New Mortgage Servicing Rules Now Effective

Second Round of Amendments Effective Thursday, April 19 

Thursday, April 19 marked the effective date of the second round of amendments to the Consumer Financial Protection Bureau’s (CFPB) mortgage servicing rules, finalized August 2016. This means confirmed successors in interest are now entitled to the same servicing protections available to borrowers under both Regulation Z and Regulation X.

It also means that credit unions are now required to provide modified periodic statements on residential mortgage loans to borrowers who have filed for bankruptcy, unless an exemption applies.

The rule provides that the credit union must provide a modified periodic statement in connection with a closed-end consumer credit transaction secured by a dwelling to a borrower who has filed for bankruptcy unless one of the following exemptions applies:

  • The borrower requests in writing that the credit union cease providing the periodic statement;
  • The bankruptcy plan provides that the borrower will surrender the dwelling; or
  • A court enters an order providing for avoidance of the lien securing the mortgage loan.

If an exemption does not apply, the credit union must continue to provide a modified periodic statement.

The modified periodic statement:

  • May omit certain information as identified in the rule; and
     
  • Must include a statement identifying the borrower’s status as a debtor in bankruptcy and that the periodic statement is for informational purposes only.

CUNA compliance staff has received numerous questions about how this change affects borrowers who filed for bankruptcy before the April 19 effective date.

The answer can be found in an FAQ document available from the CFPB on its mortgage servicing rules implementation page.

On page 7 of the document the CFPB states that the credit union must send a modified periodic statement to a borrower in bankruptcy unless, as of April 19, 2018, any exemption applies.

It goes on to say that “these new requirements and exemption provisions apply to a mortgage loan as of April 19, 2018, irrespective of whether the borrower became a debtor in bankruptcy before or after April 19, 2018.”

Remember that small servicers are exempt from the periodic statement requirement altogether, and thus also exempt from this change. A small servicer is defined as a credit union, who together with any affiliates, services 5,000 or fewer mortgage loans.