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Financial Services Law Insights and Observations

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  • Fannie Mae updates Reverse Mortgage Loan Servicing Manual

    Federal Issues

    On July 11, Fannie Mae issued RVS-2018-02, which updates the Reverse Mortgage Loan Servicing Manual to include changes related to REO Hazard Insurance Coverage Requirements for Home Equity Conversion Mortgage (HECM) mortgages. Specifically, the update requires a servicer to place a property insurance policy on acquired property up to the HUD foreclosure appraisal amount or deed-in-lieu property valuation amount, in accordance with HUD guidelines. If the servicer is unable to obtain either of these valuation amounts, the servicer must place coverage up to the unpaid principal balance amount. Servicers are required to implement the changes no later than October 1 for new and existing HECM properties in REO inventory.

    Federal Issues Fannie Mae Mortgages Reverse Mortgages Mortgage Servicing HECM

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  • Freddie Mac delays implementation of automated subsequent transfers of servicing

    Federal Issues

    On July 6, Freddie Mac released Guide Bulletin 2018-11, which announces a delay in the implementation of the automated Requests for Subsequent Transfers of Servicing (STOS) and intra-servicer portfolio moves. As previously covered by InfoBytes, Freddie Mac Guide Bulletin 2018-6 announced the automation of STOS and intra-servicer portfolio moves, which were originally scheduled to be effective on July 23. Freddie Mac has delayed the implementation date until August 13 and pushed the temporary STOS moratorium period from mid-July to July 30 through August 12.

    Federal Issues Freddie Mac Mortgage Servicing Servicing Transfers

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  • 11th Circuit: No FCRA violation for reporting as delinquent during forbearance plan

    Courts

    On June 27, the U.S. Court of Appeals for the 11th Circuit affirmed summary judgment for a mortgage servicer, concluding that reporting the consumer as delinquent to credit bureaus during a forbearance plan is neither inaccurate nor materially misleading under the Fair Credit Reporting Act (FCRA). According to the opinion, a borrower enrolled in a forbearance plan with her mortgage servicer, which allowed for a “monthly forbearance plan payment” of $25 while the remaining payment balance accrued and became due at the end of the plan. Before the borrower agreed to the plan, a representative for the servicer explained to the borrower that because she was not paying the actual contractual payment under the note, the monthly payments would still be considered late. The mortgage servicer reported the borrower past due for the duration of the plan, and the borrower subsequently filed suit alleging violations of the FCRA. In affirming the lower court’s decision, the appeals court found that while the borrower made timely payments under the forbearance plan, the payments were not the ones she was contractually bound to make under the mortgage note. Additionally, the appeals court found that the borrower did not establish that the forbearance plan legally modified the original note and, therefore, the information the servicer reported to the credit bureaus was not inaccurate and was also not materially misleading “particularly in light of [the servicer’s] additional affirmative statement that [the borrower] was paying under a partial payment agreement.”

    Courts Appellate Eleventh Circuit Mortgage Servicing Credit Reporting Agency

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  • Maryland announces settlement with mortgage servicer over property inspection fees

    State Issues

    On May 14, the Maryland Attorney General announced a settlement with a mortgage loan servicer to resolve allegations that it charged homeowners illegal inspection fees. According to the announcement, the servicer allegedly charged borrowers for property inspections that were done when the borrower was in default on their payments, in violation of a Maryland law, which prohibits passing on such inspection costs. The mortgage servicer ceased the practice in 2014  for forward mortgages and in 2016 for reverse mortgages, according to the Attorney General’s office. The settlement requires the mortgage servicer to (i) refrain from engaging in the same practice in the future; (ii) complete the return of almost $1 million in collected inspection fees; and (iii) pay nearly $500,000 in penalties and costs.

