On Jan. 17, the Consumer Financial Protection Bureau issued its final servicing rules, amending both Regulations X and Z. The final rules, which become effective Jan. 10, 2014, make significant changes to existing servicing requirements likely to result in significant operational and compliance challenges for covered servicers, while at the same time providing a number of important exemptions to small servicers, many of whom will include community banks, credit unions and similar smaller institutions.
Under the final rules, small servicers are those who (1) service 5,000 or fewer loans, for which the servicer or an affiliate is the creditor or assignee; or (2) are a housing finance agency. If the servicer or an affiliate is not the creditor or assignee of any loan within its portfolio, the servicer cannot be a small servicer under the final rules.
For those who are the creditor or assignee of all loans being serviced, whether the exemptions apply is based on the number of loans serviced by that servicer and any affiliates as of Jan. 1 each year. If the servicer crosses the threshold, it must comply with any requirements from which it is no longer exempt within six months from that date or by the following Jan. 1, whichever is later.
The final rules impose significant new requirements:
Of these many requirements, small servicers are generally exempt from those rules addressing the provision of periodic statements, the use of force-placed insurance, information management, early intervention requirements, continuity of contact and loss mitigation procedures. However, alternative obligations are imposed on small servicers with respect to both their ability to obtain force-placed insurance and to initiate and proceed with foreclosure.
In addition, small servicers should be mindful of the ability to repay/qualified mortgage rule and its potential impact. Though an origination rule, and notwithstanding its three-year document retention requirement for loans originated after Jan. 10, 2014, small servicers should consider obtaining all underlying documents on which the borrower’s ability to repay was determined and retaining those documents throughout the life of the loan. Given the combination of assignee liability and absence of any statute of limitations on the borrower’s ability to seek recoupment or set-off in foreclosure for any failure to comply, failing to maintain evidence of the ability to repay determination may present increased and unnecessary additional risk.
Small servicers should consider the following:
John C. Redding is a partner in the Los Angeles and Orange County offices of BuckleySandler LLP. Contact him at jredding@BuckleySandler.com.
Copyright (c) July 2013 by BankNews Media