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CFPB’s Regulation X and Regulation Z: The morning after



Halfway through 2018, the amended changes to the Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Rules are in full effect. Regulation Z, § 1026.41(f)(3)(iv) requires servicers to disclose in the transaction activity on the modified periodic statement all payments the servicer has received since the last statement. These payments include all pre-petition payments, post-petition payments, and payments of post-petition fees and charges, as well as all post-petition fees and charges the servicer has imposed since the last statement. 

There can be a delay between when a trustee receives a payment from a borrower and when the trustee remits that payment to a servicer. Additionally, the trustee may allocate payments differently than the servicer, which also may cause the periodic statement to disclose transaction activity that is different than the trustee’s records. For this reason, § 1026.41(f)(3)(vi)(C) and (D) require disclosures explaining that the periodic statement may not match the trustee’s records when a borrower makes payments to a trustee. 

Obligations to a “Successor in Interest” is also new to the servicing industry. Under Regulation X, § 1024.30(d) and Regulation Z, § 1026.2(a)(11), confirmed successors in interest are considered “borrowers” for purposes of the early intervention requirements and “consumers” for purposes of the periodic statement provisions. Because confirmed successors in interest are considered to be “borrowers” and “consumers” for the relevant parts of Regulation X and Regulation Z, servicers need to know whether confirmed successors in interest are in bankruptcy and may want to include them in any normal checks they utilize to identify borrowers in bankruptcy.

What do these changes mean, and how have they affected companies and their clients?

The new regulations have led many companies to change how they service loans – but how? Companies had to take a closer look at processing time and data integrity. Transactional data now have to be presentation-ready at all times in order to prepare billing statements that meet defined criteria based on the loan’s status in order to comply with the new servicing rules. To maintain efficiency, companies need a solution that provides specialized processing and reconciliation of loan-level transactions and data.

CFPB Compliance Options 

There are two primary approaches to ensuring CFPB compliance: Building a compliance in-house, or partnering with a third-party vendor.

Let’s take a deeper look into these possible solutions: First, let’s discuss an in-house solution. How does a company begin to build or create a new process to maintain compliance? A proper workflow and database of bankruptcy debtors that requires daily updates and data verification is needed. Does your current team have the bandwidth to take on some of these new tasks? 

Building a new solution can be an expensive, labor intensive task for an organization. It can require input from multiple resources and various areas of an organization such as finance, operations, and IT in order to make an informed decision.  Making the decision to build an in-house solution comes with several challenges. Some of the more common challenges are:

  • •    Resources availability 
  • •    Platform readiness 
  • •    Budgeting 
  • •    Time to build
  • •    Maintaining a compliant application 

These are all items that may deter an organization from building in-house and move towards partnering with a third-party. 

Second, let’s discuss partnering with a vendor for CFPB compliance. Partnering with a third-party vendor that specializes in bankruptcy process automation and reconciliation can assist with taking the pain and risk out of complying with these new requirements. An experienced vendor can provide software and client services that can automatically verify and provide reconciliation services using data from various sources such as National Data Center (NDC), court records, and existing systems of records to produce  comprehensive loan audits. A vendor can complete a loan audit prior to onboarding acquired loans or to audit loans for ongoing maintenance. Outsourcing to a vendor can eliminate countless hours of data collection and validation, and ensure data is delivered in a manner that meets your business needs. 

We hope this blog has provided valuable insight into overcoming and maintaining compliance with these new and future CFPB regulation requirements. Depending on your available resources and company needs you can make an informed decision on which approach is best. 

Click here to see how Epiq resolved this problem for one of our clients.

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