request that requests 
information. The Bureau relies on its authority in section 6(k)(1)(E) 
to apply this provision to information request requirements. The Bureau 
further relies on its authority in section 6(j)(3) to establish any 
requirement to carry out section 6 of RESPA and its authority in 
section 19(a) to make such interpretations as may be necessary to carry 
out the consumer protection purposes of RESPA.
Section 1024.37 Force-Placed Insurance
37(a) Definitions
37(a)(1) Force-Placed Insurance
    Section 1463 of the Dodd-Frank Act amended RESPA section 6 by 
adding a new section 6(k)(2), which sets forth that for purposes of 
RESPA section 6(k)-(m), ``force-placed insurance'' means ``hazard 
insurance coverage obtained by a servicer of a federally related 
mortgage when the borrower has failed to maintain or renew hazard 
insurance on such property as required of the borrower under the terms 
of the mortgage.'' The Bureau proposes to implement RESPA section 
6(k)(2) by adding new Sec.  1024.37(a)(1) to Regulation X to define 
``force-placed insurance'' to mean hazard insurance obtained by a 
servicer on behalf of the owner or assignee of a mortgage loan on a 
property securing such loan.
    The Bureau's definition of force-placed insurance is broader than 
the statutory definition of force-placed insurance. Virtually all 
mortgage loan contracts require borrowers to maintain hazard insurance 
during the term of the loan, and permit lenders to charge borrowers for 
any hazard insurance lenders obtain if borrowers fail to maintain 
hazard insurance coverage.\92\ The Bureau recognizes that force-placed 
insurance is hazard insurance that servicers are contractually required 
to obtain on behalf of the owner or assignee of a mortgage loan when 
the servicer is unable to obtain evidence that the borrower has 
complied with the borrower's obligation to maintain hazard 
insurance.\93\ But in its review of issues related to force-placed 
insurance, the Bureau has learned that in recent years, some servicers 
might have improperly obtained force-placed insurance when they 
arguably knew or should have known that the borrower already had hazard 
insurance.\94\ The

[[Page 57238]]

Bureau has met with servicers and insurance companies that write force-
placed insurance. They have told the Bureau that when they detect a gap 
in borrower-obtained hazard insurance coverage, they typically 
communicate with the borrower to confirm the absence of borrower-
obtained hazard insurance before obtaining force-placed insurance. 
According to industry, force-placed insurance is an uncommon 
occurrence.\95\ It appears that the new Dodd-Frank requirements on 
force-placed insurance, such as, for example, requiring servicers to 
provide advance notice over a 45-day notice period before charging 
borrowers for force-placed insurance, discussed further below, reflect 
common practice for the majority of the mortgage servicing market.\96\ 
But the Bureau has learned that there does not appear to be an industry 
standard for providing advance notice before a servicer renews or 
replaces existing force-placed insurance. As discussed further below, 
the Bureau proposes to exercise its authority under RESPA sections 
6(j)(3), 6(k)(1)(E) and 19(a) to add new Sec.  1024.37(e), which would 
require servicers to follow an advance notice process before they renew 
or replace existing force-placed insurance.
---------------------------------------------------------------------------

    \92\ See, e.g., Fannie Mae/Freddie Mac Note at ] 5.
    \93\ See, e.g., Fannie Mae Single-Family Servicing Guide, Part 
II, Ch. 2 (2012) (``Part of a servicer's responsibility for 
protecting Fannie Mae's interest in the security property is to 
ensure that hazard insurance (including flood insurance), under the 
terms specified in Fannie Mae's Guides, is in place at all times. If 
the servicer is unable to obtain evidence of acceptable hazard 
insurance for a property, the servicer should obtain alternative 
insurance coverage (so-called ``force-placed'' or ``lender-placed'' 
insurance) to protect Fannie Mae's interests, available at https://www.efanniemae.com/sf/guides/ssg/svcg/svc031412.pdf.
    \94\ See, e.g., United States of America v. Fairbanks Capital 
Corp., Civ. Action No. 03-12219-DPW, Complaint at ] 17 (D. Mass. 
Nov. 12, 2003) (alleging that Fairbanks improperly obtained force-
placed insurance when it knew or should have known that borrowers 
already had insurance), available at: http://ftc.gov/os/2003/11/0323014comp.pdf; see also Ocwen Federal Bank FSB, OTS Docket No. 
04592 (April 19, 2004) (requiring the bank to take reasonable 
actions to determine whether appropriate hazard insurance is already 
in place before it obtained force-placed insurance, available at 
http://files.ots.treas.gov/93606.pdf.
    \95\ See Assurant Specialty Property, Lender-Placed Insurance 
(Assurant Specialty Property), available at http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News. 
According to Assurant, approximately 13% of the loans it monitors 
are identified as loans with a potential lapse in insurance, but 
approximately only 2% of that group of loans gets force-placed 
insurance because Assurant uses an advance notification process that 
resolves most of the lapses with the borrower renewing or replacing 
coverage on their own.
    \96\ See, e.g., Letter from the Financial Services Roundtable 
re: Outline of Proposals Under Consideration and Alternatives 
Considered in connection with the Small Business Review Panel for 
Mortgage Servicing Rulemaking to Peter Carroll, Consumer Financial 
Protection Bureau (May 31, 2012), at 5. See also Small Business 
Review Panel Report at 21-22.
---------------------------------------------------------------------------

    The Bureau also believes that obtaining force-placed insurance when 
servicers arguably knew or should have known that the borrower already 
had insurance is problematic for individual borrowers, particularly 
borrowers experiencing financial hardship. Force-placed insurance is 
generally substantially more expensive than hazard insurance a borrower 
could purchase.\97\ It also generally provides less protection against 
loss than insurance that a borrower could purchase.\98\ Consumer 
advocates have asserted that the higher cost of force-placed insurance 
could drive borrowers into default.\99\ According to Fannie Mae, 
``[force-placed insurance] should only be issued after the servicer has 
exhausted all means to keep the borrower's insurance policy in force.'' 
\100\ The Bureau also notes that it finds problematic the incentives 
that have reportedly influenced some servicers' decision to obtain 
force-placed insurance, such as the receipt of commissions or 
reinsurance fees by servicers and their insurance affiliates on the 
force-placed insurance policies they obtain,\101\ or that a servicer or 
an affiliate of the servicer may have an ownership interest in an 
insurance company that writes force-placed insurance.\102\ For similar 
reasons, the Bureau is proposing to require that servicers continue 
paying for a borrower's hazard insurance when practicable if the 
borrower has escrowed for hazard insurance, as discussed previously in 
the Bureau's discussion of proposed Sec.  1024.17(k)(5).
---------------------------------------------------------------------------

    \97\ See Assurant Specialty Property (estimating that the force-
placed insurance Assurant writes costs, on average, 1.5 to 2 times 
more than the prior hazard insurance purchased by the borrower.), 
available at: http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News.
    \98\ Id. (``Lender-placed insurance provides coverage for the 
structural property. It typically does not extend to liability 
coverage or a homeowner's personal contents, as the lender has no 
collateral interest in these items''). In contrast, a homeowner's 
policy offers a much broader scope of coverage. In addition to 
insuring the homeowner's personal contents against loss, it also 
pays a homeowner's additional living expenses while the home is 
being repaired, and covers a homeowner's personal liability for 
injuries to other people or their property while they are on the 
property.
    \99\ See The National Consumer Law Center and Center and the 
Center for Economic Justice, The Consumer Financial Protection 
Bureau Should Rein in Mortgage Servicers' Use of Force-Placed 
Insurance (May 2012), available at: http://www.nclc.org/images/pdf/regulatory_reform/ib-force-placed-insurance.pdf.
    \100\ See Fannie Mae March 2012 Servicing Guide Announcement, 
available at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1204.pdf.
    \101\ See, e.g., Jeff Horowitz, Ties to Insurers Could Land 
Mortgage Servicers in More Trouble, The American Banker (November 
10, 2010).
    \102\ See The Need for National Mortgage Servicing Standards: 
Hearing Before the Subcomm. on Housing, Transportation, and 
Community Affairs of the Senate Comm. on Banking and Urban Affairs, 
S. Hrg. 112-139, 112th Cong. 125 (2011) (statement of Laurie 
Goodman).
---------------------------------------------------------------------------

    The statutory definition in RESPA section 6(k)(2), discussed 
previously, may convey that ``force-placed insurance'' used in RESPA 
section 6(k)-(m) is limited to hazard insurance obtained when the 
borrower has in fact failed to maintain or renew hazard insurance. 
Based on its review of issues concerning force-placed insurance 
discussed above, the Bureau has concluded that defining force-placed 
insurance broadly is appropriate to carry out the consumer protection 
purposes of the new Dodd-Frank requirements on force-placed insurance.
    As discussed previously in the Bureau's discussion of proposed 
Sec.  1024.30, the Bureau's proposed subpart C would maintain 
Regulation X's current exclusion for all open-end lines of credit 
(home-equity plans) from the servicer requirements of Regulation X. 
Although virtually all mortgage loan contracts require borrowers to 
maintain hazard insurance during the term of the loan, the majority of 
open-end home-equity plans are subordinate liens.\103\ The Bureau has 
learned that servicers generally obtain force-placed insurance on 
behalf of first-lien holders, not subordinate-lien holders. 
Accordingly, the Bureau believes it is appropriate to maintain the 
exemption in current Regulation X for open-end lines of credit (home-
equity plans) from the Bureau's proposed force-placed insurance 
regulations. The Bureau understands that the one exception to servicers 
obtaining force-placed insurance for open-end lines of credit (home-
equity plans) is when flood insurance is required by the FDPA. As 
discussed below, however, the Bureau is proposing to exempt hazard 
insurance to protect against flood loss obtained by a servicer as 
required by the FDPA from the Bureau's proposed definition of force-
placed insurance. The Bureau, however, invites comment on whether the 
Bureau's proposed force-placed insurance regulations should be extended 
cover open-end lines of credit (home-equity plans).
---------------------------------------------------------------------------

    \103\ Donghoon Lee et al., A New Look at Second Liens, n.5 
(February 2012).
---------------------------------------------------------------------------

    Legal authority. As discussed previously, section 1463 of the Dodd-
Frank Act amended RESPA section 6 by adding a new section 6(k)(2), 
which sets forth the definition of ``force-placed insurance'' for 
purposes of RESPA section 6(k)-(m). The Bureau is proposing to 
implement section 6(k)(2) of RESPA, pursuant to its authority under 
section 6(j)(3) of RESPA by adding new Sec.  1024.37(a)(1) to 
Regulation X to define ``force-placed insurance'' to mean hazard 
insurance obtained by a servicer on behalf of the owner or assignee of 
a mortgage loan on a property securing such loan. Section 6(j)(3) of 
RESPA authorizes the Bureau to set forth any requirements necessary to 
carry out section 6 of RESPA. Section1024.37(a)(1) is additionally

[[Page 57239]]

proposed pursuant to the Bureau's authority under section 6(k)(1)(E) of 
RESPA to prescribe regulations that are appropriate to carry out the 
consumer protection purposes of RESPA, and under section 19(a) of RESPA 
to make such rules and regulations, and to make such interpretations, 
as may be necessary to achieve the consumer protection purpose of 
RESPA.
37(a)(2) Types of Insurance Not Considered Force-Placed Insurance
Paragraph 37(a)(2)(i)
    Proposed Sec.  1024.37(a)(2)(i) would exempt hazard insurance to 
protect against flood loss obtained by a servicer as required by the 
FDPA from the definition of force-placed insurance for the purposes of 
Sec.  1024.37. The Bureau understands that pursuant to section 102(e) 
of the FDPA, lenders or the servicers acting on the lenders' behalf 
must obtain force-placed flood insurance under certain circumstances. 
The Bureau understands that the circumstances are as follows: (1) The 
lender determines at any time during the life of the loan that the 
property securing the loan is located in a Special Flood Hazard Area 
(SFHA); (2) flood insurance under the ``Act'' (referring to both the 
National Flood Insurance Act of 1968 and the FDPA, as revised by the 
National Flood Insurance Reform Act of 1994) is available; (3) the 
lender determines that flood insurance coverage is inadequate or does 
not exist; and (4) after required notice, the borrower fails to buy the 
appropriate amount of coverage within 45 days.\104\
---------------------------------------------------------------------------

    \104\ 76 FR 64175, 64181 (October 17, 2011) (addressing the 
requirement for the force placement of flood insurance the under the 
Act).
---------------------------------------------------------------------------

    Since servicers are already subject to regulations when obtaining 
force-placed flood insurance as required by the FDPA,\105\ the Bureau 
proposes to exempt hazard insurance to protect against flood loss 
obtained by a servicer as required by the FDPA from the definition of 
force-placed insurance for purposes of proposed Sec.  1024.37.
---------------------------------------------------------------------------

    \105\ See 61 FR 45684 (August 29, 1996) (announcing the 
regulations originally adopted by the Board, the OCC, the FDIC, the 
FCA, NCUA, and the Office of Thrift Supervision (OTS) with respect 
to requirements for lenders and servicers when purchasing force-
placed insurance for loans secured by properties located in SHFAs).
---------------------------------------------------------------------------

    As discussed previously, to implement Dodd-Frank Act section 1463, 
the Bureau's proposed definition of ``hazard insurance'' would include 
hazard insurance to protect against flood loss. Additionally, the 
Bureau has proposed to define ``force-placed insurance'' as a type of 
``hazard insurance'' to implement RESPA section 6(k)(2). If the Bureau 
does not propose an exemption for hazard insurance to protect against 
flood loss obtained by a servicer as required by the FPDA, such 
insurance would be considered ``force-placed insurance'' under the 
definition of ``force-placed insurance'' set forth in proposed Sec.  
1024.37(a)(1). In turn, servicers who obtain force-placed flood 
insurance as required by the FDPA would be subject to the Bureau's 
proposed Sec.  1024.37 as well if the Bureau does not propose the 
exemption. Without the Bureau's proposed exemption, the Bureau believes 
the result would be the creation of overlapping servicer obligations. 
For example, section 6(l) of RESPA, discussed in greater detail below, 
requires a servicer to provide a borrower with two written notices over 
a 45-day notice period before charging the borrower for force-placed 
insurance. The FDPA also provides a 45-day notice period, but only one 
notice is required. Additionally, the FPDA was recently amended to 
require the lender or servicer to terminate force-placed flood 
insurance and refund to the borrower all force-placed flood insurance 
premiums and related fees paid by the borrower during any period when 
the borrower had insurance coverage in force within 30 days of 
receiving confirmation of a borrower's existing flood insurance 
coverage.\106\ In contrast, section 6 of RESPA, as amended by Dodd-
Frank Act section 1463, requires a servicer to cancel force-placed 
insurance and refund any premium and fees paid during the period of 
overlapping coverage within 15 days of receiving confirmation of a 
borrower's existing hazard insurance coverage.
---------------------------------------------------------------------------

    \106\ Moving Ahead for Progress in the 21st Century Act of 2012, 
PL 112-141, 126 Stat 405 (2012)
---------------------------------------------------------------------------

    The requirements set forth in Dodd-Frank Act section 1463 with 
respect to servicers' purchase of force-placed insurance represent the 
establishment of new consumer protections where protection did not 
exist before. The FDPA, however, has established a separate consumer 
protection paradigm to protect consumers when servicers are required by 
the FDPA to obtain force-placed flood insurance. As discussed above, 
the FDPA requires advance notice to consumers, and provides consumers 
with 45 days to provide evidence of flood insurance. Also as discussed 
above, the FDPA now contains termination and refund provisions with 
respect to force-placed flood insurance obtained by servicers as 
required by the FDPA. Accordingly, the Bureau believes it is consistent 
with the consumer protection purposes of RESPA to exempt hazard 
insurance to protect against flood loss obtained by a servicer as 
required by the FPDA from the Bureau's proposed definition of ``force-
placed insurance.'' For similar reasons, the Bureau proposes to exempt 
charges authorized by the FDPA from the proposed requirement that 
charges related to force-placed insurance (other than charges subject 
to State regulation as the business of insurance) must be bona fide and 
reasonable for purposes of proposed Sec.  1024.37(h), discussed below.
    The Bureau notes that the proposed exemption would only apply to 
servicers that obtain hazard insurance to protect against flood loss as 
required by the FDPA. The Bureau understands that the FDPA does not 
currently apply to a mortgaged property that is not located in a 
SFHA.\107\ The Bureau further understands that the FDPA does not 
currently apply to mortgage loans made by and kept in the portfolio of 
a private mortgage lender.\108\ The Bureau's proposed Sec.  1024.37 
would apply in situations where the FDPA does not apply. The Bureau, 
however, recognizes that operational complexity may be introduced if a 
servicer had to continuously monitor its servicing portfolio to 
identify when it is required to comply with the FDPA and when it is 
required to comply with proposed Sec.  1024.37. As discussed above, the 
Bureau invites comment on whether the Bureau's definition of ``hazard 
insurance'' should exclude hazard insurance to protect against flood 
loss. An alternative to excluding hazard insurance to protect against 
flood loss from the definition of ``hazard insurance'' is to exclude 
hazard insurance to protect against flood loss obtained by a servicer 
from the definition of ``force-placed insurance.'' The Bureau also 
seeks comment on this alternative. The Bureau recognizes that another 
possible alternative exists, and it is to harmonize the force-placed 
insurance requirements set forth in Dodd-Frank Act section 1463 with 
the FDPA. Accordingly, the Bureau invites comments on how the force-
placed insurance requirements set forth in Dodd-Frank Act section 1463 
could be harmonized with the FDPA.
---------------------------------------------------------------------------

    \107\ Federal Emergency Management Administration, Mandatory 
Purchase of Flood Insurance Guidelines (2007), at 40 (explaining 
that a lender or servicer has statutory authority to purchase flood 
insurance for a property and charge the premium to the borrower if 
the property is in a SFHA).
    \108\ Id. at 23.
---------------------------------------------------------------------------

    Legal authority. The Bureau proposes to exempt hazard insurance to 
protect against flood loss obtained by a servicer as required by the 
FDPA from the

[[Page 57240]]

definition of force-placed insurance for purposes of proposed Sec.  
1024.37 by adding new Sec.  1024.37(a)(2)(i), pursuant to its authority 
under section 19(a) of RESPA. Section 19(a) of RESPA provides the 
Bureau with authority to prescribe such rules and regulations, to make 
such interpretations, and to grant such reasonable exemptions for 
classes of transactions as may be necessary to achieve the purposes of 
RESPA. As previously discussed, the FDPA has established a separate 
consumer protection paradigm to protect consumers when servicers are 
required by the FDPA to obtain force-placed flood insurance. 
Furthermore, for reasons discussed above, the exemption will reduce 
regulatory burden.
Paragraph 37(a)(2)(ii)
    Proposed Sec.  1024.37(a)(2)(ii) provides that hazard insurance 
obtained by a borrower but renewed by the borrower's servicer as 
required by Sec.  1024.17(k)(1), (k)(2), or (k)(5) is not force-placed 
insurance for purposes of Sec.  1024.37. A servicer that complies with 
Sec.  1024.17(k)(1), (k)(2), or proposed Sec.  1024.17(k)(5) would be 
continuing the borrower's hazard insurance.
Paragraph 37(a)(2)(iii)
    Proposed Sec.  1024.37(a)(2)(iii) provides that hazard insurance 
renewed by the servicer at its discretion if the servicer is not 
required to renew the borrower's hazard insurance as required by Sec.  
1024.17(k)(1), (k)(2), or (k)(5) is not force-placed insurance for 
purposes of Sec.  1024.37. The Bureau believes that proposed Sec.  
1024.37(a)(2)(iii) would provide an incentive for servicers to work 
with non-escrowed borrowers to renew hazard insurance obtained by these 
borrowers.
    Legal authority. The Bureau proposes to add new Sec.  
1024.37(a)(2)(ii)-(iii) pursuant to its authority under section 6(j)(3) 
of RESPA, which authorizes the Bureau to establish any requirements 
necessary to carry out the purposes of section 6 of RESPA. As discussed 
previously, the Bureau is proposing to define ``force-placed 
insurance'' as hazard insurance obtained by a servicer on behalf of the 
owner or assignee of a mortgage loan on a property securing such loan 
in proposed Sec.  1024.37(a)(1). The Bureau believes it is necessary 
and appropriate to clarify that the term does not apply to hazard 
insurance obtained by a borrower and renewed by a borrower's servicer. 
It will reduce regulatory burden and may, as discussed above, 
incentivize servicers to work with non-escrowed borrowers to renew the 
hazard insurance obtained by such borrowers. Section 1024.37(a)(2)(ii)-
(iii) is additionally proposed pursuant to the Bureau's authority under 
section 6(k)(1)(E) of RESPA to prescribe regulations that are 
appropriate to carry out the consumer protection purposes of RESPA, and 
under section 19(a) of RESPA to prescribe such rules and regulations, 
to make such interpretations as may be necessary to achieve the 
purposes of RESPA.
37(b) Basis for Obtaining Force-Placed Insurance
    The Bureau is proposing a new Sec.  1024.37(b) to implement new 
section 6(k)(1)(A) of RESPA, added by section 1463 of the Dodd-Frank 
Act, which requires a servicer to have a reasonable basis to believe 
that the borrower has failed to comply with the loan contract's 
requirement to maintain property insurance before obtaining force-
placed insurance. Proposed Sec.  1024.37(b) sets forth that a servicer 
may not obtain force-placed insurance unless the servicer has a 
reasonable basis to believe that the borrower has failed to comply with 
the mortgage loan contract's requirement to maintain hazard insurance.
    Proposed comment 37(b)-1 provides examples of ``reasonable basis'' 
for borrowers with escrow. The comment clarifies that a servicer has a 
reasonable basis to believe that a borrower with an escrow account 
established for hazard insurance has failed to maintain hazard 
insurance if, for example, by a reasonable time leading up to the 
expiration date of the borrower's hazard insurance (e.g., 30 days 
before the expiration date), the servicer has not received a renewal 
bill. It also sets forth that the receipt by a servicer of a notice of 
cancellation or non-renewal from the borrower's insurance company 
before payment is due for the borrower's hazard insurance provides a 
servicer with a reasonable basis to believe that the borrower has 
failed to maintain hazard insurance.
    Proposed comment 37(b)-2 provides an example of ``reasonable 
basis'' for borrowers without escrow. The comment provides that a 
servicer has a reasonable basis to believe a borrower without an escrow 
account established for hazard insurance has failed to maintain hazard 
insurance if, for example, a servicer receives a notice of cancellation 
or non-renewal from the borrower's insurance company.
    The Bureau believes it is appropriate to distinguish situations 
where the borrower has escrowed for hazard insurance from situations 
where the borrower has not done so. For a borrower who has escrowed for 
hazard insurance, a servicer receives a request to pay a borrower's 
existing hazard insurance before the insurance lapses. When a borrower 
has not escrowed for hazard insurance, the Bureau understands that a 
servicer does receive a payment request and thus may not learn of the 
lapse in insurance until the borrower's coverage has expired.
    Legal authority. As discussed above, the Bureau is proposing a new 
Sec.  1024.37(b) to implement new section 6(k)(1)(A) of RESPA. The 
Bureau proposes to implement section 6(k)(1)(A) pursuant to its 
authority under RESPA section 6(j)(3) to establish any requirements 
necessary to carry out the purposes of section 6 of RESPA. The Bureau 
has additional authority under section 6(k)(1)(E) of RESPA to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA, and under section 19(a) of RESPA to prescribe such 
rules and regulations, to make such interpretations as may be necessary 
to achieve the purposes of RESPA.
37(c) Requirements for Charging Borrower Force-Placed Insurance
37(c)(1) In General
    Section 1463 of the Dodd-Frank Act amended section 6 of RESPA by 
setting forth certain requirements a servicer must follow before 
imposing any charge on a borrower for force-placed insurance with 
respect to any property securing a mortgage by adding new section 
6(l)(1)(A)-(C) to RESPA. RESPA section 6(l)(1)(A) requires servicers to 
use first-class mail to send a written notice to the borrower 45 days 
before charging a borrower for force-placed insurance. RESPA section 
6(l)(1)(B) requires servicers to use first-class mail to send a second 
written notice to the borrower at least 30 days after mailing the 
notice required by RESPA section 6(l)(1)(A). RESPA section 6(l)(1)(C) 
permits a servicer to charge a borrower for force-placed insurance at 
the end of the 45-day notice period only if the servicer has not 
received any demonstration of hazard insurance coverage during the 45-
day notice period.
    Legal authority. The Bureau proposes to implement RESPA section 
6(l)(1)(A)-(C), pursuant to its authority under RESPA section 6(j)(3) 
to establish any requirements necessary to carry out section 6 of RESPA 
by adding new Sec.  1024.37(c)(1) to Regulation X. The Bureau has 
additional authority under section 6(k)(1)(E) of RESPA to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA, and under section 19(a) of RESPA to prescribe such 
rules and

[[Page 57241]]

regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA.
    Proposed Sec.  1024.37(c)(1), in implementing RESPA section 
6(l)(1)(A)-(C), states that a servicer may not charge a borrower for 
force-placed insurance unless: (1) The servicer delivers to the 
borrower or places in the mail a written notice with the disclosures 
set forth in proposed Sec.  1024.37(c)(2) at least 45 days before the 
premium charge or any fee is assessed; (2) the servicer delivers to the 
borrower or places in the mail a written notice in accordance with 
Sec.  1024.37(d)(1); and (3) during the 45-day notice period, the 
servicer has not received verification that the borrower has hazard 
insurance in place continuously. Determining whether the borrower has 
hazard insurance in place continuously shall take account of any grace 
period provided under State or other applicable law.
    Proposed 1024.37(c)(1) permits a servicer to choose between 
delivering the written notice to the borrower or mailing the written 
notice required by RESPA section 6(l)(1)(A) and 6(l)(1)(B). In some 
situations, a borrower who receives the written notice via courier may 
get it faster than a borrower who gets the notice in the mail. The 
Bureau believes allowing servicers to deliver the notice is appropriate 
to carry out the consumer protection purposes of RESPA.
    Proposed comment 37(c)(1)-1 clarifies that the 45-day notice period 
set forth in Sec.  1024.37(c)(1) begins on the day that the servicer 
delivers or mails the notice to the borrower and expires 45 days later. 
The servicer may assess the premium charge and any fees for force-
placed insurance beginning on the 46th day if the servicer has 
fulfilled the requirements of Sec.  1024.37(c) and (d). As discussed 
previously, virtually all mortgage loan contracts provide that lenders 
may charge borrowers for hazard insurance lenders obtain if borrowers 
fail to maintain hazard insurance coverage, and that the obligation to 
obtain the coverage typically falls on servicers. Accordingly, proposed 
comment 37(c)(1)-1 clarifies that if not prohibited by State or other 
applicable law, the servicer may retroactively charge a borrower for 
force-placed insurance obtained during the 45-day notice period.
    The Bureau notes, however, pursuant to proposed Sec.  1024.37(g) 
discussed below, if a servicer receives verification that the borrower 
had hazard insurance in place during some or all of the 45-day notice 
period, then, if the servicer retroactively charged the borrower for 
force-placed insurance during the notice period, the servicer would 
have to refund the force-placed insurance premium charges and related 
fees paid by the borrower for the period of time during the notice 
period during which the borrower's hazard insurance was in place. The 
servicer would also have to remove all force-placed insurance premium 
charges and related fees from the borrower's account for that period of 
time.
    Proposed comment 37(c)(1)(iii)-1 provides examples of borrowers 
having hazard insurance in place continuously. A borrower's prior 
hazard insurance might have expired on January 2. But so long as a 
borrower's current hazard insurance takes effect January 3, then the 
borrower has hazard insurance in place continuously. When there is a 
grace period, the servicer must take the grace period into account when 
determining whether the borrower has hazard insurance in place 
continuously. For example, a borrower's prior hazard insurance might 
have an expiration date of June 1, but a grace period extends the 
effectiveness of the borrower's prior hazard insurance to June 10. 
Accordingly, so long as the borrower obtains hazard insurance, 
effective June 11, then the borrower has hazard insurance in place 
continuously.
37(c)(2) Content of Notice
    RESPA section 6(l)(1)(A)(i)-(iv) requires the following disclosures 
in the notice required pursuant to RESPA section 6(l)(1)(A) and (1)(B): 
(1) A reminder of the borrower's obligation to maintain hazard 
insurance on the property securing the federally related mortgage; (2) 
a statement that the servicer does not have evidence of insurance 
coverage of such property; (3) a clear and conspicuous statement of the 
procedures by which the borrower may demonstrate that the borrower 
already has insurance coverage; and (4) a statement that the servicer 
may obtain such coverage at the borrower's expense if the borrower does 
not provide such demonstration of the borrower's existing coverage in a 
timely manner.
    Additionally, RESPA section 6(l)(2) requires a servicer to accept 
any reasonable form of written confirmation from a borrower of existing 
force-placed coverage, which ``shall include the existing insurance 
policy number along with the identity of, and contact information for 
the insurance company or agent, or as otherwise required by the Bureau 
of Consumer Financial Protection.'' The Bureau believes that it is the 
servicer's obligation to verify a borrower's hazard insurance status, 
and that RESPA section 6(l)(2) means that for purposes of verification, 
the servicer must accept from the borrower information that contains 
the borrower's existing insurance policy number, and the name, mailing 
address, and phone number of the borrower's insurance company or the 
borrower's insurance agent if the borrower provides the information to 
the servicer in writing. To implement RESPA section 6(l)(2), the Bureau 
is requiring a servicer to provide, in the notice required by proposed 
Sec.  1024.37(c)(1)(i), a statement requesting the borrower to promptly 
provide the servicer with the insurance policy number and the name, 
mailing address and phone number of the borrower's insurance company or 
the borrower's insurance agent.
    Proposed Sec.  1027.37(c)(2) would require servicers to provide, in 
the notice required by proposed Sec.  1024.37(c)(1)(i), the following 
disclosures: (1) The date of the notice; (2) the servicer's name and 
mailing address; (3) the borrower's name and mailing address; (4) a 
statement that requests the borrower to provide hazard insurance 
information for the borrower's property and identifies the property by 
its address; (5) a statement that the borrower's hazard insurance is 
expiring or expired, as applicable, and that the servicer does not have 
evidence that the borrower has hazard insurance coverage past the 
expiration date. For a borrower that has more than one type of hazard 
insurance on the property, the servicer must identify the type of 
hazard insurance for which the servicer lacks evidence of coverage; (6) 
a statement that hazard insurance is required on the borrower's 
property and that the servicer has obtained or will obtain, as 
applicable, insurance at the borrower's expense; (7) a statement 
requesting the borrower to promptly provide the servicer with the 
insurance policy number and the name, mailing address and phone number 
of the borrower's insurance company or the borrower's insurance agent; 
(8) a description of how the borrower may provide the information 
requested pursuant to Sec.  1024.37(c)(2)(vii). A servicer that will 
only accept the requested information in writing must disclose that 
fact in the notice; (9) the cost of the force-placed insurance, stated 
as an annual premium. If the cost of the force-placed insurance is not 
known as of the date of the disclosure, a good faith estimate shall be 
disclosed and be identified as such; (10) a statement that insurance 
the servicer obtains may cost significantly more than hazard insurance 
obtained by the borrower and may not provide as much coverage as hazard 
insurance obtained by the borrower; and (11) the servicer's

[[Page 57242]]

telephone number for borrower questions. Proposed Sec.  1024.37(c)(2) 
is subject to the general disclosure requirements of proposed Sec.  
1024.32, including, for example, proposed Sec.  1024.32's clear and 
conspicuous requirement. As discussed previously, proposed Sec.  
1024.32 also permits servicers to combine disclosures required pursuant 
to subpart C of Regulation X with disclosures required by applicable 
law, including state law.
    Proposed comment 37(c)(2)(v)-1 explains that if a borrower has 
purchased a homeowner's insurance policy and a separate hazard 
insurance policy to insure loss against hazards not covered under his 
or her homeowner's insurance policy, the servicer must disclose whether 
it is the borrower's homeowner's insurance policy or the separate 
hazard insurance policy for which it lacks evidence of coverage to 
comply with Sec.  1024.37(c)(2)(v). As discussed previously, certain 
hazards are covered by policies separate from a homeowner's insurance 
policy. The Bureau believes that it is important to specify the type of 
hazard insurance that the borrower is required to maintain if the 
borrower has a hazard insurance policy the borrower uses to protect 
against loss by hazards excluded from his or her homeowner's insurance 
policy.
    As discussed in part III.B, above, the Bureau tested the force-
placed insurance disclosures required by the Dodd-Frank Act in three 
rounds of consumer testing. Participant response in consumer testing 
suggests that knowing about the higher cost of force-placed insurance 
could motivate borrowers to act promptly and thus avoid being charged 
with force-placed insurance. All participants said that they would 
immediately contact their insurance provider to find out whether or not 
their hazard insurance has expired or purchase new hazard insurance 
because they would not want to pay for the higher cost of force-placed 
insurance. Accordingly, in proposed Sec.  1024.37(c)(2)(ix) discussed 
above, the Bureau is proposing to supplement the disclosure 
requirements of the Dodd-Frank Act by requiring servicers to disclose 
the cost of the force-placed insurance, stated as an annual premium. If 
the cost of the force-placed insurance is not known as of the date of 
the disclosure, a good faith estimate shall be disclosed and be 
identified as such.
    Proposed comment 37(c)(2)(ix)-1 explains that the good faith 
estimate of the cost of the force-placed insurance the servicer may 
obtain should be consistent with the best information reasonably 
available to the servicer at the time the disclosure is provided. 
Differences between the amount of the estimated cost disclosed under 
Sec.  1024.37(c)(2)(ix) and the actual cost do not necessarily 
constitute a lack of good faith, so long as the estimated cost was 
based on the best information reasonably available to the servicer at 
the time the disclosure was provided. For example, a mortgage 
investor's requirements may provide that the amount of coverage for 
force-placed insurance depends on the borrower's delinquency status 
(the number of days the borrower's mortgage payment is past due). The 
amount of coverage affects the cost of force-placed insurance. A 
servicer that provides an estimate of the cost of force-placed 
insurance based on the borrower's delinquency status at the time the 
disclosure is made complies with Sec.  1024.37(c)(2)(ix). The Bureau 
believes its proposed good faith standard balances the concern that 
some servicers may underestimate the cost of force-placed insurance and 
mislead borrowers into believing the cost of the force-placed insurance 
to be less than it actually is and the fact that the cost may change 
due to legitimate reasons between the time the disclosure is made and 
the time the borrower is charged.
    The Bureau is also proposing to supplement the disclosure 
requirements of the Dodd-Frank Act with the requirement, discussed 
above, that servicers disclose to borrowers that insurance obtained by 
the servicer may cost significantly more than hazard insurance obtained 
by the borrower and that such insurance may not provide as much 
coverage as hazard insurance obtained by the borrower. As discussed 
previously, the consequences of servicers obtaining force-placed 
insurance may be significant and negative for borrowers. Accordingly, 
the Bureau believes it is appropriate to inform borrowers about the 
fact that force-placed insurance may not provide as much coverage as 
insurance borrowers could purchase for themselves, even though force-
placed insurance may be significantly more expensive.
    Legal authority. The Bureau is proposing a new Sec.  1024.37(c)(2) 
to Regulation X pursuant to its authority under section 6(j)(3) of 
RESPA to implement new section 6(l)(1)(A)(i)-(iv) and 6(l)(2) of RESPA, 
added by section 1463 of the Dodd-Frank Act. Section 6(j)(3) of RESPA 
authorizes the Bureau to establish any requirements necessary to carry 
out the purposes of section 6 of RESPA. The Bureau has additional 
authority under section 6(k)(1)(E) of RESPA to prescribe regulations 
that are appropriate to carry out the consumer protection purposes of 
RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA. The disclosures in proposed Sec.  
1024.37(c)(2) are additionally proposed pursuant to Dodd Frank Act 
section 1032. Consistent with this provision, the Bureau believes that 
proposed disclosures will ensure that the costs, benefits, and risks 
associated with the service that servicers provide in servicing the 
loan by obtaining force-placed insurance are fully, accurately, and 
effectively disclosed to borrowers, in light of the facts and 
circumstances.
37(c)(3) Format
    Proposed 1024.37(c)(3) provides the disclosures set forth in Sec.  
1024.37(c)(2) must be in a format substantially similar to form MS-
3(A), set forth in appendix MS-3. Disclosures made pursuant to Sec.  
1024.37(c)(2)(vi) and (c)(2)(ix) must be in bold text. Disclosure made 
pursuant to Sec.  1024.37(c)(2)(iv) must be in bold text, except that 
the physical address of the borrower's property may be in regular text. 
The Bureau believes the use of highlighting (bold text) to bring 
attention to important information allows borrowers to find the 
information quickly and efficiently. The Bureau believes it is 
important that borrowers can promptly identify the purpose of the 
notice. Additionally, the Bureau believes it is important to bring 
attention to the cost of force-placed insurance so borrowers have a 
clear understanding of the cost to them of the service that servicers 
provide in obtaining force-placed insurance. The Bureau further 
believes it is important for borrowers to understand that the 
servicer's purchase of force-placed insurance arises from the 
borrower's obligation to maintain hazard insurance. Although the notice 
contains additional information that are important, the Bureau believes 
the usefulness of highlighting in focusing a borrower's attention on 
important information decreases if highlighting is used unsparingly.
    Legal authority. As previously discussed, section 6(l)(1) of RESPA 
requires a servicer to provide a borrower with two notices before 
charging a borrower for force-placed insurance. The Bureau believes 
that model forms facilitate compliance with the new Dodd-Frank Act 
requirements concerning force-placed insurance disclosures and the 
Bureau's proposed supplemental disclosures. To implement section 
6(l)(1) of RESPA, the Bureau is proposing a new Sec.  1024.37(c)(3) to 
Regulation X pursuant

[[Page 57243]]

to its authority under section 6(j)(3) of RESPA. Section 6(j)(3) of 
RESPA authorizes the Bureau to establish any requirements necessary to 
carry out the purposes of section 6 of RESPA. The Bureau has additional 
authority under section 6(k)(1)(E) of RESPA to prescribe regulations 
that are appropriate to carry out the consumer protection purposes of 
RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA. The model form MS-3(A) in appendix MS-3 
is additionally proposed pursuant to Dodd-Frank Act section 1032(b).
37(d) Reminder Notice
37(d)(1) In General
    As discussed above, section 6(l) of RESPA, as added by section 1463 
of the Dodd-Frank Act, requires that servicers send two written notices 
to the borrower prior to charging the borrower for force-placed 
insurance. Specifically, RESPA section 6(l)(1)(B) requires servicers to 
use first-class mail to send a second written notice to the borrower at 
least 30 days after mailing the initial notice required by RESPA 
section 6(l)(1)(A).
    Proposed Sec.  1024.37(d)(1) implements section 6(l)(B) of RESPA by 
providing that one written notice in addition to the written notice 
required pursuant to Sec.  1024.37(c)(1)(i) must be delivered to the 
borrower or placed in the mail prior to a servicer charging a borrower 
for force-placed insurance. The servicer may not deliver or place the 
written notice required pursuant to Sec.  1024.37(d)(1) in the mail 
until 30 days after delivering to the borrower or placing in the mail 
the written notice set forth in Sec.  1024.37(c)(1)(i). A servicer that 
receives no insurance information after delivering or placing in the 
mail the written notice set forth in Sec.  1024.37(c)(1)(i) must 
provide the disclosures set forth in Sec.  1024.37 (d)(2)(i). A 
servicer that receives insurance information after delivering or 
placing in the mail the written notice set forth in Sec.  
1024.37(c)(1)(i) but does not receive verification that the borrower 
has hazard insurance coverage continuously must provide the disclosures 
set forth in Sec.  1024.37(c)(1)(ii).
    Proposed comment 37(d)(1)-1 explains that when a servicer is 
required to deliver or place in the mail the written notice pursuant to 
Sec.  1024.37(d)(1), the content of the reminder notice will be 
different depending on the insurance information the servicer has 
received from the borrower. For example, on June 1, the servicer places 
in the mail the written notice required pursuant to Sec.  
1024.37(c)(1)(i) to Borrower A. The servicer does not receive any 
insurance information from Borrower A. The servicer must deliver to 
Borrower A or place in the mail one written notice, with the content 
set forth in Sec.  1024.37(d)(2)(i), 15 days before the servicer 
charges Borrower A for force-placed insurance. Take the example above, 
except that Borrower A provides the servicer with insurance information 
on June 18. But the servicer cannot verify that Borrower A has had 
continuous insurance coverage based on the information Borrower A 
provided (e.g., the servicer cannot verify that Borrower A had coverage 
between June 10 and June 15. The servicer must either deliver to 
Borrower A or place in the mail one reminder notice, with the content 
set forth in Sec.  1024.37(d)(2)(ii), 15 days before charging Borrower 
A for force-placed insurance it obtains for the period between June 10 
and June 15.
    Legal authority. The Bureau proposes to implement RESPA section 
6(l)(1)(B) pursuant to its authority under RESPA section 6(j)(3) by 
adding new Sec.  1024.37(d)(1) to Regulation X. Section 6(j)(3) of 
RESPA authorizes the Bureau to establish any requirements necessary to 
carry out the purposes of section 6 of RESPA. The Bureau has additional 
authority under section 6(k)(1)(E) of RESPA to prescribe regulations 
that are appropriate to carry out the consumer protection purposes of 
RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA.
37(d)(2) Content of Reminder Notice
37(d)(2)(i) Servicer Receiving No Insurance Information
    Proposed Sec.  1024.37(d)(2)(i) implements RESPA section 
6(l)(1)(B). It provides that a servicer that has not received any 
insurance information from the borrower within 30 days after delivering 
or placing in the mail the notice required pursuant to Sec.  
1024.37(c)(1)(i) must provide a reminder notice that contains the 
disclosures set forth in Sec.  1024.37(c)(2)(ii) to (c)(2)(xi), the 
date of the notice, and a statement that the notice is the second and 
final notice. The Bureau believes that the date of the notice and a 
statement that the notice is the second and final notice helps to 
distinguish the notice from the notice required pursuant to Sec.  
1024.37(c)(1)(i). Because the servicer has not received any insurance 
information, the Bureau believes it is appropriate to require the 
servicer to provide the disclosures set forth in Sec.  
1024.37(c)(2)(ii) to (c)(2)(xi).
    Legal authority. The Bureau proposes to implement section 
6(l)(1)(B) of RESPA by adding new Sec.  1024.37(d)(2)(i) pursuant to 
its authority under section 6(j)(3) of RESPA. Section 6(j)(3) of RESPA 
authorizes the Bureau to establish any requirements necessary to carry 
out the purposes of section 6 of RESPA. The Bureau has additional 
authority under section 6(k)(1)(E) of RESPA to prescribe regulations 
that are appropriate to carry out the consumer protection purposes of 
RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA. The disclosures in proposed Sec.  
1024.37(d)(2)(i) are additionally proposed pursuant to Dodd-Frank Act 
section 1032. Consistent with this provision, the Bureau believes that 
proposed disclosures will ensure that the costs, benefits, and risks 
associated with the service that servicers provide in servicing the 
loan by obtaining force-placed insurance are fully, accurately, and 
effectively disclosed to borrowers, in light of the facts and 
circumstances.
    The Bureau notes that proposed Sec.  1024.37(d)(2)(i) is subject to 
the general disclosure requirements proposed Sec.  1024.32, including, 
for example, proposed Sec.  1024.32's clear and conspicuous 
requirement. As discussed previously, proposed Sec.  1024.32 also 
permits servicers to combine disclosures required pursuant to subpart C 
of Regulation X with disclosures required by applicable law, including 
state law.
37(d)(2)(ii) Servicer Not Receiving Verification of Continuous Coverage
    Proposed Sec.  1024.37(d)(2)(ii) provides that a servicer that has 
received insurance information from the borrower within 30 days after 
delivering to the borrower or placing in the mail the written notice 
set forth Sec.  1024.37(c)(1)(i), but not verification that the 
borrower has hazard insurance in place continuously, must deliver or 
place in the mail a written notice that contains the following: (1) The 
date of the notice; (2) a statement that the notice is the second and 
final notice; (3) the disclosures set forth in Sec.  1024.37(c)(2)(ii), 
(c)(2)(iii), (c)(2)(iv), and (c)(2)(xi); (4) a statement that the 
servicer has received the hazard insurance information that the 
borrower provided; and (5) a statement that indicates to the borrower 
that the servicer is unable to verify that the borrower has hazard 
insurance in place continuously; and (6) a statement that

[[Page 57244]]

the borrower will be charged for insurance the servicer obtains for the 
period of time where the servicer is unable to verify hazard insurance 
coverage unless the borrower provides the servicer with hazard 
insurance information for such period.
    As discussed previously, new RESPA section 6(l)(1) requirements 
added by section 1463 of the Dodd-Frank Act require servicers to 
provide advance written notice to borrowers 45 days before charging a 
borrower for force-placed insurance. RESPA section 6(l)(1)(B) provides 
that the notice required pursuant to RESPA section 6(l)(1)(B) must 
contain all of the information set forth in the first written notice. 
The Bureau believes that a borrower that provides his or her servicer 
with the information requested after receiving the initial written 
notice might become angry and confused if he or she receives a second 
notice containing information they previously received. However, if a 
borrower's servicer cannot verify that the borrower has hazard 
insurance in place continuously based on the information the borrower 
provided, the Bureau believes it benefits the borrower to receive the 
reminder notice required pursuant to proposed Sec.  1024.37(d)(1) 
because it would be useful in helping borrowers avoid force-placed 
insurance charges. Accordingly, the Bureau is proposing to require 
servicers to disclose different information in the notice required 
pursuant to proposed Sec.  1024.37(d)(1), as set forth in proposed 
Sec.  1024.37(d)(2)(i) and (d)(2)(ii).
    Legal authority. The Bureau proposes to implement section 
6(l)(1)(B) of RESPA by adding new Sec.  1024.37(d)(2)(ii) pursuant to 
its authority under section 6(j)(3) of RESPA. Section 6(j)(3) of RESPA 
authorizes the Bureau to establish any requirements necessary to carry 
out the purposes of section 6 of RESPA. The Bureau has additional 
authority under section 6(k)(1)(E) of RESPA to prescribe regulations 
that are appropriate to carry out the consumer protection purposes of 
RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations as may be necessary to 
achieve the purposes of RESPA. The disclosures in proposed Sec.  
1024.37(d)(2)(ii) are additionally proposed pursuant to Dodd-Frank Act 
section 1032. Consistent with this provision, the Bureau believes that 
proposed disclosures will ensure that the costs, benefits, and risks 
associated with the service that servicers provide in servicing the 
mortgage loan by obtaining force-placed insurance are fully, 
accurately, and effectively disclosed to borrowers, in light of the 
facts and circumstances.
    The Bureau notes that proposed Sec.  1024.37(d)(2)(ii) is subject 
to the general disclosure requirements proposed Sec.  1024.32, 
including, for example, proposed Sec.  1024.32's clear and conspicuous 
requirement. As discussed previously, proposed Sec.  1024.32 also 
permits servicers to combine disclosures required pursuant to subpart C 
of Regulation X with disclosures required by applicable law, including 
state law.
37(d)(3) Format
    Proposed Sec.  1024.37(d)(3) provides that the disclosures set 
forth in paragraph (d)(2)(i) of this section must be in a format 
substantially similar to form MS-3(B), and the disclosures set forth in 
paragraph (d)(2)(ii) of this section must be in a format substantially 
similar to form MS-3(C). The model forms are set forth in appendix MS-
3. Disclosures required by Sec.  1024.37(d)(2)(i)(B), (d)(2)(ii)(B), 
and (d)(2)(ii)(F) of this section must be in bold text. The Bureau 
discussed the use of highlight (bold text) previously. It is proposing 
that disclosures required by Sec.  1024.37(d)(2)(i)(B), (d)(2)(ii)(B), 
and (d)(2)(ii)(F) of this section must be in bold text for reasons 
previously discussed.
    Legal authority. As previously discussed, section 6(l)(1) of RESPA 
requires a servicer to provide a borrower with two notices before 
charging a borrower for force-placed insurance, and that the Bureau 
believes that model forms facilitate compliance with the new Dodd-Frank 
Act requirements concerning force-placed insurance disclosures and the 
Bureau's proposed supplemental disclosures. To implement section 
6(l)(1) of RESPA, the Bureau is proposing a new Sec.  1024.37(d)(3) to 
Regulation X pursuant to its authority under section 6(j)(3) of RESPA. 
Section 6(j)(3) of RESPA authorizes the Bureau to establish any 
requirements necessary to carry out the purposes of section 6 of RESPA. 
The Bureau has additional authority under section 6(k)(1)(E) of RESPA 
to prescribe regulations that are appropriate to carry out the consumer 
protection purposes of RESPA, and under section 19(a) of RESPA to 
prescribe such rules and regulations, to make such interpretations as 
may be necessary to achieve the purposes of RESPA. The forms MS-3(B) 
and MS-3(C) are additionally proposed under Dodd-Frank Act section 
1032(b).
37(d)(4) Updating Notice With Borrower Information
    Proposed Sec.  1024.37(d)(4) provides that if a servicer receives 
hazard insurance information from a borrower after a written notice 
required pursuant to Sec.  1024.37(d)(1) has been put into production, 
the servicer is not required to update the notice so long the notice 
was put into production within a reasonable time prior to the servicer 
delivering the notice to the borrower or placing the notice in the 
mail. Proposed comment 37(d)(4)-1 provides that a servicer may have to 
prepare the written notice required pursuant to Sec.  1024.37(d)(1) in 
advance of delivering or placing the notice in the mail. If the notice 
has already been put into production, the servicer is not required to 
update the notice with insurance information received from the borrower 
after production has started so long as the notice was put into 
production within a reasonable time prior to the servicer delivering or 
placing the notice in the mail. The Bureau proposes to provide guidance 
that 5 days prior is a reasonable time. The Bureau invites comment on 
whether, in certain circumstances, a longer time frame is reasonable.
    Legal authority. The Bureau recognizes that servicers may receive 
borrower's hazard insurance information after they have put the notices 
required pursuant to Sec.  1024.37(d)(1) into production, and that it 
may be impracticable for them to stop production to update the notices. 
Accordingly, the Bureau is using its authority under RESPA section 
6(k)(1)(E) to provide a safe harbor in proposed Sec.  1024.37(d)(4). 
Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. The Bureau has additional authority under section 
6(j)(3) of RESPA to establish any requirements necessary to carry out 
the purposes of section 6 of RESPA, and under section 19(a) of RESPA to 
prescribe such rules and regulations, to make such interpretations as 
may be necessary to achieve the purposes of RESPA.
37(e) Renewal or Replacement of Force-Placed Insurance
37(e)(1) In General
    Proposed Sec.  1024.37(e)(1) provides that a servicer may not 
charge a borrower for renewing or replacing existing force-placed 
insurance unless: (1) The servicer delivers or places in the mail a 
written notice to the borrower with the disclosures set forth in Sec.  
1024.37(e)(2) at

[[Page 57245]]

least 45 days before the premium charge or any fee is assessed; and (2) 
during the 45-day notice period, the servicer has not received evidence 
that the borrower has obtained hazard insurance. Proposed Sec.  
1024.37(e)(1) further provides that notwithstanding Sec.  
1024.37(e)(1)(i) and (e)(ii), a servicer that has renewed or replaced 
the existing force-placed insurance during the 45-day notice period may 
charge the borrower for the renewal or replacement promptly after the 
servicer receives verification that hazard insurance obtained by the 
borrower did not provide the borrower with insurance coverage for any 
period of time following the expiration of the existing force-placed 
insurance.
    Proposed comment 37(e)(1)(iii)-1 illustrates when a servicer may 
charge a borrower for the renewal or replacement of the borrower's 
existing force-placed insurance before the end of the 45-day notice 
period. In the example, on January 2, the servicer sends the notice 
required by Sec.  1024.37(e)(1). On January 12, the existing force-
placed insurance the servicer had obtained on the borrower's property 
expires and the servicer replaces the expired force-placed insurance 
policy with a new force-placed insurance policy effective January 13. 
On February 5, the servicer receives verification that the borrower 
obtained hazard insurance effective January 31. The servicer may charge 
the borrower for force-placed insurance from January 13 to January 30, 
as early as February 5.
    Legal authority. As discussed previously, there does not appear to 
be an industry standard that applies to renewal procedures for force-
placed insurance. Moreover, incentives like commissions paid to 
servicers or their insurance affiliates may cause servicers to prefer 
renewing or replacing existing force-placed insurance coverage over 
providing borrowers with an opportunity to obtain hazard insurance. The 
Bureau's proposal could help a borrower avoid incurring the cost to the 
borrower associated his or her servicer renewing or replacing existing 
force-placed insurance because the proposal provides for advance notice 
that allows a borrower the time the borrower may need to buy hazard 
insurance before being charged for the cost of force-placed insurance. 
The Bureau proposes to add new Sec.  1024.37(e)(1) pursuant to its 
authority under RESPA section 6(k)(1)(E), which authorizes the Bureau 
to prescribe regulations that are appropriate to carry out the consumer 
protection purposes of RESPA. The Bureau has additional authority under 
section 6(j)(3) of RESPA to establish any requirements necessary to 
carry out the purposes of section 6 of RESPA, and under section 19(a) 
of RESPA to prescribe such rules and regulations, to make such 
interpretations as may be necessary to achieve the purposes of RESPA.
37(e)(2) Content of Renewal Notice
    Except as set forth below, proposed Sec.  1024.37(e)(2) would 
require servicers to provide the disclosures set forth in proposed 
Sec.  1024.37(c)(2) in the notice required by proposed Sec.  
1024.37(e)(1). The main differences between the disclosures set forth 
in proposed Sec.  1024.37(c)(2) and proposed Sec.  1024.37(e)(2) is 
that in proposed Sec.  1024.37(e)(2), servicers must provide a 
statement that: (1) The servicer previously obtained insurance on the 
borrower's property and assessed the cost of the insurance to the 
borrower because the servicer did not have evidence that the borrower 
had hazard insurance coverage for the property; and (2) the servicer 
has the right to maintain insurance by renewing or replacing the 
insurance it previously obtained because insurance is required. The 
Bureau believes the differences are necessary to distinguish the notice 
required pursuant to Sec.  1024.37(e)(1) from the notice required 
pursuant to proposed Sec.  1024.37(c)(1).
Paragraph 37(e)(2)(vii)
    Proposed Sec.  1024.37(e)(2)(vii) would require a servicer to set 
forth the cost of the force-placed insurance, stated as an annual 
premium. If the cost of the force-placed insurance is not known as of 
the date of the disclosure, a good faith estimate shall be disclosed 
and be identified as such. Proposed comment 37(e)(2)(vii)-1 provides 
that the good faith requirement set forth in Sec.  1024.37(e)(2)(vii) 
is the same good faith requirement set forth in Sec.  
1024.37(c)(2)(ix).
    Legal authority. The Bureau proposes to add new Sec.  1024.37(e)(2) 
to Regulation X pursuant to its authority under section 6(k)(1)(E) of 
RESPA. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. As discussed above, the Bureau's proposal to require 
servicers to provide a written notice before charging a borrower for 
the renewal or replacement of existing hazard insurance could help a 
borrower avoid incurring the cost to the borrower associated his or her 
servicer renewing or replacing existing force-placed insurance. The 
Bureau has additional authority under section 6(j)(3) of RESPA to 
establish any requirements necessary to carry out the purposes of 
section 6 of RESPA, and under section 19(a) of RESPA to prescribe such 
rules and regulations, to make such interpretations as may be necessary 
to achieve the purposes of RESPA. The disclosures in proposed Sec.  
1024.37(e)(2) are additionally proposed pursuant to Dodd-Frank Act 
section 1032. Consistent with this provision, the Bureau believes that 
proposed disclosures will ensure that the costs, benefits, and risks 
associated with the service that servicers provide in the loan by 
obtaining force-placed insurance to renew or replace existing force-
placed insurance are fully, accurately, and effectively disclosed to 
borrowers, in light of the facts and circumstances.
    The Bureau notes that proposed Sec.  1024.37(e)(2) is subject to 
the general disclosure requirements proposed Sec.  1024.32, including, 
for example, proposed Sec.  1024.32's clear and conspicuous 
requirement. As discussed previously, proposed Sec.  1024.32 also 
permits servicers to combine disclosures required pursuant to subpart C 
of Regulation X with disclosures required by applicable law, including 
state law.
37(e)(3) Format
    Proposed Sec.  1024.37(e)(3) provides that the disclosures set 
forth in Sec.  1024.37(e)(2) must be in a format substantially similar 
to form MS-3(D), set forth in appendix MS-3. Disclosures made pursuant 
to Sec.  1024.37(e)(2)(vi)(B) and 37(e)(2)(vii) must be in bold text. 
Disclosures made pursuant to Sec.  1024.37(e)(2)(iv) must be in bold 
text, except that the physical address of the property may be in 
regular text. The Bureau discussed the usefulness of highlighting (bold 
text) important information to borrowers previously, and is proposing 
that disclosures discussed above be in bold text for similar reasons.
    Legal authority. The Bureau proposes to exercise its authority 
under RESPA section 6(k)(1)(E) to add new Sec.  1024.37(e)(3) to 
Regulation X. As discussed above, the Bureau believes model forms 
facilitate compliance. Section 6(k)(1)(E) of RESPA authorizes the 
Bureau to prescribe regulations that are appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau has additional 
authority under section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out the purposes of section 6 of RESPA, and under 
section 19(a) of RESPA to prescribe such rules and regulations, to make 
such interpretations as may be necessary to achieve the purposes of 
RESPA. The model form MS-3(D) is additionally

[[Page 57246]]

proposed under Dodd-Frank Act section 1032(b).
37(e)(4) Compliance
    Proposed Sec.  1024.37(e)(4) provides that before the first 
anniversary of a servicer obtaining force-placed insurance on a 
borrower's property, the servicer shall deliver to the borrower or 
place in the mail the notice required by Sec.  1024.37(e)(1). 
Subsequently, a servicer is not required to comply with Sec.  
1024.37(e)(1) before charging a borrower for renewing or replacing 
existing force-placed insurance more than once every 12 months.
    The Bureau expects borrowers should be able to retain the notice 
proposed in proposed Sec.  1024.37(e)(1) over the course of a 12-months 
period. Additionally, the Bureau notes that because it is proposing to 
require a servicer to state the annual cost of force-placed insurance, 
the borrower would be informed of the annualized cost of the force-
placed insurance. Accordingly, the Bureau does not believe that 
receiving more than one renewal or replacement notice every 12-month 
period would significantly benefit borrowers. The Bureau solicits 
comment on whether providing the renewal or replacement notice once 
during a 12-month period adequately informs borrowers about the costs, 
benefits, and risks associated with servicers' renewal or replacement 
of existing force-placed insurance.
    Legal authority. The Bureau proposes to exercise its authority 
under RESPA sections 6(k)(1)(E) add Sec.  1024.37(e)(4) to Regulation 
X. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. For reasons discussed above, the Bureau does not 
believe that receiving more than one renewal or replacement notice 
every 12-month period would significantly benefit borrowers. Section 
1024.37(e)(4) is additionally proposed under section 6(j)(3) of RESPA 
to establish any requirements necessary to carry out the purposes of 
section 6 of RESPA, and under section 19(a) of RESPA to prescribe such 
rules and regulations, to make such interpretations as may be necessary 
to achieve the purposes of RESPA.
37(f) Mailing the Notices
    RESPA section 6(l)(1), discussed previously, requires servicers to 
send the notices required under RESPA section 6(l)(1)(A) and (B) by 
first-class mail. The Bureau proposes to implement RESPA section 
6(l)(1) by adding new Sec.  1024.37(f) to Regulation X to provide that 
if a servicer mails a notice required pursuant to Sec.  
1024.37(c)(1)(i), (d)(1) and (e)(1) of this section, as applicable, the 
servicer must use a class of mail not less than first-class mail. 
Although the notice required proposed Sec.  1024.37(e)(1) is not 
required by statute, the Bureau believes that proposing that the same 
mailing requirements to any notice required pursuant to Sec.  1024.37 
facilitates compliance by promoting consistency.
    Legal authority. The Bureau proposes to implement RESPA section 
6(l)(1), pursuant to its authority under RESPA section 6(j)(3) to 
establish any requirements necessary to carry out section 6 of RESPA by 
adding new Sec.  1024.37(f) to Regulation X. Section 1024.37(f) is 
additionally proposed pursuant to the Bureau's authority under section 
6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to 
carry out the consumer protection purposes of RESPA, and under section 
19(a) of RESPA to prescribe such rules and regulations, to make such 
interpretations as may be necessary to achieve the purposes of RESPA.
37(g) Cancellation of Force-Placed Insurance
    Section 1463 amended RESPA by adding new section 6(l)(3) to RESPA. 
RESPA section 6(l)(3) provides that within 15 days of receipt by a 
servicer of confirmation of a borrower's existing coverage, the 
servicer must: (1) Terminate the force-placed insurance; and (2) refund 
to the borrower all force-placed insurance premium charges and related 
fees charged to the borrower during any period in which the borrower's 
insurance and the force-placed insurance were each in effect.
    Proposed Sec.  1024.37(g) provides that within 15 days of receiving 
verification that the borrower has hazard insurance in place, a 
servicer must: (1) Cancel force-placed insurance obtained for a 
borrower's property; and (2) for any period during which the borrower's 
hazard insurance was in place, refund to the borrower all force-placed 
insurance premium charges and related fees paid by the borrower for 
such period and remove all force-placed insurance charges and related 
fees from the borrower's account for such period that the servicer has 
assessed to the borrower. Proposed comment 37(g)-1 provides an example 
of how to comply with proposed Sec.  1024.37(g). Assume that a servicer 
obtains force-placed insurance, effective January 1, and the premium 
and related charges are paid by the borrower in monthly installments, 
due on the first of each month. After the borrower paid the April 
installment, the servicer receives insurance information from the 
borrower, and verifies that the borrower had obtained hazard insurance 
and that the insurance had been in place since March 15. To comply with 
Sec.  1024.37(g), within 15 days of receiving such verification, the 
servicer must: (1) Cancel the force-placed insurance; (2) provide a 
refund for force-placed insurance premium charges and related fees paid 
by the borrower for the period between March 15 and April 30; and (3) 
remove from the borrower's account any force-placed insurance premium 
charges and related fees for the period after March 15 that the 
servicer has assessed to the borrower but the borrower has not yet 
paid.
    Legal authority. The Bureau proposes to implement RESPA section 
6(l)(3), pursuant to its authority under RESPA section 6(j)(3) to 
establish any requirements necessary to carry out section 6 of RESPA by 
adding new Sec.  1024.37(g) to Regulation X. Section 1024.37(g) is 
additionally proposed pursuant to the Bureau's authority under section 
6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to 
carry out the consumer protection purposes of RESPA, and under section 
19(a) of RESPA to prescribe such rules and regulations, to make such 
interpretations as may be necessary to achieve the purposes of RESPA.
37(h) Limitation on Force-Placed Insurance Charges
    Section 1463 of the Dodd-Frank Act amended RESPA section 6 by 
adding new section 6(m) to RESPA to require that all charges, apart 
from charges subject to State regulation as the business of insurance, 
related to force-placed insurance imposed on the borrower by or through 
the servicer must be bona fide and reasonable.
    Proposed Sec.  1024.37(h)(1) provides that except for charges 
subject to State regulation as the business of insurance and charges 
authorized by the FDPA, all charges related to force-placed insurance 
assessed to a borrower by or through the servicer must be bona fide and 
reasonable. Proposed Sec.  1024.37(h)(2) provides that that a bona fide 
and reasonable charge is a charge for a service actually performed that 
bears a reasonable relationship to the servicer's cost of providing the 
service, and is not otherwise prohibited by applicable law.
    As previously discussed, RESPA section 6(m) provides that charges 
subject to State regulation as the business of insurance are not 
subject to RESPA 6(m)'s ``bona fide and