    State Issues Mortgage Servicing Settlement Home Inspection State Attorney General

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  • Pennsylvania adopts CFPB mortgage servicing regulations

    State Issues

    On April 28, the Pennsylvania Department of Banking and Securities adopted regulations to effectively incorporate Subpart C of the CFPB’s RESPA mortgage servicing regulations (Regulation X), which were amended effective as of April 19. The adopted regulations address, among other things, (i) disclosure requirements; (ii) mortgage servicing transfers; (iii) escrow payments and account balances; (iv) forced-place insurance; and (v) loss mitigation procedures. The adopted regulations were effective on April 28.

     

    State Issues CFPB Regulation X RESPA Mortgage Servicing

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  • Federal Reserve releases updates to interagency examination procedures for Regulations X and Z

    Agency Rule-Making & Guidance

    On April 19, the Federal Reserve Board (Fed) issued a consumer affairs letter (CA 18-3) announcing revised interagency examination procedures for Regulation X (RESPA) and Regulation Z (TILA) that supersede procedures previously issued in September 2015. The updated procedures account for amendments to mortgage servicing rules under Regulations X and Z that took effect October 19, 2017 (see previous InfoBytes coverage here), as well as amendments to Regulation Z published by the CFPB through April 2016, including rules concerning small creditors’ mortgage lending to rural and underserved areas. However, the Fed stated in its letter that, at this time, the updated procedures do not incorporate Regulation Z amendments concerning the CFPB’s TILA-RESPA integrated disclosure rule or those regarding prepaid accounts. These amendments will be addressed in a future update.

    Agency Rule-Making & Guidance Federal Reserve CFPB Regulation X Regulation Z RESPA TILA Mortgages Mortgage Servicing

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  • Fannie Mae and Freddie Mac release updates to servicing guides

    Federal Issues

    On April 11, Fannie Mae updated its Servicing Guide, regarding servicing transfer welcome calls. Pursuant to Fannie Mae SVC-2018-03, transferee servicers are no longer required to, among other things, initiate welcome calls within five days of the transfer of servicing. Transferee servicers may now implement their own processes for borrower contact as long as the servicer remains in compliance with applicable laws. Fannie Mae also updated the Servicing Guide to add flexibility in connection with the collection of escrow shortages during a mortgage modification.  Under the amendment to the Servicing Guide, servicers may spread repayment of the shortage amount over a term of up to 60 months, unless the borrower decides to pay up-front. Additionally, Fannie Mae released a revised Reverse Mortgage Loan Servicing Manual, which includes updates to expense reimbursement claim submissions and mortgage loan status codes.

    On the same day, Freddie Mac released Guide Bulletin 2018-6, which, among other things, updates servicer requirements on Subsequent Transfers of Servicing (STOS) and borrower-paid mortgage insurance. Effective July 23, transferor servicers must use the automated STOS request system and new transfer requests must be submitted at least 45 days and no more than 60 days prior to the effective date of the transfer. The Bulletin also provides additional details on initiating the electronic STOS and executing the STOS agreement. There will be a temporary moratorium on STOS requests and modifications to existing requests from July 9 through July 20, in order for Freddie Mac to implement the new process.

    Separately, the Bulletin includes various changes to streamline servicer responsibilities in canceling borrower-paid mortgage insurance, such as now allowing servicers to process a borrower’s verbal request to cancel mortgage insurance and simplifying the process to determine current value.  

    Consistent with the Fannie updates, Freddie Mac also modified its escrow shortage collection requirements to allow repayment to be spread over up to 60 months.

