Vol. 78 Thursday, 

No. 31 February 14, 2013 

Part II 

Bureau of Consumer Financial Protection 

12 CFR Part 1024 

Mortgage Servicing Rules Under the Real Estate Settlement Act 

(Regulation X); Final Rule 

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10696 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

1Public Law 111–203, 124 Stat. 1376 (2010). 

2See Press Release, U.S. Consumer Fin. Prot. 

Bureau, Consumer Financial Protection Bureau 

Proposes Rules to Protect Mortgage Borrowers (Aug. 

10, 2012) available at http://www.consumerfinance.

gov/pressreleases/consumer-financial-protectionbureau-proposes-rules-to-protect-mortgageborrowers/. The proposal was published in the 

Federal Register on September 17, 2012. 77 FR 

57200 (Sept. 17 2012) (2012 RESPA Servicing 

Proposal). 

3See Press Release, U.S. Consumer Fin. Prot. 

Bureau, Consumer Financial Protection Bureau 

Proposes Rules to Protect Mortgage Borrowers 

(August 10, 2012) available at http://www.consumer

finance.gov/pressreleases/consumer-financialprotection-bureau-proposes-rules-to-protectmortgage-borrowers/. This proposal was also 

published in the Federal Register on September 17, 

2012. 77 FR 57318 (Sept. 17, 2012) (2012 TILA 

Servicing Proposal; and, together with the 2012 

RESPA Servicing Proposal, the Proposed Servicing 

Rules). 

4The 2013 RESPA Servicing Final Rule and the 

2013 TILA Servicing Final Rule are referred to 

collectively as the Final Servicing Rules. 

5For ease of discussion, this notice uses the term 

‘‘discretionary rulemakings’’ to refer to a set of 

regulations implemented using the Bureau’s 

authorities under section 6(j), 6(k)(1)(E), or 19(a) of 

RESPA to expand requirements beyond those 

explicit in RESPA. The ‘‘discretionary rulemakings’’ 

include requirements relating to servicer policies 

and procedures, early intervention with delinquent 

borrowers, continuity of contact, and procedures for 

evaluating and responding to loss mitigation 

applications, as set forth in §§ 1024.38–41. 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1024 

[Docket No. CFPB–2012–0034] 

RIN 3170–AA14 

Mortgage Servicing Rules Under the 

Real Estate Settlement Procedures Act 

(Regulation X) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule; official 

interpretations. 

SUMMARY: The Bureau of Consumer 

Financial Protection is amending 

Regulation X, which implements the 

Real Estate Settlement Procedures Act of 

1974, and implementing a commentary 

that sets forth an official interpretation 

to the regulation. The final rule 

implements provisions of the DoddFrank Wall Street Reform and Consumer 

Protection Act regarding mortgage loan 

servicing. Specifically, this final rule 

implements Dodd-Frank Act sections 

addressing servicers’ obligations to 

correct errors asserted by mortgage loan 

borrowers; to provide certain 

information requested by such 

borrowers; and to provide protections to 

such borrowers in connection with 

force-placed insurance. Additionally, 

this final rule addresses servicers’ 

obligations to establish reasonable 

policies and procedures to achieve 

certain delineated objectives; to provide 

information about mortgage loss 

mitigation options to delinquent 

borrowers; to establish policies and 

procedures for providing delinquent 

borrowers with continuity of contact 

with servicer personnel capable of 

performing certain functions; and to 

evaluate borrowers’ applications for 

available loss mitigation options. 

Further, this final rule modifies and 

streamlines certain existing servicingrelated provisions of Regulation X. For 

instance, this final rule revises 

provisions relating to mortgage 

servicers’ obligation to provide 

disclosures to borrowers in connection 

with transfers of mortgage servicing, and 

mortgage servicers’ obligation to manage 

escrow accounts, including restrictions 

on purchasing force-placed insurance 

for certain borrowers with escrow 

accounts and requirements to return 

amounts in an escrow account to a 

borrower upon payment in full of a 

mortgage loan. Concurrently with the 

issuance of this final rule, the Bureau is 

issuing a rule implementing 

amendments relating to mortgage 

servicing to the Truth in Lending Act in 

Regulation Z. 

DATES: This final rule is effective on 

January 10, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Regulation X (RESPA): Whitney 

Patross, Attorney; Jane Gao, Terry 

Randall or Michael Scherzer, Counsels; 

Lisa Cole or Mitchell E. Hochberg, 

Senior Counsels, Office of Regulations, 

at (202) 435–7700. 

Regulation Z (TILA): Whitney Patross, 

Attorney; Marta Tanenhaus or Mitchell 

E. Hochberg, Senior Counsels, Office of 

Regulations, at (202) 435–7700. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule 

The Bureau of Consumer Financial 

Protection (Bureau) is amending 

Regulation X, which implements the 

Real Estate Settlement Procedures Act of 

1974, and implementing a commentary 

that sets forth an official interpretation 

to the regulation (the 2013 RESPA 

Servicing Final Rule). The final rule 

implements provisions of the DoddFrank Wall Street Reform and Consumer 

Protection Act regarding mortgage loan 

servicing.1 Specifically, this final rule 

implements Dodd-Frank Act sections 

addressing servicers’ obligations to 

correct errors asserted by mortgage loan 

borrowers; to provide certain 

information requested by such 

borrowers; and to provide protections to 

such borrowers in connection with 

force-placed insurance. Additionally, 

this final rule addresses servicers’ 

obligations to establish reasonable 

policies and procedures to achieve 

certain delineated objectives; to provide 

information about mortgage loss 

mitigation options to delinquent 

borrowers; to establish policies and 

procedures for providing delinquent 

borrowers with continuity of contact 

with servicer personnel capable of 

performing certain functions; and to 

evaluate borrowers’ applications for 

available loss mitigation options. 

Further, this final rule modifies and 

streamlines certain existing servicingrelated provisions of Regulation X. For 

instance, this final rule revises 

provisions relating to mortgage 

servicers’ obligation to provide 

disclosures to borrowers in connection 

with a transfer of mortgage servicing, 

and mortgage servicers’ obligation to 

manage escrow accounts, including 

restrictions on purchasing force-placed 

insurance for certain borrowers with 

escrow accounts and requirements to 

return amounts in an escrow account to 

a borrower upon payment in full of a 

mortgage loan. Concurrently with the 

issuance of this final rule, the Bureau is 

issuing a rule implementing 

amendments relating to mortgage 

servicing to the Truth in Lending Act in 

Regulation Z (the 2013 TILA Servicing 

Final Rule). 

On August 10, 2012, the Bureau 

issued proposed rules that would have 

amended Regulation X, which 

implements RESPA,2 as well as 

Regulation Z, which implements TILA,3

regarding mortgage servicing 

requirements.4 The Proposed Servicing 

Rules proposed to implement the DoddFrank Act amendments to TILA and 

RESPA with respect to, among other 

things, periodic mortgage statements, 

disclosures for ARMs, prompt crediting 

of mortgage loan payments, requests for 

mortgage loan payoff statements, error 

resolution, information requests, and 

protections relating to force-placed 

insurance. In the 2012 RESPA Servicing 

Proposal, the Bureau also proposed to 

use its authority to adopt requirements 

relating to servicer policies and 

procedures, early intervention with 

delinquent borrowers, continuity of 

contact, and procedures for evaluating 

and responding to loss mitigation 

applications.5 The proposals sought to 

address fundamental problems that 

underlie many consumer complaints 

and recent regulatory and enforcement 

actions, as set forth in more detail 

below. 

The Bureau is finalizing the Proposed 

Servicing Rules with respect to nine 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10697 

6Note that TILA and RESPA differ in their 

terminology. Whereas Regulation Z generally refers 

to ‘‘consumers’’ and ‘‘creditors,’’ Regulation X 

generally refers to ‘‘borrowers’’ and ‘‘lenders.’’ 

major topics, as summarized below, as 

well as certain technical and 

streamlining amendments. The goals of 

the Final Servicing Rules are to provide 

better disclosure to consumers of their 

mortgage loan obligations and to better 

inform consumers of, and assist 

consumers with, options that may be 

available for consumers having 

difficulty with their mortgage loan 

obligations. The amendments also 

address critical servicer practices 

relating to, among other things, 

correcting errors, imposing charges for 

force-placed insurance, crediting 

mortgage loan payments, and providing 

payoff statements. The Bureau’s final 

rules are set forth in two separate 

notices because some provisions 

implement requirements that Congress 

imposed under TILA while other 

provisions implement requirements 

Congress imposed under RESPA.6

A. Major Topics in the Final Servicing 

Rules 

1. Periodic billing statements (2013 

TILA Servicing Final Rule). Creditors, 

assignees, and servicers must provide a 

periodic statement for each billing cycle 

containing, among other things, 

information on payments currently due 

and previously made, fees imposed, 

transaction activity, application of past 

payments, contact information for the 

servicer and housing counselors, and, 

where applicable, information regarding 

delinquencies. These statements must 

meet the timing, form, and content 

requirements provided in the rule. The 

rule contains sample forms that may be 

used. The periodic statement 

requirement generally does not apply to 

fixed-rate loans if the servicer provides 

a coupon book, so long as the coupon 

book contains certain information 

specified in the rule and certain other 

information specified in the rule is 

made available to the consumer. The 

rule also includes an exemption for 

small servicers as discussed below. 

2. Interest rate adjustment notices 

(2013 TILA Servicing Final Rule). 

Creditors, assignees, and servicers must 

provide a consumer whose mortgage has 

an adjustable rate with a notice between 

210 and 240 days prior to the first 

payment due after the rate first adjusts. 

This notice may contain an estimate of 

the new rate and new payment. 

Creditors, assignees, and servicers also 

must provide a notice between 60 and 

120 days before payment at a new level 

is due when a rate adjustment causes 

the payment to change. The current 

annual notice that must be provided for 

adjustable-rate mortgages (ARMs) for 

which the interest rate, but not the 

payment, has changed over the course of 

the year is no longer required. The rule 

contains model and sample forms that 

servicers may use. 

3. Prompt payment crediting and 

payoff statements (2013 TILA Servicing 

Final Rule). Servicers must promptly 

credit periodic payments from 

borrowers as of the day of receipt. A 

periodic payment consists of principal, 

interest, and escrow (if applicable). If a 

servicer receives a payment that is less 

than the amount due for a periodic 

payment, the payment may be held in 

a suspense account. When the amount 

in the suspense account covers a 

periodic payment, the servicer must 

apply the funds to the consumer’s 

account. In addition, creditors, 

assignees, and servicers must provide an 

accurate payoff balance to a consumer 

no later than seven business days after 

receipt of a written request from the 

borrower for such information. 

4. Force-placed insurance (2013 

RESPA Servicing Final Rule). Servicers 

are prohibited from charging a borrower 

for force-placed insurance coverage 

unless the servicer has a reasonable 

basis to believe the borrower has failed 

to maintain hazard insurance, as 

required by the loan agreement, and has 

provided required notices. An initial 

notice must be sent to the borrower at 

least 45 days before charging the 

borrower for force-placed insurance 

coverage, and a second reminder notice 

must be sent no earlier than 30 days 

after the first notice. The rule contains 

model forms that servicers may use. If 

a borrower provides proof of hazard 

insurance coverage, the servicer must 

cancel any force-placed insurance 

policy and refund any premiums paid 

for overlapping periods in which the 

borrower’s coverage was in place. The 

rule also provides that charges related to 

force-placed insurance (other than those 

subject to State regulation as the 

business of insurance or authorized by 

Federal law for flood insurance) must be 

for a service that was actually performed 

and must bear a reasonable relationship 

to the servicer’s cost of providing the 

service. Where the borrower has an 

escrow account for the payment of 

hazard insurance premiums, the 

servicer is prohibited from obtaining 

force-place insurance where the servicer 

can continue the borrower’s homeowner 

insurance, even if the servicer needs to 

advance funds to the borrower’s escrow 

account to do so. The rule against 

obtaining force-placed insurance in 

cases in which hazard insurance may be 

maintained through an escrow account 

exempts small servicers, as discussed 

below, so long as any force-placed 

insurance purchased by the small 

servicer is less expensive to a borrower 

than the amount of any disbursement 

the servicer would have made to 

maintain hazard insurance coverage. 

5. Error resolution and information 

requests (2013 RESPA Servicing Final 

Rule). Servicers are required to meet 

certain procedural requirements for 

responding to written information 

requests or complaints of errors. The 

rule requires servicers to comply with 

the error resolution procedures for 

certain listed errors as well as any error 

relating to the servicing of a mortgage 

loan. Servicers may designate a specific 

address for borrowers to use. Servicers 

generally are required to acknowledge 

the request or notice of error within five 

days. Servicers also generally are 

required to correct the error asserted by 

the borrower and provide the borrower 

written notification of the correction, or 

to conduct an investigation and provide 

the borrower written notification that no 

error occurred, within 30 to 45 days. 

Further, within a similar amount of 

time, servicers generally are required to 

acknowledge borrower written requests 

for information and either provide the 

information or explain why the 

information is not available. 

6. General servicing policies, 

procedures, and requirements (2013 

RESPA Servicing Final Rule). Servicers 

are required to establish policies and 

procedures reasonably designed to 

achieve objectives specified in the rule. 

The reasonableness of a servicer’s 

policies and procedures takes into 

account the size, scope, and nature of 

the servicer’s operations. Examples of 

the specified objectives include 

accessing and providing accurate and 

timely information to borrowers, 

investors, and courts; properly 

evaluating loss mitigation applications 

in accordance with the eligibility rules 

established by investors; facilitating 

oversight of, and compliance by, service 

providers; facilitating transfer of 

information during servicing transfers; 

and informing borrowers of the 

availability of written error resolution 

and information request procedures. In 

addition, servicers are required to retain 

records relating to each mortgage loan 

until one year after the mortgage loan is 

discharged or servicing is transferred, 

and to maintain certain documents and 

information for each mortgage loan in a 

manner that enables the services to 

compile it into a servicing file within 

five days. This section includes an 

exemption for small servicers as 

discussed below. The Bureau and 

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10698 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

prudential regulators will be able to 

supervise servicers within their 

jurisdiction to assure compliance with 

these requirements but there will not be 

a private right of action to enforce these 

provisions. 

7. Early intervention with delinquent 

borrowers (2013 RESPA Servicing Final 

Rule). Servicers must establish or make 

good faith efforts to establish live 

contact with borrowers by the 36th day 

of their delinquency and promptly 

inform such borrowers, where 

appropriate, that loss mitigation options 

may be available. In addition, a servicer 

must provide a borrower a written 

notice with information about loss 

mitigation options by the 45th day of a 

borrower’s delinquency. The rule 

contains model language servicers may 

use for the written notice. This section 

includes an exemption for small 

servicers as discussed below. 

8. Continuity of contact with 

delinquent borrowers (2013 RESPA 

Servicing Final Rule). Servicers are 

required to maintain reasonable policies 

and procedures with respect to 

providing delinquent borrowers with 

access to personnel to assist them with 

loss mitigation options where 

applicable. The policies and procedures 

must be reasonably designed to ensure 

that a servicer assigns personnel to a 

delinquent borrower by the time a 

servicer provides such borrower with 

the written notice required by the early 

intervention requirements, but in any 

event, by the 45th day of a borrower’s 

delinquency. These personnel should be 

accessible to the borrower by phone to 

assist the borrower in pursuing loss 

mitigation options, including advising 

the borrower on the status of any loss 

mitigation application and applicable 

timelines. The personnel should be able 

to access all of the information provided 

by the borrower to the servicer and 

provide that information, when 

appropriate, to those responsible for 

evaluating the borrower for loss 

mitigation options. This section 

includes an exemption for small 

servicers as discussed below. The 

Bureau and the prudential regulators 

will be able to supervise servicers 

within their jurisdiction to assure 

compliance with these requirements but 

there will not be a private right of action 

to enforce these provisions. 

9. Loss Mitigation Procedures (2013 

RESPA Servicing Final Rule). Servicers 

are required to follow specified loss 

mitigation procedures for a mortgage 

loan secured by a borrower’s principal 

residence. If a borrower submits an 

application for a loss mitigation option, 

the servicer is generally required to 

acknowledge the receipt of the 

application in writing within five days 

and inform the borrower whether the 

application is complete and, if not, what 

information is needed to complete the 

application. The servicer is required to 

exercise reasonable diligence in 

obtaining documents and information to 

complete the application. 

For a complete loss mitigation 

application received more than 37 days 

before a foreclosure sale, the servicer is 

required to evaluate the borrower, 

within 30 days, for all loss mitigation 

options for which the borrower may be 

eligible in accordance with the 

investor’s eligibility rules, including 

both options that enable the borrower to 

retain the home (such as a loan 

modification) and non-retention options 

(such as a short sale). Servicers are free 

to follow ‘‘waterfalls’’ established by an 

investor to determine eligibility for 

particular loss mitigation options. The 

servicer must provide the borrower with 

a written decision, including an 

explanation of the reasons for denying 

the borrower for any loan modification 

option offered by an owner or assignee 

of a mortgage loan with any inputs used 

to make a net present value calculation 

to the extent such inputs were the basis 

for the denial. A borrower may appeal 

a denial of a loan modification program 

so long as the borrower’s complete loss 

mitigation application is received 90 

days or more before a scheduled 

foreclosure sale. 

The rule restricts ‘‘dual tracking,’’ 

where a servicer is simultaneously 

evaluating a consumer for loan 

modifications or other alternatives at the 

same time that it prepares to foreclose 

on the property. Specifically, the rule 

prohibits a servicer from making the 

first notice or filing required for a 

foreclosure process until a mortgage 

loan account is more than 120 days 

delinquent. Even if a borrower is more 

than 120 days delinquent, if a borrower 

submits a complete application for a 

loss mitigation option before a servicer 

has made the first notice or filing 

required for a foreclosure process, a 

servicer may not start the foreclosure 

process unless (1) the servicer informs 

the borrower that the borrower is not 

eligible for any loss mitigation option 

(and any appeal has been exhausted), (2) 

a borrower rejects all loss mitigation 

offers, or (3) a borrower fails to comply 

with the terms of a loss mitigation 

option such as a trial modification. 

If a borrower submits a complete 

application for a loss mitigation option 

after the foreclosure process has 

commenced but more than 37 days 

before a foreclosure sale, a servicer may 

not move for a foreclosure judgment or 

order of sale, or conduct a foreclosure 

sale, until one of the same three 

conditions has been satisfied. In all of 

these situations, the servicer is 

responsible for promptly instructing 

foreclosure counsel retained by the 

servicer not to proceed with filing for 

foreclosure judgment or order of sale, or 

to conduct a foreclosure sale, as 

applicable. 

This section includes an exemption 

for small servicers as defined above. 

However, a small servicer is required to 

comply with two requirements: (1) A 

small servicer may not make the first 

notice or filing required for a foreclosure 

process unless a borrower is more than 

120 days delinquent, and (2) a small 

servicer may not proceed to foreclosure 

judgment or order of sale, or conduct a 

foreclosure sale, if a borrower is 

performing pursuant to the terms of a 

loss mitigation agreement. 

All of the provisions in the section 

relating to loss mitigation can be 

enforced by individuals. Additionally, 

the Bureau and the prudential regulators 

can also supervise servicers within their 

jurisdiction to assure compliance with 

these requirements. 

B. Scope of the Final Servicing Rules 

The Final Servicing Rules have 

somewhat different scopes, with respect 

to the types of mortgage loan 

transactions covered and the loans that 

are exempted. With respect to the 2013 

TILA Servicing Final Rule, certain 

requirements, specifically the periodic 

statement and ARM disclosure 

requirements, only apply to closed-end 

mortgage loans, whereas other 

requirements, specifically the 

requirements for crediting of payments 

and providing payoff statements, apply 

to both open-end and closed-end 

mortgage loans. Reverse mortgage 

transactions and timeshare plans are 

exempt from the periodic statement 

requirement. ARMs with terms of one 

year or less are exempt from the ARM 

disclosure requirements. 