[[Page 57247]]

reasonable'' requirement. Furthermore, the Bureau believes it is 
important to clarify that proposed Sec.  1024.37(h) does not regulate 
charges authorized by the FDPA. As discussed previously in the 
discussion of proposed Sec.  1024.37(a)(2)(i), certain servicers are 
required by the FDPA to obtain force-placed flood insurance. The FDPA 
provides that notwithstanding any Federal or State law, any servicer 
for a loan ``secured by improved real estate or a mobile home'' may 
charge a reasonable fee for determining whether the building or mobile 
home securing the loan is located or will be located in a SFHA. See 42 
U.S.C. 4012a(h). As discussed previously, the Bureau is concerned about 
issuing regulations that would overlap with regulations issued pursuant 
to the FDPA. Accordingly, the Bureau proposes to use its exemption 
authority pursuant to RESPA section 19(a) to exempt charges authorized 
by the FDPA from proposed Sec.  1024.37(h).
    Also as previously discussed, force-placed insurance is 
substantially more expensive than hazard insurance a borrower could 
obtain for himself and some servicers may be incentivized to obtain 
force-placed insurance even though helping a borrower to renew hazard 
insurance obtained by the borrower when practicable is better for the 
borrower and the owners and assignees of mortgage loans. The Bureau 
believes it is important to ensure that these servicers do not try to 
inflate the already-high cost of force-placed insurance by assessing 
charges to borrowers that are not for services actually performed, do 
not bear a reasonable relationship to the servicer's cost of providing 
the service, and is prohibited by applicable law. Accordingly, the 
Bureau believes its proposed definition of bona fide and reasonable 
charge, discussed above, is appropriate.
    Legal authority. The Bureau proposes to implement RESPA section 
6(m), pursuant to its authority under RESPA section 6(j)(3), to 
establish any requirements necessary to carry out section 6 of RESPA by 
adding Sec.  1024.37(h) to Regulation X. Section 1024.37(h) is 
additionally proposed pursuant to the Bureau's authority under section 
6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to 
carry out the consumer protection purposes of RESPA, and under section 
19(a) of RESPA to prescribe such rules and regulations, to make such 
interpretations, and to grant such reasonable exemptions, as may be 
necessary to achieve the purposes of RESPA.
37(i) Relationship to Flood Disaster Protection Act of 1973
    Section 1463 of the Dodd-Frank Act amended RESPA section 6 to add 
new section 6(l)(4) to provide that the new Dodd-Frank Act requirements 
concerning force-placed insurance do not prohibit servicers from 
sending a simultaneous or concurrent notice of a lack of flood 
insurance pursuant to section 102(e) of the FDPA. Proposed Sec.  
1024.37(i) provides that if permitted by regulation under section 
102(e) of the Flood Disaster Protection Act of 1973, a servicer subject 
to the requirements of Sec.  1024.37 may deliver to the borrower or 
place in the mail any notice required by Sec.  1024.37 together with 
the notice required by section 102(e) of the Flood Disaster Protection 
Act of 1973.
    Legal authority. The Bureau proposes to implement RESPA section 
6(l)(4), pursuant to its authority under RESPA section 6(j)(3) to 
establish any requirements necessary to carry out section 6 of RESPA by 
adding Sec.  1024.37(i) to Regulation X. Section 1024.37(i) is 
additionally proposed pursuant to the Bureau's authority under section 
6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to 
carry out the consumer protection purposes of RESPA, and under section 
19(a) of RESPA to prescribe such rules and regulations, to make such 
interpretations, and to grant such reasonable exemptions, as may be 
necessary to achieve the purposes of RESPA.
Section 1024.38 Reasonable Information Management Policies and 
Procedures
    Background. A servicer's obligation to maintain accurate and timely 
information regarding a mortgage loan account is one of the most basic 
servicer duties. A servicer cannot comply with its myriad obligations 
to investors and under applicable law, unless it maintains accurate 
information regarding a mortgage loan account, including accurate and 
timely information with respect to borrower payments. Notwithstanding 
these obligations, recent evaluations of mortgage servicer practices 
have indicated that borrowers have been harmed as a result of 
servicer's lacking adequate practices to provide servicer personnel 
with appropriate borrower information. Federal regulatory agencies 
reviewing mortgage servicing practices have found that certain 
servicers demonstrated ``significant weaknesses in risk-management, 
quality control, audit, and compliance practices.''\109\
---------------------------------------------------------------------------

    \109\ Problems in Mortgage Servicing From Modification to 
Foreclosure: Hearings Before the Senate Comm. on Banking, Housing 
and Urban Affairs, S. Hrg. 111-987, 111th Cong. 360 (2010) 
(statement of Daniel K. Tarullo, Board of Governors, Federal Reserve 
System), available at: http://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm.
---------------------------------------------------------------------------

    Further, and as discussed in detail above, major servicers 
demonstrated failures to document and verify, in accordance with 
applicable law, information relating to borrower mortgage loan accounts 
in connection with foreclosure proceedings.\110\ Examinations by 
prudential regulators found ``critical deficiencies in foreclosure 
governance processes, document preparation processes, and oversight and 
monitoring of third parties * * * [a]ll servicers [examined] exhibited 
similar deficiencies, although the number, nature, and severity of 
deficiencies varied by servicer.'' \111\
---------------------------------------------------------------------------

    \110\ The National Mortgage Settlement is available at: http://www.nationalmortgagesettlement.com/.
    \111\ Failure to Recover: The State of Housing Markets, Mortgage 
Servicing Practices and Foreclosures: Hearings Before the House 
Committee on Oversight and Government Reform, No. 112-134, 112th 
Cong. 17 (2012) (statement of Morris Morgan, Office of the 
Comptroller of the Currency), available at: http://www.occ.gov/news-issuances/congressional-testimony/2012/pub-test-2012-47-written.pdf.
---------------------------------------------------------------------------

38(a) In General
    Proposed Sec.  1024.38(a) would require a servicer to establish 
reasonable policies and procedures for maintaining and managing 
information and documents relating to borrower mortgage loan accounts. 
The proposed rule would provide that a servicer meets this requirement 
if the servicer's policies and procedures are reasonably designed to 
achieve the objectives set forth in proposed Sec.  1024.38(b) and are 
reasonably designed to ensure compliance with the standard requirements 
in proposed Sec.  1024.38(c).
    Proposed comment 38(a)-1 clarifies that a servicer may determine 
the specific methods by which it will implement reasonable information 
management policies and procedures to achieve the required objectives. 
Servicers have flexibility to design the operations that are reasonable 
in in light of the size, nature, and scope of the servicer's 
operations, including, for example, the volume and aggregate unpaid 
principal balance of mortgage loans serviced, the credit quality, 
including the default risk, of the mortgage loans serviced, and the 
servicer's history of consumer complaints. This clarification is 
intended to provide servicers, including

[[Page 57248]]

small servicers, flexibility to design policies and procedures that are 
appropriate for their servicing businesses. When this proposal was 
discussed with SERs during the Small Business Review Panel outreach, 
the SERs were supportive of a definition that provides inherent 
flexibility for small servicers to design policies and procedures that 
reflect the needs of their servicing operations.\112\ Consistent with 
the Small Business Review Panel recommendations,\113\ the Bureau 
requests comment on further guidance that should be included to clarify 
the types of policies and procedures that would be reasonable for small 
servicers.
---------------------------------------------------------------------------

    \112\ See Small Business Review Panel Report at 31.
    \113\ Id.
---------------------------------------------------------------------------

    Proposed Sec.  1024.38(a)(2) provides a safe harbor, which states 
that a servicer satisfies the requirement in proposed Sec.  
1024.38(a)(1) if the servicer does not engage in a pattern or practice 
of failing to achieve any of the objectives set forth in proposed Sec.  
1024.38(b) and does not engage in a pattern or practice of failing to 
comply with any of the standard requirements in proposed Sec.  
1024.38(c). The purpose of this provision is to establish an 
objectives-based test for determining if a servicer's policies and 
procedures are reasonable. Thus, servicers have flexibility to develop 
policies and procedures that a servicer determines are appropriate so 
long as those policies and procedures do not result in a pattern or 
practice of failing to achieve an enumerated objective or comply with a 
standard requirement. If a servicer demonstrates a pattern or practice 
of failing to achieve an objective or comply with a standard 
requirement, a servicer may violate this provision if the policies and 
procedures are not reasonable. Proposed comment 38(a)(1)-1 provides 
examples of potential pattern and practice failures by servicers. 
Proposed comment 38(a)(2)-1 clarifies that in the event a servicer 
fails to comply with the safe harbor in proposed Sec.  1024.38(a)(2) 
because the servicer has a pattern or practice of failing to achieve 
the objectives set forth in proposed Sec.  1024.38(b) or failing to 
ensure compliance with the standard requirements in proposed Sec.  
1024.38(c), a servicer may still comply with the requirements of 
proposed Sec.  1024.38 if the servicer's policies and procedures were 
reasonably designed to achieve the objectives set forth in proposed 
Sec.  1024.38(b) and to ensure compliance with the standard 
requirements in proposed Sec.  1024.38(c).
    A servicer's failure to achieve each of the objectives harms 
borrowers because such failures create the potential for adverse 
consequences. These may include, without limitation, imposing improper 
fees on borrowers, inability to reasonably evaluate loss mitigation 
applications for loss mitigation options that may benefit borrowers and 
owners or assignees of mortgage loans, unwarranted costs to borrowers, 
and the potential for fraud upon courts through inaccurate or 
unverifiable legal pleadings.
    The Bureau relies on its authority in section 6(k)(1)(E) of RESPA 
to establish obligations appropriate to carry out the consumer 
protection purposes of RESPA to propose Sec.  1024.38(a). The Bureau 
further has authority pursuant to section 6(j)(3) of RESPA to establish 
any requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
38(b) Objectives
38(b)(1) Accessing and Providing Accurate Information
    Proposed Sec.  1024.38(b)(1) would mandate that a servicer's 
policies and procedures for maintaining and managing information and 
documents must be designed to enable the servicer to (1) provide 
accurate and timely disclosures to borrowers, (2) investigate, respond 
to, and, as appropriate, correct errors, (3) provide borrowers with 
requested information, (4) provide owners or assignees of mortgage 
loans with accurate and current information about any mortgage loans 
they own, and (5) submit documents or filings required for a 
foreclosure process that reflect accurate and current information and 
comply with applicable law.
    For the reasons stated above in the background to proposed Sec.  
1024.38, the Bureau believes it is necessary to achieve the consumer 
protection purposes of RESPA that servicers implement policies and 
procedures to achieve the objectives set forth in proposed Sec.  
1024.38(b)(1). These objectives provide reasonable and appropriate 
protections for borrowers against harms resulting from actions based on 
improper or inaccurate servicer documentation or information. Further, 
the requirement in proposed Sec.  1024.38(b)(4) ensures that owners and 
assignees of mortgage loans get better information reporting about the 
mortgage loans they own. Owners and assignees can play an important 
role in ensuring that servicers comply with requirements of the owner 
or assignee, which may inure to the benefit of consumers. For example, 
when a servicer improperly obtains force-placed insurance for a 
delinquent borrower, the costs of that insurance may push a borrower 
further into delinquency and ultimately foreclosure, where the costs of 
the more expensive policy will reduce the ultimate recovery to the 
owner or assignee.
    The Bureau requests comment regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements.
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to require servicers to comply with any 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
38(b)(2) Evaluating Loss Mitigation Options
    Proposed Sec.  1024.38(b)(2) would mandate that a servicer's 
policies and procedures for maintaining and managing information and 
documents must be designed to enable the servicer to (1) provide 
accurate information to borrowers regarding loss mitigation options, 
(2) identify all loss mitigation options for which a borrower may be 
eligible, (3) provide prompt access to all documents and information 
submitted by a borrower in connection with a loss mitigation option, 
(4) identify documents and information that a borrower is required to 
submit to make a loss mitigation application complete, and (5) evaluate 
borrower applications, and any appeals, as appropriate.
    The Bureau believes that requiring servicers to have reasonable 
policies and procedures to maintain and manage information and 
documents that are designed to enable the servicer to evaluate 
borrower's for loss mitigation options facilitates compliance with 
proposed Sec.  1024.41. Further, such policies and procedures will lead 
to processes that are more protective of consumers by requiring 
servicers to consider, in advance of the potential delinquency of a 
particular mortgage loan, the loss mitigation options that are 
generally available to borrowers.

[[Page 57249]]

    Loss mitigation options for which borrowers may be eligible. In 
order to meet the objectives, a servicer will have to determine, on a 
loan by loan basis, which loss mitigation options offered by the 
servicer are available to borrowers. The Bureau anticipates that for 
servicers that service mortgage loans held by the servicer or an 
affiliate in portfolio, this determination will not present significant 
burdens with respect to such mortgage loans as any such policies likely 
will be uniformly set forth by the servicer or affiliate. Similarly, 
the Bureau anticipates that servicers that service mortgage loans that 
are included in securitizations guaranteed by Fannie Mae, Freddie Mac, 
or Ginnie Mae, or insured by FHA or other government sponsored 
insurance programs, will be familiar with policies that will be set 
forth by those entities regarding the requirements for loss mitigation 
options.
    Servicers that service mortgage loans that are securitized through 
private label securities will be required to undertake more burdensome 
efforts to identify which, if any, loss mitigation programs offered by 
the servicer are available to mortgage loan borrowers whose mortgage 
loans are owned by the securitization trust pursuant to the terms of 
any servicing agreement.
    Servicer failures to achieve optimal loss mitigation efforts. The 
Bureau believes that regulations relating to the evaluation of 
borrowers for loss mitigation options, including the requirements of 
proposed Sec.  1024.38(b)(2) and proposed Sec.  1024.41 are necessary 
in light of the current servicing industry structure.
    Servicing industry compensation is not structured to incentivize 
servicers to engage in loss mitigation efforts. In that regard, ``the 
servicing industry`s combination of two distinct business lines-- 
transaction processing and default management--encourage servicers to 
underinvest in default management capabilities, leaving them with 
limited ability to mitigate losses.'' \114\ Direct servicing 
compensation is generally fixed per loan. A servicer of a prime 
mortgage loan may earn 25 basis points for servicing that loan, whereas 
a servicer of a subprime mortgage loan may earn 50 basis points for 
servicing that loan.\115\ The increased fee for servicing a loan with a 
lower credit quality should reflect the increased cost a servicer may 
incur to service the loans because of the higher default or cash flow 
advance assumptions related to those loans. However, the Bureau's 
outreach with consumers, servicers, GSEs, investors, and other federal 
regulators indicates that servicers have failed to invest in systems 
and processes necessary to undertake the work necessary to service 
mortgage loans that are not performing.
---------------------------------------------------------------------------

    \114\ Levitin and Twomey, 28 Yale J. on Reg. 69 (2011).
    \115\ Robert W. Lee, Presentation, MBA's Accounting, Tax and 
Financial Analysis Conference 2008 Mortgage Servicing Rights 
Discussion, available at: http://www.mortgagebankers.org/files/Conferences/2008/2008Accounting,Tax&FinancialAnalysisConference/2008Accounting,Tax&FinancialAnalysisConferenceR.Lee12-17-08.pdf
---------------------------------------------------------------------------

    Further, mortgage servicing cash flows, including servicer expenses 
like advances to investors, incentivize servicers to pursue 
foreclosure. Servicers are required to advance payments to investors so 
long as a mortgage loan has not been ``charged off.'' When a servicer 
modifies a mortgage loan on behalf of an investor, it is sometimes 
unclear how the modified payment amounts should be treated and whether 
a servicer must continue to advance funds to the investor to make up 
for any deficiency between a borrower's modified payment and the 
scheduled payment owed to an investor.
    The Bureau observes that servicers have begun to alter the manner 
in which they invest in infrastructure and are changing their approach 
to default management. Notwithstanding these developments, reasonable 
policies and procedures to maintain and manage information and 
documents that are designed to enable a servicer to evaluate loss 
mitigation options impose a reasonable burden on servicers that will 
benefit borrowers in future years as servicers transition from reacting 
to the current crisis to a more steady market punctuated by regional 
spikes in delinquencies and foreclosures. Servicers that have not 
invested in improving loss mitigation functions may find less 
incentivize to do so as housing markets recover, leading to continued 
inadequate infrastructure during future regional or national housing 
downturns, which may lead to future borrower harm.
    The Bureau requests comment regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements.
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to require servicers to comply with any 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
38(b)(3) Facilitating Oversight of, and Compliance by, Service 
Providers
    Proposed Sec.  1024.38(b)(3) would mandate that a servicer's 
policies and procedures for maintaining and managing information and 
documents must be designed to enable the servicer to provide 
appropriate servicer personnel with accurate and current information 
reflecting actions performed by service providers, facilitate periodic 
reviews of service providers, and facilitate the sharing of accurate 
and current information among servicer personnel and service providers.
    Recent evaluations of mortgage servicer practices have found that 
some major servicers ``did not properly structure, carefully conduct, 
or prudently manage their third-party vendor relationships[.]'' \116\ 
For example, certain servicers supervised by the Board of Governors of 
the Federal Reserve System and the Office of the Comptroller of the 
Currency did not monitor third-party vendor foreclosure law firms 
compliance with the servicer's standards, did not retain copies of 
documents maintained by third-party law firms, and did not provide 
formal guidance, policies, or procedures governing the selection, 
ongoing management, and termination of law firms used to manage 
foreclosures.\117\ Similar failures were present in connection with 
servicer relationships with default management service providers and 
Mortgage Electronic Registration Systems, Inc. (MERS).\118\ The Federal 
Reserve Board stated to Congress that federal regulatory agencies 
identified significant ``shortcomings in staff training, coordination 
among loan modification and foreclosure staff, and management and 
oversight of service providers, including legal services.'' \119\ These

[[Page 57250]]

failures have manifested in significant harms for borrowers, including 
imposing unwarranted fees on borrowers and harms relating to so-called 
``dual tracking'' from miscommunications between service providers and 
servicer loss mitigation personnel.
---------------------------------------------------------------------------

    \116\ Federal Reserve System, Office of the Comptroller of the 
Currency, and Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices, at 5 (April 2011), available at: 
http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.
    \117\ Id. at 9.
    \118\ Id. at 10.
    \119\  Problems in Mortgage Servicing From Modification to 
Foreclosure: Hearings Before the Senate Comm. on Banking, Housing 
and Urban Affairs, S. Hrg. 111-987, 111th Cong. 360 (2010) 
(statement of Daniel K. Tarullo, Board of Governors, Federal Reserve 
System), available at: http://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm.
---------------------------------------------------------------------------

    The Bureau requests comment regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements.
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to require servicers to comply with any 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
38(b)(4) Facilitating Servicing Transfers
    Proposed Sec.  1024.38(b)(4) would mandate that a servicer's 
policies and procedures for maintaining and managing information and 
documents must be designed to ensure the timely transfer of all 
information and documents relating to a transferred mortgage loan to a 
transferee servicer in a form and manner that enables the transferee 
servicer to comply with the requirements of subpart C and the terms of 
the transferee servicer's contractual obligations to owners or 
assignees of the mortgage loans. Further, proposed Sec.  1024.38(b)(4) 
provides that a transferee servicer shall have documents and 
information regarding the status of discussions with a borrower 
regarding loss mitigation options, any agreements with a borrower for a 
loss mitigation option, and any analysis be a servicer with respect to 
potential recovery from a non-performing mortgage loan, as appropriate 
(typically called a final recovery determination).
    Servicing transfers give rise to potential harms to consumers. 
Servicers may experience problems relating to inaccurate transfer of 
past payment information, failures to transfer documents provided to a 
transferor servicer, and inaccurate transfer of information relating to 
loss mitigation discussions with borrowers. Borrowers engaged in loss 
mitigation efforts may be transferred to transferee servicers who had 
no knowledge of the existence or status of the loss mitigation efforts.
    The Bureau believes it is a typical servicer duty for servicers to 
be able to effectuate sales, assignments, and transfers of mortgage 
servicing in a manner that does not adversely impact mortgage loan 
borrowers. Servicers generally should expect that servicing may be 
sold, assigned, or transferred for certain loans they service. 
Servicers owe a duty to investors to ensure that mortgage servicing can 
be transferred without adversely impacting the value of the investor's 
asset.
    The Bureau believes it is appropriate for servicers to implement 
reasonable information management policies and procedures to ensure 
that in the event of any such transfer, documents and information 
regarding mortgage loan accounts are identified and transferred to a 
transferee servicer in a manner that permits the transferee servicer to 
continue providing appropriate service to the borrower.
    The Bureau requests comment regarding whether the Bureau had 
identified the appropriate objectives and whether objectives should be 
removed, or other objectives included, in the requirements.
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to require servicers to comply with any 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
38(c) Standard Requirements
    In addition to the objectives set forth in proposed Sec.  
1024.38(b), proposed Sec.  1024.38(c) sets forth two standard 
requirements that servicers must include in the required policies and 
procedures. These include provisions for record retention and 
identification of a servicing file. With respect to record retention, 
proposed Sec.  1024.38(c)(1) would require a servicer to retain 
documents and information relating to a mortgage file until one year 
after a mortgage loan is paid in full or servicing of a mortgage loan 
was transferred to a successor servicer. The Bureau observes that 
proposed Sec. Sec.  1024.35 and 1024.36 require servicers to respond to 
notices of error and information requests provided up to one year after 
a mortgage loan is paid in full or servicing of a mortgage loan was 
transferred to a successor servicer and the Bureau believes the record 
retention requirement is necessary for servicer compliance with 
obligations set forth in Sec. Sec.  1024.35 and 1024.36. Further, the 
Bureau observes that servicers will require accurate information for 
the life of the mortgage loan in order to provide accurate payoff 
balances to borrowers or to exercise a right to foreclose for a 
mortgage loan account.
    The Bureau requests comment regarding whether servicers should be 
required to retain documents and information relating to a mortgage 
file until one year after a mortgage loan is paid in full or servicing 
of a mortgage loan was transferred to a successor servicer and the 
potential burden of this requirement.
    Proposed Sec.  1024.38(c)(2) would require a servicer to provide a 
borrower upon request a servicing file, which shall contain a schedule 
of all payments credited or debited to the mortgage loan account, 
including any escrow account as defined in Sec.  1024.17(b) and any 
suspense account; a copy of the borrower's mortgage note; a copy of the 
borrower's deed of trust; any collection notes created by servicer 
personnel reflecting communications with borrowers about the mortgage 
loan account; a report of any data fields relating to a borrower's 
mortgage loan account created by a servicer's electronic systems in 
connection with collection practices, including records of 
automatically or manually dialed telephonic communications; and copies 
of any information or documents provided by a borrower to a servicer in 
accordance with the procedures set forth in Sec. Sec.  1024.35 or 
1024.41.
    While document and information management practices vary among 
servicers, many large servicers maintain documents and information 
relating to a borrower's mortgage loan account in many different places 
and forms, including on separate electronic systems. The Bureau 
understands that in the absence of a required convention for storage of 
servicing related documents and information, servicers have difficulty 
identifying a central file containing all necessary information 
regarding a borrower's mortgage loan account, including collector's 
notes, payment histories, note and deed of trust documents, and account 
debit and credit information, including escrow account information. 
Proposed Sec.  1024.38(c)(2) would require servicers, as part of the 
reasonable information management policies and procedures to adopt 
practices to provide an accurate,

[[Page 57251]]

complete, and defined ``servicing file'' to a borrower upon request and 
would create a commonly understood industry convention.
    The Bureau requests comment regarding whether servicers should be 
required to adopt reasonable information management policies and 
procedures that facilitate providing a defined servicing file to a 
borrower upon request. The Bureau requests comment on the burden of 
adopting this requirement. Further, the Bureau requests comment 
regarding whether the Bureau has identified the appropriate components 
of a servicing file and whether certain categories of documents and 
information should be included or removed from the proposed 
requirement.
    Legal authority. The Bureau relies on its authority pursuant to 
section 6(k)(1)(E) of RESPA to require servicers to comply with any 
obligation found by the Bureau to be appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau further has authority 
pursuant to section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out section 6 of RESPA and has authority under 
section 19(a) of RESPA to prescribe such rules and regulations and to 
make such interpretations as may be necessary to achieve the consumer 
protection purposes of RESPA.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
    Background. How a servicer manages a borrower's delinquency plays a 
significant role in whether the borrower cures the delinquency or ends 
up in foreclosure.\120\ However, for a variety of reasons, servicers 
have not been consistent in managing delinquent accounts to provide 
borrowers with an opportunity to avoid foreclosure. At the outset of 
the recent financial crisis, many servicers had not developed the 
institutional capacity to manage delinquent accounts.\121\ While 
servicers have gained some experience managing loss mitigation 
programs, incentives remain that may discourage servicers from 
addressing a delinquency quickly, and in some cases may even cause them 
to favor foreclosure.\122\
---------------------------------------------------------------------------

    \120\ See Diane Thompson, Foreclosure Modifications: How 
Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 
755, 768 (2011); Kristopher Gerardi & Wenli Li, Mortgage Foreclosure 
Prevention Efforts, 95 Fed. Reserve Bank of Atlanta Econ. Rev. 1, 8-
9 (Nov. 2, 2010); Michael A. Stegman et al., Preventative Servicing 
is Good for Business and Affordable Homeownership Policy, 18 Housing 
Pol'y Debate 243, 274 (2007).
    \121\ See, e.g., The Need for National Mortgage Servicing 
Standards: Hearing Before the Subcomm. on Housing, Transportation, 
and Community Affairs of the Senate Comm. on Banking and Urban 
Affairs, S. Hrg. 112-139, 112th Cong. 122 (2011) (statement of 
Laurie Goodman).
    \122\ See, e.g., The Need for National Mortgage Servicing 
Standards: Hearing Before the Subcomm. on Housing, Transportation, 
and Community Affairs of the Senate Comm. on Banking and Urban 
Affairs, S. Hrg. 112-139, 112th Cong. 72-73 (2011) (statement of 
Diane Thompson); see generally Thompson, 86 Wash. L. Rev. 755 
(2011). The Bureau is aware that the GSEs and other programs, such 
as HAMP, align servicer incentives to encourage early intervention. 
See, e.g., Fannie Mae Single-Family Servicing Guide, Part VII Sec.  
602.04.05 (2012); Freddie Mac Single-Family Seller/Servicing Guide, 
Volume 2, Ch. 65.42 (2012); Making Home Affordable Program Handbook, 
v3.4, at 106 (December 15, 2011). Through this rulemaking, the 
Bureau is proposing to make early intervention a uniform minimum 
national standard and part of established servicer practice.
---------------------------------------------------------------------------

    For their part, delinquent borrowers may not make contact with 
servicers to discuss their options because they may be unaware that 
they have options \123\ or that their servicer is able to assist 
them.\124\ As a result of these impediments to borrower-servicer 
communication, many borrowers are not informed of their options to 
avoid foreclosure at the early stages of a delinquency, when it can be 
most critical for them to reach out. There is significant risk to 
consumers as a result of this delay because the longer a borrower 
remains delinquent, the more difficult it can be to avoid 
foreclosure.\125\
---------------------------------------------------------------------------

    \123\ See, e.g., Are There Government Barriers to the Housing 
Recovery?: Hearing Before the Subcomm. on Insurance, Housing, and 
Community Opportunity of the House Comm. on Financial Services, No. 
112-7, 112th Cong. 50-51 (2011) (statement of Phyllis Caldwell, 
Chief, Homeownership Preservation Office, U.S. Dept. of the 
Treasury); Freddie Mac, Foreclosure Avoidance Research II: A Follow-
Up to the 2005 Benchmark Study 8 (2008), available at: http://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2007.pdf; Freddie Mac, Foreclosure Avoidance Research (2005), 
available at: http://www.freddiemac.com/service/msp/pdf/foreclosure_avoidance_dec2005.pdf.
    \124\ See Office of the Comptroller of the Currency, Foreclosure 
Prevention: Improving Contact with Borrowers, Insights (June 2007), 
available at: http://www.occ.gov/topics/community-affairs/publications/insights/insights-foreclosure-prevention.pdf.
    \125\ See, e.g., John C. Dugan, Comptroller, Office of the 
Comptroller of the Currency, Remarks Before the NeighborWorks 
America Symposium on Promoting Foreclosure Solutions (June 25, 
2007), available at http://www.occ.gov/news-issuances/speeches/2007/pub-speech-2007-61.pdf, at 2-3; Laurie S. Goodman et al., 
Modification Effectiveness: The Private Label Experience and Their 
Public Policy Implications, Amherst Mortgage Insight (Amherst 
Securities Group LP, June 19, 2012), at 5-6; Stegman et al., 
Preventative Servicing, 18 Housing Pol'y Debate 245; Amy Crews Cutts 
& William A. Merrill, Interventions in Mortgage Default: Policies 
and Practices to Prevent Home Loss and Lower Costs 11-12 (Freddie 
Mac, Working Paper No. 08-01, Mar. 2008).
---------------------------------------------------------------------------

    Private lenders and investors, Fannie Mae and Freddie Mac, and 
Federal agencies, such as FHA and VA, already have early intervention 
servicing standards in place for delinquent borrowers.\126\ However, 
there are currently no uniform minimum national standards for all 
servicers of federally related mortgage loans. In order to ensure that 
servicers are providing delinquent borrowers with information about 
their options at the early stages of delinquency, the Bureau is 
proposing to establish minimum early intervention requirements under 
RESPA.
---------------------------------------------------------------------------

    \126\ HUD and the VA have promulgated regulations and issued 
guidance on servicing practices for loans guaranteed or insured by 
their programs. See 24 CFR 203 subpart C (HUD); HUD Handbook 4330.1 
rev-5, Chapter 7; 38 CFR 36 subpart A (VA). Fannie Mae and Freddie 
Mac have established recommended servicing practices for delinquent 
borrowers in their servicing guidelines and align their modification 
incentives with the number of days the mortgage loan is delinquent 
when the borrower enters a trial period plan. See Fannie Mae Single-
Family Servicing Guide, Part VII (2012); Fannie Mae, Outbound Call 
Attempts Guidelines (Oct. 1, 2011), available at: https://www.efanniemae.com/home/index.jsp; Fannie Mae, Letters and Notice 
Guidelines (Apr. 25, 2012), available at: https://www.efanniemae.com/home/index.jsp; Freddie Mac Single-Family Seller/
Servicing Guide, Volume 2, Chapters 64-69 (2012).
---------------------------------------------------------------------------

    Proposed section 1024.39 would require servicers to provide 
delinquent borrowers with two notices. First, proposed Sec.  
1024.39(a), would require servicers to notify or make good faith 
efforts to notify a borrower orally that the borrower's payment is late 
and that loss mitigation options may be available, if applicable. 
Servicers would be required to take this action 30 days after the 
payment due date, unless the borrower satisfies the payment during that 
period. Second, proposed Sec.  1024.39(b) would require servicers to 
provide a written notice with information about the foreclosure 
process, housing counselors and the borrower's State housing finance 
authority, and, if applicable, information about loss mitigation 
options that may be available to the borrower. The servicer would be 
required to provide the written notice not later than 40 days after the 
payment due date, unless the borrower satisfies the payment during that 
period. These two notices are designed primarily to encourage 
delinquent borrowers to work with their servicer to identify their 
options for avoiding foreclosure. The Bureau recognizes that not all 
delinquent borrowers who receive these notices may respond to the 
servicer and pursue available loss mitigation options. However, the 
Bureau believes that the notices will ensure, at a minimum, that all 
borrowers have an opportunity to do so at the early stages of a 
delinquency.
39(a) Oral Notice
    If a borrower is late in making a payment sufficient to cover 
principal,

[[Page 57252]]

interest, and, if applicable, escrow, proposed Sec.  1024.39(a) would 
require the servicer to notify or make good faith efforts to notify the 
borrower orally of that late payment and that loss mitigation options, 
if applicable, may be available. The term ``loss mitigation options'' 
is defined in proposed Sec.  1024.31 and is discussed in more detail 
above. The Bureau is proposing this requirement because, as discussed 
above, evidence suggests that one of the barriers to communication 
between borrowers and servicers is that borrowers do not know that 
servicers may be helpful or that they have options to avoid 
foreclosure. By notifying borrowers through live contact that loss 
mitigation options may be available, servicers would be able to begin 
working with the borrower to develop appropriate relief.
    Proposed Sec.  1024.39(a) would require servicers to notify 
borrowers about loss mitigation options ``if applicable.'' Thus, 
servicers that do not make any loss mitigation options available to 
borrowers would not be required to notify borrowers that loss 
mitigation options may be available. In addition, proposed comment 
39(a)-1.ii explains that the servicer would not be required to describe 
any particular option, but instead would need only inform the borrower 
that loss mitigation options may be available. The Bureau is not 
proposing that servicers provide borrowers detailed information because 
not all borrowers may benefit from such a conversation at the time of 
this contact. However, as explained in proposed comment 39(a)-1.ii, 
nothing would preclude the servicer from providing more detailed 
information that the servicer believes would assist the borrower.
    During the Small Business Panel Review process, small servicer 
representatives explained that they are able to distinguish between 
borrowers who had simply forgotten to mail in a payment from borrowers 
who were actually having trouble making a payment.\127\ The Bureau 
recognizes that not all borrowers may require information about loss 
mitigation options in order to become current on their payments, but 
the Bureau also understands that not all borrowers may be forthcoming 
regarding the reasons for a delinquency. The Bureau is concerned that 
these borrowers may not learn about loss mitigation options unless the 
servicer indicates that help may be available at the time of the 
proposed oral notice. The Bureau invites additional comment on how 
servicers typically determine whether and at what stage a borrower 
should be informed that loss mitigation options may be available.
---------------------------------------------------------------------------

    \127\ See Small Business Review Panel Report at 25.
---------------------------------------------------------------------------

    Proposed comment 39(a)-1.i explains that the oral notice would have 
to be made through live contact with the borrower, such as by 
telephoning or meeting in-person with the borrower, and that oral 
contact does not include a recorded message delivered by phone. The 
Bureau has included this comment because the Bureau believes that 
servicers are likely to learn about the circumstances surrounding a 
borrower's delinquency through an interactive conversation and thus, 
for example, would be better able to help the borrower identify an 
appropriate loss mitigation option.
    Proposed Sec.  1024.39(a) would also require the servicer to notify 
or make good faith efforts to provide the oral notice that the borrower 
is late in making a payment. This oral notice is intended to work in 
concert with the written periodic statement proposed in the Bureau's 
2012 TILA Mortgage Servicing Proposal, which would inform the borrower 
of any late fees that the borrower faces due to a delinquency. A 
servicer could, for example, use the oral notice to explain any late 
charge appearing on the periodic statement the borrower would receive. 
In addition, by providing this notice through live contact, a servicer 
could learn about the circumstances of the borrower's delinquency and 
the borrower's ability to self-cure without the assistance of a loss 
mitigation option.
    Late payment. Proposed Sec.  1024.39(a) would require the servicer 
to provide the oral notice, or make good faith efforts to do so, if the 
borrower is late in making ``a payment sufficient to cover principal, 
interest, and, if applicable, escrow.'' Thus, a servicer would not be 
required to provide the oral notice if a borrower is late only with 
respect to paying a late fee for a given billing cycle. The Bureau is 
proposing this trigger because the Bureau believes there is low risk 
that borrowers will default solely because of accumulated late charges 
if they are otherwise current with respect to principal, interest, and 
escrow payments.
    Regulation Z Sec.  1026.36(c)(1)(ii) generally prohibits servicers 
from ``pyramiding'' late fees--i.e., imposing a late fee or delinquency 
charge in connection with a payment, when the only delinquency is 
attributable to late fees or delinquency charges assessed on an earlier 
payment, and the payment is otherwise a full payment.\128\ 
``Pyramiding'' late fees can result in future payments being deemed 
late even if they are paid in full within the required time period, 
thus permitting the servicer to charge additional late fees. This 
practice can cause an account to appear to be in default, and thus can 
give rise to charging excessive or unwarranted fees to borrowers who 
may be unable to catch up on payments.\129\ However, because this 
practice is prohibited under Regulation Z and other regulations, the 
Bureau does not expect that borrowers would be likely to be pushed into 
foreclosure solely because of accumulated late charges if they are 
otherwise current on their payment. The Bureau has taken the same 
approach with respect to the written notice that would be required by 
proposed Sec.  1024.39(b)(1). See the section-by-section analysis below 
of proposed Sec.  1024.39(b)(1).
---------------------------------------------------------------------------

    \128\ The Bureau's 2012 TILA Mortgage Servicing Proposal would 
redesignate this provision as Sec.  1026.36(c)(2).
    \129\ See 73 FR 44522, 44569 (July 30, 2008).
---------------------------------------------------------------------------

    Proposed comment 39(a)-3 explains that, for purposes of proposed 
Sec.  1024.39(a), a payment would be considered late the day after a 
payment due date, even if the borrower is afforded a grace period 
before the servicer assesses a late fee. Thus, for example, if a 
payment due date is January 1, the servicer would be required to notify 
or make good faith efforts to notify the borrower not later than 30 
days after January 1 (i.e., by January 31) if the borrower has not 
fully paid the amount owed as of January 1 and the full payment remains 
due during that period. Proposed comment 39(a)-3 contains a cross-
reference to proposed comment 39(a)-4, which, as discussed in more 
detail below, addresses situations in which the borrower satisfies the 
payment during the 30-day period.
    The Bureau recognizes that certain borrowers may be temporarily 
delinquent because of an accidental missed payment, a technical error 
in transferring funds, a short-term payment difficulty, or some other 
reason. These borrowers may be able to cure a delinquency without a 
servicer's efforts to make live contact. Thus, proposed Sec.  
1024.39(a) provides that if the borrower fully satisfies the payment 
before the end of the 30-day period, the servicer would not be required 
to provide the notice under proposed Sec.  1024.39(a). Proposed comment 
39(a)-4 explains that a servicer would not be required to notify or 
make good faith efforts to notify a borrower unless the

[[Page 57253]]

borrower remains late in making a payment during the 30-day period 
after the payment due date. To illustrate, proposed comment 39(a)-4 
provides an example in which a borrower is initially overdue on a 
payment due January 1 but satisfies the payment on January 20. In this 
case, the servicer would not be required to notify or make good faith 
efforts to notify the borrower by January 31.
    Proposed comment 39(a)-6 clarifies that a servicer would not be 
required under Sec.  1024.39(a) to notify a borrower who is performing 
as agreed under a loss mitigation option designed to bring the borrower 
current on a previously missed payment. The Bureau is proposing this 
clarification because the Bureau believes it would be unnecessary for a 
servicer to notify a borrower of a previously missed payment if the 
borrower is performing under a loss mitigation option designed to cure 
that delinquency.
    30-Day period. Proposed Sec.  1024.39(a) would require servicers to 
provide the oral notice not later than 30 days after a payment due 
date. In developing the proposed 30-day time period, the Bureau sought 
to harmonize the timing of the oral notice with the timing of the 
periodic statement under the Bureau's 2012 TILA Mortgage Servicing 
Proposal, as noted above. During the Small Business Review Panel 
process, some small servicer representatives expressed concern that 
those servicing loans for agencies with more restrictive timeframes and 
collection requirements would incur costs if they had to meet 
duplicative requirements.\130\ To address this concern, the Bureau is 
proposing an outer bound timeframe for servicers to comply with the 
proposed oral notice. In particular, the Bureau sought to harmonize the 
timing of the oral notice with existing early intervention standards 
established by the GSEs, FHA, and VA so that servicers already 
complying with those standards that meet the Bureau's proposed 
requirements could comply with proposed Sec.  1024.39.
---------------------------------------------------------------------------

    \130\ See appendix A of the Small Business Review Panel Report.
---------------------------------------------------------------------------

    Fannie Mae and Freddie Mac generally recommend that servicers 
initiate phone calls for borrowers who have missed a payment by the 
16th day after a payment due date.\131\ Similarly, HUD generally 
requires that servicers of FHA loans take ``prompt action'' to collect 
on delinquent loans.\132\ Although servicers may satisfy the ``prompt 
action'' requirement through a variety of means, HUD recommends that 
servicers that choose to contact borrowers by telephone begin efforts 
by the 17th day of a borrower's delinquency and complete them by the 
end of the month.\133\ Servicers of VA loans are generally required to 
commence efforts to contact borrowers by phone concurrent with sending 
a written delinquency notice by the 20th day of a borrower's 
delinquency.\134\
---------------------------------------------------------------------------

    \131\ Freddie Mac recommends servicers contact borrowers within 
3 days of a missed payment, unless the servicers uses a behavior 
modeling tool that would support an alternate approach. Fannie Mae 
recommends servicers contact ``high risk'' borrowers within 3 days 
of a missed payment; campaigns for non-high-risk borrowers should 
begin within 16 days of a missed payment. See Fannie Mae Single-
Family Servicing Guide, Part VII (2012); Fannie Mae, Outbound Call 
Attempts Guidelines (Oct. 1, 2011), available at: https://www.efanniemae.com/home/index.jsp; Fannie Mae, Letters and Notice 
Guidelines (Apr. 25, 2012), available at: https://www.efanniemae.com/home/index.jsp; Freddie Mac Single-Family.
    \132\ 24 CFR 203.600.
    \133\ See HUD Handbook 4330.1 rev-5, 7-7(A).
    \134\ Servicers of VA loans must have collection procedures that 
include ``An effort, concurrent with the written delinquency notice 
[mailed no later than the 20th day of delinquency], to establish 
contact with the borrower(s) by telephone. When talking with the 
borrower(s), the holder should attempt to determine why payment was 
not made and emphasize the importance of remitting loan installments 
as they come due.'' 38 CFR 36.4278(g)(i) and (ii).
---------------------------------------------------------------------------

    In order to provide servicers with flexibility in contacting 
borrowers who may have different default risk profiles, the Bureau's 
proposal would provide servicers with discretion to make the contact at 
any time during the 30-day period. Thus, servicers who are already 
providing an oral notice with the information required in proposed 
Sec.  1024.39(a) sooner than 30 days after a missed payment would be in 
compliance with the Bureau's proposal. Although some servicers may 
choose to contact borrowers at a high risk of default within several 
days after a borrower misses a payment due date,\135\ there are 
drawbacks to requiring servicers to contact all borrowers too soon. 
Borrowers may not think of themselves as being delinquent until after 
the expiration of a grace period, which may occur on the 10th or the 
15th of the month, and they may consider contact by the servicer before 
the grace period unwarranted. As noted above, certain borrowers may be 
temporarily delinquent because of an accidental missed payment, a 
technical error in transferring funds, a short-term payment difficulty, 
or some other reason. The Bureau believes these borrowers frequently 
would be able to self-cure within 30 days of a missed payment.\136\
---------------------------------------------------------------------------

    \135\ For example, the GSEs recommend that servicers begin 
calling borrowers considered to be at a high risk of default within 
three days of a missed payment.  See Fannie Mae Single-Family 
Servicing Guide, Part VII (2012); Fannie Mae, Outbound Call Attempts 
Guidelines (Oct. 1, 2011), available at: https://www.efanniemae.com/home/index.jsp; Freddie Mac Single-Family Seller/Servicing Guide, 
Volume 2, Ch. 64.5 (2012).
    \136\ See, e.g., Amy Crews Cutts & William A. Merrill, 
Interventions in Mortgage Default: Policies and Practices to Prevent 
Home Loss and Lower Costs 10 (Freddie Mac, Working Paper No. 08-01, 
Mar. 2008) (explaining that, in one study, there was a ``significant 
cure rate out of the 30-day delinquency population without servicer 
intervention,'' but that ``as the time in delinquency increases so 
does the hurdle the borrower has to overcome to reinstate the loan 
and the importance of calling the servicer'').
---------------------------------------------------------------------------

    At the time the Bureau proposed its early intervention requirements 
for the Small Business Panel, the Bureau considered requiring servicers 
to contact a delinquent borrower 45 days after the borrower misses a 
payment.\137\ The Bureau is not proposing a 45-day period as the 
deadline for the oral notice because the Bureau is concerned that 
allowing servicers to wait this long after a borrower misses a payment 
to provide initial notice of loss mitigation options may not afford the 
borrower sufficient time to consider and pursue loss mitigation 
options. In addition, by 45 days after a payment due date, a borrower 
may have become late on a second missed payment. The Bureau is 
concerned that delaying the time in which a servicer must make initial 
live contact with the borrower may make it more difficult for borrowers 
to cure their delinquency.
---------------------------------------------------------------------------

    \137\ See Small Business Review Panel Report at 12.
---------------------------------------------------------------------------

    Moreover, based on feedback received from small servicer 
representatives during the Small Business Panel Review process, the 
Bureau does not believe a 30-day deadline for the proposed oral notice 
will present a significant burden. During the Small Business Panel 
Review process, small servicer representatives explained that they are 
often in touch with delinquent borrowers well before the 45-day period 
initially considered by the Bureau,\138\ and often within the first ten 
days of a delinquency.\139\ Based on this feedback, the Bureau believe 
that, with respect to the timeframe in which the Bureau is proposing 
for servicers to make initial contact,\140\ a 30-day deadline for the 
oral notice would not require small servicers to change their early 
intervention practices.
---------------------------------------------------------------------------

    \138\ Id. at 24 and at appendix A.
    \139\ Id. at 25.
    \140\ Small servicers, however, did express concerns about the 
written early intervention notice, as discussed more in the section-
by-section analysis of proposed Sec.  1024.39(b) below.
---------------------------------------------------------------------------

    The Bureau invites comment on whether the proposed 30-day time 
period provides borrowers with adequate notice of loss mitigation 
options while providing servicers

[[Page 57254]]

sufficient flexibility in managing delinquent borrowers with different 
risk profiles. The Bureau also invites comment on whether the 30-day 
requirement would pose a substantial conflict with existing servicer 
practices. The Bureau invites comment on whether servicers should 
provide the oral notice by some deadline before or after the proposed 
30-day period.
    Borrower contacts the servicer about a late payment. To account for 
situations in which a borrower proactively contacts the servicer about 
a late payment, proposed comment 39(a)-5 explains that, if the borrower 
contacts the servicer at any time prior to the end of the 30-day period 
to explain that the borrower expects to be late in making a payment, 
the servicer could provide the oral notice under proposed Sec.  
1024.39(a) by informing the borrower at that time that loss mitigation 
options, if applicable, may be available. The Bureau recognizes that 
borrowers may contact the servicer proactively to explain that the 
borrower expects to become overdue on a payment or to acknowledge an 
ongoing delinquency. In such cases, it would not be necessary for the 
servicer to notify the borrower of the delinquency. However, the Bureau 
believes that borrowers who contact the servicer proactively would 
benefit from knowing about loss mitigation options for the reasons 
discussed above.
    Proposed comment 39(a)-5.i provides two examples to clarify how 
servicers would comply with proposed Sec.  1024.39(a) for borrowers who 
contact the servicer about a late payment. In the example in proposed 
comment 39(a)-5.i.A, a borrower contacts a servicer on January 25 to 
explain that he expects to miss a payment due February 1. The borrower 
satisfies the payment on February 8 and the servicer had not yet 
notified or made good faith efforts to notify the borrower that loss 
mitigation options may be available. In this case, the servicer would 
not be required to notify or make good faith efforts to notify the 
borrower that loss mitigation options may be available during the 30 
days after February 1 because the borrower was able to satisfy the 
payment within the 30-day period after the payment due date. The 
proposed comment includes a cross-reference to proposed comment 39(a)-
4, which addresses situations in which the borrower satisfies the 
payment within the 30-day period. The Bureau has included this example 
because many borrowers are only delinquent for short periods and may be 
able to self-cure within 30 days after a payment due date. In these 
cases, the Bureau does not believe it would be necessary to explain 
that loss mitigation options may be available.
    In the example in proposed comment 39(a)-5.i.B, the borrower in the 
example at proposed comment 39(a)-5.i.A subsequently misses a payment 
due March 1. However, the borrower does not contact the servicer to 
explain the March 1 missed payment and the borrower remains late on 
that payment during the 30 days after March 1. In this case, not later 
than 30 days after March 1, the servicer would be required to notify or 
make good faith efforts to notify the borrower orally that he is 
overdue on the March 1 payment and that loss mitigation options, if 
applicable, may be available. This comment is intended to clarify that 
the servicer's obligations to notify a borrower of a late payment is 
tied to the 30-day period commencing on the date of the late or missed 
payment. The servicer in the example in proposed comment 39(a)-5.i.B 
would be required to notify the borrower of the March 1 late payment 
because the borrower has not contacted the servicer about that payment.
    Good faith efforts. The Bureau recognizes that servicers may not 
always be able to reach a borrower despite the servicer's good faith 
efforts to make contact. Thus, under proposed Sec.  1024.39(a), if a 
borrower is late in making a payment, not later than 30 days after the 
payment due date, the servicer would be required to notify or ``make 
good faith efforts to notify'' the borrower. Proposed Sec.  1024.39(a) 
also provides that if the servicer attempts to notify the borrower by 
telephone, good faith efforts would require calling the borrower on at 
least three separate days in order to reach the borrower. Proposed 
comment 39(a)-2 clarifies that, in order to make a good faith effort by 
telephone, the servicer must complete the three phone calls attempting 
to reach the borrower by the end of the 30-day period after the payment 
due date. The proposed comment also explains that a servicer attempting 
to reach the borrower by telephone should make the first call not later 
than the 28 days after the payment due date, in order to make three 
phone call attempts by the 30th day, because each phone call would be 
required to occur on a separate day, assuming the first two are 
unsuccessful. The Bureau believes servicers attempting to contact a 
borrower by phone should be required to make several attempts because 
of the importance of making contact. The Bureau is proposing to define 
good faith efforts as requiring that each attempt by phone occur on a 
different day because the Bureau does not believe that contacting an 
absent borrower in quick succession on the same day would constitute 
good faith efforts.
    The Bureau is proposing requirements for good faith efforts by 
telephone because it understands this is a common method by which 
servicers attempt to reach delinquent borrowers. However, this is not 
the only way to notify the borrower under proposed Sec.  1024.39(a). 
Servicers may also provide the oral notice through a live, in-person 
meeting. The Bureau is interested in whether there are forms of 
communication other than oral contact that would promote a dialogue 
between the borrower and the servicer regarding the borrower's 
delinquency and any appropriate loss mitigation options. For example, 
the Bureau invites comment on whether text messages or email are as or 
more effective in communicating with a delinquent borrower and, if so, 
whether such communications should be required to meet any particular 
standards to satisfy a good faith effort.
    Legal authority. As discussed above, the Bureau has authority to 
implement requirements for servicers to provide information about 
borrower options pursuant to section 6(k)(1)(E) of RESPA. As set forth 
above, the Bureau has determined that providing borrowers with timely 
information about loss mitigation options and encouraging servicers to 
work with borrowers to identify any appropriate loss mitigation options 
are necessary to provide borrowers a meaningful opportunity to avoid 
foreclosure. Proposed Sec.  1024.39(a) would provide borrowers 
information about their options by requiring servicers to notify or 
make good faith efforts to notify borrowers that loss mitigation 
options, if applicable, may be available to assist them. Accordingly, 
the Bureau proposes to implement proposed Sec.  1024.39(a) pursuant to 
its authority under section 6(k)(1)(E) of RESPA. The Bureau further has 
authority pursuant to section 6(j)(3) of RESPA to establish any 
requirements necessary to carry out section 6 of RESPA and has 
authority under section 19(a) of RESPA to prescribe such rules and 
regulations, to make such interpretations, and to grant such reasonable 
exemptions for classes of transactions, as may be necessary to achieve 
the consumer protection purposes of RESPA.
39(b) Written Notice
39(b)(1) In General
    Proposed Sec.  1024.39(b)(1) would require the servicer to provide 
borrowers who are late in making a payment with a written notice

[[Page 57255]]

containing information about the foreclosure process, contact 
information for housing counselors and the borrower's State housing 
finance authority, and, if applicable, loss mitigation options. This 
notice would be required to be provided not later than 40 days after 
the payment due date. The proposed content requirements are discussed 
in more detail below in the discussion of proposed Sec.  1024.39(b)(2).
    Proposed comment 39(b)(1)-1 explains that the written notice would 
be required even if the servicer provided information about loss 
mitigation and the foreclosure process previously during the oral 
notice under proposed Sec.  1024.39(a). The Bureau is proposing to 
require a written disclosure because borrowers may be unable to 
adequately assess and recall detailed information provided orally. In 
addition, a written disclosure would provide borrowers with the ability 
to review the information or discuss it with a housing counselor or 
other advisor.
    Based on feedback received during the Small Business Review Panel 
outreach, the Bureau understands that some small servicers may not 
provide a written notice to delinquent borrowers.\141\ The Bureau 
recognizes that not all servicers may provide written information to 
borrowers because each borrower may present unique situations. However, 
as discussed in more detail below, the Bureau believes borrowers would 
benefit from receiving written information about loss mitigation 
options, if applicable, and the foreclosure process. To address 
concerns about requiring an overly-prescriptive written notice that may 
not account for the variety of situations posed by delinquent 
borrowers, the Bureau has proposed generally applicable minimum content 
requirements that can be tailored to specific situations, as discussed 
in more detail in the section-by-section analysis of proposed Sec.  
1024.39(b)(2) below.
---------------------------------------------------------------------------

    \141\ See appendix A of the Small Business Review Panel Report. 
Other small SERs, however, that they provide some form of written 
notice to delinquent borrowers.
---------------------------------------------------------------------------

    In addition, during the Small Business Review Panel outreach, some 
small servicers indicated they may face costs in developing and 
providing the written notice.\142\ To assist servicers in complying 
with the written notice, the Bureau has developed proposed model 
clauses, referenced in proposed Sec.  1024.39(b)(3). The model clauses 
are discussed in the section-by-section analysis of appendix MS-4. The 
Bureau also notes that under proposed Sec.  1024.32, discussed above, 
servicers would be permitted to provide the written notice to borrowers 
in electronic form, subject to compliance with the consent and other 
provisions of the E-Sign Act.
---------------------------------------------------------------------------

    \142\  Id.
---------------------------------------------------------------------------

    Late payment. Similar to the oral notice under proposed Sec.  
1024.39(a), proposed Sec.  1024.39(b) would require the servicer to 
provide the written notice if a borrower is late in making a payment 
sufficient to cover principal, interest, and, if applicable, escrow. 
However, unlike the oral notice, the written notice would be required 
to be provided not later than 40 days after the payment due date. 
Proposed comment 39(b)(1)-2 includes a cross-reference to proposed 
comment 39(a)-3 to clarify that, for purposes of calculating when the 
written notice must be provided, servicers should consider a payment 
late in the same manner as would they would for purposes of calculating 
when the oral notice must be provided. Proposed comment 39(b)(1)-2 also 
provides an example in which a borrower misses a payment due date of 
January 1 and the payment remains due during the 40-day period after 
January 1. In this case, the servicer would be required to provide the 
written notice not later than 40 days after January 1--i.e., by 
February 10.
    40-Day time period. As with the oral notice, the Bureau is 
proposing to permit servicers to provide the written notice at any time 
during the 40-day period. Some servicers may choose to provide the 
written notice earlier for borrowers who pose a high risk of default. 
The Bureau is proposing a deadline that occurs after the 30-day 
deadline for the proposed oral notice under Sec.  1024.39(a) to provide 
servicers an opportunity to tailor the written notice and other 
information to the borrower's individual circumstances following the 
oral notice. Some servicers may choose to provide the written notice 
prior to the oral notice. The Bureau believes servicers should retain 
flexibility in determining when to provide the written notice.
    In addition, the Bureau has selected a 40-day time period to 
provide borrowers with a reasonable opportunity to cure the delinquency 
within ten days after servicers would be required to provide the oral 
notice under proposed Sec.  1024.39(a). Accordingly, proposed comment 
39(b)(1)-3 explains that a servicer would not be required to provide 
the written notice unless the borrower is late in paying the amount 
owed in full during the 40 days after the payment due date. Proposed 
comment 39(b)(1)-3 provides an example in which a borrower who is 
contacted by a servicer on January 20 regarding a missed January 1 
payment later satisfies the payment by January 30. In this case, the 
servicer would not be required to provide the written notice 40 days 
after January 1--i.e., by February 10. In addition, proposed comment 
39(b)(1)-5 clarifies that a servicer would not be required under Sec.  
1024.39(b)(1) to notify a borrower who is performing as agreed under a 
loss mitigation option designed to bring the borrower current on a 
previously missed payment. See the section-by-section analysis of 
comment 39(a)-6 (borrower performing under a loss mitigation option) in 
the discussion of proposed Sec.  1024.39(a) above.
    In developing the proposed 40-day time period, the Bureau sought to 
harmonize the timing of the written notice with the recommended timing 
for the delivery of similar written notices under standards for 
servicers of FHA, VA, and GSE loans. HUD generally requires servicers 
of FHA-insured loans to provide each mortgagor in default HUD's 
``Avoiding Foreclosure'' pamphlet, or a form developed by the mortgagee 
and approved by HUD, not later than the 60th day of delinquency, 
although HUD recommends sending the form by the 32nd day of delinquency 
in order to prevent foreclosures from proceeding where avoidable.\143\ 
Servicers of VA loans generally must provide borrowers with a letter if 
payment has not been received within 30 days after it is due and 
telephone contact could not be made.\144\ Servicers of GSE loans are 
expected to send a written package soliciting delinquent borrowers to 
apply for loss mitigation options 31 to 35 days after a payment due 
date, unless the servicer has made contact with the borrower and 
received a promise to cure the delinquency within 30 days,\145\ 
although GSE servicers have additional flexibility in providing the 
solicitation package to certain lower-risk borrowers as late as

[[Page 57256]]

the 65th day of their delinquency.\146\ The Bureau also understands 
that section 106(c)(5) of the Housing and Urban Development Act of 
1968, as amended, generally requires creditors to provide notice of 
homeownership counseling to eligible delinquent borrowers not later 
than 45 days after a borrower misses a payment due date. 12 U.S.C. 
1701x(c)(5)(B). Similar to the information required under section 
106(c)(5) of the Housing and Urban Development Act, the written notice 
in proposed Sec.  1024.39(b)(2)(vi) would include contact information 
for housing counselors and the borrower's State housing finance 
authority, although servicers would be required to provide the written 
notice not later than 40 days after a borrower misses a payment due 
date.
---------------------------------------------------------------------------

    \143\ See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G).
    \144\ ``This letter should emphasize the seriousness of the 
delinquency and the importance of taking prompt action to resolve 
the default. It should also notify the borrower(s) that the loan is 
in default, state the total amount due and advise the borrower(s) 
how to contact the holder to make arrangements for curing the 
default.'' 38 CFR 36.4278(g)(iii).
    \145\ See Fannie Mae, Letters and Notice Guidelines (Apr. 25, 
2012), available at: https://www.efanniemae.com/home/index.jsp; 
Freddie Mac Single-Family Seller/Servicing Guide, Volume 2, Chapter 
64.5 (2012). During the Small Business Panel Review outreach, SERs 
that service for Fannie Mae and Freddie Mac generally described 
strict rules and tight timeframes in dealing with delinquent 
borrowers. See Small Business Review Panel Report at 25.
    \146\ The GSEs allow servicers to rely on the results of a 
behavioral modeling tool to evaluate a borrower's risk profile. Id.
---------------------------------------------------------------------------

    At the time the Bureau proposed its early intervention requirements 
for the Small Business Panel, the Bureau considered requiring servicers 
to provide delinquent borrowers with written information not later than 
45 days after the borrower misses a payment.\147\ The Bureau is not 
proposing a 45-day period for the deadline for the written notice in 
proposed Sec.  1024.39(a) because, as noted above, the Bureau intended 
to provide borrowers with a reasonable opportunity to cure a 
delinquency after receiving the oral notice (which, pursuant to 
proposed Sec.  1024.39(a), would be required by the 30th day of the 
borrower's delinquency). The Bureau is aware that some borrowers may be 
able to self-cure even after they become 30 days delinquent. In light 
of this, the Bureau invites comment on how far the deadline for the 
written notice could be extended to permit a borrower to self-cure, 
while still providing delinquent borrowers with adequate notice of loss 
mitigation options.
---------------------------------------------------------------------------

    \147\ See Small Business Review Panel Report at 12.
---------------------------------------------------------------------------

    Based on feedback provided during the Small Business Review Panel 
outreach, the Bureau does not believe a 40-day timeframe for providing 
the written notice would impose a significant burden for small 
servicers; small servicer representatives explained that they are 
generally in touch with delinquent borrowers well ahead of the 45-day 
time period initially considered by the Bureau.\148\
---------------------------------------------------------------------------

    \148\ See Small Business Review Panel Report at 25 and at 
appendix A.
---------------------------------------------------------------------------

    During informal consultation, some commenters expressed concern 
that servicers may have difficulty complying with the Bureau's proposed 
40-day deadline in light of existing servicer requirements. The Bureau 
understands that a single deadline for sending the written notice may 
require some servicers to change their practices with respect to 
certain borrowers, such as GSE servicers servicing loans for borrowers 
determined to be at lower risk for foreclosure. To the extent 
requirements proposed by Bureau overlap with standards imposed by 
Federal agencies, the GSEs, or others parties, the Bureau expects 
servicers would abide by stricter standard in order to comply with all 
requirements. The Bureau, however, continues to consider how it may 
align its requirements with best practices that help borrowers avoid 
foreclosure.
    Some commenters recommended that the Bureau could address a 
compliance conflict by extending the deadline for sending the notice. 
The Bureau is concerned that extending the deadline for the written 
notice too far into a borrower's delinquency may not provide borrowers 
sufficient time to process loss mitigation applications before the 
foreclosure process begins. In addition, there is some risk that 
borrowers could fall further behind on their payments without knowing 
how to pursue loss mitigation options. The Bureau recognizes that 
providing the written notice to all delinquent borrowers within a 40-
day period may be unnecessary for some borrowers, such as those who 
present a low risk of default. To mitigate this potential for 
unnecessary burden, the Bureau is proposing that the written notice be 
provided to delinquent borrowers only once every 180-day period, as 
discussed below in the paragraph heading, ``Frequency of the notice.'' 
The Bureau invites comment on whether extending the 40-day deadline for 
the written notice to 45 days, 65 days, or longer would provide 
borrowers with sufficient notice of loss mitigation options before a 
servicer begins the foreclosure process.
    In developing the proposed 40-day deadline, the Bureau also 
considered whether to require servicers to provide the written notice 
not later than five days after a borrower contacts the servicer about 
the borrower's anticipated difficulty with making a payment.\149\ The 
Bureau has not proposed this requirement but instead is proposing a 
single 40-day deadline in order to balance the need to provide 
borrowers with assistance at the early stages of a delinquency with the 
need to provide clear and enforceable standards. The Bureau is 
concerned that it may be difficult to enforce a requirement to provide 
the written notice based on borrowers' explaining that they may have 
difficulty making a payment, particularly because such a communication 
may be subject to interpretation. A single 40-day deadline would ensure 
servicers are accountable to a clear standard that avoids the question 
of whether borrowers had, in fact, communicated that they expect to 
have difficulty making payment. In addition, as previously noted, the 
single 40-day deadline is intended to provide servicers with 
flexibility to determine the most appropriate time to provide the 
written notice and to provide borrowers with the opportunity to self-
cure. Finally, the Bureau believes that proposed Sec.  1024.36, which 
would require servicers to respond to information requests, will 
address situations in which borrowers request information about loss 
mitigation and foreclosure.
---------------------------------------------------------------------------

