[Federal Register Volume 79, Number 240 (Monday, December 15, 2014)]
[Proposed Rules]
[Pages 74176-74305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28167]



[[Page 74175]]

Vol. 79

Monday,

No. 240

December 15, 2014

Part II





Bureau of Consumer Financial Protection





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12 CFR Parts 1024 and 1026





Amendments to the 2013 Mortgage Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 
Z); Proposed Rule

  Federal Register / Vol. 79, No. 240 / Monday, December 15, 2014 / 
Proposed Rules  

[[Page 74176]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Parts 1024 and 1026

[Docket No. CFPB-2014-0033]
RIN 3170-AA49


Amendments to the 2013 Mortgage Rules under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth in Lending Act 
(Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Proposed rule with request for comment.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
proposing amendments to certain mortgage servicing rules issued in 
2013. These proposed amendments focus primarily on clarifying, 
revising, or amending provisions regarding force-placed insurance 
notices, policies and procedures, early intervention, and loss 
mitigation requirements under Regulation X's servicing provisions; and 
periodic statement requirements under Regulation Z's servicing 
provisions. The proposed amendments also address proper compliance 
regarding certain servicing requirements when a consumer is a potential 
or confirmed successor in interest, is in bankruptcy, or sends a cease 
communication request under the Fair Debt Collection Practices Act. The 
proposed rule makes technical corrections to several provisions of 
Regulations X and Z. The Bureau requests public comment on these 
changes.

DATES: Comments must be received on or before March 16, 2015.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2014-
0033 or RIN 3170-AA49, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include CFPB-
2014-0033 AND/OR RIN 3170-AA49 in the subject line of the message.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. 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 1275 
First Street NE., Washington, DC 20002, 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.

FOR FURTHER INFORMATION CONTACT: Dania L. Ayoubi, David H. Hixson, 
Bradley S. Lipton, Joel L. Singerman, or Shiri B. Wolf, Counsels; or 
William R. Corbett or Laura A. Johnson, Senior Counsels; Office of 
Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

    In January 2013, the Bureau issued several final rules concerning 
mortgage markets in the United States (2013 Title XIV Final Rules), 
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 1376 (2010).\1\ Two 
of these rules were (1) the Mortgage Servicing Rules Under the Real 
Estate Settlement Procedures Act (Regulation X) (2013 RESPA Servicing 
Final Rule); \2\ and (2) the Mortgage Servicing Rules Under the Truth 
in Lending Act (Regulation Z) (2013 TILA Servicing Final Rule).\3\ 
These two rules are referred to collectively as the 2013 Mortgage 
Servicing Final Rules.
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    \1\ Specifically, on January 10, 2013, the Bureau issued Escrow 
Requirements Under the Truth in Lending Act (Regulation Z), 78 FR 
4725 (Jan. 22, 2013) (2013 Escrows Final Rule), High-Cost Mortgage 
and Homeownership Counseling Amendments to the Truth in Lending Act 
(Regulation Z) and Homeownership Counseling Amendments to the Real 
Estate Settlement Procedures Act (Regulation X), 78 FR 6855 (Jan. 
31, 2013) (2013 HOEPA Final Rule), and Ability to Repay and 
Qualified Mortgage Standards Under the Truth in Lending Act 
(Regulation Z), 78 FR 6407 (Jan. 30, 2013) (January 2013 ATR Final 
Rule). The Bureau concurrently issued a proposal to amend the 
January 2013 ATR Final Rule, which was finalized on May 29, 2013. 
See 78 FR 6621 (Jan. 30, 2013) (January 2013 ATR Proposal) and 78 FR 
35429 (June 12, 2013) (May 2013 ATR Final Rule). On January 17, 
2013, the Bureau issued the Real Estate Settlement Procedures Act 
(Regulation X) and Truth in Lending Act (Regulation Z) Mortgage 
Servicing Final Rules, 78 FR 10901 (Feb. 14, 2013) (Regulation Z) 
and 78 FR 10695 (Feb. 14, 2013) (Regulation X) (2013 Mortgage 
Servicing Final Rules). On January 18, 2013, the Bureau issued the 
Disclosure and Delivery Requirements for Copies of Appraisals and 
Other Written Valuations Under the Equal Credit Opportunity Act 
(Regulation B), 78 FR 7215 (Jan. 31, 2013) (2013 ECOA Valuations 
Final Rule) and, jointly with other agencies, issued Appraisals for 
Higher-Priced Mortgage Loans (Regulation Z), 78 FR 10367 (Feb. 13, 
2013) (2013 Interagency Appraisals Final Rule). On January 20, 2013, 
the Bureau issued the Loan Originator Compensation Requirements 
under the Truth in Lending Act (Regulation Z), 78 FR 11279 (Feb. 15, 
2013) (2013 Loan Originator Final Rule).
    \2\ 78 FR 10695 (Feb. 14, 2013).
    \3\ 78 FR 10901 (Feb. 14, 2013).
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    The Bureau clarified and revised those rules through notice and 
comment rulemaking during the summer and fall of 2013 in the (1) 
Amendments to the 2013 Mortgage Rules under the Real Estate Settlement 
Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 
Z) (July 2013 Mortgage Final Rule) \4\ and (2) Amendments to the 2013 
Mortgage Rules under the Equal Credit Opportunity Act (Regulation B), 
Real Estate Settlement Procedures Act (Regulation X), and the Truth in 
Lending Act (Regulation Z) (September 2013 Mortgage Final Rule).\5\ In 
October 2013, the Bureau issued clarified compliance requirements in 
relation to successors in interest, early intervention requirements, 
bankruptcy law, and the Fair Debt Collection Practices Act (FDCPA),\6\ 
through an Interim Final Rule (October 2013 IFR or IFR) \7\ and a 
contemporaneous compliance bulletin (October 2013 Servicing 
Bulletin).\8\ In addition, in October 2014, the Bureau added an 
alternative definition of small servicer in the Amendments to the 2013 
Mortgage Rules under the Truth in Lending Act (Regulation Z).\9\ The 
purpose of each of these updates was to address important questions 
raised by industry, consumer advocacy groups, and other stakeholders. 
The 2013 Mortgage Servicing Final Rules, as amended in 2013 and 2014, 
are referred to herein as the Mortgage Servicing Rules.
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    \4\ 78 FR 44685 (July 24, 2013).
    \5\ 78 FR 60381 (Oct. 1, 2013).
    \6\ 15 U.S.C. 1692 et seq.
    \7\ 78 FR 62993 (Oct. 23, 2013).
    \8\ Consumer Fin. Prot. Bureau, CFPB Bulletin 2013-12, 
Implementation Guidance for Certain Mortgage Servicing Rules (Oct. 
15, 2013), available at http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
    \9\ 79 FR 65300, 65304 (Nov. 3, 2014).
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    The Bureau is now proposing several additional amendments to the 
Mortgage Servicing Rules to revise regulatory provisions and official 
interpretations relating to the Regulation X and Z

[[Page 74177]]

mortgage servicing rules.\10\ The proposals cover nine major topics, 
summarized below generally in the order they appear in the proposed 
rule. More details can be found in the proposed rule.
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    \10\ Note that RESPA and TILA differ in their terminology. 
Whereas Regulation X generally refers to ``borrowers,'' Regulation Z 
generally refers to ``consumers.''
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    1. Successors in interest. The Bureau is proposing three sets of 
rule changes relating to successors in interest. First, the Bureau is 
proposing to apply all of the Mortgage Servicing Rules to successors in 
interest once a servicer confirms the successor in interest's identity 
and ownership interest in the property.\11\ Second, the Bureau is 
proposing rules relating to how a mortgage servicer confirms a 
successor in interest's status. Third, the Bureau is proposing that, to 
the extent that the Mortgage Servicing Rules apply to successors in 
interest, the rules apply with respect to all successors in interest 
who acquire an ownership interest in a transfer protected from 
acceleration, and therefore foreclosure, under Federal law.
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    \11\ This proposal uses the term ``successor in interest's 
status'' to refer to the successor in interest's identity and 
ownership interest in the property.
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    2. Definition of delinquency. The Bureau is proposing to add a 
general definition of delinquency that would apply to all of the 
servicing provisions of Regulation X and the provisions regarding 
periodic statements for mortgage loans in Regulation Z. Under the 
proposed definition, a borrower and a borrower's mortgage loan 
obligation are delinquent beginning on the date a payment sufficient to 
cover principal, interest, and, if applicable, escrow, becomes due and 
unpaid.
    3. Requests for information. The Bureau is proposing amendments 
that would change how a servicer must respond to requests for 
information asking for ownership information for loans in trust for 
which the Federal National Mortgage Association (Fannie Mae) or Federal 
Home Loan Mortgage Corporation (Freddie Mac) is the trustee, investor, 
or guarantor.
    4. Force-placed insurance. The Bureau is proposing to amend the 
required disclosures to account for when a servicer wishes to force-
place insurance when the borrower has insufficient, rather than 
expiring or expired, hazard insurance coverage on the property. 
Additionally, the Bureau is proposing to give servicers the option to 
include a borrower's mortgage loan account number on the notices 
required under Sec.  1024.37. The Bureau is also proposing several 
technical edits to correct discrepancies between the model forms and 
the text of Sec.  1024.37.
    5. Early intervention. The Bureau is proposing to clarify generally 
the early intervention live contact obligations and written early 
intervention notice obligations. The Bureau is also proposing to 
require servicers to provide written early intervention notices to 
certain borrowers who are in bankruptcy or who have invoked their cease 
communication rights under the FDCPA.
    6. Loss mitigation. The Bureau is proposing to: (1) Require 
servicers to meet the loss mitigation requirements more than once in 
the life of a loan for borrowers who become current after a 
delinquency; (2) Modify the existing exception to the 120-day 
prohibition on foreclosure filing to allow a servicer to join the 
foreclosure action of a senior lienholder; (3) Clarify that servicers 
have significant flexibility in setting a reasonable date by which a 
borrower must return documents and information to complete an 
application, so long as the date maximizes borrower protections and 
allows borrowers a reasonable period of time to return documents and 
information; (4) Clarify that servicers must take affirmative steps to 
delay a foreclosure sale, even where the sale is conducted by a third 
party; clarify the servicer's duty to instruct foreclosure counsel to 
take steps to comply with the dual-tracking prohibitions; and indicate 
that a servicer who has not taken, or caused counsel to take, all 
reasonable affirmative steps to delay the sale, is required to dismiss 
the foreclosure action if necessary to avoid the sale; (5) Require that 
servicers promptly provide a written notice once they receive a 
complete loss mitigation application; require that the notice indicate 
that the servicer has received a complete application but clarify that 
the servicer might later request additional information if needed; 
require that the notice provide the date of completion and a disclosure 
indicating whether a foreclosure sale was scheduled as of that date, 
the date foreclosure protections began, a statement informing the 
borrower of applicable appeal rights, and a statement that the servicer 
will complete its evaluation within 30 days from the date of the 
complete application; (6) Address and clarify how servicers obtain 
information not in the borrower's control and evaluate a loss 
mitigation application while waiting for such third party information; 
prohibit servicers from denying borrowers based upon delay in receiving 
such third party information; require that servicers promptly provide a 
written notice to the borrower if the servicer lacks third party 
information 30 days after receiving the borrower's complete 
application; and require servicers to notify borrowers of their 
determination in writing promptly upon receipt of the third party 
information; (7) Permit servicers to offer a short-term repayment plan 
based upon an evaluation of an incomplete application; (8) Clarify that 
servicers may stop collecting documents and information from a borrower 
pertaining to a loss mitigation option after receiving information 
confirming that the borrower is ineligible for that option; and (9) 
Address and clarify how loss mitigation procedures and timelines apply 
to a transferee servicer that receives a mortgage loan for which there 
is a loss mitigation application pending at the time of a servicing 
transfer.
    7. Prompt payment crediting. The Bureau is proposing to clarify how 
servicers must treat periodic payments made by consumers who are 
performing under either temporary loss mitigation programs or permanent 
loan modifications. Under the Bureau's proposal, periodic payments made 
pursuant to temporary loss mitigation programs would continue to be 
credited according to the loan contract and could, if appropriate, be 
credited as partial payments, while periodic payments made pursuant to 
a permanent loan modification would be credited under the terms of the 
permanent loan agreement.
    8. Periodic statements. The Bureau is proposing to: (1) Clarify 
certain periodic statement disclosure requirements relating to mortgage 
loans that have been accelerated, are in temporary loss mitigation 
programs, or have been permanently modified, to conform generally the 
disclosure of the amount due with the Bureau's understanding of the 
legal obligation in each of those circumstances; (2) Require servicers 
to send modified periodic statements to consumers who have filed for 
bankruptcy, subject to certain exceptions, with content varying 
depending on whether the consumer is a debtor in a Chapter 7 or Chapter 
13 bankruptcy case; and to conduct consumer testing on proposed sample 
periodic statement forms that servicers could use for consumers in 
bankruptcy to ensure compliance with Sec.  1026.41; and (3) Exempt 
servicers from the periodic statement requirement for charged-off 
mortgage loans if the servicer will not charge any additional fees or 
interest on the account and provides a final periodic statement.
    9. Small servicer. The proposal would make certain changes to the 
small

[[Page 74178]]

servicer definition. The small servicer definition generally applies to 
servicers who service 5,000 or fewer mortgage loans for all of which 
the servicer is the creditor or assignee. The proposal would exclude 
certain seller-financed transactions from being counted toward the 
5,000 loan limit, allowing servicers that would otherwise qualify for 
small servicer status to retain their exemption while servicing those 
transactions.
    The proposed rule also makes technical corrections to several 
provisions of Regulations X and Z. The Bureau seeks public comment on 
all of the proposed changes.

II. Background

A. Title XIV Rules under the Dodd-Frank Act

    In response to an unprecedented cycle of expansion and contraction 
in the mortgage market that sparked the most severe U.S. recession 
since the Great Depression, Congress passed the Dodd-Frank Act, which 
was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress 
established the Bureau and generally consolidated the rulemaking 
authority for Federal consumer financial laws, including the Truth in 
Lending Act (TILA) and the Real Estate Settlement Procedures Act 
(RESPA), in the Bureau.\12\ At the same time, Congress significantly 
amended the statutory requirements governing mortgages with the intent 
to restrict the practices that contributed to and exacerbated the 
crisis.\13\ Under the statute, most of these new requirements would 
have taken effect automatically on January 21, 2013, if the Bureau had 
not issued implementing regulations by that date.\14\ To avoid 
uncertainty and potential disruption in the national mortgage market at 
a time of economic vulnerability, the Bureau issued several final rules 
in a span of less than two weeks in January 2013 to implement these new 
statutory provisions and provide for an orderly transition. These rules 
included the 2013 Mortgage Servicing Final Rules, issued on January 17.
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    \12\ See, e.g., sections 1011 and 1021 of the Dodd-Frank Act, 12 
U.S.C. 5491 and 5511 (establishing and setting forth the purpose, 
objectives, and functions of the Bureau); section 1061 of the Dodd-
Frank Act, 12 U.S.C. 5581 (consolidating certain rulemaking 
authority for Federal consumer financial laws in the Bureau); 
section 1100A of the Dodd-Frank Act (codified in scattered sections 
of 15 U.S.C.) (similarly consolidating certain rulemaking authority 
in the Bureau). But see Section 1029 of the Dodd-Frank Act, 12 
U.S.C. 5519 (subject to certain exceptions, excluding from the 
Bureau's authority any rulemaking authority over a motor vehicle 
dealer that is predominantly engaged in the sale and servicing of 
motor vehicles, the leasing and servicing of motor vehicles, or 
both).
    \13\ See title XIV of the Dodd-Frank Act, Public Law 111-203, 
124 Stat. 1376 (2010) (codified in scattered sections of 12 U.S.C., 
15 U.S.C., and 42 U.S.C.).
    \14\ See Dodd-Frank Act section 1400(c), 15 U.S.C. 1601 note.
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    On January 17, 2013, the Bureau issued the 2013 Mortgage Servicing 
Final Rules. Pursuant to the Dodd-Frank Act, which permitted a maximum 
of one year for implementation, these rules became effective on January 
10, 2014. The Bureau issued additional corrections and clarifications 
to the 2013 Mortgage Servicing Final Rules in the summer and fall of 
2013 and in the fall of 2014.

B. Implementation Plan for New Mortgage Rules

    On February 13, 2013, the Bureau announced an initiative to support 
implementation of the new mortgage rules (Implementation Plan),\15\ 
under which the Bureau would work with the mortgage industry to ensure 
that the 2013 Title XIV Final Rules could be implemented accurately and 
expeditiously. The Implementation Plan included: (1) Coordination with 
other agencies; (2) publication of plain-language guides to the new 
rules; (3) ongoing conversations with stakeholders involved in 
implementation with respect to questions and concerns they had 
identified; (4) publication of additional interpretive guidance and 
corrections or clarifications of the new rules as needed; (5) 
publication of readiness guides for the new rules; and (5) education of 
consumers on the new rules.
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    \15\ Press Release, Consumer Fin. Prot. Bureau, CFPB Lays Out 
Implementation Plan for New Mortgage Rules (Feb. 13, 2013), 
available at http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-lays-out-implementation-plan-for-new-mortgage-rules/.
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    In the course of the implementation process, the Bureau identified 
a number of respects in which the 2013 Mortgage Servicing Final Rules 
posed implementation challenges. As a result, in July 2013 and 
September 2013, following notice and comment, the Bureau issued two 
final rules amending discrete aspects of the 2013 Mortgage Servicing 
Final Rules. Among other things, the July 2013 Mortgage Final Rule 
clarified, corrected, or amended provisions on the relation to State 
law of Regulation X's servicing requirements; implementation dates for 
certain adjustable-rate mortgage servicing notices under Regulation Z; 
and the small servicer exemption from certain servicing rules. Among 
other things, the September 2013 Mortgage Final Rule modified 
provisions of Regulation X related to error resolution, information 
requests, and loss mitigation procedures. In October 2013, the Bureau 
issued an IFR, which among other things, provisionally suspended the 
effectiveness of certain requirements of the 2013 Mortgage Servicing 
Final Rules with respect to consumers in bankruptcy and consumers who 
had exercised their rights under the FDCPA to direct that debt 
collectors cease contacting them with respect to outstanding debts. In 
the October 2013 Servicing Bulletin, the Bureau also clarified 
compliance requirements regarding successors in interest, early 
intervention live contact requirements, and the FDCPA. In addition, in 
October 2014, the Bureau issued a final rule that, among other things, 
adds an alternative definition of small servicer that applies to 
certain nonprofit entities that service, for a fee, only loans for 
which the servicer or an associated nonprofit entity is the creditor.

C. Ongoing Monitoring

    After the January 10, 2014 effective date of the rules, the Bureau 
has continued to engage in ongoing outreach and monitoring with 
industry, consumer advocacy groups, and other stakeholders, including 
holding numerous individual meetings as well as hosting a bankruptcy 
roundtable discussion on June 16, 2014, among representatives of 
consumer advocacy groups, bankruptcy attorneys, mortgage servicers, 
trade groups, and bankruptcy trustees. As a result, the Bureau has 
identified further issues that continue to pose implementation 
challenges or require clarification. The Bureau has also recognized 
that there are instances in which the rules are creating unintended 
consequences or failing to achieve desired objectives.
    The Bureau recognizes both the implementation process that industry 
has experienced with respect to the Mortgage Servicing Rules and the 
costs that industry has incurred. The Bureau believes that the majority 
of the provisions in this proposal will impose, at most, minimal new 
compliance burdens, and in many cases will reduce the compliance burden 
relative to the existing rules. Where the Bureau is proposing adding 
new requirements, the Bureau is doing so after careful weighing of 
incremental costs and benefits.
    This proposal concerns additional revisions to the Mortgage 
Servicing Rules. The purpose of these revisions is to address important 
questions raised by industry, consumer advocacy groups, or other 
stakeholders. As discussed below, the Bureau contemplates additional

[[Page 74179]]

revisions in several sections of Regulations X and Z.

III. Legal Authority

    As discussed more fully in the section-by-section analysis, the 
Bureau is proposing this rule pursuant to the FDCPA and the Dodd-Frank 
Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the 
``consumer financial protection functions'' previously vested in 
certain other Federal agencies, including the Board of Governors of the 
Federal Reserve System (Board). The term ``consumer financial 
protection function'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any Federal 
consumer financial law, including performing appropriate functions to 
promulgate and review such rules, orders, and guidelines.'' Section 
1061 of the Dodd-Frank Act also transferred to the Bureau all of the 
Department of Housing and Urban Development's (HUD's) consumer 
protection functions relating to RESPA. Title X of the Dodd-Frank Act, 
including section 1061 of the Dodd-Frank Act, along with TILA, RESPA, 
the FDCPA, and certain subtitles and provisions of title XIV of the 
Dodd-Frank Act, are Federal consumer financial laws.\16\
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    \16\ See Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws,'' the provisions of title X of the Dodd-
Frank Act, and the laws for which authorities are transferred under 
title X subtitles F and H of the Dodd-Frank Act); Dodd-Frank Act 
section 1002(12), 12 U.S.C. 5481(12) (defining ``enumerated consumer 
laws'' to include TILA); Dodd-Frank Act section 1400(b), 12 U.S.C. 
5481(12) note (defining ``enumerated consumer laws'' to include 
certain subtitles and provisions of Dodd-Frank Act title XIV); Dodd-
Frank Act section 1061(b)(7), 12 U.S.C. 5581(b)(7) (transferring to 
the Bureau all of HUD's consumer protection functions relating to 
RESPA).
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A. RESPA

    Section 19(a) of RESPA, 12 U.S.C. 2617(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 include its 
consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12 
U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements 
necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of 
RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe 
regulations that are appropriate to carry out RESPA's consumer 
protection purposes. As identified in the 2013 RESPA Servicing Final 
Rule, the consumer protection purposes of RESPA include ensuring that 
servicers respond to borrower requests and complaints in a timely 
manner and maintain and provide accurate information, helping borrowers 
avoid unwarranted or unnecessary costs and fees, and facilitating 
review for foreclosure avoidance options. Each of the proposed 
amendments or clarifications to Regulation X is intended to achieve 
some or all these purposes.
    Additionally, as explained below, certain of the proposed 
amendments to Regulation X implement specific provisions of RESPA.
    This proposed rule also includes amendments to the official Bureau 
commentary in Regulation X. Section 19(a) of RESPA 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.

B. TILA

    Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to 
prescribe regulations to carry out the purposes of TILA. Under section 
105(a), such regulations may contain such additional requirements, 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for all or any class of 
transactions, as in the judgment of the Bureau are necessary or proper 
to effectuate the purposes of TILA, to prevent circumvention or evasion 
thereof, or to facilitate compliance therewith. Under section 102(a), 
15 U.S.C. 1601(a), the purposes of TILA are ``to assure a meaningful 
disclosure of credit terms so that the consumers will be able to 
compare more readily the various credit terms available and avoid the 
uniformed use of credit'' and to protect consumers against inaccurate 
and unfair credit billing practices. For the reasons discussed in this 
proposal, the Bureau is proposing to adopt amendments to Regulation Z 
to carry out TILA's purposes and such additional requirements, 
adjustments, and exceptions as, in the Bureau's judgment, are necessary 
and proper to carry out the purposes of TILA, prevent circumvention or 
evasion thereof, or to facilitate compliance therewith.
    Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to 
exempt from all or part of TILA any class of transactions if the Bureau 
determines that TILA coverage does not provide a meaningful benefit to 
consumers in the form of useful information or protection. For the 
reasons discussed in this notice, the Bureau is proposing to exempt 
certain transactions from the requirements of TILA pursuant to its 
authority under section 105(f) of TILA.
    Additionally, as explained below, certain of the proposed 
amendments to Regulation Z implement specific provisions of TILA.
    This proposed rule also includes amendments to the official Bureau 
commentary in Regulation Z. Good faith compliance with the 
interpretations would afford protection from liability under section 
130(f) of TILA.

C. FDCPA

    The Bureau also exercises its authority to prescribe rules with 
respect to the collection of debts by debt collectors pursuant to 
section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). For the reasons 
discussed below, the Bureau proposes to rely on this authority to 
clarify a borrower's cease communication protections under section 
805(c) of the FDCPA and to interpret the exceptions set forth in 
section 805(c)(2) and (3) of the FDCPA to include the written early 
intervention notice required by proposed Sec.  1024.39(d)(2)(iii). The 
proposed rule also includes Bureau advisory opinions for purposes of 
section 813(e) of the FDCPA, 15 U.S.C. 1692k(e). Under that section, 
``[n]o provision of [the FDCPA] imposing any liability shall apply to 
any act done or omitted in good faith in conformity with any advisory 
opinion of the Bureau, notwithstanding that after such act or omission 
has occurred, such opinion is amended, rescinded, or determined by 
judicial or other authority to be invalid for any reason.''

D. The Dodd-Frank Act

    Section 1022(b)(1) of the Dodd-Frank Act, 12 U.S.C. 5512(b)(1), 
authorizes the Bureau to prescribe rules ``as may be necessary or 
appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of the Federal consumer financial laws, and to 
prevent evasions thereof.'' RESPA, TILA, the FDCPA, and title X of the 
Dodd-Frank Act are Federal consumer financial laws.
    Section 1032(a) of the Dodd-Frank Act, 12 U.S.C. 5532(a), 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.''

[[Page 74180]]

The authority granted to the Bureau in section 1032(a) of the Dodd-
Frank Act 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.
    Section 1032(c) of the Dodd-Frank Act, 12 U.S.C. 5532(c), provides 
that, in prescribing rules pursuant to section 1032 of the Dodd-Frank 
Act, 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.'' Accordingly, in proposing to amend 
provisions authorized under section 1032(a) of the Dodd-Frank Act, 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.

IV. Proposed Effective Date

    The Bureau proposes that all of the changes proposed herein, except 
for the changes in proposed Sec.  1026.41(e)(5) and (f), take effect 
280 days after publication of a final rule in the Federal Register. The 
Bureau believes that the proposed changes generally reinforce existing 
Bureau guidance, provide greater clarity in an effort to facilitate 
compliance, expand existing preemptions, or otherwise provide relief 
from regulatory requirements; therefore the Bureau believes an 
effective date of 280 days after publication may be appropriate.
    The Bureau proposes that the changes to proposed Sec.  
1026.41(e)(5) and (f) take effect one year after publication of a final 
rule in the Federal Register. These proposed changes would limit the 
circumstances in which a servicer is exempt from the periodic statement 
requirements with respect to a consumer who is a debtor in bankruptcy 
and, when an exemption does not apply with respect to such consumers, 
require that periodic statements contain certain bankruptcy-related 
modifications; therefore the Bureau believes an effective date of one 
year after publication may be appropriate.
    The Bureau seeks comment on whether the proposed effective dates 
are appropriate, or whether the Bureau should adopt alternative 
effective dates.

V. Section-by-Section Analysis of the Proposed Rule

A. Regulation X and Regulation Z

    Several of the Bureau's proposals under either Regulation X or 
Regulation Z affect provisions in both Regulations X and Z. For 
example, the proposed definition of delinquency in Sec.  1024.31 
affects requirements in Sec. Sec.  1024.39 through 1024.41 of 
Regulation X, as well as Sec.  1026.41 of Regulation Z. Generally, the 
Bureau discusses each section of the proposed rule under the heading 
designating the applicable regulation below--part V.B. for Regulation X 
and part V.C. for Regulation Z. However, because the proposed rule and 
commentary relating to successors in interest are interspersed 
throughout Regulation X and Regulation Z, the Bureau is providing an 
overview of the proposed rule under this combined part V.A for both 
Regulation X and Regulation Z. In this combined part, references to 
specific sections of part 1024 refer to Regulation X, and references to 
specific sections of part 1026 refer to Regulation Z. The Bureau then 
discusses each specific section of the proposed rule relating to 
successors in interest in more detail under the heading designating the 
applicable regulation below.
Overview of Proposed Rule Relating to Successors in Interest
    Background. Current Sec.  1024.38(b)(1)(vi) provides that servicers 
are required to maintain policies and procedures that are reasonably 
designed to ensure that the servicer can, upon notification of the 
death of a borrower, promptly identify and facilitate communication 
with the successor in interest of the deceased borrower with respect to 
the property securing the deceased borrower's mortgage loan.\17\ When 
the Bureau adopted this requirement in the 2013 RESPA Servicing Final 
Rule, the Bureau stated that it ``understands that successors in 
interest may encounter challenges in communicating with mortgage 
servicers about a deceased borrower's mortgage loan account. The Bureau 
believes that it is essential that servicers' policies and procedures 
are reasonably designed to facilitate communication with successors in 
interest regarding a deceased borrower's mortgage loan accounts.'' \18\ 
The Bureau issued the October 2013 Servicing Bulletin to provide 
implementation guidance about this requirement.\19\ The Bureau noted 
that it had received ``reports of servicers either outright refusing to 
speak to a successor in interest or demanding documents to prove the 
successor in interest's claim to the property that either do not exist 
. . . or are not reasonably available.'' \20\ The Bureau also stated 
that these practices ``often prevent a successor in interest from 
pursuing assumption of the mortgage loan and, if applicable, loss 
mitigation options.'' \21\ The October 2013 Servicing Bulletin provided 
examples of servicer practices and procedures that would accomplish the 
objectives set forth in Sec.  1024.38(b)(1)(vi) and alleviate these 
problems.\22\
---------------------------------------------------------------------------

    \17\ A successor in interest is ``[o]ne who follows another in 
ownership or control of property.'' Black's Law Dictionary (9th ed. 
2009). For the purposes of this proposal, the Bureau is referring to 
successors in interest who have been transferred a legal interest in 
a property securing a mortgage loan from a borrower on the mortgage 
loan; the successor in interest may not necessarily have assumed the 
mortgage loan obligation (i.e., legal liability for the mortgage 
debt) under State law, and the servicer may not necessarily have 
agreed to add the successor in interest as obligor on the mortgage 
loan.
    \18\ 78 FR 10695, 10781 (Feb. 14, 2013).
    \19\ October 2013 Servicing Bulletin.
    \20\ Id. at 2.
    \21\ Id.
    \22\ Id. On July 17, 2014, the Bureau also issued an 
interpretive rule clarifying that where a successor in interest who 
has previously acquired a legal interest in a dwelling agrees to be 
added as obligor on the mortgage loan, the servicer's express 
acknowledgment of the successor in interest as obligor does not 
constitute an ``assumption'' as that term is used in Regulation Z. 
See 79 FR 41631 (July 17, 2014). Accordingly, the Regulation Z 
Ability-to-Repay Rule does not apply when a creditor expressly 
accepts a successor in interest as obligor on a loan. See id. The 
interpretive rule also noted that the servicer must comply with any 
ongoing obligations pertaining to consumer credit, such as the ARM 
notice requirements (12 CFR 1026.20(c) and (d)) and periodic 
statement requirement (12 CFR 1026.41), after the successor in 
interest is added as an obligor on the mortgage note.
---------------------------------------------------------------------------

    As explained in more detail in the discussion that follows and in 
the section-by-section analysis of the proposed sections,\23\ the 
Bureau is proposing three sets of rules relating to successors in 
interest. First, the Bureau is proposing rules providing that, to the 
extent that the Mortgage Servicing Rules apply to successors in 
interest, the rules apply specifically with respect to successors in 
interest who acquired an ownership interest in the property securing a 
mortgage loan in a transfer protected by the Garn-St Germain Depository 
Institutions Act of 1982 (the Garn-St Germain Act).\24\ Second, the 
Bureau is proposing rules relating to how a mortgage servicer confirms 
a successor in interest's identity and ownership interest in the 
property.

[[Page 74181]]

Third, the Bureau is proposing to apply all of the Mortgage Servicing 
Rules to successors in interest whose identity and ownership interest 
in the property have been confirmed by the servicer (``confirmed 
successors in interest''). As explained in more detail in the 
discussion that follows and in the section-by-section analysis of the 
proposed sections, the Bureau believes that these changes are necessary 
to address the significant problems successors in interest continue to 
encounter with respect to the servicing of mortgage loans secured by 
their property. The Bureau has received information from consumers, 
consumer advocacy groups, and other stakeholders demonstrating that 
such problems remain pervasive, despite the Bureau's earlier guidance.
---------------------------------------------------------------------------

    \23\ See section-by-section analyses of Sec. Sec.  1024.30(d), 
1024.31, 1024.36(i), 1024.38(b)(1)(vi), 1024.39(b)(1), 1024.41(b), 
1026.2(a)(11), 1026.2(a)(27), and 1026.41(a), infra.
    \24\ 12 U.S.C. 1701j-3(d).
---------------------------------------------------------------------------

    Successors in interest covered by the proposed rule would not 
necessarily have assumed the mortgage loan obligation (i.e., legal 
liability for the mortgage debt) under State law. The Bureau 
understands that whether a successor in interest has assumed a mortgage 
loan obligation under State law is a fact-specific question. The 
proposed rule would not affect this question but would apply with 
respect to a successor in interest regardless of whether that person 
has assumed the mortgage loan obligation under State law.\25\
---------------------------------------------------------------------------

    \25\ As noted, the Bureau has also clarified in an interpretive 
rule that where a successor in interest who has previously acquired 
a legal interest in a dwelling agrees to be added as obligor on the 
mortgage loan, the servicer's express acknowledgment of the 
successor in interest as obligor does not constitute an 
``assumption'' as that term is used in Regulation Z. See 79 FR 41631 
(July 17, 2014).
---------------------------------------------------------------------------

    Scope of successor in interest rules. The Bureau is proposing 
changes to the Mortgage Servicing Rules regarding who qualifies as a 
successor in interest for purposes of relevant provisions of the rules. 
Current Sec.  1024.38(b)(1)(vi) refers to ``the successor in interest 
of the deceased borrower.'' As the Bureau noted in the 2013 Mortgage 
Rule Amendments, the Garn-St Germain Act ``generally prohibits the 
exercise of due-on-sale clauses with respect to certain protected 
transfers.'' \26\ These protected transfers include certain transfers 
involving the death of a borrower, specifically ``a transfer to a 
relative resulting from the death of a borrower'' and ``a transfer by 
devise, descent, or operation of law on the death of a joint tenant or 
tenant by the entirety.'' \27\ In addition to these categories 
involving the death of a borrower, the Garn-St Germain Act protects 
other categories of transfers: ``a transfer where the spouse or 
children of the borrower become an owner of the property;'' ``a 
transfer resulting from a decree of a dissolution of marriage, legal 
separation agreement, or from an incidental property settlement 
agreement, by which the spouse of the borrower becomes an owner of the 
property;'' ``a transfer into an inter vivos trust in which the 
borrower is and remains a beneficiary and which does not relate to a 
transfer of rights of occupancy in the property;'' and ``any other 
transfer or disposition described in regulations prescribed by the 
Federal Home Loan Bank Board.'' \28\
---------------------------------------------------------------------------

    \26\ 78 FR 60381, 60406 (Oct. 1, 2013).
    \27\ 12 U.S.C. 1701j-3(d).
    \28\ Id. The Garn-St Germain Act also prohibits exercise of due-
on-sale clauses with respect to certain other situations that do not 
involve transfer of an ownership interest in the property. See id. 
The Bureau's proposed rule would not apply to these situations.
---------------------------------------------------------------------------

    The Bureau is proposing that, to the extent that the Mortgage 
Servicing Rules apply to successors in interest, the rules would apply 
to all successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act, rather than only successors in interest who acquired an 
ownership interest upon a borrower's death. Accordingly, for the 
purposes of Regulation X, the Bureau is proposing to define successor 
in interest in Sec.  1024.31 as a member of any of the categories of 
successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. The Bureau also is proposing to modify current Sec.  
1024.38(b)(1)(vi) to account for all transfers to successors in 
interest meeting this definition. Similarly, for the purposes of 
Regulation Z, proposed Sec.  1026.2(a)(27) defines successor in 
interest to cover all categories of successors in interest who acquired 
an ownership interest in the dwelling securing a mortgage loan in a 
transfer protected by the Garn-St Germain Act. Successors in interest 
covered by the proposed definitions would not necessarily have assumed 
the mortgage loan obligation (i.e., legal liability for the mortgage 
debt) under State law.\29\
---------------------------------------------------------------------------

    \29\ As noted, the Bureau understands that whether a successor 
in interest has assumed a mortgage loan obligation under State law 
is a fact-specific question.
---------------------------------------------------------------------------

    When the Bureau issued current Sec.  1024.38(b)(1)(vi), it stated 
that it had ``received information about difficulties faced by 
surviving spouses, children, or other relatives who succeed in the 
interest of a deceased borrower to a property that they also occupied 
as a principal residence, when that property is secur[ing] a mortgage 
loan account solely in the name of the deceased borrower.'' \30\ Since 
that time, the Bureau has received additional information about 
difficulties faced by other categories of successors in interest who 
acquired an ownership interest in the property securing a mortgage loan 
in a transfer protected by the Garn-St Germain Act, such as divorced 
spouses of prior borrowers.\31\ For example, the Bureau has received 
reports from consumers and consumer advocacy groups that successors in 
interest who are transferred an ownership interest in property securing 
a mortgage loan upon divorce or legal separation face similar 
challenges to those faced by successors in interest in situations 
involving borrower death.
---------------------------------------------------------------------------

    \30\ 78 FR 10695, 10781 (Feb. 14, 2013).
    \31\ The Bureau interprets ``spouse'' to include married same-
sex spouses. See Memorandum on Ensuring Equal Treatment for Same-Sex 
Married Couples (Same-Sex Married Couple Policy) (June 25, 2015), 
available at http://files.consumerfinance.gov/f/201407_cfpb_memo_ensuring-equal-treatment-for-same-sex-married-couples.pdf (``It is the Bureau's policy, to the extent federal law 
permits and consistent with the legal position announced by the U.S. 
Department of Justice in interpreting relevant statutes, regulations 
and policies, to recognize all marriages valid at the time of the 
marriage in the jurisdiction where the marriage was celebrated. 
Accordingly, the Bureau will regard a person who is married under 
the laws of any jurisdiction to be married nationwide for purposes 
of the federal statutes and regulations under the Bureau's 
jurisdiction regardless of the person's place of residency.'').
---------------------------------------------------------------------------

    The Bureau believes that successors in interest in situations other 
than those involving a borrower's death face the same risk of 
unnecessary foreclosure and other consumer harm and have the same legal 
rights with respect to the mortgage loan and property as successors in 
interest upon death. Further, because the Bureau is proposing to apply 
all of the Mortgage Servicing Rules to confirmed successors in interest 
in large part to prevent unnecessary foreclosure, the Bureau believes 
that it is appropriate to defer to Congress's policy choice about which 
categories of successors in interest should be protected from 
foreclosure. Accordingly, the Bureau is proposing that the Mortgage 
Servicing Rules should apply with respect to all categories of 
successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act.
    Confirming a successor in interest's status. The Bureau is 
proposing modifications to Regulation X's mortgage servicing rules 
(subpart C of Regulation X) relating to how a mortgage servicer 
confirms a successor in interest's identity and ownership

[[Page 74182]]

interest in the property securing the mortgage loan.\32\ Proposed Sec.  
1024.36(i) requires a servicer to respond to a written request that 
indicates that the person making the request may be a successor in 
interest by providing that person with information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. Proposed Sec.  1024.38(b)(1)(vi) 
provides several related modifications to the current policies and 
procedures provision involving successors in interest.
---------------------------------------------------------------------------

    \32\ The Bureau believes that similar modifications to 
Regulation Z's mortgage servicing rules relating to how a mortgage 
servicer confirms a successor in interest's identity and ownership 
interest in the dwelling are unnecessary. Regulation X's mortgage 
servicing rules apply to the vast majority of mortgage loans to 
which Regulation Z's mortgage servicing rules apply. Accordingly, 
the rules under Regulation X relating to how a mortgage servicer 
confirms a successor in interest's identity and ownership interest 
in the property would generally apply to loans to which Regulation 
Z's mortgage servicing rules apply, making unnecessary similar 
modifications to Regulation Z.
---------------------------------------------------------------------------

    Proposed Sec.  1024.38(b)(1)(vi)(A) requires servicers to maintain 
policies and procedures that are reasonably designed to ensure that the 
servicer can, upon notification of the death of a borrower or of any 
transfer of the property securing a mortgage loan, promptly identify 
and facilitate communication with any potential successors in interest 
regarding the property. Proposed Sec.  1024.38(b)(1)(vi)(B) requires 
servicers to maintain policies and procedures reasonably designed to 
ensure that the servicer can, upon identification of a potential 
successor in interest, promptly provide to that person a description of 
the documents the servicer reasonably requires to confirm the person's 
identity and ownership interest in the property and how the person may 
submit a written request under Sec.  1024.36(i) (including the 
appropriate address). Proposed Sec.  1024.38(b)(1)(vi)(C) requires 
servicers to maintain policies and procedures reasonably designed to 
ensure that the servicer can confirm promptly, upon the receipt of such 
documents, the person's status as a successor in interest, where 
appropriate, and promptly notify the person, as applicable, that the 
servicer has confirmed the person's status, has determined that 
additional documents are required (and what those documents are), or 
has determined that the person is not a successor in interest.
    The Bureau is proposing these changes because it believes, based on 
the information it has received from consumers, consumer advocacy 
groups, and other stakeholders, that successors in interest continue to 
have difficulty demonstrating their identity and ownership interest in 
the property to servicers' satisfaction.\33\ The October 2013 Servicing 
Bulletin indicated that servicers should have a practice of 
``[p]romptly providing to any party claiming to be a successor in 
interest a list of all documents or other evidence the servicer 
requires, which should be reasonable in light of the laws of the 
relevant jurisdiction, for the party to establish (1) the death of the 
borrower and (2) the identity and legal interest of the successor in 
interest.''\34\ Nonetheless, the Bureau has heard numerous reports that 
some servicers continue to require successors in interest to submit 
documents that the Bureau believes are unreasonable in light of the 
particular situation of that successor in interest, or in light of the 
laws of the relevant jurisdiction. For instance, the Bureau has heard 
reports that some servicers have required successors in interest to 
produce probate documents for estates that do not require probate. The 
Bureau has also heard reports that some servicers have taken a long 
time to confirm the successor in interest's status, even after receipt 
of appropriate documentation. The Bureau has also heard reports that 
some servicers have failed to communicate to the successor in interest 
whether the servicer has confirmed the successor in interest's status.
---------------------------------------------------------------------------

    \33\ See, e.g., California Reinvestment Coalition, Chasm Between 
Words and Deeds X: How Ongoing Mortgage Servicing Problems Hurt 
California Homeowners and Hardest-Hit Communities, at 20 (May 21, 
2014) (noting that majority of housing counselors surveyed reported 
continuation of previously reported problems regarding successors in 
interest, such as that ``servicers often . . . would require [such 
homeowners] to go through costly and unnecessary hoops'').
    \34\ CFPB Bulletin 2013-12.
---------------------------------------------------------------------------

    The Bureau believes that these difficulties present significant 
problems related to RESPA's purposes and therefore warrant an 
appropriate response in Regulation X's mortgage servicing rules. When 
the Bureau issued the 2013 RESPA Servicing Final Rule, the Bureau 
stated that 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.''\35\ Further, the Bureau stated that 
the Dodd-Frank Act ``provides the Bureau authority to establish 
prohibitions on servicers of federally related mortgage loans 
appropriate to carry out the consumer protection purposes of RESPA . . 
. . [I]n light of the systemic problems in the mortgage servicing 
industry . . ., the Bureau is exercising this authority in this 
rulemaking to implement protections for borrowers with respect to 
mortgage servicing.''\36\ The Bureau believes that the proposed 
modifications to Regulation X's mortgage servicing rules regarding 
confirmation of a successor in interest's identity and ownership 
interest in the property similarly serve these purposes, in particular 
with respect to preventing unnecessary foreclosure and other homeowner 
harms.
---------------------------------------------------------------------------

    \35\ 78 FR 10901, 10914 (Feb. 14, 2013).
    \36\ Id. at 10703.
---------------------------------------------------------------------------

    Where a successor in interest's property secures a mortgage loan, a 
foreclosure or threatened foreclosure imperils that ownership interest 
and poses significant risk of consumer harm, even though the successor 
in interest may not have assumed the mortgage loan obligation under 
State law. Successors in interest may also have difficulty, beyond that 
of other homeowners, in avoiding foreclosure. The Bureau believes that 
such increased risk of harm may arise because successors in interest 
are more likely than other homeowners to experience an income 
disruption due to death or divorce, and because successors in interest 
have more difficulty than other homeowners obtaining information about 
the status of the mortgage loan, options for modification, and payoff 
information. Successors in interest may also be more likely than other 
homeowners to experience difficulty with the prompt crediting of their 
payments, resulting in unnecessary foreclosure. For all these reasons, 
the Bureau believes that successors in interest are a particularly 
vulnerable group at risk of substantial harms.
    These potential harms are most likely to occur when a servicer does 
not promptly confirm a successor in interest's identity and ownership 
interest in the property. Before confirmation of the successor in 
interest's identity and ownership interest, the servicer may, in some 
circumstances, have legitimate concerns about sharing information about 
the mortgage loan, crediting payments, or evaluating the unconfirmed 
successor in interest for loss mitigation options. Accordingly, when 
confirmation is delayed, the potential risk of foreclosure and other 
harms to the successor in interest increase. For these reasons, the

[[Page 74183]]

Bureau believes that the difficulties faced by successors in interest 
with respect to confirmation of their status have caused successors in 
interest to face unnecessary problems with respect to the mortgage 
loans secured by the property, which may lead to unnecessary 
foreclosure on the property.
    The Bureau's October 2013 Servicing Bulletin addressed these 
problems for a subset of successors in interest by requiring servicers 
to have policies and procedures in place to facilitate the provision of 
information to successors in interest who had inherited a property 
securing a deceased borrower's mortgage loan. Nonetheless, the Bureau 
has continued to receive reports that all categories of successors in 
interest, including those who inherit the property upon death of a 
family member, continue to experience difficulties in having servicers 
confirm the successor in interest's legal status. The Bureau believes, 
therefore, that proposing changes to the rules themselves is 
appropriate and necessary to clarify servicers' obligations and to 
ensure that the requirements are widely understood and enforceable. The 
Bureau believes that enabling successors in interest to demonstrate 
efficiently their status to servicers and having servicers promptly 
confirm this status is particularly important. Such prompt confirmation 
will reduce the risk of unnecessary foreclosures and other consumer 
harm. Because the Bureau is proposing to apply all of the Mortgage 
Servicing Rules to confirmed successors in interest, enabling 
successors in interest to demonstrate their status to servicers 
efficiently and requiring servicers to confirm this status promptly 
would allow successors in interest to access the rules' protections as 
quickly as possible. Moreover, as explained in the discussion above of 
the scope of successor in interest rules, the Bureau also believes that 
it is appropriate to extend protections to successors in interest in 
situations beyond a borrower's death.
    Applying Mortgage Servicing Rules to successors in interest. The 
Bureau is proposing to apply all of the Mortgage Servicing Rules to 
confirmed successors in interest. Accordingly, proposed Sec.  
1024.30(d) provides that a successor in interest shall be considered a 
borrower for the purposes of Regulation X's mortgage servicing rules 
once a servicer confirms the successor in interest's identity and 
ownership interest in the property. Similarly, proposed Sec.  
1026.2(a)(11) provides that a confirmed successor in interest is a 
consumer with respect to Regulation Z's mortgage servicing rules. Under 
the proposed rule, the Mortgage Servicing Rules would apply with 
respect to a confirmed successor in interest regardless of whether that 
person has assumed the mortgage loan obligation (i.e., legal liability 
for the mortgage debt) under State law.
    The Bureau believes, based on the information it has received from 
consumers, consumer advocacy groups, and other stakeholders, that 
successors in interest face many of the challenges that the Mortgage 
Servicing Rules were designed to prevent.\37\ For example, the Bureau 
has learned that successors in interest often have difficulty receiving 
information about the mortgage loan secured by the property or 
correcting errors regarding the mortgage loan account. The Bureau has 
also learned that servicers sometimes refuse to accept, or may 
misapply, payments from successors in interest. The Bureau has also 
heard numerous reports that successors in interest often encounter 
difficulties being evaluated for loss mitigation options, including 
that servicers often require successors in interest to assume the 
mortgage loan obligation under State law before evaluating the 
successor in interest for loss mitigation options. This practice 
appears to contravene Fannie Mae and Freddie Mac requirements that, for 
loans governed by Fannie Mae or Freddie Mac guidelines, servicers must 
evaluate successors in interest for loss mitigation options prior to 
processing an assumption.\38\ The problems encountered by successors in 
interest in correcting servicing errors and obtaining information may 
persist even after the servicer has confirmed the successor in 
interest's identity and ownership interest in the property.
---------------------------------------------------------------------------

    \37\ See, e.g., California Reinvestment Coalition, Chasm Between 
Words and Deeds X How Ongoing Mortgage Servicing Problems Hurt 
California Homeowners and Hardest-Hit Communities, at 20 (May 21, 
2014) (noting that majority of housing counselors surveyed reported 
continuation of previously reported problems regarding successors in 
interest, such as that ``servicers often would not speak to such 
homeowners, would require them to go through costly and unnecessary 
hoops, and would leave them more vulnerable to foreclosure'').
    \38\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17 
(Aug. 28, 2013), available at https://www.fanniemae.com/content/announcement/svc1317.pdf; Freddie Mac, Bulletin 2013-3 (Feb. 15, 
2013), available at http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1303.pdf..
---------------------------------------------------------------------------

    The ability of successors in interest to sell, encumber, or make 
improvements to their property is limited by the lien securing the 
mortgage loan. As homeowners of property securing a mortgage loan, 
successors in interest typically must satisfy the loan's payment 
obligations to avoid foreclosure, even though a successor in interest 
will not necessarily have assumed liability for the mortgage debt under 
State law. Successors in interest, like other homeowners, can face 
serious adverse consequences from foreclosure. These consumer harms may 
include loss of the home and accumulated equity, displacement, and 
damage to credit scores.\39\ Successors in interest, however, may have 
more difficulty preventing or resolving servicing errors than other 
borrowers.
---------------------------------------------------------------------------

    \39\ Although successors in interest should not face the same 
credit reporting consequences after a foreclosure as signatories to 
the debt, inconsistencies in the credit scoring system make 
uncertain any generalization about the impact of a foreclosure on 
credit score, and successors in interest may, in some instances, 
face credit score risks comparable to those of an original 
signatory. For example, a foreclosure judgment may be reported 
against the successor in interest and reflected in the credit score 
as a judgment, regardless of whether the successor in interest has 
personal liability on the debt.
---------------------------------------------------------------------------

    The Bureau believes that the problems faced by successors in 
interest are similar to many of the problems that prompted the Bureau 
to adopt the Mortgage Servicing Rules. When the Bureau issued the 2013 
RESPA Servicing Final Rule, it stated that ``the consumer protection 
purposes of RESPA include responding to borrower requests and 
complaints in a timely manner, maintaining and providing accurate 
information, helping borrowers avoid unwarranted or unnecessary costs 
and fees, and facilitating review for foreclosure avoidance 
options.''\40\ The Bureau believes that these purposes similarly would 
be served by providing successors in interest with the protections 
available to borrowers under Regulation X. Specifically, the Bureau 
believes that applying Regulation X's mortgage servicing rules to 
successors in interest would provide these homeowners with access to 
information about the mortgage, help successors in interest avoid 
unwarranted or unnecessary costs and fees, and prevent unnecessary 
foreclosure.
---------------------------------------------------------------------------

    \40\ 78 FR 10695, 10709 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau believes that it is especially important for the loss 
mitigation procedures in Sec.  1024.41 to apply to successors in 
interest. When the Bureau issued the 2013 RESPA Servicing Final Rule, 
the Bureau stated that ``establishing national mortgage servicing 
standards . . . ensure[s] that borrowers have a full and fair 
opportunity to receive an evaluation for a loss mitigation option 
before suffering the harms associated with foreclosure.''\41\ The 
Bureau also stated

[[Page 74184]]

that ``[t]hese standards are appropriate and necessary to achieve the 
consumer protection purposes of RESPA, including facilitating 
borrowers' review for loss mitigation options, and to further the goals 
of the Dodd-Frank Act to ensure a fair, transparent, and competitive 
market for mortgage servicing.''\42\ The Bureau believes that these 
same consumer protection purposes would be served by applying the loss 
mitigation procedures in Sec.  1024.41 to successors in interest, who, 
as homeowners of property securing a mortgage loan, may need to make 
payments on the loan to avoid foreclosure.
---------------------------------------------------------------------------

    \41\ Id. at 10815.
    \42\ Id.
---------------------------------------------------------------------------

    The Bureau believes that successors in interest may represent a 
particularly vulnerable group of consumers. Because successors in 
interest can face serious adverse consequences from foreclosure, 
successors in interest often accede to the responsibilities of the 
mortgage loan following death or divorce. Further, successors in 
interest may be more likely than other homeowners to experience a 
disruption in household income and therefore may be more likely than 
other homeowners to need loss mitigation to avoid foreclosure. The 
Bureau therefore believes that requiring servicers to evaluate a 
complete loss mitigation application received from a confirmed 
successor in interest under Sec.  1024.41's procedures would serve 
RESPA's consumer protection purposes.
    Further, because a servicer's acknowledgment of a successor in 
interest's subsequent assumption of the mortgage loan under State law 
is not subject to the Regulation Z Ability-to-Repay Rule,\43\ 
successors in interest are particularly dependent on a prompt loss 
mitigation evaluation to assess the mortgage loan's affordability. A 
servicer's evaluation of a complete loss mitigation application often 
provides the successor in interest with critical information about the 
long-term affordability of the loan. The Bureau therefore believes that 
requiring servicers to evaluate a complete loss mitigation application 
received from a confirmed successor in interest supports the successor 
in interest in making a fully informed decision about whether to assume 
the mortgage loan obligation under State law. The Bureau also believes 
that requiring servicers to comply with Sec.  1024.41's procedures with 
respect to confirmed successors in interest would not impose 
significant costs on servicers.
---------------------------------------------------------------------------

    \43\ See 79 FR 41631 (July 17, 2014).
---------------------------------------------------------------------------

    With respect to Regulation Z, when the Bureau issued the 2013 TILA 
Servicing Final Rule, the Bureau stated that ``[t]he purposes of TILA 
are to `assure a meaningful disclosure of credit terms so that the 
consumers will be able to compare more readily the various credit terms 
available and avoid the uninformed use of credit' and to protect 
consumers against inaccurate and unfair credit billing practices.''\44\ 
Additionally, the Bureau noted that the Dodd-Frank Act ``empowers the 
Bureau to prescribe rules regarding the disclosure of the `features' of 
consumer financial products and services generally . . . even if other 
Federal consumer financial laws do not specifically require disclosure 
of such features,''\45\ and that the Dodd-Frank Act ``is a broad source 
of authority to modify or exempt the disclosure requirements of TILA'' 
regarding ``residential mortgage loans if the Bureau determines that 
such exemption or modification is in the interest of consumers and in 
the public interest.''\46\ The Bureau believes that these purposes 
would be served by applying Regulation Z's mortgage servicing rules to 
successors in interest, who, as homeowners of dwellings securing 
mortgage loans, may be required to make payments on the loan to avoid 
foreclosure. Specifically, the Bureau believes that applying Regulation 
Z's mortgage servicing rules to successors in interest would protect 
successors in interest against inaccurate and unfair payment crediting 
practices by the servicer of the mortgage loan on which they may be 
making payments and which encumbers their property. The Bureau also 
believes that applying Regulation Z's mortgage servicing rules to 
successors in interest would benefit consumers and the public because 
the rules would help prevent unnecessary foreclosure by, for example, 
keeping successors in interest informed of the status of the mortgage 
loan and requiring a servicer to credit promptly payments from 
successors in interest. Moreover, the proposed amendments to Regulation 
Z would help ensure that successors in interest receive prompt 
information about the amount necessary to pay off the mortgage loan, as 
other homeowners do under Regulation Z.
---------------------------------------------------------------------------

    \44\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S.C. 
1601(a)).
    \45\ Id.
    \46\ Id.
---------------------------------------------------------------------------

    Legal Authority. For the reasons expressed above in this part V.A., 
the Bureau believes these proposed changes to the Mortgage Servicing 
Rules carry out the purposes of RESPA and TILA. The Bureau is proposing 
to exercise its authority under sections 6(j)(3), 6(k)(1)(E) and 19(a) 
of RESPA to make these amendments relating to successors in interest to 
Regulation X's mortgage servicing rules. The Bureau is proposing to 
exercise its authority under section 105(a) of TILA to make these 
amendments relating to successors in interest to Regulation Z's 
mortgage servicing rules. The Bureau is also proposing to exercise its 
authority under section 1022(b) of the Dodd-Frank Act to prescribe 
regulations necessary or appropriate to carry out the purposes and 
objectives of Federal consumer financial laws.
    The Bureau believes that it is reasonable to interpret ``borrower'' 
under RESPA and ``consumer'' under TILA to include successors in 
interest and to apply the Mortgage Servicing Rules to confirmed 
successors in interest. The Bureau believes that this treatment is 
consistent with State property law and thus the context in which RESPA 
and TILA were enacted. At common law, a successor in interest ``retains 
the same rights as the original owner, with no change in 
substance.''\47\ As a matter of State law, successors in interest have 
historically been afforded many of the same rights and responsibilities 
as the prior borrower. For example, there is a significant amount of 
State law indicating that a successor in interest, like the prior 
borrower, possesses the right to redeem following the mortgagee's 
foreclosure on the property.\48\ Moreover, there is significant State 
law providing that the contractual rights and obligations under the 
mortgage loan of the prior borrower are freely assignable to successors 
in interest.\49\ Further, before the enactment of the Garn-St Germain 
Act, several States had longstanding prohibitions on the exercise of 
due-on-sale clauses, thereby limiting servicers to the same contractual 
remedies with respect to successors in interest as were available 
against the prior borrower, whether or not the successor in interest 
under State law assumes the legal obligation to pay

[[Page 74185]]

the mortgage.\50\ Additionally, while successors in interest may not be 
personally liable on the mortgage note, absent their express assumption 
of such liability under State law, in a significant number of mortgages 
across the United States, the borrower on the note is also under State 
law not personally liable for the debt upon foreclosure because a 
deficiency judgment is not allowed.\51\ Accordingly, under State law, a 
successor in interest is often in virtually the same legal position as 
the borrower on the note with respect to foreclosure.
---------------------------------------------------------------------------

    \47\ Successor in interest, Black's Law Dictionary (9th ed. 
2009).
    \48\ ``Property sold subject to redemption . . . may be redeemed 
in the manner hereinafter provided, by the . . . judgment debtor, or 
his successor in interest in the whole or any part of the 
property.'' Phillips v. Hagart, 45 P. 843, 843 (Cal. 1896); see 
also, e.g., Forty-Four Hundred E. Broadway Co. v. 4400 E. Broadway, 
660 P.2d 866, 868 (Az. Ct. App. 1982) (citing Call v. Thunderbird 
Mortg. Co., 375 P.2d 169 (Cal. 1962)); Brastrup v. Ellingson, 161 
NW. 553, 554 (N.D. 1917); Tate v. Dinsmore, 175 SW. 528, 529 (Ark. 
1915).
    \49\ See, e.g., Badran v. Household Fin. Corp., 2008 WL 4335098, 
at *4 (Mich. Ct. App. 2008); Bermes v. Sylling, 587 P.2d 377 (Mont. 
1978); In re Fogarty's Estate, 300 N.Y.S. 231 (N.Y. Sur. Ct. 1937).
    \50\ See, e.g., Continental Fed. Sav. & Loan Ass'n v. Fetter, 
564 P.2d 1013, 1017 n.4 (Okla. 1977) (collecting cases). The Garn-St 
Germain Act later preempted restrictions on due-on-sale clauses 
generally, but prohibited exercise of due-on-sale clauses with 
respect to certain categories of successors in interest. See 12 
U.S.C. 1701j-3(b) (preempting restrictions); id. Sec.  1701j-3(d) 
(prohibiting exercise for certain categories).
    \51\ Deficiency judgments against borrowers upon foreclosure are 
disallowed with respect to most residential mortgages in several 
states, including Alaska, Arizona, California, Hawaii, Minnesota, 
Montana, Nevada, North Dakota, Oklahoma, Oregon, and Washington. See 
Connecticut General Assembly, Office of Legislative Research, OSR 
Research Report 2010-R-0327, Comparison of State Laws on Mortgage 
Deficiencies and Redemption Periods (Dec. 9, 2011) (citing and 
updating National Consumer Law Center, Survey of State Foreclosure 
Laws (2009)), available at http://www.cga.ct.gov/2010/rpt/2010-R-0327.htm.
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    The Bureau also believes that this treatment of successors in 
interest is consistent with other aspects of Federal law. The Garn-St 
Germain Act, like the Bureau's proposed amendments to the Mortgage 
Servicing Rules, protects successors in interest from foreclosure after 
transfer of homeownership to them. Additionally, several bankruptcy 
courts have held that successors in interest are entitled to the same 
treatment as prior borrowers, for example with respect to curing an 
arrearage on a mortgage and reinstating the loan.\52\
---------------------------------------------------------------------------

    \52\ See, e.g., In re Smith, 469 B.R. 198, 202 (Bankr. S.D.N.Y. 
2012); In re Curinton, 300 B.R. 78, 82 (Bankr. M.D. Fla. 2003) 
(quoting In re Garcia, 276 B.R. 627, 631 (Bankr. D. Ariz. 2002)).
---------------------------------------------------------------------------

    The Bureau is aware that some courts have indicated that successors 
in interest would not ordinarily be considered borrowers under 
RESPA.\53\ Notwithstanding these cases, which were decided without the 
benefit of regulations such as those that the Bureau is now proposing, 
the Bureau believes that the term ``borrower'' may also be interpreted 
to include successors in interest and that it is reasonable to consider 
confirmed successors in interest borrowers for the purposes of the 
Mortgage Servicing Rules. As homeowners of a property securing a 
mortgage loan, successors in interest typically must satisfy the loan's 
payment obligations to avoid foreclosure. As described above, 
successors in interest therefore step into the shoes of the borrower 
for many legal purposes.
---------------------------------------------------------------------------

    \53\ See, e.g., Wilson v. Bank of Am., N.A., 2014 WL 4744555, at 
*8-*10 (E.D. Pa. Sept. 24, 2014).
---------------------------------------------------------------------------

B. Regulation X

Section 1024.30 Scope
30(d) Successors in Interest
    As explained in part V.A., the Bureau is proposing that all of the 
Mortgage Servicing Rules apply to confirmed successors in interest (as 
defined by the proposed definition of successor in interest, discussed 
in the section-by-section analysis of Sec.  1024.31). Proposed Sec.  
1024.30(d) accordingly provides that a successor in interest must be 
considered a borrower for the purposes of subpart C of Regulation X 
(Regulation X's mortgage servicing rules) once a servicer confirms the 
successor in interest's identity and ownership interest in a property 
that secures a mortgage loan covered by Regulation X's mortgage 
servicing rules. Confirmed successors in interest covered by proposed 
Sec.  1024.30(d) would not necessarily have assumed the mortgage loan 
obligation (i.e., legal liability for the mortgage debt) under State 
law.\54\ The Bureau also notes that the exemptions and scope 
limitations in Regulation X's mortgage servicing rules would also apply 
to the servicing of a mortgage loan with respect to a successor in 
interest.\55\
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    \54\ As indicated in part V.A., supra, the Bureau understands 
that whether a successor in interest has assumed a mortgage loan 
obligation (i.e., legal liability for the mortgage debt) under State 
law is a fact-specific question.
    \55\ Section 1024.30(b) exempts small servicers from Sec. Sec.  
1024.38 through 1024.41 (except Sec.  1024.41(j)). Likewise, Sec.  
1024.30(b) provides an exemption from these sections with respect to 
reverse mortgage transactions and mortgage loan transactions for 
which the servicer is a qualified lender. Accordingly, except as 
otherwise provided in Sec.  1024.41(j), Sec. Sec.  1024.38 through 
1024.41 would not apply to successors in interest with respect to 
small servicers, reverse mortgage transactions, and mortgage loans 
for which the servicer is a qualified lender. Consistent with 12 CFR 
591.5(b)(1), which excludes reverse mortgages from the Garn-St 
Germain's Act limitation on the exercise of certain due-on-sale 
clauses, the Bureau is therefore not proposing to apply Sec.  
1024.41's foreclosure-related protections with respect to reverse 
mortgages secured by a property acquired by a successor in interest. 
Under the proposed rule, however, Sec. Sec.  1024.30 through 1024.37 
would apply with respect to reverse mortgages secured by a property 
acquired by a successor in interest. Similarly, Sec.  1040.30(c) 
provides that Sec.  1024.33(a) only applies to mortgage loans that 
are secured by a first lien and that Sec. Sec.  1024.39 through 
1024.41 only apply to mortgage loans secured by property that is a 
borrower's principal residence. Accordingly, with respect to 
successors in interest, Sec.  1024.33(a) would only apply to 
mortgage loans that are secured by a first lien and Sec. Sec.  
1024.39 through 1024.41 would only apply to mortgage loans secured 
by property that is a borrower's principal residence.
---------------------------------------------------------------------------

    As described in part V.A., the Bureau is proposing this change 
because the Bureau believes, based on numerous reports from consumers, 
consumer advocacy groups, and other stakeholders, that successors in 
interest face many of the challenges that Regulation X's mortgage 
servicing rules were designed to prevent. The Bureau believes that the 
same reasons supporting the Bureau's adoption of the 2013 RESPA 
Servicing Final Rule support proposed Sec.  1024.30(d) because 
successors in interest are homeowners whose property is subject to 
foreclosure if the mortgage loan obligation is not satisfied, even 
though the successor in interest may not have assumed that obligation 
under State law. The Bureau has considered each section of Regulation 
X's mortgage servicing rules and believes that each section should 
apply to confirmed successors in interest.
    The Bureau believes that it is appropriate to limit the application 
of this portion of the proposed rule to successors in interest whom 
servicers have confirmed have an ownership interest in the property. 
Because some people representing themselves as successors in interest 
may not actually have an ownership interest in the property, requiring 
servicers to apply Regulation X's mortgage servicing rules' 
communication, disclosure, and loss mitigation requirements to 
successors in interest before servicers have confirmed the successor in 
interest's identity and ownership interest in the property may present 
privacy and other concerns. It would also be inappropriate to require 
servicers to incur substantial costs before confirming the successor in 
interest's identity and ownership interest in the property. However, 
the Bureau believes that applying Regulation X's mortgage servicing 
rules to confirmed successors in interest does not present privacy 
concerns. The Bureau believes that a confirmed successor in interest's 
ownership interest in the property securing the mortgage loan is 
sufficient to allow the successor in interest to receive information 
about the mortgage loan.
    Specifically, the Bureau believes that Sec. Sec.  1024.35 and 
1024.36 should apply to confirmed successors in interest.\56\ When the 
Bureau issued Sec. Sec.  1024.35 and 1024.36 in the 2013 RESPA 
Servicing

[[Page 74186]]

Final Rule, the Bureau stated that ``both borrowers and servicers would 
be best served if the Bureau were to clearly define a servicer's 
obligation to correct errors or respond to information requests.''\57\ 
The Bureau believes that clearly defining a servicer's obligation with 
respect to a successor in interest would similarly benefit both 
servicers and successors in interest. Under current Sec.  
1024.38(b)(1)(vi), servicers are required to have policies and 
procedures reasonably designed to ensure that the servicer can identify 
and communicate with successors in interest. Because Sec. Sec.  1024.35 
and 1024.36 do not currently necessarily apply to successors in 
interest, however, the extent of the obligation to communicate with 
successors in interest, as well as how a successor in interest may 
obtain information from a servicer, are not clear. The Bureau therefore 
believes that Sec. Sec.  1024.35 and 1024.36 would provide important 
protections to successors in interest. For instance, Sec.  1024.35 
would provide successors in interest with important protections 
regarding a servicer's failure to accept payments conforming to the 
servicer's written requirements for payments. Additionally, Sec.  
1024.36's requirements to provide information about the mortgage loan 
would prevent unnecessary foreclosure on the successor in interest's 
property by, for example, allowing a successor in interest to obtain 
information about the servicer's requirements for payments. Because 
successors in interest, like prior borrowers, bear the risk of 
unnecessary foreclosure, the Bureau believes that Sec. Sec.  1024.35 
and 1024.36 should apply to successors in interest, as homeowners of 
the property, for the same reasons that these rules apply to prior 
borrowers.
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    \56\ As described in the section-by-section analysis of Sec.  
1024.36(i), infra, in addition to proposing that Regulation X's 
mortgage servicing rules, including Sec.  1024.36, apply with 
respect to confirmed successors in interest, the Bureau is also 
proposing a new information request requirement in Sec.  1024.36(i) 
that applies before the servicer has confirmed the successor in 
interest's status.
    \57\ 78 FR 10695, 10736 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Providing successors in interest with protections under Sec. Sec.  
1024.35 and 1024.36 may cause servicers to incur costs, such as the 
cost of providing responses to information requests from successors in 
interest and handling error resolution. The Bureau believes, however, 
that the resulting consumer protection of this vulnerable group 
justifies the cost. Further, because servicers are already required to 
comply with the requirements of Sec. Sec.  1024.35 and 1024.36 with 
respect to prior borrowers and may already expend some resources to 
communicate with successors in interest, the additional cost to 
servicers to apply these requirements to successors in interest will be 
minimal.
    As noted, the Bureau believes that providing confirmed successors 
in interest with information about the mortgage loan as required by 
Sec. Sec.  1024.35 and 1024.36 does not present privacy concerns. The 
Bureau solicits comment on whether any information that could be 
provided to successors in interest under Sec. Sec.  1024.35 and 1024.36 
presents privacy concerns and whether servicers should be permitted to 
withhold any information from successors in interest out of such 
privacy concerns.
    As explained in part V.A., the Bureau believes that the loss 
mitigation procedures contained in Sec.  1024.41 should apply to 
confirmed successors in interest and that servicers should be required 
to evaluate successors in interest for loss mitigation options to 
prevent unnecessary foreclosure. The Bureau believes that significant 
consumer harm flows from a servicer's failure to afford a successor in 
interest the same access to loss mitigation as other homeowners. As 
discussed in part V.A., the Bureau also believes that requiring 
servicers to evaluate successors in interest for loss mitigation prior 
to the successor in interest's assumption of liability for the mortgage 
debt under State law is consistent with Fannie Mae and Freddie Mac 
guidelines and serves RESPA's purposes.\58\ Accordingly, under the 
proposed rule, once a servicer confirms a successor in interest's 
identity and ownership interest in the property, if the servicer 
receives a complete loss mitigation application from the successor in 
interest more than 37 days before a foreclosure sale, for example, the 
servicer must evaluate the successor in interest for all loss 
mitigation options available to the successor in interest, as required 
by Sec.  1024.41(c)(1).
---------------------------------------------------------------------------

    \58\ See Fannie Mae, Servicing Guide Announcement SVC-2013-17 
(Aug. 28, 2013); Freddie Mac, Bulletin 2013-3 (Feb. 15, 2013).
---------------------------------------------------------------------------

    Consistent with Sec.  1024.41's treatment of borrowers generally, 
the proposal would not require a servicer to offer a successor in 
interest any particular loss mitigation option. Further, under the 
proposed rule, a servicer could require a successor in interest to 
provide the same information and meet the same criteria for loss 
mitigation as other borrowers. The proposed rule would also not prevent 
a servicer from conditioning an offer for a loss mitigation option on 
the successor in interest's assumption of the mortgage loan obligation 
under State law or from offering loss mitigation options to the 
borrower that differ based on whether the borrower would simultaneously 
assume the mortgage loan obligation. Under the proposed rule, however, 
a servicer could not condition review and evaluation of a loss 
mitigation application on the successor in interest's assumption of the 
mortgage obligation. Once a servicer confirms a successor in interest's 
identity and ownership interest in the property, a servicer would, for 
example, be required under Sec.  1024.41(b) to respond to a loss 
mitigation application from the successor in interest and exercise 
reasonable diligence in obtaining documents and information to complete 
the loss mitigation application. The foreclosure prohibitions under 
Sec.  1024.41(f) and (g) would also apply.
    Providing successors in interest with Sec.  1024.41's protections 
may cause servicers to incur costs. Servicers may have to devote 
additional resources to responding to and evaluating loss mitigation 
applications from successors in interest. Further, providing successors 
in interest with Sec.  1024.41's protections may delay or prevent 
foreclosure on the property securing the mortgage loan. The Bureau 
believes, however, that the resulting consumer protection of this 
vulnerable group justifies the cost. Further, because servicers are 
already required to comply with Sec.  1024.41's requirements with 
respect to prior borrowers, the additional cost to servicers to apply 
these requirements to successors in interest should be minimal.
    For similar reasons, the early intervention and continuity of 
contact requirements contained in Sec. Sec.  1024.39 and 1024.40 should 
apply to confirmed successors in interest. In issuing these provisions 
in the 2013 RESPA Servicing Final Rule, the Bureau stated that 
Sec. Sec.  1024.39 and 1024.40 are ``appropriate to achieve the 
consumer protection purposes of RESPA, including to help borrowers 
avoid unwarranted or unnecessary costs and fees and to facilitate 
review of borrowers for foreclosure avoidance options.''\59\ The Bureau 
further stated that Sec. Sec.  1024.39 and 1024.40 are ``necessary and 
appropriate to carry out the purpose . . . of the Dodd-Frank Act of 
ensuring that markets for consumer financial products and services are 
fair, transparent, and competitive'' and that ``consumers are provided 
with timely and understandable information to make responsible 
decisions about financial transactions, and markets for consumer 
financial products and services operate transparently and efficiently 
to facilitate access and innovation.''\60\ The Bureau believes that 
these same consumer protection purposes would be served by

[[Page 74187]]

applying Sec. Sec.  1024.39 and 1024.40 to successors in interest, who 
as homeowners of a property securing a mortgage loan may be required to 
make payments on the loan to avoid foreclosure. In particular, the 
protections provided by Sec. Sec.  1024.39 and 1024.40 would serve to 
prevent unnecessary foreclosure by alerting successors in interest to 
any delinquency on the mortgage loan secured by their property and 
assisting with the process of applying for loss mitigation options.
---------------------------------------------------------------------------

    \59\ 78 FR 10695, 10791 (Feb. 14, 2013) (discussing 12 CFR 
1024.39); see also id. at 10809-10 (discussing 12 CFR 1024.40).
    \60\ Id. at 10791.
---------------------------------------------------------------------------

    Providing successors in interest with protections under Sec. Sec.  
1024.39 and 1024.40 may cause servicers to incur costs. In particular, 
servicers may be required to devote additional staffing and personnel 
to communicating with successors in interest. The Bureau believes, 
however, that providing consumer protections to this vulnerable group 
justifies the cost. Further, because servicers are already required to 
comply with Sec. Sec.  1024.39's and 1024.40's requirements with 
respect to prior borrowers, the additional cost to servicers to apply 
these requirements to successors in interest should be minimal.
    Finally, the Bureau believes that the requirements contained in 
Sec.  1024.33 (regarding mortgage servicing transfers), Sec.  1024.34 
(regarding escrow payments and account balances), and Sec.  1024.37 
(regarding force-placed insurance) should apply to confirmed successors 
in interest. The same rationale for applying these rules to prior 
borrowers applies with respect to successors in interest, who are also 
homeowners and may be required to make payments on the loan to avoid 
foreclosure.\61\ Further, it would add unnecessary complexity to the 
rules to apply the rest of Regulation X's mortgage servicing rules to 
confirmed successors in interest but not to apply Sec. Sec.  1024.33, 
1024.34, and 1024.37 to such successors in interest. The Bureau 
believes it is preferable to apply all of Regulation X's mortgage 
servicing rules to confirmed successors in interest, unless there is a 
compelling reason not to apply a particular rule. The Bureau is aware 
of no such compelling reason with respect to Sec. Sec.  1024.33, 
1024.34, and 1024.37 but solicits comment as to whether any such 
compelling reasons exist.
---------------------------------------------------------------------------

    \61\ See id. at 10727 (describing 12 CFR 1024.33); id. at 10734 
(describing 12 CFR 1024.34); id. at 10763 (describing 12 CFR 
1024.37).
---------------------------------------------------------------------------

    Providing successors in interest with protections under Sec. Sec.  
1024.33, 1024.34, and 1024.37 may cause servicers to incur costs, in 
particular the costs involved in communicating with successors in 
interest. The Bureau believes, however, that the resulting consumer 
protection of this vulnerable group justifies the cost. Further, 
because servicers are already required to comply with the requirements 
of Sec. Sec.  1024.33, 1024.34, and 1024.37 with respect to prior 
borrowers, the additional cost to servicers to apply these requirements 
to successors in interest should be minimal.
    The Bureau solicits comment on whether any particular sections of 
Regulation X's mortgage servicing rules should apply with respect to 
successors in interest even if the servicer has not confirmed the 
successor in interest's identity and ownership interest in the 
property. Further, the Bureau solicits comment on whether any 
particular sections of Regulation X's mortgage servicing rules should 
not apply with respect to confirmed successors in interest.
    Proposed commentary. Proposed comment 30(d)-1 clarifies the 
requirement in proposed Sec.  1024.30(d) that a successor in interest 
must be considered a borrower for the purposes of Regulation X's 
mortgage servicing rules once a servicer confirms the successor in 
interest's identity and ownership interest in the property. The 
proposed comment provides the example of the application of Sec.  
1024.41's loss mitigation procedures to successors in interest: If a 
servicer receives a loss mitigation application from a successor in 
interest after confirming the successor in interest's identity and 
ownership interest in the property, the servicer must review and 
evaluate the application and notify the successor in interest in 
accordance with the procedures set forth in Sec.  1024.41.\62\ The 
proposed comment also notes, in contrast, Sec.  1024.36(i)'s 
requirement that a servicer must respond to written requests for 
certain information from a potential successor in interest in 
accordance with the requirements of Sec.  1024.36(c) through (g) before 
confirming that person's status.
---------------------------------------------------------------------------

    \62\ As described in the section-by-section analysis of Sec.  
1024.41(b), infra, proposed comment 41(b)-1.ii provides that if a 
servicer receives a loss mitigation application from a potential 
successor in interest before confirming that person's identity and 
ownership interest in the property, the servicer is required to 
review and evaluate that loss mitigation application upon such 
confirmation in accordance with the procedures set forth in Sec.  
1024.41.
---------------------------------------------------------------------------

    Proposed comment 30(d)-2 clarifies the effect on the prior borrower 
of a servicer's confirmation of a successor in interest's identity and 
ownership interest in the property. The proposed comment provides that, 
even after a servicer's confirmation of a successor in interest's 
identity and ownership interest in the property, the servicer is still 
required to comply with the requirements of Regulation X's mortgage 
servicing rules with respect to the prior borrower, unless that 
borrower also has either died or been released from the obligation on 
the mortgage loan.\63\ Accordingly, once a servicer confirms a 
successor in interest's identity and ownership interest in the property 
and the prior borrower has either died or been released from the 
obligation on the mortgage loan, the servicer would no longer be 
required to comply with the requirements of Regulation X's mortgage 
servicing rules with respect to the prior borrower. The proposed 
comment also provides that the prior borrower retains any rights under 
Regulation X's mortgage servicing rules that accrued prior to the 
confirmation of the successor in interest to the extent these rights 
would otherwise survive the prior borrower's death or release from the 
obligation. Accordingly, for example, a deceased borrower's estate 
would still have any claims that accrued prior to the borrower's 
death.\64\ (As described in the section-by-section analysis of Sec.  
1026.2(a)(11), the Bureau is proposing similar commentary with respect 
to Regulation Z's requirements.)
---------------------------------------------------------------------------

    \63\ Under proposed comment 30(d)-2, in the absence of 
confirmation of a successor in interest, the servicer is still 
required to comply with Regulation X's mortgage servicing rules with 
respect to the prior borrower (i.e., the prior borrower's estate) 
even if the prior borrower has died.
    \64\ See, e.g., Wilson, 2014 WL 4744555, at *8, *10-*18 
(describing RESPA claims brought by ``Plaintiff as Administratrix of 
the Estate'').
---------------------------------------------------------------------------

    The Bureau is proposing comment 30(d)-2 because the Bureau believes 
that Regulation X's mortgage servicing rules would generally provide 
important protections to prior borrowers even after confirmation of a 
successor in interest. The prior borrower may still be liable on the 
mortgage note, and so the prior borrower may have significant legal 
interests at stake with respect to the mortgage loan, including 
potential credit reporting and any subsequent foreclosure or resulting 
deficiency. The Bureau believes that these ongoing interests of prior 
borrowers generally justify the continued application of Regulation X's 
mortgage servicing rules to prior borrowers after confirmation of a 
successor in interest. Alternatively, the Bureau seeks comment on 
whether the prior borrower should not continue to receive Regulation 
X's mortgage servicing protections once a successor in interest's 
identity and ownership interest have been confirmed.

[[Page 74188]]

    The Bureau acknowledges that, under proposed comment 30(d)-2, 
servicers will sometimes be required to comply with Regulation X's 
mortgage servicing rules with respect to more than one person--both the 
prior borrower and the successor in interest, as well as, in some 
cases, multiple successors in interest who each acquire an ownership 
interest in a property. The Bureau notes that, under the Mortgage 
Servicing Rules, it is already the case that the rules may apply with 
respect to more than one borrower for a particular mortgage loan. It is 
quite common for more than one borrower (for example, spouses) to be 
obligated on the mortgage note, and the Mortgage Servicing Rules apply 
with respect to each borrower in such cases. Accordingly, the Bureau 
does not believe that applying Regulation X's mortgage servicing rules 
to successors in interest presents novel challenges for servicers in 
this regard.
    On the other hand, the Bureau does not believe that it often would 
be useful to the prior borrower or the borrower's estate after the 
borrower has either died or been released from the obligation on the 
mortgage loan to continue to receive the protections of Regulation X's 
mortgage servicing rules once a servicer confirms a successor in 
interest's identity and ownership interest in the property. When a 
successor in interest has been confirmed and the prior borrower has 
died, the borrower's estate would typically have a relatively narrow 
interest in the mortgage loan. Likewise, when the prior borrower has 
been released from the obligation on the mortgage loan, that borrower 
may have interests relating to loan activity prior to the release of 
the obligation but would have little or no interest in subsequent loan 
activity. Accordingly, the Bureau believes that prior borrowers should 
not receive Regulation X's mortgage servicing protections when a 
successor in interest has been confirmed and the prior borrower has 
also died or been released from the mortgage obligation, but should 
retain any rights that accrued previously to the extent such rights 
would otherwise survive the death of the borrower or the release of the 
borrower from the obligation.
    The Bureau solicits comment on whether other circumstances exist, 
beyond death and relief of the obligation on the mortgage loan, in 
which Regulation X's mortgage servicing rules should not apply to the 
prior borrower once a successor in interest has been confirmed.
Section 1024.31 Definitions
Delinquency
    Section 1024.31 contains definitions for various terms that are 
used throughout the provisions of subpart C of Regulation X. It does 
not contain a definition of the term ``delinquency,'' although it is 
defined for purposes of Sec. Sec.  1024.39(a) and (b) and 1024.40(a). 
Since the publication of the 2013 RESPA Servicing Final Rule, the 
Bureau has received numerous inquiries about how servicers should 
calculate delinquency with respect to those provisions of the Mortgage 
Servicing Rules that refer to delinquency but do not define 
delinquency. In particular, stakeholders have asked the Bureau how 
servicers should calculate the 120-day foreclosure referral waiting 
period set forth in Sec.  1024.41(f)(1)(i). To provide greater clarity, 
the Bureau is proposing to add a single definition of ``delinquency'' 
that will apply to all provisions in subpart C of Regulation X, and to 
remove the definitions from the commentary to Sec. Sec.  1024.39(a) and 
(b) and 1024.40(a).
    Delinquency is currently defined for purposes of Sec. Sec.  
1024.39(a) and (b) and 1024.40(a) as beginning ``on the day a payment 
sufficient to cover principal, interest, and, if applicable, escrow for 
a given billing cycle is due and unpaid, even if the borrower is 
afforded a period after the due date to pay before the servicer 
assesses a late fee.'' \65\ Delinquency is not defined for purposes of 
other sections of subpart C, including Sec.  1024.41(f)(1), which 
prohibits a servicer from making the first notice or filing for 
foreclosure unless ``[a] borrower's mortgage loan obligation is more 
than 120 days delinquent.''
---------------------------------------------------------------------------

    \65\ Comments 39(a)-1.i and 40(a)-3.
---------------------------------------------------------------------------

    To address apparent confusion, as well as to ensure that the term 
``delinquency'' is interpreted consistently throughout Regulation X's 
mortgage servicing rules, the Bureau is proposing to remove the current 
definition of delinquency applicable to Sec. Sec.  1024.39(a) and (b) 
and 1024.40(a) and to add a general definition of delinquency in Sec.  
1024.31 that would apply to all sections of subpart C.\66\ The Bureau 
is proposing to define delinquency as a period of time during which a 
borrower and the borrower's mortgage loan obligation are delinquent, 
and to clarify within the proposed definition that a borrower and a 
borrower's mortgage loan obligation are delinquent beginning on the day 
a periodic payment sufficient to cover principal, interest, and, if 
applicable, escrow, became due and unpaid, until such time as the 
payment is made.\67\ Delinquency under the proposed definition is not 
triggered by a borrower's failure to pay a late fee, consistent with 
current comments 39(a)-1.i and 40(a)-3. As the Bureau explained in the 
2012 RESPA Servicing Proposal, the Bureau believes that there is a low 
risk that borrowers who are otherwise current with respect to 
principal, interest, and escrow payments will be pushed into 
foreclosure solely because of a failure to pay accumulated late 
charges.\68\
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    \66\ The proposed definition would not affect the interpretation 
of Sec.  1024.33(c), which prohibits servicers from treating a 
borrower as ``late for any purpose'' if a transferee servicer 
receives a payment from a borrower within the 60-day period 
beginning on the effective date of a transfer.
    \67\ All three concepts--delinquency, delinquent borrower, and 
delinquent mortgage loan obligation--are used interchangeably 
throughout subpart C. See, e.g., 12 CFR 1024.39(a) (``delinquent 
borrower''; ``borrower's delinquency''); 12 CFR 1024.39(b) (same); 
12 CFR 1024.41(f)(1)(i) (``A borrower's mortgage loan obligation is 
more than 120 days delinquent'').
    \68\ See 77 FR 57199, 57252 (Sept. 17, 2012).
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    In contrast with the definition of delinquency currently found in 
comments 39(a)-1.i and 40(a)-3, the proposed definition does not 
include the phrase ``for a given billing cycle.'' As used in the 
context of the live contact and continuity of contact requirements 
under Sec. Sec.  1024.39 and 1024.40, respectively, that phrase was 
intended to ensure that the servicer met the respective requirements of 
those rules during each billing cycle in which the borrower was 
delinquent. However, such a definition would have created incongruities 
if applied to the 120-day foreclosure referral waiting period in Sec.  
1024.41(f)(1)(i).
    By proposing to define ``delinquency,'' the Bureau intends to 
provide servicers, borrowers, and other stakeholders with clear 
guidance on how to determine whether a borrower is delinquent for 
purposes of Regulation X's servicing provisions and when the borrower's 
delinquency began. Servicers may use different definitions of 
``delinquency'' for operational purposes, and servicers may use 
different or additional terminology when referring to borrowers who are 
late or behind on their payments--for example, servicers may refer to 
borrowers as ``past due'' or ``in default,'' and may distinguish 
between borrowers who are ``delinquent'' and ``seriously delinquent.'' 
Except as provided in the Mortgage Servicing Rules themselves, the 
Bureau does not intend the proposed definition of delinquency to affect 
industry's existing procedures for identifying and dealing with 
borrowers

[[Page 74189]]

who are late or behind on their payments. The Bureau therefore seeks 
comment regarding whether the proposed definition has the potential of 
interfering with industry's existing policies and procedures. In 
addition, the Bureau seeks comment on whether there are alternative 
ways to articulate the proposed definition that may improve uniform 
interpretation and implementation.
    The Bureau is also proposing to add three comments to the proposed 
definition of delinquency to provide servicers additional guidance in 
determining whether and for how long a borrower has been delinquent. 
Proposed comment 31 (Delinquency)-1 essentially restates existing 
comments 39(a)-1.i and 40(a)-3: that a borrower becomes delinquent 
beginning the day on which the borrower fails to make a periodic 
payment, even if the servicer grants the borrower additional time after 
the due date to pay before charging the borrower a late fee.
    Proposed comment 31 (Delinquency)-2 explains how delinquency should 
be calculated if a servicer applies a borrower's payments to the oldest 
outstanding periodic payment. The Bureau understands from its outreach 
that many servicers credit payments made to a delinquent account to the 
oldest outstanding periodic payment; the model deed of trust provided 
by the GSEs provides that the servicer will apply payments ``in the 
order in which [they] became due.'' \69\ The Bureau also understands 
that some servicers that use this method may be concerned about how to 
calculate the length of a borrower's delinquency without increased 
certainty from the Bureau.\70\ As it stated in the 2012 TILA Servicing 
Proposal, the Bureau believes that this method of crediting payments 
provides greater consumer protection, because it advances the date the 
borrower's delinquency began and therefore shortens the length of a 
borrower's delinquency.\71\ Nonetheless, consistent with its decision 
in the context of the 2013 TILA Servicing Final Rule, the Bureau is not 
requiring servicers to apply payments to the oldest outstanding 
periodic payment at this time. The Bureau initially proposed to require 
servicers to apply payments in this way in the 2012 TILA Servicing 
Proposal, but it ultimately decided not to adopt the proposed 
provision, finding that it provided limited consumer benefit and posed 
a potential conflict with State law.\72\ The Bureau is not revisiting 
that decision in this rulemaking. The Bureau will continue to monitor 
the market to evaluate servicers' payment crediting practices and those 
practices' effects on consumers.
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    \69\ See, e.g., Fannie Mae, Security Instruments, https://www.fanniemae.com/singlefamily/security-instruments (security 
instruments for various states but with a uniform covenant that 
payments shall be applied to each periodic payment in the order in 
which it became due); Fannie Mae & Freddie Mac, California Single 
Family Uniform Instrument, Form 3005-4, available at https://www.fanniemae.com/content/legal_form/3005w.doc; Fannie Mae & Freddie 
Mac, New York Single Family Uniform Instrument, Form 3033, available 
at https://www.fanniemae.com/content/legal_form/3033w.doc.
    \70\ Am. Bankers Ass'n. Letter to Consumer Fin. Prot. Bureau 
(Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
    \71\ See 77 FR 57318, 57352-53 (Sept. 17, 2012).
    \72\ See 78 FR 10901, 10955-56 (Feb. 14, 2013).
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    At this time, rather than requiring that servicers apply payments 
to the oldest outstanding periodic payment, the Bureau is proposing 
comment 31 (Delinquency)-2 to clarify that, if a servicer applies 
payments to the oldest outstanding periodic payment, the date of the 
borrower's delinquency must advance accordingly. The proposed comment 
includes an example illustrating this concept. The example assumes a 
mortgage loan obligation with a periodic payment due on the first of 
each month. The borrower misses the periodic payment due on January 1, 
but makes a payment in full on February 1. The servicer credits the 
payment it received on February 1 to the January deficiency. Pursuant 
to proposed comment 31 (Delinquency)-2, on February 2, the borrower is 
one day delinquent. Servicers have indicated to the Bureau that if they 
apply payments in this manner, this method of calculating delinquency 
means that, in light of the 120-day foreclosure referral waiting period 
in Sec.  1024.41(f)(1)(i), servicers will not be able to foreclose on a 
borrower who misses one or two payments but does not become seriously 
delinquent--for example, a borrower who misses one payment over the 
course of a year but makes all other payments in full and on time. The 
Bureau understands that most servicers would not treat such a borrower 
as seriously delinquent and would not initiate loss mitigation 
procedures or seek to foreclose on that borrower. As such, the Bureau 
believes that the proposed comment will not place a significant 
additional burden on most servicers. The Bureau will continue to 
monitor the market to evaluate whether and to what extent servicers are 
choosing to foreclose on borrowers who are only one or two payments 
behind, including whether such foreclosure practices raise consumer 
protection concerns that would be appropriately addressed through 
formal guidance or rulemaking.
    Proposed comment 31 (Delinquency)-3 permits servicers to apply a 
payment tolerance to partial payments under certain circumstances. The 
Bureau has learned from its outreach that some servicers elect or are 
required to treat borrowers as having made a timely payment even if 
they make payments that are less than the amount due by some small 
amount (perhaps as a result of a scrivener's error or recent ARM 
payment adjustment). The Bureau understands that servicers that apply a 
payment tolerance advance the outstanding payment amount to the 
borrower's account, such that the account is reflected as current in 
the servicer's systems. The Bureau understands that the maximum amount 
these servicers use for a payment tolerance varies from $10 to $50.\73\ 
These servicers would prefer not to initiate early intervention 
communications, continuity of contact requirements, or loss mitigation 
procedures with those borrowers for that given billing cycle. Proposed 
comment 31 (Delinquency)-3 permits servicers that elect to advance 
outstanding funds to a borrower's mortgage loan account to treat the 
borrower's insufficient payment as timely, and therefore not 
delinquent, for purposes of Regulation X's mortgage servicing rules. 
The comment clarifies, however, that if a servicer chooses not to treat 
the borrower as delinquent for purposes of subpart C of Regulation X, 
the borrower is not delinquent as defined in Sec.  1024.31. This 
clarification is intended to prevent servicers from selectively 
applying a payment tolerance only where doing so benefits the servicer. 
Specifically, the clarification is intended to prevent the circumstance 
under which a servicer treats a borrower as current in order to avoid 
the early intervention, continuity of contact, or loss mitigation 
requirements, while treating the same borrower as delinquent for 
purposes of

[[Page 74190]]

initiating foreclosure under Sec.  1024.41(f)(1). The Bureau seeks 
comment on whether it should limit servicers' use of a payment 
tolerance to a specific dollar amount or percentage of the periodic 
payment amount, and if so, what the specific amount or percentage 
should be.
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    \73\ The variation in the payment tolerance amounts used could 
relate to whether the servicer is bound by the terms of the National 
Mortgage Settlement, which includes a mandatory payment tolerance 
policy: Servicers subject to the National Mortgage Settlement must 
accept and credit up to two payments that come within $50 of the 
scheduled payment to the borrower's account. The National Mortgage 
Settlement is available at: http://www.nationalmortgagesettlement.com/. The five servicers subject to 
the National Mortgage Settlement are Bank of America, JP Morgan 
Chase, Wells Fargo, CitiMortgage, and Ally/GMAC. Ocwen reached a 
separate settlement agreement containing an identical provision at a 
later time, also available at http://www.nationalmortgagesettlement.com/.
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Successors in Interest
    As described in part V.A., the Bureau is proposing that, to the 
extent that the Mortgage Servicing Rules apply to successors in 
interest, those rules should apply with respect to transfers to all 
categories of successors in interest who acquired an ownership interest 
in the property securing a mortgage loan in a transfer protected by the 
Garn-St Germain Act.\74\ Accordingly, the Bureau is proposing to add a 
definition of successor in interest to Sec.  1024.31 that is broader 
than the category of successors in interest contemplated by current 
Sec.  1024.38(b)(1)(vi) and that would cover all categories of 
successors in interest who acquired an ownership interest in the 
property securing a mortgage loan in a transfer protected by the Garn-
St Germain Act. (As discussed in the section-by-section analysis of 
Sec.  1026.2(a)(27), the Bureau is proposing to add a similar 
definition to Regulation Z.)
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    \74\ 12 U.S.C. 1701j-3(d).
---------------------------------------------------------------------------

    The proposed definition states that a successor in interest is a 
person to whom an ownership interest in a property securing a mortgage 
loan is transferred from the borrower, provided that the transfer falls 
under an exemption specified in the appropriate section of the Garn-St 
Germain Act. The Bureau intends the proposed definition to apply 
throughout the relevant proposed rule and commentary. (As discussed in 
the section-by-section analysis of Sec.  1024.38(b)(1)(vi), the Bureau 
is also proposing modifying current Sec.  1024.38(b)(1)(vi) to account 
for all protected transfers under the Garn-St Germain Act.)
    The Bureau solicits comment on whether the proposed definition of 
successor in interest is appropriate for the purposes of the Mortgage 
Servicing Rules. The Bureau also solicits comment on whether certain 
categories of successors in interest protected by the Garn-St Germain 
Act should not be covered by the Bureau's definition of successor in 
interest. The Bureau further solicits comment on whether additional 
categories of successors in interest, beyond those protected by the 
Garn-St Germain Act, should be covered by the Bureau's definition of 
successor in interest.
    The Bureau also solicits comment on whether the Mortgage Servicing 
Rules should expressly and specifically address the status of persons 
who possess an ownership interest in the property, have not have 
assumed the mortgage loan obligation (i.e., legal liability for the 
mortgage debt) under State law, but did not acquire an ownership 
interest from a prior borrower on the mortgage loan. Such persons would 
include, for example, persons who purchased the property jointly with 
the prior borrower but did not undertake the mortgage loan obligation 
when the loan was originated and may not necessarily have assumed the 
mortgage loan obligation thereafter. The Bureau is considering, but is 
not proposing at this time, expressly providing that such persons are 
borrowers for the purposes of the Mortgage Servicing Rules. The Bureau 
solicits comment on whether this category of persons are having 
difficulty with their treatment by mortgage servicers, and if so, the 
extent and nature of the difficulty.
Section 1024.36Requests for Information
36(a) Information Request
    Section 1463(a) of the Dodd-Frank Act amended 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. Currently, when a borrower 
submits a request for information under Sec.  1024.36(a) asking for the 
owner or assignee of a mortgage loan held by a trust in connection with 
a securitization transaction and administered by an appointed trustee, 
comment 36(a)-2 provides that the servicer complies with Sec.  
1024.36(d) by responding by identifying both the name of the trust and 
the name, address, and appropriate contact information for the trustee. 
The comment provides that, among other examples, if a mortgage loan is 
owned by Mortgage Loan Trust, Series ABC-1, for which XYZ Trust Company 
is the trustee, the servicer complies with Sec.  1024.36(d) by 
responding to a request for information regarding the owner or assignee 
of the mortgage loan 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. Proposed amendments 
to comment 36(a)-2 would change how a servicer must respond to such 
requests when Fannie Mae or Freddie Mac is the trustee, investor, or 
guarantor.
    The Bureau has received feedback from industry suggesting that 
providing borrowers with detailed information about the trust when 
Fannie Mae or Freddie Mac is the trustee, investor, or guarantor is 
unnecessarily burdensome on servicers. According to industry, 
servicers' systems do not typically track the name of the trust for 
each such loan, so a servicer must ask the trustee for this information 
each time it receives an information request asking for the loan's 
owner or assignee. Moreover, because the loss mitigation provisions for 
loans governed by Fannie Mae or Freddie Mac are determined by Fannie 
Mae or Freddie Mac and not by the trust, the trust-identifying 
information may be of less value to borrowers when Fannie Mae or 
Freddie Mac is the trustee, investor, or guarantor. Industry has 
therefore requested that the Bureau reconsider the requirement for a 
servicer to provide specific trust-identifying information for loans 
governed by Fannie Mae's or Freddie Mac's servicing guidelines.
    While the Bureau acknowledges industry's concerns, the Bureau 
continues to believe that a borrower should be able to obtain the 
identity of the trust by submitting a request for information under 
Sec.  1024.36(a). Consumer advocacy groups have informed the Bureau 
that borrowers require trust-identifying information in order to raise 
certain claims or defenses during litigation, as well as to exercise 
the extended right of rescission under Sec.  1026.23(a)(3) when 
applicable. Further, for loans held in a trust for which Fannie Mae or 
Freddie Mac is not the trustee, investor, or guarantor, a borrower 
would require the trust-identifying information to determine what loss 
mitigation options are available.
    Nonetheless, the Bureau believes that, with respect to a loan for 
which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor, 
it may not be necessary for a servicer to identify both the trustee and 
the trust in response to all requests for information seeking ownership 
information. To the extent that borrowers asking for the owner or 
assignee of a loan are seeking information about loss mitigation 
options or the requirements imposed on the servicer by the owner of the 
loan, such information is usually publicly available in Fannie Mae's or 
Freddie Mac's respective Seller-Servicing Guide without distinction 
based on the particular trust. If a borrower knows that Fannie Mae or 
Freddie Mac is the trustee, investor, or guarantor, the borrower can 
look to those guides and related bulletins to learn what loss

[[Page 74191]]

mitigation options are available, what foreclosure processes the 
servicer must follow, how the servicer is compensated, and a wide 
variety of other information applicable to the loan. Alternatively, 
borrowers can access the appropriate Web site to learn more information 
once they know which entity's guidelines apply; both Fannie Mae and 
Freddie Mac maintain Web sites containing a considerable amount of 
information relating to standards affecting borrowers' mortgage loans. 
Fannie Mae and Freddie Mac also maintain dedicated telephone lines for 
borrower inquiries. As such, requiring a servicer to identify Fannie 
Mae or Freddie Mac as the owner or assignee of the loan (without also 
identifying the name of the trust) would give most borrowers access to 
the information they seek.
    Given the foregoing considerations, the Bureau is proposing to 
revise comment 36(a)-2 to provide that, for loans for which Fannie Mae 
or Freddie Mac is the trustee, investor, or guarantor, a servicer 
complies with Sec.  1024.36(d) by responding to requests for 
information asking only for the owner or assignee of the loan by 
providing only the name and contact information for Fannie Mae or 
Freddie Mac, as applicable, without also providing the name of the 
trust. However, proposed comment 36(a)-2 also provides that, if a 
request for information expressly requests the name or number of the 
trust or pool, the servicer complies with Sec.  1024.36(d) by providing 
the name of the trust, and the name, address, and appropriate contact 
information for the trustee, regardless of whether or not Fannie Mae or 
Freddie Mac is the trustee, investor, or guarantor.
    The Bureau believes that proposed comment 36(a)-2 would preserve a 
borrower's access to information while reducing burden on servicers by 
no longer requiring them to obtain trust-identifying information for 
loans for which Fannie Mae or Freddie Mac is the trustee, investor, or 
guarantor. Further, the Bureau believes that, by requiring servicers to 
provide specific trust-identifying information upon a request expressly 
seeking such information, proposed comment 36(a)-2 would ensure that 
borrowers who do require specific trust-identifying information can 
obtain it. For other borrowers, receiving trust-identifying 
information, which could appear technical or unfamiliar, might be 
confusing and is unlikely to benefit the borrower.
    The proposed amendments also restructure comment 36(a)-2 to improve 
clarity. The proposed changes would not affect a servicer's existing 
obligations with respect to loans not held in a trust for which an 
appointed trustee receives payments on behalf of the trust, or with 
respect to any loan held in a trust for which neither Fannie Mae nor 
Freddie Mac is the trustee, investor, or guarantor. For loans that are 
not held in a trust for which an appointed trustee receives payments on 
behalf of the trust, proposed amendments to comment 36(a)-2.i would 
preserve the requirement for servicers to respond to a request for 
information regarding the owner or assignee of a mortgage loan by 
identifying the person on whose behalf the servicer receives payments 
from the borrower. This proposed revision subsumes the requirement in 
current comment 36(a)-2.i to identify the servicer or its affiliate as 
the owner or assignee when a loan is held in portfolio and would 
therefore eliminate the current comment's explicit reference to 
portfolio loans.
    Proposed comment 36(a)-2.i also clarifies that a servicer is not 
the owner or assignee for purposes of Sec.  1024.36(d) if the servicer 
holds title to the loan, or title is assigned to the servicer, solely 
for the administrative convenience of the servicer in servicing the 
mortgage loan obligation. This change is intended to bring the 
commentary to Sec.  1024.36(d) clearly in line with the Regulation Z 
provisions in Sec.  1026.39 related to transfer of ownership notices. 
As to loans held in a trust for which Fannie Mae or Freddie Mac is not 
the investor, guarantor, or trustee, proposed comments 36(a)-2.ii.A and 
36(a)-2.ii.B preserve the obligation in existing comment 36(a)-2.ii 
that servicers would still comply with Sec.  1024.36(d) by identifying 
both the trust and the trustee of such loans to the borrower, 
regardless of how the borrower phrased the request for ownership 
information.
    Similarly, the proposed amendments would not change a servicer's 
requirements for responding to requests for ownership information for 
loans for which the Government National Mortgage Association (Ginnie 
Mae) is the guarantor. As noted in both current comment 36(a)-2 and 
proposed comment 36(a)-2.ii.B, Ginnie Mae is not the owner or assignee 
of the loan solely as a result of its role as a guarantor. In addition, 
servicing requirements for those loans are governed by the Federal 
agency insuring the loan--such as the Federal Housing Association, the 
Department of Veterans' Affairs, the Rural Housing Services, or the 
Office of Public and Indian Housing--not by Ginnie Mae itself.
36(i) Successors in Interest
    The Bureau is proposing a new request for information requirement 
regarding the confirmation of a successor in interest's identity and 
ownership interest in the property. Proposed Sec.  1024.36(i) requires 
a servicer to respond to a written request that indicates that the 
person may be a successor in interest and that includes the name of the 
prior borrower and information that enables the servicer to identify 
that borrower's mortgage loan account. Under the proposed rule, a 
servicer must respond to such a request by providing the person with 
information regarding the documents the servicer requires to confirm 
the person's identity and ownership interest in the property. With 
respect to the written request, the proposed rule requires the servicer 
to treat the person as a borrower for the purposes of the procedural 
requirements of Sec.  1024.36(c) through (g)--for instance, the 
servicer must acknowledge receipt within five days and respond in 
writing within 30 days without charge. The proposed rule also provides 
that if a servicer has, under Sec.  1024.36(b), established an address 
that a borrower must use to request information, a servicer must comply 
with the requirements of Sec.  1024.36(i) only for requests received at 
the established address. As with the policies and procedures 
requirement regarding successors in interest (proposed Sec.  
1024.38(b)(1)(vi), discussed in the section-by-section analysis of 
Sec.  1024.38(b)(1)(vi)), but unlike the application of Regulation X's 
mortgage servicing rules to successors in interest generally (proposed 
Sec.  1024.30(d), discussed in the section-by-section analysis of Sec.  
1024.30(d)), servicers would be required to comply with proposed Sec.  
1024.36(i) before confirming the successor in interest's identity and 
ownership interest in the property.
    As indicated in part V.A., the Bureau is proposing Sec.  1024.36(i) 
to address problems faced by successors in interest in confirming their 
identity and ownership interest in the property securing the mortgage 
loan; the Bureau believes that these problems may lead to unnecessary 
foreclosure on homeowners' property. The Bureau is proposing Sec.  
1024.36(i) in conjunction with proposed Sec.  1024.38(b)(1)(vi)(B) (see 
section-by-section analysis of Sec.  1024.38(b)(1)(vi)), which would 
require servicers to maintain policies and procedures that are 
reasonably designed to ensure that the servicer can, upon 
identification of any potential successor in interest--including 
through any request made by a potential

[[Page 74192]]

successor in interest under Sec.  1024.36(i) or any loss mitigation 
application received from a potential successor in interest--promptly 
provide to the potential successor in interest a description of the 
documents the servicer reasonably requires to confirm that person's 
identity and ownership interest in the property and how the person may 
submit a written request under Sec.  1024.36(i) (including the 
appropriate address). The Bureau intends that proposed Sec.  
1024.38(b)(1)(vi)(B) would require servicers to have policies and 
procedures to determine what documents are reasonable to require from 
successors in interest in particular circumstances, so that the 
servicer is prepared to provide promptly a description of these 
documents, while proposed Sec.  1024.36(i) would give potential 
successors in interest a mechanism to obtain this information from 
servicers. The Bureau believes that the separate requirement in 
proposed Sec.  1024.36(i) is appropriate, in addition to the policies 
and procedures requirement in proposed Sec.  1024.38(b)(1)(vi)(B), 
because information regarding the documents the servicer requires to 
confirm a successor in interest's status may be of importance to each 
individual successor in interest and so each successor in interest 
should have a mechanism to obtain this information from a servicer.
    The Bureau intends that proposed Sec.  1024.36(i) would apply to a 
broad range of written communication from potential successors in 
interest. Under the proposed rule, the successor in interest would not 
need to specifically request information regarding the documents the 
servicer requires to confirm the person's identity and ownership 
interest in the property. As with other requests for information, the 
successor in interest would also not need to indicate specifically that 
the request is a written request under Sec.  1024.36 or to make the 
request in any particular form. Accordingly, servicers would be 
required to provide the information in response to any written 
communication indicating that the person may be a successor in interest 
that is accompanied by the name of the prior borrower and information 
that enables the servicer to identify that borrower's mortgage loan 
account. For instance, a servicer would be required to provide the 
information regarding the documents the servicer requires to confirm a 
person's identity and ownership interest in the property in response to 
a written request for loss mitigation from a person other than a known 
borrower, because such a request suggests that the person may be a 
successor in interest, or in response to a written statement from a 
person other than the known borrower that the known borrower has died.
    The Bureau is proposing this broad language because the Bureau is 
concerned that some successors in interest may not be aware that they 
need to confirm their identity and ownership interest in the property. 
In the alternative, the Bureau is also considering requiring servicers 
to respond only to a written communication that actually requests this 
information. The Bureau solicits comment on each approach. 
Additionally, the Bureau intends that proposed Sec.  1024.36(i) would 
apply with respect to the servicer's receipt of written communication 
from any potential successor in interest unless and until the servicer 
becomes aware that the transfer to the successor in interest was not 
protected by the Garn-St Germain Act.\75\ The Bureau is proposing that 
the requirement apply in this manner because the Bureau believes that 
even though a servicer may be unaware at the time of initial contact 
with a potential successor in interest whether the transfer was 
protected, in these situations the servicer should still communicate 
with the potential successor in interest about confirmation and should 
not wait until it has reason to believe that the transfer was 
protected.
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    \75\ Pursuant to the Bureau's Same-Sex Marriage Couple Policy, 
see note 31, supra., a same-sex spouse would be evaluated for 
confirmation as a successor in interest under proposed Sec.  
1024.38(b)(1)(vi)(B) as would any other potential successor in 
interest. As with any potential successor in interest, confirmation 
of that person's status as a successor in interest would depend on 
whether, under State law, the person had acquired an ownership 
interest in a property securing a mortgage loan in a transfer 
protected by the Garn-St Germain Act.
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    The Bureau anticipates that many requests under proposed Sec.  
1024.36(i) will indicate the nature of the transfer of the ownership 
interest from the prior borrower to the successor in interest. In that 
case, the Bureau anticipates that servicers will respond with 
information that is specifically relevant to that successor in 
interest's specific situation. The Bureau anticipates that, if the 
potential successor in interest does not indicate the nature of the 
transfer of the ownership interest to the successor in interest and the 
servicer does not otherwise have that information, servicers will 
respond with more general information about how successors in interest 
may confirm their identity and ownership interest in the property in a 
range of situations.
    The Bureau solicits comment on whether a servicer should only be 
required to respond under proposed Sec.  1024.36(i) when a possible 
successor in interest expressly requests information regarding how to 
confirm the successor in interest's identity and ownership interest in 
the property.
    The Bureau believes that it is appropriate for the requirements of 
Sec.  1024.36(c) through (g) to apply to requests under proposed Sec.  
1024.36(i). In particular, the Bureau believes that requiring servicers 
to state in writing what documents the servicer requires to confirm a 
successor in interest's status would avoid confusion about what 
documents are required. The Bureau also believes that applying the 
timing requirements in Sec.  1024.36(c) through (g) to requests under 
Sec.  1024.36(i) would ensure that potential successors in interest 
promptly receive this information from servicers.
    The Bureau also believes that it is appropriate to require that 
requests under Sec.  1024.36(i) be sent to an exclusive address if a 
servicer has established one under Sec.  1024.36(b), as is required for 
other requests for information under Sec.  1024.36. It would be 
unnecessarily burdensome to require servicers to respond to requests 
for information from potential successors in interest that the servicer 
receives at other locations. Because servicers are not ordinarily 
required to respond to requests for information received at other 
locations, servicers would need to train staff and set up systems at 
these locations solely to comply with Sec.  1024.36(i). Further, the 
Bureau believes that successors in interest would be able to send 
information requests to the designated address because, under Sec.  
1024.36(b), a servicer that designates an address for receipt of 
information requests must post the designated address on any Web site 
maintained by the servicer if the Web site lists any contact address 
for the servicer and because successors in interest may in some 
circumstances have access to written communications provided to the 
prior borrower that identify the address. In the alternative, however, 
the Bureau is considering requiring servicers to respond to requests 
for information received from potential successors in interest at any 
location. The Bureau solicits comment on these two approaches and 
whether there is another approach that would better facilitate 
communication between successors in interest and servicers without 
unnecessarily burdening servicers.