With respect to the 2013 RESPA 

Servicing Final Rule, certain 

requirements generally apply to 

federally related mortgage loans that are 

closed-end, with certain exemptions for 

loans on property of 25 acres or more, 

business-purpose loans, temporary 

financing, loans secured by vacant land, 

and certain loan assumptions or 

conversions. Open-end lines of credit 

(home equity plans) are generally 

exempt from the requirements in the 

2013 RESPA Servicing Final Rule. The 

general servicing policies, procedure, 

and requirements, early intervention, 

continuity of contact, and loss 

mitigation procedures provisions are 

generally inapplicable to servicers of 

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7 Inside Mortg. Fin., Outstanding 1–4 Family 

Mortgage Securities, in 2 The 2012 Mortgage Market 

Statistical Annual 7 (2012). For general background 

on the market and the recent crisis, see the 2012 

TILA–RESPA Proposal available at http://

www.consumerfinance.gov/knowbeforeyouowe/ 

(last accessed Jan. 10, 2013). 

8As of June 2012, approximately 36 percent of 

outstanding mortgage loans were held in portfolio; 

54 percent of mortgage loans were owned through 

mortgage-backed securities issued by Federal 

National Mortgage Association (Fannie Mae) and 

the Federal Home Loan Mortgage Corporation 

(Freddie Mac), together referred to as the 

government-sponsored enterprises (GSEs), as well 

as securities issued by the Government National 

Mortgage Association (Ginnie Mae); and 10 percent 

of loans were owned through private label 

mortgage-backed securities. Strengthening the 

Housing Market and Minimizing Losses to 

Taxpayers, Hearing Before the S. Comm. on 

Banking, Housing and Urban Affairs (2012) 

(Testimony of Laurie Goodman, Amherst 

Securities), available at http://banking.senate.gov/

public/index.cfm?FuseAction=Hearings.Testimony

&Hearing_ID=53bda60f-64c1-43d8-9adfa693c31eb56b&Witness_ID=b06f2fb1-59dd-4881-

86cb-1082464d3119. A securitization results in the 

economic separation of the legal title to the 

mortgage loan and a beneficial interest in the 

mortgage loan obligation. In a securitization 

transaction, a securitization trust is the owner or 

assignee of a mortgage loan. An investor is a 

creditor of the trust and is entitled to cash flows 

that are derived from the proceeds of the mortgage 

loans. In general, certain investors (or an insurer 

entitled to act on behalf of the investors) may direct 

the trust to take action as the owner or assignee of 

the mortgage loans for the benefit of the investors 

or insurers. See, e.g., Adam Levitin & Tara Twomey, 

Mortgage Servicing, 28 Yale J. on Reg. 1, 11 (2011) 

(Levitin & Twomey). 

9See, e.g., Levitin & Twomey, at 11 (‘‘All 

securitizations involved third-party servicers * * * 

[m]ortgage servicers provide the critical link 

between mortgage borrowers and the SPV and 

RMBS investors, and servicing arrangements are an 

indispensable part of securitization.’’). 

10See, e.g., Diane E. Thompson, Foreclosing 

Modifications: How Servicer Incentives Discourage 

Loan Modifications, 86 Wash. L. Rev. 755, 763 

(2011) (‘‘Thompson’’). 

11See Top 100 Mortgage Servicers in 2012, Inside 

Mortg. Fin., Sept. 28, 2012, at 13 (As of the end of 

the fourth quarter of 2011, the top five largest 

servicers serviced $5.66 trillion of mortgage loans). 

12Fitch Ratings, U.S. Residential and Small 

Balance Commercial Mortgage Servicer Rating 

Criteria, at 14–15 (Jan. 31, 2011), available at 

http://www.fitchratings.com. (account required to 

access information). 

reverse mortgage transactions or to 

servicers of mortgage loans for which 

the servicers are also qualified lenders 

under the Farm Credit Act of 1971. 

In the 2013 TILA Servicing Final 

Rule, the Bureau is exercising its 

authority under TILA to provide an 

exemption from the periodic statement 

requirement for small servicers, defined 

as servicers that service 5,000 mortgage 

loans or less and only service mortgage 

loans the servicer or an affiliate owns or 

originated (small servicers). In this 2013 

RESPA Servicing Final Rule, the Bureau 

has elected not to extend to these small 

servicers most provisions of the Final 

Rule that are not being promulgated to 

implement specific mandates in the 

Dodd-Frank Act but are, instead, being 

issued by the Bureau, in the exercise of 

its discretion, pursuant to its 

discretionary rulemaking authority 

under RESPA, as amended by the DoddFrank Act, and title X of the Dodd-Frank 

Act. The exemptions from the 

discretionary rulemakings include those 

relating to general servicing policies, 

procedures, and requirements; early 

intervention with delinquent borrowers; 

continuity of contact; and most of the 

requirements for evaluating and 

responding to loss mitigation 

applications. Further, the Bureau is not 

restricting small servicers from 

purchasing force-placed insurance for 

borrowers with escrow accounts for the 

payment of hazard insurance, so long as 

the cost to the borrower of the forceplaced insurance obtained by a small 

servicer is less than the amount the 

small servicer would be required to 

disburse from the borrower’s escrow 

account to ensure that the borrower’s 

hazard insurance premium charges were 

paid in a timely manner. Small servicers 

are required to comply with limited loss 

mitigation procedure requirements. 

These include (1) a prohibition on 

making the first notice or filing required 

for a foreclosure process unless a 

borrower is more than 120 days 

delinquent and (2) a prohibition on 

making the first notice or filing or 

moving for foreclosure judgment or 

order of sale, or conducting a 

foreclosure sale, when a borrower is 

performing pursuant to the terms of a 

loss mitigation agreement. The 

exemptions applicable to small servicers 

in the 2013 TILA Servicing Rule and the 

2013 RESPA Servicing Rule are also 

being extended to Housing Finance 

Agencies, without regard to the number 

of mortgage loans serviced by any such 

agency, and these agencies are included 

within the definition of small servicer. 

II. Background 

A. Overview of the Mortgage Servicing 

Market and Market Failures 

The mortgage market is the single 

largest market for consumer financial 

products and services in the United 

States, with approximately $10.3 trillion 

in loans outstanding.7 Mortgage 

servicers play a vital role within the 

broader market by undertaking the dayto-day management of mortgage loans 

on behalf of lenders who hold the loans 

in their portfolios or (where a loan has 

been securitized) investors who are 

entitled to the loan proceeds.8 Over 60 

percent of mortgage loans are serviced 

by mortgage servicers for investors. 

Servicers’ duties typically include 

billing borrowers for amounts due, 

collecting and allocating payments, 

maintaining and disbursing funds from 

escrow accounts, reporting to creditors 

or investors, and pursuing collection 

and loss mitigation activities (including 

foreclosures and loan modifications) 

with respect to delinquent borrowers. 

Indeed, without dedicated companies to 

perform these activities, it is 

questionable whether a secondary 

market for mortgage-backed securities 

would exist in this country.9 Given the 

nature of their activities, servicers can 

have a direct and profound impact on 

borrowers. 

Mortgage servicing is performed by 

banks, thrifts, credit unions, and nonbanks under a variety of business 

models. In some cases, creditors service 

mortgage loans that they originate or 

purchase and hold in portfolio. Other 

creditors sell the ownership of the 

underlying mortgage loan, but retain the 

mortgage servicing rights in order to 

retain the relationship with the 

borrower, as well as the servicing fee 

and other ancillary income. In still other 

cases, servicers have no role at all in 

origination or loan ownership, but 

rather purchase mortgage servicing 

rights on securitized loans or are hired 

to service a portfolio lender’s loans.10

These different servicing structures 

can create difficulties for borrowers if a 

servicer makes mistakes, fails to invest 

sufficient resources in its servicing 

operations, or avoids opportunities to 

work with borrowers for the mutual 

benefit of both borrowers and owners or 

assignees of mortgage loans. Although 

the mortgage servicing industry has 

numerous participants, the industry is 

highly concentrated, with the five 

largest servicers servicing 

approximately 53 percent of outstanding 

mortgage loans in this country.11 Small 

servicers generally operate in discrete 

segments of the market, for example, by 

specializing in servicing delinquent 

loans, or by servicing loans that they 

originate.12

Contracts between the servicer and 

the mortgage loan owner specify the 

rights and responsibilities of each party. 

In the context of securitized loans, the 

contracts may require the servicer to 

balance the competing interests of 

different classes of investors when 

borrowers become delinquent. Certain 

provisions in servicing contracts may 

limit the servicer’s ability to offer 

certain types of loan modifications to 

borrowers. Such contracts also may 

limit the circumstances under which 

owners or assignees of mortgage loans 

can transfer servicing rights to a 

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13At securitization, the cash flow that was part 

of interest income is bifurcated between the loan 

and the mortgage servicing right (MSR). The MSR 

represents the present value of all the cash flows, 

both positive and negative, related to servicing a 

mortgage. Prime MSRs are largely created by the 

GSE minimum servicing fee rate, which is 

calculated as 25 basis points (bps) per annum. The 

servicing fee rate is typically paid to the servicer 

monthly and the monthly amount owed is 

calculated by multiplying the pro rata portion of the 

servicing fee rate by the stated principal balance of 

the mortgage loan at the payment due date. 

Accounting rules require that a capitalized asset be 

created if the ‘‘compensation’’ for servicing 

(including float/ancillary) exceeds ‘‘adequate 

compensation.’’ For loans held in portfolio, there is 

no bifurcation of the interest income from the loan. 

The owner of the loan simply negotiates pricing, 

terms, and standards with the servicer, which, at 

larger institutions, is typically a separate affiliate or 

subsidiary of the owner of the loans. Keefe, Bruyette 

& Woods, Inc., PowerPoint Presentation, KBW 

Mortgage Matters: Mortgage Servicing Primer (Apr. 

2012). 

14Richard O’Brien, High Time for High-Touch, 

Mortg. Banking, Feb. 1, 2009, at 39. Industry 

participants generally indicated to the Bureau that 

servicers targeted a loan to employee ratio of 1,000– 

1,200 mortgage loans per full time employee for 

mortgage loans that are current, and 125–150 

mortgage loans per full time employee for mortgage 

loans that are delinquent. Between 1992 and 2000, 

as servicers sought to make their operations more 

efficient, loans serviced per full time employee 

increased from approximately 700 loans in 1992 to 

over 1,200 loans by 2000. Michael A. Stegman et 

al., Preventative Servicing Is Good for Business and 

Affordable Homeownership Policy, 18 Housing 

Pol’y Debate 243, 274 (2007). As an example of 

current mortgage servicing staffing levels, Ocwen 

services 162 mortgage loans per servicing employee. 

See Morningstar Credit Ratings, LLC, Operational 

Risk Assessment—Ocwen Loan Servicing, LLC, at 7 

(2012) available at http://www.ocwen.com/docs/ 

Morningstar-Sept-2012.pdf. 

15See, e.g., Bank of America, Mortgage Servicing 

Fees, available at https:// 

www8.bankofamerica.com/home-loans/mortgageservicing-fees.go (last accessed Jan. 11, 2013); Metro 

Credit Union, Mortgage Servicing Fee Schedule, 

available at http://www.metrocu.org/home/fiFiles/

static/documents/Mortgage_Servicing_Fee_

Schedule.pdf (last accessed Jan. 6, 2013); Acqura 

Loan Services, Mortgage Loan Servicing Fee 

Schedule, available at http://www.acqurals.com/ 

feeschedule.html (last accessed Jan. 11, 2013); 

Sovereign Bank, FAQ—What Are the Mortgage 

Loan Servicing Fees?, available at https://customer

service.sovereignbank.com/app/answers/detail/a_

id/22/∼/what-are-the-mortgage-loan-servicingfees%3F (last accessed Jan. 11, 2013). 

16See Problems in Mortgage Servicing from 

Modification to Foreclosure: Hearings Before the S. 

Comm. on Banking, Hous., & Urban Affairs, 111th 

Cong. 53–54 (2010) (statement of Thomas J. Miller, 

Iowa Att’y Gen.) (‘‘Miller Testimony’’). See also, 

Kurt Eggert, Limiting Abuse and Opportunism by 

Mortgage Servicers, 15 Housing Pol’y Debate 753 

(2004), available at http://ssrn.com/ 

abstract=992095. 

17See Kurt Eggert, Limiting Abuse and 

Opportunism by Mortgage Servicers, 15 Housing 

Pol’y Debate 753 (2004), available at http:// 

ssrn.com/abstract=992095 (collecting cases). 

18U.S. Census Bureau, Table 1194: Mortgage 

Originations and Delinquency and Foreclosure 

Rates: 1990 to 2010, in The 2012 Statistical Abstract 

of the United States, (2012), available at http:// 

www.census.gov/compendia/statab/2012/tables/ 

12s1194.pdf (last accessed Jan. 6, 2013). 

19See U.S. Dep’t of the Treasury, Making Contact: 

The Path to Improving Mortgage Industry 

Communication With Homeowners, at 3 (2012), 

available at http://www.treasury.gov/initiatives/

financial-stability/reports/Documents/SPOC%20

Special%20Report_Final.pdf (last accessed Jan. 6, 

2013). 

20See U.S. Gov’t Accountability Office, GAO–10– 

634, Troubled Asset Relief Program: Further 

Actions Needed to Fully and Equitably Implement 

Foreclosure Mitigation Programs, at 15 (2010). 

21Press Release, Office of the Comptroller of the 

Currency, NR 2011–47, OCC Takes Enforcement 

Action Against Eight Servicers for Unsafe and 

Unsound Foreclosure Practices (Apr. 13, 2011), 

available at http://www.occ.gov/news-issuances/ 

news-releases/2011/nr-occ-2011-47.html; Press 

Release, Fed. Reserve Bd., Federal Reserve Issues 

Enforcement Actions Related to Deficient Practices 

in Residential Mortgage Loan Servicing (April 13, 

2011) (‘‘Fed Press Release’’), available at http:// 

www.federalreserve.gov/newsevents/press/ 

enforcement/20110413a.htm. In addition to 

different servicer. Further, servicer 

contracts govern servicer requirements 

to advance payments to owners of 

mortgage loans, and to recoup advances 

made by servicers, including from 

ultimate recoveries on liquidated 

properties. 

Compensation structures vary 

somewhat for loans held in portfolio 

and securitized loans,13 but have tended 

to make pure mortgage servicing (where 

the servicer has no role in origination) 

a high-volume, low-margin business. 

Such compensation structures 

incentivize servicers to ensure that 

investment in operations closely tracks 

servicer expectations of delinquent 

accounts, and an increase in the number 

of delinquent accounts a servicer must 

service beyond that projected by the 

servicer strains available servicer 

resources. A servicer will expect to 

recoup its investment in purchasing 

mortgage servicing rights and earn a 

profit primarily through a net servicing 

fee (which is typically expressed as a 

constant rate assessed on unpaid 

mortgage balances), interest float on 

payment accounts between receipt and 

disbursement, and cross-marketing 

other products and services to 

borrowers. Under this business model, 

servicers act primarily as payment 

collectors and processors, and will have 

limited incentives to provide other 

customer service. Servicers greatly vary 

in the extent to which they invest in 

customer service infrastructure. For 

example, servicer staffing ratios have 

varied between approximately 100 loans 

per full-time employee to over 4,000 

loans per full time employee.14

Servicers are generally not subject to 

market discipline from consumers 

because consumers have little 

opportunity to switch servicers. Rather, 

servicers compete to obtain business 

from the owners of loans—investors, 

assignees, and creditors—and thus 

competitive pressures tend to drive 

servicers to lower the price of servicing 

and scale their investment in providing 

service to consumers accordingly. 

Servicers also earn revenue from fees 

assessed on borrowers, including fees 

on late payments, fees for obtaining 

force-placed insurance, and fees for 

services, such as responding to 

telephone inquiries, processing 

telephone payments, and providing 

payoff statements.15 As a result, 

servicers have an incentive to look for 

opportunities to impose fees on 

borrowers to enhance revenues. 

These attributes of the servicing 

market created problems for certain 

borrowers even prior to the financial 

crisis. For example, borrowers 

experienced problems with mortgage 

servicers even during regional mortgage 

market downturns that preceded the 

financial crisis.16 There is evidence that 

borrowers were subjected to improper 

fees that servicers had no reasonable 

basis to impose, improper force-placed 

insurance practices, and improper 

foreclosure and bankruptcy practices.17

When the financial crisis erupted, 

many servicers—and especially the 

larger servicers with their scale business 

models—were ill-equipped to handle 

the high volumes of delinquent 

mortgages, loan modification requests, 

and foreclosures they were required to 

process. Mortgage loan delinquency 

rates nearly doubled between 2007 and 

2009 from 5.4 percent of first-lien 

mortgage loans to 9.4 percent of firstlien mortgage loans.18 Many servicers 

lacked the infrastructure, trained staff, 

controls, and procedures needed to 

manage effectively the flood of 

delinquent mortgages they were forced 

to handle.19 One study of complaints to 

the HOPE Hotline reported that over 

half of the complaints (27,000 out of 

48,000) were from borrowers who could 

not reach their servicers and obtain 

information about the status of 

applications they had submitted for 

options to avoid foreclosure.20

Consumer harm has manifested in 

many different areas, and major 

servicers have entered into significant 

settlement agreements with Federal and 

State governmental authorities. For 

example, in April 2011, the Office of the 

Comptroller of the Currency (OCC) and 

the Board of Governors of the Federal 

Reserve System (Board), following onsite reviews of foreclosure processing at 

14 federally regulated mortgage 

servicers, found significant deficiencies 

at each of the servicers reviewed. As a 

result, the OCC and the Board 

undertook formal enforcement actions 

against several major servicers for 

unsafe and unsound residential 

mortgage loan servicing practices.21

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enforcement actions against major servicers, Federal 

agencies have also undertaken formal enforcement 

actions against major service providers to mortgage 

servicers. 

22Press Release, Federal Reserve Bd., Federal 

Reserve Issues Enforcement Actions Related to 

Deficient Practices in Residential Mortgage Loan 

Servicing (April 13, 2011), available at http:// 

www.federalreserve.gov/newsevents/press/ 

enforcement/20110413a.htm. None of the servicers 

admitted or denied the OCC’s or Federal Reserve 

Board’s findings. 

23See, e.g., Jody Shenn, PIMCO: This is who’s 

actually going to be punished by the mortgage fraud 

settlement, Bloomberg News, February 10, 2012; cf., 

Office of Inspector Gen., Fed. Hous. Fin. Agency, 

Evaluation of FHFA’s Oversight of Fannie Mae’s 

Transfer of Mortgage Servicing Rights from Bank of 

America to High Touch Servicers, at 12 (Sept. 18, 

2012) (‘‘FHA OIG MSR Report’’). The Inspector 

General for FHFA observed that ‘‘Fannie Mae may 

have had (what one of its executives described as) 

a ‘misalignment of interests’ with its servicers. As 

guarantor or loan holder, Fannie Mae could face 

significant losses from a default. However, a 

servicer earns only a fraction of a percent of the 

unpaid balance of a mortgage it services and, thus, 

the fees derived from any particular loan may not— 

at least for the servicer—provide adequate incentive 

to undertake anything more than the bare minimum 

of effort in order to prevent a default. This will 

typically include sending out delinquency notices 

to borrowers who have not made timely payments, 

telephoning delinquent borrowers, and, ultimately, 

initiating foreclosure proceedings.’’ 