    Federal Issues Fannie Mae Freddie Mac Servicing Guide Mortgages Mortgage Modification Mortgage Servicing Reverse Mortgages Mortgage Insurance

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  • 8th Circuit reverses district court’s decision, rules plaintiff failed to demonstrate actual damages under RESPA

    Courts

    On April 3, the U.S. Court of Appeals for the 8th Circuit reversed a district court’s decision, which granted summary judgement in favor of a consumer (plaintiff) who claimed a mortgage loan servicer violated the Real Estate Settlement Procedure Act (RESPA) and the Minnesota Mortgage Originator and Servicer Licensing Act when it failed to adequately respond to his qualified written requests concerning erroneous delinquency allegations. The district court ruled that the plaintiff suffered actual damages of $80 under his RESPA claims when the loan servicer “made minimal effort to investigate the error” and failed to provide the plaintiff with requested information about his loan history since origination. The “pattern or practice” of non-compliance also, in the district court’s view, justified $2000 in statutory damages. The plaintiff also received a separate damage award, attorney’s fees and costs under the Minnesota statute. However, under RESPA, a plaintiff must demonstrate proof of actual damages resulting from a loan servicer’s failure, and the three-judge panel argued that the plaintiff “failed to prove actual damages” because the loan servicer’s “failure to comply with RESPA did not cause [the plaintiff’s] alleged harm.” The panel opined that while the loan servicer failed to (i) conduct an adequate investigation following the plaintiff’s request as to why there was a delinquency for his account, and (ii) failed to provide a complete loan payment history when requested, its failure to comply with RESPA involved pre-2011 payment history for which the plaintiff eventually requested and received the relevant loan payment records at no cost. In fact, the panel stated, the only evidence of actual damages was the $80 the plaintiff spent for bank account records, but that expense concerned a separate dispute about whether the plaintiff missed two payments in 2012 and 2013, which the plaintiff eventually acknowledged that he did, in fact, fail to make. Since the loan servicer did not commit an error with respect to the missed payments, the court concluded that the $80 spent by plaintiff were not the result of the loan servicer’s failure to investigate and provide information related to the pre-2011 payment history. To the contrary, with respect to responding to the plaintiff’s inquiries regarding the missing payments, the loan servicer had “complied with its duties under RESPA.”

    Furthermore, the panel stated that the plaintiff failed to provide evidence that the loan servicer engaged in a “pattern or practice of noncompliance.” The 8th Circuit remanded the case back to the district court with directions to enter judgment in favor of the loan servicer on the RESPA claims and for further proceedings on claims under the Minnesota statute.

    Courts Appellate Eighth Circuit RESPA Mortgage Servicing Mortgages State Issues

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  • CFPB updates mortgage servicing Small Entity Compliance Guide, releases mortgage servicing coverage chart

    Agency Rule-Making & Guidance

    On March 29, the CFPB released version 3.1 of its mortgage servicing Small Entity Compliance Guide. The updated guide supports the implementation of the 2016 Mortgage Servicing Final Rule, including the amendment to the Rule released earlier this month. The Rule replaces the previous single-billing-cycle exemption with a single-statement exemption when servicers transition to providing modified or unmodified periodic statements and coupon books to consumers entering or exiting bankruptcy. See previous InfoBytes coverage here. The Bureau also released a mortgage servicing coverage chart, which summarizes the mortgage servicing rules that will be in effect as of April 19.

    Agency Rule-Making & Guidance CFPB Mortgage Servicing Bankruptcy Consumer Finance Regulation X Regulation Z

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  • CFPB releases FAQs on bankruptcy issues under the 2016 Mortgage Servicing Final Rule

    Agency Rule-Making & Guidance

    On March 20, the CFPB released updated FAQs to support the implementation of the 2016 Mortgage Servicing Final Rule. Specifically, the updated FAQs pertain to the mortgage-servicing provisions regarding bankruptcy, which are effective April 19. The CFPB released ten bankruptcy-related question and answers. The bankruptcy topics include periodic statements, coupon books, reaffirmation, successors in interest, and timing of compliance.

    As previously covered by InfoBytes, the CFPB recently issued a final rule updating technical aspects of the upcoming periodic statement requirements for borrowers in bankruptcy under Regulation Z.

    Agency Rule-Making & Guidance CFPB Mortgage Servicing Bankruptcy Consumer Finance Regulation Z Regulation X

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