    \149\ See Small Business Review Panel Report at 12.
---------------------------------------------------------------------------

    Frequency of the notice. Proposed comment 39(b)(1)-4 explains that 
a servicer would not be required to provide the written notice under 
Sec.  1024.39(b) more than once during any 180-day period beginning on 
the date on which the disclosure is provided. Proposed comment 
39(b)(1)-4 further explains that, notwithstanding this limitation, a 
servicer would still be required to provide the oral notice required 
under Sec.  1024.39(a) for each payment that is overdue. Proposed 
comment 39(b)(1)-4 provides an example in which a borrower misses a 
payment due March 1 and the borrower remains late on that payment 
during the 40 days after March 1. As would be required under Sec.  
1024.39(b)(1), the servicer provides the written disclosure 40 days 
after March 1--i.e., by April 10. If the borrower subsequently misses 
another payment due April 1 and remains late on that payment during the 
40 days after April 1, the servicer would not be required to provide 
the written notice again for the 180-day period beginning on April 10, 
the date the servicer last provided the written notice. However, 
because the borrower missed payments due on March 1 and April 1, the 
servicer would be required to provide the oral notice under Sec.  
1024.39(a) within the 30-day periods beginning on March 1 and April 1.
    During the Small Business Panel Review outreach, a SER expressed 
concern about sending a written notice each month for borrowers who are 
consistently behind on their payments.\150\ The Bureau does not

[[Page 57257]]

believe that borrowers who are consistently delinquent would benefit 
from receiving the same written notice every month. The Bureau expects 
borrowers would be able to retain the disclosure because, as discussed 
above, proposed Sec.  1024.32 would require that the disclosure be 
provided in a form the borrower may keep. However, the Bureau does not 
believe servicers should only be permitted to provide the written 
notice once because the content in the written notice may be updated 
over time. The Bureau notes that providing the written disclosure once 
during any six-month period is generally consistent with HUD's 
requirements for servicers of FHA-insured loans. HUD's regulations 
provide that if an account is brought current and then again becomes 
delinquent, the ``Avoiding Foreclosure'' pamphlet must be sent again 
unless the beginning of the new delinquency occurs less than six months 
after the pamphlet was last mailed.\151\ The Bureau solicits comment on 
whether providing the written disclosure once during any 180-day period 
is sufficient to provide borrowers with meaningful information.
---------------------------------------------------------------------------

    \150\ See Small Business Review Panel Report at 25.
    \151\ See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G).
---------------------------------------------------------------------------

    Legal authority. As discussed above, the Bureau has authority to 
implement requirements for servicers to provide information about 
borrower options pursuant to section 6(k)(1)(E) of RESPA. As set forth 
above, the Bureau has determined that providing borrowers with timely 
information about loss mitigation options and the foreclosure process, 
and encouraging servicers to work with borrowers to identify any 
appropriate loss mitigation options, are necessary to provide borrowers 
a meaningful opportunity to avoid foreclosure. Proposed Sec.  
1024.39(b)(1) sets forth the general requirement that servicers provide 
borrowers with a written notice about their options by requiring 
servicers to provide them with a written notice about loss mitigation 
options and the foreclosure process. Proposed Sec.  1024.39(b)(1) also 
sets forth timing requirements for the written notice. Accordingly, the 
Bureau proposes to implement proposed paragraph 39(b)(1) pursuant to 
its authority under section 6(k)(1)(E) of RESPA. The Bureau further has 
authority pursuant to section 6(j)(3) of RESPA to establish any 
requirements necessary to carry out section 6 of RESPA and has 
authority pursuant to section 19(a) of RESPA to prescribe such rules 
and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions, as may be necessary 
to achieve the consumer protection purposes of RESPA.
39(b)(2) Content of the Written Notice
    Proposed Sec.  1024.39(b)(2) sets forth information that servicers 
would be required to include in the written notice. Under paragraphs 
(b)(2)(i) and (b)(2)(ii) of proposed Sec.  1024.39, the servicer would 
be required to include a statement encouraging the borrower to contact 
the servicer, along with the servicer's mailing address and telephone 
number. Under paragraphs (b)(2)(iii) and (b)(2)(iv) of proposed Sec.  
1024.39, the servicer would be required, if applicable, to include a 
statement providing a brief description of examples of loss mitigation 
options that may be available, as well as a statement explaining how 
the borrower can obtain additional information about those options. 
Proposed Sec.  1024.39(b)(2)(v) would require the servicer to include a 
statement explaining that foreclosure is a process to end the 
borrower's ownership of the property. Proposed Sec.  1024.39(b)(2)(v) 
would also require servicers to provide an estimate for when the 
servicer may start the foreclosure process. This estimate would be 
required to be expressed in a number of days from the date of a missed 
payment. Finally, proposed Sec.  1024.39(b)(iv) would require servicers 
to include contact information for any State housing finance 
authorities, as defined in FIRREA section 1301, for the State in which 
the property is located, and either the Bureau or HUD list of 
homeownership counselors or counseling organizations.
    The Bureau recognizes that some of the proposed content may not 
appear on forms currently used by servicers. For example, the estimated 
foreclosure timeline in proposed Sec.  1024.39(b)(3)(v), does not 
appear on the HUD ``Avoiding Foreclosure'' brochure that servicers of 
FHA loans are required to send by end of the second month of a 
borrower's delinquency.\152\ Additionally, during the Small Business 
Panel Review outreach, SERs expressed concern that the information 
contained in the written notice may differ from written information 
they currently provide to delinquent borrowers.\153\ Small servicers 
representatives were generally concerned that overly-prescriptive early 
intervention requirements would interfere with ``high-touch'' 
engagement with delinquent borrowers, which they explained was 
frequently tailored to borrowers' particular circumstances; thus, the 
Small Business Review Panel recommended that the Bureau consider 
flexible early intervention requirements for small servicers in light 
of their existing practices.\154\
---------------------------------------------------------------------------

    \152\ See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G).
    \153\ See Small Business Review Panel Report at 31.
    \154\ Id.
---------------------------------------------------------------------------

    To accommodate existing servicer requirements and practices, 
proposed comment 39(b)(2)-1 explains that a servicer may provide 
additional information beyond the proposed content requirements that 
the servicer determines would be beneficial to the borrower. In 
addition, proposed comment 39(b)(2)-2 explains that any color, number 
of pages, size and quality of paper, type of print, and method of 
reproduction may be used so long as the disclosure is clearly legible. 
The Bureau has attempted to propose a minimum amount of content in the 
proposed notice that will provide delinquent borrowers with helpful 
information. The Bureau solicits comments on whether the content 
requirements in proposed Sec.  1024.39(b)(2) would pose a substantial 
conflict with existing disclosure standards established by Federal 
agencies, the GSEs, or other existing servicer practices. To the extent 
the proposed the written notice would provide information not currently 
being provided by the Federal agencies or the GSEs, the Bureau solicits 
comment on whether such information would be beneficial to delinquent 
borrowers. The Bureau solicits comment on the proposed content 
requirements, described below, and whether alternative or additional 
content would be beneficial to borrowers.
    Content requirements. Proposed Sec.  1024.39(b)(2)(i) would require 
the written notice to include a statement encouraging the borrower to 
contact the servicer. The Bureau believes that a statement informing 
borrowers that the servicer can provide assistance with respect to 
their delinquency is necessary in order to facilitate a discussion 
between the borrower and the servicer at the early stages of 
delinquency. As noted above, many borrowers do not know that their 
servicer can help them avoid foreclosure if they are having trouble 
make their monthly payments. The Bureau believes a statement 
encouraging the borrower to call would remove this barrier to borrower-
servicer communication. The Bureau recognizes that not every loss 
mitigation option may be available or appropriate for every borrower. 
Therefore, the Bureau is not proposing to require servicers to 
emphasize any particular loss mitigation option over another. 
Accordingly,

[[Page 57258]]

proposed comment 39(b)(2)(i)-1 explains that the servicer would not be 
required, for example, to specifically request the borrower to contact 
the servicer regarding any particular loss mitigation option.
    Contact information for the servicer. To facilitate a dialogue 
between the servicer and the borrower, proposed Sec.  1024.39(b)(2)(ii) 
would require the written notice to include the servicer's mailing 
address and telephone number. Pursuant to proposed Sec.  1024.40(a), a 
servicer would be required to make available direct access to servicer 
personnel for assistance with curing a delinquency or avoiding a 
delinquency, default, or foreclosure for any borrower whom a servicer 
is required to notify that loss mitigation options may be available 
under proposed Sec.  1024.39(a). Thus, proposed comment 39(b)(2)(ii)-1 
explains that, if applicable, a servicer should provide contact 
information that would put a borrower in touch with servicer personnel 
under proposed Sec.  1024.40.
    Brief description of loss mitigation options. Proposed Sec.  
1024.39(b)(2)(iii) would require that the written notice include a 
statement, if applicable, providing a brief description of examples of 
loss mitigation options that may be available from the servicer. 
Proposed comment 39(b)(2)(iii)-1 explains that proposed Sec.  
1024.39(b)(2)(iii) does not mandate that a specific number of examples 
be disclosed, but explains that borrowers are likely to benefit from 
examples that permit them to remain in their homes and examples of 
options that would require that borrowers end their ownership of the 
property in order to avoid foreclosure. The Bureau is not proposing a 
minimum number of examples because of the difficulty in identifying a 
minimum number given the variety of loss mitigation options offered by 
servicers.
    At the time the Bureau proposed its early intervention requirements 
for the Small Business Panel, the Bureau considered requiring servicers 
to provide a brief description of any loss mitigation programs 
available to the borrower.\155\ However, the Bureau is not proposing 
that servicers list all of the loss mitigation options they offer 
because the Bureau is concerned that servicers may have difficulty 
providing an accurate disclosure if the number of loss mitigation 
options they offer changes over time. In addition, the Bureau is 
concerned that a lengthy written notice would undermine the intended 
effect of encouraging borrowers to contact their servicer to discuss 
their options. To address the limitation of providing borrowers with 
information about every option, the Bureau is proposing that the 
written notice contain contact information for housing counselors and 
the borrower's State housing finance authority. Housing counselors and 
State housing finance authorities may be able to provide the borrowers 
with information about other loss mitigation options that may not be 
listed on the written notice.
---------------------------------------------------------------------------

    \155\ See appendix C of the Small Business Review Panel Report.
---------------------------------------------------------------------------

    Proposed comment 39(b)(2)(iii)-1 explains that a servicer may 
include a generic list of loss mitigation options that it offers to 
borrowers, and that it may include a statement that not all borrowers 
will qualify for the listed options. Different loss mitigation options 
may be available to borrowers depending on the borrower's 
qualifications or other factors. To avoid confusing borrowers, the 
Bureau believes servicers should be able to clarify that not all of the 
enumerated loss mitigation options will necessarily be available.
    Proposed comment 39(b)(2)(iii)-2 explains that an example of loss 
mitigation option may be described in one or more sentences. Proposed 
comment 39(b)(2)(iii)-2 also explains that if a servicer offers several 
loss mitigation programs, the servicer may provide a generic 
description of each option instead of providing detailed descriptions 
of each program. For example, if a servicer provides several loan 
modification programs, it may simply provide a generic description of a 
loan modification. The Bureau recognizes that loss mitigation options 
are complex and providing comprehensive explanations to borrowers about 
each option may overwhelm a delinquent borrower with information. Thus, 
the Bureau does not believe that borrowers would benefit from a 
disclosure with voluminous detail at the early stage of exploring the 
options. Instead, the Bureau believes that servicers should provide 
borrowers with a brief explanation and encourage the borrower to 
contact the servicer to discuss whether any options may be appropriate. 
The Bureau solicits comment on whether the level of detail that would 
be required to describe loss mitigation options would be helpful to 
delinquent borrowers, and if more detail would be valuable, what 
specific information should be required.
    Explanation of how the borrower may apply for loss mitigation 
options. Proposed Sec.  1024.39(b)(2)(iv) would require the written 
notice to include an explanation of how the borrower may obtain more 
information about loss mitigation options, if applicable. Proposed 
comment 39(b)(2)(iv)-1 explains that, at a minimum, a servicer could 
comply with this requirement by directing the borrower to contact the 
servicer for more information, such as through a statement like, 
``contact us for instructions on how to apply.''
    Proposed comment 39(b)(2)(iv)-1 explains that, to expedite the 
borrower's timely application for any loss mitigation options, 
servicers may wish to provide more detailed instructions on how a 
borrower could apply, such as by listing representative documents the 
borrower should make available to the servicer, such as tax filings or 
income statements, and by providing estimates for when the servicer 
expects to make a decision on a loss mitigation option. Proposed 
comment 39(b)(2)(iv)-1 also provides that servicers may supplement the 
written notice with a loss mitigation application form. At the time the 
Bureau proposed its early intervention requirements for the Small 
Business Panel, the Bureau considered requiring servicers to provide a 
brief outline of the requirements for qualifying for any available loss 
mitigation programs, including documents and other information the 
borrower must provide, and any timelines that apply.\156\ However, the 
Bureau is not proposing to require servicers to provide this level of 
detail in order to comply with proposed Sec.  1024.39(b)(2)(iv). Each 
loss mitigation option may have its own specific documentation 
requirements and deadlines, and servicers may be unable to provide 
comprehensive application instructions generally applicable to all 
options. Additionally, because the Bureau is proposing that servicers 
only provide examples of loss mitigation options in the written notice, 
detailed instructions for only the listed options may not be useful for 
all borrowers.
---------------------------------------------------------------------------

    \156\ See appendix C of the Small Business Review Panel Report.
---------------------------------------------------------------------------

    Foreclosure statement. Proposed Sec.  1024.39(b)(2)(v) would 
require that the written notice include a statement explaining that 
foreclosure is a legal process to end the borrower's ownership of the 
property. Proposed Sec.  1024.39(b)(2)(v) would also require that the 
notice include an estimate of how many days after a missed payment the 
servicer makes the referral to foreclosure. Proposed comment 
39(b)(2)(v)-1 clarifies that the servicer may explain that the 
foreclosure process may vary depending on the circumstances, such as 
the location of the borrower's property that secures the loan, whether 
the borrower is covered

[[Page 57259]]

by the Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq.), 
and the requirements of the owner or assignee of the borrower's loan. 
Proposed comment 39(b)(2)(v)-2 clarifies that the servicer may qualify 
its estimates with a statement that different timelines may vary 
depending on the circumstances, such as those listed in comment 
39(b)(2)(v)-1. Proposed comment 39(b)(2)(v)-2 also explains that the 
servicer may provide its estimate as a range of days.
    During the Small Business Review Panel outreach, some small 
servicer representatives explained that information about foreclosure 
is typically not provided until after loss mitigation options have been 
explored.\157\ The Bureau believes borrowers would benefit from 
receiving information about the foreclosure process at the same time 
the borrower receives information about loss mitigation options. In 
order for borrowers to understand the choices they face at the early 
stages of delinquency, the Bureau believes they would benefit from 
understanding what foreclosure is and approximately when it may begin 
at the same time that they receive information about loss mitigation 
options. The Bureau invites comment on this expectation and whether 
borrowers would benefit from receiving information about foreclosure 
after servicers provide information about loss mitigation options.
---------------------------------------------------------------------------

    \157\ See Small Business Review Panel Report at 31.
---------------------------------------------------------------------------

    In addition, the Bureau is not proposing that servicers provide 
detailed information about foreclosure because the Bureau recognizes 
that foreclosure processes are complex and vary by jurisdiction. The 
Bureau questions whether borrowers are likely to benefit from detailed 
information, particularly if they are experiencing financial distress. 
Nonetheless, the Bureau believes that borrowers should be informed 
about foreclosure to some degree. The Bureau invites comment on whether 
borrowers would benefit from knowing when the servicer may begin the 
foreclosure process and whether servicers anticipate difficulty 
complying with this requirement.
    Contact information for housing counselors and State housing 
finance authorities. Proposed Sec.  1024.39(b)(vi) would require the 
written notice to include contact information for any State housing 
finance authority for the State in which the borrower's property is 
located, and contact information for either the Bureau list or the HUD 
list of homeownership counselors or counseling organizations.\158\ The 
Bureau is proposing to include information about housing counselors to 
provide delinquent borrowers with additional resources to understand 
their loss mitigation options. The Bureau is proposing to require 
similar information pertaining to housing counseling resources that 
would be required on the ARM interest rate adjustment notice and the 
periodic statement, as provided in the Bureau's 2012 TILA Mortgage 
Servicing Proposal.\159\
---------------------------------------------------------------------------

    \158\ At the time of publishing, the Bureau list was not yet 
available and the HUD list was available at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm (HUD Approved Housing Counseling 
Agencies).
    \159\ See proposed Regulation Z Sec. Sec.  1026.20(d) and 
1026.41(d)(7) in the Bureau's 2012 TILA Mortgage Servicing Proposal.
---------------------------------------------------------------------------

    The Bureau is proposing to require that servicers include housing 
counselor contact information because borrowers may be more willing to 
contact a housing counselor than their servicer to discuss their 
options.\160\ In addition, a housing counselor could also provide a 
borrower with additional information about loss mitigation options that 
a servicer may not have listed on the written notice. However, 
distressed borrowers may be unaware that they can talk to a housing 
counselor.\161\ The Bureau believes that including housing counseling 
contact information on the written notice will assist borrowers in 
learning more about their options and, in turn, help them engage in a 
constructive dialogue with their servicer.
---------------------------------------------------------------------------

    \160\ Some servicers have found that borrowers may trust 
independent counseling agencies more than they trust servicers. See 
OCC, Foreclosure Prevention: Improving Contact with Borrowers, at 6 
(June 2007).
    \161\ See Freddie Mac, Foreclosure Avoidance Research (2005).
---------------------------------------------------------------------------

    On July 9, 2012, the Bureau released proposed rules to implement 
Dodd-Frank Act requirements expanding protections for ``high-cost'' 
mortgage loans under HOEPA, including a requirement that borrowers 
receive housing counseling (2012 HOEPA Proposal).\162\ The 2012 HOEPA 
Proposal also proposed to implement other homeownership-counseling-
related requirements that are not amendments to HOEPA, including a 
proposed amendment to Regulation X that lenders provide a list of five 
homeownership counselors or counseling organizations to applicants for 
a federally related mortgage loan.\163\
---------------------------------------------------------------------------

    \162\ See 2012 HOEPA Proposal, available at http://files.consumerfinance.gov/f/201207_cfpb_proposed-rule_high-cost-mortgage-protections.pdf, at 29-35.
    \163\ The list provided by the lender pursuant to proposed 
requirement in the 2012 HOEPA Proposal would include only 
homeownership counselors or counseling organizations from either the 
most current list of homeownership counselors or counseling 
organizations made available by the Bureau, or the most current list 
maintained by HUD of homeownership counselors or counseling 
organizations certified by HUD, or otherwise approved by HUD. The 
2012 HOEPA Proposal proposed that the list include five 
homeownership counselors or counseling organizations located in the 
zip code of the loan applicant's current address, or, if there are 
not the requisite five counselors or counseling organizations in 
that zip code, then counselors or organizations within the zip code 
or zip codes closest to the loan applicant's current address. To 
facilitate compliance with the proposed list requirement, the Bureau 
is expecting to develop a Web site portal that would allow lenders 
to type in the loan applicant's zip code to generate the requisite 
list, which could then be printed for distribution to the loan 
applicant. See 2012 HOEPA Proposal at 31-32 (discussing proposed 
Regulation X Sec.  1024.20(a)).
---------------------------------------------------------------------------

    In connection with the written notice for delinquent borrowers, 
however, the Bureau is not proposing to require that servicers include 
a list of specific housing counseling programs or agencies (other than 
the State housing finance authority, discussed below), but instead that 
servicers provide contact information for either the Bureau list or the 
HUD list of homeownership counselors or counseling organizations. 
During informal outreach, some commenters observed that delinquent 
borrowers may be confused by being directed to contact several 
different parties in the proposed Sec.  1024.39(b) written notice--the 
servicer, housing counselors, and the State housing finance authority. 
As previously noted, the Bureau believes that delinquent borrowers 
would benefit from knowing how to access housing counselors because 
they may be more comfortable discussing their options with a third-
party. However, the Bureau also understands that there is a benefit to 
providing distressed borrowers with a clear and concise notice. 
Providing contact information to access a list of counselors and 
counseling organizations would reduce the likelihood of information 
overload while still providing borrowers with access to assistance.
    In addition to information about accessing housing counselors, the 
Bureau is proposing to require that the proposed Sec.  1024.39(b) 
written notice include contact information for the State housing 
finance authority located in the State in which the property is 
located. The Bureau is proposing this because the Bureau believes 
borrowers are likely to benefit from knowing how to contact their State 
housing finance authority in the context of receiving information from 
their servicer about loss mitigation options. The Bureau is proposing 
that the Sec.  1024.39(b) written notice include contact information 
for the State

[[Page 57260]]

housing finance authority for the State in which the borrower's 
property is located. The proposed Sec.  1024.39(b) written notice would 
be required for delinquent borrowers of federally related mortgages, 
which are not limited to loans secured by the borrower's principal 
dwelling. Thus, it is possible that the property securing the federally 
related mortgage may be located in a different state than the state in 
which the borrower resides. Accordingly, borrowers who are delinquent 
with respect to a federally related mortgage secured by a non-
residential property may benefit from knowing how to access the State 
housing finance authority for the State in which the property is 
located, rather than the State in which the borrower resides.
    The Bureau notes that the ARM initial interest rate adjustment 
notification in the 2012 TILA Mortgage Servicing Proposal would require 
the contact information for the state housing finance authority for the 
state in which the consumer resides (as opposed to the State in which 
the property is located).\164\ While the Bureau expects the State in 
which the property is located will most often be the State where the 
consumer resides, there may be circumstances in which that is not the 
case. Additionally, the Bureau understands that a difference in 
requirements for different disclosures may increase compliance costs 
for servicers. The Bureau invites comment on how the Bureau can best 
mitigate any compliance difficulties.
---------------------------------------------------------------------------

    \164\ See proposed Regulation Z Sec.  1026.20(d) in the Bureau's 
2012 TILA Mortgage Servicing Proposal. As noted in the section-by-
section analysis of the periodic statement proposed in the Bureau's 
2012 TILA Mortgage Servicing Proposal, the periodic statement would 
require servicers to include contact information for the State 
housing finance authority for State in which the property is 
located. Id. at proposed Sec.  1026.41(d)(7).
---------------------------------------------------------------------------

    More generally, the Bureau solicits comment on the costs and 
benefits of the provision of information about housing counselors and 
State housing finance authorities to delinquent borrowers in the 
proposed notice at Sec.  1024.39(b). The Bureau also solicits comment 
on the potential effect of the Bureau's proposal on access to 
homeownership counseling generally by borrowers, and the effect of 
increased borrower demand for counseling on existing counseling 
resources, including demand on State housing finance authorities. In 
particular, the Bureau solicits comment on whether the proposed notice 
at Sec.  1024.39(b) should include a generic list to access counselors 
or counseling organizations, as proposed here, or a list of specific 
counselors or counseling organizations, as was proposed in the 2012 
HOEPA Proposal. The Bureau also invites comment on whether including 
the State housing finance authority would be a helpful additional 
resource.
    Legal authority. As discussed above, the Bureau has authority to 
implement requirements for servicers to provide information about 
borrower options pursuant to section 6(k)(1)(E) of RESPA. As set forth 
above, the Bureau has determined that providing borrowers with timely 
information about housing counselors and State housing finance 
authorities, information about loss mitigation options and the 
foreclosure process, and disclosures encouraging servicers to work with 
borrowers to identify any appropriate loss mitigation options, are 
necessary to provide borrowers a meaningful opportunity to avoid 
foreclosure. Proposed Sec.  1024.39(b)(2) would provide borrowers with 
information about their options by setting forth the content 
requirements of the written notice about loss mitigation options and 
the foreclosure process that would be required under proposed Sec.  
1024.39(b)(1). Accordingly, the Bureau proposes to implement proposed 
paragraph 39(b)(2) pursuant to its authority under section 6(k)(1)(E) 
of RESPA. The Bureau further has authority pursuant to section 6(j)(3) 
of RESPA to establish any requirements necessary to carry out section 6 
of RESPA and has authority pursuant to section 19(a) of RESPA to 
prescribe such rules and regulations, to make such interpretations, and 
to grant such reasonable exemptions for classes of transactions, as may 
be necessary to achieve the consumer protection purposes of RESPA.
39(b)(3) Model Clauses
    Proposed Sec.  1024.39(b)(3) contains a reference to proposed model 
clauses that servicers may use to comply with the proposed written 
notice requirement. The proposed model clauses are contained in 
appendix MS-4. For more detailed discussion of the proposed model 
clauses, see the section-by-section analysis of appendix MS below.
    Legal authority. As discussed above, the Bureau has authority to 
implement requirements for servicers to provide information about 
borrower options pursuant to section 6(k)(1)(E) of RESPA. As set forth 
above, the Bureau has determined that providing borrowers with timely 
information about housing counselors and State housing finance 
authorities, information about loss mitigation options and the 
foreclosure process, and disclosures encouraging servicers to work with 
borrowers to identify any appropriate loss mitigation options, are 
necessary to provide borrowers a meaningful opportunity to avoid 
foreclosure. Proposed Sec.  1024.39(b)(3) contains a reference to model 
clauses that provide borrowers with information about their options as 
required under paragraphs (b)(1) and (b)(2) of proposed Sec.  1024.39. 
Accordingly, the Bureau proposes to implement proposed paragraph 
39(b)(3) pursuant to its authority under section 6(k)(1)(E) of RESPA. 
The Bureau further has authority pursuant to section 6(j)(3) of RESPA 
to establish any requirements necessary to carry out section 6 of RESPA 
and has authority pursuant to section 19(a) of RESPA to prescribe such 
rules and regulations, to make such interpretations, and to grant such 
reasonable exemptions for classes of transactions, as may be necessary 
to achieve the consumer protection purposes of RESPA.
Small Servicers
    As discussed above, through outreach with servicers and servicing 
industry representatives, small servicers expressed concern that 
compliance with the information request provisions for oral information 
requests would require small servicers to invest in systems and 
processes at substantial costs. However, many small servicers generally 
explained that they did not expect the Bureau's proposed early 
intervention requirements would impose significant burden because they 
were already providing early intervention for delinquent borrowers. 
Accordingly, the Bureau is not proposing to provide small servicers 
with an exemption from the proposed notice requirements under proposed 
Sec.  1024.39. However, in light of the feedback provided by SERs 
during the Small Business Panel Review outreach, as reflected in the 
Panel Report of the Small Business Panel, the Bureau solicits comment 
on whether the Bureau should consider alternative means of compliance 
with proposed Sec.  1024.39 that would provide small servicers with 
additional flexibility, such as by permitting small servicers to 
develop a more streamlined written notice under proposed Sec.  
1024.39(b).\165\
---------------------------------------------------------------------------

    \165\ See Small Business Review Panel Report at 31 (recommending 
that the Bureau consider flexible early intervention requirements 
for small servicers).
---------------------------------------------------------------------------

Relationship With Other Applicable Laws
    The Bureau understands that servicers may be subject to State and 
Federal laws related to debt collection practices, such

[[Page 57261]]

as the Fair Debt Collection Practices Act, 15 U.S.C. 1692. In addition, 
the Bankruptcy Code's automatic stay provisions generally prohibit, 
among other things, actions to collect, assess, or recover a claim 
against a debtor that arose before the debtor filed for bankruptcy. The 
Bureau invites comment on whether servicers may reasonably question how 
they could comply with Bureau's proposal in light of these laws.
Section 1024.40 Continuity of Contact
    Background. As discussed in part II, above, the onset of the 
mortgage crisis revealed that many servicers did not have the 
infrastructure needed to handle the high volumes of delinquent 
mortgages, loan modification requests, and foreclosures they faced. 
Reports of servicers confusing delinquent borrowers with conflicting or 
misleading information, losing or mishandling borrower-provided 
documents supporting loan modifications requests, failing to respond to 
borrowers' inquiries about loss mitigation in a timely manner, and 
transferring borrowers seeking assistance with loss mitigation from 
department to department made it apparent that many servicers did not 
provide appropriately-trained staff to assist delinquent 
borrowers.\166\
---------------------------------------------------------------------------

    \166\ See, e.g., Are There Government Barriers to the Housing 
Market Recover?: Hearings Before the Subcomm. on Insurance, Housing, 
and Community Opportunity of the House Comm. on Financial Services, 
No. 112-7, 112th Cong. 51 (February 16, 2011) (statement of Phyllis 
Caldwell, Chief, Homeownership Preservation Office, U.S. Department 
of the Treasury), available at http://financialservices.house.gov/media/pdf/021611caldwell.pdf; see also Maryland Foreclosure Task 
Force, Report, at 22 (January 11, 2012) (describing that consumers 
continue to face problems of lost documentation, expired 
authorizations and confusing responses to requests for loss 
mitigation from multiple representatives within a given servicer) 
(Maryland Foreclosure Task Force Report), available at: http://www.mdhousing.org/Website/commTaskForce/documents/Foreclosure_Task_Force_Report_2012.pdf; see also, Peter S. Goodman, A Plan to 
Stem Foreclosures, Buried in a Paper Avalanche, New York Times (June 
29, 2009) (reporting on a number of borrower frustrations with the 
loan modification process, such as getting transferred from call 
center to call center and, having to repeatedly resubmit loan 
modification applications because the servicer could not locate them 
in its system).
---------------------------------------------------------------------------

    Regulators, both Federal and State, and the GSEs have responded by 
establishing staffing standards for servicers to meet when they assist 
delinquent borrowers. For example, in May of 2011, Treasury issued 
Supplemental Directive 11-04 to require qualifying servicers 
participating in the Making Home Affordable Program to assign 
potentially eligible borrowers with a member of the servicer's staff to 
assist such borrowers throughout their delinquency once a servicer has 
made a successful effort to communicate with such borrowers about 
resolution of their delinquency. The staff member assigned to the 
borrower would have primary responsibility for coordinating the 
servicer's actions to resolve the borrower's delinquency or default and 
must perform certain functions with respect to the borrower, such as 
providing information to the borrower about loss mitigation programs 
available to the borrower, explaining the requirements of the various 
programs, notifying a borrower of the need for additional or missing 
information, being knowledgeable about the borrower's mortgage loan 
account, and communicating the servicer's decision regarding a 
borrower's loan modification application.\167\ The National Mortgage 
Settlement, discussed in part II.C, above, establishes similar staffing 
requirements for servicers to follow \168\ As part of the GSE Servicing 
Alignment Initiative, Fannie Mae and Freddie Mac also established 
guidelines for servicer to follow when responding to delinquent 
borrowers to promote consistent borrower communications throughout 
delinquency.\169\ In July 2012, the State of California amended its 
laws to require servicers to designate personnel on their staff to 
assist borrowers who are potentially eligible for a federal or 
proprietary loan modification application.\170\
---------------------------------------------------------------------------

    \167\ Making Home Affordable, Supplemental Directive 11-04 (May 
18, 2011), available at: https://hmpadmin.com/portal/programs/docs/hamp_servicer/sd1104.pdf.
    \168\ National Mortgage Settlement, at A-21-23.
    \169\ See Freddie Mac, Servicing Alignment Initiative: Borrower 
Contact and Delinquency Management Practices (May 16, 2011), 
available at: http://www.freddiemac.com/singlefamily/news/2011/0516_servicing.html; see also Fannie Mae, Servicing Alignment 
Initiative--Overview for Fannie Mae Servicers (April 28, 2011), 
available at: https://www.efanniemae.com/sf/servicing/pdf/saioverview.pdf.
    \170\ See Cal SB-900, available at: http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0851-0900/sb_900_bill_20120711_chaptered.html.
---------------------------------------------------------------------------

    Similar to the early intervention servicing standards discussed 
previously, however, there are currently no minimum uniform national 
standards that apply across the mortgage servicing industry. Proposed 
Sec.  1024.40, discussed in detail below, would establish minimum 
staffing requirements that would apply to all mortgage servicers. The 
proposal is built around three obligations. First, servicers would be 
required to assign personnel to delinquent borrowers. Second, the 
servicers would be required to provide delinquent borrowers with live, 
telephonic responses to inquiries and, as applicable, assist the 
borrower with loss mitigation options. Third, servicers must establish 
policies and procedures reasonably designed to ensure that servicer 
personnel available to the borrower can perform an enumerated list of 
functions where applicable.
40(a)(1) In General
    Proposed Sec.  1024.40(a)(1) provides that no later than five days 
after a servicer has notified or made a good faith effort to notify a 
borrower to the extent required by Sec.  1024.39(a), the servicer must 
assign personnel to respond to the borrower's inquiries, and as 
applicable, assist the borrower with loss mitigation options. If a 
borrower has been assigned personnel as required by Sec.  1024.40(a)(1) 
and the assignment has not ended when servicing for the borrower's 
mortgage loan has transferred to a transferee servicer, subject to 
Sec.  1024.40(c)(1)-(4), the transferee servicer must assign personnel 
to respond to the borrower's inquiries, and as applicable, assist the 
borrower with loss mitigation options, within reasonable time of the 
transfer of servicing for the borrower's mortgage loan.
    Proposed comment 40(a)-1 explains that for purposes of responding 
to borrower inquiries and assisting the borrower with loss mitigation 
options as required pursuant to Sec.  1024.40, the term ``borrower'' 
includes a person the borrower has authorized to act on behalf of the 
borrower (a borrower's agent), which may include, for example, a 
housing counselor or attorney. Servicers may undertake reasonable 
procedures to determine if such person has authority from the borrower 
to act on the borrower's behalf. Proposed comment 40(a)-2 clarifies 
that for purposes of Sec.  1024.40(a)(1), a reasonable time for a 
transferee servicer to assign personnel to a borrower is by the end of 
the 30-day period of the transfer of servicing for the borrower's 
mortgage loan.
    Proposed comment 40(a)-3.i. explains that a servicer has discretion 
to determine the manner by which continuity of contact is implemented. 
For purposes of Sec.  1024.40(a)(1), a servicer may assign a single 
person or a team of personnel to respond to a borrower. Proposed 
comment 40(a)-3.ii. explains that Sec.  1024.40(a)(1) requires 
servicers to assign personnel to borrowers whom servicers are required 
to notify pursuant to Sec.  1024.39(a). If a borrower whom a servicer 
is not required to notify pursuant to Sec.  1024.39(a) contacts the 
servicer to explain that he or she expects to make be late in making a 
particular payment,

[[Page 57262]]

the servicer, at its election, may assign personnel to the borrower. 
Proposed comment 40(a)-4 explains that Sec.  1024.40(a)(1) does not 
permit or require a servicer to take any action inconsistent with 
applicable bankruptcy law or a court order in a bankruptcy case.
    The Bureau intends Sec.  1024.40 to work with proposed Sec.  
1024.39 (Early Intervention for Requirement for Certain Borrowers) and, 
as discussed below, with proposed Sec.  1024.41 (Loss Mitigation 
Procedures). Proposed Sec.  1024.40(a)(1) builds on proposed Sec.  
1024.39(a). As discussed previously, the Bureau believes that the 
borrowers that servicers are required to provide oral notice pursuant 
to Sec.  1024.39(a) are at high risk of becoming delinquent. As 
discussed above, common reported frustrations of delinquent borrowers 
include having to deal with servicers who would transfer them from 
department to department, getting confusing responses to loss 
mitigation requests from multiple representatives within a given 
servicer, and having to resubmit documents that they have previously 
submitted. By requiring servicers to assign the responsibility to 
assist delinquent borrowers to specific individuals, the Bureau 
believes that proposed Sec.  1024.40(a)(1) would bring a more 
streamlined approach to how servicers communicate with delinquent 
borrowers. The streamlined approach would be responsive to the most 
common problems delinquent borrowers have reportedly faced in recent 
years.
    Proposed Sec.  1024.40(a)(1) allows for five days to pass before a 
servicer makes the assignment. A servicer may find itself faced with a 
high number of borrowers who are late with respect to making their 
mortgage payments. The Bureau believes it is appropriate to provide a 
servicer with some time to make the personnel assignment. Additionally, 
there could be situations where the servicer complies with the oral 
notification requirement with respect to a borrower, even though the 
servicer is not required to do so. For example, a borrower could miss 
his or her payment due on February 1. On February 29, the end of the 
month, payment has not been received. The servicer may choose to orally 
notify the borrower pursuant to proposed Sec.  1024.39(a) on February 
29. But so long as the borrower makes his payment by March 1, then 
pursuant to Sec.  1024.39(a), the borrower would not be a borrower that 
the servicer is required to notify or make good faith efforts to notify 
pursuant to proposed Sec.  1024.39(a). Hence the Bureau believes it is 
appropriate to provide servicers five days to make the personnel 
assignment. The Bureau invites comment on whether a longer time frame 
is appropriate.
    Proposed comment 40(a)-1, discussed above, reflects that some 
delinquent borrowers may authorize third parties to assist them as they 
pursue alternatives to foreclosure. Accordingly, the Bureau seeks to 
clarify that a servicer's obligation in proposed Sec.  1024.40 extends 
to persons authorized to act on behalf of the borrower.
    Proposed comment 40(a)-2, discussed above, reflects the Bureau's 
belief that a transferee servicer may require some time after the 
transfer of servicing to identify delinquent borrowers who had 
personnel assigned to them by the transferor servicer. The Bureau 
believes that 30 days is a reasonable amount of time for a transferee 
servicer to assign personnel to a borrower whose mortgage loan has been 
transferred to the servicer through a servicing transfer. The Bureau 
invites comments on whether a longer time frame is appropriate.
    Proposed comment 40(a)-3.i. discussed above, is consistent with the 
Bureau's recognition that a one-size-fits-all approach to regulating 
the mortgage servicing industry may not be optimal,\171\ and thus 
servicers should be given flexibility to implement proposed Sec.  
1024.40. It also reflects the recommendation of the Small Business 
Review Panel that the Bureau should provide sufficient discretion such 
that current, successful practices with respect to assisting delinquent 
borrowers could continue to exist.\172\ Proposed comment 40(a)-3.ii 
explains that if a borrower whom a servicer is not required to notify 
pursuant to Sec.  1024.39(a) contacts the servicer to explain that he 
or she expects to be late in making a particular payment, the servicer, 
at its election, may assign personnel to the borrower. As discussed 
above in the Bureau's discussion of proposed comment 39(a)-5, many 
borrowers are delinquent for short periods of time and may be able to 
self-cure. The Bureau believes that servicers would incur significant 
cost if they were required to assign personnel to every borrower who 
contacts the servicer about a possible late payment. The Bureau further 
believes that the cost of assigning personnel to all such borrowers 
would be unduly burdensome to the servicer, while yielding little 
benefit to some of these borrowers. If the borrower who contacts the 
servicer about a possible late payment still has not made the payment 
within 30 days of the payment due date, then Sec.  1024.39(a) would 
require the servicer to make oral contact with the borrower. As 
discussed previously, no later than five days after a servicer has 
notified or made a good faith effort to notify a borrower to the extent 
required by Sec.  1024.39(a), the servicer must assign personnel to 
respond to the borrower. For these reasons, the Bureau believes it is 
appropriate to give servicers discretion when deciding whether or not 
to assign personnel to a borrower whom a servicer is not required to 
notify pursuant to Sec.  1024.39(a).
---------------------------------------------------------------------------

    \171\ See part II, above.
    \172\ Small Business Review Panel Report, at 31.
---------------------------------------------------------------------------

    Proposed comment 40(a)(1)-4 explains that Sec.  1024.40(a) does not 
permit or require a servicer to take any action inconsistent with 
applicable bankruptcy law or a court order in a bankruptcy case. During 
outreach, the Bureau learned that once a borrower files for bankruptcy, 
servicers typically transfer the borrower's file to a separate unit of 
personnel (i.e., personnel who are not part of the servicer's loss 
mitigation unit), or to outside bankruptcy counsel to comply with 
bankruptcy law. The Bureau believes a clarification should be provided 
with respect to the relationship between proposed Sec.  1024.40 and 
bankruptcy law. The Bureau, however, invites comment on whether 
servicers should be required to continue providing borrowers with 
access to personnel assigned to the borrowers to address borrower 
inquiries and loss mitigation options after borrowers have filed for 
bankruptcy.
    Legal authority. The Bureau proposes to exercise its authority 
under section 6(k)(1)(E) of RESPA to add new Sec.  1024.40(a)(1) to 
Regulation X. For reasons previously discussed, the Bureau believes 
that proposed Sec.  1024.40(a)(1) would bring a more streamlined 
approach to how servicers communicate with delinquent borrowers. The 
streamlined approach would be responsive to the most common problems 
delinquent borrowers have reportedly faced in recent years. Section 
6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that 
are appropriate to carry out the consumer protection purpose of RESPA. 
Accordingly, the Bureau proposes to exercise its authority under 
section 6(k)(1)(E) of RESPA to add new Sec.  1024.40(a)(1) to 
Regulation X. The Bureau further has authority under to section 6(j)(3) 
of RESPA to establish any requirements necessary to carry out section 6 
of RESPA, and under section 19(a) of RESPA to prescribe such rules and 
regulations, and to make such interpretations as may be necessary to

[[Page 57263]]

achieve the consumer protection purposes of RESPA.
40(a)(2) Access to Assigned Personnel
    Proposed Sec.  1024.40(a)(2) would require a servicer to make 
access to the assigned personnel available via telephone. If a borrower 
contacts the servicer and does not receive a live response from the 
assigned personnel, the borrower must be able to record his or her 
contact information. The servicer must respond to the borrower within a 
reasonable time. Proposed comment 40(a)(2)-1 provides that for purposes 
of Sec.  1024.40(a)(2), three days (excluding legal public holidays, 
Saturdays, and Sundays) is a reasonable time to respond.
    The Bureau previously discussed the importance of interactive 
conversations with delinquent borrowers in the discussion of proposed 
Sec.  1024.39(a). For similar reasons, the Bureau is requiring 
servicers to provide telephone access where the borrower can receive 
live responses. The Bureau understands that some servicers may have the 
capacity to engage with borrowers in person. But the Bureau believes 
that in-person interactions are not practicable for the majority of 
mortgage servicers. Accordingly, the Bureau is proposing to require 
live, telephonic access instead. The Bureau, however, recognizes that 
it is possible that when a borrower calls the servicer, the borrower 
may not always reach a live person. Additionally, the Bureau does not 
believe it is necessary to require servicers to make access to a live 
person available 24 hours a day, seven days a week. Accordingly, the 
Bureau is proposing to provide servicers with a reasonable time to 
respond to a borrower if the borrower does not receive a live response. 
As discussed above, proposed comment 40(a)(2)-1 provides that for 
purposes of Sec.  1024.40(a)(2), three days (excluding legal public 
holidays, Saturdays, and Sundays) is a reasonable time to respond. The 
Bureau invites comments on whether the Bureau should provide for a 
longer response time.
    Legal authority. The Bureau proposes to exercise its authority 
under section 6(k)(1)(E) of RESPA to add new Sec.  1024.40(a)(2) to 
Regulation X. The Bureau has previously discussed its belief in the 
importance of interactive conversations with delinquent borrowers. At 
the same time, the Bureau recognizes that it is not always possible 
that when a borrower calls the servicer, the borrower reaches a live 
person. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purpose of RESPA. Accordingly, the Bureau proposes to exercise its 
authority under section 6(k)(1)(E) of RESPA to add new Sec.  
1024.40(a)(2) to Regulation X. The Bureau further has authority under 
section 6(j)(3) of RESPA to establish any requirements necessary to 
carry out section 6 of RESPA, and under section 19(a) of RESPA to 
prescribe such rules and regulations, and to make such interpretations 
as may be necessary to achieve the consumer protection purposes of 
RESPA.
40(b) Functions of Servicer Personnel
40(b)(1) In General
    Proposed Sec.  1024.40(b)(1) would require servicers to establish 
policies and procedures reasonably designed to ensure that the servicer 
personnel it makes available to the borrower pursuant to Sec.  
1024.40(a) perform an enumerated list of functions where applicable. 
The functions include: (1) Providing a borrower with accurate 
information about loss mitigation options offered by the servicer and 
available to the borrower based on information in the servicer's 
possession, actions a borrower must take to be evaluated for loss 
mitigation options, including what the borrower must do to submit a 
complete loss mitigation application, as defined in Sec.  1024.41, and 
if applicable, what the borrower must do to appeal the servicer's 
denial of the borrower's application, the status of the borrower's 
already-submitted loss mitigation option, the circumstances under which 
a servicer must make a foreclosure referral, and loss mitigation 
deadlines the servicer has established; (2) accessing complete record 
of the borrower's payment history in the servicer's possession, all 
documents the borrower has submitted to the servicer in connection with 
the borrower's application for a loss mitigation option offered by the 
servicer, and if applicable, documents the borrower has submitted to 
prior servicers in connection with the borrower's application for loss 
mitigation options offered by those servicers, to the extent that those 
documents are in the servicer's possession; (3) providing the documents 
in Sec.  1024.40(b)(2)(ii)(B)-(C) to persons authorized to evaluate a 
borrower for loss mitigation options offered by the servicer if the 
servicer personnel assigned to the borrower is not authorized to 
evaluate a borrower for loss mitigation options; and (4) within a 
reasonable time after a borrower request, provide the information to 
the borrower or inform the borrower of the telephone number and address 
the servicer has established for borrowers to assert an error pursuant 
to Sec.  1024.35 or make an information request pursuant to Sec.  
1024.36.
    Proposed comment 40(b)(1)(iv) clarifies that for purposes of Sec.  
1024.40(b)(1)(iv), three days (excluding legal public holidays, 
Saturdays, and Sundays) is a reasonable time to provide the information 
the borrower has requested or inform the borrower of the telephone 
number and address the servicer has established for borrowers to assert 
an error pursuant to Sec.  1024.35 or make an information request 
pursuant to Sec.  1024.36. The Bureau invites comment on whether the 
Bureau should permit servicer a longer time frame to respond.
    Proposed Sec.  1024.40(b)(1) reflects the Bureau's belief that 
having staff available to help delinquent borrowers is necessary, but 
not sufficient, to ensure that when a borrower at a high risk of 
default reaches out to a servicer for assistance, the borrower is 
connected to personnel who can address the borrower's inquiries or loss 
mitigation requests adequately. The Bureau believes proposed Sec.  
1024.40(b)(1) would require servicers to provide appropriately-trained 
staff to assist delinquent borrowers. Further, as discussed previously, 
Sec.  1024.40 is intended to work together with proposed Sec.  1024.41 
as well as proposed Sec.  1024.39. For example, under proposed Sec.  
1024.41, a servicer is required to notify a borrower if the borrower 
has submitted an incomplete loss mitigation application. Section Sec.  
1024.40(b)(1) addresses this duty by requiring the personnel assigned 
to the borrower to inform a borrower about the steps the borrower must 
take to complete his or her loss mitigation application.
    Another example of how proposed Sec.  1024.40(b)(1) would work with 
proposed Sec.  1024.41 is that the assigned personnel must provide a 
borrower with accurate information about any loss mitigation deadlines 
established by the servicer in accordance with Sec.  1024.41. Proposed 
Sec.  1024.41 also requires servicers to evaluate borrowers for loss 
mitigation options if loss mitigation options is offered in the 
ordinary course of a servicer's business. Section 1024.40(b)(1)(iii), 
discussed above, would require assigned personnel to provide borrower-
submitted documents in support of loss mitigation to other persons 
authorized to make loss mitigation evaluations. As discussed above, the 
Bureau believes it is appropriate to provide servicers with discretion 
on how they assist delinquent borrowers. The Bureau understands that 
for some servicers, especially servicers

[[Page 57264]]

that have a small mortgage servicing portfolio of mortgage loans they 
originated, the personnel such servicers assign to work with delinquent 
borrowers typically have authority to evaluate borrowers' loss 
mitigation applications. But other servicers, especially large 
servicers or those whose servicing portfolios are made of loans owed by 
mortgage investors, the process of evaluating borrowers for loss 
mitigation involves multiple parties. For these servicers, the 
personnel they assign to a delinquent borrower to provide live, 
telephonic responses to the borrower's inquiries may not have the 
authority to evaluate the borrower's loss mitigation application. 
Pursuant to proposed Sec.  1024.40(b)(1)(iii), the servicer would 
nonetheless have to ensure that the assigned personnel can provide 
borrower-submitted documentation to other persons with such authority.
    As previously discussed, the Bureau recognizes that mortgage 
investors and other regulators have responded with requiring servicers 
to adopt staffing standards. The Bureau proposes the list of functions 
with an eye to harmonize the various staffing standards that exist. The 
Bureau believes proposed Sec.  1024.40(b)(1) would complement existing 
standards. The Bureau also invites comments on whether the Bureau 
should add additional functions to its proposed list of functions.
    Proposed Sec.  1024.40(b)(1)(iv) reflects the Bureau's belief that 
even if servicers implement policies and procedures that would address 
staffing failures in mortgage servicing practices, borrowers may seek 
information that is temporarily unavailable to the servicer. For 
example, a borrower's most current payment information may not be 
immediately available because it takes time for the payment to post to 
the borrower's account. Another example is that documents a borrower 
has submitted to the servicer in connection with the borrower's loss 
mitigation application may not be immediately available because it 
takes the servicer time to process them. Additionally, proposed Sec.  
1024.40(b)(1)(iv) indicates the Bureau's belief that the assigned 
personnel may receive borrower requests that are more appropriately 
addressed through proposed Sec. Sec.  1024.35 (Error Resolution 
Procedures) or 1024.36 (Requests for Information). The Bureau proposes 
to provide servicers with the discretion to make that determination. 
But the Bureau notes that even when a borrower request is addressed 
through proposed Sec. Sec.  1024.35 or 1024.36, the personnel the 
servicer assigned to the borrower pursuant to proposed Sec.  1024.40(a) 
would remain available to the borrower until an event described in 
Sec.  1024.40(c), discussed below, occurs.
    Legal authority. The Bureau proposes to exercise its authority 
under section (k)(1)(E) of RESPA to add new Sec.  1024.40(b)(1) to 
Regulation X. As discussed above, proposed Sec.  1024.40(b)(1) reflects 
the Bureau's belief that having staff available to help delinquent 
borrowers is necessary, but not sufficient, to ensure that when a 
borrower at a high risk of default reaches out to a servicer for 
assistance, the borrower is connected to personnel who can address the 
borrower's inquiries or loss mitigation requests adequately. The Bureau 
believes proposed Sec.  1024.40(b)(1) would require servicers to 
provide appropriately-trained staff to assist delinquent borrowers. The 
Bureau further has authority under section 6(j)(3) of RESPA to 
establish any requirements necessary to carry out section 6 of RESPA, 
and under section 19(a) of RESPA to prescribe such rules and 
regulations, and to make such interpretations as may be necessary to 
achieve the consumer protection purposes of RESPA.
40(b)(2) Safe Harbor
    Proposed Sec.  1024.40(b)(2) provides that a servicer's policies 
and procedures satisfy the requirements in Sec.  1024.40(b)(1) if 
servicer personnel do not engage in a pattern or practice of failing to 
perform the functions set forth in Sec.  1024.40(b)(1) where 
applicable. Proposed comment 40(b)(2)-1.i. provides that for purposes 
of Sec.  1024.40(b)(2), a servicer exhibits a pattern or practice of 
failing to perform such functions, with respect to a single borrower, 
if servicer personnel assigned to the borrower fail to perform any of 
the functions listed in Sec.  1024.40(b)(1) where applicable on 
multiple occasions, such as, for example, repeatedly providing the 
borrower with inaccurate information about the status of the loss 
mitigation application the borrower has submitted. Proposed comment 
40(b)(2)-1.ii. explains that a servicer exhibits a pattern or practice 
of failing to perform such functions, with respect to a large number of 
borrowers, if servicer personnel assigned to the borrowers fail to 
perform any of the functions listed in Sec.  1024.40(b)(1) where 
applicable in similar ways, such as, for example, providing a large 
number of borrowers with inaccurate information about the status of the 
loss mitigation applications the borrowers have submitted.
    As discussed above, proposed Sec.  1024.40(b)(1) would establish a 
new servicer obligation that requires servicers to establish policies 
and procedures reasonably designed to ensure that the servicer 
personnel it makes available to a borrower pursuant to Sec.  1024.40(a) 
perform an enumerated list of functions where applicable. The Bureau 
recognizes that servicers, after complying with the servicer obligation 
(i.e., established policies and procedures that are reasonably designed 
to ensure the personnel they make available borrowers perform the 
functions listed under proposed Sec.  1024.40(b)(1)), the personnel may 
occasionally make a mistake and fail to perform an enumerated function. 
Proposed Sec.  1024.40(b)(2) reflects the Bureau's belief that the 
occasional mistake is not necessarily indicative of servicers not 
complying with the servicing obligation in proposed Sec.  
1024.40(b)(1).
    Legal authority. The Bureau relies on its authority under section 
6(k)(1)(E) of RESPA to add new Sec.  1024.40(b)(2) to Regulation X. 
Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. As discussed above, the Bureau recognizes that even 
if a servicer has established policies and procedures that are 
reasonably designed to ensure that the servicer personnel it makes 
available to borrowers perform the functions listed under proposed 
Sec.  1024.40(b)(1), such personnel may occasionally make a mistake. 
The Bureau believes that an occasional mistake is not necessarily 
indicative of a servicer's failure to comply with proposed Sec.  
1024.40(b)(1). The Bureau further has authority pursuant to section 
6(j)(3) of RESPA to establish any requirements necessary to carry out 
section 6 of RESPA, and under section 19(a) of RESPA to prescribe such 
rules and regulations, and to make such interpretations as may be 
necessary to achieve the consumer protection purposes of RESPA.
40(c) Duration of Continuity of Contact
    Proposed Sec.  1024.40(c) provides that a servicer shall ensure 
that the personnel it assigns and makes available to a borrower 
pursuant to Sec.  1024.40(a) remains assigned and available to the 
borrower until any of the following occurs: (1) The borrower refinances 
the mortgage loan; (2) the borrower pays off the mortgage loan; (3) a 
reasonable time has passed since (i) the borrower has brought the 
mortgage loan current by paying all amounts owed in arrears, or (ii) 
the borrower and the servicer have entered into a permanent loss 
mitigation agreement in which the borrower keeps the property securing 
the mortgage loan;

[[Page 57265]]

(4) title to the borrower's property has been transferred to a new 
owner through, for example, a deed-in-lieu of foreclosure, a sale of 
the borrower's property, including, as applicable, a short sale, or a 
foreclosure sale; or (5) if applicable, a reasonable time has passed 
since servicing for the borrower's mortgage loan was transferred to a 
transferee servicer.
    Proposed comment 40(c)(3)-1 provides that for purposes of Sec.  
1024.40(c)(3), a reasonable time has passed when the borrower has made 
on-time mortgage payments for three consecutive months. The Bureau 
notes the ability of a borrower to make on-time mortgage payments for 
three consecutive months has gained wide acceptance as an appropriate 
indicator of whether a previously-delinquent borrower could succeed in 
keeping his or her mortgage loan current. For example, under Treasury's 
HAMP program, a borrower is put in a trial modification period lasting 
three months. The borrower must have made all trial period payments to 
qualify for a permanent loan modification.\173\ The Bureau seeks 
comment on whether criteria other than a borrower making on-time 
mortgage payments for three consecutive months should be used to 
determine what is a ``reasonable time'' for purposes of Sec.  
1024.40(c)(3). Proposed comment 40(c)(5)-1 provides that for purposes 
of Sec.  1024.40(c)(5), a reasonable time has passed when servicing for 
the borrower's mortgage loan was transferred to a transferee servicer 
30 days ago. As discussed above in the discussion of proposed comment 
40(a)-2, the Bureau believes that the transferee servicer may require 
up to 30 days from the date of transfer of servicing to identify 
borrowers who had personnel assigned to them by the transferor 
servicer. Accordingly, the Bureau believes that it is appropriate to 
require the transferor servicer to continue providing such borrower 
with continuity of contact for 30 days following the transfer of 
servicing. The Bureau, however, seeks comment on whether a longer time 
period is reasonable.
---------------------------------------------------------------------------

    \173\ Making Home Affordable Program Handbook, v3.4, at 89 
(December 15, 2011); see also Fannie Mae Single Family Servicing 
Guide, Ch. 6, Sec.  602 (2012).
---------------------------------------------------------------------------

    Legal authority. As discussed above, the Bureau is proposing to 
establish minimum staffing requirements with respect to how servicers 
assist delinquent borrowers. The Bureau believes that servicers should 
be required to provide delinquent borrowers with access to assigned 
personnel until events occur that indicate assistance is no longer 
needed or practicable. The events listed in proposed Sec.  
1024.40(c)(1)-(4) reflects the Bureau's belief of when assistance is no 
longer needed. The events listed in proposed Sec.  1024.40(c)(5) 
indicates when assistance is no longer practicable. As discussed above, 
section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. The Bureau proposes to add new Sec.  1024.40(c) to 
Regulation X pursuant to its authority under section 6(k)(1)(E) of 
RESPA. The Bureau further has authority under to section 6(j)(3) of 
RESPA to establish any requirements necessary to carry out section 6 of 
RESPA. The Bureau has additional authority under section 19(a) of RESPA 
to prescribe such rules and regulations, and to make such 
interpretations as may be necessary to achieve the consumer protection 
purposes of RESPA.
40(d) Conditions Beyond a Servicer's Control
    Proposed Sec.  1024.40(d) provides that a servicer has not violated 
Sec.  1024.40 if the servicer's failure to comply with this section is 
caused by conditions beyond a servicer's control. Proposed comment 
40(d)-1 explains that ``conditions beyond a servicer's control'' 
include natural disasters, wars, riots or other major upheaval, delays 
or failures caused by third parties, such as a borrower's delay or 
failure to submit any requested information, disruptions in telephone 
service, computer system malfunctions, and labor disputes, such as 
strikes. Proposed Sec.  1024.40(d) reflects the Bureau's belief that 
even if servicers implement processes that would address staffing 
failures that had a significant adverse impact on borrowers seeking 
alternatives to foreclosure, circumstances beyond a servicer's control 
may occasionally occur that could adversely affect a servicer's ability 
to provide adequate and appropriate staff to assist delinquent 
borrowers.
    Legal authority. The Bureau proposes to use its authority under 
RESPA section 6(k)(1)(E) to add new Sec.  1024.40(d) to Regulation X. 
Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 
regulations that are appropriate to carry out the consumer protection 
purposes of RESPA. As discussed above, proposed Sec.  1024.40(d) 
reflects the Bureau's belief that even if servicers implement processes 
that would address staffing failures that had a significant adverse 
impact on borrowers seeking alternatives to foreclosure, circumstances 
beyond a servicer's control may occasionally occur that could adversely 
affect a servicer's ability to provide adequate and appropriate staff 
to assist delinquent borrowers. The Bureau additionally relies on its 
authority under section 6(j)(3) of RESPA to establish any requirements 
necessary to carry out the purposes of REPSA, and under section 19(a) 
of RESPA to make such rules and regulations and to make such 
interpretations as may be necessary to achieve the purposes of RESPA.
Section 1024.41 Loss Mitigation
    Background. As discussed above, there has been widespread concern 
among mortgage market participants, consumer advocates, and 
policymakers regarding servicers' performance of loss mitigation 
activity in connection with the mortgage market crisis. In response, 
servicers, investors, guarantors, and State and Federal regulators have 
undertaken efforts to adjust servicer loss mitigation and foreclosure 
practices to address problems relating to evaluation of loss mitigation 
options. For example:
     Treasury and HUD sponsored the Making Home Affordable 
program, which established guidelines for Federal government sponsored 
loss mitigation programs such as HAMP \174\;
---------------------------------------------------------------------------

    \174\ www.makinghomeaffordable.gov.
---------------------------------------------------------------------------

     The Federal Housing Finance Agency (FHFA) directed Fannie 
Mae and Freddie Mac to align their guidelines for servicing delinquent 
mortgages they own or guarantee to improve servicing practices \175\;
---------------------------------------------------------------------------

    \175\ Federal Housing Finance Agency, Press Release: Fannie Mae 
and Freddie Mac to Align Guidelines for Servicing Delinquent 
Mortgages (April 28, 2011), available at http://www.fhfa.gov/webfiles/21190/SAI42811.pdf.
---------------------------------------------------------------------------

     Prudential regulators, including the Board and the OCC 
undertook enforcement actions against major servicers, resulting in 
consent orders imposing requirements on servicing practices \176\;
---------------------------------------------------------------------------

    \176\ OCC Press Release, OCC Takes Enforcement Action Against 
Eight Servicers for Unsafe and Unsound Foreclosure Practices (April 
13, 2011), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html; Federal Reserve Board of 
Governors Press Release (April 13, 2011), available at http://federalreserve.gov/newsevents/press/enforcement/20110413a.htm.
---------------------------------------------------------------------------

     The recent national mortgage settlement agreement imposes 
obligations on servicers, including on the conduct of loss mitigation 
evaluations \177\;
---------------------------------------------------------------------------

    \177\ www.nationalmortgagesettlement.com.
---------------------------------------------------------------------------

     States have begun to adopt regulations relating to 
mortgage servicing and foreclosure processing,

[[Page 57266]]

including requiring evaluation of loss mitigation options.\178\
---------------------------------------------------------------------------

    \178\ See, e.g., N.Y. Comp. Codes R. & Regs. tit. 3, Sec.  419.1 
et seq.; 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) amending 
Cal. Civ. Code Sec.  2923.6.
---------------------------------------------------------------------------

    Many of these requirements have coalesced around a common set of 
best practices for servicing. For example, the FHFA servicing alignment 
initiative, the National Mortgage Settlement, and HAMP all require 
servicers to review loss mitigation applications within 30 days.\179\ 
While these various initiatives are starting to bring standardization 
to significant portions of the market, none of them to date have set a 
consistent national set of procedures and expectations regarding loss 
mitigation procedures. The Bureau believes that because so much loss 
mitigation activity is ongoing, and because that activity has such 
potentially significant impacts on both individual consumers and the 
health of the larger housing market and economy, consistent uniform 
minimum regulations would be appropriate and useful to set borrower and 
servicer expectations and provide necessary consumer protections.
---------------------------------------------------------------------------

    \179\ See e.g., National Mortgage Settlement at Appendix A, at 
A-26, available at http://nationalmortgagesettlement.com; Freddie 
Mac Single Family Seller/Servicer Guide, Vol. 2 Sec.  64.6(d)(5) 
(2012); Fannie Mae Single Family Servicing Guide Sec.  205.08 
(2012); HAMP Guidelines, Ch. 6 (2011).
---------------------------------------------------------------------------

