CFPB giving servicers “more latitude” in dealing with borrowers in bankruptcy

Issues final rule on communication with certain borrowers

Mortgage servicers are about to have “more latitude” when it comes to dealing with borrowers entering or exiting bankruptcy, the Consumer Financial Protection Bureau announced Thursday.

The CFPB announced a final rule relating to certain borrowers facing bankruptcy. The rule was initially released by the CFPB back in October, but now the bureau is finalizing the rule.

According to the CFPB, the final rule is the same as the previously released version.

In an announcement, the CFPB explained that its 2016 mortgage servicing rules requires servicers to send modified periodic statements or coupon books to certain consumers in bankruptcy, beginning April 19, 2018.

The rule also dealt with the timing for servicers to move from providing or ceasing to provide modified periodic statements to consumers entering or exiting bankruptcy.

But, according to the CFPB, after issuing the bankruptcy rule, it learned that “certain technical aspects of the rule relating to the timing for servicers to transition to providing modified or unmodified periodic statements and coupon books in connection with a consumer’s bankruptcy case may create unintended challenges in implementation.”

Here’s how the CFPB explains the issue in the final rule (which can be read in full here):

Among other things, the 2016 Mortgage Servicing Final Rule addresses Regulation Z’s periodic statement and coupon book requirements when a person is a debtor in bankruptcy. It includes a single-billing-cycle exemption from the requirement to provide a periodic statement or coupon book in certain circumstances after one of several specific triggering events occurs resulting in a servicer needing to transition to or from providing bankruptcy-specific disclosures.

The single-billing-cycle exemption applies only if the payment due date for that billing cycle is no more than 14 days after the triggering event. The 2016 Mortgage Servicing Final Rule also includes specific timing requirements for servicers to provide the next modified or unmodified statement or coupon book after the single-billing-cycle exemption has ended.

According to the CFPB, certain parts of the single-billing-cycle exemption and timing requirements “may be more complex and operationally challenging” than the bureau thought they’d be.

To address these timing issues, the CFPB released an interim final rule back in October.

And now, the CFPB is issuing the final rule, which it expects to reduce costs for servicers.

“This final rule provides a single-statement exemption for the next periodic statement or coupon book that a servicer would otherwise have to provide, regardless of when in the billing cycle the triggering event occurs,” the CFPB said.

“The Bureau expects that these changes will reduce the cost to servicers of providing periodic statements. The Bureau understands, based on comments received in response to the proposed rule and through other industry outreach that implementing the single-billing-cycle exemption provided under the 2016 Mortgage Servicing Rule might have proved more complex and operationally challenging for servicers than the Bureau realized and believes that a single statement exemption will be clearer and operationally easier to implement,” the CFPB continued.

“The Bureau believes that servicers will benefit from the more straightforward single-statement exemption standard and from the additional time afforded for some transitions,” the CFPB added.

The bankruptcy rule takes effect on April 19, 2018.

To read the rule in full, click here.

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