[[Page 74193]]

    The Bureau notes that, because Sec.  1024.36(c) through (g) apply 
to requests under proposed Sec.  1024.36(i), Sec.  1024.36(f)(1)(i)'s 
rule on duplicative information applies to requests under proposed 
Sec.  1024.36(i). A servicer is therefore not required to respond to a 
request under proposed Sec.  1024.36(i) if the information requested is 
substantially the same as information previously requested for which 
the servicer has previously complied with its obligation to respond. 
Accordingly, a servicer would not repeatedly need to provide 
substantially similar information in response to every communication 
from successors in interest meeting the criteria described in proposed 
Sec.  1024.36(i). The Bureau solicits comment on whether this 
limitation is sufficiently clear from the application of Sec.  
1024.36(c) through (g) to requests under proposed Sec.  1024.36(i) or 
whether instead the Bureau should issue appropriate clarifying 
commentary.
    The application of Regulation X's mortgage servicing rules' scope 
provision (Sec.  1024.30(b)) to successors in interest means that 
proposed Sec.  1024.36(i), but not proposed Sec.  1024.38(b)(1)(vi), 
would apply to small servicers, with respect to reverse mortgage 
transactions, and with respect to mortgage loans for which the servicer 
is a qualified lender. Accordingly, small servicers, for example, would 
be required to respond to requests for information under Sec.  
1024.36(i) by providing information about the documents the servicer 
requires to confirm the person's identity and ownership interest in the 
property, even though small servicers would not be required to maintain 
policies and procedures to decide promptly what documents the servicer 
reasonably requires to confirm the successor in interest's identity and 
ownership interest in the property. The Bureau believes that this 
approach appropriately balances the burden on small servicers with the 
need for successors in interest to receive this information. The Bureau 
solicits comment on alternatives to this approach.
    Proposed commentary. Proposed comment 36(i)-1 provides that, for 
the purposes of requests under Sec.  1024.36(i), a servicer is only 
required to provide information regarding the documents the servicer 
requires to confirm the person's identity and ownership interest in the 
property, not any other information that may also be requested by the 
person. The Bureau is proposing this comment to make clear that, while 
servicers would need to comply with the procedural requirements of 
Sec.  1024.36(c) through (g) with respect to providing information 
regarding the documents the servicer requires to confirm the person's 
identity and ownership interest in the property, servicers are not 
required to provide any other information about the mortgage loan that 
the potential successor in interest may request before confirmation of 
the potential successor in interest's status. The Bureau is proposing 
this comment because the Bureau believes that it would be inappropriate 
to require servicers to provide information about the mortgage loan 
before confirming a successor in interest's identity and ownership 
interest in the property. As discussed in the section-by-section 
analysis of Sec.  1024.30(d), based on the application of proposed 
Sec.  1024.30(d) to current Sec.  1024.36, successors in interest would 
be able to request information about the mortgage loan more generally 
once the servicer confirms the successor in interest's identity and 
ownership interest in the property.
    The Bureau is not proposing, but is considering, additional 
requirements regarding requests for information about the mortgage loan 
received by servicers from a potential successor in interest before 
confirmation of that person's status. The Bureau is considering 
requiring servicers to provide the information requested upon 
confirmation of the successor in interest's status. A servicer would 
therefore be required to preserve any information requests received 
from a potential successor in interest, so that the servicer would be 
able to respond to the request upon confirmation of that person's 
status.\76\ Alternatively, the Bureau is considering requiring 
servicers to respond to any such requests from a potential successor in 
interest by informing the potential successor in interest that the 
information request must be resubmitted upon confirmation of the 
person's status. The Bureau seeks comment on these approaches.
---------------------------------------------------------------------------

    \76\ As described in the section-by-section analysis of Sec.  
1024.41(b), infra, proposed comment 41(b)-1.ii similarly provides 
that if a servicer receives a loss mitigation application from a 
potential successor in interest before confirming that person's 
status, upon such confirmation, the servicer is required to review 
and evaluate that loss mitigation application in accordance with the 
procedures set forth in Sec.  1024.41.
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Section 1024.37 Force-Placed Insurance
37(c) Requirements Before Charging Borrower for Force-Placed Insurance
37(c)(2) Content of Notice
37(c)(2)(v)
    Under Sec.  1024.37(b), a servicer may not charge a borrower for 
force-placed insurance ``unless the servicer has a reasonable basis to 
believe that the borrower has failed to comply with the mortgage loan's 
contract requirement to maintain hazard insurance.'' Section 
1024.37(c)(1) requires a servicer to provide to a borrower an initial 
notice and a reminder notice before assessing a fee or charge related 
to force-placed insurance. Sections 1024.37(c)(2) and 1024.37(d)(2) 
specify the notices' content. Section 1024.37(c)(2)(v) requires the 
initial and reminder force-placed insurance notices to include a 
statement that a borrower's hazard insurance has expired or is 
expiring, as applicable. This provision does not specify what a notice 
must state if a borrower has insufficient coverage, such as when the 
borrower's insurance provides coverage in a dollar amount less than 
that required by the mortgage loan contract. The Bureau is proposing to 
amend Sec.  1024.37(c)(2)(v) to address situations in which a borrower 
has insufficient, rather than expiring or expired, hazard insurance. 
(As discussed in the section-by-section analysis of Sec.  
1024.37(d)(2)(ii), the Bureau is proposing a related amendment to Sec.  
1024.37(d)(2)(ii)).
    Specifically, Sec.  1024.37(c)(2)(v) currently requires the initial 
notice to include a statement that, among other things, ``the 
borrower's hazard insurance is expiring or has expired, as applicable, 
and that the servicer does not have evidence that the borrower has 
hazard insurance coverage past the expiration date. * * * '' Section 
1024.37(d)(2)(i)(C) requires the reminder notice to include the same 
statement if, after providing the initial notice, a servicer does not 
receive any evidence of hazard insurance.
    The Bureau is concerned that the statements required by Sec.  
1024.37(c)(2)(v) and (d)(2)(i)(C) may not afford servicers flexibility 
to address circumstances in which a borrower has insufficient coverage. 
When a borrower has hazard insurance that is insufficient under the 
mortgage loan contract's requirements, a statement that coverage has 
expired or is expiring may not be applicable. Similarly, the notices 
must state that the servicer does not have evidence that the borrower 
has hazard insurance past the coverage date, but Sec.  1024.37 does not

[[Page 74194]]

permit the notice to instead state that the servicer lacks evidence 
that the borrower's hazard insurance provides sufficient coverage. 
Moreover, Sec.  1024.37(c)(4) and (d)(4) prohibit a servicer from 
including in the force-placed insurance notices any information other 
than that required by Sec.  1024.37(c)(2) or (d)(2). As a result, a 
servicer cannot explain on the notice itself that the borrower's hazard 
insurance is insufficient rather than expired or expiring. Although a 
servicer could include such an explanation on a separate piece of paper 
in the same transmittal as the force-placed insurance notice,\77\ the 
Bureau believes that servicers and borrowers may benefit if servicers 
are able to state on the notice itself that the servicer lacks evidence 
of sufficient coverage.
---------------------------------------------------------------------------

    \77\ See 12 CFR 1024.37(c)(2) and (d)(2).
---------------------------------------------------------------------------

    Accordingly, the Bureau is proposing to amend Sec.  
1024.37(c)(2)(v) to provide that the force-placed insurance notices 
must include a statement that the borrower's hazard insurance is 
expiring, has expired, or provides insufficient coverage, as 
applicable, and that the servicer does not have evidence that the 
borrower has hazard insurance coverage past the expiration date or 
evidence that the borrower has hazard insurance that provides 
sufficient coverage, as applicable. The Bureau believes that this 
amendment may enable servicers to provide borrowers with notices that 
are more accurately tailored for their precise circumstances and 
potentially avoid confusing a borrower whose coverage is not expiring 
but is insufficient under the mortgage loan contract.
    The Bureau solicits comments on whether other modifications to the 
required content of the force-placed insurance notices are necessary or 
appropriate to address circumstances in which a servicer force-places 
insurance for reasons other than expired or expiring coverage.
37(c)(4) Additional Information
    Section 1024.37(c) currently requires servicers to provide a 
borrower a notice at least 45 days before assessing a fee or charge 
related to force-placed insurance. Section 1024.37(c)(4) prohibits a 
servicer from including in the notice any information other than that 
required by Sec.  1024.37(c)(2), though a servicer may provide a 
borrower with additional information on separate pieces of paper in the 
same transmittal. The Bureau is proposing to amend Sec.  1024.37(c)(4) 
to grant servicers the flexibility to include a borrower's mortgage 
loan account number in the notice required by Sec.  1024.37(c)(1)(i). 
(As discussed in the section-by-section analyses of Sec.  1024.37(d)(4) 
and (e)(4), the Bureau is also proposing to make parallel amendments to 
Sec.  1024.37(d)(4) and (e)(4) with respect to the notices required by 
Sec.  1024.37(c)(1)(ii) and (e)(1)(i).)
    The Bureau has received questions inquiring whether servicers may 
include a borrower's mortgage loan account number in the notices 
required by Sec.  1024.37, including the initial notice required by 
Sec.  1024.37(c)(1)(i). The Bureau understands that providing a 
borrower's mortgage loan account number in the notice may facilitate 
identifying a borrower and locating the borrower's account information 
when the borrower contacts the servicer in response to the force-placed 
insurance notice. Under the current rule, however, servicers may not 
include any additional information on the required notices and 
therefore may include a borrower's account number only on a separate 
piece of paper in the same transmittal.
    In the 2013 RESPA Servicing Final Rule, the Bureau explained that 
providing required information along with additional information in the 
same notice could obscure the most important information or lead to 
information overload. The Bureau stated that it would be better if 
servicers have the latitude to provide the additional information on 
separate pieces of paper in the same transmittal.\78\
---------------------------------------------------------------------------

    \78\ 78 FR 10695, 10770 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Nonetheless, the Bureau believes it may be appropriate to give 
servicers the flexibility to include a borrower's mortgage loan account 
number in the notices required by Sec.  1024.37. An account number is a 
customary disclosure on communications between a servicer and a 
borrower. The Bureau believes that an account number is unlikely to 
obscure other information on the notices or lead to information 
overload. The Bureau also believes that including the borrower's 
mortgage loan account number may help to facilitate communications 
between a borrower and a servicer regarding a notice provided under 
Sec.  1024.37. The Bureau does not believe that servicers should be 
required to include a separate piece of paper in the transmittal solely 
to identify the mortgage loan account number. Therefore, the Bureau is 
proposing to amend Sec.  1024.37(c)(4) to grant servicers the 
flexibility to include a borrower's mortgage loan account number in the 
notices required by Sec.  1024.37.
    The Bureau seeks comment on this proposal to grant servicers 
flexibility to include a borrower's mortgage loan account number in the 
notices required by Sec.  1024.37 and whether there are other types of 
information that servicers should be allowed to include that would not 
obscure the required disclosures or create information overload.
37(d) Reminder Notice
37(d)(2) Content of the Reminder Notice
37(d)(2)(ii) Servicer Not Receiving Demonstration of Continuous 
Coverage
    The Bureau is proposing to amend Sec.  1024.37(d)(2)(ii), which 
specifies the information a force-placed insurance reminder notice must 
contain if a servicer does not have evidence that the borrower has had 
hazard insurance in place continuously. This provision does not address 
the scenario in which a servicer receives evidence that the borrower 
has had hazard insurance in place continuously, but the servicer lacks 
evidence that the continued hazard insurance is sufficient under the 
mortgage loan contract. As discussed in the section-by-section analysis 
of Sec.  1024.37(c)(2)(v), while a servicer could include on a separate 
piece of paper a statement clarifying that it is purchasing insurance 
due to insufficient coverage, the Bureau believes it may be preferable 
for the notice itself to be clear in this regard.
    In order to align the requirements of Sec.  1024.37(d)(2)(ii) with 
the proposed changes to Sec.  1024.37(c)(2)(v), the Bureau is proposing 
to amend Sec.  1024.37(d)(2)(ii) to clarify that the provision applies 
when a servicer has received hazard insurance information after 
providing the initial notice but has not received evidence 
demonstrating that the borrower has had sufficient hazard insurance 
coverage in place continuously. The Bureau believes that this amendment 
would clarify Sec.  1024.37(d)(2)(ii)'s applicability when a borrower 
has insufficient hazard insurance.
    The Bureau solicits comment on whether other modifications to the 
required contents of the force-placed insurance notices are necessary 
or appropriate to address circumstances in which a servicer force-
places insurance for reasons other than expired or expiring coverage.
37(d)(2)(ii)(B)
    The proposal makes a technical correction to Sec.  
1024.37(d)(2)(ii)(B) to correct the statement that the notice must set 
forth the information required by Sec.  1024.37(c)(2)(ii) through (iv), 
(x), (xi), and (d)(2)(i)(B) and (D). Section

[[Page 74195]]

1024.37(d)(2)(ii)(B) should state that the notice must also set forth 
information required by Sec.  1024.37(c)(2)(ix).
37(d)(3) Format
    Section 1024.37(d)(3) sets forth certain formatting requirements 
for the reminder notice required by Sec.  1024.41(c)(1)(ii). The 
reminder notice contains some of the same information as the initial 
notice provided under Sec.  1024.37(c)(1)(i). The proposal makes a 
technical correction to Sec.  1024.37(d)(3) to state that the 
formatting instructions in Sec.  1024.37(c)(3), which apply to 
information set forth in the initial notice, also apply to the 
information set forth in the reminder notice provided pursuant to Sec.  
1024.37(d). The purpose of this change is to clarify that, when the 
same information appears in both the initial notice and the reminder 
notice, that information must be formatted the same way in both 
notices.
37(d)(4) Additional Information
    The Bureau is proposing two amendments with respect to Sec.  
1024.37(d)(4). First, the Bureau is proposing to amend Sec.  
1024.37(d)(4) to give servicers the flexibility to include a borrower's 
mortgage loan account number in the notice required by Sec.  
1024.37(c)(1)(ii). For the reasons discussed in the section-by-section 
analysis of Sec.  1024.37(c)(4), the Bureau believes that giving 
servicers flexibility to include the account number may benefit 
servicers and borrowers without obscuring other information on the 
notice or leading to information overload.
    The Bureau seeks comment on this proposal to grant servicers 
flexibility to include a borrower's mortgage loan account number in the 
notices required by Sec.  1024.37 and whether there are other types of 
information that servicers should be allowed to include that would not 
obscure the required disclosures or create information overload.
    Second, the proposal makes technical corrections to redesignate 
comment 37(d)(4)-1 as comment 37(d)(5)-1, and to correct an erroneous 
reference in that comment to Sec.  1024.37(d)(4), which instead should 
be a reference to Sec.  1024.37(d)(5).
37(e) Renewing or Replacing Force-Placed Insurance
37(e)(4) Additional Information
    The Bureau is proposing two amendments with respect to Sec.  
1024.37(e)(4). First, the Bureau is proposing to amend Sec.  
1024.37(e)(4) to give servicers the flexibility to include a borrower's 
mortgage loan account number in the notice required by Sec.  
1024.37(e)(1)(i). For the reasons discussed in the section-by-section 
analysis of Sec.  1024.37(c)(4), the Bureau believes that giving 
servicers flexibility to include the account number may benefit 
servicers and borrowers without obscuring other information on the 
notice or leading to information overload.
    The Bureau seeks comment on this proposal to grant servicers 
flexibility to include a borrower's mortgage loan account number in the 
notices required by Sec.  1024.37 and whether there are other types of 
information that servicers should be allowed to include that would not 
obscure the required disclosures or create information overload.
    Second, the proposal makes a technical correction to remove the 
unnecessary words ``[a]s applicable'' from Sec.  1024.37(e)(4).
Legal Authority
    These proposed amendments and clarifications to Sec.  1024.37 
implement sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.
Section 1024.38 General Servicing Policies, Procedures, and 
Requirements
38(b) Objectives
(38)(b)(1)(vi) Successors in Interest
    Current Sec.  1024.38(b)(1)(vi) provides that servicers shall 
maintain policies and procedures that are reasonably designed to 
achieve the objective of, upon notification of the death of a borrower, 
promptly identifying and facilitating communication with the successor 
in interest of the deceased borrower with respect to the property 
securing the deceased borrower's mortgage loan. The Bureau is proposing 
several modifications to this requirement. Like proposed Sec.  
1024.36(i) (see section-by-section analysis of Sec.  1024.36(i)), 
proposed Sec.  1024.38(b)(1)(vi) applies with respect to potential 
successors in interest before the servicer confirms the successor in 
interest's identity and ownership interest in the property. By 
contrast, the Mortgage Servicing Rules generally would not apply to 
successors in interest (see section-by-section analysis of Sec.  
1024.30(d)) until the servicer has confirmed the person's identify and 
ownership interest in the property securing the mortgage loan.
    Consistent with the proposed definition of successor in interest 
(see section-by-section analysis of Sec.  1024.31), proposed Sec.  
1024.38(b)(1)(vi) expands the current policies and procedures 
requirement regarding identifying and communicating with successors in 
interest beyond the situation of borrower death. Proposed Sec.  
1024.38(b)(1)(vi)(A) requires servicers to maintain policies and 
procedures that are reasonably designed to ensure that the servicer can 
identify and facilitate communication with any potential successors in 
interest upon notification either of the death of a borrower or of any 
transfer of the property securing a mortgage loan. The Bureau expects 
that a servicer may be notified of the existence of a potential 
successor in interest in a variety of ways, either directly (by the 
successor in interest identifying him or herself) or indirectly (such 
as by receipt of a loss mitigation application from someone other than 
the prior borrower). The Bureau also notes that, although the proposed 
rule applies only with respect to transfers to successors in interest 
who acquired an ownership interest in the property securing a mortgage 
loan in a transfer protected by the Garn-St Germain Act, proposed Sec.  
1024.38(b)(1)(vi)(A) applies with respect to the servicer's initial 
notification of any transfer of the property securing a mortgage loan 
unless and until the servicer becomes aware that the transfer to the 
successor in interest was not protected by the Garn-St Germain Act. The 
Bureau is proposing that the requirement apply in this manner because 
the Bureau believes that even though a servicer may be unaware at the 
time of initial contact with a potential successor in interest whether 
the transfer was protected, the servicer should still identify and 
facilitate communication with the potential successor in interest; the 
servicer should not wait until it has reason to believe that the 
transfer was protected.
    Proposed Sec.  1024.38(b)(1)(vi)(B) requires servicers to maintain 
policies and procedures that are reasonably designed to ensure that the 
servicer can, upon identification of a potential successor in 
interest--including through any request made by a potential successor 
in interest under Sec.  1024.36(i) or any loss mitigation application 
received from a potential successor in interest--provide promptly to 
the potential successor in interest a description of the documents the 
servicer reasonably requires to confirm that person's identity and 
ownership interest in the property and how the person may submit a 
written request under Sec.  1024.36(i) (including the appropriate 
address). The Bureau intends that this rule would require servicers to 
have policies and procedures in place so that the servicer can 
determine what documents are reasonable to require from successors in

[[Page 74196]]

interest in particular circumstances, so that servicers are able to 
provide a description of these documents promptly. (As explained in the 
section-by-section analysis of proposed Sec.  1024.38(b)(1)(vi), 
proposed comment 38(b)(1)(vi)-1 further clarifies the requirement that 
the documents required by the servicer are reasonable in the particular 
circumstances of a specific successor in interest.) As explained in the 
section-by-section analysis of Sec.  1024.36(i), the Bureau is 
proposing Sec.  1024.38(b)(1)(vi)(B) in conjunction with proposed Sec.  
1024.36(i), which requires servicers to respond to information requests 
indicating that a person may be a successor in interest by providing 
information regarding the documents the servicer requires to confirm 
the person's identity and ownership interest in the property. 
Accordingly, proposed Sec.  1024.38(b)(1)(vi)(B) requires servicers to 
have policies and procedures in place to determine what documents to 
provide to potential successors in interest who contact them. Proposed 
Sec.  1024.36(i) also provides potential successors in interest a 
mechanism to prompt servicers to provide this information.
    Additionally, proposed Sec.  1024.38(b)(1)(vi)(C) requires 
servicers to maintain policies and procedures that are reasonably 
designed to ensure that the servicer can, upon the receipt of such 
documents (i.e., those the servicer reasonably requires to confirm that 
person's identity and ownership interest in the property), promptly 
notify the person, as applicable, that the servicer has confirmed the 
person's status, has determined that additional documents are required 
(and what those documents are), or has determined that the person is 
not a successor in interest. The proposed rule would require servicers 
to have policies and procedures in place to confirm promptly potential 
successors in interest's status, so that a servicer can promptly notify 
the person whether the servicer has confirmed the person's status or if 
additional documents are required. The Bureau intends to provide 
servicers with flexibility under this proposed rule regarding the form 
of notification to a potential successor in interest. The Bureau does 
not believe that it is appropriate to require servicers to notify the 
potential successor in interest in writing. Adding an additional 
written notice requirement could be unnecessarily burdensome on 
servicers and may delay servicer responses to successors in interest. 
The Bureau solicits comment, however, on whether servicers should 
instead be required to notify a potential successor in interest in 
writing whether the servicer has confirmed the person's status.
    As explained in part V.A., the Bureau is proposing these changes to 
Sec.  1024.38(b)(1)(vi) because the Bureau believes, based on reports 
from consumers, consumer advocacy groups, and other stakeholders, that 
successors in interest often have difficulty demonstrating their 
identity and ownership interest in the property to servicers' 
satisfaction. The Bureau believes, therefore, that changes to the 
Bureau's rules are appropriate to clarify servicers' obligations and 
ensure that the requirements are widely understood and enforceable.
    The Bureau also solicits comment on whether other changes to 
Regulation X's mortgage servicing rules would protect successors in 
interest from unnecessary foreclosure before a servicer has confirmed 
the successor in interest's status, and, if so, what these changes 
would be.
    Proposed commentary. Proposed comment 38(b)(1)(vi)-1 clarifies that 
the documents a servicer requires to confirm a potential successor in 
interest's identity and ownership interest in the property must be 
reasonable in light of the laws of the relevant jurisdiction, the 
successor in interest's specific situation, and the documents already 
in the servicer's possession. The proposed comment provides that the 
required documents may, where appropriate, include, for example, a 
death certificate, an executed will, or a court order.
    The Bureau is proposing comment 38(b)(1)(vi)-1 because, as 
described in part V.A, the Bureau believes, based on repeated reports 
from consumers, consumer advocacy groups, and other stakeholders, that 
servicers may request documentation to prove the successor in 
interest's identity and ownership interest in the property that is 
unreasonable in the successor in interest's particular situation. For 
instance, the Bureau has heard reports that servicers may request 
probate documents for transfers upon death in which probate is not 
required, such as when spouses own a property in joint tenancy and the 
ownership interest in the property transfers as a matter of law upon 
one spouse's death.
    Proposed comment 38(b)(1)(vi)-2 provides examples illustrating 
documents that a servicer may require to confirm a potential successor 
in interest's identity and ownership interest in the property and that 
generally would be reasonable, subject to the relevant law governing 
each situation, in four common situations involving potential 
successors in interests. These situations are:
    (1) Tenancy by the entirety or joint tenancy. A potential successor 
in interest indicates (or the servicer knows from its records or other 
sources) that the prior borrower and the potential successor in 
interest owned the property as tenants by the entirety or joint tenants 
and that the prior borrower has died. To demonstrate that the potential 
successor in interest has an ownership interest in the property upon 
the death of the prior borrower, applicable law does not require a 
probate proceeding, but requires only that there be a prior recorded 
deed listing both the potential successor in interest and the prior 
borrower as tenants by the entirety (e.g., married grantees) or joint 
tenants. The proposed comment provides that it would be reasonable for 
the servicer to require the potential successor in interest to provide 
documentation of the recorded instrument, if the servicer does not 
already have it, and the deceased borrower's death certificate. The 
proposed comment also provides that, because a probate proceeding is 
not required under applicable law, requiring documentation of a probate 
proceeding would be unreasonable.
    (2) Affidavits of heirship. A potential successor in interest 
indicates that he or she acquired an ownership interest in the property 
upon the death of the prior borrower through intestate succession. To 
demonstrate that the potential successor in interest has an ownership 
interest in the property upon the death of the prior borrower, 
applicable law does not require a probate proceeding, but requires only 
an appropriate affidavit of heirship documenting the chain of title. 
The proposed comment provides that it would be reasonable for the 
servicer to require the potential successor in interest to provide the 
affidavit of heirship and the death certificate of the prior borrower. 
The proposed comment also provides that, because a probate proceeding 
is not required under applicable law, requiring documentation of a 
probate proceeding would be unreasonable.
    (3) Divorce or legal separation. A potential successor in interest 
indicates that he or she acquired an ownership interest in the property 
from a spouse who is a borrower as a result of a property agreement 
incident to a divorce proceeding. Under applicable law, transfer from 
the borrower spouse is demonstrated by a final divorce decree and 
accompanying separation agreement executed by both spouses. Applicable 
law does not require a deed conveying the interest in the property. The 
proposed comment provides that it

[[Page 74197]]

would be reasonable for the servicer to require the potential successor 
in interest to provide documentation of the final divorce decree and an 
executed separation agreement. The proposed comment also provides that 
because applicable law does not require a deed, requiring documentation 
of a deed would be unreasonable.
    (4) Living spouses or parents. A potential successor in interest 
indicates that he or she acquired an ownership interest in the property 
from a living spouse or parent who is a borrower by quitclaim deed or 
act of donation. The proposed comment provides that it would be 
reasonable for the servicer to require the potential successor in 
interest to provide the quitclaim deed or act of donation. The proposed 
comment also provides that it would be unreasonable to require 
additional documents to establish ownership.
    The Bureau is proposing comment 38(b)(1)(vi)-2 because the Bureau 
believes that it would be helpful to provide more specific guidance 
about what are reasonable documents to require from a potential 
successor in interest to confirm the person's status as a successor in 
interest in very common and straightforward situations. The Bureau 
recognizes that this proposed comment does not cover all possible 
situations involving successors in interest and that additional 
documents may be required in certain less straightforward situations. 
In particular, the Bureau notes that this proposed comment does not 
describe situations involving the death of a borrower with a will or 
trust. The Bureau has not included commentary regarding such situations 
because the Bureau believes that such situations may not always be as 
straightforward as the examples provided. For instance, situations 
involving the death of a borrower with a will may require probate 
documentation. Additionally, the Bureau believes that servicers may be 
more familiar with situations where the borrower has a will or trust 
and that therefore servicers may need less guidance from the Bureau in 
determining what documents are appropriate in these circumstances.
    The Bureau solicits comment on whether proposed comment 
38(b)(1)(vi)-2 accurately describes examples of reasonably required 
documents to confirm a successor in interest's identity and ownership 
interest in the property. The Bureau also solicits comment on whether 
it would be reasonable for servicers to require additional documents 
(such as affidavits or notarized copies) from a potential successor in 
interest to confirm the validity of documents submitted by the 
potential successor in interest. The Bureau also solicits comment on 
whether the Bureau should include other common examples of reasonably 
required documents to confirm a successor in interest's identity and 
ownership interest in the property and what those examples should be.
    Proposed comment 38(b)(1)(vi)-3 clarifies proposed Sec.  
1024.38(b)(1)(vi)(C)'s requirement that servicers maintain policies and 
procedures reasonably designed to ensure that the servicer can, upon 
the receipt of the documents that the servicer reasonably requires, 
promptly notify the person, as applicable, that the servicer has 
confirmed the person's status, has determined that additional documents 
are required (and what those documents are), or has determined that the 
person is not a successor in interest. The proposed comment provides 
that, upon the receipt of the documents, the servicer's confirmation 
must be sufficiently prompt so as not to interfere with the successor 
in interest's ability to apply for loss mitigation options according to 
the procedures provided in Sec.  1024.41. The proposed comment also 
provides that, in general, a servicer's policies and procedures must be 
reasonably designed to ensure that confirmation of a successor in 
interest's status occurs at least 30 days before the next applicable 
milestone provided in proposed comment 41(b)(2)(ii)-2.\79\
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    \79\ Proposed comment 41(b)(2)(ii)-2 provides the following 
milestones: ``i. The date by which any document or information 
submitted by a borrower will be considered stale or invalid pursuant 
to any requirements applicable to any loss mitigation option 
available to the borrower; ii. The date that is the 120th day of the 
borrower's delinquency; iii. The date that is 90 days before a 
foreclosure sale; iv. The date that is 38 days before a foreclosure 
sale.''
---------------------------------------------------------------------------

    The Bureau is proposing comment 38(b)(1)(vi)-3 because the Bureau 
understands that successors in interest may have difficulty pursuing 
loss mitigation options to avoid foreclosure when the servicer does not 
promptly confirm the successor in interest's identity and ownership 
interest in the property. The Bureau has heard reports that 
miscommunication and delay in the process of confirming successors in 
interest's identity and ownership interest in the property sometimes 
prevent successors in interest from successfully applying for loss 
mitigation. In general, as each milestone provided in proposed comment 
41(b)(2)(ii)-2 passes, a borrower is likely to enjoy fewer protections 
under Sec.  1024.41 when the application becomes complete.
    Proposed comment 38(b)(1)(vi)-3 would help to ensure that servicer 
delay in confirmation of successor in interest status would not 
unnecessarily hinder successors in interest's ability to apply for loss 
mitigation options. The Bureau believes that servicers generally are 
aware of the progress of each loan in the foreclosure process. 
Accordingly, the Bureau believes that it would not be particularly 
burdensome for servicers to design policies and procedures for 
confirming potential successors in interest's status that take into 
account the foreclosure status of a particular loan, so that the 
servicer would be able to confirm the successor in interest's status 
sufficiently promptly for the successor in interest to apply for loss 
mitigation under Sec.  1024.41. The proposed comment provides that, in 
general, confirmation of a successor in interest's status at least 30 
days before the next applicable milestone would provide the successor 
in interest sufficient opportunity to pursue loss mitigation.
    As with other policies and procedures required by Sec.  1024.38, 
the policies and procedures required under proposed Sec.  1024.38 
(b)(1)(vi) would have to be ``reasonably designed'' to achieve the 
stated objective. The Bureau recognizes that, for various reasons 
(e.g., the timing of the servicer's receipt of documents from the 
potential successor, the status of pending foreclosure proceedings, 
etc.), it may not be possible in every case to confirm a successor in 
interest's status sufficiently promptly so as not to interfere with the 
successor in interest's ability to apply for loss mitigation options 
according to the procedures provided in Sec.  1024.41 or to confirm a 
successor in interest's status 30 days before the next applicable 
milestone provided in proposed comment 41(b)(2)(ii)-2. However, the 
Bureau believes that servicers should be able to adopt policies and 
procedures to ensure that they generally confirm the status of 
successors in interest sufficiently promptly for successors in interest 
to apply for loss mitigation options according to the procedures 
provided in Sec.  1024.41.
    The Bureau solicits comment generally on proposed Sec.  
1024.38(b)(1)(vi). Further, proposed Sec.  1024.38(b)(1)(vi) uses the 
word ``promptly'' in several instances. The Bureau is considering 
adding commentary clarifying what the Bureau considers ``promptly'' to 
mean in the various instances. The Bureau solicits comment on whether 
it should add this commentary and if so, what should be considered 
``promptly'' for the purposes of Sec.  1024.38(b)(1)(vi).

[[Page 74198]]

38(b)(2) Properly Evaluating Loss Mitigation Applications
38(b)(2)(vi)
    The Bureau is proposing to add Sec.  1024.38(b)(2)(vi), which 
requires a servicer to maintain policies and procedures reasonably 
designed to ensure that the servicer can promptly identify and obtain 
documents or information not in the borrower's control that the 
servicer requires to determine which loss mitigation options, if any, 
to offer the borrower in accordance with the requirements of proposed 
Sec.  1024.41(c)(4), discussed below.
    Under current Sec.  1024.41(c)(1), if a servicer receives a 
complete loss mitigation application more than 37 days before a 
foreclosure sale, the servicer shall, within 30 days of receipt, 
evaluate the borrower for all loss mitigation options available to the 
borrower and provide the notice required under Sec.  1024.41(c)(1)(ii). 
Section 1024.41(b)(1) defines a complete loss mitigation application to 
include information that the servicer requires from a borrower in 
evaluating applications for the loss mitigation options available to 
the borrower.\80\ Thus, a loss mitigation application becomes complete 
notwithstanding that a servicer might require additional information 
that is not in the control of the borrower.\81\
---------------------------------------------------------------------------

    \80\ 12 CFR 1024.41(b)(1).
    \81\ See comment 41(b)(1)-5.
---------------------------------------------------------------------------

    Through outreach efforts, the Bureau has learned that servicers 
cannot always obtain necessary third-party information in time to 
evaluate a borrower's complete loss mitigation application within 30 
days of receipt as required by Sec.  1024.41(c)(1). Servicers and 
Federal agencies have informed the Bureau that this can occur because a 
servicer delays requesting the information or because a third party 
from whom the servicer requested the information delays providing it. 
Currently, Sec.  1024.41 does not specifically address this 
circumstance--when a servicer is unable to obtain information not in 
the borrower's control within 30 days of receiving a complete 
application and thus cannot complete the evaluation within that 
timeframe as required by Sec.  1024.41(c)(1). Proposed Sec.  
1024.41(c)(4), discussed in more detail in the section-by-section 
analysis of Sec.  1024.41(c)(4), addresses these issues by adding 
requirements with respect to the servicer's obligation to pursue 
necessary information not in the borrower's control and the servicer's 
responsibilities if such information is not obtained within 30 days 
after a complete application is received.
    Servicers often need to be able to access information from parties 
other than the borrower at different points during a loss mitigation 
application process. The Bureau believes that the policies and 
procedures requirements in proposed Sec.  1024.38(b)(2)(vi) would 
facilitate compliance with the requirements for gathering information 
not in the borrower's control under proposed Sec.  1024.41(c)(4). 
Maintaining such policies and procedures would ensure that servicers 
efficiently identify and obtain information not in the borrower's 
control in accordance with Sec.  1024.41(c)(4). Efficiency in obtaining 
information not in the borrower's control provides enhanced consumer 
protection benefits by shortening the loss mitigation evaluation 
process and facilitating compliance with Sec.  1024.41(c)(1)'s 
requirement to evaluate complete loss mitigation applications within 30 
days.
    The Bureau also believes that proposed Sec.  1024.38(b)(2)(vi) 
would contribute to the goals of Sec.  1024.38(b)(2) more generally. 
Section 1024.38(b)(2) requires servicers to maintain policies and 
procedures regarding various aspects of evaluation of loss mitigation 
applications, including (among others) document collection and proper 
evaluation. As the Bureau explained in the 2012 RESPA Servicing 
Proposal, these and other requirements of Sec.  1024.38(b)(2) 
facilitate servicer compliance with Sec.  1024.41 and lead to loss 
mitigation processes that better protect consumers.\82\ Similarly, the 
Bureau believes that requiring servicers to maintain policies and 
procedures regarding the identification and collection of non-borrower 
information under proposed Sec.  1024.38(b)(2)(vi) would protect 
borrowers by facilitating compliance with proposed Sec.  1024.41(c)(4) 
and the evaluation timelines provided under Sec.  1024.41(c)(1).
---------------------------------------------------------------------------

    \82\ 77 FR 57199, 57248 (Sept. 17, 2012).
---------------------------------------------------------------------------

Legal Authority
    The Bureau is proposing these amendments to Sec.  1024.38 pursuant 
to its authority under section 19(a) of RESPA. As explained above, the 
Bureau believes that the servicing policies, procedures, and 
requirements set forth in these proposed amendments are necessary to 
achieve the purposes of RESPA, including to avoid unwarranted or 
unnecessary costs and fees, to ensure that servicers are responsive to 
consumer requests and complaints, to ensure that servicers provide 
accurate and relevant information about the mortgage loan accounts that 
they service, and to facilitate the review of borrowers for foreclosure 
avoidance options. The Bureau believes that, without sound policies and 
procedures and without achieving certain standard requirements, 
servicers will not be able to achieve those purposes. The Bureau is 
also proposing these amendments to Sec.  1024.38 pursuant to its 
authority under section 1022(b) of the Dodd-Frank Act to prescribe 
regulations necessary or appropriate to carry out the purposes and 
objectives of Federal consumer financial laws. Specifically, the Bureau 
believes that these proposed amendments to Sec.  1024.38 are necessary 
and appropriate to carry out the purpose under section 1021(a) of the 
Dodd-Frank Act of ensuring that markets for consumer financial products 
and services operate transparently and efficiently to facilitate access 
and innovation. The Bureau additionally is relying on its authority 
under section 1032(a) of the Dodd-Frank Act, which authorizes the 
Bureau to 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.
Section 1024.39 Early Intervention Requirements for Certain Borrowers
39(a) Live Contact
    The Bureau is proposing several clarifications, revisions, and 
amendments to Sec.  1024.39(a) and its commentary. The proposed changes 
are intended to clarify that a servicer's early intervention live 
contact obligations recur in each billing cycle while a borrower is 
delinquent and to provide additional examples illustrating how the live 
contact requirements apply in certain circumstances, such as when a 
borrower is unresponsive or is in the process of applying for loss 
mitigation pursuant to Sec.  1024.41.
Repeated Attempts To Establish Live Contact
    Section 1024.39(a) currently requires a servicer to establish or 
make good faith efforts to establish live contact with a delinquent 
borrower not later than the 36th day of the borrower's delinquency. 
Current comment 39(a)-1 states that a borrower's delinquency begins 
``on the day a payment sufficient to cover principal, interest, and, if 
applicable, escrow for a given billing

[[Page 74199]]

cycle is due and unpaid . . . .'' \83\). The Bureau has always 
understood these provisions to require servicers to make continual 
attempts to contact a borrower who remains delinquent for more than one 
billing cycle. The Bureau is proposing to revise Sec.  1024.39(a) to 
codify this interpretation. The proposed revision would expressly 
require servicers to establish or make good faith efforts to establish 
live contact with a delinquent borrower no later than the 36th day 
after each payment due date for the duration of the borrower's 
delinquency.
---------------------------------------------------------------------------

    \83\ Comment 39(a)-1 (emphasis added).
---------------------------------------------------------------------------

    As it stated in the 2012 RESPA Servicing Proposal, the Bureau 
intended the live contact provisions to create an ongoing obligation 
for a servicer to attempt to communicate with a delinquent borrower. In 
its discussion of the decision to limit a servicer's obligation to 
provide written notice under Sec.  1024.39(b)(1) to once every 180 
days, the Bureau noted that it was not including a similar limitation 
in Sec.  1024.39(a) because it expected a servicer to contact a 
borrower during each period of delinquency.\84\ In the 2013 RESPA Final 
Servicing Rule, the Bureau confirmed that it expected servicers to 
attempt to make live contact on a recurring basis and stated that, 
``[w]ith respect to the live contact requirement . . . a servicer must 
establish or make good faith effort to establish live contact, even 
with borrowers who are regularly delinquent, by the 36th day of a 
borrower's delinquency.''\85\ In the October 2013 Servicing Bulletin, 
the Bureau again clarified that servicers have an obligation to make 
good faith efforts to contact a borrower within 36 days of when a 
borrower first becomes delinquent, ``and for each of any subsequent 
billing periods for which the borrower's obligation is due and 
unpaid.''
---------------------------------------------------------------------------

    \84\ 77 FR 57199, 57256 (Sept. 17, 2012).
    \85\ 78 FR 10696, 10795 (Feb. 14, 2013) (emphasis added).
---------------------------------------------------------------------------

    The Bureau continues to believe that borrowers who remain 
delinquent for more than one billing cycle benefit from receiving 
repeated live contact and that relieving a servicer of its obligations 
to establish live contact after the initial delinquent billing cycle 
would undermine the intent of Sec.  1024.39(a). Accordingly, the Bureau 
is proposing to clarify Sec.  1024.39(a) to codify its understanding 
and require servicers expressly to establish or make good faith efforts 
to establish live contact with a delinquent borrower no later than 36 
days after each payment due date for the duration of the borrower's 
delinquency.
    To provide additional guidance, the Bureau is proposing to revise 
and re-order comment 39(a)-1 and its subsections. First, the Bureau 
proposes to remove the language in current comment 39(a)-1.i. As 
discussed in the section-by-section analysis of Sec.  1024.31, the 
Bureau is proposing a new definition of delinquency applicable to all 
of subpart C. If adopted as proposed, the new definition generally 
would mirror the language in current comment 39(a)-1.i, making that 
language superfluous. Second, the Bureau is proposing to revise 
existing comments 39(a)-1 and 39(a)-1.i and add comments 39(a)-1.i.A 
and 39(a)-1.i.B to illustrate how a servicer may comply with the 
recurring live contact obligation when a borrower is delinquent for one 
or more billing cycles. Proposed comment 39(a)-1.i.B gives the example 
of a borrower with a payment due date on the first of the month who 
misses three consecutive payments, on January 1, February 1, and March 
1. The proposed comment provides that a servicer can meet the 
requirements of Sec.  1024.39(a) by, for example, attempting to make 
live contact with the borrower on February 5, and again on March 25. 
Because a servicer has 36 days from the date a borrower first becomes 
delinquent to establish or make good faith efforts to establish live 
contact with the borrower, the proposed comment explains that an 
attempt to establish live contact with the borrower on February 5 meets 
the requirements of Sec.  1024.39(a) for both January and February.
    The Bureau is also proposing to revise comment 39(a)-2 to codify 
guidance from the October 2013 Servicing Bulletin, which clarified that 
servicers are permitted to combine their live contact attempts with 
their attempts to contact borrowers for other purposes, including, for 
example, by providing a borrower with information about available loss 
mitigation options when contacting the borrower for purposes of 
collection.\86\
---------------------------------------------------------------------------

    \86\ October 2013 Servicing Bulletin at 5.
---------------------------------------------------------------------------

    Finally, the Bureau is proposing to add comment 39(a)-3 to clarify 
that, while the Bureau expects servicers to continue to attempt to make 
live contact with borrowers who are regularly delinquent, a borrower's 
failure to respond to such attempts, as well as the length of the 
borrower's delinquency, are relevant circumstances to consider when 
evaluating a servicer's good faith. To this end, the Bureau is 
proposing to add an example it first provided in the October 2013 
Servicing Bulletin. The example would provide that, in the case of a 
borrower with six or more consecutive delinquencies, good faith efforts 
to establish live contact might include adding a sentence in the 
borrower's periodic statement or another communication encouraging the 
borrower to contact the servicer. The Bureau is proposing to re-
designate current comments 39(a)-3 and 39(a)-4 as, respectively, 
comments 39(a)-4 and 39(a)-5 to accommodate the addition of proposed 
comment 39(a)-3.
Compliance With Sec.  1024.41
    The Bureau is also proposing to add comment 39(a)-6 to illustrate 
how a servicer can meet its early intervention live contact 
requirements when a delinquent borrower is engaged in various stages of 
the loss mitigation procedures set forth in Sec.  1024.41. Proposed 
comment 39(a)-6 codifies guidance the Bureau provided in its October 
2013 Servicing Bulletin. In the bulletin, the Bureau reiterated that 
the live contact requirements are designed to give servicers 
significant flexibility to tailor their procedures to particular 
circumstances. As explained in comment 39(a)-2, good faith efforts to 
establish live contact consist of ``reasonable steps under the 
circumstances to reach a borrower . . . '' The Bureau went on to 
provide several examples of reasonable steps, including the example of 
a servicer that has established and is maintaining live contact with a 
borrower ``with regard to the borrower's completion of a loss 
mitigation application and the servicer's evaluation of that borrower 
for loss mitigation options.''\87\
---------------------------------------------------------------------------

    \87\ October 2013 Servicing Bulletin at 5.
---------------------------------------------------------------------------

    The Bureau is now proposing to codify its guidance from the October 
2013 Servicing Bulletin. As the Bureau stated in the 2013 RESPA 
Servicing Final Rule, the live contact requirements are intended, in 
part, to ensure that borrowers receive timely information about loss 
mitigation options at an early stage of delinquency.\88\ For borrowers 
who have already applied or are in the process of applying for loss 
mitigation, however, repeated or parallel attempts by the servicer to 
establish live contact pursuant to the requirements of Sec.  1024.39(a) 
may be confusing or harassing. Therefore, the Bureau is proposing to 
add commentary codifying the bulletin's guidance and clarifying 
generally that a servicer working with a borrower pursuant to the 
procedures of Sec.  1024.41 complies with the requirements of Sec.  
1024.39(a).

[[Page 74200]]

Specifically, proposed comment 39(a)-6 clarifies that a servicer that 
has established and is maintaining ongoing contact with regard to a 
borrower's completion of a loss mitigation application, or in 
connection with the servicer's evaluation of the borrower's complete 
loss mitigation application, complies with the requirements of Sec.  
1024.39(a). In addition, the proposed comment clarifies that a servicer 
that has evaluated and denied a borrower for all available loss 
mitigation options has complied with the requirements of Sec.  
1024.39(a). The Bureau believes that, once a servicer has complied with 
the requirements of Sec.  1024.41 with respect to a specific borrower, 
and has determined that the borrower does not qualify for any available 
loss mitigation options, continued live contact between a borrower and 
a servicer no longer serves the purpose of Sec.  1024.39(a). Indeed, at 
that point, continued attempts by the servicer to establish live 
contact may frustrate or even harass a borrower who was recently denied 
for loss mitigation. Accordingly, the Bureau is proposing to clarify 
that a servicer complies with Sec.  1024.39(a) if the servicer has sent 
a notice to a borrower (in compliance with Sec.  1024.41(c)(1)(ii)) 
notifying the borrower that the borrower is not eligible for any loss 
mitigation options.
---------------------------------------------------------------------------

    \88\ See, e.g., 78 FR 10695, 10793 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau believes, however, that a borrower who cures a prior 
delinquency but subsequently becomes delinquent again would benefit 
from the servicer resuming compliance with the live contact 
requirement. Therefore, proposed comment 39(a)-6 also clarifies that a 
servicer is again subject to the requirements of Sec.  1024.39(a) with 
respect to a borrower who becomes delinquent after curing a prior 
delinquency. The Bureau is proposing to add a reference to proposed 
comment 39(a)-6 in proposed comment 39(a)-3 to indicate that the 
examples set forth in comment 39(a)-6 represent examples of ``good 
faith efforts.''
39(b) Written Notice
39(b)(1)
    The Bureau is proposing certain revisions to Sec.  1024.39(b)(1) 
and its commentary to clarify the frequency with which a servicer must 
provide the written early intervention notice and to ensure consistency 
with the proposed revisions to the live contact requirements in Sec.  
1024.39(a). Under the proposed revision, a servicer must send a written 
notice to a delinquent borrower no later than the 45th day of the 
borrower's delinquency, but a servicer does not have to send such a 
notice more than once in any 180 day period. If the borrower remains 
delinquent or becomes 45 days delinquent again after the 180-day period 
expires, the proposed revision requires the servicer to provide the 
written notice again.
    Current comment 39(b)(1)-1 references the definition of delinquency 
in current comment 39(a)-1.i. As explained in the section-by-section 
analysis of Sec.  1024.39(a), the definition of delinquency included in 
current comment 39(a)-1.i and referenced in comment 39(b)(1)-1 states 
that a borrower's delinquency begins on the day a payment sufficient to 
cover principal, interest, and, if applicable, escrow for a given 
billing cycle is due and unpaid. As with Sec.  1024.39(a), the 
inclusion of the phrase ``for a given billing cycle'' in the definition 
of delinquency for purposes of Sec.  1024.39(b)(1) creates a recurring 
obligation on the part of servicers to provide a delinquent borrower 
with a written notice. In contrast with the recurring obligation to 
make live contact under Sec.  1024.39(a), however, servicers only have 
to comply with the requirement to send a written notice once in a 180-
day period.\89\ This is because, as the Bureau explained in the 2012 
RESPA Servicing Proposal, the Bureau did not believe ``that borrowers 
who are consistently delinquent would benefit from receiving the same 
written notice every month.''\90\
---------------------------------------------------------------------------

    \89\ 12 CFR 1024.39(b)(1).
    \90\ 77 FR 57199, 57257 (Sept. 17, 2012).
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1024.31, 
the Bureau's proposed new definition of delinquency in Sec.  1024.31 
does not use the phrase ``for a given billing cycle.'' The Bureau 
wishes to clarify that it continues to expect servicers to send a 
written notice more than once, notwithstanding the revised language in 
the proposed definition of delinquency. Accordingly, the Bureau is 
proposing revisions to Sec.  1024.39(b)(1) and comment 39(b)(1)-2 to 
preserve the recurring nature of the written notice requirement, as 
well as the limitation that a servicer has to send a written notice 
only once during any 180-day period. Under the proposed revision, a 
servicer must send a written notice to a delinquent borrower no later 
than the 45th day of the borrower's delinquency, but no more than once 
in any 180-day period. If the borrower either remains delinquent or 
becomes delinquent again at some point after the 180-day period 
expires, the proposed revision would require the servicer to provide 
the borrower with another written notice 45 days from the date of her 
most recent missed payment.
    In addition, the Bureau is proposing to clarify through a revision 
to comment 39(b)(1)-2 that a servicer is again required to send written 
notice to a borrower who remains delinquent more than 180 days after 
the servicer sent the first notice. Current comment 39(b)(1)-2 provides 
an example of a borrower who fails to make a payment due on March 1. 
The comment states that the servicer is required to send a written 
notice within 45 days thereafter--i.e., by April 15; it further 
provides that, if the borrower fails to make the April 1 payment, the 
servicer does not need to send a second written notice because it 
already did so within the previous 180 days. The Bureau is proposing to 
add a further explanation that, if the borrower misses a payment on 
October 1, the servicer is again obligated to provide a written notice 
within 45 days after October 1, since the 45th day (November 15) falls 
more than 180 days from the date the servicer provided the first 
written notice. This proposal also makes a minor technical change to 
comment 39(b)(1)-2 to correct an erroneous reference to Sec.  
1024.39(a), which should instead be a reference to Sec.  1024.39(b).
    Finally, the Bureau is proposing to add comment 39(b)(1)-6 to 
clarify the obligation of a transferee servicer to provide the written 
notice required by Sec.  1024.39(b). Proposed comment 39(b)(1)-6 states 
that a transferee servicer is not required to provide a second written 
notice to a borrower who already received a written notice from the 
transferor servicer on or before the borrower's 45th day of 
delinquency. The comment further clarifies, however, that a servicer is 
required to comply with Sec.  1024.39(b) regardless of whether the 
transferor servicer sent the borrower a written notice in the preceding 
180-day period. In other words, if the transferor servicer provided a 
first written notice after an initial missed payment and, following the 
transfer, the borrower remains or becomes 45 days delinquent again, the 
transferee servicer would have to provide a written notice again, 
regardless of whether or not 180 days had passed since the date the 
transferor servicer provided the first written notice to the borrower.
    The Bureau is proposing this clarification because it believes that 
the rationale that justified applying the 180-day limitation to 
mortgage loans serviced by a single servicer may not apply in the case 
of a loan whose servicing rights are transferred to another servicer. 
The Bureau explained in the 2013 RESPA Servicing Final Rule

[[Page 74201]]

that it did not believe that borrowers who are repeatedly delinquent 
would benefit from receiving essentially the same written notice month 
after month.\91\ Accordingly, it adopted a once-every-180-days 
limitation on the general requirement to provide a written notice under 
Sec.  1024.39(b). In the case of a transferred loan, however, the 
Bureau believes that a transferee servicer may provide additional and 
different information to a delinquent borrower under Sec.  
1024.39(b)(2) and that a borrower would benefit from receiving this 
information sooner rather than later following a transfer. Accordingly, 
the Bureau believes it is appropriate to clarify that the 180-day 
limitation in Sec.  1024.39(b)(1) does not apply where the prior notice 
triggering the 180-day waiting period was provided by the transferor 
servicer prior to transfer.
---------------------------------------------------------------------------

    \91\ See 78 FR 10695, 10800 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Successors in interest. As described in the section-by-section 
analysis of Sec.  1024.30(d), proposed Sec.  1024.30(d) provides that a 
confirmed successor in interest must be considered a borrower for the 
purposes of Regulation X's mortgage ervicing rules. Accordingly, once a 
servicer confirms a successor in interest's identity and ownership 
interest in the property, a servicer would be required to make 
reasonable efforts to establish live contact and to make written 
contact with the successor in interest regarding a delinquent mortgage 
loan under Sec.  1024.39's early intervention requirements.
    Proposed comment 39(b)(1)-5 clarifies that, where a servicer has 
already provided a written early intervention notice to a prior 
borrower under Sec.  1024.39(b) before confirming a successor in 
interest's status, the servicer is not required also to provide that 
notice to the confirmed successor in interest, but the servicer must 
provide the confirmed successor in interest with any additional written 
early intervention notices required after confirming the successor in 
interest's status. The Bureau believes that it would be unnecessary and 
difficult for servicers to provide additional copies of the written 
early intervention notices that servicers have already provided to the 
prior borrower. The Bureau also believes that, in many cases, 
successors in interest may have received the original notice mailed by 
the servicer to the prior borrower. Further, as described in the 
section-by-section analysis of Sec.  1026.2(a)(11), servicers would be 
required to provide confirmed successors in interest with periodic 
statements under Sec.  1026.41 of Regulation Z, so confirmed successors 
in interest will generally be kept apprised of the status of the 
mortgage loan.
39(b)(2) Content of the Written Notice
    The Bureau is proposing to clarify when a servicer must include the 
disclosures under Sec.  1024.39(b)(2)(iii) and (iv) in the written 
early intervention notice. Section 1024.39(b)(2)(iii) and (iv) 
currently state that, ``if applicable,'' the written notice must 
include a statement providing a brief description of examples of loss 
mitigation options that may be available and either application 
instructions or a statement informing the borrower how to obtain more 
information about loss mitigation options from the servicer. The Bureau 
is proposing to add a comment to clarify when such disclosures are 
``applicable'' and when a servicer is therefore required to include 
them in the written early intervention notice. Specifically, proposed 
comment 39(b)(2)-4 provides that, if loss mitigation options are 
available, a servicer must include in the written notice the 
disclosures set forth in Sec.  1024.39(b)(2)(iii) and (iv). The 
proposed comment further provides that loss mitigation options are 
available if the owner or assignee of a borrower's mortgage loan offers 
an alternative to foreclosure that is made available through the 
servicer. Additionally, the proposed comment provides that the 
availability of loss mitigation options does not depend upon a 
borrower's eligibility for those options, but simply depends upon 
whether the owner or assignee of a borrower's mortgage loan generally 
offers loss mitigation options through the servicer. Proposed comment 
39(b)(2)-4 is generally intended to assist servicers in determining 
when they are required to include the Sec.  1024.39(b)(2)(iii) and (iv) 
disclosures in the written early intervention notice, and whether they 
are exempt from providing the written notice under proposed Sec.  
1024.39(d)(1)(ii) or (d)(2)(ii) as discussed in the section-by-section 
analyses of Sec.  1024.39(d)(1) and (d)(2).
Legal Authority
    The Bureau is proposing the amendments to Sec.  1024.39(a) and (b) 
pursuant to its authorities under sections 6(j)(3), 6(k)(1)(E), and 
19(a) of RESPA. As explained above, the Bureau finds, consistent with 
section 6(k)(1)(E), that the proposed amendments to Sec.  1024.39(a) 
and (b) are appropriate to achieve the consumer protection purposes of 
RESPA, including to help borrowers avoid unwarranted or unnecessary 
costs and fees and to facilitate review of borrowers for foreclosure 
avoidance options. For the same reasons, the proposed amendments to 
Sec.  1024.39(a) and (b) are authorized under section 6(j)(3) of RESPA 
as necessary to carry out section 6 of RESPA, and under section 19(a) 
as necessary to achieve the purposes of RESPA, including borrowers' 
avoidance of unwarranted or unnecessary costs and fees and the 
facilitation of review of borrowers for foreclosure avoidance options.
    The Bureau is also proposing the amendments to Sec.  1024.39(a) and 
(b) pursuant to its authority under section 1022(b) of the Dodd-Frank 
Act to prescribe regulations necessary or appropriate to carry out the 
purposes and objectives of Federal consumer financial laws, including 
the purposes and objectives of Title X of the Dodd-Frank Act. 
Specifically, the Bureau believes that these amendments are necessary 
and appropriate to carry out the purpose under section 1021(a) of the 
Dodd-Frank Act of ensuring that markets for consumer financial products 
and services are fair, transparent, and competitive, and the objectives 
under section 1021(b) of the Dodd-Frank Act of ensuring that consumers 
are provided with timely and understandable information to make 
responsible decisions about financial transactions, and markets for 
consumer financial products and services operate transparently and 
efficiently to facilitate access and innovation. The Bureau 
additionally relies on its authority under section 1032(a) of the Dodd-
Frank Act, which authorizes the Bureau to 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.
39(d) Exemptions
39(d)(1) Borrowers in Bankruptcy
    The Bureau is proposing to revise Sec.  1024.39(d)(1) to narrow the 
scope of the bankruptcy exemption from Sec.  1024.39(a) and (b)'s early 
intervention requirements. Section 1024.39(d)(1) currently exempts a 
servicer from the early intervention requirements with respect to a 
mortgage loan if at least one of the borrowers is a debtor in 
bankruptcy. The proposed revisions preserve the current exemption from 
the live contact requirements of Sec.  1024.39(a) as it relates to a 
borrower in bankruptcy, but they provide that the exemption would no 
longer apply to a borrower

[[Page 74202]]

who is jointly liable on the mortgage loan with someone who is a debtor 
in a Chapter 7 or Chapter 11 bankruptcy case.\92\ The proposal 
partially lifts the exemption from the written notice requirements of 
Sec.  1024.39(b) and requires a servicer to provide the written notice 
unless no loss mitigation options are available, the borrower's 
confirmed plan of reorganization provides for the surrendering of the 
property or avoidance of the lien securing the mortgage loan, the 
borrower files a Statement of Intention in the bankruptcy case 
identifying an intent to surrender the mortgage loan, or a court enters 
an order avoiding the lien securing the mortgage loan or lifting the 
automatic stay with respect to the property securing the mortgage loan. 
That is, if loss mitigation options are available, the proposal 
requires that a servicer, with certain exceptions, provide the written 
early intervention notice required by Sec.  1024.39(b) to borrowers in 
bankruptcy.
---------------------------------------------------------------------------

    \92\ ``Consumer homeowners typically seek relief under either 
Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 requires 
the debtor to surrender all nonexempt property for distribution to 
creditors. In return, the debtor's debts are discharged, with some 
exceptions. Chapter 13 permits debtors with regular income to keep 
their property and to repay creditors in whole or in part by making 
monthly payments to a Chapter 13 trustee, who then distributes the 
payments to creditors.'' Alan M. White & Carolina Reid, Saving 
Homes, Bankruptcies and Loan Modifications in the Foreclosure 
Crisis, 65 Fla. L. Rev. 1713, 1717 (Dec. 2013) (citing Adam J. 
Levitin, Resolving the Foreclosure Crisis: Modification of Mortgages 
in Bankruptcy, 2009 Wis. L. Rev. 565, 579, 643 (2009)). Some 
consumer homeowners seek relief under Chapter 11 of the Bankruptcy 
Code, usually because their debt levels exceed Chapter 13's 
limitations, and family farmers and fishermen may file under Chapter 
12. See 11 U.S.C. 109(d)-(f) (defining who may be a debtor under 
Chapter 11, Chapter 12, and Chapter 13). Because relatively few 
consumer homeowners seek relief under Chapter 11 or Chapter 12 of 
the Bankruptcy Code, the discussion of early intervention focuses 
primarily on homeowners in Chapter 7 or Chapter 13 cases. See 
Administrative Office of the U.S. Courts, U.S. Bankruptcy Courts--
Business and Nonbusiness Cases Commenced, by Chapter of the 
Bankruptcy Code, During the 12-Month Period Ending December 31, 
2013, available at http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf (indicating 
that in 2013, there were only 1,320 nonbusiness Chapter 11 filings 
and 495 Chapter 12 filings nationwide).
---------------------------------------------------------------------------

    The objectives of the early intervention requirements under Sec.  
1024.39 include ensuring that delinquent borrowers have an opportunity 
to pursue loss mitigation options at the early stages of delinquency, 
encouraging communication between servicers and delinquent borrowers, 
and encouraging delinquent borrowers to work with their servicers to 
identify alternatives to foreclosure.\93\ Section 1024.39(a) requires a 
servicer to establish or make good faith efforts to establish live 
contact with a delinquent borrower not later than the 36th day of the 
borrower's delinquency and, promptly after establishing live contact, 
inform the borrower about the availability of loss mitigation options, 
if appropriate. Section 1024.39(b) requires a servicer to provide to a 
delinquent borrower a written notice with specific information, 
including examples of loss mitigation options that may be available and 
instructions on how to obtain more information about loss mitigation 
options from the servicer, not later than the 45th day of the 
borrower's delinquency.
---------------------------------------------------------------------------

    \93\ See 77 FR 57199, 57251 (Sept. 17, 2012); 78 FR 10695, 10787 
(Feb. 14, 2013).
---------------------------------------------------------------------------

    In the 2012 RESPA Servicing Proposal, the Bureau sought comment on 
``whether servicers may reasonably question how they could comply with 
[the] Bureau's propos[ed early intervention requirements] in light of 
other applicable laws,'' including the Bankruptcy Code.\94\ The 
preamble acknowledged that the Bankruptcy Code's automatic stay 
generally prohibits, among other things, actions to collect, assess, or 
recover a claim against the debtor that arose before the debtor filed 
for bankruptcy.\95\ In response, industry expressed concerns that the 
early intervention requirements could conflict with existing law, 
including the Bankruptcy Code.\96\
---------------------------------------------------------------------------

    \94\ 77 FR 57199, 57260-61 (Sept. 17, 2012).
    \95\ Id. See also 11 U.S.C. 362(a).
    \96\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
---------------------------------------------------------------------------

    In the 2013 RESPA Servicing Final Rule, the Bureau addressed these 
concerns by adopting Sec.  1024.39(c), which provides that nothing in 
Sec.  1024.39 requires a servicer to communicate with a borrower in a 
manner otherwise prohibited under applicable law.\97\ The Bureau also 
added a comment to Sec.  1024.39(c), specifying that servicers are not 
required to communicate with borrowers in a manner that would be 
inconsistent with applicable bankruptcy law or a court order in a 
bankruptcy case, and that servicers could adapt the requirements of 
Sec.  1024.39 in any manner that would permit them to inform borrowers 
of loss mitigation options. The Bureau explained that these additions 
were intended to clarify that servicers could take a flexible approach 
to complying with Sec.  1024.39 and that the Bureau did not intend for 
its early intervention requirements to require servicers to take any 
action that may be prohibited under, among other things, the Bankruptcy 
Code's automatic stay provisions.\98\
---------------------------------------------------------------------------

    \97\ Id.
    \98\ Id. at 10806.
---------------------------------------------------------------------------

    Notwithstanding this flexibility, servicers continued to express 
concerns to the Bureau about their ability to comply with the early 
intervention requirements while also avoiding violations of bankruptcy 
law. Specifically, servicers sought guidance regarding whether Sec.  
1024.39 would require some attempt at compliance even if the borrower 
was protected by the automatic stay, and whether servicers would be 
subject to claims by private litigants asserting that bankruptcy was 
not an excuse for a servicer's lack of performance under Sec.  1024.39.
    Based on these inquiries, the Bureau determined that the 
interaction of bankruptcy law and the early intervention requirements 
required further study and that there was insufficient time before the 
final rule's January 10, 2014 effective date to calibrate the 
requirements.\99\ Accordingly, the Bureau issued the October 2013 IFR, 
which added current Sec.  1024.39(d)(1), exempting servicers from the 
early intervention requirements for a mortgage loan when the borrower 
is a debtor in bankruptcy. The Bureau clarified in comment 39(d)(1)-2 
that, when two or more borrowers are joint obligors with primary 
liability on the mortgage loan, the exemption applies if any of the 
borrowers is in bankruptcy. The Bureau further clarified in comment 
39(d)(1)-3 that a servicer has no obligation to resume compliance with 
Sec.  1024.39 with respect to any portion of a mortgage loan that is 
discharged under applicable provisions of the Bankruptcy Code.
---------------------------------------------------------------------------

    \99\ 78 FR 62993, 62997 (Oct. 23, 2013).
---------------------------------------------------------------------------

    In issuing the IFR, the Bureau did not take a position as to 
whether early intervention efforts might violate the Bankruptcy Code's 
automatic stay or discharge injunction.\100\ The Bureau encouraged 
servicers that had been communicating with borrowers in bankruptcy 
about loss mitigation options to continue doing so and expressed the 
opinion that some borrowers in bankruptcy may benefit from receiving 
tailored loss mitigation information that is appropriate to their 
circumstances.\101\ The Bureau also solicited comments on the scope of 
the exemption, the triggers for qualifying for the exemption and when 
to resume early intervention, and how communications might be tailored 
to

[[Page 74203]]

meet the particular needs of borrowers in bankruptcy.\102\ Finally, the 
Bureau stated that it would continue to examine this issue and might 
reinstate an early intervention requirement with respect to borrowers 
in bankruptcy, though the Bureau indicated that it would not reinstate 
any such requirement without notice and comment rulemaking and an 
appropriate implementation period.\103\
---------------------------------------------------------------------------

    \100\ See id.
    \101\ Id.
    \102\ Id. at 62998.
    \103\ Id.
---------------------------------------------------------------------------

    During the IFR's official comment period, the Bureau received 
approximately 30 comments, several of which discussed Sec.  
1024.39(d)(1)'s exemption from the early intervention requirements for 
borrowers in bankruptcy.\104\ The Bureau has since continued to engage 
stakeholders on the scope of this exemption, including by hosting the 
roundtable discussion on June 16, 2014, among representatives of 
consumer advocacy groups, bankruptcy attorneys, servicers, trade 
groups, and bankruptcy trustees. The Bureau has also sought comment 
from bankruptcy judges and experts and conducted its own analysis of 
the intersection of the early intervention requirements and bankruptcy 
law.
---------------------------------------------------------------------------

    \104\ The IFR comment period closed on November 22, 2013. 
Subsequent written and oral presentations to the Bureau imparting 
information or argument directed to the merits or outcome of the IFR 
were subject to the Bureau's policy on ex parte presentations. See 
Consumer Fin. Prot. Bureau, CFPB Bulletin 11-3, Policy on Ex Parte 
Presentations in Rulemaking Proceedings (Aug. 16, 2011) (CFPB 
Bulletin 11-3), available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------

    Based upon its review of the comments received and its study of the 
intersection of the early intervention requirements and bankruptcy law, 
the Bureau believes it may be appropriate to reinstate the early 
intervention requirements with respect to borrowers in bankruptcy, 
under certain circumstances. The Bureau is proposing to do so in the 
present rulemaking because, as noted in the IFR, the Bureau believes 
that it would be preferable to use notice and comment rulemaking, 
rather than simply finalizing the IFR with modifications, to reinstate 
the early intervention requirements with respect to such 
borrowers.\105\ The Bureau believes that this approach will allow 
stakeholders to more fully consider and comment on the Bureau's 
specific proposal. The Bureau also believes that it is appropriate for 
the Bureau to address comments it already received in response to the 
IFR. Accordingly, the following discussion of the proposed revisions to 
Sec.  1024.39(d)(1) and accompanying commentary includes discussion of 
the comments received regarding the IFR, as well as ex parte comments 
received after the IFR's official comment period ended.
---------------------------------------------------------------------------

    \105\ 78 FR 62993, 62998 (Oct. 23, 2013).
---------------------------------------------------------------------------

Live Contact
    Commenters supported almost uniformly the IFR's exemption from 
Sec.  1024.39(a)'s live contact requirement. Servicers and trade groups 
urged the Bureau to maintain the exemption in order to avoid conflicts 
with the Bankruptcy Code. One trade group added that a borrower likely 
would have received early intervention outreach prior to filing for 
bankruptcy, such that additional early intervention attempts during 
bankruptcy would be redundant or unnecessary. Two bankruptcy judges 
commented that the Bureau should not require servicers to attempt to 
establish live contact with borrowers because such attempts may violate 
the automatic stay under certain circumstances. One bankruptcy judge 
and two industry participants further noted that contacting a borrower 
represented by bankruptcy counsel might, under certain circumstances, 
implicate ethics rules or State laws prohibiting direct contact with a 
party that is represented by counsel.
    A consortium of consumer advocacy groups submitted comments 
generally opposing the exemption from the early intervention 
requirements, arguing that the flexibility afforded by Sec.  1024.39(c) 
is sufficient to address any concerns about violating the automatic 
stay or discharge injunction. In subsequent ex parte comments, however, 
several of these groups clarified that, with one exception discussed 
below, they were comfortable with the exemption from the live contact 
requirements. Finally, during the bankruptcy roundtable discussion, 
which included representatives from industry and consumer advocacy 
groups, as well as bankruptcy trustees, no attendees took the position 
that the Bureau should lift the exemption with respect to live contact.
    In light of these comments, the Bureau is proposing to maintain the 
exemption from the live contact requirements with respect to a borrower 
who is in bankruptcy, has discharged personal liability for the 
mortgage loan, or shares liability on a mortgage loan with a person who 
is a debtor in a Chapter 12 or Chapter 13 bankruptcy case. In addition 
to the issues identified in the comments, two other factors inform the 
Bureau's proposal to maintain the exemption. First, the Bureau believes 
that live contact may be perceived as more intrusive and of less value 
to a borrower in bankruptcy. As discussed in the section-by-section 
analysis of Sec.  1024.39(a), the live contact requirements are ongoing 
and generally require a servicer to make continued efforts to establish 
live contact with a borrower so long as a borrower remains delinquent. 
In addition, compliance with Sec.  1024.39(a) is not limited to--and 
does not in every case require--a discussion of available loss 
mitigation options. Section 1024.39(a) requires a servicer to inform a 
borrower of loss mitigation options ``if appropriate.'' More broadly, 
``[l]ive contact provides servicers an opportunity to discuss the 
circumstances of a borrower's delinquency,''\106\ and, based on this 
discussion, a servicer may determine not to inform a borrower of loss 
mitigation options. Current comment 39(a)-3.i.B provides an example 
demonstrating that it is reasonable for a servicer to not provide 
information about the availability of loss mitigation options to a 
borrower who has missed a January 1 payment and notified the servicer 
that full late payment will be transmitted to the servicer by February 
15.\107\ In that situation, a live contact conversation could serve as 
a reminder to a borrower who inadvertently missed a payment, or it 
could give the servicer an opportunity to discuss when the borrower 
would cure a temporary delinquency; it would not necessarily involve a 
discussion of loss mitigation options. Borrowers who seek protection 
under the Bankruptcy Code, however, may do so in part to terminate 
unwelcome creditor communications about outstanding payment 
obligations. For such borrowers, the Bureau believes that a servicer's 
repeated attempts to establish live contact, which may not lead to a 
discussion of available loss mitigation options between the parties, 
may be of diminished value to the borrower.
---------------------------------------------------------------------------

    \106\ Comment 39(a)-2.
    \107\ This proposal would redesginate this comment as comment 
39(a)-4.i.B.
---------------------------------------------------------------------------

    Second, while some courts have determined that a creditor may 
properly contact a borrower in bankruptcy, including by telephone, to 
inform the borrower about loss mitigation options or to negotiate the 
terms of a loss mitigation agreement,\108\ other courts

[[Page 74204]]

have found that a creditor violated the automatic stay by making live 
contact with a borrower to discuss loss mitigation.\109\ The Bureau 
notes that these violations appear to involve extreme facts, such as 
creditors making dozens of phone calls, some of which threatened legal 
action, to borrowers who had requested that the creditor stop 
contacting them and either had already decided to surrender the 
property or were not interested in the offered loss mitigation 
options.\110\ Nonetheless, while the Bureau does not believe that 
compliance with Sec.  1024.39(a)'s live contact requirement would 
generally violate the stay, the Bureau is concerned that, given the 
interactive and potentially unscripted nature of live contact, as well 
as the fact that live contact does not necessarily require a discussion 
of loss mitigation options, borrowers or courts may view a servicer's 
attempts to establish live contact as a communication prohibited by the 
automatic stay under certain circumstances. Accordingly, the Bureau 
believes it may not be appropriate to require servicers to engage in 
live contact with borrowers in bankruptcy.
---------------------------------------------------------------------------

    \108\ See, e.g., Brown v. Bank of Am. (In re Brown), 481 B.R. 
351, 360 (Bankr. W.D. Pa. 2012) (holding that creditor did not 
violate the automatic stay by making telephone calls to a borrower 
regarding foreclosure alternatives); In re Silva, No. 09-02504, 2010 
WL 605578, at *1 (Bankr. D. Haw. Feb. 19, 2010) (``Nothing in the 
Bankruptcy Code prevents or prohibits a chapter 7 or chapter 13 
debtor or its secured creditors from entering into communications or 
negotiations about the possibility of a loan modification.''); In re 
Medina, No. 6:12-bk-00066-ABB, 2012 WL 2090419, at *1 (Bankr. M.D. 
Fla. June 8, 2012) (``The automatic stay and the discharge 
provisions of the Bankruptcy Code do not prevent the parties from 
negotiating and entering into a loan modification post-petition.'').
    \109\ See, e.g., In re Culpepper, 481 B.R. 650, 659-60 (Bankr. 
D. Or. 2012) (stating that a creditor's reasonable contacts with a 
debtor regarding foreclosure alternatives may be permissible, but 
nonetheless finding a stay violation because the creditor made more 
than 100 phones calls to a borrower who had requested the creditor 
stop contacting her and the creditor discussed only loss mitigation 
options (i) for which the borrower was ineligible, (ii) in which the 
borrower was not interested, and (iii) which would have revived at 
least a portion of the borrower's discharged mortgage debt); In re 
Whitmarsh, 383 B.R. 735, 737 (Bankr. D. Neb. 2008) (stating that 
``[a] phone call or two to follow up a letter regarding loss 
mitigation efforts is understandable,'' but finding that the 
creditor violated the automatic stay by making at least 22 phone 
calls, some of which threatened legal action, to borrowers who had 
already decided to surrender the property and had requested in 
writing on several occasions that the creditor make contact only 
with the borrowers' attorney).
    \110\ Culpepper, 481 B.R. at 659-60; Whitmarsh, 383 B.R. at 737.
---------------------------------------------------------------------------

    For these reasons, the Bureau is proposing Sec.  1024.39(d)(1)(i), 
which provides that a servicer is exempt from the early intervention 
live contact requirements with respect to a borrower who is a debtor in 
bankruptcy or has discharged personal liability through bankruptcy. 
Proposed Sec.  1024.39(d)(1)(i) also provides that a servicer is exempt 
from the live contact requirements with respect to a borrower if any 
borrower on the mortgage loan is a debtor in a Chapter 12 or Chapter 13 
bankruptcy case. When a debtor files for protection under Chapter 12 or 
Chapter 13, the Bankruptcy Code implements a ``co-debtor stay,'' 
prohibiting creditors from engaging in collection efforts against 
certain of the debtor's joint obligors, such as a joint obligor on the 
debtor's mortgage loan, even though the joint obligor has not filed for 
bankruptcy.\111\ Because contacting a borrower covered by the ``co-
debtor stay'' raises some of the same concerns as contacting a borrower 
covered by the automatic stay, the Bureau believes it may be 
appropriate to exempt servicers from compliance with Sec.  1024.39(a) 
with respect to a borrower who is jointly liable on mortgage loan with 
someone who is a debtor in a Chapter 12 or Chapter 13 bankruptcy case.
---------------------------------------------------------------------------

    \111\ 11 U.S.C. 1201(a) and 1301(a) (both stating that 
``[e]xcept as provided in subsections (b) and (c) of this section, 
after the order for relief under this chapter, a creditor may not 
act, or commence or continue any civil action, to collect all or any 
part of a consumer debt of the debtor from any individual that is 
liable on such debt with the debtor, or that secured such debt, 
unless--(1) such individual became liable on or secured such debt in 
the ordinary course of such individual's business; or (2) the case 
is closed, dismissed, or converted to a case under chapter 7 or 11 
of this title.'').
---------------------------------------------------------------------------

    Proposed Sec.  1024.39(d)(1)(i) provides that the exemption from 
Sec.  1024.39(a)'s live contact requirements applies to only those non-
bankrupt borrowers who are jointly liable on a mortgage loan with a 
debtor in a Chapter 12 or Chapter 13 bankruptcy case; the proposed 
exemption therefore excludes borrowers who are jointly liable on a 
mortgage loan with a debtor in a Chapter 7 or Chapter 11 case. This is 
a departure from current Sec.  1024.39(d)(1), under which the Bureau 
intentionally crafted a broad exemption from Sec.  1024.39, making the 
exemption applicable to any joint obligor of a debtor in bankruptcy, 
irrespective whether the joint obligor was in bankruptcy or protected 
against collection attempts by the co-obligor stay under 11 U.S.C. 
1201(a) or 1301(a). A consortium of consumer advocacy groups commented 
that this exemption is too broad, as there is no ``co-obligor stay'' 
provision in Chapter 7 or Chapter 11 of the Bankruptcy Code. Thus, they 
argued, there is no prohibition against contacting a joint obligor of a 
Chapter 7 or Chapter 11 debtor and therefore no reason to exempt a 
servicer from the live contact requirements in these circumstances. The 
consumer advocacy groups gave the example of a married couple who 
jointly own a home. If one spouse filed for protection under Chapter 7, 
the automatic stay would not apply to the other spouse, and a servicer 
would not violate the automatic stay by contacting or attempting to 
negotiate a loss mitigation option with the non-debtor spouse. Under 
the current broad exemption, however, a servicer has no obligation to 
make reasonable efforts to establish live contact with the non-debtor 
spouse, even if the couple were legally separated or living apart for 
years.
    The Bureau believes that it may not be necessary to exempt a 
servicer from the live contact requirements with respect to a joint 
obligor of a debtor in a Chapter 7 or Chapter 11 case. As the consumer 
advocacy groups noted, the Bankruptcy Code does not prevent collection 
attempts against such joint obligors and servicers do not violate the 
automatic stay by contacting them.\112\ Further, the Bureau believes 
that these joint obligors may benefit from early intervention in the 
same way that borrowers who are not in bankruptcy do. Therefore, 
proposed Sec.  1024.39(d)(i) does not exempt a servicer from the live 
contact requirement with respect to a joint obligor of a debtor in a 
Chapter 7 or Chapter 11 case.
---------------------------------------------------------------------------

    \112\ In re Chugach Forest Products, Inc., 23 F.3d 241, 246 (9th 
Cir. 1994) (``As a general rule, `[t]he automatic stay of section 
362(a) protects only the debtor, property of the debtor or property 
of the estate. It does not protect non-debtor parties or their 
property. Thus, section 362(a) does not stay actions against 
guarantors, sureties, corporate affiliates, or other non-debtor 
parties liable on the debts of the debtor.''') (quoting Advanced 
Ribbons & Office Prods. v. U.S. Interstate Distrib. (In re Advanced 
Ribbons & Office Prods.), 125 B.R. 259, 263 (B.A.P. 9th Cir. 1991)).
---------------------------------------------------------------------------

    Proposed comment 39(d)(1)(i) clarifies when the exemption from the 
live contact requirements begin. The proposed comment states that the 
requirements of Sec.  1024.39(a) would not apply once a petition is 
filed under the Bankruptcy Code, commencing any case in which the 
borrower is a debtor, or a Chapter 12 or Chapter 13 case in which any 
borrower on the mortgage loan is a debtor. The proposed comment further 
clarifies that the requirements of Sec.  1024.39(a) also do not apply 
if the borrower has discharged personal liability for the mortgage loan 
under 11 U.S.C. 727, 1141, 1228, or 1328.
Written Notice
    The Bureau received several comments regarding the bankruptcy 
exemption from Sec.  1024.39(b)'s written early intervention notice 
requirement. Most initial industry comments in response to the IFR did 
not draw a distinction between the live contact and written notice 
requirements, arguing broadly in favor of a blanket exemption from 
early intervention. One servicer commented specifically that the 
written notice requirements could implicate the

[[Page 74205]]

automatic stay or raise issues about contacting a borrower represented 
by counsel. The servicer also stated that it was considering whether it 
would be more appropriate to send a borrower loss mitigation 
information immediately upon the filing of a bankruptcy petition, 
rather than notices only at specific points in a borrower's 
delinquency.
    Most commenters that specifically addressed the written notice 
requirements, however, stated that servicers could comply with Sec.  
1024.39(b) without violating the automatic stay. Consumer advocacy 
groups argued that borrowers in bankruptcy would benefit from 
information about loss mitigation options and that there is no case law 
holding that a written notice describing loss mitigation options 
violates the automatic stay. The consumer advocacy groups argued 
further that the written notice required by Sec.  1024.39(b) could not 
violate the automatic stay because it is purely informational and 
contains no payment demand. Two bankruptcy judges and a bankruptcy law 
professor commented that a written notice compliant with Sec.  
1024.39(b) and containing a bankruptcy disclaimer would raise fewer 
concerns about the automatic stay than live contact because the notice 
does not contain any payment demand and because the nature of the 
notice is an invitation to apply for debt relief.
    During the bankruptcy roundtable, several industry participants 
stated that it would be appropriate for servicers to provide a borrower 
in bankruptcy with the written notice containing information related to 
available loss mitigation options, particularly as Sec.  1024.39(b) 
does not require a servicer to send the notice more than once in a six-
month period. Thus, these participants took the position that the 
notice is unlikely to harass a borrower. Several roundtable 
participants further stated that any written notice requirement should 
be limited to borrowers in Chapter 7 who first become delinquent after 
filing bankruptcy and borrowers in Chapter 13 who are delinquent on 
their bankruptcy plan payments (as opposed to delinquent under the 
mortgage loan contract).
    The Bureau continues to believe that borrowers in bankruptcy will 
benefit from receiving the written notice required under Sec.  
1024.39(b). Specifically, the Bureau believes that the content of the 
notice, including the statement providing a brief description of loss 
mitigation options that may be available from the servicer and the 
application instructions or a statement informing the borrower how to 
obtain more information about loss mitigation options from the 
servicer, may be of particular value to a delinquent borrower in 
bankruptcy. The Bureau believes that receipt of the written early 
intervention notice may be critical in educating borrowers about 
available loss mitigation options. The Bureau further believes that 
borrowers who have filed for bankruptcy should not be denied an 
opportunity to obtain information about available loss mitigation 
options. This information may be uniquely critical for borrowers in 
bankruptcy as they make decisions about how best to eliminate or 
reorganize their debts.
    Other Federal agencies have similarly recognized that borrowers in 
bankruptcy are in need of information regarding loss mitigation options 
and should be considered for available foreclosure alternatives. In 
2008, HUD issued FHA loss mitigation guidance requiring mortgagees to 
provide information to a bankrupt borrower's attorney regarding 
foreclosure alternatives and instructions on how to apply.\113\ HUD 
further recommended that mortgagees should provide debtors not 
represented by counsel with the same loss mitigation information and 
review debtors' bankruptcy petitions to determine if they are eligible 
for loss mitigation.\114\ The Department of the Treasury does not 
require HAMP participants to actively solicit borrowers in bankruptcy 
for loss mitigation options, but it has made clear that such borrowers 
may be eligible for HAMP.\115\
---------------------------------------------------------------------------

    \113\ U.S. Dep't of Housing and Urban Dev., Mortgagee Letter 
2008-32, Use of FHA Loss Mitigation During Bankrutpcy (Oct. 17, 
2008) (HUD Mortgagee Letter 2008-32), available at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2008ml.cfm.
    \114\ Id.
    \115\ U.S. Dep't of the Treasury & U.S. Dep't of Housing and 
Urban Dev., MHA Handbook v. 4.4, Making Home Affordable Program 
Handbook for Servicers of Non-GSE Loans, at 79, 82 (Mar. 3, 2014) 
(``Borrowers in active Chapter 7 or Chapter 13 bankruptcy cases are 
eligible for HAMP at the servicer's discretion in accordance with 
investor guidelines, but servicers are not required to solicit these 
borrowers proactively for HAMP. * * * Borrowers who have received a 
Chapter 7 bankruptcy discharge in a case involving the first lien 
mortgage who did not reaffirm the mortgage debt under applicable law 
are eligible for HAMP. * * * [A] servicer is deemed to have made a 
Reasonable Effort to solicit [those] borrower[s] after sending two 
written notices to the last address of record in addition to the two 
required written notices. * * *''), available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_44.pdf.
---------------------------------------------------------------------------

    The Bureau understands that even after a borrower files for 
bankruptcy, a servicer is not categorically barred from communicating 
with the borrower.\116\ Courts have found that, under appropriate 
circumstances, servicers may provide periodic statements, notices of 
change in payments, and other communications without violating the 
automatic stay.\117\ As noted above, several courts have determined 
that a servicer may properly contact a borrower to inform the borrower 
about loss mitigation options or to negotiate the terms of a loss 
mitigation agreement. Consumer advocacy groups and bankruptcy attorneys 
have also commented that sending a notice of potential loss mitigation 
options, without any accompanying demand for payment, would not 
implicate the automatic stay.
---------------------------------------------------------------------------

    \116\ See, e.g., Zotow v. Johnson (In re Zotow), 432 B.R. 252, 
258 (B.A.P. 9th Cir. 2010) (``[T]he automatic stay does not prevent 
all communications between a creditor and the debtor.'') (citations 
omitted); In re Duke, 79 F.3d 43, 45 (7th Cir. 1996) (holding that 
creditor does not violate automatic stay by sending a 
``nonthreatening and non-coercive'' offer to reaffirm a pre-petition 
debt and stating that ``the respite provided by Sec.  362 `is * * * 
from the threat of immediate action by creditors, such as a 
foreclosure or a lawsuit''') (quoting Brown v. Pa. State Emps. 
Credit Union, 851 F.2d 81, 86 (3d Cir. 1988)).
    \117\ See section-by-section analysis of 12 CFR 1026.41, infra; 
see also Zotow, 432 B.R. at 260 (notice of payment change due to 
escrow deficiency); Duke, 79 F.3d at 45 (offer to reaffirm debt); 
Schatz v. Chase Home Fin. (In re Schatz), 452 B.R. 544 (Bankr. M.D. 
Pa. 2011) (periodic statements); Singh v. U.S. Bank (In re Singh), 
457 B.R. 790 (Bankr. E.D. Cal. 2011) (notice of payment change); see 
also Morgan Guaranty Trust Co. of N.Y. v. Am. Sav. & Loan Ass'n, 804 
F.2d 1487, 1491 (9th Cir. 1986) (``[M]ere requests for payment are 
not barred absent coercion or harassment by the creditor. * * *'').
---------------------------------------------------------------------------

    Accordingly, the Bureau is proposing to revise the exemption set 
forth in Sec.  1024.39(d)(1). Under the proposal, a servicer would, 
with certain exceptions, be required to provide the written early 
intervention notice required by Sec.  1024.39(b) to a delinquent 
borrower who is in bankruptcy or has discharged personal liability for 
the mortgage loan. Specifically, proposed Sec.  1024.39(d)(ii) 
generally limits the exemption to instances where there are no loss 
mitigation options available or where the borrower is surrendering the 
property or avoiding the lien securing the mortgage loan. Thus, under 
the proposal, a servicer would be required to provide the written early 
intervention notice to a borrower in bankruptcy, except in limited 
circumstances. As discussed above, the Bureau believes that information 
in the written early intervention notice is valuable to all borrowers 
and may be particularly useful to a borrower who is in bankruptcy for 
the purpose of reducing or reorganizing outstanding debts.
    The Bureau notes that servicers have expressed concerns about 
communicating with a borrower

[[Page 74206]]

represented by counsel, but the Bureau does not believe that these 
concerns warrant a blanket exemption from providing the written early 
intervention notice to borrowers in bankruptcy. Section 1024.39(c) 
already provides that a servicer is not required to communicate with a 
borrower in a manner otherwise prohibited by applicable law, which 
could include State laws regarding communications with a represented 
party. Moreover, as existing comments 39(a)-4 and 39(b)-3 clarify, a 
servicer may satisfy the live contact and written notice requirements 
of Sec.  1024.39 by providing information about loss mitigation options 
to a person authorized by the borrower to communicate with the servicer 
on the borrower's behalf.\118\ To the extent that a servicer is 
concerned about communicating with a borrower represented by counsel, 
it may communicate with the borrower's authorized representative 
instead. As HUD has recognized, communicating with a borrower's 
bankruptcy counsel about available loss mitigation does not raise 
concerns about violating the automatic stay.\119\
---------------------------------------------------------------------------

    \118\ See also 78 FR 10695, 10796 (Feb. 14, 2013) (``[Section] 
1024.39 requires that servicers reach out to borrowers. * * * [T]he 
Bureau believes it would mitigate the burden on the servicer to be 
able to communicate with either the borrower or the borrower's 
representative.''); id. at 10797 (``[C]omment 39(a)-4 [clarifies] 
that the Bureau's guidance with respect to communicating with a 
borrower's representative also applies to the written notice 
provision at Sec.  1024.39(b).'').
    \119\ HUD Mortgagee Letter 2008-32 (``As a result of these 
discussions [with bankruptcy experts], the Department understands 
that contact with debtor's counsel or a bankruptcy trustee does not 
constitute a violation of the automatic stay and that waiting until 
a bankruptcy is discharged or dismissed before offering loss 
mitigation may be injurious to the interests of the borrower, the 
mortgagee and the FHA insurance funds.''); see also Henry v. Assocs. 
Home Equity Servs., Inc. (In re Henry), 266 B.R. 457 (Bankr. C.D. 
Cal. 2001) (``If a debtor is represented by counsel, any creditor 
may communicate with counsel for the debtor without violating the 
automatic stay. Counsel has no need to be shielded from a client's 
creditors. It is part of the job of counsel for a debtor to deal 
with the client's creditors.''); United States v. Nelson, 969 F.2d 
626, 628 (8th Cir. 1992) (holding that creditor did not violate the 
stay by sending a letter to debtor's counsel); Cash Am. Pawn, L.P. 
v. Murphy, 209 B.R. 419, 424 (E.D. Tex. 1997) (similar); Murray v. 
Great Valley Sav. Ass'n, (In re Murray), 89 B.R. 533, 536 (Bankr. 
E.D. Pa. 1988) (similar); cf. Duke, 79 F.3d at 45 (holding that 
creditor did not violate stay by copying debtor on letter it sent to 
debtor's counsel).
---------------------------------------------------------------------------

    The Bureau also does not believe that it is appropriate, as some 
commenters suggested, to limit the written early intervention notice to 
instances where a borrower in Chapter 7 first becomes delinquent while 
in bankruptcy or to where a borrower in Chapter 13 fails to make 
payments due under the bankruptcy plan. Although a borrower in Chapter 
7 who was delinquent pre-bankruptcy may have already received early 
intervention, such a borrower may benefit from updated information 
related to available loss mitigation options, particularly when 
determining whether to retain the property. Additionally, a borrower in 
Chapter 13 making timely plan payments may still be delinquent under 
the mortgage loan contract and may benefit from receiving timely 
information about loss mitigation options. The Bureau understands that 
most Chapter 13 cases are unsuccessful, with more than half resulting 
in dismissal,\120\ indicating that a borrower who is temporarily 
current on bankruptcy plan payments may ultimately need to modify the 
mortgage loan to enable a successful bankruptcy plan. The Bureau 
therefore believes that it may be better to provide such borrowers with 
information about loss mitigation options earlier rather than later.
---------------------------------------------------------------------------

    \120\ See Ed Flynn, Chapter 13 Revisited: Can it help Solve the 
Judiciary's Fiscal Problems?, 32 a.m. Bankr. Inst. J. 20, 20 (Dec. 
2013) (stating that over 55% of Chapter 13 cases are dismissed 
before plan completion); U.S. Dep't of Justice, Office of the U.S. 
Trustee, Chapter 13 Trustee Data and Statistics, available at http://www.justice.gov/ust/eo/private_trustee/data_statistics/ch13.htm. 
(indicating that over 50% of Chapter 13 cases filed since 2004 have 
been dismissed prior to completion).
---------------------------------------------------------------------------

    Nonetheless, as noted above, proposed Sec.  1024.39(d)(1)(ii) 
retains the exemption from the written early intervention notice in 
certain circumstances. Proposed Sec.  1024.39(d)(1)(ii)(A) provides 
that a servicer is exempt from the written notice requirement if no 
loss mitigation options are available. The Bureau believes that a 
primary value of the written early intervention notice to a delinquent 
borrower in bankruptcy is to inform the borrower of potential loss 
mitigation options to avoid foreclosure. If no loss mitigation options 
are available, however, the value of the written notice may be 
significantly diminished for a borrower in bankruptcy.
    In addition, proposed Sec.  1024.39(d)(1)(ii)(B) through (D) exempt 
a servicer from the written early intervention notice requirement in 
several situations where the borrower in bankruptcy surrenders the 
property securing the mortgage loan or avoids (i.e., renders 
unenforceable) the lien securing the mortgage loan. First, proposed 
Sec.  1024.39(d)(1)(ii)(B) provides that a servicer is exempt if the 
borrower's confirmed plan of reorganization provides for the borrower 
to surrender the property, provides for the avoidance of the lien 
securing the mortgage loan, or otherwise does not provide for, as 
applicable, the payment of pre-bankruptcy arrearage or the maintenance 
of payments due under the mortgage loan.\121\ Second, proposed Sec.  
1024.39(d)(1)(ii)(C) provides that a servicer is exempt if the borrower 
files a statement of intention with the bankruptcy court that 
identifies an intent to surrender the property securing the mortgage 
loan.\122\ Finally, proposed Sec.  1024.39(d)(1)(ii)(D) provides that a 
servicer is exempt if the bankruptcy court enters an order providing 
for the avoidance of the servicer's lien or lifting the automatic stay 
with respect to the property securing the mortgage loan. In each of 
these situations, the borrower relinquishes the property or otherwise 
discontinues making regular payments on the mortgage loan. The Bureau 
believes that apprising a borrower in bankruptcy of loss mitigation 
options at that time may be of diminished value. Moreover, in these 
situations, the borrower may be significantly delinquent and may have 
already received information about loss mitigation options, either 
before or during bankruptcy.
---------------------------------------------------------------------------

    \121\ In Chapter 13, for example, a borrower who is delinquent 
on a mortgage loan as of the date of the bankruptcy filing may, 
subject to certain restrictions, confirm a plan of reorganization 
that provides for the borrower to make payments that will pay down 
the pre-bankruptcy arrearage over time while the borrower also 
continues to make the periodic payments as they come due under the 
mortgage loan. See 11 U.S.C. 1322(b)(5) (stating that the plan of 
reorganization may ``provide for the curing of any default within a 
reasonable time and maintenance of payments while the case is 
pending on any unsecured claim or secured claim on which the last 
payment is due after the date on which the final payment under the 
plan is due'').
    \122\ See 11 U.S.C. 521(a)(2) (requiring a Chapter 7 debtor to 
file ``a statement of intention with respect to the retention or 
surrender of [secured property of the estate]'').
---------------------------------------------------------------------------