24For example, Fannie Mae rewards servicers that 

provide high levels of customer service by 

compensating them through (1) base servicing fees, 

(2) incentive payments for mortgage modifications, 

and (3) a performance payment based on the 

servicer’s success as contrasted with that of a 

benchmark portfolio. See FHA OIG MSR Report at 

12. 

25See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (Jun, 11, 2012) (‘‘Small 

Business Review Panel Report’’), available at 

www.consumerfinance.gov. 

26Oklahoma elected not to participate in the 

National Mortgage Settlement and executed a 

separate settlement with the servicers that are 

parties to the National Mortgage Settlement. See 

State of Oklahoma, Oklahoma Mortgage Settlement 

Fact Sheet (Feb. 9, 2012), available at http://

www.oag.ok.gov/oagweb.nsf/0/2737eec87426

c427862579c10003c950/$FILE/Oklahoma%20

Mortgage%20Settlement%20FAQs.pdf (last 

accessed Jan. 10, 2013). 27The National Mortgage Settlement is available 

at: http://www.nationalmortgagesettlement.com/. 

The five servicers subject to the settlement are Bank 

of America, JP Morgan Chase, Wells Fargo, 

CitiMortgage, and Ally/GMAC. 

28See United States of America v. Bank of 

America Corp., at Appendix A, (National Mortgage 

Settlement), available at http:// 

www.nationalmortgagesettlement.com. 

29Office of the Comptroller of the Currency, OCC 

2011–29, Foreclosure Management: Supervisory 

Guidance, OCC Bull., June 2011, available at 

http://www.occ.gov/news-issuances/bulletins/2011/

bulletin-2011-29.html; Letter from Edward J. 

DeMarco, Acting Dir. of Fed. Hous. Fin. Agency, to 

Hon. Elijah E. Cummings, Ranking Member, Comm. 

on Oversight and Gov’t Reform, U.S. H. of Rep. (Jan. 

20, 2012), available at http://www.fhfa.gov/

webfiles/23056/PrincipalForgivenessltr12312.pdf; 

Fannie Mae, Program Guidance, Home Affordable 

Modification Program, available at https://

www.hmpadmin.com/portal/programs/

guidance.jsp. Fed. Hous. Fin. Agency, Frequently 

Asked Questions—Servicing Alignment Initiative, 

available at http://www.fhfa.gov/webfiles/21191/ 

FAQs42811Final.pdf. 

30See Fed. Reserve Sys., Office of the Comptroller 

of the Currency, & Office of Thrift Supervision, U.S. 

Dep’t of the Treasury, Interagency Review of 

Foreclosure Policies and Practices (2011) 

(Interagency Foreclosure Report) (a joint review of 

foreclosure processing of 14 federally regulated 

mortgage servicers during the fourth quarter of 2010 

by the Federal Reserve System, Office of the 

Comptroller of the Currency, and Office of Thrift 

Supervision), available at http://www.occ.gov/ 

news-issuances/news-releases/2011/nr-occ-2011- 

47a.pdf. 

31See Interagency Foreclosure Report, at 5; Press 

Release, Fed. Reserve Bd., Press Release (May 24, 

2012), available at http://www.federalreserve.gov/ 

newsevents/press/enforcement/20120524a.htm; 

Press Release, Fed. Reserve Bd. (Feb. 27, 2012), 

available at http://www.federalreserve.gov/ 

newsevents/press/enforcement/20120227a.htm; 

OCC Press Release. 

These enforcement actions generally 

focused on practices relating to (1) filing 

of foreclosure documents without, for 

example, proper affidavits or 

notarizations; (2) failing to always 

ensure that loan documents were 

properly endorsed or assigned and, if 

necessary, in the possession of the 

appropriate party at the appropriate 

time; (3) failing to devote sufficient 

financial, staffing, and managerial 

resources to ensure proper 

administration of foreclosure processes; 

(4) failing to devote adequate oversight, 

internal controls, policies and 

procedures, compliance risk 

management, internal audit, third-party 

management, and training to foreclosure 

processes; and (5) failing to oversee 

sufficiently outside counsel and other 

third-party providers handling 

foreclosure-related services.22

Other investigations of servicers have 

found similar problems. For example, 

the Government Accountability Office 

(GAO) has found pervasive problems in 

broad segments of the mortgage 

servicing industry impacting delinquent 

borrowers, such as servicers who have 

misled, or failed to communicate with, 

borrowers, lost or mishandled borrowerprovided documents supporting loan 

modification requests, and generally 

provided inadequate service to 

delinquent borrowers. It has been 

recognized in Inspector General reports, 

and the Bureau has learned from 

outreach with mortgage investors, that 

servicers may be acting to maximize 

their self-interests in the handling of 

delinquent borrowers, rather than the 

interests of owners or assignees of 

mortgage loans.23

The mortgage servicing industry, 

however, is not monolithic. Some 

servicers provide high levels of 

customer service. Some of these 

servicers are compensated by investors 

in a way that incentivizes them to 

provide this level of service in order to 

optimize investor outcomes.24 Other 

servicers provide high levels of 

customer service because they are 

servicing loans of their own retail 

customers within their local community 

or (in the case of credit unions) 

membership base. These servicers seek 

to provide other products and services 

to consumers—and to others within the 

community or membership base—and 

thus have an interest in preserving their 

reputations and relationships with their 

consumers. For example, as discussed 

further below, small servicers that the 

Bureau consulted as part of a process 

required under the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (SBREFA) described their 

businesses as requiring a ‘‘high touch’’ 

model of customer service both to 

ensure loan performance and maintain a 

strong reputation in their local 

communities.25

B. The National Mortgage Settlement 

and Other Regulatory Requirements 

In response to the unprecedented 

financial crisis and pervasive problems 

in mortgage servicing, including the 

systemic violation of State foreclosure 

laws by many of the largest servicers, 

State and Federal regulators have 

engaged in a number of individual 

servicing related enforcement and 

regulatory actions over the last few 

years and have begun discussions about 

comprehensive national standards. 

For example, the Federal government, 

joined by 49 State attorneys general,26

entered into settlements with the 

nation’s five largest servicers in 

February 2012 (the National Mortgage 

Settlement).27 Exhibit A to each of the 

settlements is a Settlement Term Sheet, 

which sets forth standards that each of 

the five largest servicers must follow to 

comply with the terms of the 

settlement.28 The settlement standards 

contained in the Settlement Term Sheet 

are sub-divided into the following eight 

categories: (1) Foreclosure and 

bankruptcy information and 

documentation; (2) third-party provider 

oversight; (3) bankruptcy; (4) loss 

mitigation; (5) protections for military 

personnel; (6) restrictions on servicing 

fees; (7) force-placed insurance; and (8) 

general servicer duties and prohibitions. 

Apart from the National Mortgage 

Settlement, Federal regulatory agencies 

have also issued guidance on mortgage 

servicing and loan modifications,29

conducted coordinated reviews of the 

nation’s largest servicers,30 and taken 

enforcement actions against individual 

companies.31 Further, the Bureau and 

other Federal agencies have been 

engaged since spring 2011 in informal 

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32New York State Department of Financial 

Services, Explanatory All Institutions Letter 

(October 7, 2012), available at http://

www.dfs.ny.gov/legal/regulations/emergency/

banking/ar419lt.htm (last accessed Dec. 7, 2012). 

33 3 N.Y.C.R.R. 419.1 et seq. 

34See Cal. Civ. Code § 2923.6. 

35OAR 137–020–0805. Notably, Oregon’s 

regulations initially implemented mortgage 

servicing requirements with respect to open-end 

lines of credit (home equity plans) and, further, 

required servicers to comply with GSE guidelines 

for loan modifications. Oregon suspended these 

requirements and reissued the rule as OAR 137– 

020–0805 on the basis that such suspension was 

necessary to facilitate compliance. See In the matter 

of: Suspension of OAR 137–020–0800 and 

Adoption of OAR 137–020–0805 (February 15, 

2012), available at http://www.oregonmla.org/Web

siteAttachments/Misc%20Events%20Attachments/

OAR%20137-020-0805%202%2015%2012%20

AG%20Servicing%20Rules%20(00540177).pdf (last 

accessed Jan. 6, 2013). 

36See Press Release, Massachusetts Division of 

Banks Proposes New Standards for Mortgage 

Servicing (Nov. 8, 2012), available at http://

www.mass.gov/ocabr/docs/dob/standards-for-mortservicing2012.pdf (last accessed Jan. 6, 2013). 

37Public Law 101–625, 104 Stat. 4079 (1990), 

sections 941–42. 

38See 12 U.S.C. 2605(a) through (e). 

39See 12 U.S.C. 2605(e) and 2609. 

discussions about the potential 

development of national mortgage 

servicing standards through interagency 

regulations and guidance. 

Servicers are currently required to 

navigate overlapping requirements 

governing their servicing 

responsibilities. Servicers must comply 

with requirements established by 

owners or assignees of mortgage loans. 

These include, as applicable, (1) 

servicing guidelines required by Fannie 

Mae, Freddie Mac, and Ginnie Mae; (2) 

government insured program guidelines 

issued by the Federal Housing 

Administration (FHA), Department of 

Veterans Affairs (VA), and the Rural 

Housing Service; (3) contractual 

agreements with investors (such as 

pooling and servicing agreements and 

subservicing contracts); and (4) bank or 

institution policies. 

Servicers are also required to consider 

the impact of State and even local 

regulation on mortgage servicing. 

Significantly, New York, California, and 

Oregon have all adopted varying 

statutory or regulatory restrictions on 

mortgage servicers. For example, the 

Superintendent of Banks of the State of 

New York repeatedly adopted shortterm emergency regulations governing 

mortgage servicers on a continuous 

basis since July 2010.32 These 

regulations impose obligations on 

servicers with respect to, among other 

things, consumer complaints and 

inquiries, statements of accounts, 

crediting of payments, payoff balances, 

and loss mitigation procedures.33 The 

California Homeowner Bill of Rights, 

which was enacted in 2012, imposes 

requirements on servicers with respect 

to evaluations of borrowers for loss 

mitigation options before various 

foreclosure documents may be filed for 

California’s non-judicial foreclosure 

process.34 Further, Oregon implemented 

regulations on mortgage servicers not to 

engage in unfair or deceptive conduct 

by: assessing fees for payments made on 

or before a payment due date; assessing 

or collecting fees not authorized by a 

security instrument or mortgage, 

misrepresenting information relating to 

a loan modification or set forth in an 

affidavit, declaration, or other sworn 

statement detailing a borrower’s default 

and the servicer’s right to foreclose; 

failing to comply with certain 

provisions of RESPA; or failing to deal 

with a borrower in good faith.35 Further, 

Massachusetts has recently proposed 

new regulations to protect consumers 

with respect to mortgage servicing 

practices, including with respect to loss 

mitigation procedures.36

C. RESPA and Regulation X 

Congress originally enacted the Real 

Estate Settlement Procedures Act of 

1974 (RESPA) based on findings that 

significant reforms in the real estate 

settlement process were needed to 

ensure that consumers are provided 

with greater and more timely 

information on the nature and costs of 

the residential real estate settlement 

process and are protected from 

unnecessarily high settlement charges 

caused by certain abusive practices 

found by Congress. See 12 U.S.C. 

2601(a). In 1990, Congress amended 

RESPA by adding a new section 6 

covering persons responsible for 

servicing federally related mortgage 

loans and imposing on such servicers 

certain obligations.37 These included 

required disclosures at application 

concerning whether the lender intended 

to service the mortgage loan and 

disclosures upon an actual transfer of 

servicing rights.38 RESPA section 6 

further imposed substantive and 

disclosure requirements for escrow 

account management and required 

servicers to respond to ‘‘qualified 

written requests’’—written error 

resolution or information requests 

relating to the ‘‘servicing’’ of the 

borrower’s mortgage loan.39

Section 19(a) of RESPA authorizes the 

Bureau (and formerly directed the 

Department of Housing and Urban 

Development (HUD)) to prescribe such 

rules and regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the purposes of RESPA. See 12 

U.S.C. 2617(a). 

Historically, Regulation X, 24 CFR 

part 3500, implemented RESPA. General 

rulemaking authority for RESPA 

transferred to the Bureau on July 21, 

2011. See sections 1061 and 1098 of the 

Dodd-Frank Act. Pursuant to the DoddFrank Act and RESPA, as amended, the 

Bureau published for public comment 

an interim final rule establishing a new 

Regulation X, 12 CFR part 1024, 

implementing RESPA. 76 FR 78978 

(Dec. 20, 2011). The Bureau’s Regulation 

X took effect on December 30, 2011. The 

requirements in section 6 of RESPA for 

mortgage servicing are implemented 

primarily by § 1024.21. 

D. The Dodd-Frank Act 

The Dodd-Frank Act imposes certain 

new requirements related to mortgage 

servicing. As set forth above, some of 

these new requirements are 

amendments to RESPA addressed in 

this final rule and others are 

amendments to TILA, addressed in the 

2013 TILA Servicing Final Rule. 

Section 1463 of the Dodd-Frank Act 

added new sections 6(k), 6(l), and 6(m) 

to RESPA. 12 U.S.C. 2605. Sections 

6(k)(1)(A), 6(k)(2), 6(l) and 6(m) impose 

restrictions on servicers with respect to 

force-placed insurance. Specifically, 

section 6(k)(1)(A) of RESPA provides 

that a servicer may not obtain forceplaced hazard insurance with respect to 

any property secured by a federally 

related mortgage unless there is a 

reasonable basis to believe the borrower 

has failed to comply with the loan 

contract’s requirement to maintain 

property insurance. Further, under 

section 6(l) of RESPA, a servicer is 

deemed not to have a reasonable basis 

for obtaining force-placed insurance, 

unless the servicer sends to the 

borrower, by first-class mail, two 

written notices. The first notice must be 

sent at least 45 days before imposing on 

the borrower any charge for force-placed 

insurance, and the second notice must 

be sent at least 30 days after the first 

written notice and at least 15 days 

before imposing on the borrower any 

charge for force-placed insurance. The 

notices must remind borrowers of their 

obligation to maintain hazard insurance 

on the property, alert borrowers to the 

servicer’s lack of evidence of insurance 

coverage, tell borrowers what they must 

do to provide proof of hazard insurance 

coverage, and state that the servicer may 

obtain coverage at the borrower’s 

expense if the borrower fails to provide 

evidence of coverage. Under section 

6(l)(3) of RESPA, within fifteen days of 

receipt by a servicer of a borrower’s 

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40As set forth below, section 1463(d) is 

implemented by § 1024.34(b) of this rule. Section 

1463(b), however, is not implemented by this 

rulemaking. Accordingly, pursuant to section 

1400(c) of the Dodd-Frank Act, the amendments to 

section 6(f) of RESPA in section 1463(b) of the 

Dodd-Frank Act are effective as of January 21, 2013. 

41 12 U.S.C. 2605(k)(1)(E). 

42The Small Business Regulatory Enforcement 

Fairness Act of 1996 requires the Bureau to convene 

a Small Business Review Panel before proposing a 

rule that may have a significant economic impact 

on a substantial number of small entities. See 

Public Law 104–121, tit. II, 110 Stat. 847, 857 (1996) 

(as amended by Pub. L. 110–28, sec. 8302 (2007)). 

43See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (June 11, 2012) (‘‘SBREFA 

Final Report’’), available at http:// 

www.consumerfinance.gov. 

existing insurance coverage, servicers 

must terminate force-placed insurance 

coverage and refund to the borrower any 

premiums charged during any period 

when the borrower had hazard 

insurance in place. Finally, section 6(m) 

of RESPA requires that all charges 

imposed on the borrower related to 

force-placed insurance, apart from 

charges subject to State regulation as the 

business of insurance, must be bona fide 

and reasonable. 

Section 1463 of the Dodd-Frank Act 

further added section 6(k)(1)(B)–(D) of 

RESPA, which prohibits certain acts and 

practices by servicers of federally 

related mortgage loans with regard to 

responding to borrower assertions of 

error and requests for information. 

Specifically, section 6(k)(1)(B) of RESPA 

prohibits servicers from charging fees 

for responding to valid qualified written 

requests. Section 6(k)(1)(C) of RESPA 

provides that a servicer of a federally 

related mortgage loan must not fail to 

take timely action to respond to a 

borrower’s requests to correct errors 

relating to: (1) Allocation of payments; 

(2) final balances for purposes of paying 

off the loan; (3) avoiding foreclosure; or 

(4) other standard servicer duties. 

Finally, section 6(k)(1)(D) provides that 

a servicer must respond within ten 

business days to a request from a 

borrower to provide the identity, 

address, and other relevant contact 

information about the owner or assignee 

of the loan. In addition, section 1463(c) 

amends section 6(e) of RESPA to reduce 

the amount of time within which 

servicers must correct errors and 

respond to requests for information. 

Section 1463(b) and (d) of the DoddFrank Act amended sections 6(f) and 

6(g) of RESPA with respect to penalties 

for violation of section 6 of RESPA, and 

refund of escrow account balances, 

respectively.40

Finally, section 1463(a) of the DoddFrank Act adds section 6(k)(1)(E) to 

RESPA, which provides that a servicer 

of a federally related mortgage loan 

must ‘‘comply with any other obligation 

found by the [Bureau], by regulation, to 

be appropriate to carry out the 

consumer protection purposes of this 

Act.’’ 41 This provision provides the 

Bureau authority to establish 

prohibitions on servicers of federally 

related mortgage loans appropriate to 

carry out the consumer protection 

purposes of RESPA. As discussed 

below, in light of the systemic problems 

in the mortgage servicing industry 

discussed above, the Bureau is 

exercising this authority in this 

rulemaking to implement protections for 

borrowers with respect to mortgage 

servicing. 

Section 1022(b)(1) of the Dodd-Frank 

Act authorizes the Bureau to prescribe 

rules ‘‘as may be necessary or 

appropriate to enable the Bureau to 

administer and carry out the purposes 

and objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof[.]’’ 12 U.S.C. 5512(b)(1). RESPA 

and title X of the Dodd-Frank Act are 

Federal consumer financial laws. 

Accordingly, the Bureau proposed to 

exercise its authority under section 

1022(b) of the Dodd-Frank Act to 

prescribe rules to carry out the purposes 

of RESPA and title X and prevent 

evasion of those laws. 

III. Summary of the Rulemaking 

Process 

A. Outreach and Consumer Testing 

The Bureau has conducted extensive 

outreach in developing the Final 

Servicing Rules. Prior to issuing the 

Proposed Servicing Rules on August 10, 

2012, Bureau staff met with consumers, 

consumer advocates, mortgage servicers, 

force-placed insurance carriers, industry 

trade associations, other Federal 

regulatory agencies, and other interested 

parties to discuss various aspects of the 

statute, servicing industry operations, 

and consumer harm impacts. Outreach 

included meetings with numerous 

individual servicers to understand their 

operations and the potential benefits 

and burdens of the proposed mortgage 

servicing rules. As discussed above and 

in connection with section 1022 of the 

Dodd-Frank Act below, the Bureau has 

also consulted with relevant Federal 

regulators both regarding the Bureau’s 

specific rules and the need for and 

potential contents of national mortgage 

servicing standards in general. 

Further, the Bureau solicited input 

from small servicers through a Small 

Business Review Panel (Small Business 

Review Panel) with the Chief Counsel 

for Advocacy of the Small Business 

Administration (Advocacy) and the 

Administrator of the Office of 

Information and Regulatory Affairs 

within the Office of Management and 

Budget (OMB).42 The Small Business 

Review Panel’s findings and 

recommendations are contained in the 

Small Business Review Panel Report.43

The Bureau has adopted 

recommendations provided by the 

participants on the Small Business 

Review Panel and includes below a 

discussion of such recommendations in 

connection with the applicable 

requirement. 