    The Bureau has considered a number of different options for 
addressing consumer harms relating to loss mitigation. In general, the 
Federal government has at least three approaches to addressing loss 
mitigation: (1) Establishing processes to facilitate compliance by 
market participants; (2) mandating outcomes of loss mitigation process 
(implicitly raising costs to market participants of pursuing actions in 
violation of the mandated outcomes); or (3) providing subsidies to 
incentivize the desired outcomes.\180\ Only options (1) and (2) were 
considered by the Bureau in light of the authorities available to the 
Bureau. Options (1) and (2) present a stark choice: Whether to mandate 
processes that provide consumer protections without mandating specific 
outcomes or whether to mandate specific outcomes by establishing 
criteria. For example, a requirement that a servicer review a completed 
loss mitigation application establishes process requirements but does 
not impose requirements on the substance of the servicers review. In 
contrast, a requirement that a servicer provide a loan modification 
when an evaluation of a loss mitigation application indicates that a 
loan modification may be net present value positive would impose an 
outcome on the process.
---------------------------------------------------------------------------

    \180\ See Patricia A. McCoy, Barriers to Home Mortgage 
Modifications During the Financial Crisis, at 4 (May 31, 2012).
---------------------------------------------------------------------------

    At the outset, it is worth noting that the Bureau's goal is not to 
achieve any particular target with respect to the number or speed of 
foreclosures. The Bureau's goal rather is to ensure that borrowers are 
protected from harm in connection with the process of evaluating a 
borrower for a loss mitigation option and proceeding to foreclosure. 
For instance, a borrower should not be misled about the options 
available to the borrower or the steps necessary to seek evaluation for 
those options. Further, servicers should review complete loss 
mitigation applications and make appropriate decisions with respect to 
those submissions.
    Evaluating the options available to the Bureau requires comparison 
across multiple dynamics, including, among others, whether the Bureau 
has properly identified consumer harm, whether the proposed solutions 
will effectively address the identified consumer harm, the risk of 
unintended market consequences and costs, and the appropriate scope of 
authorities available to the Bureau. By establishing appropriate loss 
mitigation procedures, the Bureau can ensure that borrowers receive 
information about loss mitigation options available to them and the 
process for applying for those options. Further, borrowers should be 
protected by ensuring that borrowers receive an evaluation for all 
options for which they may be eligible, have an opportunity to appeal 
decisions by the servicer regarding loan modification options, and are 
protected from foreclosure until the process of evaluating the 
borrower's complete loss mitigation application has ended.
    At the same time, the Bureau is concerned that going beyond process 
rights to give borrowers the ability to file suit over the merits of 
individual loss mitigation options could have negative effects on the 
availability and structure of loss mitigation programs and, indeed, of 
mortgage credit generally. The Bureau is concerned that investors and 
guarantors could either eliminate loss mitigation efforts altogether or 
structure them as vague, formless discretionary activities rather than 
risk significant delays in foreclosure or incur potential liability 
over the structure and administration of the programs.\181\ 
Alternatively, the prospect of delays and litigation risk might cause 
in a certain investors and guarantors to significantly reduce mortgage 
market activity, thus potentially curtailing general access to credit. 
The Bureau acknowledges the deep frustration and desperate 
circumstances that record numbers of borrowers face as they struggle to 
keep their loans current in this difficult economy, and believes that a 
solution that eliminates or severely restricts the recent increase in 
loss mitigation initiatives and current access to credit may not be in 
consumers' best interest or the best interest of the broader market and 
economy.
---------------------------------------------------------------------------

    \181\ Evidence exists that for certain investors and servicers 
loss mitigation activities may not actually mitigate losses from an 
investor's perspective when the impact across an entire portfolio is 
considered. Actions that impose additional costs on loss mitigation 
activities further incentives not to offer such programs. See 
Christopher Foote, et al., Reducing Foreclosures: No Easy Answers 
(Federal Reserve Bank of Atlanta Working Paper No. 2009-15 (May 
2009), available at http://www.frbatlanta.org/filelegacydocs/wp0915.pdf.
---------------------------------------------------------------------------

    Accordingly, proposed Sec.  1024.41 requires servicers that make 
loss mitigation options available to borrowers in the ordinary course 
of business to undertake certain duties in connection with the 
evaluation of borrower applications for loss mitigation options. 
Proposed Sec.  1024.41 is designed to achieve three main goals: First, 
proposed Sec.  1024.41 provides protections to borrowers to ensure 
that, to the extent a servicer offers loss mitigation options, 
borrowers will receive timely information about how to apply and that a 
complete application will be evaluated in a timely manner. Second, 
proposed Sec.  1024.41 prohibits a servicer from proceeding with the 
end of the foreclosure process--that is, the scheduled foreclosure 
sale--until a borrower and a servicer have terminated discussions 
regarding loss mitigation options.\182\ Third, proposed Sec.  1024.41

[[Page 57267]]

sets timelines that are designed to be completed without requiring a 
suspension of the foreclosure sale date to avoid strategic use of these 
procedures to extend foreclosure timelines and delay investor recovery 
through foreclosure.
---------------------------------------------------------------------------

    \182\ Although efforts to gather reliable data about the 
prevalence of problems resulting from proceeding with a foreclosure 
sale while loss mitigation discussion are ongoing, the Federal 
Reserve identified anecdotal evidence of these problems as far back 
as 2008. See Larry Cordell et al., The Incentives of Mortgage 
Servicers: Myths and Realities, at 9 (Federal Reserve Board, Working 
Paper No. 2008-46, Sept. 2008). Anecdotal evidence continues to 
accumulate. See, e.g., Haskamp, et al. v. Federal National Mortgage 
Assoc., et al., No. 11-cv-2248, Plaintiff's Memorandum of Law In 
Support of Their Motion For Partial Summary Judgment (D. Minn. June 
14, 2012); Stovall v. Suntrust Mortgage, Inc., No. 10-2836, 2011 
U.S. Dist. LEXIS 106137 (D. Md. September 20, 2011); Debra 
Gruszecki, REAL ESTATE: Homeowner Protests ``Dual Tracking,'' Press-
Enterprise (June 19, 2012), available at: http://www.pe.com/local-news/local-news-headlines/20120619-real-estate-homeowner-protests-dual-tracking.ece. The NCLC conducted a survey of consumer attorneys 
to identify instances of foreclosure sales occurring while loss 
mitigation discussions were on-going. Per that survey, 80% of 
surveyed consumer attorneys surveyed reported an instance of an 
attempted foreclosure sale while awaiting a loan modification. 
National Consumer Law Center & National Association of Consumer 
Bankruptcy Attorneys, Servicers Continue to Wrongfully Initiate 
Foreclosures: All Types of Loans Affected (Feb. 2012), available at 
http://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/wrongful-foreclosure-survey-results.pdf.
---------------------------------------------------------------------------

    Although the proposed rule would prohibit a servicer from 
proceeding with a foreclosure sale while a complete and timely 
application for loss mitigation is pending, the proposal would not 
prohibit a servicer from taking other steps in the foreclosure process. 
The Bureau believes that addressing the problems associated with 
concurrent loss mitigation application and evaluation and foreclosure 
proceedings requires a balanced approach that considers the needs of 
consumers, servicers, and mortgage loan investors. This balance 
considers the interest of consumers in having servicers provide good 
faith evaluations and implementation of loss mitigation options as well 
as the interests of investors in obtaining timely recovery on assets 
for which losses cannot be mitigated consistent with investor 
requirements.
    The Bureau believes that the proposed rule will require servicers 
to invest in processes to accomplish the regulatory requirements.
    The Bureau notes that the steps prior to the scheduled foreclosure 
sale can vary by servicer, by jurisdiction, by type of proceeding, 
including judicial and non-judicial foreclosure. Some steps may be 
internal to an individual servicer, such as referring a case to a 
foreclosure department. The timing for other steps may be controlled by 
State law or court rules, which vary among jurisdictions. In some 
instances, there may be filing deadlines established for a particular 
matter. The Bureau recognizes that concerns can arise when a servicer 
proceeds on loss mitigation and foreclosure proceeding tracks 
simultaneously. At the same time, the Bureau believes that by creating 
obligations on servicers to provide prompt notice of what is needed to 
complete a loss mitigation application and prompt decisions on 
completed applications--and by prohibiting servicers from proceeding to 
a foreclosure sale while a complete and timely loss mitigation 
application is pending the proposed rule will address the most 
problematic issues posed by concurrent evaluation of loss mitigation 
options and foreclosure proceedings.
    The Bureau notes that the protections provided in proposed Sec.  
1024.41 will be further augmented by protections in other parts of the 
servicing proposals that address loss mitigation issues. In proposed 
Sec.  1024.39, for instance, the Bureau proposes to implement 
obligations on servicers to contact borrowers early in the delinquency 
process and to provide information to borrowers regarding loss 
mitigation options. In proposed Sec.  1024.40, the Bureau proposes to 
require servicers to provide borrowers with contact personnel to assist 
the borrower with the process of applying for a loss mitigation option. 
Such personnel must have access to, among other things, information 
regarding loss mitigation options available to the borrower, actions 
the borrower must take to be evaluated for such loss mitigation 
options, and the status of any loss mitigation application submitted by 
the borrower. Further, in proposed Sec.  1024.38, the Bureau proposes 
to require that servicers implement policies and procedures that 
achieve the objective of reviewing borrowers for loss mitigation 
options. Finally, in proposed Sec.  1024.35, the Bureau proposes to 
permit a borrower to assert an error as a result of a servicer's 
failure to postpone a scheduled foreclosure sale when a servicer has 
failed to comply with the requirements for proceeding with a 
foreclosure sale pursuant to proposed Sec.  1024.41(g). All of these 
protections should be considered together and these protections, when 
implemented together, will have a substantial impact on reducing 
consumer harm.
    In order to reduce burden to servicers and costs to borrowers, the 
Bureau has sought to maintain consistency among proposed Sec.  1024.41, 
the national mortgage settlement, FHFA's servicing alignment 
initiative, Federal regulatory agency consent orders, and State law 
mortgage servicing statutory requirements. In certain instances, each 
of these other sources of servicing requirements may be more 
restrictive or prescriptive than proposed Sec.  1024.41. That is 
intentional. Proposed Sec.  1024.41 establishes a floor of minimum 
consumer protections and provides flexibility for Federal regulatory 
agency requirements, State law, or investor and guarantor requirements 
to impose obligations that may be more restrictive on servicers.
    The Bureau requests comment on all aspects of the proposal, and, in 
particular, whether focusing on the provision of procedural rights 
would be sufficient to significantly improve the efficiency and 
fairness of loss mitigation processing. The Bureau seeks comment on 
whether there are additional appropriate measures within the authority 
of the Bureau, or the Federal agencies collectively, that could be 
taken to improve loss mitigation outcomes for all parties. The Bureau 
seeks comment on whether the proposed requirements strike the 
appropriate balance between ensuring that consumers' timely and 
complete applications receive fair and full consideration and ensuring 
predictability of outcomes for investors and guarantors. Finally, and 
as discussed further below, the Bureau seeks comment on whether the 
requirements of proposed Sec.  1024.41 would require servicers to 
undertake practices that conflict with other Federal regulatory agency 
requirements or State law or may cause servicers to undertake practices 
that may reduce the value to investors or guarantors of offering loss 
mitigation options.\183\
---------------------------------------------------------------------------

    \183\ With respect to investor or guarantor requirements that do 
not constitute Federal or State law, such as requirements of Fannie 
Mae, Freddie Mac, or Ginnie Mae requirements, or requirements of 
federal or state agencies that serve as guarantors of mortgage 
loans, the Bureau observes that such entities may need to review and 
adjust their requirements in light of the consumer protections set 
forth in the proposed rules.
---------------------------------------------------------------------------

41(a) Scope
    Proposed Sec.  1024.41(a) provides that the requirements in 
proposed Sec.  1024.41 apply to any servicer that offers loss 
mitigation options in the ordinary course of business. The purpose of 
this provision is to clarify that the requirements in proposed Sec.  
1024.41 are applicable only to those servicers that are engaged in a 
practice in the ordinary course of business of evaluating loss 
mitigation options for their own portfolios or pursuant to duties owed 
to investors or guarantors of mortgage loans. These include servicers 
that participate in the HAMP program sponsored by HUD and Treasury, as 
well as servicers subject to investor or guarantor requirements, 
including requirements imposed by Fannie Mae, Freddie Mac, Ginnie Mae, 
private investors, or government or private guarantors of mortgage 
loans to evaluate loss mitigation options for non-performing mortgage 
loans.
    Proposed comment 41(a)-1 clarifies that nothing in proposed Sec.  
1024.41 is intended to impose a duty on a servicer to offer loss 
mitigation options to borrowers generally or to offer or

[[Page 57268]]

approve any particular borrower for a loss mitigation option. As set 
forth above, the Bureau does not intend to create a right for borrowers 
to enforce in private litigation requirements that are imposed by 
investors or guarantors on servicers to take steps to protect the 
investors or guarantors from losses that can be avoided. The Bureau 
believes it is appropriate to clarify in proposed comment 41(a)-1 that 
the rules do not impose a duty on a servicer to offer loss mitigation 
or to approve any particular borrower for a loss mitigation option and 
that the rules should not be construed to impose liability on a 
servicer, or any other party, for any failure to offer a loss 
mitigation option, so long as the servicer complies with the procedural 
requirements of proposed Sec.  1024.41.
    Certain servicers that do not evaluate borrowers for loss 
mitigation options in the ordinary course of business would not be 
subject to proposed Sec.  1024.41. In proposed comment 41(a)-2, the 
Bureau sets forth examples of practices that should not be considered, 
by themselves, considered indicia that a servicer had opted to offer 
loss mitigation options in the ordinary course of business. For 
example, it is not the Bureau's intention to impose the requirements in 
proposed Sec.  1024.41 on servicers that agree to limit adverse 
consequences to borrowers for making late payments, including by 
waiving late fees or declining to furnish negative information to a 
consumer reporting agency or on servicers that have decided to engage 
in a temporary or pilot program to explore the feasibility of offering 
certain loss mitigation options. Proposed comment 41(a)-2 clarifies 
that such practices, which may be the economic equivalent of a loss 
mitigation option, such as a forbearance plan, should not indicate by 
themselves that a servicer offers loss mitigation options to borrowers 
in the ordinary course of business.
41(b) Loss Mitigation Application
    Proposed Sec.  1024.41(b)(1) provides that a complete loss 
mitigation application includes all the information the servicer 
regularly obtains and considers in evaluating loss mitigation 
applications. This provision provides each servicer with flexibility to 
establish requirements regarding the type of information that the 
servicer deems necessary to determine whether a borrower is eligible 
for a loss mitigation option based on differing investor or guarantor 
guidelines.
    Upon receipt of an incomplete loss mitigation application, proposed 
Sec.  1024.41(b)(2) requires servicers to exercise reasonable diligence 
to obtain the additional information required to make a loss mitigation 
application complete. To that end, a servicer that receives an 
incomplete loss mitigation application earlier than 5 days before the 
timeline established for proposed Sec.  1024.41(f) shall within a 
reasonable time, but in no event later than 5 days (excluding legal 
public holidays, Saturdays, or Sundays) provide a notice to a borrower. 
The notice must state that the application is incomplete, identify the 
additional information or documents necessary to make the application 
complete, and provide a deadline by which the borrower must submit the 
additional information or documents.
    The Bureau believes it is appropriate to require that servicers 
provide the notice within a reasonable time, but in no event later than 
5 days (excluding legal public holidays, Saturdays, or Sundays) after 
receiving the incomplete application. Fannie Mae and Freddie Mac 
guidelines, as well as the national mortgage settlement, require 
servicers to provide a substantially similar but, in some cases more 
prescriptive, notice within 5 business days of receipt of an incomplete 
application.\184\ When a servicer receives an application more than 5 
days before the deadline the servicer has established for submitting a 
complete application, the servicer has sufficient opportunity to review 
the loss mitigation application, determine the information or documents 
that have not been provided and provide that information to the 
borrower. Further, even when a loss mitigation application is submitted 
less than 5 days (excluding legal public holidays, Saturdays, or 
Sundays) before the applicable deadline, a servicer must undertake 
reasonable diligence to obtain the information even if the servicer is 
not required to provide the notice contemplated by proposed Sec.  
1024.41(b)(2).
---------------------------------------------------------------------------

    \184\ See United States of America et al. v. Bank of America 
Corp. et al., at Appendix A, at A-26, available at http://nationalmortgagesettlement.com; Freddie Mac Single Family Seller/
Servicer Guide, Vol. 2 Sec.  64.6(d)(4) (2012); Fannie Mae Single 
Family Servicing Guide Sec.  205.07 (2012).
---------------------------------------------------------------------------

    Proposed Sec.  1024.41(b) does not require a servicer to stop 
foreclosure proceedings when a borrower submits an incomplete loss 
mitigation application. Further, unless an incomplete loss mitigation 
application is made complete by the deadline established by the 
servicer pursuant to proposed Sec.  1024.41(f), a servicer is not 
required to comply with the loss mitigation procedures for an 
incomplete loss mitigation application. The Bureau requests comment 
regarding whether servicers should be required to undertake any further 
obligations in connection with an incomplete or substantially complete 
loss mitigation application and what any further obligations should be.
41(c) Review of Loss Mitigation Applications
    Proposed Sec.  1024.41(c) states that, within 30 days of receiving 
a complete loss mitigation application, a servicer must evaluate the 
borrower for all loss mitigation options available from the servicer 
for which the borrower may qualify and provide the borrower with a 
written notice stating the servicer's determination of whether it will 
offer the borrower a loss mitigation option. The Bureau believes that 
it is appropriate to require servicers to evaluate complete loss 
mitigation applications within 30 days, which is an industry standard, 
as discussed above.
    The Bureau further believes it is appropriate to require a servicer 
to evaluate a borrower for all loss mitigation options available from 
the servicer for which the borrower may qualify rather than to require 
borrowers to select options for which the borrower may be evaluated. A 
servicer is in a better position than a borrower to determine the loss 
mitigation programs for which a borrower may qualify. Currently, many 
investors and guarantors have established set priority orders for 
evaluating and offering loss mitigation options rather than requiring 
borrowers to select loss mitigation programs. While borrowers should 
not be required to select loss mitigation programs themselves for an 
evaluation, a consequence of ordering loss mitigation programs based on 
least cost to an investor is that a borrower that may qualify for a 
program farther down on the priority list may believe that the first 
option offered is the only option available to the borrower. This may 
lead to less effective programs, disparate outcomes for similarly 
situated borrowers, and longer timelines for effectuating loss 
mitigation options.
    The Bureau has proposed that a servicer evaluate a borrower for all 
loss mitigation programs offered by the servicer for which the borrower 
may be eligible. The Bureau believes that this will ensure that all 
borrowers receive fair evaluations for all options available to them 
and will be able to identify options. Further, servicers will not be 
required to evaluate borrowers for any programs for which a borrower 
does not qualify based on eligibility criteria established by investors 
or guarantors. In sum, investors, guarantors, and

[[Page 57269]]

servicers retain the ability to manage loss mitigation programs to 
ensure that borrower eligibility and program administration is 
consistent with investor and guarantor requirements, while borrowers 
will be able to understand all potential options that may be available.
    The Bureau has received feedback that a requirement that servicers 
evaluate borrowers for all loss mitigation programs offered by the 
servicer will impact servicers' ability to manage programs through 
priority ordering of loss mitigation options. The Bureau agrees that 
the proposed rules would impact the ability to manage programs through 
the use of a loss mitigation option priority order, as a servicer will 
be required to evaluate a borrower for all programs and provide a 
notice of the results of the evaluation for all programs. However, the 
Bureau believes that servicers will be able to achieve the similar 
controls through the use of more detailed and comprehensive evaluation 
criteria and that the requirement will not ultimately impair a 
servicer's, investor's, or guarantor's ability to manage loss 
mitigation programs. The requirement that a servicer consider a 
borrower's application for all loss mitigation programs for which a 
borrower may qualify is consistent with the national mortgage 
settlement, which states that ``[u]pon timely receipt of a complete 
loan modification application, Servicer shall evaluate borrowers for 
all available loan modification options for which they are eligible * * 
* .'' \185\ Further, the Bureau's proposed requirement eliminates the 
need for borrowers to submit multiple applications for different loss 
mitigation options and, thus, provides for more efficient compliance by 
servicers with the requirements of the rules.
---------------------------------------------------------------------------

    \185\ See National Mortgage Settlement at Appendix A, at A-16, 
available at http://nationalmortgagesettlement.com.
---------------------------------------------------------------------------

    Proposed comment 41(c)(1)-1 clarifies that the servicer's 
evaluation of a borrower for a loss mitigation option is subject to the 
eligibility criteria for each loss mitigation option. For example, if a 
loss mitigation option is only available for military servicemembers, a 
servicer has conducted a proper evaluation if it determines that the 
borrower is not a servicemember and, therefore, as a threshold matter 
is ineligible for the program. Similarly, to the extent eligibility 
criteria for pilot programs, temporary programs, or programs that are 
limited by the number of participating borrowers, would exclude a 
borrower from eligibility, a servicer is not obligated to evaluate the 
borrower for any such loss mitigation option just as if the eligibility 
criteria did not exist. Because the requirements of proposed Sec.  
1024.41 are not intended to require that a borrower have a right to a 
loss mitigation option, nothing in proposed Sec.  1024.41 should be 
construed to prohibit a servicer from imposing any eligibility criteria 
the servicer (or the investor or guarantor of a mortgage loan) 
determines is appropriate for a loss mitigation option.
    Proposed Sec.  1024.41(c) requires servicers to notify borrowers of 
the outcome of the servicer's evaluation of the borrower for a loss 
mitigation option. Notice from the servicer provides certainty to the 
borrower regarding the outcome and serves as a basis for a borrower to 
accept, reject, or, where permitted, appeal, the servicer's 
determination.
    The Bureau requests comment regarding whether a servicer should be 
required to review a borrower for all loss mitigation options for which 
the borrower may be eligible. The Bureau further requests comment 
regarding what a servicer's obligation to review a borrower's complete 
application for a loss mitigation option should be if the obligation is 
not to review for all loss mitigation options for which the borrower 
may be eligible.
41(d) Denial of Loan Modification Options
    Proposed Sec.  1024.41(d) imposes additional obligations on 
servicers that deny borrower loss mitigation applications with respect 
to trial or permanent loan modifications. When a servicer determines 
that a borrower is not eligible for a loan modification as a loss 
mitigation option, the written notice provided by the servicer to the 
borrower must state the specific reasons for the determination and 
inform the borrower of the right to appeal the servicer's determination 
pursuant to proposed Sec.  1024.41(h). The notice must include the 
deadline for filing the appeal and any requirements, such as, for 
example, forms or documents the borrower must file in connection with 
the appeal process.
    Because the determination that a borrower does not qualify for a 
loan modification option has significant consequences, the Bureau 
believes that borrowers should receive accurate information regarding 
the basis for the servicer's determination. In that regard, proposed 
comments 41(d)(1)-1 and 41(d)(1)-2 provide examples regarding the 
information that should be included in the specific reasons provided to 
the borrower in the notice when a borrower is denied a loan 
modification on the basis of an investor requirement or a net present 
value calculation. The Bureau believes this information can assist 
borrowers in providing appropriate and relevant information to 
servicers in connection with the appeal process. Further, these 
requirements are consistent with the national mortgage settlement.\186\
---------------------------------------------------------------------------

    \186\ See United States of America et al. v. Bank of America 
Corp. et al., at Appendix A, at A-27, available at http://nationalmortgagesettlement.com.
---------------------------------------------------------------------------

    The Bureau requests comment regarding whether servicers should 
provide the basis for the servicer's determination that a borrower does 
not qualify for each loan modification program. The Bureau further 
requests comment on whether servicers should be required to provide the 
information set forth in proposed comments 41(d)(1)-1 and 41(d)(1)-2 
regarding investor requirements and net present value tests. In 
addition, the Bureau requests comment regarding whether servicers 
should be required to provide the basis for the servicer's 
determination that a borrower does not qualify for each loss mitigation 
program, including non-loan modification programs.
41(e) Borrower Response and Performance
    Proposed Sec.  1024.41(e) sets forth standards for when a borrower 
is considered to have accepted or rejected a loss mitigation option 
offered by a servicer. Proposed Sec.  1024.41(e) provides that a 
servicer may impose requirements on the manner in which a borrower must 
accept or reject a loss mitigation option, subject to standards for 
acceptance and rejection set forth in the rule. The proposed rule 
provides that if a borrower does not satisfy the servicer's 
requirements for accepting a loss mitigation option, but submits the 
first payment that would be owed pursuant to any such loss mitigation 
option within the deadline established by the servicer, the borrower 
shall be deemed to have accepted the offer of a loss mitigation option. 
This presumption is consistent with the terms of the National Mortgage 
Settlement. The Bureau recognizes that this proposed standard would set 
forth a presumption with respect to the parties' intent to enter into 
an agreement on a loss mitigation option and requests comment regarding 
whether the Bureau should implement a presumption to establish when 
parties should be considered to have entered into an agreement on a 
loss mitigation option.
    The Bureau further believes it is appropriate to allow a servicer 
that has

[[Page 57270]]

not received a response from a borrower to an offer of loss mitigation 
after 14 days to deem the borrower's lack of a response as a rejection 
of the loss mitigation option. A 14-day timeframe for a borrower to 
respond to an offer of a loss mitigation option is consistent with GSE 
requirements, the National Mortgage Settlement, State law, and Federal 
regulatory agency requirements.\187\
---------------------------------------------------------------------------

    \187\ See, e.g., National Mortgage Settlement, at Appendix A, at 
A-17, available at http://nationalmortgagesettlement.com; Freddie 
Mac Single Family Seller/Servicer Guide Sec.  64.6(d)(5) (2012); 
Fannie Mae Single Family Servicing Guide Sec.  103.04 (2012); 2012 
Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) amending Cal. Civ. Code 
Sec.  2923. Moreover, Fannie Mae servicing guidelines provide a 
servicer's review of a borrower's application for a loss mitigation 
option must not exceed 30 days and that if a servicer receives a 
borrower response package before 37 days prior to the foreclosure 
sale date, no delay in legal action is required, unless an offer is 
made and the foreclosure sale is within the borrower's 14-day 
response period. See Fannie Mae Single Family Servicing Guide 
Sec. Sec.  103.04, 107.01.02 (2012).
---------------------------------------------------------------------------

    The Bureau requests comment on whether servicers should be required 
to allow borrowers to accept or reject offers of loss mitigation 
options orally, including any compliance burdens imposed as a result of 
any such requirement.
41(f) Deadline for Loss Mitigation Applications
    Proposed Sec.  1024.41(f) states that a servicer may set a deadline 
by which a borrower must submit a complete loss mitigation application, 
so long as any such deadline is no earlier than 90 days before a 
scheduled foreclosure sale. A 90-day threshold appears to set an 
appropriate balance. A servicer that sets a deadline for complete loss 
mitigation applications of 90 days before a scheduled foreclosure sale 
will have 30 days to review a borrower's application for a loss 
mitigation option, will be able to provide the borrower with 14 days to 
respond to the servicer's offer of a loss mitigation option and/or to 
file an appeal, will be able to consider any timely appeal during a 
subsequent 30 day period, and will be able to provide the borrower with 
an additional 14 days to respond to any offer of a loss mitigation 
option after an appeal. A servicer's decision on an appeal is not 
itself subject to appeal and a servicer is not required to consider any 
further appeals after the initial appeal. Thus, with the timeline set 
forth, a servicer must complete the entire process within 88 days. 
Because a servicer has the flexibility to establish a deadline that is 
no earlier than 90 days before foreclosure sale, the process can be 
completed without rescheduling the foreclosure sale.
    Comment 41(f)-1 clarifies that where a foreclosure sale has not 
been scheduled, or where a foreclosure sale may occur less than 90 days 
after the sale is scheduled pursuant to State law, a servicer should 
establish a deadline that is no earlier than 90 days before the day 
that a servicer reasonably anticipates that a foreclosure sale will be 
scheduled.
41(g) Prohibition on Foreclosure Sale
    Proposed Sec.  1024.41(g) provides that if a servicer receives a 
complete loss mitigation application by the deadline established 
pursuant to proposed Sec.  1024.41(f), the servicer may not proceed to 
foreclosure sale unless: (1) The servicer denies the borrower's 
application for a loss mitigation option and the appeal process is 
inapplicable, the borrower has not requested an appeal, or the time for 
requesting an appeal has expired; (2) the servicer denies the 
borrower's appeal; (3) the borrower rejects a servicer's offer of a 
loss mitigation option; or (4) a borrower fails to perform pursuant to 
the terms of a loss mitigation option.
    The Bureau believes it is appropriate to require that if a servicer 
offers loss mitigation options to borrowers in the ordinary course of 
business, and the borrower submits a complete application for a loss 
mitigation application by the deadline established by the servicer, a 
servicer should not proceed with a scheduled foreclosure sale until the 
servicer and borrower have terminated discussions regarding the loss 
mitigation option. The Bureau believes this point occurs when a 
borrower is denied for a loss mitigation option (and any appeal process 
has ended) or where a borrower rejects a servicer's offer of a loss 
mitigation option.
    Further, the Bureau believes it is appropriate to suspend a 
scheduled foreclosure sale when a borrower is performing under an 
agreement on a loss mitigation option. A servicer's basis for servicing 
a mortgage loan, and undertaking actions to collect on an unpaid 
obligation, emanates from the contractual relationship between the 
owner or assignee of the mortgage loan and the borrower. A servicer's 
determination to hold a scheduled foreclosure sale when a borrower is 
performing under an agreement that forestalls foreclosure violates the 
agreement entered into with the borrower. Additionally, it is already 
standard industry practice for a servicer to suspend a scheduled 
foreclosure sale during any period where a borrower is making payments 
pursuant to the terms of the trial loan modification.
    In terms of workflow, when a servicer receives a complete loss 
mitigation application, it will either offer the borrower a loss 
mitigation option or deny the borrower's request for a loss mitigation 
option. If the borrower's request is denied, the borrower may file an 
appeal if the denial concerns a trial or permanent loan modification. 
Upon reviewing the appeal, a servicer will determine to either offer 
the borrower a loss mitigation option or, again, to deny the borrower's 
request for a loss mitigation option. If the request is denied, then 
the servicer may proceed to a foreclosure sale. If a loss mitigation 
option is offered, either after the initial evaluation or after appeal, 
a borrower may either accept or reject the offer of the loss mitigation 
option. If the borrower rejects the loss mitigation option, the 
servicer may proceed to a foreclosure sale. If the borrower accepts the 
loss mitigation option, the borrower will either perform or fail to 
perform pursuant to the terms of the agreement on the loss mitigation 
option. If a borrower fails to perform pursuant to the terms of the 
agreement on the loss mitigation option, the servicer may proceed with 
the foreclosure sale.
    Proposed comments 41(g)-1 and 41(g)-2 clarify the application of 
the borrower performance definitions with respect to short sales. 
Typically, a short sale will include a listing or marketing period 
during which a servicer will agree to postpone a foreclosure sale in 
order to allow a borrower to market a property for a short sale 
transaction. The proposed comments clarify that a borrower is 
performing under the terms of a short sale agreement or other similar 
loss mitigation agreement during the term of any such marketing or 
listing period, and any terms subsequent to such periods, if a short 
sale transaction is approved by all relevant parties, and the servicer 
has received proof of funds or financing.
    Further, a servicer's failure to suspend a scheduled foreclosure 
sale when a servicer has failed to comply with the requirements of 
proposed Sec.  1024.41(g) is defined as a covered error in proposed 
Sec.  1024.35(b)(9). A borrower will be able to assert this error and 
require a servicer to engage in the error resolution procedures to 
address this error. In order to avoid the use of this requirements, and 
the error resolution procedures, as a strategic tool to delay 
foreclosure, the Bureau has proposed Sec.  1024.35(f)(2), which 
provides that if an error relating to a servicer's failure to suspend a 
foreclosure sale is asserted seven days or less before a scheduled

[[Page 57271]]

foreclosure sale, the servicer is not required to comply with the full 
error resolution procedures and may, alternatively, respond to the 
borrower orally or in writing in response to the notice of error. 
Because the requirements of proposed Sec.  1024.41 are procedural in 
nature, the Bureau believes that servicers will be able to resolve and 
respond to any assertions of error on a very expedited basis by 
confirming that the appropriate procedure was followed.
    By prohibiting a servicer from proceeding with a scheduled 
foreclosure sale until termination of loss mitigation discussion, the 
Bureau proposes to eliminate the clearest harms on borrowers resulting 
from servicers pursuing loss mitigation and foreclosure proceedings 
concurrently.
41(h) Appeal Process
    Proposed Sec.  1024.41(h) would require servicers to establish an 
appeals process to review denials of complete loss mitigation 
applications for loan modifications. Limiting the appeals process only 
to denials of loan modifications reduces burdens on servicers and 
maintains consistency with existing appeals and escalation processes 
established under State law or Federal regulatory agency requirements. 
For example, the appeal process established by the national mortgage 
settlement relates to denials of first lien loan modification 
denials.\188\ Further, the recent California Homeowner Bill of Rights 
provides for an appeal process for denials of first lien loan 
modification.\189\ Moreover, loan modifications are some of the most 
complex loss mitigation programs with respect to the evaluation of 
borrowers, and the Bureau believes that loan modification provides an 
appropriate scope for an appeal process.
---------------------------------------------------------------------------

    \188\ See National Mortgage Settlement, at Appendix A, at A-27, 
available at http://nationalmortgagesettlement.com.
    \189\ See 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) 
amending Cal. Civ. Code Sec.  2923.6.
---------------------------------------------------------------------------

    Pursuant to proposed Sec.  1024.41(h), if a servicer reviews an 
appeal and determines to offer a loss mitigation option, the servicer 
shall not foreclose on a borrower unless the borrower rejects the offer 
of the loss mitigation option or fails to comply with terms of the loss 
mitigation option. If a servicer denies a borrower's appeal of a loss 
mitigation option, the servicer may proceed with a foreclosure sale.
    Proposed Sec.  1024.41(h) would provide that an appeal must be 
reviewed by servicer personnel that were not directly involved in the 
initial evaluation. The Bureau believes that this basic safeguard would 
help to reduce the risk of bias in the appeals process, since the 
person who made the initial decision may have a particularly strong 
interest in upholding that decision. Proposed comment 41(h)(3)-1 
clarifies that supervisory personnel that supervised the personnel that 
conducted the initial evaluation may conduct the appeal evaluation if 
they were not directly involved in the initial evaluation. Proposed 
Sec.  1024.41(h)(4) provides for the servicer to provide a written 
notice to the borrower stating the servicer's determination.
    The Bureau requests comment on whether to require servicers to 
engage in an appeals process. Further, the Bureau requests comment on 
whether the appeals process should be limited to denials of loan 
modifications and other similar loss mitigation options. Further, the 
Bureau requests comment regarding the impact on small servicers (as 
that term is defined in the 2012 TILA Servicing Proposal) of the 
requirement that the appeal must be evaluated by servicer personnel 
that were not directly involved in the initial loss mitigation 
application evaluation, and where such requirement should be modified 
or eliminated for small servicers.
41(i) Duplicative Requests
    Proposed Sec.  1024.41(i) provides that a servicer is only required 
to comply with the requirements of proposed Sec.  1024.41 if a borrower 
has not previously been evaluated for loss mitigation options for the 
borrower's mortgage loan account by that servicer. Thus, a servicer is 
not required to apply the requirements of Sec.  1024.41 to a subsequent 
complete application for a loss mitigation option. In situations where 
servicing has transferred after the borrower received an evaluation on 
a complete loss mitigation application from the transferor servicer, 
the transferee servicer may be required to comply with the requirements 
of proposed Sec.  1024.41. The Bureau believes that when an investor is 
transferring servicing to a new servicer, which may have been driven by 
owner or assignee's determination that the new servicer can better 
achieve loss mitigation options with borrowers, borrowers should be 
able to renew an application for a loss mitigation option with the 
transferee servicer, subject to the applicable deadlines and 
requirements in proposed Sec.  1024.41.
    The Bureau requests comment regarding whether a borrower should be 
entitled to renewed evaluation for a loss mitigation option if an 
appropriate time period has passed since the initial evaluation or if 
there is a material change in the borrower's circumstances. If so, the 
Bureau requests comment on what should constitute appropriate time 
periods and requirements applicable to such reviews.
41(j) Other Liens
    Proposed Sec.  1024.41(j) provides that any servicer that receives 
a complete loss mitigation application shall (1) within 5 days, 
determine if any other servicers service mortgage loans that have 
senior or subordinate liens encumbering the property that is the 
subjection of the loss mitigation application, and (2) provide the loss 
mitigation application received from the borrower to the other 
servicer.
    Loss mitigation applications for properties encumbered by multiple 
liens present some of the most difficult loss mitigation situations for 
investors and borrowers. The Bureau believes it is appropriate to 
impose on servicers the obligation (1) to identify other servicers that 
may be impacted by loss mitigation evaluation for a property and (2) to 
provide the loss mitigation application from the borrower to the other 
servicers. When the other servicer receives the loss mitigation 
application, that servicer shall be required to comply with the 
requirements of proposed Sec.  1024.41 if the servicer offers loss 
mitigation options to borrowers in the ordinary course as required by 
proposed Sec.  1024.41(a). Further, the servicer that receives the loss 
mitigation application from another servicer shall be required to 
comply as if the servicer received the application from the borrower. 
For example, if the initial servicer passes an application to the other 
servicer that is incomplete under the other servicer's guidelines, the 
other servicer would be required pursuant to proposed Sec.  
1024.41(b)(2)(ii) to provide the borrower with the incomplete loss 
mitigation application notice.
    The Bureau notes that the Gramm-Leach-Bliley Act as implemented by 
Regulation P does not require provision of an initial notice and opt-
out in connection with providing the loss mitigation application 
submitted by a borrow to another servicer under the exception set forth 
in 12 CFR 1016.15(a)(7).
    Small servicers. The Bureau is conscious of the potential impacts 
of the loss mitigation requirements on small servicers. In order to 
gain feedback on small servicer impacts, the Bureau participated in a 
Small Business Review Panel and conducted outreach with SERs. At the 
time the Small Business Review Panel outreach was conducted, the Bureau 
had not decided to include a separate provision concerning loss

[[Page 57272]]

mitigation procedures. Rather, the Bureau solicited feedback from the 
SERs on many elements of the loss mitigation process in conjunction 
with other elements of the servicing proposals, including impacts on 
loss mitigation processes of small servicers from proposed rules 
relating to error resolution, reasonable information management 
policies and procedures, early intervention for troubled or delinquent 
borrowers, and continuity of contact. In particular, the Bureau 
requested feedback from small servicers on the following: (1) A duty to 
suspend a foreclosure sale while a borrower is performing as agreed 
under a loss mitigation option or other alternative to foreclosure; (2) 
the ability to adopt policies and procedures to facilitate review of 
borrowers for loss mitigation options; (3) the ability to provide 
information regarding loss mitigation early in the foreclosure process 
to borrowers; and (4) the ability to provide borrowers with the 
opportunity to discuss evaluations for loss mitigation options with 
designated servicer contact personnel.\190\
---------------------------------------------------------------------------

    \190\ See Small Business Review Panel Report, appendix C at 19, 
22, 24-26.
---------------------------------------------------------------------------

    The SERs generally informed the Small Business Review Panel that 
they engaged in individualized contact with borrowers early in the 
foreclosure process, that some servicers completed discussions of loss 
mitigation options with borrowers prior to a point in time when 
borrowers should receiving significant foreclosure related information, 
and generally worked closely with foreclosure counsel such that 
foreclosure processes and loss mitigation could be easily conducted 
simultaneously without prejudice to the loss mitigation process. 
Further, the SERs explained that they were willing to communicate with 
borrowers about loss mitigation contemporaneously with the foreclosure 
process, and one small entity representative indicated that it would be 
willing to bring a mortgage file back to the servicer for consideration 
of a modification and halt the foreclosure process, if 
appropriate.\191\
---------------------------------------------------------------------------

    \191\ See Small Business Review Panel Report at 26.
---------------------------------------------------------------------------

    Based in part on the outreach with the SERs on April 24, 2012, as 
well as other feedback obtained by the Bureau after that outreach 
meeting, the Bureau considered proposing clearer and more detailed 
requirements relating to loss mitigation practices. The Bureau 
determined, for the sake of clarity and consistency, to include loss 
mitigation obligations as a separate section, rather than embedding the 
requirements within the provisions relating to error resolution, 
reasonable information management policies and procedures, early 
intervention for troubled or delinquent borrowers, and continuity of 
contact.
    The Bureau believes that adding a separate section to address loss 
mitigation builds upon the feedback received by the Bureau as set forth 
in the Small Business Review Panel Report, although that report and the 
outreach meeting with SERs were not structured around the discussion of 
regulations relating to loss mitigation obligations as a separate 
section and did not focus in significant detail on some of the specific 
measures proposed here such as, for example, appeals of loss mitigation 
determinations. The Bureau also believes that adding a separate section 
to address loss mitigation provides greater regulatory clarity to 
servicers, including small servicers. Therefore, the Bureau 
specifically requests comment from small servicers (as that term is 
defined in the 2012 TILA Servicing Proposal) regarding the potential 
impacts of the loss mitigation requirements in proposed Sec.  1024.41 
on small servicers. Specifically, as set forth above, the Bureau 
requests comment of the requirement that an appeal must be evaluated by 
servicer personnel that were not directly involved in the initial loss 
mitigation application evaluation.
    Legal authority. In proposing Sec.  1024.41, the Bureau relies on 
its authority in section 6(k)(1)(E) of RESPA to set forth obligations 
appropriate to carry out the consumer protection purposes of RESPA and 
section 6(j)(3) of RESPA to set forth requirements necessary to carry 
out section 6 of RESPA. Further, proposed Sec.  1024.41 implements, in 
part, a servicer's obligation to take timely action to correct errors 
relating to avoiding foreclosure in section 6(k)(1)(C) of RESPA by 
establishing servicer duties to avoid foreclosure that are the subject 
of the error resolution provisions in proposed Sec.  1024.35.
    The Bureau further relies on its authority in section 19(a) of 
RESPA to make such rules and regulations and to make such 
interpretations as may be necessary to achieve the consumer protection 
purposes of RESPA.
Appendix MS
    Appendix MS to part 1024 sets forth model forms, model clauses that 
servicers may use to comply with the mortgage servicing requirements of 
Regulation X. As discussed in detail below, the Bureau proposes to 
modify the model form applicable to servicing transfer disclosure 
requirements, to add a new model for force-placed insurance disclosure 
requirements, and to add new model clauses for early intervention 
notice requirements. The Bureau is proposing official commentary that 
would apply to existing model forms MS-1 and MS-2, as well as a 
proposed model form MS-3 for the proposed force-placed insurance 
disclosure and proposed model clauses at MS-4 for the proposed early 
intervention written notice. The Bureau is proposing these comments to 
provide guidance that would be generally applicable for the mortgage 
servicing model forms and clauses. The Bureau solicits comment on the 
appropriateness of this guidance for the mortgage servicing 
disclosures.
    Proposed comment MS-1 explains that appendix MS contains model 
forms and clauses for mortgage servicing disclosures. Each of the model 
forms is designated for use in a particular set of circumstances as 
indicated by the title of that model form or clause. Although use of 
the model forms and clauses is not required, servicers using them 
properly will be deemed to be in compliance with the regulations with 
regard to those disclosures. To use the forms appropriately, 
information required by regulation must be set forth in the 
disclosures.
    Proposed comment MS-2 explains that servicers may make certain 
changes to the format or content of the forms and clauses and may 
delete any disclosures that are inapplicable without losing the 
protection from liability so long as those changes do not affect the 
substance, clarity, or meaningful sequence of the forms and clauses. 
Servicers making revisions to that effect will lose their protection 
from civil liability. Except as otherwise specifically required, 
acceptable changes include, for example: (1) Use of ``borrower'' and 
``servicer'' instead of pronouns; (2) substitution of the words 
``lender'' and ``servicer''; and (3) addition of graphics or icons, 
such as the servicer's corporate logo.
Appendix MS-2--Model Form for Mortgage Servicing Transfer Disclosure
    Appendix MS-2 to part 1024 sets forth the format for the servicing 
transfer disclosure required pursuant to section 6(a)(3) of RESPA and 
proposed Sec.  1024.33(b)(5). The Bureau proposes to revise the model 
form in appendix MS-2 to significantly reduce the length of the require 
disclosure to borrowers in connection with mortgage servicing 
transfers.
    As a preliminary matter, the Bureau observes that unless a 
transferor and transferee servicer coordinate to provide a consolidated 
disclosure, a borrower

[[Page 57273]]

will receive substantially similar disclosures in the form of appendix 
MS-2 from both a transferor servicer and a transferee servicer. The 
Bureau is concerned that the volume of the disclosure may overwhelm 
borrowers, who will not focus on the information set forth in the form, 
while also imposing a burden on servicers to provide lengthy and 
unnecessary disclosures.
    The Bureau proposes to streamline the language of the model form to 
focus on only the elements of information that a borrower needs in 
connection with a mortgage servicing transfer, specifically (1) the 
date of the transfer, (2) contact information for the transferor 
servicer, (3) contact information for the transferee servicer, (4) 
applicable dates for when each of the servicers will begin or cease to 
accept payments, (5) the impact of the transfer on any insurance 
products and (6) a statement that the transfer does not otherwise 
affect the terms or conditions of the mortgage loan.
    The Bureau proposes to remove significant discussion in the model 
form regarding the availability of the qualified written request 
process and the borrower's rights pursuant to RESPA. Information 
regarding the qualified written request process is likely to confuse 
borrowers in light of the proposed error resolution and information 
requirements set forth in this proposal. Further, the Bureau believes 
that error resolution and information request requirements are more 
effective by requiring servicers to respond to the notices of error and 
inquiries they receive as a result of having provided the appropriate 
contact information on the form. Further, the Bureau observes that this 
additional content is not required by section 6(a)(3) of RESPA. In 
light of these obligations, the Bureau does not believe the added 
discussion of the qualified written request process and RESPA provided 
additional practical value to consumers and detract from other 
important content of the form.
    The Bureau relies on its authority in sections 6(a)(3), 6(j)(3), 
and 19(a) of RESPA to set forth requirements on servicers with respect 
to providing the mortgage servicing transfer notices required by 
section 6(a)(3) of RESPA.
Appendix MS-3--Model Force-Placed Insurance Notice Forms
    Appendix MS-3 to part 1024 sets forth model forms that mortgage 
servicers may use to comply with the Bureau's force-placed insurance 
disclosure requirements. As discussed previously in the Bureau's 
discussion of proposed appendix MS, servicers are not required to use 
model forms to comply with the mortgage servicing disclosures of 
Regulation X, including the disclosures set forth in proposed Sec.  
1024.37. Using the model forms properly, however, will be deemed to be 
in compliance with regulation with regard to those disclosures.
    Proposed comment MS-3-1 provides that the model form MS-3(A) 
illustrates how a servicer may comply with Sec.  1024.37(c)(2). 
Proposed comment MS-3-2 provides that the model form MS-3(B) 
illustrates how a servicer may comply with Sec.  1024.37(d)(2)(i). 
Proposed comment MS-3 provides that the model form MS-3(C) illustrates 
how a servicer may comply with Sec.  1024.37(d)(2)(ii). Proposed 
comment MS-3-4 provides that model MS-3(D) illustrates how a servicer 
may comply with Sec.  1024.37(e)(2). Proposed comment MS-3-5 provides 
that where the model forms MS-3(A), MS-3(B), MS-3(C), and MS-3(D) use 
the term ``hazard insurance,'' the servicer may substitute ``hazard 
insurance'' with, as applicable, ``homeowner's insurance'' or 
``property insurance.'' The Bureau, however, notes that proposed MS-3-5 
does not permit the servicer to use the term ``homeowner's insurance'' 
to describe force-placed insurance.
    As discussed previously, the Bureau believes that it is necessary 
and appropriate to carry out and achieve the purposes of RESPA section 
6, and the consumer protections of RESPA, to facilitate compliance with 
the new Dodd-Frank Act requirements about advance notification before 
servicers charge borrowers for force-placed insurance. The Bureau's 
proposed force-placed insurance notice requirements are set forth in 
the model forms in proposed appendix MS-3. The Bureau proposes to 
exercise its authority under RESPA sections 6(j)(3), 6(k)(1)(E), and 
19(a) to add new appendix MS-3 to Regulation X. Also as discussed 
previously, the Bureau has additional authority pursuant to Dodd-Frank 
Act section 1032 to provide model forms by adding new appendix MS-3.
Appendix MS-4--Model Clauses for the Written Early Intervention Notice
    Model clauses in proposed appendix MS-4 illustrate the disclosures 
that would be required under proposed Sec.  1024.39(b)(1). They 
encourage the borrower to contact the servicer and provide information 
about loss mitigation options, foreclosure, and housing counselors. 
Clauses in Model MS-4(A) illustrate how a servicer may provide its 
contact information and how a servicer may request that the borrower 
contact the servicer, as would be required under proposed Sec.  
1024.39(b)(2)(i) and (ii).
    Clauses in Model MS-4(B) illustrate how the servicer may inform the 
borrower of loss mitigation options that may be available, as would be 
required under proposed Sec.  1024.39(b)(2)(iii). Model MS-4(B) does 
not contain sample clauses for all loss mitigation options that may be 
available; they illustrate only four commonly offered examples: (1) 
Forbearance, (2) mortgage modification, (3) short-sale, and (4) deed-
in-lieu of foreclosure. These examples of loss mitigation options may 
not necessarily accurately reflect the servicer's loss mitigation 
programs. Thus, proposed comment MS-4-2 explains that the language in 
proposed Model MS-4(B) is optional, and that a servicer may add or 
substitute any examples of loss mitigation options the servicer offers, 
as long as the information required to be disclosed is accurate and 
clear and conspicuous. Clauses in Model MS-4(C) illustrate how the 
servicer may inform the borrower how to obtain additional information 
about loss mitigation options, as would be required under proposed 
Sec.  1024.39(b)(2)(iv). If the servicer offers no loss mitigation 
options, a servicer may not include Models MS-4(B) and MS-4(C) because 
including those statements would be misleading. The Bureau solicits 
comment on the examples of loss mitigation options and the descriptions 
of those examples in Model MS-4(B). The Bureau also solicits comment on 
whether alternate or additional model clauses would be helpful to 
borrowers and servicers.
    Clauses in Model MS-4(D) illustrate how a servicer may explain 
foreclosure and provide the estimated number of days in which the 
servicer may begin the foreclosure process, as would be required under 
proposed Sec.  1024.39(b)(2)(v). Clauses in Model MS-4(E) illustrate 
how the servicer may provide contact information for the State housing 
finance authority and housing counselors, as would be required under 
proposed Sec.  1024.39(b)(2)(vi).
    As discussed above, proposed comment MS-2 is intended to affirm 
that the servicer has flexibility in complying with the proposed 
disclosure requirement in proposed paragraphs (b)(1) and (b)(2) of 
Sec.  1024.39. The servicer may comply by using language substantially 
similar to the language in the model clauses or by substituting 
applicable loss mitigation options not represented in the model 
clauses, as long as the information required to be disclosed is clear 
and conspicuous, as

[[Page 57274]]

would be required by proposed Sec.  1024.32, discussed above.
    The Bureau developed the clauses in proposed MS-4(C), MS-4(D), and 
MS-4(E) based on its analysis and review of existing notices for 
delinquent borrowers, such as the HUD ``Avoiding Foreclosure'' 
pamphlet.\192\ The Bureau has not yet tested the clauses in proposed 
Models MS-4(A), MS-4(B), MS-4(C), MS-4(D), and MS-4(E) with borrowers. 
The Bureau requests comment on whether consumer testing of these 
clauses is necessary and whether the Bureau should consider modifying, 
deleting, or adding any proposed clauses for these models. The Bureau 
is also considering integrating these model clauses into a model form, 
and the Bureau requests comment on what format would most effectively 
convey the proposed content in proposed Sec.  1024.39(b)(2).
---------------------------------------------------------------------------

    \192\ See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G).
---------------------------------------------------------------------------

    Legal authority. The Bureau proposes to exercise its authority 
under RESPA sections 6(j)(3), 6(k)(1)(E), and 19(a) to add new appendix 
MS-4 to Regulation X.

VII. Section 1022(b)(2) Analysis

    In developing the proposed rule, the Bureau has considered 
potential benefits, costs, and impacts, and has consulted or offered to 
consult with the prudential regulators, HUD, the Federal Emergency 
Management Agency, FHFA, and the Federal Trade Commission, with respect 
to consistency with any prudential, market, or systemic objectives 
administered by such agencies.\193\ The Bureau also held discussions 
with or solicited feedback from the United States Department of 
Agriculture Rural Housing Service, the Farm Credit Administration, the 
Federal Housing Administration, Ginnie Mae, and the Department of 
Veterans Affairs regarding the potential impacts of the proposed rule 
on those entities' loan or securitization programs.
---------------------------------------------------------------------------

    \193\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
calls for the Bureau to consider the potential benefits and costs of 
a regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products or services; the impact on depository institutions and 
credit unions with $10 billion or less in total assets as described 
in section 1026 of the Dodd-Frank Act; and the impact on consumers 
in rural areas.
---------------------------------------------------------------------------

    As discussed in greater detail elsewhere throughout this 
SUPPLEMENTARY INFORMATION, in this rulemaking, the Bureau proposes to 
amend Regulation X, which implements RESPA, as part of the Bureau's 
implementation of the Dodd-Frank Act amendments to RESPA regarding 
mortgage loan servicing. The proposed amendments to Regulation X 
implement section 1463 of the Dodd-Frank Act, which imposes obligations 
on servicers with respect to resolving errors and responding to 
requests for information from mortgage loan borrowers, and to ensure 
that a reasonable basis exists to obtain force-placed insurance.
    In addition, the proposal includes additional amendments to 
Regulation X to impose servicer obligations the Bureau has found, 
pursuant to authority under RESPA section 6, as amended by the Dodd-
Frank Act, to be appropriate to carry out the consumer protection 
purposes of RESPA. These additional amendments are not specifically 
required by the Dodd-Frank Act and consist of obligations to: Establish 
reasonable information management policies and procedures; undertake 
early intervention with delinquent borrowers; provide delinquent 
borrowers with continuity of contact with staff equipped to assist 
them; and follow certain procedures when evaluating loss mitigation 
applications.
    The proposal would also reorganize and amend the mortgage servicing 
related provisions of Regulation X, currently published in 12 CFR 
1024.21. Such amendments relate to, for example, disclosures of 
mortgage servicing transfers and servicer obligations to borrowers, and 
a servicer's obligation to manage escrow accounts, including the 
obligation to advance funds to an escrow account to maintain a 
borrower's hazard insurance coverage and to return escrow balances when 
a mortgage loan is paid off in full. Further, the Bureau also proposes 
to set forth a commentary that includes official Bureau interpretations 
of Regulation X.
    Elsewhere in today's Federal Register, the Bureau is also 
publishing a proposed rule under TILA to amend Regulation Z (12 CFR 
part 1026). The proposed amendments to Regulation Z implement the 
following sections of the Dodd-Frank Act: Section 1418 (initial rate-
adjustment notice for adjustable-rate mortgages (ARMs)), section 1420 
(periodic statement), and section1464 (prompt crediting of mortgage 
payments and response to requests for payoff amounts). The proposed 
rule would also revise certain existing regulatory requirements in 
Regulation Z for disclosing rate and payment changes to ARMs in current 
Sec.  1026.20(c).
    As discussed in greater detail elsewhere in this SUPPLEMENTARY 
INFORMATION, the recent financial crisis exposed pervasive consumer 
protection problems across major segments of the mortgage servicing 
industry. As a result of these problems, Congress included in the Dodd-
Frank Act the provisions that specifically address mortgage servicing. 
The new protections in the rules proposed under RESPA and TILA would 
significantly improve the transparency of mortgage loans after 
origination, provide substantive protections to consumers, enhance the 
ability of consumers to obtain information from and dispute errors with 
servicers, and provide consumers, particularly delinquent consumers, 
with better customer service when dealing with servicers.

A. Provisions To Be Analyzed

    The analysis below considers the potential benefits, costs, and 
impacts of the following major proposed provisions:
    1. Requirements regarding obtaining force-placed insurance 
policies, including disclosures to borrowers.
    2. Procedures regarding error resolution and requests for 
information.
    3. Requirements to establish reasonable information management 
policies and procedures.
    4. Procedures for early intervention with delinquent borrowers.
    5. Procedures for continuity of contact with delinquent borrowers.
    6. Requirements regarding loss mitigation procedures.
    With respect to each major proposed provision, the analysis 
considers the benefits and costs to consumers and covered persons. The 
analysis also addresses certain alternative provisions that were 
considered by the Bureau in the development of the rule. The Bureau 
requests comment on the analysis of the potential benefits, costs, and 
impacts of the proposal.

B. Baseline for Analysis

    The amendments to RESPA in section 1463 of the Dodd-Frank Act take 
effect automatically on January 21, 2013, unless final rules are issued 
on or before that date. However, no additional obligations are imposed 
under section 6(k)(1)(E) of RESPA, as amended by the Dodd-Frank Act, 
unless the Bureau adopts implementing regulations. Specifically, the 
provisions of the proposed rule that impose obligations on servicers to 
correct errors asserted by mortgage loan borrowers, to provide 
information requested by such borrowers, and to ensure that a 
reasonable basis exists to obtain force-placed insurance implement 
statutory amendments to RESPA that take effect automatically. Thus, 
many costs and benefits of the provisions of the proposed rule with 
respect to these self-executing provisions would arise largely

[[Page 57275]]

or entirely from the statute, and not from the Bureau's proposed 
provisions. These provisions of the proposed rule would provide 
substantial benefits compared to allowing the RESPA amendments to take 
effect automatically by clarifying parts of the statute that are 
ambiguous. Greater clarity on these issues should reduce the compliance 
burdens on covered persons by, for example, reducing costs for 
attorneys and compliance officers as well as potential costs of over-
compliance and unnecessary litigation. Moreover, the costs that these 
provisions would impose beyond those imposed by the statute itself are 
likely to be minimal.
    Section 1022 of the Dodd-Frank Act permits the Bureau to consider 
the benefits, costs and impacts of the proposed rule solely compared to 
the state of the world in which the statute takes effect without 
implementing regulations. To provide the public better information 
about the benefits and costs of the statute, however, the Bureau has 
chosen to consider the benefits, costs, and impacts of the major 
provisions of the proposed rule (i.e., the benefits, costs, and impacts 
of the relevant provisions of the Dodd-Frank Act and the regulation 
combined) against a pre-statutory baseline.
    As discussed above, the Dodd-Frank Act also gives the Bureau 
discretionary authority to develop additional mortgage servicing rules 
in Regulation X, which the Bureau is relying on to propose to require 
servicers to: Establish reasonable information management policies and 
procedures; undertake early intervention with delinquent borrowers; 
provide delinquent borrowers with continuity of contact with staff 
equipped to assist them; and follow certain procedures when evaluating 
loss mitigation applications. Since section 1463 of the Dodd-Frank Act 
does not specifically impose these obligations on servicers, the pre-
statute and post-statute baseline are the same. The Bureau has 
discretion in future rulemakings to choose the most appropriate 
baseline for that particular rulemaking.

C. Coverage of the Proposal

    Each proposed provision covers certain closed-end mortgages, as 
described further in each section below.

D. Data Limitations and Quantification of Benefits, Costs and Impacts

    The analysis relies on data that the Bureau has obtained from 
industry, other regulatory agencies, and publicly available sources. 
However, as discussed further below, the data are generally limited 
with which to quantify the potential costs, benefits, and impacts of 
the proposed rule.
    Regarding the costs to covered persons, the proposed rule generally 
establishes certain standards for servicer operations. In order to 
quantify the costs to covered persons, the Bureau would need 
representative data on the extent to which servicer operations 
currently do not comply with the proposed rule. The Bureau has little 
data on this issue, and does not believe that it is feasible to 
initiate a substantial collection of representative data in the time 
available for this rulemaking. However, the Bureau continues to seek 
data regarding the extent to which servicer operations currently do not 
comply with the proposed rule. Furthermore, even with this data, the 
Bureau would need information on the cost of changing current servicer 
practices in order to quantify the cost of closing any gaps between 
current practices and those mandated by the proposed rule. The Bureau 
has obtained some information about the cost of improving servicer 
operations, and the discussion below uses this information to quantify 
certain costs of the proposed rule, but these calculations do not fully 
quantify the costs to covered persons of the proposed rule. The Bureau 
continues to seek data from available sources regarding the costs of 
improving servicer operations, as specified by the proposed rule, in 
order to quantify the costs to covered persons of the proposed rule.
    The lack of data on the extent to which servicer operations 
currently do not comply with the proposed rule also makes it difficult 
to quantify the benefits of the proposed rule to consumers. However, 
quantifying benefits presents additional challenges. As discussed 
further below, certain proposed provisions may directly save consumers 
time and money but others may benefit consumers in a more indirect way, 
by, for example, facilitating household budgeting, supporting the 
consumer's ability to obtain credit, and reducing default and avoidable 
foreclosure. Quantifying these benefits and monetizing them would 
require a wide range of data that cannot be collected in the time frame 
for this rulemaking. The Bureau continues to seek data from available 
sources regarding the benefits to consumers of the proposed rule.
    Similar issues to those just described arise in quantifying the 
benefits to covered persons of the proposed rule and in quantifying the 
costs to consumers. Certain benefits to covered persons are difficult 
to quantify. For example, as discussed in greater detail below in the 
discussion about force-placed insurance, it is difficult to quantify 
the benefit servicers receive from reduced interest expenses when they 
advance their own funds to pay for force-placed insurance. Certain 
costs to consumers are difficult to quantify, such as the extent to 
which costs imposed on servicers may be passed through to consumers.
    In light of these data limitations, the analysis below generally 
provides a qualitative discussion of the benefits, costs, and impacts 
of the proposed rule. General economic principles, together with the 
limited data that are available, provide insight into these benefits, 
costs, and impacts. Where possible, the Bureau has made quantitative 
estimates based on these principles and the data that are available.

