In January of 2013, the Consumer Financial Protection Bureau (“CFPB”) issued the new Mortgage Servicing Rules (the “Rules”), which go into effect on January 10, 2014.  The Rules establish extensive protections for borrowers, particularly delinquent borrowers who are facing foreclosure.

On October 15, 2013, the CFPB issued new guidance on the Rules in order to resolve certain issues of interpretation regarding servicer communications with borrowers.  The bulletin (CFPB Bulletin 2013-12) and interim final rule issued on October 15, 2013 clarify three main issues: (1) how mortgage servicers should communicate with family members of a deceased borrower; (2) how mortgage servicers should contact delinquent borrowers under the Early Intervention Rule; and (3) how certain provisions of the Rules interact with the “cease communications” requirement of the Fair Debt Collection Practices Act.

1. Communications with Family Members of a Deceased Borrower

The Rules require mortgage servicers to implement policies and procedures for identifying and communicating with the successor in interest of a deceased borrower regarding the property securing the deceased’s mortgage loan.  (See 12 CFR 1024.38(b)(1)(vi)).  The CFPB designed the successor in interest requirement in response to consumer complaints that servicers were refusing to speak with successors or were requesting documents that may not exist from a deceased borrower’s successor, thus potentially preventing successors from assuming the loan or pursuing a loan modification.  The CFPB’s guidance is intended to help servicers implement the policies and promote home retention by the successors in interest.

The bulletin gives several examples of practices that the servicer can include in its policies and procedures, including: (1) promptly providing a list of all required evidence for a successor to establish the borrower’s death and the successor’s identity and interest; (2) promptly identifying and evaluating any issues the servicer must consider upon notification of a borrower’s death, such as whether the successor is eligible for loss mitigation options; and (3) training employees on compliance with laws, investor requirements, and other servicer obligations after a borrower’s death.

Additionally, the bulletin suggests that servicers should consider whether their best practices for dealing with successors in interest would include: (1) promptly evaluating whether to postpone or withdraw a pending or planned foreclosure upon learning of the borrower’s death in order to give the successor time to pursue assumption and available loss mitigation options; and (2) promptly giving a successor in interest information about potential consequences of assuming the loan, including costs and the fact that a loss mitigation option may not be available if the loan is assumed with a loss mitigation option in place or with a loss mitigation plan commencing simultaneously with the assumption.

2.  Borrower Communications Under the Early Intervention Rule

The Early Intervention Rule requires mortgage servicers to “make good faith efforts to establish live contact with the borrower by the 36th day [of delinquency] and, if appropriate, to inform the borrower about the availability of loss mitigation options.”  12 CFR 1024.39.  The rule also requires a servicer to send a written notice encouraging the borrower to contact the servicer and containing loss mitigation information to the borrower not later than the 45th day of delinquency, unless the borrower submitted payment in the meantime.

The bulletin clarifies the types of communications that the CFPB would consider reasonable steps to establish live contact.  For example, if the servicer was working with the borrower on a loss mitigation application and the borrower is delinquent in consecutive billing cycles, the servicer can satisfy the live contact requirement by maintaining ongoing contact with the borrower about the loss mitigation application.  Additionally, a servicer may, but does not have to, rely on live contact initiated by the borrower to satisfy the requirement, and can combine contacts made with borrowers for other reasons.  The CFPB recognizes that borrowers may be unresponsive, and in some circumstances where there is little hope of home retention (i.e. in a short sale or deed in lieu of foreclosure situation), “good faith efforts” may be only one telephone call or a written request for the borrower to contact the servicer in a statement or electronic communication.

3.  Interplay Between the CFPB Servicing Rule Requirements and the FDCPA

The CFPB will be issuing additional guidance addressing the interplay between certain servicing rule requirements and the FDCPA, but the bulletin was issued as an advisory opinion on the FDCPA’s “cease communication” requirement, which prohibits debt collectors from communicating with borrowers about a debt after receiving a written “cease communication” request.  See 15 USC § 1692c(c).   (The FDCPA provides that there is no FDCPA liability for an act done or omitted in good  faith based on a CFPB advisory opinion while that opinion is in effect.)  This requirement could make a mortgage servicer uncertain as to its obligations to make disclosures under the servicing rules where a borrower has submitted a “cease communication” request.

The bulletin states that the “cease communication” option under the FDCPA generally will not make servicers that are considered debt collectors liable under the FDCPA for providing certain disclosures and communications required under Regulation X and Regulation Z.  However, this conclusion does not apply to certain notices and communications required under the Early Intervention Rule (see 12 CFR 1024.39) and the ARM Interest Rate Adjustment with Corresponding Payment Change Rule (see 12 CFR 1026.20(c)).  Instead, the interim final rule exempts a servicer from these notice requirements when the servicer is considered a debt collector under the FDCPA and the borrower has sent a “cease communication” notice to the servicer.

The communication and notice provisions of Regulation X regarding error resolution (12 CFR 1024.35), requests for information (12 CFR 1024.36), and loss mitigation (12 CFR 1024.41) are excluded from the FDCPA’s “cease communications” requirement because the borrower would have specifically requested those communications.  Therefore, the servicer should only stop complying with these communication requirements if the borrower sends the servicer a communication specifically withdrawing the request for error resolution, request for information or loss mitigation.

The communication and notice provisions of Regulation X and Regulation Z regarding force-placed insurance (12 CFR 1024.37), ARM initial interest rate adjustment (12 CFR 1026.20(d)), and periodic statements (12 CFR 1026.41) require servicers to provide borrowers with certain disclosures and billing cycle statements.  The CFPB concluded that a servicer would not be liable for sending these communications despite receiving a “cease communications” request under the FDCPA because these disclosures are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and the Dodd-Frank Act does not require stopping these disclosures under the FDCPA.  Additionally, the CFPB feels that the disclosures are useful for borrowers regardless of the status of their loan.

For more information on this topic, please contact Jennifer Odom or Danielle Parrington, the authors of this alert, your regular Bryan Cave contact, or anyone on Bryan Cave’s Financial Institutions Team.