Further, prior to the issuing the 

Proposed Servicing Rules on August 10, 

2012, the Bureau engaged ICF Macro 

(Macro), a research and consulting firm 

that specializes in designing disclosures 

and consumer testing, to conduct oneon-one cognitive interviews regarding 

disclosures connected with mortgage 

servicing. During the first quarter of 

2012, the Bureau and Macro worked 

closely to develop and test disclosures 

that would satisfy the requirements of 

the Dodd-Frank Act and provide 

information to consumers in a manner 

that would be understandable and 

useful. These disclosures related to the 

force-placed insurance notices set forth 

in this rule, as well as the ARM interest 

rate adjustment notices and the periodic 

statement disclosure set forth in the 

2013 TILA Servicing Final Rule. 

Macro conducted three rounds of oneon-one cognitive interviews with a total 

of 31 participants in the Baltimore, 

Maryland metro area (Towson, 

Maryland), Memphis, Tennessee, and 

Los Angeles, California. Participants 

were all consumers who held a 

mortgage loan and represented a range 

of ages and education levels. Efforts 

were made to recruit a significant 

number of participants who had trouble 

making mortgage payments in the last 

two years. During the interviews, 

participants were shown disclosure 

forms for periodic statements, ARM 

interest rate adjustment notices, and 

force-placed insurance notices. 

Participants were asked specific 

questions to test their understanding of 

the information presented in each of the 

disclosures, how easily they could find 

various pieces of information presented 

in each of the disclosures, and how they 

would use the information presented in 

each of the disclosures. The disclosures 

were revised after each round of testing. 

After the Bureau issued the Proposed 

Servicing Rules, Macro conducted a 

fourth round of one-on-one cognitive 

interviews with eight participants in 

Philadelphia, Pennsylvania. Again, 

participants were consumers who held 

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44 ICF Int’l, Inc., Summary of Findings: Design 

and Testing of Mortgage Servicing Disclosures (Aug. 

2012) (‘‘Macro Report’’), available at http:// 

www.regulations.gov/#!documentDetail;D=CFPB2012-0033-0003. 

45The Bureau posted these materials on its Web 

site and invited the public to email remarks on the 

materials. Press Release, U.S. Consumer Fin. Prot. 

Bureau, Consumer Financial Protection Bureau 

Outlines Borrower-Friendly Approach to Mortgage 

Servicing (Apr. 9, 2012), available at http:// 

www.consumerfinance.gov/pressreleases/consumerfinancial-protection-bureau-outlines-borrowerfriendly-approach-to-mortgage-servicing/ (last 

accessed Jan. 6, 2013). 

46This written feedback is attached as appendix 

A to the Small Business Review Panel Report. 

a mortgage loan and represented a range 

of ages and education levels. During the 

interviews, participants were asked to 

review two different versions of a 

servicing transfer notice and early 

intervention model clauses, which 

relate to requirements the Bureau is 

implementing under RESPA. 

Participants were asked specific 

questions to test their reaction to and 

understanding of the content of the 

servicing transfer notice and the early 

intervention model clauses. This 

process was repeated for each of the five 

clauses being tested. Specific findings 

from the consumer testing are discussed 

in detail throughout where relevant.44

One commenter, identifying itself as a 

research organization, observed that the 

consumer testing the Bureau has 

conducted with respect to the mortgage 

servicing disclosures follows the path of 

evidence-based decision-making. This 

commenter asserted, however, that the 

Bureau should consider undertaking 

steps in evaluating the proposed forms, 

including possibly undertaking 

additional testing because other 

consumer financial disclosures, 

including the forms the Bureau 

proposed with the 2012 TILA–RESPA 

Proposal, have gone through more 

testing. At the same time, however, the 

commenter observed that the decreased 

level of testing might be justified on 

various grounds, such as, for example, 

the fact that studies have found that 

small numbers of individuals can 

identify the vast majority of usability 

problems, the fact that the testing was 

done with participants familiar with 

mortgages, and the fact that the Bureau 

is working on a tight schedule to 

finalize rules by January 21, 2013 when 

statutory provisions would go into 

effect. 

The Bureau believes that the testing it 

conducted is appropriate. The Bureau 

observes that the forms the Bureau 

proposed as part of the 2012 TILA– 

RESPA Proposal contained significantly 

more complicated financial information 

than the forms finalized as part of the 

current rulemakings. Additionally, the 

2012 TILA–RESPA Proposal, when 

finalized, would substantially change 

consumers’ mortgage shopping 

experience; by contrast, the Final 

Mortgage Servicing Rules are intended 

to improve, but not substantially alter, 

consumers’ experience with their 

mortgage servicers. These differences, in 

terms of level of complication and 

degree of change from current practice, 

justify the different levels of resources 

the Bureau allocated to the two different 

testing projects. Lastly, Macro’s findings 

show that there was notable consistency 

across the different rounds of testing in 

terms of participant comprehension 

that, in combination with the Bureau’s 

expertise and knowledge of consumer 

understanding and behavior, gave the 

Bureau confidence to rely on the forms 

that were developed and refined 

through testing as a basis for the model 

forms included in the Final Servicing 

Rules. 

The Bureau further emphasizes that it 

is not relying solely on the consumer 

testing to determine that any particular 

disclosure will be effective. The Bureau 

is also relying on its knowledge of, and 

expertise in, consumer understanding 

and behavior, as well as principles of 

effective disclosure design. 

B. Small Business Regulatory 

Enforcement Fairness Act 

As required by SBREFA, the Bureau 

convened a Small Business Review 

Panel to assess the impact of the 

possible rules on small servicers and to 

help the Bureau determine to what 

extent it may be appropriate to consider 

adjusting these standards for small 

servicers, to the extent permitted by 

law. Thus, on April 9, 2012, the Bureau 

provided Advocacy with the formal 

notification and other information 

required under section 609(b)(1) of the 

Regulatory Flexibility Act (RFA) to 

convene the panel. 

In order to obtain feedback from small 

servicers, the Bureau, in consultation 

with Advocacy, identified five 

categories of small entities that may be 

subject to the proposed rule: 

Commercial banks/savings institutions, 

credit unions, non-depositories engaged 

primarily in lending funds with real 

estate as collateral, non-depositories 

primarily engaged in loan servicing, and 

certain non-profit organizations. The 

Bureau, in consultation with Advocacy, 

selected 16 representatives to 

participate in the Small Business 

Review Panel process from the 

categories of entities that may be subject 

to the Proposed Servicing Rules. The 

participants included representatives 

from each of the categories identified by 

the Bureau and comprised a diverse 

group of individuals with regard to 

geography and type of locality (i.e., 

rural, urban, suburban, or metropolitan 

areas), as described in chapter 7 of the 

Small Business Review Panel Report. 

On April 10, 2012, the Bureau 

convened the Small Business Review 

Panel. In order to collect the advice and 

recommendations of small entity 

participants, the Panel held an outreach 

meeting/teleconference on April 24, 

2012 (Panel Outreach Meeting). To help 

the small entity participants prepare for 

the Panel Outreach Meeting, the Panel 

circulated briefing materials that 

summarized the proposals under 

consideration at that time, posed 

discussion issues, and provided 

information about the SBREFA process 

generally.45 All 16 small entities 

participated in the Panel Outreach 

Meeting either in person or by 

telephone. The Small Business Review 

Panel also provided the small entities 

with an opportunity to submit written 

feedback until May 1, 2012. In response, 

the Small Business Review Panel 

received written feedback from 5 of the 

representatives.46

On June 11, 2012, the Small Business 

Review Panel submitted to the Director 

of the Bureau the written Small 

Business Review Panel Report, which 

includes the following: Background 

information on the proposals under 

consideration at the time; information 

on the types of small entities that would 

be subject to those proposals and on the 

participants who were selected to advise 

the Small Business Review Panel; a 

summary of the Panel’s outreach to 

obtain the advice and recommendations 

of those participants; a discussion of the 

comments and recommendations of the 

participants; and a discussion of the 

Small Business Review Panel findings, 

focusing on the statutory elements 

required under section 603 of the RFA, 

5 U.S.C. 609(b)(5). 

In connection with issuing the 

Proposed Servicing Rules, the Bureau 

carefully considered the feedback from 

the small entities participating in the 

SBREFA process and the findings and 

recommendations in the Small Business 

Review Panel Report. The section-bysection analyses for the Final Servicing 

Rules discuss this feedback and the 

specific findings and recommendations 

of the Small Business Review Panel, as 

applicable. The SBREFA process 

provided the Small Business Review 

Panel and the Bureau with an 

opportunity to identify and explore 

opportunities to mitigate the burden of 

the rule on small entities while 

achieving the rule’s purposes. It is 

important to note, however, that the 

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47As discussed below, RESPA sets forth a 

‘‘qualified written request’’ mechanism through 

which a borrower can assert an error to a servicer 

or request information from a servicer. Section 

6(k)(1)(C) and 6(k)(1)(D) of RESPA set forth separate 

obligations for servicers to correct certain types of 

errors asserted by borrowers and to provide 

information to a borrower regarding an owner or 

assignee of a mortgage loan without reference to the 

‘‘qualified written request’’ process. The 2012 

RESPA Servicing Proposal would have integrated 

the new requirements under RESPA to respond to 

errors and information requests with RESPA’s 

preexisting qualified written request process. 

Although a borrower would still have been able to 

submit a ‘‘qualified written request,’’ under the 

proposed rule, a ‘‘qualified written request’’ would 

have been subject to the same error resolution or 

information request requirements applicable to any 

other type of written error notice or information 

request to a servicer. 

Small Business Review Panel prepared 

the Small Business Review Panel Report 

at a preliminary stage of the proposal’s 

development and that the report—in 

particular, the findings and 

recommendations—should be 

considered in that light. Any options 

identified in the Small Business Review 

Panel Report for reducing the proposed 

rule’s regulatory impact on small 

entities were expressly subject to further 

consideration, analysis, and data 

collection by the Bureau to ensure that 

the options identified were practicable, 

enforceable, and consistent with 

RESPA, TILA, the Dodd-Frank Act, and 

their statutory purposes. 

C. Summary of the Proposed Servicing 

Rule 

The 2012 RESPA Servicing Proposal 

contained numerous significant 

revisions to Regulation X. As a 

preliminary matter, the Bureau 

proposed to reorganize Regulation X to 

include three distinct subparts. Subpart 

A (General) would have included 

general provisions of Regulation X, 

including provisions that applied to 

both subpart B and subpart C. Subpart 

B (Mortgage settlement and escrow 

accounts) would have included 

provisions relating to settlement 

services and escrow accounts, including 

disclosures provided to borrowers 

relating to settlement services. Subpart 

C (Mortgage servicing) would have 

included provisions relating to 

obligations of mortgage servicers. The 

Bureau also proposed to set forth a 

commentary that included official 

Bureau interpretations of Regulation X. 

With respect to mortgage servicingrelated provisions, the proposed rule 

would have amended existing 

provisions currently published in 12 

CFR 1024.21 that relate to disclosures of 

mortgage servicing transfers and 

servicer obligations to borrowers. The 

Bureau proposed to include these 

provisions within subpart C as 

§§ 1024.33–1024.34. The Bureau also 

proposed to move certain clarifications 

in these provisions that were previously 

published in 12 CFR 1024.21 to the 

commentary to conform the 

organization of these provisions with 

the proposed additions to Regulation X. 

The proposed rule would have 

established procedures for investigating 

and resolving alleged errors and 

responding to requests for information. 

The proposed requirements were set 

forth in proposed §§ 1024.35–1024.36. 

As proposed, these sections would have 

required servicers to respond to notices 

of error and information requests from 

borrowers, including qualified written 

requests. The Bureau’s goal was to 

conform and consolidate the preexisting requirements under RESPA 

applicable to qualified written requests, 

with the new requirements imposed by 

the Dodd-Frank Act through the 

addition of sections 6(k)(1)(C) and 

6(k)(1)(D) of RESPA to respond to errors 

and information requests. The Bureau 

proposed to create a unified 

requirement for servicers to respond to 

notices of error and information 

requests provided by borrowers, without 

regard to whether the notices or requests 

constituted qualified written requests.47

To that end, the proposed rule would 

have implemented the Dodd-Frank Act 

amendments to RESPA section 6(e) by 

adjusting the timeframes applicable to 

respond to qualified written requests, as 

well as errors and information requests 

generally, to conform to the new 

requirements. 

Proposed § 1024.37 would have 

implemented limitations on servicers 

obtaining force-placed insurance. The 

proposed rule would have required 

servicers to provide notices to borrowers 

at certain timeframes before a servicer 

could impose a charge on a borrower for 

force-placed insurance. Further, the 

proposed rule would have required that 

charges related to force-placed 

insurance, other than charges subject to 

State regulation as the business of 

insurance or authorized by Federal 

flood laws, be bona fide and reasonable. 

Finally, the proposed rule sought to 

reduce the instances in which forceplaced insurance would be needed by 

amending current § 1024.17 to require 

that where a borrower has escrowed for 

hazard insurance, servicers must 

advance funds to, and disburse from, an 

escrow account to maintain the 

borrower’s own hazard insurance policy 

even if the loan obligation is more than 

30 days overdue. The proposed rule also 

would have implemented the DoddFrank Act amendment to RESPA section 

6(g) in proposed § 1024.34(b) by 

imposing requirements on servicers to 

refund or transfer funds in an escrow 

account when a mortgage loan is paid in 

full. 

The proposed rule would have 

imposed obligations on servicers in four 

additional areas not specifically 

required by the Dodd-Frank Act: (1) 

Servicer policies and procedures, (2) 

early intervention for delinquent 

borrowers, (3) continuity of contact, and 

(4) loss mitigation procedures. The 

policies and procedures provision 

would have required servicers to 

implement policies and procedures to 

manage documents and information to 

achieve defined objectives intended to 

ensure that borrowers are not harmed by 

servicers’ information management 

operations. Further, the policies and 

procedures provision would also have 

imposed requirements on servicers 

regarding record retention and 

management of servicing file 

documents. The early intervention 

provision would have required servicers 

to contact borrowers at an early stage of 

delinquency and provide information to 

borrowers about available loss 

mitigation options and the foreclosure 

process. The continuity of contact 

provision would have required servicers 

to make available to borrowers direct 

phone access to personnel who could 

assist borrowers in pursuing loss 

mitigation options. The loss mitigation 

procedures would have required 

servicers that offer loss mitigation 

options to borrowers to evaluate 

complete and timely applications for 

loss mitigation options. Servicers would 

have been required to permit borrowers 

to appeal denials of timely loss 

mitigation applications for loan 

modification programs. A servicer that 

received a complete and timely 

application for a loss mitigation option 

would not have been able to proceed 

with a foreclosure sale unless (1) the 

servicer denied the borrower’s 

application and the time for any appeal 

had expired; (2) the borrower had 

declined or failed to accept an offer of 

a loss mitigation option within 14 days 

of the offer; or (3) the borrower failed to 

comply with the terms of a loss 

mitigation agreement. 

D. Overview of the Comments Received 

The Bureau received approximately 

300 comments on the Proposed 

Servicing Rules. The comments came 

from individual consumers, consumer 

advocates, community banks, large bank 

holding companies, secondary market 

participants, credit unions, non-bank 

servicers, State and national trade 

associations for financial institutions in 

the mortgage business, local and 

national community groups, Federal 

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48Some commenters provided comments strictly 

with respect to the rulemaking process. One trade 

association commented that small servicers that 

participated in the Small Business Review Panel 

process did not have adequate time to prepare for 

the panel discussion and provide appropriate data, 

while another trade association commented that 

because the Bureau’s proposed rules are lengthy 

and because some rules have overlapping comment 

periods, each of which has been limited to 60 days, 

the trade association has had difficulty dedicating 

staff to comment on the Bureau’s proposals. As set 

forth in this section, the Bureau has conducted the 

rulemaking process, including the SBREFA process 

and the public comment period, in a manner that 

provided as much flexibility as possible to receive 

feedback from the SBREFA participants and public 

commenters in light of the deadlines required for 

the rulemaking. The Bureau assisted the SBA in 

calls and outreach with small entity participants to 

obtain any comments not set forth during the panel 

outreach with the small entity representatives. 

Further, with respect to public comments, the 

Bureau believes that the public had a meaningful 

opportunity to comment, which is evidenced by the 

significant number of comments received and their 

length. The Bureau offered 61 days from August 10, 

2012 through October 9, 2012, for comment; and 22 

days after the proposal was published in the 

Federal Register on September 17. 

and State regulators, academics, and 

others. Commenters provided feedback 

on all aspects of the Proposed Servicing 

Rules. Most commenters tended to focus 

on specific aspects of the proposals. 

Accordingly, in general, the comments 

are discussed below in the section-bysection analysis. 

The majority of comments were 

submitted by mortgage servicers, 

industry groups representing servicers 

and businesses involved in the servicing 

industry. Large banks, community banks 

and credit unions, non-bank servicers, 

and industry trade associations 

submitted nearly all of these comments. 

The Small Business Administration 

Office of Advocacy submitted a 

comment and the remaining comments 

were submitted by vendors and 

attorney’s representing industry 

interests. The Bureau also received a 

significant number of comments from 

consumer advocacy groups. The record 

also includes a 50-page comment by the 

Cornell e-Rulemaking Initiative 

synthesizing submissions of 144 

registered participants to Cornell’s 

Regulation Room project. Regulation 

Room is a pilot project designed to use 

different web technologies and 

approaches to enhance public 

understanding and participation in 

Bureau rulemakings and to evaluate the 

advantages and disadvantages of these 

techniques. Finally, the Bureau also 

received comments from the Small 

Business Administration, the Federal 

Housing Finance Agency, the GSEs, and 

from vendors and attorneys representing 

industry interests. 

Industry commenters and their trade 

associations also provided comments 

regarding the rulemaking process, and 

those comments are addressed here.48 In 

that regard, community banks and their 

trade associations stated that the Bureau 

should consider cumulative burden 

when writing regulations, setting 

comment deadlines, and effective dates. 

These commenters believed that the 

combination of the Bureau’s rules as 

well as the impact of Basel III 

requirements with respect to accounting 

for mortgage servicing rights in Tier I 

capital may cause disruptions across all 

mortgage market segments. A 

community bank trade association 

indicated that community banks are 

likely to feel the impact of the rules 

more acutely, as they cannot take 

advantage of economies of scale in 

mitigating the compliance burden. A 

community bank trade association 

stated that the Bureau should consider 

the wide diversity among servicer 

business models and adapt regulations 

to preserve diversity within the 

servicing industry. The commenter 

emphasized that community banks have 

strong reputation and performance 

incentives to ensure that consumers are 

provided a high level of service. 

A large bank and a number of trade 

association commenters stated that the 

Bureau should be cognizant of imposing 

requirements and standards potentially 

inconsistent with those required by 

settlement agreements, consent orders, 

and GSE or government insurance 

program requirements. One commenter 

stated that the Bureau should consider 

preempting State law mortgage servicing 

requirements to provide legal and 

regulatory certainty to industry 

participants that are evaluating the 

future desirability of maintaining 

servicing operations. A number of trade 

associations stated that the Bureau 

should not issue regulations that would 

impose requirements substantially 

similar to the National Mortgage 

Settlement on mortgage servicers that 

are not parties to the National Mortgage 

Settlement. 