E. Potential Benefits and Costs to Consumers and Covered Persons

1. Requirements Regarding Obtaining Force-Placed Insurance Policies
    Dodd-Frank Act section 1463 amends RESPA to prohibit a servicer of 
a federally related mortgage from obtaining force-placed insurance 
unless there is a reasonable basis to believe the borrower has failed 
to comply with the loan contract's requirements to maintain property 
insurance. In addition, the statute sets forth a mandatory process 
servicers must follow when they force-place insurance. The process 
includes sending the borrower two written notices before imposing any 
charge on a borrower for force-placed insurance. The statute also 
provides process requirements for terminating force-placed insurance 
and refunding force-placed insurance premium charges and related fees 
paid during any period during which the borrower's hazard insurance 
coverage and the force-placed insurance coverage were each in effect.
    The Bureau is proposing model forms for the force-placed insurance 
notices to be sent to borrowers. The Bureau is also proposing 
requirements concerning: Charges related to force-placed insurance, 
payment of the borrower's hazard insurance premiums from escrow, and 
notice requirements when servicers renew existing force-placed 
insurance policies.
    Benefits and costs to consumers. Borrowers pay for force-placed 
insurance but do not select the insurance provider. Thus, the market 
for force-placed insurance may not fully reflect the interests of 
borrowers in minimizing force-placement and the amount of time force-
placed insurance is in effect. In particular, the proposed force-placed 
insurance disclosures and procedures may reduce borrowers

[[Page 57276]]

paying for unnecessary force-placed insurance or the length of time 
during which borrowers pay for such insurance.
    The Bureau does not have representative data with which to quantify 
the extent to which industry currently complies with the proposed 
force-placed insurance provisions or the extent to which additional 
compliance would reduce the need for force placement or the duration of 
force placement; however, as discussed in greater detail below, the 
Bureau understands that many servicers already comply with the proposed 
procedures with respect to sending borrowers notices before charging 
borrowers for force-placed insurance and canceling force-placed 
insurance after verifying that borrower has obtained hazard insurance 
coverage. Moreover, even a small reduction in force placement may 
provide consumers with substantial benefits. In 2009, the average 
premium for homeowner's insurance was $880 while force-placed insurance 
cost about twice this amount.\194\ Thus, a homeowner who pays force-
placed insurance for one to six months pays an additional $73 to $440 
dollars.\195\ If the provisions of the proposed rule reduced force-
placement by just 10%, approximately 171,000 homeowners would save 
between $7.6 million and $45.8 million in unnecessary premiums each 
year.\196\
---------------------------------------------------------------------------

    \194\ For the average homeowner's insurance premium, see data 
provided by Insurance Institute of America, available at: http://www.iii.org/facts_statistics/homeowners-and-renters-insurance.html. 
For information on the cost of force-placed insurance, see http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News 
(reporting force-placed insurance costs 1.5 to 2 times hazard 
insurance).
    \195\ That is to say, the homeowner pays one-twelfth to one-half 
of the additional $880.
    \196\ Discussions with industry suggest that 2% of mortgages 
incur force-placement each year and there are approximately 52 
million first liens, so about 1.04 million homeowners incur force-
placement each year. Ten percent of this figure multiplied by $73 
(or $440) gives $7.6 million (or $45.8 million).
---------------------------------------------------------------------------

    The following discussion provides a qualitative analysis of the 
benefits to borrowers of the proposed force-placed insurance 
disclosures and procedures. In each case, as discussed previously, the 
Bureau understands that certain servicers may already comply with some 
of the proposed procedures. The Bureau believes that for a borrower in 
the specified situation and with a servicer that does not comply with 
some of the proposed procedures, full compliance would provide 
important additional consumer benefits.
    For purposes of qualitative analysis, it is useful to first divide 
borrowers into those with insurance that has been force-placed by a 
servicer and those with hazard insurance coverage obtained by the 
borrower. Of those with borrower-obtained hazard insurance, it is 
useful to sub-divide this group into three additional groups: those 
with hazard insurance that is not about to lapse; those with hazard 
insurance that is about to lapse and who have the funds to renew 
(whether the funds are kept in an escrow account or elsewhere); and 
those with hazard insurance that is about to lapse and who do not have 
the funds to renew. The proposed force-placed insurance disclosures and 
procedures may provide different benefits to borrowers depending on the 
group to which they belong.
    Borrowers with force-placed insurance would likely benefit from the 
proposed requirements regarding renewal of force-placed insurance, 
evidence of hazard insurance, cancellation of force-placed insurance, 
and limitations on charges related to force-placed insurance. The 
proposed rule would require servicers to send a renewal notice once 
every 12 months, accept insurance information provided by the borrower 
to verify whether or not the borrower has hazard insurance in place, 
cancel force-placed insurance and refund the borrower for any period of 
overlapping coverage within 15 days of receiving verification that the 
borrower has obtained hazard insurance. For a borrower in the situation 
described and with a servicer that does not currently comply with some 
of the proposed procedures, full compliance may reduce both the amount 
of time the borrower has force-placed insurance and the cost to the 
borrower of paying for force-placed insurance.
    Consider next a borrower who has hazard insurance that is not about 
to lapse, but the servicer for some reason believes it is about to 
lapse and begins the process of force-placing insurance. The proposed 
rule would require the servicer to send the borrower two notices before 
charging the borrower for force-placed insurance. The proposed 
disclosures may prompt the borrower to contact the servicer with their 
insurance information. By possibly prompting the borrower to 
communicate with the servicer and provide the servicer with information 
to verify that the borrower has hazard insurance in place, the proposed 
rule may reduce the chance that a borrower in the situation described 
would pay for force-placed insurance.
    Consider next a borrower who has a hazard insurance policy that is 
about to lapse and has the funds to renew the insurance. If the funds 
are not in an escrow account, then the borrower may fail to properly 
renew the insurance. The proposed force-placed insurance procedures 
would not require the servicer to renew the hazard insurance of a 
borrower who does not have an escrow account established to pay the 
borrower's hazard insurance; however, the servicer would have to 
provide the two proposed notices before charging such borrower for 
force-placed insurance. The Bureau undertook three rounds of 
qualitative testing of the proposed notices, and participants said that 
if they received force-placed insurance notices like the ones the 
Bureau is proposing, they would immediately contact their insurance 
provider to find out whether or not their hazard insurance was still in 
force. For a borrower in this situation and for whom the mortgage loan 
is serviced by a servicer that does not currently provide notices that 
meet the proposed content and form requirements, full compliance with 
the proposed requirements may reduce the chance that the borrower would 
pay for unnecessary force-placed insurance. If the borrower's insurance 
does lapse, full compliance with the proposed requirements regarding 
renewal of force-placed insurance, evidence of hazard insurance and 
cancellation of force-placed insurance may reduce both the amount of 
time the borrower has force-placed insurance and the cost to the 
borrower of paying for force-placed insurance.
    Finally, consider a borrower who has hazard insurance that is about 
to lapse and does not have the funds to renew the insurance. If this 
borrower has an escrow account with insufficient funds to pay his or 
her hazard insurance premium charges, the servicer is currently 
required under Regulation X to advance funds for the timely payment of 
escrowed items as long as the borrower's payment is not more than 30 
days overdue. For a borrower in the situation described and with a 
servicer that is not complying with the proposed procedure, full 
compliance would greatly reduce the possibility that the borrower's 
hazard insurance was canceled for nonpayment and accordingly, the 
chance that the borrower would pay for force-placed insurance. If the 
borrower does not have an escrow account and the servicer obtains 
force-placed insurance, but the borrower later acquires the funds to 
obtain hazard insurance, full

[[Page 57277]]

compliance with the proposed requirement to cancel force-placed 
insurance within 15 days of receiving verification that the borrower 
has obtained hazard insurance may reduce the amount of time force-
placed insurance is in effect.
    The proposed rule also provides requirements on the renewal or 
replacement of force-placed insurance, including a disclosure to 
consumers. Specifically, a servicer may not charge a borrower for 
renewing or replacing pre-existing force-placed insurance unless: (1) 
The servicer delivers or places in the mail a written notice to the 
borrower with specified disclosures at least 45 days before the premium 
charge or any fee is assessed; and (2) during the 45-day notice period, 
the servicer has not received evidence that the borrower has obtained 
hazard insurance. The proposed disclosure includes the cost of the 
insurance (or a good faith estimate) and statements to the effect that 
the servicer has previously obtained the insurance, charged the 
borrower for the insurance, and has the right to maintain the 
insurance. The proposed rule also provides certain formatting 
requirements on the disclosure.
    The Bureau's proposal may help borrowers avoid the cost associated 
with the renewal or replacement of pre-existing force-placed insurance 
by both alerting borrowers to the impending charge and conditioning the 
ability of servicers to charge borrowers for renewal or replacement of 
pre-existing force-placed insurance on properly providing the specified 
disclosures. The disclosures may benefit certain borrowers by providing 
them with the information they need to purchase hazard insurance before 
being charged for renewal or replacement of force-placed insurance. 
Conditioning the ability of servicers to charge borrowers for renewal 
or replacement on the provision of the disclosures facilitates 
compliance with the disclosure requirement. As discussed previously, 
incentives like commissions paid to servicers or their insurance 
affiliates may cause servicers to prefer renewing or replacing pre-
existing force-placed insurance coverage over providing borrowers with 
an opportunity to obtain hazard insurance.
    The Bureau does not believe that the requirements with respect to 
force-placed insurance will impose any significant costs to borrowers 
for the following reasons: (1) As discussed above, the Bureau 
understands that only approximately two percent of mortgages incur 
force-placed insurance annually; and (2) as discussed below, many 
servicers already comply with the proposed disclosures with respect to 
sending borrowers notices before charging borrowers for force-placed 
insurance and the proposed requirement that the they cancel force-
placed insurance after verifying that the borrower has obtained hazard 
insurance coverage.
    Benefits and costs to covered persons. The Bureau believes that the 
proposed force-placed insurance disclosures and procedures may provide 
certain benefits to servicers. For example, the model forms the Bureau 
is providing servicers may reduce servicers' compliance cost. Servicers 
may also benefit from any reduction in the need to obtain force-placed 
insurance. Servicers advance their own funds to pay for force-placed 
insurance. While servicers have priority in recovering these funds 
either from the homeowner or when the property is sold in foreclosure, 
they do not recover interest on these advances, like the advances for 
the force-placed insurance premium charge.\197\
---------------------------------------------------------------------------

    \197\ See e.g., Levitin and Twomey, 28 Yale J. on Reg. 48 (2011) 
(explaining that servicing advances, which include advances for 
taxes and insurance, are costly to servicers because they are do not 
recover interest on the advances) .
---------------------------------------------------------------------------

    The Bureau notes that the owners or assignees of mortgage loans may 
also benefit from the proposed force-placed insurance disclosures and 
procedures. As discussed in part VI, above, force-placed insurance is 
often significantly more expensive than hazard insurance obtained by 
the borrower. If the property ultimately goes to foreclosure and the 
loan is liquidated, servicers get compensated for advancing charges 
related to force-placed insurance before owner or assignee of the 
mortgage loan is paid.\198\ Thus, the additional cost of force-placed 
insurance produces an additional expense to such persons, who benefit 
when this additional expense is minimized. To the extent the proposed 
rule reduces the frequency and duration of lapses in hazard insurance 
obtained by the borrower, owners or assignees of mortgage loans benefit 
along with borrowers.
---------------------------------------------------------------------------

    \198\ See Diane Thompson, Foreclosure Modifications: How 
Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 
755, 816-20 (2011).
---------------------------------------------------------------------------

    Based on discussions with industry, the Bureau understands that 
servicers generally provide borrowers with multiple notices before 
charging a borrower for force-placed insurance. Thus, the additional 
cost of the proposed force-placed insurance disclosures notice would 
most likely be the one-time cost of developing the form to conform with 
the Bureau's proposed regulations. The force-placed insurance 
disclosure would require minimal customization to each loan, but there 
may be some additional cost associated with providing the borrower with 
the cost or a good faith estimate of the cost of force-placed 
insurance, stated as an annual premium. The Bureau requests additional 
information about the force-placed insurance disclosures that servicers 
currently provide and the incremental cost of complying with the 
proposed force-placed insurance disclosure requirement.
    The Bureau understands that many servicers generally terminate 
force-placed insurance coverage and refund to borrowers any premiums 
charged during any period when the borrower had borrower-obtained 
insurance coverage in place. The Bureau does not believe that complying 
with the remaining proposed procedures--including the provision of the 
force-placed insurance renewal notice--would impose substantial 
incremental costs on servicers. However, the Bureau continues to 
examine this issue and to collect data and other relevant 
information.\199\
---------------------------------------------------------------------------

    \199\ Furthermore, as discussed in greater detail in part VI, 
above, servicers already are subject to a disclosure regime with 
some similar characteristics when obtaining force-placed flood 
insurance as required by the FDPA. The presence of these systems may 
make it less costly for servicers to comply with the Bureau's 
proposed procedures for force-placed insurance, since systems are in 
place that could be adapted outside the force-placed flood insurance 
context.
---------------------------------------------------------------------------

    Finally, the Bureau recognizes that the proposed force-placed 
insurance provisions may produce a number of changes in how force-
placed insurance is provided and paid for. The Bureau understands that 
currently some servicers incur all of the costs associated with 
providing force-placed insurance notices, tracking borrower coverage, 
and placing and terminating the insurance. For other servicers, the 
Bureau understands that the force-placed insurance provider handles 
these activities and absorbs the costs or passes them on to the 
borrower. The proposed force-placed insurance provisions may reduce the 
frequency with which servicers obtain force-placed insurance. This 
would most likely reduce total payments by borrowers to servicers and 
force-placed insurers, even if the cost to insure the remaining 
borrowers increased, since there would be fewer transactions and fees. 
On the other hand, a reduction in the frequency with which force-placed 
insurance is provided may also reduce commission income that in some 
cases is paid by insurers to servicers or their insurance affiliates, 
and a reduction in payments to force-placed insurance providers may

[[Page 57278]]

reduce providers' willingness to perform the tracking and other 
activities stated above as part of the service. The Bureau continues to 
examine how the proposed force-placed insurance provisions may affect 
covered persons. The Bureau asks interested parties to provide general 
information, data, and research results that are relevant to this 
issue.
2. Procedures Regarding Error Resolution and Requests for Information
    Section 1463 of the Dodd-Frank Act amends section 6 of RESPA by 
adopting a number of servicer prohibitions with respect to handling 
asserted errors and inquiries. These include (1) servicer obligations 
to respond to certain types of errors, (2) amendments to the timeframe 
for responding to qualified written requests and associated penalties 
for failure to comply, and (3) a prohibition on servicers charging fees 
in connection with valid qualified written requests.
    The Bureau is using its authority in RESPA to propose a 
comprehensive set of requirements for investigating and correcting 
errors and for responding to borrower inquiries that incorporates the 
amendments to RESPA in the Dodd-Frank Act. In addition to the current 
requirements to address errors relating to servicing through Qualified 
Written Requests, servicers would be required to correct errors 
relating to, among other things, allocating payments, providing an 
accurate payoff balance, failure to suspend a scheduled foreclosure 
sale while, for example, the borrower is performing under an agreement 
on a loss mitigation options. Servicers also would be required to 
respond to inquiries about a borrower's mortgage loan account, whether 
or not a borrower has complied with the requirements for submitting a 
Qualified Written Request.
    Servicers would have to provide borrowers with a written 
acknowledgement of receiving a notice of error within five days 
(excluding legal public holidays, Saturdays and Sundays) of receipt of 
the notice of error, unless the servicer corrects the error within such 
time and the borrower is notified of the correction in writing. 
Servicers would have to correct the error and notify the borrower of 
such correction, or conduct a reasonable investigation and provide the 
borrower with written notification regarding the investigation and the 
documents relied upon by the servicer. Generally, with the exception of 
certain types of errors, the investigation would have to be completed 
and a response provided within 30 days (excluding legal public 
holidays, Saturdays and Sundays) after receipt of the notice of error.
    The Bureau is proposing substantially similar requirements to apply 
to inquiries. For example, servicers would have to provide borrowers 
with written acknowledgement of receiving an information request, 
unless the servicer provides the borrower with the information 
requested and with contact information for further assistance within 
five days (excluding legal public holidays, Saturdays and Sundays). 
Servicers would have to provide the borrower with the requested 
information or conduct a reasonable search for the information and 
provide the borrower with a written notification regarding the search. 
Generally, with the exception of certain types of information requests, 
the information or a notification stating that the servicer has 
determined the requested information is not available to the servicer 
would have to be provided within 30 days after receipt of the 
information request.
    Benefits and costs to consumers-error resolution. As explained in 
part VI, above, each of the nine proposed enumerated errors would 
results from a failure by the servicer to perform a typical servicer 
duty. The proposed error resolution procedures would require that 
servicers, in a timely manner, correct these errors or investigate and 
explain to the borrower why no error has occurred.
    The Bureau has conducted outreach with servicers regarding alleged 
errors. One servicer estimates that it receives 1,850 allegations of 
error per month on a portfolio of about 300,000 loans; another 
estimates about the same number on a portfolio of about 1 million 
loans. However, the Bureau currently does not have data on the nature 
of the alleged errors, the extent to which servicers already comply 
with the proposed error resolution procedures, or the benefit to 
borrowers from full compliance. Thus, the Bureau does not have the data 
necessary to quantify the benefits to borrowers of the proposed error 
resolution procedures.\200\
---------------------------------------------------------------------------

    \200\ See, however, the general discussion of servicing 
operations and avoidable foreclosure in the analysis of the proposed 
provisions on reasonable information management, infra.
---------------------------------------------------------------------------

    Although the Bureau does not have the data necessary to quantify 
the benefits to borrowers of the proposed error resolution procedures, 
the Bureau believes that the benefits may be substantial. Some of the 
enumerated errors concern basic duties that servicers should generally 
perform every month for every borrower (e.g., accept conforming 
payments, properly apply payments as required under the terms of the 
mortgage loan, pay taxes and insurance, etc.). The Bureau understands 
that servicers currently perform them. Other enumerated errors, 
however, concern duties regarding delinquent borrowers and the transfer 
of mortgage loan account information to other servicers. Under the 
proposed rule, it would be an error for a servicer to fail to provide 
accurate information to a borrower with respect to loss mitigation 
options and foreclosure or to fail to suspend a scheduled foreclosure 
sale when, for example, the borrower is performing under a loss 
mitigation agreement. It also would be an error for a servicer to fail 
to transfer information to a transferee servicer relating to the 
servicing of a borrower's mortgage loan account in an accurate and 
timely manner. Servicers may not have uniformly investigated and 
corrected these errors, as the proposal would require them to. These 
errors have the potential to impose substantial financial and other 
costs on consumers. Thus, the proposed requirements to investigate 
allegations that servicers have committed these errors and to correct 
these errors (when found) may provide substantial benefits to certain 
consumers.
    More generally, the Bureau notes that borrowers do not choose their 
servicer, except indirectly by choosing their lender. Even if borrowers 
choose their servicer at origination, perhaps by seeking a lender that 
services the loans it originates, the borrower cannot subsequently 
choose a different servicer if the quality of servicing is 
unsatisfactory. Thus, the market for servicing may not fully reflect 
the interests of borrowers in having robust error resolution 
procedures. While certain servicers may nonetheless reliably perform 
their duties, the recent financial crisis suggests that for some, the 
incentives to do so were lacking.
    Benefits and costs to consumers--requests for information. The 
Bureau has conducted outreach with servicers regarding requests for 
information. One servicer estimates that it receives 70,000 phone calls 
a month on portfolio of 300,000 loans; another estimates 160,000 phone 
calls per month on a portfolio of about 1 million loans. The vast 
majority of these calls are inquiries and the most common inquiry is 
whether the servicer has received the borrower's payment. The Bureau 
currently does not have data on the nature of the other inquiries, the 
extent to which servicers already comply with the proposed procedures 
regarding inquiries, or the benefit to borrowers

[[Page 57279]]

from full compliance. Thus, the Bureau does not have the data necessary 
to quantify the benefits to borrowers of the proposed procedures 
regarding inquiries.\201\ The Bureau requests interested parties to 
provide data, research, and other information that may inform the 
further consideration of this issue.
---------------------------------------------------------------------------

    \201\ See, however, the general discussion of servicing 
operations and avoidable foreclosure in the analysis of the proposed 
provisions on reasonable information management.
---------------------------------------------------------------------------

    The Bureau understands that the servicer is a convenient source of 
certain information (e.g., details about the terms of the loan, the 
annual amount of interest paid, the remaining mortgage balance) and may 
be the only source of other information (e.g., the date a payment was 
received or a disbursement from escrow was made, the new payment on an 
adjustable rate mortgage). This information provides many benefits to 
borrowers, both by facilitating household budgeting in the near term 
and over time and by allowing borrowers to forestall or correct 
problems (e.g., by verifying that payments were received or taxes and 
insurance were paid from escrow). The fact that borrowers go to the 
trouble of requesting information from servicers indicates that they 
recognize some benefit from having the information.
    More generally, as discussed above, the Bureau notes that borrowers 
do not choose their servicer, except indirectly, by choosing their 
lender. Even if borrowers choose their servicer at origination, perhaps 
by seeking a lender that services the loans it originates, the borrower 
cannot subsequently choose a different servicer if the quality of 
servicing is unsatisfactory. Thus, the market for servicing may not 
fully reflect the interests of borrowers in having robust procedures 
for responding to inquiries. While certain servicers may nonetheless 
reliably perform their duties, the recent crisis suggests that for 
some, the incentives to do so were lacking.
    Benefits and costs to covered persons. The Bureau understands that 
certain servicers may already comply with many of the proposed 
procedures regarding error resolution and response to inquiries.\202\ 
Further, certain proposed provisions are intended to mitigate the costs 
of complying with the proposed procedures. The Bureau proposes that 
errors and information requests that are resolved within five days do 
not require written acknowledgement of receipt of a notice of error or 
information request. The Bureau believes that the proposed provisions, 
including the proposed finite list of errors, provide clarity regarding 
servicer duties. Clarity mitigates one-time compliance costs for 
servicers that would otherwise pay for additional legal advice 
regarding compliance with the rule or would perform activities that 
were not in fact required by the rule.
---------------------------------------------------------------------------

    \202\ For example, erroneous information furnished by servicers 
to a consumer reporting agency are a type of covered error 
specifically included in the proposed rule. See proposed Sec.  
1024.35(b)(iii). Servicers who furnish erroneous information to a 
consumer reporting agency are already required to handle disputes 
about this information under the Fair Credit Reporting Act. These 
preexisting obligations under the Fair Credit Reporting Act will 
make it less costly for servicers to implement the changes in this 
rule since they should already have systems in place that can be 
adapted outside the context of errors about information furnished to 
consumer reporting agencies.
---------------------------------------------------------------------------

    As discussed in part VI, above, the Bureau considered the impact of 
the proposed error resolution requirements if the types of errors were 
not limited. The Bureau believes that the added costs and burden 
created by having an open-ended definition of an error could 
substantially increase the costs to servicers with limited additional 
benefit to consumers. The Bureau further believes that requiring 
servicers to respond to potentially any assertion of an error could, as 
a practical matter, lead to servicers using disproportionate resources 
to respond to every asserted error. That practice may cause servicers 
to expend fewer resources to address errors that may be far more 
significant to borrowers.
    The Bureau further considered whether to define as a covered error 
a servicer's failure to accurately and timely provide a disclosure to a 
borrower as required by applicable law. The Bureau determined that such 
a failure was not appropriate as a covered error because the 
information request provisions provide the borrower the ability to 
obtain the underlying information. Further, the Bureau believes that a 
servicer's action to attempt to correct the failure, such as by sending 
the disclosure after the deadline, would not actually correct the error 
and would not be helpful or useful to borrowers. In that circumstance, 
the error resolution request would create burden and impose costs on 
servicers without offering concomitant benefit for borrowers.
    Although certain servicers may already comply with many of the 
proposed procedures, the Bureau understands that some of these proposed 
procedures may impose one-time and ongoing compliance costs on 
servicers. The Bureau asks interested parties to provide specific 
information about the proposed requirements for error resolution and 
requests for information with which servicers are not already in 
compliance and the costs of coming into compliance.
3. Reasonable Information Management Policies and Procedures
    The Bureau is using its authority in RESPA to propose requirements 
on the information management practices of servicers. The proposed rule 
specifies that a servicer's information management practices need to 
address objectives broadly categorized as: Accessing and providing 
accurate information relating to a borrower's account; evaluating 
borrowers for loss mitigation options; facilitating oversight of, and 
compliance by, service providers; and facilitating servicing transfers. 
The reasonableness of a servicer's policies and procedures would be 
determined in part by the nature and scope of the servicer's 
operations, characteristics of the servicing portfolio, and the 
servicer's history of consumer complaints.
    Benefits and cost to consumers. The Bureau recognizes that 
borrowers who make timely and conforming payments every period and 
whose payments are correctly and timely posted by the servicer and 
disbursed to third parties as appropriate may rarely need any new 
information from the servicer. The servicer of these loans generally 
requires only enough information about the loan to properly credit the 
payment to principal, interest, taxes and insurance; or in the case of 
adjustable rate mortgages, to change the amount due and change the 
crediting to principal and interest. However, a substantial number of 
borrowers do not make timely and conforming payments. One large 
database of first-lien residential mortgages shows that in each of the 
five quarters ending with the last quarter of 2011, between 10% and 15% 
of mortgages failed to be current and performing.\203\ This represents 
between 3.1 million and 4.7 million loans.\204\ The borrowers with 
these mortgages likely face difficult decisions about budgeting limited 
household resources and may require detailed and accurate information 
about what they owe, their loss mitigation options, and the 
consequences of different choices.
---------------------------------------------------------------------------

    \203\ See Office of the Comptroller of Currency, OCC Mortgage 
Metrics Report, Fourth Quarter 2011, at 12 (Table 1) (2012).
    \204\ There are 31.4 million loans in the database, which is 60% 
of all first-lien residential mortgages outstanding. Id., at 8.
---------------------------------------------------------------------------

    For reasons discussed above, the Bureau does not have 
representative

[[Page 57280]]

data with which to quantify the extent to which industry currently 
complies with the proposed reasonable information management 
procedures, the extent to which additional compliance would provide 
additional benefits to consumers, or the monetary value of those 
additional benefits to consumers. However, it is possible to provide a 
rough estimate of a key consumer benefit--a reduction in avoidable 
default (i.e., 90 day delinquency)--that may be attributed collectively 
to the proposed provisions regarding error resolution and requests for 
information, reasonable information management, early intervention, and 
continuity of contact.
    These benefits are discussed as part of reasonable information 
management for two reasons. First, the proposed provisions on 
reasonable information management include a requirement that a borrower 
must be able to receive an accurate and timely evaluation for a loss 
mitigation option. Thus, reasonable information management may reduce 
avoidable or unnecessary foreclosures. Second, reasonable information 
management facilitates compliance with the other proposed provisions 
listed above, all of which could help delinquent borrowers. A servicer 
that could not access accurate and timely information relating to a 
borrower's account would likely have difficulty providing accurate 
information with respect to loss mitigation options and foreclosure 
(consistent with the proposed provisions on error resolution), 
notifying a borrower that he or she is late with a payment (as would be 
required by the proposed provisions on early intervention), and 
accessing a complete record of the borrower's payment history (as 
required by the proposed provisions on continuity of contact).
    The estimate of avoidable default relies on a study of the 
performance of approximately 28,000 housing loans tracked from 
September 1998 to December 2004 (and originated prior to December 
2003).\205\ Most of the loans were serviced by eight servicers. After 
restricting the sample to loans that at some point experience a 30-day 
delinquency, the authors use regression analysis to isolate the impact 
each servicer has on the probability a loan ever reaches 90-day 
delinquency (which they define as ``default''). The authors show that 
there are significant differences among the services in the probability 
a loan defaults, even after controlling for borrower credit score and 
income, certain characteristics of the property, and other 
factors.\206\ The best servicing (servicing performed by servicers with 
the highest cure rates with respect to loans that have become 30 days 
delinquent) achieves approximately a 41% reduction in the probability 
that a loan that becomes 30 days delinquent will eventually default, 
relative to the worst servicing (servicing performed by servicers with 
the lowest cure rates with respect to loans that have become 30 days 
delinquent).\207\
---------------------------------------------------------------------------

    \205\ See Michael A. Stegman et al., Preventative Servicing is 
Good for Business and Affordable Homeownership Policy, 18 Housing 
Policy Debate 243, 257 (2007).
    \206\ Other authors have also noted substantial differences in 
loss mitigation practices by servicers that are not accounted for by 
differences in borrowers, types of mortgages and other observable 
factors. See e.g., Sumit Agarwal et al., Market-Based Loss 
Mitigation Practices for Troubled Mortgages Following the Financial 
Crisis, Federal Reserve Bank of Chicago, (2010) (Agarwal et al.).
    \207\ Specifically, the probability that a loan cures increases 
from .815 with the worst performing servicer (Servicer 2) 
to .8902 with a high-performing reference group of servicers. The 
figure .815 is the solution to ln[.8902/(1-.8902)]-.61=ln[x/(1-x)], 
where -.61 is the regression coefficient on Servicer 2 
given on page 265 and .8902 is discussed on page 263. Thus, the 
probability a loan that is 30 days late actually defaults decreases 
from .185 (=1-.815) to .1098 (=1-.8902), which is approximately a 
41% reduction.
---------------------------------------------------------------------------

    To translate this figure into an estimate of avoidable default, 
suppose that over 1 million mortgages become 30-60 days late each year. 
If they all receive the worst servicing and about 20% default, then a 
switch to the best servicing would reduce the default rate to about 12% 
(a reduction of 41%).\208\ Thus, 80,000 mortgages would no longer 
default if they had the best servicing. If 30% default, then about 
120,000 would no longer default if they had the best servicing. These 
defaults are avoidable with better servicing. Furthermore, a 
substantial number of these defaults will ultimately go to foreclosure, 
perhaps 70%.\209\
---------------------------------------------------------------------------

    \208\ The 20% default rate is consistent with the data in 
Stegman et al. but may underestimate the default rate in more recent 
data.
    \209\ In one study, only 30% of loans that were 90 days late and 
began a repayment plan were reinstated or paid in full during the 
period of the study. Presumably, loans that are 90 days late and 
never begin a repayment plan have an even lower success rate. See 
Amy Crews Cutts & William A. Merrill, Interventions in Mortgage 
Default: Policies and Practices to Prevent Home Loss and Lower Costs 
11-12 and Table 2 (Freddie Mac, Working Paper No. 08-01, Mar. 2008).
---------------------------------------------------------------------------

    The Bureau does not currently have data that would allow it to 
further monetize the cost of default and foreclosure on borrowers or 
other consumers. Some recent research that controls for economic 
conditions documents the persistent negative effects of foreclosure on 
borrower's credit scores.\210\ Other work establishes substantial 
negative effects that foreclosed homes have on nearby homes.\211\ The 
Bureau continues to examine how reasonable information management 
policies and procedures and other provisions of the proposed rule may 
affect default and foreclosure and the costs of these outcomes on 
borrowers and other consumers. The Bureau asks interested parties to 
provide general information, data, and research results that address 
these issues.
---------------------------------------------------------------------------

    \210\ See Kenneth P. Brevoort &Cheryl R. Cooper, Foreclosure's 
Wake: The Credit Experiences of Individuals Following Foreclosure 
(2010), available at: http://www.federalreserve.gov/pubs/feds/2010/201059/201059pap.pdf.
    \211\ Foreclosure itself may lead to a 27% reduction in the 
value of a house (possibly due to losses associated with 
abandonment) and a 1% reduction in the value of every other house 
within 5 tenths of a mile. See John Y. Campbell, Stefano Giglio, & 
Parag Pathak, Forced Sales and House Prices, American Economic 
Review 101(5) (2011), abstract available at: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.2108.
---------------------------------------------------------------------------

    More generally, as noted above, servicers may not have sufficient 
incentives to provide reasonable information management policies and 
procedures absent the proposed rule. As discussed in the Background 
section, mortgage servicing is to a large extent a high-volume, low-
margin business that encourages servicers to provide minimal levels of 
service to borrowers. While certain servicers may nonetheless have 
reasonable information management policies and procedures, the mortgage 
crisis demonstrated that for some servicers the incentives to have 
these practices were lacking.
    Benefits and costs to covered persons. The Bureau understands that 
certain servicers already comply with many of the proposed 
procedures.\212\ Servicers that service mortgage loans subject to 
investor or guarantor loss mitigation requirements, such as 
requirements imposed on Fannie Mae, Freddie Mac, and Ginnie Mae, or 
servicers subject to regulatory consent orders or the national mortgage 
settlement, must already comply with policies regarding evaluation for 
a loss mitigation option. Further, the Bureau is proposing to mitigate 
the cost of the proposed procedures by providing that the 
reasonableness of a servicer's policies and procedures would be 
determined in part by the nature and scope of the servicer's 
operations, characteristics of the servicing portfolio, and the

[[Page 57281]]

servicer's history of consumer complaints. The Bureau believes that the 
performance-based approach of the proposed information management 
provisions coupled with the flexible requirement for reasonableness 
will allow each servicer to comply with the proposed provisions in ways 
that best suit its particular circumstances.
---------------------------------------------------------------------------

    \212\ For example, servicers are already subject to record 
keeping requirements under current Sec.  1024.17(l) of Regulation X. 
This will make it less costly for servicers to implement the changes 
in this rule since they should already have systems in place that 
can be adapted to the new requirements.
---------------------------------------------------------------------------

4. Procedures for Early Intervention With Delinquent Borrowers
    As discussed in greater detail elsewhere in this SUPPLEMENTARY 
INFORMATION, Dodd-Frank Act section 1463 amends RESPA to authorize the 
Bureau to impose on servicers obligations the Bureau finds appropriate 
to carry out the consumer protection purposes of RESPA. The Bureau is 
using this authority to propose early intervention provisions regarding 
delinquent borrowers. The Bureau proposes to require servicers to 
provide two notices (one oral and one written) to delinquent borrowers. 
Generally, the Bureau proposes to require servicers to make a good 
faith effort to contact delinquent borrowers no later than 30 days 
after the payment due date. Additionally, not later than 40 days after 
a missed payment, the proposed rule would require servicers to provide 
the delinquent borrower a written notice about loss mitigation and the 
foreclosure process.
    Benefits and costs to consumers. The proposed provisions on early 
intervention with delinquent borrowers are intended to spur the 
engagement between servicers and borrowers that is necessary for 
avoiding foreclosure. In one study using data from September 2005 
through August 2007, Freddie Mac servicers reported that for 53.3% of 
the total number of loans that went into foreclosure, the borrower 
never responded to the servicer.\213\ Of course, this means that 47% of 
borrowers did respond to the servicer. The proposed provisions may 
benefit borrowers, possibly by reducing the number of borrowers who 
never respond to the servicer, but in any case ensuring that those who 
would respond have the opportunity to do so.
---------------------------------------------------------------------------

    \213\ See Amy Crews Cutts & William A. Merrill, Interventions in 
Mortgage Default: Policies and Practices to Prevent Home Loss and 
Lower Costs 10 (Freddie Mac, Working Paper No. 08-01, Mar. 2008).
---------------------------------------------------------------------------

    The Bureau also understands that borrowers may benefit from the 
proposed provisions by taking corrective action more quickly. In one 
study using data from 2000 through 2006, the re-default rate was about 
27% (15 percentage points) lower on repayment plans established when a 
loan was 30 days late instead of 60 days late.\214\ Early intervention 
may generally benefit borrowers by reducing avoidable interest costs, 
limiting the impact on borrowers' credit reports, and facilitating 
household budgeting and planning.
---------------------------------------------------------------------------

    \214\ Id., Table 2. This statistic is merely suggestive of a 
benefit to early intervention, since borrowers who are willing to 
begin a repayment plan at 30 days may be more likely to become 
current even without a repayment plan.
---------------------------------------------------------------------------

    Finally, it is essential to note that the repayment plans, loan 
modifications and other alternatives to default or foreclosure that 
servicers offer change regularly, often to make additional borrowers 
eligible. For example, a number of TARP funded housing programs have 
been developed since the initial HAMP first-lien modification program 
was implemented in April 2009. Programs now exist that provide 
principal reduction for HAMP-eligible borrowers with high loan-to-value 
ratios, provide temporary principal forbearance for unemployed 
borrowers, and provide incentives for short-sales.\215\ Furthermore, 
the eligibility criteria for these programs change regularly.\216\ The 
changing set of alternatives to default and foreclosure and eligibility 
for these alternatives mean that delinquent borrowers who have not had 
recent contact with their servicer regarding the alternatives for which 
they qualify are probably uninformed or misinformed about the options 
available to them. The proposed provisions for early intervention 
benefit borrowers by providing them with information they probably do 
not have.
---------------------------------------------------------------------------

    \215\ See General Accounting Office, Actions Needed by Treasury 
to Address Challenges in Implementing Making Home Affordable 
Programs, Table 1 (2011).
    \216\ For a discussion of recent changes, including the 
implementation of the new ``HAMP Tier 2'' alternative, see Making 
Home Affordable Supplemental Directive 12-02, March 9, 2012, 
available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1202.pdf.
---------------------------------------------------------------------------

    Benefits and costs to covered persons. Through industry outreach, 
the Bureau understands that many servicers already comply with the 
proposed early intervention procedures. As stated above, most servicers 
should be familiar with the early intervention standards for delinquent 
borrowers issued by private mortgage investors, the GSEs, Ginnie Mae, 
or government agencies offering guarantees or insurance for mortgage 
loans, such as FHA, the VA, or the Rural Housing Service. Servicers of 
FHA and VA loans are generally required to take action within the first 
20 days of a delinquency, such as making telephone calls, and sending 
written delinquency notifications. Similarly, servicers of loans 
purchased by the GSEs are encouraged to contact borrowers within 
several days of a delinquency. Freddie Mac recommends that servicers 
begin initial call campaigns on the third day of delinquency, and 
Fannie Mae recommends that servicers take similar actions with respect 
to borrowers having a high risk of default. The Bureau understands, 
however, that some GSE servicers may not provide written notifications 
to certain lower-risk delinquent borrowers until the 65th day of 
delinquency. In addition, Federal agencies and the GSEs have 
established requirements and recommended practices with respect to 
written notifications that are similar to the Bureau's proposal under 
proposed Sec.  1024.39(b).
    Furthermore, the Bureau is proposing to mitigate the cost of the 
written notice provision by providing servicers with model clauses and 
by limiting the written notice to be sent once every 180 days. The 
model clauses provide servicers with examples of language explaining 
the foreclosure process and encouraging the borrower to contact the 
servicer. The Bureau intends for the model clauses to provide servicers 
with examples of the level of detail that the Bureau expects servicers 
to provide in their written notice.
5. Procedures for Continuity of Contact With Delinquent Borrowers
    Dodd-Frank Act section 1463 requires servicers to comply with any 
obligation the Bureau finds appropriate to carry out the consumer 
protection purposes of RESPA. The Bureau is using this authority to 
propose continuity of contact provisions regarding delinquent 
borrowers.
    The Bureau proposes to require servicers to assign personnel to 
delinquent borrowers for whom servicers are required to notify pursuant 
to the proposed oral notification requirement under its early 
intervention proposal, discussed above. Additionally, the servicers 
would be required to provide such borrowers with live, telephonic 
response to inquiries and, as applicable, assist the borrower with loss 
mitigation options. Servicers would be required to establish policies 
and procedures reasonably designed to ensure that the personnel they 
assign to delinquent borrowers perform an enumerated list of functions 
where applicable, including, for example, providing the borrower with 
accurate information about loss mitigation options available to the 
borrower and actions the borrower must take to be evaluated for such 
options.

[[Page 57282]]

    Benefits and costs to consumers. As discussed above in greater 
detail in part VI, above, the onset of the mortgage crisis revealed 
that many servicers did not have the infrastructure, trained staff, 
controls, and procedures needed to handle the high volumes of 
delinquent mortgages, loan modification requests, and foreclosures they 
were required to process. One study of complaints to the HOPE Hotline 
reported that over half were from borrowers who could not reach their 
servicers and obtain information about the status of their applications 
for HAMP modification.\217\ Other complaints concerned lost 
documentation and that borrowers were not able to speak with 
representatives who were knowledgeable about the status of the 
borrowers' applications for loss mitigation. While certain servicers 
may nonetheless have provided delinquent borrowers with the services 
described in the proposed continuity of contact provisions, such as, 
for example, access to personnel who could provide the borrower with 
accurate information about the status of a loss mitigation application, 
the mortgage crisis demonstrated that a number of servicers did not.
---------------------------------------------------------------------------

    \217\ See General Accounting Office, Troubled Asset Relief 
Program: Further Actions Needed to Fully and Equitably Implement 
Foreclosure Mitigation Programs, at 15 (2010).
---------------------------------------------------------------------------

    As discussed in part VI, above, the Bureau believes that these 
problems may have had a significant adverse impact on borrowers seeking 
alternatives to foreclosure. While the Bureau does not have the data 
with which to quantify the effects, the inability of a borrower to 
speak with personnel knowledgeable about the status of a loss 
mitigation application creates delay in rectifying problems (including 
problems with lost documentation) that may lead to avoidable 
foreclosure. Similarly, the inability of borrowers to obtain a complete 
record of their payment histories with the servicer or of servicer 
personnel to access all documents the borrowers have submitted to the 
servicer in connection with an application for a loss mitigation option 
may impair the ability of borrowers to generally advocate for 
themselves regarding loss mitigation and possibly to slow or halt 
foreclosure. Conversely, the ability of borrowers to speak with 
personnel knowledgeable about loss mitigation options available to the 
borrower and the actions the borrower must take to be evaluated for 
such options makes it easier for borrowers to effectively pursue these 
options. These provisions therefore increase the chances that certain 
delinquent borrowers are able to obtain a loss mitigation plan and 
avoid foreclosure.\218\
---------------------------------------------------------------------------

    \218\ See also the general discussion of servicing operations 
and avoidable foreclosure in the analysis of the proposed provisions 
on reasonable information management.
---------------------------------------------------------------------------

    Benefits and costs to covered persons. The Bureau understands that 
many servicers are already in compliance with the proposed 
requirements. As discussed in part VI, above, in response to reported 
problems with respect to how servicers to respond to delinquent 
borrowers, other regulators and the GSEs have responded by establishing 
staffing standards for servicers to meet when they assist delinquent 
borrowers. Accordingly, the Bureau believes that any additional costs 
of the proposed continuity of contact provisions would be minimal.
6. Loss Mitigation Procedures
    Dodd-Frank Act section 1463 requires servicers to comply with any 
obligation the Bureau finds appropriate to carry out the consumer 
protection purposes of RESPA. The Bureau is using this authority to 
propose provisions regarding loss mitigation.
    The proposed provisions on loss mitigation would require servicers 
that make loss mitigation options available to borrowers in the 
ordinary course of business to undertake certain duties in connection 
with the evaluation of borrower applications for loss mitigation 
options. These servicers would have a duty to evaluate borrowers that 
apply for loss mitigation within specific timeframes and to inform 
borrowers about the status of their applications and the servicer's 
decision. These servicers would also be prohibited from completing a 
foreclosure sale unless certain conditions held.\219\
---------------------------------------------------------------------------

    \219\ Specifically, as specified in proposed Sec.  1024.41(g), 
if a servicer received a timely and complete loss mitigation 
application, a servicer could not proceed to foreclosure sale 
unless: (1) The servicer denied the borrower's application for a 
loss mitigation option and the appeal process is inapplicable, the 
borrower has not requested an appeal, or the time for requesting an 
appeal has expired; (2) the servicer denied the borrower's appeal; 
(3) the borrower rejected a servicer's offer of a loss mitigation 
option; or (4) a borrower failed to perform pursuant to the terms of 
a loss mitigation option.
---------------------------------------------------------------------------

    Benefits and costs to consumers. The proposed procedures in 1024.41 
provide a minimal structure to the process and decision-making around 
loss mitigation. Borrowers who submit complete applications may benefit 
from the proposed requirement on servicers to review and respond within 
a fixed period of time (30 days). Those who are denied loan 
modifications may benefit from the proposed requirement to disclose the 
reasons for the denial and the consumer's rights to appeal the 
decision, and from the appeal itself.
    The Bureau is aware that a mandatory timeline may have unintended 
consequences for borrowers in certain circumstances. For example, one 
study of the loan-level data from the OCC-OTS Mortgage Metrics database 
studied 1.8 million mortgages that were current in the last quarter of 
2007 and became ``troubled'' at some point between January 2008 and May 
2009.\220\ About 300,000 loans became troubled in each quarter of 2008. 
The researchers found that servicers made decisions very slowly and did 
not take any action, even after 6 months, in about half the cases.\221\ 
The timeline in the proposed provisions would have been binding on a 
large number of loans during this period, and it is difficult to 
predict how the servicers would have responded.
---------------------------------------------------------------------------

    \220\ Mortgages were troubled if they were ever 60+ days past 
due or the borrower contacted the lender asking to renegotiate the 
loan.
    \221\ See Sumit Agarwal, et al., Market-Based Loss Mitigation 
Practices for Troubled Mortgages Following the Financial Crisis, at 
7-10, Table 2, Federal Reserve Bank of Chicago (2010).
---------------------------------------------------------------------------

    One feature of the proposed provisions mitigates concerns about 
unintended consequences for borrowers. Servicers would be required to 
make a decision about whether to grant a loss mitigation option within 
30 days. They would not, however, have to move to foreclosure just 
because they decline to provide a loss mitigation option. Servicers 
would be required to make a decision, but they would not be required to 
take any action that they would not have taken absent the proposed loss 
mitigation provisions, and through continuity of contact they could 
alert borrowers to the possibility of a different decision at a later 
date. Servicers would, however, be required to produce a record of 
decisions and, in the case of loss mitigation the reasons for denial, 
that record may provide greater accountability to both borrowers and 
investors. This argument also mitigates concerns that borrowers who may 
benefit from a long foreclosure timeline would necessarily need to 
leave their homes sooner than they otherwise would.
    More generally, borrowers applying for a loss mitigation option are 
in a high-stakes and unfamiliar situation. They may have no clear 
understanding of what to expect and what is expected of them. Federal 
rules on loss mitigation may make key decision points more salient and 
credible to borrowers and motivate them, for example, to provide

[[Page 57283]]

complete applications to servicers in a timely manner. Borrowers may 
also be able to draw more directly on the experiences of other 
borrowers who were successful in loss mitigation since all would have 
been through a similar process.
    Borrowers may also benefit from the proposed restrictions on the 
timing of foreclosure sales. As discussed above, there is substantial 
anecdotal evidence that borrowers have been foreclosed upon despite 
working in good faith for a loss mitigation option. The proposed 
restrictions would not prevent foreclosures that occur from the failure 
of servicers to comply with basic servicer duties, like maintaining 
proper records of payments and agreements. However, the proposed 
restrictions would define a clear set of circumstances under which 
discussions regarding loss mitigation options have ended. This 
certainty and clarity should make it less likely that borrowers will be 
foreclosed upon unexpectedly and makes clear to borrowers what is 
expected from them to avoid foreclosure.
    Benefits and costs to covered persons. The proposed provisions on 
loss mitigation may impose some costs on servicers. For example, 
servicers who make loss mitigation options available in the ordinary 
course of business may need to employ additional staffing in order to 
meet the proposed 30-day timeline for evaluation when large numbers of 
borrowers submit applications. Servicers would also need to allow 90 
days between the time a borrower submits a complete loss mitigation 
application and the servicer conducts a foreclosure sale. This builds 
in time for consideration of the application and an appeal, but it also 
may delay foreclosures that servicers, based on their experience, 
recognize as inevitable. Any lengthening of time until foreclosure sale 
will also increase the time during which servicers will have the 
expense of providing borrowers with continuity of contact. On the other 
hand, the amount of time required for a successful modification may be 
shorter, and the cost to servicers lower, if the timelines and other 
proposed provisions for loss mitigation encourage borrowers to work 
more effectively with servicers.
    The costs to covered person of the proposed loss mitigation 
provisions depend on the extent to which servicers already comply with 
the proposed provisions and, for those not in compliance, the cost of 
making necessary changes. The Bureau asks interested parties to provide 
data and other information about current compliance with the proposed 
provisions, the challenges of coming into compliance, and the benefits 
and costs to covered persons from any interactions between these 
provisions and other provisions of this proposed rule.

E. Potential Specific Impacts of the Proposed Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets
    Regarding the provisions for force-placed insurance, the Bureau 
understands within the group of depository institutions and credit 
unions with $10 billion or less in total assets, as described in 
section 1026 of the Dodd-Frank Act, the larger depositories and credit 
unions generally have contracts with force-placed insurance providers 
under which the providers would absorb the costs of the proposed 
provisions. Thus, the Bureau believes there would be little impact of 
the proposed provisions on these institutions. But for smaller 
depository institutions or credit unions, the Bureau understands that 
providers may pass along certain costs to such institutions. The impact 
of these provisions on small depository institutions and credit unions, 
including a discussion of input from SERs in the SBREFA process, is 
discussed in further detail in the Regulatory Flexibility Analysis in 
part VIII, below. Based on feedback received from the SERs, The Bureau 
understands that small mortgage servicers engage in relatively little 
force-placement. The Bureau asks interested parties to provide general 
information, data, and research results that are relevant to 
understanding the impact of the proposed provisions for force-placed 
insurance on depository institutions and credit unions considered in 
this section.
    Regarding the other proposed provisions, the Bureau believes that 
the consideration of benefits and costs of covered persons presented 
above provides a largely accurate analysis of the impacts of the 
proposed rule on depository institutions and credit unions with $10 
billion or less in total assets. About 90% of all servicers are 
depository institutions and the vast majority of these institutions 
adhere to the servicing guidelines established by the GSEs. There is 
substantial overlap between these guidelines and provisions of the 
proposed rule, especially in regards to early intervention with 
delinquent borrowers and loss mitigation. Thus, the Bureau believes 
that the consideration of benefits and costs to covered persons given 
above provides a general description of the impacts to depository 
institutions and credit unions considered in this section. However, the 
Bureau seeks comment on this conclusion and asks interested parties to 
provide general information, data, and research results that are 
relevant to understanding the impact of the proposed provisions on 
depository institutions and credit unions considered in this section.
2. Impact of the Proposed Provisions on Consumers in Rural Areas
    Consumers in rural areas may experience benefits from the proposed 
rule that are different in certain respects from the benefits 
experienced by consumers in general. Consumers in rural areas may be 
more likely to obtain mortgages from small local banks and credit 
unions that either service the loans in portfolio or sell the loans and 
retain the servicing rights. These servicers may already provide most 
of the benefits to consumers that the proposed rule is designed to 
provide, including, for example, getting errors corrected promptly or 
getting access to personnel to assist them with their application for 
loss mitigation options. On the other hand, it is also possible that a 
lack of alternatives in some rural areas among lenders who also service 
may make it possible for the proposed rule to provide rural consumers 
with greater benefits.
    The Bureau will further consider the impact of the proposed rule on 
consumers in rural areas. The Bureau therefore asks interested parties 
to provide data, research results and other factual information on the 
impact of the proposed rule on consumers in rural areas.

F. Additional Analysis Being Considered and Request for Information

    The Bureau will further consider the benefits, costs, and impacts 
of the proposed provisions before finalizing the proposal. At various 
points in the analysis above, the Bureau asks interested parties to 
provide data, research results and other information relating to 
particular issues. The Bureau is generally interested in the impact of 
the proposed provisions on consumers, covered persons and markets in 
order to further understand and quantify the benefits and costs to 
consumers and covered persons. The Bureau generally requests interested 
parties to provide data, research, and other information that may 
inform the further consideration of benefits, costs and impacts of the 
proposed provisions.
    To supplement the information discussed in this SUPPLEMENTARY

[[Page 57284]]

INFORMATION and any information that the Bureau may receive from 
commenters, the Bureau is currently working to gather additional data 
that may be relevant to this and other mortgage related rulemakings. 
These data may include additional data from the National Mortgage 
License System (NMLS) and the NMLS Mortgage Call Report, loan file 
extracts from various lenders, and data from the pilot phases of the 
National Mortgage Database. The Bureau expects that each of these 
datasets will be confidential. This section now describes each dataset 
in turn.
    First, as the sole system supporting licensure/registration of 
mortgage companies for 53 regulatory agencies for states and 
territories and mortgage loan originators under the Secure and Fair 
Enforcement for Mortgage Licensing Act (SAFE Act), NMLS contains basic 
identifying information for non-depository mortgage loan origination 
companies. Firms that hold a State license or State registration 
through NMLS are required to complete either a standard or expanded 
Mortgage Call Report (MCR). The Standard MCR includes data on each 
firm's residential mortgage loan activity including applications, 
closed loans, individual mortgage loan originator (MLO) activity, line 
of credit, and other data repurchase information by State. It also 
includes financial information at the company level. The expanded 
report collects more detailed information in each of these areas for 
those firms that sell to Fannie Mae or Freddie Mac.\222\ To date, the 
Bureau has received basic data on the firms in the NMLS and de-
identified data and tabulations of data from the MCR. These data were 
used, along with HMDA data, to help estimate the number and 
characteristics of non-depository institutions active in various 
mortgage activities. In the near future, the Bureau may receive 
additional data on loan activity and financial information from the 
NMLS including loan activity and financial information for identified 
lenders. The Bureau anticipates that these data will provide additional 
information about the number, size, type, and level of activity for 
non-depository lenders engaging in various mortgage origination and 
servicing activities. As such, it supplements the Bureau's current data 
for non-depository institutions reported in HMDA and the data already 
received from NMLS. For example, these new data will include 
information about the number and size of closed-end first and second 
loans originated, fees earned from origination activity, levels of 
servicing, revenue estimates for each firm, and other information. The 
Bureau may compile some simple counts and tabulations and conduct some 
basic statistical modeling to better model the levels of various 
activities at various types of firms. In particular, the information 
from the NMLS and the MCR may help the Bureau refine its estimates of 
benefits, costs, and impacts for the proposed new servicing 
requirements in this proposed rule and the companion 2012 TILA 
Servicing Proposal, as well as other proposed rules to make revisions 
to the RESPA Good Faith Estimate and settlement statement forms, 
changes to the HOEPA thresholds, changes to requirements for 
appraisals, updates to loan originator compensation rules, and impose 
new ability-to-repay standards.
---------------------------------------------------------------------------

    \222\ More information about the Mortgage Call Report can be 
found at: http://mortgage.nationwidelicensingsystem.org/slr/common/mcr/Pages/default.aspx.
---------------------------------------------------------------------------

    Second, the Bureau is working to obtain a random selection of loan-
level data from several lenders. The Bureau intends to request loan 
file data from lenders of various sizes and geographic locations to 
construct a representative dataset. In particular, the Bureau will 
request a random sample of RESPA GFE and RESPA settlement statement 
forms from loan files for closed-end loans. These forms include data on 
some or all loan characteristics including settlement charges, 
origination charges, appraisal fees, flood certifications, mortgage 
insurance premiums, homeowner's insurance, title charges, balloon 
payments, prepayment penalties, origination charges, and credit charges 
or points. Through conversations with industry, the Bureau believes 
that such loan files exist in standard electronic formats allowing for 
the creation of a representative sample for analysis. The Bureau may 
use these data to further measure the impacts of certain proposed 
changes. Calculations of various categories of settlement and 
origination charges may help the Bureau calculate the various impacts 
of proposed changes in other proposals to the definition of finance 
charge, including proposed changes in the number and characteristics of 
loans that exceed the HOEPA thresholds, loans that would meet the high-
rate or high-risk definitions mandating additional consumer 
protections, and loans that meet the points and fees thresholds 
contained in the ability-to-repay provisions of the Dodd-Frank Act.
    Third, the Bureau may also use data from the pilot phases of the 
National Mortgage Database (NMDB) to refine its proposals and/or its 
assessments of the benefits, costs, and impacts of these proposals. The 
NMDB is a comprehensive database, currently under development, of loan-
level information on first lien single-family mortgages. It is designed 
to be a nationally representative sample (1%) and contains data derived 
from credit reporting agency data and other administrative sources 
along with data from surveys of mortgage borrowers. The first two pilot 
phases, conducted over the past two years, vetted the data development 
process, successfully pre-tested the survey component and produced a 
prototype dataset. The initial pilot phases validated that sampled 
credit repository data are both accurate and comprehensive and that the 
survey component yields a representative sample and a sufficient 
response rate. A third pilot is currently being conducted with the 
survey being mailed to holders of 5,000 newly originated mortgages 
sampled from the prototype NMDB. Based on the 2011 pilot, a response 
rate of 50% or higher is expected. These survey data will be combined 
with the credit repository information of non-respondents, and then de-
identified. Credit repository data will be used to minimize non-
response bias, and attempts will be made to impute missing values. The 
data from the third pilot will not be made public. However, to the 
extent possible, the data may be analyzed to assist the Bureau in its 
regulatory activities and these analyses will be made publically 
available.
    The survey data from the pilots may be used by the Bureau to 
analyze consumers' shopping behavior regarding mortgages. For instance, 
the Bureau may calculate the number of consumers who use brokers, the 
number of lenders contacted by borrowers, how often and with what 
patterns potential borrowers switch lenders, and other behaviors. 
Questions may also assess borrowers' understanding of their loan terms 
and the various charges involved with origination. Tabulations of the 
survey data for various populations and simple regression techniques 
may be used to help the Bureau with its analysis.
    The Bureau requests commenters to submit data and to provide 
suggestions for additional data to assess the issues discussed above 
and other potential benefits, costs, and impacts of the proposed rule. 
The Bureau also requests comment on the use of the data described 
above.

VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by SBREFA and the 
Dodd-Frank Act, requires each agency to

[[Page 57285]]

consider the potential impact of its regulations on small entities, 
including small businesses, small governmental units, and small not-
for-profit organizations. 5 U.S.C. 601 et seq. The RFA generally 
requires an agency to conduct an initial regulatory flexibility 
analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of 
any rule subject to notice-and-comment rulemaking requirements, unless 
the agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. 5 U.S.C. 603, 604. 
The Bureau also is subject to certain additional procedures under the 
RFA involving the convening of the Small Business Review Panel to 
consult with SERs prior to proposing a rule for which an IRFA is 
required. 5 U.S.C. 609.
    The Bureau has not certified that the proposed rule would not have 
a significant economic impact on a substantial number of small entities 
within the meaning of the RFA. Accordingly, the Bureau convened and 
chaired the Small Business Review Panel to consider the impact of the 
proposed rule on small entities that would be subject to that rule and 
to obtain feedback from representatives of such small entities. The 
Small Business Review Panel for this rulemaking is discussed below in 
part VIII.A.
    The Bureau is publishing an IRFA. Among other things, the IRFA 
estimates the number of small entities that will be subject to the 
proposed rule and describe the impact of that rule on those entities. 
The IRFA for this rulemaking is set forth below in part VIII.A.

A. Small Business Review Panel

    Under section 609(b) of the RFA, as amended by SBREFA and the Dodd-
Frank Act, the Bureau seeks, prior to conducting the IRFA, information 
from representatives of small entities that may potentially be affected 
by its proposed rules to assess the potential impacts of that rule on 
such small entities. 5 U.S.C. 609(b). Section 609(b) sets forth a 
series of procedural steps with regard to obtaining this information. 
The Bureau first notifies the Chief Counsel for Advocacy of the SBA and 
provides the Chief Counsel for Advocacy of the SBA with information on 
the potential impacts of the proposed rule on small entities and the 
types of small entities that might be affected. 5 U.S.C. 609(b)(1). Not 
later than 15 days after receipt of the formal notification and other 
information described in section 609(b)(1) of the RFA, the Chief 
Counsel for Advocacy of the SBA then identifies individuals 
representative of affected small entities for the purpose of obtaining 
advice and recommendations from those individuals about the potential 
impacts of the proposed rule (referred to previously as SERs). 5 U.S.C. 
609(b)(2). The Bureau convenes a review panel for such rule consisting 
wholly of fulltime Federal employees of the office within the Bureau 
responsible for carrying out the proposed rule, the Office of 
Information and Regulatory Affairs within OMB, and the Chief Counsel 
for Advocacy of the SBA, which constitutes the Small Business Review 
Panel. 5 U.S.C. 609(b)(3). The Panel reviews any material the Bureau 
has prepared in connection with the SBREFA process and collects advice 
and recommendations of each individual SER identified by the Bureau 
after consultation with the Chief Counsel for Advocacy of the SBA on 
issues related to sections 603(b)(3) through (b)(5) and 603(c) of the 
RFA.\223\ 5 U.S.C. 609(b)(4). Not later than 60 days after the date the 
Bureau convenes the Small Business Review Panel, the Panel reports on 
the comments of the SERs and its findings as to the issues on which the 
Panel consulted with the SERs, and the report is made public as part of 
the rulemaking record. 5 U.S.C. 609(b)(5). Where appropriate, the 
Bureau modifies the rule or the IRFA in light of the foregoing process. 
5 U.S.C. 609(b)(6).
---------------------------------------------------------------------------

    \223\ As described in the IRFA in part VIII.B, below, sections 
603(b)(3) through (b)(5) and section 603(c) of the RFA, 
respectively, require a description of and, where feasible, 
provision of an estimate of the number of small entities to which 
the proposed rule will apply; a description of the projected 
reporting, record keeping, and other compliance requirements of the 
proposed rule, including an estimate of the classes of small 
entities which will be subject to the requirement and the type of 
professional skills necessary for preparation of the report or 
record; an identification, to the extent practicable, of all 
relevant Federal rules which may duplicate, overlap, or conflict 
with the proposed rule; and a description of any significant 
alternatives to the proposed rule which accomplish the stated 
objectives of applicable statutes and which minimize any significant 
economic impact of the proposed rule on small entities. 5 U.S.C. 
603(b)(3), 603(b)(4), 603(b)(5), 603(c).
---------------------------------------------------------------------------

    On April 9, 2012, the Bureau provided the Chief Counsel for 
Advocacy of the SBA with the formal notification and other information 
required under section 609(b)(1) of the RFA. To obtain feedback from 
SERs to inform the Panel pursuant to section 609(b)(2) and 609(b)(4) of 
the RFA, the Bureau, in consultation with the Chief Counsel for 
Advocacy of the SBA, identified five categories of small entities that 
may be subject to the proposed rule for purposes of the IRFA: 
commercial banks/savings institutions, credit unions, non-depositories 
engaged primarily in lending funds with real estate as collateral 
(included in NAICS 522292), non-depositories primarily engaged in loan 
servicing (included in NAICS 522390), and certain non-profit 
organizations. Section 3 of the IRFA, in Part VIII.B.3, below, 
describes in greater detail the Bureau's analysis of the number and 
types of entities that may be affected by the proposed rule. Having 
identified the categories of small entities that may be subject to the 
proposed rule for purposes of an IRFA, the Bureau, in consultation with 
the Chief Counsel for Advocacy of the SBA, selected 16 SERs to 
participate in the SBREFA process. As described in chapter 7 of the 
Small Business Review Panel Report (described below), the SERs selected 
by the Bureau in consultation with the Chief Counsel for Advocacy of 
the SBA included representatives from each of the categories identified 
by the Bureau and comprised a diverse group of individuals with regard 
to geography and type of locality (i.e., rural, urban, suburban, or 
metropolitan areas).
    On April 10, 2012, the Bureau convened the Small Business Review 
Panel pursuant to section 609(b)(3) of the RFA. To collect the advice 
and recommendations of the SERs under section 609(b)(4) of the RFA, the 
Panel held an outreach meeting/teleconference with the SERs on April 
24, 2012 (``Panel Outreach Meeting''). To help the SERs prepare for the 
Panel Outreach Meeting, the Panel circulated briefing materials 
prepared in connection with section 609(b)(4) of the RFA that 
summarized the proposals under consideration at that time, posed 
discussion issues, and provided information about the SBREFA process 
generally.\224\ All 16 SERs participated in the Panel Outreach Meeting 
either in person or by telephone. The Small Business Review Panel also 
provided the SERs with an opportunity to submit written feedback until 
May 1, 2012. In response, the Small Business Review Panel received 
written feedback from 5 of the representatives.\225\
---------------------------------------------------------------------------

    \224\ The Bureau posted these materials on its Web site and 
invited the public to email remarks on the materials, available at: 
http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-outlines-borrower-friendly-approach-to-mortgage-servicing/.
    \225\ This written feedback is attached as appendix A to the 
Small Business Review Panel Report.
---------------------------------------------------------------------------

    On June 11, 2012, the Small Business Review Panel submitted to the 
Director of the Bureau, Richard Cordray, the written Small Business 
Review Panel Report, which includes the following: background 
information on the proposals under consideration at the time; 
information on the types of small entities that would be subject to 
those proposals and on the SERs who were

[[Page 57286]]

selected to advise the Small Business Review Panel; a summary of the 
Panel's outreach to obtain the advice and recommendations of those 
SERs; a discussion of the comments and recommendations of the SERs; and 
a discussion of the Small Business Review Panel findings, focusing on 
the statutory elements required under section 603 of the RFA. 5 U.S.C. 
609(b)(5).
    In preparing this proposed rule and the IRFA, the Bureau has 
carefully considered the feedback from the SERs participating in the 
SBREFA process and the findings and recommendations in the Small 
Business Review Panel Report. The section-by-section analysis of the 
proposed rule in Part VI, above, and the IRFA discuss this feedback and 
the specific findings and recommendations of the Small Business Review 
Panel, as applicable. The SBREFA process provided the Small Business 
Review Panel and the Bureau with an opportunity to identify and explore 
opportunities to mitigate the burden of the rule on small entities 
while achieving the rule's purposes. It is important to note, however, 
that the Small Business Review Panel prepared the Small Business Review 
Panel Report at a preliminary stage of the proposal's development and 
that the report--in particular, the findings and recommendations--
should be considered in that light. Also, any options identified in the 
Small Business Review Panel Report for reducing the proposed rule's 
regulatory impact on small entities were expressly subject to further 
consideration, analysis, and data collection by the Bureau to ensure 
that the options identified were practicable, enforceable, and 
consistent with RESPA, TILA, the Dodd-Frank Act, and their statutory 
purposes. The proposed rule and the IRFA reflect further consideration, 
analysis, and data collection by the Bureau.