    The Bureau is also proposing two comments to clarify proposed Sec.  
1024.39(d)(1)(ii). First, proposed comment 39(d)(1)(ii)-1 provides that 
for purposes of Sec.  1024.39(d)(1)(ii), the term ``plan of 
reorganization'' refers to a borrower's plan of reorganization filed 
under the applicable provisions of Chapter 11, Chapter 12, or Chapter 
13 of the Bankruptcy Code and confirmed by a court with jurisdiction 
over the borrower's bankruptcy case. This comment is intended to avoid 
any confusion about what the term ``plan of reorganization'' means when 
used in Sec.  1024.39(d)(1).
    Second, proposed comment 39(d)(1)(ii)--2 states that, if the FDCPA 
applies to a servicer's communications with a borrower in bankruptcy 
and the borrower has sent a notification under

[[Page 74207]]

FDCPA section 805(c), proposed comment 39(d)(2)(iii)-2 may be 
applicable. As discussed more fully in the section-by-section analysis 
of Sec.  1024.39(d)(2), proposed comment 39(d)(2)(iii)-2 would, under 
certain circumstances, exempt a servicer from the written notice 
requirements if the borrower has sent a notification pursuant to FDCPA 
section 805(c) and is unrepresented by a person authorized by the 
borrower to communicate with the servicer on the borrower's behalf.
Resuming Compliance
    The Bureau is also proposing to revise current comment 39(d)(1)-2 
and redesignate it as comment 39(d)(1)-1. As revised and redesignated, 
proposed comment 39(d)(1)-1 addresses a servicer's obligation to resume 
compliance with the early intervention requirements following a 
borrower's bankruptcy. The proposed comment provides that, with respect 
to any borrower who has not discharged the mortgage debt, a servicer 
must resume compliance with Sec.  1024.39(a) and (b), as applicable, as 
of the first delinquency that follows the earliest of the following 
outcomes in the bankruptcy case: (1) the case is dismissed, (2) the 
case is closed, (3) the borrower reaffirms the mortgage loan under 11 
U.S.C. 524, or (4) the borrower receives a discharge under 11 U.S.C. 
727, 1141, 1228, or 1328. However, proposed comment 39(d)(1)-1 also 
clarifies that the requirement to resume compliance with Sec.  1024.39 
does not require a servicer to communicate with a borrower in a manner 
that would be inconsistent with applicable bankruptcy law or a court 
order in a bankruptcy case. The proposed revisions provide that, to the 
extent necessary to comply with such law or court order, a servicer may 
adapt the requirements of Sec.  1024.39 as appropriate. In addition, 
proposed comment 39(d)(1)-1 provides that compliance with Sec.  
1024.39(a) is not required with respect to any borrower who has 
discharged the mortgage debt under applicable provisions of the 
Bankruptcy Code. If the borrower's bankruptcy case is revived--for 
example, if the court reinstates a previously dismissed case or reopens 
the case--the servicer is again exempt from the requirements of 
proposed Sec.  1024.39(a).
    The Bureau requests comment on proposed Sec.  1024.39(d)(1), 
including the scope of the exemptions, the triggers for qualifying for 
the exemptions and resuming early intervention, and how communications 
may be tailored to meet the particular needs of borrowers in 
bankruptcy. The Bureau further solicits comment on whether servicers 
have had difficulties receiving notices regarding the dismissal or 
closing of a bankruptcy case or of the debtor's discharge, and whether 
the obligation to resume early intervention should be contingent on 
receiving such notices. Additionally, the Bureau requests comment on 
whether the timing of the written early intervention notice should be 
different for a borrower in bankruptcy, such as whether a servicer 
should be required to provide the written notice to a borrower in 
bankruptcy within 45 days after the bankruptcy case commences, rather 
than by the 45th day of the borrower's delinquency.
Legal Authority
    The Bureau is proposing to exercise its authority under sections 
6(j)(3) and 19(a) of RESPA to exempt servicers from the early 
intervention live contact requirements in Sec.  1024.39(a) for a 
mortgage loan while the borrower is a debtor in bankruptcy, while any 
borrower on the mortgage loan is a debtor in Chapter 12 or Chapter 13 
bankruptcy, or if the borrower has discharged personal liability for 
the mortgage loan through bankruptcy. For the reasons discussed above, 
the Bureau does not believe at this time that the consumer protection 
purposes of RESPA would be furthered by requiring servicers to comply 
with Sec.  1024.39(a) for a mortgage loan under those bankruptcy-
related circumstances.
    The Bureau is also proposing to exercise its authority under 
sections 6(j)(3) and 19(a) of RESPA to exempt a servicer from the 
written early intervention notice requirements in Sec.  1024.39(b) if 
no loss mitigation options are available and the borrower is a debtor 
in bankruptcy, any borrower on the mortgage loan is a debtor in Chapter 
12 or Chapter 13 bankruptcy, or the borrower has discharged personal 
liability for the mortgage loan through bankruptcy. The Bureau is also 
proposing to exercise its authority under sections 6(j)(3) and 19(a) of 
RESPA to exempt a servicer from the written early intervention notice 
requirements in Sec.  1024.39(b) if the borrower is a debtor in 
bankruptcy and any of the three following conditions are met: (1) The 
borrower's confirmed plan of reorganization provides that the borrower 
will surrender the property securing the mortgage loan, provides for 
the avoidance of the lien securing the mortgage loan, or otherwise does 
not provide for, as applicable, the payment of pre-bankruptcy arrearage 
or the maintenance of payments due under the mortgage loan; (2) the 
borrower files with the court a Statement of Intention pursuant to 11 
U.S.C. 521(a) identifying an intent to surrender the property securing 
the mortgage loan; or (3) a court enters an order in the bankruptcy 
case providing for the avoidance of the lien securing the mortgage loan 
or lifting the automatic stay pursuant to 11 U.S.C. 362 with respect to 
the property securing the mortgage loan. For the reasons discussed 
above, the Bureau believes at this time that the consumer protection 
purposes of RESPA would not be furthered by requiring compliance with 
Sec.  1024.39(b) under those circumstances.
39(d)(2) Fair Debt Collection Practices Act
    The Bureau is proposing to revise the scope of the current 
exemption from the early intervention requirements set forth in Sec.  
1024.39(d)(2). Section 1024.39(d)(2) currently exempts servicers 
subject to the FDCPA with respect to a mortgage loan for which a 
borrower has sent a cease communication notification pursuant to FDCPA 
section 805(c) (15 U.S.C. 1692c(c)) from the early intervention 
requirements.\123\ The proposal maintains the current exemption from 
the live contact requirements of Sec.  1024.39(a) but partially lifts 
the exemption from the written early intervention notice requirements 
of Sec.  1024.39(b). Specifically, the proposal requires that a 
servicer must provide a modified written early intervention notice if 
loss mitigation options are available. In addition to the information 
set forth in Sec.  1024.39(b)(2), the proposal provides that the 
modified written early intervention notice must include a statement 
that the servicer may or intends to invoke its specified remedy of 
foreclosure. Proposed model clause MS-4(D) in appendix MS-4 to this 
part may be used to comply with this requirement. The proposal provides 
that the written notice may not contain a request for payment. In 
addition, it prohibits a servicer from providing the written notice 
more than once during any 180-day period. To the extent a servicer 
would be required to provide the modified written notice under Sec.  
1024.39(d)(2)(iii), the proposal

[[Page 74208]]

provides the servicer with a safe harbor from liability under the 
FDCPA. Consistent with the discussion in this section, the Bureau is 
proposing to issue an advisory opinion interpreting the FDCPA cease 
communication requirement in relation to the Mortgage Servicing Rules 
under FDCPA section 813(e) (15 U.S.C. 1692k(e)). As provided in that 
section, no liability arises under the FDCPA for an act done or omitted 
in good faith in conformity with an advisory opinion of the Bureau 
while that advisory opinion is in effect. For the reasons discussed 
below, the Bureau is proposing to provide a safe harbor for certain 
communications between a servicer and a borrower notwithstanding a 
borrower's invocation of the ``cease communication'' right.
---------------------------------------------------------------------------

    \123\ This proposal discusses the impact of a borrower's cease 
communication notification on a servicer's obligations under the 
early intervention requirements, and is intended to apply equally to 
a borrower's notice to the servicer that the borrower refuses to pay 
a debt. See FDCPA section 805(c) (``If a consumer notifies a debt 
collector in writing that the consumer refuses to pay a debt or that 
the consumer wishes the debt collector to cease further 
communication with the consumer, the debt collector shall not 
communicate further with the consumer with respect to such debt. * * 
*'').
---------------------------------------------------------------------------

    The objectives of the early intervention requirements under Sec.  
1024.39 include ensuring that servicers provide delinquent borrowers 
with information about their options at the early stages of 
delinquency, encouraging communication between servicers and delinquent 
borrowers, and encouraging delinquent borrowers to work with their 
servicers to identify alternatives to foreclosure.\124\ Section 
1024.39(a) requires a servicer to establish or make good faith efforts 
to establish live contact with a delinquent borrower not later than the 
36th day of the borrower's delinquency and, promptly after establishing 
live contact, inform the borrower about the availability of loss 
mitigation options, if appropriate. Section 1024.39(b) requires a 
servicer to provide to a delinquent borrower a written notice with 
specific information, including examples of loss mitigation options 
that may be available and instructions on how to obtain more 
information about loss mitigation options from the servicer, not later 
than the 45th day of the borrower's delinquency.
---------------------------------------------------------------------------

    \124\ See 77 FR 57199, 57251 (Sept. 17, 2012); 78 FR 10695, 
10788-89 (Feb. 14, 2013).
---------------------------------------------------------------------------

    In the Bureau's 2012 RESPA Servicing Proposal, the Bureau sought 
comment on ``whether servicers may reasonably question how they could 
comply with [the] Bureau's propos[ed early intervention requirements] 
in light of [other applicable] laws,'' including the FDCPA.\125\ A 
servicer of a mortgage that was in default at the time the servicer 
acquired it may be a debt collector under FDCPA section 803(6). The 
FDCPA generally grants consumers the right to bar debt collectors from 
communicating with them regarding a debt by sending a written cease 
communication notification pursuant to FDCPA section 805(c). However, 
even after a borrower sends a servicer a cease communication 
notification, the servicer is not categorically barred under the FDCPA 
from all communication with the borrower. FDCPA section 805(c) contains 
specific exceptions that allow further communications with the borrower 
with respect to a debt for the following reasons: (1) To advise the 
borrower that the debt collector's further efforts are being 
terminated; (2) to notify the borrower that the debt collector or 
creditor may invoke specified remedies which are ordinarily invoked by 
such debt collector or creditor; or (3) where applicable, to notify the 
borrower that the debt collector or creditor intends to invoke a 
specified remedy.\126\
---------------------------------------------------------------------------

    \125\ 77 FR 57199, 57260-61 (Sept. 17, 2012).
    \126\ FDCPA section 805(c)(1) through (3).
---------------------------------------------------------------------------

    To address industry concerns about conflicts with existing law, in 
the 2013 RESPA Servicing Final Rule, the Bureau added Sec.  1024.39(c), 
which provides that nothing in Sec.  1024.39 requires a servicer to 
communicate with a borrower in a manner otherwise prohibited under 
applicable law, including the FDCPA.\127\ The Bureau subsequently 
clarified compliance requirements in relation to the FDCPA in the 
October 2013 IFR and October 2013 Servicing Bulletin.\128\ Under the 
IFR, a servicer subject to the FDCPA with respect to a borrower is 
exempt from the requirements of Sec. Sec.  1024.39 and 1026.20(c) with 
regard to a mortgage loan for which the borrower has sent a cease 
communication notification pursuant to FDCPA section 805(c). The Bureau 
explained that, because the early intervention rule (Sec.  1024.39) and 
the adjustable-rate mortgage (ARM) payment adjustment notice rule 
(Sec.  1026.20(c)) are neither statutorily mandated by the Dodd-Frank 
Act nor in response to a borrower-initiated communication, the 
interplay between Sec. Sec.  1024.39 and 1026.20(c) and the cease 
communication provision of FDCPA section 805(c) was unclear. At that 
time, the Bureau did not make a determination as to the legal status of 
early intervention efforts or the ARM payment adjustment notice 
requirements following the receipt of a borrower's proper cease 
communication request. The Bureau stated that it would explore, as part 
of a broader rulemaking on debt collection, the legal issues and 
practical benefits of requiring: (1) Some type of early intervention to 
notify borrowers of the potential availability of loss mitigation 
options, balancing the rights of debtors to protect themselves against 
certain debt collector practices with the consumer protections afforded 
by servicer-borrower contact that may lead to the resolution of 
borrower default; and (2) some form of Sec.  1026.20(c) notice, 
balancing the rights of debtors to prevent debt collectors from 
communicating with them with the consumer protection afforded by timely 
notice of interest rate and payment adjustments.\129\ The Bureau noted 
that the future rulemaking on debt collection issues may alter or 
eliminate the exemptions set forward in the IFR.\130\
---------------------------------------------------------------------------

    \127\ 78 FR 10695, 10806-07 (Feb. 14, 2013).
    \128\ 78 FR 62993 (Oct. 23, 2013); CFPB Bulletin 2013-12.
    \129\ 78 FR 62993, 62994 (Oct. 23, 2013).
    \130\ Id. at 62998-99.
---------------------------------------------------------------------------

    The Bureau received a number of comments in response to the IFR 
during the official comment period and ex parte comments after the 
close of the official comment period. Accordingly, the following 
discussion of the proposed rule refers to both sets of comments. The 
Bureau received comments from various trade associations in support of 
the FDCPA-related exemptions under the IFR and the safe harbor from 
liability under the FDCPA that the Bureau granted servicers. One trade 
association encouraged the Bureau to make a comprehensive determination 
as to the legal status of communications required under the servicing 
rules and their impact on or conflict with the FDCPA before making 
additional changes. Two commenters stated that the Bureau should 
address these questions through rulemaking rather than through a 
subsequent compliance bulletin.
    A consumer advocacy group's comment requested that the Bureau not 
require borrowers to choose between their rights under the FDCPA and 
the benefits of the servicing rules. The comment described the written 
early intervention notice as a ``form letter'' and argued that most 
borrowers would not view the notice as the type of debt collection that 
they meant to stop through a cease communication notification. In a 
follow-up ex parte meeting with the Bureau, the consumer advocacy group 
stated that servicers that are careful to send only mandated notices in 
compliance with the Bureau's requirements are unlikely to face 
litigation risk and suggested that a servicer could include language on 
a required notice acknowledging that the borrower has exercised cease 
communication rights.
    The Bureau has learned through continued outreach that important 
consumer protections may be implicated by the current FDCPA-related 
exemption from the early

[[Page 74209]]

intervention requirements under Sec.  1024.39(d)(2). Specifically, the 
Bureau believes that a borrower may send a blanket cease communication 
notification and thus unwittingly forfeit the opportunity to gain 
information about potential loss mitigation options under the early 
intervention rules. Borrowers assisted by counsel or housing counselors 
may find themselves choosing between their rights to invoke cease 
communication protections pursuant to FDCPA section 805(c) or the 
benefits of the early intervention rules under Sec.  1024.39. 
Therefore, the Bureau is taking the opportunity to revisit the 
exemption from the early intervention requirements at this time rather 
than as part of a later and broader rulemaking on debt collection.\131\
---------------------------------------------------------------------------

    \131\ The Bureau is not, however, making a determination as to 
the legal status of the requirements under Sec.  1026.20(c) 
following receipt of proper cease communication requests at this 
time. As noted in the IFR, the Bureau continues to encourage 
servicers to provide ARM payment adjustment notices to the extent 
that the FDCPA permits. See 78 FR 62993, 62999 (Oct. 23, 2013).
---------------------------------------------------------------------------

    The Bureau considers whether it may be appropriate to alter or 
eliminate the exemption from the early intervention live contact 
requirements in Sec.  1024.39(a), the written notice requirements in 
Sec.  1024.39(b), or both. The proposal maintains the current exemption 
from the live contact requirements of Sec.  1024.39(a), but would 
partially lift the exemption from the written early intervention notice 
requirements of Sec.  1024.39(b) if loss mitigation options are 
available. After careful consideration, the Bureau believes that a 
modified written early intervention notice is closely linked to the 
exceptions promulgated to the cease communication rights by FDCPA 
section 805(c), and that the written notice is more closely linked to 
those exceptions than the live contact requirements.
Live Contact
    The Bureau understands that the nature of live contact and the 
information conveyed may be highly variable. The information conveyed, 
the manner for conveying that information, and whether any information 
is conveyed depends on the borrower's circumstances, the servicer's 
perception of those circumstances, and the servicer's exercise of 
reasonable discretion.\132\ The servicer may contact the borrower in 
person, by telephone, or not at all, if the servicer's good faith 
efforts to reach the borrower fail.\133\ By their nature, discussions 
or conversations resulting from live contact are not and cannot be 
closely prescribed.\134\ Such variability is inconsistent with the 
narrow exceptions in FDCPA section 805(c), which permit a debt 
collector to communicate further with a borrower for extremely limited 
purposes after a borrower has sent a servicer a cease communication 
notification. Because the information conveyed and the manner for 
conveying such information may be highly variable in the context of 
live contact, the Bureau believes that requiring a servicer to comply 
with the live contact requirements with regard to a mortgage loan for 
which a borrower has sent a notification pursuant to FDCPA section 
805(c) is inappropriate and may put a servicer subject to the FDCPA 
with respect to that borrower's loan at risk of violating the FDCPA. 
The Bureau is proposing no general rule about whether oral versus 
written communications are more likely to violate the FDCPA, but notes 
only that the live contact requirements of Sec.  1024.39(a) are less 
susceptible to standard, uniform delivery in compliance with the cease 
communication exceptions in FDCPA section 805(c) than are the written 
early intervention notice requirements.
---------------------------------------------------------------------------

    \132\ See comment 39(a)-3.i. This proposal would redesignate 
current comment 39(a)-3.i as comment 39(a)-4.i.
    \133\ See comment 39(a)-2 (``Good faith efforts to establish 
live contact consist of reasonable steps under the circumstances to 
reach a borrower and may include telephoning the borrower on more 
than one occasion or sending written or electronic communication 
encouraging the borrower to establish live contact with the 
servicer.''). This proposal would move this language into comment 
39(a)-3.
    \134\ See 78 FR 10695, 10793 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau also believes that live contact may be less valuable to 
a delinquent borrower who has properly invoked the FDCPA's cease 
communication protections. Compliance with Sec.  1024.39(a) is not 
limited to--and does not in every case require--a discussion of 
available loss mitigation options. Section 1024.39(a) requires that a 
servicer inform the borrower about the availability of loss mitigation 
options, ``if appropriate.'' More broadly, ``[l]ive contact provides 
servicers an opportunity to discuss the circumstances of a borrowers' 
delinquency,''\135\ and, based on this discussion, a servicer may 
determine not to inform a borrower of loss mitigation options. As 
current comment 39(a)-3.i explains, ``[i]t is within a servicer's 
reasonable discretion to determine whether informing a borrower about 
the availability of loss mitigation options is appropriate under the 
circumstances.''\136\ Under certain circumstances, a servicer may 
determine that promptly informing the borrower about the availability 
of loss mitigation options is not appropriate under the circumstances. 
Current comment 39(a)-3.i.B provides an example that demonstrates it is 
reasonable for a servicer to not provide information about the 
availability of loss mitigation options to a borrower who has missed a 
January 1 payment and notified the servicer that full late payment will 
be transmitted to the servicer by February 15.\137\ The purpose of such 
a conversation could be to remind a borrower who perhaps inadvertently 
missed a payment of a past due amount, or to give the servicer an 
opportunity to discuss when the borrower may cure a temporary 
delinquency, but the conversation may not necessarily involve a 
discussion of loss mitigation options.
---------------------------------------------------------------------------

    \135\ Comment 39(a)-2.
    \136\ Comment 39(a)-3.i. This proposal would redesignate current 
comment 39(a)-3.i as comment 39(a)-4.i.
    \137\ This proposal would redesginate current comment 39(a)-
3.i.B as comment 39(a)-4.i.B.
---------------------------------------------------------------------------

    When a delinquent borrower has instructed the servicer to stop 
communicating with the borrower about the debt, the Bureau believes 
that repeated attempts to establish live contact with such a borrower 
that may not lead to a discussion of available loss mitigation options 
may be unwanted and in contravention to the purposes of the FDCPA's 
cease communication protections. The early intervention live contact 
requirement is a recurring obligation that generally requires servicers 
to make continued efforts to establish live contact with a borrower so 
long as a borrower remains delinquent.\138\ A borrower who has sent a 
servicer a cease communication notification may perceive a servicer's 
early intervention live contact under Sec.  1024.39(a) as a repeated, 
intrusive, and unwanted communication. The Bureau is also concerned 
that, given the recurring and relatively unstructured nature of the 
live contact requirements, requiring early intervention through live 
contact may increase the potential for harassment in direct 
contravention of the FDCPA.\139\
---------------------------------------------------------------------------

    \138\ See CFPB Bulletin 2013-12; section-by-section analysis of 
Sec.  1024.39(a), supra.
    \139\ See FDCPA section 806 (``A debt collector may not engage 
in any conduct the natural consequence of which is to harass, 
oppress, or abuse any person in connection with the collection of a 
debt.'').
---------------------------------------------------------------------------

    Balancing the considerations discussed above, the Bureau is 
proposing to maintain the current exemption from the live contact 
requirements of Sec.  1024.39(a).

[[Page 74210]]

Specifically, proposed Sec.  1024.39(d)(2)(i) provides that a servicer 
subject to the FDCPA with respect to a borrower is exempt from the 
early intervention live contact requirement under Sec.  1024.39(a) with 
regard to a mortgage loan for which the borrower has sent a 
notification pursuant to FDCPA section 805(c).
Written Notice
    The Bureau believes that the written early intervention notice will 
generally be closely linked to the invocation of foreclosure. Current 
Sec.  1024.39(b) requires a servicer to provide a delinquent borrower 
with the written notice not later than the 45th day of the borrower's 
delinquency. As a general matter, this written notice must be sent well 
before the servicer may initiate foreclosure: in most cases, the 
servicer must wait until a borrower's mortgage loan obligation is more 
than 120 days delinquent, after the written notice has been sent, to 
make the first notice or filing to initiate the foreclosure 
process.\140\ As the Bureau explained in the preamble to the 2013 RESPA 
Servicing Final Rule, the purpose of the written notice is to provide 
more information to a borrower who has not cured by the 45th day of 
delinquency. Providing a borrower with notice in writing that includes, 
for example, the servicer's contact information as well as relevant 
information regarding loss mitigation options and housing counselors, 
conveys important information to a borrower that the servicer may not 
have communicated to the borrower through live contact. Additionally, 
the written notice generally provides more information than likely 
would have been provided through live contact and provides the borrower 
with information that may be reviewed and discussed with a housing 
counselor or other advisor.\141\
---------------------------------------------------------------------------

    \140\ See 12 CFR 1024.41(f)(1)(i).
    \141\ See 78 FR 10695, 10796-97 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau understands that in most cases, there may be some loss 
mitigation options available. Therefore, in most cases, borrowers 
receiving the written early intervention notice will have an 
opportunity to respond to the written notice by applying for loss 
mitigation, should they so choose. Where a borrower responds to the 
written notice by applying for loss mitigation, the dual tracking 
restrictions of the 2013 RESPA Servicing Final Rule apply, further 
limiting the servicer's ability to invoke the remedy of foreclosure. 
Pursuant to Sec.  1024.41(f)(2) and (g), respectively, a servicer may 
not make the first notice or filing for foreclosure if a borrower 
submits a complete loss mitigation application before foreclosure 
referral, and cannot move for foreclosure judgment or order of sale or 
conduct a foreclosure sale if a borrower submits a complete loss 
mitigation application more than 37 days before a foreclosure sale.
    The failure to provide a borrower with the written early 
intervention notice may impede a servicer's ability to invoke 
foreclosure, particularly if loss mitigation options are available. For 
example, because failure to provide a borrower with the written early 
intervention notice may result in borrowers submitting requests for 
loss mitigation at a later point in time--e.g., closer to the 
foreclosure sale--failure to provide the written early intervention 
notice may delay or otherwise interfere with the servicer's exercise of 
its specified remedy of foreclosure. In addition, the Bureau 
understands that some states require documentation of a servicer's 
efforts to modify the loan, or require a servicer to provide the 
borrower with information substantially similar to the written early 
intervention notice, prior to initiating foreclosure or conducting a 
foreclosure sale (e.g., California, Illinois). Therefore, the Bureau 
believes that when loss mitigation options are available, the written 
early intervention notice is particularly critical to a servicer's 
ability to invoke its specified remedy of foreclosure, and that the 
information conveyed through the written notice is closely linked to 
the exceptions in FDCPA section 805(c)(2) and (3) to permit a servicer 
to communicate further with a borrower after a borrower has sent a 
servicer a cease communication notification.
    If loss mitigation options are available, as will generally be the 
case, the Bureau believes that the written early intervention notice 
may be of significant value to borrowers, as well as tied closely to 
the servicer's ability to invoke its specified remedy of foreclosure. 
Indeed, the Bureau has stated that the early intervention notice 
requirements were designed primarily to encourage delinquent borrowers 
to work with their servicers to identify options for avoiding 
foreclosure.\142\ Specifically, the Bureau believes that the content of 
the written early intervention notice, including the statement 
providing a brief description of examples of loss mitigation options 
that may be available from the servicer and the application 
instructions or a statement informing the borrower how to obtain more 
information about loss mitigation options from the servicer,\143\ may 
be of particular value and relevance to a delinquent borrower facing 
debt collection in informing the borrower of the availability of loss 
mitigation. The Bureau believes that receipt of the modified written 
early intervention notice may be critical in educating delinquent 
borrowers about potentially available loss mitigation options. The 
Bureau further believes that borrowers who have sent a cease 
communication notification under the FDCPA may benefit from receiving 
information about loss mitigation options that may be available, which 
would be provided to other borrowers who have not sent the servicer a 
cease communication notification. Given its broad experience with 
consumers in debt, facing foreclosure, or dealing with other financial 
difficulties, the Bureau believes that, in invoking the FDCPA's cease 
communication protections, borrowers are unlikely to have intended to 
prevent communication about loss mitigation options. Regardless of 
whether the borrower is in fact eligible for or takes advantage of loss 
mitigation options that may be available, if the borrower receives the 
written early intervention notice, the borrower at a minimum has an 
opportunity to gain information about potential options.
---------------------------------------------------------------------------

    \142\ Id. at 10787.
    \143\ See section-by-section analysis of Sec.  1024.39(b)(2), 
supra.
---------------------------------------------------------------------------

    The Bureau has also learned that consumer advocates, in some cases, 
may advise a borrower to refrain from sending a servicer a cease 
communication notification pursuant to FDCPA section 805(c) in order to 
preserve access to information about loss mitigation and continue to 
receive early intervention communications from a servicer. The Bureau 
believes that borrowers who have invoked the FDCPA's cease 
communication protections should not be denied an opportunity to obtain 
information about potential loss mitigation options; indeed, this 
information may be even more critical for delinquent borrowers facing 
debt collection.
    In the limited circumstances where no loss mitigation options are 
available, the Bureau believes that the written early intervention 
notice will be of significantly less value to a borrower who has 
exercised cease communication rights under the FDCPA and is not as 
closely tied to the servicer's right to invoke foreclosure due to the 
limited impact of the dual-tracking restrictions in the absence of loss 
mitigation options. Therefore, the Bureau believes that it is not 
appropriate to require servicers to provide the written early

[[Page 74211]]

intervention notice to such borrowers who have exercised their FDCPA 
cease communication rights.
    Balancing the considerations discussed above, the Bureau is 
proposing to partially lift the exemption in current Sec.  
1024.39(d)(2) and to require the provision of a modified form of the 
written early intervention notice to borrowers who have exercised their 
cease communication rights, while retaining the exemption from Sec.  
1024.39(b) if no loss mitigation options are available. Specifically, 
the Bureau is proposing Sec.  1024.39(d)(2)(ii) to explain that, with 
regard to a mortgage loan for which the borrower has sent a 
notification pursuant to section 805(c) of the FDCPA, a servicer 
subject to the FDCPA with respect to that borrower's loan is exempt 
from the written early intervention notice requirement under Sec.  
1024.39(b) if no loss mitigation options are available. And proposed 
Sec.  1024.39(d)(2)(iii) provides that a servicer subject to the FDCPA 
with respect to a borrower must provide a modified written early 
intervention notice with regard to a mortgage loan for which the 
borrower has sent a notification pursuant to section 805(c) of the 
FDCPA if loss mitigation options are available.
    In addition to the information required pursuant to Sec.  
1024.39(b)(2), proposed Sec.  1024.39(d)(2)(iii) would modify the 
written early intervention notice to: (1) Include a statement that the 
servicer may or intends to invoke its specified remedy of foreclosure; 
(2) prohibit that the written notice contain a request for payment; and 
(3) prohibit a servicer from providing the written notice more than 
once during any 180-day period. To assist servicers in complying with 
the requirements of proposed Sec.  1024.39(d)(2)(iii), the Bureau has 
developed proposed model clause MS-4(D), contained in appendix MS-4 to 
Part 1024. A more detailed discussion of the proposed model clause is 
contained in the section-by-section analysis of appendix MS.
    The Bureau is also proposing to add comment 39(d)(2)(iii)-1 to 
offer servicers additional guidance on complying with the modified 
written early intervention notice required by proposed Sec.  
1024.39(d)(2)(iii). First, the proposed comment explains that in 
requiring servicers to provide a borrower the written early 
intervention notice under proposed Sec.  1024.39(d)(2)(iii), the Bureau 
provides servicers a safe harbor from liability under the FDCPA with 
respect to the written notice. Specifically, proposed comment 
39(d)(2)(iii)-1 provides that, to the extent the FDCPA applies to a 
servicer's communications with a borrower, a servicer does not violate 
section 805(c) of the FDCPA by providing the modified written notice 
required by Sec.  1024.39(d)(2)(iii) after a borrower has sent a 
notification pursuant to section 805(c) of the FDCPA with respect to 
that borrower's loan. Second, the proposed comment reminds servicers 
that in providing the written early intervention notice, they must 
continue to comply with all other applicable provisions of the FDCPA. 
Specifically, comment 39(d)(2)(iii)-1 provides that, in providing the 
borrower the written notice, the servicer must continue to comply with 
all other applicable provisions of the FDCPA, including prohibitions on 
unfair, deceptive, and abusive practices as contained in sections 805 
through 808 of the FDCPA, 15 U.S.C. 1692c through 1692f.
    The Bureau is proposing an additional comment to address 
circumstances in which a borrower has invoked the FDCPA's cease 
communication protections and is also a borrower in bankruptcy. 
Specifically, proposed comment 39(d)(2)(iii)-2 provides that, to the 
extent the FDCPA applies to a servicer's communications with a borrower 
and the borrower has sent a notification pursuant to section 805(c) of 
the FDCPA, a servicer is not required to provide the written notice 
required by Sec.  1024.39(d)(2)(iii) if the borrower is in bankruptcy 
and is not represented by a person authorized by the borrower to 
communicate with the servicer on the borrower's behalf. Proposed 
comment 39(d)(2)(iii)-2 further provides that if the borrower is 
represented by a person authorized by the borrower to communicate with 
the servicer on the borrower's behalf, however, the servicer must 
provide the modified written notice required by Sec.  
1024.39(d)(2)(iii) to the borrower's representative. The Bureau 
requests comment on whether including proposed comment 39(d)(2)(iii)-2 
is appropriate. The Bureau also seeks comment on whether there may be a 
conflict between the language of proposed model clause MS-4(D) and 
applicable bankruptcy laws when a borrower has exercised cease 
communication rights under the FDCPA and is also a borrower in 
bankruptcy and the scope of any conflict. Proposed model clause MS-4(D) 
is contained in appendix MS-4. A more detailed discussion of the 
proposed model clause is contained in the section-by-section analysis 
of appendix MS.
    The Bureau intends this proposal to partially lift the current 
exemption for a servicer subject to the FDCPA with respect to a 
borrower to be limited to the Bureau's explicit interpretation. 
Accordingly, the Bureau intends the proposal to be narrow and based 
only upon the interplay between two specific federal requirements 
providing consumer protections--the early intervention requirements of 
Sec.  1024.39 of Regulation X and the cease communication provision of 
section 805(c) of the FDCPA. The Bureau believes that, in the limited 
circumstance where a servicer is subject to the FDCPA with respect to a 
borrower, and that borrower has sent the servicer a cease communication 
notification, the strong consumer interest in receiving timely 
information about potentially available loss mitigation options under 
Sec.  1024.39(b) may outweigh or at least equal the consumer protection 
offered by section 805(c) of the FDCPA. Under that limited 
circumstance, the Bureau also believes that the relationship between 
the Bureau's required written early intervention notice and the 
servicer's invocation of its specified remedy of foreclosure is closely 
linked so as to bring a proposed modified written early intervention 
notice requirement within the statutory exceptions of section 805(c) of 
the FDCPA. The Bureau seeks comment on whether partially lifting the 
exemption for the written early intervention notice if loss mitigation 
options are available is appropriate.
    The Bureau reminds servicers that they may only rely on the 
exemptions in proposed Sec.  1024.39(d)(2)(i) and (ii) if both the 
servicer is subject to the FDCPA with respect to a borrower, meaning 
that the servicer of a defaulted mortgage loan is also acting as a debt 
collector under section 803(6) of the FDCPA (i.e., the servicer 
acquired the mortgage at the time that it was in default) and the 
borrower has properly sent the servicer a written cease communication 
notification under section 805(c) of the FDCPA. Therefore, even if a 
servicer receives a written cease communication notification from a 
borrower, if the servicer is not also acting as a debt collector for 
purposes of the FDCPA with respect to that borrower's mortgage loan, 
the servicer must continue to comply with all of the early intervention 
requirements under Sec.  1024.39.
    The Bureau has narrowly tailored the proposal to reduce the risk 
that servicers will circumvent a borrower's cease communication rights. 
As noted above, the proposed requirement that a servicer subject to the 
FDCPA with respect to a borrower provide a delinquent borrower with the 
modified written early intervention notice applies only if the servicer 
is subject to the FDCPA with

[[Page 74212]]

respect to that borrower, meaning that the servicer of a mortgage loan 
that was in default at the time the servicer acquired it is also acting 
as a debt collector under section 803(6) of the FDCPA, and only if that 
borrower has properly invoked the FDCPA's cease communication 
protections. The Bureau believes that the proposal to partially lift 
the exemption for the written early intervention notice will generally 
only be relevant in instances where the servicer has received a cease 
communication notification prior to the 45th day of the borrower's 
delinquency.\144\ Additionally, the proposal relates to only the 
modified written early intervention notice, while maintaining the 
exemption for early intervention live contact and the exemption for the 
written notice if no loss mitigation options are available. If no loss 
mitigation options are available, i.e., the owner or assignee of a 
borrower's mortgage loan does not offer an alternative to foreclosure 
that is made available through the servicer, this proposal leaves the 
current exemption in place.\145\ Furthermore, this proposal requires 
that the modified written early intervention notice include a statement 
that the servicer may or intends to invoke its specified remedy of 
foreclosure, prohibits the servicer from making a request for payment 
via the written early intervention notice, and prohibits a servicer 
from providing the written notice more than once during any 180-day 
period. The Bureau believes that limiting the proposal in this manner 
reduces the risk that the modified written early intervention notice 
will be used to circumvent a borrower's cease communication rights 
under section 805(c) of the FDCPA.
---------------------------------------------------------------------------

    \144\ See FDCPA section 805(c) (``If such notice from the 
consumer is made by mail, notification shall be complete upon 
receipt.'').
    \145\ See section-by-section analysis of Sec.  1024.39(b)(2)-4, 
supra.
---------------------------------------------------------------------------

Borrower-Initiated Communications
    The Bureau expects that, after the borrower has sent a cease 
communication notification, any subsequent borrower-initiated 
communications with a servicer for the purposes of loss mitigation will 
be limited to a discussion of loss mitigation options that may be 
available. Therefore, even after a borrower has sent a cease 
communication notification under the FDCPA, a servicer should respond 
to a borrower who inquires about loss mitigation with information 
limited to potentially available loss mitigation options. For example, 
a servicer may discuss with a borrower available loss mitigation 
options that the owner or assignee of the borrower's mortgage loan 
offers, instructions on how the borrower can apply for loss mitigation, 
what documents and information the borrower would need to provide to 
complete a loss mitigation application, and the potential terms or 
details of a loan modification program, including the monthly payment 
and duration of the program. The Bureau is proposing to issue an 
advisory opinion interpreting the FDCPA cease communication requirement 
in relation to the Mortgage Servicing Rules under section 813(e) of the 
FDCPA. As provided in that section, no liability arises under the FDCPA 
for an act done or omitted in good faith in conformity with an advisory 
opinion of the Bureau while that advisory opinion is in effect.
    The Bureau believes that a servicer's responding to borrower-
initiated communications with specific information about loss 
mitigation options that may be available does not undermine the 
protections offered by section 805(c) of the FDCPA, which empowers 
borrowers to direct debt collectors to cease contacting them to collect 
a debt and frees borrowers from the burden of being subject to unwanted 
communications. Borrower-initiated communications are by their nature 
wanted communications and therefore do not impose such a burden. Such 
communications benefit borrowers by providing them with valuable 
information about potentially available loss mitigation options. The 
Bureau believes that when a servicer communicates with a borrower who 
has invoked the FDCPA's cease communication protections about 
potentially available loss mitigation options in the limited manner 
described in this proposal, the servicer does not violate section 
805(c) of the FDCPA. The Bureau believes that a borrower's cease 
communication notification pursuant to the FDCPA should ordinarily be 
understood to exclude borrower-initiated communications with a servicer 
for the purposes of loss mitigation because the borrower has 
specifically requested the communication at issue. As the Bureau 
explained in the October 2013 Servicing Bulletin, even if the borrower 
sends a cease communication notification while a specific action the 
borrower requested of the servicer is in process, the borrower usually 
should be understood to have excluded the specific action from the 
general request to cease communication. Thus, only if the borrower 
sends a communication to the servicer specifically withdrawing the 
request for such action may a servicer cease to carry out the 
requirements of these provisions. Accordingly, these communications 
would--under the Bureau's proposed advisory opinion--be consistent with 
the FDCPA's requirements, and a servicer would not be liable for 
violating the FDCPA with respect to such communications.
    However, the Bureau's proposed advisory opinion would not protect a 
servicer from using such borrower-initiated communications for the 
purpose of loss mitigation as a pretext for collection of a debt in 
circumvention of a borrower's cease communication protections. In any 
subsequent borrower-initiated communications with a servicer for the 
purposes of loss mitigation, the servicer may not and is strictly 
prohibited from making a request for payment, including, for example, 
initiating conversations with the borrower related to repayment of the 
debt (through a debt payment plan or otherwise), demanding that the 
borrower make a payment, requesting that the borrower bring the account 
current or make a partial payment on the account, or attempting to 
collect the outstanding balance or arrearage.\146\ Only if the 
borrower, without prompting from the servicer, independently inquires 
about or requests to make a payment or initiates a discussion of 
possible payment plans other than as part of loss mitigation, may the 
servicer engage in a discussion related to payment of the debt. The 
Bureau reiterates that servicers may not misuse borrower-initiated 
communications for the purpose of loss mitigation as an opportunity or 
pretext to direct or steer borrowers to a discussion of repayment or 
collection of the debt in circumvention of a borrower's cease 
communication protections. Additionally, the servicer may not begin or 
resume contacting the borrower in contravention of the cease 
communication notification, unless the borrower consents or revokes a 
prior cease communication request. As discussed above, all other 
provisions of the FDCPA, including the prohibitions on unfair, 
deceptive, and abusive practices as contained in sections 805 through 
808 of the FDCPA, remain intact notwithstanding the proposed 
requirement that the servicer provide the modified written early 
intervention

[[Page 74213]]

notice if loss mitigation options are available to borrowers who have 
exercised their FDCPA cease communication rights. The Bureau seeks 
comment generally on borrower-initiated communications for the purpose 
of loss mitigation in this context and the scope of the Bureau's 
proposed advisory opinion.
---------------------------------------------------------------------------

    \146\ See 53 FR 50097, 50103 (Dec. 13, 1988) (Section 805(c)-2 
of the Federal Trade Commission's (FTC) Official Staff Commentary on 
FDCPA section 805(c)) (``A debt collector's response to a `cease 
communication' notice from a consumer may not include a demand for 
payment, but is limited to the three statutory exceptions [under 
FDCPA section 805(c)(1) through (3)].'').
---------------------------------------------------------------------------

Legal Authority
    The Bureau is proposing to exercise its authority under sections 
6(j)(3) and 19(a) of RESPA to exempt a servicer that is a debt 
collector pursuant to the FDCPA with regard to a mortgage loan from the 
early intervention live contact requirements in Sec.  1024.39(a) when a 
borrower has exercised the cease communication right under the FDCPA 
prohibiting the servicer from communicating with the borrower regarding 
the debt. For the reasons discussed above, the Bureau believes at this 
time that the consumer protection purposes of RESPA would not be 
furthered by requiring compliance with Sec.  1024.39(a) at a time when 
a borrower has specifically requested that the servicer stop 
communicating with the borrower about the debt. Accordingly, the Bureau 
is proposing to implement proposed Sec.  1024.39(d)(2)(i) pursuant to 
its authority under sections 6(j)(3) and 19(a) of RESPA.
    The Bureau is also proposing to exercise its authority under 
sections 6(j)(3) and 19(a) of RESPA to exempt a servicer that is a debt 
collector pursuant to the FDCPA with regard to a mortgage loan from the 
written early intervention notice requirements in Sec.  1024.39(b) when 
a borrower has exercised the cease communication right under the FDCPA 
if no loss mitigation options are available. For the reasons discussed 
above, the Bureau believes at this time that the consumer protection 
purposes of RESPA would not be furthered by requiring compliance with 
Sec.  1024.39(b) at a time when a borrower has specifically requested 
that the servicer stop communicating with the borrower about the debt 
and when no loss mitigation options are available. Accordingly, the 
Bureau is proposing to implement proposed Sec.  1024.39(d)(2)(ii) 
pursuant to its authority under sections 6(j)(3) and 19(a) of RESPA.
    The Bureau is proposing to exercise its authority under section 
6(k)(1)(E) of RESPA to add proposed Sec.  1024.39(d)(2)(iii). 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 the Bureau has previously determined, providing borrowers 
with timely information about loss mitigation options and the 
foreclosure process, disclosures encouraging servicers to work with 
borrowers to identify any appropriate loss mitigation options, and 
information about housing counselors and State housing finance 
authorities are necessary to provide borrowers a meaningful opportunity 
to avoid foreclosure.\147\ The Bureau also exercises its authority to 
prescribe rules with respect to the collection of debts by debt 
collectors pursuant to section 814(d) of the FDCPA, 15 U.S.C. 1692l(d). 
Pursuant to this authority, the Bureau is clarifying a borrower's cease 
communication protections under the FDCPA. Section 805(c) of the FDCPA 
sets forth both the cease communication requirement and its exceptions. 
Under section 805(c)(2) and (3) of the FDCPA, a borrower's cease 
communication request does not prohibit a debt collector from 
communicating with the borrower ``to notify the consumer that the debt 
collector or creditor may invoke specified remedies which are 
ordinarily invoked by such debt collector or creditor'' or ``where 
applicable, to notify the consumer that the debt collector or creditor 
intends to invoke a specified remedy.'' For the reasons given above, 
the Bureau believes that requiring a servicer to provide the written 
early intervention notice if loss mitigation options are available is a 
reasonable interpretation of the exceptions under section 805(c)(2) and 
(3) of the FDCPA. The Bureau believes that because the written early 
intervention notice will generally be closely linked to the invocation 
of foreclosure, such a notice informs a borrower that the servicer may 
invoke or intends to invoke the specified remedy of foreclosure and 
thus falls within the scope of the exceptions under section 805(c)(2) 
and (3) of the FDCPA. Accordingly, the Bureau is proposing to implement 
proposed Sec.  1024.39(d)(2)(iii) pursuant to its authority under 
section 6(k)(1)(E) of RESPA and section 814(d) of the FDCPA.
---------------------------------------------------------------------------

    \147\ See 77 FR 57199, 57260 (Sept. 17, 2012).
---------------------------------------------------------------------------

Section 1024.41 Loss Mitigation Procedures
41(b) Receipt of a Loss Mitigation Application
    Successors in interest. As described in the section-by-section 
analysis of Sec.  1024.30(d), proposed Sec.  1024.30(d) provides that 
once a servicer confirms a successor in interest's identity and 
ownership interest in the property, the successor in interest must be 
considered a borrower for the purposes of Regulation X's mortgage 
servicing rules. Accordingly, the servicer must comply with Sec.  
1024.41's loss mitigation procedures with respect to a loss mitigation 
application submitted by a confirmed successor in interest.
    Proposed comment 41(b)-1.i clarifies that, if a servicer receives a 
loss mitigation application, including a complete loss mitigation 
application, from a potential successor in interest before confirming 
that person's identity and ownership interest in the property, the 
servicer may, but is not required to, review and evaluate the loss 
mitigation application in accordance with the procedures set forth in 
Sec.  1024.41. The proposed comment also provides that if a servicer 
complies with the requirements of Sec.  1024.41 for a complete loss 
mitigation application submitted by a potential successor in interest 
before confirming that person's identity and ownership interest in the 
property, Sec.  1024.41(i)'s limitation on duplicative requests applies 
with respect to any loss mitigation application subsequently submitted 
by that person, provided that confirmation of the successor in 
interest's status would not affect the servicer's evaluation of the 
application.
    The Bureau is proposing comment 41(b)-1.i to make clear that 
servicers may, but are not required to, review and evaluate loss 
mitigation applications from successors in interest before confirming a 
successor in interest's identity and ownership interest in the 
property, even though servicers would not be required to do so under 
the proposed rule. The Bureau is proposing this comment to ensure that 
the proposed requirement to review and evaluate applications from a 
successor in interest upon confirmation of the successor in interest's 
status would not imply that the servicer may not do so before 
confirmation. Further, the Bureau believes that where a servicer 
complies with the requirements of Sec.  1024.41 for a complete loss 
mitigation application submitted by a potential successor in interest 
and confirmation of the successor in interest's status would not affect 
the outcome of the successor's application for loss mitigation, a 
subsequent request would be duplicative and thus should be subject to 
Sec.  1024.41(i)'s limitation.
    Proposed comment 41(b)-1.ii provides that if a servicer receives a 
loss mitigation application from a potential successor in interest 
before confirming that person's status, upon such confirmation the 
servicer must review and evaluate that loss mitigation application in 
accordance with the procedures set forth in Sec.  1024.41. For purposes 
of Sec.  1024.41, the servicer must

[[Page 74214]]

treat the loss mitigation application as if it had been received on the 
date that the servicer confirmed the successor in interest's status. 
Accordingly, servicers would be required to preserve any loss 
mitigation application received from a potential successor in interest, 
so that the servicer can review and evaluate that application upon 
confirmation of the successor in interest's status and the successor in 
interest would not have to resubmit the loss mitigation application.
    The Bureau is proposing comment 41(b)-1.ii because successors in 
interest may be confused by having to resubmit identical documents 
simply because the servicer has confirmed the successor in interest's 
status. The Bureau believes that it is preferable to require servicers 
to preserve loss mitigation applications received from potential 
successors in interest and review and evaluate those loss mitigation 
applications upon confirming the successor in interest's status.
41(b)(1) Complete Loss Mitigation Application
    The Bureau is proposing to revise comment 41(b)(1)-1 to clarify 
that, in the course of gathering documents and information from a 
borrower to complete a loss mitigation application, a servicer may stop 
collecting documents and information pertaining to a particular loss 
mitigation option after receiving information confirming that the 
borrower is ineligible for that option.
    Section 1024.41(b)(1) defines a complete application as an 
application for which a servicer has received all the information the 
servicer requires from a borrower in evaluating applications for the 
loss mitigation options available to the borrower. Current comment 
41(b)(1)-1 explains that a servicer has the flexibility to establish 
the type and amount of information that it will require from borrowers 
applying for loss mitigation options, and the Bureau explained in the 
2013 RESPA Servicing Final Rule that the servicer may tailor 
application requirements to each individual borrower.\148\ In 
exercising reasonable diligence to obtain a complete application under 
Sec.  1024.41(b)(1), therefore, a servicer may determine that an 
application is complete even when the borrower has not submitted 
certain information that the servicer regularly requires but is 
irrelevant with respect to that particular borrower.\149\
---------------------------------------------------------------------------

    \148\ See 78 FR 10695, 10824 (Feb. 14, 2013).
    \149\ See id.
---------------------------------------------------------------------------

    The Bureau has learned from servicers and consumer advocacy groups 
that some servicers have been attempting to collect a large number of 
documents from borrowers, including some that are irrelevant to 
determining whether a particular borrower is eligible for any loss 
mitigation option. To the extent that this practice represents a 
servicer's good faith effort to exercise reasonable diligence under 
Sec.  1024.41(b)(1), the Bureau wishes to clarify that Sec.  
1024.41(b)(1) does not require it. The Bureau believes that an 
interpretation that Sec.  1024.41(b)(1) requires a servicer to collect 
documents or information after the servicer has confirmed that such 
documents cannot affect the outcome of an evaluation unnecessarily 
burdens both the servicer and the borrower and hinder efforts to 
complete the loss mitigation application.
    Therefore, the Bureau is proposing to amend comment 41(b)(1)-1 to 
explain that, in the course of gathering documents and information from 
a borrower to complete a loss mitigation application, a servicer may 
stop collecting documents or information for a particular loss 
mitigation option after receiving information confirming that the 
borrower is ineligible for that option. As revised, proposed comment 
41(b)(1)-1 includes the following example: if a particular loss 
mitigation option is only available for military servicemembers, once a 
servicer receives documents or information confirming that the borrower 
is not a military servicemember, the servicer may stop collecting 
documents or information from the borrower that the servicer would use 
to evaluate the borrower for that loss mitigation option. The proposed 
comment further explains that making such a determination does not 
affect a servicer's obligation to exercise reasonable diligence in 
obtaining a complete application; the servicer must continue its 
efforts to obtain documents and information from the borrower that 
pertain to all other available loss mitigation options. Finally, the 
proposed comment provides that a servicer may not stop collecting 
documents and information for any loss mitigation option based solely 
upon the borrower's stated preference for a different loss mitigation 
option.
    As the Bureau explained in the 2013 RESPA Servicing Final Rule, the 
Bureau believes that an application process that would impose an 
obligation on borrowers to select a desired loss mitigation option and 
permit servicers to evaluate the borrower for only that option would be 
inappropriate.\150\ The Bureau believes that requiring servicers to 
evaluate loss mitigation applications for all loss mitigation options 
available to a borrower helps the borrowers make better-informed 
decisions about the complex options involved in loss mitigation.\151\ 
The Bureau is also concerned that permitting a servicer to stop 
collecting borrower information based solely upon a borrower's stated 
preference for one option or another might allow the servicer to 
inappropriately influence the borrower's preference during 
communications with the borrower. It also might allow the servicer to 
otherwise circumvent Sec.  1024.41 by simply choosing to review a 
borrower for a particular loss mitigation option, as it would be 
difficult to verify whether a borrower has expressed such a preference. 
However, the Bureau believes that, where a servicer receives 
information that conclusively demonstrates that a borrower is not 
eligible for a particular loss mitigation option, as in the example in 
proposed comment 41(b)(1)-1, borrowers and servicers will benefit from 
clarity in the comment that the servicer may stop collecting 
information from the borrower that the servicer might otherwise need to 
complete the application. The Bureau believes that proposed comment 
41(b)(1)-1 would help ensure that servicers continue to consider 
borrowers for all loss mitigation options in a single application 
process notwithstanding the significant flexibility servicers enjoy in 
establishing application requirements.
---------------------------------------------------------------------------

    \150\ Id. at 10828.
    \151\ See id.
---------------------------------------------------------------------------

    The Bureau also notes that pursuant to proposed comment 41(b)(1)-1, 
a servicer may stop collecting documents and information from a 
borrower pertaining to a particular loss mitigation option after 
receiving information confirming that the borrower is ineligible for 
that option, even if the servicer previously requested such documents 
and information in the notice sent pursuant to Sec.  
1024.41(b)(2)(i)(B).
41(b)(2) Review of a Loss Mitigation Application Submission
41(b)(2)(i) Requirements
    The Bureau is proposing to add comment 41(b)(2)(i)-1 to clarify the 
timelines for when a servicer must review and acknowledge a borrower's 
loss mitigation application when no foreclosure sale has been scheduled 
as of the date the loss mitigation application is received. Under Sec.  
1024.41(b)(2)(i), if a servicer receives a loss mitigation application 
45 days or more before a foreclosure sale, the servicer must: (1) 
Promptly review the

[[Page 74215]]

application to determine if it is complete, and (2) within five days of 
receiving the application, notify the borrower that the application was 
received and is complete or incomplete, and if incomplete, state the 
additional documents and information needed to complete the 
application.\152\
---------------------------------------------------------------------------

    \152\ 12 CFR 1024.41(b)(2)(i).
---------------------------------------------------------------------------

    Section 1024.41(b)(2)(i) does not expressly address whether this 
requirement applies when an application is received before a 
foreclosure sale is scheduled.\153\ The Bureau believes that, in that 
scenario, the application was still received ``45 days or more before a 
foreclosure sale,'' and that the requirements of Sec.  1024.41(b)(2)(i) 
still apply. To codify this interpretation, the Bureau is proposing to 
add new comment 41(b)(2)(i)-1, which provides that for purposes of 
Sec.  1024.41(b)(2)(i), if a foreclosure sale has not been scheduled as 
of the date an application is received, the application shall be 
treated as if it were received at least 45 days before a foreclosure 
sale. The proposed comment clarifies that servicers must comply with 
all of the requirements of Sec.  1024.41(b)(2)(i) even when no 
foreclosure sale has been scheduled as of the date a servicer receives 
a borrower's loss mitigation application. The Bureau believes that the 
proposed comment will provide certainty to servicers and borrowers.
---------------------------------------------------------------------------

    \153\ In the September 2013 Mortgage Final Rule, the Bureau 
adopted new Sec.  1024.41(b)(3) and related commentary to address 
borrowers' rights where no foreclosure sale has been scheduled as of 
the date a complete loss mitigation application is received. The 
final rule clarified that if a foreclosure sale has not yet been 
scheduled as of the date that a complete loss mitigation application 
is received, the application shall be treated as if it were received 
at least 90 days before a foreclosure sale. See 78 FR 60381, 60397 
(Oct. 1, 2013).
---------------------------------------------------------------------------

41(b)(2)(ii) Time Period Disclosure
    The Bureau is proposing to revise commentary discussing a 
servicer's obligations in setting a reasonable date for the return of 
documents and information under Sec.  1024.41(b)(2)(ii).
    When a borrower submits an incomplete loss mitigation application 
at least 45 days before a scheduled foreclosure sale, Sec.  
1024.41(b)(2)(ii) requires the servicer to select a reasonable date by 
which the borrower should return documents and information to complete 
the application. Current comment 41(b)(2)(ii)-1 clarifies that, in 
selecting this date, the servicer should consider four specific 
milestones that implicate borrower protections under Sec.  1024.41: (1) 
The date by which any document or information that a borrower submitted 
will be considered stale or invalid pursuant to any requirements 
applicable to any available loss mitigation option, (2) the date that 
is the 120th day of the borrower's delinquency, (3) the date that is 90 
days before a foreclosure sale, and (4) the date that is 38 days before 
a foreclosure sale. In general, as each milestone passes, it becomes 
more likely that a borrower will enjoy fewer protections under Sec.  
1024.41 when the application becomes complete. As the Bureau explained 
in the September 2013 Mortgage Final Rule, Sec.  1024.41(b)(2)(ii) was 
drafted to afford the servicer sufficient flexibility to set a date for 
the return of documents that will maximize a borrower's protections in 
light of the borrower's individual application timeline.\154\
---------------------------------------------------------------------------

    \154\ 78 FR 60381, 60395-96 (Oct. 1, 2013).
---------------------------------------------------------------------------

    The Bureau has received a number of inquiries from servicers 
seeking guidance on how they should determine the reasonable date under 
Sec.  1024.41(b)(2)(ii) when the nearest remaining milestone is not 
scheduled to take place for a significant amount of time. This might be 
the case, for example, when the borrower has not submitted any 
information that can go stale, the loan is more than 120 days 
delinquent, and the foreclosure sale is scheduled to take place in six 
months. In this circumstance, the nearest remaining milestone might not 
occur for three months--the date that is 90 days before the foreclosure 
sale. Servicers have questioned whether, in similar situations, Sec.  
1024.41(b)(2)(ii) requires a servicer to select a reasonable date that 
allows the borrower months to return the necessary documents, or 
whether the servicer may select an earlier date in order to encourage 
the borrower to respond more promptly.
    The Bureau has learned that different servicers use different 
approaches when the nearest remaining milestone is months away. One 
servicer informed the Bureau that it selects the nearest remaining 
milestone as the reasonable date for the return of documents, even when 
the milestone is many months in the future. Several other servicers 
indicated that they always select the earlier of 90 days or the nearest 
remaining milestone.
    The Bureau believes that selecting a reasonable date that is months 
away may ultimately disadvantage some borrowers. As the Bureau 
explained in the September 2013 Mortgage Final Rule, the reasonable 
date provision under Sec.  1024.41(b)(2)(ii) was intended, in part, to 
maximize borrower protections by encouraging the borrower to submit 
necessary information in time to receive the most protections possible 
under Sec.  1024.41.\155\ The Bureau believes that allowing a borrower 
90 days or more to return documents may discourage borrowers from 
promptly providing documents and information necessary to complete a 
loss mitigation application, which ultimately may not further the goal 
of maximizing their protections under Sec.  1024.41. Generally, the 
longer a borrower waits to submit documentation to complete an 
application, the greater the risk that a delinquency will grow, which 
might negatively affect the borrower's eligibility to receive loss 
mitigation and might make it more difficult for the borrower to perform 
under a loss mitigation program that the servicer later offers. Several 
servicers have informed the Bureau that they share these concerns but 
have been reluctant to set an earlier return date for fear of violating 
Sec.  1024.41(b)(2)(ii).
---------------------------------------------------------------------------

    \155\ See id.
---------------------------------------------------------------------------

    In order to encourage servicers to set reasonable dates that will 
avoid these outcomes, as well as to clarify the contents of comment 
41(b)(2)(ii)-1, the Bureau is proposing to revise comment 41(b)(2)(ii)-
1 and add comments 41(b)(2)(ii)-2 and 3. As amended, proposed comment 
41(b)(2)(ii)-1 states that, in setting a reasonable date for the return 
of documents and information under Sec.  1024.41(b)(2)(ii), a servicer 
must allow a reasonable period of time for the borrower to obtain and 
submit documents and information necessary to make the loss mitigation 
application complete. The proposed comment also explains that, 
generally, a reasonable period of time would not be less than seven 
days.
    Proposed comment 41(b)(2)(ii)-2 also provides, as 41(b)(2)(ii)-1 
currently does, that a servicer must preserve maximum borrower rights 
under Sec.  1024.41 in setting a reasonable date under Sec.  
1024.41(b)(2)(ii). However, proposed comment 41(b)(2)(ii)-2 also states 
that subject to comment 41(b)(2)(ii)'s clarification that the servicer 
allow the borrower a reasonable period of time to obtain and submit 
necessary documents, a servicer generally should not set a reasonable 
date that is further away than the nearest of the remaining milestones, 
which would be listed in proposed comment 41(b)(2)(ii)-2.
    Finally, proposed comment 41(b)(2)(ii)-3 addresses situations where 
the nearest remaining milestone will not occur for several months based 
on the timing of a scheduled foreclosure sale and the documents that 
the borrower had already submitted when the

[[Page 74216]]

servicer selects a reasonable date for the return of documents or 
information. The proposed comment states that a servicer has 
flexibility in selecting a reasonable date, subject to comments 
41(b)(2)(ii)-1 and 2, and that a servicer may select any date that it 
determines both maximizes borrower rights under Sec.  1024.41 and 
allows the borrower a reasonable period of time to obtain and submit 
documents and information necessary to make the loss mitigation 
application complete. The proposed comment also provides the following 
explanatory example: a servicer may set a reasonable date that is 
earlier than the nearest remaining milestone listed in comment 
41(b)(2)(ii)-2 and does not need to select that milestone as the 
reasonable date itself.
    The Bureau believes that the proposed revisions would clarify 
servicers' obligations under Sec.  1024.41(b)(2)(ii). The Bureau 
believes that the proposed revisions would help servicers by clarifying 
that they have significant flexibility in setting a reasonable date 
under Sec.  1024.41(b)(2)(ii)--servicers may select any date that they 
determine preserves maximum borrower protections and allows borrowers a 
reasonable period of time to submit the requested information. As noted 
above, the Bureau believes that a flexible standard permits servicers 
to account for borrowers' individual circumstances and maximize 
protections for each borrower when selecting a reasonable date under 
Sec.  1024.41(b)(2)(ii).\156\ The proposed revisions should shorten 
application timelines where appropriate, encourage borrowers to respond 
more promptly, and increase the likelihood of a successful loss 
mitigation outcome for the borrower.
---------------------------------------------------------------------------

    \156\ See id.
---------------------------------------------------------------------------

    The Bureau seeks comment on whether this proposal will provide 
servicers with sufficient guidance in setting a reasonable date for the 
return of documents and information under Sec.  1024.41(b)(2)(ii) that 
will maximize borrower protections. The Bureau also seeks comment on 
whether to address expressly those situations where the nearest 
remaining milestone will not occur for several months based on the date 
of a scheduled foreclosure sale and the documents the borrower had 
submitted at the time the servicer selects the reasonable date under 
Sec.  1024.41(b)(2)(ii). The Bureau also seeks comment on whether the 
Bureau should adopt a less flexible standard that would leave servicers 
with little or no discretion in setting a reasonable date under Sec.  
1024.41(b)(2)(ii), and if so, what would constitute an appropriate 
standard under such an approach.
41(c) Evaluation of Loss Mitigation Applications
41(c)(1) Complete Loss Mitigation Application
    Under Sec.  1024.41(c)(1), a servicer that receives a complete loss 
mitigation application more than 37 days before a foreclosure sale 
must, within 30 days of receiving the complete application, evaluate 
the borrower for all loss mitigation options available to the borrower 
and provide the borrower with a notice in writing stating, among other 
things, the servicer's determination of which loss mitigation options, 
if any, it will offer to the borrower. Furthermore, pursuant to Sec.  
1024.41(e)(1), if a complete loss mitigation application is received 
less than 90 days but more than 37 days before a foreclosure sale, a 
servicer may require that a borrower accept or reject an offer of a 
loss mitigation option no earlier than seven days after the servicer 
provides the offer to the borrower. In the Bureau's February 2013 RESPA 
Servicing Final Rule, the Bureau stated that it believes the timing of 
the loss mitigation procedures, including the appeal process, are 
clear--``[a]ll such deadlines are based on when information is received 
by or provided by a servicer.''\157\
---------------------------------------------------------------------------

    \157\ 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------

    However, the Bureau has heard some concerns about the scenario 
where a servicer receives a complete loss mitigation application 38 
days before a foreclosure sale, evaluates the borrower for all loss 
mitigation options available, and 30 days later provides the borrower 
the written notice stating the servicer's determination of which loss 
mitigation options it will offer. The borrower has a minimum of seven 
days to accept or reject the offer, but accounting for the time it 
takes for the notice to reach the borrower, particularly if provided by 
mail, the borrower may effectively have less than seven days to accept 
or reject the offer. Additionally, assuming that the borrower mails an 
acceptance of a loss mitigation option to the servicer in this 
scenario, it is possible that the servicer may not receive the 
borrower's response until after the date of the foreclosure sale. The 
Bureau believes that this potential timeline may be problematic and may 
impact a borrower's ability to timely respond, especially when a 
borrower is just days away from a scheduled foreclosure sale. The 
Bureau understands that a similar situation may arise with respect to 
the length of time that a borrower has to make an appeal. Section 
1024.41(h)(2) provides that a servicer shall permit a borrower to make 
an appeal within 14 days after the servicer provides the offer of a 
loss mitigation option to the borrower. Again, accounting for the time 
it takes for the notice to reach the borrower, particularly if provided 
by mail, the borrower may effectively have less than 14 days to make an 
appeal.
    The Bureau makes no proposal at this time but seeks comment on 
whether the timing and method of correspondence of loss mitigation 
offers and appeals between servicers and borrowers generally is 
presenting a problem. The Bureau further seeks comment on the specific 
scenario described above in which a complete loss mitigation 
application is received on or near the 38th day before a foreclosure 
sale and whether borrowers are facing particular difficulties timely 
responding to servicers in this context. The Bureau reminds servicers 
that under Sec.  1024.38(b)(1)(i), a servicer must maintain policies 
and procedures that are reasonably designed to ensure that the servicer 
can provide accurate and timely disclosures to a borrower as required 
by Regulation X's mortgage servicing rules, including Sec.  1024.41, or 
other applicable law.
41(c)(2) Incomplete Loss Mitigation Application Evaluation
41(c)(2)(iii) Payment Forbearance
    The Bureau is proposing to revise Sec.  1024.41(c)(2)(iii) to 
permit servicers to offer short-term repayment plans based upon an 
evaluation of an incomplete loss mitigation application. Section 
1024.41(c)(2) generally prohibits a servicer from evading the 
requirement to evaluate a complete loss mitigation application by 
offering a loss mitigation option based upon an evaluation of any 
information provided by a borrower in connection with an incomplete 
application. However, current Sec.  1024.41(c)(2)(iii) offers an 
exception to this rule--it permits a servicer to offer a short-term 
payment forbearance program based upon an incomplete application.
    The Bureau has received inquiries seeking clarification of whether 
Sec.  1024.41(c)(2)(iii) also permits a servicer to offer a short-term 
repayment plan based upon an evaluation of an incomplete application. 
For the reasons explained below, the Bureau believes that it is 
appropriate, under certain conditions, to permit servicers to offer 
short-term repayment plans based upon an evaluation of an incomplete 
loss mitigation application.

[[Page 74217]]

    In the Bureau's September 2013 Mortgage Final Rule, the Bureau 
explained that permitting a servicer to offer a short-term payment 
forbearance program based upon an incomplete application was an 
appropriate exception to Sec.  1024.41(c)(1)'s general requirement that 
a borrower should be evaluated for all available loss mitigation 
options at once, and only after a servicer receives a complete 
application.\158\ The Bureau determined that allowing the short-term 
payment forbearance exception under Sec.  1024.41(c)(2)(iii) would, 
with appropriate safeguards, benefit borrowers by permitting a 
relatively efficient solution to a temporary hardship without 
exhausting a borrower's protections under Sec.  1024.41.\159\ The 
Bureau believes that the same considerations apply to short-term 
repayment plans and therefore proposes to expressly include them under 
Sec.  1024.41(c)(2)(iii).\160\
---------------------------------------------------------------------------

    \158\ 78 FR 60381, 60398-400 (Oct. 1, 2013).
    \159\ See id. at 60399-400 (discussing the rationale for 
permitting short-term forbearance programs based upon the evaluation 
of an incomplete application).
    \160\ The Bureau appreciates that some industry participants 
consider repayment plans to be a form of forbearance. In order to 
avoid confusion regarding the definition of a forbearance program, 
proposed Sec.  1024.41(c)(2)(iii) explicitly differentiates between 
the two. See note 166, infra, (clarifying the primary distinction 
between the definitions of short-term repayment plans and short-term 
payment forbearance programs).
---------------------------------------------------------------------------

    Therefore, the Bureau is proposing to amend Sec.  
1024.41(c)(2)(iii) to permit servicers to offer a short-term payment 
forbearance program or a short-term repayment plan to a borrower based 
upon an evaluation of an incomplete loss mitigation application. 
Proposed Sec.  1024.41(c)(2)(iii) requires that the short-term payment 
forbearance program or repayment plan must be provided to the borrower 
in writing before the program or plan begins and must clearly specify 
the payment terms and duration. As is already the case where a servicer 
offers a short-term payment forbearance program, proposed Sec.  
1024.41(c)(2)(iii) requires that a servicer shall not make the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, and shall not move for foreclosure 
judgment or order of sale, or conduct a foreclosure sale, if a borrower 
is performing pursuant to the terms of a payment forbearance program or 
repayment plan offered under Sec.  1024.41(c)(2)(iii). Finally, 
proposed Sec.  1024.41(c)(2)(iii) provides that a servicer may offer a 
short-term forbearance program in conjunction with a short-term 
repayment plan.
    As with short-term payment forbearance programs, the Bureau 
believes that permitting a servicer to offer a short-term repayment 
plan based upon an evaluation of an incomplete application affords a 
servicer flexibility to address a borrower's temporary hardship in a 
relatively efficient manner.\161\ The Bureau further believes that 
permitting a servicer to offer a short-term repayment plan based on an 
evaluation of an incomplete application could reduce the burden on both 
servicers and some borrowers by eliminating the need to gather many 
borrower documents that may be necessary to complete an application 
under Sec.  1024.41(b)(1). Further, the Bureau believes that permitting 
a servicer to offer a short-term repayment plan based upon an 
evaluation of an incomplete application provides borrowers a way to 
address a temporary hardship without exhausting protections provided 
under Sec.  1024.41 that begin once an application becomes 
complete.\162\
---------------------------------------------------------------------------

    \161\ See 78 FR 60381, 60399-400 (Oct. 1, 2013) (discussing the 
rationale for permitting short-term forbearance programs based on an 
evaluation of an incomplete application).
    \162\ See 78 FR 39901, 39913 (July 2, 2013) (discussing similar 
considerations about expending the protections of Sec.  1024.41 in 
context of short-term paymentforbearance programs).
---------------------------------------------------------------------------

    However, as the Bureau discussed in the September 2013 Mortgage 
Final Rule, permitting a servicer to offer loss mitigation based upon 
an evaluation of an incomplete application could potentially have 
adverse consequences for a borrower.\163\ If a servicer were to 
inappropriately divert a borrower into a loss mitigation program based 
upon an incomplete application, it could exacerbate a delinquency and 
put the borrower at risk of losing the opportunity to complete the 
application and receive the full protections of Sec.  1024.41.\164\ 
Also, a borrower who is offered a short-term payment forbearance 
program or short-term repayment plan under proposed Sec.  
1024.41(c)(2)(iii) may be experiencing a hardship for which other, 
longer-term loss mitigation solutions might be more appropriate for a 
particular borrower's circumstance.
---------------------------------------------------------------------------

    \163\ 78 FR 60381, 60399-400 (Oct. 1, 2013).
    \164\ See id.
---------------------------------------------------------------------------

    To mitigate these concerns, the Bureau is proposing to apply 
comments 41(c)(2)(iii)-2 and 41(c)(2)(iii)-3, which currently mitigate 
against such risks for short-term payment forbearance programs, to 
short-term repayment plans. Proposed comment 41(c)(2)(iii)-2 explains 
that, where a servicer offers a short-term payment forbearance program 
or a short-term repayment plan based on the evaluation of an incomplete 
application, the application remains subject to the other obligations 
in Sec.  1024.41. These obligations include reviewing the application 
for completeness under Sec.  1024.41(b)(2), exercising reasonable 
diligence under Sec.  1024.41(b)(1), and providing the borrower with 
the Sec.  1024.41(b)(2)(i)(B) notice acknowledging the servicer's 
receipt of the application and indicating that the servicer has 
determined that the application is incomplete. Proposed comment 
41(c)(2)(iii)-3 explains that, even if a servicer offers a short-term 
payment forbearance program or a short-term repayment plan based on an 
evaluation of an incomplete loss mitigation application, the servicer 
must comply with all the requirements in Sec.  1024.41 if the borrower 
completes the loss mitigation application.
    The Bureau believes that the proposed revisions to comments 
41(c)(2)(iii)-2 and 3 would help ensure that servicers do not offer 
short-term repayment plans based on incomplete loss mitigation 
applications to evade their obligations under Sec.  1024.41. As the 
Bureau explained in the September 2013 Mortgage Final Rule, these 
protections help preserve a borrower's option to submit a complete 
application and be considered for a long-term loss mitigation solution 
where appropriate.\165\
---------------------------------------------------------------------------

    \165\ Id. at 603400 (discussing similar considerations in 
context of short-term payment forbearance programs offered under 
Sec.  1024.41(c)(2)(iii)).
---------------------------------------------------------------------------

    To further mitigate the risks associated with permitting a servicer 
to offer a loss mitigation option based upon an evaluation of an 
incomplete application, the Bureau also is proposing to revise comment 
41(b)(1)-4.iii to clarify a servicer's obligation to exercise 
reasonable diligence during a short-term payment forbearance program or 
short-term repayment plan. Proposed comment 41(b)(1)-4.iii provides 
that reasonable diligence under Sec.  1024.41(b)(1) requires a servicer 
to notify a borrower when a short-term repayment plan is being offered 
based on an evaluation of an incomplete application. The servicer must 
notify the borrower that the borrower has the option of completing the 
application to receive a full evaluation of all loss mitigation options 
available to the borrower. Proposed comment 41(b)(1)-4.iii. further 
explains that, if a servicer provides such a notification, the borrower 
remains in compliance with a payment forbearance program or repayment 
plan, and the borrower does

[[Page 74218]]

not request further assistance, the servicer may suspend reasonable 
diligence efforts while the borrower remains in compliance with the 
short-term repayment plan and does not request further assistance, but 
that, if the borrower remains delinquent near the end of the program or 
plan, the servicer should contact the borrower near the end of the 
forbearance or repayment period to determine if the borrower wishes to 
complete the application and proceed with a full loss mitigation 
evaluation. The Bureau believes that permitting the servicer to suspend 
document collection while a borrower is performing under a short-term 
repayment plan will limit borrower confusion and avoid unnecessary 
servicer burden, but that continued servicer engagement at the outset 
and near the end of the plan will help the borrower make well-informed 
decisions about the mortgage loan.
    As noted above, the Bureau is proposing to amend Sec.  
1024.41(c)(2)(iii) to require that a short-term payment forbearance 
program or a short-term repayment plan must be provided to the borrower 
in writing before the program or plan begins and must clearly specify 
the payment terms and duration. The Bureau believes that requiring a 
servicer to send the borrower the terms of any loss mitigation option 
offered under proposed Sec.  1024.41(c)(2)(iii) in writing before the 
program or plan begins will reduce misunderstandings between the 
servicer and the borrower regarding the terms and existence of a 
payment forbearance program or repayment plan. The Bureau understands 
that, in the past, such misunderstandings sometimes resulted in the 
borrower making incorrect payments, causing the delinquency to grow in 
size and duration.
    The Bureau is also proposing a change to comment 41(c)(2)(iii)-1 to 
clarify that Sec.  1024.41(c)(2)(iii) no longer applies exclusively to 
short-term payment forbearance programs. As amended, the first sentence 
of comment 41(c)(2)(iii)-1 states that the exemption under Sec.  
1024.41(c)(2)(iii) applies to, ``among other things,'' short-term 
payment forbearance programs. The comment would otherwise remain in its 
current form.
Definition of ``Short-Term Repayment Plan''
    The Bureau is also proposing to add comment 41(c)(2)(iii)-4 to 
define a repayment plan as a loss mitigation option pursuant to which a 
servicer allows a borrower to repay past due payments over a specified 
period of time until the mortgage loan account is current.\166\ Under 
this definition, only those plans that would cure a delinquency would 
be permitted under Sec.  1024.41(c)(2)(iii). The Bureau believes that 
this is essential to protect a borrower because a borrower generally 
remains delinquent during a repayment plan--and the longer a 
delinquency exists without a complete application, the fewer borrower 
protections Sec.  1024.41 is likely to provide if the borrower later 
completes the application. By requiring the plan to cure the borrower's 
delinquency if successfully completed, the Bureau seeks to prohibit a 
servicer from offering a repayment plan that would likely leave the 
borrower in a worse position.
---------------------------------------------------------------------------

    \166\ The proposed definition of ``short-term repayment plan'' 
would address repayment of already existing arrearage, in contrast 
to the definition of a payment forbearance program (defined under 
comment 41(c)(2)(iii)-1), which allows a borrower to forgo making 
certain payments or portions of payments for a period of time.
---------------------------------------------------------------------------

    Proposed comment 41(c)(2)(iii)-4 defines short-term repayment plans 
to include no more than three months of payments due and a repayment 
period lasting no more than six months. The Bureau believes that the 
definition of a short-term repayment plan should limit both the maximum 
amount of the arrearage that may be included in the plan and the 
maximum time of repayment. The Bureau believes that these limitations 
will help protect borrowers who accept offers for short-term repayment 
plans by increasing the likelihood that the borrowers will successfully 
complete the plans. The Bureau believes that a borrower is less likely 
to complete a repayment plan that accounts for a larger delinquency; 
and that longer-term plans may be more difficult for borrowers to 
complete successfully. The Bureau also believes that borrowers may not 
be served as well by extended repayment plans--the longer the repayment 
period lasts, the longer the delinquency remains and the longer 
negative credit reporting continues.
    Additionally, a borrower who accepts a short-term repayment plan 
based upon an evaluation of an incomplete application risks losing the 
protections of Sec.  1024.41 depending on whether and when the borrower 
completes the application. Generally, the longer a borrower's 
application remains incomplete, the greater the risk that the borrower 
will enjoy fewer protections under Sec.  1024.41. For example, under 
Sec.  1024.41(f)(1)(i), a servicer may not make the first notice or 
filing for any judicial or non-judicial foreclosure process until a 
borrower's mortgage loan obligation is more than 120 days delinquent. 
Similarly, several protections under Sec.  1024.41 only apply if a 
borrower completes the loss mitigation application a certain number of 
days before a foreclosure sale, including the evaluation timelines 
under Sec.  1024.41(c)(1), foreclosure protections under Sec.  
1024.41(g), and appeal rights under Sec.  1024.41(h), among others. 
Therefore, the longer a short-term repayment plan offered under Sec.  
1024.41(c)(2)(iii) lasts, the greater the risk that a borrower will 
lose important protections under Sec.  1024.41 if the borrower fails to 
complete the plan. Consequently, the Bureau is proposing, in the 
context of incomplete applications, to limit the duration of a short-
term repayment plan offered based upon an incomplete application, 
require that the plan bring the borrower current, and prohibit 
servicers from proceeding to foreclosure while the borrower is 
performing on the short-term repayment plan. The Bureau seeks comment 
on the adequacy of these protections for borrowers.
    The Bureau also solicits comment on the appropriate maximum 
duration for short-term repayment plans offered under Sec.  
1024.41(c)(2)(iii). The Bureau notes that proposed comment 
41(c)(2)(iii)-2 does not preclude a servicer from offering a longer-
term repayment plan; it merely prohibits the servicer from doing so 
based upon an evaluation of an incomplete application.
41(c)(2)(iv) Facially Complete Application
    The Bureau is proposing to revise Sec.  1024.41(c)(2)(iv). First, 
the Bureau is proposing a minor technical change to Sec.  
1024.41(c)(2)(iv) to correct an erroneous reference to Sec.  
1026.41(b)(2)(i)(B), which should instead be a reference to Sec.  
1024.41(b)(2)(i)(B). Second, the Bureau is proposing to amend Sec.  
1024.41(c)(2)(iv) to provide that an application is facially complete 
if a servicer is required under proposed Sec.  1024.41(c)(3) to send 
the borrower a notice of complete application.
    Currently, Sec.  1024.41(c)(2)(iv) provides that, if a borrower 
submits all the missing documents and information as stated in the 
notice required pursuant to Sec.  1024.41(b)(2)(i)(B), or no additional 
information is requested in such notice, an application shall be 
considered facially complete. Section 1024.41(c)(2)(iv) provides a 
series of protections that apply once an application is facially 
complete. First, if the servicer later discovers that additional 
information or corrections are required to complete the application, 
the servicer must promptly

[[Page 74219]]

request the missing information or corrected documents and treat the 
application as complete for purposes of the dual tracking protections 
under Sec.  1024.41(f)(2) and (g) until the borrower is given a 
reasonable opportunity to complete the application. If the borrower 
completes the application within this period, Sec.  1024.41(c)(2)(iv) 
also requires a servicer to consider the application as complete as of 
the date it was facially complete for the purposes of Sec.  1024.41(d), 
(e), (f)(2), (g), and (h),\167\ and as of the date the application was 
actually complete for the purposes of Sec.  1024.41(c).\168\
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    \167\ Sections 1024.41(d), (e), (f)(2), (g), and (h) 
respectively provide borrowers protections relating to a servicer's 
denial of a loan modification, the amount of time a borrower will 
have to respond to an offer of a loss mitigation option, dual 
tracking, and the right to appeal.
    \168\ Under Sec.  1024.41(c) provides that a servicer's 
evaluation of a complete application is subject to a specific 
timeline and various other requirements.
---------------------------------------------------------------------------

    As explained in the section-by-section analysis of Sec.  
1024.41(c)(3), proposed Sec.  1024.41(c)(3)(i) requires a servicer to 
provide a written notice informing the borrower, among other things, 
that the application is complete, the date the application became 
complete, and that the servicer expects to complete its evaluation 
within 30 days of the date it received the complete application. The 
Bureau believes that this notice of complete application would ensure 
that borrowers are informed of the next steps in the loss mitigation 
evaluation process and enable borrowers to make better-informed 
decisions about their finances. The Bureau also believes that this 
notice would limit confusion for both servicers and borrowers in 
determining which protections apply under Sec.  1024.41, as many of 
those protections begin when the application becomes complete. However, 
the Bureau recognizes that, in certain circumstances, servicers might 
require additional documents or information from a borrower after 
sending a notice of complete application under proposed Sec.  
1024.41(c)(3)(i). For example, a servicer might require additional 
information after learning that a borrower has a source of income that 
the servicer first learned about while reviewing the complete 
application. To clarify the status of an application in this 
circumstance, the Bureau is proposing to provide expressly that the 
facially complete provision applies to an application for which a 
servicer has provided the notice of complete application under proposed 
Sec.  1024.41(c)(3)(i).
    Proposed Sec.  1024.41(c)(2)(iv) states that a loss mitigation 
application shall be considered facially complete when a borrower 
submits all the missing documents and information as stated in the 
notice required under Sec.  1024.41(b)(2)(i)(B), no additional 
information is requested in such notice, or when the servicer is 
required under Sec.  1024.41(c)(3) to send the borrower a notice of 
complete application. Proposed Sec.  1024.41(c)(iv) provides the 
identical protections as does current Sec.  1024.41(c)(2)(iv). However, 
if a borrower timely completes an application after a servicer requests 
additional information or corrections to a previously submitted 
document, proposed Sec.  1024.41(c)(iv) requires the application be 
treated as complete as of as of the date it first became facially 
complete for the purposes of Sec.  1024.41(d), (e), (f)(2), (g), and 
(h), and as of the date the application was actually complete for the 
purposes of Sec.  1024.41(c).
    The Bureau believes that these proposed amendments would provide 
both borrowers and servicers with certainty about whether and when 
various protections apply under Sec.  1024.41 in the circumstance where 
a servicer requires additional information for an application that the 
borrower previously completed. The Bureau also believes that these 
proposed amendments are appropriate to make clear that a borrower who 
has been informed that the application is complete will not lose 
protections if the servicer subsequently determines that it needs 
additional information. Finally, the Bureau believes that ensuring that 
many of a borrower's protections under Sec.  1024.41 continue to apply 
will encourage servicers to efficiently process loss mitigation 
applications, which will reduce unnecessary delay in completing the 
evaluation.
41(c)(3) Notice of Complete Application
    The Bureau is proposing to require a servicer to provide a written 
notice of complete application under new Sec.  1024.41(c)(3).
    The Bureau has learned from consumer advocacy groups that, during 
the loss mitigation application process, borrowers are frequently 
uncertain about whether an application is complete. Consumer advocacy 
groups and servicers inform the Bureau that, after a borrower submits 
documents and information that a servicer requests to complete an 
application, servicers often require the borrower to submit additional 
information or corrected versions of previously submitted documents 
several times during the application process, both before and after an 
application becomes complete. However, Sec.  1024.41 currently requires 
a servicer to notify a borrower that an application is complete only if 
this is the case when the servicer provides the notice acknowledging 
receipt of an application under Sec.  1024.41(b)(2)(i)(B). The Bureau 
understands from outreach efforts that applications are rarely complete 
at this stage, so many borrowers who complete an application might not 
receive notice that they have done so.
    The Bureau is proposing to add Sec.  1024.41(c)(3)(i) to require a 
servicer to provide a borrower a written notice, including specific 
information, promptly upon receiving the borrower's complete 
application. The notice must inform the borrower that the application 
is complete; the date the servicer received the complete application; 
whether a foreclosure sale was scheduled as of the date the servicer 
received the complete application and, if so, the date of that 
scheduled sale; and the date the borrower's foreclosure protections 
began under Sec.  1024.41(f)(2) and (g) as applicable, with a concise 
description of those protections. The notice must also include a 
statement that the servicer expects to complete its evaluation within 
30 days of the date it received the complete application and a 
statement that, although the application is complete, the borrower may 
need to submit additional information at a later date if the servicer 
determines that it is necessary. Finally, the notice must inform the 
borrower, if applicable, that the borrower will have the opportunity to 
appeal the servicer's determination to deny the borrower for any trial 
or permanent loan modification under Sec.  1024.41(h).
    Proposed Sec.  1024.41(c)(3)(ii) provides that a servicer is not 
required to provide the notice of complete application in three 
circumstances: if the servicer has already notified the borrower under 
Sec.  1024.41(b)(2)(i)(B) that the application is complete and the 
servicer has not subsequently requested additional information or a 
corrected version of a previously submitted document from the borrower 
to complete the application; the application was not complete or 
facially complete more than 37 days before a foreclosure sale; or the 
servicer has already provided a notice approving or denying the 
application under Sec.  1024.41(c)(1)(ii).
    The Bureau is also proposing commentary to explain certain aspects 
of the notice requirement under proposed Sec.  1024.41(c)(3). Proposed 
comment 41(c)(3)(i)-1 explains that, generally, a servicer complies 
with the requirement to provide a borrower with written notice promptly 
under

[[Page 74220]]

Sec.  1024.41(c)(3)(i) by providing the written notice within five days 
of receiving a complete application from the borrower. Proposed comment 
41(c)(3)(i)-2 states that the date the borrower's protections began 
under Sec.  1024.41(f)(2) and (g) must be the date on which the 
application became either complete or facially complete, as applicable. 
Finally, proposed comment 41(c)(3)(i)-3 explains that Sec.  
1024.41(c)(3)(i) requires a servicer to send a notification, subject to 
the exceptions under Sec.  1024.41(c)(3)(ii), every time a loss 
mitigation application becomes complete. That proposed comment further 
clarifies that if, after providing a notice under Sec.  
1024.41(c)(3)(i), a servicer requests additional information or 
corrections to a previously submitted document required to complete the 
application in accordance with Sec.  1024.41(c)(2)(iv), the servicer 
might have to provide an additional notice under Sec.  1024.41(c)(3)(i) 
if the borrower submits the additional information or corrected 
documents to complete the application.
    The Bureau believes that requiring servicers to provide borrowers 
with the information in the notice of complete application under 
proposed Sec.  1024.41(c)(3)(i) would ensure that borrowers are 
informed of the next steps in the evaluation process. The Bureau 
believes that receiving notice of when to expect an offer or denial 
will permit the borrower to make better-informed decisions. 
Additionally, the Bureau believes requiring, as does proposed Sec.  
1024.41(c)(3)(i)(B), that the notice of complete application indicate 
the date that the servicer received a complete application would limit 
confusion for both servicers and borrowers in determining which 
protections apply under Sec.  1024.41. Many of those protections begin 
when an application becomes complete, and the Bureau believes that 
borrowers will better understand those protections if the notice 
provides the date of completion. The Bureau also believes that Sec.  
1024.41(c)(3)(i)(F)'s requirement that the notice of complete 
application inform borrowers that they may need additional or updated 
information from the borrower after determining that the application 
was complete will reduce borrower confusion when and if the servicer 
requests such additional information.
    As noted above, proposed Sec.  1024.41(c)(3)(i) requires a servicer 
to provide the notice of complete application promptly upon receiving a 
complete application, and proposed comment 41(c)(3)(i)-1 explains that 
a servicer generally acts promptly by providing the written notice 
within five days of receiving a complete application. The Bureau 
believes that, generally, a servicer should be able to provide the 
notice required under proposed Sec.  1024.41(c)(3)(i) within five days 
of receiving the complete loss mitigation application from the 
borrower. However, the Bureau recognizes that servicers might sometimes 
require more than five days to determine whether a loss mitigation 
application is complete. The Bureau believes that the proposed comment 
provides servicers with sufficient flexibility to make an accurate 
determination but prevents undue delay. The Bureau believes that this 
approach is preferable to a stricter requirement that the notice must 
be provided within a specific number of days, without exception. The 
Bureau seeks comment on whether proposed Sec.  1024.41(c)(3)(i) should 
provide such a stricter timing requirement and, if so, whether five 
days is an appropriate general standard of promptness for purposes of 
Sec.  1024.41(c)(3)(i).
    Also as noted above, proposed comment 41(c)(3)(i)-3 clarifies that 
Sec.  1024.41(c)(3)(i) requires a servicer to send a notification every 
time a loss mitigation becomes complete during a single loss mitigation 
application process. The proposed comment includes an example 
describing a situation in which an application might become complete 
more than once because the servicer requests additional information or 
corrected documents after initially determining that the application 
was complete. Section 1024.41(c)(2)(iv) requires a servicer who has 
received an application that the servicer must treat as facially 
complete, and later discovers that additional information or 
corrections to a previously submitted document are required to complete 
the application, to request this information promptly. The Bureau 
believes that requiring a servicer to send an additional notification 
when the borrower submits additional information or corrected documents 
requested by the servicer would help ensure that a borrower has 
accurate and current information about the status of the loan and when 
to expect a servicer to complete the evaluation, which will help the 
borrower plan for the future.
    The Bureau notes that Sec.  1024.41(c)(2)(iv) was intended to 
address a limited set of circumstances where a servicer, subsequent to 
receiving the facially complete application, discovers that it requires 
additional information that was not previously requested by the 
servicer or corrections to a previously submitted document. The Bureau 
believes that repeated requests for additional documents and 
information by servicers could hamper borrower understanding of the 
loss mitigation process and impede borrower protections under the 
rules. To determine whether further rulemaking or guidance is required 
in this area, the Bureau will continue to monitor the market to 
evaluate whether and to what extent servicers are complying with Sec.  
1024.41(c)(2)(iv) by requesting such additional information or 
corrected documents only when such information is required.
    The Bureau is aware that servicers may incur some costs in 
providing the notice required under proposed Sec.  1024.41(c)(3). 
However, the Bureau notes that several servicers informed the Bureau 
during outreach efforts that they already provide a similar notice 
informing the borrower that an application is complete. For these 
servicers, proposed Sec.  1024.41(c)(3) would likely impose relatively 
little additional burden, limited to ensuring that the notices contain 
the requisite disclosures. For other servicers, the Bureau believes 
that the benefits to the borrower outweigh those costs associated with 
providing the notice, especially in light of the difficulty that 
borrowers have had in the past in obtaining useful information from 
servicers during the loss mitigation application process.\169\
---------------------------------------------------------------------------

    \169\ See 77 FR 57199, 57204 (Sept. 17, 2012) (discussing 
servicer failures in the loss mitigation application process).
---------------------------------------------------------------------------

    Moreover, the Bureau notes that four of the disclosures required 
under proposed Sec.  1024.41(c)(3)(i) would contain standardized 
language for every borrower, and servicers currently must be able to 
identify the information required in the remaining disclosures (the 
date the application is complete, that a foreclosure sale is scheduled, 
the date of that sale, and the date on which the borrower's foreclosure 
protections began) in order to comply with various requirements under 
Sec. Sec.  1024.40 and 1024.41. The Bureau believes that servicers may 
already be tracking this information in order to monitor compliance 
with the Mortgage Servicing Rules. Thus, providing the notice should 
not significantly burden servicers.
    Finally, as described above, the exceptions under proposed Sec.  
1024.41(c)(3)(ii) provide that a servicer is not required to provide 
the notice of complete application in three circumstances. These 
exceptions are as follows: if the servicer has already

[[Page 74221]]

notified the borrower under Sec.  1024.41(b)(2)(i)(B) that the 
application is complete and the servicer has since requested no 
additional information or a corrected version of a previously submitted 
document from the borrower; if the application was not complete or 
facially complete more than 37 days before a foreclosure sale; or if 
the servicer has already provided a notice approving or denying the 
application under Sec.  1024.41(c)(1)(ii). These exceptions are 
intended to avoid unnecessary burden on servicers and prevent borrower 
confusion due to the receipt of conflicting or redundant information.
    The Bureau seeks comment on whether the notice of complete 
application required under proposed Sec.  1024.41(c)(3) should include 
additional or different disclosures than those listed above.
    41(c)(4) Information Not in the Borrower's Control
    The Bureau is proposing to amend Sec.  1024.41(c)(1) and add Sec.  
1024.41(c)(4) to address a servicer's obligations with respect to 
information not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, it will offer a 
borrower.
    Under current Sec.  1024.41(c)(1), if a servicer receives a 
complete loss mitigation application more than 37 days before a 
foreclosure sale, the servicer shall, within 30 days of receipt, 
evaluate the borrower for all loss mitigation options available to the 
borrower and provide the notice required under Sec.  1024.41(c)(1)(ii). 
A complete loss mitigation application includes all the information the 
servicer requires from a borrower in evaluating applications for the 
loss mitigation options available to the borrower.\170\ Thus, a loss 
mitigation application may be complete notwithstanding that additional 
information may be required by a servicer that is not in the control of 
the borrower.\171\
---------------------------------------------------------------------------

    \170\ 12 CFR 1024.41(b)(1).
    \171\ See comment 41(b)(1)-5.
---------------------------------------------------------------------------

    As noted in the section-by-section analysis of Sec.  
1024.38(b)(2)(vi), the Bureau has learned through outreach that 
servicers do not always obtain necessary information not in the 
borrower's control in time to determine which loss mitigation options, 
if any, to offer a borrower within 30 days of receiving a complete loss 
mitigation application, as Sec.  1024.41(c)(1) requires. For example, 
servicers are occasionally unable to obtain homeowner association 
payoff information or approval from the loan owner, investor, or 
mortgage insurance company within 30 days after of receiving a complete 
application. Servicers and Federal agencies have informed the Bureau 
that such delay sometimes results from the servicer's failure to 
request the information promptly, and it sometimes results because the 
party with the information delays in providing it.
    Several servicers have expressed uncertainty about how to proceed 
in this circumstance. The Bureau understands that servicers have 
adopted different practices when this occurs. Some servicers have 
informed the Bureau that they exceed the 30-day evaluation timeframe in 
Sec.  1024.41(c)(1) and wait to receive the third-party information 
before making any decision on the application and sending the notice 
required by Sec.  1024.41(c)(1)(ii). One servicer informed the Bureau 
that it sends a denial notice to borrowers but also informs them that 
the servicer will reevaluate the application upon receipt of the third-
party information. Although both of these solutions do not appear to 
preclude a borrower from receiving loss mitigation, neither provides 
the borrower with clear information about the status of the application 
or whether the servicer will offer any loss mitigation options to the 
borrower.
    The Bureau is concerned that the absence of clear information about 
the status of the loss mitigation application may cause borrowers to 
abandon their pursuit of loss mitigation, or to be confused about their 
loss mitigation options and how they may pursue their rights under 
Sec.  1024.41. A delay in the evaluation of a borrower's complete loss 
mitigation application may cause the borrower's hardship to worsen and 
thereby reduce the likelihood that the servicer will offer the borrower 
a loss mitigation option, among other consumer harms.
    To address these concerns, the Bureau is proposing amendments to 
Sec.  1024.41 that would require servicers to exercise reasonable 
diligence to gather necessary information not in the borrower's control 
and would provide guidance to servicers to address situations where 
another party's delay in providing such information prevents a servicer 
from completing the loss mitigation evaluation within 30 days of 
receiving a complete application.
    First, the Bureau is proposing to amend Sec.  1024.41(c)(1) to 
provide that proposed Sec.  1024.41(c)(4)(ii) offers an exception to 
the general requirement that a servicer must evaluate a complete loss 
mitigation application received more than 37 days before a foreclosure 
sale within 30 days of receiving it from the borrower.
    Second, under proposed Sec.  1024.41(c)(4)(i), if a servicer 
requires documents or information not in the borrower's control, a 
servicer must exercise reasonable diligence in obtaining such documents 
or information. Proposed Sec.  1024.41(c)(4)(ii)(A) prohibits a 
servicer from denying a borrower's complete application solely because 
the servicer has not received documents or information not in the 
borrower's control. In addition, proposed Sec.  1024.41(c)(ii)(B) 
requires that if, 30 days after a complete loss mitigation application 
is received, a servicer is unable to determine which loss mitigation 
options, if any, it will offer the borrower because it lacks documents 
or information from a party other than the borrower or the servicer, 
the servicer must promptly provide the borrower a written notice 
stating the following: (1) That the servicer has not received documents 
or information not in the borrower's control that the servicer requires 
to determine which loss mitigation options, if any, the servicer will 
offer on behalf of the owner or assignee of the mortgage; (2) the 
specific documents or information that the servicer lacks; (3) the date 
on which the servicer first requested that documentation or information 
during the current loss mitigation application process; and (4) that 
the servicer will complete its evaluation of the borrower for all 
available loss mitigation options promptly upon receiving the 
documentation or information.
    Finally, proposed Sec.  1024.41(c)(4)(ii)(C) requires that, if a 
servicer is unable to determine which loss mitigation options, if any, 
to offer a borrower within 30 days of receiving a complete application 
due to lack of documents or information from a party other than the 
borrower or the servicer, upon receiving such documents or information, 
the servicer must promptly provide the borrower written notice stating 
the servicer's determination in accordance with Sec.  
1024.41(c)(1)(ii). Proposed comment 41(c)(4)(ii)(C)-1 clarifies that, 
in this circumstance, the servicer should not provide the borrower a 
written notice stating the servicer's determination until the servicer 
receives the documentation or information.
    The Bureau is also proposing comments to explain a servicer's 
obligations under proposed Sec.  1024.41(c)(4)(i)'s reasonable 
diligence standard with respect to gathering information not in the 
borrower's control. The proposed comments address a servicer's 
reasonable diligence obligations both upon receipt of a

[[Page 74222]]

complete loss mitigation application and where a servicer has not 
received third-party information within 30 days of a complete 
application. First, proposed comment 41(c)(4)(i)-1 explains that a 
servicer must act with reasonable diligence to collect information not 
in the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, it will offer the borrower. Proposed 
comments 41(c)(4)(i)-1.i and ii explain that a servicer must request 
such information from the appropriate person, at a minimum and without 
limitation: promptly upon determining that the servicer requires the 
documents or information to determine which loss mitigation options, if 
any, to offer the borrower; and, to the extent practicable, by a date 
that will enable the servicer to complete the evaluation within 30 days 
of receiving a complete application as set forth under Sec.  
1024.41(c)(1).
    Second, proposed comment 41(c)(4)(i)-2 explains that, if a servicer 
has not received documents or information not in the borrower's control 
within 30 days of receiving a complete loss mitigation application, the 
servicer acts with reasonable diligence by attempting to obtain the 
documents or information from the appropriate person as quickly as 
possible. The Bureau notes that this standard might require a servicer 
to act with more immediate urgency to obtain the necessary third-party 
information than would the standard set forth in comment 41(c)(4)(ii)-
1. The Bureau believes that this heightened standard is appropriate 
after the initial 30 days in order to keep the evaluation timeline as 
close as possible to the 30-day evaluation period under Sec.  
1024.41(c)(1). The Bureau believes that these proposed comments will 
result in shorter evaluation timelines by limiting servicer delay in 
the evaluation process.
    The Bureau believes that proposed Sec.  1024.41(c)(4)(ii)'s 
exception to the 30-day evaluation timeline should be narrowly tailored 
to avoid premature denials based solely on the absence of information 
not in the borrowers control, while requiring servicers to evaluate the 
complete application promptly upon receipt of such information. 
Proposed Sec.  1024.41(c)(4)(ii) includes three provisions that would 
operate together to achieve these objectives.
    First, proposed Sec.  1024.41(c)(4)(ii)(A) prohibits a servicer 
from denying a complete application solely because the servicer has not 
received documents or information not in the borrower's control. The 
Bureau understands that third parties sometimes delay providing 
information that the servicer requires to determine which loss 
mitigation options, if any, to offer the borrower, notwithstanding a 
servicer's reasonable diligence in obtaining such information. However, 
the Bureau believes that a borrower's loss mitigation application 
should not be denied solely because a party other than the borrower or 
the servicer does not timely supply information that the servicer 
requires. Several servicers have informed the Bureau that they do not 
deny the borrower's application under this circumstance, and at least 
one industry trade association has encouraged the Bureau to expressly 
sanction this practice. The Bureau agrees that this standard would be 
appropriate in order to prevent the borrower from losing the 
opportunity for loss mitigation due solely to third-party delay.
    Second, proposed Sec.  1024.41(c)(4)(ii)(B) provides that if, 30 
days after a complete application is received, the servicer is unable 
to make a determination as to which loss mitigation options, if any, it 
will offer to the borrower because the servicer lacks documents or 
information from a party other than the borrower or the servicer, the 
servicer must promptly provide a written notice to the borrower 
containing the disclosures listed above. The Bureau believes that the 
disclosures required by proposed Sec.  1024.41(c)(4)(ii)(B) would help 
avoid borrower confusion in many cases where the evaluation of a loss 
mitigation application is delayed under Sec.  1024.41(c)(4)(ii). For 
example, a borrower who had already received confirmation that the 
application was complete might be expecting a decision within 30 days, 
and without the notice required under proposed Sec.  
1024.41(c)(4)(ii)(B), the borrower might not receive subsequent 
notification regarding the status of the application prior to the 
servicer's decision on the application, even if there was significant 
delay due to the non-receipt of third-party information.
    The Bureau believes that requiring a servicer to provide the 
disclosures in proposed Sec.  1024.41(c)(4)(ii)(B) would reduce the 
burden on servicers associated with responding to a borrower's 
inquiries by providing greater clarity regarding the status of the 
application in this circumstance. The Bureau also believes that these 
disclosures would benefit both servicers and borrowers and promote 
compliance by making it easier for both parties to determine whether 
the servicer exercised reasonable diligence in obtaining third-party 
information as proposed Sec.  1024.41(c)(4)(i) provides. Further, the 
Bureau intends for the disclosures to reduce the number of inquiries 
borrowers submit to servicers pertaining to application status. This 
would reduce servicer burden and improve communication between 
borrowers and servicers.
    Third, proposed Sec.  1024.41(c)(4)(ii)(C) provides that if, due to 
a lack of documents or information from a party other than the borrower 
or the servicer, a servicer is unable to determine which loss 
mitigation options, if any, to offer a borrower within 30 days of 
receiving the complete application, upon receiving such documents or 
information, the servicer must promptly provide the borrower a written 
notice stating the servicer's determination in accordance with Sec.  
1024.41(c)(1)(ii). The Bureau believes that requiring a servicer to 
determine promptly which loss mitigation options, if any, to offer the 
borrower upon receiving delayed documents or information from a party 
other than the borrower or the servicer and to provide the borrower 
written notice of the servicer's determination promptly will reduce 
delay and is consistent with industry practice.
    Proposed comment 41(c)(4)(ii)-1 would clarify that the servicer 
must complete all possible steps in the evaluation process--including 
by taking all steps mandated by third-parties like mortgage insurance 
companies, guarantors, owners, or assignees--within 30 days of 
receiving a complete application, notwithstanding delay in receiving 
information from any third-party. The proposed comment would include 
the following clarifying example: if a servicer can determine a 
borrower's eligibility for all available loss mitigation options based 
upon the borrower's complete application subject only to approval from 
the mortgage insurance company, it must do so within 30 days of 
receiving the complete application notwithstanding the need to obtain 
such approval before offering any loss mitigation options to the 
borrower. The proposed comment is intended to prohibit a servicer from 
unnecessarily delaying the evaluation process because of delayed third-
party information. The Bureau is concerned that this type of servicer 
delay would increase the risk that the borrower's documents would go 
stale, possibly delaying the evaluation further while the hardship 
worsens.
    The Bureau notes that, while proposed Sec.  1024.41(c)(4)(i) and 
(ii)(A) refer to ``information not in the borrower's control,'' 
proposed Sec.  1024.41(c)(4)(ii)(B) and (C) refer only to ``information 
from a party other than