The Bureau has considered each of 

these comments relating to the 

cumulative impact of mortgage 

regulation, including the mortgage 

servicing rules; the potential for 

inconsistent results with current 

servicing obligations, including State 

law and the National Mortgage 

Settlement; and comments regarding the 

diversity of servicing business models 

and servicer sizes. The Bureau’s 

consideration of those comments is 

reflected below in the section-by-section 

analysis with respect to various 

determinations made in finalizing the 

2012 RESPA Servicing Proposal, 

including the determination to create 

clear requirements, the determination to 

maintain consistency with current 

servicing obligations, including those 

imposed by State law and the National 

Mortgage Settlement, and the 

consideration of exemptions for small 

servicers. 

With respect to preemption of state 

law, the Final Servicing Rules generally 

do not have the effect of prohibiting 

state law from affording borrowers 

broader consumer protections relating to 

mortgage servicing than those conferred 

under the Final Servicing Rules. 

However, in certain circumstances, the 

effect of specific requirements of the 

Final Servicing Rules is to preempt 

certain limited aspects of state law. 

Specifically, as set forth below, 

§ 1024.41(f) bars a servicer from making 

the first notice or filing required for a 

foreclosure process unless a borrower is 

more than 120 days delinquent, 

notwithstanding that state law may 

permit any such filing. Further, 

§ 1024.33(d) incorporates a pre-existing 

provision in Regulation X that 

implements RESPA with respect to 

preemption of certain state law 

disclosures relating to mortgage 

servicing transfers. In other 

circumstances, the Bureau explicitly 

took into account existing standards 

(both State and Federal) and either built 

in flexibility or designed its rules to 

coexist with those standards. For 

example, as discussed below, the 

Bureau took into account the loss 

mitigation timelines and ‘‘dualtracking’’ provisions in the National 

Mortgage Settlement and the California 

Homeowner Bill of Rights and designed 

timelines that are consistent with those 

standards. Similarly, in designing its 

early intervention provision the Bureau 

included a statement that nothing in 

that provision shall require a servicer to 

make contact with a borrower in a 

manner that would be prohibited under 

applicable law. 

A number of commenters provided 

comments regarding language access 

and community blight. Two national 

consumer groups urged the Bureau to 

take action to remove barriers borrowers 

with limited English-proficiency face 

with respect to understanding the terms 

of their mortgages because such barriers 

might make these borrowers more 

vulnerable to bad servicing practices. 

One national consumer group urged the 

Bureau to mandate translation of all 

notices, documents, and bills going to 

borrowers. Another national consumer 

group urged the Bureau to consider 

requiring servicers to provide 

disclosures and services in a borrower’s 

preferred language, noting that it 

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49 76 FR 27390 (May 11, 2011). 

50 76 FR 11598 (Mar. 2, 2011). 

51 77 FR 49090 (Aug. 15, 2012). 

52 77 FR 55272 (Sept. 7, 2012). 

53Specifically, the Board of Governors of the 

Federal Reserve System, the Office of the 

Continued 

represents a population that speaks 

more than 100 different dialects. 

Finally, one commenter suggests that 

the Bureau should not only mandate 

disclosures in other languages but also 

should require servicers to provide 

language-capable staff to assist 

borrowers with limited English skills. 

With respect to neighborhood blight, a 

coalition of consumer advocacy groups 

and a consumer advocate that 

participated in outreach with the 

Bureau commented that the Bureau 

should consider implementing 

regulations to manage neighborhood 

blight by requiring servicers to maintain 

real estate owned (REO) property to 

decent, safe, and sanitary standards 

capable of purchase by borrowers with 

FHA financing. 

Although some of these specific 

requests exceed the scope of the 

rulemaking, the Bureau takes seriously 

the important considerations of 

avoiding neighborhood blight and 

language access. The Bureau recognizes 

the challenges borrowers with limited 

English proficiency face in 

understanding the terms of their 

mortgage. The Bureau believes that 

servicers should communicate with 

borrowers clearly, including in the 

borrower’s native language, where 

possible, and especially when lenders 

advertise in the borrower’s native 

language. The Bureau conducted 

Spanish testing to support proposed 

rules and forms combining the TILA 

mortgage loan disclosure with the Good 

Faith Estimate (GFE) and statement 

required under RESPA. See 77 FR 

54843. That testing underscores both the 

value of disclosures in other languages 

but also the challenges in translating 

forms using English terms of art into 

other languages to assure that the 

foreign-language version of the form 

effectively communicates the required 

information to its readers. 

The Bureau has not had the 

opportunity to test the disclosures that 

the Bureau is adopting, or the preexisting RESPA disclosures, in other 

languages. Accordingly, the Bureau is 

not imposing mandatory foreign 

language translation requirements or 

other language access requirements at 

this time with respect to the mortgage 

servicing disclosures and other 

requirements the Bureau is adopting 

under new subpart C. Although the 

Bureau declines at this time to 

implement requirements regarding 

language access, the Bureau will 

continue to consider language access 

generally in connection with developing 

disclosures and will consider further 

requirements on servicer 

communication with borrowers if 

appropriate. With respect to REO 

properties, the Bureau continues to 

consider whether regulations are 

appropriate to address the maintenance 

of properties owned by lenders and any 

potential resulting harm from 

community blight. 

E. Other Dodd-Frank Act MortgageRelated Rulemakings 

In addition to the Final Servicing 

Rules, the Bureau is adopting several 

other final rules and issuing one 

proposal, all relating to mortgage credit, 

to implement requirements of title XIV 

of the Dodd-Frank Act. The Bureau is 

also issuing a final rule and planning to 

issue a proposal jointly with other 

Federal agencies to implement 

requirements for mortgage appraisals in 

title XIV. Each of the final rules follows 

a proposal issued in 2011 by the Board 

or in 2012 by the Bureau alone or jointly 

with other Federal agencies. 

Collectively, these proposed and final 

rules are referred to as the Title XIV 

Rulemakings. 

• Ability to Repay: The Bureau 

recently issued a rule, following a May 

2011 proposal issued by the Board (the 

Board’s 2011 ATR Proposal),49 to 

implement provisions of the DoddFrank Act (1) requiring creditors to 

determine that a consumer has a 

reasonable ability to repay covered 

mortgage loans and establishing 

standards for compliance, such as by 

making a ‘‘qualified mortgage,’’ and (2) 

establishing certain limitations on 

prepayment penalties, pursuant to TILA 

section 129C as established by DoddFrank Act sections 1411, 1412, and 

1414. 15 U.S.C. 1639c. The Bureau’s 

final rule is referred to as the 2013 ATR 

Final Rule. Simultaneously with the 

2013 ATR Final Rule, the Bureau issued 

a proposal to amend the final rule 

implementing the ability-to-repay 

requirements, including by the addition 

of exemptions for certain nonprofit 

creditors and certain homeownership 

stabilization programs and a definition 

of a ‘‘qualified mortgage’’ for certain 

loans made and held in portfolio by 

small creditors (the 2013 ATR 

Concurrent Proposal). The Bureau 

expects to act on the 2013 ATR 

Concurrent Proposal on an expedited 

basis, so that any exceptions or 

adjustments to the 2013 ATR Final Rule 

can take effect simultaneously with that 

rule. 

• Escrows: The Bureau recently 

issued a rule, following a March 2011 

proposal issued by the Board (the 

Board’s 2011 Escrows Proposal),50 to 

implement certain provisions of the 

Dodd-Frank Act expanding on existing 

rules that require escrow accounts to be 

established for higher-priced mortgage 

loans and creating an exemption for 

certain loans held by creditors operating 

predominantly in rural or underserved 

areas, pursuant to TILA section 129D as 

established by Dodd-Frank Act sections 

1461. 15 U.S.C. 1639d. The Bureau’s 

final rule is referred to as the 2013 

Escrows Final Rule. 

• HOEPA: Following its July 2012 

proposal (the 2012 HOEPA Proposal),51

the Bureau recently issued a final rule 

to implement Dodd-Frank Act 

requirements expanding protections for 

‘‘high-cost mortgages’’ under the 

Homeownership and Equity Protection 

Act (HOEPA), pursuant to TILA sections 

103(bb) and 129, as amended by DoddFrank Act sections 1431 through 1433. 

15 U.S.C. 1602(bb) and 1639. The 

Bureau also is finalizing rules to 

implement certain title XIV 

requirements concerning 

homeownership counseling, including a 

requirement that lenders provide lists of 

homeownership counselors to 

applicants for federally related mortgage 

loans, pursuant to RESPA section 5(c), 

as amended by Dodd-Frank Act section 

1450. 12 U.S.C. 2604(c). The Bureau’s 

final rule is referred to as the 2013 

HOEPA Final Rule. 

• Loan Originator Compensation: 

Following its August 2012 proposal (the 

2012 Loan Originator Proposal),52 the 

Bureau is issuing a final rule to 

implement provisions of the DoddFrank Act requiring certain creditors 

and loan originators to meet certain 

duties of care, including qualification 

requirements; requiring the 

establishment of certain compliance 

procedures by depository institutions; 

prohibiting loan originators, creditors, 

and the affiliates of both from receiving 

compensation in various forms 

(including based on the terms of the 

transaction) and from sources other than 

the consumer, with specified 

exceptions; and establishing restrictions 

on mandatory arbitration and financing 

of single premium credit insurance, 

pursuant to TILA sections 129B and 

129C as established by Dodd-Frank Act 

sections 1402, 1403, and 1414(a). 15 

U.S.C. 1639b, 1639c. The Bureau’s final 

rule is referred to as the 2013 Loan 

Originator Final Rule. 

• Appraisals: The Bureau, jointly 

with other Federal agencies,53 is issuing 

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10708 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

Comptroller of the Currency, the Federal Deposit 

Insurance Corporation, the National Credit Union 

Administration, and the Federal Housing Finance 

Agency. 

54 77 FR 54722 (Sept. 5, 2012). 

55 77 FR 50390 (Aug. 21, 2012). 

56 77 FR 51116 (Aug. 23, 2012). 

57 77 FR 70105 (Nov. 23, 2012). 

58Of the several final rules being adopted under 

the Title XIV Rulemakings, six entail amendments 

to Regulation Z, with the only exceptions being the 

2013 RESPA Servicing Final Rule (Regulation X) 

and the 2013 ECOA Appraisals Final Rule 

(Regulation B); the 2013 HOEPA Final Rule also 

amends Regulation X, in addition to Regulation Z. 

The six Regulation Z final rules involve numerous 

instances of intersecting provisions, either by crossreferences to each other’s provisions or by adopting 

parallel provisions. Thus, adopting some of those 

amendments without also adopting certain other, 

closely related provisions would create significant 

technical issues, e.g., new provisions containing 

cross-references to other provisions that do not yet 

exist, which could undermine the ability of 

creditors and other parties subject to the rules to 

understand their obligations and implement 

appropriate systems changes in an integrated and 

efficient manner. 

a final rule implementing Dodd-Frank 

Act requirements concerning appraisals 

for higher-risk mortgages, pursuant to 

TILA section 129H as established by 

Dodd-Frank Act section 1471. 15 U.S.C. 

1639h. This rule follows the agencies’ 

August 2012 joint proposal (the 2012 

Interagency Appraisals Proposal).54 The 

agencies’ joint final rule is referred to as 

the 2013 Interagency Appraisals Final 

Rule. As discussed in that final rule, the 

agencies plan to issue a supplemental 

proposal addressing potential additional 

exemptions to the appraisal 

requirements. In addition, following its 

August 2012 proposal (the 2012 ECOA 

Appraisals Proposal),55 the Bureau is 

issuing a final rule to implement 

provisions of the Dodd-Frank Act 

requiring that creditors provide 

applicants with a free copy of written 

appraisals and valuations developed in 

connection with applications for loans 

secured by a first lien on a dwelling, 

pursuant to section 701(e) of the Equal 

Credit Opportunity Act (ECOA) as 

amended by Dodd-Frank Act section 

1474. 15 U.S.C. 1691(e). The Bureau’s 

final rule is referred to as the 2013 

ECOA Appraisals Final Rule. 

The Bureau is not at this time 

finalizing proposals concerning various 

disclosure requirements that were 

added by title XIV of the Dodd-Frank 

Act, integration of mortgage disclosures 

under TILA and RESPA, or a simpler, 

more inclusive definition of the finance 

charge for purposes of disclosures for 

closed-end mortgage transactions under 

Regulation Z. The Bureau expects to 

finalize these proposals and to consider 

whether to adjust regulatory thresholds 

under the Title XIV Rulemakings in 

connection with any change in the 

calculation of the finance charge later in 

2013, after it has completed quantitative 

testing, and any additional qualitative 

testing deemed appropriate, of the forms 

that it proposed in July 2012 to combine 

TILA mortgage disclosures with the 

good faith estimate (RESPA GFE) and 

settlement statement (RESPA settlement 

statement) required under the Real 

Estate Settlement Procedures Act, 

pursuant to Dodd-Frank Act section 

1032(f) and sections 4(a) of RESPA and 

105(b) of TILA, as amended by DoddFrank Act sections 1098 and 1100A, 

respectively (the 2012 TILA–RESPA 

Proposal).56 Accordingly, the Bureau 

already has issued a final rule delaying 

implementation of various affected title 

XIV disclosure provisions.57

Coordinated Implementation of Title 

XIV Rulemakings 

As noted in all of its foregoing 

proposals, the Bureau regards each of 

the Title XIV Rulemakings as affecting 

aspects of the mortgage industry and its 

regulations. Accordingly, as noted in its 

proposals, the Bureau is coordinating 

carefully the Title XIV Rulemakings, 

particularly with respect to their 

effective dates. The Dodd-Frank Act 

requirements to be implemented by the 

Title XIV Rulemakings generally will 

take effect on January 21, 2013, unless 

final rules implementing those 

requirements are issued on or before 

that date and provide for a different 

effective date. See Dodd-Frank Act 

section 1400(c), 15 U.S.C. 1601 note. In 

addition, some of the Title XIV 

Rulemakings are required by the DoddFrank Act to take effect no later than 

one year after they are issued. Id. 

The comments on the appropriate 

effective date for this final rule are 

discussed in detail below in part VI of 

this notice. In general, however, 

consumer advocates requested that the 

Bureau put the protections in the Title 

XIV Rulemakings into effect as soon as 

practicable. In contrast, the Bureau 

received some industry comments 

indicating that implementing so many 

new requirements at the same time 

would create a significant cumulative 

burden for creditors. In addition, many 

commenters also acknowledged the 

advantages of implementing multiple 

revisions to the regulations in a 

coordinated fashion.58 Thus, a tension 

exists between coordinating the 

adoption of the Title XIV Rulemakings 

and facilitating industry’s 

implementation of such a large set of 

new requirements. Some have suggested 

that the Bureau resolve this tension by 

adopting a sequenced implementation, 

while others have requested that the 

Bureau simply provide a longer 

implementation period for all of the 

final rules. 

The Bureau recognizes that many of 

the new provisions will require 

creditors to make changes to automated 

systems and, further, that most 

administrators of large systems are 

reluctant to make too many changes to 

their systems at once. At the same time, 

however, the Bureau notes that the 

Dodd-Frank Act established virtually all 

of these changes to institutions’ 

compliance responsibilities, and 

contemplated that they be implemented 

in a relatively short period of time. And, 

as already noted, the extent of 

interaction among many of the Title XIV 

Rulemakings necessitates that many of 

their provisions take effect together. 

Finally, notwithstanding commenters’ 

expressed concerns for cumulative 

burden, the Bureau expects that 

creditors actually may realize some 

efficiencies from adapting their systems 

for compliance with multiple new, 

closely related requirements at once, 

especially if given sufficient overall 

time to do so. 

Accordingly, the Bureau is requiring 

that, as a general matter, creditors and 

other affected persons begin complying 

with the final rules on January 10, 2014. 

As noted above, section 1400(c) of the 

Dodd-Frank Act requires that some 

provisions of the Title XIV Rulemakings 

take effect no later than one year after 

the Bureau issues them. Accordingly, 

the Bureau is establishing January 10, 

2014, one year after issuance of the 

Bureau’s 2013 ATR, Escrows, and 

HOEPA Final Rules (i.e., the earliest of 

the title XIV Rulemakings), as the 

baseline effective date for most of the 

Title XIV Rulemakings. The Bureau 

believes that, on balance, this approach 

will facilitate the implementation of the 

rules’ overlapping provisions, while 

also affording creditors sufficient time 

to implement the more complex or 

resource-intensive new requirements. 

The Bureau has identified certain 

rulemakings or selected aspects thereof, 

however, that do not present significant 

implementation burdens for industry. 

Accordingly, the Bureau is setting 

earlier effective dates for those final 

rules or certain aspects thereof, as 

applicable. Those effective dates are set 

forth and explained in the Federal 

Register notices for those final rules. 

IV. Legal Authority 

The final rule was issued on January 

17, 2013, in accordance with 12 CFR 

1074.1. The Bureau is issuing this final 

rule pursuant to its authority under 

RESPA and the Dodd-Frank Act. Section 

1061 of the Dodd-Frank Act transferred 

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59 12 U.S.C. 5581(a)(1). 

60 Dodd-Frank Act section 1002(14), 12 U.S.C. 

5481(14) (defining ‘‘Federal consumer financial 

law’’ to include the ‘‘enumerated consumer laws’’ 

and the provisions of title X of the Dodd-Frank Act); 

Dodd-Frank Act section 1002(12), 12 U.S.C. 

5481(12) (defining ‘‘enumerated consumer laws’’ to 

include RESPA), Dodd-Frank section 1400(b), 15 

U.S.C. 1601 note (defining ‘‘enumerated consumer 

laws’’ to include certain subtitles and provisions of 

title XIV). 

to the Bureau the ‘‘consumer financial 

protection functions’’ previously vested 

in certain other Federal agencies, 

including HUD. The term ‘‘consumer 

financial protection function’’ is defined 

to include ‘‘all authority to prescribe 

rules or issue orders or guidelines 

pursuant to any Federal consumer 

financial law, including performing 

appropriate functions to promulgate and 

review such rules, orders, and 

guidelines.’’ 59 RESPA and certain 

provisions of Title XIV of the DoddFrank Act are Federal consumer 

financial laws.60 Accordingly, the 

Bureau has authority to issue 

regulations pursuant to RESPA and Title 

XIV of the Dodd-Frank Act, including 

implementing the additions and 

amendments to RESPA’s mortgage 

servicing requirements made by Title 

XIV of the Dodd-Frank Act. 

Section 1463 of the Dodd-Frank Act 

creates statutory mandates by adding 

new section 6(k) through (m) to RESPA. 

Section 1463 of the Dodd-Frank Act also 

amends certain consumer protection 

provisions set forth in existing section 

6(e) through (g) of RESPA. 

Regarding the statutory mandates, 

section 6(k) of RESPA contains 

prohibitions on servicers for servicing of 

federally related mortgage loans. 

Pursuant to section 6(k) of RESPA, 

servicers are prohibited from: (i) 

Obtaining force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance; (ii) charging fees for 

responding to valid qualified written 

requests; (iii) failing to take timely 

action to respond to a borrower’s 

requests to correct certain types of 

errors; (iv) failing to respond within ten 

business days to a request from a 

borrower to provide certain information 

about the owner or assignee of a 

mortgage loan; or (v) failing to comply 

with any other obligation found by the 

Bureau to be appropriate to carry out the 

consumer protection purposes of 

RESPA. See RESPA section 6(k). 

Section 6(l) of RESPA sets forth 

specific requirements for determining if 

a servicer has a reasonable basis to 

obtain force-placed insurance coverage. 

