Servicers dealing with foreclosures after a death in a borrower’s family or against the backdrop of a bankruptcy are required to heed a new set of rules outlined by the Consumer Financial Protection Bureau.
With the agency’s mortgage servicing rules taking effect in January 2014, the bureau released another bulletin of compliance guidelines and an interim final rule Tuesday, outlining how servicers should handle distressed borrowers when unexpected life events or other legal issues cloud the process.
The market asked the CFPB for further clarification on several points – all of which were addressed in the latest bulletin.
One of the key questions from servicers: What to do when servicing a loan in the wake of a borrower’s death?
The CFPB said servicers must have policies and procedures in place to promptly deal with these situations to ensure a quick reply and direct communication with the appropriate family members.
The solutions outlined, included options for allowing continued payment on the mortgage after determining the appropriate heirs and the enactment of loss mitigation measures when appropriate.
Knowing when and how often to contact a borrower is also critical under the bureau's servicing guidelines, the CFPB explained.
Servicers under the bureau’s enforcement oversight must attempt to contact borrowers every time they miss a mortgage payment to provide the homeowner with all the information they need to stay on track. This requirement can be met when contacting a borrower for loss mitigation purposes or collection inquiries.
The CFPB noted “the method of attempted contact may vary depending on how long a borrower is delinquent or on whether the borrower has responded to earlier servicer attempts to communicate.”
The bureau noted that many servicers have called the agency with questions about how the servicing rules work when a borrower cites existing bankruptcy law or parts of the Fair Debt Collection Practices Act (FDCPA) in their defense.
One of the CFPB’s guidelines is that even if a delinquent borrower instructs a servicer to stop communicating with them via the FDCPA, certain notices are still required by the CFPB and the Dodd-Frank Act.
"Specifically, servicers must communicate with the borrower with regard to requests for loss mitigation, information requests, error resolution, force-placed insurance, initial interest rate adjustment of adjustable-rate mortgages, and periodic statements," the CFPB wrote. "However, servicers will not be required to provide certain early intervention contacts or ongoing notices of interest rate adjustments to delinquent borrowers who have instructed the servicer to stop communicating with them."