[[Page 74223]]

the borrower or the servicer.'' The Bureau believes that this 
distinction is appropriate given the different requirements that the 
proposed provisions would impose on servicers. Proposed Sec.  
1024.41(c)(4)(i) and (ii)(A), respectively, require a servicer to 
exercise reasonable diligence in obtaining any non-borrower 
information, and not deny the borrower solely because the servicer has 
not received such information. The Bureau believes that these 
protections are appropriate regardless of whether the missing 
information is in the control of the servicer or in the control of a 
third-party in order to ensure fair and efficient evaluation. However, 
proposed Sec.  1024.41(c)(4)(ii)(B) and (C) offer an exception to the 
30-day evaluation timeline provided under Sec.  1024.41(c)(1). The 
Bureau believes that such an exception should exist only when the 
servicer itself lacks control over the information and must seek it 
from a third-party over which the servicer does not have control. The 
Bureau therefore proposes to limit the extension of the evaluation 
timeline to circumstances in which neither the servicer nor the 
borrower is in control of the necessary information. Since a servicer 
can generally access information in its own control at any time, the 
Bureau believes that it would be inappropriate to offer an exception to 
the 30-day evaluation timeline required under Sec.  1024.41(c)(1) based 
upon a servicer's delay in doing so.
    The Bureau seeks comment to better understand the cause of delay in 
servicers receiving non-borrower information necessary to determine 
which loss mitigation options, if any, to offer a borrower. 
Specifically, the Bureau seeks comment on how servicers and third-
parties contribute to the delay, as well as which categories of non-
borrower information most frequently result in delay. Finally, the 
Bureau seeks comment on whether to limit the amount of time that a 
servicer must exercise reasonable diligence in attempting to obtain 
information not in the borrower's control.
41(f) Prohibition on Foreclosure Referral
41(f)(1) Pre-foreclosure Review Period
    The Bureau is proposing to amend Sec.  1024.41(f)(1)(iii) so that 
the prohibition on referral to foreclosure until after the 120th day of 
delinquency would not apply when a servicer is joining the foreclosure 
action of a senior lienholder. Although current Sec.  1024.41(f)(1) 
generally prohibits a servicer from making the first notice or filing 
required by applicable law to begin the foreclosure process unless a 
borrower's mortgage loan obligation is more than 120 days delinquent, 
the rule includes an exemption allowing a servicer to make a first 
notice or filing when the servicer is joining the foreclosure action of 
a subordinate lienholder. The proposed amendment to Sec.  
1024.41(f)(1)(iii) would similarly allow a servicer to make the first 
notice or filing before the loan obligation is 120 days delinquent when 
the servicer is joining the foreclosure action of a senior lienholder.
    In the September 2013 Mortgage Final Rule, the Bureau decided that, 
if a borrower is current on a mortgage secured by a senior lien but is 
being foreclosed on by a subordinate lienholder, it would be 
appropriate for the servicer of the mortgage secured by the senior lien 
to join the foreclosure action, even though the borrower may not be 
delinquent on the mortgage secured by the senior lien, because the 
first notice or filing would not be based upon a borrower's delinquency 
in this circumstance.\172\ The Bureau did not then consider the 
situation in which the servicer is joining the foreclosure action of a 
senior lienholder, and servicers have since asked the Bureau why the 
same rule does not apply in that situation. The Bureau believes that 
the same rationale makes it appropriate to expand the current exemption 
to circumstances in which the servicer is joining the foreclosure 
action of a senior lienholder. The Bureau believes that it would be 
appropriate for the servicer of the mortgage secured by the subordinate 
lien to join the foreclosure action, even though the borrower may not 
be delinquent on the mortgage secured by the subordinate lien, because 
the first notice or filing would not be based upon a borrower's 
delinquency with respect to the serviced loan. Further, expanding the 
exemption seems to present only minimal borrower protection concerns 
because the borrower would already be facing a foreclosure action on 
the property.
---------------------------------------------------------------------------

    \172\ See 78 FR 60381, 60406 (Oct. 1, 2013).
---------------------------------------------------------------------------

    The Bureau believes that the proposed rule would be helpful to 
servicers by making clear that the servicer of a subordinate lien may 
participate in the existing foreclosure action on a senior lien. The 
servicer's participation in the foreclosure action of a senior 
lienholder may allow the servicer to represent the servicer's interests 
in the existing foreclosure action more fully under some circumstances. 
Additionally, it may sometimes be necessary, when the same servicer is 
responsible for both the senior and subordinate lien, for the servicer 
to initiate foreclosure on the subordinate lien as part of the 
foreclosure action on the senior lien, in order to clear title on the 
property for the subsequent owner.\173\
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    \173\ If the servicer in this circumstance does not initiate 
foreclosure on the subordinate lien, the servicer may be deemed not 
to have joined the subordinate lienholder in the foreclosure action, 
causing the subordinate lien to remain on the property after 
foreclosure. See, e.g., Deutsche Bank Natl. Trust Co. v. Mark Dill 
Plumbing Co., 903 NE.2d 166, 169 (Ind. Ct. App. 2009), aff'd on 
rehearing, 908 NE. 2d 1273 (Ind. Ct. App. 2009) (``Foreclosure by a 
senior mortgagee does not affect the rights of a junior lienholder 
who was not made a party to the foreclosure action.''); Portland 
Mort. Co. v. Creditors Protective Ass'n, 262 P.2d 918, 922 (Or. 
1953) (``The omitted junior lienholder is in the same position as if 
no foreclosure had ever taken place, and he has the same rights, no 
more and no less, which he had before the foreclosure suit was 
commenced.'').
---------------------------------------------------------------------------

41(g) Prohibition on Foreclosure Sale
    The Bureau is proposing to revise comments 41(g)-1 and (g)-3 and 
add new comment 41(g)-5. Together these changes would clarify 
servicers' obligations with respect to Sec.  1024.41(g)'s prohibition 
against moving for foreclosure judgment or order of sale, or conducting 
a sale, during the evaluation of a complete loss mitigation application 
received more than 37 days before a foreclosure sale. The Bureau is 
also proposing to add commentary to clarify the requirements for 
policies and procedures under Sec.  1024.38(b)(3)(iii) as the 
requirements relate to the prohibition under Sec.  1024.41(g).
    Under Sec.  1024.41(g), if a borrower submits a complete loss 
mitigation application after a servicer has made the first notice or 
filing, but more than 37 days before a foreclosure sale, the servicer 
is prohibited from moving for foreclosure judgment or order of sale, or 
conducting a foreclosure sale, unless: (1) The servicer has sent the 
borrower a notice pursuant to Sec.  1024.41(c)(1)(ii) that the borrower 
is not eligible for any loss mitigation option and the appeal process 
under Sec.  1024.41(h) is not applicable, the borrower has not 
requested an appeal within 14 days, or the servicer has denied the 
borrower's appeal; (2) the borrower rejects all loss mitigation options 
offered by the servicer; or (3) the borrower fails to perform under an 
agreement on a loss mitigation option.
    Current comment 41(g)-1 explains that the prohibition on a servicer 
moving for judgment or order of sale includes making a dispositive 
motion for foreclosure judgment, such as a motion for default judgment, 
judgment on the pleadings, or summary judgment, which may directly 
result in a judgment of foreclosure or order of sale. The

[[Page 74224]]

comment further explains that a servicer that has made a dispositive 
motion before receiving a complete loss mitigation application has not 
moved for a foreclosure judgment or order of sale if the servicer takes 
reasonable steps to avoid a ruling on such motion or issuance of such 
order prior to completing the procedures required by Sec.  1024.41, 
notwithstanding whether any such step successfully avoids a ruling on a 
dispositive motion or issuance of an order of sale. Comment 41(g)-2 
provides that Sec.  1024.41(g) does not prevent a servicer from 
proceeding with any steps in the foreclosure process, so long as any 
such steps do not cause or directly result in the issuance of a 
foreclosure judgment or order of sale, or the conduct of a foreclosure 
sale, in violation of Sec.  1024.41. Comment 41(g)-3 explains that a 
servicer is responsible for promptly instructing foreclosure counsel 
retained by the servicer not to proceed with filing for foreclosure 
judgment or order of sale, or to conduct a foreclosure sale, in 
violation of Sec.  1024.41(g), when a servicer has a received a 
complete loss mitigation application. Such instructions may include 
instructing counsel to move for continuance with respect to the 
deadline for filing a dispositive motion.\174\
---------------------------------------------------------------------------

    \174\ Comment 41(g)-4 explains that although a servicer is not 
required to comply with the requirements in Sec.  1024.41 with 
respect to a loss mitigation application submitted 37 days or less 
before a foreclosure sale, a servicer is required separately, in 
accordance with policies and procedures maintained pursuant to Sec.  
1024.38(b)(2)(v), to properly evaluate a borrower who submits an 
application for a loss mitigation option for all loss mitigation 
options for which the borrower may be eligible pursuant to any 
requirements established by the owner or assignee of the borrower's 
mortgage loan. Such evaluation may be subject to requirements 
applicable to a review of a loss mitigation application submitted by 
a borrower 37 days or less before a foreclosure sale.
---------------------------------------------------------------------------

    Section 1024.41(g)'s prohibition applies to two distinct types of 
steps in the foreclosure process: moving for judgment or an order of 
sale and conducting a foreclosure sale. A servicer's obligations under 
Sec.  1024.41(g) will vary depending on whether the foreclosure is 
judicial or non-judicial. If the applicable foreclosure procedure is 
non-judicial and does not require any court proceeding or order, then 
there is only one step in the foreclosure process addressed by Sec.  
1024.41(g)--conducting the sale during a pending loss mitigation 
evaluation. However, in a judicial foreclosure proceeding, a servicer 
must comply with both the prohibition against making or proceeding on a 
dispositive motion and the prohibition against conducting the 
foreclosure sale.
    The Bureau proposed Sec.  1024.41(g) in the 2012 RESPA Servicing 
Proposal, after the mortgage crisis had revealed that servicers often 
``were ill-equipped to handle the high volumes of delinquent mortgages, 
loan modification requests, and foreclosures they were required to 
process.''\175\ The Bureau noted that evaluations of mortgage servicer 
practices had found that servicers failed to properly structure and 
manage third-party vendor relationships and noted that the failures had 
``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.''\176\ The Bureau also noted that, even 
before the mortgage crisis, servicers may have had ``financial 
incentives to foreclose rather than engage in loss mitigation.''\177\ 
The Bureau stated that one of the main goals in proposing Sec.  1024.41 
was prohibiting completion of the foreclosure process during a pending 
evaluation of a borrower's loss mitigation application and that the 
prohibition would ``eliminate the clearest harms on borrowers resulting 
from servicers pursuing loss mitigation and foreclosure proceedings 
concurrently.''\178\
---------------------------------------------------------------------------

    \175\ 77 FR 57199, 57203, 57266 (Sept. 17, 2012).
    \176\ Id. at 57249-50 (citing Press Release, Federal Reserve 
System, Office of the Comptroller of the Currency, and Office of 
Thrift Supervision, Interagency Review of Foreclosure Policies and 
Practices, at 5 (Apr. 2011), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf.)
    \177\ Id. at 57203 (Sept. 17, 2012).
    \178\ Id. at 57271.
---------------------------------------------------------------------------