Section 6(l) of RESPA requires servicers 

to provide written notices to a borrower 

before imposing on the borrower a 

charge for a force-placed insurance 

policy. Section 6(l) of RESPA also 

requires a servicer to accept any 

reasonable form of written confirmation 

from a borrower of existing insurance 

coverage. Section 6(l) of RESPA further 

requires a servicer, within 15 days of the 

receipt of such confirmation, to 

terminate force-placed insurance and 

refund any premiums and fees paid 

during the period of overlapping 

coverage. Section 6(m) of RESPA 

requires that charges related to forceplaced insurance, other than charges 

subject to State regulation as the 

business of insurance, be bona fide and 

reasonable. 

The Dodd-Frank Act also amends 

existing section 6(e) through (g) of 

RESPA. Section 6(e) is amended by 

decreasing the response times currently 

applicable to a servicer’s obligation to 

respond to a qualified written request. 

Section 6(f) is amended to increase the 

penalty amounts servicers may incur for 

violations of section 6 of RESPA. 

Further, section 6(g) is amended to 

protect borrowers by obligating servicers 

to refund escrow balances to borrowers 

when a mortgage loan is paid in full or 

to transfer the escrow balance in certain 

refinancing related situations. 

The Bureau observes that in addition 

to the specific statutory mandates and 

amendments the Dodd-Frank Act 

established in RESPA, by adding section 

6(k)(1)(E) to RESPA, the Dodd-Frank Act 

authorizes the Bureau, through section 

6(k), to prescribe regulations that are 

appropriate to carry out the consumer 

protection purposes of the title. RESPA 

is a remedial consumer protection 

statute and imposes obligations upon 

servicers of federally related mortgage 

loans. RESPA has established a 

consumer protection paradigm of 

requiring disclosures to consumers, and 

establishing servicer requirements and 

prohibitions, for the purpose of 

protecting borrowers from certain 

potential harms. The disclosures 

include, for example, disclosures 

regarding escrow account balances and 

disbursements, transfers of mortgage 

servicing among mortgage servicers, and 

force-placed insurance notices. The 

requirements and prohibitions include 

requirements for servicers to respond to 

qualified written requests from 

borrowers and with respect to escrow 

account payments. Servicers are subject 

to civil liability for failure to comply 

with such requirements and 

prohibitions. 

Considered as a whole, RESPA, as 

amended by the Dodd-Frank Act, 

reflects at least two significant 

consumer protection purposes: (1) To 

establish requirements that ensure that 

servicers have a reasonable basis for 

undertaking actions that may harm 

borrowers and (2) to establish servicers’ 

duties to borrowers with respect to the 

servicing of federally related mortgage 

loans. Specifically, with respect to 

mortgage servicing, the consumer 

protection purposes of RESPA include 

responding to borrower requests and 

complaints in a timely manner, 

maintaining and providing accurate 

information, helping borrowers avoid 

unwarranted or unnecessary costs and 

fees, and facilitating review for 

foreclosure avoidance options. Each of 

the provisions adopted in this final rule 

is intended to achieve some or all of 

these purposes. 

The final rule also relies on the 

rulemaking and exception authorities 

specifically granted to the Bureau by 

RESPA and Title X of the Dodd-Frank 

Act, including the authorities discussed 

below: 

RESPA 

Section 19(a) of RESPA authorizes the 

Bureau to prescribe such rules and 

regulations, to make such 

interpretations, and to grant such 

reasonable exemptions for classes of 

transactions, as may be necessary to 

achieve the purposes of RESPA, which 

includes the consumer protection 

purposes laid out above. 12 U.S.C. 

2617(a). In addition, section 6(j)(3) of 

RESPA authorizes the Bureau to 

establish any requirements necessary to 

carry out section 6 of RESPA. 12 U.S.C. 

2605(j)(3) 

Title X of the Dodd-Frank Act 

Dodd-Frank Act section 1022(b). 

Section 1022(b)(1) of the Dodd-Frank 

Act authorizes the Bureau to prescribe 

rules ‘‘as may be necessary or 

appropriate to enable the Bureau to 

administer and carry out the purposes 

and objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof[.]’’ 12 U.S.C. 5512(b)(1). RESPA 

and Title X are Federal consumer 

financial laws. Accordingly, in adopting 

this final rule, the Bureau is exercising 

its authority under Dodd-Frank Act 

section 1022(b) to prescribe rules to 

carry out the purposes and objectives of 

RESPA and Title X and prevent evasion 

of those laws. 

Dodd-Frank Act section 1032. Section 

1032(a) of the Dodd-Frank Act provides 

that the Bureau ‘‘may prescribe rules to 

ensure that the features of any consumer 

financial product or service, both 

initially and over the term of the 

product or service, are fully, accurately, 

and effectively disclosed to consumers 

in a manner that permits consumers to 

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61The Bureau recognizes that the proposed 

supplement, which sets forth interpretations that 

relate to the proposed mortgage servicing 

rulemakings, is not inclusive of all interpretations 

of RESPA, including interpretations previously 

issued by the HUD. The Bureau does not intend that 

the publication of the supplement would withdraw 

or otherwise affect the status of any prior 

interpretations of RESPA not set forth in the 

supplement. 62See 75 FR 20718. 

understand the costs, benefits, and risks 

associated with the product or service, 

in light of the facts and circumstances.’’ 

12 U.S.C. 5532(a). The authority granted 

to the Bureau in Dodd-Frank Act section 

1032(a) is broad, and empowers the 

Bureau to prescribe rules regarding the 

disclosure of the ‘‘features’’ of consumer 

financial products and services 

generally. Accordingly, the Bureau may 

prescribe rules containing disclosure 

requirements even if other Federal 

consumer financial laws do not 

specifically require disclosure of such 

features. 

Dodd-Frank Act section 1032(c) 

provides that, in prescribing rules 

pursuant to Dodd-Frank Act section 

1032, the Bureau ‘‘shall consider 

available evidence about consumer 

awareness, understanding of, and 

responses to disclosures or 

communications about the risks, costs, 

and benefits of consumer financial 

products or services.’’ 12 U.S.C. 5532(c). 

Accordingly, in developing the final 

rule under Dodd-Frank Act section 

1032(a), the Bureau has considered 

available studies, reports, and other 

evidence about consumer awareness, 

understanding of, and responses to 

disclosures or communications about 

the risks, costs, and benefits of 

consumer financial products or services. 

In addition, Dodd-Frank Act section 

1032(b)(1) provides that ‘‘any final rule 

prescribed by the Bureau under this 

[section 1032] requiring disclosure may 

include a model form that may be used 

at the option of the covered person for 

provision of the required disclosures.’’ 

12 U.S.C. 5532(b)(1). As required under 

Dodd-Frank Act section 1032(b)(3), the 

Bureau has validated model forms 

issued under Dodd-Frank Act section 

1032(b)(1) through consumer testing. 

The Bureau uses the specific statutory 

authorities set forth above, as well as the 

broader authorities set forth in sections 

6(j)(3), 6(k), and 19(a) of RESPA, and in 

sections 1022 and 1032 of the DoddFrank Act discussed above in adopting 

this final rule. 

Commentary 

The Bureau’s final rule also includes 

official Bureau interpretations in a 

supplement to Regulation X. RESPA 

section 19(a) authorizes the Bureau to 

make such reasonable interpretations of 

RESPA as may be necessary to achieve 

the consumer protection purposes of 

RESPA. Good faith compliance with the 

interpretations would afford servicers 

protection from liability under section 

19(b) of RESPA. The Bureau’s adoption 

of these official Bureau interpretations 

in the supplement substitutes for the 

prior practice of HUD of publishing 

Statements of Policy with respect to 

interpretations of RESPA.61

V. Section-by-Section Analysis 

Subpart A—General 

Existing Regulation X does not 

contain distinctive subparts. The Bureau 

proposed to create three distinct 

subparts within Regulation X. The 

Bureau did not receive any comments 

on the proposed reorganization of 

Regulation X. Therefore, the final rule 

adopts the reorganization as proposed. 

Subpart A, titled ‘‘General,’’ contains 

general provisions as well as provisions 

that would have been applicable to the 

other two subparts of Regulation X. The 

Bureau proposed to place current 

§§ 1024.1 through 1024.5 in subpart A 

and, as described below, proposed to 

make a number of largely technical 

corrections to those sections. 

Current § 1024.2 sets forth defined 

terms that are applicable to transactions 

covered by Regulation X, including the 

defined term ‘‘Federally related 

mortgage loan’’ that is referenced in the 

proposed defined term ‘‘Mortgage loan’’ 

in proposed subpart C. The Bureau 

proposed to retain most of current 

§ 1024.2 without change, except that the 

Bureau proposed deletions from the 

defined terms ‘‘Federally related 

mortgage loan’’ and ‘‘Mortgage broker’’ 

and additions to the defined terms 

‘‘Public Guidance Documents’’ and 

‘‘Servicer.’’ 

Specifically, the Bureau proposed to 

modify the defined term ‘‘Federally 

related mortgage loan’’ to eliminate the 

use of the short-hand reference to 

‘‘mortgage loan’’ as a substitute for 

‘‘Federally related mortgage loan’’ in 

light of the fact that proposed § 1024.31 

would have provided that the term 

‘‘mortgage loan’’ for purposes of subpart 

C’s mortgage servicing requirements is 

to be a defined term distinct from the 

defined term ‘‘Federally related 

mortgage loan.’’ The Bureau also 

proposed conforming edits that would 

have replaced references to ‘‘mortgage 

loan’’ with ‘‘federally related mortgage 

loan’’ in the defined terms ‘‘Origination 

service,’’ ‘‘Servicer,’’ and ‘‘Servicing’’ 

set forth in current § 1024.2 and in 

current §§ 1024.7(f)(3), 1024.17(c)(8), 

1024.17(f)(2)(ii), 1024.17(f)(4)(iii), 

1024.17(i)(2), and 1024.17(i)(4)(iii). The 

Bureau did not receive comments on the 

proposed revision to the defined term 

‘‘Federally related mortgage loan’’ or the 

conforming edits described above. The 

final rule adopts the proposed revision 

and conforming edits as proposed. 

The 2012 RESPA Servicing Proposal 

also would have removed a reference to 

loan correspondents that are approved 

under 24 CFR 202.8 from the defined 

term ‘‘Mortgage broker’’ because the 

reference was made obsolete when HUD 

amended 24 CFR 202.8 on April 20, 

2010, to eliminate the FHA approval 

process for loan correspondents after 

determining that loan correspondents 

would no longer be approved 

participants in FHA programs.62 The 

Bureau did not receive comments on the 

proposal to remove the reference to loan 

correspondents from the current defined 

term ‘‘Mortgage broker,’’ and the final 

rule adopts the proposed removal from 

the defined term ‘‘Mortgage broker’’ as 

proposed. 

The proposal also would have 

modified the defined term ‘‘Public 

Guidance Documents’’ to clarify that 

such documents are available from the 

Bureau upon request and to provide an 

address for such requests. The Bureau 

did not receive comments on these 

proposed clarifications, and the final 

rule adopts the clarifications to the 

defined term ‘‘Public Guidance 

Documents’’ as proposed. 

The proposal also would have added 

language to the defined term ‘‘Servicer’’ 

to clarify the status of the National 

Credit Union Administration (NCUA) as 

conservator or liquidating agent of a 

servicer or in its role of providing 

special assistance to an insured credit 

union. The current definition of 

‘‘Servicer’’ provides that the Federal 

Deposit Insurance Corporation (FDIC) is 

not a servicer (1) with respect to assets 

acquired, assigned, sold, or transferred 

pursuant to section 13(c) of the Federal 

Deposit Insurance Act or as receiver or 

conservator of an insured depository 

institution; or (2) in any case in which 

the assignment, sale, or transfer of the 

servicing of the mortgage loan is 

preceded by commencement of 

proceedings by the FDIC for 

conservatorship or receivership of a 

servicer (or an entity by which the 

servicer is owned or controlled). The 

proposed addition to the defined term 

‘‘Servicer’’ would have clarified 

similarly that the NCUA is not a servicer 

(1) with respect to assets acquired, 

assigned, sold, or transferred, pursuant 

to section 208 of the Federal Credit 

Union Act or as conservator or 

liquidating agent of an insured credit 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10711 

union; or (2) in any case in which the 

assignment, sale, or transfer of the 

servicing of the mortgage loan was 

preceded by commencement of 

proceedings by the NCUA for 

appointment of a conservator or 

liquidating agent of a servicer (or an 

entity by which the servicer is owned or 

controlled). The Bureau does not believe 

there is a basis to impose on the NCUA, 

when it is providing assistance to an 

insured credit union or in its role as 

conservator or liquidating agent of an 

insured credit union, the obligations of 

a servicer. The Bureau did not receive 

any comments concerning the proposed 

language. Accordingly, the Bureau 

adopts the proposed addition to the 

defined term ‘‘Servicer’’ as proposed. 

The Bureau proposed to delete the 

text of current § 1024.3 concerning the 

process for the public to submit 

questions or suggestions regarding 

RESPA or to receive copies of Public 

Guidance Documents and to replaced it 

with the substance of the regulation 

concerning electronic disclosures set 

forth in current § 1024.23. The Bureau 

did not believe a provision of 

Regulation X was needed to address the 

process for submitting questions and 

requesting documents. The public may 

contact the Bureau to request 

documents, suggest changes to 

Regulation X, or submit questions, 

including questions concerning the 

interpretation of RESPA by mail to the 

Associate Director, Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G St. NW., 

Washington, DC 20552, or by email to 

CFPB_RESPAInquiries@cfpb.gov. 

Further, the final rule includes contact 

information to request copies of Public 

Guidance Documents in the defined 

term ‘‘Public Guidance Documents’’ in 

§ 1024.2, as discussed above. 

Current § 1024.23 states that 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) permitting electronic 

disclosures to consumers if certain 

conditions are met apply to Regulation 

X. Because the Bureau believes that 

such E-Sign Act provisions are 

applicable to all provisions in 

Regulation X, it decided that the best 

place for the language was in § 1024.3. 

In the process of moving the language in 

current § 1024.23 to § 1024.3, the 

Bureau also made technical edits to 

conform the language to the language of 

other similar Bureau regulations. The 

Bureau did not receive comments on 

these revisions to current §§ 1024.3 and 

1024.23. The Final rule adopts § 1024.3 

as proposed and removes § 1024.23 as 

proposed. 

Current § 1024.4 sets forth provisions 

relating to reliance upon rules, 

regulations, or interpretations by the 

Bureau. The Bureau proposed to remove 

current § 1024.4(b) and redesignate 

current § 1024.4(c) as proposed 

§ 1024.4(b). Current § 1024.4(b) provides 

that the Bureau may, in its discretion, 

provide unofficial staff interpretations 

but that such interpretations do not 

provide protection under section 19(b) 

of RESPA and that staff will not 

ordinarily provide such interpretations 

on matters adequately covered by 

Regulation X, official interpretations, or 

commentaries. The Bureau’s policy is to 

assist the public in understanding the 

Bureau’s regulations, including, but not 

limited to, Regulation X. The Bureau 

believes that this provision, which 

states Bureau policy, is more 

appropriate for the commentary and, 

accordingly, proposed to include the 

substance of this provision in the 

introduction to the commentary. The 

Bureau did not receive comments on the 

proposed removal of current § 1024.4(b) 

and re-designation of current § 1024.4(c) 

as proposed § 1024.4(b). The final rule 

adopts these revisions as proposed. 

Current § 1024.5 sets forth exemptions 

with respect to the applicability of 

Regulation X. The Bureau proposed a 

technical correction to current 

§ 1024.5(b)(7) to reflect that mortgage 

servicing-related provisions of 

Regulation X will be included in new 

subpart C and will no longer be placed 

in current § 1024.21. The Bureau did not 

receive comments on this technical 

correction, and the final rule adopts the 

technical correction to § 1024.5 as 

proposed, with an additional technical 

change to clarify the applicability of 

subpart C to bona fide transfers in the 

secondary market. 

For reasons discussed below, current 

§ 1024.21 is deleted. In connection with 

the deletion of current § 1024.21 as 

discussed below, the Bureau is also 

making a technical correction to a crossreference in current § 1024.13(d) to 

language in current § 1024.21(h) that is 

being moved to § 1024.33(d). 

Subpart B—Mortgage Settlements and 

Escrow Accounts 

In connection with the Bureau’s 

proposal to create three distinct 

subparts in Regulation X, the Bureau is 

organizing §§ 1024.6 through 1024.20 

under new subpart B. These provisions 

generally relate to settlement services 

and escrow accounts. As described 

above, the Bureau is adopting the 

conforming edits the Bureau proposed 

relating to §§ 1024.7(f)(3), 1024.17(c)(8), 

1024.17(f)(2)(ii), 1024.17(f)(4)(iii), 

1024.17(i)(2), and 1024.17(i)(4)(iii). 

Section 1024.17 Escrow Accounts 

17(k) Timely Payments 

Section 6(g) of RESPA establishes that 

if the terms of any federally related 

mortgage loan require a borrower to 

make payments to a servicer of the loan 

for deposit into an escrow account for 

the purpose of assuring payment of 

taxes, insurance premiums, and other 

charges with respect to the property, the 

servicer shall make such payments from 

the borrower’s escrow account in a 

timely manner as such payments 

become due. Existing § 1024.21(g) 

provides that the requirements set forth 

in § 1024.17(k) govern the payment of 

such charges. Existing § 1024.17(k)(1) 

provides that if the terms of a federally 

related mortgage loan require a borrower 

to make payments to an escrow account, 

a servicer must pay the disbursements 

in a timely manner (specifically, on or 

before the deadline to avoid a penalty) 

unless a borrower’s payment is more 

than 30 days overdue. Existing 

§ 1024.17(k)(2) requires servicers to 

advance funds if necessary to make the 

disbursements in a timely manner 

unless the borrower’s mortgage payment 

is more than 30 days past due. Upon 

advancing funds to pay a disbursement, 

a servicer may seek repayment from a 

borrower for the deficiency pursuant to 

§ 1024.17(f). 

The Bureau proposed a new 

§ 1024.17(k)(5) to expand the scope of 

these obligations with regard to 

continuing a borrower’s hazard 

insurance policy. Specifically, proposed 

§ 1024.17(k)(5) would have required 

that, notwithstanding § 1024.17(k)(1) 

and (2), a servicer must make payments 

from a borrower’s escrow account in a 

timely manner to pay the premium 

charge on a borrower’s hazard 

insurance, as defined in § 1024.31, 

unless the servicer has a reasonable 

basis to believe that a borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. Thus, 

proposed § 1024.17(k)(5) would have 

required a servicer to both advance 

funds to an escrow account and to 

disburse such funds to pay a borrower’s 

hazard insurance notwithstanding that a 

borrower is more than 30 days 

delinquent. 

The proposed requirement would not 

have applied where a servicer had ‘‘a 

reasonable basis to believe that such 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges’’ 

because the Bureau recognized that 

there were situations where timely 

payment by a servicer would not be 

sufficient to continue a policy that had 

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already been canceled or was not 

renewed for other reasons, such as, for 

example, risks presented by the 

condition of the property. 

The Bureau also proposed 

commentary to clarify the requirements 

in § 1024.17(k)(5). Specifically, the 

Bureau proposed to clarify in comment 

17(k)(5)–1 that the receipt by a servicer 

of a notice of cancellation or nonrenewal from the borrower’s insurance 

company before the insurance premium 

is due provides a reasonable basis to 

believe that the borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. 