B. Initial Regulatory Flexibility Analysis

    Under section 603(a) of the RFA, an IRFA ``shall describe the 
impact of the proposed rule on small entities.'' 5 U.S.C. 603(a). 
Section 603(b) of the RFA sets forth the required elements of the IRFA. 
An IRFA shall contain (1) a description of the reasons why action by 
the agency is being considered; (2) a succinct statement of the 
objectives of, and the legal basis for, the proposed rule; (3) a 
description of and, where feasible, provision of an estimate of the 
number of small entities to which the proposed rule will apply; (4) a 
description of the projected reporting, recordkeeping, and other 
compliance requirements of the proposed rule, including an estimate of 
the classes of small entities that will be subject to the requirement 
and the types of professional skills necessary for the preparation of 
the report or record; and (5) identification, to the extent 
practicable, of all relevant Federal rules which may duplicate, 
overlap, or conflict with the proposed rule. The Bureau, further, must 
describe any significant alternatives to the proposed rule which 
accomplish the stated objectives of applicable statutes and which 
minimize any significant economic impact of the proposed rule on small 
entities. Finally, as amended by the Dodd-Frank Act, section 603(d) of 
the RFA requires that the IRFA include a description of any projected 
increase in the cost of credit for small entities, a description of any 
significant alternatives to the proposed rule which accomplish the 
stated objectives of applicable statutes and which minimize any 
increase in the cost of credit for small entities (if such an increase 
in the cost of credit is projected), and a description of the advice 
and recommendations of representatives of small entities relating to 
the cost of credit issues. 5 U.S.C. 603(d)(1); Dodd-Frank Act section 
1100G(d)(1).
1. Description of the Reasons Why Agency Action Is Being Considered
    As discussed in the part I, above, mortgage servicing has been 
marked by pervasive and profound consumer protection problems. As a 
result of these problems, Congress included a number of provisions in 
the Dodd-Frank Act specifically to address mortgage servicing. One of 
these provisions is section 1463 of the Dodd-Frank Act, which amends 
RESPA. This provision puts new disclosure requirements and limitations 
on servicers obtaining force-placed insurance, and it establishes 
obligations for servicers to respond to requests from borrower to 
correct errors or provide certain information. Section 1463 of the 
Dodd-Frank Act also authorizes the Bureau, by regulation, to impose 
other obligations on servicers that it finds appropriate to carry out 
the purposes of the statute.
    These new statutory requirements take effect automatically on 
January 21, 2013, as written in the statute, unless final rules are 
issued prior to that date. If the Bureau adopts implementing 
regulations no later than January 21, 2013, the Bureau may establish an 
effective date for the rules. The statutory requirements implemented by 
the rules then take effect on the same date. The Bureau intends to 
exercise its authority to adopt regulations to clarify new consumer 
protection obligations under the statute, to adopt additional consumer 
protections not required by the statute, and to give servicers 
sufficient time to come into compliance. The Bureau is also considering 
adjusting servicers' legal obligations, including the obligations of 
small servicers, in certain circumstances to ease burden without 
sacrificing adequate protection of consumers.
    The Bureau is proposing additional standards to improve the way 
servicers treat borrowers, particularly delinquent borrowers. Some 
servicers have made it very difficult for delinquent borrowers to 
understand, and take advantage of, potential alternatives to 
foreclosure. For example, servicers have frequently neglected to reach 
out or respond to such borrowers to discuss alternatives to 
foreclosure, lost or misplaced the documents of borrowers who have 
sought loan modifications or other options offered by servicers, and 
forced borrowers who have invested substantial time communicating with 
an employee of the servicer to repeat the process with different 
employees that lack information about the substance of prior 
communications. The Bureau is proposing new servicing regulations to 
address these concerns.
    When finalized, the Bureau's rules will constitute the first truly 
national mortgage servicing standards. Other Federal regulatory 
agencies have issued guidance on mortgage servicing and loan 
modifications and taken enforcement actions against mortgage servicers. 
The State attorneys general, joined by numerous Federal agencies 
including the Bureau, entered into the National Mortgage Settlement 
with the nation's five largest servicers in February 2012. The National 
Mortgage Settlement applies to portfolio loans serviced by the five 
largest servicers. Borrowers of mortgage loans owned by GSEs or private 
investors may not necessarily gain the benefit of the protections set 
forth in that settlement.
    These varied regulatory responses are understandable when viewed as 
a response to an unprecedented mortgage crisis and significant problems 
in the servicing of mortgage loans. Ultimately, however, both borrowers 
and mortgage servicers will be better served by having uniform minimum 
national standards that govern mortgage servicing. When adopted in 
final form, the Bureau's rules will apply to all mortgage servicers, 
whether depository institutions or non-depository institutions, and to 
all segments of the mortgage market, regardless of the ownership of the 
loan--except to the extent the Bureau adopts exemptions for smaller 
servicers.

[[Page 57287]]

2. Succinct Statement of the Objectives of, and Legal Basis for, the 
Proposed Rule
    This rulemaking has multiple objectives. The proposed provisions on 
force-placed insurance should reduce the likelihood that servicers 
purchase force placed insurance without a reasonable basis. This will 
reduce instances of servicers charging borrowers for force-placed 
insurance they do not need or charge more than is bona fide and 
reasonable. The proposed provisions on error resolution and requests 
for information would require servicers to promptly investigate alleged 
errors and, as appropriate, correct them. Servicers would also be 
required to conduct reasonable and timely searches for certain types of 
information.
    The proposed provisions on maintaining reasonable information 
management policies and procedures address wide-spread problems 
reported across the mortgage servicing industry with regard to 
management of borrower documents and information. Compliance with the 
rule will require providing accurate information to borrowers, 
correcting errors where they occur, evaluating borrowers for loss 
mitigation options, facilitating oversight of, and compliance by, 
service providers, and facilitating servicing transfers.
    The proposed provisions on early intervention with delinquent 
borrowers are intended to spur the engagement between servicers and 
borrowers that is necessary for avoiding foreclosure. Early 
intervention may also generally benefit borrowers by reducing avoidable 
interest costs, limiting the impact on borrowers' credit reports, and 
facilitating household budgeting and planning.
    The proposed provisions on continuity of contact ensure that 
servicer personnel have access to information about delinquent 
borrowers so that the servicer can appropriately assist the borrower in 
exploring loss mitigation options.
    Finally, the proposed provisions on loss mitigation would require 
servicers that make loss mitigation options available to borrowers in 
the ordinary course of business to undertake certain duties in 
connection with the evaluation of borrower applications for loss 
mitigation options. These servicers would have a duty to evaluate 
borrowers that apply for loss mitigation within specific timeframes and 
to inform borrowers about the status of their application and the 
servicer's decision. These servicers would also be prohibited from 
completing a foreclosure sale unless certain conditions held.\226\
---------------------------------------------------------------------------

    \226\ As specified in proposed Sec.  1024.41(g), if a servicer 
receives a timely and complete loss mitigation application, a 
servicer may not proceed to foreclosure sale unless: (1) The 
servicer denies the borrower's application for a loss mitigation 
option and the appeal process is inapplicable, the borrower has not 
requested an appeal, or the time for requesting an appeal has 
expired; (2) the servicer denies the borrower's appeal; (3) the 
borrower rejects a servicer's offer of a loss mitigation option; or 
(4) a borrower fails to perform pursuant to the terms of a loss 
mitigation option.
---------------------------------------------------------------------------

3. Description and, Where Feasible, Provision of an Estimate of the 
Number of Small Entities to Which the Proposed Rule Will Apply
    As discussed in the Small Business Review Panel Report, for 
purposes of assessing the impacts of the proposed rule on small 
entities, ``small entities'' is defined in the RFA to include small 
businesses, small nonprofit organizations, and small government 
jurisdictions. 5 U.S.C. 601(6). A ``small business'' is determined by 
application of SBA regulations and reference to the North American 
Industry Classification System (NAICS) classifications and size 
standards.\227\ 5 U.S.C. 601(3). Under such standards, banks and other 
depository institutions are considered ``small'' if they have $175 
million or less in assets, and for most other financial businesses, the 
threshold is average annual receipts (i.e., annual revenues) that do 
not exceed $7 million.\228\
---------------------------------------------------------------------------

    \227\ The current SBA size standards are found on SBA's Web 
site, available at: http://www.sba.gov/content/table-small-business-size-standards.
    \228\ Id.
---------------------------------------------------------------------------

    During the Small Business Review Panel outreach, the Bureau 
identified five categories of small entities that may be subject to the 
proposed rule for purposes of the RFA: Commercial banks/savings 
institutions \229\ (NAICS 522110 and 522120), credit unions (NAICS 
522130), firms providing real estate credit (NAICS 522292), firms 
engaged in other activities related to credit intermediation (NAICS 
522390), and small non-profit organizations. Commercial banks, savings 
institutions and credit unions are small businesses if they have $175 
million or less in assets. Firms providing real estate credit and firms 
engaged in other activities related to credit intermediation are small 
businesses if average annual receipts do not exceed $7 million.
---------------------------------------------------------------------------

    \229\ Savings institutions include thrifts, savings banks, 
mutual banks, and similar institutions.
---------------------------------------------------------------------------

    A small non-profit organization is any not-for-profit enterprise 
which is independently owned and operated and is not dominant in its 
field. Small non-profit organizations engaged in mortgage servicing 
typically perform a number of activities directed at increasing the 
supply of affordable housing in their communities. Some small non-
profit organizations originate and service mortgage loans for low and 
moderate income individuals while others purchase loans or the 
servicing rights on loans originated by local community development 
lenders. Servicing income is a substantial source of revenue for some 
small non-profit organizations while others receive most of their 
income from grants or investments.\230\
---------------------------------------------------------------------------

    \230\ The Bureau is continuing to refine its description of 
small non-profit organizations engaged in mortgage loan servicing 
and working to estimate the number of these entities, but it is not 
possible to estimate the number of these entities at this time. Non-
profits and small non-profits engaged in mortgage loan servicing 
would be included under real estate credit if their primary activity 
is originating loans and under other activities related to credit 
intermediation if their primary activity is servicing.
---------------------------------------------------------------------------

    The following table provides the Bureau's estimate of the number 
and types of entities that may be affected by the proposals under 
consideration:

  Estimated Number of Affected Entities and Small Entities by NAICS Code and Engagement in Closed-End Mortgage
                                                 Loan Servicing
----------------------------------------------------------------------------------------------------------------
                                                                                                        Small
                                                                                        Entities      entities
                                                   Small entity     Total     Small    engaged in    engaged in
          Category                  NAICS           threshold     entities  entities    mortgage      mortgage
                                                                                          loan          loan
                                                                                        servicing     servicing
----------------------------------------------------------------------------------------------------------------
Commercial banks & savings       522110, 522120  $175,000,000        7,724     4,250         7,502         4,098
 institutions.                                    assets.
----------------------------------------------------------------------------------------------------------------
Credit unions...............             522130  $175,000,000        7,491     6,568         5,190         4,270
                                                  assets.
----------------------------------------------------------------------------------------------------------------

[[Page 57288]]

 
Real estate credit..........             522292  $7,000,000          5,791     5,152  ............  ............
                                                  revenues.
-------------------------------------------------------------------------------------
Other activities related to              522390  $7,000,000          5,494     5,319         1,388           800
 credit intermediation                            revenues.
 (includes loan servicing).
----------------------------------------------------------------------------------------------------------------

    For commercial banks, savings institutions and credit unions, the 
number of entities and asset sizes were obtained from December 2010 
Call Report data as compiled by SNL Financial. Banks and savings 
institutions are counted as engaging in mortgage loan servicing if they 
hold closed-end loans secured by 1-to-4 family residential property or 
they are servicing mortgage loans for others. Credit unions are counted 
as engaging in mortgage loan servicing if they have closed-end 1-to-4 
family mortgages on portfolio, or hold real estate loans that have been 
sold but remain serviced by the institution.
    For firms providing real estate credit and firms engaged in other 
activities related to credit intermediation, the total number of 
entities and small entities comes from the 2007 Economic Census. The 
total number of these entities engaged in mortgage loan servicing is 
based on a special analysis of data from the Nationwide Mortgage 
Licensing System and Registry and is as of Q1 2011. The total equals 
the number of non-depositories that engage in mortgage loan servicing, 
including tax exempt entities, except for those mortgage loan servicers 
(if any) that do not engage in any mortgage-related activities that 
require a state license. The estimated number of small entities engaged 
in mortgage loan servicing is based on predicting the likelihood that 
an entity's revenue is less than the $7 million threshold based on the 
relationship between servicer portfolio size and servicer rank in data 
from Inside Mortgage Finance.\231\
---------------------------------------------------------------------------

    \231\ The Bureau is continuing to refine its estimate of the 
number of firms providing real estate credit and engaging in other 
activities related to credit intermediation that are small and which 
engage in mortgage loan servicing.
---------------------------------------------------------------------------

4. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements of the Proposed Rule, Including an Estimate of the Classes 
of Small Entities Which Will Be Subject to the Requirement and the Type 
of Professional Skills Necessary for the Preparation of the Report
    The proposed rule does not impose new reporting requirements.
    The possible recordkeeping and compliance costs for small entities 
from each major component of the proposed rule are presented below. The 
Bureau presents these costs against a pre-statute baseline. This 
baseline includes the costs of complying with the Federal rules that 
overlap with the proposed rule, as described in section 5 of this part, 
below. The Bureau expects that the costs of complying with the proposed 
rule relative to the pre-statute baseline are lower than these costs 
would be if not for the costs of complying with the existing Federal 
rules. In particular, certain one-time and ongoing costs regarding 
error resolution, early intervention and loss mitigation will have 
generally been incurred and budgeted for by servicers. These expenses 
will facilitate and thereby reduce the cost of compliance with the 
proposed rule.
    Benefits to consumers from the proposed rule have been previously 
discussed in the section 1022 analysis in part VII, above.
(a) Force-Placed Insurance
    Dodd-Frank Act section 1463 amends RESPA to prohibit a servicer of 
a federally related mortgage from obtaining force-placed hazard 
insurance unless there is a reasonable basis to believe the borrower 
has failed to comply with the loan contract's requirements to maintain 
property insurance. The statute sets forth a mandatory process 
servicers must follow, which includes sending two notices to the 
borrower, before imposing any charge on a borrower for force-placed 
insurance. The statute also provides process requirements about 
terminating force-placed insurance and refunding force-placed insurance 
premiums paid during any period during which the borrower's insurance 
coverage and the force-placed insurance coverage were each in effect.
    The Bureau is proposing forms for the force-placed insurance 
notices to be sent to borrowers. The Bureau is also proposing 
requirements concerning: charges related to force-placed insurance, 
payment of insurance from escrow, and notice requirements when 
servicers renew existing insurance policies.
    Based on discussions with industry and the SERs, the Bureau 
understands that the proposed force-placed insurance provision may not 
have the same impact on all small servicers. Some small servicers incur 
all of the costs associated with providing notices, tracking borrower 
coverage, and placing and terminating the insurance. For other small 
servicers, the force-placed insurance provider handles these activities 
and absorbs the costs or passes them on to the consumer indirectly 
through the insurance premium.
    Based on discussions with the SERs, the Bureau currently 
understands that many small servicers already comply with most of the 
force-placed insurance provisions of the proposed rule. Two SERs stated 
that they already provide two or more notices of pending force-placed 
insurance and others stated that they already refund premiums back to 
borrowers for periods of overlapping coverage. Other SERs noted that 
they already provide refunds for overlapping coverage.
    If small servicers in general already comply with the force-placed 
insurance provisions of the proposed rule, then the impact of the 
proposed rule will likely come from the one-time cost of developing 
disclosures that would meet the proposed disclosure requirements and 
the ongoing costs of providing information in the disclosures that they 
do not already provide. For example, one SER stated that their current 
notice does not include an estimate of force-placed insurance costs. In 
addition, some small servicers who very rarely

[[Page 57289]]

need to force-place insurance and therefore use informal procedures may 
need to develop written procedures to ensure they comply with the 
proposed rule. The Bureau believes the one-time cost of developing 
these policies will be minimal.
    When the Bureau convened its Small Business Review Panel on 
mortgage servicing, the Bureau learned that several of the small 
servicers that participated on the panel obtained force-placed 
insurance policies that must be renewed monthly. The Bureau proposes to 
mitigate the cost of these disclosures by providing that a servicer is 
not required to send more than one renewal notice during any 12-month 
period.
    One SER raised a different concern regarding notice and process 
costs associated with borrowers who have chronic lapses in hazard 
insurance coverage. This SER said that there would be labor costs 
associated with managing a process in which notices must be delivered 
at required intervals, setting up escrows for the premium, refunding 
premiums, and repeating the process when insurance lapses again. The 
Bureau believes that most small servicers already incur most of these 
costs. However, the Bureau is interested in data and other factual 
information about the likely compliance costs associated with borrowers 
who have chronic lapses in hazard insurance coverage and requests 
comment on this issue.
    Finally, most SERs did not raise specific concerns with the 
proposal to expand existing requirements, in regards to disbursements 
from a borrower's escrow account to pay the borrower's hazard insurance 
premium, to borrower's whose mortgage payments are more than 30 days 
past due. Two SERs that expressed concern about advancing funds to 
renew a borrower's hazard insurance because the borrower could cancel 
the insurance and keep the refund.\232\ The Small Business Review Panel 
recommended that the Bureau reduce the incentives for borrowers to take 
such action by allowing servicers to advance premium payments in 30-day 
installments. Proposed comment 17(k)(5)-3 reflects the panel's 
recommendation, and the Bureau believes that small servicers would not 
be unduly burdened by the Bureau's proposal.
---------------------------------------------------------------------------

    \232\ Small Business Review Panel Report, at 22.
---------------------------------------------------------------------------

(b) Error Resolution and Response to Inquiries
    Dodd-Frank Act section 1463 amends section 6 of RESPA by adopting a 
number of servicer prohibitions with respect to handling alleged errors 
and inquiries, including revising the timeframe to respond to qualified 
written requests, and prohibiting the charging of fees in connection 
with qualified written requests.
    The Bureau is proposing a comprehensive set of requirements for 
investigating and correcting errors and for responding to borrower 
inquiries. Servicers would be required to correct errors relating to 
allocation of payments, provision of final balances for purposes of 
paying off the loan, avoiding foreclosures, or other standard servicer 
duties. Servicers also would be required to respond to inquiries about 
certain topics.
    Servicers would have to provide borrowers with a written 
acknowledgement of receiving a notice of error, unless the servicer 
resolves the error within five days and the borrower is notified of the 
resolution in writing. Servicers would have to correct the error and 
provide the borrower with written notification of the correction or 
conduct a reasonable investigation and provide the borrower with 
written notification regarding the investigation and the documents 
relied upon by the servicer. Generally, the investigation would have to 
be completed and a response provided within 30 days after receipt of 
the notice of error.
    Substantially similar requirements apply to inquiries. Servicers 
would have to provide borrowers with written acknowledgement of 
receiving an information request, unless the servicer provides the 
borrower with the information requested and with contact information 
for further assistance within five days, which can be provided orally 
or in writing. Servicers would have to provide the borrower with the 
requested information, either orally or in writing, or conduct a 
reasonable search for the information and provide the borrower with a 
written notification regarding the search. Generally, with the 
exception of requests for certain types of information, the information 
or the notice would have to be provided within 30 days after receipt of 
the information request.
    Aside from the requirement to respond in writing to notices of 
error and inquiries, servicers not in compliance with the other 
provisions would need to develop compliance procedures and train staff 
and may need new or updated software and hardware in order to access 
the information required to address notices of error and inquiries. 
However, the Bureau understands that most small servicers already 
comply with these proposed provisions. SERs had no objection to the 
proposed response timeframes. SERs emphasized that their borrowers 
demanded immediate resolution of errors and response to inquiries and 
their high-touch customer service model was designed to meet the 
demands of these borrowers.
    SERs did generally object to the proposed written response 
requirements. Several SERs stated that having to respond in writing to 
every notice of error would be burdensome. Further, SERs argued that 
there would be no consumer benefit, since errors are generally asserted 
orally and resolved quickly, if not immediately, and orally. The Bureau 
notes that the proposed provision regarding inquiries does not require 
a written response if the servicer provides the information requested 
to the borrower within five days. Nevertheless, the Bureau understands 
that small servicers, as defined above, have an incentive to provide 
protections to consumers that may not exist for other servicers.
(c) Reasonable Information Management Policies and Procedures
    Section 1463 of the Dodd-Frank Act requires servicers to comply 
with any obligation the Bureau finds appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau is using this 
authority to propose a requirement that servicers establish reasonable 
information management policies and procedures. This provision would 
impose a recordkeeping burden on small servicers.
    The proposed provisions specify certain objectives for servicers' 
information management practices. These practices should facilitate: 
Accessing and providing accurate information; investigating and 
correcting errors and providing requested information; evaluating loss 
mitigation options; oversight of, and compliance by, service providers; 
facilitating servicing transfers; and providing access to information 
about actions taken by the servicer.
    Servicers that maintain reasonable information management policies 
and procedures may incur a cost to review and document their policies 
and procedures, obtain legal advice, train their staff to follow the 
policies and procedures, and monitor staff adherence to the policies 
and procedures. The proposal mitigates all of these costs for small 
servicers through the provision that the ``reasonableness'' of a 
servicer's policies and procedures would depend upon the size of the 
servicer and the nature and scope of its activities. Further, 
depository institutions already are subject to interagency guidelines

[[Page 57290]]

relating to safeguarding the institution's safety and soundness that 
facilitate reasonable information management for purposes of mortgage 
servicing.
    The SERs appreciated the flexibility of the proposal and thought it 
was good that ``reasonable'' depends on the size, nature, and scope of 
the entity. The SERs emphasized that small firms do not necessarily use 
automated or online systems to record and track all borrower 
communications. They urged the Bureau to avoid structuring the 
requirement in such a way as to require expensive system upgrades.
(d) Early Intervention for Delinquent Borrowers
    Section 1463 of the Dodd-Frank Act requires servicers to comply 
with any obligation the Bureau finds appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau is using this 
authority, among others, to propose early intervention and continuity 
of contact provisions regarding delinquent borrowers.
    The Bureau is generally proposing to require servicers to make two 
contacts with delinquent borrowers. The Bureau proposes to require 
servicers to make a good faith effort to contact delinquent borrowers 
orally no later than 30 days after the payment due date. The Bureau 
also proposes to require servicers to provide delinquent borrowers with 
a written notice with information about loss mitigation options and 
foreclosure. This second contact must be provided no later than 40 days 
after the payment date that the borrower missed.
    The Bureau is proposing to mitigate the cost of the written notice 
provision by providing servicers with model clauses and by limiting the 
written notice to be provided once every 180-day period. The Bureau's 
model clauses provide servicers with examples of language explaining 
the foreclosure process and encouraging the borrower to contact the 
servicer. The Bureau intends for the model clauses to provide servicers 
with examples of the level of detail that the Bureau expects servicers 
to provide in their written notice.
    The SERs explained that they generally contact delinquent borrowers 
well before the 45th day of a borrower's delinquency. One SER mentioned 
that the GSEs require contact with delinquent borrowers at day 16. The 
SERs stated that they had relatively low numbers of delinquent 
borrowers; however, one SER expressed concern about borrowers who were 
frequently delinquent. This SER did not want to have to send 
information every month. The Bureau notes that under the proposal, a 
servicer is not required to provide the written notice to a borrower 
more than once during any 180-day period.
    Some SERs did object to the proposed written notice requirement. 
The SERs generally stated that they tailor the information they provide 
to the specific situation of the borrower. One SER objected to a 
process that the SER regarded as unnecessary and which would require 
sending yet another notice to the borrower.
(e) Continuity of Contact
    Section 1463 of the Dodd-Frank Act requires servicers to comply 
with any obligation the Bureau finds appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau is using this 
authority, among others, to propose requiring servicers to assign 
personnel to respond to inquiries of certain delinquent borrowers and, 
as applicable, assist them with loss mitigation options.
    The Bureau is proposing that borrowers who meet the requirements 
for the proposed oral notification under the Bureau's proposed early 
invention provision must be provided with live phone access to the 
assigned personnel. The proposal would require that servicers maintain 
reasonable policies and procedures designed to ensure that the assigned 
personnel perform an enumerated list of functions, such as having 
access to certain information about the borrowers (e.g., a complete 
record of the borrower's payment history in the servicer's possession). 
The proposal provides conditions that define the duration of continuity 
of contact, and the proposal provides that certain delays and failures 
that disrupt continuity of contact do not violate the rule.
    The Bureau believes that small servicers generally meet the 
proposed provisions for continuity of contact. SERs generally stated 
that with their small staffs, everyone had access to files and would be 
able to assist borrowers in delinquency. One SER noted that originating 
officials handle the collections for the loans they originated. This 
SER noted that borrowers have ready access to the originator and the 
originator has full access to all loan documents and payment history.
(f) Loss Mitigation
    Section 1463 of the Dodd-Frank Act requires servicers to comply 
with any obligation the Bureau finds appropriate to carry out the 
consumer protection purposes of RESPA. The Bureau is using this 
authority, among others, to propose requirements on servicers that 
offer loss mitigation options to borrowers in the ordinary course of 
business.
    As discussed above, the Bureau is aware of the potential impacts of 
the loss mitigation requirements on small servicers. As discussed above 
for proposed Sec.  1024.41, while the Small Business Review Panel 
Report and the outreach meeting did not focus in significant detail on 
some of the specific measures proposed here such as, for example, 
appeals of loss mitigation determinations, the SERs provided feedback 
on many elements of the loss mitigation process. The Bureau requested 
feedback from small servicers on the following: (1) A duty to suspend a 
foreclosure sale while a borrower is performing as agreed under a loss 
mitigation option or other alternative to foreclosure; (2) the ability 
to adopt policies and procedures to facilitate review of borrowers for 
loss mitigation options; (3) the ability to provide information 
regarding loss mitigation early in the foreclosure process to 
borrowers; and (4) the ability to provide borrowers with the 
opportunity to discuss evaluations for loss mitigation options with 
designated servicer contact personnel.\233\
---------------------------------------------------------------------------

    \233\ See Small Business Review Panel for Mortgage Servicing 
Rulemaking, Outline of Proposals Under Consideration and 
Alternatives Considered, at 19, 22, 24-26.
---------------------------------------------------------------------------

    The SERs said that they generally engaged in individualized contact 
with borrowers early in the foreclosure process, completed discussions 
of loss mitigation options with borrowers prior to a point in time when 
borrowers should have significant foreclosure related information, and 
generally worked closely with foreclosure counsel so that foreclosure 
processes and loss mitigation could be easily conducted simultaneously 
without prejudice to the loss mitigation process. Further, the SERs 
explained that they were willing to communicate with borrowers about 
loss mitigation contemporaneously with the foreclosure process, and one 
SER indicated that it would be willing to bring a mortgage file back to 
consider a modification, if appropriate.\234\
---------------------------------------------------------------------------

    \234\ Small Business Review Panel Report at 26.
---------------------------------------------------------------------------

    Based in part on the outreach with the SERs on April 24, 2012, as 
well as other feedback obtained by the Bureau after that outreach 
meeting, the Bureau considered proposing clearer and more detailed 
requirements relating to loss mitigation practices. The Bureau 
determined, for the sake of clarity and consistency, to include loss 
mitigation obligations as a separate regulation, rather than embedding 
the requirements within the provisions relating to error

[[Page 57291]]

resolution, reasonable information management policies and procedures, 
early intervention for delinquent borrowers, and continuity of contact.
    (g) Estimate of the Classes of Small Entities Which Will Be Subject 
to the Requirement and the Type of Professional Skills Necessary for 
the Preparation of the Report or Record
    Section 603(b)(4) of the RFA requires an estimate of the classes of 
small entities which will be subject to the requirement. The classes of 
small entities which will be subject to the reporting, recordkeeping, 
and compliance requirements of the proposed rule are the same classes 
of small entities that are identified above in part VIII.B.3.
    Section 603(b)(4) of the RFA also requires an estimate of the type 
of professional skills necessary for the preparation of the reports or 
records. The Bureau anticipates that the professional skills required 
for compliance with the proposed rule are the same or similar to those 
required in the ordinary course of business of the small entities 
affected by the proposed rule. Compliance by the small entities that 
will be affected by the proposed rule will require continued 
performance of the basic functions that they perform today: Generating 
disclosure forms, addressing errors and providing information to 
borrowers, managing information about borrowers, contacting delinquent 
borrowers, providing continuity of contact for delinquent borrowers, 
and (as applicable) reviewing applications by borrowers for loss 
mitigation.
5. Identification, to the Extent Practicable, All Relevant Federal 
Rules Which May Duplicate, Overlap, or Conflict With the Proposed Rule
    The Dodd-Frank Act codified certain requirements contained in 
existing regulations and in some cases imposed new requirements that 
expand or vary the scope of existing regulations. The Bureau is working 
to eliminate conflicts and to harmonize the earlier rules with the new 
statutory requirements.
    RESPA section 6(e) contains procedures for qualified written 
requests that overlap with section 1463 of the Dodd-Frank Act to 
provide additional procedures for resolving errors and responding to 
inquiries. The Bureau is proposing broader, more consumer-friendly 
error resolution and information request procedures that cover wider 
topics than the current qualified written request procedures and will 
subsume the qualified written request procedures. The Bureau believes 
that a common minimum set of procedures applicable to all assertions of 
errors or information requests, whether in the form of a qualified 
written request or not, will benefit both borrowers and servicers. 
Further, as noted elsewhere in, this SUPPLEMENTARY INFORMATION, 
depending on the circumstances, the error resolution procedures in this 
rule may overlap with the direct dispute procedures under FCRA where 
the dispute involves erroneously furnishing negative information to a 
consumer reporting agency. See 15 U.S.C. 1681s-2(a)(8); 12 CFR 1022.43.
    As noted, elsewhere in this SUPPLEMENTARY INFORMATION, the early 
intervention and loss mitigation procedures in this proposed rule may 
overlap with existing Federal law codifying requirements of FHA, VA, 
and the Rural Housing Service with respect to mortgages insured by 
those agencies. The Bureau also understands that section 106(c)(5) of 
the Housing and Urban Development Act of 1968, as amended, generally 
requires creditors to provide notice of homeownership counseling to 
eligible delinquent borrowers not later than 45 days after a borrower 
misses a payment due date. 12 U.S.C. 1701x(c)(5)(B). Similar to the 
information required under section 106(c)(5) of the Housing and Urban 
Development Act, the written notice in proposed Sec.  1024.39(b)(2)(vi) 
would include contact information for housing counselors and the 
borrower's State housing finance authority, although servicers would be 
required to provide the written notice not later than 40 days after a 
borrower misses a payment due date. To the extent requirements proposed 
by Bureau overlap with existing Federal rules, the Bureau expects 
servicers would abide by the stricter standard in order to comply with 
all requirements.
    Apart from this overlap, the Bureau is not aware of any other 
Federal regulations that currently duplicate, overlap, or conflict with 
the proposals under consideration.\235\ The Bureau requests comment to 
identify any additional such Federal rules that impose duplicative, 
overlapping, or conflicting requirements on servicers and potential 
changes to the proposed rules in light of duplicative, overlapping, or 
conflicting requirements.
---------------------------------------------------------------------------

    \235\ The RFA requires identification of duplicative, 
overlapping, or conflicting Federal regulation. Consent orders, 
settlement agreements with Federal agencies, and investor 
requirements of Fannie Mae and Freddie Mac do not constitute Federal 
regulations for purposes of the IRFA.
---------------------------------------------------------------------------

6. Description of Any Significant Alternatives to the Proposed Rule 
Which Accomplish the Stated Objectives of Applicable Statutes and 
Minimize Any Significant Economic Impact of the Proposed Rule on Small 
Entities
    The SERs expressed general concern about the costs to small 
entities of regulation, but the SERs also stated that they were already 
in compliance with most of the provisions of the proposed rule. Where 
the SERs expressed concern about the costs of complying with a proposed 
provision, the Bureau considered alternatives that might impose lower 
costs on small servicers, but does not believe that these alternatives 
would accomplish the stated objectives of the applicable statute.
    Regarding the proposed disclosures for force-placed insurance, the 
Bureau understands that small servicers may incur costs for providing 
these disclosures that large servicers do not. Providers may be more 
likely to charge small servicers for new or changed disclosures than 
they are to charge large servicers. Small servicers are also more 
likely to produce the disclosures in-house. The Bureau believes that 
the proposed force-placed insurance disclosures would be an effective 
and important component of a statutory regime intended to reduce or 
prevent unnecessary force-placement of hazard insurance. The Bureau 
does not believe that less costly alternatives to the proposed rule for 
small servicers would accomplish this objective. The Bureau notes that 
most SERs did not raise concerns with the proposal. The Bureau proposes 
to mitigate the cost of the disclosures to all servicers by providing 
that a servicer is not required to send more than one renewal notice 
during any 12-month period.
    Regarding the proposed provisions for reasonable information 
management policies and procedures, the Bureau provides flexibility for 
small servicers by providing for servicers to design policies and 
procedures that are appropriate for their servicing businesses in light 
of the size, nature, and scope of the servicer's operations, including, 
for example, the volume and aggregate unpaid principal balance of 
mortgage loans serviced, the credit quality, including the default 
risk, of the mortgage loans serviced, and the servicer's history of 
consumer complaints. As noted above, the SERs appreciated the 
flexibility of the proposal and thought it was good that reasonableness 
would depends on the size, nature, and scope of the entity.

[[Page 57292]]

    The SERs did express concern in regards to the error resolution 
procedures. In particular, several SERs stated that having to respond 
in writing to every notice of error would be burdensome. The Bureau 
notes that the proposal includes a provision that minimize the burden 
on servicers from the error resolution requirements if a notice of 
error is overbroad or unduly burdensome.
    The Bureau considered providing small servicers with an alternative 
method of compliance with two of the proposed provisions for error 
resolution. Under the alternative considered, small servicers would not 
have needed to comply with the proposed acknowledgement of receipt 
requirement or the proposed response to notice of error requirement if 
(a) the small servicer provided notification of the correction orally 
if the error was asserted orally by the borrower, and (b) the small 
servicer indicated in its records both the error asserted by the 
borrower and the action taken by the servicer to correct the error. The 
Bureau believes, however, that there is substantial consumer protection 
in the acknowledgement of receipt and response to notice of error 
requirements and that the alternative may diminish these protections 
for borrowers with mortgages that happen to be serviced by small 
servicers. The Bureau solicits comment on whether the Bureau should 
further consider alternative means of compliance with the proposed 
error resolutions procedures.
    Small servicers generally explained that they did not expect the 
Bureau's proposed early intervention requirements would impose 
significant burden because they were already providing early 
intervention for delinquent borrowers. Based on this information, the 
Bureau has not proposed to provide small servicers an exemption from 
the proposed notification requirements under proposed Sec.  1024.39(a) 
and (b). However, the Bureau solicits comment on whether the Bureau 
should consider alternative means of compliance with proposed Sec.  
1024.39(a) and (b), such as by permitting small servicers to develop a 
more streamlined written notice under proposed Sec.  1024.39(b).
7. Discussion of Impact on Cost of Credit for Small Entities
    Section 603(d) of the RFA requires the Bureau to consult with small 
entities regarding the potential impact of the proposed rule on the 
cost of credit for small entities and related matters. 5 U.S.C. 603(d). 
To satisfy these statutory requirements, the Bureau provided 
notification to the Chief Counsel for Advocacy of the SBA on April 9, 
2012 that the Bureau would collect the advice and recommendations of 
the same SERs identified in consultation with the Chief Counsel for 
Advocacy of the SBA through the Small Business Review Panel outreach 
concerning any projected impact of the proposed rule on the cost of 
credit for small entities as well as any significant alternatives to 
the proposed rule which accomplish the stated objectives of applicable 
statutes and which minimize any increase in the cost of credit for 
small entities.\236\ The Bureau sought to collect the advice and 
recommendations of the SERs during the Panel Outreach meeting regarding 
these issues because, as small financial service providers, the SERs 
could provide valuable input on any such impact related to the proposed 
rule.\237\
---------------------------------------------------------------------------

    \236\ See 5 U.S.C. 603(d)(2). The Bureau provided this 
notification as part of the notification and other information 
provided to the Chief Counsel for Advocacy of the SBA with respect 
to the Small Business Review Panel outreach pursuant to RFA section 
609(b)(1).
    \237\ See 5 U.S.C. 603(d)(2)(B).
---------------------------------------------------------------------------

    At the time the Bureau circulated the Small Business Review Panel 
outreach materials to the SERs in advance of the PanelOutreach Meeting, 
it had no evidence that the proposals under consideration would result 
in an increase in the cost of business credit for small entities. 
Instead, the summary of the proposals stated that the proposals would 
apply only to mortgage loans obtained by consumers primarily for 
personal, family, or household purposes and the proposals would not 
apply to loans obtained primarily for business purposes.\238\
---------------------------------------------------------------------------

    \238\ See TILA Sec.  104(1); RESPA Sec.  7(a)(1).
---------------------------------------------------------------------------

    At the Panel Outreach Meeting, the Bureau asked the SERs a series 
of questions regarding cost of business credit issues.\239\ The 
questions were focused on two areas. First, the SERs from commercial 
banks/savings institutions, credit unions, and mortgage companies were 
asked whether, and how often, they extend to their customers closed-end 
mortgage loans to be used primarily for personal, family, or household 
purposes but that are used secondarily to finance a small business, and 
whether the proposals then under consideration would result in an 
increase in their customers' cost of credit. Second, the Bureau 
inquired as to whether, and how often, the SERs take out closed-end, 
home-secured loans to be used primarily for personal, family, or 
household purposes and use them secondarily to finance their small 
businesses, and whether the proposals under consideration would 
increase the SERs' cost of credit.
---------------------------------------------------------------------------

    \239\ Small Business Review Panel Report, appendix D, at 154-155 
(PowerPoint slides from the Panel Outreach Meeting, ``Topic 7: 
Impact on the Cost of Business Credit'').
---------------------------------------------------------------------------

    The SERs had few comments on the impact on the cost of business 
credit. While they took this time to express concerns that these 
regulations would increase their costs, they said these regulations 
would have little to no impact on the cost of business credit. When 
asked, one SER mentioned that at times people may use a home-secured 
loan to finance a business, which was corroborated by a different SER 
based on his personal experience with starting a business. The Bureau 
is generally interested in the use of personal credit to finance a 
business and invites interested parties to provide data and other 
factual information on this issue.
    Based on the feedback obtained from SERs at the Panel Outreach 
Meeting, the Bureau currently does not anticipate that the proposed 
rule will result in an increase in the cost of credit for small 
business entities. To further evaluate this question, the Bureau 
solicits comment on whether the proposed rule will have any impact on 
the cost of credit for small entities.

IX. Paperwork Reduction Act

    The collection of information contained in this proposal, and 
identified as such, has been submitted to OMB for review under section 
3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) 
(Paperwork Reduction Act or PRA). Under the Paperwork Reduction Act, 
the Bureau may not conduct or sponsor, and a person is not required to 
respond to, an information collection unless the information collection 
displays a valid OMB control number.
    This proposed rule would amend 12 CFR part 1024 (Regulation X). 
Regulation X currently contains collections of information approved by 
OMB, and the Bureau's OMB control number for Regulation X is 3170-0016. 
The collection title is: Real Estate Settlement Procedures Act 
(Regulation X) 12 CFR 1024. As described below, the proposal would 
amend the collections of information currently in Regulation X.
    The title of this information collection is 2012 Real Estate 
Settlement Procedures Act (Regulation X) Mortgage Servicing. The 
frequency of response is on-occasion. These information collection 
requirements would be required to provide benefits for consumers and 
would be mandatory. See 12 U.S.C. 2601 et seq. Because the Bureau does 
not collect any information, no issue of confidentiality

[[Page 57293]]

arises. The likely respondents would be federally insured depository 
institutions (such as commercial banks, savings banks, and credit 
unions) and non-depository institutions (such as mortgage brokers, real 
estate investment trusts, private-equity funds, etc.) that service 
consumer mortgages.\240\
---------------------------------------------------------------------------

    \240\ For purposes of this PRA analysis, references to 
``creditors'' or ``lenders'' shall be deemed to refer collectively 
to commercial banks, savings institutions, credit unions, and 
mortgage companies (i.e., non-depository lenders), unless otherwise 
stated. Moreover, reference to ``respondents'' shall generally mean 
all categories of entities identified in the sentence to which this 
footnote is appended, except as otherwise stated or if the context 
indicates otherwise.
---------------------------------------------------------------------------

    Under the proposal, the Bureau would account for the paperwork 
burden for respondents under Regulation X. Using the Bureau's burden 
estimation methodology, the Bureau believes the total estimated one-
time industry burden for the approximately 12,813 respondents subject 
to the proposed rule would be approximately 570,000 hours for one time 
changes and 2.4 million hours annually.\241\ The estimated burdens in 
this PRA analysis represent averages for all respondents. The Bureau 
expects that the amount of time required to implement each of the 
proposed changes for a given institution may vary based on the size, 
complexity, and practices of the respondent.
---------------------------------------------------------------------------

    \241\ For proposes of this PRA analysis, references to 
``creditors'' or ``lenders'' shall be deemed to refer collectively 
commerical banks, savings institutions, credit unions, and mortgage 
companies (i.e., non-depository lenders), unless otherwise stated. 
Moreover, reference to ``respondents'' shall generally mean all 
categories of entities identified in the sentence to which this 
footnote is appended, except as otherwise stated or if the context 
indicates otherwise.
---------------------------------------------------------------------------

    For purposes of this PRA analysis, the Bureau estimates that there 
are 11,425 depository institutions and credit unions subject to the 
proposed rule, and an additional 1,388 non-depository institutions. 
Based on discussions with industry, the Bureau assumes that all 
depository respondents except for one large entity and 95% of non-
depository respondents (and 100% of small non-depository respondents) 
use third-party software and information technology vendors. Under 
existing contracts, vendors would absorb the one-time software and 
information technology costs associated with complying with the 
proposal for large- and medium- sized respondents but not for small 
respondents.

A. Information Collection Requirements

    The Bureau is proposing six changes to the information collection 
requirements in Regulation X:
    1. Provisions regarding mortgage servicing transfer notices: The 
Bureau's proposal would substantially reduce the length and complexity 
of the mortgage servicing transfer notice but would expand coverage 
from closed-end first-lien mortgages to closed-end subordinate-lien 
mortgages as well.
    2. Provisions regarding the placement and termination of force-
placed insurance, including three notices: The Bureau's proposal for 
force-placed insurance would require servicers to provide two notices 
to a borrower at least 45 days and 15 days before charging the borrower 
for force-placed insurance. In addition to the two notices, the Bureau 
is proposing to require servicers to provide borrowers a written notice 
before charging a borrower for renewing or replacing existing force-
placed insurance on an annual basis.
    3. Provisions regarding error resolution and requests for 
information: The Bureau's proposals for error resolution would include 
a requirement on servicers generally to provide written acknowledgement 
of receipt of a notice of error and to provide a written response to 
the stated error. The Bureau's proposal for response to information 
requests would require servicers to provide a written response 
acknowledging receipt of an information request. Servicers would also 
be required to provide the borrower with the requested information 
either orally or in writing, or a written notification that the 
information requested is not available to the servicer.
    4. Requirements for early intervention with delinquent borrowers: 
The Bureau's proposals would require servicers to provide oral and 
written notices upon a borrower's reaching certain stages of 
delinquency.
    5. Requirements regarding loss mitigation: Under the Bureau's 
proposals, servicers that offer loss mitigation options in the ordinary 
course of business would be required to follow certain procedures when 
evaluating loss mitigation applications, including (1) providing a 
notice telling the borrower if the loss mitigation is incomplete, 
approved, or denied (and, for denials of loan modification requests, a 
more detailed notice of the specific reason for denial and appeal 
rights), (2) providing a notice of the appeal determination, and (3) 
providing servicers of senior or subordinate liens encumbering the 
property that is the subject of the loss mitigation application copies 
of the loss mitigation application.

B. Analysis of Proposed Information Collection Requirements \242\
---------------------------------------------------------------------------

    \242\ A detailed analysis of the burdens and costs described in 
this section can be found in the Paperwork Reduction Act Supporting 
Statement that corresponds with this proposal. The Supporting 
Statement is available at www.reginfo.gov.
---------------------------------------------------------------------------

1. Mortgage Servicing Transfers
    The Bureau's proposal would substantially reduce the length and 
complexity of the mortgage servicing transfer notice but would expand 
coverage to closed-end second lien mortgages, in addition to closed-end 
first-lien mortgages.
    Currently, lenders are required to notify closed-end first lien 
borrowers at origination whether their loan may be sold and the 
servicing transferred. Upon any mortgage transfer, the transferor 
servicer is required to provide written notice to the borrower 
notifying them of the transfer, while the transferee servicer is 
required to provide notification to the borrower that it will servicer 
the borrower's mortgage. The Bureau's proposed provision would 
substantially reduce the length and complexity of the existing mortgage 
servicing transfer disclosure. The Bureau is expanding coverage from 
closed-end first-lien mortgages to also include closed-end second lien 
mortgages.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents would 
have one-time burden in hours or vendor costs from creating software 
and information technology capability to produce the new disclosure. 
The Bureau estimates this one-time burden to be 30 minutes and $90, on 
average, for each respondent.\243\
---------------------------------------------------------------------------

    \243\ Dollar figures are vendor costs and do not include the 
dollar value of burden hours.
---------------------------------------------------------------------------

    Certain Bureau respondents would have ongoing burden in hours or 
vendor costs associated with the information technology used in 
producing the disclosure. All Bureau respondents would have ongoing 
vendor costs associated with distributing (e.g., mailing) the 
disclosure. The Bureau estimates this ongoing burden to be 2 hours and 
$215, on average, for each respondent.
2. Force-Placed Insurance Disclosures
    The Bureau's proposal for force-placed insurance would require 
servicers to provide two notices to a borrower at least 45 days and 15 
days before charging the borrow for force-placed insurance. In addition 
to the two notices, the Bureau is proposing to

[[Page 57294]]

require servicers to provide borrowers a written notice before charging 
a borrower for renewing or replacing existing force-placed insurance on 
an annual basis.
    The Bureau understands the proposed requirement that servicers 
provide borrowers with two written notices prior to charging borrowers 
for force-placed insurance reflects common practices (i.e., ``usual and 
customary'' business practices) today for the majority of mortgage 
servicers. However, the Bureau understands that the proposed 
requirement that servicers provide a written notice prior to charging 
borrowers for the renewal or replacement of existing force-place 
insurance does not reflect common practices.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents would 
have one-time burden in hours or vendor costs from creating software 
and information technology capability to produce the new renewal 
disclosure. Furthermore, while the Bureau considers borrower 
notifications of force-placed insurance prior to placement as the 
normal course of business, institutions may still have to incur one-
time costs associated with modifying their existing disclosures to 
comply with the Bureau's proposed disclosure provisions. As a result, 
the Bureau's one-time burden incorporates these costs. The Bureau 
estimates this one-time burden to be 45 minutes and $90, on average, 
for each respondent.\244\
---------------------------------------------------------------------------

    \244\ Dollar figures are vendor costs and do not include the 
dollar value of burden hours.
---------------------------------------------------------------------------

    Certain respondents would have ongoing burden in hours or vendor 
costs associated with the information technology used in producing the 
disclosure. All respondents would have ongoing vendor costs associated 
with distributing (e.g., mailing) the renewal disclosure. The Bureau 
estimates this ongoing burden to be 15 minutes and $23, on average, for 
each respondent.
3. Error Resolution and Requests for Information
    The Bureau's proposals for error resolution and requests for 
information would require written acknowledgement of receiving a notice 
of error or an information request, written notification of correction 
of error, and oral or written provision of the information requested by 
the borrower or a written notification that the information requested 
is not available to the servicer, and an internal record of engagement 
with the borrower, which are forms of information collection.
    The Bureau estimates that one-time hourly burden to provide 
training for relevant staff to comply with the proposed disclosure 
requirements to be 43 hours, on average, per respondent.
    Respondents would have ongoing burden in hours and/or vendor costs 
associated with the information technology used in producing the 
disclosure. All respondents would have ongoing vendor costs associated 
with distributing (e.g., mailing) the disclosure and some will have 
production costs associated with the new disclosure. The Bureau 
estimates this ongoing burden to be 50 hours and $87, on average, for 
each respondent.
4. Early Intervention With Delinquent Borrowers
    An information collection would be created by the Bureau's proposal 
to require servicers to provide an oral and written notice upon a 
borrower's reaching certain stages of delinquency. Most respondents 
currently provide some form of delinquency notice, and thus the 
expenses associated with this information collection are from the one-
time costs to incorporate the Bureau's required information.
    Fannie Mae, Freddie Mac, FHA, and the VA generally recommend that 
all institutions that service any of their guaranteed mortgages to 
perform duties similar to those set forth in the Bureau's proposed 
provisions regarding early intervention with delinquent borrowers; the 
Bureau estimates that 80% of outstanding mortgages are guaranteed by 
one of these institutions. The Bureau estimates that 75% of loans that 
are not guaranteed by one of these institutions are serviced by a 
servicer that is currently providing delinquency notices that would 
comply with the proposal. The Bureau estimates the one-time burden to 
be 0.4 hours, on average, for each institution. The Bureau estimates 
the ongoing burden to be 3 hours and $3, on average for each 
respondent.
5. Loss Mitigation
    Under the Bureau's proposals, servicers that offer loss mitigation 
options in the ordinary course of business would be required to follow 
certain procedures when evaluating loss mitigation applications, 
including (1) providing a notice telling the borrower if the loss 
mitigation is incomplete, approved, or denied (and, for denials of loan 
modification requests, a more detailed notice of the specific reason 
for denial and appeal rights), (2) providing a notice of the appeal 
determination, and (3) providing servicers of senior or subordinate 
liens encumbering the property that is subject of the loss mitigation 
application copies of the loss mitigation application.
    The loss mitigation provision would create an information 
collection by requiring servicers to notify borrowers who submit loss 
mitigation applications and any servicers of senior or second liens 
encumbering the property that is the subject of the loss mitigation 
application where an applications has been submitted. Servicers may be 
required to send up to three notices per loss mitigation application. 
For incomplete applications, servicers would be required to notify the 
borrower that their application is incomplete and explain the steps 
needed to complete. For complete applications, the servicer is required 
to notify the borrower of their decision and provide a copy of the 
application to any servicers of senior or subordinate liens encumbering 
the property that is the subject of the loss mitigation application. 
For incomplete applications that are resubmitted, and possess second-
lien loan on their property, the provision would require three notices.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents would 
have one-time burden in hours or vendor costs from creating software 
and information technology costs associated with changes in the payoff 
statement disclosure. The Bureau estimates this one-time burden to be 
20 minutes and $90, on average, for each respondent. The Bureau 
estimates the ongoing burden to be 135 hours and $229, on average, for 
each respondent.

B. Summary of Burden Hours

[[Page 57295]]



----------------------------------------------------------------------------------------------------------------
                                                    Disclosures
                                    Respondents         per        Hours burden    Total burden    Total vendor
                                                    respondent    per disclosure       hours           costs
----------------------------------------------------------------------------------------------------------------
Ongoing:
    Notice of Mortgage Service            12,813             726           0.003          26,000      $2,760,000
     Transfer...................
    Force-Placed Insurance......          12,813              77           0.003           3,000         290,000
    Error Resolution & Response           12,813             300           0.167         642,000       1,110,000
     to Inquiries...............
    Early Intervention for                12,813              12           0.250          37,000          40,000
     Delinquent Borrowers.......
    Loss Mitigation.............          12,813             810           0.161       1,670,000       2,930,000
One-Time:
    Notice of Mortgage Service            12,813               1           0.495           6,000       1,160,000
     Transfer...................
    Force-Placed Insurance......          12,813               1           0.740           9,000       1,160,000
    Error Resolution & Response           12,813               1              43         547,000               0
     to Inquiries...............
    Early Intervention for                12,813               1           0.400           5,000               0
     Delinquent Borrowers.......
    Loss Mitigation.............          12,813               1           0.295           4,000       1,160,000
----------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.

C. Comments

    Comments are specifically requested concerning: (1) Whether the 
proposed collections of information are necessary for the proper 
performance of the functions of the Bureau, including whether the 
information will have practical utility; (2) the accuracy of the 
estimated burden associated with the proposed collections of 
information; (3) how to enhance the quality, utility, and clarity of 
the information to be collected; and (4) how to minimize the burden of 
complying with the proposed collections of information, including the 
application of automated collection techniques or other forms of 
information technology. All comments will become a matter of public 
record. Comments on the collection of information requirements should 
be sent to the Office of Management and Budget (OMB), Attention: Desk 
Officer for the Consumer Financial Protection Bureau, Office of 
Information and Regulatory Affairs, Washington, DC, 20503, or by the 
Internet to http://[email protected], with copies to the 
Bureau at the Consumer Financial Protection Bureau (Attention: PRA 
Office), 1700 G Street NW., Washington, DC 20552, or by the Internet to 
[email protected].

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
changes to the text of the regulation. New language is shown inside 
[rtrif]bold-faced arrows[ltrif], while language that would be removed 
is set off with [lsqbb]bold-faced brackets[rsqbb]. In certain cases 
deemed appropriate by the Bureau to aid understanding, redesignated 
text, such as text moved from one paragraph to another, is also shown 
inside arrows and brackets.

List of Subjects in 12 CFR Part 1024

    Condominiums, Consumer protection, Housing, Insurance, Mortgage 
servicing, Mortgagees, Mortgages, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set forth above, the Bureau proposes to amend part 
1024 of Chapter X in Title 1 of the Code of Federal Regulations as 
follows:

PART 1024--REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

    1. The authority citation for part 1024 is revised to read as 
follows:

    Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5532, 
5581.

    2. Redesignate Sec. Sec.  1024.1 through 1024.5 as Subpart A to 
part 1024 .
    3. In part 1024, add the heading ``Subpart A--General'' above Sec.  
1024.1.
    4. In Sec.  1024.2, revise the definitions for ``Federally related 
mortgage loan,'' ``Mortgage broker,'' ``Origination service,'' ``Public 
Guidance Documents,'' ``Servicer,'' and ``Servicing,'' to read as 
follows:


Sec.  1024.2  Definitions.

* * * * *
    (b) * * *
    Federally related mortgage loan [lsqbb]or mortgage loan[rsqbb] 
means:
    (1) Any loan (other than temporary financing, such as a 
construction loan):
    (i) That is secured by a first or subordinate lien on residential 
real property, including a refinancing of any secured loan on 
residential real property upon which there is either:
    (A) Located or, following settlement, will be constructed using 
proceeds of the loan, a structure or structures designed principally 
for occupancy of from one to four families (including individual units 
of condominiums and cooperatives and including any related interests, 
such as a share in the cooperative or right to occupancy of the unit); 
or
    (B) Located or, following settlement, will be placed using proceeds 
of the loan, a manufactured home; and
    (ii) For which one of the following paragraphs applies. The loan:
    (A) Is made in whole or in part by any lender that is either 
regulated by or whose deposits or accounts are insured by any agency of 
the Federal Government;
    (B) Is made in whole or in part, or is insured, guaranteed, 
supplemented, or assisted in any way:
    (1) By the Secretary of the Department of Housing and Urban 
Development (HUD) or any other officer or agency of the Federal 
Government; or
    (2) Under or in connection with a housing or urban development 
program administered by the Secretary of HUD or a housing or related 
program administered by any other officer or agency of the Federal 
Government;
    (C) Is intended to be sold by the originating lender to the Federal 
National Mortgage Association, the Government National Mortgage 
Association, the Federal Home Loan Mortgage Corporation (or its 
successors), or a financial institution from which the loan is to be 
purchased by the Federal Home Loan Mortgage Corporation (or its 
successors);
    (D) Is made in whole or in part by a ``creditor'', as defined in 
section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 
1602(g)), that makes or invests in residential real estate loans 
aggregating more than $1,000,000 per year. For purposes of this 
definition, the term ``creditor'' does not include any agency or 
instrumentality of any State, and the term ``residential real estate 
loan'' means any loan secured by residential real property, including 
single-family and multifamily residential property;
    (E) Is originated either by a dealer or, if the obligation is to be 
assigned to any maker of mortgage loans specified in

[[Page 57296]]

paragraphs (1)(ii)(A) through (D) of this definition, by a mortgage 
broker; or
    (F) Is the subject of a home equity conversion mortgage, also 
frequently called a ``reverse mortgage,'' issued by any maker of 
mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this 
definition.
    (2) Any installment sales contract, land contract, or contract for 
deed on otherwise qualifying residential property is a federally 
related mortgage loan if the contract is funded in whole or in part by 
proceeds of a loan made by any maker of mortgage loans specified in 
paragraphs (1)(ii)(A) through(D) of this definition.
    (3) If the residential real property securing a mortgage loan is 
not located in a State, the loan is not a federally related mortgage 
loan.
* * * * *
    Mortgage broker means a person (not an employee of a lender) or 
entity that renders origination services and serves as an intermediary 
between a borrower and a lender in a transaction involving a federally 
related mortgage loan, including such a person or entity that closes 
the loan in its own name in a table funded transaction. [lsqbb]A loan 
correspondent approved under HUD regulation 24 CFR 202.8 for Federal 
Housing Administration programs is a mortgage broker for purposes of 
this part.[rsqbb]
* * * * *
    Origination service means any service involved in the creation of a 
[rtrif]federally related[ltrif] mortgage loan, including but not 
limited to the taking of the loan application, loan processing, the 
underwriting and funding of the loan, and the processing and 
administrative services required to perform these functions.
* * * * *
    Public Guidance Documents means Federal Register documents adopted 
or published, that the Bureau may amend from time-to-time by 
publication in the Federal Register. These documents are also available 
from the Bureau [lsqbb]at the address indicated in Sec.  1024.3[rsqbb]. 
[rtrif] Requests for copies of Public Guidance Documents should be 
directed to the Associate Director, Research, Markets, and Regulations, 
Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, 
DC 20552.[ltrif]
* * * * *
    Servicer means the person responsible for the servicing of a 
federally related mortgage loan (including the person who makes or 
holds such loan if such person also services the loan). The term does 
not include:
    (1) The Federal Deposit Insurance Corporation (FDIC), in connection 
with assets acquired, assigned, sold, or transferred pursuant to 
section 13(c) of the Federal Deposit Insurance Act or as receiver or 
conservator of an insured depository institution; [lsqbb]and[rsqbb]
    [rtrif](2) The National Credit Union Administration (NCUA), in 
connection with assets acquired, assigned, sold, or transferred 
pursuant to section 208 of the Federal Credit Union Act or as 
conservator or liquidating agent of an insured credit union; and[ltrif]
    ([lsqbb]2[rsqbb][rtrif]3[ltrif]) The Federal National Mortgage 
Corporation (FNMA); the Federal Home Loan Mortgage Corporation (Freddie 
Mac); the FDIC; HUD, including the Government National Mortgage 
Association (GNMA) and the Federal Housing Administration (FHA) 
(including cases in which a mortgage insured under the National Housing 
Act (12 U.S.C. 1701 et seq.) is assigned to HUD); the [lsqbb]National 
Credit Union Administration ([rsqbb]NCUA[lsqbb])[rsqbb]; the Farm 
Service Agency; and the Department of Veterans Affairs (VA), in any 
case in which the assignment, sale, or transfer of the servicing of the 
[rtrif]federally related[ltrif] mortgage loan is preceded by 
termination of the contract for servicing the loan for cause, 
commencement of proceedings for bankruptcy of the servicer, 
[lsqbb]or[rsqbb] commencement of proceedings by the FDIC for 
conservatorship or receivership of the servicer (or an entity by which 
the servicer is owned or controlled) [rtrif], or commencement of 
proceedings by the NCUA for appointment of a conservator or liquidating 
agent of the servicer (or an entity by which the servicer is owned or 
controlled)[ltrif].
    Servicing means receiving any scheduled periodic payments from a 
borrower pursuant to the terms of any [rtrif]federally related[ltrif] 
mortgage loan, including amounts for escrow accounts under section 10 
of RESPA (12 U.S.C. 2609), and making the payments to the owner of the 
loan or other third parties of principal and interest and such other 
payments with respect to the amounts received from the borrower as may 
be required pursuant to the terms of the mortgage servicing loan 
documents or servicing contract. In the case of a home equity 
conversion mortgage or reverse mortgage as referenced in this section, 
servicing includes making payments to the borrower.
* * * * *
    5. Revise Sec.  1024.3 to read as follows:


Sec.  1024.3  [lsqbb]Questions or suggestions from public and copies of 
public guidance documents[rsqbb] [rtrif]E-Sign applicability[ltrif].

    [lsqbb]Any questions or suggestions from the public regarding 
RESPA, or requests for copies of Public Guidance Documents, should be 
directed to the Associate Director, Research, Markets, and Regulations, 
Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, 
DC 20006. Legal questions concerning the interpretation of this part 
may be directed to the same address.[rsqbb] [rtrif]The disclosures 
required by this part may be provided to a borrower in electronic form, 
subject to compliance with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. 7001 et seq.).[ltrif]
    6. In Sec.  1024.4, revise paragraph (a)(1), remove paragraph (b), 
and redesignate paragraph (c) as paragraph (b) to read as follows:


Sec.  1024.4  Reliance upon rule; regulation or interpretation by the 
Bureau.

* * * * *
    (a) Rule, regulation or interpretation. (1) For purposes of 
sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the 
following constitute a rule, regulation or interpretation of the 
Bureau:
    (i) All provisions, including appendices [rtrif]and 
supplements[ltrif], of this part. Any other document referred to in 
this part is not incorporated in this part unless it is specifically 
set out in this part;
    (ii) Any other document that is published in the Federal Register 
by the Bureau and states that it is an ``interpretation,'' 
``interpretive rule,'' ``commentary,'' or a ``statement of policy'' for 
purposes of section 19(a) of RESPA. [lsqbb]Such documents will be 
prepared by Bureau staff and counsel. Such documents may be revoked or 
amended by a subsequent document published in the Federal Register by 
the Bureau.[rsqbb] [rtrif]Except in unusual circumstances, 
interpretations will not be issued separately but will be incorporated 
in an official interpretation to this part, which will be amended 
periodically.[ltrif]
    7. In Sec.  1024.5, revise paragraph (b)(7) as follows:


Sec.  1024.5  Coverage of RESPA.