    In adopting Sec.  1024.41(g) in the 2013 RESPA Servicing Final 
Rule, the Bureau included moving for judgment or order of sale in the 
foreclosure prohibition. The Bureau explained that the rule restricted 
```dual tracking,' where a servicer is simultaneously evaluating a 
consumer for loan modifications or other alternatives at the same time 
that it prepares to foreclose on the property.''\179\ The Bureau did 
not believe that Sec.  1024.41(g) would have a substantial impact on 
expected foreclosure timelines separate and apart from current market 
practices. However, the Bureau also believed that preventing the worst 
harms of dual-tracking would justify some disruption of foreclosure 
timelines.\180\
---------------------------------------------------------------------------

    \179\ 78 FR 10695, 10698 (Feb. 14, 2013).
    \180\ Id. at 10834.
---------------------------------------------------------------------------

    Since the Mortgage Servicing Rules went into effect, however, 
consumers have not always received the protections intended by Sec.  
1024.41(g). For instance, the Bureau has received reports that counsel 
retained by servicers to conduct the foreclosure proceeding lack 
current and accurate information about the completion of borrowers' 
loss mitigation applications. As a result, foreclosure counsel may not 
take adequate steps to avoid a judgment or order of sale and may fail 
to seek the delay or continuance of a sale when necessary to provide 
adequate time for the servicer to evaluate the loss mitigation 
application. In extreme cases, the Bureau has heard, foreclosure 
counsel may not represent accurately to the court the status of the 
loss mitigation application. Further, the Bureau has received reports 
that, even when servicers' foreclosure counsel take some steps to avoid 
a judgment or sale, they may fail to impress upon courts the 
significance of Sec.  1024.41(g)'s prohibition. All of these failures 
to act in accordance with Sec.  1024.41(g)'s requirements may result in 
the completion of foreclosure sales while the servicer is evaluating a 
borrower's complete loss mitigation application.
    The Bureau has received inquiries concerning what steps a servicer 
must take to comply with Sec.  1024.41(g) where a court orders a 
foreclosure sale date that does not afford sufficient time for the 
servicer to complete the evaluation process required by Sec.  
1024.41.\181\ The Bureau has learned that some courts are ruling on a 
pending dispositive motion and setting a date for the foreclosure sale, 
despite the servicer's attempts through counsel to delay the ruling or 
order. In many cases, the initially scheduled sale date may not provide 
the servicer adequate time to complete the loss mitigation evaluation 
and appeals process. Servicers indicate that in some instances courts 
are requiring that the foreclosure continue to a completed sale even 
when review of a complete loss mitigation application is underway. 
Media accounts as well as reports from consumer advocacy groups confirm 
that some courts may be refusing to continue cases when confronted with 
a motion to do so.\182\
---------------------------------------------------------------------------

    \181\ Many borrower protections under Sec.  1024.41 are 
determined as of the date a servicer receives a complete loss 
mitigation application from the borrower. See 12 CFR 1024.41(b)(3). 
Comment 41(b)(3)-1 explains that if a foreclosure sale is not 
scheduled as of the date a complete loss mitigation application is 
received the application is considered to have been received 90 days 
before a foreclosure sale. Thus, a servicer that receives a complete 
loss mitigation application before a foreclosure sale date is 
scheduled must provide the full loss mitigation evaluation 
procedures under Sec.  1024.41, the various steps of which generally 
provide for a total possible timeline of 88 days to complete.
    \182\ See, e.g., Alison Fitzgerald, Homeowners steamrolled as 
Florida courts clear foreclosure backlog, The Ctr. for Pub. 
Integrity, Sept. 10, 2014, available at http://www.publicintegrity.org/2014/09/10/15463/homeowners-steamrolled-florida-courts-clear-foreclosure-backlog.

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

[[Page 74225]]

    Current comment 41(g)-1 explains that a servicer does not violate 
Sec.  1024.41(g) where the servicer takes ``reasonable steps to avoid'' 
issuance of an order or ruling on a dispositive motion filed prior to 
receipt of the complete loss mitigation application from the borrower. 
However, there is no similar commentary explaining what, if any, 
``reasonable steps'' a servicer must take to avoid a violation of the 
prohibition under Sec.  1024.41(g) against conducting a sale after the 
servicer receives a complete loss mitigation application.
    As the Bureau noted in the 2013 RESPA Servicing Final Rule, Sec.  
1024.41(g) ``prohibit[s] a servicer from completing the foreclosure 
process if a borrower has submitted a timely and complete loss 
mitigation application . . . until the servicer has completed the 
evaluation of the borrower . . . .'' \183\ The Bureau believes that, 
regardless of the applicable foreclosure procedures, Sec.  1024.41(g) 
does not permit a servicer to stand by while a sale goes forward unless 
the servicer can satisfy one of the three conditions listed under Sec.  
1024.41(g)(1) through (3). Based upon the reports and information 
received, the Bureau is concerned that the absence of express 
commentary requiring a servicer to take affirmative steps to delay the 
sale may have encouraged some servicers to fail to instruct foreclosure 
counsel appropriately and, further, may lead courts to discount 
servicer obligations under the rule, depriving borrowers of the 
important consumer protections against dual tracking that are provided 
under Sec.  1024.41.
---------------------------------------------------------------------------

    \183\ 78 FR 10695, 10834 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Therefore, the Bureau is proposing to revise and add commentary to 
clarify the operation of Sec.  1024.41(g) in these situations. As 
revised, proposed comment 41(g)-1 clarifies that if, upon receipt of a 
complete loss mitigation application, a servicer or its foreclosure 
counsel fails to take reasonable steps to avoid a ruling on a pending 
motion for judgment or the issuance of an order of sale, the servicer 
must dismiss the foreclosure proceeding if necessary to avoid the sale. 
Proposed comment 41(g)-5 would clarify that Sec.  1024.41(g) prohibits 
a servicer from conducting a foreclosure sale, even if a person other 
than the servicer administers or conducts the foreclosure sale 
proceedings, and that servicers must take reasonable steps to delay the 
sale until one of the conditions under Sec.  1024.41(g)(1) through (3) 
is met.
    The Bureau is also proposing to revise comment 41(g)-3 to clarify 
servicers' obligations under Sec.  1024.41(g) when acting through 
foreclosure counsel. Similarly, the Bureau is proposing comment 
38(b)(3)(iii)-1 to clarify that policies and procedures required under 
Sec.  1024.38(b)(3)(iii) to facilitate sharing of information with 
service provider personnel responsible for handling foreclosure 
proceedings must be reasonably designed to ensure that servicer 
personnel promptly inform service provider personnel handling 
foreclosure proceedings that the servicer has received a complete loss 
mitigation application.
    The proposed comments, taken together, would clarify that, once a 
servicer receives a complete loss mitigation application, a servicer 
must take reasonable steps to avoid a ruling on a dispositive motion or 
issuance of a judgment or an order of sale, and also must take 
reasonable steps to delay a foreclosure sale until after the servicer 
has completed the loss mitigation evaluation procedures required by 
Sec.  1024.41. Where a servicer fails to take reasonable steps to avoid 
a ruling on a dispositive motion, to avoid issuance of a judgment or an 
order of sale, or to delay the foreclosure sale, or where the 
servicer's foreclosure counsel fails to take such steps, the servicer 
would have to dismiss the foreclosure proceeding, if dismissal is 
necessary to avoid completing the foreclosure during the pendency of 
the loss mitigation evaluation.
    The Bureau believes that the proposed revisions to the commentary 
will aid servicers in complying with Sec.  1024.41(g)'s prohibition and 
assist courts in applying the prohibition in foreclosure proceedings. 
The Bureau also believes that clarifying that a servicer must take 
affirmative reasonable steps, not only to delay issuance of a judgment 
or order, but also to delay the sale, will ensure that borrowers are 
protected from foreclosure during pending evaluations of complete loss 
mitigation applications. Further, the Bureau believes that it is 
appropriate to require a servicer to dismiss a foreclosure if necessary 
to permit completion of the loss mitigation evaluation procedures where 
the servicer or its foreclosure counsel has failed to take such 
reasonable steps. The Bureau believes that clarifying that dismissal is 
required if a servicer has failed to take reasonable steps on its own 
or through foreclosure counsel to avoid a ruling or to delay a 
foreclosure sale during a pending loss mitigation evaluation will 
incentivize servicers to develop more effective procedures to carry out 
the requirements of Sec.  1024.41(g). The Bureau believes that 
dismissal should rarely be necessary, given that servicers have it 
within their power to take all such reasonable steps to avoid a ruling 
on a dispositive motion, issuance of a judgment or an order of sale, or 
the conduct of a foreclosure sale.
    Under current comment 41(g)-1, a servicer that fails to take 
reasonable steps to avoid a ruling on a motion pending at the time the 
servicer receives a complete loss mitigation application violates Sec.  
1024.41(g)'s first prohibition against moving for judgment or order of 
sale. The Bureau believes that where a servicer fails to take 
reasonable steps to avoid a ruling on or issuance resulting from a 
dispositive motion, as postulated in current comment 41(g)-1, the 
servicer must still comply with the prohibition against conducting a 
sale. The completion of a foreclosure sale during the evaluation of a 
borrower's complete loss mitigation application is precisely the harm 
that the Bureau crafted Sec.  1024.41(g) to avoid. The Bureau believes 
that a servicer's failure to comply with one element of Sec.  
1024.41(g), the prohibition against proceeding on a dispositive motion, 
does not justify disregard for the prohibition against conducting a 
sale. Consequently, to emphasize the necessity of a servicer's taking 
reasonable steps to avoid a ruling or issuance of an order for sale 
when there is a pending loss mitigation evaluation, the Bureau is 
proposing to revise comment 41(g)-1 to provide explicitly that failure 
to take such steps requires dismissal if necessary to avoid the 
foreclosure sale.
    Proposed comment 41(g)-5 also clarifies that a servicer must seek 
to delay a foreclosure sale, notwithstanding the fact that a third-
party, such as a sheriff, trustee, or other public official, 
administers or conducts the sale proceedings, as is the case under 
foreclosure procedure in many States. The Bureau believes that any 
interpretation of Sec.  1024.41(g)'s prohibition against conducting a 
foreclosure sale that relieves servicers of a responsibility to act to 
prevent a foreclosure simply because the foreclosure procedure does not 
require the servicer itself to conduct or administer the sale is 
inconsistent with the purpose of Sec.  1024.41(g). The Bureau believes 
servicers already have an obligation to prevent a foreclosure sale 
under Sec.  1024.41(g)'s prohibition against the conduct of a 
foreclosure sale. The Bureau is proposing comment 41(g)-5 to

[[Page 74226]]

clarify a servicer's obligations under the prohibition, but is not 
adding a new requirement or interpretation.
    The Bureau recognizes that in some jurisdictions, it may be 
difficult for a servicer to delay a foreclosure sale after entry of 
foreclosure judgment or issuance of an order of sale. The Bureau also 
understands that courts may be reluctant to delay foreclosure 
proceedings when lengthy backlogs of foreclosure matters create added 
pressure to expedite dockets. The Bureau believes that, even in these 
situations, reasonable steps to delay the sale are available to 
servicers and to courts administering foreclosure proceedings. Proposed 
comment 41(g)-5 provides a non-exclusive explanation of what reasonable 
steps might include. For instance, the Bureau believes that in judicial 
foreclosure proceedings, a servicer, through its counsel, may make a 
motion to continue the sale, remove it from the docket, or place the 
proceeding in any administrative status that stays the sale.\184\ In 
non-judicial proceedings, the Bureau believes that servicers may have 
more control over the conduct of the sale and that analogous steps to 
those listed in proposed comment 41(g)-5 may apply. The Bureau seeks 
comment on what reasonable steps may be available to servicers to delay 
the conduct of a foreclosure sale under different foreclosure 
procedures.
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    \184\ As noted above, the maximum timeline for loss mitigation 
evaluations required by Sec.  1024.41 is 88 days. See note 179, 
supra. The Bureau believes that in most judicial foreclosure 
procedures, a delay of a foreclosure sale often will not require a 
substantial elongation of the typical time period between an order 
and a sale.
---------------------------------------------------------------------------

    Proposed comment 41(g)-3 explains that Sec.  1024.41(g)'s 
prohibitions on moving for judgment or order of sale or conducting a 
sale may require a servicer to take steps through foreclosure counsel, 
and that a servicer is not relieved of its obligations because the 
foreclosure counsel's actions or inaction cause a violation. The 
proposed revisions to comment 41(g)-3 are consistent with the Bureau's 
understanding of servicer's responsibilities under the Mortgage 
Servicing Rules whenever service providers are involved, including the 
policies and procedures requirements under Sec.  1024.38(b)(3). While 
the action or inaction of vendors or service providers may cause the 
violation in the first instance, the action or inaction of vendors or 
service providers does not change the servicer's responsibility for 
ensuring its compliance with the Mortgage Servicing Rules, whether 
directly or through service providers.
    Proposed comment 41(g)-3 further explains that if a servicer has 
received a complete loss mitigation application, the servicer must 
promptly instruct counsel not to make a dispositive motion for 
foreclosure judgment or order of sale; to take reasonable steps, where 
such a dispositive motion is pending, to avoid a ruling on the motion 
or issuance of an order of sale; and to take reasonable steps to delay 
the conduct of a foreclosure sale until the servicer satisfies one of 
the conditions in Sec.  1024.41(g)(1) through (3). The instructions to 
counsel may include instructing counsel to move for a continuance with 
respect to the deadline for filing a dispositive motion or to move for 
or request that the foreclosure sale be stayed, otherwise delayed, or 
removed from the docket, or that the foreclosure proceeding be placed 
in any administrative status that stays the sale. This list is not 
meant to be exhaustive, and the Bureau seeks comments on whether there 
are other helpful illustrative examples.
    The Bureau believes that the proposed revisions to comment 41(g)-3 
provide servicers, their foreclosure counsel, and courts with greater 
clarity with respect to the operation of Sec.  1024.41(g)'s 
prohibition. As the Bureau noted in its earlier guidance regarding 
service providers, the fact that an entity enters into a business 
relationship with a service provider does not absolve the entity of 
responsibility for complying with Federal consumer financial law to 
avoid consumer harm.\185\ The Bureau believes that codifying this 
principal in comment 41(g)-3 would ensure that servicers understand 
their obligations with respect to instructing foreclosure counsel 
promptly to take steps required by Sec.  1024.41(g). The Bureau 
understands that when a servicer receives an application shortly before 
a court hearing or while a dispositive motion is pending, timely 
communication with foreclosure counsel may necessitate expedited 
procedures. However, the Bureau believes that timely communication in 
such situations presents neither a novel challenge to lawyers and their 
clients, nor an insurmountable one, given modern communication 
technology.
---------------------------------------------------------------------------

    \185\ Consumer Fin. Prot. Bureau, CFPB Bulletin 2012-03, Service 
Providers (Apr. 13, 2012), available at http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
---------------------------------------------------------------------------

    Proposed comment 38(b)(3)(iii)-1 explains that the policies and 
procedures must be reasonably designed to ensure that servicer 
personnel promptly instruct foreclosure counsel to take any step 
required by Sec.  1024.41(g) sufficiently timely to avoid violating the 
prohibition against moving for judgment or order of sale or conducting 
a foreclosure sale. The Bureau believes that proposed comment 
38(b)(3)(iii)-1 will help to ensure that counsel are timely informed of 
the status of loss mitigation applications and can more effectively 
seek delay from a court of the issuance of an order or a foreclosure 
sale. Having policies and procedures to timely instruct counsel to take 
the actions required by Sec.  1024.41(g) will help servicers 
efficiently handle communication with a servicer's foreclosure counsel 
and ensure that the counsel accurately represents the status of loss 
mitigation applications and the obligations of servicers under Sec.  
1024.41(g) to courts handling foreclosure proceedings.\186\
---------------------------------------------------------------------------

    \186\ The Bureau notes that Sec.  1024.38(b)(1)(v) already 
requires servicers maintain policies and procedures reasonably 
designed to ensure that the servicer can 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.
---------------------------------------------------------------------------

    Though the proposed commentary clarifications do not alter existing 
requirements under Sec.  1024.41(g), the Bureau has considered the 
potential burdens for servicers in dismissing a foreclosure proceeding. 
In jurisdictions where significant foreclosure backlogs exist, 
dismissal may significantly delay completion of the foreclosure process 
(assuming no loss mitigation agreement is reached between the borrower 
and the servicer). In addition, in some jurisdictions a subsequent 
foreclosure brought by a servicer may encounter procedural challenges 
or defenses as a result of the dismissal. Nonetheless, the Bureau 
believes that dismissal is appropriate in the limited circumstances 
where a servicer fails to take reasonable steps to avoid a ruling or 
issuance of an order or delay the sale to protect borrowers from the 
dual-tracking harms Sec.  1024.41(g) aims to prevent. Moreover, the 
Bureau notes that dismissal is required only to avoid a violation of 
Sec.  1024.41(g) or to mitigate the harm to the consumer arising from 
the servicer's prior violation of Sec.  1024.41(g) in failing to take 
reasonable steps to delay a foreclosure sale. Thus, only those 
servicers that fail to act to delay issuance of the order or judgment 
would incur any costs related to dismissal. The Bureau believes that 
expressly clarifying that dismissal may be required would ensure that 
servicers take reasonable steps to avoid foreclosure sales. The Bureau 
seeks comment on whether the clarification is adequate or whether 
additional

[[Page 74227]]

clarification is necessary to protect borrowers from foreclosure.
    The Bureau requests comment on whether all of the proposed 
commentary clarifications are appropriate and whether the commentary 
provides sufficient clarity to ensure that the prohibition under Sec.  
1024.41(g) will effectively prevent foreclosures during a pending loss 
mitigation evaluation. In addition, the Bureau requests comment on 
whether there are any specific reasonable steps to comply with Sec.  
1024.41(g) that servicers should take, beyond re-scheduling or delaying 
the sale, removing the sale from the docket, or placing the foreclosure 
proceeding in any administrative status that stays the sale, where a 
court has ruled upon a dispositive motion. Finally, the Bureau requests 
comment on whether there are situations in which a servicer should 
dismiss a foreclosure proceeding to stop a sale even where the servicer 
has taken the reasonable steps outlined in Sec.  1024.41(g).
    The Bureau requests comment on whether the incorporation into the 
regulation text of any elements of the proposed commentary would aid 
servicers in complying with Sec.  1024.41(g). The Bureau believes that 
the proposed commentary would provide help in interpreting and 
complying with Sec.  1024.41(g). However, the Bureau also recognizes 
that incorporation in the regulation text itself may aid servicers, 
consumers, and courts in applying the prohibition.
41(i) Duplicative Requests
    Currently, Sec.  1024.41(i) requires a servicer to comply with the 
requirements of Sec.  1024.41 for only a single complete loss 
mitigation application for a borrower's mortgage loan account. Section 
1024.38(b)(2)(v) requires a servicer to maintain policies and 
procedures designed to ensure that the servicer can properly evaluate a 
borrower for all loss mitigation options ``for which the borrower may 
be eligible pursuant to any requirements established by the owner or 
assignee of the borrower's mortgage loan[.]'' In effect, therefore, 
unless investor guidelines require them to do so, servicers are not 
required to comply with the loss mitigation provisions in Sec.  1024.41 
if they previously complied with those requirements with respect to the 
same borrower's prior complete loss mitigation application.
    The Bureau is now proposing to revise Sec.  1024.41(i) to provide 
that servicers are required to comply with the requirements of Sec.  
1024.41 unless the servicer has previously complied with Sec.  1024.41 
for a borrower's complete loss mitigation application and the borrower 
has been delinquent at all times since the borrower submitted that 
complete application. As further explained below, the Bureau believes 
that requiring servicers to comply with Sec.  1024.41 again in these 
circumstances may serve an important consumer protection purpose by 
extending the protections of Sec.  1024.41 and promoting the use of 
uniform loss mitigation procedures for all borrowers. At the same time, 
the Bureau believes the proposed revision preserves servicer and 
borrower incentives to dedicate appropriate resources to an initial 
loss mitigation application.
    When the Bureau first proposed Sec.  1024.41 in the 2012 RESPA 
Servicing Proposal, it sought comment on whether a borrower should be 
entitled to a renewed evaluation for a loss mitigation option if an 
appropriate time period had passed since the initial evaluation or if 
there had been a material change in the borrower's financial 
circumstances. Industry commenters generally supported the Bureau's 
proposal to limit a servicer's obligation to comply with Sec.  1024.41 
to one time over the life of a borrower's loan. Consumer advocacy 
groups, however, argued that the Bureau should require servicers to 
review a subsequent loss mitigation submission when a borrower has 
demonstrated a material change in the borrower's financial 
circumstances.\187\
---------------------------------------------------------------------------

    \187\ See 78 FR 10695, 10836 (Feb. 14, 2013).
---------------------------------------------------------------------------

    In the 2013 RESPA Servicing Final Rule, the Bureau stated that it 
agreed with consumer advocacy groups that there are circumstances in 
which it is appropriate to reevaluate borrowers in light of a material 
change in financial circumstances. Further, it acknowledged that many 
owners or assignees of mortgage loans already require servicers to 
consider material changes in a borrower's financial circumstances.\188\ 
However, the Bureau noted that ``significant challenges exist to 
determine whether a material change in financial circumstances has 
occurred[,]'' and that, in contrast with investor or GSE guidelines, 
Sec.  1024.41 gives borrowers a private right of action to enforce its 
procedures.\189\ In addition, the Bureau stated its belief that 
limiting the loss mitigation procedures of Sec.  1024.41 to a single 
complete loss mitigation application provides borrowers with 
appropriate incentives to submit all relevant information up front and 
allows servicers to dedicate resources to those applications most 
likely to qualify for loss mitigation options. Accordingly, the Bureau 
adopted Sec.  1024.41(i) as proposed and required servicers to comply 
with the loss mitigation procedures in Sec.  1024.41 only once over the 
life of a mortgage loan.
---------------------------------------------------------------------------

    \188\ Id.
    \189\ Id.
---------------------------------------------------------------------------

    Since the publication of the 2013 RESPA Servicing Final Rule, the 
Bureau has received numerous requests to revise Sec.  1024.41(i) to 
require servicers to reevaluate borrowers who have experienced a change 
in financial circumstances and might therefore benefit from subsequent 
review of a new loss mitigation application under the requirements of 
Sec.  1024.41. The Bureau continues to have concerns with requiring 
reevaluations under the Mortgage Servicing Rules when there has been a 
``material change in financial circumstances,'' so is not proposing to 
do so in this rulemaking. However, continued industry monitoring 
efforts, outreach to stakeholders, and continued reports from consumers 
and consumer advocacy groups suggests that current Sec.  1024.41(i) may 
unfairly disadvantage a borrower who experiences multiple hardships 
over the life of a loan. The Bureau believes that a borrower may 
greatly benefit from the protections of Sec.  1024.41 for loss 
mitigation applications submitted in connection with each subsequent 
hardship. Moreover, the Bureau believes that revising Sec.  1024.41(i) 
to require servicers to reevaluate borrowers in certain circumstances 
under the requirements of Sec.  1024.41 would not place a significant 
additional burden on servicers because many servicers already 
reevaluate borrowers who reapply for loss mitigation using the 
procedures set forth in Sec.  1024.41.
    Based on this analysis, the Bureau is proposing to revise the 
current rule to require servicers to reevaluate borrowers under Sec.  
1024.41 in certain circumstances. However, as the Bureau explained in 
the 2013 RESPA Servicing Final Rule, the Bureau believes that a 
servicer's obligation to reevaluate borrowers under Sec.  1024.41 
should be limited in scope. Accordingly, proposed Sec.  1024.41(i) 
provides that servicers are required to comply with Sec.  1024.41 
unless the servicer has previously complied with Sec.  1024.41 for a 
borrower's complete loss mitigation application and the borrower has 
been delinquent at all times since the borrower submitted that complete 
application. That is, under proposed Sec.  1024.41(i), a servicer would 
be required to comply with Sec.  1024.41, even if it had previously 
complied with Sec.  1024.41 for a borrower's complete loss mitigation 
application, for a borrower who has been current on payments at

[[Page 74228]]

any time between the borrower's prior complete loss mitigation 
application and a subsequent loss mitigation application. This revision 
is intended to preserve borrower and servicer incentives to reach a 
timely, efficient, and effective resolution to a borrower's hardship 
the first time a borrower applies for loss mitigation.
    In addition, the Bureau believes that proposed Sec.  1024.41(i) 
bases a servicer's obligation to reevaluate a borrower under Sec.  
1024.41 on an objective, bright-line test. One of the Bureau's concerns 
about the suggestions to require reevaluations under the Mortgage 
Servicing Rules when there has been a ``material change in financial 
circumstances'' is that the standard would be dependent upon a 
servicer's subjective determination. The Bureau believes that the 
challenges in implementing and enforcing such a standard would outweigh 
any intended benefit to borrowers. However, an easy-to-administer 
standard such as the one proposed may promote servicer compliance and 
reduce confusion for both servicers and borrowers. The Bureau also 
believes that this proposal may encourage consistent implementation of 
the Mortgage Servicing Rules by discouraging servicers from applying 
different loss mitigation procedures depending on whether a borrower 
has been previously evaluated under Sec.  1024.41.
    For purposes of this proposal, the Bureau assumes that a permanent 
modification of a borrower's mortgage loan obligation effectively cures 
the borrower's pre-modification delinquency. In other words, the Bureau 
assumes that a borrower who is performing under a permanent 
modification does not meet the definition of delinquency that the 
Bureau is proposing to add to Sec.  1024.31. The Bureau seeks comment 
on whether there are types of permanent loan modifications or other 
circumstances for which this assumption would be inaccurate.
    Finally, the Bureau is revising the current commentary to Sec.  
1024.41(i), which addresses servicers' obligations following the 
transfer of servicing rights, to accommodate proposed Sec.  1024.41(k). 
Specifically, the Bureau is preserving the portion of comment 41(i)-1 
that obligates a transferee servicer to comply with Sec.  1024.41 
regardless of whether a transferor servicer previously evaluated a 
borrower's complete loss mitigation application. As set forth in the 
section-by-section analysis of Sec.  1024.41(k) below, the Bureau is 
proposing to move the balance of comment 41(i)-1, as revised, as well 
as comment 41(i)-2, as revised, into proposed Sec.  1024.41(k) and 
proposed new commentary.
    The Bureau seeks comment on the proposed revision to Sec.  
1024.41(i) generally. The Bureau specifically seeks comment on whether 
the borrower's right to a reevaluation should be contingent upon 
whether the borrower was current for a minimum period of time since the 
borrower's last-submitted complete loss mitigation application.
41(k) Servicing Transfers
    The Bureau is proposing Sec.  1024.41(k) to address the 
requirements applicable to loss mitigation applications pending at the 
time of a servicing transfer. Proposed Sec.  1024.41(k) provides that, 
subject to certain exceptions, a transferee servicer must comply with 
Sec.  1024.41's requirements within the same timeframes that were 
applicable to the transferor servicer. The proposed exceptions include 
a five-day extension of time for a transferee servicer to provide the 
written notification required by Sec.  1024.41(b)(2)(i)(B), and a 
provision ensuring that a transferee servicer that acquires servicing 
through an involuntary transfer has at least 15 days after the transfer 
date to evaluate a borrower's pending complete loss mitigation 
application. The proposal also provides that if a borrower's appeal 
under Sec.  1024.41(h) is pending as of the transfer date, a transferee 
servicer must evaluate the appeal pursuant to Sec.  1024.41(h) if it is 
able to determine whether it should offer the borrower the loan 
modification options subject to the appeal; a transferee servicer that 
is unable to evaluate an appeal must treat the appeal as a complete 
loss mitigation application and evaluate the borrower for all loss 
mitigation options available to the borrower from the transferee 
servicer.
    Currently, Sec.  1024.41 addresses transfers through the 
commentary. Comment 41(i)-1 provides that, among other things, 
documents and information transferred to a transferee servicer may 
constitute a loss mitigation application to the transferee servicer and 
may cause the transferee servicer to be required to comply with Sec.  
1024.41 with respect to a borrower's mortgage loan account. Comment 
41(i)-2 states that a transferee servicer must obtain documents and 
information a borrower submitted in connection with a loss mitigation 
application, and that a transferee servicer should continue the 
evaluation of a complete loss mitigation application to the extent 
practicable. Finally, comment 41(i)-2 also states that, for purposes of 
specific subsections in Sec.  1024.41, if a loss mitigation application 
is complete as to a transferee servicer, the transferee servicer is 
considered to have received the documents and information constituting 
the complete application as of the date the transferor servicer 
received the documents and information. The purpose of comment 41(i)-2 
is to ensure that a servicing transfer does not deprive a borrower of 
protections to which a borrower was entitled from the transferor 
servicer.\190\
---------------------------------------------------------------------------

    \190\ 78 FR 10695, 10837 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau interprets Sec.  1024.41 and comments 41(i)-1 and 2 as 
generally requiring a transferee servicer to stand in the shoes of the 
transferor servicer with respect to a loss mitigation application 
pending at transfer. A transferee servicer that receives a loss 
mitigation application as a result of a transfer should comply with 
Sec.  1024.41 within the timeframes that were applicable to the 
transferor servicer, and, as comment 41(i)-2 states, a borrower's 
protections are based upon when the transferor servicer received 
documents and information constituting a complete application. 
Nonetheless, by stating that the transferee should continue the review 
to the extent practicable, comment 41(i)-2 implies that there are times 
when a transferee servicer may not be able to continue the evaluation 
of a complete application.
    The Bureau is concerned that current Sec.  1024.41 and comments 
41(i)-1 and 2 may not provide sufficient clarity to servicers and 
borrowers regarding a transferee servicer's duties under Sec.  1024.41 
in certain circumstances. The Bureau has received questions about the 
timeframes in which a transferee servicer must act and whether a 
transferee servicer must provide notices to a borrower if the 
transferor servicer already provided the same notices. The Bureau has 
also received questions about a transferee servicer's responsibilities 
in the event that continuing the evaluation of a complete loss 
mitigation application is not practicable. Finally, through outreach 
and industry monitoring efforts, the Bureau has learned from servicers 
that complying with certain of Sec.  1024.41's requirements, such as 
the requirement in Sec.  1024.41(b)(2)(i)(B) to provide written 
notification to a borrower within five days after receiving a loss 
mitigation application, can be especially difficult in the transfer 
context.
    The Bureau believes that servicers and borrowers will benefit from 
greater clarity regarding a transferee servicer's obligations and a 
borrower's protections under Sec.  1024.41, including with respect to 
certain situations not currently discussed in Sec.  1024.41 and 
comments

[[Page 74229]]

41(i)-1 and 2. For example, the Bureau wishes to provide greater 
clarity regarding how transferee servicers should handle a pending 
appeal of a denial of a loan modification option, a pending offer of a 
loss mitigation option, and pending applications that are facially 
complete or become complete as of the transfer date. The Bureau also 
believes that under certain circumstances, it may be appropriate to 
provide a transferee servicer with an extension of time or flexibility 
in complying with Sec.  1024.41.
    The Bureau is therefore proposing Sec.  1024.41(k) to address the 
requirements applicable to a transferee servicer with respect to a loss 
mitigation application pending as of the transfer date. As explained 
below, proposed Sec.  1024.41(k) provides that, subject to certain 
exceptions, a transferee servicer must comply with Sec.  1024.41's 
requirements within the same timeframes that were applicable to the 
transferor servicer. The proposal also provides that if a borrower's 
appeal under Sec.  1024.41(h) is pending as of the transfer date, a 
transferee servicer must evaluate the appeal in accordance with Sec.  
1024.41(h) if it is able to determine whether it should offer the 
borrower the loan modification options subject to the appeal; a 
transferee servicer that is unable to evaluate an appeal must treat the 
appeal as a complete loss mitigation application and evaluate the 
borrower for all loss mitigation options available to the borrower from 
the transferee servicer.
    Proposed comment 41(k)-1 provides that a loss mitigation 
application is considered pending if it was subject to Sec.  1024.41 
and had not been fully resolved before the transfer date. The comment 
also clarifies that a pending application is considered pending 
complete application if, as of the transfer date, the application was 
complete under the transferor servicer's criteria. Thus, proposed 
comment 41(k)-1 is intended to avoid ambiguity about whether a loss 
mitigation application that was fully resolved by a transferor servicer 
would cause a transferee servicer to be required to comply with Sec.  
1024.41.
    While proposed Sec.  1024.41(k) specifies the timeframes in which a 
transferee servicer must comply with Sec.  1024.41's loss mitigation 
procedural requirements following a transfer, the Bureau expects that 
transferor servicers with policies and procedures adopted pursuant to 
Sec.  1024.38 will help enable transferee servicers' compliance with 
Sec.  1024.41. Section 1024.38(b)(4) requires a transferor servicer to 
have policies and procedures reasonably designed to ensure that it can 
timely transfer all information and documents in its possession or 
control related to a transferred mortgage loan to a transferee servicer 
in a form and manner that ensures the accuracy of the information and 
documents transferred. Section 1024.38(b)(4) further specifies that a 
transferor servicer's policies and procedures must be reasonably 
designed to ensure that the documents and information are transferred 
in a form and manner that ``enables a transferee servicer to comply 
with . . . applicable law.'' The Bureau therefore believes that a 
transferor servicer shares responsibility for enabling a transferee 
servicer to comply with Sec.  1024.41(k)'s requirements and ensuring 
that borrowers will not be adversely impacted by a servicing transfer. 
Accordingly, the Bureau at this time does not believe it is necessary 
to impose any specific requirements in Sec.  1024.41(k) with respect to 
transferor servicers. The Bureau will continue to monitor whether 
transferor servicers' practices raise consumer protection concerns that 
should be addressed through formal guidance or rulemaking.
41(k)(1) In General
    Proposed Sec.  1024.41(k)(1)(i) largely incorporates and clarifies 
existing comments 41(i)-1 and 2. It provides that a transferee servicer 
that acquires the servicing of a mortgage loan for which a loss 
mitigation application is pending as of the transfer date must comply 
with Sec.  1024.41's requirements for that application. Proposed Sec.  
1024.41(k)(1)(i) further states that subject to the exemptions set 
forth in Sec.  1024.41(k)(2) through (4), a transferee servicer must 
comply with Sec.  1024.41's requirements within the timeframes that 
were applicable to the transferor servicer. Finally, proposed Sec.  
1024.41(k)(1)(i) states that any protections under Sec.  1024.41(e) 
through (h), such as prohibitions on commencing foreclosure or 
conducting a foreclosure sale, that applied to a borrower before a 
transfer continue to apply notwithstanding the transfer.
    The purpose of proposed Sec.  1024.41(k)(1)(i) is to ensure that a 
transfer does not adversely affect a borrower who is pursuing loss 
mitigation options. A borrower generally has no control over whether 
and when a mortgage loan is transferred to another servicer. As the 
Bureau has previously observed, there is heightened risk inherent in 
transferring mortgage loans in loss mitigation.\191\ The Bureau 
believes that generally holding a transferee servicer to the same 
standards and timelines as a transferor servicer helps mitigate the 
risk of consumer harm.
---------------------------------------------------------------------------

    \191\ See 79 FR 63295, 63296 (Oct. 23, 2014).
---------------------------------------------------------------------------

    Proposed comment 41(k)(1)(i)-1.i incorporates a portion of existing 
comment 41(i)-2, stating that a transferee servicer must obtain from 
the transferor servicer documents and information a borrower submitted 
to a transferor servicer in connection with a loss mitigation 
application, consistent with policies and procedures adopted pursuant 
to Sec.  1024.38. The proposed comment also provides that a transferee 
must comply with the applicable requirements of Sec.  1024.41 with 
respect to a loss mitigation application received as a result of 
transfer, even if the transferor servicer was not required to comply 
with Sec.  1024.41 (because, for example, the transferor servicer was a 
small servicer or the application was a duplicative request under Sec.  
1024.41(i) for the transferor servicer).
    Proposed comment 41(k)(1)(i)-1.ii states that a transferee servicer 
must, in accordance with Sec.  1024.41(b), exercise reasonable 
diligence to complete a loss mitigation application received as a 
result of a transfer. The proposed comment further explains that in the 
transfer context, reasonable diligence includes ensuring that a 
borrower is informed of any changes to the application process, such as 
a change in the address to which the borrower should submit documents 
and information to complete the application, as well as ensuring that 
the borrower is informed about which documents and information are 
necessary to complete the application. Proposed comments 41(k)(1)(i)-
1.i and ii are intended to avoid any ambiguity about whether a 
transferee servicer is required to comply with Sec.  1024.41 with 
respect to loss mitigation applications received as a result of a 
transfer.
    Proposed comment 41(k)(1)(i)-2 mirrors the last sentence of current 
comment 41(i)-2, stating that for purposes of Sec.  1024.41(e) 
(borrower response), (f) and (g) (foreclosure protections), and (h) 
(appeal process), a transferee servicer must consider documents and 
information that constitute a complete application to have been 
received as of the date the transferor servicer received the documents 
and information. Proposed comment 41(k)(1)-2 further clarifies that an 
application that was facially complete with respect to a transferor 
servicer remains facially complete under Sec.  1024.41(c)(2)(iv) with 
respect to the transferee servicer as of the date it was facially 
complete with respect to the transferor servicer. It also clarifies

[[Page 74230]]

that if an application was complete with respect to the transferor 
servicer but is not complete with respect to the transferee servicer, 
the transferee servicer must treat the application as facially complete 
as of the date the application was complete with respect to the 
transferor servicer. The purpose of this comment is to ensure that a 
transfer does not affect the protections to which a borrower is 
entitled under Sec.  1024.41.
    Finally, proposed comment 41(k)(1)(i)-3 provides that a transferee 
servicer is not required to provide any notice required by Sec.  
1024.41 with respect to a particular loss mitigation application if the 
transferor servicer provided the notice to a borrower before the 
transfer. This comment is intended to address questions about whether a 
transferee servicer must resend a notice already provided by the 
transferor servicer as to a particular application.
    Proposed Sec.  1024.41(k)(1)(ii) provides that for purposes of 
Sec.  1024.41(k), the transfer date is the date on which the transfer 
of servicing responsibilities from the transferor servicer to the 
transferee servicer occurs. Proposed comment 41(k)(1)(ii)-1provides 
that the transfer date corresponds to the date transferee servicer will 
begin accepting payments relating to the mortgage loan, which already 
must be disclosed on the notice of transfer of loan servicing pursuant 
to Sec.  1024.33(b)(4)(iv).\192\ Proposed comment 41(k)(1)(ii)-1 
further clarifies that the transfer date is not necessarily the sale 
date for the transaction. As a result, the Bureau believes the proposed 
definition is consistent with the definition Fannie Mae employs in its 
servicing guide,\193\ and the Bureau believes that it reflects the 
industry's common understanding of the term.
---------------------------------------------------------------------------

    \192\ Section 1024.33(b)(4)(iv) requires the notice of transfer 
to include ``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.''
    \193\ See Fannie Mae, Servicing Guide Announcement SVC-2014-06, 
at 1 (May 9, 2014), available at https://www.fanniemae.com/content/announcement/svc1406.pdf.
---------------------------------------------------------------------------

    The Bureau solicits comment on the treatment of loss mitigation 
applications pending at transfer and whether it is appropriate to 
require a transferee servicer to comply with Sec.  1024.41 within the 
timeframes that were applicable to the transferor servicer. 
Additionally, the Bureau solicits comment on whether, following a 
transfer, a transferee servicer should be required to provide a 
borrower a written notice of what documents and information the 
transferee servicer needs to complete the application, regardless of 
whether the transferor servicer has provided such a notice.
41(k)(2) Acknowledgement Notices
    Proposed Sec.  1024.41(k)(2) provides that if a transferee servicer 
acquires the servicing of a mortgage loan for which the period to 
provide the notice required by Sec.  1024.41(b)(2)(i)(B) has not 
expired as of the transfer date, the transferee servicer must provide 
the notice within 10 days (excluding legal public holidays, Saturdays, 
or Sundays) after the date the transferor servicer received the 
application.
    Section 1024.41(b)(2)(i)(B) states that if a servicer receives a 
loss mitigation application 45 days or more before a foreclosure sale, 
a servicer must notify the borrower in writing within five days 
(excluding legal public holidays, Saturdays, or Sundays) that the 
servicer acknowledges receipt of the application and the servicer has 
determined that the application is complete or incomplete. If the 
application is incomplete, the notice must, among other things, 
identify the documents or information necessary to complete the 
application.
    The Bureau is concerned about a transferee servicer's ability to 
comply with Sec.  1024.41(b)(2)(i)(B) in the scenario where a 
transferor servicer receives a loss mitigation application and, before 
the time period in which to provide the notice required by Sec.  
1024.41(b)(2)(i)(B) expires, it transfers the mortgage loan to the 
transferee servicer, without providing the notice. In that situation, a 
transferee servicer would be required to provide the notice within five 
days (excluding legal public holidays, Saturdays, or Sundays) of when 
the transferor servicer received the application. Depending on the 
timing of the transfer, a transferee servicer might have as little as 
one day after the transfer date to provide this notice.
    Information the Bureau has gathered through its outreach and 
industry monitoring efforts confirms that a transferee servicer often 
has difficulty providing the notice required by Sec.  
1024.41(b)(2)(i)(B) within five days after the transferor servicer 
received a loss mitigation application. The Bureau understands that a 
transferee servicer typically requires several days to transition a 
mortgage loan file and related information onto its systems. A 
transferee servicer may be unable to transition this information and 
accurately review a loss mitigation application within the five-day 
time period specified in Sec.  1024.41(b)(2)(i)(B), particularly for 
applications received within a few days before transfer. As a result, 
the Bureau believes that in this situation, a transferee servicer 
acting diligently and in good faith may still be unable to timely 
comply with the requirements of Sec.  1024.41(b)(2)(i)(B).
    The Bureau is therefore proposing to allow transferee servicers up 
to an additional five days to comply with Sec.  1024.41(b)(2)(i)(B) 
with respect to applications pending as of the transfer date. 
Specifically, proposed Sec.  1024.41(k)(2) requires a transferee 
servicer to provide the notice required by Sec.  1024.41(b)(2)(i)(B) 
within 10 days (excluding legal public holidays, Saturdays, or Sundays) 
after the date the transferor servicer received a borrower's 
application.
    The Bureau believes that establishing a specific deadline for the 
transferee servicer to provide the notice required by Sec.  
1024.41(b)(2)(i)(B) may encourage transferor and transferee servicers 
to work together to streamline the transfer of documents. In 
particular, a specific deadline underscores the importance of Sec.  
1024.38(b)(4)(i), which requires a transferor servicer to have policies 
and procedures reasonably designed to ensure that it can timely 
transfer all information and documents in its possession or control 
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. Thus, the Bureau expects transferor servicers to 
timely and accurately identify and transfer all loss mitigation 
applications to transferee servicers. Further, the Bureau believes a 
firm compliance deadline may avoid unnecessary delays in the loss 
mitigation application process, while at the same time affording 
transferee servicers additional time to properly respond to a 
borrower's application.
    The Bureau also believes that this proposed extension would 
facilitate transferee servicers' compliance with Sec.  
1024.41(b)(2)(i)(B) while not materially affecting most borrowers. A 
borrower's protections under Sec.  1024.41(e) through (h) are 
determined by the date on which a servicer receives a borrower's 
complete application; extending the time for a transferee servicer to 
comply with Sec.  1024.41(b)(2)(i)(B) therefore could delay, but in 
most cases would not prevent, a borrower from obtaining those 
protections. Moreover, the proposed extension is for a relatively brief 
period of time, and the Bureau does not believe that a short delay in 
providing the Sec.  1024.41(b)(2)(i)(B) notice would significantly 
lengthen the loss mitigation application process. Finally, the Bureau 
believes that

[[Page 74231]]

allowing a transferee servicer some additional time to review a 
borrower's initial loss mitigation application may result in more 
accurate determinations regarding the documents and information needed 
to complete an application, which would ultimately benefit borrowers.
    Nonetheless, the Bureau recognizes that a delay in providing the 
Sec.  1024.41(b)(2)(i)(B) notice could impact a borrower in certain 
circumstances, such as when a servicer receives an incomplete loss 
mitigation application shortly before the 90th or 38th day before a 
foreclosure sale. In that instance, a borrower has an interest in 
completing the application as soon as possible to preserve the maximum 
protections available under Sec.  1024.41(e) through (h). Allowing a 
transferee servicer additional time to provide a borrower with a 
written notification of the documents and information required to 
complete an application could result in a borrower being asked to 
obtain and submit the documents in a just a few days, which generally 
would be considered impracticable.\194\
---------------------------------------------------------------------------

    \194\ See comment 41(b)(2)(ii)-1.
---------------------------------------------------------------------------

    The Bureau requests comment on whether borrowers currently have 
difficulty in obtaining and submitting required documents and 
information to complete an application that the servicer received 
shortly before the 90th or 38th day before a foreclosure sale, and 
whether the extension in proposed Sec.  1024.41(k)(2) would exacerbate 
such difficulties. The Bureau further requests comment on whether a 
transferee servicer that avails itself of the extension in proposed 
Sec.  1024.41(k)(2) should be required to give a borrower additional 
time to complete an application, such that the extension under Sec.  
1024.41(k)(2) would also give the a borrower additional time past the 
90th or 38th day before a foreclosure sale to submit a complete 
application and obtain the applicable protections under Sec.  
1024.41(e) through (h).
    The Bureau further requests comment on whether it is reasonable to 
require a transferee servicer to provide the written notification 
required by Sec.  1024.41(b)(2)(i)(B) within 10 days (excluding legal 
public holidays, Saturdays, or Sundays) from the date a transferor 
servicer received a loss mitigation application, or whether a shorter 
or longer period is more appropriate. Finally, if a longer period were 
appropriate, the Bureau requests comment on whether a transferee 
servicer that avails itself of such a longer extension should be 
required to give a borrower additional time to complete an application, 
such that an extension would also give the a borrower additional time 
past the 90th or 38th day before a foreclosure sale to submit a 
complete application and obtain the applicable protections under Sec.  
1024.41(e) through (h).
41(k)(3) Complete Loss Mitigation Applications Pending at Transfer
    Proposed Sec.  1024.41(k)(3)(i) provides that, with two exceptions, 
a transferee servicer that acquires the servicing of a mortgage loan 
for which a complete loss mitigation application is pending as of the 
transfer date must comply with the applicable requirements of Sec.  
1024.41(c)(1) and (4) within 30 days of the date the transferor 
servicer received the complete application. Thus, unless an exception 
applies, a transfer does not affect the time in which a borrower should 
receive a notice of which loss mitigation options, if any, a servicer 
will offer to the borrower. The Bureau believes that this proposed 
requirement may be necessary to ensure that a transfer does not 
adversely affect a borrower.
    Proposed comment 41(k)(3)(i)-1 clarifies a transferee servicer's 
obligations regarding an application that was complete with respect to 
the transferor servicer but for which the transferee servicer needs 
additional documentation or corrections to a previously submitted 
document to evaluate the borrower for all loss mitigation options based 
upon the transferee servicer's criteria. Specifically, the proposed 
comment clarifies that in this scenario and consistent with proposed 
Sec.  1024.41(c)(2)(iv), the application is facially complete as of the 
date it was first facially complete or complete, as applicable, with 
respect to the transferor servicer, and the borrower is entitled to all 
of the protections under Sec.  1024.41(c)(2)(iv). Additionally, once 
the transferee servicer receives the information or corrections 
necessary to complete the application, Sec.  1024.41(c)(3) requires the 
transferee servicer to provide a notice of complete application. 
Finally, the proposed comment clarifies that an application that was 
complete with respect to the transferor servicer remains complete even 
if the transferee servicer requests that a borrower resubmit the same 
information in the transferee servicer's specified format or make 
clerical corrections to the application. The comment further clarifies 
that a borrower's failure to resubmit such information or make such 
clerical corrections does not extend the time in which the transferee 
servicer must complete the evaluation of the borrower's complete 
application. The purpose of this comment is to clarify that a borrower 
does not lose protections under Sec.  1024.41, including foreclosure 
protections, if a transferee servicer determines that it needs 
additional documentation or corrections to a previously submitted 
document, and that a request to resubmit documents in a different 
format will not extend the time by which a borrower will receive a 
determination of which loss mitigation options the servicer will offer.
    Proposed comment 41(k)(3)(i)-2 addresses the reverse situation in 
which a borrower's loss mitigation application was incomplete based 
upon the transferor servicer's criteria prior to transfer but the 
transferee servicer determines that the application is complete based 
upon its own criteria. In that case, the proposed comment clarifies 
that the application is considered a pending loss mitigation 
application complete as of the transfer date for purposes of Sec.  
1024.41(k)(3), but complete as of the date the transferor servicer 
received the documents and information constituting the complete 
application for purposes of Sec.  1024.41(e) through (h). This comment 
is intended to avoid confusion about the timeframe in which the 
transferee servicer must evaluate a complete application and the date 
on which the borrower obtained protections under Sec.  1024.41.
    Proposed Sec.  1024.41(k)(3)(ii)(A) sets forth the first proposed 
exception to the requirement to comply with Sec.  1024.41(c)(1) and (4) 
within 30 days of the date the transferor servicer received the 
complete application. This proposed exception concerns involuntary 
transfers of servicing. The Bureau understands that a servicer that 
acquires servicing as a result of an involuntary transfer is less 
likely to be able to plan properly for a transfer, such as by engaging 
in pre-transfer due diligence, coordinating the delivery and onboarding 
of documents and information, or potentially negotiating contractual 
provisions requiring the transferor servicer to identify mortgage loans 
that are in active or pending loss mitigation. Additionally, 
involuntary transferee servicers may be more likely to receive loans 
from a failing or bankrupt servicer, which in turn may be more likely 
to have failed to maintain adequate records regarding borrowers' 
mortgage loans. As a result, an involuntary transferee servicer may be 
unable to complete the evaluation within 30 days of when the transferor 
servicer received the complete application.

[[Page 74232]]

    Therefore, proposed Sec.  1024.41(k)(3)(ii)(A) would allow a 
servicer that acquires servicing as a result of an involuntary transfer 
to comply with the applicable requirements of Sec.  1024.41(c)(1) and 
(4) within 30 days of the date the transferor received a complete loss 
mitigation application, or within 15 days of the transfer date, 
whichever is later. The Bureau believes that allowing an involuntary 
transferee servicer at least 15 days from the transfer date to comply 
would give the transferee servicer sufficient opportunity to obtain 
documents and information from a transferor servicer and complete the 
evaluation of a borrower's application. The Bureau also believes that 
this relatively brief proposed extension of time, when applicable, 
would impose only limited costs on borrowers. A borrower's protections 
under Sec.  1024.41(e) through (h) are established as of the date a 
servicer receives a complete application, and extending the time to 
evaluate the complete application would not alter those protections. 
Furthermore, allowing an involuntary transferee servicer a minimum of 
15 days after the transfer date to review a complete loss mitigation 
application may result in a more accurate evaluation, ultimately 
benefitting a borrower.
    Proposed Sec.  1024.41(k)(3)(ii)(B) provides that a transfer is 
involuntary when an unaffiliated investor or a court or regulator with 
jurisdiction requires, with less than 30 days advance notice, the 
transferor servicer to transfer servicing to another servicer and the 
transferor servicer is in breach of, or default under, its servicing 
agreement for loss mitigation related-servicing performance 
deficiencies or is in receivership or bankruptcy. This proposed 
definition builds on the definition of involuntary transfer used in the 
Department of the Treasury's HAMP directives, which encompasses 
transfers that are required by a court or regulator with 
jurisdiction.\195\ The Bureau believes, however, that including every 
investor-required transfer within the definition of involuntary 
transfer may be too broad for Sec.  1024.41's purposes, as it could be 
interpreted as including all investor flow agreements, which could 
cover transfers for which the transferee servicer is able to plan and 
conduct reasonable preparation. Accordingly, with respect to investor-
required transfers, the Bureau is proposing to limit the definition of 
involuntary transfer to those transfers that occur while the transferor 
servicer is in breach of, or in default under, its servicing agreement 
for loss mitigation related-servicing performance deficiencies. 
Further, the transferor servicer must have received the direction to 
transfer the loan thirty days or less before the transfer date. The 
Bureau believes that this definition will appropriately capture those 
transfers for which a transferee servicer may have difficulty timely 
complying with Sec.  1024.41(c)'s loss mitigation requirements.
---------------------------------------------------------------------------

    \195\ See Dep't of Treasury, Supplemental Directive 11-2, Making 
Home Affordable Program--Servicing Transfers (Dec. 27, 2011), 
available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1112.pdf.
---------------------------------------------------------------------------

    The second proposed exception concerns instances where a transferee 
servicer's completion of the evaluation within the timeframes set forth 
in proposed Sec.  1024.41(k)(3)(i) or (ii)(A), as applicable, is 
impracticable under the circumstances. The Bureau understands that due 
to the unique circumstances and complications that may arise in 
connection with a transfer, there may be times when, despite the 
transferee servicer's good faith efforts, it may be impracticable to 
comply with the timing requirements of Sec.  1024.41(k)(3)(i) or 
(ii)(A). In that situation, proposed Sec.  1024.41(k)(3)(iii) requires 
a transferee servicer to comply with the applicable requirements of 
Sec.  1024.41(c)(1) and (4) within a reasonably prompt time after 
expiration of the applicable time period in Sec.  1024.41(k)(3)(i) or 
(ii)(A). The Bureau expects that in most circumstances, it will be 
practicable for a transferee servicer to evaluate a complete 
application within the prescribed timeframes and that an extension will 
not be necessary or appropriate.
    The Bureau is also proposing comment 41(k)(3)(iii)-1, which 
clarifies that for purposes of Sec.  1024.41(k)(3)(iii), a servicer 
that complies with the applicable requirements of Sec.  1024.41(c)(1) 
and (4) within five days after the expiration of the applicable 
timeframe in proposed Sec.  1024.41(k)(3)(i) or (ii)(A) would generally 
be considered to have acted within a ``reasonably prompt time.'' As 
discussed in the section-by-section analysis of Sec.  1024.41(k)(2), 
servicing transfers can raise unique circumstances. The Bureau 
therefore believes that when it is impracticable for a transferee 
servicer to timely complete the evaluation of a borrower's pending 
complete loss mitigation application due to unforeseen complications 
arising from a transfer, a transferee servicer should be afforded 
additional time to complete the evaluation.
    The Bureau seeks comment on the treatment of complete applications 
pending at transfer. In particular, the Bureau seeks comment on whether 
it is ever necessary or appropriate to give transferee servicers an 
extension of time to evaluate complete applications. If an extension is 
necessary or appropriate, the Bureau seeks comment on which factors and 
circumstances, including but not limited to involuntary transfers, may 
require an extension, the appropriate length of any extension, and the 
burden transferee servicers should have to carry to demonstrate a need 
for the extension. The Bureau also seeks comment on what obstacles 
transferee servicers currently face in obtaining and evaluating pending 
loss mitigation applications and the problems faced by borrower who 
have applications pending at the time of a servicing transfer, as well 
as whether an extension of time to comply with Sec.  1024.41 following 
a transfer would ameliorate or exacerbate those problems.
41(k)(4) Applications Subject to Appeal Process
    Proposed Sec.  1024.41(k)(4) provides that if a borrower timely 
appeals a transferor servicer's denial of a loan modification option 
under Sec.  1024.41(h), a transferee servicer must evaluate the appeal 
if it is able to determine whether it should offer the borrower the 
loan modification options subject to the appeal. A transferee servicer 
that is unable to evaluate an appeal must treat the borrower's appeal 
as a pending complete loss mitigation application and comply with the 
requirements of Sec.  1024.41 for such application. Proposed Sec.  
1024.41(k)(4) would apply if a borrower made an appeal before the 
transfer date and the appeal remains pending as of the transfer date, 
or if the period for making an appeal under Sec.  1024.41(h) had not 
expired as of the transfer date and a borrower subsequently made a 
timely appeal.
    The Bureau believes that a transfer should not deprive a borrower 
of the right to appeal a servicer's denial of a loan modification 
option. As discussed in the 2013 RESPA Servicing Final Rule, borrowers 
and consumer advocacy groups dispute in many cases whether servicers 
have properly applied the requirements of loan modification 
programs.\196\ The terms of loan modification programs are complex, and 
the Bureau continues to believe that, as with any complex and unique 
process, servicers may make mistakes in evaluating borrowers' complete 
applications. Moreover, investors or

[[Page 74233]]

guarantors may be motivated to transfer servicing to a new servicer 
based on a determination that the new servicer is better able to 
evaluate borrowers for loss mitigation options. In that case, the 
Bureau believes that both a borrower and an investor or guarantor may 
benefit from the new servicer attempting to determine whether the 
transferor servicer mistakenly denied the borrower for a loan 
modification option.
---------------------------------------------------------------------------

    \196\ 78 FR 10695, 10835 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Therefore, proposed Sec.  1024.41(k)(4) provides that if a 
transferee servicer that acquires the servicing of a mortgage loan for 
which, as of the transfer date, a borrower's appeal under Sec.  
1024.41(h) is pending or a borrower's time period to appeal under Sec.  
1024.41(h) has not expired, the transferee servicer must evaluate the 
appeal if it is able to determine whether it should offer the borrower 
the loan modification options subject to the appeal. Proposed Sec.  
1024.41(k)(4)(i) further provides that, if a servicer is able to 
evaluate an appeal but it is not practicable under the circumstances to 
complete the determination within 30 days of when the borrower made the 
appeal, the transferee servicer must complete the evaluation of the 
borrower's appeal and provide the notice required by Sec.  
1024.41(h)(4) within a reasonably prompt time. Proposed comment 
41(k)(4)-2 clarifies that in general, a reasonably prompt time would be 
within an additional five days after the expiration of the original 30-
day evaluation window. Proposed Sec.  1024.41(k)(4)(i) thus imposes the 
same requirements on a transferee servicer to evaluate a pending appeal 
as a pending complete loss mitigation application. For the reasons 
discussed above, the Bureau believes that in some circumstances, a 
transferee servicer may need to exceed the 30-day evaluation window to 
complete the evaluation.
    The Bureau recognizes, however, that a transferee servicer may not 
always be able to determine whether a transferor servicer incorrectly 
denied the borrower for a loan modification option. For example, the 
transferee servicer may not have sufficient information about the 
evaluation criteria used by the transferor servicer, in particular when 
the transferor servicer denied a borrower for a loan modification 
option that the transferee servicer does not offer, or when the 
transferee servicer receives the mortgage loan file through an 
involuntary transfer and the transferor servicer failed to maintain 
proper records such that the transferee servicer does not have 
sufficient information to evaluate the appeal. The Bureau believes that 
such circumstances will be rare, that transferee servicers will 
generally be able to evaluate borrowers' appeals, and that borrowers 
will not be disadvantaged as a result of transfers. In those limited 
circumstances, however, proposed Sec.  1024.41(k)(4)(ii) requires the 
transferee servicer to treat the appeal as a pending complete loss 
mitigation application and evaluate the borrower for all options 
available to the borrower from the transferee servicer. For purposes of 
Sec.  1024.41(c) or (k)(2), as applicable, such a pending complete loss 
mitigation application would be considered received as of the date the 
appeal was received. For purposes of Sec.  1024.41(e) through (h), such 
a pending complete loss mitigation application would be considered 
facially complete as of the date the application was facially complete 
with respect to the transferor servicer.
    The Bureau believes that, in cases where the transferee servicer 
cannot evaluate the appeal, requiring the transferee servicer to 
reevaluate the borrower for all loss mitigation options that may be 
available to the borrower preserves the benefits of the appeal process 
for borrowers. Furthermore, the Bureau believes that the proposed 
requirement would not impose substantial burdens on transferee 
servicers because a transferee servicer is already required to comply 
with the requirements of Sec.  1024.41 regardless of whether the 
borrower received an evaluation of a complete loss mitigation 
application from the transferor servicer.\197\
---------------------------------------------------------------------------

    \197\ 12 CFR 1024.41(i); comment 41(i)-1.
---------------------------------------------------------------------------

    Proposed comment 41(k)(4)-1 notes that a transferee servicer may be 
unable to evaluate an appeal when, for example, the transferor servicer 
denied a borrower for a loan modification option that the transferee 
servicer does not offer or when the transferee servicer receives the 
mortgage loan file through an involuntary transfer and the transferor 
servicer failed to maintain proper records such that the transferee 
servicer lacks sufficient information to evaluate the appeal. The 
proposed comment also clarifies that if a transferee servicer is 
required to treat the appeal as a pending complete application, the 
transferee servicer must permit the borrower to accept or reject any 
loss mitigation options offered by the transferor servicer, in addition 
to the loss mitigation options, if any, that the transferee servicer 
determines to offer the borrower based on its own evaluation of the 
borrower's complete loss mitigation application. This proposed comment 
is intended to ensure that a transfer does not have the result of 
depriving a borrower of any loss mitigation options that were offered 
by the transferor servicer, and it is consistent with the treatment of 
pending loss mitigation offers in proposed Sec.  1024.41(k)(5).
    The Bureau requests comment on the treatment of appeals pending at 
transfer, including whether transferee servicers may need additional 
time to evaluate pending appeals, the extent to which transferee 
servicers are able to evaluate appeals of a transferor servicer's 
denial of a loan modification option, and whether a pending appeal 
should ever or always be treated as a new loss mitigation application 
such that a transferee servicer must evaluate the borrower for all 
available loss mitigation options. Additionally, the Bureau is 
concerned about the appropriate recourse when, if ever, a transferee 
servicer is unable to evaluate a borrower's appeal. The Bureau believes 
that treating the appeal as a pending complete application would 
provide benefits to borrowers, but the Bureau requests comment on 
whether such treatment would be in the borrower's best interests where, 
for example, the borrower's application documents may have gone stale 
or the borrower has little hope of being offered any loss mitigation 
option, and whether such treatment is inconsistent with applicable 
investor requirements.
41(k)(5) Pending Loss Mitigation Offers
    Proposed Sec.  1024.41(k)(5) provides that a transfer does not 
affect the borrower's ability to accept or reject a loss mitigation 
option offered under Sec.  1024.41(c) or (h). Specifically, the 
proposal states that if a transferor servicer offered the borrower a 
loss mitigation option and the borrower's time to accept or reject the 
offer had not expired as of the transfer date, a transferee servicer 
must allow the borrower to accept or reject the offer.
    Proposed comment 41(k)(5)-1 clarifies that a transferee servicer 
should expect that some borrowers will provide their acceptances to the 
transferor servicer and, pursuant to the policies and procedures 
maintained under Sec.  1024.38(b)(4), a transferee servicer should 
obtain those acceptances from the transferor servicer. For example, a 
borrower may be able to accept a trial modification agreement by making 
an initial payment of the modified amount. A borrower may timely send 
this payment to the transferor servicer instead of to the transferee 
servicer. In this situation, the Bureau believes that the transferee 
servicer must honor an acceptance that the borrower timely sent to the 
transferor servicer.

[[Page 74234]]

Legal Authority
    The Bureau proposes to rely on its authority under sections 
6(j)(3), 6(k)(1)(C), 6(k)(1)(E) and 19(a) of RESPA to propose these 
amendments to Sec.  1024.41. The proposed loss mitigation procedures 
are necessary and appropriate to achieve the consumer protection 
purposes of RESPA, including by requiring servicers to provide 
borrowers with timely access to accurate and necessary information 
regarding an evaluation for a foreclosure avoidance option and to 
facilitate the evaluation of borrowers for foreclosure avoidance 
options. Further, the proposed loss mitigation procedures implement, in 
part, a servicer's obligation to take timely action to correct errors 
relating to avoiding foreclosure under section 6(k)(1)(C) of RESPA by 
establishing servicer duties and procedures that must be followed where 
appropriate to avoid errors with respect to foreclosure.
    In addition, the Bureau relies on its authority pursuant to section 
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or 
appropriate to carry out the purposes and objectives of Federal 
consumer financial law, including the purposes and objectives of title 
X of the Dodd-Frank Act. Specifically, the Bureau believes that the 
proposed amendments to Sec.  1024.41 are necessary and appropriate to 
carry out the purpose under section 1021(a) of the Dodd-Frank Act of 
ensuring that markets for consumer financial products and services are 
fair, transparent, and competitive, and the objective under section 
1021(b) of the Dodd-Frank Act of ensuring that markets for consumer 
financial products and services operate transparently and efficiently 
to facilitate access and innovation. The Bureau additionally relies on 
its authority under section 1032(a) of the Dodd-Frank Act, which 
authorizes the Bureau to prescribe rules to ensure that features of any 
consumer financial product or service, both initially and over the 
terms 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.

Appendix MS

Appendix MS-3(A) through (D)--Model Forms for Force-Placed Insurance 
Notices
    The Bureau is proposing three sets of changes to the model forms 
for force-placed insurance notices, located at appendix MS-3(A) through 
(D). First, the Bureau proposes to amend MS-3(A) and (B) to align the 
model forms to the proposed amendments to Sec.  1024.37(c)(2)(v). As 
discussed in the section-by-section analysis of Sec.  1024.37(c)(2)(v), 
the Bureau is proposing to amend that provision to require the force-
placed insurance notice to state, as applicable, that the borrower's 
hazard insurance provides insufficient coverage and that the servicer 
does not have evidence that the borrower has hazard insurance that 
provides sufficient coverage. The Bureau is therefore proposing to make 
a corresponding change to the language in model forms MS-3(A) and (B), 
so that the forms include the statement ``your [hazard] [Insurance 
Type] insurance [is expiring] [expired] [provides insufficient 
coverage], and we do not have evidence that you have obtained new 
coverage.''
    Second, the Bureau is proposing a technical change to align the 
model forms with the requirements of Sec.  1024.37(c)(2)(ix)(A) and 
(e)(2)(viii)(A). Those provisions require the force-placed insurance 
initial, reminder, and renewal notices to include a statement that the 
insurance the servicer has purchased or purchases ``may cost 
significantly more than hazard insurance purchased by the borrower.'' 
Current model forms MS-3(A) through (D) omit the word 
``significantly.'' The Bureau is proposing to amend model forms MS-3(A) 
through (D) to add the word significantly, such that each model form 
would track the language of Sec.  1024.37(c)(2)(ix)(A) and 
(e)(2)(viii)(A).
    Third, the Bureau is proposing a technical change to MS-3(D) to 
align the model form with the requirements of Sec.  1024.37(e)(3), 
which requires servicers to provide certain information on the form in 
bold text.
Legal Authority
    The Bureau is proposing to exercise its authority under section 
6(k)(1)(E) of RESPA to amend the model forms in appendix MS-3(A) 
through (D) to Part 1024 of Regulation X. For the reasons given above, 
the Bureau believes that the amendments to the model forms for the 
force-placed insurance notices are appropriate to align the text of the 
model forms with the disclosures required by Sec.  1024.37.
Appendix MS-4--Model Clause for the Written Early Intervention Notice
    Proposed model clause MS-4(D) in appendix MS-4 illustrates the 
disclosures required under proposed Sec.  1024.39(d)(2)(iii)(A). The 
Bureau has developed proposed model clause MS-4(D) to assist servicers 
that are subject to the FDCPA with respect to a borrower who has 
invoked the FDCPA's cease communication protections in complying with 
the modified written early intervention notice required by Sec.  
1024.39(d)(2)(iii). As discussed in the section-by-section analysis of 
Sec.  1024.39(d)(2), proposed Sec.  1024.39(d)(2)(iii) requires that 
the written early intervention notice include a statement that the 
servicer may or intends to invoke its specified remedy of foreclosure 
pursuant to section 805(c)(2) or (3) of the FDCPA. Proposed model 
clause MS-4(D) may be used to comply with this requirement. 
Specifically, proposed model clause MS-4(D) states, ``This is a legally 
required notice sent to borrowers who are at least 45 days delinquent. 
We have a right to invoke foreclosure. Loss mitigation or other 
alternatives may be available to help you avoid losing your home.'' The 
Bureau seeks comment on whether proposed model clause MS-4(D) is 
appropriate, and whether alternate or additional model clauses would be 
helpful to borrowers and servicers in this context.

Legal Authority

    The Bureau is proposing to exercise its authority under section 
6(k)(1)(E) of RESPA and section 814(d) of the FDCPA to add new model 
clause MS-4(D) in appendix MS-4 to Part 1024 of Regulation X. For the 
reasons discussed in the section-by-section analysis of Sec.  
1024.39(d)(2), the Bureau believes that requiring a servicer to provide 
the modified written early intervention notice if loss mitigation 
options are available is a reasonable interpretation of the exceptions 
under section 805(c)(2) and (3) of the FDCPA, which permit a debt 
collector to communicate with a consumer who has invoked the cease 
communication protections to notify the consumer that the debt 
collector or creditor may invoke specified remedies which are 
ordinarily invoked or intends to invoke a specified remedy.

C. Regulation Z

Section 1026.2 Definitions and Rules of Construction

Paragraph (a)(11)

    As noted in part V.A., the Bureau is proposing that all of the 
Mortgage Servicing Rules apply to confirmed successors in interest. 
Accordingly, similar to proposed Sec.  1024.30(d) with respect to 
Regulation X's mortgage servicing rules,\198\ proposed

[[Page 74235]]

Sec.  1026.2(a)(11) defines the term consumer to include a successor in 
interest once a servicer confirms the successor in interest's identity 
and ownership interest in the dwelling for the purposes of Regulation 
Z's mortgage servicing rules--Sec. Sec.  1026.20(c) through (e), 
1026.36(c), and 1026.41. Confirmed successors in interest covered by 
proposed Sec.  1026.2(a)(11) would not necessarily have assumed the 
mortgage loan obligation (i.e., legal liability for the mortgage debt) 
under State law.\199\
---------------------------------------------------------------------------

    \198\ See section-by-section analysis of Sec.  1024.30(d), 
supra.
    \199\ As indicated in part V.A., supra, the Bureau understands 
that whether a successor in interest has assumed a mortgage loan 
obligation (i.e., legal liability for the mortgage debt) under State 
law is a fact-specific question.
---------------------------------------------------------------------------

    As described in part V.A., the Bureau is proposing this change 
because the Bureau believes, based on repeated reports from consumers, 
consumer advocacy groups, and other stakeholders, that successors in 
interest face many of the challenges that Regulation Z's mortgage 
servicing rules were designed to prevent. Because a successor in 
interest is a homeowner whose dwelling is subject to foreclosure if the 
mortgage loan obligation is not satisfied, the Bureau believes that the 
same reasons supporting the Bureau's adoption of the 2013 TILA 
Servicing Final Rule support proposed Sec.  1026.2(a)(11).
    The Bureau believes that it is appropriate to limit the application 
of this portion of the proposed rule to successors in interest whom 
servicers have confirmed have an ownership interest in the dwelling. 
Because some people representing themselves as successors in interest 
may not actually have an ownership interest in the dwelling, the Bureau 
believes that requiring servicers to apply Regulation Z's mortgage 
servicing rules' communication and disclosure requirements to 
successors in interest before servicers have confirmed the successor in 
interest's identity and ownership interest in the dwelling may present 
privacy and other concerns. For the same reason, the Bureau also 
believes it is inappropriate to require servicers to incur substantial 
costs before confirming the successor in interest's identity and 
ownership interest in the dwelling.
    The Bureau has considered each of Regulation Z's mortgage servicing 
rules and believes that each portion should apply to confirmed 
successors in interest. The Bureau also generally believes that it 
would add unnecessary complexity to the rules to require servicers to 
apply some but not all of Regulation Z's mortgage servicing rules to 
confirmed successors in interest. The Bureau believes it is preferable 
to apply all of Regulation Z's mortgage servicing rules to confirmed 
successors in interest, unless there is a compelling reason not to 
apply a particular rule.
    With respect to Sec.  1026.20(c) through (e), under proposed Sec.  
1026.2(a)(11), once a servicer confirms a successor in interest's 
identity and ownership interest in the dwelling, the servicer would be 
required to provide successors in interest with ARM disclosures under 
Sec.  1026.20(c) and (d) and with escrow account cancellation notices 
under Sec.  1026.20(e).\200\ The Bureau believes that the disclosures 
required by Sec.  1026.20(c) through (e) would provide successors in 
interest with important information to allow the successor in interest 
to keep the mortgage loan current, which in turn will help the 
successor in interest avoid foreclosure. Further, because servicers are 
already required to comply with Sec.  1026.20(c) through (e) with 
respect to prior consumers, any additional cost to servicers to apply 
these requirements to successors in interest would be minimal. The 
Bureau believes that the cost would be limited to updating servicer 
systems initially, adding individual successors in interest to the 
system on an ongoing basis, and printing and mailing costs, if any. The 
Bureau believes that the resulting consumer protection of this 
vulnerable group justifies the additional cost to servicers.
---------------------------------------------------------------------------

    \200\ Section 1026.20(e) will become effective on August 1, 
2015. See Integrated Mortgage Disclosures Under the Real Estate 
Settlement Procedures Act (Regulation X) and the Truth In Lending 
Act (Regulation Z), 78 FR 79730, 79732, 80328-29 (Dec. 31, 2013). 
Section 1026.20(c) and (d) apply with respect to ``a closed-end 
consumer credit transaction secured by the consumer's principal 
dwelling,'' and Sec.  1026.20(e) applies with respect to ``a closed-
end consumer credit transaction secured by a first lien on real 
property or a dwelling.'' Accordingly, with respect to successors in 
interest under proposed Sec.  1026.2(a)(11), Sec.  1026.20(c) and 
(d) would apply with respect to a mortgage loan secured by the 
successor in interest's principal dwelling, and Sec.  1026.20(e) 
would apply in connection with a mortgage loan secured by a first 
lien on real property or a dwelling.
---------------------------------------------------------------------------

    The Bureau solicits comment on whether Sec.  1026.20(c) through (e) 
should not apply with respect to successors in interest. The Bureau 
also solicits comment on whether, in the case of consumer death, the 
servicer should continue providing disclosures to the consumer's estate 
until a successor in interest's status has been confirmed.
    With respect to Sec.  1026.36(c), under proposed Sec.  
1026.2(a)(11), once a servicer confirms a successor in interest's 
identity and ownership interest in the dwelling, the servicer would be 
required to comply with Sec.  1026.36(c)'s requirements regarding 
payment processing, the prohibition on pyramiding of late fees, and 
payoff statements with respect to the successor in interest.\201\ The 
Bureau believes that Sec.  1026.36(c)'s protections would help 
successors in interest maintain ownership of their homes; successors in 
interest, as owners of a dwelling securing a mortgage loan, may be 
required to make payments on the loan to avoid foreclosure. As noted in 
part V.A., the Bureau has heard from consumers and consumer advocacy 
groups that some servicers have refused to accept payments from 
successors in interest, which in turn may lead to delinquency on the 
mortgage loan and, eventually, foreclosure. The Bureau believes that 
applying Sec.  1026.36(c)'s prompt crediting requirements to confirmed 
successors in interest would alleviate this problem. The Bureau also 
believes that providing successors in interest with access to the 
loan's payoff balance would serve to keep successors in interest 
informed about the mortgage loan secured by the dwelling and would help 
prevent unnecessary foreclosure, as the payoff balance is the amount 
that ultimately must be paid to prevent the servicer from foreclosing 
on the dwelling.\202\ The Bureau also believes that because successors 
in interest, as owners of a dwelling securing a mortgage loan, may be 
required to make payments on the loan to avoid foreclosure, the 
prohibition on pyramiding of late fees would serve TILA's purpose of 
``protect[ing] consumers against inaccurate and unfair credit billing 
practices.'' \203\
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    \201\ Section 1026.36(c)(1) and (2) apply in connection with ``a 
consumer credit transaction secured by a consumer's principal 
dwelling,'' and Sec.  1026.36(c)(3) applies in connection with ``a 
consumer credit transaction secured by a consumer's dwelling.'' 
Accordingly, with respect to successors in interest under proposed 
Sec.  1026.2(a)(11), Sec.  1026.36(c)(1) and (2) would apply in 
connection with a mortgage loan secured by a consumer's principal 
dwelling, and Sec.  1026.36(c)(3) would apply in connection with a 
mortgage loan secured by a consumer's dwelling.
    \202\ For the reasons discussed in the section-by-section 
analysis of Sec.  1024.30(d), supra, the Bureau believes that 
providing confirmed successors in interest with payoff balances does 
not present privacy concerns.
    \203\ 78 FR 10901, 10914 (Feb. 14, 2013) (quoting 15 U.S. C. 
1601(a)).
---------------------------------------------------------------------------

    Additionally, because Sec.  1026.36(c) already requires servicers 
to comply with these requirements with respect to prior consumers, the 
Bureau believes that the additional cost to servicers to apply these 
requirements to successors in interest will be relatively minimal. In 
any event, the Bureau believes that providing these consumer 
protections to

[[Page 74236]]

this vulnerable group justifies the additional cost to servicers.
    The Bureau solicits comment on whether certain parts of Sec.  
1026.36(c) should apply with respect to successors in interest even if 
the servicer has not confirmed the successor in interest's identity and 
ownership interest in the dwelling. Further, the Bureau solicits 
comment on whether certain parts of Sec.  1026.36(c) should not apply 
with respect to confirmed successors in interest.
    With respect to Sec.  1026.41, under proposed Sec.  1026.2(a)(11), 
once a servicer confirms a successor in interest's identity and 
ownership interest in the dwelling, the servicer would be required to 
provide the successor in interest with ongoing periodic statements 
required under Sec.  1026.41.\204\ As described in part V.A, the Bureau 
is proposing this change because the Bureau has received repeated 
reports from consumers and consumer advocacy groups that successors in 
interest face many of the challenges that Regulation Z's mortgage 
servicing rules were designed to prevent. Specifically, when the Bureau 
issued the periodic statement requirement in the 2013 TILA Servicing 
Final Rule, the Bureau stated that the periodic statement ``serve[s] a 
variety of important purposes, including informing consumers of their 
payment obligations, providing information about the mortgage loan, 
creating a record of transactions that increase or decrease the 
outstanding balance, providing information needed to identify and 
assert errors, and providing information when consumers are 
delinquent.'' \205\ The Bureau believes that receiving periodic 
statements would serve these same purposes for successors in interest, 
who as homeowners of a dwelling securing a mortgage loan may be 
required to make payments on the loan to avoid foreclosure.
---------------------------------------------------------------------------

    \204\ Section 1026.41 applies with respect to ``a closed-end 
consumer credit transaction secured by a dwelling.'' Accordingly, 
with respect to successors in interest under proposed Sec.  
1026.2(a)(11), Sec.  1026.41 would apply with respect to a mortgage 
loan secured by a dwelling.
    \205\ 78 FR 10901, 10959 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Further, because Sec.  1026.41 already requires servicers to send 
periodic statements to the prior consumer, the Bureau believes that the 
additional cost to servicers to apply these requirements to successors 
in interest will be minimal. The Bureau believes that the cost would be 
limited to updating servicer systems initially, adding individual 
successors in interest to the system on an ongoing basis, and printing 
and mailing costs, if any. In any event, the Bureau believes that 
providing consumers who have an ownership interest in a property with 
detailed information about the status of the loan secured by the 
property justifies the additional cost.
    The Bureau solicits comment on whether Sec.  1026.41 should provide 
that, in the case of consumer death, the servicer should continue 
providing periodic statements to the consumer's estate until a 
successor in interest's status has been confirmed.
    Proposed commentary. Proposed comment 2(a)(11)-1 provides that, 
even after a servicer confirms a successor in interest's status, the 
servicer is still generally required to comply with the requirements of 
Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41 with respect 
to the prior consumer. The proposed comment indicates, however, that a 
servicer is not required to comply with the requirements of Sec. Sec.  
1026.20(c) through (e) and 1026.41 if the prior consumer also has 
either died or has been released from the obligation on the mortgage 
loan, and a servicer is not required to comply with the requirements of 
Sec.  1026.36(c) if the prior consumer also has been released from the 
obligation on the mortgage loan. The proposed comment also provides 
that the prior consumer retains any rights under Sec. Sec.  1026.20(c) 
through (e), 1026.36(c), and 1026.41 that accrued prior to the 
confirmation of the successor in interest to the extent these rights 
would otherwise survive the prior consumer's death or release from the 
obligation.
    The Bureau is proposing this comment because the Bureau believes 
that Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41 would 
still provide valuable information and protections to prior consumers 
even after confirmation of a successor in interest. In particular, 
because the prior consumer may remain liable on the mortgage loan even 
after a successor in interest is confirmed and so still has significant 
legal interests at stake, the Bureau believes that it would be 
appropriate for the prior consumer to continue receiving the 
information and protections of Sec. Sec.  1026.20(c) through (e), 
1026.36(c), and 1026.41.
    The Bureau acknowledges that, under this proposed comment, 
servicers will sometimes be required to comply with Regulation Z's 
mortgage servicing rules with respect to more than one person--both the 
prior consumer and the successor in interest, as well as, in some 
cases, multiple successors in interest who each acquire an ownership 
interest in a dwelling. The Bureau notes that, under the Mortgage 
Servicing Rules, it is already the case that the rules may apply with 
respect to more than one consumer for a particular mortgage loan. It is 
quite common for more than one consumer (for example, spouses) to be 
obligated on the mortgage note, and the Mortgage Servicing Rules apply 
with respect to each consumer in such cases. Accordingly, the Bureau 
does not believe that applying Regulation Z's mortgage servicing rules 
to successors in interest presents novel challenges for servicers in 
this regard.
    On the other hand, with respect to Sec. Sec.  1026.20(c) through 
(e) and 1026.41, the Bureau believes that it would not often be useful 
to the prior consumer's estate to continue receiving ARM disclosures, 
escrow account cancellation notices, and periodic statements once a 
servicer confirms a successor in interest's status and the prior 
consumer has died. When a successor in interest's status has been 
confirmed and the prior consumer has died, the estate of the prior 
consumer would have at most a relatively narrow interest in the 
mortgage loan. Accordingly, the Bureau believes that prior consumers 
should not receive ARM disclosures, escrow account cancellation 
notices, or periodic statements after the successor in interest has 
been confirmed and the prior consumer has died. By contrast, with 
respect to Sec.  1026.36(c), the Bureau believes that it would not 
reduce much burden on servicers to relieve them of the prompt 
crediting, prohibition on pyramiding of late fees, and payoff balance 
requirements after the successor in interest has been confirmed and the 
prior consumer has died. The Bureau also believes there may be some 
circumstances in which, for example, prompt crediting of payments from 
a deceased consumer's estate would help to prevent foreclosure. 
Accordingly, the Bureau believes that Sec.  1026.36(c) should still 
apply to the prior consumer even after the successor in interest has 
been confirmed and the prior consumer has died. In the alternative, 
however, the Bureau is considering providing that Sec.  1026.36(c) does 
not apply to the prior consumer when the servicer has confirmed a 
successor in interest's status and the prior consumer has died.
    Once a successor in interest has been confirmed and the prior 
consumer has been released from the obligation on the mortgage loan, 
the prior consumer may have legal interests relating to loan activity 
prior to the release of the obligation, but would have little or no 
legal interest in subsequent loan activity. Accordingly, the Bureau 
believes that servicers should not be required to comply with the 
requirements of Sec. Sec.  1026.20(c) through

[[Page 74237]]

(e), 1026.36(c), and 1026.41 once a successor in interest has been 
confirmed and the prior consumer has been released from the obligation 
on the mortgage loan.
    The Bureau solicits comment on whether a servicer should not be 
required to comply with Sec. Sec.  1026.20(c) through (e), 1026.36(c), 
and 1026.41 with respect to prior consumers after a successor in 
interest is confirmed. The Bureau also solicits comment on whether 
other circumstances exist, beyond death and relief of the obligation on 
the mortgage loan, in which some or all of the requirements of 
Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 1026.41 should not 
apply with respect to the prior consumer after a successor in interest 
is confirmed.
Paragraph (a)(27)
    As described in part V.A., the Bureau believes that, to the extent 
that the Mortgage Servicing Rules apply to successors in interest, the 
proposed rule should apply with respect to all categories of successors 
in interest who acquired an ownership interest in the dwelling securing 
a mortgage loan in a transfer protected by the Garn-St Germain 
Act.\206\ Accordingly, the Bureau is proposing to define successor in 
interest in Sec.  1026.2(a)(27) to cover all categories of successors 
in interest who acquired an ownership interest in the dwelling securing 
a mortgage loan in a transfer protected by the Garn-St Germain Act. (As 
discussed in the section-by-section analysis of Sec.  1024.31, the 
Bureau is proposing to add a similar definition to Regulation X.)
---------------------------------------------------------------------------

    \206\ 12 U.S.C. 1701j-3(d).
---------------------------------------------------------------------------

    The proposed definition states that a successor in interest is a 
person to whom an ownership interest in a dwelling securing a mortgage 
loan is transferred from a prior consumer, provided that the transfer 
falls under an exemption specified in the appropriate section of the 
Garn-St Germain Act. The Bureau intends the proposed definition to 
apply throughout the proposed rule and commentary.
    The Bureau solicits comment on whether certain categories of 
successors in interest protected by the Garn-St Germain Act should not 
be covered by the Bureau's definition of successor in interest. The 
Bureau also solicits comment on whether additional categories of 
successors in interest, beyond those protected by the Garn-St Germain 
Act, should be covered by the Bureau's definition of successor in 
interest.
Section 1026.36 Prohibited Acts or Practices and Certain Requirements 
for Credit Secured by a Dwelling
36(c) Servicing Practices
36(c)(1) Payment Processing
    The Bureau is proposing commentary to Sec.  1026.36(c)(1) to 
clarify how servicers must treat periodic payments made by consumers 
who are performing under either temporary loss mitigation programs or 
permanent loan modifications. (As described in the section-by-section 
analysis of Sec.  1026.41(d), the Bureau is also proposing commentary 
to Sec.  1026.41 clarifying certain periodic statement disclosures 
relating to temporary loss mitigation programs and permanent loan 
modifications.) Proposed comment 36(c)(1)(i)-4 provides that if the 
loan contract has not been permanently modified but the consumer has 
agreed to a temporary loss mitigation program, a periodic payment under 
Sec.  1026.36(c)(1)(i) remains an amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the loan contract, irrespective of the payment due under the temporary 
loss mitigation program. Accordingly, if a consumer submits a payment 
under a temporary loss mitigation program that is less than an amount 
sufficient to cover principal, interest, and escrow (if applicable) for 
a given billing cycle under the loan contract, the servicer should 
generally treat the payment as a partial payment under Sec.  
1026.36(c)(1)(i), even though the consumer may have made the payment 
due under the temporary loss mitigation program.
    The Bureau is proposing this comment in response to several 
inquiries regarding payment processing for payments due under temporary 
loss mitigation programs, which are quite common and not addressed by 
the Bureau's existing rules or commentary. The Bureau acknowledges that 
in the 2013 TILA Final Servicing Rule, it stated that ``if a consumer 
makes a payment sufficient to cover the principal, interest and escrow 
due under a trial modification plan, these funds should be applied.'' 
\207\ This statement may have suggested that a periodic payment under a 
temporary loss mitigation program is the payment due under the 
temporary loss mitigation program, rather than the amount sufficient to 
cover principal, interest, and escrow (if applicable) for a given 
billing cycle under the loan contract. However, the Bureau believes 
that this suggestion, which was not accompanied by any further 
explanation, is inaccurate. A temporary loss mitigation program is only 
a temporary or trial program, during which the consumer may be 
accumulating a delinquency according to the loan contract. The Bureau 
believes that it is appropriate to require servicers to credit payments 
in a way that reflects the continuing contractual obligation between 
the parties and that reflects any delinquency accumulating during the 
program. Further, if a consumer fails to comply with the terms of a 
temporary loss mitigation program, the servicer and consumer will 
typically revert back to the terms of the loan contract, treating 
payments submitted during the temporary loss mitigation program as if 
the program had not existed. Accordingly, the Bureau believes that it 
would be unnecessarily burdensome for servicers to treat the payment 
due under a temporary loss mitigation program as a periodic payment, 
and then to have to undo that treatment if the consumer later fails to 
comply with the terms of the temporary loss mitigation program. The 
Bureau also understands that consumers are not assessed a late fee for 
such payments so long as the payment is the payment due under the 
temporary loss mitigation program. Accordingly, the Bureau does not 
believe that consumers would be harmed by treating payments that are 
less than the amount due under the loan contract, but that are the 
payments due under a temporary loss mitigation program, as partial 
payments.
---------------------------------------------------------------------------

    \207\ 78 FR 10901, 10954 (Feb. 14, 2013).
---------------------------------------------------------------------------

    By contrast, proposed comment 36(c)(1)(i)-5 provides that if the 
loan contract has been permanently modified, a periodic payment under 
Sec.  1026.36(c)(1)(i) is an amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the modified loan contract.
    The Bureau believes that if the loan contract has been permanently 
modified, it is appropriate for the periodic payment to be an amount 
sufficient to cover principal, interest, and escrow (if applicable) for 
a given billing cycle under the modified loan contract. The Bureau 
believes that once a loan has been permanently modified, the obligation 
under the previous loan contract is not relevant to the periodic 
payment because only the modified loan contract, and not the original 
contract, now binds the consumer and the servicer.
    The Bureau is also proposing a technical change to Sec.  
1026.36(c)(1). Section 1026.36(b) provides that Sec.  1026.36(c)(1) 
applies to closed-end consumer credit transactions secured by

[[Page 74238]]

a consumer's principal dwelling. However, current Sec.  1026.36(c)(1) 
refers to consumer credit transactions secured by a consumer's 
principal dwelling, without referring to closed-end transactions. 
Consistent with Sec.  1026.36(b), proposed Sec.  1026.36(c)(1) modifies 
the existing language to refer directly to closed-end consumer credit 
transactions secured by a consumer's principal dwelling.
36(c)(2) No Pyramiding of Late Fees
    The Bureau is also proposing a technical change to Sec.  
1026.36(c)(2). Section 1026.36(b) provides that Sec.  1026.36(c)(2) 
applies to closed-end consumer credit transactions secured by a 
consumer's principal dwelling. However, current Sec.  1026.36(c)(2) 
refers to consumer credit transactions secured by a consumer's 
principal dwelling, without referring to closed-end transactions. 
Consistent with Sec.  1026.36(b), proposed Sec.  1026.36(c)(2) modifies 
the existing language to refer directly to closed-end consumer credit 
transactions secured by a consumer's principal dwelling.
Section 1026.41 Periodic Statements for Residential Mortgage Loans
41(a) In General
    As described above, proposed Sec.  1026.2(a)(11) provides that a 
successor in interest is a consumer for purposes of Sec.  1026.41 once 
a servicer confirms the successor in interest's status. Accordingly, 
the servicer would be required to provide the confirmed successor in 
interest with ongoing periodic statements.
    Proposed comment 41(a)(1)-5.i. reiterates for clarity that a 
servicer must provide a confirmed successor in interest with a periodic 
statement meeting the requirements of Sec.  1026.41. The Bureau is 
proposing this comment to ensure that the effect of proposed Sec.  
1026.2(a)(11) with respect to providing periodic statements to 
confirmed successors in interest is clear.
    Proposed comment 41(a)(1)-5.ii provides that if a servicer sends a 
periodic statement meeting the requirements of Sec.  1026.41 to another 
consumer, the servicer need not also send a periodic statement to a 
successor in interest; a single statement may be sent. The proposed 
comment also provides that if a servicer confirms more than one 
successor in interest's identity and ownership interest in the 
dwelling, the servicer need not send periodic statements to more than 
one of the confirmed successors in interest. This proposed comment is 
consistent with current comment 41(a)(1)-1, which provides that, when 
two consumers are joint obligors with primary liability on a closed-end 
consumer credit transaction secured by a dwelling, the periodic 
statement may be sent to either one of them. The Bureau is proposing 
comment 41(a)(1)-5.ii because the Bureau believes that it is 
appropriate to treat periodic statements sent to successors in interest 
consistently with how periodic statements for multiple obligors are 
treated. Servicers should not be required to send more than one 
periodic statement with respect to a mortgage loan. Alternatively, the 
Bureau is also considering the contrary rule that each successor in 
interest must receive a periodic statement.
    The Bureau solicits comment on whether only one successor in 
interest should receive a periodic statement or whether instead each 
successor in interest should receive a periodic statement. The Bureau 
also solicits comment on whether other circumstances exist, beyond 
death orrelief of the obligation on the mortgage loan, in which the 
requirement to send periodic statements should not apply with respect 
to the prior consumer.
41(d) Content and Layout of the Periodic Statement
    The Bureau is proposing to amend comment 41(d)-1, which addresses 
the requirement in Sec.  1026.41(d) that several disclosures on the 
periodic statement be provided in close proximity to one another. 
Current comment 41(d)-1 states that items in close proximity may not 
have any intervening text between them. The close proximity standard is 
found in other parts of Regulation Z, including Sec. Sec.  1026.24(b) 
and 1026.48. The proposed amendment would relax this requirement for 
purposes of Sec.  1026.41(d) and instead provide that items in close 
proximity may not have any unrelated text between them. This proposal 
mirrors the standard for open-end credit plans secured by a consumer's 
dwelling found in Sec.  1026.40(a) and its corresponding comment 
40(a)(1)-3, which explain that while most of the disclosures required 
by Sec.  1026.40(d) must be grouped together and segregated from all 
unrelated information, a creditor is permitted to include information 
that explains or expands upon the required disclosures.
    Specifically, the proposed amendment to comment 41(d)-1 provides 
that items in close proximity may not have any unrelated text between 
them and explains that text is unrelated if it does not explain or 
expand upon the required disclosures. Text that explains or expands 
upon the required disclosures may include, for example, an additional 
explanation of the amount due when: a fee has been charged to the 
consumer but will not be collected until payoff (e.g., attorney's 
fees); the consumer has agreed to a temporary loss mitigation program 
(as discussed further in the section-by-section analysis of Sec.  
1026.41(d)(2)); the consumer makes an advance payment; or the servicer 
reverses a fee. The Bureau believes that the proposed amendment to 
comment 41(d)-1 may provide servicers with additional flexibility to 
clarify or explain information on the periodic statement and may enable 
servicers to address circumstances not expressly provided for in Sec.  
1026.41(d). The Bureau seeks comment generally on this proposal to 
amend comment 41(d)-1 to relax the prohibition on intervening text to 
include only related text that explains or expands upon the required 
disclosures.
    The Bureau is proposing additional commentary to Sec.  1026.41(d) 
clarifying certain periodic statement disclosure requirements relating 
to temporary loss mitigation programs. (As described in the section-by-
section analysis of Sec.  1026.36(c), the Bureau is also proposing 
commentary to Sec.  1026.36(c) relating to the periodic payment under 
temporary loss mitigation programs.) Proposed comment 41(d)-4 provides 
that, if the consumer has agreed to a temporary loss mitigation 
program, the disclosures required by Sec.  1026.41(d)(2), (3), and (5) 
regarding how payments will be and were applied should nonetheless 
identify how payments are applied according to the loan contract, 
irrespective of the payment due under the temporary loss mitigation 
program.
    The Bureau is proposing this commentary in response to several 
inquiries regarding how temporary loss mitigation programs affect 
certain disclosures on the periodic statement. Currently, the Bureau's 
rules and commentary do not address this issue. As described in the 
section-by-section analysis of Sec.  1024.36(c)(1), proposed comment 
36(c)(1)(i)-4 provides that if the consumer has agreed to a temporary 
loss mitigation program, a periodic payment under Sec.  
1026.36(c)(1)(i) remains an amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the loan contract, irrespective of the payment due under the temporary 
loss mitigation program. Accordingly, the Bureau believes that it is 
appropriate for the disclosures on the periodic statement required by 
Sec.  1026.41(d)(2), (3), and (5) to identify how payments

[[Page 74239]]

will be and are applied according to the loan contract, irrespective of 
the payment due under the temporary loss mitigation program, because 
this is how servicers would actually be applying the payments under 
proposed comment 36(c)(1)(i)-4. The Bureau believes that the periodic 
statement should reflect how payments are actually being applied. The 
Bureau believes that this treatment is appropriate so that the consumer 
is kept apprised of how payments are being applied, including being 
notified of any delinquency that may be accumulating during a temporary 
loss mitigation program.
    The Bureau is also proposing comment 41(d)-5 to address the 
disclosures that servicers must make on the first periodic statement 
provided to a consumer after an exemption under Sec.  1026.41(e) 
terminates. The proposal clarifies that the first post-exemption 
periodic statement may be limited to disclosing the fees and charges 
imposed, payments received and applied, and transaction activity since 
the last payment due date that occurred while the exemption was in 
effect.
    Section 1026.41(d) requires that a periodic statement include three 
disclosures concerning account activity that occurred ``since the last 
statement.'' First, Sec.  1026.41(d)(2)(ii) requires the explanation of 
amount due to identify ``[t]he total sum of any fees or charges imposed 
since the last statement.'' Second, Sec.  1026.41(d)(3)(i) requires the 
past payment breakdown to disclose ``all payments received since the 
last statement, including a breakdown showing the amount, if any, that 
was applied to principal, interest, escrow, fees and charges, and the 
amount, if any, sent to any suspense or unapplied funds account.'' 
Finally, Sec.  1026.41(d)(4) requires the transaction activity to 
include ``[a] list of all transaction activity that occurred since the 
last statement.''
    The Bureau has received inquiries regarding a servicer's disclosure 
obligations under Sec.  1026.41(d)(2)(ii), (3)(i), and (4) for purposes 
of the first periodic statement provided after an exemption under Sec.  
1026.41(e) terminates. The Bureau understands that such circumstances 
may arise when a servicer provided periodic statements, became exempt 
from the requirements for one of the reasons under Sec.  1026.41(e), 
and the exemption subsequently terminated, thereby requiring the 
servicer to resume providing statements. For example, a servicer may 
have been exempt from providing periodic statements for the duration of 
a consumer's bankruptcy case, may have provided coupon books but has 
now decided to begin providing periodic statements, or may have been 
exempt from the periodic statement requirement as a small servicer but 
no longer qualifies for that exemption. Alternatively, a mortgage loan 
might be transferred from a servicer that provides coupon books or was 
an exempt small servicer to a servicer that provides periodic 
statements.
    Sections 1026.41(d)(2)(ii), (3)(i), and (4) could be interpreted as 
requiring the periodic statement to include information about account 
activity for the duration of the exemption period--literally ``since 
the last statement.'' However, the Sec.  1026.41(d)(2)(ii), (3)(i), and 
(4) disclosures generally cover a time period equivalent to a billing 
cycle and the first post-exemption periodic statement should arguably 
cover a similar time period. Accordingly, the Bureau believes that it 
may be necessary to clarify the requirements of Sec.  
1026.41(d)(2)(ii), (3)(i), and (4) with respect to the first post-
exemption periodic statement.
    The Bureau recognizes that there may be benefits to providing a 
consumer with information regarding all fees and charges imposed, all 
payments received and applied, and all transaction activity that 
occurred during the exemption period. A consumer could review this 
information to determine if a servicer imposed any erroneous fees, 
failed to properly credit payments, or made other mistakes with respect 
to the consumer's mortgage loan while the exemption applied.
    Nonetheless, the Bureau believes that consumers and servicers may 
be better served if the first post-exemption periodic statement 
includes account activity only since the final payment due date that 
occurred while the exemption was in effect. First, requiring the 
disclosure of all fees and charges imposed, payments received, and 
transaction activity during an exemption period--which could have 
spanned several months or years--may place an undue burden on 
servicers. The Bureau understands that servicers' systems are generally 
not equipped to provide months' or years' worth of account activity on 
a single periodic statement. The Bureau does not believe that servicers 
should incur the costs associated with providing a potentially lengthy 
first post-exemption periodic statement.
    Second, including account activity for the duration of the 
exemption period, such as the total of all fees and charges imposed, 
could overwhelm or mislead consumers to believe that those fees and 
charges are presently due, even though the consumer may have previously 
paid many or all of them.
    Third, including account activity for the duration of the exemption 
period undermines, in part, the rationale for the exemptions. For 
example, Sec.  1026.41(e)(3) recognizes the value of a coupon book as 
striking a balance between ensuring consumers receive important 
information, and providing a low-burden method for servicers to comply 
with the periodic statement requirements.\208\ Requiring the first 
post-exemption periodic statement to include the disclosures required 
under Sec.  1026.41(d)(2)(ii), (3)(i), and (4) for the duration of the 
exemption arguably upsets the balance struck by the coupon book 
exemption. Similarly, the Bureau has recognized that servicers 
qualifying for the small servicer exemption have incentives to maintain 
``high-touch,'' customer-centric customer servicer models and that 
consumers generally have easy access to these small, community-based 
servicers to obtain any information they desire.\209\ In light of this 
ability to access information, in the circumstance in which a servicer 
begins sending periodic statements because it was previously but is no 
longer a small servicer, it may be unnecessary for the first post-
exemption periodic statement to include disclosures related to the 
entire duration of the exemption period.
---------------------------------------------------------------------------

    \208\ 78 FR 10901, 10973 (Feb. 14, 2013).
    \209\ Id. at 10975.
---------------------------------------------------------------------------

    Finally, consumers will receive, or have alternative methods of 
obtaining, much of the account information that under this proposal 
would not be included in the first post-exemption periodic statement. 
Consumers who receive coupon books have a right to request the 
information set forth in Sec.  1026.41(d)(2)(ii), (3)(i), and (4). 
Similarly, for servicers subject to Regulation X's servicing 
requirements, a consumer may obtain this information by submitting a 
written information request. In addition, even if the first post-
exemption periodic statement does not include the past payment 
breakdown since the last pre-exemption periodic statement, Sec.  
1026.41(d) requires the statement to identify ``[t]he total of all 
payments received since the beginning of the current calendar year . . 
..'' This year-to-date information, while not covering the entire 
exemption period, provides consumers with a broad overview of the costs 
of their mortgage loan and how their payments are being allocated to 
interest or fees as opposed to principal.\210\
---------------------------------------------------------------------------

    \210\ Id. at 10966.

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[[Page 74240]]

    Accordingly, the Bureau is proposing comment 41(d)-5, which 
provides that for purposes of the first periodic statement following 
termination of an exemption under Sec.  1026.41(e), the disclosures 
required by Sec.  1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) may be 
limited to the period since the final payment due date that occurred 
while the exemption was in effect. Proposed comment 41(d)-5 provides 
the following example: if a borrower's payments are due on the first of 
each month and a servicer's exemption under Sec.  1026.41(e) terminated 
on January 15, the first statement provided to the consumer after 
January 15 may be limited to the total sum of any fees or charges 
imposed, the total of all payments received, and a list of all 
transaction activity only since January 1.
    The Bureau seeks comment on proposed comment 41(d)-5, including 
whether to disclose account activity since a date other than the final 
payment due date that occurred while the exemption was in effect.
41(d)(1)
    The Bureau is proposing commentary to Sec.  1026.41(d)(1) 
clarifying certain periodic statement disclosure requirements relating 
to acceleration, temporary loss mitigation programs, and permanent loan 
modifications. The Bureau is proposing this commentary in response to 
several inquiries regarding how acceleration, temporary loss mitigation 
programs, and permanent loan modification affect disclosure of the 
amount due on the periodic statement. Currently, the Bureau's rules and 
commentary do not address this issue.
    Section 1026.41(d)(1)(iii) provides that the periodic statement 
required by Sec.  1026.41(d) must include the amount due, shown more 
prominently than other disclosures on the page. Proposed comment 
41(d)(1)-1 provides that if the balance of a mortgage loan has been 
accelerated but the servicer will accept a lesser amount to reinstate 
the loan, the amount due disclosed on the periodic statement under 
Sec.  1026.41(d)(1) should identify only the lesser amount that will be 
accepted to reinstate the loan, not the entire accelerated balance.
    The Bureau is aware that after accelerating a mortgage loan, a 
servicer may be willing to accept a lesser amount to reinstate the 
loan, sometimes because doing so may be required by State law. The 
Bureau believes that it would be counterproductive in these 
circumstances for the borrower to receive a periodic statement 
disclosing the amount due as the full accelerated balance, which may be 
quite large. Because the borrower is much more likely to be able to pay 
a reinstatement amount than the full accelerated balance, the Bureau 
believes that receiving a periodic statement indicating that the amount 
due is the reinstatement amount would make the borrower more likely to 
actually pay the reinstatement amount, thereby possibly preventing 
foreclosure. The Bureau also believes it may confuse borrowers to 
receive a periodic statement indicating that the amount due is the full 
accelerated balanced when, in fact, the borrower is informed elsewhere 
that the borrower may pay only the reinstatement amount. Furthermore, 
the borrower may be deterred from reading other disclosures or 
documents if the borrower sees the full accelerated balance as the 
amount due, so the borrower may not actually become aware that 
reinstatement is possible, possibly leading to unnecessary foreclosure.
    Proposed comment 41(d)(1)-2 provides that if the consumer has 
agreed to a temporary loss mitigation program, the amount due under 
Sec.  1026.41(d)(1) may identify either the payment due under the 
temporary loss mitigation program or the amount due according to the 
loan contract. The Bureau believes that it may be confusing for 
borrowers who have agreed to a loss mitigation program to receive a 
periodic statement identifying the amount due under the loan contract 
when that amount is different from the payment due under the temporary 
loss mitigation program. Accordingly, the Bureau is proposing that 
servicers may, but are not required to, identify the payment due under 
the temporary loss mitigation program, instead of the amount due 
according to the loan contract.
    The Bureau is not proposing to require that the payment due under 
the temporary loss mitigation program must be identified as the amount 
due because the Bureau is concerned about the consequences of requiring 
servicers to modify periodic statements whenever a borrower agrees to a 
temporary loss mitigation program. The Bureau understands that 
temporary loss mitigation programs are common and may be entered into 
for very short durations, so requiring servicers to modify periodic 
statements whenever a borrower agrees to a temporary loss mitigation 
program may be unduly burdensome for servicers. Furthermore, the Bureau 
is concerned that imposing additional requirements on servicers when a 
borrower agrees to a temporary loss mitigation program may deter 
servicers from offering temporary loss mitigation programs. In the 
alternative, however, the Bureau is considering requiring that if the 
consumer has agreed to a temporary loss mitigation program, the amount 
due under Sec.  1026.41(d)(1) must identify the amount that the 
consumer has agreed to pay under the temporary loss mitigation program, 
rather than the amount due according to the loan contract.
    The Bureau solicits comment on whether, if the consumer has agreed 
to a temporary loss mitigation program, servicers should be required, 
rather than permitted, to identify the amount due under Sec.  
1026.41(d)(1) as the payment due under the temporary loss mitigation 
program, rather than the amount due according to the loan contract.
    Proposed comment 41(d)(1)-3 provides that if the loan contract has 
been permanently modified, the amount due under Sec.  1026.41(d)(1) 
should identify only the amount due under the modified loan contract. 
The Bureau believes that once a loan has been permanently modified, the 
obligation under the previous loan contract is not relevant to the 
periodic statement because only the modified loan contract, and not the 
original contract, now binds the consumer and the servicer.
41(d)(2)
    The Bureau is proposing commentary to Sec.  1026.41(d)(2) 
clarifying certain periodic statement disclosure requirements relating 
to acceleration and temporary loss mitigation programs. The Bureau is 
proposing this commentary because, as noted in the section-by-section 
analysis of Sec.  1026.41(d), the Bureau has received several inquiries 
regarding how acceleration and temporary loss mitigation programs 
affect disclosure of the explanation of amount due on the periodic 
statement and the Bureau's rules and commentary do not currently 
address this issue.
    Section 1026.41(d)(2)(i) provides that the explanation of amount 
due on periodic statements required by Sec.  1026.41 must include the 
monthly payment amount, including a breakdown showing how much, if any, 
will be applied to principal, interest, and escrow (if applicable) and, 
if a mortgage loan has multiple payment options, a breakdown of each of 
the payment options along with information on whether the principal 
balance will increase, decrease, or stay the same for each option 
listed. Proposed comment 41(d)(2)-1 provides that if the balance of a 
mortgage loan has been accelerated but the servicer will accept a 
lesser amount to reinstate the loan, the explanation of amount due 
under

[[Page 74241]]

Sec.  1026.41(d)(2) should omit the monthly payment amount that would 
generally be required under Sec.  1026.41(d)(2)(i) and should include 
both the reinstatement amount and the accelerated amount. The proposed 
comment provides that the statement must also include an explanation 
that the reinstatement amount will be accepted to reinstate the loan. 
The proposed comment provides that this explanation should be on the 
front page of the statement or, alternatively, may be included on a 
separate page enclosed with the periodic statement or in a separate 
letter.
    The Bureau is proposing this comment in conjunction with proposed 
comment 41(d)(1)-1 (discussed in the section-by-section analysis of 
Sec.  1026.41(d)(1)), which provides that if the balance of a mortgage 
loan has been accelerated but the servicer will accept a lesser amount 
to reinstate the loan, the amount due disclosed on the periodic 
statement under Sec.  1026.41(d)(1) should identify only the lesser 
amount that will be accepted to reinstate the loan. The Bureau is 
proposing comment 41(d)(2)-1 because, given that the amount due will 
reflect the reinstatement amount, the Bureau believes that the periodic 
statement should elsewhere identify the accelerated balance, which is 
the amount that the borrower technically owes under the loan contract 
and is significant information that the borrower should have. The 
Bureau believes that the explanation of amount due is where this 
disclosure is most appropriate. The Bureau is proposing that the 
monthly payment amount be omitted from the explanation of amount due 
after acceleration because the Bureau believes that once a loan has 
been accelerated, the monthly payment obligation is not relevant to the 
borrower, as the servicer will no longer accept this amount.
    Because identification of both the reinstatement amount and the 
accelerated amount in the explanation of amount due may present some 
possibility of borrower confusion, the Bureau believes that the 
periodic statement should also include an explanation indicating that 
the reinstatement amount will be accepted to reinstate the loan. 
Consistent with the requirement under Sec.  1026.41(d)(5) that partial 
payment information must be on the front page of the periodic statement 
or, alternatively, may be included on a separate page enclosed with the 
statement or in a separate letter, the Bureau believes it is 
appropriate that this explanation should be on the front page of the 
periodic statement or, alternatively, may be included on a separate 
page enclosed with the statement or in a separate letter.
    Proposed comment 41(d)(2)-2 provides that if the consumer has 
agreed to a temporary loss mitigation program and the amount due on the 
periodic statement identifies the payment due under the temporary loss 
mitigation program, the explanation of amount due under Sec.  
1026.41(d)(2) should include both the amount due according to the loan 
contract and the payment due under the temporary loss mitigation 
program. The proposed comment provides that the statement should also 
include an explanation that the amount due is being disclosed as a 
different amount because of the temporary loss mitigation program. The 
proposed comment provides that this explanation should be on the front 
page of the statement or, alternatively, may be included on a separate 
page enclosed with the periodic statement or in a separate letter.
    The Bureau is proposing this comment in conjunction with proposed 
comment 41(d)(1)-2 regarding amount due, which provides that if the 
consumer has agreed to a temporary loss mitigation program, the amount 
due under Sec.  1026.41(d)(1) may identify either the payment due under 
the temporary loss mitigation program or the amount due according to 
the loan contract. The Bureau believes that when the amount due is 
disclosed on the periodic statement as the payment due under the 
temporary loss mitigation program, the periodic statement should 
elsewhere identify the amount due according to the loan contract, as 
this amount is significant information that the borrower should have. 
For example, under proposed comment 36(c)(1)(i)-4, the amount due 
according to the loan contract would be the amount promptly credited by 
the servicer. The Bureau believes that the explanation of amount due 
under Sec.  1026.41(d)(2) is where this disclosure is most appropriate.
    Because identification of both the payment due under the temporary 
loss mitigation program and the amount due according to the loan 
contract may present some possibility of borrower confusion, the Bureau 
believes that the statement should also include an explanation 
indicating that the amount due is being disclosed as a different amount 
than the amount due under the loan contract because of the temporary 
loss mitigation program. Consistent with the requirement under Sec.  
1026.41(d)(5) that partial payment information must be on the front 
page of the statement or, alternatively, may be included on a separate 
page enclosed with the periodic statement or in a separate letter, the 
Bureau believes it is appropriate that this explanation should be on 
the front page of the statement or, alternatively, may be included on a 
separate page enclosed with the periodic statement or in a separate 
letter.
41(d)(8)
    Section 1026.41(d)(8) requires a servicer to include a so-called 
``delinquency box'' containing certain prescribed information in 
periodic statements sent to consumers who are more than 45 days 
delinquent.\211\ The Bureau is proposing certain revisions to Sec.  
1026.41(d)(8) to align the requirements of that section with the 
proposed definition of delinquency under Regulation X Sec.  1024.31. 
Specifically, the Bureau is proposing to revise Sec.  1026.41(d)(8) and 
add commentary to mirror the language in proposed Sec.  1024.31 
(Delinquency) and its related comments.
---------------------------------------------------------------------------

    \211\ 12 CFR 1026.41(d)(8).
---------------------------------------------------------------------------

    Current Sec.  1026.41(d)(8) requires a servicer to include in each 
periodic statement certain information about a consumer's delinquency 
when the consumer is more than 45 days delinquent, including the date 
on which the consumer became delinquent. However, Regulation Z does not 
include an explanation of how a servicer must determine the length of a 
consumer's delinquency. The Bureau believes that it may confuse 
consumers if a servicer calculates the length of delinquency pursuant 
to Sec.  1026.41(d)(8)(i) differently from the length of delinquency 
for purposes of the servicing requirements in subpart C of Regulation 
X. As such, the Bureau is proposing Regulation Z comment 41(d)(8)-1, 
which mirrors the proposed Regulation X definition of delinquency and 
accompanying comment 31 (Delinquency)-1. Specifically, proposed 
Regulation Z comment 41(d)(8)-1 clarifies that delinquency begins on 
the date a consumer misses a payment of principal, interest, and escrow 
(if applicable), notwithstanding any grace period the servicer affords 
the consumer.
    In addition, the Bureau is proposing to add comment 41(d)(8)-2 to 
address how a creditor should disclose the length of a consumer's 
delinquency as required by Sec.  1026.41(d)(8) if a servicer applies a 
borrower's payment to the oldest outstanding delinquency first. As 
discussed in the section-by-section analysis of Sec.  1024.31, the 
Bureau is proposing a comment to the definition of delinquency to 
clarify that, if a servicer applies a consumer's payment

[[Page 74242]]

to the oldest outstanding delinquency, the servicer must advance the 
date of the consumer's delinquency for purposes of calculating the 
length of a borrower's delinquency under the various applicable 
provisions of Regulation X's mortgage servicing rules. To ensure that a 
servicer's method of calculating the length of the consumer's 
delinquency for purposes of Regulation Z Sec.  1026.41(d)(8)(i) is 
consistent with the method for doing the same under the proposed 
definition of delinquency in Regulation X, the Bureau proposes to 
include the same commentary in proposed Regulation Z comment 41(d)(8)-
2.
    Finally, the Bureau is proposing to revise Sec.  1026.41(d)(8)(i) 
to harmonize its language with the notion that the date a borrower's 
delinquency begins advances as payments are applied to the oldest 
outstanding delinquency. Section 1026.41(d)(8)(i) requires servicers to 
include ``[t]he date on which the consumer became delinquent'' on a 
delinquent consumer's periodic statement. If comment 41(d)(8)-2 is 
adopted as proposed, ``the date on which a consumer became delinquent'' 
would advance as the consumer's payments are applied to prior missed 
payments, which may confuse consumers. Accordingly, the Bureau is 
proposing to revise Sec.  1026.41(d)(8)(i) to require servicers to 
disclose the length of a consumer's delinquency as of the date of the 
periodic statement.
Legal Authority
    The proposed amendments to Sec.  1026.41(d) implement section 
128(f)(1)(H) of TILA, which requires inclusion in periodic statements 
of any information that the Bureau may prescribe by regulation.
41(e) Exemptions
41(e)(4) Small Servicers
41(e)(4)(iii) Small Servicer Determination
41(e)(4)(iii)(A)
    The Bureau is proposing to amend certain criteria for determining 
whether a servicer qualifies for the small servicer exemption under 
Sec.  1026.41(e)(4). In determining whether a servicer qualifies for 
the small servicer exemption, Sec.  1026.41(e)(4)(iii)(A) currently 
excludes from consideration mortgage loans voluntarily serviced by a 
servicer for a creditor or assignee that is not an affiliate of the 
servicer and for which the servicer does not receive any compensation 
or fees. The proposed amendment would remove the requirement that the 
non-affiliate must be a creditor or assignee, while continuing to 
exclude from consideration mortgage loans voluntarily serviced by a 
servicer for a non-affiliate for which the servicer does not receive 
any compensation or fees.
    The Bureau's Mortgage Servicing Rules exempt small servicers from 
certain mortgage servicing requirements. Specifically, Regulation Z 
exempts small servicers, defined in Sec.  1026.41(e)(4)(ii), from the 
requirement to provide periodic statements for residential mortgage 
loans.\212\ Regulation X incorporates this same definition by reference 
to Sec.  1026.41(e)(4) and thereby exempts small servicers from: (1) 
certain requirements relating to obtaining force-placed insurance,\213\ 
(2) the general servicing policies, procedures, and requirements,\214\ 
and (3) certain requirements and restrictions relating to communicating 
with borrowers about, and evaluation of applications for, loss 
mitigation options.\215\
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    \212\ 12 CFR 1026.41(e) (requiring delivery each billing cycle 
of a periodic statement, with specific content and form). For loans 
serviced by a small servicer, a creditor or assignee is also exempt 
from the Regulation Z periodic statement requirements. See 12 CFR 
1026.41(e)(4)(i).
    \213\ 12 CFR 1024.17(k)(5) (prohibiting purchase of force-placed 
insurance in certain circumstances).
    \214\ 12 CFR 1024.30(b)(1) (exempting small servicers from 
Sec. Sec.  1024.38 through 41, except as otherwise provided under 
Sec.  1024.41(j), as discussed in note 215, infra). Sections 1024.38 
through 40 respectively impose general servicing policies, 
procedures, and requirements; early intervention requirements for 
delinquent borrowers; and policies and procedures to maintain 
continuity of contact with delinquent borrowers.
    \215\ See 12 CFR 1024.41 (loss mitigation procedures). Though 
exempt from most of the rule, small servicers are subject to the 
prohibition of foreclosure referral before the loan obligation is 
more than 120 days delinquent and may not make the first notice or 
filing for foreclosure if a borrower is performing pursuant to the 
terms of an agreement on a loss mitigation option. 12 CFR 
1024.41(j).
---------------------------------------------------------------------------

    Section 1026.41(e)(4)(ii) defines the term ``small servicer'' as a 
servicer that: (1) services, together with any affiliates,\216\ 5,000 
or fewer mortgage loans, for all of which the servicer (or an 
affiliate) is the creditor or assignee; (2) is a Housing Finance 
Agency, as defined in 24 CFR 266.5; or (3) is a nonprofit entity that 
services 5,000 or fewer mortgage loans, including any mortgage loans 
serviced on behalf of associated nonprofit entities, for all of which 
the servicer or an associated nonprofit entity is the creditor. 
Generally, under Sec.  1026.41(e)(4)(ii)(A), a servicer cannot be a 
small servicer if it services any loan for which the servicer or its 
affiliate is not the creditor or assignee.
---------------------------------------------------------------------------

    \216\ ``Affiliate'' is defined in Sec.  1026.32(b)(5) as any 
company that controls, is controlled by, or is under common control 
with another company, as set forth in the Bank Holding Company Act 
of 1956, 12 U.S.C. 1841 et seq. (BHCA). Under the BHCA, a company 
has ``control'' over another company if it (i) ``directly or 
indirectly . . . owns, controls, or has power to vote 25 per centum 
or more of any class of voting securities'' of the other company; 
(ii) ``controls . . . the election of a majority of the directors or 
trustees'' of the other company; or (iii) ``directly or indirectly 
exercises a controlling influence over the management or policies'' 
of the other company (based on a determination by the Board). 12 
U.S.C. 1841(a)(2).
---------------------------------------------------------------------------

    However, current Sec.  1026.41(e)(4)(iii) excludes from 
consideration certain types of mortgage loans for purposes of 
determining whether a servicer qualifies as a small servicer: (1) 
mortgage loans voluntarily serviced by the servicer for a creditor or 
assignee that is not an affiliate of the servicer and for which the 
servicer does not receive any compensation or fees; (2) reverse 
mortgage transactions; and (3) mortgage loans secured by consumers' 
interests in timeshare plans.
    In the May 2013 Mortgage Servicing Proposal, the Bureau proposed 
the exclusion for voluntarily serviced mortgage loans codified at 
current Sec.  1026.41(e)(4)(iii)(A).\217\ At that time, the Bureau had 
received feedback that certain servicers that would otherwise be 
considered small servicers voluntarily service mortgage loans for 
unaffiliated non-profit entities for charitable purposes and do not 
receive compensation or fees from engaging in that servicing.\218\ 
Except for one comment received from a national trade association, see 
section-by-section analysis of Sec.  1026.41(e)(4)(iii)(D), the Bureau 
received comments with respect to the voluntarily serviced proposal 
that focused only on charitable servicing for nonprofit 
organizations.\219\ The language of current Sec.  
1026.41(e)(4)(iii)(A), however, does not require that the mortgage loan 
must have been made by a nonprofit organization to qualify for the 
voluntarily serviced exception. And as the Bureau explained, 
``volunteer servicing is not limited to the servicing of mortgage loans 
owned or originated by nonprofit organizations . . . .''\220\ Current 
Sec.  1026.41(e)(4)(iii)(A) applies to any mortgage loan voluntarily 
serviced by a servicer for a non-affiliate creditor or assignee and for 
which the servicer does not receive any compensation or fees.
---------------------------------------------------------------------------

    \217\ 78 FR 25638, 25644 (May 2, 2013).
    \218\ Id.
    \219\ 78 FR 44685, 44697 (July 24, 2013). Since that time, the 
Bureau has finalized its proposal to add an alternative definition 
of small servicer that applies to certain nonprofit entities that 
service, for a fee, only loans for which the servicer or an 
associated nonprofit entity is the creditor. 79 FR 65300, 65304 
(Nov. 3, 2014).
    \220\ 78 FR 44685, 44697 (July 24, 2013).

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

[[Page 74243]]

    The Bureau has learned that certain depository institutions, which 
may qualify for the small servicer exemption, service for their 
depository customers seller-financed sales of residential real 
estate.\221\ The Bureau understands that typically under these 
arrangements, the depository institution receives scheduled periodic 
payments from the purchaser of the property pursuant to the terms of 
the sale and deposits into the account of the seller (the depository 
institution's customer) the payments of principal and interest and such 
other payments with respect to the amounts received from the purchaser 
as may be required pursuant to the terms of the sale.\222\ The Bureau 
understands that in some cases, the depository institution may elect to 
voluntarily service seller-financed sales of residential real estate on 
behalf of its depository customers without receiving any compensation 
or fees. The Bureau further understands that under these arrangements, 
although the depository customer is not an affiliate of the servicer, 
typically, the customer is neither a creditor\223\ nor an assignee as 
required by current Sec.  1026.41(e)(4)(iii)(A). Therefore, a 
depository institution that would otherwise qualify for the small 
servicer exemption and that voluntarily services seller-financed sales 
of residential real estate without receiving any compensation or fees 
would likely no longer qualify for the small servicer exemption.
---------------------------------------------------------------------------

    \221\ Seller financer is a defined term under Sec.  
1026.36(a)(5). This analysis generally refers to the practice of 
seller-financed sales of residential real estate unless specifically 
referring to the defined term.
    \222\ See 12 U.S.C. 2605(i)(3) (definition of servicing 
applicable to TILA, as amended by section 1401 of the Dodd-Frank 
Act).
    \223\ See 12 CFR 1026.2(a)(17).
---------------------------------------------------------------------------

    The Bureau understands that certain depository institutions engage 
in this practice to provide their depository customers this service 
when, particularly in small or remote communities, there may not be an 
alternative service provider in the state. The Bureau believes that 
such seller-financed sales of residential real estate generally are 
limited and not widespread. For the reasons discussed in this section, 
the Bureau believes that, to the extent servicing cost savings are 
passed on to consumers, it may be beneficial to consumers for a 
depository institution that otherwise qualifies for the small servicer 
exemption to be able to voluntarily service transactions for a non-
affiliate, who is neither a creditor nor an assignee, without losing 
its small servicer status, and that these benefits may outweigh the 
consumer protections provided by the servicing rules.
    Accordingly, the Bureau is proposing to amend the voluntarily 
serviced exception under current Sec.  1026.41(e)(4)(iii)(A) to exclude 
mortgage loans voluntarily serviced by a servicer for a non-affiliate 
of the servicer and for which the servicer does not receive any 
compensation or fees from consideration in determining whether a 
servicer qualifies as a small servicer, while no longer requiring that 
the non-affiliate be a creditor or assignee. Specifically, proposed 
Sec.  1026.41(e)(4)(iii)(A) provides that mortgage loans voluntarily 
serviced by the servicer for a non-affiliate of the servicer and for 
which the servicer does not receive any compensation or fees would not 
be considered in determining whether a servicer qualifies as a small 
servicer.
    Under the existing rule, mortgage loans voluntarily serviced by the 
servicer for a creditor or assignee that is not an affiliate of the 
servicer and for which the servicer does not receive any compensation 
or fees are not considered in determining whether a servicer qualifies 
as a small servicer. Because depository customers who seller-finance 
sales of residential real estate typically are neither creditors nor 
assignees, a depository institution that voluntarily services even a 
single such transaction likely would not qualify as a small servicer 
under the current rule. The Bureau is proposing to amend the current 
voluntarily serviced exception to exclude from consideration mortgage 
loans voluntarily serviced by a servicer for a non-affiliate for which 
the servicer does not receive any compensation or fees, while removing 
the requirement that the non-affiliate be a creditor or assignee. The 
Bureau is concerned that if a depository institution that would 
otherwise qualify for the small servicer exemption voluntarily services 
even a single transaction for which the non-affiliate is neither a 
creditor nor an assignee and does not receive any compensation or fees, 
it would be subject to all of the servicing rules for all of the 
mortgage loans that it services, including those that would otherwise 
be exempt for being owned or originated by the servicer. Although the 
Bureau believes the servicing rules provide important protections for 
consumers, the Bureau is concerned that these protections may not 
outweigh the potential for increased costs to consumers served by 
depository institutions that qualify for the small servicer exemption.
    The Bureau has narrowly tailored the proposed amendment to the 
voluntarily serviced exception. The Bureau believes that continuing to 
limit the voluntarily serviced exception to mortgage loans voluntarily 
serviced by a servicer and for which the servicer does not receive any 
compensation or fees reduces the risk that the proposed amendment to 
Sec.  1026.41(e)(4)(iii)(A) will be used to circumvent the servicing 
rules. The Bureau also believes that removing the requirement that the 
non-affiliate be a creditor or assignee does not unduly expand the 
existing exception. Rather, the Bureau believes that the rationale for 
the exception applies equally well to those non-affiliates who seller-
finance sales of residential real estate and do not meet the definition 
of creditor under Sec.  1026.2(a)(17) because they extend five or fewer 
mortgage loans in a year. The Bureau seeks comment on whether amending 
the voluntarily serviced exception to exclude from consideration 
mortgage loans voluntarily serviced by the servicer for a non-
affiliate, without requiring that the non-affiliate be a creditor or 
assignee, is appropriate. The Bureau also seeks comment on whether it 
should grandfather existing mortgage loans voluntarily serviced by the 
servicer for a servicer's non-affiliate, which is not a creditor or 
assignee, and for which the servicer does not receive any compensation 
or fees.
Legal Authority
    The Bureau is proposing to amend the voluntarily serviced exception 
under current Sec.  1026.41(e)(4)(iii)(A) and exempt mortgage loans 
voluntarily serviced by a servicer for a non-affiliate of the servicer 
and for which the servicer does not receive any compensation or fees 
from the periodic statement requirement under section 128(f) of TILA 
pursuant to its authority under section 105(a) and (f) of TILA and 
section 1405(b) of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
proposed amendment is necessary and proper under section 105(a) of TILA 
to facilitate TILA compliance. As discussed above, the Bureau believes 
that if a depository institution that would otherwise qualify for the 
small servicer exemption voluntarily services a transaction for a non-
affiliate that does not meet the definition of creditor or assignee, it 
would likely no longer qualify for the small servicer exemption. 
Accordingly, the current rule may result in depository institutions 
that would otherwise qualify for the small servicer exemption being 
