Periodic Statements for Bankrupt Borrowers: What Loan Servicers Need to Know Now about the CFPB’s New Rule
The Consumer Financial Protection Bureau recently finalized new regulations for loan servicers. Soon, mortgage borrowers who have filed for bankruptcy will have the right to demand greater transparency and more communication from the companies that service their loans.
This is a key change. Under the CFPB’s former mortgage rule, servicers did not have to provide periodic statements or early intervention loss mitigation information to borrowers in bankruptcy.
Penalties for violating this requirement could add up quickly for servicers who are unprepared or under informed. In this post, we’ll summarize our white paper about what servicers need to know now to help avoid paying large penalties later.
Where Did the New CFPB Rule Come From?
When the CFPB adopted a number of rules related to Dodd-Frank, it gave itself new powers to oversee consumer protection in the mortgage market. It then proposed a number of amendments to its Mortgage Servicing Rules, including requiring creditors, assignees or servicers of any residential mortgage loan to provide a periodic statement to their borrowers for each billing cycle.
What Does the New CFPB Periodic Statement Rule Require?
Servicers must provide periodic statements to borrowers in bankruptcy who intend to retain their home. But – this is not a requirement for borrowers who intend to surrender their home. This adds significant complexities for loan servicers looking to stay in compliance with regulations.
What Does the New CFPB Rule Mean for Servicers?
Firstly – servicers will need to make adjustments that could be quite complex and costly – and require a lot of advance preparation. The CFPB has even recognized that the mortgage servicing industry will incur additional costs to comply. The Mortgage Bankers’ Association (MBA) went even further, expressing concerns that the CFPB has not taken into consideration the limitations of existing servicing platforms and collections systems.
Whatever your opinion, the new rules take effect 18 months after the 2016 Mortgage Servicing Rule’s publication in the Federal Register, which means the clock started ticking Aug. 4, 2016.
What do Violators of the New CFPB Rule Stand to Lose?
Looking to similar court rulings for examples, servicers that violate the new rule may face very steep fines. If the case in re Gravel survives appeal, it may set the standard penalty for non-compliance with the new rule at $25,000 per loan.
How can Servicers Protect Themselves?
The new rule creates a potential Gordian knot of challenges for servicers. To get help unraveling the requirements, download our detailed white paper on the topic. It covers what you need to do now to prepare and to avoid potential fines in the future.
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