* * * * *
    (b) * * *
    (7) Secondary market transactions. A bona fide transfer of a loan 
obligation in the secondary market is not covered by RESPA and this 
part, except as set forth in section 6 of RESPA (12 U.S.C. 2605)

[[Page 57297]]

and [lsqbb]Sec.  1024.21[rsqbb] [rtrif]Subpart C of this part 
(Sec. Sec.  1024.30-1024.41)[ltrif]. In determining what constitutes a 
bona fide transfer, the Bureau will consider the real source of funding 
and the real interest of the funding lender. Mortgage broker 
transactions that are table-funded are not secondary market 
transactions. Neither the creation of a dealer loan or dealer consumer 
credit contract, nor the first assignment of such loan or contract to a 
lender, is a secondary market transaction (see Sec.  1024.2).
    8. In Sec.  1024.7, revise paragraph (f)(3) as follows:


Sec.  1024.7  Good faith estimate.

* * * * *
    (f) * * *
    (3) Borrower-requested changes. If a borrower requests changes to 
the [rtrif]federally related[ltrif] mortgage loan identified in the GFE 
that change the settlement charges or the terms of the loan, the loan 
originator may provide a revised GFE to the borrower. If a revised GFE 
is to be provided, the loan originator must do so within 3 business 
days of the borrower's request. The revised GFE may increase charges 
for services listed on the GFE only to the extent that the borrower-
requested changes to the mortgage loan identified on the GFE actually 
resulted in higher charges.
    9. Amend Sec.  1024.17 by:
    a. Revising paragraph (c)(8).
    b. Revising paragraph (f)(2)(ii).
    c. Revising paragraph (f)(4)(iii).
    d. Revising paragraph (i)(2).
    e. Revising paragraph (i)(4)(iii).
    f. Adding paragraph (k)(5).
    g. Removing paragraph (l) and redesignating paragraph (m) as 
paragraph (l).
    The revisions and additions read as follows:


Sec.  1024.17  Escrow accounts.

* * * * *
    (c) * * *
    (8) Provisions in [rtrif]federally related[ltrif] mortgage 
documents. The servicer must examine the [rtrif]federally 
related[ltrif] mortgage loan documents to determine the applicable 
cushion for each escrow account. If the [rtrif]federally related[ltrif] 
mortgage loan documents provide for lower cushion limits, then the 
terms of the loan documents apply. Where the terms of any 
[lsqbb]mortgage loan[rsqbb] [rtrif]such[ltrif] document allow greater 
payments to an escrow account than allowed by this section, then this 
section controls the applicable limits. Where [lsqbb]the mortgage 
loan[rsqbb] [rtrif]such[ltrif] documents do not specifically establish 
an escrow account, whether a servicer may establish an escrow account 
for the loan is a matter for determination by other Federal or State 
law. If [lsqbb]the mortgage loan[rsqbb] [rtrif]such[ltrif] 
document[rtrif]s are[ltrif] [lsqbb]is[rsqbb] silent on the escrow 
account limits and a servicer establishes an escrow account under other 
Federal or State law, then the limitations of this section apply unless 
applicable Federal or State law provides for a lower amount. If 
[lsqbb]the loan[rsqbb] [rtrif]such[ltrif] documents provide for escrow 
accounts up to the RESPA limits, then the servicer may require the 
maximum amounts consistent with this section, unless an applicable 
Federal or State law sets a lesser amount.
* * * * *
    (f) * * *
    (2) * * *
    (ii) These provisions regarding surpluses apply if the borrower is 
current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the 
borrower's payment within 30 days of the payment due date, then the 
servicer may retain the surplus in the escrow account pursuant to the 
terms of the [rtrif]federally related[ltrif] mortgage loan documents.
* * * * *
    (f) * * *
    (4) * * *
    (iii) These provisions regarding deficiencies apply if the borrower 
is current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the 
borrower's payment within 30 days of the payment due date, then the 
servicer may recover the deficiency pursuant to the terms of the 
[rtrif]federally related[ltrif] mortgage loan documents.
* * * * *
    (i) * * *
    (2) No annual statements in the case of default, foreclosure, or 
bankruptcy. This paragraph (i)(2) contains an exemption from the 
provisions of Sec.  1024.17(i)(1). If at the time the servicer conducts 
the escrow account analysis the borrower is more than 30 days overdue, 
then the servicer is exempt from the requirements of submitting an 
annual escrow account statement to the borrower under Sec.  1024.17(i). 
This exemption also applies in situations where the servicer has 
brought an action for foreclosure under the underlying [rtrif]federally 
related[ltrif] mortgage loan, or where the borrower is in bankruptcy 
proceedings. If the servicer does not issue an annual statement 
pursuant to this exemption and the loan subsequently is reinstated or 
otherwise becomes current, the servicer shall provide a history of the 
account since the last annual statement (which may be longer than 1 
year) within 90 days of the date the account became current.
* * * * *
    (4) * * *
    (iii) Short year statement upon loan payoff. If a borrower pays off 
a [rtrif]federally related[ltrif] mortgage loan during the escrow 
account computation year, the servicer shall submit a short year 
statement to the borrower within 60 days after receiving the pay-off 
funds.
* * * * *
    (k) * * *
    [rtrif](5) Notwithstanding paragraphs (k)(1) and (k)(2) of this 
section, a servicer must make payments from a borrower's escrow account 
in a timely manner to pay the premium charge on a borrower's hazard 
insurance, as defined in Sec.  1024.31, unless the servicer has a 
reasonable basis to believe that the borrower's hazard insurance has 
been canceled or not renewed for reasons other than nonpayment of 
premium charges. If the borrower's escrow account does not contain 
sufficient funds to pay the premium charge, the servicer must advance 
funds to make such payment.[ltrif]
    10. Redesignate Sec. Sec.  1024.6 through 1024.21 as Subpart B to 
part 1024.
    11. Add the heading ``Subpart B--Mortgage Settlement and Escrow 
Accounts'' above Sec.  1024.6.


Sec.  1024.21  [Removed and reserved]

    12. Remove and reserve Sec.  1024.21.


Sec.  1024.22  [Removed]

    13. Remove Sec.  1024.22.


Sec.  1024.23  [Removed]

    14. Remove Sec.  1024.23.
    15. Add Subpart C to part 1024 to read as follows:
Subpart C--Mortgage Servicing
Sec.
1024.30 Scope.
1024.31 Definitions.
1024.32 General disclosure requirements.
1024.33 Mortgage servicing transfers.
1024.34 Timely payments by servicer.
1024.35 Error resolution procedures.
1024.36 Requests for information.
1024.37 Force-placed insurance.
1024.38 Reasonable information management policies and procedures.
1024.39 Early intervention requirements for certain borrowers.
1024.40 Continuity of contact.
1024.41 Loss mitigation procedures.

[[Page 57298]]

[rtrif]Subpart C--Mortgage Servicing


Sec.  1024.30  Scope.

    This subpart applies to any mortgage loan, as that term is defined 
in Sec.  1024.31.


Sec.  1024.31  Definitions.

    For purposes of this subpart:
    Consumer reporting agency has the meaning set forth in section 603 
of the Fair Credit Reporting Act, 15 U.S.C. 1681a.
    Day means calendar day, except where legal public holidays, 
Saturdays, and Sundays are expressly excluded.
    Hazard insurance means insurance on the property securing a 
mortgage loan that protects the property against loss caused by fire, 
wind, flood, earthquake, theft, falling objects, freezing, and other 
similar hazards for which the owner or assignee of such loan requires 
insurance.
    Loss mitigation application means a submission from a borrower 
requesting evaluation for a loss mitigation option, as that term is 
defined in this section, in accordance with procedures established by 
the servicer for the submission of such requests.
    Loss mitigation options means alternatives available from the 
servicer to the borrower to avoid foreclosure.
    Master servicer means the owner of the right to perform servicing. 
A master servicer may perform the servicing itself or do so through a 
subservicer.
    Mortgage loan means any federally related mortgage loan, as that 
term is defined in Sec.  1024.2 subject to the exemptions in Sec.  
1024.5(b), but does not include open-end lines of credit (home equity 
plans).
    Qualified written request means a written correspondence from the 
borrower to the servicer that enables the servicer to identify the name 
and account of the borrower, and either:
    (1) States the reasons the borrower believes an error relating to 
the servicing of the loan has occurred; or
    (2) Provides sufficient detail to the servicer regarding 
information relating to the servicing of the mortgage loan sought by 
the borrower.
    Reverse mortgage transaction has the meaning set forth in 12 CFR 
1026.33(a).
    Service provider means any party retained by a servicer that 
interacts with a borrower or provides a service to a servicer for which 
a borrower may incur a fee.
    Subservicer means a servicer who does not own the right to perform 
servicing, but who performs servicing on behalf of the master servicer.
    Transferee servicer means a servicer who obtains or who will obtain 
the right to perform servicing pursuant to an agreement or 
understanding with the owner or assignee of a mortgage loan.
    Transferor servicer means a servicer, including a table funding 
mortgage broker or dealer on a first lien dealer loan, who transfers or 
will transfer the right to perform servicing pursuant to an agreement 
or understanding with the owner or assignee of a mortgage loan.


Sec.  1024.32  General disclosure requirements.

    (a) Disclosure requirements. (1) Form of disclosures. Disclosures 
and notices required under this subpart must be clear and conspicuous, 
in writing, and in a form the consumer may keep, except as otherwise 
provided in this subpart. The disclosures required by this subpart may 
be provided to the consumer in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the E-Sign 
Act, as set forth in Sec.  1024.3. A servicer may use commonly accepted 
or readily understandable abbreviations in complying with the 
disclosure requirements of this subpart.
    (2) Foreign language disclosures. Disclosures required under this 
subpart may be made in a language other than English, provided that the 
disclosures are made available in English upon the borrower's request.
    (b) Additional information; disclosures required by other laws. 
Nothing in this subpart shall be construed as prohibiting a servicer 
from including additional information with a disclosure required by 
applicable law. Nothing in this subpart shall be construed as 
prohibiting a servicer from combining disclosures required by other 
laws (such as the Truth in Lending Act (15 U.S.C. 1601 et seq.) or the 
Truth in Savings Act (12 U.S.C. 4301 et seq.)) or the terms of an 
agreement with a Federal or State regulatory agency with the 
disclosures required by this subpart, unless such prohibition is 
expressly set forth in this subpart, applicable law, or the terms of an 
agreement with a Federal or State regulatory agency.


Sec.  1024.33  Mortgage servicing transfers.

    (a) Servicing disclosure statement. Within 3 days (excluding legal 
public holidays, Saturdays, and Sundays) after a person applies for a 
reverse mortgage transaction, the lender, table funding mortgage 
broker, or dealer in a first lien dealer loan shall provide to the 
person a servicing disclosure statement that states whether the 
servicing of the reverse mortgage transaction may be assigned, sold, or 
transferred to any other person at any time. Appendix MS-1 of this part 
contains a model form for the disclosures required under this 
paragraph. If an application is denied credit within the 3-day period, 
a servicing disclosure statement is not required to be delivered.
    (b) Notices of transfer of loan servicing. (1) Requirement for 
notice. Except as provided in this section, each transferor servicer 
and transferee servicer of any mortgage loan shall provide to the 
borrower a notice of transfer for any assignment, sale, or transfer of 
the servicing of the mortgage loan. The notice must contain the 
information described in paragraph (b)(4) of this section. Appendix MS-
2 of this part contains a model form for the disclosures required under 
this paragraph.
    (2) Certain transfers excluded. (i) The following transfers are not 
considered an assignment, sale, or transfer of mortgage loan servicing 
for purposes of this section if there is no change in the payee, 
address to which payment must be delivered, account number, or amount 
payment due:
    (A) A transfer between affiliates;
    (B) A transfer that results from mergers or acquisitions of 
servicers or subservicers; or
    (C) A transfer that occurs between master servicers without 
changing the subservicer.
    (ii) The Federal Housing Administration (FHA) is not required to 
provide to the borrower a notice of transfer where a mortgage insured 
under the National Housing Act is assigned to the FHA.
    (3) Time of notice. (i) In general. Except as provided in paragraph 
(b)(2)(ii) of this section, the transferor servicer shall provide the 
notice of transfer to the borrower not less than 15 days before the 
effective date of the transfer of the servicing of the mortgage loan. 
The transferee servicer shall provide the notice of transfer to the 
borrower not more than 15 days after the effective date of the 
transfer. The transferor and transferee servicers may provide a single 
notice, in which case the notice shall be provided not less than 15 
days before the effective date of the transfer of the servicing of the 
mortgage loan.
    (ii) Extended time. The notice of transfer shall be provided to the 
borrower by the transferor servicer or the transferee servicer not more 
than 30 days after the effective date of the transfer of the servicing 
of the mortgage loan in any case in which the transfer of servicing is 
preceded by:
    (A) Termination of the contract for servicing the loan for cause;
    (B) Commencement of proceedings for bankruptcy of the servicer;

[[Page 57299]]

    (C) Commencement of proceedings by the FDIC for conservatorship or 
receivership of the servicer or an entity that owns or controls the 
servicer; or
    (D) Commencement of proceedings by the NCUA for appointment of a 
conservator or liquidating agent of the servicer or an entity that owns 
or controls the servicer.
    (4) Contents of notice. The notices of transfer shall include the 
following information:
    (i) The effective date of the transfer of servicing;
    (ii) The name, address, and a toll-free telephone number for an 
employee or department of the transferee servicer that can be contacted 
by the borrower to obtain answers to servicing transfer inquiries;
    (iii) The name, address, and a toll-free telephone number for an 
employee or department of the transferor servicer that can be contacted 
by the borrower to obtain answers to servicing transfer inquiries;
    (iv) The date on which the transferor servicer will cease to accept 
payments relating to the loan and the date on which the transferee 
servicer will begin to accept such payments. These dates shall either 
be the same or consecutive days;
    (v) Whether the transfer will affect the terms or the continued 
availability of mortgage life or disability insurance, or any other 
type of optional insurance, and any action the borrower must take to 
maintain coverage; and
    (vi) A statement that the transfer of servicing does not affect any 
term or condition of the mortgage loan other than terms directly 
related to the servicing of the loan.
    (c) Borrower payments during transfer of servicing. (1) Payments 
not considered late. During the 60-day period beginning on the 
effective date of transfer of the servicing of any mortgage loan, if 
the transferor servicer (rather than the transferee servicer that 
should properly receive payment on the loan) receives payment on or 
before the applicable due date (including any grace period allowed 
under the mortgage loan instruments), a payment may not be treated as 
late for any purpose, except with respect to calculating the period of 
delinquency for purposes of Sec.  1024.39.
    (2) Treatment of payments. A transferor servicer shall promptly 
either:
    (i) Transfer a payment it has received incorrectly to the 
transferee servicer for application to a borrower's mortgage loan 
account, or
    (ii) Return the payment to the person that made the payment to the 
transferor servicer.
    (d) Preemption of state laws. A lender who makes a mortgage loan or 
a servicer shall be considered to have complied with the provisions of 
any State law or regulation requiring notice to a borrower at the time 
of application for a loan or transfer of servicing of a loan if the 
lender or servicer complies with the requirements of this section. Any 
State law requiring notice to the borrower at the time of application 
or at the time of transfer of servicing of the loan is preempted, and 
there shall be no additional borrower disclosure requirements. 
Provisions of State law, such as those requiring additional notices to 
insurance companies or taxing authorities, are not preempted by section 
6 of RESPA or this section, and this additional information may be 
added to a notice provided under this section, if permitted under State 
law.


Sec.  1024.34  Timely payments by servicer.

    (a) Timely escrow disbursements required. If the terms of a 
mortgage loan require the borrower to make payments to the servicer of 
the mortgage loan for deposit into an escrow account to pay taxes, 
insurance premiums, and other charges for the mortgaged property, the 
servicer shall make payments from the escrow account in a timely 
manner, that is, on or before the deadline to avoid a penalty, as 
governed by the requirements in Sec.  1024.17(k).
    (b) Refund of escrow balance. (1) In general. Within 20 days 
(excluding legal public holidays, Saturdays, and Sundays) of a 
borrower's payment of a mortgage loan in full, any amounts remaining in 
the escrow account shall be returned to the borrower.
    (2) Servicer may credit funds to a new escrow account. A servicer 
may credit funds in an escrow account balance to an escrow account for 
a new mortgage loan as of the date of the settlement of the new 
mortgage loan if the new mortgage loan is provided to the borrower by a 
lender that:
    (i) Was also the lender to whom the prior mortgage loan was 
initially payable;
    (ii) Is the owner or assignee of the prior mortgage loan; or
    (iii) Uses the same servicer that serviced the prior mortgage loan 
to service the new mortgage loan.


Sec.  1024.35  Error resolution procedures.

    (a) Notice of error. A servicer shall comply with the requirements 
of this section for any oral or written notice from the borrower that 
asserts a covered error and that includes the name of the borrower, 
information that enables the servicer to identify the borrower's 
mortgage loan account, and the error the borrower believes has 
occurred. A notice on a payment coupon or other payment form supplied 
by the servicer need not be treated by the servicer as a notice of 
error. A qualified written request that asserts a covered error 
relating to the servicing of the mortgage loan is considered a notice 
of error and must comply with all requirements applicable to a notice 
of error.
    (b) Scope of error resolution. For purposes of this section, the 
term ``error'' means the following categories of covered errors:
    (1) Failure to accept a payment that conforms to the servicer's 
written requirements for the borrower to follow in making payments.
    (2) Failure to apply an accepted payment to principal, interest, 
escrow, or other charges under the terms of the mortgage loan and 
applicable law.
    (3) Failure to credit a payment to a borrower's mortgage loan 
account as of the date of receipt, where such failure has resulted in a 
charge to the consumer or the furnishing of negative information to a 
consumer reporting agency.
    (4) Failure to pay taxes, insurance premiums, or other charges, 
including charges that the borrower and servicer have voluntarily 
agreed that the servicer should collect and pay, in a timely manner as 
required by Sec.  1024.34(a), or to refund an escrow account balanced 
as required by Sec.  1024.34(b).
    (5) Imposition of a fee or charge that the servicer lacks a 
reasonable basis to impose upon the borrower.
    (6) Failure to provide an accurate payoff balance amount upon a 
borrower's request pursuant to 12 CFR 1026.36(c)(1)(iii).
    (7) Failure to provide accurate information to a borrower for loss 
mitigation options and foreclosure, as required by Sec. Sec.  1024.39 
and 1024.40.
    (8) Failure to accurately and timely transfer information relating 
to the servicing of a borrower's mortgage loan account to a transferee 
servicer.
    (9) Failure to suspend a scheduled foreclosure sale in the 
circumstances described in Sec.  1024.41(g).
    (c) Contact information for borrowers to assert errors. A servicer 
may, by notice provided to a borrower, establish a telephone number and 
address that a borrower must use to submit a notice of error in 
accordance with the procedures in this section. The notice shall 
include a statement that the borrower may assert an error by contacting 
the servicer through the telephone number or address established for 
that purpose. If a servicer designates a specific telephone number and 
address for receiving errors, a servicer shall

[[Page 57300]]

designate the same telephone number and address for receiving 
information requests pursuant to Sec.  1024.36(b) of this part. A 
servicer shall provide a notice to a borrower before any change in the 
telephone number or address used for receiving a notice of error.
    (d) Acknowledgment of receipt. Within five days (excluding legal 
public holidays, Saturdays, and Sundays) of a servicer receiving a 
notice of an error from a borrower, the servicer shall provide to the 
borrower a response acknowledging receipt of the borrower's notice of 
the asserted error.
    (e) Response to notice of error. (1) Investigation and response 
requirements. (i) In general. A servicer must respond to a notice of 
error by either:
    (A) Correcting the error identified by the borrower and providing 
the borrower with notification of the correction, the date of the 
correction, and contact information for further assistance; or
    (B) Conducting a reasonable investigation and providing the 
borrower with a notification that includes a statement that the 
servicer has determined that no error occurred, a statement of the 
reason or reasons for this determination, a statement of the borrower's 
right to request documents relied upon by the servicer in reaching its 
determination, information regarding how the borrower can request such 
documents, and contact information for further assistance.
    (ii) Different or additional error. If during a reasonable 
investigation of a notice of error, a servicer concludes that an error 
occurred other than, or in addition to, the error alleged by the 
borrower, the servicer shall correct the error and provide the borrower 
with a notification that describes the error the servicer identified, 
the action taken to correct the error, the applicable date for the 
correction, and contact information for further assistance.
    (2) Requesting information from borrower. A servicer may request 
supporting documentation from a borrower, but may not:
    (i) Require a borrower to provide such information as a condition 
of investigating the alleged error; or
    (ii) Determine that no error occurred because the borrower failed 
to provide any requested information without conducting a reasonable 
investigation pursuant to paragraph (e)(1)(i)(B) of this section.
    (3) Time limits. (i) In general. A servicer must comply with the 
requirements of paragraph (e)(1) of this section:
    (A) Not later than five days (excluding legal public holidays, 
Saturdays, and Sundays) after the servicer receives the asserted error, 
if a notice of error identifies an error in paragraph (b)(6) of this 
section.
    (B) Prior to the date of a scheduled foreclosure sale or within 30 
days (excluding legal public holidays, Saturdays, and Sundays) after 
the servicer receives the asserted error, whichever is earlier, if a 
notice of error identifies an error in paragraph (b)(9) of this 
section.
    (C) For all other errors, not later than 30 days (excluding legal 
public holidays, Saturdays, and Sundays) after the servicer receives 
the asserted error.
    (ii) Extension of time limits. The servicer may extend the time 
period for completing its investigation of a notice of error by an 
additional 15 days (excluding legal public holidays, Saturdays, and 
Sundays) if, before the end of the 30-day period set forth in paragraph 
(e)(3)(i)(C) of this section, the servicer notifies the borrower of the 
extension and the reasons for the extension. A servicer may not extend 
the time period for completing its investigation of an error identified 
in paragraphs (b)(6) or (b)(9) of this section.
    (4) Copies of documentation. A servicer shall provide to the 
borrower, at no charge, copies of documents and information relied upon 
by the servicer in making its determination within 15 days (excluding 
legal public holidays, Saturdays, and Sundays) of receiving the 
borrower's request for such documents.
    (f) Alternative compliance. (1) Early correction. A servicer is not 
required to comply with paragraphs (d) and (e) of this section if the 
servicer corrects the error identified by the borrower within five days 
(excluding legal public holidays, Saturdays, and Sundays) of receiving 
the notice of error, and the borrower is notified of that correction in 
writing.
    (2) Error asserted before foreclosure sale. A servicer is not 
required to comply with the requirements of paragraphs (d) and (e) of 
this section if the servicer receives a notice of an error in paragraph 
(b)(9) of this section seven days or less before a scheduled 
foreclosure sale, so long as prior to the scheduled foreclosure sale, 
the servicer responds to the borrower, orally or in writing, and 
corrects the error or states the reason the servicer has determined 
that no error has occurred.
    (g) Requirements not applicable. (1) In general. A servicer is not 
required to comply with the requirements of paragraphs (d) and (e) of 
this section if the servicer reasonably determines that any of the 
following applies:
    (i) Duplicative notice of error. An asserted error is substantially 
the same as an error previously asserted by the borrower for which the 
servicer has previously complied with its obligation to respond 
pursuant to paragraph (e)(1) of this section, unless the borrower 
provides new and material information to support the asserted error. 
New and material information means information that was not reviewed by 
the servicer in connection with investigating a prior notice of error 
and is reasonably likely to change a servicer's prior determination 
about the error.
    (ii) Overbroad or unduly burdensome notice of error. A notice of 
error is overbroad or unduly burdensome. A notice of error is overbroad 
if a servicer cannot reasonably determine from the notice of error the 
specific covered error that a borrower asserts has occurred on a 
borrower's account. A notice of error is unduly burdensome if a 
diligent servicer could not respond to the notice of error without 
either exceeding the maximum timeframe permitted by paragraph 
(e)(3)(ii) of this section or incurring costs (or dedicating resources) 
that would be unreasonable in light of the circumstances. To the extent 
a servicer can identify a valid assertion of an error in a submission 
that is otherwise overbroad or unduly burdensome, the servicer shall 
comply with the requirements of paragraphs (d) and (e) of this section 
with respect to that asserted error.
    (iii) Untimely notice of error. An error is untimely if the error 
is asserted more than one year after:
    (A) Servicing for the mortgage loan that is the subject of asserted 
error was transferred from the servicer receiving the notice of error 
to a transferee servicer; or
    (B) The mortgage loan amount was paid in full.
    (2) Notice to borrower. A servicer shall notify the borrower of its 
determination that the servicer is not required to comply with the 
requirements of paragraphs (d) and (e) of this section in writing not 
later than five days (excluding legal public holidays, Saturdays, and 
Sundays) after making its determination. The notice to the borrower 
shall set forth the basis that is permitted under paragraph (g)(1) of 
this section upon which the servicer has made such determination.
    (h) Payment requirements prohibited. A servicer shall not charge a 
fee, or require a borrower to make any payment that may be owed on a 
borrower's account, as a condition of investigating and responding to a 
notice of error.

[[Page 57301]]

    (i) Effect on servicer remedies. (1) Adverse information. After 
receipt of a notice of error, a servicer may not, for 60 days, furnish 
adverse information to any consumer reporting agency regarding any 
payment that is the subject of the notice of error.
    (2) Remedies permitted. Except as set forth in this section with 
respect to an error identified in paragraph (b)(9) of this section, 
nothing in this section shall limit or restrict a lender or servicer 
from pursuing any remedy it has under applicable law, including 
initiating foreclosure or proceeding with a scheduled foreclosure sale.


Sec.  1024.36  Requests for information.

    (a) Information request. A servicer shall comply with the 
requirements of this section for any oral or written request for 
information (including a qualified written request for information 
related to the servicing of the mortgage loan) from a borrower that 
includes the name of the borrower, information that enables the 
servicer to identify the borrower's mortgage loan account, and states 
the information the borrower is requesting with respect to the 
borrower's mortgage loan. A request on a payment coupon or other 
payment form supplied by the servicer need not be treated by the 
servicer as a request for information. A qualified written request that 
requests information relating to the servicing of the mortgage loan is 
considered a request for information and must comply with all 
requirements applicable to a request for information.
    (b) Contact information for borrowers to request information. A 
servicer may, by notice provided to a borrower, establish a telephone 
number and address that a borrower must use to request information in 
accordance with the procedures in this section. The notice shall 
include a statement that a borrower should request information by 
contacting the servicer through the telephone number or address 
established for that purpose. If a servicer designates a specific 
telephone number and address for receiving information requests, a 
servicer shall designate the same telephone number and address for 
receiving notices of error pursuant to Sec.  1024.35(c) of this part. A 
servicer shall provide notice to a borrower before any change in the 
telephone number or address used for receiving an information request.
    (c) Acknowledgment of receipt. Within five days (excluding legal 
public holidays, Saturdays, and Sundays) of a servicer receiving an 
information request from a borrower, the servicer shall provide to the 
borrower a response acknowledging receipt of the information request.
    (d) Response to information request. (1) Investigation and response 
requirements. A servicer must respond to an information request by 
either:
    (i) Providing the borrower with the requested information and 
contact information for further assistance either orally or in writing; 
or
    (ii) Conducting a reasonable search for the requested information 
and providing the borrower with a notification that states that the 
servicer has determined that the requested information is not available 
to the servicer, provides the basis for the servicer's determination, 
and provides contact information for further assistance.
    (2) Time limits. (i) In general. A servicer must comply with the 
requirements of paragraph (d)(1) of this section:
    (A) Not later than 10 days (excluding legal public holidays, 
Saturdays, and Sundays) after the servicer receives an information 
request for the identity of, and address or other relevant contact 
information for, the owner or assignee of a mortgage loan; and
    (B) For all other information requests, not later than 30 days 
(excluding legal public holidays, Saturdays, and Sundays) after the 
servicer receives an information request.
    (ii) Extension of time limit. For information requests governed by 
the time limit set forth in paragraph (d)(2)(i)(B) of this section, the 
servicer may extend the time period for completing its search for 
information by an additional 15 days (excluding legal public holidays, 
Saturdays, and Sundays) if, before the end of the 30-day period, the 
servicer notifies the borrower of the extension and the reasons for the 
extension.
    (e) Alternative compliance. A servicer is not required to comply 
with paragraphs (c) and (d) of this section if the servicer provides 
the borrower with the information requested and contact information for 
further assistance within five days (excluding legal public holidays, 
Saturdays, and Sundays) of receiving an information request. A servicer 
may provide the borrower such information orally or in writing.
    (f) Requirements not applicable. (1) In general. A servicer is not 
required to comply with the requirements of paragraphs (c) and (d) of 
this section if the servicer reasonably determines that any of the 
following applies:
    (i) Duplicative information. A borrower requests information that 
is substantially the same as information previously requested by the 
borrower for which the servicer has previously complied with its 
obligation pursuant to paragraph (d)(1) of this section.
    (ii) Confidential, proprietary, or general corporate information. 
The borrower requests confidential, proprietary, or general corporate 
information.
    (iii) Irrelevant information. The borrower requests information 
that is not directly related to the borrower's mortgage loan account.
    (iv) Overbroad or unduly burdensome information request. An 
information request is overbroad or unduly burdensome. An information 
request is overbroad if a borrower requests a servicer provide an 
unreasonable volume of documents or information to a borrower. An 
information request is unduly burdensome if a diligent servicer could 
not respond to the information request without either exceeding maximum 
timeframe permitted by paragraph (d)(2)(ii) of this section or 
incurring costs (or dedicating resources) that would be unreasonable in 
light of the circumstances. To the extent a servicer can identify a 
valid information request in a submission that is otherwise overbroad 
or unduly burdensome, the servicer shall comply with the requirements 
of paragraphs (c) and (d) of this section with respect to that 
requested information.
    (v) Untimely information request. An information request is 
delivered to a servicer more than one year after:
    (A) Servicing for the mortgage loan that is the subject of the 
information request was transferred from the servicer receiving the 
request for information to a transferee servicer; or
    (B) The mortgage loan amount was paid in full.
    (2) Notice to borrower. A servicer shall notify the borrower of its 
determination that the servicer is not required to comply with the 
requirements of paragraphs (c) and (d) of this section in writing not 
later than five days (excluding legal public holidays, Saturdays, and 
Sundays) after making its determination. The notice to the borrower 
shall set forth the basis that is permitted under paragraph (f)(1) upon 
which the servicer has made such determination.
    (g) Payment requirement limitations. (1) Fees prohibited. Except as 
set forth in paragraph (g)(2) of this section, a servicer may not 
charge a fee, or require a borrower to make any payment that may be 
owed on a borrower's account, as a condition of responding to a valid 
information request.
    (2) Fees permitted. Nothing in this section shall prohibit a 
servicer from charging a fee for providing a payoff statement or a 
beneficiary notice under

[[Page 57302]]

applicable State law, if such fees are not otherwise prohibited by 
applicable law.
    (h) Servicer remedies. Nothing in this section shall prohibit a 
servicer from furnishing adverse information to any consumer reporting 
agency or pursuing any of its remedies, including initiating 
foreclosure or proceeding with a scheduled foreclosure sale, allowed by 
the underlying mortgage loan instruments, during the time period that 
response to an information request notice is outstanding.


Sec.  1024.37  Force-placed insurance.

    (a) Definition of force-placed insurance. (1) In general. For the 
purposes of this section, the term ``force-placed insurance'' means 
hazard insurance obtained by a servicer on behalf of the owner or 
assignee of a mortgage loan on a property securing such loan.
    (2) Types of insurance not considered force-placed insurance. The 
following insurance does not constitute ``force-placed insurance'' 
under this section:
    (i) Hazard insurance to protect against flood loss obtained by a 
servicer as required by the Flood Disaster Protection Act of 1973.
    (ii) Hazard insurance obtained by a borrower but renewed by the 
borrower's servicer as required by Sec.  1024.17(k)(1), (k)(2), or 
(k)(5).
    (iii) Hazard insurance obtained by the borrower but renewed by the 
servicer at its discretion if the servicer is not required to renew the 
borrower's hazard insurance as required by Sec.  1024.17(k)(1), (k)(2), 
or (k)(5).
    (b) Basis for obtaining force-placed insurance. A servicer may not 
obtain force-placed insurance unless the servicer has a reasonable 
basis to believe that the borrower has failed to comply with the 
mortgage loan contract's requirement to maintain hazard insurance.
    (c) Requirements for charging borrower for force-placed insurance. 
(1) In general. A servicer may not charge a borrower for force-placed 
insurance unless:
    (i) The servicer delivers to the borrower or places in the mail a 
written notice with the disclosures set forth in paragraph (c)(2) of 
this section at least 45 days before the premium charge or any fee is 
assessed;
    (ii) The servicer delivers to the borrower or places in the mail a 
written notice in accordance with paragraph (d)(1) of this section; and
    (iii) During the 45-day notice period, the servicer has not 
received verification that the borrower has hazard insurance in place 
continuously. Determining whether the borrower has hazard insurance in 
place continuously shall take account of any grace period provided 
under State or other applicable law.
    (2) Content of notice. The notice required under paragraph 
(c)(1)(i) of this section shall include the following:
    (i) The date of the notice;
    (ii) The servicer's name and mailing address;
    (iii) The borrower's name and mailing address;
    (iv) A statement that requests the borrower to provide hazard 
insurance information for the borrower's property and identifies the 
property by its address;
    (v) A statement that the borrower's hazard insurance is expiring or 
expired, as applicable, and that the servicer does not have evidence 
that the borrower has hazard insurance coverage past the expiration 
date. For a borrower who has obtained more than one type of hazard 
insurance on the property, the servicer must identify the type of 
hazard insurance for which the servicer lacks evidence of coverage;
    (vi) A statement that:
    (A) Hazard insurance is required on the borrower's property; and
    (B) The servicer has obtained or will obtain, as applicable, 
insurance at the borrower's expense;
    (vii) A statement requesting the borrower to promptly provide the 
servicer with the insurance policy number, and the name, mailing 
address and phone number of the borrower's insurance company or the 
borrower's insurance agent;
    (viii) A description of how the borrower may provide the 
information requested pursuant to paragraph (c)(2)(vii) of this 
section. A servicer that will only accept the requested information in 
writing must disclose that fact in the notice;
    (ix) The cost of the force-placed insurance, stated as an annual 
premium. If the cost of the force-placed insurance is not known as of 
the date of the disclosure, a good faith estimate shall be disclosed 
and be identified as such;
    (x) A statement that insurance the servicer obtains may:
    (A) Cost significantly more than hazard insurance obtained by the 
borrower; and
    (B) Not provide as much coverage as hazard insurance obtained by 
the borrower; and
    (xi) The servicer's telephone number for borrower questions.
    (3) Format. The disclosures set forth in paragraph (c)(2) of this 
section must be in a format substantially similar to form MS-3(A), set 
forth in Appendix MS-3 of this part. Disclosures made pursuant to 
paragraphs (c)(2)(vi) and (c)(2)(ix) of this section must be in bold 
text. Disclosure made pursuant to paragraph (c)(2)(iv) of this section 
must be in bold text, except that the physical address of the 
borrower's property may be in regular text.
    (d) Reminder notice. (1) In general. One written notice in addition 
to the written notice required pursuant to paragraph (c)(1)(i) of this 
section must be delivered to the borrower or placed in the mail prior 
to the servicer charging a borrower for force-placed insurance. The 
servicer may not deliver to the borrower or place the written notice 
required pursuant to this paragraph (d)(1) in the mail until 30 days 
after delivering to the borrower or placing in the mail the written 
notice set forth in paragraph (c)(1)(i) of this section. A servicer 
that receives no insurance information after delivering to the borrower 
or placing in the mail the written notice set forth in paragraph 
(c)(1)(i) of this section must provide the disclosures set forth in 
paragraph (d)(2)(i) of this section. A servicer that receives insurance 
information after delivering to the borrower or placing in the mail the 
written notice set forth in paragraph (c)(1)(i) of this section but 
does not receive verification that the borrower has hazard insurance in 
place continuously must provide the disclosures set forth in paragraph 
(d)(2)(ii) of this section.
    (2) Content of the reminder notice. (i) Servicer receiving no 
insurance information. A servicer that has not received any insurance 
information after delivering to the borrower or placing in the mail the 
written notice set forth paragraph (c)(1)(i) of this section must 
provide a written notice that shall include the following:
    (A) The date of the notice;
    (B) A statement that the notice is the second and final notice; and
    (C) The disclosures set forth in paragraphs (c)(2)(ii) to 
(c)(2)(xi) of this section.
    (ii) Servicer not receiving verification of continuous coverage. A 
servicer that has received insurance information after delivering to 
the borrower or placing in the mail the written notice required 
pursuant to paragraph (c)(1)(i) of this section, but not verification 
that the borrower has hazard insurance in place continuously, must 
deliver or place in the mail a written notice that shall include the 
following:
    (A) The date of the notice;
    (B) A statement that the notice is the second and final notice;
    (C) The disclosures set forth in paragraphs (c)(2)(ii), 
(c)(2)(iii), (c)(2)(iv), and (c)(2)(xi) of this section;

[[Page 57303]]

    (D) A statement that the servicer has received the hazard insurance 
information that the borrower provided;
    (E) A statement that indicates to the borrower that the servicer is 
unable to verify that the borrower has hazard insurance in place 
continuously; and
    (F) A statement that the borrower will be charged for insurance the 
servicer obtains for the period of time where the servicer is unable to 
verify hazard insurance coverage unless the borrower provides the 
servicer with hazard insurance information for such period.
    (3) Format. The disclosures set forth in paragraph (d)(2)(i) of 
this section must be in a format substantially similar to form MS-3(B), 
and the disclosures set forth in paragraph (d)(2)(ii) of this section 
must be in a format substantially similar to form MS-3(C). Both MS-3(B) 
and MS-3(C) are set forth in Appendix MS-3 of this part. Disclosures 
required by paragraphs (d)(2)(i)(B), (d)(2)(ii)(B), and (d)(2)(ii)(F) 
of this section must be in bold text.
    (4) Updating notice with borrower information. If a servicer 
receives hazard insurance information from a borrower after a written 
notice required pursuant to paragraph (d)(1) of this section has been 
put into production, the servicer is not required to update the notice 
so long as the notice was put into production within a reasonable time 
prior to the servicer delivering the notice to the borrower or placing 
the notice in the mail.
    (e) Renewal or replacing force-placed insurance. (1) In general. A 
servicer may not charge a borrower for renewing or replacing existing 
force-placed insurance unless:
    (i) The servicer delivers or places in the mail a written notice to 
the borrower with the disclosures set forth in paragraph (e)(2) of this 
section at least 45 days before the premium charge or any fee is 
assessed; and
    (ii) During the 45-day notice period, the servicer has not received 
evidence that the borrower has obtained hazard insurance.
    (iii) Charging a borrower before end of notice period. 
Notwithstanding paragraphs (e)(1)(i) and (e)(1)(ii) of this section, a 
servicer that has renewed or replaced existing force-placed insurance 
during the 45-day notice period may charge the borrower for the renewal 
or replacement promptly after the servicer receives verification that 
hazard insurance obtained by the borrower did not provide the borrower 
with insurance coverage for any period of time following the expiration 
of the existing force-placed insurance.
    (2) Content of renewal notice. A servicer must provide the 
following information in the notice required under paragraph (e)(1) of 
this section:
    (i) The date of the notice;
    (ii) The servicer's name and mailing address;
    (iii) The borrower's name and mailing address;
    (iv) A statement that requests the borrower to update the hazard 
insurance information for the borrower's property and identifies the 
borrower's property by its address;
    (v) A statement that the servicer previously obtained insurance on 
the borrower's property and assessed the cost of the insurance to the 
borrower because the servicer did not have evidence that the borrower 
had hazard insurance coverage for the property;
    (vi) A statement that:
    (A) The insurance the servicer obtained previously has expired or 
is expiring, as applicable; and
    (B) Because hazard insurance is required on the borrower's 
property, the servicer has the right to maintain insurance on the 
property by renewing or replacing the insurance it previously obtained;
    (vii) The cost of the force-placed insurance, stated as an annual 
premium. If the cost of the force-placed insurance is not known as of 
the date of the disclosure, a good faith estimate shall be disclosed 
and be identified as such;
    (viii) A statement reminding the borrower that insurance the 
servicer obtains may:
    (A) Cost significantly more than hazard insurance obtained by the 
borrower; and
    (B) Not provide as much coverage as hazard insurance obtained by 
the borrower.
    (ix) A statement that if the borrower obtains hazard insurance, the 
borrower should promptly provide the servicer with the insurance policy 
number, and the name, mailing address and phone number of the 
borrower's insurance company or the borrower's insurance agent.
    (x) A description of how the borrower may provide the information 
requested pursuant to paragraph (e)(2)(ix) of this section. A servicer 
that will only accept the requested information in writing must 
disclose that fact in the notice; and
    (xi) The servicer's telephone number for borrower questions.
    (3) Format. The disclosures set forth in paragraph (e)(2) of this 
section must be in a format substantially similar to form MS-3(D), set 
forth in Appendix MS-3 to this part. Disclosures made pursuant to 
paragraphs (e)(2)(vi)(B) and (e)(2)(vii) of this section must be in 
bold text. Disclosures made pursuant to paragraph (e)(2)(iv) of this 
section must be in bold text, except that the physical address of the 
property may be in regular text.
    (4) Compliance. Before the first anniversary of a servicer 
obtaining force-placed insurance on a borrower's property, the servicer 
shall deliver to the borrower or place in the mail the notice required 
by paragraph (e)(1) of this section. Subsequently, a servicer is not 
required to comply with paragraph (e)(1) of this section before 
charging a borrower for renewing or replacing existing force-placed 
insurance more than once every 12 months.
    (f) Mailing the notices. If a servicer mails a notice required 
pursuant to paragraphs (c)(1)(i), (d)(1) and (e)(1) of this section, as 
applicable, the servicer must use a class of mail not less than first-
class mail.
    (g) Cancellation of force-placed insurance. Within 15 days of 
receiving verification that the borrower has hazard insurance in place, 
a servicer must:
    (1) Cancel force-placed insurance obtained for a borrower's 
property; and
    (2) For any period during which the borrower's hazard insurance was 
in place, refund to the borrower all force-placed insurance premium 
charges and related fees paid by the borrower for such period and 
remove from the borrower's account all force-placed insurance charges 
and related fees for such period that the servicer has assessed to the 
borrower.
    (h) Limitations on force-placed insurance charges. (1) In general. 
Except for charges subject to State regulation as the business of 
insurance and charges authorized by the Flood Disaster Protection Act 
of 1973, all charges related to force-placed insurance assessed to a 
borrower by or through the servicer must be bona fide and reasonable.
    (2) Bona fide and reasonable charge. A bona fide and reasonable 
charge is a charge for a service actually performed that bears a 
reasonable relationship to the servicer's cost of providing the 
service, and is not otherwise prohibited by applicable law.
    (i) Relationship to Flood Disaster Protection Act of 1973. If 
permitted by regulation under section 102(e) of the Flood Disaster 
Protection Act of 1973, a servicer subject to the requirements of this 
section may deliver to the borrower or place in the mail any notice 
required by this section together with the notice required by section 
102(e) of the Flood Disaster Protection Act of 1973.

[[Page 57304]]

Sec.  1024.38  Reasonable information management policies and 
procedures.

    (a) In general. (1) Reasonable policies and procedures. A servicer 
shall establish reasonable policies and procedures for maintaining and 
managing information and documents related to borrower mortgage loan 
accounts. A servicer meets this requirement if:
    (i) The servicer's policies and procedures are reasonably designed 
to achieve the objectives set forth in paragraph (b) of this section; 
and
    (ii) The servicer's policies and procedures are reasonably designed 
to ensure compliance with the standard requirements in paragraph (c) of 
this section.
    (2) Safe harbor. A servicer satisfies the requirements in this 
section if it does not engage in a pattern or practice of failing to 
achieve any of the objectives set forth in paragraph (b) of this 
section and does not engage in a pattern or practice of failing to 
comply with any of the standard requirements in paragraph (c) of this 
section.
    (b) Objectives. (1) Accessing and providing accurate information.
    (i) Provide accurate and timely disclosures to borrowers as 
required by this subpart or other applicable law;
    (ii) Investigate, respond to, and, as appropriate, correct errors 
asserted by borrowers in accordance with the procedures set forth in 
Sec.  1024.35, including asserted errors resulting from actions of 
service providers;
    (iii) Provide borrowers with accurate and timely information and 
documents in response to borrower requests made in accordance with the 
procedures set forth in Sec.  1024.36;
    (iv) Provide owners or assignees of mortgage loans with accurate 
and current information and documents about any mortgage loans they 
own; and
    (v) Submit documents or filings required for a foreclosure process, 
including documents or filings required by a court of competent 
jurisdiction, that reflect accurate and current information and that 
comply with applicable law.
    (2) Evaluating loss mitigation options. (i) Provide accurate 
information regarding loss mitigation options available to borrowers 
pursuant to Sec. Sec.  1024.39 and 1024.40;
    (ii) Identify all loss mitigation options for which a borrower may 
be eligible pursuant to any requirements imposed by an owner or 
assignee of a mortgage loan;
    (iii) Provide prompt access to all documents and information 
submitted by a borrower in connection with a loss mitigation option to 
servicer personnel that are assigned to assist the borrower pursuant to 
Sec.  1024.40;
    (iv) Identify documents and information that a borrower is required 
to submit to make a loss mitigation application complete so that prompt 
notice of such requirements can be provided to the borrower pursuant to 
Sec.  1024.41(b)(2); and
    (v) Evaluate loss mitigation applications, and any appeals, 
pursuant to the requirements in Sec.  1024.41.
    (3) Facilitating oversight of, and compliance by, service 
providers. (i) Provide appropriate servicer personnel with access to 
accurate and current documents and information reflecting actions 
performed by service providers;
    (ii) Facilitate periodic reviews of service providers, including by 
providing appropriate servicer personnel with documents and information 
necessary to audit compliance by service providers with the servicer's 
contractual obligations and applicable law; and
    (iii) Facilitate the sharing of accurate and current information 
regarding the status of an evaluation of a borrower's completed loss 
mitigation application and the status of any foreclosure proceeding 
among servicer personnel assigned to a borrower pursuant to Sec.  
1024.40 and service providers responsible for handling foreclosure 
proceedings.
    (4) Facilitating servicing transfers. Timely transfer all 
information and documents relating to a transferred mortgage loan to a 
transferee servicer in a form and manner that ensures the accuracy of 
the information and documents transferred and that enables a transferee 
servicer to comply with the requirements of this subpart and the terms 
of the transferee servicer's contractual obligation to the owner or 
assignee of the mortgage loan. Such information and documents shall 
include any information reflecting the current status of discussions 
with a borrower regarding loss mitigation options, any agreements 
entered into with a borrower on a loss mitigation option, and any 
analysis by a servicer with respect to potential recovery from a non-
performing mortgage loan, as appropriate.
    (c) Standard requirements. (1) Record retention. A servicer shall 
retain records that document actions taken by the servicer with respect 
to a borrower's mortgage loan account until one year after the date a 
mortgage loan is discharged or servicing of a mortgage loan is 
transferred by the servicer to a transferee servicer.
    (2) Servicing file. A servicer shall provide a borrower with a 
servicing file upon request in accordance with the procedures set forth 
in Sec.  1024.36. The servicing file shall contain:
    (i) A schedule of all payments credited or debited to the mortgage 
loan account, including any escrow account as defined in Sec.  
1024.17(b) and any suspense account;
    (ii) A copy of the borrower's mortgage note;
    (iii) A copy of the borrower's deed of trust;
    (iv) Any collection notes created by servicer personnel reflecting 
communications with borrowers about the mortgage loan account;
    (v) A report of any data fields relating to a borrower's mortgage 
loan account created by a servicer's electronic systems in connection 
with collection practices, including records of automatically or 
manually dialed telephonic communications; and
    (vi) Copies of any information or documents provided by a borrower 
to a servicer in accordance with the procedures set forth in Sec. Sec.  
1024.35 or 1024.41.


Sec.  1024.39  Early intervention requirements for certain borrowers.

    (a) Oral notice. If a borrower is late in making a payment 
sufficient to cover principal, interest, and, if applicable, escrow for 
a given billing cycle, a servicer shall notify or make good faith 
efforts to notify the borrower orally not later than 30 days after the 
payment due date that the borrower is late and that loss mitigation 
options, if applicable, may be available. If the servicer attempts to 
notify the borrower by telephone, good faith efforts require calling 
the borrower on at least three separate days in order to reach the 
borrower. A servicer is not required to notify or make good faith 
efforts to notify the borrower under this paragraph if the borrower 
makes the payment within 30 days after the payment due date.
    (b) Written notice. (1) In general. If a borrower is late in making 
a payment sufficient to cover principal, interest, and, if applicable, 
escrow for a given billing cycle, a servicer shall provide to the 
borrower a written notice that complies with paragraph (b)(2) of this 
section not later than 40 days after the payment due date. A servicer 
is not required to provide the written notice if the borrower makes the 
payment within 40 days after the payment due date. A servicer is not 
required to provide the written notice more than once during any 180-
day period.
    (2) Content of the written notice. The notice required by paragraph 
(b)(1) of this section shall include:

[[Page 57305]]

    (i) A statement encouraging the borrower to contact the servicer;
    (ii) The servicer's mailing address and telephone number;
    (iii) A statement, if applicable, providing a brief description of 
loss mitigation options that may be available from the servicer;
    (iv) A statement, if applicable, informing the borrower how to 
obtain more information about loss mitigation options from the 
servicer;
    (v) A statement explaining that foreclosure is a legal process to 
end the borrower's ownership of the property and an estimate, expressed 
in a number of days from the date of a missed payment, of when the 
servicer makes the referral to foreclosure; and
    (vi) The Web site address, if applicable, and telephone number to 
access:
    (A) Any State housing finance authority (as defined in section 1301 
of the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989) for the State in which the borrower's property is located; and
    (B) Either the Bureau list of homeownership counselors or 
counseling organizations or the HUD list of homeownership counselors or 
counseling organizations.
    (3) Model clauses. Model Clauses MS-4(A), MS-4(B), MS-4(C), MS-
4(D), and MS-4(E) in Appendix MS-4 to this part may be used to comply 
with the requirements of paragraphs (b)(1) and (b)(2) of this section.


Sec.  1024.40  Continuity of contact.

    (a) Continuity of contact requirements. (1) In general. No later 
than five days after a servicer has notified or made a good faith 
effort to notify a borrower as required by Sec.  1024.39(a), the 
servicer must assign personnel to respond to the borrower's inquiries, 
and as applicable, assist the borrower with loss mitigation options. If 
a borrower has been assigned personnel as required by this paragraph 
and the assignment has not ended when servicing for borrower's mortgage 
loan has transferred to a transferee servicer, subject to paragraphs 
(c)(1)-(c)(4) of this section, the transferee servicer must assign 
personnel to respond to the borrower's inquiries, and as applicable, 
assist the borrower with loss mitigation options, within reasonable 
time of the transfer of servicing for the borrower's mortgage loan.
    (2) Access to assigned personnel. A servicer shall make access to 
the assigned personnel available via telephone. If a borrower contacts 
the servicer and does not receive a live response from the assigned 
personnel, the borrower must be able to record his or her contact 
information. The servicer must respond to the borrower within a 
reasonable time.
    (b) Functions of servicer personnel. (1) Reasonable policies and 
procedures. A servicer shall establish policies and procedures 
reasonably designed to ensure the servicer personnel it makes available 
to the borrower pursuant to paragraph (a) of this section perform the 
following functions where applicable:
    (i) Provide the borrower with accurate information about:
    (A) Loss mitigation options offered by the servicer and available 
to the borrower, based on information in the servicer's possession;
    (B) Actions the borrower must take to be evaluated for such 
options, including actions the borrower must take to submit a complete 
loss mitigation application, as defined in Sec.  1024.41, and if 
applicable, actions the borrower must take to appeal the servicer's 
denial of the borrower's loss mitigation application;
    (C) The status of any loss mitigation application that the borrower 
has submitted to the servicer;
    (D) The circumstances under which the servicer may make a referral 
to foreclosure; and
    (E) Any loss mitigation deadlines established by the servicer that 
the borrower must meet.
    (ii) Access:
    (A) A complete record of the borrower's payment history in the 
servicer's possession;
    (B) All documents the borrower has submitted to the servicer in 
connection with the borrower's application for a loss mitigation option 
offered by the servicer; and
    (C) If applicable, documents the borrower has submitted to prior 
servicers in connection with the borrower's application for loss 
mitigation options offered by those servicers, to the extent that those 
documents are in the servicer's possession;
    (iii) Provide the documents in paragraphs (b)(2)(ii)(B) and 
(b)(2)(ii)(C) of this section to persons authorized to evaluate a 
borrower for loss mitigation options offered by the servicer if the 
servicer personnel assigned to the borrower are not authorized to 
evaluate a borrower for loss mitigation options; and
    (iv) Within a reasonable time after a borrower request, as 
applicable, provide the information to the borrower or inform the 
borrower of the telephone number and address the servicer has 
established for borrowers to assert an error pursuant to Sec.  1024.35 
or make an information request pursuant to Sec.  1024.36.
    (2) Safe harbor. A servicer's policies and procedures satisfy the 
requirements in paragraph (b)(1) of this section if servicer personnel 
do not engage in a pattern or practice of failing to perform the 
functions set forth in paragraph (b)(1) of this section where 
applicable.
    (c) Duration of continuity of contact. A servicer shall ensure that 
the personnel it assigns and makes available to a borrower pursuant to 
paragraph (a) of this section remain assigned and available to the 
borrower until any of the following occurs:
    (1) The borrower refinances the mortgage loan;
    (2) The borrower pays off the mortgage loan;
    (3) A reasonable time has passed since:
    (i) The borrower has brought the mortgage loan current by paying 
all amounts owed in arrears; or
    (ii) The borrower and the servicer have entered into a permanent 
loss mitigation agreement in which the borrower keeps the property 
securing the mortgage loan; or
    (4) Title to the borrower's property has been transferred to a new 
owner through, for example, a deed-in-lieu of foreclosure, a sale of 
the borrower's property, including, as applicable, a short sale, or a 
foreclosure sale; or
    (5) If applicable, a reasonable time has passed since servicing for 
the borrower's mortgage loan was transferred to transferee servicer.
    (d) Conditions beyond a servicer's control. A servicer has not 
violated this section if the servicer's failure to comply with this 
section is caused by conditions beyond a servicer's control.


Sec.  1024.41  Loss mitigation procedures.

    (a) Scope. This section applies to any servicer that makes loss 
mitigation options available to borrowers in the ordinary course of 
business with respect to the procedures for reviewing and responding to 
a loss mitigation application. Nothing in this section shall be 
construed to impose an obligation on an owner, assignee, guarantor, or 
insurer of a mortgage loan, unless such entity is also a servicer of a 
mortgage loan.
    (b) Loss mitigation application. (1) Complete loss mitigation 
application. A complete loss mitigation application means a borrower's 
submission requesting evaluation for a loss mitigation option for which 
a servicer has received all the information the servicer regularly 
obtains and considers in evaluating loss mitigation applications by the 
deadline established

[[Page 57306]]

by the servicer pursuant to paragraph (f) of this section.
    (2) Incomplete loss mitigation application. (i) Upon receipt of an 
incomplete loss mitigation application, a servicer shall exercise 
reasonable diligence in obtaining information from a borrower to make 
the loss mitigation application complete.
    (ii) If a servicer receives an incomplete loss mitigation 
application earlier than 5 days (excluding legal public holidays, 
Saturdays, or Sundays) before the deadline established pursuant to 
paragraph (f) of this section, the servicer shall notify the borrower 
orally or in writing within 5 days (excluding legal public holidays, 
Saturdays, or Sundays) after receiving the incomplete loss mitigation 
application, of the following:
    (A) That the loss mitigation application is incomplete;
    (B) The additional documents and information the borrower must 
submit to make the loss mitigation application complete; and
    (C) The date by which the borrower must submit the additional 
documents and information.
    (c) Review of loss mitigation applications. Within 30 days of 
receiving a borrower's complete loss mitigation application that is 
submitted prior to the deadline established pursuant to paragraph (f) 
of this section, a servicer shall:
    (1) Evaluate the borrower for all loss mitigation options available 
from the servicer for which the borrower may qualify; and
    (2) Provide the borrower with a notice stating the servicer's 
determination of whether it will offer the borrower a loss mitigation 
option.
    (d) Denial of loan modification options. A servicer that denies a 
borrower's loss mitigation application for any trial or permanent loan 
modification program offered by the servicer shall state in the notice 
provided to the borrower pursuant to paragraph (c)(2) of this section:
    (1) The specific reasons for the servicer's determination for each 
such trial or permanent loan modification program; and
    (2) The fact that the borrower may appeal the servicer's 
determination, the deadline for the borrower to make an appeal, and any 
requirements for making an appeal.
    (e) Borrower response. (1) In general. A servicer may require that 
a borrower accept or reject an offer of a loss mitigation option by a 
deadline established by the servicer that is no earlier than 14 days 
after the servicer communicates the loss mitigation option to the 
borrower.
    (2) Acceptance. A borrower that does not satisfy the servicer's 
requirements for accepting a loss mitigation option, but submits the 
first payment that would be owed pursuant to any such loss mitigation 
option within the deadline established by the servicer, shall be deemed 
to have accepted the offer of a loss mitigation option.
    (3) Rejection. A servicer may deem a borrower that has not accepted 
an offer of a loss mitigation option within 14 days after the servicer 
offers the loss mitigation option to the borrower to have rejected the 
offer of a loss mitigation option.
    (4) Interaction with appeal process. A servicer shall permit a 
borrower to accept or reject a loss mitigation option concurrently with 
making an appeal pursuant to paragraph (h) of this section.
    (f) Deadline for loss mitigation applications. A servicer may 
establish a deadline for a borrower to provide a complete loss 
mitigation application, which shall be no earlier than 90 days before a 
scheduled foreclosure sale.
    (g) Prohibition on foreclosure sale. A servicer shall not conduct a 
foreclosure sale if a borrower has provided a complete loss mitigation 
application to the servicer for a loss mitigation option within the 
deadline established by the servicer pursuant to paragraph (e) of this 
section, unless:
    (1) The servicer has provided the borrower a notice pursuant to 
paragraph (c)(2) of this section that the borrower is not eligible for 
a loss mitigation option and the appeal process in paragraph (h) of 
this section is not applicable, the borrower has not requested an 
appeal, or the time for requesting an appeal has expired;
    (2) The servicer denies the borrower's appeal, as applicable;
    (3) The borrower rejects the servicer's offer of a loss mitigation 
option;
    (4) The borrower fails to perform under an agreement on a loss 
mitigation option.
    (h) Appeal process. (1) Appeal process required for loan 
modification denials. A servicer that denies a borrower's loss 
mitigation application for any trial or permanent loan modification 
program offered by the servicer shall permit a borrower to appeal the 
servicer's determination.
    (2) Deadlines. A servicer shall permit a borrower to make an appeal 
within at least 14 days after providing the notice required pursuant to 
paragraph (c)(2) of this section.
    (3) Independent evaluation. An appeal shall be reviewed by 
different personnel than those responsible for evaluating the 
borrower's complete loss mitigation application.
    (4) Appeal determination. Within 30 days of a borrower making an 
appeal, the servicer shall provide a notice to the borrower stating the 
servicer's determination of whether the servicer will offer the 
borrower a loss mitigation option. A servicer's offer of a loss 
mitigation option after appeal shall be subject to paragraph (e) of 
this section. A servicer's decision under this paragraph is not subject 
to another appeal.
    (i) Duplicative requests. A servicer is only required to comply 
with the requirements of this provision for a single complete loss 
mitigation application for a borrower's mortgage loan account.
    (j) Other liens. (1) Duty to identify other servicers. Any servicer 
that receives a loss mitigation application shall:
    (i) Within 5 days, determine if any other servicers service 
mortgage loans that have senior or subordinate liens encumbering the 
property that is the subject of the loss mitigation application; and
    (ii) Provide any other servicers identified pursuant to paragraph 
(j)(1)(i) with a copy of the loss mitigation application.
    (2) Receipt of loss mitigation application. A servicer that offers 
loss mitigation options in the ordinary course of business shall comply 
with the requirements of this section with respect to any loss 
mitigation application received pursuant to paragraph (j)(1)(ii) of 
this section as if such loss mitigation application was provided by a 
borrower.[ltrif]
    16. Revise Appendix MS-2 to Part 1024 to read as follows:

[rtrif]APPENDIX MS-2 to PART 1024

Notice of Servicing Transfer

    The servicing of your mortgage loan is being transferred, 
effective [Date]. This means that after this date, a new servicer 
will be collecting your mortgage loan payments from you. Nothing 
else about your mortgage loan will change.
    [Name of present servicer] is now collecting your payments. 
[Name of present servicer] will stop accepting payments received 
from you after [Date].
    [Name of new servicer] will collect your payments going forward. 
Your new servicer will start accepting payments received from you on 
[Date].
    Send all payments due on or after [Date] to [Name of new 
servicer] at this address: [New servicer address].
    If you have any questions for your present servicer, [Name of 
present servicer], about your mortgage loan or this transfer, please

[[Page 57307]]

contact [Individual or Department] at [Telephone Number]. You may 
also write to your present servicer at the following address: 
[Address].
    If you have any questions for your new servicer, [Name of new 
servicer], about your mortgage loan or this transfer, please contact 
[Individual or Department] at [Telephone Number]. You may also write 
to your new servicer at the following address: [Address].
    [Use this paragraph if appropriate; otherwise omit.] Important 
note about insurance: If you have mortgage life or disability 
insurance or any other type of optional insurance, the transfer of 
servicing rights may affect your insurance in the following way:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
    You should do the following to maintain coverage:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------

[NAME OF PRESENT SERVICER]
-----------------------------------------------------------------------

Date
[and]

-----------------------------------------------------------------------

[NAME OF NEW SERVICER]

-----------------------------------------------------------------------

Date[ltrif]

    17. Add Appendix MS-3 to part 1024 to read as follows:

[rtrif]Appendix MS-3 to part 1024--Model Force-Placed Insurance Notice 
Forms

Table of Contents

MS-3(A)--Model Form for Force-Placed Insurance Notice Required 
Pursuant to Sec.  1024.37(c)(2)
MS-3(B)--Model Form for Force-Placed Insurance Notice Pursuant to 
Sec.  1024.37(d)(2)(i)
MS-3(C)--Model Form for Force-Placed Insurance Notice Pursuant to 
Sec.  1024.37(d)(2)(ii)
MS-3(D)--Model Form for Renewal or Replacement of Force-Placed 
Insurance Notice pursuant to Sec.  1024.37(e)(2)

MS-3(A)--Model Form for Force-Placed Insurance Notice Required Pursuant 
to Sec.  1024.37(c)(2)

[Name and Mailing Address of Servicer]

[Date of Notice]

[Borrower's Name]

[Borrower's Mailing Address]

Subject: Please provide insurance information for [Property Address]

    Dear [Borrower's Name]:
    Our records show that your [hazard] [Insurance Type] insurance 
[is expiring] [expired], and we do not have evidence that you have 
obtained new coverage. Because [hazard] [Insurance Type] insurance 
is required on your property, [we bought insurance for your 
property] [we plan to buy insurance for your property]. You must pay 
us for any period during which the insurance we buy is in effect but 
you do not have insurance.
    You should immediately provide us with your insurance policy 
number and the name, mailing address and phone number of your 
insurance company or insurance agent. [Describe how the borrower may 
provide the insurance information]. [The information must be 
provided in writing.]
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an estimated 
$[premium charge]] annually, which is probably more expensive than 
insurance you can buy yourself.
     May not provide as much coverage as insurance policy 
you buy yourself.
    If you have any questions, please contact us at [telephone 
number].