unable to provide high-contact servicing or to comply with other 
applicable regulatory requirements due to the costs that would be 
imposed to comply with all of the servicing rules

[[Page 74244]]

for all of the mortgage loans they service, including those mortgage 
loans that would otherwise be exempt for being owned or originated by 
the servicer. Accordingly, the Bureau believes that the proposal to 
amend the voluntarily serviced exception to no longer require that the 
non-affiliate be a creditor or assignee facilitates compliance with 
TILA by allowing depository institutions to voluntarily service seller-
financed sales of residential real estate, without losing status as a 
small servicer, in order to cost-effectively service loans in 
compliance with applicable regulatory requirements.
    In addition, consistent with section 105(f) of TILA and in light of 
the factors in that provision, for servicers that voluntarily service 
mortgage loans for a non-affiliate and for which the servicer does not 
receive any compensation or fees, the Bureau believes that requiring 
them to comply with the periodic statement requirement in section 
128(f) of TILA would not provide a meaningful benefit to consumers in 
the form of useful information or protection. The Bureau believes, as 
noted above, that requiring provision of periodic statements would 
impose significant costs and burden. Specifically, the Bureau believes 
that the proposal will not complicate, hinder, or make more expensive 
the credit process. In addition, consistent with section 1405(b) of the 
Dodd-Frank Act, for the reasons discussed above, the Bureau believes 
that exempting transactions voluntarily serviced by a servicer for a 
non-affiliate, without requiring the non-affiliate to be a creditor or 
assignee, from the requirements of section 128(f) of TILA would be in 
the interest of consumers and in the public interest.
    In addition, the Bureau relies on its authority pursuant to section 
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or 
appropriate to carry out the purposes and objectives of Federal 
consumer financial law, including the purposes and objectives of Title 
X of the Dodd-Frank Act. Specifically, the Bureau believes that the 
proposed rule is necessary and appropriate to carry out the purpose 
under section 1021(a) of the Dodd-Frank Act of ensuring that all 
consumers have access to markets for consumer financial products and 
services that are fair, transparent, and competitive, and the objective 
under section 1021(b) of the Dodd-Frank Act of ensuring that markets 
for consumer financial products and services operate transparently and 
efficiently to facilitate access and innovation.
41(e)(4)(iii)(D)
    The Bureau is proposing to amend certain criteria for determining 
whether a servicer qualifies for the small servicer exemption set forth 
under Sec.  1026.41(e)(4). The proposal adds a new category of 
transactions that would not be considered in determining whether a 
servicer qualifies as a small servicer. Specifically, the proposal 
excludes transactions serviced by the servicer for a seller financer 
that meet all of the criteria identified in Sec.  1026.36(a)(5).
    As explained in the section-by-section analysis of Sec.  
1026.41(e)(4)(iii)(A), the Bureau's Mortgage Servicing Rules exempt 
small servicers from certain mortgage servicing requirements. In May 
2013, along with other proposed amendments to Regulations X and Z, the 
Bureau proposed the exclusion for voluntarily serviced mortgage loans 
and requested comment on whether other mortgage loans serviced through 
similar limited arrangements should not be considered in determining 
whether a servicer is a small servicer.\224\ The Bureau did not receive 
comments recommending that any other servicing arrangements be excluded 
from consideration for purposes of determining small servicer status. 
The Bureau received one comment from a national trade association 
requesting guidance regarding certain depository services some of its 
bank members provide for depositors who ``owner-finance'' the sale of 
residential real estate. The Bureau determined in the July 2013 
Mortgage Final Rule that the comment was outside the scope of the 
proposal and that the commenter did not provide sufficient information 
about the service described for the Bureau to be able to provide 
guidance at that time.\225\
---------------------------------------------------------------------------

    \224\ 78 FR 25638, 25644 (May 2, 2013).
    \225\ 78 FR 44685, 44697-98 (July 24, 2013).
---------------------------------------------------------------------------

    Since that time, the Bureau has learned more about the depository 
service described in the national trade association's comments. 
Specifically, the Bureau understands that certain depository 
institutions that may otherwise qualify for the small servicer 
exemption service, for a fee, seller-financed sales of residential real 
estate for their depository customers. However, because the depository 
institution is neither the creditor nor the assignee, the depository 
institution that engages in this practice likely would not qualify for 
the small servicer exemption because it is servicing, for a fee, a 
mortgage loan it does not own or did not originate.\226\
---------------------------------------------------------------------------

    \226\ The Bureau further understands that, in some cases, the 
depository institution provides periodic payment receipts as well as 
annual tax reporting (for example, Internal Revenue Service Form 
1098) and may assess late fees to the purchaser when the payment is 
late.
---------------------------------------------------------------------------

    As explained in the section-by-section analysis of Sec.  
1026.41(e)(4)(iii)(A), the Bureau understands that certain depository 
institutions engage in this practice to provide their depository 
customers this service when, particularly in small or remote 
communities, there may not be an alternative service provider in the 
state. The Bureau believes that such seller-financed sales of 
residential real estate generally are limited and not widespread. The 
Bureau further understands that purchasers of seller-financed 
residential real estate, who may be unable to secure credit through 
traditional means, may benefit from a depository institution receiving 
their scheduled periodic payments and providing an independent 
accounting as a third party to the transaction. The Bureau believes 
that the Dodd-Frank Act and Mortgage Servicing Rules were intended to 
address systemic problems in the mortgage servicing industry and may 
not have contemplated the practice described here. For the reasons 
discussed in this section, the Bureau believes that, to the extent 
servicing cost savings are passed on to consumers, it may be beneficial 
to consumers for a depository institution that otherwise qualifies for 
the small servicer exemption to be able to service transactions for a 
seller financer that meet all of the criteria identified in Sec.  
1026.36(a)(5), without losing its small servicer status, and that these 
benefits may outweigh the consumer protections provided by the 
servicing rules.
    Accordingly, the Bureau is proposing to add a new category of 
transactions that would not be considered in determining whether a 
servicer qualifies as a small servicer for transactions serviced by the 
servicer for a seller financer. Specifically, proposed Sec.  
1026.41(e)(4)(iii)(D) provides that transactions serviced by the 
servicer for a seller financer that meet all of the criteria identified 
in Sec.  1026.36(a)(5) are not considered in determining whether a 
servicer qualifies as a small servicer. Section 1026.36(a)(5) 
identifies a seller financer as a natural person, estate, or trust that 
provides seller financing for the sale of only one property in any 12-
month period to purchasers of such property, which is owned by the 
natural person, estate, or trust and serves as

[[Page 74245]]

security for the financing.\227\ The natural person, estate, or trust 
cannot have constructed, or acted as a contractor for the construction 
of, a residence on the property in its ordinary course of 
business.\228\ The financing must have a repayment schedule that does 
not result in negative amortization and must have a fixed rate or an 
adjustable rate that is adjustable after five or more years, subject to 
reasonable annual and lifetime limitations on interest rate increases. 
If the financing agreement has an adjustable rate, the rate is 
determined by the addition of a margin to an index rate and is subject 
to reasonable rate adjustment limitations. The index the adjustable 
rate is based on is a widely available index such as indices for U.S. 
Treasury securities or the London Interbank Offered Rate (LIBOR).\229\
---------------------------------------------------------------------------

    \227\ 12 CFR 1026.36(a)(5)(i).
    \228\ 12 CFR 1026.36(a)(5)(ii).
    \229\ 12 CFR 1026.36(a)(5)(iii).
---------------------------------------------------------------------------

    The Bureau has narrowly tailored the proposed new category of 
transactions that are not considered in determining whether a servicer 
qualifies as a small servicer. For example, the proposal relates only 
to transactions serviced by the servicer for a seller financer that 
meet all of the criteria identified in Sec.  1026.36(a)(5). In contrast 
to the seller financer criteria identified in Sec.  1026.36(a)(4), 
which permits seller financing for the sale of up to three properties 
in any 12-month period, the seller financer criteria identified in 
Sec.  1026.36(a)(5) permits seller financing for the sale of only one 
property in any 12-month period. The Bureau believes that limiting the 
seller financer criteria to the sale of only one property in any 12-
month period reduces the risk that this proposed new category of 
transactions not considered in determining whether a servicer qualifies 
as a small servicer will be used to circumvent the servicing rules.
    Under the existing rule, a servicer qualifies for the small 
servicer exemption if it services, together with any affiliates, 5,000 
or fewer mortgage loans, for all of which the servicer (or an 
affiliate) is the creditor or assignee. Because seller-financed 
transactions are not typically structured to meet this definition, a 
depository institution that services, for a fee, even a single seller-
financed transaction likely would not qualify as a small servicer under 
the current rule. The Bureau is proposing to add a new category of 
transactions that would be excluded from consideration in determining 
whether a servicer qualifies as a small servicer to permit a depository 
institution that would otherwise qualify for the small servicer 
exemption to enter into servicing arrangements for seller-financed 
transactions without losing its small servicer status. The Bureau 
understands that, in some cases, the seller financer is not a 
``creditor'' under the relevant definition\230\ and that such seller-
financed transactions are therefore not federally related mortgage 
loans, and likely would not be subject to Regulation X.\231\ The Bureau 
is concerned that if a depository institution that would otherwise 
qualify for the small servicer exemption services even a single seller-
financed transaction, it would be subject to all of the servicing rules 
for all of the mortgage loans that it services, including those that 
would otherwise be exempt for being owned or originated by the 
servicer. Although the Bureau believes that the servicing rules provide 
important protections for consumers, the Bureau is concerned that these 
protections may not outweigh the potential for increased costs to 
consumers served by depository institutions that would otherwise 
qualify for the small servicer exemption.
---------------------------------------------------------------------------

    \230\ 12 CFR 1024.2(b) (definition of federally related mortgage 
loan requires that the loan be made in whole or in part by a 
creditor, as defined in 15 U.S.C. 1602(g), that makes or invests in 
residential real estate loans aggregating more than $1,000,000 per 
year).
    \231\ 12 CFR 1024.5(a).
---------------------------------------------------------------------------

    The Bureau seeks comment on whether excluding transactions serviced 
by a servicer for a seller financer that meet all of the criteria 
identified in Sec.  1026.36(a)(5) in determining small servicer status 
is appropriate. The Bureau also seeks comment on whether it should 
grandfather existing transactions serviced by a servicer for a seller 
financer that meet all of the criteria identified in Sec.  
1026.36(a)(5).
Legal Authority
    The Bureau is proposing to exempt transactions serviced by a 
servicer for a seller financer that meet all of the criteria identified 
in Sec.  1026.36(a)(5) from the periodic statement requirement under 
section 128(f) of TILA pursuant to its authority under section 105(a) 
and (f) of TILA and section 1405(b) of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
proposed exemption is necessary and proper under section 105(a) of TILA 
to facilitate TILA compliance. As discussed above, the Bureau believes 
that if a depository institution that would otherwise qualify for the 
small servicer exemption services a transaction for a seller financer, 
it would likely no longer qualify for the small servicer exemption. 
Accordingly, the current rule may result in depository institutions 
that would otherwise qualify for the small servicer exemption being 
unable to provide high-contact servicing or to comply with other 
applicable regulatory requirements due to the costs that would be 
imposed to comply with all of the servicing rules for all of the 
mortgage loans they service, including those mortgage loans that would 
otherwise be exempt for being owned or originated by the servicer. 
Accordingly, the Bureau believes that the proposal to exempt 
transactions serviced by a servicer for a seller financer that meet all 
of the criteria identified in Sec.  1026.36(a)(5) facilitates 
compliance with TILA by allowing depository institutions to service 
seller-financed transactions, without losing status as a small 
servicer, in order to cost-effectively service loans in compliance with 
applicable regulatory requirements.
    In addition, consistent with section 105(f) of TILA and in light of 
the factors in that provision, for small servicers that service 
transactions for a seller financer that meet all of the criteria 
identified in Sec.  1026.36(a)(5), the Bureau believes that requiring 
them to comply with the periodic statement requirement in section 
128(f) of TILA would not provide a meaningful benefit to consumers in 
the form of useful information or protection. The Bureau believes, as 
noted above, that requiring provision of periodic statements would 
impose significant costs and burden. Specifically, the Bureau believes 
that the proposal will not complicate, hinder, or make more expensive 
the credit process. In addition, consistent with section 1405(b) of the 
Dodd-Frank Act, for the reasons discussed above, the Bureau believes 
that exempting transactions serviced by a servicer for a seller 
financer that meet all of the criteria identified in Sec.  
1026.36(a)(5) from the requirements of section 128(f) of TILA would be 
in the interest of consumers and in the public interest.
    In addition, the Bureau relies on its authority pursuant to section 
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or 
appropriate to carry out the purposes and objectives of Federal 
consumer financial law, including the purposes and objectives of Title 
X of the Dodd-Frank Act. Specifically, the Bureau believes that the 
proposed rule is necessary and appropriate to carry out the purpose 
under section 1021(a) of the Dodd-Frank Act of ensuring that all 
consumers have access to markets for consumer financial products and 
services that are fair,

[[Page 74246]]

transparent, and competitive, and the objective under section 1021(b) 
of the Dodd-Frank Act of ensuring that markets for consumer financial 
products and services operate transparently and efficiently to 
facilitate access and innovation.
41(e)(5) Certain Consumers in Bankruptcy
    The Bureau is proposing to revise Sec.  1026.41(e)(5) to limit the 
circumstances in which a servicer is exempt from the periodic statement 
requirements with respect to a consumer who is a debtor in bankruptcy. 
Current Sec.  1026.41(e)(5) provides that a servicer is exempt from the 
requirement to provide periodic statements for a mortgage loan while 
the consumer is a debtor in bankruptcy. Comment 41(e)(5)-3 states that 
if there are multiple obligors on the mortgage loan, the exemption 
applies if any of the obligors is in bankruptcy, and comment 41(e)(5)-
2.ii explains that a servicer has no obligation to resume providing 
periodic statements with respect to any portion of the mortgage debt 
that is discharged in bankruptcy. In general, the proposed revisions to 
Sec.  1026.41(e)(5) limit the exemption to consumers in bankruptcy who 
are surrendering the property or avoiding the lien securing the 
mortgage loan and to consumers who have requested that a servicer cease 
providing periodic statements (or coupon books, as applicable). In 
cases where a mortgage loan has multiple obligors and not all of them 
are in bankruptcy, the exemption would apply to a non-bankrupt obligor 
only when (i) one of the obligors is in Chapter 12 or Chapter 13 
bankruptcy, and (ii) the non-bankrupt obligor requests that a servicer 
cease providing periodic statements or coupon books.
    Specifically, proposed Sec.  1026.41(e)(5)(i) limits the exemption 
to when two conditions are satisfied. First, the consumer must be a 
debtor in a bankruptcy case, must have discharged personal liability 
for the mortgage loan through bankruptcy, or must be a primary obligor 
on a mortgage loan for which another primary obligor is a debtor in a 
Chapter 12 or Chapter 13 bankruptcy case. Second, one of the following 
circumstances must apply: (1) The consumer requests in writing that the 
servicer cease providing periodic statements or coupon books; (2) the 
consumer's confirmed plan of reorganization provides that the consumer 
will surrender the property securing the mortgage loan, provides for 
the avoidance of the lien securing the mortgage loan, or otherwise does 
not provide for, as applicable, the payment of pre-bankruptcy 
arrearages or the maintenance of payments due under the mortgage loan; 
(3) a court enters an order in the consumer's bankruptcy case providing 
for the avoidance of the lien securing the mortgage loan, lifting the 
automatic stay pursuant to 11 U.S.C. 362 with respect to the property 
securing the mortgage loan, or requiring the servicer to cease 
providing periodic statements or coupon books; or (4) the consumer 
files with the bankruptcy court a Statement of Intention pursuant to 11 
U.S.C. 521(a) identifying an intent to surrender the property securing 
the mortgage loan.
    The proposal also provides that the exemption terminates and a 
servicer must resume providing periodic statements or coupon books in 
two general circumstances. First, notwithstanding meeting the above 
conditions for an exemption, the proposal requires servicers to provide 
periodic statements or coupon books if the consumer requests them in 
writing (unless a court has entered an order requiring otherwise). 
Second, with respect to any portion of the mortgage debt that is not 
discharged through bankruptcy, a servicer must resume providing 
periodic statements or coupon books within a reasonably prompt time 
after the next payment due date that follows the earliest of the 
following outcomes in either the consumer's or the joint obligor's 
bankruptcy case, as applicable: the case is dismissed, the case is 
closed, the consumer reaffirms the mortgage loan under 11 U.S.C. 524, 
or the consumer receives a discharge under 11 U.S.C. 727, 1141, 1228, 
or 1328.
    Section 1420 of the Dodd-Frank Act amended section 128(f) of TILA 
to require periodic statements for residential mortgage loans. On 
January 17, 2013, the Bureau issued the 2013 TILA Servicing Final Rule 
implementing the periodic statement requirements and related exemptions 
in Sec.  1026.41. (In certain circumstances, servicers may provide 
borrowers with a coupon book in place of periodic statements.) In the 
preamble to the final rule, the Bureau acknowledged industry's concern 
that the Bankruptcy Code's automatic stay prevents attempts to collect 
a debt from a consumer in bankruptcy, but the Bureau explained that it 
did not believe the Bankruptcy Code would prevent a servicer from 
sending a consumer a statement on the status of the mortgage loan.\232\ 
The Bureau further explained that the final rule allowed servicers to 
make changes to the periodic statement that they believe are necessary 
when a consumer is in bankruptcy, such as including a message about the 
bankruptcy and presenting the amount due to reflect payment obligations 
determined by the individual bankruptcy proceeding.\233\
---------------------------------------------------------------------------

    \232\ 78 FR 10901, 10966 (Feb. 14, 2013).
    \233\ Id. at 10966 n.125.
---------------------------------------------------------------------------

    After publication of the final rule, industry stakeholders 
expressed more detailed concerns about the requirement to provide 
periodic statements to consumers under bankruptcy protection. Industry 
commenters expressed continued concerns about potential conflicts with 
bankruptcy law and many indicated that the periodic statement would 
need to be redesigned for consumers in bankruptcy. The Bureau received 
numerous inquiries and requests for clarification regarding how to 
reconcile the periodic statement requirement with various bankruptcy 
law requirements. Industry stakeholders expressed concern that 
bankruptcy courts, under certain circumstances, may find that a 
periodic statement violates the automatic stay or discharge injunction, 
even if a disclaimer were included. They requested guidance regarding 
whether and how servicers could permit consumers to opt-out of 
receiving statements. Bankruptcy trustees raised similar concerns and 
explained that sending a periodic statement that fails to recognize the 
unique character of Chapter 13's treatment of a mortgage in default 
arguably violates the Bankruptcy Code's automatic stay. Servicers and 
trustees further questioned how periodic statements could be adapted to 
the specific circumstances that may arise depending on the type of 
bankruptcy proceeding (i.e., liquidation under Chapter 7, or 
reorganization under Chapter 11, Chapter 12, or Chapter 13).
    Based on these inquiries, the Bureau determined that the 
interaction of bankruptcy law and the periodic statement requirement 
necessitated further study and that there was insufficient time before 
the rule's January 10, 2014 effective date to provide further 
calibration of the requirements. Accordingly, the Bureau issued the 
October 2013 IFR, which added current Sec.  1026.41(e)(5) to exempt 
servicers from the periodic statement requirement with respect to 
consumers in bankruptcy.\234\ The Bureau explained in commentary that 
the exemption in Sec.  1024.41(e)(5) applies with respect to any person 
sharing primary liability on a mortgage loan with a debtor in 
bankruptcy,\235\ and that a servicer has no obligation to resume 
compliance

[[Page 74247]]

with Sec.  1024.41 with respect to any portion of a mortgage loan that 
is discharged under applicable provisions of the Bankruptcy Code.\236\
---------------------------------------------------------------------------

    \234\ 78 FR 62993, 63000-02 (Oct. 23, 2013).
    \235\ Comment 41(e)(5)-3.
    \236\ Comment 41(e)(5)-2.ii.
---------------------------------------------------------------------------

    In issuing the IFR, the Bureau did not take a position as to 
whether providing periodic statements to a consumer in bankruptcy 
violates the automatic stay or discharge injunction. The Bureau also 
did not discourage servicers that send tailored periodic statements to 
consumers in bankruptcy from continuing to do so. The Bureau further 
expressed its belief that some consumers facing the complexities of 
bankruptcy may benefit from receiving a periodic statement, tailored to 
their circumstances.\237\
---------------------------------------------------------------------------

    \237\ 78 FR 62993, 63001 (Oct. 23, 2013).
---------------------------------------------------------------------------

    In the IFR, the Bureau stated that it would continue to examine 
this issue and might reinstate the requirement to provide a consumer in 
bankruptcy with a periodic statement. However, the Bureau explained 
that it would not reinstate any such requirement without notice and 
comment rulemaking and an appropriate implementation period. The Bureau 
solicited comment on the scope of the exemption, when a servicer 
qualifies for the exemption and when it must resume sending statements, 
and how the content of the periodic statement might be tailored to meet 
the particular needs of consumers in bankruptcy.\238\
---------------------------------------------------------------------------

    \238\ Id. at 63002.
---------------------------------------------------------------------------

    Since issuing the IFR, the Bureau has continued to engage various 
stakeholders on the scope of this exemption, including hosting the 
roundtable discussion on June 16, 2014, among representatives of 
consumer advocacy groups, bankruptcy attorneys, servicers, trade 
groups, bankruptcy trustees, and the U.S. Trustee's Office. The Bureau 
has also sought comment from bankruptcy judges and experts and 
conducted its own further analysis of the intersection of the periodic 
statement requirement and bankruptcy law.\239\
---------------------------------------------------------------------------

    \239\ Written or oral presentations to the Bureau imparting 
information or argument directed to the merits or outcome of the IFR 
were subject to the Bureau's policy on ex parte presentations. See 
CFPB Bulletin 11-3.
---------------------------------------------------------------------------

    Based upon its review of the comments received and its study of the 
intersection of the periodic statement requirements and bankruptcy law, 
the Bureau believes it may be appropriate to reinstate the periodic 
statement requirements with respect to consumers in bankruptcy under 
certain circumstances. The Bureau is proposing to do so in the present 
rulemaking because, as noted in the IFR, the Bureau believes that it 
would be preferable to use notice and comment rulemaking, rather than 
simply finalizing the IFR with modifications, to reinstate the periodic 
statement requirements with respect to such consumers. The Bureau 
believes that this approach will provide stakeholders the opportunity 
to more fully consider and comment on the Bureau's specific proposal. 
The Bureau also believes that it is appropriate to address comments it 
already received in response to the IFR. Accordingly, the following 
discussion of the proposal with respect to the periodic statement 
requirements also contains discussion of the comments received on the 
IFR, as well comments received after the IFR's official comment period 
ended.
Comments on the Scope of the Exemption
    Comments on the scope of the exemption addressed two broad issues: 
(1) whether to maintain the current exemption; and (2) if a more 
limited exemption is appropriate, under what circumstances should a 
consumer in bankruptcy receive periodic statements.
    On the first issue, several servicers and trade groups requested 
that the Bureau maintain the exemption without any adjustments. Some 
trade groups argued that the exemption provides a clear rule to 
servicers that periodic statements are not required for consumers in 
bankruptcy, whereas the original 2013 TILA Servicing Final Rule was 
unclear about the information periodic statements should contain and 
when it may be permissible to not provide periodic statements to a 
consumer in bankruptcy. These trade groups also commented that the 
amount due and other disclosures mandated by Sec.  1026.41 could be 
confusing to consumers who are making payments according to a 
bankruptcy plan. During the bankruptcy roundtable discussion, a credit 
union and a community bank stated that their systems are not equipped 
to produce periodic statements that reflect Chapter 13's unique 
accounting practices and that tracking payments in a Chapter 13 case 
requires a significant amount of time and effort. These participants 
maintained that the cost of upgrading their systems outweighed any 
benefit to the relatively few bankrupt consumers in their portfolios. 
The credit union suggested that, at a minimum, the Bureau adopt a 
modified exemption from any future periodic statement requirement for 
entities with a limited number of consumers in bankruptcy or a limited 
percentage of their mortgage loans subject to bankruptcy proceedings.
    Consumer advocacy groups strongly objected to the exemptions set 
forth in the IFR. They argued that consumers in bankruptcy need 
information about their mortgage loan accounts in order to make timely 
payments, determine whether the servicer correctly calculated and 
applied payments, and object to any account errors. The consumer 
advocacy groups stated that, in the past, such consumers have suffered 
improper fees and charges because servicers have avoided implementing 
protocols to account for payments made during bankruptcy. Moreover, the 
consumer advocacy groups argued that servicers' concerns that providing 
periodic statements would violate the automatic stay are exaggerated 
because court decisions finding stay violations have generally involved 
extreme facts--for example, servicers overtly attempting to collect 
payments outside of the bankruptcy process or ignoring a consumer's 
request to cease receiving statements.
    An association of Chapter 13 trustees commented that periodic 
statements are necessary in Chapter 13 cases to determine whether 
servicers are correctly applying payments. The trustees echoed the 
consumer advocacy groups' concerns that servicers have not established 
systems to properly track and apply payments and that consumers are 
often subject to erroneous fees and charges. They argued that requiring 
servicers to disclose bankruptcy accounting practices would likely 
force servicers to improve their practices.
    A bankruptcy law professor commented that in light of consumers' in 
bankruptcy demonstrated difficulty in paying their debts, such 
consumers need periodic statements to remind them of their payment 
obligations and that depriving them of statements is antithetical to 
bankruptcy's purpose of financial rehabilitation. One bankruptcy judge 
commented that requiring periodic statements in Chapter 13 cases may 
force servicers to improve their systems and more accurately apply 
consumer payments. Another bankruptcy judge suggested that, in lieu of 
monthly statements, the Bureau could require servicers to send initial 
notices acknowledging a consumer's bankruptcy case and identifying the 
monthly payment amount, followed by semi-annual or annual statements 
disclosing how the servicer has applied payments and the amount of 
outstanding fees.
    Several servicers and trade groups, while supporting a temporary 
exemption, commented that a narrower exemption would be appropriate 
depending on whether the consumer

[[Page 74248]]

intends to retain the property, as discussed more below.
    The Bureau also received comments regarding which consumers should 
receive periodic statements if the exemption did not apply to all 
consumers in bankruptcy. Commenters were generally in agreement that 
periodic statements would be appropriate for some consumers but not 
others. Some industry commenters drew a distinction between consumers 
who intend to retain their property and those who intend to surrender 
it or cease making payments on the mortgage loan. Specifically, these 
commenters took the position that periodic statements are not 
appropriate when a consumer intends to surrender the property or avoid 
(i.e., render unenforceable) the lien securing the mortgage loan, when 
a consumer requests that a servicer cease providing periodic 
statements, when a court order or local rule prohibits providing 
statements, or after a court enters an order lifting the automatic stay 
to permit a servicer to pursue foreclosure. However, these commenters 
suggested that consumers in Chapter 11, Chapter 12, and Chapter 13 
bankruptcy should receive statements when the plan of reorganization 
provides that the consumer will retain the property and continue making 
payments on the mortgage loan. In cases where a consumer retains the 
property, commenters noted, the consumer can benefit from information 
about the payments they must make to keep the property. Similarly, 
certain industry commenters suggested that consumers in Chapter 7 
bankruptcy should receive statements if they file a Statement of 
Intention with the bankruptcy court stating that they intend to retain 
the property.
    With some distinctions discussed below, consumer advocacy groups 
and trustees agreed that it may be appropriate to distinguish between 
consumers retaining the property and those surrendering it through 
bankruptcy. However, consumer advocacy groups also argued that comments 
41(e)(5)-2.ii and 3 are unnecessarily broad in stating that the 
exemption applies to all joint obligors of a consumer in bankruptcy and 
that servicers have no obligation to resume providing periodic 
statements with respect to any portion of a mortgage loan that is 
discharged in bankruptcy. These groups maintained that joint obligors 
and consumers who have discharged a mortgage loan should be able to 
receive periodic statements in appropriate circumstances.
    Despite general agreement on when periodic statements may be 
appropriate, commenters disagreed on three points. First, they 
disagreed on whether Chapter 7 consumers should be required to opt-in 
to receive periodic statements. Consumer advocacy groups argued that, 
as a default rule, a consumer in Chapter 7 bankruptcy should receive 
periodic statements. A law professor and bankruptcy judge generally 
agreed with this approach. On the other hand, servicers and trade 
groups favored an opt-in method, in which consumers would receive 
periodic statements only if their Statement of Intention filed with the 
court pursuant to 11 U.S.C. 521(a) identified an intent to retain the 
property or if they otherwise affirmatively requested statements. One 
servicer added that bankruptcy courts might not agree that checking the 
box to retain property on the Statement of Intention suffices as an 
affirmative request to receive periodic statements and that a court 
might therefore view the statement as an unwanted collection attempt.
    Second, two trade groups initially maintained that periodic 
statements are unnecessary when a consumer is making all payments on 
the mortgage loan through a Chapter 13 trustee (and not directly to the 
servicer), though one of the groups stated in subsequent comments that 
all consumers in Chapter 13 should receive statements. Chapter 13 
trustees strenuously argued that statements are necessary in all cases 
to determine whether servicers are correctly applying plan payments. 
Several servicers took the position that there should be a uniform 
approach in all Chapter 13 cases so that servicers do not have to 
implement different protocols depending on the procedures governing a 
particular Chapter 13 case.
    Third, commenters were divided on whether a trustee overseeing a 
consumer's Chapter 13 case should receive periodic statements. 
Bankruptcy trustees argued that a trustee's access to periodic 
statements is vital because it would enable the trustee to monitor how 
servicers are applying payments and engage servicers to correct payment 
application errors early on. Some trustees suggested that servicers be 
required to provide statements upon a trustee's request. Similarly, a 
law professor commented that there are compelling reasons to provide 
statements to trustees, particularly in those cases where a consumer is 
required to send periodic payments to a trustee and the trustee acts as 
a disbursing agent by remitting the payments to the servicer.
    Industry participants objected on several grounds to providing 
statements to trustees. First, they maintained that trustees do not 
need statements because they receive all the information they need 
pursuant to the Federal Rules of Bankruptcy Procedure. Two trade groups 
argued that in the event that a trustee needs a periodic statement 
during the bankruptcy case, a trustee may simply request a copy from 
the consumer. Second, industry participants objected to the burden 
imposed by providing additional statements to trustees, either on a 
regular or as- needed basis. Finally, industry participants argued that 
privacy concerns are implicated by sending statements to a trustee who 
is not a fiduciary of the consumer. For example, some servicers that 
are also banks use combined statements that provide information not 
only related to the mortgage loan, but also related to other accounts a 
consumer has with the bank. Industry participants argued that, in those 
circumstances, the bank would need to redact the information pertaining 
to the consumer's other accounts, leading to further burden and costs 
to produce the statements.
Benefits to Consumers in Bankruptcy of Receiving Periodic Statements
    Based upon the comments outlined above, continued outreach and 
monitoring efforts, and further analysis, the Bureau believes that 
certain consumers in bankruptcy will benefit from receiving periodic 
statements (or coupon books, in the case of servicers that provide them 
instead of periodic statements under Sec.  1026.41(e)(3)). Since the 
January 10, 2014 effective date, the Bureau has received complaints 
from consumers who are debtors in bankruptcy and have requested to 
receive periodic statements or other written information regarding 
upcoming payments, but have had their requests denied by servicers. 
Consumers have complained that, as a result, they may inadvertently 
fall behind on payments or at a minimum lack basic information about 
the status of their loans. Case law indicates that bankruptcy courts 
have heard similar complaints and that consumers are often frustrated 
by the lack of payment information provided to them.\240\ To that end, 
the Bureau

[[Page 74249]]

understands that nearly 30 bankruptcy courts have adopted local rules 
permitting or requiring servicers to provide periodic statements or 
coupon books under certain circumstances.\241\
---------------------------------------------------------------------------

    \240\ See, e.g., Henry v. Assocs. Home Equity Servs., Inc. (In 
re Henry), 266 B.R. 457, 471 (Bankr. C.D. Cal. 2001) (``A secured 
creditor should be encouraged to send out payment coupons, envelopes 
and periodic statements if a debtor has filed a statement that the 
debtor plans to keep property subject to secured debt and to make 
payments. Debtors frequently complain to the court that they want to 
make their payments, but their creditors do not cooperate by 
providing payment coupons.''); In re Freeman, 352 B.R. 628 (Bankr. 
N.D. W. Va. 2006) (overruling creditor's objection to the debtor's 
request for periodic statements that were normally required by State 
law); cf. Payne v. Mortg. Elec. Registration Sys., Inc. (In re 
Payne), 387 B.R. 614, 626 (Bankr. D. Kan. 2008) (``[The servicer]'s 
representative testified [that the servicer] does not send payments 
books to mortgagors in bankruptcy because [the servicer] cannot 
present a true and accurate accounting of the loan payments [the 
servicer] is receiving from the Trustee as opposed to debtors' 
payments history.'').
    \241\ See, e.g., LBR 4001-2, Bankr. M.D. Ala.; LBR 4072-1, 
Bankr. N.D. Ala.; Model Chapter 13 Plan, Bankr. S.D. Ala.; Bankr. D. 
Colo. LBR 4001-4; Bankr. S.D. Ill. Model Chapter 13 Plan; Bankr. 
E.D. La. General Order 2012-1 (adopting model Chapter 13 plan); 
Bankr. D. Md. L.R. 4001-5; Bankr. D. Mass. L.R. 4001-3; Bankr. E.D. 
Mich. Model Chapter 13 Plan; Bankr. E.D. Mo. L.R. 3021; Bankr. W.D. 
Mo. L.R. 4001-4; Mont. LBR 4001-3; D. Kan. Bk. S.O. 08-4; District 
of New Jersey Local Bankruptcy Rules, D.N.J LBR 4001-3; Bankr. 
N.D.N.Y. Model Chapter 13 Plan; E.D.N.C. LBR 4001-2; Bankr. M.D.N.C 
Standing Order, In re Terms and Provisions Available for 
Incorporation into Chapter 13 Confirmation Orders; W.D.N.C. LBR 
4001-1; Bankr. D.N.H. L. Form 3015-1A, Model Chapter 13 Plan; Bankr. 
N.D. Ohio Admin. Order 13-02, In re Form Chapter 13 Plan; Bankr. D. 
Or. L.R. 3015-1; R.I. LBR 4001-1; SC LBR 3015-1 (adopting model 
Chapter 13 plan); Bankr. N.D. TX General Order 2010-1, In re Amended 
Standing Order Concerning All Chapter 13 Cases; Bankr. S.D. TX 
Uniform Plan and Motion for Valuation of Collateral; Bankr. W.D. TX 
(Austin Div.), Consolidated Standing Order for Chapter 13 Case 
Administration for Austin Division (adopting model Chapter 13 plan); 
Bankr. W.D. TX (San Antonio Div.), Model Chapter 13 Plan; Vt. LBR 
3071-1; Bankr. W.D. Wash. L. Form 13-4; Bankr. E.D. Wis. Model 
Chapter 13 Plan.
---------------------------------------------------------------------------

    The Bureau does not believe that a consumer's status in bankruptcy 
should act as a bar to receiving fundamental information about the 
mortgage loan account. The Bureau believes that, like all consumers, 
those in bankruptcy may benefit from information regarding the 
application of their payments to principal, interest, escrow, and fees. 
As the Bureau noted in the 2013 TILA Servicing Final Rule, the 
explanation of amount due, transaction activity, and past payment 
breakdown give consumers the information they need to identify possible 
errors on the account and enable consumers to understand the costs of 
their mortgage loan.\242\
---------------------------------------------------------------------------

    \242\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau understands that in the absence of a requirement that 
servicers provide periodic statements, however, consumers in bankruptcy 
often lack such crucial information about their mortgage loan account. 
The Bureau understands that, for example, consumers in Chapter 7 
bankruptcy or those who have discharged personal liability for a 
mortgage loan often do not receive written information regarding their 
mortgage payments. This lack of information is particularly troubling 
for consumers in Chapter 7 bankruptcy who use the so-called ``ride-
through'' option--that is, consumers who discharge personal liability 
for the mortgage loan through bankruptcy but continue making mortgage 
payments to forestall foreclosure, which enables them to remain in 
their home. In that instance, the lien is unaffected by bankruptcy, 
such that a consumer's post-bankruptcy failure to stay current on the 
mortgage would enable a servicer to foreclose on the property, but the 
servicer could not pursue collection efforts or a deficiency judgment 
against the consumer personally.\243\ The Bureau understands that in 
many cases, using this option may be a strategic decision by a consumer 
to avoid a future deficiency judgment, but that, in some instances, 
courts will not permit consumers to reaffirm a mortgage loan, forcing 
them to use the ride-through option despite a willingness to reaffirm. 
Because the ride-through option discharges a consumer's personal 
liability, current Sec.  1026.41(e)(5) exempts a servicer from 
providing periodic statements for the life of the mortgage loan--even 
if the maturity date is years away. The Bureau does not believe that 
this is an optimal result for consumers, nor is it the result Congress 
may have intended when it amended the Bankruptcy Code in 2005 to 
expressly provide that a mortgage creditor does not violate the 
discharge injunction by seeking to obtain periodic payments on a 
discharged mortgage loan in the ordinary course of its relationship 
with a debtor in lieu of pursuing foreclosure.\244\ In light of a 
Bankruptcy Code provision apparently contemplating that consumers will 
use the ride-through option with respect to their principal 
residence,\245\ as well as the fact that in some circumstances courts 
will not permit a consumer to reaffirm a mortgage loan, the Bureau 
believes that consumers who continue making payments after discharging 
a mortgage loan should not be denied periodic statements or coupon 
books. The Bureau therefore declines to follow the suggestion that 
periodic statements or coupon books be conditioned on a consumer 
reaffirming the mortgage loan.
---------------------------------------------------------------------------

    \243\ See Henry, 266 B.R. at 476 (discussing the ride-through 
option and disagreement among courts as to whether the Bankruptcy 
Code permits it); In re Covel, 474 B.R. 702, 708 (Bankr. W.D. Ark. 
2012) (holding that Congress eliminated the ride-through option for 
personal property in 2005, but ``[b]y not making corresponding 
changes concerning real property, Congress appears to tacitly 
recognize a ride through option for real property.''); Kibler v. WFS 
Fin., Inc. (In re Kibler), No. 00-2604, 2001 WL 388764, at *5 
(Bankr. E.D. Cal. Mar. 19, 2001) (``In jurisdictions that recognize 
the `ride-though' option, debtors may want to preserve their 
property, yet not incur the potential personal liability imposed by 
a reaffirmation agreement. These debtors . . . need to receive 
normal monthly billings to avoid a contract default and potential 
foreclosure.'').
    \244\ 11 U.S.C. 524(j) (``Subsection (a)(2) does not operate as 
an injunction against an act by a creditor that is the holder of a 
secured claim, if--(1) such creditor retains a security interest in 
real property that is the principal residence of the debtor; (2) 
such act is in the ordinary course of business between the creditor 
and the debtor; and (3) such act is limited to seeking or obtaining 
periodic payments associated with a valid security interest in lieu 
of pursuit of in rem relief to enforce the lien.'').
    \245\ See 4 Collier on Bankruptcy ] 524.09 (Alan N. Resnick & 
Henry J. Sommer eds., 16th ed. 2014) (``Section 524(j) clarifies 
that when a debtor does not reaffirm a mortgage debt secured by real 
estate that is the debtor's principal residence, the creditor may 
continue to send statements to the debtor in the ordinary course of 
business and collect payments made voluntarily by the debtor. The 
provision makes clear that debtors do not have to reaffirm such 
debts in order to keep paying them. In fact, it has long been the 
practice that mortgage debts are not reaffirmed.'').
---------------------------------------------------------------------------

    The Bureau also believes that consumers in Chapter 13 would benefit 
from receiving the information set forth in periodic statements or 
coupon books provided under Sec.  1026.41. The Bureau understands that, 
effective December 1, 2011, the Federal Rules of Bankruptcy Procedure 
require servicers to disclose certain mortgage loan information to 
consumers whose Chapter 13 plans provide that the consumer will cure 
pre-bankruptcy arrearages and maintain regular periodic payments.\246\ 
Thus, a consumer with a Chapter 13 plan may receive more information 
and greater protections than a consumer in a Chapter 7 case. The Bureau 
understands, however, that these disclosure requirements were motivated 
by pervasive and documented servicer failures to make accurate filings 
or disclose fees during Chapter 13 cases.\247\

[[Page 74250]]

Consumers would often successfully make all payments required under 
their Chapter 13 plan, only to find that the servicer claimed 
substantial additional amounts were still owed.\248\
---------------------------------------------------------------------------

    \246\ Fed. R. Bankr. P. 3002.1 (requiring, among other things, 
servicers to provide 21-day advance notice of a change in payment 
amount and notice within 180 days after a servicer incurs a fees or 
expense for which the consumer is liable, and also providing for a 
reconciliation process at the end of the case to determine if a 
servicer disputes whether the consumer is current on the mortgage 
loan).
    \247\ Fed. R. Bankr. P. 3002.1 Advisory Committee's Notes (2011) 
(``[Rule 3002.1] is added to aid in the implementation of Sec.  
1322(b)(5), which permits a chapter 13 debtor to cure a default and 
maintain payments on a home mortgage over the course of the debtor's 
plan. It applies regardless of whether the trustee or the debtor is 
the disbursing agent for postpetition mortgage payments. In order to 
be able to fulfill the obligations of Sec.  1322(b)(5), a debtor and 
the trustee have to be informed of the exact amount needed to cure 
any prepetition arrearage, see Rule 3001(c)(2), and the amount of 
the postpetition payment obligations.''); In re Sheppard, No. 10-
33959-KRH, 2012 WL 1344112, at *2 (Bankr. E.D. Va. Apr. 18, 2012) 
(``Bankruptcy Rule 3002.1 was adopted to resolve significant and 
often hidden problems encountered by Chapter 13 debtors who utilized 
Sec.  1322(b)(5) of the Bankruptcy Code to cure mortgage defaults in 
their confirmed plans. While debtors could cure an arrearage on 
their principal residence under Sec.  1322(b)(5), they often 
incurred significant fees and other costs as a result of 
postpetition defaults or from interest or escrow fluctuations under 
the terms of the original loan documents. Fearful that any attempt 
to address these fees and charges could be construed as a violation 
of the automatic stay, many creditors would not inform debtors that 
these charges had been incurred until after the Chapter 13 case was 
closed. As the fees and charges were postpetition obligations not 
included in the plan and thus not discharged at the conclusion of 
the case, these debtors would emerge from bankruptcy only to face a 
substantial and previously undisclosed arrearage. This outcome was 
inconsistent with the goal of providing debtors with a fresh 
start.''); In re Thongta, 480 B.R. 317, 319 (Bankr. E.D. Wis. 2012) 
(similar).
    \248\ See, e.g., Sheppard, 2012 WL 1344112, at *2; Thongta, 480 
B.R. at 319.
---------------------------------------------------------------------------

    The Bureau understands from its outreach that some servicers have a 
long history of misapplying payments in Chapter 13 cases and that 
consumers often lack information about how servicers are applying 
payments during bankruptcy. With respect to mortgage loans, Chapter 13 
contains unique provisions that allow a consumer to repay pre-
bankruptcy arrearages over a reasonable period of time while also 
making the regular periodic payments as they come due under the 
mortgage loan.\249\ Under Chapter 13, servicers may need to adopt 
special accounting practices for consumers with these ``cure and 
maintain'' plans and separately track payments made on the pre-
bankruptcy arrearages and the regular periodic payments.\250\ These 
accounting practices differ from a servicer's usual practice because, 
so long as a consumer is timely making all the payments due under the 
plan, a servicer should not treat a consumer as delinquent by, among 
other things, assessing late fees.
---------------------------------------------------------------------------

    \249\ 11 U.S.C. 1322(b)(5).
    \250\ See, e.g., Boday v. Franklin Credit Mgmt. Corp. (In re 
Boday), 397 B.R. 846, 850-51 (Bankr. N.D. Ohio 2008) (``Section 
1322(b)(5), by splitting a claim, means that a creditor is no longer 
permitted to allocate payments according to the terms of its 
contract. Instead, its effect is to require that any prepetition 
arrearage claim must be paid separately, according to the terms of 
the debtor's confirmed plan, based upon the creditor's allowed 
claim. The remaining debt, consisting of those payments which become 
due after the petition is filed, is then paid according to the terms 
of the parties' contract and original loan amortization as if no 
default ever existed . . . . From an accounting standpoint, this 
requires that a creditor allocate a debtor's loan payments in the 
following manner: First, the creditor must apply the arrearage 
payments it receives during the plan's duration in accordance with 
the terms of the plan, so that upon completion of the plan the 
debtor is deemed current on the prepetition amortization schedule. 
Second, payments received from the debtor to service those payments 
which contractually accrue postpetition[] must be allocated 
according to the terms of the parties' contract as if no default had 
occurred.''); In re Wines, 239 B.R. 703, 708 (Bankr. D.N.J. 1999) 
(``Crediting payments outside the plan to the installments due 
contemporaneously according to the original schedule is the only way 
to put the debtors in the same position as if default had never 
occurred.''); In re Collins, No. 07-30454, 2007 WL 2116416, at *13 
(Bankr. E.D. Tenn. July 19, 2007) (holding that Chapter 13 cure and 
maintain plan can include provisions requiring servicer to apply 
payments separately and stating that such a provision ``is not only 
reasonable but required''); see also Fannie Mae, Fannie Mae Single 
Family 2012 Servicing Guide, at 705-35 through 705-36 (Mar. 14, 
2012), available at https://www.fanniemae.com/content/guide/svc031412.pdf (``The servicer must maintain detailed records of any 
payments it receives during the confirmation process--the type of 
payment (pre-petition or post-petition), the amount received, the 
receipt date, the source of the payment, and the allocation of the 
payment (principal, interest, late charges, etc.). The servicer 
should generally hold any pre-petition payments it receives as 
`unapplied' funds until an amount equal to the full monthly (or 
biweekly) payment that is due under the mortgage note is available 
for application to the mortgage loan balance. However, if the court 
requires the payments to be applied under the terms of the repayment 
plan, the servicer must apply the payments in its records as 
required.'').
---------------------------------------------------------------------------

    Courts have detailed some servicers' failure to properly credit 
payments made pursuant to Chapter 13 plans, noting that servicers' 
systems and accounting practices often fail to adjust to the needs of 
Chapter 13, and courts have sanctioned servicers or disallowed 
fees.\251\ These difficulties were also documented in and formed the 
basis of part of the National Mortgage Settlement, which required, 
among other things, that the subject servicers properly account for 
payments received in bankruptcy.\252\
---------------------------------------------------------------------------

    \251\ See, e.g., In re Jones, 366 B.R. 584, 594-98 (Bankr. E.D. 
La. 2007) (sanctioning servicer that applied all amounts received to 
pre- and post-petition charges, interest, and non-interest bearing 
debt, resulting ``in such a tangled mess'' that neither the CPA 
debtor nor the servicer could explain the accounting, and stating 
that ``[i]n this Court's experience, few, if any, lenders make the 
adjustments necessary to properly account for a reorganized debt 
repayment plan.''); In re Hudak, No. 08-10478-SBB, 2008 WL 4850196, 
at *5 (Bankr. D. Colo. Oct. 24, 2008) (``Many courts have noted that 
mortgage lenders simply do not accommodate for the accounting 
intricacies created by Chapter 13.''); Payne v. Mortg. Elec. 
Registration Sys., Inc. (In re Payne), 387 B.R. 614, 627 (Bankr. D. 
Kan. 2008) (``[The servicer] admitted their computer system does not 
allow debtors who make all their payments in a timely manner to exit 
bankruptcy current on their mortgage obligation.''); In re Myles, 
395 B.R. 599, 606 (Bankr. M.D. La. 2008) (holding that debtors 
stated claim for stay violation where creditor allegedly treated a 
Chapter 13 debtor as in default due to improper payment application 
and applied payments to improper fees as a result); Boday, 397 B.R. 
at 850-51 (holding that creditor violated plan and Sec.  1322(b)(5) 
by applying plan payments to interest rather than principal under 
daily simply interest loan); In re Rathe, 114 B.R. 253, 256-57 
(Bankr. D. Idaho 1990) (``[The servicer]'s accounting procedure 
applied payments to the earliest payments due and not to the 
payments due and owing during the pendency of the plan. The purpose 
of a Chapter 13 plan is to allow a debtor to pay arrearages during 
the pendency of the plan while continuing to make payments at the 
contract rate. Payments made during the pendency of the Chapter 13 
plan should have been applied by [the servicer] to the current 
payments due and owing with the arrearage amounts to be applied to 
the back payments. [The servicer] cannot utilize its accounting 
procedures to contravene the terms of a confirmed Chapter 13 plan 
and the Bankruptcy Code.''); In re Stewart, 391 B.R. 327 (Bankr. 
E.D. La. 2008) (sanctioning servicer for misapplying payments and 
noting that ``[t]he reconciliation of Debtor's account took [the 
servicer] four months to research and three hearings before this 
Court to explain,'' that ``[a]n account history was not produced 
until two months after the filing of the Objection,'' and that 
``[a]n additional two months were spent obtaining the necessary 
information to explain or establish the substantial charges, costs, 
and fees reflected on the account''), vacated in part, 647 F.3d 553 
(5th Cir. 2011).
    \252\ See, e.g., Exhibit A at 9, United States v. Bank of Am., 
(2014) (No. 12-361 (RMC), 2014 WL 1016286 (National Mortgage 
Settlement)), available at https://d9klfgibkcquc.cloudfront.net/Ocwen-Consent-Judgment-Ex-A.pdf (providing that, among other things, 
``[i]n active chapter 13 cases, Servicer shall ensure that: a. 
prompt and proper application of payments is made on account of (a) 
pre-petition arrearage amounts and (b) postpetition payment amounts 
and posting thereof as of the successful consummation of the 
effective confirmed plan; b. the debtor is treated as being current 
so long as the debtor is making payments in accordance with the 
terms of the then effective confirmed plan and any later effective 
payment change notices'').
---------------------------------------------------------------------------

    In light of these documented concerns about servicers not properly 
applying payments in Chapter 13 cases, the Bureau agrees with consumer 
advocacy groups and Chapter 13 trustees that periodic statements would 
benefit consumers in Chapter 13 cases. The Bureau believes that, as 
with all consumers, those in bankruptcy may be able to use the 
information set forth in the explanation of amount due, transaction 
activity, and past payment breakdown to understand their payments 
obligations and identify possible servicer errors.\253\ This 
information may be particularly valuable to a consumer in Chapter 13, 
given the greater risk of payment application errors. The Bureau also 
agrees with commenters that in cases where a consumer was current as of 
the date of the bankruptcy petition or is making periodic payments 
directly to a servicer, a monthly reminder of amounts due may help a 
consumer make timely payments.
---------------------------------------------------------------------------

    \253\ 78 FR 10901, 10964-67 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau understands and appreciates the concerns expressed by 
many servicers that their systems are not currently set up to easily 
track how payments are applied in Chapter 13 cases and that, in order 
to be able to disclose this information on a periodic statement, they 
may need to incur significant costs to upgrade their systems. Servicers 
and trade groups also argued that consumers may not understand the 
complexities of accounting for payments made under a

[[Page 74251]]

Chapter 13 plan. As the Bureau noted in the 2013 TILA Servicing Final 
Rule, however, it is precisely this complexity that necessitates 
providing a consumer with a periodic statement. The Bureau believes 
that providing this information will enable consumers to make payments, 
detect errant payment application, and understand the costs of their 
mortgage loans. In addition, the Bureau notes that while the Bankruptcy 
Rules provide for a reconciliation procedure once the consumer 
completes all payments under a Chapter 13 plan, most Chapter 13 cases 
are dismissed prior to completion.\254\ As a result, most consumers in 
Chapter 13 bankruptcy will not have a trustee or court oversee and 
ultimately determine whether a servicer correctly applied payments. For 
these consumers, having a record of payments made and applied may help 
resolve disputes once the bankruptcy case is over.\255\ Accordingly, 
the Bureau believes that all consumers in Chapter 13 cases who intend 
to retain the property, including those making payments through a 
trustee, would benefit from receiving periodic statements (or coupon 
books in the case of servicers that provide them instead of periodic 
statements under Sec.  1026.41(e)(3)).
---------------------------------------------------------------------------

    \254\ See Ed Flynn, Chapter 13 Revisited: Can It Help Solve the 
Judiciary's Fiscal Problems?, 32 a.m. Bankr. Inst. J. 20, 20 (Dec. 
2013).
    \255\ The Bureau further notes that in instances where 
bankruptcy courts have local rules expressly permitting periodic 
statements or coupon books, the rules predominantly apply when the 
consumer is a debtor under Chapter 13. See supra, note 241.
---------------------------------------------------------------------------

Scope of Exemption
    The Bureau is proposing to limit the scope of the exemption in 
Sec.  1026.41(e)(5) to consumers in bankruptcy who have made a 
determination to surrender the property or avoid the lien securing the 
mortgage loan or who have requested that a servicer cease providing 
periodic statements or coupon books. The Bureau believes that drawing a 
distinction between consumers who intend to retain the property and 
those who intend to surrender the property may strike an appropriate 
balance between consumers' need for information about their mortgage 
loans and the burden on servicers to provide information to such 
consumers while also avoiding violations of bankruptcy law.
    The Bureau believes that this approach, favored by many commenters, 
also is consistent with bankruptcy case law. Courts have observed that 
whether periodic statements are appropriate in bankruptcy typically 
depends on whether ``the debtor needed the information contained in the 
statements when the statements were sent'' and that debtors need 
information about their mortgage loan when they intend to retain 
property, not when they intend to surrender it.\256\ Indeed, some 
courts have found that a periodic statement was permissible when the 
debtor planned to retain the property, but that the same form of 
periodic statement violated the automatic stay after the same debtor 
changed his mind and decided to surrender his home.\257\
---------------------------------------------------------------------------

    \256\ Connor v. Countrywide Bank NA (In re Connor), 366 B.R. 
133, 136, 138 (Bankr. D. Haw. 2007)); see also Henry, 266 B.R. at 
471 (collecting cases).
    \257\ Connor, 366 B.R. at 138 (debtor failed to state a claim 
for stay violation related to periodic statements received prior to 
Chapter 13 plan confirmation, but debtor did state a claim related 
to statements received after conversation to Chapter 7 because 
debtor had indicated his intent to surrender the property); In re 
Joens, No. 03-02077, 2003 WL 22839822, at *2-3 (Bankr. N.D. Iowa 
Nov. 21, 2003) (creditor violated automatic stay by sending 
collection letters and periodic statements to Chapter 7 debtor who 
intended to surrender, but noting that it would have been proper to 
send statements if the debtor had intended to retain).
---------------------------------------------------------------------------

    Using this framework, courts have held that periodic statements are 
appropriate for Chapter 7 debtors if the Statement of Intention 
identifies an intent to retain the property\258\ or if a consumer 
otherwise continues to make voluntary payments after the bankruptcy 
case.\259\ Similarly, courts have found that Chapter 13 debtors who 
have not yet proposed a plan of reorganization may benefit from 
periodic statements because they need information about the amount of 
their mortgage loan debt in order to formulate a plan of 
reorganization\260\ and that Chapter 13 debtors also benefit from 
periodic statements if their proposed or confirmed plan provides that 
they will retain the property and continue making payments.\261\
---------------------------------------------------------------------------

    \258\ Henry, 266 B.R. at 471 (holding that creditor did not 
violate the automatic stay by sending periodic statements and notice 
of default to debtors who retain their property by continuing to 
make payments without reaffirming the mortgage loan); Kibler v. WFS 
Fin., Inc. (In re Kibler), No. 00-2604, 2001 WL 388764 (Bankr. E.D. 
Cal. Mar. 19, 2001) (noting that borrowers who retain their property 
by continuing to make payments without reaffirming the mortgage loan 
``need to receive normal billings to avoid a contract default and 
potential foreclosure'').
    \259\ See 4 Collier on Bankruptcy ] 524.04 (``Section 524(j) 
clarifies that when a debtor does not reaffirm a mortgage debt 
secured by real estate that is the debtor's principal residence, the 
creditor may continue to send statements to the debtor in the 
ordinary course of business and collect payments made voluntarily by 
the debtor.'') (citing Jones v. Bac Home Loans Servicing, LP (In re 
Jones), No. 09-50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov. 
25, 2009)); cf. Ramirez v. Gen. Motors Acceptance Corp. (In re 
Ramirez), 280 B.R. 252, 257-58 (C.D. Cal. 2002) (holding that 
creditor did not violate discharge injunction by sending periodic 
statements and a ``summary of voluntary payments'' to a debtor who 
his vehicle without reaffirming the loan).
    \260\ Connor, 366 B.R. at 138 (holding that debtor failed to 
state a claim for stay violation related to periodic statements 
received prior to Chapter 13 plan confirmation); Pultz v. NovaStar 
Mortg., Inc. (In re Pultz), 400 B.R. 185, 190-92 (Bankr. D. Md. 
2008) (noting that sending of single loan statement was useful to 
the debtor for forecasting the amount of the unsecured debt she 
could pay through her Chapter 13 plan); Schatz v. Chase Home Fin. 
(In re Schatz), 452 B.R. 544 (Bankr. M.D. Pa. 2011) (``I also 
recognize that such information could assist a Chapter 13 debtor in 
drafting his Chapter 13 plan.'').
    \261\ Henry, 266 B.R. at 471 (``A secured creditor should be 
encouraged to send out payment coupons, envelopes and periodic 
statements if a debtor has filed a statement that the debtor plans 
to keep property subject to secured debt and to make payments.''); 
Cousins v. CitiFinancial Mortg. Co. (In re Cousins), 404 B.R. 281, 
286-87 (Bankr. S.D. Ohio 2009) (stating in dicta that periodic 
statements can be helpful to Chapter 13 debtors making direct 
payments to understand amounts due).
---------------------------------------------------------------------------

    Conversely, bankruptcy courts have determined that periodic 
statements can constitute impermissible collection attempts in 
violation of the automatic stay when a consumer has indicated an intent 
to surrender the property, either through the Statement of Intention in 
a Chapter 7 case or a plan of reorganization in a Chapter 13 case.\262\ 
Similarly, courts have held that a Chapter 13 consumer with a plan of 
reorganization that provides for ``avoiding'' a junior lien--that is, 
rendering the lien unenforceable and treating the mortgage debt as an 
unsecured claim--has no need for statements regarding the amounts due 
under the mortgage loan.\263\ Finally, courts have found that consumers 
do not need statements when they have actually surrendered or vacated 
the

[[Page 74252]]

property,\264\ or requested that the servicer not send periodic 
statements.\265\
---------------------------------------------------------------------------

    \262\ Joens, 2003 WL 22839822, at *2-3 (holding that creditor 
violated automatic stay by sending several collection letters and 
periodic statements to Chapter 7 debtor who had indicated an intent 
to surrender); Connor, 366 B.R. at 138 (holding that debtor stated a 
claim related to periodic statements and demand letter received 
after conversion to Chapter 7 because he had indicated his intent to 
surrender the property).
    \263\ Curtis v. LaSalle Nat'l Bank (In re Curtis), 322 B.R. 470, 
484-85 (Bankr. D. Mass. 2005) (holding that wholly unsecured junior 
lienholder violated automatic stay by, among other things, sending a 
RESPA transfer letter demanding payment to a Chapter 13 debtor whose 
plan provided for avoiding the lien).
    \264\ In re Roush, 88 B.R. 163, 164-65 (Bankr. S.D. Ohio 1988) 
(holding that creditor violated the discharge injunction when it 
sent a collection letter to debtor three years after debtor 
surrendered property); In re Bruce, No. 00-50556 C-7, 2000 WL 
33673773, at *4 (Bankr. M.D.N.C. Nov. 7, 2000) (holding that 
creditor violated the discharge injunction by sending periodic 
statements and calling the debtor at his place of employment after 
receiving notice that the debtor had vacated the property).
    \265\ In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. Fla. 1999) 
(holding that creditor violated the stay by sending periodic 
statements to Chapter 13 debtor who had asked not to receive them).
---------------------------------------------------------------------------

    Therefore, the Bureau is proposing to revise the scope of the 
exemption in Sec.  1026.41(e)(5). Consistent with most comments the 
Bureau received and the case law discussed above, proposed Sec.  
1026.41(e)(5) limits the scope of the exemption to those consumers who 
no longer need the information in the periodic statement. Specifically, 
proposed Sec.  1026.41(e)(5)(i) limits the exemption to when two 
conditions are satisfied. First, the consumer must be a debtor in a 
bankruptcy case, must have discharged personal liability for the 
mortgage loan through bankruptcy, or must be a primary obligor on a 
mortgage loan for which another primary obligor is a debtor in a 
Chapter 12 or Chapter 13 case. The purpose of this requirement is to 
limit the exemption to consumers who may be protected by the Bankruptcy 
Code's automatic stay or discharge injunction provisions.
    Second, one of the following circumstances must also apply: (1) the 
consumer requests in writing that the servicer cease providing periodic 
statements or coupon books;\266\ (2) the consumer's confirmed plan of 
reorganization provides that the consumer will surrender the property 
securing the mortgage loan, provides for the avoidance of the lien 
securing the mortgage loan, or otherwise does not provide for, as 
applicable, the payment of pre-bankruptcy arrearages or the maintenance 
of payments due under the mortgage loan; (3) a court enters an order in 
the consumer's bankruptcy case providing for the avoidance of the lien 
securing the mortgage loan, lifting the automatic stay pursuant to 11 
U.S.C. 362 with respect to the property securing the mortgage loan, or 
requiring the servicer to cease providing periodic statements or coupon 
books; or (4) the consumer files with the overseeing bankruptcy court a 
Statement of Intention pursuant to 11 U.S.C. 521(a) identifying an 
intent to surrender the property securing the mortgage loan. As 
commenters noted, in each of these situations, a consumer is no longer 
retaining the property, is no longer making regular periodic payments 
on the mortgage loan, or has affirmatively requested not to receive 
statements or coupon books. As a result, the Bureau believes that the 
statement's value is diminished and may be outweighed by a 
correspondingly increased risk of a court finding that a servicer 
violated the automatic stay by sending periodic statements or coupon 
books in this circumstance.
---------------------------------------------------------------------------

    \266\ The Bureau understands from its outreach that at least one 
large national bank that provides periodic statements to all of its 
consumers in bankruptcy, except those who opt-out, has not 
encountered problems with the automatic stay.
---------------------------------------------------------------------------

    With respect to joint obligors who are not in bankruptcy, proposed 
Sec.  1026.41(e)(5)(i) effectively limits the exemption to those joint 
obligors who (i) share primary liability with a consumer who is a 
debtor in a Chapter 12 or Chapter 13 case, and (ii) have requested that 
a servicer cease providing periodic statements or coupon books. As 
discussed in the section-by-section analysis of Sec.  1024.39(d)(1), a 
non-debtor joint obligor is protected by the Bankruptcy Code's 
automatic stay provisions only in Chapter 12 or Chapter 13 cases.\267\ 
The Bureau understands from outreach that these joint obligors 
generally have a need to continue receiving periodic statements or 
coupon books. Moreover, these joint obligors are not bound by a 
debtor's decision to surrender the property securing the mortgage loan. 
Accordingly, the Bureau believes that it is appropriate for the non-
debtor joint obligors to continue receiving periodic statements or 
coupon books unless non-debtor joint obligors have requested that the 
servicer cease providing them.
---------------------------------------------------------------------------

    \267\ See 11 U.S.C. 1201, 1301.
---------------------------------------------------------------------------

    Proposed comment 41(e)(5)(i)-1 clarifies the exemption's 
applicability with respect to joint obligors. The proposed comment 
states that when two or more consumers are primarily liable on a 
mortgage loan, an exemption under Sec.  1026.41(e)(5)(i) with respect 
to one of the primary obligors does not affect the servicer's 
obligations to comply with Sec.  1026.41 with respect to the other 
primary obligors. The Bureau believes that the proposed comment will 
serve to eliminate ambiguity concerning whether a servicer must 
continue to provide statements or coupon books to joint obligors when 
an exemption under Sec.  1026.41(e)(5)(i) applies to one of the 
obligors. The proposed comment also references Sec.  1026.41(f), 
explaining that if one of the joint obligors is in bankruptcy and no 
exemption under Sec.  1026.41(e)(5)(i) applies, the servicer would be 
required to provide periodic statements or coupon books with certain 
bankruptcy-specific modifications set forth in Sec.  1026.41(f). In 
that instance, the servicer could provide the periodic statements or 
coupon books with the bankruptcy-specific modifications to any of the 
primary obligors on the mortgage loan, even if not all of them are in 
bankruptcy.
    Proposed comment 41(e)(5)(i)-2 also clarifies that, for purposes of 
Sec.  1026.41(e)(5), the term ``plan of reorganization'' refers to a 
consumer's plan of reorganization filed under applicable provisions of 
the Bankruptcy Code and confirmed by a court with jurisdiction over a 
consumer's bankruptcy case. The proposed comment is intended to avoid 
confusion about the meaning of the term ``plan of reorganization'' and 
whether the term refers to a proposed plan or one that has been 
confirmed by a court.
    Finally, proposed comment 41(e)(5)(i)(B)(4)-1 further clarifies 
that, for purposes of determining whether a servicer is exempt under 
Sec.  1026.41(e)(5)(i) based on a consumer's Statement of Intention 
filed in the consumer's bankruptcy case, a servicer must rely on a 
consumer's most recently filed Statement of Intention. Thus, under the 
proposed rule, if a consumer originally filed a Statement of Intention 
identifying an intent to retain the property, but the consumer then 
files an amended Statement of Intention identifying an intent to 
surrender the property, a servicer must rely on the amended filing to 
determine that the exemption applies. The Bureau believes that the 
proposed comment will avoid uncertainty about whether the exemption 
applies when a consumer has filed multiple or amended Statements of 
Intention.
    Proposed Sec.  1026.41(e)(5)(ii) states when a servicer must resume 
providing periodic statements or coupon books in compliance with Sec.  
1024.41. First, proposed Sec.  1026.41(e)(5)(ii)(A) provides that a 
servicer is not exempt from the requirements of Sec.  1024.41 with 
respect to a consumer who submits a written request to continue 
receiving periodic statements or coupon books, unless a court enters an 
order requiring otherwise. The Bureau believes that consumers should 
have the right to receive information regarding their mortgage loan. 
Further, allowing consumers to opt-in will enable consumers to receive 
statements or coupon books when their intent with regard to retaining 
the property changes. The Bureau understands that, for example, some 
Chapter 7 debtors will file a Statement of Intention that initially 
discloses an intent to surrender

[[Page 74253]]

the property but subsequently decide to keep the property. In that 
case, the Bureau believes a consumer should be able to receive periodic 
statements or coupon books. Proposed comment 41(e)(5)(ii)-1 clarifies 
that a servicer must comply with a consumer's most recent written 
request to cease or to continue, as applicable, providing periodic 
statements or coupon books.
    Second, proposed Sec.  1026.41(e)(5)(ii)(B) provides that a 
servicer must resume compliance with Sec.  1026.41 within a reasonably 
prompt time after the next payment due date that follows the earliest 
of the following outcomes in either the consumer's or the joint 
obligor's bankruptcy case, as applicable: (1) the case is dismissed; 
(2) the case is closed; (3) the consumer reaffirms the mortgage loan 
under 11 U.S.C. 524; or (4) the consumer receives a discharge under 11 
U.S.C. 727, 1141, 1228, or 1328. Proposed Sec.  1026.41(e)(5)(ii)(B) 
largely tracks current comment 41(e)(5)-2.i, and the Bureau believes 
that a bankruptcy exemption is no longer necessary once the borrower 
has exited bankruptcy or reaffirmed personal liability for the mortgage 
loan. One commenter requested that the obligation to resume providing 
periodic statements should be triggered only upon a servicer's receipt 
of a proper notice indicating that the case has been dismissed, closed, 
or discharged. The Bureau understands that servicers ordinarily receive 
notice of the dismissal, closing, or discharge, as applicable, and it 
has not received comments indicating that servicers often fail to 
receive the required notices. The Bureau also believes that the 
``reasonably prompt'' standard is flexible enough to account for 
instances in which a servicer had no reason to know that the consumer's 
bankruptcy case was terminated. Additionally, reaffirmation agreements 
require a creditor's consent, and the Bureau understands that a 
servicer should be aware of when such an agreement is entered into and 
approved.
    In combination, proposed Sec.  1026.41(e)(5)(ii)(A) and (B) require 
a servicer to resume providing periodic statements or coupon books 
within a reasonably prompt time after the next payment due date 
following receipt of a consumer's written request, the case closing or 
dismissal, the consumer's reaffirmation of the mortgage loan, or the 
consumer receiving a discharge. Proposed comment 41(e)(5)(ii)-2 
clarifies that delivering, emailing or placing the periodic statement 
or coupon book in the mail within four days after the next payment due 
date, or within four days of the close of any applicable courtesy 
period, generally would be considered reasonably prompt. (With respect 
to coupon books, resuming compliance requires providing a new coupon 
book only to the extent the servicer has not previously provided the 
consumer with a coupon book that covers the upcoming billing cycle(s); 
duplicate coupon books are not required.) This interpretation of 
``reasonably prompt'' is consistent with the Bureau's interpretation 
currently set forth in comment 41(b)-1.
    Finally, proposed comment 41(e)(5)-1 clarifies that, if an agent of 
a consumer submits a request to cease or to continue providing periodic 
statements or coupon books, the request is deemed submitted by the 
consumer. The Bureau understands that attorneys or housing counselors 
often communicate with a servicer on a consumer's behalf, and the 
Bureau believes that it is important to clarify that a servicer must 
comply with a request to cease or commence providing periodic 
statements or coupon books by such an agent of a consumer.
    The Bureau has also considered, but declines to propose at this 
time, four suggestions regarding the scope of Sec.  1026.41(e)(5). 
First, the Bureau declines to propose to require a consumer in Chapter 
7 bankruptcy to opt-in affirmatively to receiving periodic statements 
or coupon books. As explained above, the Bureau believes that servicers 
should provide statements or coupon books to consumers in Chapter 7 
unless one or more of the specified exceptions applies. The Bureau is 
concerned that requiring a consumer to affirmatively opt-in may disrupt 
the flow of periodic statements or coupon books shortly after the 
bankruptcy filing and may cause a consumer to fail to make a timely 
mortgage loan payment. Additionally, the Bureau is concerned that 
consumers, particularly those not represented by counsel, may not be 
aware of the right to request periodic statements or coupon books.
    Second, the Bureau declines to adopt a consumer advocacy group's 
suggestion that a consumer should continue receiving periodic 
statements unless the consumer discloses an intent to surrender the 
property, is in default, and has been denied for all loss mitigation 
options. The Bureau appreciates that this approach would ensure that a 
consumer would receive statements until all retention options have been 
exhausted, but the Bureau is concerned that it may unduly burden 
servicers. The Bureau believes that a more simple test based on the 
consumer's intent to retain or surrender the property may provide a 
less ambiguous standard and assist servicers in determining whether the 
exemption applies.
    Third, the Bureau does not believe that it would be appropriate to 
create a special exemption from the periodic statement requirement for 
servicers with a limited number of consumers in bankruptcy or a limited 
percentage of their portfolio subject to bankruptcy proceedings. The 
Bureau believes that the existing small servicer exemption in Sec.  
1026.41(e)(4) sufficiently balances the potential costs of providing 
periodic statements with the potential burden on smaller servicers. 
Furthermore, the Bureau notes that an exemption based upon the number 
of customers a servicer has in bankruptcy (rather than total number of 
loans in a servicer's portfolio) would lead to uncertainty, as factors 
outside of the servicer's control--for example, regional economic 
conditions--may cause a servicer to lose the exemption for a given 
year.
    Finally, at this time, the Bureau does not believe that servicers 
should be required to provide Chapter 13 trustees with periodic 
statements, either as a matter of course or upon a trustee's request. 
The Bureau is concerned that requiring a servicer to send statements to 
a trustee may unduly increase the burden on servicers. The Bureau also 
recognizes the privacy concerns raised by servicers. If servicers were 
in some cases required to redact certain information based on privacy 
concerns, this could further increase costs to servicers. Additionally, 
the Bureau understands that there may be other ways for trustees to 
obtain copies of periodic statements, such as requesting them from a 
consumer or obtaining a court order requiring them in a particular 
case. The Bureau seeks comment on whether a servicer should be required 
to provide periodic statements to a Chapter 13 trustee overseeing a 
consumer's case and, if so, under what circumstances. The Bureau also 
seeks comment on whether trustees have sufficient alternative means of 
obtaining periodic statements or similar information from consumers or 
servicers.
    In addition, the Bureau seeks comment on the scope of the proposed 
exemption, the requirements for qualifying for the exemption, and when 
servicers must resume sending periodic statements or coupon books. In 
particular, the Bureau solicits comment on whether consumers in 
bankruptcy should be required to opt-in to receive periodic statements 
or coupon books and, if so, whether documents filed with

[[Page 74254]]

the bankruptcy court, such as a Statement of Intention or plan of 
reorganization, are sufficient to qualify as a request to receive 
periodic statements or coupon books. The Bureau further requests 
comment on how consumers in bankruptcy may be made aware of their 
ability to opt-in or opt-out of receiving periodic statements or coupon 
books, whether such requests must be made in writing, whether oral 
requests should be sufficient, and whether servicers should be able to 
designate an exclusive mailing address for receiving written requests. 
With respect to resuming compliance after the case closing or dismissal 
or borrower's discharge, as applicable, the Bureau solicits comment on 
whether servicers ordinarily receive sufficient notice of these events.
Legal Authority
    The Bureau is proposing to exercise its authority under sections 
105(a) and (f) of TILA and section 1405(b) of the Dodd-Frank Act to 
exempt servicers from the requirement in section 128(f) of TILA to 
provide periodic statements for a mortgage loan in certain bankruptcy-
related circumstances. For the reasons discussed above, the Bureau 
believes this exemption is necessary and proper under section 105(a) of 
TILA to facilitate compliance. In addition, consistent with section 
105(f) of TILA and in light of the factors in that provision, the 
Bureau believes that imposing the periodic statement requirement for 
certain consumers in bankruptcy may not currently provide a meaningful 
benefit to those consumers in the form of useful information. 
Consistent with section 1405(b) of the Dodd-Frank Act, the Bureau also 
believes that the modification of the requirements in section 128(f) of 
TILA to provide this exemption is in the interest of consumers and in 
the public interest.
41(e)(6) Charged-off Loans
    The Bureau is proposing to add a new exemption from the requirement 
to provide periodic statements under Sec.  1026.41. The proposed 
exemption would apply to a mortgage loan that a servicer has charged 
off in accordance with loan-loss provisions if the servicer will not 
charge any additional fees or interest on the account, provided that 
the servicer must provide the consumer a final periodic statement 
within 30 days of charge off or the most recent periodic statement.
    The periodic statement rule set forth in Sec.  1026.41 requires the 
creditor, assignee, or servicer of a closed-end consumer credit 
transaction secured by a dwelling (a mortgage loan) to provide the 
consumer, for each billing cycle, a periodic statement meeting certain 
time, form, and content requirements.\268\ The Bureau's February 2013 
TILA Servicing Final Rule and October 2013 IFR provide certain 
exemptions from the periodic statement rule. Specifically, the current 
exemptions apply to reverse mortgage transactions, timeshare plans, 
fixed-rate loans if the servicer provides the consumer a coupon book, 
small servicers, and mortgage loans while the consumer is a debtor in 
bankruptcy under Title 11.\269\
---------------------------------------------------------------------------

    \268\ For purposes of Sec.  1026.41, ``servicer'' includes the 
creditor, assignee, or servicer, as applicable. 12 CFR 
1026.41(a)(2).
    \269\ 12 CFR 1026.41(e)(1) through (5). For loans serviced by a 
small servicer, a creditor or assignee is also exempt from the 
Regulation Z periodic statement requirements. 12 CFR 
1026.41(e)(4)(i). The proposal provides amendments to the periodic 
statement exemption for a consumer that is a debtor in bankruptcy. 
See section-by-section analysis of Sec.  1026.41(e)(5).
---------------------------------------------------------------------------

    The Bureau understands that a servicer, pursuant to certain 
accounting standards and at a creditor's direction, may be required to 
charge off a delinquent mortgage loan in accordance with applicable 
loan-loss provisions. Charge off is an accounting practice that 
indicates that the creditor or servicer no longer considers the 
mortgage loan to be an asset. However, charge off does not release the 
consumer from liability for the mortgage loan. In some cases, although 
the mortgage loan has been charged off, the underlying lien secured by 
the dwelling remains in place. Therefore, even after charge off, the 
credit transaction is still secured by a dwelling. It is the Bureau's 
position that under the current rule, unless the lien is released, the 
periodic statement is required for all charged-off mortgage loans, 
regardless of whether the mortgage loan was charged off prior to the 
effective date of the rule (January 10, 2014).
    The Bureau has learned that the manner in which charged-off 
mortgage loans are serviced may differ from the manner in which non-
charged-off mortgage loans are serviced. The Bureau understands that a 
servicer's software, systems, and platforms may treat charged-off 
mortgage loans distinctly, such that providing a periodic statement for 
a charged-off mortgage loan may be more burdensome, and therefore more 
costly, than providing a periodic statement for a non-charged-off 
mortgage loan. The Bureau also understands, however, that even after 
charge off, a servicer may pass along various fees to the consumer, 
such as attorney's fees, court costs, filing fees, garnishment fees, 
property maintenance fees, taxes, insurance, and fees for maintaining 
the lien. The Bureau believes that where a servicer continues to charge 
a consumer fees and interest, the periodic statement may provide 
significant value to a consumer. As the Bureau stated in the February 
2013 TILA Servicing Final Rule, the Bureau carefully considered 
concerns expressed about circumstances in which the periodic statement 
should not be required (e.g., after acceleration), and acknowledged 
that some circumstances could make providing a periodic statement more 
complicated. However, the Bureau noted that ``such circumstances are 
often precisely when a consumer most needs the periodic statement,'' as 
the Bureau ``believes an important role of the periodic statement is to 
document fees and charges to the consumer; as long as such charges may 
be assessed, the consumer is entitled to receive a periodic 
statement.''\270\
---------------------------------------------------------------------------

    \270\ 78 FR 10901, 10960 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau has considered the competing concerns posed by the costs 
to a servicer to provide periodic statements for charged-off mortgage 
loans and the benefits to a consumer to continue to be informed of fees 
and charges that a servicer may assess after charge off. Although the 
periodic statement rule provides important consumer protections, the 
Bureau believes that if a servicer will not charge any additional fees 
or interest on the account, the benefit to a consumer of receiving a 
periodic statement may be outweighed by the potential for increased 
costs passed on to consumers. Therefore, when the servicer will assess 
no further fees or interest, the Bureau believes that it may be 
appropriate to exempt a servicer from the requirements of Sec.  1026.41 
for a mortgage loan that a servicer has charged off in accordance with 
loan-loss provisions.
    Accordingly, the Bureau is proposing to add a new exemption from 
the periodic statement requirement for certain mortgage loans that a 
servicer has charged off. Specifically, proposed Sec.  1026.41(e)(6) 
provides that a servicer is exempt from the requirements of Sec.  
1026.41 for a mortgage loan if the servicer has charged off the loan in 
accordance with loan-loss provisions and will not charge any additional 
fees or interest on the account, provided that the servicer must, 
within 30 days of charge off or the most recent periodic statement, 
provide a final periodic statement, clearly and conspicuously labeled 
``Final Statement--Retain This Copy for Your Records.'' The Bureau is 
also proposing that the final periodic statement convey, in simple and 
clear terms, additional information to the

[[Page 74255]]

consumer. The Bureau believes that providing this final periodic 
statement with the additional consumer information may provide 
important consumer protections that outweigh any potential burden on 
servicers associated with providing this one-time, final statement.
    The proposed exemption is similar to existing Sec.  
1026.5(b)(2)(i), which provides an exemption for certain charged-off 
accounts from the periodic statement requirement in Sec.  1026.7 for 
open-end credit transactions. Section 1026.5(b)(2)(i) states, in 
relevant part, that ``[a] periodic statement need not be sent for an 
account . . . if the creditor has charged off the account in accordance 
with loan-loss provisions and will not charge any additional fees or 
interest on the account. . . .''\271\ In finalizing this exemption 
under Sec.  1026.5(b)(2)(i), the Board weighed the costs and benefits 
and determined that ``the value of a periodic statement does not 
justify the cost of providing the disclosure because the amount of a 
consumer's obligation will not be increasing,'' while reiterating that 
``this provision does not apply if a creditor has charged off the 
account but continues to accrue new interest or charge new fees.''\272\ 
The Bureau agrees with the Board's reasoning and believes that a 
similar analysis may apply with respect to the proposed exemption from 
the periodic statement requirement in Sec.  1026.41 for a mortgage loan 
that a servicer has charged off in accordance with loan-loss provisions 
if the servicer will not charge any additional fees or interest on the 
account.
---------------------------------------------------------------------------

    \271\ 12 CFR 1026.5(b)(2)(i).
    \272\ 74 FR 5244, 5276 (Jan. 29, 2009).
---------------------------------------------------------------------------

    However, because closed-end consumer credit transactions secured by 
a dwelling are distinct from unsecured, open-end credit transactions by 
virtue of the underlying lien, the Bureau believes that it is 
appropriate to impose additional requirements in this context. 
Specifically, proposed Sec.  1026.41(e)(6) provides that for a servicer 
to take advantage of the exemption, the servicer must, within 30 days 
of charge off or the most recent periodic statement,\273\ provide a 
final periodic statement, clearly and conspicuously labeled ``Final 
Statement--Retain This Copy for Your Records.'' Under proposed Sec.  
1026.41(e)(6), the final periodic statement may be the last piece of 
information or documentation that a consumer receives with respect to 
the charged-off mortgage loan. Consumers may need this information for 
further tax-reporting and other financial accounting purposes. 
Additionally, the Bureau believes that consumers may need to later 
demonstrate the status of the loan to the servicer or a subsequent 
purchaser, assignee, or transferee. Consequently, the Bureau believes 
that a consumer should be advised to retain the final periodic 
statement for record-keeping purposes.
---------------------------------------------------------------------------

    \273\ The proposal provides that a servicer may provide the 
final periodic statement within 30 days of the most recent periodic 
statement. This would allow servicers that appropriately complied 
with the periodic statement requirement for previously charged-off 
mortgage loans to now take advantage of the proposed exemption.
---------------------------------------------------------------------------

    Further, the Bureau is concerned that consumers may misconstrue the 
charge off to mean that the mortgage loan obligation or lien has been 
released, or the debt forgiven, when in fact this is generally not the 
case. Therefore, the Bureau believes that the proposed final periodic 
statement must also convey, in simple and clear terms, important 
information to the consumer about what it means for a mortgage loan to 
be charged off. Proposed Sec.  1026.41(e)(6) provides that the final 
periodic statement must explain in simple and clear terms that: the 
mortgage loan has been charged off and the servicer will not charge any 
additional fees or interest on the account; the lien on the property 
remains in place and the consumer remains liable for the mortgage loan 
obligation; the consumer may be required to pay the balance on the 
account in the future, for example, upon sale of the property; the 
balance on the account is not being cancelled or forgiven; and the loan 
may be purchased, assigned, or transferred.
    The Bureau is aware that mortgage loans may be purchased, assigned, 
or transferred after charge off. The Bureau recognizes that such 
situations may pose special accounting challenges for both servicers 
and consumers. The Bureau notes that nothing in this proposal is 
intended to impact a debt collector's obligations under the FDCPA, 
including, for example, the requirement to send a consumer a written 
notice validating the debt under section 809 of the FDCPA. 
Additionally, the Bureau is proposing comment 41(e)(6)-1 to explicate 
the relationship between proposed Sec.  1026.41(e)(6) and Sec.  
1026.39, which requires certain disclosures upon the purchase, 
assignment, or transfer of a mortgage loan. First, the proposed comment 
reiterates that if a charged-off mortgage loan is subsequently 
purchased, assigned, or transferred, a covered person, as defined in 
Sec.  1026.39(a)(1), must provide the transfer disclosure required by 
Sec.  1026.39. Second, the proposed comment provides that a covered 
person, as defined in Sec.  1026.39(a)(1), who would otherwise be 
subject to the requirements of Sec.  1026.41, may take advantage of the 
exemption in Sec.  1026.41(e)(6) as long as it treats the mortgage loan 
as charged off and will not charge any additional fees or interest on 
the account. Third, the proposed comment further explains that if the 
consumer previously received a final periodic statement, a covered 
person (the purchaser, assignee, or transferee) is not also required to 
provide a final periodic statement, unless it began sending the 
consumer periodic statements and then later met the criteria under 
proposed Sec.  1026.41(e)(6). The Bureau seeks comment on whether 
proposed comment 41(e)(6)-1 appropriately addresses circumstances under 
which a charged-off mortgage loan may be purchased, assigned, or 
transferred, and whether there are additional considerations related to 
purchase, assignment, or transfer of a charged-off mortgage loan for 
which the Bureau should account.
    The Bureau is also proposing comment 41(e)(6)-2 to clarify that the 
obligation to provide a periodic statement for a charged-off mortgage 
loan resumes if a servicer or a covered person, as defined in Sec.  
1026.39(a)(1), who would otherwise be subject to the requirements of 
Sec.  1026.41, fails to treat the mortgage loan as charged off at any 
time or charges any additional fees or interest on the account. 
Proposed comment 41(e)(6)-2 further provides that the servicer or 
covered person may not retroactively assess fees or interest on the 
account for the period of time during which the exemption in Sec.  
1026.41(e)(6) applied. If the servicer or covered person were to at any 
time no longer treat the mortgage loan as charged off, begin charging 
fees or interest on the account, or retroactively assess fees or 
interest on the account, such conduct would contravene the purpose of 
the proposed exemption from the otherwise applicable periodic statement 
requirement for charged-off mortgage loans.
    The Bureau has narrowly tailored the proposed new exemption from 
the requirements of Sec.  1026.41. The proposed exemption applies only 
to mortgage loans that have been charged off in accordance with loan-
loss provisions and only if the servicer will not charge any additional 
fees or interest on the account. Additionally, the proposed exemption 
requires that the servicer provide the consumer a final periodic 
statement within 30 days of charge off or the most recent periodic 
statement, that such statement includes basic consumer information 
about the

[[Page 74256]]

nature of the charge off, and that the obligation to make periodic 
statements resumes if a servicer or covered person charges fees or 
interest on the account in the future. The Bureau believes that 
limiting the proposed exemption in this fashion reduces the risk that 
this proposed exemption will be used to circumvent the servicing rules. 
The Bureau seeks comment on whether limiting the proposed exemption for 
charged-off mortgage loans as described above is appropriate. 
Additionally, the Bureau seeks comment on whether mortgage loans that 
were charged off prior to the rule's effective date (January 10, 2014) 
should be granted a grandfather period to provide servicers additional 
time to comply with either the proposed exemption for charged-off 
mortgage loans or the otherwise applicable periodic statement rule. 
Finally, the Bureau seeks comment on whether there are alternatives to 
periodic statements for charged-off mortgage loans, such as an annual 
reminder to the consumer of a loan's status, including what might be 
the associated benefits to consumers and costs to servicers of such 
alternatives.
Legal Authority
    The Bureau is proposing to exempt from the periodic statement 
requirement under section 128(f) of TILA a mortgage loan that a 
servicer has charged off in accordance with loan-loss provisions if the 
servicer will not charge any additional fees or interest on the 
account, provided that the servicer must provide the consumer a final 
periodic statement within 30 days of charge off or the most recent 
periodic statement. The Bureau is proposing this exemption pursuant to 
its authority under section 105(a) and (f) of TILA and section 1405(b) 
of the Dodd-Frank Act.
    For the reasons discussed above, the Bureau believes that the 
proposed exemption is necessary and proper under section 105(a) of TILA 
to facilitate TILA compliance. As discussed above, the Bureau believes 
that the proposal to exempt certain mortgage loans that a servicer has 
charged off facilitates compliance with TILA by allowing servicers to 
service loans cost effectively in compliance with applicable regulatory 
requirements.
    In addition, consistent with section 105(f) of TILA and in light of 
the factors in that provision, for servicers that are required to 
charge off mortgage loans in accordance with loan-loss provisions, the 
Bureau believes that requiring them to comply with the periodic 
statement requirement in section 128(f) of TILA would not provide a 
meaningful benefit to consumers in the form of useful information or 
protection. The Bureau believes, as noted above, that requiring 
provision of periodic statements would impose significant costs and 
burden. Specifically, the Bureau believes that the proposal will not 
complicate, hinder, or make more expensive the credit process. In 
addition, consistent with section 1405(b) of the Dodd-Frank Act, for 
the reasons discussed above, the Bureau believes that exempting a 
mortgage loan that a servicer has charged off in accordance with loan-
loss provisions if the servicer will not charge any additional fees or 
interest on the account, provided that the servicer must provide the 
consumer a final periodic statement within 30 days of charge off or the 
most recent periodic statement, from the requirements of section 128(f) 
of TILA would be in the interest of consumers and in the public 
interest.
    In addition, the Bureau relies on its authority pursuant to section 
1022(b) of the Dodd-Frank Act to prescribe regulations necessary or 
appropriate to carry out the purposes and objectives of Federal 
consumer financial law, including the purposes and objectives of Title 
X of the Dodd-Frank Act. Specifically, the Bureau believes that the 
proposed rule is necessary and appropriate to carry out the purpose 
under section 1021(a) of the Dodd-Frank Act of ensuring that all 
consumers have access to markets for consumer financial products and 
services that are fair, transparent, and competitive, and the objective 
under section 1021(b) of the Dodd-Frank Act of ensuring that markets 
for consumer financial products and services operate transparently and 
efficiently to facilitate access and innovation.
41(f) Modified Periodic Statements and Coupon Books for Certain 
Consumers in Bankruptcy
    The Bureau is proposing Sec.  1026.41(f) to modify the periodic 
statement and coupon book requirements with respect to certain 
consumers who are in bankruptcy or have discharged personal liability 
for a mortgage loan through bankruptcy. As discussed in the section-by-
section analysis of Sec.  1026.41(e)(5), proposed Sec.  1026.41(e)(5) 
exempts servicers from the requirement to provide periodic statements 
or coupon books to such consumers in some but not all circumstances. 
When no exemption under proposed Sec.  1026.41(e)(5) applies, proposed 
Sec.  1026.41(f) specifies various clarifications and modifications to 
the periodic statements or coupon books provided to such consumers. The 
following discussion first addresses the proposed clarifications and 
modifications to the periodic statement requirements. It then addresses 
proposed changes with respect to coupon books provided instead of 
periodic statements under Sec.  1026.41(e)(3).
    The Bureau is proposing two sets of modifications to the required 
layout and content for periodic statements provided to consumers in 
bankruptcy. The first set of modifications, in proposed Sec.  
1026.41(f)(1) and (2), applies to periodic statements provided to any 
consumer who is a debtor in a case under any chapter of the Bankruptcy 
Code, as well to a consumer who has discharged personal liability for a 
mortgage loan through bankruptcy. Proposed Sec.  1026.41(f)(1) provides 
that servicers may exclude from the periodic statement the amount of 
any late fee and the date on which that fee will be imposed if payment 
has not been received. Proposed Sec.  1026.41(f)(1) also provides that 
servicers may exclude the delinquency-related disclosures set forth in 
Sec.  1024.41(d)(8)(i), (ii), and (v)--that is, the date on which the 
consumer became delinquent; a notification of possible risks, such as 
foreclosure and expenses, that may be incurred if the delinquency is 
not cured; and a notice of whether the servicer has made the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, if applicable. Proposed Sec.  
1026.41(f)(2) requires the periodic statement to include on the first 
page a statement acknowledging the consumer's bankruptcy case or the 
discharged nature of the mortgage loan and a statement that the 
periodic statement is for informational purposes only.
    The second set of modifications, in proposed Sec.  1026.41(f)(3), 
applies specifically to periodic statements provided to a consumer who 
is a debtor in a case under Chapter 12 or Chapter 13 of the Bankruptcy 
Code. Proposed Sec.  1026.41(f)(3)(i) provides that, in addition to the 
information identified in proposed Sec.  1026.41(f)(1), a servicer may 
also omit the remainder of the delinquency information normally 
required by Sec.  1026.41(d)(8). Proposed Sec.  1026.41(f)(3)(ii) 
through (v) clarify and modify certain disclosures required by Sec.  
1026.41(d), including the amount due, explanation of amount due, past 
payment breakdown, and transaction activity. The changes are intended 
to ensure that these disclosures accurately portray the consumer's 
payment obligations while in bankruptcy. Proposed Sec.  
1026.41(f)(3)(vi) and (vii) require a servicer to include new 
disclosures related to a consumer's pre-bankruptcy arrearage (if any), 
as well as

[[Page 74257]]

disclaimers related to the consumer's status in bankruptcy and the 
accuracy of the information provided in the periodic statement.
    Proposed Sec.  1026.41(f)(4) addresses the situation where more 
than one consumer is primarily obligated on a mortgage loan and a 
servicer is required to provide at least one of the primary obligors 
with a modified periodic statement pursuant to Sec.  1026.41(f). 
Proposed Sec.  1026.41(f)(4) provides that a servicer may provide the 
modified version of the periodic statement to any or all of the primary 
obligors instead of periodic statements not including the bankruptcy-
specific modifications, even if not all primary obligors are debtors in 
bankruptcy. On the other hand, as proposed comment 41(e)(5)(i)-1 and 
the section-by-section analysis of Sec.  1026.41(e)(5) explain, if a 
servicer were exempt under proposed Sec.  1026.41(e)(5)(i) from 
providing periodic statements to the obligor in bankruptcy, the 
servicer would continue to provide regular periodic statements, without 
any of the bankruptcy-specific modifications, to the obligors who are 
not in bankruptcy.
    Proposed Sec.  1026.41(f)(5) provides that the modifications set 
forth above also apply to coupon books provided instead of periodic 
statements under Sec.  1026.41(e)(3). Specifically, proposed Sec.  
1026.41(f)(5) provides that the modifications set forth in proposed 
Sec.  1026.41(f)(1) and (3)(i) through (v) and (vii) apply to coupon 
books and other information a servicer provides to the consumer under 
Sec.  1026.41(e)(3). Proposed Sec.  1026.41(f)(5) permits the servicer 
to put the disclosures required under proposed Sec.  1026.41(f)(2) and 
(3)(vii) anywhere in the coupon book or give them on a separate page 
enclosed with the coupon book provided to the consumer. The servicer 
must also make available upon request the pre-petition arrearage 
information set forth in proposed Sec.  1026.41(f)(3)(vi).
    As discussed in the section-by-section analysis of Sec.  
1026.41(e)(5), the Bureau sought comment in the October 2013 IFR as to 
how the content of periodic statements might be tailored to meet the 
particular needs of consumers in bankruptcy. The Bureau received 
written comments in response to that solicitation during the official 
comment period. Since then, the Bureau has continued to receive 
comments and, as part of its Implementation Plan, has consulted with 
servicers, trade groups, consumer advocacy groups, bankruptcy 
attorneys, bankruptcy trustees, and bankruptcy judges regarding how 
periodic statements may be tailored for purposes of bankruptcy, 
including hosting the roundtable discussion on June 16, 2014. 
Accordingly, the following discussion of proposed Sec.  1026.41(f) 
contains discussion of the comments received during the official 
comment period, as well as discussion of ex parte comments received 
after that period ended. The following discussion first addresses the 
proposed clarifications and modifications to the periodic statement 
requirements; it then addresses proposed changes with respect to coupon 
books provided instead of periodic statements under Sec.  
1026.41(e)(3). The clarifications and modifications proposed for 
periodic statements generally apply to coupon books as well.
Modified Statements for Consumers in Bankruptcy
    Commenters agreed that the required content and layout of the 
periodic statement, which is governed by Sec.  1026.41(d), would need 
to be clarified or modified for at least some consumers in bankruptcy. 
Commenters suggested different modifications depending on whether a 
consumer is a debtor in a liquidation case under Chapter 7 or a 
reorganization case under Chapter 13 of the Bankruptcy Code. Most 
commenters did not specifically address how the Sec.  1026.41(d) 
disclosures should be modified with respect to a consumer in a Chapter 
11 or Chapter 12 case.\274\ As discussed in more detail below, comments 
focused on whether certain language or disclosures--such as past due 
amounts or delinquency information--could be construed as an 
impermissible attempt to collect a debt in violation of the Bankruptcy 
Code's automatic stay, as well as whether other disclosures--such as 
the amount due and past payment breakdown--could be adjusted to reflect 
the payment terms of a consumer's bankruptcy plan. Commenters were also 
concerned about whether periodic statements could accurately reflect 
amounts due and paid under a bankruptcy plan or whether the disclosures 
would be unavoidably confusing or inaccurate. Finally, industry 
commenters expressed concern about the potential operational challenges 
and costs associated with providing periodic statements to consumers in 
bankruptcy.
---------------------------------------------------------------------------

    \274\ The lack of comments about Chapter 11 and Chapter 12 is 
consistent with the fact that relatively few consumers seek to 
reorganize their debts under those chapters. In 2013, for example, 
only 1,320 nonbusiness cases were filed under Chapter 11, and just 
495 cases were filed under Chapter 12. By comparison, in the same 
year, approximately 705,000 nonbusiness cases were filed under 
Chapter 7 and another 330,000 under chapter 13. See Administrative 
Office of the U.S. Courts, U.S. Bankruptcy Courts--Business and 
Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, 
During the 12-Month Period Ending December 31, 2013, available at 
http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf.
---------------------------------------------------------------------------

    Based on the comments received, the Bureau's outreach, and the 
Bureau's understanding of periodic statements that some servicers use 
for consumers in bankruptcy, the Bureau believes that it is appropriate 
to modify or omit certain of the disclosures required by Sec.  
1026.41(d) with respect to periodic statements provided to consumers in 
bankruptcy. As explained in more detail in the section-by-section 
analyses of Sec.  1026.41(f)(1) through (3), the Bureau believes that 
the modifications and omissions are necessary to ensure that servicers 
do not violate the Bankruptcy Code's automatic stay by providing 
periodic statements and to ensure that periodic statements accurately 
reflect the payments made by consumers in bankruptcy. The Bureau 
further believes that it is appropriate to require certain 
modifications to the periodic statement specifically for consumers who 
have filed under Chapter 12 or Chapter 13. The Bureau believes 
different forms may be appropriate in part because of the special 
treatment of mortgage loans secured by a consumer's principal residence 
under Chapter 12 and Chapter 13, which permit a consumer to repay pre-
bankruptcy arrearages over a reasonable time while continuing to make 
monthly periodic payments due under the loan.\275\
---------------------------------------------------------------------------

    \275\ See 11 U.S.C. 1222(b)(5), 1322(b)(5) (both stating that a 
plan ``may provide for the curing of any default within a reasonable 
time and maintenance of payments while the case is pending on any 
unsecured claim or secured claim on which the last payment is due 
after the date on which the final payment under the plan is due.''). 
Under Chapter 12, moreover, a court may modify the terms of a 
mortgage loan secured by a principal residence. 11 U.S.C. 
1222(b)(2).
---------------------------------------------------------------------------

    Accordingly, proposed Sec.  1024.41(f) provides that unless a 
servicer is exempt under Sec.  1026.41(e), a servicer must comply with 
the requirements of Sec.  1024.41 with respect to a consumer who is a 
debtor in bankruptcy or has discharged personal liability for a 
mortgage loan through bankruptcy, subject to certain modifications set 
forth in Sec.  1026.41(f)(1) through (3), as applicable. Briefly 
stated, proposed Sec.  1026.41(f)(1) permits servicers to exclude from 
periodic statements certain of the disclosures ordinarily required by 
Sec.  1026.41(d), and proposed Sec.  1026.41(f)(2) requires servicers 
to include statements identifying the consumer's status in bankruptcy 
and advising that the periodic statement is for informational purposes. 
While the modifications sets forth in proposed

[[Page 74258]]

Sec.  1026.41(f)(1) and (2) apply to any periodic statement provided to 
a consumer in bankruptcy (or who has discharged personal liability for 
a mortgage loan through bankruptcy), proposed Sec.  1026.41(f)(3) 
specifies additional modifications required for consumers in Chapter 12 
or Chapter 13 bankruptcy.
    Proposed comment 41(f)-1 clarifies that a servicer must resume 
providing regular periodic statements in accordance with Sec.  1026.41 
if the consumer's bankruptcy case is closed or dismissed. The comment 
also clarifies that the requirements of Sec.  1026.41(f) continue to 
apply, however, if the consumer has discharged personal liability for 
the mortgage loan. The purpose of this comment is to clarify when a 
servicer is no longer required to provide periodic statements with the 
modifications set forth in proposed Sec.  1026.41(f)(1) through (3).
Terminology and Other Modifications
    Commenters agreed on the need to allow servicers to use alternative 
terminology on periodic statements for consumers in bankruptcy. Two 
trade groups stated that bankruptcy courts sometimes disfavor language 
such as ``amount due,'' ``payment due date,'' and ``overdue'' or ``past 
due payments,'' as those terms call to mind an attempt to collect a 
debt. These groups suggested that servicers be allowed to use 
alternatives, such as ``payment amount,'' ``payment date,'' or ``unpaid 
past payments.'' Servicers, trustees, and consumer advocacy groups had 
similar suggestions, noting that terms like ``voluntary payment 
amount'' or ``contractual payment date'' are more consistent with the 
notion that the periodic statements would be informational in nature.
    Commenters also agreed that alternative terminology is necessary in 
Chapter 13 cases, in which a borrower may make two streams of payments. 
Commenters suggested that servicers be able to refer to the payments as 
``pre-petition payments'' (to describe pre-bankruptcy arrearages) or 
``post-petition payments'' (to describe periodic payments), or use 
other terms that reflect that dual stream of payments. A consumer 
advocacy group noted that such terminology is pervasive in bankruptcy 
and that, while a normal consumer may not be familiar such terms, a 
consumer in bankruptcy usually would be.
    The Bureau agrees with the comments that servicers may need to use 
alternative terminology in periodic statements provided to consumers in 
bankruptcy. Commenters' concerns about collection language appear to be 
borne out by court decisions that have occasionally focused on the 
precise language of the terms used on periodic statements.\276\ 
Similarly, the Bureau believes that the need to distinguish between 
pre-petition and post-petition payments in a Chapter 13 case may 
require different terminology than that used on other periodic 
statements. The Bureau further notes that it intends to conduct 
consumer testing on sample forms and will attempt to discern whether 
any particular terminology is more or less understandable for 
consumers.
---------------------------------------------------------------------------

    \276\ See, e.g., In re Draper, 237 B.R. 502, 505-06 (Bankr. M.D. 
Fla. 1999) (statement listed the ``total amount due''); Butz v. 
People First Fed. Credit Union (In re Butz), 444 B.R. 301 (Bankr. 
M.D. Pa. 2011) (statement requested immediate payment of an ``amount 
due''); Harris v. Mem'l Hosp. (In re Harris), 374 B.R. 611, 614 
(Bankr. N.D. Ohio 2007) (statement advised that the ``account is 
past due'').
---------------------------------------------------------------------------

    Accordingly, the Bureau is proposing comment 41(f)-2, which 
provides that servicers may use terminology other than that found on 
the sample periodic statement in appendix H-30, so long as the new 
terminology is commonly understood. Current comment 41(d)-3 provides 
similar flexibility with respect to, for example, regional differences, 
but the Bureau believes that it is important to clarify that, for 
purposes of Sec.  1026.41(f)(1) through (3), servicers may use 
terminology specific to the circumstances of bankruptcy.
    Commenters, particularly servicers and trade groups, also 
emphasized the need for general flexibility in the periodic statement 
requirements for consumers in bankruptcy. They stated that many 
bankruptcy courts and trustees have their own local rules and 
procedures, and industry commenters argued that servicers need to be 
able to modify statements to reflect these local practices or the 
unique circumstances of a consumer's individual bankruptcy case. Two 
trade groups further argued that servicers should be permitted to craft 
disclosures they believe are necessary to convey to consumers that a 
servicer is not attempting to collect a debt or to explain how a 
consumer can request to not receive further statements and that the 
Bureau should not prescribe a ``one size fits all'' disclosure regime.
    The Bureau agrees with the commenters that servicers may need 
flexibility to modify the periodic statement's content to comply with 
applicable rules and guidelines. The Bureau understands that many local 
bankruptcy rules already have certain requirements in place regarding 
periodic statements, and the Bureau believes that servicers should be 
able to comply with both those rules and Regulation Z. The Bureau 
further believes that giving servicers the flexibility to include 
disclosures related to a consumer's status in bankruptcy is important 
and necessary to permit servicers to comply with local practice or 
rules.
    Accordingly, the Bureau is proposing comment 41(f)-3, which states 
that a periodic statement provided under Sec.  1026.41(f) may be 
modified as necessary to facilitate compliance with the Bankruptcy 
Code, the Federal Rules of Bankruptcy Procedure, court orders, and 
local rules, guidelines, and standing orders. Proposed comment 41(f)-3 
further provides that servicers may include additional disclaimers 
related to a borrower's status in bankruptcy or that advise a consumer 
how to submit a written request to cease receiving periodic statements. 
The Bureau seeks comment on proposed comment 41(f)-3, including whether 
it may afford servicers too little or too much flexibility with respect 
to the required content of periodic statements.
41(f)(1) Requirements Not Applicable
    Section 1026.41(d) requires periodic statements to disclose 
information related to a consumer's failure to make timely payments. 
Section 1026.41(d)(1)(ii) sets forth one such disclosure, requiring a 
periodic statement to include the amount of any late fee and the date 
on which the fee will be imposed if payment has not been received. 
Section 1026.41(d)(8) requires that a periodic statement include 
certain information for consumers who are 45 days or more delinquent on 
a mortgage loan. Specifically, Sec.  1024.41(d)(8)(i), (ii), and (v) 
require the disclosure of the date on which the consumer became 
delinquent; a notification of possible risks, such as foreclosure and 
expenses, that may be incurred if the delinquency is not cured; and a 
notice of whether the servicer has made the first notice or filing 
required by applicable law for any judicial or non-judicial foreclosure 
process, if applicable. Section 1026.41(d) also contains certain layout 
requirements, including the requirement in Sec.  1026.41(d)(1)(iii) 
that the amount due be displayed more prominently than other 
disclosures on the page.
    Proposed Sec.  1026.41(f)(1) provides that certain of Sec.  
1026.41(d)'s disclosures and layout requirements do not apply to 
periodic statements provided to consumers in bankruptcy under proposed 
Sec.  1026.41(f). Servicers may exclude the disclosures set forth in 
Sec.  1026.41(d)(1)(ii) and (8)(i), (ii), and (v), and servicers do not 
need to comply

[[Page 74259]]

with Sec.  1026.41(d)(1)(iii)'s requirement to display the amount due 
more prominently than other disclosures on the page.
    Industry commenters maintained that certain disclosures required by 
Sec.  1026.41(d) could be interpreted as a violation of the Bankruptcy 
Code's automatic stay because they threaten consequences for non-
payment or emphasize past due amounts. Specifically, some industry 
participants commented that the notice of potential late fees required 
by Sec.  1026.41(d)(1)(ii) and the delinquency information required by 
Sec.  1026.41(d)(8) could be viewed as collection attempts. 
Additionally, two trade groups objected to the amount due being the 
most prominent disclosure on the page, as required by Sec.  
1026.41(d)(1)(iii), arguing that servicers should be allowed to make 
bankruptcy disclaimers the most prominent disclosures on the page. 
Consumer advocacy groups objected to removing the delinquency 
information, stating that it is valuable information for consumers to 
receive and that a court would not find that a servicer violated the 
automatic stay by including this on a statement that also contained 
appropriate bankruptcy disclaimers.
    Proposed Sec.  1026.41(f)(1) addresses these concerns by modifying 
the required content and layout of periodic statements for consumers in 
bankruptcy. The proposal provides that the requirement set forth in 
Sec.  1026.41(d)(1)(iii) that the amount due be the most prominent 
disclosure on the page would not apply when a consumer is in bankruptcy 
or has discharged personal liability for a mortgage loan through 
bankruptcy. Consistent with the flexibility the Bureau would afford 
servicers in modifying the periodic statement as necessary, discussed 
above, the Bureau believes it is appropriate for other disclosures, 
such as a disclaimer acknowledging the consumer's bankruptcy case and 
advising that the statement is for informational purposes only, to be 
the most prominent disclosures on the page.\277\ The Bureau notes that 
the amount due disclosures required by Sec.  1026.41(d)(1) would still 
be required to be located at the top of the first page of the 
statement.\278\
---------------------------------------------------------------------------

    \277\ Compare Pearson v. Bank of Am., No. 3:12-cv-00013, 2012 WL 
2804826, *5-6 (W.D. Va. July 10, 2012) (holding that creditor did 
not violate discharge injunction because, among other things, the 
periodic statements included a prominent bankruptcy disclaimer 
noting that creditor could not collect debt or pressure debtor for 
payment) with Harlan v. Rosenberg & Assocs. (In re Harlan), 402 B.R. 
703, 716 (Bankr. W.D. Va. 2009) (holding that Chapter 7 debtors 
stated a plausible claim for violation of the discharge injunction 
where, among other things, creditor's letters stated that ``this is 
an attempt to collect a debt'' and had bankruptcy disclaimers in 
regular-sized font in the middle of the page).
    \278\ 12 CFR 1026.41(d)(1) (stating that the (d)(1) disclosures 
must be ``[g]rouped together in close proximity to each other and 
located at the top of the first page of the statement'').
---------------------------------------------------------------------------

    The Bureau believes that receiving information regarding the 
consequences of late payments or continued delinquencies, such as 
disclosures regarding potential fees and possible foreclosure, provides 
tangible benefits to consumers.\279\ Nonetheless, the Bureau 
understands that, in certain instances, bankruptcy courts have found 
that statements regarding potential late fees or foreclosure and other 
language that could be construed as threatening consequences for a 
failure to make payments could violate the automatic stay.\280\ 
Furthermore, the Bureau believes that a consumer in bankruptcy may 
already be aware of the consequences of non-payment and may have filed 
for bankruptcy precisely to avoid those consequences. The Bureau 
therefore believes that it may be appropriate to permit servicers to 
exclude from the periodic statement certain information regarding 
consequences of late payment or continued non-payment.
---------------------------------------------------------------------------

    \279\ 78 FR 10901, 10971-72 (Feb. 14, 2013).
    \280\ Compare Brown v. Bank of Am. (In re Brown), 481 B.R. 351, 
360 (Bankr. W.D. Pa. 2012) with Schatz, 452 B.R. at 550 (no stay 
violation where among other things, creditor did not threaten any 
late fees); see also Duke, 79 F.3d at 45 (``[T]he respite provided 
by Sec.  362 `is not from communication with creditors, but from the 
threat of immediate action by creditors, such as a foreclosure or a 
lawsuit.''') (quoting Brown v. Pa. State Emps. Credit Union, 851 
F.2d 81, 86 (3d Cir. 1988)).
---------------------------------------------------------------------------

    As such, for consumers in bankruptcy or who have discharged 
personal liability for a mortgage loan through bankruptcy, proposed 
Sec.  1026.41(f)(1) permits servicers to exclude from the periodic 
statement the amount of any late payment fee that will be imposed and 
the date on which that fee will be imposed if payment has not been 
received.\281\ Proposed Sec.  1026.41(f)(1) also permits servicers to 
exclude the delinquency-related disclosures set forth in Sec.  
1024.41(d)(8)(i), (ii), and (v)--that is, the date on which the 
consumer became delinquent; a notification of possible risks, such as 
foreclosure and expenses, that may be incurred if the delinquency is 
not cured; and a notice of whether the servicer has made the first 
notice or filing required by applicable law for any judicial or non-
judicial foreclosure process, if applicable. While the Bureau believes 
that this is valuable information for any consumer, including a 
consumer in bankruptcy, the Bureau is concerned that courts or 
consumers may interpret a periodic statement containing such 
disclosures as attempting to compel payment of a debt, rather than 
simply providing information to a consumer.
---------------------------------------------------------------------------

    \281\ 12 CFR 1026.41(d)(1)(ii).
---------------------------------------------------------------------------

    On the other hand, the Bureau believes that the remainder of the 
delinquency disclosures required by Sec.  1026.41(d)(8) may be 
appropriate for consumers in a Chapter 7 or Chapter 11 case, and for 
consumers who have discharged personal liability for a mortgage loan. 
For example, references to any loss mitigation program to which the 
consumer has agreed \282\ or to homeownership counselor information 
\283\ do not relate to amounts owed, nor do they threaten consequences 
for non-payment. No commenter specifically identified this information 
as problematic and none cited case law indicating that providing it 
would cause a servicer to violate the automatic stay.
---------------------------------------------------------------------------

    \282\ 12 CFR 1026.41(d)(8)(iv).
    \283\ 12 CFR 1026.41(d)(8)(vii).
---------------------------------------------------------------------------

    Additionally, the Bureau believes that consumers in Chapter 7 or 
Chapter 11 bankruptcy (or those who have discharged personal liability 
for a mortgage loan through bankruptcy) who are intending to retain 
their homes have a need for information regarding recent account 
activity \284\ and the amount needed to bring the loan current.\285\ As 
the Bureau stated in the 2013 TILA Servicing Final Rule, the accounting 
associated with mortgage loan payments is complicated and can be even 
more so in delinquency situations.\286\ The account history helps a 
consumer better understand the exact amount owed on the loan and how 
that total was calculated and it enables a consumer to better identify 
errors in payment application. Moreover, the Bureau understands that 
many housing counselors believe that this information is vital when 
trying to assist a consumer to pursue home retention options and cure 
prior defaults because it enables the counselor to understand the 
circumstances of a consumer's delinquency. The Bureau believes that 
this information may have unique benefits for a consumer in bankruptcy 
because such a consumer may be facing an immediate decision whether to 
retain or surrender a home and in that situation the consumer needs 
accurate information about the amounts they owe.
---------------------------------------------------------------------------

    \284\ 12 CFR 1026.41(d)(8)(iii).
    \285\ 12 CFR 1026.41(d)(8)(vi).
    \286\ 78 FR 10901, 10971 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau further notes that the disclosures in Sec.  
1026.41(d)(8) do not require a servicer to use any specific

[[Page 74260]]

language.\287\ A servicer is therefore permitted to describe those 
disclosures in any numbers of ways to avoid concerns about the account 
history appearing to be a collection attempt rather than simply 
providing useful information.
---------------------------------------------------------------------------

    \287\ Id. at 10972 (``[T]he Bureau notes that specific language 
is not required by the regulation. * * *'').
---------------------------------------------------------------------------

    The Bureau solicits comment on the modifications to the periodic 
statement set forth in proposed Sec.  1026.41(f)(1). Specifically, the 
Bureau solicits comment on whether the proposed modifications are 
appropriate and whether additional modifications are necessary. 
Further, the Bureau solicits comment on whether the proposed 
modifications or additional modifications would be necessary if the 
Bureau required a consumer in Chapter 7 or Chapter 11 (or a consumer 
who has discharged personal liability for the mortgage loan through 
bankruptcy) to opt-in to receiving periodic statements by submitting a 
written request to a servicer.
41(f)(2) Bankruptcy Notices
    All commenters suggested that a periodic statement provided to a 
consumer in bankruptcy should contain a disclaimer acknowledging, at a 
minimum, that the consumer is in bankruptcy and that the statement is 
for informational purposes only. As noted above, two trade groups 
commented that this should be the most prominent disclosure on the 
page. Bankruptcy courts have frequently cited servicers' inclusion, or 
failure to include, this type of disclaimer as a factor in determining 
whether servicer has violated the automatic stay,\288\ and some 
bankruptcy courts have adopted local rules permitting or requiring 
periodic statements so long as they clearly identify that they are for 
informational purposes and are not attempts to collect a debt.\289\
---------------------------------------------------------------------------

    \288\ Compare Jones v. Bac Home Loans Servicing, LP (In re 
Jones), No. 09-50281, 2009 WL 5842122, at *3 (Bankr. S.D. Ind. Nov. 
25, 2009) (no discharge violation where letter acknowledged the 
discharge and uncollectability of the debt); Pearson v. Bank of Am., 
No. 3:12-cv-00013, 2012 WL 2804826, at *5-6 (W.D. Va. July 10, 2012) 
(holding that creditor did not violate discharge injunction for 
debtor who had intent to surrender by sending a statement asking for 
payment and noting late charge because the statement included 
prominent bankruptcy disclaimer noting that creditor could not 
collect debt or pressure debtor for payment and an opt-out clause); 
Schatz v. Chase Home Fin. (In re Schatz), 452 B.R. 544, 550 (Bankr. 
M.D. Pa. 2011) (holding that creditor did not violate the stay where 
the disclaimer was located in the center of the first page, ``not 
buried in boilerplate language, nor hidden on the backside of the 
document'') with Brown v. Bank of Am. (In re Brown), 481 B.R. 351, 
360 (Bankr. W.D. Pa. 2012) (holding that the creditor violated the 
discharge injunction by sending periodic statements that lacked any 
bankruptcy disclaimers, threatened late fees, and listed amounts 
past due); Harlan v. Rosenberg & Assocs., LLC (In re Harlan), 402 
B.R. 703, 716 (Bankr. W.D. Va. 2009) (finding stay violation where 
bankruptcy disclaimer was in regular-sized font in the middle of the 
page rather than more prominent than other disclosures); Sipe v. 
Conseco Fin. Servicing Corp. f/k/a Green Tree Fin. Servicing Corp. 
(In re Sipe), No. 99-40166, 2001 WL 35672616, at *4 (Bankr. W.D.N.C. 
July 18, 2001) (finding a stay violation in part because ``[t]here 
is nothing in `bold letters' across the front of the statements to 
indicate that their sole purpose is to advise the debtor of the 
receipt of funds from the Chapter 13 Trustee''); Curtis v. LaSalle 
Nat'l Bank (In re Curtis), 322 B.R. 470, 484 n.18 (Bankr. D. Mass. 
2005) (finding a stay violation where the bankruptcy disclaimers 
were ``[o]n the backside of the first page of the . . . letter, and 
without the capital letters and bold print employed for other 
sections of the letter'').
    \289\ See, e.g., Bankr. D. Colo. L.B.R. 4001-4(a)(1) (``In order 
for communication to be protected under this [local rule], the 
communication must indicate it is provided for information purposes 
and does not constitute a demand for payment.''); D. Kan. Bk. S.O. 
08-4, ] (c)(2) (``In order for communication to be protected under 
this provision, the communication must indicate it is provided for 
information purposes and does not constitute a demand for 
payment.'').
---------------------------------------------------------------------------

    The Bureau therefore believes it may be appropriate to require 
servicers to include a similar disclaimer on periodic statements 
provided to consumers in bankruptcy or who have discharged personal 
liability for a mortgage loan through bankruptcy. Proposed Sec.  
1026.41(f)(2) requires the periodic statement to include on the first 
page a statement acknowledging the consumer's bankruptcy case or the 
discharged nature of the mortgage loan and a statement that the 
periodic statement is for informational purposes only. The Bureau 
understands that this requirement is consistent with the practice of 
servicers that currently provide periodic statements to consumers in 
bankruptcy. The Bureau seeks comment on whether servicers should be 
permitted to include the disclosures under proposed Sec.  1026.41(f)(2) 
on a separate page enclosed with the periodic statement, whether the 
disclosures under proposed Sec.  1026.41(f)(2) should be permissive 
rather than mandatory, and whether there are other appropriate 
disclosures that should be permitted or required.
41(f)(3) Chapter 12 and Chapter 13 Consumers
    Proposed Sec.  1026.41(f)(3) sets forth additional modifications 
for periodic statements provided to consumers in Chapter 12 or Chapter 
13 cases. Proposed Sec.  1026.41(f)(3)(i) provides that, in addition to 
the information identified in proposed Sec.  1026.41(f)(1), a servicer 
may also omit the remainder of the delinquency information normally 
required by Sec.  1026.41(d)(8). Proposed Sec.  1026.41(f)(3)(ii) 
through (v) clarify and modify certain disclosures required by Sec.  
1026.41(d), including the amount due, explanation of amount due, past 
payment breakdown, and transaction activity. Finally, proposed Sec.  
1026.41(f)(3)(vi) and (vii) require a servicer to include new 
disclosures related to the pre-petition arrearage (if any), as well as 
disclaimers related to the consumer's status in bankruptcy and the 
accuracy of the information provided in the statement.
    The Bureau is proposing three comments to clarify the meaning of 
certain terms used in proposed Sec.  1026.41(f)(3) and related 
commentary. First, proposed comment 41(f)(3)-1 clarifies that for 
purposes of Sec.  1026.41(f)(3), the term ``plan of reorganization'' 
refers to a consumer's plan of reorganization filed under the 
applicable provisions of Chapter 12 or Chapter 13 of the Bankruptcy 
Code and confirmed by a court with jurisdiction over the consumer's 
bankruptcy case. The Bureau believes that this comment will help avoid 
any confusion about the meaning of the term ``plan of reorganization'' 
and whether the term refers to a proposed plan or one that has been 
confirmed by a court.
    Second, proposed comment 41(f)(3)-2 clarifies that for purposes of 
Sec.  1026.41(f)(3), ``pre-petition payments'' are payments made under 
a plan of reorganization to cure the consumer's pre-bankruptcy 
defaults, if any, and that ``post-petition payments'' are payments made 
under a plan of reorganization to satisfy the mortgage loan's periodic 
payments as they come due after the bankruptcy case is filed. The 
Bureau believes that these terms are appropriate because the Bureau 
understands that they are commonly used to describe these two primary 
types of payments made under a plan of reorganization.
    Third, proposed comment 41(f)(3)-3 clarifies that for purposes of 
Sec.  1026.41(f)(3), post-petition fees and charges are those fees and 
charges incurred after the bankruptcy case is filed. In light of 
proposed Sec.  1026.41(f)(3)'s requirement (discussed below) that 
servicers make certain disclosures about the amount of post-petition 
fees and charges, this proposed comment is intended to clarify the 
distinction between fees and charges imposed before the bankruptcy case 
was filed and those imposed after filing.
    In addition, the Bureau is also proposing comment 41(f)(3)-4 to 
address the disclosures that must be made on the first periodic 
statement provided to a consumer under proposed Sec.  1024.41(f)(3) 
after an exemption under Sec.  1026.41(e) expires. Section

[[Page 74261]]

1026.41(f)(3)(iii) through (vi) require the disclosure of the total sum 
of any post-petition fees or charges imposed, the total of all post-
petition payments received and how they were applied, the total of all 
payments applied to post-petition fees or charges imposed, a list of 
all transaction activity, and the total of all pre-petition payments 
received ``since the last statement.'' For purposes of the first 
periodic statement provided to the consumer following termination of an 
exemption under Sec.  1026.41(e), proposed comment 41(f)(3)-4 clarifies 
that the disclosures required by Sec.  1026.41(f)(3)(iii) through (vi) 
may be limited to account activity since the last payment due date that 
occurred while the exemption was in effect. Proposed comment 41(f)(3)-4 
tracks proposed comment 41(d)-5, discussed in the section-by-section 
analysis of Sec.  1026.41(d), and is intended to ensure that the 
disclosures required under Sec.  1026.41(f)(3)(iii) through (vi) cover 
the same time period as the disclosures normally required by Sec.  
1026.41(d).
41(f)(3)(i) Requirements Not Applicable
    Proposed Sec.  1026.41(f)(3)(i) provides that, in addition to the 
information a servicer may omit from the periodic statement under 
proposed Sec.  1026.41(f)(1), a servicer may also omit the remainder of 
the delinquency information required by Sec.  1026.41(d)(8) (i.e., a 
servicer may also omit the information required by Sec.  
1026.41(d)(8)(iii), (iv), (vi) and (vii)). Several servicers and trade 
groups argued that delinquency information is particularly 
inappropriate for Chapter 13 consumers because these consumers can be 
contractually delinquent but still have made all payments due under the 
plan of reorganization. Those commenters suggested that reminding these 
consumers about their contractual delinquency could be confusing and 
provide limited value. Several industry commenters also argued that 
delinquency information related to failures to make plan payments is 
unnecessary, as the bankruptcy court is in a position to resolve 
matters related to post-petition defaults. Two consumer advocacy groups 
and other industry participants agreed that delinquency information may 
be confusing or provide little value to consumers in Chapter 13 
bankruptcy. The two consumer advocacy groups recommended, in lieu of 
delinquency information, that the periodic statement should contain 
statements indicating that the consumer had not made all of the 
required payments and encouraging the consumer to contact an attorney 
or the trustee. Finally, an industry participant favored requiring a 
periodic statement to include a more general disclosure that the 
consumer must continue to make payment in order to retain the property.
    The Bureau agrees with commenters that the delinquency information 
may be confusing or of little value to consumers in a Chapter 13 case. 
As commenters noted, information related to pre-bankruptcy defaults may 
not be helpful, and in fact may be confusing, to a consumer whose plan 
of reorganization is designed to repay those defaults over time. 
Further, the Bureau understands that a consumer who fails to make 
several plan payments will likely face immediate consequences in 
bankruptcy, such as a trustee's motion to dismiss or a servicer's 
motion for relief from the automatic stay, and the delinquency 
information may serve less value in that scenario. Accordingly, 
proposed Sec.  1026.41(f)(3)(i) provides that a servicer may omit the 
delinquency information required by current Sec.  1026.41(d)(8).
41(f)(3)(ii) and (iii) Amount Due and Explanation of Amount Due
    Under Sec.  1026.41(d)(1), a periodic statement must disclose, 
among other things, the payment due date and the amount due. Section 
1026.41(d)(2) requires disclosure of an explanation of amount due, 
including (a) the monthly payment amount, including a breakdown showing 
how much, if any, will be applied to principal, interest, and escrow; 
(b) the total sum of any fees or charges imposed since the last 
statement; and (c) any payment amount past due.
    Proposed Sec.  1026.41(f)(3)(ii) and (iii) modify the requirements 
of Sec.  1026.41(d)(1) and (2) for purposes of periodic statements 
provided to consumers in Chapter 12 or Chapter 13 bankruptcy. The 
proposal states that the amount due and explanation of amount due 
disclosures may be limited to the monthly post-petition payments due 
under the mortgage loan and any post-petition fees or charges imposed 
since the last periodic statement. Proposed comments 41(f)(3)(ii)-1 and 
(iii)-1 further clarify that these disclosures would not be required to 
include the amounts of any payments on account of a consumer's pre-
petition arrearages or that are due under a court order.
    Commenters raised three concerns about the amount due, payment due 
date, and explanation of amount due disclosures required by Sec.  
1026.41(d)(1) and (2) in the bankruptcy context. First, industry 
participants and bankruptcy trustees requested clarification about what 
payments and due dates should be included in these disclosures. These 
commenters stated that listing the amount owed under the contract, 
including all pre-petition arrearages, would conflict with the terms of 
a bankruptcy plan, which allows the consumer to repay those arrearages 
over time. They also noted that in Chapter 13 cases, consumers may be 
making two sets of payments that may be due on two different dates (and 
potentially due to two different parties), and they requested 
clarification about whether the amount due must include one or both of 
these payments. These commenters further noted that additional amounts 
may be due pursuant to specific court orders and they inquired whether 
those additional amounts must be included in the amount due and 
explanation of amount due.
    Industry, consumer advocacy groups, and bankruptcy trustees agreed 
that the amount due should reflect the post-petition payments--that is, 
the periodic payments due after the bankruptcy filing--and should not 
include amounts attributable to the pre-petition arrearage or amounts 
due under individual court orders. Commenters noted that the amount of 
the post-petition payments is determined by the mortgage loan contract 
and thus is information within a servicer's control, while the pre-
petition payments and amounts owed under a court order are determined 
by the plan of reorganization or the court order. Industry commenters 
further stated that that it would be difficult to accurately capture 
these additional amounts and argued that they are unnecessary in a 
periodic statement, given that the plan or court order identifies the 
payment schedule and amount. During the bankruptcy roundtable 
discussion that the Bureau held on June 16, 2014, participants agreed 
that the amount due and explanation of amount due could be limited to 
post-petition payments and that a servicer should include a disclaimer 
advising that the plan may require the consumer to make additional 
payments.
    As the Bureau stated in the 2013 TILA Servicing Final Rule, the 
Bureau believes that it may be appropriate to tailor the amount due 
disclosures to the amounts due under a consumer's plan of 
reorganization.\290\ Additionally, in light of the comments received, 
the Bureau believes that it is appropriate to allow servicers to limit 
the amount due and explanation of amount due disclosures to include 
only post-petition payments. In addition to the reasons

[[Page 74262]]

provided by commenters, the Bureau understands that some local rules 
adopted by bankruptcy courts that address periodic statements provide 
that the statements should reflect the post-petition payments, and that 
these local rules would not require a servicer to include pre-petition 
payments or amounts due under a court order in the amount due 
field.\291\ Accordingly, proposed Sec.  1026.41(f)(2)(ii) and (iii) 
require a servicer to include post-petition payments in the amount due 
and explanation of amount due, including any past due post-petition 
payments, but do not require a servicer to include pre-petition 
payments that may be due under the plan of reorganization.
---------------------------------------------------------------------------

    \290\ 78 FR 10901, 10966 (Feb. 14, 2013).
    \291\ See, e.g., Mont. LBR 4001-3 (stating that if a mortgage 
creditor provides periodic statements to a Chapter 13 debtor, the 
``statements shall contain at least the following information 
concerning postpetition mortgage payments to be made directly to the 
mortgagee * * * (A) the date of the statement and the date the next 
payment is due; (B) the amount of the current monthly payment''); 
Vt. LBR 3071-1 (similar).
---------------------------------------------------------------------------

    The second concern that commenters raised pertained to the 
explanation of amount due. Specifically, industry requested that the 
explanation of amount due not include a breakdown of how much, if any, 
of the post-petition payment will be applied to principal, interest, 
and escrow, as would normally be required under Sec.  1026.41(d)(2)(i). 
Two trade groups argued that this breakdown would confuse a consumer 
because a servicer must apply the post-petition payment to the oldest 
outstanding unpaid periodic payment, which often has a different 
breakdown of principal and interest than the current month's payment. 
The trade groups commented that consumers would not understand why the 
allocation under the explanation of amount due would not correspond to 
how the servicer actually applied the payment. The trade groups and a 
servicer further commented that servicers cannot always discern how a 
trustee may allocate payments to principal, interest, and escrow, so 
the breakdown on the periodic statement may not match the trustee's 
records, which could foster further confusion.
    Comments from bankruptcy trustees and consumer advocacy groups took 