Comment 17(k)(5)–2 would have 

provided three examples of situations in 

which a borrower’s hazard insurance 

was canceled or not renewed for reasons 

other than the nonpayment of premium 

charges, including because the borrower 

cancelled the insurance policy, because 

the insurance company no longer writes 

the type of policy that the borrower 

carried or writes policies in the area 

where the borrower’s property is 

located, or because the insurance 

company is no longer willing to 

maintain the borrower’s individual 

policy to cover the borrower’s property 

because of a change in risk affecting the 

borrower’s property. Finally, proposed 

comment 17(k)(5)–3 would have 

clarified that a servicer that advances 

the premium payment as required by 

§ 1024.17(k)(5) may advance the 

payment on a month-to-month basis, if 

permitted by State or other applicable 

law and accepted by the borrower’s 

hazard insurance company. 

The Bureau proposed § 1024.17(k)(5) 

to protect consumers from the 

unwarranted force-placement of hazard 

insurance. Force-placed insurance 

generally provides substantially less 

coverage for a borrower’s property at a 

substantially higher premium cost than 

a borrower-obtained hazard insurance 

policy, as discussed below in 

connection with § 1024.37. Section 1463 

of the Dodd-Frank Act demonstrates 

that Congress was concerned about the 

unwarranted or unnecessary forceplacement of hazard insurance for 

mortgage borrowers. Section 6(k) of 

RESPA, as amended by section 1463 of 

the Dodd-Frank Act, evinces Congress’s 

intent to establish reasonable 

protections for borrowers to avoid 

unwarranted force-placed insurance 

coverage. Section 1024.17(k)(5), though 

articulated differently than the 

protections directly set forth in section 

1463, draws directly from Congress’s 

intent as set forth in section 1463 of the 

Dodd-Frank Act to protect borrowers 

from the force-placement of hazard 

insurance in situations where such 

force-placement is unwarranted and can 

be avoided. When a servicer is receiving 

bills for the borrower’s hazard insurance 

in connection with administration of an 

escrow account, a servicer who elects 

not to advance to a delinquent 

borrower’s escrow account to maintain 

the borrower’s hazard insurance, 

allowing that insurance to lapse, and 

then advances a far greater amount to a 

borrower’s escrow account to obtain a 

force-placed insurance policy 

unreasonably harms a borrower. Section 

1024.17(k)(5) implements the purposes 

of section 1463 of the Dodd-Frank Act 

to protect borrowers from the 

unwarranted force-placement of 

insurance when a servicer does not have 

a reasonable basis to impose the charge 

on a borrower. 

Further, considered as a whole, one of 

the consumer protection purposes of 

RESPA, as amended by the Dodd-Frank 

Act, is a requirement that servicers must 

have a reasonable basis for undertaking 

actions that may harm borrowers, 

including delinquent borrowers. Section 

1024.17(k)(5) furthers this purpose by 

establishing that servicers may not 

unnecessarily obtain force-placed 

insurance in situations where such 

placement is not warranted, that is, 

when a servicer is able to maintain a 

borrower’s current hazard insurance in 

force by advancing and disbursing funds 

to pay the premiums. 

The Bureau further reasoned that 

proposed § 1024.17(k)(5) would not 

increase burdens on servicers generally, 

because the Bureau understood that 

many servicers already advance hazard 

insurance premiums for borrowers with 

escrow accounts even if the borrowers’ 

mortgage payments are more than 30 

days past due. The Bureau also 

understands that the proposed 

requirement would benefit owners or 

assignees of mortgage loans by 

preventing the placement of costly and 

unnecessary force-placed insurance 

policies, the higher costs for which may 

be recovered from an owner or assignee 

in the event the property is liquidated. 

The Bureau sought comment on all 

aspects of the proposed escrow advance 

provision including on whether there 

should be additional limitations on a 

servicer’s duty to advance funds. For 

instance, the Bureau sought comments 

on an alternative approach under which 

a servicer could not charge a borrower 

who has an escrow account established 

to pay hazard insurance for force-placed 

insurance unless those charges would 

be less expensive than the charges for 

reimbursing the servicer for advancing 

funds to continue the borrower’s hazard 

insurance policy. The Bureau further 

requested comment regarding whether 

to require further that any such forceplaced insurance policy protect the 

borrower’s interest. In addition, the 

Bureau observed in the proposal that 

§ 1024.17(k)(5) would only apply when 

a borrower has an escrow account 

established to pay hazard insurance, 

and also invited comments on whether 

a servicer should be required to pay the 

hazard insurance premiums on behalf of 

a borrower who has not established an 

escrow account to pay for such 

insurance. Finally, the Bureau further 

requested comment on whether a 

servicer should be required to ask such 

a borrower whether the borrower would 

consent to the servicer renewing the 

borrower’s hazard insurance and, with 

the borrower’s consent, be required to 

advance funds to pay such premiums. 

Industry commenters and their trade 

associations varied significantly in their 

comments with respect to 

§ 1024.17(k)(5). A number of 

commenters, including a force-placed 

insurance provider and two trade 

associations, stated that the proposed 

requirement was consistent with current 

industry practice and would not be 

onerous to implement. For example, one 

non-bank servicer indicated that it 

generally advanced funds to escrow and 

disbursed those funds to maintain 

hazard insurance so long as it viewed 

the advances as recoverable, 

notwithstanding the delinquency status 

of the borrower. 

Numerous other servicers and their 

trade associations, however, objected to 

the requirement that a servicer timely 

disburse funds from escrow to pay 

hazard insurance for borrowers who are 

delinquent and further that servicers 

should advance funds to escrow 

accounts that would then be disbursed 

to pay hazard insurance. Some industry 

commenters indicated that force-placed 

insurance is the appropriate means for 

insuring a property for a borrower that 

has not paid for hazard insurance. For 

example, a national trade association 

representing property and casualty 

insurers stated that the inclusion of 

limitations on force-placed insurance in 

section 1463(a) of the Dodd-Frank Act 

recognized that an appropriate role 

exists for force-placed insurance. Some 

commenters indicated that the 

procedures for obtaining force-placed 

insurance, specifically notices provided 

to borrowers, spur borrower action to 

communicate with servicers and to 

obtain insurance. These commenters 

believe that the threat of forced 

placement of insurance causes 

borrowers to obtain hazard insurance to 

avoid force-placed insurance. If the 

threat is effective, they argue, servicers 

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should not have to advance funds to 

escrow accounts for delinquent 

borrowers. One commenter, a forceplaced insurance provider, urged the 

Bureau to first evaluate the effectiveness 

of the notices and procedures required 

by the Dodd-Frank Act before adopting 

a final rule requiring a servicer to 

advance funds for borrowers whose 

mortgage payments were more than 30 

days overdue. Finally, one commenter 

hypothesized that the proposed 

requirement was intended as a step 

toward potential future actions by the 

Bureau to eliminate the force-placed 

insurance product market. 

Some servicers and their trade 

associations questioned the Bureau’s 

authority to require servicers to advance 

funds to, and disburse from, an escrow 

account to maintain hazard insurance. 

These commenters stated that (1) the 

Bureau does not have the authority to 

impose the requirement because it is not 

specifically set forth in the Dodd-Frank 

Act, (2) section 6(g) of RESPA only 

applies to insurance required pursuant 

to the terms of a federally related 

mortgage loan, whereas the duty to 

advance funds appeared to apply even 

for insurance not required by the terms 

of the loan, and (3) the requirement was 

an unnecessary exercise of the Bureau’s 

authority to impose additional 

obligations on servicers pursuant to 

sections 6(k)(1)(E) and 19(a) of RESPA. 

Commenters further objected that the 

requirement to advance funds would 

require a servicer to provide funds to 

maintain coverage obtained by a 

borrower that exceeded the coverage 

required by the lender, including, for 

example, coverage for borrower 

possessions or coverage beyond hazards 

the lender required to be covered. 

Some servicers and their trade 

associations further stated that the 

requirement to advance funds to, and 

disburse from, an escrow account to 

maintain hazard insurance would have 

adverse consequences for servicers, 

borrowers, and the insurance market. 

With respect to potential impact on 

servicers, some commenters indicated 

that the proposed requirement would 

create a disincentive to establish escrow 

accounts. These commenters also 

indicated that borrowers may 

incorrectly presume that servicers will 

advance to escrow accounts for 

delinquent borrowers to pay all escrow 

obligations, not just hazard insurance. 

Further, a credit union trade association 

commented that requiring 

disbursements for hazard insurance may 

deplete funds that may be available to 

pay other escrow obligations, such as 

tax liabilities. A commenter stated that 

a servicer may be responsible for a loss 

if a hazard insurance provider to whom 

it has advanced payments denies 

coverage because a property is vacant 

and is excluded from coverage; in such 

a situation, the commenter said that 

force-placed insurance is necessary 

because it would cover the loss. 

Some servicers stated that borrowers 

may be unjustly enriched at the expense 

of their servicers by cancelling hazard 

insurance and obtaining for themselves 

refunds of premiums that were paid by 

their servicers. Although the Bureau had 

attempted to address this concern, 

which also was raised during the Small 

Business Review Panel, through 

proposed comment 17(k)(5)–3, servicers 

disagreed on the solution. Importantly, 

one state banking association stated that 

the risk of moral hazard and unjust 

enrichment was mitigated by proposed 

comment 17(k)(5)–3, which permitted 

the servicer to advance and disburse on 

a month-to-month basis, while another 

small bank commenter stated that the 

Bureau’s comment permitting advancing 

on a month-to-month basis would 

increase its servicing costs because it 

would be paying a borrower’s insurance 

twelve times per year. 

With respect to potential impact on 

borrowers, several commenters 

suggested that the proposal would result 

in an increase in incidents of a borrower 

being double-billed for hazard 

insurance. These commenters 

incorrectly interpreted the proposal to 

require a servicer to pay to maintain 

coverage even though the borrower had 

decided to cancel the insurance and pay 

a new insurer directly. These 

commenters stated that borrowers may 

be harmed because borrowers would be 

responsible for duplicative hazard 

insurance costs, whereas a borrower 

would be entitled to a refund for 

overlapping force-placed insurance, 

including pursuant to the Dodd-Frank 

Act. 

With respect to impacts on the 

insurance market, a number of 

commenters who are not insurance 

providers asserted that insurance 

providers generally view seriously 

delinquent borrowers as higher 

insurance risks compared to other 

borrowers. These commenters expressed 

concern that the Bureau’s proposal 

could potentially mask this risk because 

the servicer would be required to 

advance premiums, even if a borrower 

is seriously delinquent. One commenter 

requested that the Bureau state that 

servicers may inform an insurance 

provider that a borrower is delinquent. 

In that regard, a commenter urged the 

Bureau to provide a form that servicers 

may provide to insurance providers 

stating that a lender is paying some 

identified portion of a borrower’s 

insurance premium due to a deficiency 

in the borrower’s escrow account. 

Small banks and credit unions, as 

well as their trade associations and 

other small non-bank servicers, 

indicated that the impact of proposed 

§ 1024.17(k)(5) would be particularly 

acute for small servicers. These 

commenters indicated that small 

servicers typically have different 

practices with regard to force-placed 

insurance than large servicers. Outreach 

with small servicers indicated that in 

certain circumstances, such servicers 

may not require borrowers to maintain 

insurance coverage, may self-insure, or 

may impose charges for collateral 

protection plans that may be less costly 

than advances to maintain a borrower’s 

hazard insurance coverage. Further, 

commenters asserted that small 

servicers may be more significantly 

impacted by the cost of the funds 

required to be advanced to borrower 

escrow accounts. 

Certain commenters requested 

clarification regarding whether a 

servicer would be entitled to recoup any 

required advances and whether a 

servicer may be liable to a borrower for 

failing to advance funds to, and disburse 

from, an escrow account to maintain 

hazard insurance. Further, commenters 

requested clarification that advancing 

funds is only required if the owner or 

assignee of a mortgage loan requires the 

borrower to maintain hazard insurance. 

Finally, one credit union commenter 

requested that the Bureau exempt 

servicers of home equity lines of credit 

(HELOCs) from the proposed 

requirement in § 1024.17(k)(5) to 

advance funds. The commenter asserted 

that HELOCs are largely in the 

subordinate-lien position and requiring 

a servicer of HELOCs to advance would 

generally be needless costly to such 

servicers because servicers servicing 

liens in the first position would also be 

advancing payment. 

The Bureau received numerous 

comments from consumers and 

consumer advocacy groups with respect 

to proposed § 1024.17(k)(5). These 

commenters strongly supported all 

aspects of proposed § 1024.17(k)(5) as 

set forth in the proposal. These 

commenters generally stated, however 

that the Bureau should go farther than 

the proposal and implement 

requirements regarding advances and 

disbursements to maintain hazard 

insurance for delinquent borrowers that 

do not have escrow accounts. 

Commenters significantly disagreed 

regarding the merits of requiring 

advances and disbursements to 

maintain hazard insurance of borrowers 

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63Notably, the National Mortgage Settlement 

includes a similar protection for borrowers. See e.g., 

National Mortgage Settlement: Consent Agreement 

A–37 (2012), available at http:// 

www.nationalmortgagesettlement.com. (stating that 

‘‘For escrowed accounts, servicer shall continue to 

advance payments for the homeowner’s existing 

policy, unless the borrower or insurance company 

cancels the existing policy.’’). 

64The Bureau notes that regulations established 

pursuant to section 6 of RESPA are subject to 

section 6(f) of RESPA, which provides borrowers a 

private right of action to enforce such regulations. 

without escrow accounts. A number of 

consumer advocacy group commenters 

contended that the Bureau should make 

no distinction between homeowners 

that have escrow accounts and those 

that do not. Certain state attorney 

general commenters suggested instead 

that the Bureau should require a 

servicer, prior to force-placing 

insurance, to ask for a borrower’s 

consent to renew voluntary coverage 

and to advance funds for the premium 

if the borrower gives consent to the 

creation of an escrow account. Industry 

commenters were nearly uniformly 

opposed to requiring servicers to 

advance funds for the hazard insurance 

premiums of borrowers who have not 

escrowed for hazard insurance, citing 

most often the impracticality for 

servicers to reinstate a lapsed policy 

without any gap in coverage. 

The Bureau is finalizing 

§ 1024.17(k)(5) as proposed with 

adjustments to address pertinent issues 

raised by the comments. Specifically, 

the Bureau is not requiring that a 

servicer advance funds to, or disburse 

funds from, an escrow account to 

maintain hazard insurance in all 

circumstances. Rather, the Bureau had 

adjusted the requirement in 

§ 1024.17(k)(5)(i) to provide that a 

servicer may not obtain force-placed 

insurance unless a servicer is unable to 

disburse funds from the borrower’s 

escrow account to ensure that the 

borrower’s hazard insurance is paid in 

a timely manner. Thus, for example, a 

servicer of a mortgage loan, including a 

HELOC, is not required to disburse 

funds from an escrow account to 

maintain a borrower’s hazard insurance, 

so long as the servicer does not 

purchase force-placed insurance. 

Pursuant to § 1024.17(k)(5)(ii)(A), a 

servicer is unable to disburse funds if 

the servicer has a reasonable basis to 

believe that a borrower’s hazard 

insurance has been canceled or not 

renewed for reasons other than 

nonpayment of premium charges. 

Further, § 1024.17(k)(5)(ii)(B) states that 

a servicer is not considered unable to 

disburse funds solely because an escrow 

account contains insufficient funds. 

Section 1024.17(k)(5)(ii)(C) makes clear 

that a servicer may seek repayment from 

a borrower for funds advanced to pay 

hazard insurance premiums. Finally, the 

Bureau has determined to exempt small 

servicers, that is, servicers that service 

less than 5,000 mortgage loans and only 

service mortgage loans owned or 

originated by the servicer or an affiliate 

so long as any force-placed insurance 

purchased by the small servicer is less 

costly to a borrower than the amount 

that would be required to be disbursed 

to maintain the borrower’s hazard 

insurance coverage. See 

§ 1024.17(k)(5)(iii). The Bureau is not 

implementing any requirement that a 

servicer advance funds to pay for a 

hazard insurance policy for a borrower 

that does not have an escrow account. 

The Bureau believes that a servicer 

should not obtain force-placed 

insurance when a servicer is able to 

make disbursements from an escrow 

account to maintain hazard insurance. 

As set forth above, unless a policy has 

been cancelled for reasons other than 

nonpayment, a borrower’s delinquency 

should not cause a servicer to take 

actions (or make omissions) that would 

lead to the cancellation of the 

borrower’s voluntary insurance policy 

and the potential replacement of that 

policy with a more expensive (and less 

protective) force-placed insurance 

policy. The Bureau acknowledges that 

in certain circumstances, force-placed 

insurance is necessary. Section 

1024.17(k)(5) does not prevent a servicer 

from obtaining force-placed insurance, 

subject to the requirements in § 1024.37, 

when such a policy is appropriate, 

including, for instance, where a 

borrower’s hazard insurance policy has 

been cancelled for reasons other than 

non-payment. In that situation, a 

servicer may impose a charge on a 

borrower for a force-placed insurance 

policy consistent with the requirements 

in § 1024.37. However, as set forth 

above and in the proposal, the Bureau 

does not believe imposition of a charge 

for force-placed insurance is appropriate 

where a hazard insurance policy has not 

been cancelled and a servicer is able to 

disburse funds from an escrow account 

to maintain the borrower’s preferred 

hazard insurance policy in force.63

The Bureau is therefore adopting 

§ 1024.17(k)(5) in reliance on section 

6(k)(1)(E) of RESPA, which authorizes 

the Bureau to prescribe regulations that 

are appropriate to carry out the 

consumer protection purposes of 

RESPA. The Bureau has additional 

authority pursuant to section 6(j)(3) of 

RESPA to establish any requirements 

necessary to carry out section 6 of 

REPSA, including section 6(g) with 

respect to administration of escrow 

accounts, and has authority pursuant to 

section 19(a) of RESPA to prescribe such 

rules and regulations, and to make such 

interpretations, as may be necessary to 

achieve the consumer protection 

purposes of RESPA. The Bureau also 

has authority to establish consumer 

protection regulations pursuant to 

section 1022 of the Dodd-Frank Act. A 

consumer protection purpose of RESPA 

is to help borrowers avoid unwarranted 

or unnecessary costs and fees, and 

further, the amendments to section 6(k) 

of RESPA in section 1463 of the DoddFrank Act evince Congress’s intent to 

establish reasonable protections for 

borrowers to avoid unwarranted forceplaced insurance coverage. Section 

1024.17(k)(5) furthers these purposes 

and is therefore an appropriate 

regulation under section 6(j) and 

6(k)(1)(E) and section 19(a) of RESPA.64

The Bureau does not believe that 

§ 1024.17(k)(5) will have adverse 

consequences on servicers, borrowers, 

or the insurance market. With respect to 

impacts on servicers, § 1024.17(k)(5) 

does not create significant disincentives 

to maintain escrow accounts for 

borrowers. Escrow accounts encourage 

borrowers to budget for costs of 

homeownership and to provide funds 

regularly to servicers to be used to pay 

those costs, including for insurance, 

taxes, and other obligations. Lenders 

include escrow requirements in 

mortgage contracts because the use of 

such an account reduces risk to an 

owner or assignee of a mortgage loan. 

Servicer also generally benefit from an 

escrow account both as a result of the 

improved performance of mortgage 

loans and also because of the 

opportunity to earn a return on funds 

held. Further, servicers manage the 

impact of an obligation to make 

advances to escrow accounts by 

ensuring that advances may be recouped 

from an owner or assignee of a mortgage 

loan in the event a property is 

foreclosed upon and liquidated. In the 

absence of § 1024.17(k)(5), a servicer 

that obtains force-placed insurance 

might advance a greater amount of 

funds for the force-placed insurance 

policy and would seek to obtain 

repayment of those funds either from a 

borrower or ultimately from an owner or 

assignee of a mortgage loan if a property 

is foreclosed upon and liquidated. For 

these reasons, the Bureau is not 

persuaded that § 1024.17(k)(5) creates 

an incentive that would materially affect 

whether servicers offer escrow accounts 

to borrowers. 