MS-3(B)--Model Form for Force-Placed Insurance Notice Pursuant to Sec.  
1024.37(d)(2)(i))

[Name and Mailing Address of Servicer]

[Date of Notice]

[Borrower's Name]

[Borrower's Mailing Address]

Subject: Second and final notice--please provide insurance 
information for [Property Address]

    Dear [Borrower's Name]:
    This is your second and final notice that our records show that 
your [hazard] [Insurance Type] insurance [is expiring] [expired], 
and we do not have evidence that you have obtained new coverage. 
Because [hazard] [Insurance Type] insurance is required on your 
property, [we bought insurance for your property] [we plan to buy 
insurance for your property]. You must pay us for any period during 
which the insurance we buy is in effect but you do not have 
insurance.
    You should immediately provide us with your insurance policy 
number and the name, mailing address and phone number of your 
insurance company or insurance agent. [Describe how the borrower may 
provide the insurance information]. [The information must be 
provided in writing.]
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an estimated 
$[premium charge]] annually, which is probably more expensive than 
insurance you can buy yourself.
     May not provide as much coverage as insurance policy 
you buy yourself.
    If you have any questions, please contact us at [telephone 
number].

MS-3(C)--Model Form for Force-Placed Insurance Notice Pursuant to Sec.  
Sec.  1024.37(d)(2)(ii)

[Name and Mailing Address of Servicer]

[Date of Notice]

[Borrower's Name]

[Borrower's Mailing Address]

Subject: Second and final notice--please provide insurance 
information for [Property Address]

    Dear [Borrower's Name]:
    We received the insurance information you provided but we are 
unable to verify coverage from [Date Range].
    Please provide us with insurance information for [Date Range] 
immediately.
    We will charge you for insurance we [bought] [plan to buy] for 
[Date Range] unless we can verify that you have insurance coverage 
for [Date Range].
    If you have any questions, please contact us at [telephone 
number].

MS-3(D)--Model Form for Renewal or Replacement of Force-Placed 
Insurance Notice Pursuant to Sec.  1024.37(e)(2)

[Name and Mailing Address of Servicer]

[Date of Notice]

[Borrower's Name]

[Borrower's Mailing Address]

Subject: Please update insurance information for [Property Address]

    Dear [Borrower's Name]:
    Because we did not have evidence that you had [hazard] 
[Insurance Type] insurance on the property listed above, we bought 
insurance on your property and added the cost to your mortgage loan 
account.
    The policy that we bought [expired] [is scheduled to expire]. 
Because [hazard][Insurance Type] insurance] is required on your 
property, we have the right to maintain insurance on your property 
by renewing or replacing the insurance we bought.
    The insurance we buy:
     [Costs $[premium charge]] [Will cost an estimated 
$[premium charge]], which is probably more expensive than insurance 
you can buy yourself.
     May not provide as much coverage as an insurance policy 
you buy yourself.
    If you buy [hazard] [Insurance Type] insurance, you should 
immediately provide us with your insurance policy number and the 
name, mailing address and phone number of your insurance company or 
insurance agent. [Describe how the borrower may provide the 
insurance information]. [The information must be provided in 
writing.]
    If you have any questions, please contact us at [telephone 
number].[ltrif]
    18. Add Appendix MS-4 to part 1024 to read as follows:

[rtrif]MS-4--Model Clauses for the Written Early Intervention Notice 
Pursuant to Sec.  1024.39(b)(2)

MS-4(A)--Statement Encouraging the Borrower To Contact the Servicer 
(Sec.  1024.39(b)(2)(i) and (ii))

    Please contact us. [We may be able to make your mortgage more 
affordable. The longer you wait, or the further you fall behind on 
your payments, the harder it will be to find a solution.]
[Servicer Name]

[Servicer Address]

[Servicer Telephone Number]

[For more information, visit [Servicer Web Site or Email Address]].

MS-4(B)--Available Loss Mitigation Options (Sec.  1024.39(b)(2)(iii))

    [You may have options that could help make your mortgage more 
affordable, including:]
    [Forbearance. This is a temporary reduction or suspension of 
your mortgage payments. Forbearance might be available if

[[Page 57308]]

recent events have made it difficult for you to make your payments--
for example, if you recently lost your job, suffered from a 
disaster, or had an illness or injury that increased your health 
care costs. If this option is available, your lender could create a 
payment plan to make up any missed payments over a period of time.]
    [Mortgage modification. Your lender may be able to change your 
loan terms, such as your interest rate, the amount of principal you 
owe, or the number of years you have to repay the loan.]
    [If you are not able to continue paying your mortgage, your best 
option may be to find more affordable housing. As an alternative to 
foreclosure, you might be able to transfer ownership of your home 
without having to pay off the full amount of your mortgage, although 
you would be required to leave your home. For example, you may be 
eligible for the following option[s]:]
     [Short-sale. With your lender's permission, you might 
be able to sell your home and pay off your mortgage even if the sale 
price is less than your remaining balance. You might also be 
eligible to receive money to help you move.]
     [Deed-in-lieu of foreclosure. Your lender may release 
you from your mortgage if you transfer ownership of your home to 
your lender. As with a short sale, you might also be eligible to 
receive money to help you move.]

MS-4(C)--Additional Information About Loss Mitigation Options (Sec.  
1024.39(b)(2)(iv))

    [Call us today to learn more about your options and for 
instructions on how to apply.]

MS-4(D)--Foreclosure Statement (Sec.  1024.39(b)(2)(v))

    Foreclosure is a legal process a lender can use to take 
ownership of a property from a borrower who is behind on his or her 
mortgage payments. The foreclosure process usually begins 
approximately [--] days after you miss a mortgage payment, although 
it may begin earlier or later. The foreclosure process depends on 
the laws of the state where your home is located, the terms of your 
loan, whether you are covered by the Servicemembers Civil Relief 
Act, and other factors.

MS-4(E)--State Housing Finance Authorities and Housing Counselors 
(Sec.  1024.39(b)(2)(vi))

    For help exploring your options, Federal government agencies 
provide contact information for housing counselors, which you can 
access by contacting [the Consumer Financial Protection Bureau at 
[Bureau Housing Counselor List Telephone Number] or [Bureau Housing 
Counselor List Web Site]] [the Department of Housing and Urban 
Development at [HUD Housing Counselor List Telephone Number] or [HUD 
Housing Counselor List Web Site]].
    Your State housing finance authority may also be able to help. 
You can reach them at [State Housing Finance Authority Telephone 
Number] or [State Housing Finance Authority Web Site].[ltrif]

    19. In part 1024, add Supplement I to read as follows:

[rtrif]Supplement I to Part 1024--Official Bureau Interpretations

Introduction

    1. Official status. This commentary is the primary vehicle by 
which the Bureau of Consumer Financial Protection issues official 
interpretations of Regulation X. Good faith compliance with this 
commentary affords protection from liability under section 19(b) of 
the Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. 
2617(b)).
    2. Requests for official interpretations. A request for an 
official interpretation shall be in writing and addressed to the 
Associate Director, Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 
20552. The requests shall contain a complete statement of all 
relevant facts concerning the issue, including copies of all 
pertinent documents. Except in unusual circumstances, such official 
interpretations will not be issued separately but will be 
incorporated in the official commentary to this part, which will be 
amended periodically. No official interpretations will be issued 
approving financial institutions' forms or statements. This 
restriction does not apply to forms or statements whose use is 
required or sanctioned by a government agency.
    3. Unofficial oral interpretations. Unofficial oral 
interpretations may be provided at the discretion of Bureau staff. 
Written requests for such interpretations should be sent to the 
address set forth for official interpretations. Unofficial oral 
interpretations provide no protection under section 19(b) of RESPA. 
Ordinarily, staff will not issue unofficial oral interpretations on 
matters adequately covered by this part or the official Bureau 
interpretations.

Section 1024.17--Escrow Accounts

    17(k) Timely payments.
    Paragraph 17(k)(5).
    1. Reasonable basis. The receipt by a servicer of a notice of 
cancellation or non-renewal from the borrower's insurance company 
before the insurance premium is due provides a servicer with a 
reasonable basis to believe that the borrower's hazard insurance has 
been canceled or not renewed for reasons other than nonpayment of 
premium charges.
    2. Reasons other than nonpayment of premium charges. A 
borrower's hazard insurance may be canceled or not renewed for a 
number of reasons other than the nonpayment of premium charges, to 
the extent permitted by State or other applicable law. Such reasons 
may include, for example:
    i. The borrower cancels the hazard insurance before its 
expiration date or chooses to not renew the insurance.
    ii. The insurance company cancels the hazard insurance before 
its expiration date or chooses to not renew the insurance because it 
decides to stop writing insurance for all properties in the 
community where the borrower's property is located.
    iii. The insurance company cancels or chooses not to renew the 
borrower's hazard insurance based on its underwriting criteria, 
which may include, for example, borrower's claim history, or a 
change in the occupancy status of the property (e.g., changing from 
occupied to non-occupied), or a change in the probability of the 
property being exposed to loss caused certain hazards (e.g., a 
change in the property's exposure to loss by windstorm).
    3. Advancement of premium. A servicer that advances the premium 
payment as required by Sec.  1024.17(k)(5) may advance the payment 
on a month-to-month basis, if permitted by State or other applicable 
law and accepted by the borrower's hazard insurance company.

Section 1024.31--Definitions

    Loss mitigation application.
    1. Borrower's representative. A loss mitigation application is 
deemed to be submitted by a borrower if the loss mitigation 
application is submitted by an agent of the borrower. Servicers may 
undertake reasonable procedures to determine if a person that claims 
to be an agent of a borrower has authority from the borrower to act 
on the borrower's behalf.
    Loss mitigation options.
    1. Types of loss mitigation options. Loss mitigation options 
include temporary and long-term relief, and options that allow 
borrowers to remain in or leave their homes, such as, without 
limitation, refinancing, trial or permanent modification, repayment 
of the amount owed over an extended period of time, forbearance of 
future payments, short-sale, deed-in-lieu of foreclosure, and loss 
mitigation programs sponsored by a State or the Federal Government.
    2. Available from the servicer. Loss mitigation options 
available from the servicer include options offered by the owner or 
assignee of the loan that are made available through the servicer.
    Qualified written request.
    1. A qualified written request is a written notice a borrower 
provides to request a servicer either correct an error relating to 
the servicing of a loan or to request information relating to the 
servicing of the loan. A qualified written request is not required 
to include both types of requests. For example, a qualified written 
request may request information relating to the servicing of a 
mortgage loan but not assert that an error relating to the servicing 
of a loan has occurred.
    Service provider.
    1. Service providers may include attorneys retained to represent 
a servicer or an owner or assignee of a mortgage loan in a 
foreclosure proceeding, as well as other professionals retained to 
provide appraisals or inspections of properties.

Section 1024.33--Mortgage Servicing Transfers

    33(a) Servicing disclosure statement.
    Paragraph 33(a)(1).
    1. Terminology. Although the servicing disclosure statement must 
be clear and conspicuous pursuant to Sec.  1024.32(a)(1), Sec.  
1024.33(a)(1) does not set forth any specific rules for the format 
of the statement, and the specific language of the servicing 
disclosure statement in Appendix MS-1 is not required to be used. 
The model format may be

[[Page 57309]]

supplemented with additional information that clarifies or enhances 
the model language.
    2. Delivery address for co-applicants. When an application 
involves more than one applicant, notification need only be given to 
one applicant but must be given to the primary applicant where one 
is readily apparent.
    Paragraph 33(a)(2).
    1. Lender servicing. If the lender, table funding mortgage 
broker, or dealer in a first lien dealer loan will service the 
mortgage loan for which the applicant has applied, the disclosure 
should state that such entity will service such loan and does not 
intend to sell, transfer, or assign the servicing of the loan.
    2. Lender not servicing. If the lender, table funding mortgage 
broker, or dealer in a first lien dealer loan will not service the 
mortgage loan for which the applicant has applied, the disclosure 
should state that such entity intends to assign, sell, or transfer 
servicing of such mortgage loan before the first payment is due.
    3. Other circumstances. In all other instances, a disclosure 
that states that the servicing of the loan may be assigned, sold, or 
transferred while the loan is outstanding complies with Sec.  
1024.33(a).
    33(b) Notices of transfer of loan servicing.
    Paragraph 33(b)(3).
    1. Notice given at settlement. Notices of transfer provided at 
settlement by the transferor servicer and transferee servicer, 
whether as separate notices or as a combined notice, satisfy the 
timing requirements.
    2. Delivery. A servicer should deliver the notice of transfer to 
the mailing address listed by the borrower in the mortgage loan 
documents, unless the borrower has notified the servicer of a new 
address pursuant to the servicer's requirements for receiving a 
notice of a change of address. When a mortgage loan has more than 
one borrower, the notice of transfer need only be given to one 
borrower, but must be given to the primary borrower where one is 
readily apparent.

Section 1024.34--Timely Payments by Servicer

    34(b)(2) Servicer may credit funds to a new escrow account.
    1. A servicer is not required to credit funds in an escrow 
account to an escrow account for a new mortgage loan and may, in all 
circumstances, comply with the requirements of Sec.  1024.34 by 
refunding the funds in the escrow account to the borrower pursuant 
to Sec.  1024.34(a).

Section 1024.35--Error Resolution Procedures

    35(a) Notice of error.
    1. Borrower's representative. A notice of error is deemed to be 
submitted by a borrower if the notice of error is submitted by an 
agent of the borrower. Servicers may undertake reasonable procedures 
to determine if a person that claims to be an agent of a borrower 
has authority from the borrower to act on the borrower's behalf.
    2. Information request. A servicer should not solely rely on the 
borrower's description of a request to determine whether the notice 
constitutes a notice of error, an information request or both. For 
example, a borrower may submit a letter that claims to be a ``Notice 
of Error'' that indicates that the borrower wants to receive the 
information set forth in an annual escrow account statement and 
asserts an error for the servicer's failure to provide the borrower 
an annual escrow statement. Although the servicer's failure to 
provide the borrower an annual escrow statement is not defined as an 
error pursuant to Sec.  1024.35(b), such a letter may constitute an 
information request under Sec.  1024.36(a) that triggers an 
obligation by the servicer to provide an annual escrow statement. A 
servicer should not rely on the borrower's characterization of the 
letter as a ``Notice of Error,'' but should evaluate whether the 
letter fulfills the substantive requirements of a notice of error or 
an information request.
    35(b) Scope of error resolution.
    1. Excluded errors. A servicer is not required to comply with 
sections 1024.35(d) and (e) with respect to a borrower's assertion 
of an error that is not defined as a covered error in section 
1024.35(b). For example, the following are not covered errors:
    i. An error relating to the origination of a mortgage loan;
    ii. An error relating to the underwriting of a mortgage loan;
    iii. An error relating to a subsequent sale or securitization of 
a mortgage loan;
    iv. An error relating to a determination to sell, assign, or 
transfer the servicing of a mortgage loan.
    35(c) Contact information for borrowers to assert errors.
    1. Exclusive telephone number and address not required. A 
servicer is not required to designate a specific telephone number 
and address that a borrower must use to assert an error. If a 
servicer does not designate a specific telephone number and address 
that a borrower must use to assert an error, a servicer must respond 
to a notice of error received by any office of the servicer.
    2. Notice of an exclusive telephone number and address. A notice 
establishing a telephone number and address that a borrower must use 
to assert an error may be included with a different disclosure, such 
as on a notice of transfer, periodic statement, or coupon book. The 
notice is subject to the clear and conspicuous requirement in Sec.  
1024.32(a)(1). If a servicer establishes a telephone number and 
address that a borrower must use to assert an error, a servicer 
should provide that telephone number and address to the borrower in 
any communication in which the servicer provides the borrower with 
contact information for assistance from the servicer.
    3. Multiple offices. The purpose of the designation of an 
exclusive telephone number and address is to distinguish offices 
that are capable of receiving errors from other offices maintained 
by a servicer. A servicer may designate multiple office addresses 
and phone numbers for receiving errors. However, a servicer is 
required to comply with the requirements of Sec.  1024.35 with 
respect to a notice of error received at any such address and phone 
number regardless of whether that specific address or phone number 
was provided to a specific borrower asserting an error. For example, 
a servicer may designate a phone number and address to receive 
errors for borrowers located in California and a separate phone 
number and address to receive errors for borrowers located in Texas. 
If a borrower located in California asserts an error through the 
phone number or address used by the servicer for borrowers located 
in Texas, a servicer is still considered to have received a notice 
of error and must comply with the requirements of Sec.  1024.35.
    4. Internet intake of information requests. A servicer may, but 
is not required to, establish a process for receiving error notices 
through email, Web site form, or other online intake method. Any 
such process shall be in addition to, and not in lieu of, any 
process for receiving error notices by phone or mail. The process 
established by the servicer for receiving errors through an online 
intake method shall be considered the exclusive online intake 
process for receiving errors. A servicer is not required to provide 
a separate notice to a borrower to establish a specific online 
intake process as an exclusive process for receiving such errors.
    5. Automated systems. Servicers may use toll-free telephone 
numbers that connect borrowers to automated systems, such as an 
interactive voice response system, through which consumers may 
assert errors by inputting information using a touch-tone telephone 
or similar device. The prompts for asserting errors must be clear 
and provide the borrower the option to connect to a live 
representative.
    35(e) Response to notice of error.
    35(e)(1) Investigation and response requirements.
    Paragraph 35(e)(1)(i).
    1. Notices alleging multiple errors; separate responses 
permitted. A servicer may respond to a notice of error that alleges 
multiple errors through either a single response or separate 
responses that address each asserted error.
    Paragraph 35(e)(1)(ii).
    1. Different or additional errors; separate responses permitted. 
A servicer may provide the response required for Sec.  
1024.35(e)(1)(ii) in the same notice that responds to errors 
asserted by the borrower pursuant to Sec.  1024.35(e)(1)(i) or in a 
separate response that addresses the different or additional errors 
identified by the servicer.
    35(e)(3) Time limits.
    Paragraph 35(e)(3)(i)(B).
    1. Foreclosure sale timing. If a servicer cannot comply with its 
obligations pursuant to Sec.  1024.35(e) by the earlier of a 
scheduled foreclosure sale or 30 days, a servicer may cancel or 
postpone a scheduled foreclosure sale, in which case, the servicer 
meets the time limits in Sec.  1024.35(i)(B) by complying with the 
requirements of Sec.  1024.35(e) before the earlier of 30 days or 
the date of the rescheduled foreclosure sale.
    35(e)(3)(ii) Extension of time limits.
    1. Notices alleging multiple errors; extension of time. A 
servicer may treat a notice of error that alleges multiple errors as 
separate notices of error and may extend the time period for 
responding to each asserted errors for which an extension is 
permissible.
    35(e)(4) Copies of documentation.
    1. Types of documents to be provided. A servicer is only 
required to provide those

[[Page 57310]]

documents actually relied upon by the servicer to determine that no 
error occurred. Such documents may include documents reflecting 
information entered in a servicer's collection system. For example, 
in response to an asserted error regarding payment allocation, a 
servicer may provide a printed screen capture showing amounts 
credited to principal, interest, escrow, or other charges in the 
servicer's system for the borrower's mortgage loan account.
    35(g) Requirements not applicable.
    Paragraph 35(g)(1)(i).
    1. New and material information. A dispute between a borrower 
and a servicer with respect to (i) whether information was 
previously reviewed by a servicer or (ii) whether a servicer 
properly determined that information reviewed was not material to 
its determination of the existence of an error, does not itself 
constitute new and material information.
    Paragraph 35(g)(1)(ii).
    1. Indicia of overbroad or unduly burdensome notices of error. 
The following are indicia of notices of error that are overbroad or 
unduly burdensome:
    i. Assertions of errors regarding substantially all aspects of a 
mortgage loan, including errors relating to all aspects of mortgage 
origination, mortgage servicing, and foreclosure, as well as errors 
relating to the crediting of substantially every borrower payment 
and escrow account transaction;
    ii. Assertions of errors in the form of a judicial action 
complaint, subpoena, or discovery request that purports to require 
servicers to respond to each numbered paragraph; and
    iii. Assertions of errors in a form that is not reasonably 
understandable or is included with voluminous tangential discussion 
or requests for information, such that a servicer cannot reasonably 
identify from the notice of error any covered error asserted by a 
borrower.
    35(h) Payment requirements prohibited.
    1. Borrower obligation to make payments. Section 1024.35(g) 
prohibits a servicer from requiring a borrower to make a payment 
that may be owed on a borrower's account as a prerequisite for 
complying with its obligations regarding a notice of error submitted 
by a borrower, but does not alter or otherwise affect a borrower's 
obligation to make payments owed pursuant to the terms of a mortgage 
loan. For example, if a borrower makes a monthly payment in February 
for a mortgage loan, but asserts an error relating to the servicer's 
acceptance of the February payment, Sec.  1024.35(g) does not alter 
a borrower's obligation to make a monthly payment that the borrower 
owes for March. A servicer, however, may not require that a borrower 
make the March payment as a condition for complying with its 
obligations under Sec.  1024.35 with respect to the notice of error 
on the February payment.

Section 1024.36--Requests for Information

    36(a) Information request.
    1. Borrower's representative. An information request is deemed 
to be submitted by a borrower if the information request is 
submitted by an agent of the borrower. Servicers may undertake 
reasonable procedures to determine if a person that claims to be an 
agent of a borrower has authority from the borrower to act on the 
borrower's behalf.
    2. Owner or assignee of a mortgage loan. A servicer responds to 
an information request for the owner or assignee of a mortgage loan 
by identifying the entity that holds the legal obligation to receive 
payments from the borrower. For example:
    i. A servicer services a mortgage loan that is owned by the 
servicer, or an affiliate of the servicer, in portfolio. A servicer 
responds to the borrower's information request with the name, 
address, and appropriate contact information for the servicer or the 
affiliate, as applicable.
    ii. A servicer services a mortgage loan that has been 
securitized. In general, in a securitization transaction, a special 
purpose vehicle, such as a trust, is the owner or assignee of a 
mortgage loan. If a securitization transaction is structured such 
that a trust is the owner or assignee of a mortgage loan and the 
trust is administered by an appointed trustee, a servicer responds 
by providing the borrower with the name of the trust and the name, 
address, and appropriate contract information for the trustee. 
Assume a mortgage loan is owned by Mortgage Loan Trust, Series ABC-
1, for which XYZ Trust Company is the trustee. The servicer responds 
by identifying the owner as Mortgage Loan Trust, Series ABC-1, and 
providing the name, address, and appropriate contact information for 
XYZ Trust Company as the trustee.
    Although investors or guarantors, including, among others, 
Federal National Mortgage Association, the Federal Home Loan 
Mortgage Corporation, or the Government National Mortgage 
Association, may be exposed to risks related to the mortgage loans 
held by the trust either in connection with an investment in 
securities issued by the trust or the issuance of a guaranty 
agreement to the trust, entities that act as investors or guarantors 
should not be considered the owner or assignee of the mortgage loans 
solely as a result of their roles as investors or guarantors. In 
certain circumstances, however, a party such as a guarantor may 
assume multiple roles for a securitization transaction. For example, 
the Federal National Mortgage Association may act as trustee, master 
servicer, and guarantor in connection with a securitization 
transaction in which a trust owns a mortgage loan subject to a 
request. In this example, because Federal National Mortgage 
Association is the trustee of the trust that owns the mortgage loan, 
a servicer responds to a borrower's request for information 
regarding the owner or assignee of the mortgage loan by providing 
the name of the trust, and the name, address, and appropriate 
contact information for Federal National Mortgage Association as the 
trustee.
    36(b) Contact information for borrowers to request information.
    1. Exclusive telephone number and address not required. A 
servicer is not required to designate a specific telephone number 
and address that a borrower must use to request information. If a 
servicer does not designate a specific telephone number and address 
that a borrower must use to request information, a servicer must 
respond to an information request received by any office of the 
servicer.
    2. Notice of an exclusive telephone number and address. A notice 
establishing a telephone number and address that a borrower must use 
to request information may be included with a different disclosure, 
such as on a notice of transfer, periodic statement, or coupon book. 
The notice is subject to the clear and conspicuous requirement in 
Sec.  1024.32(a)(1). If a servicer establishes a telephone number 
and address that a borrower must use to request information, a 
servicer should provide that telephone number and address to the 
borrower in any communication in which the servicer provides the 
borrower with contact information for assistance from the servicer.
    3. Multiple offices. The purpose of the designation of an 
exclusive telephone number and address is to distinguish offices 
that are capable of receiving information requests from other 
offices maintained by a servicer. A servicer may designate multiple 
office addresses and phone numbers for receiving information 
requests. However, a servicer is required to comply with the 
requirements of Sec.  1024.36 with respect to a notice of error 
received at any such address and phone number regardless of whether 
that specific address or phone number was provided to a specific 
borrower that is requesting information. For example, a servicer may 
designate a phone number and address to receive information requests 
for borrowers located in California and a separate phone number and 
address to receive information requests for borrowers located in 
Texas. If a borrower located in California requests information 
through the phone number or address used by the servicer for 
borrowers located in Texas, a servicer is still considered to have 
received an information request and must comply with the 
requirements of Sec.  1024.35.
    4. Internet intake of information requests. A servicer may, but 
is not required to, establish a process for receiving information 
requests through email, Web site form, or other online method. Any 
such process shall be in addition to, and not in lieu of, any 
process for receiving information requests by phone or mail. The 
process established by the servicer for receiving information 
requests through an online intake method shall be considered the 
exclusive online intake process for receiving information requests. 
A servicer is not required to provide a separate notice to a 
borrower to establish a specific online intake process as an 
exclusive process for receiving information requests.
    5. Automated systems. Servicers may use toll-free telephone 
numbers that connect borrowers to automated systems, such as an 
interactive voice response system, through which consumers may 
request information by using a touch-tone telephone or similar 
device, so long as the prompts for requesting information are clear 
and the borrower has the option to connect to a live representative.
    36(d) Response to information request notice.
    36(d)(1) Investigation and response requirements.

[[Page 57311]]

    Paragraph 36(d)(1)(ii).
    1. Information not available. Information is not available if:
    i. The information is not in the servicer's control or 
possession, or
    ii. The information cannot be retrieved in the ordinary course 
of business through reasonable efforts.
    2. Examples:
    i. A borrower requests a copy of a telephonic communication from 
a servicer. Assume the servicer's personnel have access in the 
ordinary course of business to audio recording files with organized 
recordings or transcripts of borrower telephone calls and can 
identify the communication referred to by the borrower through 
reasonable business efforts. The information requested by the 
borrower should be considered readily accessible.
    ii. A borrower requests information stored on electronic back-up 
media. Access to information on electronic back-up media is not 
available to that servicer's personnel in the ordinary course of 
business without undertaking extraordinary efforts to identify and 
restore the information from the electronic back-up media. The 
information requested by the borrower should not be considered 
readily accessible.
    iii. A borrower requests information stored at an offsite 
document storage facility. A servicer has a right to access 
documents at the offsite document storage facility and servicer 
personnel can access those documents through reasonable efforts in 
the ordinary course of business. The information requested by the 
borrower should be considered readily accessible.
    36(e) Alternative compliance.
    1. A servicer may provide the information requested either 
orally or in writing. If a servicer provides the information 
requested orally, a servicer may demonstrate that it has complied 
with its requirements by, among others, setting forth a notation in 
a servicer file that information requested by a borrower was 
provided, or maintaining a copy of a recorded telephone conversation 
in which the information requested by the borrower was provided to 
the borrower.
    36(f) Requirements not applicable.
    Paragraph 36(f)(1)(i).
    1. A borrower's request for a type of information that can 
change over time should not be considered as substantially the same 
as a previous information request for the same type of information.
    Paragraph 36(f)(1)(ii).
    1. Confidential, proprietary, or general corporate information. 
A request for confidential, proprietary or general corporate 
information of a servicer is not an information request for which 
the servicer is required to comply with the requirements of Sec.  
1024.36(c) and (d). Confidential, proprietary or general corporate 
information includes information requests relating to, for example:
    i. Information regarding management or profitability of a 
servicer, including information provided to investors of the 
servicer.
    ii. Information that relates to the servicing of mortgage loans 
other than a borrower's mortgage loan, including information 
reported to the owner of a mortgage loan regarding individual or 
aggregate collections for mortgage loans owned by that entity.
    iii. Compensation, bonuses, or personnel actions relating to 
servicer personnel, including personnel responsible for servicing a 
borrower's mortgage loan account;
    iv. The servicer's training program for servicing personnel;
    v. The terms of any agreement relating to the sale of a mortgage 
loan, including, an indenture, purchase agreement, or pooling and 
servicing agreement;
    vi. The evaluation or exercise of any remedy of the owner of a 
mortgage loan including a foreclosure action, a mortgage insurance 
payment claim, or a claim relating to mortgage loan's compliance 
with a seller's representations and warranties;
    vii. The servicer's servicing program guide;
    viii. Investor instructions or requirements for servicers 
regarding criteria for negotiating or approving any program with a 
borrower, including any loss mitigation option; or
    ix. Records of examination reports, compliance audits, consumer 
complaints, and internal investigations or external investigations.
    Paragraph 36(f)(1)(iv).
    1. Indicia of overbroad or unduly burdensome requests for 
information. The following are indicia of requests for information 
that are overbroad or unduly burdensome:
    i. Requests for information that seek documents relating to 
substantially all aspects of mortgage origination, mortgage 
servicing, mortgage sale or securitization, and foreclosure, 
including, for example, requests for all mortgage loan file 
documents, recorded mortgage instruments, servicing information and 
documents, and sale or securitization information and documents;
    ii. Requests for information that substitute for discovery in a 
judicial action, such as information requests in the form of a 
discovery request that purports to require a servicer to respond to 
each numbered paragraph;
    iii. Requests for information that are not reasonably 
understandable or are included with voluminous tangential discussion 
or assertions of errors;
    iv. Requests for information that purport to require servicers 
to provide information in specific formats, such as in a transcript, 
letter form in a columnar format, or spreadsheet, when such 
information is not ordinarily stored in such format; or
    v. Requests for information that are not reasonably likely to 
assist a mortgage loan borrower with the mortgage loan borrower's 
account, including, for example, a request for copies of the front 
and back all physical payment instruments (such as checks, drafts, 
or wire transfer confirmations) that show payments made by the 
borrower to the servicer and payments made by a servicer to an owner 
or assignee of a mortgage loan.

Section 1024.37--Force-Placed Insurance

    37(b) Basis for obtaining force-placed insurance.
    1. Borrowers with escrow. A servicer has a reasonable basis to 
believe that a borrower with an escrow account established for 
hazard insurance has failed to maintain hazard insurance if, for 
example, by a reasonable time prior to the expiration date of the 
borrower's hazard insurance (e.g., 30 days before the expiration 
date), the servicer has not received a renewal bill. The receipt by 
a servicer of a notice of cancellation or non-renewal from the 
borrower's insurance company before payment is due on the borrower's 
hazard insurance premium also provides a servicer with a reasonable 
basis to believe that the borrower has failed to maintain hazard 
insurance.
    2. Borrowers without escrow. A servicer has a reasonable basis 
to believe the borrower without an escrow account established for 
hazard insurance has failed to maintain hazard insurance if, for 
example, a servicer receives a notice of cancellation or non-renewal 
from the borrower's insurance company.
    37(c) Requirements for charging borrower for force-placed 
insurance.
    37(c)(1) In general.
    1. The notice period begins on the day that the servicer 
delivers or mails the notice to the borrower and expires 45 days 
later. The servicer may charge a borrower for force-placed insurance 
beginning on the 46th day if the servicer has fulfilled the 
requirements of Sec.  1024.37(c) and (d). If not prohibited by State 
or other applicable law, the servicer may retroactively charge a 
borrower for force-placed insurance obtained during the 45-day 
notice period.
    Paragraph 37(c)(1)(iii).
    1. Examples of continuous insurance coverage. A borrower's prior 
hazard insurance might have expired on January 2. But so long as a 
borrower's current hazard insurance takes effect January 3, then the 
borrower has hazard insurance in place continuously. When there is a 
grace period, Sec.  1024.37(c)(1)(iii) requires the servicer to take 
the grace period into account when determining whether the borrower 
has hazard insurance in place continuously. For example, a 
borrower's prior hazard insurance might have an expiration date of 
June 1, but a grace period extends the effectiveness of the 
borrower's prior hazard insurance to June 10. Accordingly, so long 
as the borrower obtains hazard insurance, effective June 11, then 
the borrower has hazard insurance in place continuously.
    Paragraph 37(c)(2)(v).
    1. Identifying of type hazard insurance. If a borrower has 
purchased a homeowner's insurance policy and a separate hazard 
insurance policy to insure loss against hazards not covered under 
his or her homeowner's insurance policy, the servicer must disclose 
whether it is the borrower's homeowner's insurance policy or the 
separate hazard insurance policy for which it lacks evidence of 
coverage to comply with Sec.  1024.37(c)(2)(v).
    Paragraph 37(c)(2)(ix).
    1. Good faith estimate of the cost of force-placed insurance. 
The good faith estimate of the cost of the force-placed insurance 
the servicer may obtain should be consistent with the best 
information reasonably available to the servicer at the time the 
disclosure is provided. Differences between the amount of the 
estimated cost disclosed

[[Page 57312]]

under Sec.  1024.37(c)(2)(ix) and the actual cost later assessed to 
the borrower do not necessarily constitute a lack of good faith, so 
long as the estimated cost was based on the best information 
reasonably available to the servicer at the time the disclosure was 
provided. For example, a mortgage investor's requirements may 
provide that the amount of coverage for force-placed insurance 
depends on the borrower's delinquency status (the number of days the 
borrower's mortgage payment is past due). The amount of coverage 
affects the cost of force-placed insurance. A servicer that provides 
an estimate of the cost of force-placed insurance based on the 
borrower's delinquency status at the time the disclosure is made 
complies with Sec.  1024.37(c)(2)(ix).
    37(d) Reminder notice.
    37(d)(1) In general.
    1. When a servicer is required to deliver or place in the mail 
the written notice pursuant to Sec.  1024.37(d)(1), the content of 
the reminder notice will be different depending on the insurance 
information the servicer has received from the borrower. For 
example, on June 1, the servicer places in the mail the written 
notice required pursuant to Sec.  1024.37(c)(1)(i) to Borrower A. 
The servicer does not receive any insurance information from 
Borrower A. The servicer must deliver to Borrower A or place in the 
mail one written notice, with the content set forth in Sec.  
1024.37(d)(2)(i), 15 days before the servicer charges Borrower A for 
force-placed insurance. Take the example above, except that Borrower 
A provides the servicer with insurance information on June 18. But 
the servicer cannot verify that Borrower A has hazard insurance in 
place continuously based on the information Borrower A provided 
(e.g., the servicer cannot verify that Borrower A had coverage 
between June 10 and June 15). The servicer must either deliver to 
Borrower A or place in the mail one reminder notice, with the 
content set forth in Sec.  1024.37(d)(2)(ii), 15 days before 
charging Borrower A for force-placed insurance it obtains for the 
period between June 10 and June 15.
    37(d)(4) Updating notice with borrower information.
    1. Reasonable time. A servicer may have to prepare the written 
notice required pursuant to Sec.  1024.37(d)(1) in advance of 
delivering or placing the notice in the mail. If the notice has 
already been put into production, the servicer is not required to 
update the notice with insurance information received from the 
borrower after production has started so long as the notice was put 
into production within a reasonable time prior to the servicer 
delivering or placing the notice in the mail. For purposes of Sec.  
1024.37(d)(4), five days is a reasonable time.
    37(e) Renewal or replacing force-placed insurance.
    37(e)(1)(iii) Charging before end of notice period.
    1. Example illustrating charging before end of notice period. On 
January 2, the servicer sends the notice required by Sec.  
1024.37(e)(1)(i). On January 12, the existing force-placed insurance 
the servicer had obtained on the borrower's property expires and the 
servicer replaces the expired force-placed insurance policy with a 
new force-placed insurance policy effective January 13. On February 
5, the servicer receives verification that the borrower obtained 
hazard insurance effective January 31. The servicer may charge the 
borrower for force-placed insurance from January 13 to January 30, 
as early as February 5.
    Paragraph 37(e)(2)(vii).
    1. Good faith estimate of the cost of force-placed insurance. 
The good faith requirement set forth in Sec.  1024.37(e)(2)(vii) is 
the same good faith requirement set forth in Sec.  
1024.37(c)(2)(ix). See commentary to Sec.  1024.37(c)(2)(ix) 
regarding the good faith requirement.
    37(g) Cancellation of force-placed insurance.
    1. Example of providing a refund and removing charges. Assume 
that a servicer obtains force-placed insurance, effective January 1, 
and the premium charge and related fees are paid by the borrower in 
monthly installments, due on the first of each month. After the 
borrower paid the April installment, the servicer receives insurance 
information from the borrower, and verifies that the borrower had 
obtained hazard insurance and that the insurance had been in place 
since March 15. To comply with Sec.  1024.37(g), within 15 days of 
receiving such verification, the servicer must: (1) Cancel the 
force-placed insurance; (2) provide a refund for force-placed 
insurance premium charges and related fees paid by the borrower for 
the period between March 15 and April 30; and (3) remove from the 
borrower's account any force-placed insurance premium charges and 
related fees for the period after March 15 that the servicer has 
assessed to the borrower but the borrower has not yet paid.

Section 1024.38--Reasonable Information Management Policies and 
Procedures

    38(a) In general.
    1. Policies and procedures. A servicer may determine the 
specific methods by which it will implement information management 
policies and procedures that are reasonably designed to achieve the 
objectives set forth in Sec.  1024.38(b) and are reasonably designed 
to ensure compliance with the standard requirements in Sec.  
1024.38(c). Servicers have flexibility to do so in light of the 
size, nature, and scope of the servicer's operations, including, for 
example, the volume and aggregate unpaid principal balance of 
mortgage loans serviced, the credit quality, including the default 
risk, of the mortgage loans serviced, and the servicer's history of 
consumer complaints.
    Paragraph 38(a)(1).
    1. Examples of pattern or practice failures. A servicer may 
exhibit a pattern or practice of failing to achieve the objectives 
in Sec.  1024.38(b) in the following circumstances:
    i. Disclosures provided to borrowers regularly contain 
inaccurate information or are not provided by required deadlines;
    ii. Multiple covered errors as defined in Sec.  1024.35(b) are 
documented with respect to the same or similar types of processes 
and a servicer does not modify its policies and procedures to seek 
to reduce the frequency or severity of such errors over a reasonable 
timeframe;
    iii. Documents provided by borrowers are lost or misplaced on a 
regular basis and borrowers are requested to provide the same 
documents on multiple occasions;
    iv. Servicer personnel regularly do not have access to accurate 
account information (such as information about credited payments, 
current balances, and reasons for fees) when responding to borrower 
inquiries, and thus provide borrowers with inaccurate information; 
or
    v. Servicer personnel regularly do not have access to 
information regarding the substance of prior communications with 
borrowers.
    38(a)(2) Safe harbor.
    1. Impact of the safe harbor. A servicer is not liable for a 
violation under Sec.  1024.38 if the servicer is in compliance with 
the safe harbor set forth in Sec.  1024.38(a)(2). If a servicer is 
not in compliance with Sec.  1024.38(a)(2), a servicer may be liable 
for a violation under Sec.  1024.38. The servicer's liability in the 
event of a pattern or practice of failing to achieve the objectives 
in Sec.  1024.38(b) or to ensure compliance with the standard 
requirements in Sec.  1024.38(c) is based on whether the servicer's 
policies and procedures were reasonably designed to achieve the 
objectives in Sec.  1024.38(b) and to ensure compliance with the 
standard requirements in Sec.  1024.38(c), as appropriate.

Section 1024.39--Early Intervention Requirements for Certain Borrowers

    39(a) Oral notice.
    1. In general.
    i. Live contact. The notice required under Sec.  1024.39(a) must 
be made through live contact or good faith efforts to make live 
contact, such as by telephoning or conducting an in-person meeting 
with the borrower, but not by leaving a recorded phone message.
    ii. A servicer is not required to describe specific loss 
mitigation options; the servicer need only inform the borrower that 
loss mitigation options may be available, if applicable. The 
servicer may provide more detailed information that the servicer 
believes would be helpful.
    2. Good faith efforts to notify--telephone calls. In order to 
make a good faith effort by telephone, the servicer must have made 
the phone calls to the borrower on three separate days by the end of 
the 30-day period after the payment due date. Thus, if the servicer 
attempts to reach the borrower by telephone, the servicer should 
make the first call not later than the 28th day after the payment 
due date in order to make a good faith effort by the 30th day, 
assuming the first two calls are unsuccessful.
    3. Timing requirements. Under Sec.  1024.39(a), a servicer must 
notify or make good faith efforts to notify the borrower if the 
borrower is late in making the payment during the 30-day period 
after the payment due date, unless the borrower satisfies the 
payment during that time. See comment 39(a)-4. For purposes of Sec.  
1024.39, a payment is considered late the day after the payment due 
date, even if the borrower is afforded a grace period before the 
servicer assesses a late fee. For example, if a payment due date is 
January 1 and the full payment remains due during the 30-day period 
after

[[Page 57313]]

January 1, the servicer is required to notify or make good faith 
efforts to notify the borrower not later than 30 days after January 
1--i.e., by January 31.
    4. Borrower makes the payment. A servicer is not required to 
notify the borrower unless the borrower is late in paying the amount 
owed in full during the 30 days after the payment due date. If the 
borrower satisfies the payment in full before the end of the 30-day 
period, the servicer is not required to notify or make good faith 
efforts to notify the borrower. For example, if a borrower misses a 
January 1 due date but makes that payment on January 20, a servicer 
would not be required to provide the oral notice by January 31.
    5. Borrower contacts the servicer about a late payment. If the 
borrower contacts the servicer at any time prior to the end of the 
30-day period in Sec.  1024.39(a) to explain that the borrower is or 
expects to be late in making a particular payment, the servicer may 
satisfy the notification requirement in Sec.  1024.39(a) by 
informing the borrower orally at that time that loss mitigation 
options, if applicable, may be available.
    i. Examples.
    A. A borrower contacts a servicer on January 25 to explain that 
he expects to miss a payment due February 1. The borrower makes the 
required payment on February 8 and the servicer did not notify or 
make good faith efforts to notify the borrower that loss mitigation 
may be available on January 25 or by February 8. The servicer is not 
required to provide the oral notice about loss mitigation options 
because the borrower made the required payment within the 30-day 
period after February 1. See comment 39(a)-4.
    B. The borrower in comment 39(a)-5.i.A subsequently misses a 
payment due March 1 but does not contact the servicer to explain 
that he expects to become or acknowledges that he is late on that 
payment. The borrower remains late on that payment during the 30 
days after March 1. Not later than 30 days after March 1, the 
servicer is required to notify or make good faith efforts to notify 
the borrower orally that he has missed the March 1 payment and that 
loss mitigation options, if applicable, may be available to assist 
him.
    6. Borrower performing under a loss mitigation option. A 
servicer is not required under Sec.  1024.39(a) to notify a borrower 
who is performing as agreed under a loss mitigation option designed 
to bring the borrower current on a previously missed payment.
    39(b) Written notice.
    39(b)(1) In general.
    1. Relationship to Sec.  1024.39(a). The written notice required 
under Sec.  1024.39(b)(1) must be provided even if the servicer 
provided information about loss mitigation and foreclosure 
previously during an oral communication with the borrower under 
Sec.  1024.39(a).
    2. Timing requirements. As noted in comment 39(a)-3, a payment 
is considered late the day after the payment due date, even if the 
borrower is afforded a grace period before the servicer assesses a 
late fee. For example, if a payment due date is January 1 and the 
payment remains due during the 40-day period after January 1, the 
servicer is required to provide the written notice not later than 40 
days after January 1--i.e., by February 10.
    3. Borrower satisfies the payment. A servicer is not required to 
provide the written notice unless the borrower has not made the 
payment during the 40 days after the payment due date. For example, 
a servicer contacts a borrower on January 20 to notify him that he 
has missed a January 1 payment and that loss mitigation options may 
be available. The borrower explains that he forgot to send payment 
and will send the payment to the servicer. The servicer receives the 
full payment on January 30 and has not yet provided the written 
notice. Because the borrower has satisfied the January 1 payment 
within the 40-day time period, the servicer is not required to 
provide the written notice by February 10.
    4. Frequency of the written notice. A servicer is not required 
to provide the written notice more than once during a 180-day period 
beginning on the date on which the written notice is provided. 
Notwithstanding this limitation, a servicer must still provide the 
oral notice required under Sec.  1024.39(a) for each payment that is 
overdue. For example, a borrower is late in making a payment due 
March 1. The borrower remains late on that payment during the 40 
days after March 1 and the servicer provides the written disclosure 
40 days after March 1--i.e., by April 10. If the borrower 
subsequently fails to make a payment due April 1 and remains late on 
that payment during the 40 days after April 1, the servicer is not 
required to provide the written notice again for the 180-day period 
beginning on April 10. However, the servicer is required to provide 
the oral notice under Sec.  1024.39(a) for each of the 30-day 
periods beginning on March 1 and April 1.
    5. Borrower performing under a loss mitigation option. A 
servicer is not required to provide the written notice to a borrower 
who is performing as agreed under a loss mitigation option designed 
to bring the borrower current on a previously missed payment.
    39(b)(2) Content of the written notice.
    1. Minimum requirements. Section 1024.39(b)(2) contains minimum 
content requirements for the written notice. A servicer may provide 
additional information that the servicer determines would be 
helpful.
    2. Format. Any color, number of pages, size and quality of 
paper, size and type of print, and method of reproduction may be 
used, so long as the disclosure is clearly legible.
    Paragraph 39(b)(2)(i).
    1. Statement encouraging the borrower to contact the servicer. 
The servicer is not required to specifically request the borrower to 
contact the servicer about any particular loss mitigation option.
    Paragraph 39(b)(2)(ii).
    1. Servicer's mailing address and telephone number. If 
applicable, the servicer should provide contact information for the 
personnel assigned to the borrower pursuant to Sec.  1024.40.
    Paragraph 39(b)(2)(iii).
    1. Number of examples. The regulation does not mandate that a 
specific number of examples be disclosed, but borrowers are likely 
to benefit from examples of options that would permit them to retain 
ownership of their home and examples of options may require the 
borrower to end their ownership in order to avoid foreclosure. The 
servicer may include a generic list of loss mitigation options that 
it offers to borrowers. The servicer may include a statement that 
not all borrowers will qualify for the listed options.
    2. Brief description. An example of a loss mitigation option may 
be described in one or more sentences. If a servicer offers loss 
mitigation programs, the servicer may provide a generic description 
of each option without providing detailed descriptions of each 
program. For example, if the servicer offers several loan 
modification programs, the servicer may provide a generic 
description of ``loan modification.''
    Paragraph 39(b)(2)(iv).
    1. Explanation of how the borrower may obtain more information 
about loss mitigation options. A servicer may comply with this 
requirement by directing the borrower to contact the servicer for 
more detailed information on how to apply for loss mitigation 
options. For example, a general statement such as, ``contact us for 
instructions on how to apply'' would satisfy Sec.  
1024.39(b)(2)(iv). However, to expedite the borrower's timely 
application for any loss mitigation options, servicers may provide 
more detailed instructions, such as by listing representative 
documents the borrower should make available to the servicer (such 
as tax filings or income statements), and an estimate for how 
quickly the servicer expects to evaluate a completed application and 
make a decision on loss mitigation options. Servicers may also 
supplement the written notice required by Sec.  1024.39(b)(1) with a 
loss mitigation application form.
    Paragraph 39(b)(2)(v).
    1. Foreclosure statement. The servicer may explain that a 
foreclosure may proceed in different ways depending on the 
circumstances, such as the location of the borrower's property that 
secures the loan, whether the borrower is covered by the 
Servicemembers Civil Relief Act (50 U.S.C. App. 501 et seq.), and 
the requirements of the owner or assignee of the borrower's loan.
    2. Estimated foreclosure timelines. The servicer may qualify its 
estimate with a statement that different timelines may vary 
depending on the circumstances, such as those listed in comment 
39(b)(2)(v)-1. The servicer may provide its estimate as a range of 
days.

Section 1024.40--Continuity of Contact

    40(a)(1) In general.
    1. For purposes of responding to borrower inquiries and 
assisting the borrower with loss mitigation options as required 
pursuant to Sec.  1024.40, the term ``borrower'' includes a person 
the borrower has authorized to act on behalf of the borrower (a 
borrower's agent), which may include, for example, a housing 
counselor or attorney. Servicers may undertake reasonable procedures 
to determine if such person has authority from the borrower to act 
on the borrower's behalf.
    2. For purposes of Sec.  1024.40(a)(1), a reasonable time for a 
transferee servicer to

[[Page 57314]]

assign personnel to a borrower is by the end of the 30-day period of 
the transfer of servicing for the borrower's mortgage loan.
    3. Implementation of continuity of contact.
    i. A servicer has discretion to determine the manner by which 
continuity of contact is implemented. For purposes of Sec.  
1024.40(a)(1), a servicer may assign a single person or a team of 
personnel to respond to a borrower.
    ii. Section 1024.40(a)(1) requires servicers to assign personnel 
to borrowers whom servicers are required to notify pursuant to Sec.  
1024.39(a). If a borrower whom a servicer is not required to notify 
pursuant to Sec.  1024.39(a) contacts the servicer to explain that 
he or she expects to make be late in making a particular payment, 
the servicer, at its election, may assign personnel to the borrower.
    4. Section 1024.40(a)(1) does not permit or require a servicer 
to take any action inconsistent with applicable bankruptcy law or a 
court order in a bankruptcy case.
    40(a)(2) Access to assigned personnel.
    1. For purposes of Sec.  1024.40(a)(2), three days (excluding 
legal public holidays, Saturdays, and Sundays) is a reasonable time 
to respond.
    40(b) Functions of servicer personnel.
    40(b)(1) Reasonable policies and procedures.
    Paragraph 40(b)(1)(iv).
    1. For purposes of Sec.  1024.40(b)(1)(iv), three days 
(excluding legal public holidays, Saturdays, and Sundays) is a 
reasonable time to provide the information the borrower has 
requested or inform the borrower of the telephone number and address 
the servicer has established for borrowers to assert an error 
pursuant to Sec.  1024.35 or make an information request pursuant to 
Sec.  1024.36.
    40(b)(2) Safe harbor.
    1. For purposes of Sec.  1024.40(b)(2), a servicer may exhibit a 
pattern or practice:
    i. With respect to a single borrower, if servicer personnel 
assigned to the borrower pursuant to Sec.  1024.40(a) fail to 
perform any of the functions listed in Sec.  1024.40(b)(1) where 
applicable on multiple occasions, such as, for example, repeatedly 
providing the borrower with inaccurate information about the status 
of the loss mitigation application the borrower has submitted.
    ii. With respect to a large number of borrowers, if servicer 
personnel assigned to the borrowers pursuant to Sec.  1024.40(a) 
fail to perform any of the functions listed in Sec.  1024.40(b)(1) 
where applicable in similar ways, such as, for example, providing a 
large number of borrowers with inaccurate information about the 
status of the loss mitigation applications the borrowers have 
submitted.
    40(c) Duration of continuity of contact.
    Paragraph 40(c)(3).
    1. For purposes of Sec.  1024.40(c)(3), a reasonable time has 
passed when the borrower has made on-time mortgage payments for 
three consecutive months.
    Paragraph (40)(c)(5).
    1. For purposes of Sec.  1024.40(c)(5), a reasonable time has 
passed when servicing for the borrower's mortgage loan was 
transferred to a transferee borrower 30 days ago.
    40(d) Conditions beyond a servicer's control.
    1. The term ``conditions beyond a servicer's control'' include 
natural disasters, wars, riots or other major upheaval, delays or 
failures caused by persons other than the servicer, disruptions in 
telephone service, computer system malfunctions, and labor disputes, 
such as strikes.

Section 1024.41--Loss Mitigation Options

    41(a) Scope
    1. Loss mitigation not required. Nothing in section 1024.41 
imposes a duty on a servicer to offer loss mitigation options to 
borrowers in the ordinary course of business or to provide any 
borrower with a right to a loss mitigation option. Nothing in 
section 1024.41 should be construed to permit a borrower to enforce 
the terms of any agreement between a servicer and any owner, 
assignee, guarantor, or insurer of a mortgage loan, including any 
agreement with respect to the evaluation for, or provision of, any 
loss mitigation option.
    2. Ordinary course of business. A servicer that does not engage 
in a practice of offering loss mitigation to borrowers in the 
ordinary course of business is not covered by this section 1024.41. 
A servicer offers loss mitigation options in the ordinary course of 
business if the servicer either (1) has a duty to an owner or 
assignee of a mortgage loan to engage in loss mitigation to improve 
the recovery to the owner or assignee of the mortgage loan, or (2) 
engages in a practice of evaluating borrowers for loss mitigation 
options. A servicer that (1) does not have policies or procedures 
for evaluating borrowers for loss mitigation options, or (2) engages 
only in temporary or pilot programs designed to evaluate the impact 
of implementing loss mitigation options is not considered to offer 
loss mitigation options in the ordinary course of business. For 
example, the following practices should not be considered offering 
loss mitigation in the ordinary course of business:
    a. A servicer waives adverse consequences to individual 
borrowers for missed payments, such as by providing a waiver of late 
fees.
    b. A servicer participates in a targeted pilot program for which 
only a relatively small percentage of mortgage loans serviced by the 
servicer are potentially eligible.
    3. Eligibility requirements. A servicer that engages in 
evaluations of borrowers for loss mitigation options for some 
mortgage loans it services offers loss mitigation in the ordinary 
course of business even though the servicer's loss mitigation 
programs are not available to other borrowers, including borrowers 
subject to different investor or guarantor requirements. Any such 
servicer that receives a complete loss mitigation application is 
required to comply with its obligations pursuant to section 
1024.41(c) and (d). Such compliance may include informing the 
borrower that the borrower is not eligible for loss mitigation 
options, including loan modifications, as a result of investor 
requirements, as set forth in sections 1024.41(c) and (d).
    41(b) Loss mitigation application.
    41(b)(2) Incomplete loss mitigation application.
    Paragraph 41(b)(2)(i)
    1. Obtain additional documents and information before submitted 
information becomes stale. A servicer should undertake reasonable 
diligence to obtain information to constitute a complete loss 
mitigation application by the earlier of (i) the deadline 
established by the servicer pursuant to section 1024.41(f) or (ii) 
the earliest time any documents or information submitted by the 
borrower will no longer be considered current or valid for 
evaluation for a loss mitigation option pursuant to applicable loss 
mitigation program guidelines. For example, if a servicer's 
guidelines require that income information must be no older than 90 
days, the servicer should undertake reasonable diligence to obtain 
information that constitutes a complete loss mitigation application 
earlier than the date when the income information would be 
considered stale where such deadline is earlier than the deadline 
established by the servicer pursuant to section 1024.41(f).
    41(c) Review of loss mitigation applications.
    Paragraph 41(c)(1).
    1. Evaluation for all loss mitigation options offered. A 
servicer should evaluate a borrower for all loss mitigation options 
for which a borrower may qualify based upon eligibility criteria 
applicable to each loss mitigation option, as established by the 
servicer, guarantor, owner, or assignee of a mortgage loan. A 
servicer is not required to evaluate a borrower for a loss 
mitigation option for which the borrower does not meet threshold 
eligibility criteria, including any pilot program, temporary 
program, or loss mitigation program that is limited to a certain 
percentage or number of participants.
    41(d) Denial of loan modification options.
    Paragraph 41(d)(1).
    1. Investor requirements. If a trial or permanent loan 
modification is denied because of a requirement of an owner or 
assignee of a mortgage loan, the specific reasons in the notice 
provided to the borrower should identify the owner or assignee of 
the mortgage loan and the requirement that is the basis of the 
denial.
    2. Net present value calculation. If a trial or permanent loan 
modification is denied because of a net present value calculation, 
the specific reasons in the notice provided to the borrower should 
include the monthly gross income and property value used in the net 
present value calculation.
    41(e) Borrower response and performance.
    Paragraph 41(e)(4).
    1. Acceptance pending appeal. A borrower may accept an offer of 
a different loan modification or other loss mitigation option 
pending appeal of a denial of any loan modification program for 
which a borrower was denied.
    41(f) Deadline for loss mitigation applications.
    1. No scheduled foreclosure sale. If a foreclosure sale has not 
been scheduled, or where a foreclosure sale may occur less than 90 
days after the foreclosure sale is scheduled, a servicer should set 
a deadline that is no earlier than 90 days before the day a servicer 
reasonably anticipates that a foreclosure sale may occur.

[[Page 57315]]

    2. Servicing transfers. If servicing for a mortgage loan is 
transferred, the transferee servicer is subject to the requirements 
of Sec.  1024.41 unless the effective date of the servicing transfer 
occurs after the deadline that the transferee servicer establishes 
pursuant to section 1024.41(f).
    41(g) Prohibition on foreclosure sale.
    Paragraph 41(g)(4).
    1. Short sale listing period. An agreement for a short sale 
transaction, or other similar loss mitigation option, typically 
includes marketing or listing periods during which a servicer will 
allow a borrower to market a short sale transaction. A borrower is 
deemed to be performing under an agreement on a short sale, or other 
similar loss mitigation option, during the term of a marketing or 
listing period.
    2. Short sale agreement. A borrower is deemed to be performing 
under an agreement on a loss mitigation option if a short sale 
transaction has been approved by all relevant parties, including the 
servicer, other affected lienholders, or insurers, if applicable, 
and the servicer has received proof of funds or financing.
    41(h) Appeal process.
    Paragraph 41(h)(3).
    1. Supervisory personnel. The appeal may be evaluated by 
supervisory personnel that are responsible for oversight of the 
personnel that conducted the initial evaluation, as long as the 
supervisory personnel were not directly involved in the initial 
evaluation.
    41(j) Other liens.
    Paragraph 41(j)(1)(i).
    1. Reasonable diligence to identify other servicers. A servicer 
should undertake reasonable diligence to determine if a property is 
encumbered by liens as a result of other senior or subordinate 
mortgage loans serviced by other servicers. Servicers may obtain 
this information by, among other things, requesting that the 
borrower provide information in a loss mitigation application 
regarding any other mortgage loans with liens encumbering the 
property, conducting a search of the land records, reviewing a 
consumer report from a consumer reporting agency, or consulting a 
database designed to match senior and subordinate lien records.

Appendix MS--Mortgage Servicing Model Forms and Clauses

    1. In general. This appendix contains model forms and clauses 
for mortgage servicing disclosures. Each of the model forms is 
designated for uses in a particular set of circumstances as 
indicated by the title of that model form or clause. Although use of 
the model forms and clauses is not required, servicers using them 
appropriately will be deemed to be in compliance with disclosure 
requirements of the regulation. To use the forms appropriately, 
information required by regulation must be set forth in the 
disclosures.
    2. Permissible changes. Servicers may make certain changes to 
the format or content of the forms and clauses and may delete any 
disclosures that are inapplicable without losing the protection from 
liability so long as those changes do not affect the substance, 
clarity, or meaningful sequence of the forms and clauses. Servicers 
making revisions to that effect will lose their protection from 
civil liability. Except as otherwise specifically required, 
acceptable changes include, for example:
    i. Use of ``borrower'' and ``servicer'' instead of pronouns.
    ii. Substitution of the words ``lender'' and ``servicer.''
    iii. Addition of graphics or icons, such as the servicer's 
corporate logo.

Appendix MS-3--Model Force-Placed Insurance Notice Forms

    1. Model MS-3(A). The model form MS-3(A) illustrates how a 
servicer may comply with Sec.  1024.37(c)(2).
    2. Model MS-3(B). The model form MS-3(B) illustrates how a 
servicer may comply with Sec.  1024.37(d)(2)(i).
    3. Model MS-3(C). The model form MS-3(C) illustrates how a 
servicer may comply with Sec.  1024.37(d)(2)(ii).
    4. Model MS-3(D). The model form MS-3(D) illustrates how a 
servicer may comply with Sec.  1024.37(e)(2).
    5. Where the model forms MS-3(A), MS-3(B), MS-3(C), and MS-3(D) 
use the term ``hazard insurance,'' the servicer may substitute 
``hazard insurance'' with ``homeowner's insurance.''

Appendix MS-4--Model Clauses for the Written Early Intervention Notice

    1. Model MS-4(A). These model clauses illustrate how a servicer 
may provide its contact information and how a servicer may request 
that the borrower contact the servicer, as required by paragraphs 
(b)(2)(i) and (b)(2)(ii) of Sec.  1024.39.
    2. Model MS-4(B). These model clauses illustrate how the 
servicer may inform the borrower of loss mitigation options that may 
be available, as required by Sec.  1024.39(b)(2)(iii), if 
applicable. Model MS-4(B) does not contain sample clauses for all 
loss mitigation options that may be available. The language in the 
model clauses contained in square brackets is optional; a servicer 
may comply with the disclosure requirements of Sec.  
1024.39(b)(2)(iii) by using language substantially similar to the 
language in the model clauses or by adding or substituting 
applicable loss mitigation options for options not represented in 
these model clauses, as long as the information required to be 
disclosed is accurate and clear and conspicuous.
    3. Model MS-4(C). These model clauses illustrate how the 
servicer may inform the borrower how to obtain additional 
information about loss mitigation options, required by Sec.  
1024.39(b)(2)(iv), if applicable. A servicer that offers no loss 
mitigation options may not include the model clauses in MS-4(C).
    4. Model MS-4(D). These model clauses illustrate the foreclosure 
statement, as required by Sec.  1024.39(b)(2)(v). To use the model 
clauses, the servicer must fill in the estimated number of days 
following a missed payment in which the servicer may refer the 
borrower to foreclosure.
    5. Model MS-4(E). These model clauses illustrate how a servicer 
may provide contact information for housing counselors and State 
housing finance authorities, as required by Sec.  1024.39(b)(2)(vi). 
A servicer may, at its option, provide the Web site and telephone 
number for either the Bureau's or the Department of Housing and 
Urban Development's housing counselors list, as provided by 
paragraphs (b)(2)(vi)(A) and (b)(2)(vi)(B) of Sec.  1024.39. A 
servicer would be required to provide the telephone number and, if 
applicable, the Web site, for the appropriate State housing finance 
authority, as required by Sec.  1024.39(b)(2)(vi).[ltrif]

    Dated: August 9, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-19974 Filed 9-7-12; 4:15 pm]
BILLING CODE 4810-AM-P