the opposing view, arguing that disclosing how payments will be 
allocated (and how they were applied, as discussed below) is vital to 
ensuring that servicers are correctly applying payments. These 
commenters stated that servicers have particular difficulty accounting 
for escrow payments in bankruptcy and that disclosing the amount to be 
applied to escrow is crucial to ensuring compliance with the bankruptcy 
plan. Bankruptcy trustees noted that a breakdown of principal and 
interest is helpful for determining whether servicers correctly applied 
payments due under a daily simple interest loan. The trustees and 
consumer advocacy groups also strongly disagreed with industry's legal 
premise, arguing that Chapter 13 plans can in fact require a servicer 
to apply a post-petition payment to the current month rather than to 
the oldest outstanding debt.
    Although the Bureau understands industry commenters' concerns about 
the potential for consumer confusion, the Bureau believes that this 
concern may be outweighed by the benefits of disclosing the breakdown 
of the post-petition payments by principal, interest, and escrow. This 
breakdown is intended to give a consumer a snapshot of why the consumer 
is being asked to pay the amount due.\292\ Without an explanation of, 
for example, the amount attributable to escrow, a consumer and the 
consumer's attorney may be unable to discern how a servicer calculated 
the amount due. Furthermore, as described in the section-by-section 
analysis of Sec.  1026.41(f)(3)(vii), to address the potential for 
borrower confusion, proposed Sec.  1026.41(f)(3)(vii) requires a 
servicer to include a statement that the application of payments on the 
periodic statement may not reflect the trustee's allocations and a 
statement encouraging the consumer to contact the consumer's attorney 
or trustee with any questions. Moreover, the Bureau notes that it 
intends to conduct consumer testing on a proposed sample statement for 
Chapter 13 consumers and that it will test whether consumers are in 
fact confused by any discrepancy between the allocation in the amount 
due and the allocation in the past payment breakdown. Accordingly, 
proposed Sec.  1026.41(f)(3)(iii) leaves in place Sec.  
1026.41(d)(2)(i)'s requirement to include a breakdown of the amount of 
the monthly payment, if any, that will be applied to principal, 
interest and escrow.
---------------------------------------------------------------------------

    \292\ See 78 FR 10901, 10965 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Finally, commenters inquired about whether post-petition fees and 
charges--that is, fees and charges imposed after the bankruptcy 
filing--are required or permitted to be included in the amount due and 
explanation of amount due. Two consumer advocacy groups maintained that 
no law prevents servicers from advising consumers of fees or charges 
that have been assessed during a bankruptcy case and that consumers 
would benefit from being informed of these fees and charges when they 
are imposed, rather than later in the bankruptcy case. One large 
servicer agreed that consumers would benefit from learning about fees 
as they are incurred. A trade group, two large servicers, and an 
industry representative stated in joint comments that most servicers 
would prefer to include fees and charges on a periodic statement so 
that they could collect the fees shortly after assessing them and that 
operationally it would be easier to include fees and charges on a 
periodic statement than to not include them. These commenters noted, 
however, that a minority of servicers are concerned that they should 
first disclose any post-petition fees and charges to the bankruptcy 
court through the procedures outlined in Federal Rule of Bankruptcy 
Procedure 3002.1.
    The Bureau agrees with the comments that consumers, including those 
in bankruptcy, benefit from learning of fees and charges that have been 
imposed on their account. The Bureau believes that this would assist 
consumers' efforts to budget their finances and timely pay fees and 
charges. The Bureau further believes that a servicer also benefits from 
fees or charges being disclosed on the periodic statement because it 
enables the servicer to quickly collect the fees or charges. The Bureau 
appreciates the concern of some servicers that they would prefer to 
first disclose the fees and charges to a bankruptcy court through the 
procedures set forth in Federal Rule of Bankruptcy Procedure 3002.1. In 
the bankruptcy context, however, a servicer that defers collecting a 
fee or charge until after complying with the Federal Rule of Bankruptcy 
Procedure 3002.1 procedures, and thus after a potential court 
determination on the allowability of the fee or charge, is not required 
to disclose the fee or charge until complying with such procedures. For 
these reasons, proposed Sec.  1026.41(f)(2)(ii)(A) and (B) require a 
servicer to include in the explanation of amount due the total sum of 
any post-petition fees or charges imposed since the last periodic 
statement. A servicer that defers collecting a fee or charge until 
after complying with the Federal Rule of Bankruptcy Procedure 3002.1 
procedures, and thus after a potential court determination on the 
allowability of the fee or charge, is not required to disclose the fee 
or charge until complying with such procedures.
    Proposed comment 41(f)(3)(ii)-1 is intended to clarify the amounts 
that must be included in the amount due and the amounts that may be 
included in the amount due at a servicer's

[[Page 74263]]

discretion. The proposed comment clarifies that, for a consumer in 
Chapter 12 or Chapter 13 bankruptcy, the amount due is not required to 
include any amounts other than the post-petition payments or post-
petition fees and charges that a servicer has imposed. Additionally, 
the proposed comment explains that a servicer has not imposed a fee or 
charge if it will comply with Federal Rule of Bankruptcy Procedure 
3002.1 before attempting to collect a fee or charge. The comment 
further explains that while only post-petition payments and post-
petition fees and charges are required to be included in the amount 
due, a servicer has the flexibility to include other amounts, such as 
the amount owed under an agreed court order, in the amount due, so long 
as those other amounts are also disclosed in the explanation of amount 
due and transaction activity.
    Proposed comment 41(f)(3)(iii)-1 provides similar clarification 
with respect to the explanation of amount due. It states that the 
explanation of amount due is not required to include any amounts other 
than the post-petition payments and post-petition fees and charges that 
a servicer has imposed. A servicer nonetheless has the flexibility to 
include other amounts, such as amounts payable under an agreed court 
order, in the explanation of amount due, so long as those other amounts 
are disclosed in the amount due and transaction activity. The Bureau 
believes that proposed comments 41(f)(3)(ii)-1 and (iii)-1 will assist 
servicers in understanding what amounts must be, and are permitted to 
be, included in the amount due and explanation of amount due.
    The Bureau solicits comment on whether the explanation of amount 
due should include a breakdown of the amount of the monthly payment 
that will be applied to principal, interest and escrow, or whether a 
more limited disclosure is appropriate, such as listing the monthly 
payment as a lump sum or listing the principal and interest as a 
combined figure with the escrow amount disclosed separately. 
Additionally, the Bureau requests comment on whether a servicer should 
be permitted or required to include post-petition fees and charges in 
the amount due disclosure.
41(f)(3)(iv) Past Payment Breakdown
    Proposed Sec.  1026.41(f)(3)(iv) is intended to provide a consumer 
with a snapshot of how their payments have been applied, much the same 
as Sec.  1026.41(d)(3). Specifically, proposed Sec.  1026.41(f)(3)(iv) 
requires the periodic statement to include the total of all post-
petition payments received since the last statement and a breakdown of 
the amounts, if any, applied to principal, interest, and escrow, as 
well as the amount, if any, currently held in any suspense or unapplied 
funds account and a total of all payments applied to post-petition fees 
or charges since the last statement. Proposed Sec.  1026.41(f)(3)(iv) 
also requires the periodic statement to include the total of all post-
petition payments received since the beginning of the calendar year and 
a breakdown of the amounts, if any, applied to principal, interest, and 
escrow, as well as a the amount, if any, currently held in any suspense 
or unapplied funds account and total of all payments applied to post-
petitions fees or charges since the beginning of the calendar year.
    Industry commenters objected to the requirement that a periodic 
statement must contain a past payment breakdown including a breakdown 
of payments by the amount applied to principal, interest, and escrow, 
maintaining that this could confuse consumers because it may not be 
consistent with the trustee's records. Industry commenters requested 
that the post-petition payments received be disclosed as a lump sum 
total. A credit union commented that, although it tracks the amounts 
applied to post-petition fees and charges, its systems are not 
currently configured to display that total on a periodic statement. The 
credit union further commented that similar smaller entities would need 
to upgrade their systems to disclose this information.
    Consumer advocacy groups and bankruptcy trustees commented that 
receiving a breakdown of how post-petition payments were applied to 
principal, interest, and escrow is vital to determining whether a 
servicer is correctly applying payments due under a plan of 
reorganization. These commenters stated that a lump sum disclosure 
would be of significantly less value.
    The Bureau understands servicers' concerns about borrower 
confusion, but as discussed in the section-by-section analysis of 
41(f)(3)(ii) with respect to the explanation of amount due, the Bureau 
believes that these concerns may be outweighed by the benefits of 
disclosing the breakdown of the post-petition payments by principal, 
interest, and escrow. This breakdown allows a consumer to identify 
potential errors in payment application, including any misapplication 
of payments to escrow or fees. The Bureau believes that this breakdown 
also plays an important role in educating a consumer. The Bureau also 
believes that the information pertaining to payments received since the 
last statement inform consumers of how much their outstanding principal 
has decreased, while the year-to-date information educates consumers 
about the costs of their mortgage loan.\293\ Furthermore, as set forth 
below, to address the potential for borrower confusion, proposed Sec.  
1026.41(f)(3)(vii) requires a servicer to include a statement that the 
application of payments on the periodic statement may not reflect the 
trustee's allocations, as well as a statement encouraging the consumer 
to contact the consumer's attorney or trustee with any questions. 
Therefore, the Bureau is proposing Sec.  1026.41(f)(3)(iv) to require a 
servicer to include a breakdown of the amount of the post-petition 
payments that was applied to principal, interest and escrow.
---------------------------------------------------------------------------

    \293\ Id. at 10966 (Feb. 14, 2013).
---------------------------------------------------------------------------

    The Bureau solicits comment on whether the past payment breakdown 
should include a breakdown of the amount of the post-petition payments 
that were applied to principal, interest and escrow, or whether a more 
limited disclosure is appropriate, such as listing the amounts applied 
as a lump sum or listing the principal and interest as a combined 
figure with the escrow amount broken out separately.
41(f)(3)(v) Transaction Activity
    Proposed Sec.  1026.41(f)(3)(v) provides that the transaction 
activity information required to be disclosed on a periodic statement 
under Sec.  1026.41(d)(4) must include any post-petition payments, pre-
petition payments, and payments of post-petition fees or charges the 
servicer has received since the last statement.
    Consumer advocacy groups and bankruptcy trustees commented that the 
transaction activity should include both pre-petition payments and 
post-petition payments received by the servicer so that a consumer and 
the trustee have a record of which payments a servicer has received and 
when. Industry commenters did not object to disclosing these amounts, 
though they commented that it would be extremely difficult for a 
servicer to identify the source of any payments--whether a payment came 
from a trustee, a consumer, or a third-party-and that the source of 
payment is not important to the consumer. During the bankruptcy 
roundtable that the Bureau held on June 16, 2014, representatives from 
consumer advocacy groups and bankruptcy trustees agreed that the source 
of payments is not as important as simply identifying the amount of the 
payment received. Additionally, consumer

[[Page 74264]]

advocacy groups stated that there is no prohibition on disclosing post-
petition fees or charges that have been imposed on a consumer, and that 
a consumer would benefit from having those fees disclosed on a periodic 
statement. Several servicers stated that their preference would be to 
disclose fees and charges as they are imposed so that they can be 
collected on a real-time basis.
    As discussed in the 2013 TILA Servicing Final Rule, the Bureau 
believes that it is important for consumers to understand account 
activity that credits or debits the amount due, including any fees or 
charges that have been assessed.\294\ The Bureau believes that 
consumers in bankruptcy would similarly benefit from these disclosures. 
Additionally, the Bureau believes that consumers in bankruptcy may 
benefit if the transaction activity includes pre-petition payments. 
Although those payments would not affect the amount due (which would be 
limited to post-petition payments and fees), the pre-petition payments 
do reduce a consumer's pre-petition arrearage and thus serve to reduce 
a consumer's delinquency. Generally, the Bureau believes that having an 
accurate picture of a delinquency is essential for consumers to engage 
in financial planning. Moreover, the Bureau understands that there may 
be a significant delay between when a consumer sends a pre-petition 
payment to a trustee and when a servicer ultimately receives that 
payment, and the Bureau believes it may benefit consumers to have a 
record of when such payments are received. Accordingly, proposed Sec.  
1026.41(f)(3)(v) provides that the transaction activity information set 
forth in Sec.  1026.41(d)(4) must include any post-petition payments, 
pre-petition payments, and payments of post-petition fees or charges 
the servicer has received since the last statement.
---------------------------------------------------------------------------

    \294\ 78 FR 10901, 10967 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Proposed comment 41(f)(3)(v)-1 clarifies that the brief description 
of the transaction activity required by Sec.  1026.41(d)(4) does not 
need to identify the source of the payments received by the servicer. 
The Bureau believes that this clarification is necessary in light of 
servicers' comments that they are not able to provide this information 
on a periodic statement.
    The Bureau solicits comment on whether the transaction activity 
should including post-petition payments, pre-petition payments, and 
post-petition fees and charges, or whether it should disclosure 
different or additional types of activity.
41(f)(3)(vi) Pre-petition Arrearage
    For consumers in Chapter 12 or Chapter 13 bankruptcy, proposed 
Sec.  1026.41(f)(3)(vi) requires a servicer to disclose, if applicable, 
the total of all pre-petition payments received by the servicer since 
the last periodic statement, the total of all pre-petition payments 
received by the servicer since the beginning of the current calendar 
year, and the current balance of the consumer's pre-petition arrearage.
    As discussed in the section-by-section analyses of Sec.  
1026.41(f)(3)(ii) through (iv), some industry representatives submitted 
ex parte comments objecting to a requirement to break down payment 
application by principal, interest, and escrow, and industry commenters 
voiced a stronger objection to doing so for pre-petition payments. 
Industry commenters stated that the pre-petition arrearage is treated 
essentially as a lump sum claim in bankruptcy, and that each payment 
received goes to reduce the amount of that claim. They maintained that, 
as a result, it is unnecessary to disclose whether a portion of a 
payment is being applied to principal or pre-petition escrow shortages, 
and that it is equally unnecessary and unhelpful to advise the consumer 
if any portion of the payment is being held in suspense. These 
commenters further stated that a Chapter 13 trustee and a servicer may 
allocate a different portion of the pre-petition payments to, for 
example, principal or fees, and that the differing allocations would be 
extremely difficult to reconcile. Several servicers stated that they 
could disclose the amount of any pre-petition payments received as well 
as the current balance the pre-petition arrearage. A credit union 
commented that it and other smaller-sized entities currently lack the 
capacity to export information about pre-petition payments onto a 
periodic statement, however, and that any requirement to do so would 
require them to modify their systems.
    Consumer advocacy groups and bankruptcy trustees commented that 
breaking down pre-petition payments by principal, interest, and escrow 
would be unnecessary for purposes of periodic statements because the 
arrearage is treated as a lump sum claim in bankruptcy. They expressed 
comfort with the idea of servicers disclosing the amount of pre-
petition payments received and the current balance of pre-petition 
arrearage.
    The Bureau believes that consumers need a record of payments 
received by a servicer, including pre-petition payments, in order to 
better understand the status of their mortgage loans and any 
delinquencies. The Bureau also believes that, in light of the comments 
from industry, consumer advocacy groups, and bankruptcy trustees, 
servicers should not be required to break down pre-petition payments by 
principal, interest, and escrow and that consumers would benefit from 
disclosure of the aggregate amounts of these payments. Although the 
Bureau understands that some servicers may not be currently equipped to 
identify the amount of the pre-petition arrearage on a periodic 
statement, the Bureau understands that servicers keep records of this 
information and believes that, with an appropriate implementation 
period, servicers would be able to provide it on a periodic statement. 
Accordingly, proposed Sec.  1026.41(f)(3)(vi) requires a servicer to 
disclose, if applicable, the total of all pre-petition payments 
received since the last periodic statement, the total of all pre-
petition payments received since the beginning of the current calendar 
year, and the current balance of the consumer's pre-petition arrearage.
    The Bureau understands that, in some instances, such as before a 
servicer files a proof of claim in a consumer's bankruptcy case or if a 
consumer or trustee objects to a servicer's claim, the amount of the 
pre-petition arrearage may not be determined or may be in dispute. In 
that instance, the Bureau believes that it may be appropriate for the 
periodic statement to reflect the unresolved nature of the arrearage. 
Accordingly, proposed comment 41(f)(3)(vi)-1 provides that to the 
extent the amount of a consumer's pre-petition arrearage is subject to 
dispute or has not yet been determined, the periodic statement may 
include a statement acknowledging the unresolved nature of the pre-
petition arrearage.
    The Bureau solicits comment on whether periodic statements should 
be required to disclose the pre-petition payments received and applied 
and the balance of the pre-petition arrearage, and whether there are 
alternative avenues for apprising consumers of this information.
41(f)(3)(vii) Additional Disclosures
    Proposed Sec.  1026.41(f)(3)(vii) requires a servicer to include 
four additional statements on the periodic statement, as applicable, 
when a consumer is in Chapter 12 or Chapter 13 bankruptcy. First, Sec.  
1026.41(f)(3)(vii)(A) requires a statement that the amount due includes 
only post-petition payments and does not include other payments that 
may be due under the terms of the consumer's bankruptcy plan. The 
purpose of this disclosure is to ensure that a consumer

[[Page 74265]]

understands that there may be additional amounts due under the plan 
that relate to the mortgage debt. Several industry participants and 
consumer advocacy groups recommended that periodic statements include 
such a disclaimer, and the Bureau believes that it may be appropriate 
to avoid consumer confusion.
    Second, proposed Sec.  1026.41(f)(3)(vii)(B) requires a statement 
that if the consumer's bankruptcy plan requires the consumer to make 
the post-petition mortgage payments directly to a bankruptcy trustee, 
the consumer should send the payment to the trustee and not to the 
servicer. This proposed disclosure is intended to avoid consumer 
confusion about whether to send a post- petition payment to the trustee 
or servicer. Several industry participants and consumer advocacy groups 
stated that such a disclosure would be helpful to avoid confusion and 
that some servicers already include such a disclosure on their periodic 
statement. The Bureau believes that such a disclosure is appropriate.
    Third, proposed Sec.  1026.41(f)(3)(vii)(C) requires a statement 
that the information disclosed on the periodic statement may not 
reflect payments the consumer has made to the trustee and may not be 
consistent with the trustee's records. Finally, proposed Sec.  
1026.41(f)(3)(vii)(D) requires a statement that encourages the consumer 
to contact the consumer's attorney or the trustee with questions 
regarding the application of payments. Several industry participants 
stated that these disclosures would be helpful because there can be a 
delay between when a trustee receives a payment from a consumer and 
when the trustee remits that payment to a servicer, and a consumer may 
wonder why the statement does not reflect all payments the consumer has 
made. For pre-petition payments, in particular, the Bureau understands 
that the delay can be weeks or even months as a trustee may not 
distribute payments on pre-petition claims until the creditor files a 
proof of claim or until higher priority claims have been paid in full. 
Additionally, the Bureau understands that a trustee may allocate 
payments differently than a servicer, and until the allocations are 
reconciled, a periodic statement provided by a servicer may reflect 
different allocations than a trustee's records. Based on these timing 
and allocation issues, the Bureau believes that it is appropriate to 
advise consumers of the differences between a servicer's records and a 
trustee's records and that encouraging consumers to contact their 
attorney of the trustee may be a helpful disclosure.
    The Bureau solicits comment on whether servicers should be 
permitted to include the disclosures under proposed Sec.  
1026.41(f)(3)(vii) on a separate page enclosed with the periodic 
statement, whether the disclosures under proposed Sec.  
1026.41(f)(3)(vii) should be permissive or mandatory when applicable, 
and whether there are other disclosures that a servicer should be 
required to include in a periodic statement under proposed Sec.  
1026.41(f).
41(f)(4) Multiple Obligors
    Proposed Sec.  1026.41(f)(4) addresses the situation where more 
than one consumer is primarily obligated on a mortgage loan and a 
servicer is required to provide at least one of the primary obligors 
with a modified periodic statement pursuant to Sec.  1026.41(f). 
Proposed Sec.  1026.41(f)(4) provides that the servicer may provide the 
modified version of the periodic statement to any or all of the primary 
obligors instead of any statements not including the bankruptcy-
specific modifications, even if not all primary obligors are debtors in 
bankruptcy. On the other hand, as proposed comment 41(e)(5)(i)-5 and 
the section-by-section analysis of Sec.  1026.41(e)(5) explain, if a 
servicer were exempt under proposed Sec.  1026.41(e)(5)(i) from 
providing periodic statements to the obligor in bankruptcy, the 
servicer would continue to provide regular periodic statements, without 
any of the bankruptcy-specific modifications, to the obligors who are 
not in bankruptcy.
    During the bankruptcy roundtable discussion, representatives from 
industry and consumer advocacy groups agreed that if a servicer is 
required to provide a periodic statement with bankruptcy-specific 
information to a consumer, the servicer should be permitted to send the 
same modified form of statement to any or all of the consumer's co-
obligors on the mortgage loan, even if not all the obligors are debtors 
in bankruptcy. One large servicer noted that sending one type of 
statement to all joint obligors on a mortgage loan reflects its current 
practice when one or more obligors is a debtor in bankruptcy. Industry 
representatives stated that sending one type of statement per mortgage 
loan account would be less burdensome and would be easier to administer 
than sending different types of statements to different obligors on the 
same account.
    The Bureau agrees with the bankruptcy roundtable participants that 
a servicer should be permitted to provide only one type of periodic 
statement per mortgage loan account. The Bureau believes that it would 
impose an undue burden on servicers to have to send one version of the 
periodic statement to a consumer in bankruptcy and a different version 
to the consumer's non-bankrupt co-obligors. Moreover, the Bureau 
believes such a result would be inconsistent with comment 41(a)-1, 
which clarifies that when more than one consumer is primarily obligated 
on a mortgage loan, a servicer may send the periodic statement to any 
one of the primary obligors; the servicer is not required to provide 
periodic statements to all primary obligors, let alone different 
versions of the periodic statement.
    Accordingly, proposed Sec.  1026.41(f)(4) provides that if a 
servicer is required to provide periodic statements with the 
modifications set forth in proposed Sec.  1026.41(f) in connection with 
a mortgage loan for which more than one consumer is primarily 
obligated, the servicer may provide the modified statements to any or 
all of the primary obligors instead of any statements not including the 
bankruptcy-specific modifications, even if not all of the primary 
obligors are debtors in bankruptcy.
    Proposed comment 41(f)(4)-1 provides an illustration of a 
servicer's obligations with respect to a mortgage loan where two 
spouses are obligors on a mortgage loan, and only one spouse files for 
Chapter 13 bankruptcy. In this example, the plan of reorganization for 
the spouse in bankruptcy provides for the retention of the property 
securing the mortgage loan by making pre-petition and post-petition 
payments, thus requiring the servicer to provide a periodic statement 
with the modifications set forth in proposed Sec.  1026.41(f)(1) 
through (3). Proposed comment 41(f)(4)-1 clarifies that the servicer 
can provide the periodic statements with the modifications set forth in 
proposed Sec.  1026.41(f)(1) through (3) to either spouse, even though 
one spouse is not in bankruptcy.
41(f)(5) Coupon Books
    Proposed Sec.  1026.41(f)(5) provides that certain modifications in 
proposed Sec.  1026.41(f)(1) and (3) apply to coupon books provided 
instead of periodic statements under Sec.  1026.41(e)(3). Proposed 
Sec.  1026.41(f)(5) permits the servicer to put the disclosures 
required under proposed Sec.  1026.41(f)(2) and (3)(vii) anywhere in 
the coupon book or provide them on a separate page enclosed with the 
coupon book provided to the consumer. The servicer also must make 
available upon request

[[Page 74266]]

to the consumer by telephone, in writing, in person, or electronically, 
if the consumer consents, the pre-petition arrearage information listed 
in proposed Sec.  1026.41(f)(3)(vi), as applicable. Lastly, proposed 
Sec.  1026.41(f)(5) provides that the modifications set forth in 
proposed Sec.  1026.41(f)(1) and (3)(i) through (v) and (vii) apply to 
coupon books and other information a servicer provides to the consumer 
under Sec.  1026.41(e)(3).
    The Bureau believes that proposed Sec.  1026.41(f)(5) will not 
impose significant burdens on servicers that use coupon books. The 
statements set forth in proposed Sec.  1026.41(f)(1) and (3)(vii) are 
the only new, bankruptcy-specific disclosures that a servicer must 
include in a coupon book. These are standardized statements--servicers 
will not need to craft language for individual borrowers. Additionally, 
the Bureau is proposing to allow servicers to include these statements 
anywhere in the coupon book or on a separate page enclosed with the 
coupon book. The remainder of the modifications set forth in proposed 
Sec.  1026.41(f)(1) and (3)(i) through (v) and (vii) do not require a 
servicer to modify any of the disclosures in the coupon book or provide 
new information to a consumer. Rather, these modifications provide that 
certain disclosures (such as a description of late payment fees) are 
not required when a consumer is in bankruptcy and clarify the 
requirements for certain other disclosures (such as amount due) in a 
manner that is consistent with the information already provided in a 
coupon book. Thus, while a servicer has the option to modify its coupon 
books to omit certain disclosures that are not required when a consumer 
is in bankruptcy, the proposal does not require servicers to redesign 
their coupon books specifically for consumers in bankruptcy, and 
servicers can determine the most cost-efficient method of providing the 
required information. Moreover, proposed Sec.  1026.41(f)(5) permits a 
servicer to provide modified coupon books according to its normal 
schedule. For example, if a servicer provided a 12-month coupon book to 
a consumer in January and the consumer filed for bankruptcy in March, 
the servicer would not need to issue a new, modified coupon book 
accompanied by the proposed Sec.  1026.41(f)(1) and (3)(vii) 
disclosures until the following January.
    Providers of coupon books will also, at the consumer's request, 
have to provide the pre-petition arrearage information set forth in 
proposed Sec.  1026.41(f)(3)(vi). The Bureau understands, however, that 
servicers already maintain internal records regarding pre-petition 
payments and the balance of the pre-petition arrearage; therefore, the 
Bureau does not believe that the cost of providing this information 
upon a consumer's request will impose significant new burdens.
    The Bureau solicits comment on applying the modifications set forth 
in proposed Sec.  1026.41(f)(1) and (3)(i) through (v) and (vii) when a 
servicer provides coupon books under Sec.  1026.41(e)(3). In 
particular, the Bureau solicits comment on whether there may be 
alternative means to providing consumers with substantially the same 
information regarding the mortgage loan account while they are in 
bankruptcy. Additionally, the Bureau solicits comment on whether 
servicers should be required to issue a new coupon book or other 
disclosures immediately upon a consumer's bankruptcy filing. Finally, 
the Bureau solicits comment on servicers' current practices with 
respect to providing coupon books to consumers in bankruptcy.
Sample Forms
    Proposed sample forms for periodic statements are provided in 
proposed appendices H-30(E) and (F). Section 1026.41(c) specifies that 
sample forms for periodic statements are provided in appendix H-30 and 
that proper use of these forms complies with the form and layout 
requirements of Sec.  1026.41(c) and (d). The Bureau believes that 
sample forms are appropriate to provide servicers with guidance for 
complying with the requirements of Sec.  1026.41(c) and (d) as modified 
by proposed Sec.  1026.41(f). The Bureau therefore exercises its 
authority under, among other things, section 128(f) of TILA to propose 
sample forms for Sec.  1026.41(c) and 1026.41(d), as modified by Sec.  
1026.41(f). Proposed appendix H-30(E) provides a sample form for 
complying with the requirements of Sec.  1026.41(f) with respect to a 
consumer in a Chapter 7 or Chapter 11 bankruptcy case or a consumer who 
has discharged personal liability for a mortgage loan. This form 
includes the delinquency information required by Sec.  1026.41(d)(8) as 
an example; a servicer is not required to include this information if 
it is not applicable to a consumer. Proposed appendix H-30(F) provides 
a sample form for complying with the requirements of proposed Sec.  
1026.41(f) with respect to a consumer in a Chapter 12 or Chapter 13 
bankruptcy case. The Bureau notes that these are not required forms and 
that any arrangements of the information that meet the requirements of 
Sec.  1026.41 would be considered in compliance with the section.
    The Bureau intends to conduct consumer testing on the sample forms 
in proposed appendices H-30(E) and H-30(F) following publication of 
this proposed rule. Prior to finalizing any such sample forms, the 
Bureau will publish and seek comment on a report summarizing the 
methods and results of the consumer testing.
Legal Authority
    The Bureau is proposing Sec.  1026.41(f)--which contains content 
and layout requirements for periodic statements in bankruptcy--to 
implement section 128(f) of TILA as well as section 105(a) of TILA and 
section 1032(a) of the Dodd-Frank Act. Section 128(f)(1)(e) of TILA 
requires the periodic statement to include a description of any late 
payment fees. For the reasons discussed above, the Bureau is proposing 
to use its authority under section 105(a) and (f) of TILA to exempt 
servicers from having to include this information in periodic 
statements provided to consumers who are in bankruptcy or have 
discharged personal liability for a mortgage loan. This proposed 
exemption is additionally authorized under section 1405(b) of the Dodd-
Frank Act.
Appendix H--Closed-End Model Forms and Clauses
Appendix H--4(C) to Part 1026
    The 2013 TILA Servicing Final Rule revised the commentary to Sec.  
1026.19(b) to reflect the revised Sec.  1026.20(c) and revised Sec.  
1026.20(d) ARM notices. This proposal modifies the Variable-Rate Model 
Clauses in appendix H--4(C) to reflect the language in the revised 
commentary. No change to the table of contents of appendix H is 
necessary.
Appendix H--14 to Part 1026
    The 2013 TILA Servicing Final Rule changed the commentary to Sec.  
1026.19(b) to reflect the revised Sec.  1026.20(c) and revised Sec.  
1026.20(d) ARM notices. This proposal modifies the Variable-Rate 
Mortgage Sample form in appendix H--14 to reflect the language in the 
revised commentary. No change to the table of contents of appendix H is 
necessary.
Appendix H--30(C) to Part 1026
    This proposal makes a minor technical revision to the entry for H--
30(C) in the table of contents at the beginning of this appendix and 
republishes sample form H--30(C). The technical change amends ``Sample 
Form of Periodic Statement for a Payment-Options Loan (Sec.  1026.41)'' 
to ``Sample Form of Periodic Statement for a Payment-Option Loan (Sec.  
1026.41).''

[[Page 74267]]

Appendices H--30(E) and H--30(F) to Part 1026
    This proposal provides proposed sample forms for periodic 
statements for certain consumers in bankruptcy in proposed appendices 
H--30(E) and H--30(F) and makes corresponding additions to the table of 
contents for appendix H. Section 1026.41(c) specifies that sample forms 
for periodic statements are provided in appendix H--30 and that proper 
use of these forms complies with the form and layout requirements of 
Sec.  1026.41(c) and (d). The Bureau believes that sample forms may be 
appropriate to provide servicers with guidance for complying with the 
requirements of Sec.  1026.41(c) and (d) as modified by proposed Sec.  
1026.41(f). The Bureau therefore exercises its authority under, among 
other things, section 128(f) of TILA to provide sample forms for Sec.  
1026.41(c) and (d), as modified by Sec.  1026.41(f). Appendix H--30(E) 
provides a sample form for complying with the requirements of Sec.  
1026.41(f) with respect to a consumer in a Chapter 7 or Chapter 11 
bankruptcy case or a consumer who has discharged personal liability for 
a mortgage loan. Appendix H--30(F) provides a sample form for complying 
with the requirements of Sec.  1026.41(f) with respect to a consumer in 
a Chapter 12 or Chapter 13 bankruptcy case. They would not be required 
forms, however, and any arrangements of the information that meet the 
requirements of Sec.  1026.41 would be considered in compliance with 
the section.
    The Bureau intends to conduct consumer testing on the sample forms 
in proposed appendices H--30(E) and H--30(F) following publication of 
this proposed rule. Prior to finalizing any such sample forms, the 
Bureau will publish and seek comment on a report summarizing the 
methods and results of the consumer testing.

VI. Dodd-Frank Act Section 1022(b)

A. Overview

    In developing the proposed rule, the Bureau has considered the 
proposed rule's potential benefits, costs, and impacts.\295\ The Bureau 
requests comment on the preliminary analysis presented below as well as 
submissions of additional data that could inform the Bureau's analysis 
of the benefits, costs, and impacts. In developing the proposed rule, 
the Bureau has consulted, or offered to consult with, the prudential 
regulators, the Securities and Exchange Commission, HUD, the Federal 
Housing Finance Agency, the Federal Trade Commission, and the 
Department of the Treasury, including regarding consistency with any 
prudential, market, or systemic objectives administered by such 
agencies.
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    \295\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
requires the Bureau to consider the potential benefits and costs of 
the regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products and services; the impact of proposed rule on insured 
depository institutions and insured credit unions with less than $10 
billion in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas.
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    The Bureau is now proposing several additional amendments to the 
Mortgage Servicing Rules to revise regulatory provisions and official 
interpretations relating to the Regulation X and Z mortgage servicing 
rules. The proposals cover nine major topics, summarized below 
generally in the order they appear in the proposed rule. More details 
can be found in the proposed rule.
    1. Successors in interest. The Bureau is proposing three sets of 
rule changes relating to successors in interest. First, the Bureau is 
proposing to apply all of the Mortgage Servicing Rules to successors in 
interest once a servicer confirms the successor in interest's identity 
and ownership interest in the property. Second, the Bureau is proposing 
rules relating to how a mortgage servicer confirms a successor in 
interest's status. Third, the Bureau is proposing that, to the extent 
that the Mortgage Servicing Rules apply to successors in interest, the 
rules apply with respect to all successors in interest who acquire an 
ownership interest in a transfer protected from acceleration, and 
therefore foreclosure, under Federal law.
    2. Definition of delinquency. The Bureau is proposing to add a 
general definition of delinquency that would apply to all of the 
servicing provisions of Regulation X and the provisions regarding 
periodic statements for mortgage loans in Regulation Z. Under the 
proposed definition, a borrower and a borrower's mortgage loan 
obligation are delinquent beginning on the date a payment sufficient to 
cover principal, interest, and, if applicable, escrow, becomes due and 
unpaid.
    3. Requests for information. The Bureau is proposing amendments 
that would change how a servicer must respond to requests for 
information asking for ownership information for loans in trust for 
which Fannie Mae or Freddie Mac is the trustee, investor, or guarantor.
    4. Force-placed insurance. The Bureau is proposing to amend the 
required disclosures to account for when a servicer wishes to force-
place insurance when the borrower has insufficient, rather than 
expiring or expired, hazard insurance coverage on the property. 
Additionally, the Bureau is proposing to give servicers the option to 
include a borrower's mortgage loan account number on the notices 
required under Sec.  1024.37. The Bureau is also proposing several 
technical edits to correct discrepancies between the model forms and 
the text of Sec.  1024.37.
    5. Early intervention. The Bureau is proposing to clarify generally 
the early intervention live contact obligations and written early 
intervention notice obligations. The Bureau is also proposing to 
require servicers to provide written early intervention notices to 
certain borrowers who are in bankruptcy or who have invoked their cease 
communication rights under the FDCPA.
    6. Loss mitigation. The Bureau is proposing to: (1) Require 
servicers to meet the loss mitigation requirements more than once in 
the life of a loan for borrowers who become current after a 
delinquency; (2) Modify the existing exception to the 120-day 
prohibition on foreclosure filing to allow a servicer to join the 
foreclosure action of a senior lienholder; (3) Clarify that servicers 
have significant flexibility in setting a reasonable date by which a 
borrower must return documents and information to complete an 
application, so long as the date maximizes borrower protections and 
allows borrowers a reasonable period of time to return documents and 
information; (4) Clarify that servicers must take affirmative steps to 
delay a foreclosure sale, even where the sale is conducted by a third 
party; clarify the servicer's duty to instruct foreclosure counsel to 
take steps to comply with the dual-tracking prohibitions; and indicate 
that a servicer who has not taken, or caused counsel to take, all 
reasonable affirmative steps to delay the sale, is required to dismiss 
the foreclosure action if necessary to avoid the sale; (5) Require that 
servicers promptly provide a written notice once they receive a 
complete loss mitigation application; require that the notice indicate 
that the servicer has received a complete application but clarify that 
the servicer might later request additional information if needed; 
require that the notice provide the date of completion and a disclosure 
indicating whether a foreclosure sale was scheduled as of that date, 
the date foreclosure protections began, a statement informing the 
borrower of applicable appeal rights, and a statement that the servicer 
will complete its evaluation within 30 days from the date of the 
complete

[[Page 74268]]

application; (6) Address and clarify how servicers obtain information 
not in the borrower's control and evaluate a loss mitigation 
application while waiting for such third party information; prohibit 
servicers from denying borrowers based upon delay in receiving such 
third party information; require that servicers promptly provide a 
written notice to the borrower if the servicer lacks third party 
information 30 days after receiving the borrower's complete 
application; and require servicers to notify borrowers of their 
determination in writing promptly upon receipt of the third party 
information; (7) Permit servicers to offer a short-term repayment plan 
based upon an evaluation of an incomplete application; (8) Clarify that 
servicers may stop collecting documents and information from a borrower 
pertaining to a loss mitigation option after receiving information 
confirming that the borrower is ineligible for that option; and (9) 
Address and clarify how loss mitigation procedures and timelines apply 
to a transferee servicer that receives a mortgage loan for which there 
is a loss mitigation application pending at the time of a servicing 
transfer.
    7. Prompt payment crediting. The Bureau is proposing to clarify how 
servicers must treat periodic payments made by consumers who are 
performing under either temporary loss mitigation programs or permanent 
loan modifications. Under the Bureau's proposal, periodic payments made 
pursuant to temporary loss mitigation programs would continue to be 
credited according to the loan contract and could, if appropriate, be 
credited as partial payments, while periodic payments made pursuant to 
a permanent loan modification would be credited under the terms of the 
permanent loan agreement.
    8. Periodic statements. The Bureau is proposing to: (1) Clarify 
certain periodic statement disclosure requirements relating to mortgage 
loans that have been accelerated, are in temporary loss mitigation 
programs, or have been permanently modified, to conform generally the 
disclosure of the amount due with the Bureau's understanding of the 
legal obligation in each of those circumstances; (2) Require servicers 
to send modified periodic statements to consumers who have filed for 
bankruptcy, subject to certain exceptions, with content varying 
depending on whether the consumer is a debtor in a Chapter 7 or Chapter 
13 bankruptcy case; and to conduct consumer testing on proposed sample 
periodic statement forms that servicers could use for consumers in 
bankruptcy to ensure compliance with Sec.  1026.41; and (3) Exempt 
servicers from the periodic statement requirement for charged-off 
mortgage loans if the servicer will not charge any additional fees or 
interest on the account and provides a final periodic statement.
    9. Small servicer. The proposal would make certain changes to the 
small servicer definition. The small servicer definition generally 
applies to servicers who service 5,000 or fewer mortgage loans for all 
of which the servicer is the creditor or assignee. The proposal would 
exclude certain seller-financed transactions from being counted toward 
the 5,000 loan limit, allowing servicers that would otherwise qualify 
for small servicer status to retain their exemption while servicing 
those transactions.
    The proposed rule also makes technical corrections to several 
provisions of Regulations X and Z.

B. Provisions to Be Analyzed

    The analysis below considers the potential benefits, costs, and 
impacts to consumers and covered persons of key provisions of the 
proposed rule (proposed provisions), which include:
    1. Requirements related to successors in interest.
    2. A new definition of ``delinquency'' for purposes of Regulation 
X's mortgage servicing rules.
    3. Early intervention written notice requirements for certain 
consumers.
    4. Changes to loss mitigation procedures, including:
     Requiring a notice of complete application for loss 
mitigation applications;
     Requirements applicable when determination of what loss 
mitigation options to offer a borrower is delayed because information 
outside the borrower's control is missing;
     Clarifications to the Mortgage Servicing Rules' dual-
tracking protections;
     Requiring review of multiple loss mitigation applications 
from the same borrower in some circumstances;
     Clarification of how loss mitigation timelines apply in 
the case of servicing transfers; and
     Permitting evaluation for short-term repayment plans based 
on incomplete applications.
    5. Periodic statement requirements applicable to consumers in 
bankruptcy.
    6. An exemption from the servicing rule's periodic statement 
requirement for loans that have been charged off.
    7. Revisions to the small servicer definition.
    In addition to the proposed changes listed above, the Bureau is 
proposing to modify or clarify other provisions of the Mortgage 
Servicing Rules. These other changes include: proposed commentary 
relaxing certain information provision requirements under Sec.  
1024.36(a) when a borrower requests information about the owner of a 
GSE loan; a proposed amendment to the force-placed insurance notice 
described in Sec.  1024.37(c) through (e) to require the notice to 
state that coverage is insufficient (rather than expiring), when 
applicable, and to allow inclusion of the account number on the notice; 
a proposed policies and procedures requirement under Sec.  
1024.38(b)(2)(vi) regarding identifying and obtaining documents not in 
the borrower's control that a servicer requires to determine what loss 
mitigation options, if any, to offer a borrower; proposed commentary 
regarding a servicer's flexibility in collecting documents and 
information to complete a loss mitigation application under Sec.  
1024.41(b)(1); proposed commentary relevant to the reasonable date for 
return of documents under Sec.  1024.41(b)(2)(ii); proposed amendments 
to Sec.  1024.41(c)(2)(iv) clarifying when a loss mitigation 
application is considered facially complete; a proposed exception to 
Sec.  1024.41(f)(1)'s 120-day pause for circumstances in which a 
subordinate lienholder joins the foreclosure action of a senior 
lienholder; proposed commentary clarifying the effect of Sec.  
1026.36(c)'s and Sec.  1026.41(d)'s prompt crediting and periodic 
statement requirements with regard to loan modifications; proposed 
commentary to clarify the information that must be included in a 
periodic statement pursuant to Sec.  1026.41(d) following a period when 
the servicer was exempt from sending periodic statements; a proposal to 
remove the phrase ``creditor or assignee'' from the description of 
voluntarily serviced loans that may be excluded in applying the small 
servicer exemption under Sec.  1026.41(e)(4), and certain other minor 
changes. The Bureau believes these proposed modifications and 
clarifications would generally benefit consumers and/or covered persons 
and impose minimal new costs on consumers or covered persons.

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

    The discussion in this part relies on data that the Bureau has 
obtained from industry, other regulatory agencies, and publicly 
available sources. The Bureau has done extensive outreach on many of 
the issues addressed by the proposed rule, including discussions with 
several servicers of different sizes, consultations with other 
stakeholders, and convening

[[Page 74269]]

a roundtable on the application of the Mortgage Servicing Rules in the 
case of bankrupt borrowers. However, as discussed further below, the 
data are generally limited with which to quantify the potential costs, 
benefits, and impacts of the proposed rule.
    Quantifying the benefits of the rule for consumers presents 
particular challenges. As discussed further below, certain proposed 
provisions may directly save consumers time and money while others may 
benefit consumers by, for example, facilitating household budgeting, 
supporting the consumer's ability to obtain credit, and reducing 
default and avoidable foreclosure. Many of these benefits are 
qualitative in nature, while others are quantifiable but would require 
a wide range of data that is not currently available to the Bureau. The 
Bureau continues to seek data from available sources regarding the 
benefits to consumers of the proposed rule.
    In addition, the Bureau believes, based on industry outreach, that 
many servicers already follow procedures that comply with at least some 
provisions of the proposed rule. However, the Bureau does not have 
representative data on the extent to which servicer operations 
currently comply with the proposed rule, which means the Bureau is 
unable to quantify the benefits to consumers or the costs to servicers 
of the proposed rule. The Bureau continues to seek data from available 
sources regarding the extent to which servicer operations currently 
comply with the proposed rule. 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 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.
    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. The Bureau requests additional data or studies that 
could help quantify the benefits and costs to consumers and covered 
persons of the proposed rule.

D. Small Servicer Exemption

    Small servicers--generally, those that service 5,000 or fewer 
mortgage loans, all of which the servicer or affiliates own or 
originated--are exempt from many of the provisions of the Mortgage 
Servicing Rules, including most of the provisions affected by the 
proposed rule.\296\ Therefore, most of the discussion of potential 
benefits and costs below generally does not apply to small servicers or 
to consumers whose mortgage loans are serviced by small servicers. The 
two exceptions among the provisions discussed in this part are (1) the 
proposed provisions related to successors in interest, which would 
extend the protections of the Mortgage Servicing Rules, including 
certain provisions from which small servicers are not exempt, to 
successors in interest and (2) the proposed definition of delinquency 
in Sec.  1024.31, which may affect the scope of the 2013 RESPA 
Servicing Final Rule's prohibition on initiating foreclosure 
proceedings unless a borrower's mortgage loan obligation is more than 
120 days delinquent.
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    \296\ Section 1026.41(e)(4)(ii) defines the term ``small 
servicer'' as a servicer that either: (1) Services, together with 
any affiliates, 5,000 or fewer mortgage loans, for all of which the 
servicer (or an affiliate) is the creditor or assignee; or (2) is a 
Housing Finance Agency, as defined in 24 CFR 266.5.
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E. Potential Benefits and Costs to Consumers and Covered Persons

    The Bureau believes that, compared to the baseline established by 
the Mortgage Servicing Final Rules, an important benefit of many of the 
proposed provisions to both consumers and covered persons is an 
increase in clarity and precision of the servicing rules and an 
accompanying reduction in compliance costs. Other benefits and costs 
are considered below.
1. Successors in Interest
    The Bureau is proposing new requirements on mortgage servicers with 
respect to successors in interest. For purposes of the proposed 
provisions, successors in interest include individuals who receive an 
ownership interest in a property securing a mortgage loan in a transfer 
protected by the Garn-St Germain Act, including individuals who 
acquired an ownership interest in the property securing a mortgage loan 
in transfers resulting from the death of the borrower or through 
transfers to the borrower's spouse or children, transfers incident to 
divorce, and certain other transfers. As described in more detail 
below, the proposed provisions would relate to how mortgage servicers 
confirm a successor in interest's identity and ownership interest in 
the property, and would apply the Mortgage Servicing Rules to 
successors in interest whose identity and ownership interest in the 
property have been confirmed by the servicer.
    Proposed Sec.  1024.36(i) requires a servicer to respond to a 
written request that indicates that the person making the request may 
be a successor in interest by providing that person with information 
regarding the documents the servicer requires to confirm the person's 
identity and ownership interest in the property. Proposed Sec.  
1024.38(b)(1)(vi) requires servicers to maintain certain policies and 
procedures with respect to successors in interest, which are generally 
intended to facilitate the process of confirming a person's status as a 
successor in interest and communicating with the person about the 
status.
    Proposed Sec.  1024.30(d) provides that a successor in interest 
shall be considered a borrower for the purposes of Regulation X's 
mortgage servicing rules once a servicer confirms the successor in 
interest's identity and ownership interest in the property. Similarly, 
proposed Sec.  1026.2(a)(11) provides that a confirmed successor in 
interest is a consumer with respect to Regulation Z's mortgage 
servicing rules. Under the proposed rule, the Mortgage Servicing Rules 
apply with respect to a confirmed successor in interest regardless of 
whether that person has assumed the mortgage loan obligation (i.e., 
legal liability for the mortgage debt) under State law.
    Potential benefits and costs to consumers. As described in more 
detail below, the proposal would benefit successors in interest by 
permitting them to protect and manage their interest in the property, 
and to make key decisions about that interest, without unnecessary 
delays and associated costs.
    The Bureau understands, based on discussions with certain large 
servicers, that only a small number of properties for which they 
service mortgage loans are transferred to successors in interest in any 
given year.\297\ The Bureau does

[[Page 74270]]

not have representative data on current servicer policies toward such 
successors in interest. Because the Garn-St Germain Act prevents 
foreclosure solely on the basis that a home was transferred to a 
successor in interest, the Bureau expects that servicers currently are 
servicing loans for successors in interest, even before such successors 
in interest assume the mortgage loan. The Bureau does not have 
representative information on the standards servicers use in servicing 
loans for successors in interest; however, as discussed below, the 
Bureau believes, based on information it has received from consumers 
and other stakeholders, that in many cases successors in interest would 
benefit from additional protections.
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    \297\ One large servicer indicated that in recent years the 
number of successors in interest applying to assume a mortgage loan 
each year represented less than 0.03 percent of the total loans it 
services. However, this number does not include successors in 
interest that did not apply to assume the loan but nonetheless might 
have benefitted from the proposed rule (for example, because they 
would have been able to obtain more information about the loan 
before deciding whether to apply to assume the loan). Data from the 
American Housing Survey indicate that in 2011, 239,000 homeowners 
(approximately 0.5 percent of those with a mortgage) had assumed the 
mortgage loan on their home; however, these data do not indicate 
whether the homeowner was a successor in interest as defined in the 
proposed rule at the time the loan was assumed. HUD Office of Policy 
Dev. and Research and U.S. Census Bureau, American Housing Survey 
for the United States: 2011, at 79 (Sept. 2013), available at http://www.census.gov/content/dam/Census/programs-surveys/ahs/data/2011/h150-11.pdf.
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    The proposed revisions to the ``policies and procedures'' 
requirements in Sec.  1024.38(b)(1)(vi), together with the requirement 
in proposed Sec.  1024.36(i) that servicers respond to written requests 
regarding what documents the servicer requires to confirm the person's 
identity as a successor in interest, would benefit consumers that 
succeed to ownership of a home that is subject to a mortgage by 
reducing the time and effort required to establish their status in the 
eyes of the servicer. The Bureau believes, based on information it has 
received from consumers, consumer advocacy groups, and other 
stakeholders, that successors in interest often have difficulty 
demonstrating their identity and ownership interest in the property to 
servicers' satisfaction, and that some servicers currently require 
successors in interest to submit documents that are unreasonable in 
light of the particular situation of that successor in interest or in 
light of the laws of the relevant jurisdiction. The Bureau has also 
heard repeated reports that some servicers have taken a long time to 
confirm the successor in interest's status, even after receipt of 
appropriate documentation. The Bureau has also heard reports that 
servicers may fail to communicate to the successor in interest whether 
the servicer has confirmed the successor in interest's status. 
Unnecessary delays and other difficulties can harm successors in 
interest because successors in interest that have not been confirmed by 
the servicer may not be able to obtain information about the mortgage, 
and in some instances servicers may be unwilling to accept payment from 
the unconfirmed successor in interest. These problems may lead the 
successor in interest to incur unnecessary costs related to the 
mortgage or deprive the person of rights to which he or she would 
otherwise be entitled, and may even lead to unnecessary foreclosure on 
the property.
    The Bureau's proposal extends the protections of the Mortgage 
Servicing Rules to confirmed successors in interest, even prior to such 
time as they may assume the obligations of the mortgage loan under 
State law. The benefits of the Mortgage Servicing Rules to consumers 
generally are discussed in the 2013 RESPA Servicing Final Rule and the 
2013 TILA Servicing Final Rule, in which the Bureau noted that the need 
for the Mortgage Servicing Rules arises in part from the fact that, 
because borrowers generally do not choose their servicers, it is 
difficult for consumers to protect themselves from shoddy service or 
harmful practices.\298\ This reasoning is particularly applicable to 
successors in interest because they may not be parties to the mortgage 
loan. In addition, successors in interest may find that they have a 
particular need for access to information about the mortgage loan 
secured by the property that they now own, which may help them avoid 
unwarranted or unnecessary costs and fees on the mortgage loan and 
prevent unnecessary foreclosure.
---------------------------------------------------------------------------

    \298\ See 78 FR 10695, 10842-61 (Feb. 14, 2013); 78 FR 10901, 
10978-94 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Furthermore, successors in interest may benefit in particular from 
Regulation X's rules relating to loss mitigation procedures, 
particularly when deciding whether to assume the obligations of the 
mortgage loan. Successors in interest may often experience a disruption 
in household income due to death or divorce and therefore may be more 
likely than other homeowners to need loss mitigation to avoid 
foreclosure. If the servicer does not evaluate the successor in 
interest promptly for loss mitigation options, or if the servicer 
requires the successor in interest to assume the mortgage obligation 
before evaluating the successor in interest for loss mitigation 
options, the successor in interest will be required to decide whether 
to assume the mortgage obligation without knowing whether a loan 
modification will be available and, if so, what terms will be offered. 
The proposal would allow the successor in interest to make a fully 
informed decision about whether to accept the mortgage obligation.
    Potential benefits and costs to covered persons. The costs of 
complying with the proposed provisions related to successors in 
interest depend on servicers' current policies and procedures. Because 
the Garn-St Germain Act protects successors in interest from 
foreclosure after transfer of homeownership to them, servicers are 
effectively required to continue servicing loans following their 
transfer to successors in interest. Thus, the Bureau believes that 
servicers likely already have some policies and procedures in place for 
confirming a successor in interest's identity and ownership interest in 
the property (and thereby determining whether the Garn-St Germain Act 
is applicable) and for servicing a loan secured by property that has 
been transferred to a successor in interest. The proposed provisions 
establish certain standards for the performance of these activities. To 
the extent to which some servicers are meeting these standards already, 
the costs for these servicers may be minimal. However, many servicers 
may need to significantly alter certain of their policies and 
procedures to comply with the proposed provisions.
    The proposed revisions to Sec.  1024.38(b)(1)(vi) and proposed 
Sec.  1024.36(i) may require servicers to develop and implement new 
policies and procedures for confirming a successor's interest in a 
property and communicating with potential successors in interest about 
documents the servicer requires to confirm the person's status. Under 
current Sec.  1024.38(b)(1)(vi), servicers must maintain policies and 
procedures designed to identify and facilitate communication promptly 
with the successor in interest of a deceased borrower. As discussed 
above, the Bureau believes that, because the Garn-St Germain Act 
protects successors in interest from foreclosure, servicers likely 
already have some policies and procedures in place for confirming the 
identity and ownership interest in the property of a successor in 
interest following transfers covered by the proposed rule. However, the 
Bureau does not have data on the extent to which servicers' current 
policies and procedures may comply with the proposed provisions or the 
extent of the changes that would be required to bring policies and 
procedures into compliance with the proposed provisions. The Bureau 
requests additional information about servicers' current policies and 
procedures for confirming a successor in interest's status and the 
incremental cost to servicers of complying with the proposed 
requirements.
    Proposed Sec. Sec.  1024.30(d) and 1026.2(a)(11), which extend the

[[Page 74271]]

protections of the Regulation X and Z mortgage servicing rules to 
confirmed successors in interest, would not require servicers to 
develop new policies and procedures, but rather to continue to apply 
existing policies and procedures to a set of loans that were subject to 
the Mortgage Servicing Rules prior to being transferred to the 
successor in interest. As discussed above, the Bureau expects that such 
loans make up a small fraction of the total loans serviced by any 
particular servicer. For these reasons, the Bureau expects that the 
cost to servicers of complying with the Mortgage Servicing Rules with 
respect to confirmed successors in interest will be small.
    The Bureau acknowledges that, due to the unique circumstances of a 
successor in interest who has recently obtained an interest in the 
property, there may be additional costs associated with complying with 
the Mortgage Servicing Rules with respect to successors in interest. 
For example, successors in interest may have experienced a disruption 
in household income due to death or divorce and therefore may be more 
likely to seek loss mitigation to avoid foreclosure, thereby possibly 
delaying the foreclosure process. Successors in interest may also be 
more likely to seek information regarding the loan that is secured by 
the property in which they now hold an interest. Nonetheless, because 
the Bureau believes that the number of successors in interest serviced 
at any given time is small and that many servicers are already 
performing servicing tasks with respect to successors in interest, the 
Bureau expects that servicers would not incur significant additional 
costs as a result of the proposed provisions. The Bureau requests 
additional information about the benefits to successors in interest of 
the proposed requirements and the incremental cost to servicers of 
applying the Mortgage Servicing Rules to these loans.
2. Definition of ``Delinquency''
    The Bureau is proposing to add a general definition of delinquency 
in Sec.  1024.31 that would apply to all sections of subpart C of 
Regulation X, replacing the existing definition of delinquency for 
purposes of Sec. Sec.  1024.39 and 1024.40(a). Under the proposal, 
delinquency is defined as a period of time during which a borrower and 
the borrower's mortgage loan obligation are delinquent, and a borrower 
and a borrower's mortgage loan obligation are delinquent beginning on 
the day a periodic payment sufficient to cover principal, interest, 
and, if applicable, escrow, became due and unpaid, until such time as 
the payment is made. Proposed comment 31 (Delinquency)-2 clarifies 
that, if a servicer applies payments to the oldest outstanding periodic 
payment, the date of the borrower's delinquency must advance 
accordingly. The Bureau understands from its outreach that the majority 
of servicers credit payments made to a delinquent account to the oldest 
outstanding periodic payment. The Bureau also understands that some 
servicers that use this method may be concerned about how to calculate 
the length of a borrower's delinquency without increased certainty from 
the Bureau.\299\
---------------------------------------------------------------------------

    \299\ See Am. Bankers Ass'n. Letter to Consumer Fin. Prot. 
Bureau (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
---------------------------------------------------------------------------

    The Bureau believes that the proposed provision will clarify the 
application of the servicing rules without imposing significant new 
burdens on servicers. The Bureau recognizes that, in principle, the 
proposed provision could affect the circumstances under which a 
servicer may initiate foreclosure proceedings, because the definition 
of ``delinquency'' affects the application of Sec.  1024.41(f)(1)'s 
prohibition on initiating foreclosure proceedings unless ``a borrower's 
mortgage loan obligation is more than 120 days delinquent.'' In 
particular, the proposed commentary clarifies that a servicer that 
otherwise applies payments to the oldest outstanding periodic payment 
may not initiate foreclosure proceedings unless the borrower has missed 
the equivalent of four monthly payments. Absent this clarification, 
Sec.  1024.41(f)(1) could be interpreted to permit the servicer to 
commence foreclosure even if the borrower has missed only one payment, 
so long as the payment was missed at least 120 days ago and the 
borrower has not become current since. However, information gathered in 
industry outreach indicates that servicers generally would not treat 
borrowers who are behind by three or fewer payments as seriously 
delinquent. More specifically, servicers contacted by the Bureau during 
outreach, when asked about policies for referring a loan for 
foreclosure, uniformly told the Bureau that they generally would not 
initiate foreclosure in cases where a borrower is making regular 
payments, even if such a borrower has a long-standing delinquency of up 
to three months' payments. In addition, Fannie Mae and Freddie Mac 
guidelines generally prevent servicers from initiating foreclosure if a 
loan is delinquent by fewer than four monthly payments. Therefore, the 
Bureau expects that the proposed provision will not impose meaningful 
new constraints on servicers.
3. Early Intervention Written Notices
    The Bureau is proposing to revise the scope of the exemptions from 
the ``early intervention'' requirements in Sec.  1024.39(d) for two 
groups of borrowers: those who are debtors in bankruptcy and those who 
have exercised their ``cease communication'' rights under the FDCPA. 
Servicers are currently exempt from each of Sec.  1024.39's early 
intervention requirements with respect to these two groups of 
borrowers. Under the proposed provisions, servicers would generally 
remain exempt from the ``live contact'' requirement of Sec.  1024.39(a) 
with respect to these borrowers. However, if loss mitigation options 
are available to borrowers who are debtors in bankruptcy or who have 
exercised cease communication rights under the FDCPA, the proposed 
provisions require that a servicer, with certain exceptions, provide 
them with the written early intervention notice that is generally 
required by Sec.  1024.39(b). With respect to consumers that have 
exercised their cease communication rights under the FDCPA, the 
proposal provides that servicers must provide a modified written notice 
that may not contain a request for payment and prohibits a servicer 
from providing the modified written notice more than once during any 
180-day period.
    Potential benefits and costs to consumers. As discussed in more 
detail below, the proposed provision may benefit borrowers who are in 
bankruptcy or who have exercised their cease communication rights under 
the FDCPA by providing them with information about loss mitigation 
options that could enable them to remain in their homes or avoid other 
costs associated with default on their mortgages.
    The Bureau recognizes that many borrowers affected by this 
provision will have already received early intervention communications 
prior to filing for bankruptcy or invoking FDCPA protections. Most 
homeowners that file for bankruptcy have become delinquent on their 
mortgage payments prior to filing for bankruptcy, in which case their 
servicers frequently will have been required to send early intervention 
communications prior to the filing.\300\

[[Page 74272]]

However, many borrowers filing for bankruptcy are not delinquent on 
their mortgages at the time of filing, and so under the current rule 
will not receive required communications about loss mitigation options 
if they become delinquent while in bankruptcy. Even borrowers who do 
receive an early intervention written notice prior to their bankruptcy 
filing may benefit from information about available loss mitigation 
options after filing for bankruptcy, given that the borrower's servicer 
may have changed or new options may have otherwise become available 
since the borrower initially became delinquent. Information regarding 
loss mitigation may have unique value for borrowers in bankruptcy as 
they make decisions about how best to eliminate or reorganize their 
debts.
---------------------------------------------------------------------------

    \300\ One study found that among homeowners that file for 
bankruptcy, more than 60 percent of homeowners with prime mortgages 
and more than 75 percent of homeowners with subprime mortgages 
became delinquent on their mortgages prior to filing for bankruptcy. 
Wenli Li and Michelle White, Mortgage Default, Foreclosure, and 
Bankruptcy (Nat'l Bureau of Economic Research, Working Paper No. 
15472, Nov. 2009), available at http://www.nber.org/papers/w15472.
---------------------------------------------------------------------------

    Borrowers have FDCPA protections only with respect to debt 
collectors, and a servicer generally is considered a debt collector for 
purposes of the FDCPA only if the servicer acquires servicing rights to 
a mortgage loan after the mortgage loan is in default. Therefore, at 
the time borrowers first become delinquent on a mortgage loan they do 
not have rights under the FDCPA and their servicers are thus generally 
obligated to provide early intervention communications. When servicing 
of borrowers' loans is subsequently transferred while the loans are in 
default, the borrowers have FDCPA protections with respect to the new 
servicer and may exercise cease communication rights. Because the 
initial early intervention communications came from a different 
servicer that may have offered different loss mitigation options, such 
borrowers may still benefit from information about loss mitigation 
options available from the new servicer. Because borrowers who have 
FDCPA protections will generally have a longer history of delinquency, 
they may be more likely to face difficulty making mortgage payments and 
therefore to benefit from information about loss mitigation options.
    The proposal also may impose costs on some borrowers in both groups 
who would prefer not to receive any servicer communications regarding 
their mortgage loan. Both the Bankruptcy Code's automatic stay and the 
FDCPA's cease communication right are intended to protect borrowers 
from being harassed by creditors while the borrowers are attempting to 
work through difficult financial circumstances. By requiring servicers 
to send early intervention written notices to such borrowers, the 
proposal may cause some borrowers to receive unwanted communications. 
However, the Bureau notes that the proposed provision limits the 
content and frequency of such communications so as to reduce any 
perceived harassment. Specifically, the written notice is required to 
be sent only once in any 180 day period, and in the case of borrowers 
who have exercised cease communications rights under the FDCPA, the 
written notice may not contain a request for payment. Furthermore, the 
written notice is not required to be sent to consumers in bankruptcy if 
they indicate that they intend to surrender the property.
    Potential benefits and costs to covered persons. The proposal to 
require servicers to send notices to borrowers who are in bankruptcy or 
who have sent a cease communication request under the FDCPA will result 
in certain compliance costs for non-exempt servicers. These servicers 
will incur one-time costs from changing their systems to provide early 
intervention notices to these groups of borrowers and will incur 
ongoing costs from distributing these notices to an additional 
population. The Bureau believes that most if not all servicers are 
likely to service at least some mortgages for homeowners in bankruptcy. 
Fewer servicers are likely to service mortgage loans for borrowers who 
have FDCPA rights with respect to the mortgage loan, because these 
rights are triggered only if the servicer acquired the servicing rights 
at a time when the mortgage loan was delinquent. Servicers that do not 
have a practice of acquiring servicing rights from others would 
therefore never become subject to the FDCPA and are not affected by the 
proposed changes.
    The Bureau expects that the one-time costs of the proposed 
provision will be small with respect to borrowers in bankruptcy. 
Servicers currently are required to identify borrowers in bankruptcy, 
and under the proposal servicers may send the same written early 
intervention notice to borrowers in bankruptcy that they send to any 
other borrower. Therefore, the Bureau expects that servicers will need 
to make only minor changes to their procedures to begin sending early 
intervention written notices to borrowers in bankruptcy. For servicers 
that are subject to the FDCPA with respect to some borrowers, up-front 
costs may be somewhat greater, because the modified written notice for 
such borrowers includes additional disclosures that are not required 
for other borrowers. These servicers would need to develop a separate 
form of notice that complies with the proposed provision and change 
their systems to insure that this form is sent to borrowers who have 
exercised their cease communication rights. The Bureau notes that the 
proposal would mitigate these costs by providing a model clause for the 
specific disclosures required in the modified written notice.
    Servicers will also incur ongoing costs from the requirement to 
distribute notices to these additional groups of borrowers. However, 
the Bureau believes that the number of additional notices that would be 
required as a result of the proposal is relatively small. With respect 
to borrowers in bankruptcy, FHFA data indicate that for homeowners with 
GSE loans, between 0.4 percent and 0.5 percent of borrowers were in 
bankruptcy during 2013.\301\ Based on information from industry and 
other Federal agencies, the Bureau believes that the percentage of 
homeowners with non-GSE loans in bankruptcy may be higher, but that the 
overall percentage of homeowners with mortgage loans in bankruptcy is 
less than 1 percent. The Bureau expects that the share of borrowers who 
have exercised the FDCPA cease communication right is likely relatively 
small, since the right is available only to borrowers for whom the 
servicer acquired servicing rights after the loan is in default.
---------------------------------------------------------------------------

    \301\ Fed. Housing Fin. Agency, Foreclosure Prevention Report, 
at 6 (January 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportJan2014FINAL.pdf.
---------------------------------------------------------------------------

4. Loss Mitigation Procedures
Notice of Complete Loss Mitigation Application
    Proposed Sec.  1024.41(c)(3) requires a servicer to provide a 
borrower a written notice promptly upon receiving the borrower's 
complete loss mitigation application, subject to certain limitations 
discussed below. The required notice would inform the borrower that the 
application is complete; the date the servicer received the complete 
application; whether a foreclosure sale was scheduled as of the date 
the servicer received the complete application and, if so, the date of 
that scheduled sale; the date the borrower's foreclosure protections 
began under Sec.  1024.41(f)(2) and (g); and certain other information 
regarding the borrower's

[[Page 74273]]

rights under the servicing rules. Under the proposal, a notice is not 
required if the application was not complete or facially complete more 
than 37 days before a scheduled foreclosure sale; the servicer has 
already notified the borrower under Sec.  1024.41(b)(2)(i)(B) that the 
application is complete and the servicer has not subsequently requested 
additional documents or information from the borrower to complete the 
application; or the servicer has already provided a notice approving or 
denying the application.
    Potential benefits and costs to consumers. Under the existing rule, 
servicers are not required to notify a borrower that a loss mitigation 
application is complete unless it is complete at the time the servicer 
provides the notice acknowledging receipt of an application under Sec.  
1024.41(b)(2)(i)(B). The Bureau understands based on its outreach that 
many servicers currently notify borrowers in writing once their 
applications are complete. However, such notices may not include all 
the information borrowers need to determine when the application was 
considered complete for purposes of determining their protections under 
Regulation X's mortgage servicing rules. The proposed provision is 
intended to benefit borrowers by providing them with more information 
about their application status, thereby allowing them to better protect 
their interests during the loss mitigation application process. 
Borrowers who have not yet received a notice will be able to infer that 
their applications are not yet complete and, if necessary, to follow up 
with the servicer to determine what remains missing. Once borrowers 
have received the notice, they will know that the servicer is 
prohibited from completing the foreclosure process until the 
application has been evaluated and will be able to plan based on the 
expectation that a decision will be reached within 30 days (unless the 
servicer determines that more information is needed). The notice will 
also provide the borrower, the servicer's compliance function, 
regulators, and courts with a written record that can help them 
evaluate a servicer's compliance with Sec.  1024.41(c)(1)'s 30-day 
evaluation requirement.
    The Bureau notes that several servicers informed the Bureau during 
outreach efforts that they already provide a notice informing the 
borrower that an application is complete. To the extent that servicers 
are already providing a notice that includes some of the information 
required by the proposed notice, the incremental benefit to borrowers 
of the proposed provision may be reduced.
    Potential benefits and costs to covered persons. Servicers will 
incur costs associated with changing their policies and procedures to 
ensure that they are sending notices in compliance with the proposed 
provision, and in addition will incur distribution costs associated 
with sending notices to borrowers. However, the Bureau expects that 
these costs may be less than those associated with some other 
disclosure requirements, for two reasons. First, the existing rules 
already require servicers to determine the time at which an application 
is complete; thus, servicers will not be required to make any new 
determinations in order to comply with the requirement. Second, based 
on industry outreach, the Bureau understands that many servicers are 
already sending a written notification informing applicants that their 
applications are complete, so the costs of the proposed provision will 
be limited for these servicers.
    In addition, the Bureau notes that certain provisions of the 
proposal are intended to prevent servicers from incurring unnecessary 
costs in connection with the proposed requirement. The proposal 
provides that the notice be sent ``promptly'' rather than within a 
prescribed timeframe (and states in commentary that five days would 
generally be considered reasonably prompt), thereby allowing servicers 
some flexibility in cases where it would be particularly burdensome to 
send the notice immediately. Furthermore, the notice is not required 
under certain circumstances in which a borrower would not benefit from 
the notice, including when the servicer is able to notify the borrower 
of the outcome of its evaluation before the notice is sent.
    The Bureau requests data and other information regarding servicers' 
current practices for informing borrowers that a loss mitigation 
application is complete and the incremental cost to servicers of 
complying with the proposed requirement.
Information Outside of the Borrower's Control
    The Bureau is proposing to amend Sec.  1024.41(c)(1) and add Sec.  
1024.41(c)(4) to address a servicer's obligations with respect to 
information not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, it will offer the 
borrower. The proposed provision requires a servicer to exercise 
reasonable diligence in obtaining such information. The proposed 
provision also prohibits a servicer from denying a borrower's complete 
application due to a lack of information not in the borrower's control; 
requires that a servicer inform a borrower in writing if the servicer 
is unable to complete its evaluation within 30 days of receiving a 
complete application because it lacks information from a party other 
than the borrower or the servicer; and requires that a servicer 
promptly provide the borrower written notice stating the servicer's 
determination upon receipt of missing information from a party other 
than the borrower or the servicer.
    Potential benefits and costs to consumers. Under the existing rule, 
if a servicer receives a complete loss mitigation application more than 
37 days before a foreclosure sale, the servicer must, within 30 days of 
receipt, determine what loss mitigation options, if any, it will offer 
a borrower, regardless of whether it has received required information 
not in the borrower's control. The proposed provision would benefit 
borrowers applying for loss mitigation in situations in which the 
servicer cannot determine what loss mitigation options to offer within 
30 days because it has not received necessary information from a party 
other than the servicer or the borrower, such as homeowner association 
payoff information or approval of the loan owner, investor, or mortgage 
insurance company. The proposal would reduce the impact on the borrower 
of such delays by preventing the borrower's application from being 
denied on the basis of missing information outside the borrower's 
control and ensuring that the borrower is aware of the application's 
status.
    The Bureau understands from industry outreach that servicers 
currently follow different practices in the event they have not 
received information that is outside the borrower's control 30 days 
after receipt of a complete loss mitigation application. Some servicers 
have informed the Bureau that they exceed the 30-day evaluation 
timeframe in Sec.  1024.41(c)(1) and wait to receive the information 
before making any decision on the application. One servicer informed 
the Bureau that it sends a denial notice to borrowers but also informs 
them that the servicer will reevaluate the application upon receipt of 
the third-party information. As a result, borrowers may be receiving 
confusing or conflicting messages from servicers about the status of 
their applications, and in some cases borrowers' applications for loss 
mitigation may be denied because the

[[Page 74274]]

servicer has experienced a delay in receiving required information that 
is not in the borrower's control. The proposed provision would give 
borrowers clearer information about their application status.
    Potential benefits and costs to covered persons. The proposed 
provision would benefit servicers by clarifying servicer 
responsibilities when non-borrower information has not been received 
within 30 days of receiving a complete application from the borrower 
and prevent servicers from risking non-compliance with the evaluation 
requirement in order to provide a benefit to borrowers seeking loss 
mitigation options. The proposed changes would also require servicers 
to review and perhaps change their policies applicable to gathering 
information from parties other than the borrower and informing 
borrowers of their loss mitigation decisions, which would impose one-
time costs of revising policies and systems in addition to the ongoing 
cost of providing the new notices required by the proposed provision.
    The proposed provision also may impose costs on servicers because 
the requirement not to make a determination until information outside 
of the borrower's control is obtained may delay the foreclosure process 
for a servicer that would otherwise deny an application without having 
received such information. The Bureau notes, however, that servicers 
are not required to wait for non-borrower information to make a 
determination with respect to an application if a decision can be made 
without such information. Furthermore, the Bureau understands from 
industry outreach that, in cases where investor approval has not been 
delegated to the servicer, the missing non-borrower information is 
frequently investor approval of the application. Because the investor 
ultimately bears the cost of any delay in a foreclosure proceeding, the 
investor is in the best position to weigh the cost of expediting its 
approval process against the potential delay in a foreclosure 
proceeding.
    The Bureau requests additional information regarding the frequency 
with which non-borrower information is not available to a servicer 
within 30 days of a servicer's receipt of a complete loss mitigation 
application, the types of information that may be missing at that 
point, the consequences for borrowers when this occurs, and the 
incremental cost to servicers of complying with the proposed 
requirement.
    Clarification of the 2013 RESPA Servicing Final Rule's Dual-
tracking Protections
    The Bureau is proposing revised commentary to Sec.  1024.41(g) that 
would clarify servicers' obligations with respect to Sec.  1024.41(g)'s 
prohibition against moving for foreclosure judgment or order of sale, 
or conducting a sale, during evaluation of a complete loss mitigation 
application received more than 37 days before a foreclosure sale. As 
revised, proposed comment 41(g)-1 clarifies that if, upon receipt of a 
complete loss mitigation application, a servicer or its foreclosure 
counsel fails to take reasonable steps to avoid a ruling on a pending 
motion for judgment or the issuance of an order of sale, the servicer 
must dismiss the foreclosure proceeding if necessary to avoid the sale. 
Proposed new comment 41(g)-5 would clarify that Sec.  1024.41(g) 
prohibits a servicer from conducting a foreclosure sale even if a 
person other than the servicer administers or conducts the foreclosure 
sale proceedings and that servicers must take reasonable steps to delay 
the sale until one of the conditions under Sec.  1024.41(g)(1)-(3) is 
met. The Bureau also proposing to revise comment 41(g)-3 to clarify 
servicers' obligations under Sec.  1024.41(g) when acting through 
foreclosure counsel. Similarly, the Bureau is proposing comment 
38(b)(3)(iii)-1 to clarify that policies and procedures required under 
Sec.  1024.38(b)(3)(iii) to facilitate sharing of information with 
service provider personnel responsible for handling foreclosure 
proceedings must be reasonably designed to ensure that servicer 
personnel promptly inform service provider personnel handling 
foreclosure proceedings that the servicer has received a complete loss 
mitigation application. The proposed comments, taken together, would 
clarify that, when a foreclosure sale has been scheduled but the 
servicer is evaluating a complete loss mitigation application received 
more than 37 days before the scheduled foreclosure sale, the servicer 
must take all reasonable steps to delay the foreclosure sale.
    Section 1024.41(g) is intended to protect borrowers by preventing a 
foreclosure sale from going forward while review of a complete loss 
mitigation application is pending. The proposed commentary would 
clarify the steps that servicers must take to protect borrowers from 
foreclosure when a complete loss mitigation application is pending late 
in the foreclosure process. The proposed commentary would also reduce 
servicer compliance costs by adding clarity regarding the application 
of Sec.  1024.41(g) when a foreclosure sale has been scheduled. At the 
same time, servicers would bear costs in confirming that their policies 
and procedures for foreclosures, including communication with counsel, 
meet the requirements of Sec.  1024.41(g) in light of the revised 
commentary. However, the Bureau does not believe that the proposed 
revisions would impose significant burdens on servicers because Sec.  
1024.41(g) and its existing commentary already require servicers to 
take reasonable steps to prevent a scheduled foreclosure sale from 
going forward when a timely loss mitigation application has been 
received. The proposed commentary is intended to aid servicers in 
complying with Sec.  1024.41(g) by elaborating upon and clarifying a 
servicer's obligations under the existing requirement, but does not 
impose new obligations on servicers.
    The proposed revision to comment 41(g)-1 contemplates dismissal of 
the foreclosure action if the servicer has not taken, or caused its 
foreclosure counsel to take, all reasonable affirmative steps to delay 
the foreclosure sale when a timely loss mitigation application is 
pending. The costs of dismissal may be significant in the context of a 
particular mortgage. However, the Bureau does not believe that the 
proposed comment would impose significant overall costs on servicers 
because servicers are already obligated to take reasonable steps to 
delay a foreclosure sale when a timely loss mitigation application is 
pending. Thus, servicers generally will be able to avoid the costs of 
dismissal so long as they comply with existing requirements.
Review of multiple loss mitigation applications
    Currently, Sec.  1024.41(i) requires a servicer to comply with the 
requirements of Sec.  1024.41 for only a single complete loss 
mitigation application for a borrower's mortgage loan account. The 
Bureau is proposing to revise Sec.  1024.41(i) to require servicers to 
comply with the requirements of Sec.  1024.41 each time a borrower 
submits a complete loss mitigation application, unless the servicer has 
previously complied with Sec.  1024.41 for a borrower's complete loss 
mitigation application and the borrower has been delinquent at all 
times since the borrower submitted the application.
    Potential benefits and costs to consumers. Section 1024.41's loss 
mitigation procedures are intended to protect borrowers from harm in 
connection with the process of evaluating a borrower for loss 
mitigation options and proceeding to foreclosure. As discussed in the 
2013 RESPA Servicing Final Rule, benefits to these borrowers include a 
period of 120 days

[[Page 74275]]

in which to submit a loss mitigation application before foreclosure can 
commence, restrictions on dual tracking, an appeals process for denials 
of loss mitigation applications, and consideration for all available 
loss mitigation alternatives.\302\ The proposed provision would make 
these benefits available to borrowers who complete a loss mitigation 
application, become (or remain) current following the initial 
submission of a loss mitigation application, and subsequently encounter 
difficulties making payments and desire to apply for loss mitigation 
again. The provision would thereby benefit borrowers in two general 
circumstances: First, borrowers who have previously applied for and 
received a loan modification, then subsequently have difficulty making 
payments on the modified loan (perhaps due to an unrelated hardship 
months or years after the modification), will be able to apply for loss 
mitigation under Sec.  1024.41's procedures. Second, borrowers who have 
previously applied for loss mitigation but were not offered an option 
that they chose to accept will be able to apply for loss mitigation 
under Sec.  1024.41's procedures if they become (or remain) current on 
their loan following the application.
---------------------------------------------------------------------------

    \302\ See 78 FR 10695, 10857-60 (Feb. 14, 2010).
---------------------------------------------------------------------------

    With regard to the first group, a significant percentage of the 
borrowers who receive loan modifications subsequently becomes 
delinquent. The OCC Mortgage Metrics Report indicates that for 
modifications completed since the fourth quarter of 2012, 11.5 to 13.8 
percent of modified loans were 60 or more days delinquent six months 
after modification, and 16.8 to 18.5 percent were 60 or more days 
delinquent after one year.\303\ For the HAMP program, the FHFA reports 
that as of May 2014, of 625,199 permanent modifications that became 
effective between April 2009 and May 2014, 173,791 (27.8 percent) had 
defaulted by the end of the period.\304\ These numbers suggest that a 
significant fraction of borrowers receiving loan modifications could 
potentially benefit from the proposed provision, because they would 
have the protection of Sec.  1024.41's loss mitigation procedures in 
the wake of these subsequent delinquencies. On the other hand, the 
large number of borrowers who become delinquent as soon as six months 
after completing a loan modification suggests that in many cases the 
subsequent delinquency may reflect not a new adverse event, but instead 
the failure of the modification to achieve an affordable monthly 
payment for the borrower in light of the circumstances that preceded 
the modification. To the extent that a borrower's circumstances have 
not changed significantly, a subsequent loss mitigation application may 
not yield a new option for which the borrower is eligible and that the 
borrower finds more beneficial.
---------------------------------------------------------------------------

    \303\ Fed. Reserve Sys., Office of the Comptroller of the 
Currency, OCC Mortgage Metrics Report: Disclosure of Nat'l Bank and 
Fed. Savings Ass'n Mortgage Loan Data, at 30 (Q1 2014), available at 
http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics-2014/mortgage-metrics-q1-2014.pdf.
    \304\ Fed. Housing Fin. Agency, Foreclosure Prevention Report, 
at 3 (May 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportMay2014FINAL.pdf.
---------------------------------------------------------------------------

    The Bureau does not have data indicating the number of borrowers in 
the second group--that is, those who apply for loss mitigation, are not 
approved for any option that they choose to accept, and subsequently 
become or remain current on their mortgage. The Bureau notes that the 
proposed provision may provide additional flexibility to borrowers who 
are current on their mortgage but might benefit from a loss mitigation 
option, because such borrowers could apply and determine whether they 
are eligible for loss mitigation without losing the opportunity to 
apply for loss mitigation in the future. For example, homeowners who 
are able to make their mortgage payments but would like to determine 
whether a short sale is possible would be able to apply for a short 
sale without losing the protection of Sec.  1024.41's loss mitigation 
procedures in connection with any future application for loss 
mitigation.
    The benefits to borrowers of the proposal depend on whether and 
under what circumstances investors make loss mitigation options 
available to borrowers who have completed an earlier loss mitigation 
application and perhaps received a loan modification. Section 1024.41 
does not require a servicer to make any loss mitigation options 
available to a borrower, but only governs a servicer's evaluation of a 
borrower for any loss mitigation option that is available. Many 
borrowers may not realize benefits from the proposed provision because, 
even though it may entitle them to apply for a second loan 
modification, they are not eligible to receive one. For example, Fannie 
Mae and Freddie Mac's servicing guidelines generally do not permit a 
subsequent loan modification under certain circumstances, including 
when a borrower has become 60 days delinquent within the 12 months 
after a borrower receives a prior loan modification.\305\ The Bureau 
notes, however, that for some borrowers affected by the proposal, any 
loss mitigation option provided as a result of the proposed revision 
may be the first loss mitigation option offered to that borrower, even 
if it is not the first evaluation of a complete application.
---------------------------------------------------------------------------

    \305\ See Fannie Mae Single Family 2012 Servicing Guide, Sec.  
602.05, Redefault, available at https://www.fanniemae.com/content/guide/svc031412.pdf; Freddie Mac Single Family Servicing Guide, 
Sec.  B65.14, Ineligibility for Freddie Mac Standard Modification, 
available at http://www.allregs.com/tpl/Main.aspx.
---------------------------------------------------------------------------

    Potential benefits and costs to covered persons. The proposed 
provision will impose costs on servicers by requiring them to evaluate 
certain borrowers for subsequent loss mitigation applications in 
accordance with Sec.  1024.41's requirements. Costs of complying with 
Sec.  1024.41's requirements include those arising from the 
requirements to send specific notices, comply with the rule's timelines 
for evaluation of loss mitigation applications, evaluate the borrower 
for all loss mitigation options, and under certain circumstances to 
delay initiation of foreclosure proceedings. The extent to which these 
requirements impose additional costs on servicers depends on their 
current policies with respect to subsequent loss mitigation 
applications. The Bureau has learned through its outreach efforts that 
many servicers already reevaluate borrowers who reapply for loss 
mitigation using the procedures set forth in Sec.  1024.41. To the 
extent that servicer practices already meet the requirements of the 
rule, the burden on servicers will be reduced.
    The costs imposed by the rule are also mitigated by the fact that 
servicers can determine whether any loss mitigation options are 
available to borrowers and set the eligibility criteria for any second 
loss mitigation application. To the extent that the cost of providing 
subsequent loss mitigation opportunities is significant, servicers and 
creditors will have the opportunity to revise eligibility criteria for 
borrowers who have previously been evaluated for loss mitigation 
pursuant to the servicing rules, which will reduce the cost of 
complying with the proposed provision. In addition, the requirement 
that the borrower bring the loan current before Sec.  1024.41's loss 
mitigation procedures apply to a subsequent application mitigates the 
costs of the proposed revision for servicers by limiting the risk that 
a borrower will use multiple loss mitigation applications as a way to 
postpone foreclosure.

[[Page 74276]]

Loss Mitigation Timelines and Servicing Transfers
    The Bureau is proposing Sec.  1024.41(k) to address the 
requirements applicable to loss mitigation applications pending at the 
time of a servicing transfer. Proposed Sec.  1024.41(k) clarifies that, 
subject to certain exceptions, a transferee servicer must comply with 
Sec.  1024.41's requirements within the same timeframes that were 
applicable to the transferor servicer. The proposed exceptions include 
a five-day extension of time for a transferee servicer to provide the 
written notification required by Sec.  1024.41(b)(2)(i)(B), and a 
provision ensuring that a transferee servicer that acquires servicing 
through an involuntary transfer has at least 15 days after the transfer 
to evaluate a borrower's pending complete loss mitigation application. 
The proposal also provides that if a borrower's appeal under Sec.  
1024.41(h) is pending as of the transfer date, a transferee servicer 
must evaluate the appeal if it is able to determine whether it should 
offer the borrower the loan modification options subject to the appeal; 
a transferee servicer that is unable to evaluate an appeal must treat 
the appeal as a complete loss mitigation application and evaluate the 
borrower for all loss mitigation options available to the borrower from 
the transferee servicer.
    Potential benefits and costs to consumers. The proposed provision 
is intended to benefit borrowers who have loss mitigation applications 
in process at the time their mortgage loan is transferred to another 
servicer by ensuring that the transfer does not unnecessarily delay the 
evaluation of their applications. Delays in the processing of loss 
mitigation applications can prolong a borrower's delinquency, during 
which time fees and other costs may accrue, making it more difficult 
for the borrower to recover from financial distress.
    The Bureau does not have representative data on how quickly 
servicers currently comply with the various loss mitigation 
requirements in the event of a servicing transfer, but believes that 
timelines vary significantly across servicers. The Bureau understands 
that, while some servicers may already be complying with the proposed 
timelines, others may not. To the extent that servicer practices 
already comply with the proposed provision, consumer benefits from the 
proposal will be lower.
    Potential benefits and costs to covered persons. The proposed 
provision is intended to reduce the costs to servicers that engage in 
servicing transfers of complying with the proposed provision by 
clarifying the application of loss mitigation timelines in the context 
of a servicing transfer. At the same time, while transferor and 
transferee servicers are currently required under Sec.  1024.38 to have 
policies and procedures in place to ensure the timely transfer and 
receipt of accurate data, including through the devotion of appropriate 
personnel and resources, the proposed provision would impose 
incremental costs on servicers to the extent that under their current 
transfer procedures their transfers do not comply with the proposed 
timelines. Transferor and transferee servicers both may be required to 
devote more personnel and other resources in the days or weeks before 
and after a transfer to ensure that the data is accurately transferred 
in a way that permits the transferee servicer to comply with the 
timelines with respect to all loss mitigation applications in process.
    The proposed exceptions, including extended timelines in connection 
with the initial notice confirming receipt of a loss mitigation 
application and in connection with involuntary servicing transfers, are 
intended to mitigate the costs to servicers of complying with the 
proposal in specific circumstances in which the Bureau understands that 
complying with the timelines that are otherwise applicable would be 
especially difficult. Additionally, the Bureau understands that due to 
the unique circumstances and complications that may arise in connection 
with a transfer, there may be times when, despite the transferee 
servicer's good faith efforts, it may be impracticable to comply with 
the requirements of Sec.  1024.41(c)(1) and (4) within 30 days of when 
the transferor servicer received the borrower's complete loss 
mitigation application. The proposal mitigates compliance costs in such 
circumstances by allowing that, where complying with the timelines with 
respect to evaluating complete loss mitigation applications is 
impracticable under the circumstances, the servicer must comply with 
the requirements within a reasonably prompt time, while stating in 
commentary that, in general, a reasonably prompt time would be within 
an additional five days.
    The Bureau requests data and information regarding servicer 
timelines for complying with loss mitigation requirements following a 
servicing transfer, the extent to which consumers are affected by 
delays in the loss mitigation process that result from servicing 
transfers, and the costs to servicers of complying with the proposed 
requirement.
Evaluation for Repayment Plans Based on Incomplete Applications
    The Bureau is proposing to revise Sec.  1024.41(c)(2)(iii) to 
permit a servicer to offer short-term repayment plans based upon an 
evaluation of an incomplete loss mitigation application. The proposal 
would be an exception to the general rule under Sec.  1024.41(c)(2)(i) 
that a servicer may not evaluate a borrower for loss mitigation options 
based on an incomplete application, and would parallel the existing 
exception to this rule which permits a servicer to offer a short-term 
payment forbearance program based upon an incomplete application. 
Borrowers who are evaluated for a short-term repayment plan based on an 
incomplete application would not lose their protections under Sec.  
1024.41 with respect to a subsequent loss mitigation application.
    As with the existing exception for short-term payment forbearance 
plans, the proposal is intended to benefit borrowers and servicers by 
permitting servicers to offer a short-term loss mitigation option to 
address a temporary financial setback, while preserving borrowers' loss 
mitigation protections, in situations in which completing an 
application would be time-consuming or burdensome or would 
significantly delay a decision. The proposal would not impose costs on 
borrowers because a borrower would always have the option to reject a 
short-term repayment plan based on review of an incomplete loss 
mitigation application, provide a complete loss mitigation application, 
and be reviewed for all loss mitigation options available to the 
borrower (and receive other protections) under Sec.  1024.41. 
Similarly, the proposal would impose no costs on servicers because it 
does not impose any new obligations on servicers.
5. Periodic Statement Requirements Applicable to Consumers in 
Bankruptcy.
    The Bureau is proposing to revise Sec.  1026.41(e)(5) to limit the 
circumstances in which a servicer is exempt from the periodic statement 
requirements with respect to a consumer who is a debtor in bankruptcy. 
Currently, Sec.  1026.41(e)(5) provides that a servicer is exempt from 
the requirement to provide periodic statements for a mortgage loan 
while the consumer is a debtor in bankruptcy. In general, the proposed 
revisions to Sec.  1026.41(e)(5) limit the exemption to consumers in 
bankruptcy who are surrendering the property or avoiding the lien 
securing the mortgage loan, to

[[Page 74277]]

consumers who have requested that a servicer cease providing periodic 
statements or coupon books, and in certain other circumstances. 
Notwithstanding meeting the above conditions for an exemption, the 
proposal requires servicers to provide periodic statements or coupon 
books if the consumer requests them in writing (unless a court has 
entered an order requiring otherwise) and to resume providing periodic 
statements when the consumer exits bankruptcy with respect to any 
portion of the mortgage debt that is not discharged through bankruptcy.
    Potential benefits and costs to consumers. The periodic statement 
requirements in Sec.  1026.41 are intended to benefit consumers by 
providing accurate information about payments that consumers can use to 
monitor the servicer, assert errors if necessary, and track the 
accumulation of equity so that they can effectively determine how to 
allocate income and consider options for refinancing. The proposal is 
intended to make these benefits available to consumers in bankruptcy 
who own a home subject to a mortgage and intend to retain the home 
post-bankruptcy, subject to the constraints of the Bankruptcy Code's 
automatic stay. The Bureau does not have representative data describing 
the number of consumers in the bankruptcy process that own a home and 
intend to retain it through the bankruptcy process. The FHFA reports 
that of the mortgage loans serviced for Fannie Mae and Freddie Mac, 
between 0.4 percent and 0.5 percent were in bankruptcy during 
2013.\306\ However, based on information the Bureau has received from 
servicers and other Federal agencies, the Bureau believes that the 
percentage of non-GSE loans in bankruptcy may be significantly higher.
---------------------------------------------------------------------------

    \306\ Fed. Housing Fin. Agency, Foreclosure Prevention Report, 
at 6 (Jan. 2014), available at http://www.fhfa.gov/AboutUs/Reports/ReportDocuments/ForeclosurePreventionReportJan2014FINAL.pdf.
---------------------------------------------------------------------------

    There are at least two reasons to expect that consumers who are in 
bankruptcy and intend to retain their homes are particularly likely to 
benefit from receiving periodic statements. First, consumers in 
bankruptcy have demonstrated difficulties in managing their financial 
obligations and face unique challenges in rehabilitating their 
finances. Such consumers may derive particular benefit from a reminder 
of their payment obligations and information about the status of their 
mortgages that enables them to allocate income and make other decisions 
about their finances. Second, as discussed in the section-by-section 
analysis of Sec.  1026.41(e)(5), there is evidence that some servicers 
may be especially prone to error in applying payments of consumers in 
bankruptcy, particularly in the context of Chapter 13 cases. This 
evidence indicates that it may be especially important for consumers in 
bankruptcy to be able to monitor how servicers apply their payments.
    Potential benefits and costs to covered persons. The proposed 
provision would impose costs on servicers by requiring them to modify 
systems to provide statements that show how payments are applied for 
consumers in bankruptcy, particularly those in Chapter 13 bankruptcy. 
The Bureau understands from industry outreach that the principal 
systems some servicers currently use to process and apply mortgage 
payments are not designed to accommodate payments from consumers in 
Chapter 13 bankruptcy and that many servicers account for payments from 
consumers in Chapter 13 bankruptcy using a separate system or process. 
Servicer systems for producing periodic statements are generally not 
designed to produce statements for consumers in Chapter 13 bankruptcy, 
and accounting for payments from consumers in Chapter 13 bankruptcy 
currently may not be done on a timeline that permits statements to be 
produced on a regular billing cycle. The proposed provision will 
require servicers either to modify the systems they use to process 
payments and produce periodic statements for non-bankrupt consumers so 
that those systems can accommodate consumers in Chapter 13 bankruptcy 
or to modify the systems they currently use to process payments on 
behalf of bankrupt consumers to permit them to produce periodic 
statements for consumers in Chapter 13 bankruptcy. Servicers will also 
incur additional vendor costs associated with distributing statements. 
With respect to servicers that provide consumers with coupon books, the 
proposed provision will require servicers to provide transaction 
activity and past payment application information to consumers upon a 
consumer's request, consistent with current Sec.  1026.41(e)(3)(iii). 
The Bureau does not believe that providing this information will impose 
significant new costs on servicers that provide coupon books because 
the Bureau understands that the vast majority of servicers would 
already be required to provide such information in response to a 
consumer's written information request pursuant to Sec.  1024.36.
    The Bureau is proposing to reduce the burden of complying with the 
proposed provision by providing model forms for periodic statements in 
bankruptcy. Model forms would lower costs to servicers by eliminating 
the need to develop compliant forms of periodic statements, and may 
also increase the overall usefulness to consumers of the periodic 
statements.
6. Periodic Statements Following Charge Off
    The Bureau proposes to add a new exemption from the requirement to 
provide periodic statements under Sec.  1026.41. The proposed exemption 
would apply to a mortgage loan that a servicer has charged off in 
accordance with loan-loss provisions if the servicer will not charge 
any additional fees or interest on the account, provided that the 
servicer must provide the consumer a final periodic statement within 30 
days of charge off or the most recent periodic statement. The proposed 
final periodic statement must convey in simple and clear terms that: 
the mortgage loan has been charged off and the servicer will not charge 
any additional fees or interest on the account; the lien on the 
property remains in place and the consumer remains liable for the 
mortgage loan obligation; the consumer may be required to pay the 
balance on the account in the future, for example, upon sale of the 
property; the balance on the account is not being canceled or forgiven; 
and the loan may be purchased, assigned or transferred.
    Potential benefits and costs to consumers. The periodic statement 
requirements in Sec.  1026.41 are intended to benefit consumers by 
providing accurate information about payments that consumers can use to 
monitor the servicer, assert errors if necessary, and track the 
accumulation of equity. Where a consumer's loan has been charged off 
and the servicer will no longer charge any additional fees or interest 
on the account, these benefits are significantly decreased. So long as 
the consumer is aware that no additional fees or interest will be 
charged, monthly statements will include no new information useful to 
the consumer, and the consumer may find it confusing and bothersome to 
continue to receive identical monthly statements. A final notice, on 
the other hand, could provide consumers with important information 
about the ongoing status of the loan and the significance of its 
status. The proposed final statement would clarify that, although the 
mortgage loan has been charged off, the obligation remains in place and 
describe the implications of the remaining lien for the consumer.
    Although periodic statements would not provide new information to 
consumers where accounts have been

[[Page 74278]]

charged off and fees and interest will no longer accrue, they may 
provide a benefit to some consumers as a reminder that the lien on the 
property remains in place. It is possible that, particularly years 
after a charge-off, a consumer (or successor in interest to the 
property securing the loan) may not realize that the obligation remains 
outstanding and the lien is still in place. A final statement that 
details the status could mitigate this issue but may not completely 
address it in all cases. This represents a potential cost of the 
proposal to some consumers. The Bureau requests additional information 
regarding the benefits to consumers of receiving periodic statements or 
other communications from the servicer about a mortgage loan, such as 
an annual reminder to the consumer of a loan's status, after the loan 
is charged off and will no longer accrue fees or additional interest.
    Potential benefits and costs to covered persons. Because the 
provision does not impose any new requirements on servicers, it would 
not impose any new costs. The proposal would benefit servicers by 
giving them the option to send a final periodic statement in lieu of 
continuing to send periodic statements for charged-off mortgage loans 
when they find it less costly to do so.
7. Small Servicer Exemption
    The Bureau is proposing to amend certain criteria for determining 
whether a servicer qualifies for the small servicer exemption set forth 
under Sec.  1026.41(e)(4). The proposal provides that transactions 
serviced by the servicer for a seller financer that meet certain 
criteria would not be considered in determining whether a servicer 
qualifies as a small servicer. Under the Mortgage Servicing Rules, 
small servicers (generally, those that service, together with any 
affiliates, 5,000 or fewer mortgage loans, for all of which the 
servicer (or an affiliate) is the creditor or assignee) are exempt from 
certain mortgage servicing requirements, including Regulation Z's 
requirement to provide periodic statements for residential mortgage 
loans and several of Regulation X's requirements, including certain 
provisions related to force-placed insurance, general servicing 
policies and procedures, and communicating with borrowers about, and 
evaluation of applications for, loss mitigation options. The proposal 
would permit small servicers to maintain their small servicer status if 
they service transactions for a limited class of seller financers: 
those that provide seller financing for only one property in any 12-
month period for the purchase of a property that they own, so long as 
they did not construct a residence on the property in the ordinary 
course of business and the financing meets certain restrictions.
    The Bureau believes that the proposed changes would have little or 
no effect on consumers that are not parties to seller-financed 
transactions, because the Bureau expects that, in the absence of the 
proposed changes, small servicers would generally choose not to service 
seller-financed transactions in order to maintain their status as small 
servicers. The Bureau understands that the practice of servicing 
seller-financed transactions is not widespread and that depository 
institutions offering this service do not obtain significant revenue 
from the practice, but instead offer the service as an accommodation to 
depository customers that are seller financers. Thus, the Bureau does 
not expect that servicers' status as small servicers will ultimately be 
affected by the rule, meaning that the proposal would not have any 
significant effect on the number of consumers whose servicer qualifies 
for the small servicer exemption.
    Given the limited nature of servicing loans for seller financers, 
and given the Bureau's understanding that these services are offered by 
depository institutions to their customers when alternative service 
providers are generally not available, the Bureau believes that if 
seller financers are unable to obtain servicing from the depository 
institution where they do their banking then, in many cases, they are 
likely to instead service the loan themselves. Consumers who purchase 
homes from seller financers may benefit from the servicing of the loan 
by a small servicer rather than directly by the seller financer. 
Purchasers of seller-financed residential real estate, who may be 
unable to secure credit through traditional means, may benefit from a 
bank receiving scheduled periodic payments and providing an independent 
accounting as a third party to the transaction. In addition, small 
servicers may be able to process payments and perform other servicing 
activities at a lower cost than seller financers, and this cost savings 
may be passed on to purchasers of seller-financed residential real 
estate.

F. Potential Specific Impacts of the Proposed Rule

Depository Institutions and Credit Unions with $10 Billion or Less in 
Total Assets, As Described in Section 1026
    The Bureau believes that a large fraction of depository 
institutions and credit unions with $10 billion or less in total assets 
that are engaged in servicing mortgage loans qualify as ``small 
servicers'' for purposes of the Mortgage Servicing Rules because they 
service 5,000 or fewer loans, all of which they or an affiliate own or 
originated. The Bureau estimates that 96 percent of insured 
depositories and credit unions with $10 billion or less in total assets 
service 5,000 mortgage loans or fewer.\307\ The Bureau believes that 
servicers that service loans that they neither own nor originated tend 
to service more than 5,000 loans, given the returns to scale in 
servicing technology. The impact of the proposed rule on small 
servicers, which are exempt from many of the provisions of the 
servicing rules that would be affected by the proposed rule, is 
discussed below in connection with the Regulatory Flexibility Act.
---------------------------------------------------------------------------

    \307\ Based on an analysis of March 2014 Call Report data as 
compiled by SNL Financial.
---------------------------------------------------------------------------

    With respect to servicers that are not small servicers as defined 
in the Mortgage Servicing Rules, 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 that are engaged in servicing mortgage loans.
Impact of the Proposed Provisions on Consumer Access to Credit and on 
Consumers in Rural Areas
    The Bureau believes that the additional costs to servicers from the 
final rule are not likely to be extensive enough to have a significant 
impact on consumer access to credit. The exemption of small servicers 
from many provisions of the proposed rule will help maintain consumer 
access to credit through these providers.
    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

[[Page 74279]]

the benefits to consumers that the proposed rule is designed to 
provide. It is also possible, however, that a lack of alternative 
lenders in certain rural areas may make it possible for the proposed 
rule to provide rural consumers with greater benefits than consumers 
elsewhere.
    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.

VII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis 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.\308\ The Bureau also is subject to certain 
additional procedures under the RFA involving the convening of a panel 
to consult with small business representatives prior to proposing a 
rule for which an IRFA is required.\309\
---------------------------------------------------------------------------

    \308\ 5 U.S.C. 601 et seq.
    \309\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    An IRFA is not required for this proposal because the proposal, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities.

A. Application of the Proposed Rule to Small Entities

    The analysis below evaluates the potential economic impact of the 
proposed rule on small entities as defined by the RFA.\310\ The 
analysis uses as a baseline the Mortgage Servicing Final Rules as 
currently in effect. The Bureau has identified five categories of small 
entities that may be subject to the proposed rule for purposes of the 
RFA: Commercial banks/savings institutions (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 $550 million or less in assets. Firms providing 
real estate credit are small businesses if average annual receipts do 
not exceed $38.5 million, and firms engaged in other activities related 
to credit intermediation are small businesses if their average annual 
receipts do not exceed $20.5 million. A small non-profit organization 
is any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.
---------------------------------------------------------------------------

    \310\ 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 not-for-profit organizations, and 
small government jurisdictions. 5 U.S.C. 601(6). A ``small 
business'' is determined by application of Small Business 
Administration regulations and reference to the North American 
Industry Classification System (``NAICS'') classifications and size 
standards. 5 U.S.C. 601(3). A ``small organization'' is any ``not-
for-profit enterprise which is independently owned and operated and 
is not dominant in its field.'' 5 U.S.C. 601(4). A ``small 
governmental jurisdiction'' is the government of a city, county, 
town, township, village, school district, or special district with a 
population of less than 50,000. 5 U.S.C. 601(5).
---------------------------------------------------------------------------

    The Bureau estimates that there are approximately 11,323 insured 
depositories (banks, thrifts and credit unions) and 1,388 non-
depositories that engage in mortgage servicing and are therefore 
subject to the Mortgage Servicing Rules.\311\ Of these, the Bureau 
estimates that approximately 9,724 depositories and 1,370 non-
depositories are ``small entities'' as defined in the RFA.\312\
---------------------------------------------------------------------------

    \311\ The estimated number of insured depositories engaged in 
mortgage servicing is based on the March 2014 Call Report data as 
compiled by SNL Financial, and the estimated number of non-
depositories is based on a special analysis of 2011 data from the 
Nationwide Mortgage Licensing System and Registry.
    \312\ The estimated number of insured depositories engaged in 
mortgage servicing that are small entities is based on the March 
2014 Call Report data as compiled by SNL Financial, and the 
estimated number of non-depositories that are ``small entities'' as 
defined in the RFA is based on data on servicer rank and portfolio 
size from Inside Mortgage Finance. Non-profits and small non-profits 
engaged in mortgage loan servicing would be included in this 
estimate if their primary activity is originating or servicing 
loans. The Bureau has not been able to separately estimate the 
number of non-profits and small non-profits engaged in loan 
servicing.
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    The large majority of these small entities qualify as ``small 
servicers'' for purposes of the Mortgage Servicing Rules: Generally, 
servicers that service 5,000 or fewer mortgage loans, all of which the 
servicer or affiliates own or originated. The Bureau estimates that, 
among 11,094 small entities subject to the Mortgage Servicing Rules, 
all but approximately 19 depositories and all but approximately 55 non-
depositories (collectively, approximately 0.6% of all small entities 
subject to the Mortgage Servicing Rules) service 5,000 loans or 
fewer.\313\ The Bureau does not have data to indicate whether these 
institutions service loans that they do not own and did not originate. 
However, as discussed in the 2013 RESPA Servicing Final Rule, the 
Bureau believes that a servicer that services 5,000 loans or fewer is 
unlikely to service loans that it did not originate, because a servicer 
that services loans for others is likely to see servicing as a stand-
alone line of business and would likely need to service substantially 
more than 5,000 loans to justify its investment in servicing 
activities.\314\
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    \313\ For insured depositories, the estimate is based on an 
analysis of the March 2014 Call Report data as compiled by SNL 
Financial. For depository institutions that are ``small entities'' 
as defined in the RFA, the Bureau estimates that all but 4 percent 
service 5,000 loans or fewer. Assuming a similar relationship 
between servicing revenue and loan counts holds for non-depository 
servicers, all but 4 percent of non-depository servicers that are 
small entities, or approximately 55 entities, would service 5,000 
loans or less. The Bureau's methodology for these estimates is 
described in more detail in the 2013 RESPA Servicing Final Rule, 78 
FR 10695, 10866 (Feb. 14, 2013).
    \314\ 78 FR 10695, 10866 (Feb. 14, 2013).
---------------------------------------------------------------------------

    Small servicers are exempt from many of the servicing provisions of 
Regulation X and Regulation Z. Pursuant to Sec.  1024.30, small 
servicers are exempt from Regulation X's general servicing policies and 
procedures requirements (Sec.  1024.38), early intervention and 
continuity of contact requirements (Sec. Sec.  1024.39 and 1024.40), 
and all loss mitigation procedures requirements of Sec.  1024.41 other 
than Sec.  1024.41(j), which makes applicable to small servicers Sec.  
1024.41(f)(1)'s prohibition on initiating foreclosure proceedings 
unless a borrower is more than 120 days delinquent and prohibits 
servicers from initiating foreclosure proceedings while a borrower is 
performing pursuant to the terms of an agreement on a loss mitigation 
option. Similarly, pursuant to Sec.  1026.41(e)(4), small servicers are 
exempt from Regulation Z's requirement to provide periodic statements 
for residential mortgage loans pursuant to Sec.  1026.41.
    Given the Bureau's estimate that all but approximately 0.6 percent 
of small entities subject to the rule are small servicers, the proposed 
provisions that amend sections of Regulation X and Regulation Z from 
which small servicers are exempt will not have any economic impact on a 
substantial number of small entities. Most provisions of the proposed 
rule would amend Sec. Sec.  1024.38 through 1024.41 and Sec.  1026.41, 
and would therefore not affect small servicers.
    In addition, certain provisions of the proposed rule would apply to 
small servicers but would reduce servicer compliance costs by relaxing 
the existing rules. This includes changes to the commentary to Sec.  
1024.36 to reduce disclosure requirements when a borrower requests 
information about ownership of a GSE loan; an additional exception to 
Sec.  1024.41(f)(1)'s 120-day

[[Page 74280]]

pause on initiating foreclosure proceedings for a servicer joining the 
foreclosure action of a senior lienholder; and revisions to the 
definition of small servicer in Sec.  1026.41(e)(4)(iii) that would 
permit small servicers to service loans for seller financers under 
certain circumstances.
    There are three provisions of the proposed rule that do apply to 
small servicers and could potentially impose new costs on a substantial 
number of small entities: (1) Proposed provisions related to successors 
in interest, which would extend the protections of all the Mortgage 
Servicing Rules, including certain provisions from which small 
servicers are not exempt, to successors in interest; (2) the definition 
of delinquency in proposed Sec.  1024.31, which may affect the scope of 
the 2013 RESPA Servicing Final Rule's prohibition on initiating 
foreclosure proceedings unless a borrower's mortgage loan obligation is 
more than 120 days delinquent; and (3) a minor revision to the content 
of force-placed insurance notices required by Sec.  1024.37(c). The 
following sections of this part discuss in greater detail the potential 
impact of these three provisions of the proposed rule on small 
servicers.

B. Successors in Interest

    The Bureau is proposing rule changes that would impose new 
requirements on mortgage servicers with respect to successors in 
interest. For purposes of the proposed provision, successors in 
interest would include individuals who acquired property securing a 
mortgage loan in a transfer protected by the Garn-St Germain Act, 
including individuals who acquired an ownership interest in the 
property securing a mortgage loan in transfers resulting from the death 
of the borrower or through transfers to the borrower's spouse or 
children, transfers incident to divorce, and certain other transfers. 
The proposed provisions relate to how mortgage servicers confirm a 
successor in interest's identity and ownership interest in the 
property, and apply the Mortgage Servicing Rules to successors in 
interest whose identity and ownership interest in the property have 
been confirmed by the servicer.
    Small servicers currently must comply with some, but not all, of 
the Mortgage Servicing Rules, and the proposed changes would require 
small servicers to comply with that same set of rules with respect to 
confirmed successors in interest. Small servicers must comply with 
Regulation X's requirements regarding general disclosure requirements 
(Sec.  1024.32), mortgage servicing transfers (Sec.  1024.33), timely 
escrow payments and treatment of escrow account balances (Sec.  
1024.34), error resolution procedures (Sec.  1024.35), requests for 
information (Sec.  1024.36), and force-placed insurance (Sec.  1024.37) 
and the prohibition on initiating foreclosure proceedings if a 
borrower's mortgage loan obligation is not more than 120 days 
delinquent or if a borrower is performing pursuant to the terms of an 
agreement on a loss mitigation option (Sec.  1024.41(f)(1) and (j)), 
and with Regulation Z's requirements regarding ARM disclosures (Sec.  
1026.20(c) and (d)) and regarding payment processing, the prohibition 
on pyramiding of late fees, and the requirement to provide payoff 
statements (Sec.  1026.36(c)). The proposed provision requires small 
servicers to comply with each of these provisions with respect to 
successors in interest once a servicer has confirmed the successor in 
interest's identity and ownership interest in the property.
    The Bureau does not believe that the application of these 
requirements to confirmed successors in interest would have a 
significant impact on the small entities subject to the Mortgage 
Servicing Rules. While the Bureau does not have representative data on 
the number of loans that are serviced by small servicers and for which 
the underlying property has been transferred to a successor in 
interest, the Bureau expects that such loans make up a small fraction 
of the total loans serviced by any small servicer. The proposed 
provision would not require small servicers to develop new policies and 
procedures, but rather to continue to apply existing policies and 
procedures for servicing loans subject to the servicing rules to what 
the Bureau believes is a relatively small set of loans previously 
subject to the Mortgage Servicing Rules before the interest in the 
property was transferred to a successor in interest.
    In addition, given that under the Garn-St Germain Act small 
servicers are effectively obligated to service loans secured by 
property that has been transferred to a successor in interest, there 
are reasons to expect that many small servicers are servicing such 
loans using the same policies and procedures that they use to service 
other mortgage loans that are already subject to the Mortgage Servicing 
Rules. Given that there are fixed costs associated with developing 
servicing policies and procedures and systems to implement those 
policies and procedures, it may be less costly for servicers to apply 
the same policies and procedures with respect to successors in interest 
that they apply to all other loans they service, rather than developing 
separate policies, procedures and systems to service loans for 
successors in interest. Moreover, as discussed in the 2013 RESPA 
Servicing Final Rule and the 2013 TILA Servicing Final Rule, the Bureau 
believes that small servicers generally depend on a ``relationship''-
based business model that depends on repeat business and could suffer 
significant harm from any major failure to treat customers properly 
because small servicers are particularly vulnerable to ``word of 
mouth.'' \315\ A servicer that had a practice of servicing loans for 
confirmed successors in interest using lower standards than those used 
to service other loans would risk reputational harm and an associated 
loss of business.
---------------------------------------------------------------------------

    \315\ 78 FR 10696, 10843 (Feb. 14, 2013); 78 FR 10902, 10978 
(Feb. 14, 2013).
---------------------------------------------------------------------------

    Small servicers would also be subject to proposed Sec.  1024.36(i), 
which requires a servicer to respond to a written request that 
indicates that the person making the request may be a successor in 
interest by providing the person with information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. Small servicers would be required 
to treat the person making the request as a borrower for the purposes 
of the procedural requirements of Sec.  1024.36(c) through (g)--that 
is, for instance, the servicer would be required to acknowledge receipt 
of the request within five days and respond within 30 or 45 days 
without charge. However, because small servicers are exempt from Sec.  
1024.38, they would not be subject to proposed Sec.  1024.38(b)(1)(vi), 
which requires servicers to have policies and procedures in place to 
identify and facilitate communication promptly with potential 
successors in interest, to provide promptly upon request a description 
of what documents the servicer reasonably requires to confirm the 
person's status, and, upon the receipt of such documents, notify the 
person promptly, as applicable, that the servicer has confirmed the 
person's status, has determined that additional documents are required 
(and what those documents are), or has determined that the person is 
not a successor in interest. Therefore, the proposal would not require 
small servicers to make any changes to their policies and procedures 
for identifying successors, but only to communicate to potential 
successors, using the same procedures they use to respond to other 
borrower requests, what documents they require to confirm a person's 
status as a successor in interest. Because small servicers will 
typically already know what documents

[[Page 74281]]

they require, are not subject to the requirement only to request 
documents that are reasonably required to determine a person's status, 
and will already have procedures in place for responding to borrower 
requests generally, the Bureau believes that the costs to small 
servicers of complying with Sec.  1024.36(i) will be minimal.

C. Definition of Delinquency

    The Bureau is proposing to add a general definition of delinquency 
in Sec.  1024.31 that would apply to all sections of subpart C of 
Regulation X, replacing the existing definition of delinquency for 
purposes of Sec. Sec.  1024.39 and 1024.40(a). Under the proposal, 
delinquency is defined as a period of time during which a borrower and 
the borrower's mortgage loan obligation are delinquent, and a borrower 
and a borrower's mortgage loan obligation are delinquent beginning on 
the day a periodic payment sufficient to cover principal, interest, 
and, if applicable, escrow, became due and unpaid, until such time as 
the payment is made. Proposed comment 31 (Delinquency)-2 clarifies 
that, if a servicer applies payments to the oldest outstanding periodic 
payment, the date of the borrower's delinquency must advance 
accordingly. The Bureau understands from its outreach that the majority 
of servicers credit payments made to a delinquent account to the oldest 
outstanding periodic payment. The Bureau also understands that some 
servicers that use this method may be concerned about how to calculate 
the length of a borrower's delinquency without increased certainty from 
the Bureau.\316\
---------------------------------------------------------------------------

    \316\ See Am. Bankers Ass'n. Letter to Consumer Fin. Prot. 
Bureau (Oct. 24, 2014), available at http://www.aba.com/Advocacy/commentletters/Documents/ABALetterRollingDelinquencies102414.pdf.
---------------------------------------------------------------------------

    The Bureau believes that the proposed provision will clarify the 
application of the servicing rules--thereby reducing the costs to small 
servicers of complying with the rules--without imposing significant new 
burdens on servicers. The Bureau recognizes that, in principle, the 
proposed provision could affect the circumstances under which a 
servicer may initiate foreclosure proceedings, because the definition 
of ``delinquency'' affects the application of Sec.  1024.41(f)(1)'s 
prohibition on initiating foreclosure proceedings unless ``a borrower's 
mortgage loan obligation is more than 120 days delinquent.'' \317\ In 
particular, the proposed provision would prohibit a servicer that 
otherwise applies payments to the oldest outstanding periodic payment 
from initiating foreclosure proceedings unless the borrower has missed 
the equivalent of four monthly payments. In contrast, the existing rule 
could be interpreted to permit the servicer to commence foreclosure 
even if the borrower has missed only one payment, so long as the 
payment was missed at least 120 days ago and the borrower has not 
become current since. However, information gathered in industry 
outreach indicates that the majority of servicers generally do not 
initiate foreclosure proceedings in the case of consumers that are 
behind by three or fewer payments. In addition, Fannie Mae and Freddie 
Mac servicing guidelines generally prevent servicers from initiating 
foreclosure if a loan is delinquent by fewer than four monthly 
payments. For servicers that do not apply payments to the oldest 
outstanding periodic payment, the proposal would not affect their 
application of the 120-day rule.
---------------------------------------------------------------------------

    \317\ Small servicers, while otherwise exempt from the 
provisions of Sec.  1024.41, are not exempt from Sec.  1024.41(f)(1) 
pursuant to Sec.  1024.41(j).
---------------------------------------------------------------------------

    In addition, the Bureau believes that it is particularly unlikely 
that a small servicer would initiate foreclosure proceedings with 
respect to a borrower who is not at least four payments behind. As the 
Bureau stated in the 2013 RESPA Servicing Final Rule, the vast majority 
of small servicers are community banks and credit unions that generally 
maintain a ``relationship'' model that depends on repeat business and 
are particularly vulnerable to reputational harm from a failure to 
treat customers well. The Bureau believes that such servicers would be 
particularly unlikely to initiate foreclosure proceedings in a case 
where a consumer had fallen behind by a few mortgage payments but 
continued to make regular payments going forward. For these reasons, 
the Bureau expects that the proposed provision will not impose 
meaningful new constraints on servicers.

D. Changes to Force-Placed Insurance Notices

    The Bureau is proposing changes to force-placed insurance notices, 
which pursuant to Sec.  1024.37(c) servicers must deliver to borrowers 
before they can charge borrowers for force-placed insurance, to modify 
the prescribed notices slightly to accommodate the circumstance where a 
consumer's hazard insurance coverage is insufficient, rather than 
expiring. The proposed rule is intended to reduce the burden on 
servicers and borrowers by providing greater clarity in circumstances 
where the form of notice that is currently required does not accurately 
describe the deficiency in the borrower's insurance coverage. The 
proposed change represents a minor amendment to the required force-
placed insurance notice and the Bureau does not believe that it will 
impose any significant burden on servicers.
Certification
    Accordingly, the undersigned certifies that this proposal, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities. The Bureau requests comment on the analysis 
above and requests any relevant data.

VIII. Paperwork Reduction Act

    Certain provisions of this notice of proposed rulemaking contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (Paperwork 
Reduction Act or PRA). The collection of information contained in this 
notice of proposed rulemaking, and identified as such, has been 
submitted to OMB for review under section 3507(d) of the PRA. 
Notwithstanding any other provision of law, under the PRA, the Bureau 
may not conduct or sponsor, and a person is not required to respond to, 
this information collection unless the information collection displays 
a currently valid control number.
    This proposed rule would amend 12 CFR 1024 (Regulation X), which 
implements the Real Estate Settlement Procedures Act (RESPA), and 12 
CFR 1026 (Regulation Z), which implements the Truth in Lending Act 
(TILA). Regulations X and Z currently contain collections of 
information approved by OMB. The Bureau's OMB control number for 
Regulation X is 3170-0016 and for Regulation Z is 3170-0015. 
Information collections for the proposed rule would be authorized under 
OMB control numbers 3170-0027 for Regulation X and 3170-0028 for 
Regulation Z.
    The Bureau is proposing six new information collection 
requirements, or changes to existing information collection 
requirements, in Regulation X:
    1. Proposals to require servicers to communicate with potential 
successors in interest about their requirements for confirming a 
successor in interest's identity and interest in the property and to 
treat successors in interest as borrowers for purposes of Regulation 
X's mortgage servicing rules.
    2. Minor changes to force-placed insurance notices to address the 
circumstance in which a borrower's hazard insurance coverage is

[[Page 74282]]

insufficient (rather than expired) and permit the consumer's account 
number to be included on the notice.
    3. Provisions requiring servicers to provide early intervention 
written notices to consumers in bankruptcy and to consumers who have 
provided the servicer with a cease communications notice under the 
FDCPA.
    4. Requirement that servicers provide a notice to consumers when a 
loss mitigation application is complete.
    5. Requirement that servicers provide a notice to consumers if 
their determination with respect to a loss mitigation application is 
delayed beyond a date that is 30 days after receipt of a complete loss 
mitigation application because information from third parties required 
to evaluate the application has not been submitted.
    6. Requirement that servicers comply with the loss mitigation 
provisions of RESPA with respect to multiple loss mitigation 
applications from the same borrower. Servicers that offer loss 
mitigation options in the ordinary course of business are required to 
follow certain procedures when evaluating loss mitigation applications, 
including (1) providing a notice telling the borrower if the loss 
mitigation application 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 
second liens encumbering the property that is the subject of the loss 
mitigation application copies of the loss mitigation application.
    The Bureau is also proposing two new information collection 
requirements, or changes to existing information collection 
requirements, in Regulation Z:
    7. Proposals requiring servicers to treat successors in interest as 
consumers for purposes of Regulation Z's mortgage servicing rules.
    8. Requirement that servicers provide periodic statements to 
consumers in bankruptcy.
    These information collections would be required to provide benefits 
for consumers and would be mandatory. See 15 U.S.C. 1601 et seq.; 12 
U.S.C. 2601 et seq. Because the Bureau does not collect any 
information, no issue of confidentiality 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.\318\
---------------------------------------------------------------------------

    \318\ 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 proposed rule, the Bureau accounts for the entire 
paperwork burden for respondents under Regulation X. The Bureau 
generally also accounts for the paperwork burden associated with 
Regulation Z for the following respondents pursuant to its 
