On August 19, 2014, the Consumer Financial Protection Bureau (CFPB) issued a fifteen-page bulletin addressing mortgage servicing transfers, and specifically, the potential risks to consumers that arise in connection with transferring loans that are the subject of loss mitigation efforts. This bulletin replaces the bulletin that was released in February 2013.
Under the new CFPB servicing rules (specifically, 12 C.F.R. § 1034.38(b)(4)), servicers are required to maintain policies and procedures that are reasonably designed to facilitate the transfer of information and documentation during servicing transfers. According to the bulletin, the CFPB expects that contracts governing servicing transfers will require the transferor to provide all necessary documents and information upon transfer. Further, the bulletin indicates that to facilitate the transfer, the transferor and transferee servicer should have compatible technology and data mapping systems to allow the transferee servicer to identify, among other things, applicable loan terms, relevant document indexing, and “specific regulatory or settlement requirements applicable to some or all of the transferred loans.”
The bulletin stresses these requirements in the context of loans approved for, or under review for, a loss mitigation option. It discusses the “heightened risk inherent in transferring loans in loss mitigation” and emphasizes the need to prevent loss mitigation documentation and information from being lost or insufficiently reviewed upon transfer. In addition, the bulletin indicates that the CFPB expects transferor servicers to flag loans with pending and approved loss mitigation applications (including trial modifications) and to send the information and documentation through a system that ensures the transferee can process the loss mitigation data upon transfer. In particular, the bulletin highlights that a transferee servicer should have policies and procedures requiring the transferor servicer to provide a detailed list of all loans with pending loss mitigation applications or approved plans.
Among its notable loss mitigation directions, the bulletin requires a transferee servicer to have policies allowing it to distinguish partial loan payments from payments made pursuant to a trial or permanent loan modification. It is advisable for a transferee servicer to seek missing loss mitigation information or documentation directly from the transferor servicer prior to requesting the information from borrower; the bulletin adds, “A transferee that requires a borrower to resubmit loss mitigation application materials is unlikely to have policies and procedures that comply with 12 C.F.R. 1024.38(b)(4).” Moreover, the bulletin states that a transferee servicer is also expected to adhere to the early intervention requirements under amended Regulation X and should contact the borrower on the 36th and 45th day of delinquency regardless of whether the delinquency commenced during the transferor’s servicing. Generally speaking, the bulletin anticipates that the CFPB will “carefully scrutinize” any instance where a loss mitigation evaluation takes longer than 30 days from when the transferor servicer receives the application, particularly where a borrower suffers negative consequences because of the delay.
Servicers transferring or acquiring servicing rights to consumer mortgage loans should review their policies for compliance with the recent CFPB guidance.