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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF BANKING

SUPERVISION AND REGULATION

DIVISION OF CONSUMER AND 

COMMUNITY AFFAIRS

SR 13-9

CA 13-6

April 23, 2013

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE 

BANK AND TO THE CHIEF EXECUTIVE OFFICER OF FINANCIAL 

INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE THAT ARE 

ENGAGED IN MORTGAGE SERVICING ACTIVITIES

SUBJECT: Minimum Standards for Prioritization and Handling Borrower Files with Imminent 

Scheduled Foreclosure Sale

Applicability to Community Banking Organizations: This guidance applies to any financial 

institution supervised by the Federal Reserve, regardless of asset size, that engages in mortgage 

servicing activities.

Purpose

The Federal Reserve is issuing this letter to set forth guidance on sound business 

practices for residential mortgage servicing that Federal Reserve supervised financial 

institutions1 are expected to address in their collections, loss mitigation, and foreclosure 

processing functions. The guidance confirms the minimum standards that all regulated 

institutions are expected to adopt in prioritizing and handling borrowers’ files with imminent risk 

of foreclosure. 

Background

The residential mortgage crisis revealed weaknesses in the servicing of residential 

mortgage loans.2

 These weaknesses were pervasive throughout the mortgage servicing industry 

and were centered in the administration of delinquent loans, loss mitigation practices, and 

 1 Federal Reserve supervised financial institutions refers to state member banks, bank and savings and loan holding 

companies (including their non-bank subsidiaries), and U.S. branches and agencies of foreign banking organizations.

2 See the April 2011 report on “Interagency Review of Foreclosure Policies and Practices” 

http://www.federalreserve.gov/boarddocs/rptcongress/interagency_review_foreclosures_20110413.pdf
 

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foreclosure processing. As a result, in February 2012, the Federal Reserve and Office of the 

Comptroller of the Currency (OCC) issued guidance to banking organizations subject to 

enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing 

(“Consent Orders”) establishing certain minimum standards for the handling and prioritization of 

files with an imminent foreclosure sale (“February 2012 Guidance”). The February 2012 

Guidance was intended to ensure that borrowers would not lose their homes without first 

receiving either a review of their foreclosure in accordance with the standards, at a minimum, or 

a full independent review under the Consent Orders. At those servicers subject to the February 

2012 Guidance, examiners are continuing to monitor these institutions for compliance with this 

guidance. 

As of March 2013, the servicers already subject to the February 2012 Guidance account 

for more than 57 percent of the residential mortgage industry’s total servicing volume. 

Consequently, the Federal Reserve and OCC have concluded that it is appropriate to broaden 

applicability of the guidance to encompass the remaining institutions subject to their respective 

jurisdictions that service residential mortgages, which collectively account for a significant 

portion of the residential mortgage industry’s remaining servicing volume. The standards set 

forth in the attached guidance reflect the February 2012 Guidance, with updates and 

modifications to account for its broadened applicability, and are consistent with previously 

issued statements by the Federal Reserve concerning financial institutions’ loss mitigation 

efforts.3

Supervisory Expectations

The Federal Reserve expects financial institutions that service residential mortgages to 

act responsibly in their administration of delinquent mortgages and borrowers at imminent risk 

of foreclosure. Financial institutions must comply with safe and sound banking practices, 

federal, state, and local laws, third party investor requirements, and the Making Home 

Affordable Modification Program requirements, as well as other existing contractual and 

programmatic commitments, as applicable. Prudent business practices in servicing residential 

mortgage loans include ensuring that, prior to proceeding to a foreclosure sale:

• The loan is in default under applicable law and investor requirements; 

• Any borrower complaints, appeals, or escalations have been considered and 

addressed;

• The borrower is not subject to specific legal protections such as those afforded under 

the Servicemembers Civil Relief Act4 and bankruptcy law; 

• The financial institution has the appropriate legal authority to foreclose; 

 3 Refer to SR letter 07-16/CA letter 07-4, “Statement on Loss Mitigation Strategies for Servicers of Residential 

Mortgages.”

4 For more information regarding the Servicemembers Civil Relief Act, see CA letter 11-6, “Revised Examination 

Procedures for the Servicemembers Civil Relief Act.”
 

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• All appropriate notices have been provided to the borrower; 

• Appropriate outreach and other loss mitigation efforts have been made; 

• The loan is not currently in an active loss mitigation program; 

• The borrower is not currently qualified or being considered for a loss mitigation 

action; and 

• The financial institution is in compliance with all applicable federal, state, local, and 

other legal requirements.

The attached guidance confirms the minimum standards for the handling and 

prioritization of borrowers’ files that are subject to an imminent (within 60 days) scheduled 

foreclosure sale. These minimum review criteria are intended to ensure a level of consistency 

across servicers, and should be used to determine whether a scheduled foreclosure sale should be

postponed, suspended, or cancelled because of critical foreclosure defects in the borrower’s file. 

The purpose of the guidance is to ensure that borrowers will not lose their homes without their 

files first receiving a pre-foreclosure sale review that, at a minimum, meets the standards listed in 

the attached guidance. The Federal Reserve expects that each institution subject to this guidance 

will promptly confirm that its existing processes comply with this guidance. If an institution has 

not already implemented these standards, it must implement them immediately. 

These standards are not intended to incorporate the final rules amending Regulation X 

and Regulation Z issued by the Consumer Financial Protection Bureau (CFPB) on January17, 

2013, and effective on January 10, 2014, which govern mortgage servicers’ loss mitigation and 

foreclosure processing functions.5

 The Federal Reserve expects that all servicers will undertake 

appropriate action in a timely manner to ensure their practices will be compliant with the new 

rules by the effective date.

Federal Reserve Banks should distribute this letter to state member banks, bank and 

savings and loan holding companies (including their non-bank subsidiaries), and U.S. branches 

and agencies of foreign banking organizations that are engaged in mortgage servicing activities

in their districts and to appropriate supervisory staff. Questions regarding this letter may be 

directed to:

• Jack Jennings, Senior Associate Director, at 202-452-3053, in Division of Banking 

Supervision and Regulation.

• Suzanne Killian, Senior Associate Director, at 202-452-2090, in the Division of 

Consumer and Community Affairs.

 5 See 78 Federal Register 10696 (February 14, 2013) and 78 Federal Register 10902 (February 14, 2013).
 

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In addition, questions may be sent via the Board’s public website.6

Michael S. Gibson

Director

Division of Banking Supervision

and Regulation

Sandra F. Braunstein

Director

Division of Consumer

and Community Affairs

Attachment:

• Minimum Standards for Prioritization and Handling Borrower Files with Imminent 

Foreclosure Sale

Cross Reference to:

• CA letter 11-6, “Revised Examination Procedures for the Servicemembers Civil 

Relief Act”

• SR letter 07-16/CA letter 07-4, “Statement on Loss Mitigation Strategies for 

Servicers of Residential Mortgages”

 6 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.