administrative enforcement authority: Insured depository institutions 
with more than $10 billion in total assets, their depository 
institution affiliates, and certain nondepository institutions. The 
Bureau and the FTC generally both have enforcement authority over 
nondepository institutions for Regulation Z. Accordingly, the Bureau 
has allocated to itself half of the estimated burden to nondepository 
institutions. Other Federal agencies are responsible for estimating and 
reporting to OMB the total paperwork burden for the institutions for 
which they have administrative enforcement authority. They may, but are 
not required to, use the Bureau's burden estimation methodology.
    Using the Bureau's burden estimation methodology, the Bureau 
believes the total estimated industry burden under Regulation X for the 
approximately 12,711 respondents subject to the proposed rule would be 
approximately 67,000 hours for one time changes and 64,000 hours 
annually. Using the Bureau's burden estimation methodology, the total 
estimated industry burden under Regulation Z for the approximately 
12,711 banks, savings institutions, credit unions, and mortgage 
companies subject to the proposed rule, including Bureau 
respondents,\319\ is approximately 2,900 hours for one-time changes and 
8,300 hours annually. The estimates presented in this part VIII 
represent weighted averages across respondents. The Bureau expects that 
the amount of time required to implement each of the changes for a 
given institution may vary based on the size, complexity, and practices 
of the respondent. 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.
---------------------------------------------------------------------------

    \319\ For purposes of this PRA analysis, the Bureau's depository 
respondents with respect to the proposed changes to Regulation Z are 
120 depository institutions and depository institution affiliates 
that service closed-end consumer mortgages. The Bureau's non-
depository respondents are an estimated 1,388 non-depository 
servicers. Unless otherwise specified, all references to burden 
hours and costs for the Bureau respondents for the collection 
requirements under the proposed changes to Regulation Z are based on 
a calculation of the burden from all of the Bureau's depository 
respondents and half of the burden from the Bureau's non-depository 
respondents.
---------------------------------------------------------------------------

    For purposes of this PRA analysis, the Bureau estimates that there 
are 11,323 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--Regulation X

    The Bureau believes the following aspects of the proposed rule 
would be information collection requirements under the PRA.
1. Successors in Interest
    Under the Bureau's proposal, servicers would be required (1) to 
respond to a written request from a person that indicates that the 
person may be a successor in interest by providing that person with 
information regarding what documents the servicer requires to confirm 
the person's identity and ownership interest in the property and (2) to 
have policies and procedures to ensure that the servicer can provide 
promptly upon request a description of what documents the servicer 
reasonably requires to confirm the person's identity and ownership 
interest in the property, and, upon the receipt of such documents, 
notify the person promptly, as applicable, that the servicer has 
confirmed the person's status, has determined that additional documents 
are required (and what those documents are), or has determined that the 
person is not a successor in interest. Servicers would also be subject 
to Regulation X's requirements, including loss mitigation requirements, 
with respect to successors in interest.
    All respondents would have a one-time burden under this proposed

[[Page 74283]]

requirement associated with reviewing the regulation. Certain 
respondents will have one-time burden in hours from training personnel 
in compliance with the proposed requirement. The Bureau estimates that 
one-time hourly burden to comply with the proposed disclosure 
requirements to be four hours and forty minutes, 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 10 minutes and $0.37, on average, 
for each respondent.
2. Changes to Force-Placed Insurance Disclosures
    The proposed rule makes minor changes to the content of required 
force-placed insurance notices, which are required before a servicer 
may charge a borrower for force-placed insurance.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. All respondents will also 
have one-time burden in hours or vendor costs from changing existing 
systems to accommodate the required new disclosure. The Bureau 
estimates that one-time hourly burden to comply with the proposed 
disclosure requirements to be 20 minutes and $70, on average, per 
respondent.
    Because the content of the required notices would not change 
substantially under the proposed rule and the circumstances under which 
the disclosures are required would not change, there would not be an 
ongoing burden under the proposed rule.
3. Early Intervention Written Notices
    The proposed rule requires that servicers send written early 
intervention notices to consumers in bankruptcy and consumers who have 
exercised their cease communication rights under the FDCPA. For 
consumers in bankruptcy, the servicer would be required to send the 
same early intervention notice that is required to be sent to other 
consumers. However, for notices sent to consumers who have exercised 
their FDCPA cease communication rights, the notices would be subject to 
certain additional requirements. Note that consumers have rights under 
the FDCPA only with respect to accounts that were delinquent at the 
time the servicer acquired the servicing rights. Therefore, servicers 
that do not acquire servicing rights in the course of their business 
would not be subject to the rule's requirements.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents will have 
one-time burden in hours or vendor costs from changing existing systems 
to accommodate the required new disclosure. The Bureau estimates that 
one-time hourly burden to comply with the proposed disclosure 
requirements to be one hour and 40 minutes, 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 four hours and $446, on average, 
for each respondent.
4. Notice of Complete Loss Mitigation Application
    The Bureau's proposal requires a servicer to provide a written 
notice to a borrower promptly upon receiving the borrower's complete 
application. The Bureau understands that the practice of providing 
borrowers with a written notice informing them that their loss 
mitigation application is complete is a common business practice (i.e., 
a ``usual and customary'' business practice) today for most mortgage 
servicers. However, the Bureau understands that the specific content of 
the proposed notices may not reflect common practices.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. In addition, while the Bureau 
considers borrower notifications that loss mitigation applications are 
complete 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 three hours, on average, 
for each respondent.
5. Notice Regarding Outstanding Third-Party Information
    The proposed rule requires written notice to borrowers if, thirty 
days following submission of a complete loss mitigation application, 
the servicer has not received information from a party other than the 
servicer or the borrower and is necessary to evaluate the application.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents will have 
one-time burden in hours or vendor costs from creating software and 
information technology capability to produce the proposed disclosure. 
The Bureau estimates that one-time hourly burden to comply with the 
proposed disclosure requirements to be three 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 10 minutes and $13, on average, for 
each respondent.
6. Requirement To Evaluate Multiple Loss Mitigation Applications
    Currently, servicers (other than small servicers) are required to 
comply with the loss mitigation provisions of Sec.  1024.41 only once 
during the life of a loan, including the provision of up to three 
notices per loss mitigation application. Under the proposed rule, 
servicers would be required to comply with the loss mitigation 
provisions of Sec.  1024.41 for borrowers who have previously completed 
a loss mitigation application, so long as the borrower has become 
current in the period following the completion of the application.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents would 
have one-time burden from revising their systems to provide for 
evaluation of borrowers for subsequent loss mitigation applications. 
The Bureau estimates this one-time burden to be 40 minutes, on average, 
for each respondent. The Bureau estimates the ongoing burden to be 121 
hours and $213, on average, for each respondent.

B. Information Collection Requirements--Regulation Z

1. Successors in Interest Under Regulation Z
    Under the Bureau's proposal, servicers would be subject to 
Regulation Z's requirements with respect to successors in interest. All 
respondents would have a one-time burden under this proposed 
requirement associated with reviewing the regulation. The

[[Page 74284]]

Bureau estimates that one- time hourly burden to comply with the 
proposed disclosure requirements to be 10 minutes, on average, per 
respondent.
    Certain 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 10 minutes and $7, on average, for 
each respondent.
2. Periodic Statements
    Under the proposed rule, all respondents would be required to 
provide periodic statements to certain borrowers in bankruptcy.
    All respondents would have a one-time burden under this requirement 
associated with reviewing the regulation. Certain respondents will have 
one-time burden in hours or vendor costs from changing existing systems 
to produce the required new disclosure. The Bureau estimates that one-
time hourly burden to comply with the proposed disclosure requirements 
to be 18 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. Certain 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 53 hours and $5,270, on 
average, for each respondent.

C. Summary of Burden Hours--Regulation X

    The estimated burden on Bureau respondents from the proposed 
changes to Regulation X is summarized below. Under the proposed rule, 
the Bureau accounts for the entire paperwork burden for respondents 
under Regulation X.

----------------------------------------------------------------------------------------------------------------
                                                    Disclosures    Hours burden    Total burden    Total vendor
                                    Respondents   per respondent  per disclosure       hours           costs
----------------------------------------------------------------------------------------------------------------
Ongoing                           ..............  ..............  ..............  ..............  ..............
    Successors in                         12,711               6           0.013           1,086          $4,731
     Interest_Regulation X......
    Force-Placed Insurance......          12,711               0           0                   0               0
    Early Intervention Written               502           1,487           0.003           2,239         223,890
     Notices....................
    Notice of Complete Loss                  502               0           0                   0               0
     Mitigation Application.....
    Third-Party Information.....             502              52           0.003              67           6,681
    Loss Mitigation_Subsequent               502             837           0.144          60,571         107,100
     Applications...............
One-Time                          ..............  ..............  ..............  ..............  ..............
    Successors in                         12,711               1           4.7            59,742               0
     Interest_Regulation X......
    Force-Placed Insurance......          12,711               1           0.269           3,418         879,048
    Early Intervention Written               502               1           1.695             851               0
     Notices....................
    Notice of Complete Loss                  502               1           2.640           1,326               0
     Mitigation Application.....
    Third-Party Information.....             502               1           2.690           1,351               0
    Loss Mitigation_Subsequent               502               1           0.578             290               0
     Applications...............
----------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.

D. Summary of Burden Hours--Regulation Z

    The estimated burden on Bureau respondents from the proposed 
changes to Regulation Z is summarized below. The Bureau accounts for 
the paperwork burden associated with Regulation Z for the following 
respondents pursuant to its administrative enforcement authority: 
Insured depository institutions with more than $10 billion in total 
assets, their depository institution affiliates, and certain 
nondepository institutions. The Bureau and the FTC generally both have 
enforcement authority over nondepository institutions for Regulation Z. 
Accordingly, the Bureau has allocated to itself half of the estimated 
burden to nondepository institutions.

----------------------------------------------------------------------------------------------------------------
                                                                                   Total burden    Total vendor
                                      Bureau        Disclosures    Hours burden      hours for       costs for
                                    respondents     per bureau    per disclosure      bureau          bureau
                                                    respondent                      respondents     respondents
----------------------------------------------------------------------------------------------------------------
Ongoing                           ..............  ..............  ..............  ..............  ..............
    Successors in                            814              24           0.003              56          $5,678
     Interest_Regulation Z......
    Periodic Statements in                   157          29,521           0.002           8,247        $824,670
     Bankruptcy.................
One-Time                          ..............  ..............  ..............  ..............  ..............
    Successors in                            814               1           0.05               41              $0
     Interest_Regulation Z......
    Periodic Statements in                   157               1          17.835           2,791              $0
     Bankruptcy.................
----------------------------------------------------------------------------------------------------------------
Totals may not be exact due to rounding.

E. 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. 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

[[Page 74285]]

Protection Bureau (Attention: PRA Office), 1700 G Street NW., 
Washington, DC 20552, or by the Internet to [email protected].

List of Subjects

12 CFR Part 1024

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

12 CFR Part 1026

    Advertising, Consumer protection, Credit, Credit unions, Mortgages, 
National banks, Reporting and recordkeeping requirements, Reporting, 
Savings associations, Truth in lending.

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau proposes to 
amend 12 CFR parts 1024 and 1026 as follows:

PART 1024--

    REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)

0
1. The authority citation for part 1024 continues to read as follows:

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

Subpart C--

    Mortgage Servicing
0
2. Section 1024.30 is amended by adding paragraph (d) to read as 
follows:


Sec.  1024.30  Scope.

* * * * *
    (d) Successors in interest. A successor in interest shall be 
considered a borrower for the purposes of this subpart once a servicer 
confirms the successor in interest's identity and ownership interest in 
a property that secures a mortgage loan covered by this subpart.
0
3. Section 1024.31 is amended by adding definitions of Delinquency and 
Successor in interest in alphabetical order to read as follows:


Sec.  1024.31  Definitions.

* * * * *
    Delinquency means a period of time during which a borrower and a 
borrower's mortgage loan obligation are delinquent. A borrower and a 
borrower's mortgage loan obligation are delinquent beginning on the 
date a periodic payment sufficient to cover principal, interest, and, 
if applicable, escrow became due and unpaid, until such time as the 
outstanding payment is made.
* * * * *
    Successor in interest means a person to whom an ownership interest 
in a property securing a mortgage loan is transferred from a prior 
borrower, provided that the transfer falls under an exemption specified 
in section 341(d) of the Garn-St Germain Depository Institutions Act of 
1982, 12 U.S.C. 1701j-3(d).
* * * * *
0
4. Section 1024.36 is amended by adding paragraph (i) to read as 
follows:


Sec.  1024.36  Requests for information.

* * * * *
    (i) Successors in interest. With respect to any written request 
from a person that indicates that the person may be a successor in 
interest and that includes the name of the prior borrower and 
information that enables the servicer to identify that borrower's 
mortgage loan account, a servicer shall respond by providing the 
potential successor in interest with information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. With respect to the written 
request, a servicer shall treat the person as a borrower for the 
purposes of the requirements of paragraphs (c) through (g) of this 
section. If a servicer has established an address that a borrower must 
use to request information pursuant to paragraph (b) of this section, a 
servicer must comply with the requirements of this paragraph only for 
requests received at the established address.
0
5. Section 1024.37 is amended by revising paragraphs (c)(2)(v) and 
(c)(4), (d)(2)(ii) introductory text, (d)(2)(ii)(B), (d)(3) and (4), 
and (e)(4) to read as follows:


Sec.  1024.37  Force-placed insurance.

* * * * *
    (c) * * *
    (2) * * *
    (v) A statement that:
    (A) The borrower's hazard insurance is expiring, has expired, or 
provides insufficient coverage, as applicable;
    (B) The servicer does not have evidence that the borrower has 
hazard insurance coverage past the expiration date or evidence that the 
borrower has hazard insurance that provides sufficient coverage, as 
applicable; and
    (C) If applicable, identifies the type of hazard insurance for 
which the servicer lacks evidence of coverage;
* * * * *
    (4) Additional Information. Except for the mortgage loan account 
number, a servicer may not include any information other than 
information required by paragraphs (c)(2) of this section in the 
written notice required by paragraph (c)(1)(i) of this section. 
However, a servicer may provide such additional information to a 
borrower on separate pieces of paper in the same transmittal.
    (d) * * *
    (2) * * *
    (ii) Servicer not receiving demonstration of continuous coverage. A 
servicer that has received hazard insurance information after 
delivering to a borrower or placing in the mail the notice required by 
paragraph (c)(1)(i) of this section, but has not received, from the 
borrower or otherwise, evidence demonstrating that the borrower has had 
sufficient hazard insurance coverage in place continuously, must set 
forth in the notice required by paragraph (c)(1)(ii) of this section 
the following information:
* * * * *
    (B) The information required by paragraphs (c)(2)(ii) through (iv), 
(ix) through (xi), and (d)(2)(i)(B) and (D) of this section;
* * * * *
    (3) Format. A servicer must set the information required by 
paragraphs (d)(2)(i)(B) and (D) of this section in bold text. The 
requirements of paragraph (c)(3) of this section apply to the 
information required by paragraph (d)(2)(i)(C) of this section. A 
servicer may use form MS-3B in appendix MS-3 of this part to comply 
with the requirements of paragraphs (d)(1) and (d)(2)(i) of this 
section. A servicer may use form MS-3C in appendix MS-3 of this part to 
comply with the requirements of paragraphs (d)(1) and (d)(2)(ii) of 
this section.
    (4) Additional information. Except for the borrower's mortgage loan 
account number, a servicer may not include any information other than 
information required by paragraph (d)(2)(i) or (ii) of this section, as 
applicable, in the written notice required by paragraph (c)(1)(ii) of 
this section. However, a servicer may provide such additional 
information to a borrower on separate pieces of paper in the same 
transmittal.
* * * * *
    (e) * * *
    (4) Additional information. Except for the borrower's mortgage loan 
account number, a servicer may not include any information other than 
information required by paragraph (e)(2) of this section in the written 
notice required by paragraph (e)(1) of this section. However, a 
servicer may provide such additional information to a borrower on 
separate pieces of paper in same transmittal.
* * * * *

[[Page 74286]]

0
6. Section 1024.38 is amended by revising paragraph (b)(1)(vi) and 
adding paragraph (b)(2)(vi) to read as follows:


Sec.  1024.38  General servicing policies, procedures, and 
requirements.

* * * * *
    (b) * * *
    (1) * * *
    (vi)(A) Upon notification of the death of a borrower or of any 
transfer of the property securing a mortgage loan, promptly identify 
and facilitate communication with any potential successors in interest 
regarding the property;
    (B) Upon identification of a potential successor in interest, 
including through any request made by a potential successor in interest 
under Sec.  1024.36(i) or any loss mitigation application received from 
a potential successor in interest, promptly provide to the potential 
successor in interest a description of the documents the servicer 
reasonably requires to confirm that person's identity and ownership 
interest in the property and how the person may submit a written 
request under Sec.  1024.36(i) (including the appropriate address); and
    (C) Upon the receipt of such documents, promptly notify the person, 
as applicable, that the servicer has confirmed the person's status, has 
determined that additional documents are required (and what those 
documents are), or has determined that the person is not a successor in 
interest.
    (2) * * *
    (vi) Promptly identify and obtain documents or information not in 
the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, to offer the borrower in accordance 
with the requirements of Sec.  1024.41(c)(4).
* * * * *
0
7. Section 1024.39 is amended by revising paragraphs (a), (b)(1), and 
(d) to read as follows:


Sec.  1024.39  Early intervention requirements for certain borrowers.

    (a) Live contact. A servicer shall establish or make good faith 
efforts to establish live contact with a delinquent borrower not later 
than the 36th day of a borrower's delinquency, and again no later than 
36 days after each payment due date so long as the borrower remains 
delinquent. Promptly after establishing live contact, the servicer 
shall inform such borrower about the availability of loss mitigation 
options if appropriate.
    (b) Written notice--(1) Notice required. Except as otherwise 
provided in this section, a servicer shall provide to a delinquent 
borrower a written notice with the information set forth in paragraph 
(b)(2) of this section not later than the 45th day of the borrower's 
delinquency, and again no later than 45 days after each payment due 
date so long as the borrower remains delinquent. However, a servicer is 
not required to provide the written notice more than once during any 
180-day period. If the borrower is or becomes 45 days delinquent after 
any 180-day period, a servicer must provide the written notice again no 
later than 45 days after the payment due date.
* * * * *
    (d) Exemptions--(1) Borrowers in bankruptcy--(i) Live Contact. A 
servicer is exempt from the requirements of paragraph (a) of this 
section for a borrower if:
    (A) The borrower is a debtor in bankruptcy;
    (B) Any borrower on the mortgage loan is a debtor in Chapter 12 or 
Chapter 13 bankruptcy; or
    (C) The borrower has discharged personal liability for the mortgage 
loan through bankruptcy.
    (ii) Written notice. A servicer is exempt from the requirements of 
paragraph (b) of this section for a borrower if:
    (A) Any of the conditions identified in paragraph (d)(1)(i) of this 
section are satisfied and no loss mitigation options are available;
    (B) The borrower is a debtor in bankruptcy and the borrower's 
confirmed plan of reorganization provides that the borrower will 
surrender the property securing the mortgage loan, provides for the 
avoidance of the lien securing the mortgage loan, or otherwise does not 
provide for, as applicable, the payment of pre-bankruptcy arrearage or 
the maintenance of payments due under the mortgage loan;
    (C) The borrower is a debtor in bankruptcy and the borrower files 
with the court a Statement of Intention pursuant to 11 U.S.C. 521(a) 
identifying an intent to surrender the property securing the mortgage 
loan; or
    (D) The borrower is a debtor in bankruptcy and a court enters an 
order in the bankruptcy case providing for the avoidance of the lien 
securing the mortgage loan or lifting the automatic stay pursuant to 11 
U.S.C. 362 with respect to the property securing the mortgage loan.
    (2) Fair Debt Collection Practices Act. With regard to a mortgage 
loan for which a borrower has sent a notification pursuant to the Fair 
Debt Collections Practices Act (FDCPA) section 805(c) (15 U.S.C. 
1692c(c)), a servicer subject to the FDCPA with respect to that 
borrower's loan:
    (i) Is exempt from the requirements of paragraph (a) of this 
section; and
    (ii) Is exempt from the requirements of paragraph (b) of this 
section if no loss mitigation options are available; but
    (iii) Must comply with the requirements of paragraph (b) of this 
section, as modified herein, if loss mitigation options are available:
    (A) In addition to the information required pursuant to paragraph 
(b)(2) of this section, the written notice must include a statement 
that the servicer may or intends to invoke its specified remedy of 
foreclosure. Model clause MS-4(D) in appendix MS-4 to this part may be 
used to comply with this requirement.
    (B) The written notice may not contain a request for payment.
    (C) A servicer is prohibited from providing the written notice more 
than once during any 180-day period.
0
8. Section 1024.41 is amended by revising paragraph (c)(1) introductory 
text and paragraphs (c)(2)(iii) and (iv), adding paragraphs (c)(3) and 
(4), revising paragraph (f)(1)(iii) and paragraph (i), and adding 
paragraph (k) to read as follows:


Sec.  1024.41  Loss mitigation procedures.

* * * * *
    (c) * * *
    (1) Complete loss mitigation application. Except as provided in 
paragraph (c)(4)(ii) of this section, if a servicer receives a complete 
loss mitigation application more than 37 days before a foreclosure 
sale, then, within 30 days of receiving a borrower's complete loss 
mitigation application, a servicer shall:
* * * * *
    (2) * * *
    (iii) Payment forbearance. Notwithstanding paragraph (c)(2)(i) of 
this section, a servicer may offer a short-term payment forbearance 
program or a short-term repayment plan to a borrower based upon an 
evaluation of an incomplete loss mitigation application. A payment 
forbearance program or a repayment plan offered under this paragraph 
must be provided to the borrower in writing before the program or plan 
begins and must clearly specify the payment terms and duration. A 
servicer shall not make the first notice or filing required by 
applicable law for any judicial or non-judicial foreclosure process, 
and shall not move for foreclosure judgment or order of sale, or 
conduct a foreclosure sale, if a borrower is performing pursuant to the 
terms of a payment forbearance program or

[[Page 74287]]

repayment plan offered pursuant to this section. A servicer may offer a 
short-term forbearance program in conjunction with a short-term 
repayment plan under this paragraph.
    (iv) Facially complete application. A loss mitigation application 
shall be considered facially complete when a borrower submits all the 
missing documents and information as stated in the notice required 
under paragraph (b)(2)(i)(B) of this section, no additional information 
is requested in such notice, or when the servicer is required under 
paragraph (c)(3) of this section to send the borrower a notice of 
complete application. If the servicer later discovers additional 
information or corrections to a previously submitted document are 
required to complete the application, the servicer must promptly 
request the missing information or corrected documents and treat the 
application as complete for the purposes of paragraphs (f)(2) and (g) 
of this section until the borrower is given a reasonable opportunity to 
complete the application. If the borrower completes the application 
within this period, the application shall be considered complete as of 
the date it first became facially complete, for the purposes of 
paragraphs (d), (e), (f)(2), (g), and (h) of this section, and as of 
the date the application was actually complete for the purposes of 
paragraph (c). A servicer that complies with this paragraph will be 
deemed to have fulfilled its obligation to provide an accurate notice 
under paragraph (b)(2)(i)(B).
    (3) Notice of complete application. (i) Subject to paragraph 
(c)(3)(ii) of this section, upon receiving a borrower's complete loss 
mitigation application, the servicer shall promptly provide the 
borrower a written notice including the following information:
    (A) That the loss mitigation application is complete;
    (B) The date the servicer received the complete application;
    (C) Whether a foreclosure sale was scheduled as of the date the 
servicer received the complete application and, if so, the date of that 
scheduled sale;
    (D) The date the borrower's protections began under paragraph 
(f)(2) and (g) of this section, as applicable, and a concise 
description of those protections;
    (E) That the servicer expects to complete its evaluation within 30 
days of the date it received the complete application;
    (F) A statement that, although the application is complete, the 
borrower may need to submit additional information at a later date if 
the servicer determines that it is necessary; and
    (G) If applicable, that the borrower will have the opportunity to 
appeal the servicer's determination to deny the borrower for any trial 
or permanent loan modification pursuant to paragraph (h) of this 
section.
    (ii) A servicer is not required to provide the notice under 
paragraph (c)(3)(i) of this section if:
    (A) The servicer has already provided the borrower a notice under 
paragraph (b)(2)(i)(B) of this section informing the borrower that the 
application is complete and the servicer has not subsequently requested 
additional information or a corrected version of a previously submitted 
document from the borrower pursuant to paragraph (c)(2)(iv) of this 
section;
    (B) The application was not complete or facially complete more than 
37 days before a foreclosure sale; or
    (C) The servicer has already provided the borrower a notice under 
paragraph (c)(1)(ii) of this section.
    (4) Information not in the borrower's control--(i) Reasonable 
diligence. If a servicer requires documents or information not in the 
borrower's control to determine which loss mitigation options, if any, 
it will offer to the borrower, the servicer must exercise reasonable 
diligence in obtaining such documents or information.
    (ii) Effect in case of delay. (A) A servicer shall not deny a 
complete loss mitigation application solely because the servicer has 
not received documents or information not in the borrower's control.
    (B) If, 30 days after a complete application is received, the 
servicer is unable to make a determination as to which loss mitigation 
options, if any, it will offer to the borrower because the servicer 
lacks documents or information from a party other than the borrower or 
the servicer, the servicer must promptly provide the borrower a written 
notice stating:
    (1) That the servicer has not received documents or information not 
in the borrower's control that the servicer requires to determine which 
loss mitigation options, if any, the servicer will offer on behalf of 
the owner or assignee of the mortgage;
    (2) The specific documents or information that the servicer lacks;
    (3) The date on which the servicer first requested that 
documentation or information during the current loss mitigation 
application process; and
    (4) That the servicer will complete its evaluation of the borrower 
for all available loss mitigation options promptly upon receiving the 
documentation or information.
    (C) If, due to a lack of documents or information from a party 
other than the borrower or the servicer, a servicer is unable to 
determine which loss mitigation options, if any, to offer a borrower 
within 30 days of receiving a complete application, upon receiving such 
documents or information, the servicer must promptly provide the 
borrower written notice stating the servicer's determination in 
accordance with paragraph (c)(1)(ii) of this section.
* * * * *
    (f) * * *
    (1) * * *
    (iii) The servicer is joining the foreclosure action of a superior 
or subordinate lienholder.
* * * * *
    (i) Duplicative requests. A servicer must comply with the 
requirements of this section for a borrower's loss mitigation 
application, unless the servicer has previously complied with the 
requirements of this section for a complete loss mitigation application 
submitted by a borrower and the borrower has been delinquent at all 
times since the same borrower submitted the complete application.
* * * * *
    (k) Servicing Transfers--(1) In general--(i) Timing of compliance. 
Except as provided in paragraphs (k)(2) through (4) of this section, if 
a transferee servicer acquires the servicing of a mortgage loan for 
which a loss mitigation application is pending as of the transfer date, 
the transferee servicer must comply with the requirements of this 
section for that loss mitigation application within the timeframes that 
were applicable to the transferor servicer based on the date the 
transferor servicer received the loss mitigation application. Any 
protections under paragraphs (e) through (h) of this section that 
applied to a borrower before a transfer continue to apply 
notwithstanding the transfer.
    (ii) Transfer date defined. For purposes of this paragraph (k), the 
transfer date is the date on which the transfer of the servicing 
responsibilities from the transferor servicer to the transferee 
servicer occurs.
    (2) Acknowledgement notices. If a transferee servicer acquires the 
servicing of a mortgage loan for which the period to provide the notice 
required by paragraph (b)(2)(i)(B) of this section has not expired as 
of the transfer date, the transferee servicer must provide the notice 
within 10 days (excluding legal public holidays, Saturdays, and 
Sundays) of the date the transferor servicer received the loss 
mitigation application.

[[Page 74288]]

    (3) Complete loss mitigation applications pending at transfer--(i) 
In general. Except as provided in paragraph (k)(3)(ii) and (iii) of 
this section, if a transferee servicer acquires the servicing of a 
mortgage loan for which a complete loss mitigation application is 
pending as of the transfer date, the transferee servicer must comply 
with the applicable requirements of paragraphs (c)(1) and (4) of this 
section within 30 days of the date the transferor servicer received the 
complete loss mitigation application.
    (ii) Involuntary transfers--(A) Timing of evaluation. Except as 
provided in paragraph (k)(3)(iii) of this section, if a transferee 
servicer, as a result of an involuntary transfer, acquires the 
servicing of a mortgage loan for which a complete loss mitigation 
application is pending as of the transfer date, the transferee servicer 
must comply with the applicable requirements of paragraphs (c)(1) and 
(4) of this section within 30 days of the date the transferor servicer 
received the complete loss mitigation application or within 15 days of 
the transfer date, whichever is later.
    (B) Involuntary transfer defined. For purposes of Sec.  
1024.41(k)(3)(ii), a transfer is involuntary when an unaffiliated 
investor or a court or regulator with jurisdiction requires, with less 
than 30 days advance notice, the transferor servicer to transfer 
servicing to another servicer and the transferor servicer is in breach 
of, or default under, its servicing agreement for loss mitigation 
related-servicing performance deficiencies or is in receivership or 
bankruptcy.
    (iii) Compliance not practicable. If compliance with the time 
periods set forth in paragraph (k)(3)(i) or (k)(3)(ii)(A) of this 
section, as applicable, is not practicable under the circumstances, a 
transferee servicer must complete the evaluation of the complete loss 
mitigation application and provide the applicable notices required by 
paragraphs (c)(1) and (4) of this section within a reasonably prompt 
time after the expiration of the applicable time period in paragraph 
(k)(3)(i) or (k)(3)(ii)(A) of this section.
    (4) Applications subject to appeal process. If a transferee 
servicer acquires the servicing of a mortgage loan for which, as of the 
transfer date, a borrower's appeal pursuant to paragraph (h) of this 
section is pending or a borrower's time period to appeal pursuant to 
paragraph (h) of this section has not expired, the transferee servicer 
must evaluate the appeal if it is able to determine whether it should 
offer the borrower the loan modification options subject to the appeal.
    (i) Evaluating appeal. If a transferee servicer is able to evaluate 
the borrower's appeal but compliance within 30 days of when the 
borrower made the appeal is not practicable under the circumstances, a 
transferee servicer must complete the evaluation and provide the notice 
required by paragraph (h)(4) of this section within a reasonably prompt 
time after expiration of the 30-day period.
    (ii) Servicer unable to evaluate appeal. A transferee servicer that 
is unable to evaluate an appeal must treat the borrower's appeal as a 
pending complete loss mitigation application and comply with the 
requirements of this section for such application, including evaluating 
the borrower for all loss mitigation options available to the borrower 
from the transferee servicer. For purposes of paragraphs (c) or (k)(3) 
of this section, as applicable, such a pending complete loss mitigation 
application shall be considered complete as of the date the appeal was 
received. For purposes of paragraphs (e) through (h) of this section, 
the transferee servicer must treat such a pending complete loss 
mitigation application as facially complete as of the date it was 
facially complete with respect to the transferor servicer.
    (5) Pending loss mitigation offers. A transfer does not affect a 
borrower's ability to accept or reject a loss mitigation option offered 
under Sec.  1024.41(c) or (h). If a transferee servicer acquires the 
servicing of a mortgage loan for which the borrower's time period under 
Sec.  1024.41(e) or (h) for accepting or rejecting a loss mitigation 
option offered by the transferor servicer has not expired as of the 
transfer date, the transferee servicer must allow the borrower to 
accept or reject the offer during the unexpired balance of the 
applicable time period.
0
9. In Appendix MS-3 to part 1024, MS-3(A), MS-3(B), MS-3(C), and MS-
3(D) are revised to read as follows:

Appendix MS--Mortgage Servicing

Appendix MS-3 to Part 1024

Model Force-Placed Insurance Notice Forms

* * * * *

MS-3(A)--Model Form for Force-Placed Insurance Notice Containing 
Information Required By 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] [provides insufficient coverage], 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 
information. [Describe the insurance information the borrower must 
provide]. [The information must be provided in writing.]
    The insurance we [bought] [buy]:
     May be significantly more expensive than the insurance 
you can buy yourself.
     May not provide as much coverage as an insurance policy 
you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(B)--Model Form for Force-Placed Insurance Notice Containing 
Information Required By 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] 
[provides insufficient coverage], 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 
information. [Describe the insurance information the borrower must 
provide]. [The information must be provided in writing.]
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an estimated 
$[premium charge]] annually, which may be significantly more 
expensive than insurance you can buy yourself.
     May not provide as much coverage as an insurance policy 
you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(C)--Model Form for Force-Placed Insurance Notice Containing 
Information Required By 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]


[[Page 74289]]


    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].
    The insurance we [bought] [buy]:
     [Costs $[premium charge]] [Will cost an estimated 
$[premium charge]] annually, which may be significantly more 
expensive than insurance you can buy yourself.
     May not provide as much coverage as an insurance policy 
you buy yourself.
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

MS-3(D)--Model Form for Renewal or Replacement of Force-Placed 
Insurance Notice Containing Information Required By 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 intend 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]] annually, which may be significantly 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 information.
    [Describe the insurance information the borrower must provide]. 
[The information must be provided in writing.]
    If you have any questions, please contact us at [telephone 
number].
    [If applicable, provide a statement advising a borrower to 
review additional information provided in the same transmittal.]

0
10. In Appendix MS-4 to part 1024, MS-4(D) is added to read as follows:

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

MS-4(D)--Written Early Intervention Notice for Servicers Subject to 
FDCPA (Sec.  1024.39(d)(2)(iii))

    This is a legally required notice sent to borrowers who are at 
least 45 days delinquent. We have a right to invoke foreclosure. 
Loss mitigation or other alternatives may be available to help you 
avoid losing your home.

0
11. In Supplement I to Part 1024--Official Bureau Interpretations:
0
A. Under Section 1024.30--Scope:
0
i. The heading 30(d) Successors in interest is added, and paragraphs 1 
and 2 under that heading are added.
0
B. Under Section 1024.31--Definitions:
0
i. The heading Delinquency is added, and paragraphs 1 through 3 under 
that heading are added.
0
C. Under Section 1024.36--Requests For Information:
0
i. Under 36(a) Information request, paragraph 2 is revised.
0
ii. The heading 36(i) Successors in interest is added, and paragraph 1 
under that heading is added.
0
D. Under Section 1024.37--Force-Placed Insurance:
0
i. The heading 37(d)(4) Updating notice with borrower information is 
redesignated as heading 37(d)(5) Updating notice with borrower 
information.
0
ii. Under 37(d)(5) Updating notice with borrower information, paragraph 
1 is revised.
0
E. Under Section 1024.38-- General Servicing Policies, Procedures, and 
Requirements:
0
i. Under 38(b) Objectives:
0
a. Under 38(b)(1) Accessing and providing timely and accurate 
information, the heading Paragraph 38(b)(1)(vi) is added, and 
paragraphs 1 through 3 under that heading are added.
0
b. The heading 38(b)(3) Facilitating oversight of, and compliance by, 
service providers is added.
0
c. Under 38(b)(3) Facilitating oversight of, and compliance by, service 
providers, the heading Paragraph 38(b)(3)(iii) is added, and paragraph 
1 under that heading is added.
0
F. Under Section 1024.39--Early Intervention Requirements for Certain 
Borrowers:
0
i. Under 39(a) Live contact, paragraphs 1 and 2 are revised, paragraphs 
3 and 4 are redesignated as paragraphs 4 and 5, respectively, and 
paragraphs 3 and 6 are added.
0
ii. Under 39(b) Written notice:
0
a. Under 39(b)(1) Notice required, paragraph 2 is revised, and 
paragraphs 5 and 6 are added.
0
b. Under 39(b)(2) Content of the written notice, paragraph 4 is added.
0
iii. The heading 39(d) Exemptions is added.
0
iv. Under 39(d) Exemptions:
0
a. Under 39(d)(1) Borrowers in bankruptcy, paragraphs 1 and 3 are 
removed and paragraph 2 is redesignated as paragraph 1 and revised.
0
b. The heading 39(d)(1)(i) Live contact is added, and paragraph 1 under 
that heading is added.
0
c. The heading 39(d)(1)(ii) Written notice is added, and paragraphs 1 
and 2 under that heading are added.
0
v. The heading 39(d)(2)(iii) Fair Debt Collection Practices Act is 
added, and paragraphs 1 and 2 under that heading are added.
0
G. Under Section 1024.41--Loss Mitigation Procedures:
0
i. Under 41(b) Receipt of a loss mitigation application, paragraph 1 is 
added.
0
a. Under 41(b)(1) Complete loss mitigation application, paragraphs 1 
and 4.iii are revised.
0
b. Under 41(b)(2) Review of loss mitigation application submission:
0
c. Under 41(b)(2)(i) Requirements, paragraph 1 is added.
0
d. Under 41(b)(2)(ii) Time period disclosure, paragraph 1 is revised, 
and paragraphs 2 and 3 are added.
0
ii. Under 41(c) Evaluation of loss mitigation applications:
0
a. Under 41(c)(2) Incomplete loss mitigation application evaluation:
0
b. Under 41(c)(2)(iii) Payment forbearance, paragraphs 1 through3 are 
revised, and paragraph 4 is added.
0
c. The heading 41(c)(3) Notice of complete application is added.
0
d. The heading Paragraph 41(c)(3)(i) is added, and paragraphs 1 through 
3 under that heading are added.
0
e. The heading 41(c)(4) Information not in the borrower's control is 
added.
0
f. The heading 41(c)(4)(i) Diligence requirements is added, and 
paragraphs 1 and 2 under that heading are added.
0
g. The heading 41(c)(4)(ii) Effect in case of delay is added, and 
paragraph 1 under that heading is added.
0
h. The heading 41(c)(4)(ii)(C) Providing notification of determination 
to borrower in case of delay is added, and paragraph 1 under that 
heading is added.
0
iii. Under 41(g) Prohibition on foreclosure sale, paragraphs 1 and 3 
are revised, and paragraph 5 is added.
0
iv. Under 41(i) Duplicative requests, paragraph 1 is revised and 
paragraph 2 is removed.
0
v. The heading 41(k) Servicing transfers is added, and paragraph 1 
under that heading is added.
0
a. The heading 41(k)(1) In general is added.
0
b. The heading 41(k)(1)(i) Timing of compliance is added, and 
paragraphs 1 through 3 under that heading are added.
0
c. The heading 41(k)(1)(ii) Transfer date defined is added, and 
paragraph 1 under that heading is added.
0
d. The heading 41(k)(3) Complete loss mitigation applications pending 
at transfer is added.

[[Page 74290]]

0
e. The heading 41(k)(3)(i) In general is added, and paragraphs 1 and 2 
under that heading are added.
0
f. The heading 41(k)(3)(iii) Compliance not practicable is added, and 
paragraph 1 under that heading is added.
0
g. The heading 41(k)(4) Applications subject to appeal process is 
added, and paragraphs 1 and 2 under that heading are added.
0
h. The heading 41(k)(5) Pending loss mitigation offers is added, and 
paragraph 1 under that heading is added.
    The additions and revisions read as follows:

Supplement I to Part 1024--Official Bureau Interpretations

Subpart C--Mortgage Servicing

Section 1024.30--Scope

* * * * *
    30(d) Successors in interest.
    1. Treatment of successors in interest. Under Sec.  1024.30(d), 
a successor in interest must be considered a borrower for the 
purposes of this subpart once a servicer confirms the successor in 
interest's identity and ownership interest in the property. For 
example, if a servicer receives a loss mitigation application from a 
successor in interest after confirming the successor in interest's 
identity and ownership interest in the property, the servicer must 
review and evaluate the application and notify the successor in 
interest in accordance with the procedures set forth in Sec.  
1024.41. However, see Sec.  1024.36(i), which provides that a 
servicer must respond to written requests for certain information 
from a potential successor in interest in accordance with the 
requirements of Sec.  1024.36(c) through (g) before confirming that 
person's status.
    2. Treatment of prior borrowers. Even after a servicer's 
confirmation of a successor in interest's identity and ownership 
interest in the property, the servicer is still required to comply 
with the requirements of this subpart with respect to the prior 
borrower, unless that borrower also has either died or been released 
from the obligation on the mortgage loan. The prior borrower retains 
any rights under this subpart that accrued prior to the confirmation 
of the successor in interest to the extent these rights would 
otherwise survive the prior borrower's death or release from the 
obligation.

Section 1024.31--Definitions

    Delinquency.
    1. Length of delinquency. A borrower's delinquency begins on the 
date an amount sufficient to cover a periodic payment of principal, 
interest, and, if applicable, escrow became due and unpaid, and 
lasts until such time as the payment is made, even if the borrower 
is afforded a period after the due date to pay before the servicer 
assesses a late fee.
    2. Application of funds. If a servicer applies payments to the 
oldest outstanding periodic payment, a payment by a delinquent 
borrower advances the date the borrower's delinquency began. For 
example, assume a borrower's mortgage loan obligation provides that 
a periodic payment sufficient to cover principal, interest, and 
escrow is due on the first of each month. The borrower fails to make 
a payment on January 1 or on any day in January, and on January 31 
the borrower is 30 days delinquent. On February 1, the borrower 
makes a periodic payment. The servicer applies the payment it 
received on February 1 to the outstanding January payment. On 
February 2, the borrower is one day delinquent.
    3. Payment tolerance. For any given billing cycle for which a 
borrower's payment is less than the periodic payment due, a servicer 
that elects to advance the missing funds to the borrower's mortgage 
loan account may elect not to treat the borrower as delinquent. If a 
servicer chooses not to treat a borrower as delinquent for purposes 
of any section of subpart C, that borrower is not delinquent as 
defined in section 1024.31.
* * * * *

Section 1024.36-Requests for Information

* * * * *
    36(a) Information request.
* * * * *
    2. Owner or assignee of a mortgage loan. i. When a loan is not 
held in a trust for which an appointed trustee receives payments on 
behalf of the trust, a servicer complies with Sec.  1024.36(d) by 
responding to a request for information regarding the owner or 
assignee of a mortgage loan by identifying the person on whose 
behalf the servicer receives payments from the borrower. A servicer 
is not the owner or assignee for purposes of Sec.  1024.36(d) if the 
servicer holds title to the loan, or title is assigned to the 
servicer, solely for the administrative convenience of the servicer 
in servicing the mortgage loan obligation.
    ii. When the loan is held in a trust for which an appointed 
trustee receives payments on behalf of the trust, a servicer 
complies with Sec.  1024.36(d) by responding to a borrower's request 
for information regarding the owner, assignee, or trust of the 
mortgage loan with the following information, as applicable:
    A. If the request for information expressly requested the name 
or number of the trust or pool: the name of the trust, and the name, 
address, and appropriate contact information for the trustee. 
Assume, for example, a mortgage loan is owned by Mortgage Loan 
Trust, Series ABC-1, for which XYZ Trust Company is the trustee. The 
servicer complies with Sec.  1024.36(d) 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.
    B. If the request for information did not expressly request the 
name or number of the trust or pool: the name of the trust, and the 
name, address, and appropriate contact information for the trustee, 
as in comment 36(a)-2.ii.A above, unless the Federal National 
Mortgage Association or the Federal Home Loan Mortgage Corporation 
is the investor, guarantor, or trustee. In that case, the servicer 
may respond to such a request by providing only the name and contact 
information for the Federal National Mortgage Association or the 
Federal Home Loan Mortgage Corporation, as applicable, without also 
providing the name of the trust. Other investors or guarantors, 
including the Government National Mortgage Association, are not the 
owners or assignees for purposes of such requests for information 
solely as a result of their roles as investors or guarantors.
* * * * *
    36(i) Successors in interest.
    1. Other information. For the purposes of requests under Sec.  
1024.36(i), before the servicer has confirmed the identity and 
ownership interest of the potential successor in interest, a 
servicer is only required to provide information regarding the 
documents the servicer requires to confirm the person's identity and 
ownership interest in the property. The servicer is not required to 
provide any other information that may also be requested by the 
person.

Section 1024.37--Force-Placed Insurance

* * * * *
    37(d)(5) Updating notice with borrower information.
    1. Reasonable time. A servicer may have to prepare the written 
notice required by Sec.  1024.37(c)(1)(ii) 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 new insurance information received about the borrower so 
long as the written 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)(5), five days 
(excluding legal holidays, Saturdays, and Sundays) is a reasonable 
time.
* * * * *

Section 1024.38--General Servicing Policies, Procedures, and 
Requirements

* * * * *
    38(b) Objectives.
* * * * *
    Paragraph 38(b)(1)(vi).
    1. Documents reasonably required. The documents a servicer 
requires to confirm a potential successor in interest's identity and 
ownership interest in the property must be reasonable in light of 
the laws of the relevant jurisdiction, the specific situation of the 
potential successor in interest, and the documents already in the 
servicer's possession. The required documents may, where 
appropriate, include, for example, a death certificate, an executed 
will, or a court order.
    2. Examples of reasonable requirements. Subject to the relevant 
law governing each situation, the following examples illustrate 
documents that a servicer may require to confirm a potential 
successor in interest's identity and ownership interest in the 
property and that generally would be reasonable:
    i. Tenancy by the entirety or joint tenancy. A potential 
successor in interest indicates (or the servicer knows from its 
records or other sources) that the prior borrower and the potential 
successor in interest owned the

[[Page 74291]]

property as tenants by the entirety or joint tenants and that the 
prior borrower has died. To demonstrate that the potential successor 
in interest has sole interest in the property upon the death of the 
prior borrower, applicable law does not require a probate 
proceeding, but requires only that there be a prior recorded deed 
listing both the potential successor in interest and the prior 
borrower as tenants by the entirety (e.g., married grantees) or 
joint tenants. Under these circumstances, it would be reasonable for 
the servicer to require the potential successor in interest to 
provide documentation of the recorded instrument, if the servicer 
does not already have it, and the death certificate of the prior 
borrower. Because in this situation a probate proceeding is not 
required under applicable law, however, it would not be reasonable 
for the servicer to require documentation of a probate proceeding.
    ii. Affidavits of heirship. A potential successor in interest 
indicates that he or she acquired an ownership interest in the 
property upon the death of the prior borrower as a result of an 
affidavit of heirship. To demonstrate that the potential successor 
in interest has an interest in the property upon the death of the 
prior borrower, applicable law does not require a probate 
proceeding, but requires only an appropriate affidavit of heirship 
upon death. Under these circumstances, it would be reasonable for 
the servicer to require the potential successor in interest to 
provide the affidavit of heirship and the death certificate of the 
prior borrower. Because a probate proceeding is not required under 
applicable law, however, it would not be reasonable for the servicer 
to require documentation of a probate proceeding.
    iii. Divorce or legal separation. A potential successor in 
interest indicates that he or she acquired an ownership interest in 
the property from a spouse who is a borrower as a result of a 
property agreement incident to a divorce proceeding. Under 
applicable law, transfer from the borrower spouse is demonstrated by 
a final divorce decree and accompanying separation agreement 
executed by both spouses. Applicable law does not require a deed 
conveying the interest in the property. Under these circumstances, 
it would be reasonable for the servicer to require the potential 
successor in interest to provide documentation of the final divorce 
decree and an executed separation agreement. Because applicable law 
does not require a deed, however, it would not be reasonable for the 
servicer to require documentation of a deed.
    iv. Living spouses or parents. A potential successor in interest 
indicates that he or she acquired an ownership interest in the 
property from a living spouse or parent who is a borrower by 
quitclaim deed or act of donation. Under these circumstances, it 
would be reasonable for the servicer to require the potential 
successor in interest to provide the quitclaim deed or act of 
donation. It would not be reasonable, however, for the servicer to 
require additional documents.
    3. Prompt confirmation and loss mitigation. A servicer's 
policies and procedures must be reasonably designed to ensure that 
the servicer can promptly notify the potential successor in interest 
that the servicer has confirmed the person's status. Upon the 
receipt of documents required by a servicer to confirm a successor 
in interest's identity and ownership interest in the property, the 
servicer's confirmation and notification must be sufficiently prompt 
so as not to interfere with the successor in interest's ability to 
apply for loss mitigation options according to the procedures 
provided in Sec.  1024.41. In general, a servicer's policies and 
procedures must be reasonably designed to ensure that the servicer 
confirms a successor in interest's status and notifies the person of 
the servicer's confirmation at least 30 days before the next 
applicable milestone provided in comment 41(b)(2)(ii)-2.
* * * * *
    38(b)(3) Facilitating oversight of, and compliance by, service 
providers.
    Paragraph 38(b)(3)(iii).
    1. Sharing information with service provider personnel handling 
foreclosure proceedings. A servicer's policies and procedures must 
be reasonably designed to ensure that servicer personnel promptly 
inform service provider personnel handling foreclosure proceedings 
the servicer has received a complete loss mitigation application and 
to instruct promptly foreclosure counsel to take any step required 
by Sec.  1024.41(g) sufficiently timely to avoid violating the 
prohibition against moving for judgment or order of sale, or 
conducting a foreclosure.
* * * * *

Section 1024.39--Early Intervention Requirements for Certain 
Borrowers

    39(a) Live contact.
    1. Delinquency. Section 1024.39 requires a servicer to establish 
or attempt to establish live contact not later than the 36th day of 
such a borrower's delinquency. This provision is illustrated as 
follows:
    i. Assume a loan mortgage obligation with a monthly billing 
cycle and monthly payments of $2000 representing principal, interest 
and escrow due on the first of each month.
    A. The borrower fails to make a payment of $2000 on, and makes 
no payment during the 36-day period after, January 1. The servicer 
must establish or make good faith efforts to establish live contact 
not later than 36 days after January 1--i.e., on or before February 
6.
    B. The borrower fails to make a payment of $2000 on January 1, 
February 1, and March 1, making the borrower 90 days delinquent as 
of April 1. The servicer can time its attempts to establish live 
contact such that a single attempt will meet the requirements of 
Sec.  1024.39(a) for two missed payments. To illustrate, the 
servicer complies with Sec.  1024.39(a) if the servicer makes a good 
faith effort to establish live contact with the borrower, for 
example, on February 5, and again on March 25. The February 5 
attempt meets the requirements of Sec.  1024.39(a) for both the 
January 1 and February 1 missed payments.
    2. Establishing live contact. Live contact provides servicers an 
opportunity to discuss the circumstances of a borrower's 
delinquency. Live contact with a borrower includes telephoning or 
conducting an in-person meeting with the borrower, but not leaving a 
recorded phone message. A servicer may, but need not, rely on live 
contact established at the borrower's initiative to satisfy the live 
contact requirement in Sec.  1024.39(a). Servicers may also combine 
contacts made pursuant to Sec.  1024.39(a) with contacts made with 
borrowers for other reasons, for instance, by telling borrowers on 
collection calls that loss mitigation options may be available in 
accordance with the rule.
    3. Good faith efforts. Good faith efforts to establish live 
contact consist of reasonable steps under the circumstances to reach 
a borrower and may include telephoning the borrower on more than one 
occasion or sending written or electronic communication encouraging 
the borrower to establish live contact with the servicer. The length 
of a borrower's delinquency, as well as a borrower's failure to 
respond to a servicer's repeated attempts at communication pursuant 
to Sec.  1024.39(a), are relevant circumstances to consider. For 
example, whereas ``good faith efforts'' to establish live contact 
with regard to a borrower with two consecutive missed payments might 
require a telephone call, ``good faith efforts'' to establish live 
contact with regard to an unresponsive borrower with six or more 
consecutive missed payments might require no more than including a 
sentence requesting that the borrower contact the servicer with 
regard to the delinquencies in the periodic statement or in an 
electronic communication. Such efforts might be sufficient where 
there is little or no hope of home retention, such as may occur in 
the later stages of foreclosure. See additional examples set forth 
in comment 39(a)-6.
    4. Promptly inform if appropriate. i. Servicer's determination. 
It is within a servicer's reasonable discretion to determine whether 
informing a borrower about the availability of loss mitigation 
options is appropriate under the circumstances. The following 
examples demonstrate when a servicer has made a reasonable 
determination regarding the appropriateness of providing information 
about loss mitigation options.
    A. A servicer provides information about the availability of 
loss mitigation options to a borrower who notifies a servicer during 
live contact of a material adverse change in the borrower's 
financial circumstances that is likely to cause the borrower to 
experience a long-term delinquency for which loss mitigation options 
may be available.
    B. A servicer does not provide information about the 
availability of loss mitigation options to a borrower who has missed 
a January 1 payment and notified the servicer that full late payment 
will be transmitted to the servicer by February 15.
    ii. Promptly inform. If appropriate, a servicer may inform 
borrowers about the availability of loss mitigation options orally, 
in writing, or through electronic communication, but the servicer 
must provide such information promptly after the servicer 
establishes live contact. A servicer need not notify a borrower 
about any particular loss mitigation options at this time; if 
appropriate, a servicer need only inform

[[Page 74292]]

borrowers generally that loss mitigation options may be available. 
If appropriate, a servicer may satisfy the requirement in Sec.  
1024.39(a) to inform a borrower about loss mitigation options by 
providing the written notice required by Sec.  1024.39(b)(1), but 
the servicer must provide such notice promptly after the servicer 
establishes live contact.
    5. Borrower's representative. Section 1024.39 does not prohibit 
a servicer from satisfying the requirements Sec.  1024.39 by 
establishing live contact with and, if applicable, providing 
information about loss mitigation options to a person authorized by 
the borrower to communicate with the servicer on the borrower's 
behalf. A servicer 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, for example, by 
requiring a person that claims to be an agent of the borrower 
provide documentation from the borrower stating that the purported 
agent is acting on the borrower's behalf.
    6. Compliance with Sec.  1024.41. A servicer complies with Sec.  
1024.39(a) and need not otherwise establish or make good faith 
efforts to establish live contact if the servicer has established 
and is maintaining ongoing contact with the borrower with regard to 
the borrower's completion of a loss mitigation application or the 
servicer's evaluation of the borrower's complete loss mitigation 
application, or if the servicer has sent the borrower a notice 
pursuant to Sec.  1024.41(c)(1)(ii) that the borrower is not 
eligible for any loss mitigation options. However, the servicer must 
resume compliance with the requirements of Sec.  1024.39(a) for a 
borrower who cures a prior default but becomes delinquent again.
    39(b) Written notice.
    39(b)(1) Notice required.
* * * * *
    2. Frequency of the written notice. A servicer need not provide 
the written notice under section 1024.39(b) more than once during a 
180-day period beginning on the date on which the written notice is 
provided. For example, a borrower has a payment due on March 1. The 
amount due is not fully paid during the 45 days after March 1 and 
the servicer provides the written notice within 45 days after March 
1--i.e., by April 15. Assume the servicer provides the notice on 
April 15. If the borrower subsequently fails to make a payment due 
April 1 and the amount due is not fully paid during the 45 days 
after April 1, the servicer need not provide the written notice 
again during the 180-day period beginning on April 15--i.e., no 
sooner than on October 12. If the borrower is delinquent on October 
12, however, the servicer must again provide the written notice 45 
days from the date the most recently missed payment was due. For 
example, if the amount due on October 1 is not fully paid during the 
45 days after October 1, the servicer will need to provide the 
written notice again 45 days after October 1--i.e., by November 15.
* * * * *
    5. Successors in interest. Where a servicer has already provided 
a written notice to a prior borrower under Sec.  1024.39(b) before 
confirming a successor in interest's identity and ownership interest 
in the property, the servicer is not required also to provide that 
notice to the successor in interest, but after confirming the 
successor in interest's identity and ownership interest in the 
property, the servicer must provide the successor in interest with 
any additional written notices required under Sec.  1024.39(b) after 
confirming the successor in interest's identity and ownership 
interest in the property.
    6. Servicing transfers. A transferee servicer is required to 
comply with the requirements of Sec.  1024.39(b) regardless of 
whether the transferor servicer provided a written notice to the 
borrower in the preceding 180-day period. However, a transferee 
servicer is not required to provide written notice under Sec.  
1024.39(b) that the transferor servicer provided prior to the 
transfer. For example, a borrower has a payment due on March 1. The 
transferor servicer provides the notice required by Sec.  1024.39(b) 
on April 10. The loan is transferred on April 12. Assuming the 
borrower remains delinquent, the transferee servicer is not required 
to provide another written notice until 45 days after the next 
payment due date--i.e., by May 16.
    39(b)(2) Content of the written notice.
* * * * *
    4. Availability of loss mitigation options. If loss mitigation 
options are available, a servicer must include in the written notice 
the disclosures set forth in Sec.  1024.39(b)(2)(iii) and (iv). Loss 
mitigation options are available if the owner or assignee of a 
borrower's mortgage loan offers an alternative to foreclosure that 
is made available through the servicer. The availability of loss 
mitigation options does not depend upon a borrower's eligibility for 
those options, but simply depends upon whether the owner or assignee 
of a borrower's mortgage loan generally offers loss mitigation 
options through the servicer.
* * * * *
    39(d) Exemptions.
    39(d)(1) Borrowers in bankruptcy.
    1. Resuming compliance. i. With respect to a borrower who has 
not discharged the mortgage debt, a servicer must resume compliance 
with Sec.  1024.39(a) and (b), as applicable, as of the first 
delinquency that follows the earliest of the following outcomes in 
the bankruptcy case: the case is dismissed, the case is closed, the 
borrower reaffirms the mortgage loan under 11 U.S.C. 524, or the 
borrower receives a discharge under 11 U.S.C. 727, 1141, 1228, or 
1328. However, this requirement to resume compliance with Sec.  
1024.39 does not require a servicer to communicate with a borrower 
in a manner that would be inconsistent with applicable bankruptcy 
law or a court order in a bankruptcy case. To the extent necessary 
to comply with such law or court order, a servicer may adapt the 
requirements of Sec.  1024.39 as appropriate.
    ii. Compliance with Sec.  1024.39(a) is not required for any 
borrower who has discharged the mortgage debt under applicable 
provisions of the U.S. Bankruptcy Code. If the borrower's bankruptcy 
case is revived--for example if the court reinstates a previously 
dismissed case or reopens the case--the servicer is again exempt 
from the requirements of Sec.  1024.39(a).
    39(d)(1)(i) Live contact.
    1. Live contact. The requirements of Sec.  1024.39(a) do not 
apply once a petition is filed under the U.S. Bankruptcy Code, 
commencing any case in which the borrower is a debtor or a Chapter 
12 or Chapter 13 case in which any borrower on the mortgage loan is 
a debtor. The requirements of Sec.  1024.39(a) also do not apply if 
the borrower has discharged personal liability for the mortgage loan 
under 11 U.S.C. 727, 1141, 1228, or 1328.
    39(d)(1)(ii) Written notice.
    1. Plan of reorganization. For purposes of Sec.  
1024.39(d)(1)(ii), ``plan of reorganization'' refers to a borrower's 
plan of reorganization filed under the applicable provisions of 
Chapter 11, Chapter 12, or Chapter 13 of the U.S. Bankruptcy Code 
and confirmed by a court with jurisdiction over the borrower's 
bankruptcy case.
    2. Fair Debt Collections Practices Act. If the FDCPA applies to 
a servicer's communications with a borrower in bankruptcy and the 
borrower has sent a notification pursuant to FDCPA Sec.  805(c), see 
comment 39(d)(2)(iii)-2.
    39(d)(2)(iii) Fair Debt Collection Practices Act.
    1. Communications under the FDCPA. To the extent the FDCPA 
applies to a servicer's communications with a borrower, a servicer 
does not violate FDCPA section 805(c) by providing the written 
notice required by Sec.  1024.39(d)(2)(iii) after a borrower has 
sent a notification pursuant to FDCPA section 805(c) with respect to 
that borrower's loan. In providing the borrower the written notice, 
the servicer must continue to comply with all other applicable 
provisions of the FDCPA, including prohibitions on unfair, 
deceptive, and abusive practices as contained in FDCPA sections 805 
through 808 (15 U.S.C. 1692c through 1692f).
    2. Borrowers in bankruptcy. To the extent the FDCPA applies to a 
servicer's communications with a borrower and the borrower has sent 
a notification pursuant to FDCPA section 805(c), a servicer is not 
required to provide the written notice required by Sec.  
1024.39(d)(2)(iii) if the borrower is in bankruptcy and is not 
represented by a person authorized by the borrower to communicate 
with the servicer on the borrower's behalf. If the borrower is 
represented by a person authorized by the borrower to communicate 
with the servicer on the borrower's behalf, however, the servicer 
must provide the written notice required by Sec.  1024.39(d)(2)(iii) 
to the borrower's representative. See comment 39(a)-4.

Section 1024.41--Loss Mitigation Procedures

* * * * *
    41(b) Receipt of a loss mitigation application.
    1. Successors in interest. i. If a servicer receives a loss 
mitigation application, including a complete loss mitigation 
application, from a potential successor in interest before 
confirming that person's identity and ownership interest in the 
property, the servicer may, but is not required to, review and 
evaluate the loss mitigation application in accordance with the

[[Page 74293]]

procedures set forth in Sec.  1024.41. If a servicer complies with 
the requirements of Sec.  1024.41 for a complete loss mitigation 
application submitted by a potential successor in interest before 
confirming that person's identity and ownership interest in the 
property, Sec.  1024.41(i)'s limitation on duplicative requests 
applies to that person, provided that confirmation of the successor 
in interest's status would not affect the servicer's evaluation of 
the application.
    ii. If a servicer receives a loss mitigation application from a 
potential successor in interest and elects not to review and 
evaluate the loss mitigation application before confirming that 
person's identity and ownership interest in the property, upon such 
confirmation the servicer must review and evaluate that loss 
mitigation application in accordance with the procedures set forth 
in Sec.  1024.41. For purposes of Sec.  1024.41, the servicer must 
treat the loss mitigation application as if it had been received on 
the date that the servicer confirmed the successor in interest's 
status.
    41(b)(1) Complete loss mitigation application.
    1. In general. A servicer has flexibility to establish its own 
application requirements and to decide the type and amount of 
information it will require from borrowers applying for loss 
mitigation options. In the course of gathering documents and 
information from a borrower to complete a loss mitigation 
application, a servicer may stop collecting documents and 
information for a particular loss mitigation option after receiving 
information confirming that the borrower is ineligible for that 
option. For example, if a particular loss mitigation option is only 
available for military servicemembers, once a servicer receives 
documents or information confirming that the borrower is not a 
military servicemember, the servicer may stop collecting documents 
or information from the borrower that the servicer would use to 
evaluate the borrower for that loss mitigation option. Making such a 
determination does not affect the servicer's obligation to exercise 
reasonable diligence in obtaining documents and information to 
complete a loss mitigation application; the servicer must continue 
its efforts to obtain documents and information from the borrower 
that pertain to all other available loss mitigation options. A 
servicer may not stop collecting documents and information for any 
loss mitigation option based solely upon the borrower's stated 
preference for a particular loss mitigation option.
* * * * *
    4. * * *
    iii. A servicer offers a borrower a short-term payment 
forbearance program or a short-term repayment plan based on an 
incomplete loss mitigation application; the servicer notifies the 
borrower that he or she is being offered a payment forbearance 
program or repayment plan based on an evaluation of an incomplete 
application, and that the borrower has the option of completing the 
application to receive a full evaluation of all loss mitigation 
options available to the borrower. If a servicer provides such a 
notification, the borrower remains in compliance with the payment 
forbearance program or repayment plan, and the borrower does not 
request further assistance, the servicer could suspend reasonable 
diligence efforts until near the end of the payment forbearance 
program or repayment plan. Near the end of the program or plan, and 
prior to the end of the forbearance or repayment period, if the 
borrower remains delinquent, a servicer should contact the borrower 
to determine if the borrower wishes to complete the application and 
proceed with a full loss mitigation evaluation.
* * * * *
    41(b)(2) Review of loss mitigation application submission.
    41(b)(2)(i) Requirements.
    1. Foreclosure sale not scheduled. For purposes of Sec.  
1024.41(b)(2)(i), if no foreclosure sale has been scheduled as of 
the date a loss mitigation application is received, a servicer must 
treat the application as having been received 45 days or more before 
any foreclosure sale.
* * * * *
    41(b)(2)(ii) Time period disclosure.
    1. Affording the borrower a reasonable period of time. In 
setting a reasonable date for the return of documents and 
information under Sec.  1024.41(b)(2)(ii), the servicer must allow a 
reasonable period of time for the borrower to obtain and submit 
documents and information necessary to make the loss mitigation 
application complete. Generally, a reasonable period of time would 
not be less than seven days.
    2. Maximizing protections. A servicer must preserve maximum 
borrower rights under Sec.  1024.41 in setting a reasonable date 
under Sec.  1024.41(b)(2)(ii). Subject to comment 41(b)(2)(ii)-1, a 
servicer generally should not set a reasonable date that is further 
away than the nearest remaining milestone from the following list:
    i. The date by which any document or information submitted by a 
borrower will be considered stale or invalid pursuant to any 
requirements applicable to any loss mitigation option available to 
the borrower;
    ii. The date that is the 120th day of the borrower's 
delinquency;
    iii. The date that is 90 days before a foreclosure sale;
    iv. The date that is 38 days before a foreclosure sale.
    3. Flexibility in setting a reasonable date. Subject to comments 
41(b)(2)(ii)-1 and 2, a servicer has flexibility in selecting a 
reasonable date for the return of documents and information under 
Sec.  1024.41(b)(2)(ii). A servicer may select any date that it 
determines both maximizes borrower rights under Sec.  1024.41 and 
allows the borrower a reasonable period of time to obtain and submit 
documents and information necessary to make the loss mitigation 
application complete. For example, a servicer may set a reasonable 
date that is earlier than the nearest remaining milestone listed in 
comment 41(b)(2)(ii)-2 and does not need to select that milestone as 
the reasonable date itself.
* * * * *
    41(c) Evaluation of loss mitigation applications.
    41(c)(2) Incomplete loss mitigation application evaluation.
* * * * *
    41(c)(2)(iii) Payment forbearance.
    1. Short-term payment forbearance program. The exemption in 
Sec.  1024.41(c)(2)(iii) applies to, among other things, short-term 
payment forbearance programs. A payment forbearance program is a 
loss mitigation option pursuant to which a servicer allows a 
borrower to forgo making certain payments or portions of payments 
for a period of time. A short-term payment forbearance program 
allows the forbearance of payments due over periods of no more than 
six months. Such a program would be short-term regardless of the 
amount of time a servicer allows the borrower to make up the missing 
payments.
    2. Payment forbearance and incomplete applications. Section 
1024.41(c)(2)(iii) allows a servicer to offer a borrower a short-
term payment forbearance program or a short-term repayment plan 
based on an evaluation of an incomplete loss mitigation application. 
Such an incomplete loss mitigation application is still subject to 
the other obligations in Sec.  1024.41, including the obligation in 
Sec.  1024.41(b)(2) to review the application to determine if it is 
complete, the obligation in Sec.  1024.41(b)(1) to exercise 
reasonable diligence in obtaining documents and information to 
complete a loss mitigation application (see comment 41(b)(1)-4.iii), 
and the obligation to provide the borrower with the Sec.  
1024.41(b)(2)(i)(B) notice that the servicer acknowledges the 
receipt of the application and has determined the application is 
incomplete.
    3. Payment forbearance and complete applications. Even if a 
servicer offers a borrower a short-term payment forbearance program 
or a short-term repayment plan based on an evaluation of an 
incomplete loss mitigation application, the servicer must still 
comply with all the requirements in Sec.  1024.41 if the borrower 
completes his or her loss mitigation application.
    4. Short-term repayment plan. The exemption in Sec.  
1024.41(c)(2)(iii) applies to, among other things, short-term 
repayment plans. A repayment plan is a loss mitigation option 
pursuant to which a servicer allows a borrower to repay past due 
payments over a specified period of time until the mortgage loan 
account is current. A short-term repayment plan allows for the 
repayment of no more than three months of payments due and allows a 
borrower to repay the arrearage over future payments for a period 
lasting no more than six months.
* * * * *
    41(c)(3) Notice of complete application.
    Paragraph 41(c)(3)(i).
    1. Prompt notification. Section 1024.41(c)(3)(i) requires that a 
servicer promptly provide a borrower with written notice that the 
servicer has received a complete loss mitigation application. 
Generally, a servicer complies with this requirement by providing 
the written notice within five days of receiving the complete 
application.
    2. Date that foreclosure protections began. Notifications sent 
under Sec.  1024.41(c)(3)(i) must state, among other things, the 
date on

[[Page 74294]]

which the borrower's protections began under Sec.  1024.41(f)(2) and 
(g), as applicable. This date must be the date on which the 
application became either complete or facially complete, as 
applicable.
    3. Additional notices. Section 1024.41(c)(3)(i) requires a 
servicer to provide a notification, subject to the exceptions under 
Sec.  1024.41(c)(3)(ii), every time a loss mitigation application 
becomes complete. If, after providing a notice under Sec.  
1024.41(c)(3)(i), a servicer requests additional information or a 
corrected version of a previously submitted document required to 
complete the application in accordance with Sec.  1024.41(c)(2)(iv), 
the servicer might have to provide an additional notice under Sec.  
1024.41(c)(3)(i) if the borrower completes the application. For 
example, when a borrower submits a complete application and the 
servicer provides the notice under Sec.  1024.41(c)(3)(i), a 
servicer might later discover that it requires additional 
information regarding a source of income that the borrower 
previously identified to complete the application. In accordance 
with Sec.  1024.41(c)(2)(iv) (and subject to that section's 
additional requirements), the servicer must request this additional 
information. If the borrower submits the additional information to 
complete the application, the servicer must provide another notice 
of complete application under Sec.  1024.41(c)(3)(i).
    41(c)(4) Information not in the borrower's control.
    41(c)(4)(i) Diligence requirements.
    1. Within 30 days of receiving a complete application. A 
servicer must act with reasonable diligence to collect information 
not in the borrower's control that the servicer requires to 
determine which loss mitigation options, if any, it will offer to 
the borrower. Further, a servicer must request such information from 
the appropriate person, at a minimum and without limitation:
    i. Promptly upon determining that the servicer requires the 
documents or information to determine which loss mitigation options, 
if any, the servicer will offer the borrower; and
    ii. To the extent practicable, by a date that will enable the 
servicer to complete the evaluation within 30 days of receiving the 
complete application as set forth under Sec.  1024.41(c)(1).
    2. After the first 30 days. If a servicer has not received 
documents or information not in the borrower's control within 30 
days of receiving a complete loss mitigation application, the 
servicer acts with reasonable diligence by attempting to obtain the 
documents or information from the appropriate person as quickly as 
possible.
    41(c)(4)(ii) Effect in case of delay.
    1. Third-party delay. Various third parties, such as mortgage 
insurance companies, guarantors, owners, or assignees, might impose 
requirements on servicers pertaining to the loss mitigation 
evaluation process. A servicer must complete all possible steps in 
the evaluation process within 30 days of receiving a complete 
application, including by taking all steps mandated by such 
requirements, notwithstanding delay in receiving information from 
any third party. For example, if a servicer can determine a 
borrower's eligibility for all available loss mitigation options 
based upon the borrower's complete application subject only to 
approval from the mortgage insurance company, it must do so within 
30 days of receiving the complete application notwithstanding the 
need to obtain such approval before offering any loss mitigation 
options to the borrower.
    41(c)(4)(ii)(C) Providing notification of determination to 
borrower in case of delay.
    1. Timing. If, due to a lack of documentation or information 
from a party other than the borrower or the servicer, a servicer is 
unable to determine which loss mitigation options, if any, to offer 
a borrower within 30 days of receiving a complete application, the 
servicer should not provide the borrower a written notice stating 
the servicer's determination until the servicer receives the 
documentation or information.
* * * * *
    41(g) Prohibition on foreclosure sale.
    1. Dispositive motion. The prohibition on a servicer moving for 
judgment or order of sale includes making a dispositive motion for 
foreclosure judgment, such as a motion for default judgment, 
judgment on the pleadings, or summary judgment, which may directly 
result in a judgment of foreclosure or order of sale. A servicer 
that has made any such motion before receiving a complete loss 
mitigation application has not moved for a foreclosure judgment or 
order of sale if the servicer takes reasonable steps to avoid a 
ruling on such motion or issuance of such order prior to completing 
the procedures required by Sec.  1024.41, even if the servicer's 
reasonable steps are unsuccessful in avoiding a ruling on a 
dispositive motion or issuance of an order of sale. Where a servicer 
or counsel retained by the servicer fails to take reasonable steps 
to avoid a ruling on such motion that was pending at the time a 
complete loss mitigation application is received or issuance of an 
order with respect to such a motion, the servicer must dismiss the 
foreclosure proceeding if necessary to avoid the sale.
* * * * *
    3. Interaction with foreclosure counsel. The prohibitions in 
Sec.  1024.41(g) against moving for judgment or order of sale or 
conducting a sale may require a servicer to take steps through 
foreclosure counsel retained by the servicer in foreclosure 
proceedings. Thus, a servicer is not relieved of its obligations 
because the foreclosure counsel's actions or inaction caused a 
violation. If a servicer has received a complete loss mitigation 
application, the servicer must promptly instruct counsel not to make 
a dispositive motion for foreclosure judgment or order of sale; to 
take reasonable steps, where such a dispositive motion is pending, 
to avoid a ruling on the motion or issuance of an order of sale; and 
to take reasonable steps to delay the conduct of a foreclosure sale 
until the servicer satisfies one of the conditions in Sec.  
1024.41(g)(1) through (3). These instructions may include 
instructing counsel to move for a continuance with respect to the 
deadline for filing a dispositive motion or to move for or request 
that the foreclosure sale be stayed, otherwise delayed, or removed 
from the docket, or that the foreclosure proceeding be placed in any 
administrative status that stays the sale.
* * * * *
    5. Conducting a sale. Section 1024.41(g) prohibits a servicer 
from conducting a foreclosure sale, even if a person other than the 
servicer administers or conducts the foreclosure sale proceedings. 
Where a foreclosure sale is scheduled, and none of the conditions 
under Sec.  1024.41(g)(1) through (3) are applicable, the servicer 
must take reasonable steps to delay the foreclosure sale until one 
of the conditions under Sec.  1024.41(g)(1) through (3) is met. 
Reasonable steps include, but are not limited to, requesting that a 
court or the official conducting the sale re-schedule or delay the 
sale or remove the sale from the docket, or place the foreclosure 
proceeding in any administrative status that stays the sale. If a 
servicer, or counsel retained by the servicer, fails to take 
reasonable steps to delay the foreclosure sale, or if a servicer 
fails to instruct counsel retained by the servicer to take such 
reasonable steps to delay a sale (see comment 41(g)-3), the servicer 
must dismiss the foreclosure proceeding.
* * * * *
    41(i) Duplicative requests.
    1. Servicing transfers. A transferee servicer is required to 
comply with the requirements of Sec.  1024.41 regardless of whether 
a borrower received an evaluation of a complete loss mitigation 
application from a transferor servicer.
* * * * *
    41(k) Servicing transfers.
    1. Pending loss mitigation application. For purposes of Sec.  
1024.41(k), a loss mitigation application is pending if it was 
subject to Sec.  1024.41 and had not been fully resolved before the 
transfer date. For example, a loss mitigation application would not 
be considered pending if a transferor servicer had denied a borrower 
for all options and the borrower's time for making an appeal, if 
any, had expired prior to the transfer date, such that the 
transferor servicer had no continuing obligations under Sec.  
1024.41 with respect to the application. A pending application is 
considered a pending complete application if it was complete as of 
the transfer date under the transferor servicer's criteria for 
evaluating loss mitigation applications.
    41(k)(1) In general.
    41(k)(1)(i) Timing of compliance.
    1. Obtaining loss mitigation documents and information. i. In 
connection with a transfer, a transferee servicer must obtain from 
the transferor servicer documents and information submitted by a 
borrower in connection with a loss mitigation application, 
consistent with policies and procedures adopted pursuant to Sec.  
1024.38. A transferee servicer must comply with the applicable 
requirements of Sec.  1024.41 with respect to a loss mitigation 
application received as a result of a transfer, even if the 
transferor servicer was not required to comply with Sec.  1024.41 
with respect to that application (for example, because Sec.  
1024.41(i) precluded applicability of Sec.  1024.41 with respect to 
the transferor servicer). If an application was not subject to

[[Page 74295]]

Sec.  1024.41 prior to a transfer, then for purposes of Sec.  
1024.41(b) and (c), a transferee servicer is considered to have 
received a loss mitigation application on the transfer date.
    ii. A transferee servicer must, in accordance with Sec.  
1024.41(b), exercise reasonable diligence to complete a loss 
mitigation application received as a result of a transfer. In the 
transfer context, reasonable diligence includes ensuring that a 
borrower is informed of any changes to the application process, such 
as a change in the address to which the borrower should submit 
documents and information to complete the application, as well as 
ensuring that the borrower is informed about which documents and 
information are necessary to complete the application.
    2. Determination of protections. For purposes of Sec.  
1024.41(e) through (h), a transferee servicer must consider 
documents and information that constitute a complete loss mitigation 
application for the transferee servicer to have been received as of 
the date such documents and information were received by the 
transferor servicer. An application that was facially complete with 
respect to the transferor servicer remains facially complete with 
respect to the transferee servicer as of the date it was facially 
complete with respect to the transferor servicer. If an application 
was complete with respect to the transferor servicer, but is not 
complete with respect to the transferee servicer, the transferee 
servicer must treat the application as facially complete as of the 
date the application was complete with respect to the transferor 
servicer.
    3. Duplicative notices not required. A transferee servicer is 
not required to provide notices under Sec.  1024.41 with respect to 
a particular loss mitigation application that the transferor 
servicer provided prior to the transfer. For example, if the 
transferor servicer provided the notice required by Sec.  
1024.41(b)(2)(i)(B) prior to the transfer, the transferee servicer 
is not required to provide the notice again for that application. 
For example, if the transferor servicer provided the notice required 
by Sec.  1024.41(b)(2)(i)(B) prior to the transfer, the transferee 
servicer is not required to provide the notice again for that 
application.
    41(k)(1)(ii) Transfer date defined.
    1. Transfer date. Section 1024.41(k)(1)(ii) provides that the 
transfer date is the date on which the transfer of the servicing 
responsibilities from the transferor servicer to the transferee 
servicer occurs. The transfer date corresponds to the date the 
transferee servicer will begin accepting payments relating to the 
mortgage loan, which must be disclosed on the notice of transfer of 
loan servicing pursuant to Sec.  1024.33(b)(4)(iv). The transfer 
date may not necessarily be the same date as the sale date 
identified in a servicing transfer agreement.
    41(k)(3) Complete loss mitigation applications pending at 
transfer.
    41(k)(3)(i) In general.
    1. Additional information or corrections to a previously 
submitted document. If a transferee servicer acquires the servicing 
of a mortgage loan for which a complete loss mitigation application 
is pending as of the transfer date and the transferee servicer 
determines that additional information or a correction to a 
previously submitted document is required based upon its criteria 
for evaluating loss mitigation applications, the application is 
considered facially complete under Sec.  1024.41(c)(2)(iv) as of the 
date it was first facially complete or complete, as applicable, with 
respect to the transferor servicer. Once the transferee servicer 
receives the information or corrections necessary to complete the 
application, Sec.  1024.41(c)(3) requires the transferee servicer to 
provide a notice of complete application. An application that was 
complete with respect to the transferor servicer remains complete 
even if the transferee servicer requests that a borrower resubmit 
the same information in the transferee servicer's specified format 
or make clerical corrections to the application. A borrower's 
failure to resubmit such information or make such clerical 
corrections does not extend the time in which the transferee 
servicer must complete the evaluation of the borrower's complete 
application.
    2. Applications first complete upon transfer. If the borrower's 
loss mitigation application was incomplete based on the transferor 
servicer's criteria prior to transfer but the transferee servicer 
determines that the application is complete based upon its own 
criteria, the application is considered a pending loss mitigation 
application complete as of the transfer date for purposes of Sec.  
1024.41(k)(3). For purposes of Sec.  1024.41(e) through (h), the 
application is complete as of the date the transferor servicer 
received the documents and information constituting the complete 
application. See comment 41(k)(1)-2. In such circumstances, Sec.  
1024.41(c)(3) requires a transferee servicer to provide a notice of 
complete application.
    41(k)(3)(iii) Compliance not practicable.
    1. Reasonably prompt time. Section 1024.41(k)(3)(iii) requires 
that if compliance with the time periods set forth in Sec.  
1024.41(k)(3)(i) or (ii)(A), as applicable, is not practicable under 
the circumstances, a transferee servicer must complete the 
evaluation of the complete loss mitigation application and provide 
the applicable notices required by Sec.  1024.41(c)(1) and (4) 
within a reasonably prompt time. In general, completing the 
evaluation and providing the applicable notices within an additional 
five days after the expiration of the time periods set forth in 
Sec.  1024.41(k)(3)(i) or (ii)(A) would be considered reasonably 
prompt.
    41(k)(4) Applications subject to appeal process.
    1. Servicer unable to evaluate appeal. A transferee servicer may 
be unable to evaluate an appeal when, for example, the transferor 
servicer denied a borrower for a loan modification option that the 
transferee servicer does not offer or when the transferee servicer 
receives the mortgage loan through an involuntary transfer and the 
transferor servicer failed to maintain proper records such that the 
transferee servicer lacks sufficient information to evaluate the 
appeal. In that circumstance, the transferee servicer is required to 
treat the appeal as a pending complete application and it must 
permit the borrower to accept or reject any loss mitigation options 
offered by the transferor servicer, in addition to the loss 
mitigation options, if any, that the transferee servicer determines 
to offer the borrower based on its own evaluation of the borrower's 
complete loss mitigation application. For example, assume a 
transferor servicer denied a borrower for all loan modification 
options but offered the borrower a short sale option, and assume 
that the borrower's appeal of the loan modification denials was 
pending as of the transfer date. If the transferee servicer is 
unable to evaluate the borrower's appeal, the transferee servicer 
must evaluate the borrower for all available loss mitigation options 
in accordance with Sec.  1024.41(c) and (k)(3). At the conclusion of 
such evaluation, the transferee servicer must permit the borrower to 
accept the short sale option offered by the transferor servicer in 
addition to any loss mitigation options the transferee servicer 
determines to offer the borrower based upon its own evaluation.
    2. Reasonably prompt time. Section 1024.41(k)(5) requires that 
if a servicer is able to determine the outcome of an appeal, but 
compliance within 30 days of when the borrower made the appeal is 
not practicable under the circumstances, a transferee servicer must 
complete the determination and provide the notice required by Sec.  
1024.41(h)(4) within a reasonably prompt time. In general, 
completing the evaluation and providing the notice within an 
additional five days after the expiration of the original 30-day 
evaluation period would be considered reasonably prompt.
    41(k)(5) Pending loss mitigation offers.
    1. Obtaining evidence of borrower acceptance. A transferee 
servicer should expect that a borrower may provide an acceptance to 
the transferor servicer after the transfer date, and, in accordance 
with policies and procedures maintained pursuant to Sec.  
1024.38(b)(4), a transferee servicer must obtain information or 
documents reflecting such acceptances from the transferor servicer 
and provide the borrower with the accepted loss mitigation option.

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
12. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 5511, 
5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart A--General

0
13. Section 1026.2 is amended by revising paragraph (a)(11) and adding 
paragraph (a)(27) to read as follows:


Sec.  1026.2  Definitions and rules of construction.

* * * * *
    (a) * * *
    (11) Consumer means a cardholder or natural person to whom consumer 
credit is offered or extended. However, for purposes of rescission 
under Sec. Sec.  1026.15 and 1026.23, the term also

[[Page 74296]]

includes a natural person in whose principal dwelling a security 
interest is or will be retained or acquired, if that person's ownership 
interest in the dwelling is or will be subject to the security 
interest; and for purposes of Sec. Sec.  1026.20(c) through (e), 
1026.36(c), and 1026.41, the term includes a successor in interest once 
a servicer confirms the successor in interest's identity and ownership 
interest in the dwelling.
* * * * *
    (27) Successor in interest means a person to whom an ownership 
interest in a dwelling securing a closed-end consumer credit 
transaction is transferred from a prior consumer, provided that the 
transfer falls under an exemption specified in section 341(d) of the 
Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C. 1701j-
3(d)).
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

0
14. Section 1026.36 is amended by revising paragraphs (c)(1) 
introductory text and (c)(2) introductory text to read as follows:


Sec.  1026.36  Prohibited acts or practices and certain requirements 
for credit secured by a dwelling.

* * * * *
    (c) * * *
    (1) Payment processing. In connection with a closed-end consumer 
credit transaction secured by a consumer's principal dwelling:
* * * * *
    (2) No pyramiding of late fees. In connection with a closed-end 
consumer credit transaction secured by a consumer's principal dwelling, 
a servicer shall not impose any late fee or delinquency charge for a 
payment if:
* * * * *
0
15. Section 1026.41 is amended by revising paragraphs (d)(8)(i) and 
(e)(4)(iii)(A), adding paragraph (e)(4)(iii)(D), revising paragraph 
(e)(5), and adding paragraphs (e)(6) and (f) to read as follows:


Sec.  1026.41  Periodic statements for residential mortgage loans.

* * * * *
    (d) * * *
    (8) * * *
    (i) The length of the consumer's delinquency, as of the date of the 
periodic statement;
* * * * *
    (e) * * *
    (4) * * *
    (iii) * * *
    (A) Mortgage loans voluntarily serviced by the servicer for a non-
affiliate of the servicer and for which the servicer does not receive 
any compensation or fees.
* * * * *
    (D) Transactions serviced by the servicer for a seller financer 
that meet all of the criteria identified in 12 CFR 1026.36(a)(5).
    (5) Certain Consumers in Bankruptcy--(i) Exemption. A servicer is 
exempt from the requirements of this section, except as provided in 
paragraph (e)(5)(ii) of this section, with respect to a consumer if:
    (A) The consumer is a debtor in a case under the U.S. Bankruptcy 
Code; the consumer is a primary obligor on a mortgage loan for which 
another primary obligor is a debtor in a Chapter 12 or Chapter 13 case 
under the U.S. Bankruptcy Code; or the consumer has discharged personal 
liability for the mortgage loan pursuant to 11 U.S.C. 727, 1141, 1228, 
or 1328; and
    (B) One of the following conditions is satisfied:
    (1) The consumer requests in writing that the servicer cease 
providing periodic statements or coupon books;
    (2) The consumer's confirmed plan of reorganization provides that 
the consumer will surrender the dwelling securing the mortgage loan, 
provides for the avoidance of the lien securing the mortgage loan, or 
otherwise does not provide for, as applicable, the payment of pre-
bankruptcy arrearage or the maintenance of payments due under the 
mortgage loan;
    (3) A court enters an order in the consumer's bankruptcy case 
providing for the avoidance of the lien securing the mortgage loan, 
lifting the automatic stay pursuant to 11 U.S.C. 362 with respect to 
the dwelling securing the mortgage loan, or requiring the servicer to 
cease providing periodic statements or coupon books; or
    (4) The consumer files with the court overseeing the consumer's 
bankruptcy case a Statement of Intention pursuant to 11 U.S.C. 521(a) 
identifying an intent to surrender the dwelling securing the mortgage 
loan.
    (ii) Resuming compliance--(A) Consumer request. Notwithstanding 
paragraph (e)(5)(i) of this section, a servicer must comply with the 
requirements of this section if the consumer requests in writing that 
the servicer continue providing periodic statements or coupon books, 
unless a court enters an order in the consumer's bankruptcy case 
requiring the servicer to cease providing periodic statements or coupon 
books. A servicer must resume providing periodic statements or coupon 
books in compliance with paragraph (f) of this section within a 
reasonably prompt time after the next payment due date that follows a 
servicer's receipt of a consumer's written request.
    (B) Termination of bankruptcy case. With respect to any portion of 
the mortgage debt that is not discharged pursuant to 11 U.S.C. 727, 
1141, 1228, or 1328, a servicer must resume providing periodic 
statements or coupon books in compliance with this section within a 
reasonably prompt time after the next payment due date that follows the 
earliest of the following outcomes in either the consumer's or the 
joint obligor's bankruptcy case, as applicable: the case is dismissed, 
the case is closed, the consumer reaffirms the mortgage loan under 11 
U.S.C. 524, or the consumer receives a discharge under 11 U.S.C. 727, 
1141, 1228, or 1328.
    (6) Charged-off loans. A servicer is exempt from the requirements 
of this section for a mortgage loan if the servicer:
    (i) Has charged off the loan in accordance with loan-loss 
provisions and will not charge any additional fees or interest on the 
account; and
    (ii) Provides, within 30 days of charge off or the most recent 
periodic statement, a final periodic statement, clearly and 
conspicuously labeled ``Final Statement--Retain This Copy for Your 
Records.'' The final periodic statement must explain in simple and 
clear terms that: the mortgage loan has been charged off and the 
servicer will not charge any additional fees or interest on the 
account; the lien on the property remains in place and the consumer 
remains liable for the mortgage loan obligation; the consumer may be 
required to pay the balance on the account in the future, for example, 
upon sale of the property; the balance on the account is not being 
cancelled or forgiven; and the loan may be purchased, assigned, or 
transferred.
    (f) Modified periodic statements and coupon books for certain 
consumers in bankruptcy. With respect to a consumer who is a debtor in 
a case under the U.S. Bankruptcy Code or has discharged personal 
liability for a mortgage loan under 11 U.S.C. 727, 1141, 1228, or 1328, 
the requirements of this section are subject to the following 
modifications:
    (1) Requirements not applicable. The periodic statement may omit 
the information set forth in paragraphs (d)(1)(ii) and (d)(8)(i), (ii), 
and (v) of this section. The requirement in paragraph (d)(1)(iii) of 
this section to show the

[[Page 74297]]

amount due more prominently than other disclosures on the page shall 
not apply.
    (2) Bankruptcy notices. The periodic statement must include the 
following on the first page:
    (i) A statement identifying the consumer's status as a debtor in 
bankruptcy or the discharged nature of the mortgage loan; and
    (ii) A statement that the periodic statement is for informational 
purposes only.
    (3) Chapter 12 and Chapter 13 consumers. With respect to a consumer 
who is a debtor in a Chapter 12 or Chapter 13 bankruptcy case, the 
requirements of this section are subject to the following additional 
modifications:
    (i) Requirements not applicable. In addition to omitting the 
information set forth in paragraph (f)(1) of this section, the periodic 
statement may also omit the information set forth in paragraphs 
(d)(8)(iii), (iv), (vi), and (vii) of this section.
    (ii) Amount due. The amount due information set forth in paragraph 
(d)(1) of this section may be limited to the date and amount of the 
post-petition payments due and any post-petition fees and charges 
imposed by the servicer.
    (iii) Explanation of amount due. The explanation of amount due 
information set forth in paragraph (d)(2) of this section may be 
limited to the post-petition payments and any post-petition fees and 
charges imposed by the servicer.
    (iv) Past payment breakdown. The items required by paragraph (d)(3) 
of this section must include the following:
    (A) The total of all post-petition payments received since the last 
statement, including a breakdown showing the amount, if any, that was 
applied to principal, interest, and escrow, and the amount, if any, 
sent to any suspense or unapplied funds account;
    (B) The total of all post-petition payments received since the 
beginning of the current calendar year, including a breakdown of that 
total showing the amount, if any, that was applied to principal, 
interest, escrow, and the amount, if any, currently held in any 
suspense or unapplied funds account;
    (C) The total of all payments applied to post-petition fees or 
charges since the last statement; and
    (D) The total of all payments applied to post-petition fees or 
charges since the beginning of the current calendar year.
    (v) Transaction activity. The transaction activity information set 
forth in paragraph (d)(4) of this section must include any post-
petition payments, pre-petition payments, and payments of post-petition 
fees or charges the servicer has received since the last statement.
    (vi) Pre-petition arrearage. If applicable, a servicer must include 
the following, grouped in close proximity to each other:
    (A) The total of all pre-petition payments received since the last 
statement;
    (B) The total of all pre-petition payments received since the 
beginning of the current calendar year; and
    (C) The current balance of the consumer's pre-petition arrearage.
    (vii) Additional disclosures. The periodic statement must include 
the following, as applicable:
    (A) A statement that the amount due includes only post-petition 
payments and does not include other payments that may be due under the 
terms of the consumer's bankruptcy plan;
    (B) A statement that, if the consumer's plan of reorganization 
requires the consumer to make the post-petition mortgage payments 
directly to a bankruptcy trustee, the consumer should send the payment 
to the trustee and not to the servicer;
    (C) A statement that the information disclosed on the periodic 
statement may not reflect payments the consumer has made to the trustee 
and may not be consistent with the trustee's records; and
    (D) A statement that encourages the consumer to contact the 
consumer's attorney or the trustee with questions regarding the 
application of payments.
    (4) Multiple obligors. If a servicer is required to provide 
periodic statements with the modifications set forth in Sec.  
1026.41(f) in connection with a mortgage loan with more than one 
primary obligor, the servicer may provide the modified statements to 
any or all of the primary obligors and need not provide any statements 
that do not include the modifications set forth paragraphs (f)(1) 
through (3) of this section, even if not all of the primary obligors 
are debtors in bankruptcy.
    (5) Coupon books. A servicer that provides a coupon book instead of 
regular periodic statement under paragraph (e)(3) of this section must 
include in the coupon book the disclosures set forth in paragraph 
(f)(2) and (f)(3)(vii) of this section, as applicable. The servicer may 
include these disclosures anywhere in the coupon book provided to the 
consumer or on a separate page enclosed with the coupon book. The 
servicer must make available upon request to the consumer by telephone, 
in writing, in person, or electronically, if the consumer consents, the 
information listed in paragraph (f)(3)(vi) of this section, as 
applicable. The modifications set forth in paragraph (f)(1) and 
(f)(3)(i) through (v) and (vii) of this section apply to coupon books 
and other information a servicer provides to the consumer under 
paragraph (e)(3) of this section.
0
16. Appendix H to part 1026 is amended by:
0
A. Revising the entry for H-30(C) in the table of contents at the 
beginning of the appendix;
0
B. Adding entries for H-30(E) and H-30(F) in the table of contents at 
the beginning of the appendix;
0
C. Revising H-4(C);
0
D. Revising H-14;
0
E. Republishing H-30(C); and
0
F. Adding H-30(E) and H-30(F).
    The additions, republication, and revisions read as follows:

Appendix H to Part 1026-- Closed-End Model Forms and Clauses

* * * * *

H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan 
(Sec.  1026.41)

* * * * *

H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or 
Chapter 11 Bankruptcy

H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or 
Chapter 13 Bankruptcy

* * * * *

H-4(C)--Variable Rate Model Clauses

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.

How Your Interest Rate and Payment Are Determined

     Your interest rate will be based on [an index plus a 
margin] [a formula].
     Your payment will be based on the interest rate, loan 
balance, and loan term.
    --[The interest rate will be based on (identification of index) 
plus our margin. Ask for our current interest rate and margin.]
    --[The interest rate will be based on (identification of 
formula). Ask us for our current interest rate.]
    --Information about the index [formula for rate adjustments] is 
published [can be found] __--.
    --[The initial interest rate is not based on the (index) 
(formula) used to make later adjustments. Ask us for the amount of 
current interest rate discounts.]

How Your Interest Rate Can Change

     Your interest rate can change (frequency).
     [Your interest rate cannot increase or decrease more 
than _-- percentage points at each adjustment.]
     Your interest rate cannot increase [or decrease] more 
than _-- percentage points over the term of the loan.

[[Page 74298]]

How Your Payment Can Change

     Your payment can change (frequency) based on changes in 
the interest rate.
     [Your payment cannot increase more than (amount or 
percentage) at each adjustment.]
     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the adjustment, including the interest 
rate, payment amount, and loan balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]
     [For example, on a $10,000 [term] loan with an initial 
interest rate of _-- [(the rate shown in the interest rate column 
below for the year 19 _--)] [(in effect (month) (year)], the maximum 
amount that the interest rate can rise under this program is _-- 
percentage points, to _--%, and the monthly payment can rise from a 
first-year payment of $_-- to a maximum of $_-- in the _-- year. To 
see what your payments would be, divide your mortgage amount by 
$10,000; then multiply the monthly payment by that amount. (For 
example, the monthly payment for a mortgage amount of $60,000 would 
be: $60,000 / $10,000 = 6; 6 x _-- = $_-- per month.)]
    [Example
    The example below shows how your payments would have changed 
under this ARM program based on actual changes in the index from 
1982 to 1996. This does not necessarily indicate how your index will 
change in the future.
    The example is based on the following assumptions:

Amount...................................  $10,000
Term.....................................  .............................
Change date..............................  .............................
Payment adjustment.......................  (frequency)
Interest adjustment......................  (frequency)
[Margin]*................................  .............................
Caps __ [periodic interest rate cap]
X [lifetime interest rate cap
X [payment cap]
[Interest rate carryover]
[Negative amortization]
[Interest rate discount]**
Index(identification of index or formula)
------------------------------------------------------------------------
------------------------------------------------------------------------
*This is a margin we have used recently, your margin may be different.
**This is the amount of a discount we have provided recently; your loan
  may be discounted by a different amount.]


----------------------------------------------------------------------------------------------------------------
                                                      Margin
              Year                  Index  (%)      (percentage    Interest rate      Monthly        Remaining
                                                      points)           (%)        payment  ($)    balance  ($)
----------------------------------------------------------------------------------------------------------------
1982............................  ..............  ..............  ..............  ..............  ..............
1983............................  ..............  ..............  ..............  ..............  ..............
1984............................  ..............  ..............  ..............  ..............  ..............
1985............................  ..............  ..............  ..............  ..............  ..............
1986............................  ..............  ..............  ..............  ..............  ..............
1987............................  ..............  ..............  ..............  ..............  ..............
1988............................  ..............  ..............  ..............  ..............  ..............
1989............................  ..............  ..............  ..............  ..............  ..............
1990............................  ..............  ..............  ..............  ..............  ..............
1991............................  ..............  ..............  ..............  ..............  ..............
1992............................  ..............  ..............  ..............  ..............  ..............
1993............................  ..............  ..............  ..............  ..............  ..............
1994............................  ..............  ..............  ..............  ..............  ..............
1995............................  ..............  ..............  ..............  ..............  ..............
1996............................  ..............  ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
  multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
  of $60,000 taken out in 1982 would be: $60,000 / $10,000 = 6; 6 x __ = $o per month.)

* * * * *

H-14--Variable-Rate Mortgage Sample

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.

How Your Interest Rate and Payment Are Determined

     Your interest rate will be based on an index rate plus 
a margin.
     Your payment will be based on the interest rate, loan 
balance, and loan term.
    --The interest rate will be based on the weekly average yield on 
United States Treasury securities adjusted to a constant maturity of 
1 year (your index), plus our margin. Ask us for our current 
interest rate and margin.
    --Information about the index rate is published weekly in the 
Wall Street Journal.
     Your interest rate will equal the index rate plus our 
margin unless your interest rate ``caps'' limit the amount of change 
in the interest rate.

How Your Interest Rate Can Change

     Your interest rate can change yearly.
     Your interest rate cannot increase or decrease more 
than 2 percentage points per year.
     Your interest rate cannot increase or decrease more 
than 5 percentage points over the term of the loan.

How Your Monthly Payment Can Change

     Your monthly payment can increase or decrease 
substantially based on annual changes in the interest rate.
     [For example, on a $10,000, 30-year loan with an 
initial interest rate of 12.41 percent in effect in July 1996, the 
maximum amount that the interest rate can rise under this program is 
5 percentage points, to 17.41 percent, and the monthly payment can 
rise from a first-year payment of $106.03 to a maximum of $145.34 in 
the fourth year. To see what your payment is, divide your mortgage 
amount by $10,000; then multiply the monthly payment by that amount. 
(For example, the monthly payment for a mortgage amount of $60,000 
would be: $60,000/$10,000=6; 6x106.03=$636.18 per month.)]
     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the adjustment, including the interest 
rate, payment amount, and loan balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]
    [Example
    The example below shows how your payments would have changed 
under this ARM program based on actual changes in the index from 
1982 to 1996. This does not necessarily indicate how your index will 
change in the future. The example is based on the following 
assumptions:

Amount...................................  $10,000
Term.....................................  30 years
Payment adjustment.......................  1 year
Interest adjustment......................  1 year
Margin...................................  3 percentage points
Caps+ 2 percentage points annual interest rate

[[Page 74299]]

 
X 5 percentage points lifetime interest rate
Index+ Weekly average yield on U.S. Treasury securities adjusted to a
 constant maturity of one year.
------------------------------------------------------------------------


 
                                                     Margin *
 Year (as of 1st week ending in      Index (%)      (percentage    Interest rate      Monthly        Remaining
              July)                                   points)           (%)         payment ($)     balance ($)
----------------------------------------------------------------------------------------------------------------
1982............................           14.41               3           17.41          145.90        9,989.37
1983............................            9.78               3        ** 15.41          129.81        9,969.66
1984............................           12.17               3           15.17          127.91        9,945.51
1985............................            7.66               3        ** 13.17          112.43        9,903.70
1986............................            6.36               3       *** 12.41          106.73        9,848.94
1987............................            6.71               3       *** 12.41          106.73        9,786.98
1988............................            7.52               3       *** 12.41          106.73        9,716.88
1989............................            7.97               3       *** 12.41          106.73        9,637.56
1990............................            8.06               3       *** 12.41          106.73        9,547.83
1991............................            6.40               3       *** 12.41          106.73        9,446.29
1992............................            3.96               3       *** 12.41          106.73        9,331.56
1993............................            3.42               3       *** 12.41          106.73        9,201.61
1994............................            5.47               3       *** 12.41          106.73        9,054.72
1995............................            5.53               3       *** 12.41          106.73        8,888.52
1996............................            5.82               3       *** 12.41          106.73        8,700.37
----------------------------------------------------------------------------------------------------------------
* This is a margin we have used recently; your margin may be different.
** This interest rate reflects a 2 percentage point annual interest rate cap.
*** This interest rate reflects a 5 percentage point lifetime interest rate cap.
Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then
  multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount
  of $60,000 taken out in 1982 would be: $60,000/$10,000=6; 6x$106.73=$640.38.)]

     [You will be notified at least 210, but no more than 
240, days before first payment at the adjusted level is due after 
the initial interest rate adjustment of the loan. This notice will 
contain information about the adjustment, including the interest 
rate, payment amount, and loan balance.]
     [You will be notified at least 60, but no more than 
120, days before first payment at the adjusted level is due after 
any interest rate adjustment resulting in a corresponding payment 
change. This notice will contain information about the adjustment, 
including the interest rate, payment amount, and loan balance.]
* * * * *

H-30(C) Sample Form of Periodic Statement for a Payment-Option Loan

BILLING CODE 4810-AM-C

[[Page 74300]]

[GRAPHIC] [TIFF OMITTED] TP15DE14.000

* * * * *

H-30(E) Sample Form of Periodic Statement for Consumer in Chapter 7 or 
Chapter 11 Bankruptcy

[[Page 74301]]

[GRAPHIC] [TIFF OMITTED] TP15DE14.001

H-30(F) Sample Form of Periodic Statement for Consumer in Chapter 12 or 
Chapter 13 Bankruptcy

[[Page 74302]]

[GRAPHIC] [TIFF OMITTED] TP15DE14.002

BILLING CODE 4810-AM-P
* * * * *

0
17. In Supplement I to part 1026:
0
A. Under Section 1026.2--Definitions and Rules of Construction:
0
i. Under 2(a)(11) Consumer, paragraph 4 is added.
0
B. Under Section 1026.36--Prohibited Acts or Practices and Certain 
Requirements for Credit Secured by a Dwelling:
0
i. Under 36(c) Servicing practices:
0
a. Under Paragraph 36(c)(1)(i), paragraphs 4 and 5 are added.
0
C. Under Section 1026.41--Periodic Statements for Residential Mortgage 
Loans:
0
i. Under 41(a) In general, paragraph 5 is added.
0
ii. Under 41(d) Content and layout of the periodic statement, paragraph 
1 is revised and paragraphs 4 and 5 are added.
0
a. The heading 41(d)(1) Amount due is added, and paragraphs 1 through 3 
under that heading are added.
0
b. The heading 41(d)(2) Explanation of amount due is added, and 
paragraphs 1 and 2 under that heading are added.

[[Page 74303]]

0
c. The heading 41(d)(8) Delinquency information is added, and 
paragraphs 1 and 2 under that heading are added.
0
iii. Under 41(e)(5) Consumers in bankruptcy, the heading is revised.
0
iv. Under revised heading 41(e)(5) Certain consumers in bankruptcy, 
paragraph 1 is revised and paragraphs 2 and 3 are removed.
0
a. The heading 41(e)(5)(i) Exemption is added, and paragraphs 1 and 2 
under that heading are added.
0
b. The heading Paragraph 41(e)(5)(i)(B)(4) is added, and paragraph 1 
under that heading is added.
0
c. The heading 41(e)(5)(ii) Resuming compliance is added, and 
paragraphs 1 through 3 under that heading are added.
0
v. The heading 41(e)(6) Charged-off loans is added, and paragraphs 1 
and 2 under that heading are added.
0
vi. The heading 41(f) Modified periodic statements and coupon books for 
certain consumers in bankruptcy is added, and paragraphs 1 through 3 
under that heading are added.
0
a. The heading 41(f)(3) Chapter 12 and Chapter 13 consumers is added, 
and paragraphs 1 through 4 under that heading are added.
0
c. The heading 41(f)(3)(ii) Amount due is added, and paragraph 1 under 
that heading is added.
0
d. The heading 41(f)(3)(iii) Explanation of amount due is added, and 
paragraph 1 under that heading is added.
0
e. The heading 41(f)(3)(v) Transaction activity is added, and paragraph 
1 under that heading is added.
0
f. The heading 41(f)(3)(vi) Pre-petition arrearage is added, and 
paragraph 1 under that heading is added.
0
g. The heading 41(f)(4) Multiple obligors is added, and paragraph 1 
under that heading is added.
    The additions and revisions read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart A--General

* * * * *

Section 1026.2-- Definitions and Rules of Construction

* * * * *
    2(a)(11) Consumer.
* * * * *
    4. Successors in interest. Even after a servicer's confirmation 
of a successor in interest's identity and ownership interest in the 
dwelling, the servicer is still generally required to comply with 
the requirements of Sec. Sec.  1026.20(c) through (e), 1026.36(c), 
and 1026.41 with respect to the prior consumer. However, a servicer 
is not required to comply with the requirements of Sec. Sec.  
1026.20(c) through (e) and 1026.41 if the prior consumer also has 
either died or has been released from the obligation on the mortgage 
loan, and a servicer is not required to comply with the requirements 
of Sec.  1026.36(c) if the prior consumer also has been released 
from the obligation on the mortgage loan. The prior consumer retains 
any rights under Sec. Sec.  1026.20(c) through (e), 1026.36(c), and 
1026.41 that accrued prior to the confirmation of the successor in 
interest to the extent these rights would otherwise survive the 
prior consumer's death or release from the obligation.
* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 1026.36--Prohibited Acts or Practices and Certain 
Requirements for Credit Secured by a Dwelling

* * * * *
    36(c) Servicing practices.
    Paragraph 36(c)(1)(i).
* * * * *
    4. Temporary loss mitigation programs. If the loan contract has 
not been permanently modified but the consumer has agreed to a 
temporary loss mitigation program, a periodic payment under Sec.  
1026.36(c)(1)(i) is the amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the loan contract, irrespective of the payment due under the 
temporary loss mitigation program.
    5. Permanent loan modifications. If the loan contract has been 
permanently modified, a periodic payment under Sec.  
1026.36(c)(1)(i) is an amount sufficient to cover principal, 
interest, and escrow (if applicable) for a given billing cycle under 
the modified loan contract.
* * * * *

Section 1026.41--Periodic Statements for Residential Mortgage Loans

* * * * *
    41(a) In general.
* * * * *
    5. Successors in interest.
    i. Treatment of successors in interest. Under Sec.  
1026.2(a)(11), a successor in interest is a consumer for purposes of 
this section once a servicer confirms the successor in interest's 
identity and ownership interest in the dwelling. Accordingly, a 
servicer of a transaction subject to this section must provide a 
successor in interest with a periodic statement meeting the 
requirements of this section once the servicer confirms the 
successor in interest's identity and ownership interest in the 
dwelling.
    ii. Multiple periodic statements unnecessary. If a servicer 
sends a periodic statement meeting the requirements of Sec.  1026.41 
to another consumer, the servicer need not also send a periodic 
statement to a successor in interest; a single statement may be 
sent. Also, if a servicer confirms more than one successor in 
interest's identity and ownership interest in the dwelling, the 
servicer need not send periodic statements to more than one of the 
successors in interest.
* * * * *
    41(d) Content and layout of the periodic statement.
    1. Close proximity. Paragraph (d) requires several disclosures 
to be provided in close proximity to one another. To meet this 
requirement, the items to be provided in close proximity must be 
grouped together, and set off from the other groupings of items. 
This could be accomplished in a variety of ways, for example, by 
presenting the information in boxes, or by arranging the items on 
the document and including spacing between the groupings. Items in 
close proximity may not have any unrelated text between them. Text 
is unrelated if it does not explain or expand upon the required 
disclosures.
* * * * *
    4. Temporary loss mitigation programs. If the consumer has 
agreed to a temporary loss mitigation program, the disclosures 
required by Sec.  1026.41(d)(2), (3), and (5) regarding how payments 
will be and were applied should identify how payments are applied 
according to the loan contract, irrespective of the loss mitigation 
program.
    5. First statement after exemption terminates. Section 
1026.41(d)(2)(ii), (d)(3)(i), and (d)(4) require the disclosure of 
the total sum of any fees or charges imposed, the total of all 
payments received, a breakdown of how payments were applied, and a 
list of all transaction activity ``since the last statement.'' For 
purposes of the first periodic statement provided to the consumer 
following termination of an exemption under Sec.  1026.41(e), the 
disclosures required by Sec.  1026.41(d)(2)(ii), (d)(3)(i), and 
(d)(4) may be limited to account activity since the last payment due 
date that occurred while the exemption was in effect. For example, 
if mortgage loan payments are due on the first of each month and the 
servicer's exemption under paragraph (e) terminated on January 15, 
the first statement provided to the consumer after January 15 may be 
limited to the total sum of any fees or charges imposed, the total 
of all payments received, a breakdown of how the payments were 
applied, and a list of all transaction activity since January 1.
    41(d)(1) Amount due.
    1. Acceleration. If the balance of a mortgage loan has been 
accelerated but the servicer will accept a lesser amount to 
reinstate the loan, the amount due under Sec.  1026.41(d)(1) should 
identify only the lesser amount that will be accepted to reinstate 
the loan.
    2. Temporary loss mitigation programs. If the consumer has 
agreed to a temporary loss mitigation program, the amount due under 
Sec.  1026.41(d)(1) may identify either the payment due under the 
temporary loss mitigation program or the amount due according to the 
loan contract.
    3. Permanent loan modifications. If the loan contract has been 
permanently modified, the amount due under Sec.  1026.41(d)(1) 
should identify only the amount due under the modified loan 
contract.
    41(d)(2) Explanation of amount due.
    1. Acceleration. If the balance of a mortgage loan has been 
accelerated but the servicer will accept a lesser amount to

[[Page 74304]]

reinstate the loan, the explanation of amount due under Sec.  
1026.41(d)(2) should include both the reinstatement amount and the 
accelerated amount, but not the monthly payment amount that would 
otherwise be required under Sec.  1026.41(d)(2)(i). The statement 
should also include an explanation that the reinstatement amount 
will be accepted to reinstate the loan. The explanation should be on 
the front page of the statement or, alternatively, may be included 
on a separate page enclosed with the periodic statement or in a 
separate letter.
    2. Temporary loss mitigation programs. If the consumer has 
agreed to a temporary loss mitigation program and the amount due 
identifies the payment due under the temporary loss mitigation 
program, the explanation of amount due under Sec.  1026.41(d)(2) 
should include both the amount due according to the loan contract 
and the payment due under the temporary loss mitigation program. The 
statement should also include an explanation that the amount due is 
being disclosed as a different amount because of the temporary loss 
mitigation program. The explanation should be on the front page of 
the statement or, alternatively, may be included on a separate page 
enclosed with the periodic statement or in a separate letter.
* * * * *
    41(d)(8) Delinquency information.
    1. Length of delinquency. For purposes of Sec.  1026.41(d)(8), a 
consumer's delinquency begins on the date an amount sufficient to 
cover a periodic payment of principal, interest, and escrow (if 
applicable) became due and unpaid, even if the consumer is afforded 
a period after the due date to pay before the servicer assesses a 
late fee. A consumer is delinquent if one or more periodic payments 
of principal, interest, and escrow (if applicable) are due and 
unpaid.
    2. Application of funds. For purposes of Sec.  1026.41(d)(8), if 
a servicer applies payments to the oldest outstanding periodic 
payment, a payment by a delinquent consumer advances the date the 
consumer's delinquency began. For example, assume a mortgage loan 
obligation under which a consumer's periodic payment sufficient to 
cover principal, interest, and escrow is due on the first of each 
month. A consumer fails to make a payment on January 1, but makes a 
periodic payment on February 1. The servicer applies the payment 
received on February 1 to the outstanding January payment. On 
February 2, the consumer is one day delinquent, and the following 
periodic statement should disclose the length of the consumer's 
delinquency using February 2 as the first day of delinquency.
* * * * *
    41(e)(5) Certain consumers in bankruptcy.
    1. Consumer's representative. If an agent of the consumer 
submits a request under Sec.  1026.41(e)(5)(i)(B)(1) or (ii), the 
request is deemed to be submitted by the consumer.
    41(e)(5)(i) Exemption.
    1. Multiple obligors. When two or more consumers are primarily 
liable on a mortgage loan, an exemption under Sec.  1026.41(e)(5)(i) 
with respect to one of the primary obligors does not affect the 
servicer's obligations to comply with Sec.  1026.41 with respect to 
the other primary obligors. For example, assume that two spouses 
jointly own a home and are both liable on the note, and one of the 
spouses files Chapter 7 bankruptcy. That spouse files a Statement of 
Intention in the bankruptcy case identifying an intent to surrender 
the home. The servicer is exempt under Sec.  1026.41(e)(i) from 
providing periodic statements with respect to the spouse in 
bankruptcy, but the servicer is required to comply with Sec.  
1026.41 with respect to the other spouse. As a result, the other 
spouse would continue to receive regular periodic statements, which 
would not include any of the modifications set forth in Sec.  
1026.41(f). On the other hand, if the spouse in bankruptcy had 
instead filed a Statement of Intention identifying an intent to 
retain the property and reaffirm the mortgage loan, the servicer 
would not be exempt under Sec.  1026.41(e)(i) with respect to that 
spouse. In that case, the servicer would have to provide periodic 
statements with the modifications required under Sec.  1026.41(f)(1) 
and (2). As comment 41(f)(4)-1 explains, the servicer could provide 
a periodic statement with the modifications set forth in Sec.  
1026.41(f)(1) and (2) to either of the two spouses, even though only 
one of the spouses is in bankruptcy.
    2. Plan of reorganization. For purposes of Sec.  1026.41(e)(5), 
``plan of reorganization'' refers to a consumer's plan of 
reorganization filed under the applicable provisions of Chapter 11, 
Chapter 12, or Chapter 13 of the U.S. Bankruptcy Code, and confirmed 
by a court with jurisdiction over the consumer's bankruptcy case.
    Paragraph 41(e)(5)(i)(B)(4).
    1. Statement of intention. A servicer must rely on the 
consumer's most recently filed Statement of Intention to determine 
whether the exemption under Sec.  1026.41(e)(5)(i) applies. For 
example, if a consumer files a Statement of Intention on June 1 
identifying an intent to retain the dwelling securing the mortgage 
loan, but the consumer files an amended Statement of Intention on 
June 15 identifying an intent to surrender the dwelling, the 
servicer must rely on the June 15 Statement of Intention to 
determine that it is exempt under Sec.  1026.41(e)(5)(i) with 
respect to that consumer.
    41(e)(5)(ii) Resuming compliance.
    1. Multiple requests. A servicer must comply with a consumer's 
most recent written request to cease or to continue, as applicable, 
providing periodic statements or coupon books.
    2. Reasonably prompt time. Section 1026.41(e)(ii) requires that 
a servicer resume providing periodic statements or coupon books 
within a reasonably prompt time after the next payment due date that 
follows a servicer's receipt of a consumer's written request, the 
closing or dismissal of a bankruptcy case, the consumer's 
reaffirmation of the mortgage loan, or the consumer's discharge of 
the mortgage loan. Delivering, emailing or placing the periodic 
statement or coupon book in the mail within four days after the next 
payment due date, or within four days of the close of any applicable 
courtesy period, generally would be considered reasonably prompt.
    3. Bankruptcy case revived. If the consumer's bankruptcy case is 
revived--for example if the court reinstates a previously dismissed 
case or reopens the case--Sec.  1026.41(e)(5) may be applicable 
again.
    41(e)(6) Charged-off loans.
    1. Change in ownership. If a charged-off mortgage loan is 
subsequently purchased, assigned, or transferred, a covered person, 
as defined in Sec.  1026.39(a)(1), must provide the transfer 
disclosure required by Sec.  1026.39. A covered person, who would 
otherwise be subject to the requirements of Sec.  1026.41, may take 
advantage of the exemption in Sec.  1026.41(e)(6) as long as it 
treats the mortgage loan as charged off and will not charge any 
additional fees or interest on the account. If the consumer 
previously received a final periodic statement, a covered person is 
not also required to provide a final periodic statement, unless it 
began sending the consumer periodic statements and then later met 
the criteria under Sec.  1026.41(e)(6).
    2. Resuming compliance. If a servicer or a covered person, as 
defined in Sec.  1026.39(a)(1), who would otherwise be subject to 
the requirements of Sec.  1026.41, fails to treat the mortgage loan 
as charged off at any time or charges any additional fees or 
interest on the account, the obligation to provide a periodic 
statement pursuant to Sec.  1026.41 resumes. The servicer or covered 
person may not retroactively assess fees or interest on the account 
for the period of time during which the exemption in Sec.  
1026.41(e)(6) applied.
    41(f) Modified periodic statements and coupon books for certain 
consumers in bankruptcy.
    1. Application of 41(f) if case is closed or dismissed. A 
servicer must resume providing regular periodic statements or coupon 
books in accordance with Sec.  1026.41 if the consumer's bankruptcy 
case is closed or dismissed or the consumer reaffirms the mortgage 
loan. However, the requirements of Sec.  1026.41(f) continue to 
apply if the consumer has discharged personal liability for the 
mortgage loan.
    2. Terminology. With respect to a periodic statement provided 
under Sec.  1026.41(f), a servicer may use terminology other than 
that found on the sample periodic statements in appendix H-30, so 
long as the new terminology is commonly understood. See comment 
41(d)-3. For example, a servicer may take into account terminology 
appropriate for consumers in bankruptcy and refer to the ``amount 
due'' identified in Sec.  1026.41(d)(1), as the ``payment amount,'' 
``voluntary payment amount,'' or ``regular payment amount.'' 
Similarly, a servicer may refer to amounts past due as ``unpaid 
post-petition payments'' or ``prior unpaid amounts.'' Additionally, 
a servicer may refer to the delinquency information required by 
Sec.  1026.41(d)(8) as an ``account history,'' and to the amount 
needed to bring the loan current, referred to in Sec.  
1026.41(d)(8)(vi) as ``the total payment amount needed to bring the 
account current,'' as ``unpaid amounts.''
    3. Further modifications. A periodic statement or coupon book 
provided under Sec.  1026.41(f) may be modified as necessary to 
facilitate compliance with the U.S. Bankruptcy Code, Federal Rules 
of Bankruptcy Procedure, court orders, and local rules, guidelines, 
and standing orders. A periodic statement or coupon book may

[[Page 74305]]

include additional disclosures or disclaimers not required under 
Sec.  1026.41(f) but that are related to the consumer's status as a 
debtor in bankruptcy or that advise the consumer how to submit a 
written request under Sec.  1026.41(e)(5)(i)(B)(1).
    41(f)(3) Chapter 12 and Chapter 13 consumers.
    1. Plan of reorganization. For purposes of Sec.  1026.41(f)(3), 
``plan of reorganization'' refers to a consumer's plan of 
reorganization filed under the applicable provisions of Chapter 12 
or Chapter 13 of the U.S. Bankruptcy Code, and confirmed by a court 
with jurisdiction over the consumer's bankruptcy case.
    2. Pre-petition payments and post-petition payments. For 
purposes of Sec.  1026.41(f)(3), pre-petition payments are payments 
made under a plan of reorganization to cure the consumer's pre-
bankruptcy defaults, if any. Post-petition payments are payments 
made under a plan of reorganization to satisfy the mortgage loan's 
periodic payments as they come due after the bankruptcy case is 
filed. For example, assume a consumer has $3,600 in arrears as of 
the bankruptcy filing date with respect to a mortgage loan requiring 
monthly periodic payments of $2,000. The consumer's plan of 
reorganization requires the consumer to make payments of $100 each 
month for 36 months to pay the pre-bankruptcy arrearage, and $2,000 
each month to satisfy the monthly periodic payments. In this 
example, the $100 payments are the pre-petition payments and the 
$2,000 payments are the post-petition payments.
    3. Post-petition fees and charges. For purposes of Sec.  
1026.41(f)(3), post-petition fees and charges are those fees and 
charges imposed after the bankruptcy case is filed. To the extent 
that the court overseeing the consumer's bankruptcy case requires 
such fees and charges to be included as an amendment to a servicer's 
proof of claim, such fees and charges are not considered post-
petition fees and charges for purposes of Sec.  1026.41(f)(3) but 
should be included in the balance of the pre-petition arrearage 
under Sec.  1026.41(f)(3)(vi)(C).
    4. First statement after exemption terminates. Section 
1026.41(f)(3)(iii) through (vi) requires the disclosure of the total 
sum of any post-petition fees or charges imposed, the total of all 
post-petition payments received and how they were applied, the total 
of all payments applied to post-petition fees or charges imposed, a 
list of all transaction activity, and the total of all pre-petition 
payments received ``since the last statement.'' For purposes of the 
first periodic statement provided to the consumer following 
termination of an exemption under Sec.  1026.41(e), the disclosures 
required by Sec.  1026.41(f)(3)(iii) through (vi) may be limited to 
account activity since the last payment due date that occurred while 
the exemption was in effect. See comment 41(d)-5.
    41(f)(3)(ii) Amount due.
    1. Amount due. The amount due under Sec.  1026.41(d)(1) is not 
required to include any amounts other than the post-petition 
payments the consumer is required to make under the terms of plan of 
reorganization and post-petition fees and charges that a servicer 
has imposed. The servicer is not required to include in the amount 
due any pre-petition payments due under the plan of reorganization 
or other amounts payable pursuant to a court order. With respect to 
post-petition fees and charges, the amount due may be limited to 
including those post-petition fees and charges that a servicer has 
imposed. A servicer that defers collecting a fee or charge until 
after complying with the Federal Rule of Bankruptcy Procedure 3002.1 
procedures, and thus after a potential court determination on the 
allowability of the fee or charge, is not required to disclose the 
fee or charge until complying with such procedures. However, a 
servicer may include in the amount due other amounts due to the 
servicer, such as amount due under an agreed order, provided those 
amounts are also disclosed in the explanation of amount due and 
transaction activity.
    41(f)(3)(iii) Explanation of amount due.
    1. Explanation of amount due. The explanation of amount due 
under Sec.  1026.41(d)(2) is not required to include any amounts 
other than the post-petition payments and post-petition fees and 
charges that a servicer has imposed. Consistent with Sec.  
1026.41(d)(3)(i), the post-petition payments must be broken down by 
the amount, if any, that will be applied to principal, interest, and 
escrow. The servicer is not required to disclose, as part of the 
explanation of amount due, any pre-petition payments or the amount 
of the consumer's pre-bankruptcy arrearage. However, a servicer may 
identify other amounts due to the servicer provided those amounts 
are also disclosed in the amount due and transaction activity. See 
comment 41(d)(4)-1.
    41(f)(3)(v) Transaction activity.
    1. Transaction activity. The transaction activity under Sec.  
1026.41(d)(4) must include all payments the servicer has received 
since the last statement that constitute post-petition payments, 
pre-petition payments, and payments of post-petition fees or 
charges. The brief description of the activity does not need to 
identify the source of the payments.
    41(f)(3)(vi) Pre-petition arrearage.
    1. Pre-petition arrearage. To the extent that the amount of the 
pre-petition arrearage is subject to dispute or has not yet been 
determined, the periodic statement may include a statement 
acknowledging the unresolved amount of the pre-petition arrearage.
    41(f)(4) Multiple obligors.
    1. Modified statements. When more than one consumer is primarily 
obligated on a closed-end consumer credit transaction secured by a 
dwelling, subject to Sec.  1026.41, the periodic statement may be 
sent to any one of the primary obligors. See comment 41(a)-1. 
Section 1026.41(f)(4) specifies that, if a servicer is required to 
provide periodic statements with the modifications set forth in 
Sec.  1026.41(f) in connection with a mortgage loan with multiple 
obligors, the servicer may provide the modified statements to any or 
all of the primary obligors instead of any statements not including 
the modifications, even if not all primary obligors are debtors in 
bankruptcy. For example, assume two spouses own a home, and only one 
spouse files for Chapter 13 bankruptcy. That spouse's Chapter 13 
plan of reorganization provides that the same spouse will retain the 
home by making pre-petition and post-petition payments. The servicer 
is thus required to provide periodic statements with the 
modifications set forth in Sec.  1026.41(f)(1) though (3). The 
servicer may provide periodic statements with the modifications set 
forth in Sec.  1026.41(f)(1) through (3) to either of the two 
spouses, even though only one of the spouses is in bankruptcy. On 
the other hand, if the spouse in bankruptcy had a plan of 
reorganization providing for that spouse to surrender the home, the 
servicer would be exempt under Sec.  1026.41(e)(5)(i) from providing 
periodic statements to that spouse. In this circumstance, the 
servicer would be required to provide regular periodic statements, 
without any of the modifications set forth in Sec.  1026.41(f), to 
the spouse not in bankruptcy. See comment 41(e)(5)(i)-1.


    Dated: November 19, 2014.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2014-28167 Filed 12-12-14; 8:45 am]
BILLING CODE 4810-AM-P