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Servicing

MBA claims CFPB mortgage servicing proposal creates compliance hurdles

The Mortgage Bankers Association is pushing back against some of the proposed servicing standards outlined by the Consumer Financial Protection Bureau.

In a letter to the agency, the MBA suggests some of the proposed rules go beyond the framework established in Dodd-Frank, while also failing to exempt smaller servicing shops from difficult compliance timelines.

The MBA made these assertions in a comment letter submitted to the CFPB, which closed its open comment period Tuesday.

The rules, which will be adopted no later than Jan. 21, 2013, flesh out parts of the Dodd-Frank Act by outlining policies that will revise Regulation Z under TILA and Regulation X under the Real Estate Settlement Procedures Act, or RESPA.

While the CFPB gave smaller servicers exemptions from some of the requirements and timelines, the MBA calls the proposed exemption "too narrow." In addition, the trade group wants the smaller servicer exemption expanded to include shops with $10 billion or less in loans.

The MBA also claims the standards go beyond Dodd-Frank by creating a private right of action (for borrowers) if a servicer does not comply with a series of default servicing and information management steps outlined by the CFPB.

"[T]he CFPB rules grant borrowers a private right of action against servicers for failing to follow requirements that were not authorized by Congress in the Dodd-Frank Act and which are not within the scope of RESPA or TILA," the MBA argued in its comment letter. "Allowing for private rights of action for procedural steps also ensures the means to delay foreclosures through claims of factual dispute."

The MBA also believes servicers should have up to two years from the date of the rule's final publication to comply with the new guidelines. For smaller servicers, the grace period should run two and a half years, the MBA suggested in its note.

Loss mitigation procedures outlined under RESPA also were criticized for creating a private right of action with statutory damages if servicers fail to follow procedural steps or create substantive errors.

"While we appreciate the CFPB's indication in the proposed rule that servicers, owners, assignee, guarantors, or insurers are not required to offer loss mitigation, the procedural steps have the effect of imposing certain requirements and liabilities on servicers that will increase private suits," the MBA said.

The MBA also believes a provision saying a borrower must be evaluated for "all" loss mitigation options is too broad and would force borrowers to take in large doses of information on every loss mitigation option, creating the potential for more delays.

"This is especially true for many home retention cases where all that is needed is a reduced interest rate and a change in term," the MBA said. "In addition, eligibility for a loss mitigation option should be determined by the investor‘s predetermined waterfall options. The proposed rule would potentially conflict with the servicer's obligation to follow agency and investor requirements."

The MBA also argued that sharing loss mitigation applications with lien holders would violate privacy laws, creating negative consequences for the borrowers.

Under the Truth in Lending Act revisions, the MBA found proposed changes to notices sent out on ARM rate-changes "unduly burdensome on servicers" and not as detailed as today's disclosures.

"We recommend that the CFPB not overhaul the subsequent ARM rate-change notices and not expand the initial ARM reset notice beyond hybrid ARMs," the CFPB said.

Click here to read the whole letter.

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