With respect to the ability of servicers 

to use funds in an escrow account to 

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65Notably, as discussed further below, the risk of 

double-billing when a servicer is paying toward a 

policy that was currently in place is markedly 

different than the risk presented by a requirement 

that a servicer obtain or renew a previously 

cancelled policy, which would exist if a servicer 

were required to disburse funds to obtain a policy 

for a borrower that does not have an escrow 

account. 

pay obligations other than hazard 

insurance, the Bureau recognizes, of 

course, that escrow account funds are 

fungible and that payment of hazard 

insurance necessarily requires 

expending funds that would have been 

available for payment of other escrowed 

obligations, including tax obligations. 

Servicers, on behalf of owners or 

assignees of mortgage loans, currently 

manage this risk by advancing funds to 

escrow accounts to pay such obligations 

and seeking repayment from borrowers 

or ultimately from proceeds payable to 

the owners or assignees of mortgage 

loans. No contrary practice is required 

here. Further, such a practice does not 

create any new or enhanced risk for 

servicers. Further, the Bureau has 

clarified in § 1024.17(k)(5)(ii)(C) that 

servicers may seek repayment of 

advances unless otherwise prohibited 

by applicable law. Servicers, as well as 

owners and assignees of mortgage loans, 

are capable of managing risks arising 

from other escrow account obligations 

by advancing funds to pay any such 

obligations as appropriate. 

The Bureau also does not believe that 

§ 1024.17(k)(5) presents a material risk 

to servicers from borrowers cancelling 

policies, receiving refunds, and, thus, 

becoming unjustly enriched at the 

expense of a servicer. A borrower that 

is current on a mortgage loan obligation 

but anticipates a future delinquency 

could engage in the same type of 

behavior during a period of an escrow 

account deficiency. Commenters have 

not demonstrated that such actions 

typically occur. Further, the Bureau has 

mitigated this risk by finalizing 

comment 17(k)(5)(ii)(C)–1, which 

provides that servicers may, but are not 

required to, advance payment on a 

month-to-month basis. Because such 

advancement is not required on a 

month-to-month basis, servicers may 

determine not to undertake that 

schedule for advances if it would 

impose greater costs on servicers with 

respect to maintaining a borrower’s 

hazard insurance. 

The Bureau is not persuaded that 

requiring servicers to disburse funds for 

hazard insurance for borrowers that are 

more than 30 days overdue will create 

incentives for borrowers not to make 

mortgage loan payments or to fund 

escrow accounts. Nothing in 

§ 1024.17(k)(5), nor Regulation X 

generally, prevents servicers from 

charging borrowers late fees or reporting 

borrower failures to pay to a consumer 

reporting agency. These consequences 

to borrowers provide appropriate 

disincentives from obtaining the far 

more limited benefit of non-cancellation 

of a hazard insurance policy. 

The Bureau is persuaded, however, by 

the comment that hazard insurance 

coverage may not provide similar 

protections as force-placed insurance. 

Many hazard insurance policies contain 

exclusions from coverage for properties 

that are vacant. In these circumstances, 

losses may not be covered by insurance 

for vacant properties. Delinquent 

borrowers may have a higher incidence 

of abandoning properties as vacant. 

Accordingly, the Bureau has adjusted 

§ 1024.17(k)(5)(ii) to provide that a 

servicer may be considered unable to 

disburse funds from escrow to maintain 

a borrower’s hazard insurance policy if 

the servicer has a reasonable basis to 

believe the borrower’s property is 

vacant. 

The Bureau does not believe that 

§ 1024.17(k)(5) will have adverse 

impacts on borrowers. The only 

borrower harm asserted by servicers and 

their trade associations is that the 

requirement will lead to an increase in 

double-billing when a borrower cancels 

hazard insurance and obtains a new 

policy for which the borrower pays the 

insurer directly. The commenters 

provide no reason to believe that 

borrowers that are more than 30 days 

overdue are more likely to cancel hazard 

insurance and pay insurance directly 

than borrowers that are current on a 

mortgage loan obligation or less than 30 

days overdue. Further, if a servicer has 

a reasonable basis to believe that a 

borrower has cancelled a hazard 

insurance policy, a servicer is not 

required to disburse funds to pay for the 

hazard insurance policy. Finally, when 

a borrower has cancelled a policy, an 

insurance company is unlikely to credit 

the amounts paid by a servicer toward 

that policy after the date of 

cancellation.65

Further, the Bureau does not believe 

that § 1024.17(k)(5) will have adverse 

impacts on the insurance market. 

Section 1024.17(k)(5) does not, as 

commenters state, mask any risks 

presented by a borrower that is more 

than 30 days overdue on a mortgage 

loan obligation. Nothing in 

§ 1024.17(k)(5) prevents a servicer from 

reporting a borrower’s payment history 

to a consumer reporting agency, and an 

insurance provider could, to the extent 

permitted by applicable law, obtaining 

borrower information it deems relevant 

to underwriting insurance, including a 

consumer report. In addition, if insurers 

are harmed by insuring borrowers who 

are delinquent on their mortgage loans, 

they face that same harm already for 

borrowers that do not have escrow 

accounts and pay hazard insurance 

premiums directly to their insurers. 

Section 1024.17(k)(5) does not present a 

different category of risk in that regard. 

With respect to one commenter’s 

request that the Bureau issue a form for 

lenders and servicers to provide to 

insurance providers stating that a 

servicer is paying some identified 

portion of a borrower’s insurance 

premium due to a deficiency in the 

borrower’s escrow account, the Bureau 

declines. To the extent applicable law 

permits a lender or servicer to 

communicate such information to an 

insurance provider, the lender or 

servicer should not need the Bureau to 

develop a form for the communication. 

Finally, the Bureau believes that 

special treatment is warranted with 

respect to ‘‘small servicers’’ as defined 

in § 1026.41(e)(4). As explained in the 

section by section discussion of 

§ 1024.30(b) and in the 2013 TILA 

Servicing Final Rule, the Bureau has 

identified a class of servicers, referred to 

as ‘‘small servicers’’ and defined by the 

combination of the number of loans they 

service and the servicer’s relationship to 

those loans that sets those servicers 

apart. With respect to the requirements 

set forth in § 1024.17(k)(5), outreach 

with small servicers indicates that small 

servicers’ practices with respect to 

obtaining force-placed insurance tend to 

be less costly to borrowers than those 

utilized by larger servicers. For 

example, the Bureau understands that 

small servicers often obtain force-placed 

insurance in the form of collateral 

protection policies. The charges passed 

through to borrowers for such coverage, 

if any, may be less expensive than the 

costs of either maintaining a borrower’s 

hazard insurance coverage or 

purchasing an individual force-placed 

insurance policy. At the same time, 

requiring such servicers to continue the 

borrower’s hazard insurance in force, 

which may require advancing funds to 

the borrower’s escrow, could cause 

these servicers to incur incremental 

expenses which, because of their size, 

would be burdensome for them. Because 

of this difference in practices, the 

Bureau believes it is appropriate to 

reduce the restrictions applicable to 

small servicers with respect to 

borrowers that have escrow accounts. 

Accordingly, the Bureau has exempted 

small servicers from the restriction in 

§ 1024.17(k)(5)(i) and 

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1024.17(k)(5)(ii)(B), so long any forceplaced insurance that is purchased by 

the small servicer is less costly to a 

borrower than the amount that would be 

required to be disbursed to maintain the 

borrower’s hazard insurance coverage. 

The Bureau believes this partial 

exemption sets an appropriate balance 

of effectuating consumer protections for 

borrowers with escrow accounts and 

considerations that may be unique to 

small servicers. 

After consideration of the comments 

received, the Bureau has also 

determined not to require servicers to 

continue hazard insurance policies and 

advance premium payments for 

borrowers who have not escrowed for 

hazard insurance. The Bureau 

understands the concern of the 

consumer groups that commented, but 

the Bureau is persuaded that it would 

generally be impracticable for servicers 

to renew the hazard insurance coverage 

obtained by a non-escrowed borrower 

without creating a significant risk of 

double-billing and/or a gap in coverage. 

For example, although the Bureau does 

not find concerns about double-billing 

of borrowers persuasive with respect to 

situations in which insurance coverage 

is being paid via disbursement from an 

escrow account, the Bureau is 

concerned that a substantially different 

situation results where the borrower is 

making direct payments and a policy is 

allowed to lapse due to non-payment. In 

those cases, it is far more likely that a 

consumer may have switched insurance 

providers without notifying the servicer, 

and requiring a servicer to obtain a new 

policy (or to reinstate a previously 

cancelled policy) may result in borrower 

harm through the purchase of 

duplicative insurance and doublebilling of a borrower. Further, when a 

borrower does not have an escrow 

account, the servicer may not have 

notice before a policy lapses, and no 

ability to maintain the policy in 

continuous force. Were the Bureau to 

impose a duty on the servicer to pay for 

hazard insurance in such circumstance, 

such a duty would not necessarily be to 

maintain a current policy in force. 

Rather, the duty could well be to 

reinstate a lapsed policy or to obtain a 

new policy on behalf of the borrower to 

replace the cancelled policy. Requiring 

a servicer to obtain a new insurance 

policy on behalf of a borrower that did 

not have an escrow account to pay for 

hazard insurance may be burdensome 

and complex, and may not be justified. 

Accordingly, the Bureau declines at this 

time to impose requirements to obtain 

insurance for borrowers that do not have 

escrow accounts but will continue to 

monitor the impact of the requirements 

set forth in § 1024.37 with respect to 

force-placed insurance for any such 

borrowers. 

Two consumer groups submitted joint 

comments urging the Bureau to amend 

current § 1024.17(k)(1) so that a servicer 

would be required to make timely 

disbursements with respect to any 

escrowed charge, not just hazard 

insurance, so long as the borrower’s 

escrow account contained sufficient 

funds to do so. These consumer groups 

asserted that there is no reason to 

maintain the limitation for 

disbursements to borrowers that are less 

than 30 days overdue with respect to 

escrow obligations other than hazard 

insurance. For example, the commenters 

stated that the failure of a servicer to 

pay tax obligations in a timely manner 

would harm a borrower, and suggested 

that finalizing § 1024.17(k)(5) in 

isolation could cause borrower 

confusion because borrowers may not 

understand that the rule applies only to 

hazard insurance. 

The Bureau understands the 

commenters’ concern with respect to the 

impact on borrowers if an escrowed 

charge is not paid, but declines to 

amend § 1024.17(k)(1) as part of this 

rulemaking. Section 1024.17(k)(5), as 

adopted, is only a restriction on 

servicers’ ability to obtain force-placed 

insurance. If a servicer will not be 

purchasing force-placed insurance, the 

servicer is not subject to the provisions 

of § 1024.17(k)(5). For example, a 

servicer that does not require a borrower 

to maintain insurance is not required to 

disburse funds to maintain the 

borrower’s hazard insurance coverage 

other than as required pursuant to 

§ 1024.17(k)(1). Because the Bureau is 

not imposing a blanket obligation to 

advance funds to escrow to pay hazard 

insurance premiums, the Bureau does 

not believe that it would be appropriate 

to impose such an obligation with 

respect to other payments to be made 

from escrow. Accordingly, the Bureau 

declines to amend § 1024.17(k)(1) as 

suggested. 

Finally, as discussed above, the 

Bureau requested comments on an 

alternative approach to § 1024.17(k)(5), 

which would have added language to 

§ 1024.37 to provide that if a borrower 

has an escrow account established for 

hazard insurance, a servicer could not 

charge the borrower for force-placed 

insurance unless the force-placed 

insurance obtained by a servicer was 

less expensive to the borrower, for 

comparable coverage, than would be the 

servicer’s advancing funds to continue 

the borrower’s hazard insurance policy. 

The Bureau further requested comments 

on whether § 1024.37 should 

additionally require that force-placed 

insurance purchased by a servicer under 

these circumstances protect a borrower’s 

interests. 

One large force-placed insurance 

provider asserted that the proposed 

alternative is neither necessary or 

realistic because proposed 

§ 1024.17(k)(5) reflects general industry 

practice and because the cost of forceplaced insurance is invariably more 

expensive to the borrower than the 

servicer advancing funds to continue a 

borrower’s hazard insurance policy. On 

the other hand, another large forceplaced insurance provider and a 

national trade association expressed a 

preference for the alternative compared 

to proposed § 1024.17(k)(5). These 

commenters preferred, however, that the 

alternative be placed in § 1024.17(k), 

and not in § 1024.37, because they 

believed that this alternative should 

only limit a servicer’s force-placement 

of insurance in situations where an 

escrowed borrower’s hazard insurance 

was canceled due to a servicer’s failure 

to disburse funds to maintain a 

borrower’s hazard insurance. 

Commenters further expressed a variety 

of views concerning how the scope of 

comparable coverage would be 

determined. While industry commenters 

acknowledged that the industry 

standard is to obtain force-placed 

coverage equal to the replacement cost 

of the property, two national trade 

associations and a large force-placed 

insurance provider argued that servicers 

must be given flexibility to determine 

coverage levels. In contrast, another 

large force-placed insurance provider 

suggested that the Bureau should 

require coverage at replacement cost 

value. 

After consideration of the comments 

received on the alternative, the Bureau 

believes that the alternative proposal’s 

requirement regarding comparable 

coverage would add unnecessary 

complexity to the regulation. Whether a 

borrower may or may not benefit from 

any particular coverage level is 

dependent on the individual 

circumstances of the borrower. Further, 

differences between coverage provided 

for homeowners’ insurance and forceplaced insurance make a comparability 

determination and complex and 

difficult process. The Bureau declines to 

adopt the alternative proposal with 

respect to obtaining comparable 

coverage. 

Section 1024.17(k)(5), as adopted, 

however, is informed by the alternative 

and the comments received in response 

to the alternative. The Bureau has 

adjusted the requirement in 

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66Although the Bureau did not propose to remove 

§ 1024.18, the Bureau finds there is good cause to 

finalize this aspect of the rule without notice and 

comment. Because § 1024.18 simply restates, 

verbatim, existing statutory text, its removal will 

have no impact on, or significance for, any person; 

notice and comment therefore would be 

unnecessary. 

67As with § 1024.18, the Bureau finds there is 

good cause to remove § 1024.19 without notice and 

comment. As the foregoing discussion 

demonstrates, § 1024.19 has no impact on, or 

significance for, any person; notice and comment 

therefore would be unnecessary. 

68Section 1463 uses the term ‘‘federally related 

mortgage’’ but it amends and expands section 6 of 

RESPA that uses the term ‘‘federally related 

mortgage loan.’’ Accordingly, the Bureau interprets 

the ‘‘federally related mortgage’’ and ‘‘federally 

related mortgage loan’’ to be the same. 

§ 1024.17(k)(5), consistent with the 

alternative, to reflect that a servicer’s 

ability to disburse funds to maintain 

hazard insurance coverage serves as a 

restriction on the servicer’s purchasing 

force-placed insurance coverage. Thus, a 

servicer is not required in all instances 

to disburse funds to maintain hazard 

insurance coverage for borrowers that 

are more than 30 days overdue; instead, 

a servicer may not obtain force-placed 

insurance coverage unless the servicer is 

unable to disburse funds from the 

borrower’s escrow account pursuant to 

§ 1024.17(k)(5). Further, the exemption 

for small servicers in § 1024.17(k)(5)(iii) 

provides that a small servicer may 

obtain force-placed insurance, even if 

the small servicer is not unable to 

disburse funds from a borrower’s escrow 

account, so long as the cost to the 

borrower is less than the amount the 

small servicer would need to disburse to 

maintain the borrower’s hazard 

insurance, without consideration of the 

specific policy coverage provisions. 

17(l) System of Recordkeeping 

The Bureau proposed to remove 

current § 1024.17(l), which generally 

requires that a servicer maintain for five 

years records regarding the payment of 

amounts into and from an escrow 

account and escrow account statements 

provided to borrowers. Current 

§ 1024.17(l) further provides that the 

Bureau may request information 

contained in the servicer’s records for 

an escrow account and that a servicer’s 

failure to provide such information may 

be deemed to be evidence of the 

servicer’s failure to comply with its 

obligations with respect to providing 

escrow account statements to borrowers. 

As discussed in the proposal, the 

Bureau believed that the obligations set 

forth in current § 1024.17(l) would no 

longer be warranted in light of the 

information management policies, 

procedures, and requirements that the 

Bureau proposed to impose under 

proposed § 1024.38 and the 

substantially different authorities 

available to the Bureau with regard to 

requesting information from entities 

subject to § 1024.17. No comments were 

received on the removal of current 

§ 1024.17(l). Accordingly, the Bureau is 

removing § 1024.17(l) as proposed. 

Section 1024.18 Validity of contracts 

and liens 

The Bureau is removing current 

§ 1024.18. Current § 1024.18 states that 

‘‘Section 17 of RESPA (12 U.S.C. 2615) 

governs the validity of contracts and 

liens under RESPA.’’ 12 U.S.C. 2615 

states ‘‘Nothing in this Act shall affect 

the validity or enforceability of any sale 

or contract for the sale of real property 

or any loan, loan agreement, mortgage, 

or lien made or arising in connection 

with a federally related mortgage loan.’’ 

The Bureau believes that RESPA clearly 

delineates the validity and 

enforceability of contracts and liens and 

that § 1024.18 is an unnecessary 

restatement of the provisions of RESPA. 

Accordingly, in order to streamline the 

regulations, the Bureau is removing 

current § 1024.18.66

Section 1024.19 Enforcement 

Similarly, the Bureau is removing 

§ 1024.19. The first sentence of 

§ 1024.19(a) states ‘‘[i]t is the policy of 

the Bureau regarding RESPA 

enforcement matters to cooperate with 

Federal, state, or local agencies having 

supervisory powers over lenders or 

other persons with responsibilities 

under RESPA.’’ The Bureau believes 

this statement, which reflects the 

Bureau’s general policy to cooperate 

with counterpart agencies, is 

unnecessary. The second sentence of 

§ 1024.19(a) states ‘‘Federal agencies 

with supervisory powers over lenders 

may use their powers to require 

compliance with RESPA.’’ Again, the 

Bureau believes this general statement 

of the supervisory authority of other 

federal agencies, which neither conveys 

authority nor creates limits or 

restrictions with respect to such 

authority, is unnecessary in Regulation 

X. Further, the third sentence of 

§ 1024.19(a) states ‘‘[i]n addition, failure 

to comply with RESPA may be grounds 

for administrative action by HUD under 

HUD regulation 2 CFR part 2424 

concerning debarment, suspension, 

ineligibility of contractors and grantees, 

or under HUD regulation 24 CFR part 25 

concerning the HUD Mortgagee Review 

Board.’’ Here the Bureau believes that 

the applicable regulations issued by 

HUD are controlling and whether 

RESPA may serve as grounds for any 

such enumerated action is based on 

those HUD regulations. Accordingly, the 

Bureau believes this provision, which 

repeats the scope of HUD regulations, is 

unnecessary. Section 1024.19(a) states 

that ‘‘[n]othing in this paragraph is a 

limitation on any other form of 

enforcement that may be legally 

available.’’ Because the Bureau believes 

the other provisions of § 1024.19(a) are 

unnecessary, this remaining sentence is 

no longer necessary. Finally, 

§ 1024.19(b) states that the Bureau’s 

procedures for investigations and 

investigational proceedings are set forth 

in 12 CFR part 1080. A cross-reference 

to the location of the Bureau’s 

regulations regarding investigations and 

investigational proceedings in 

Regulation X is unnecessary. 

Accordingly, § 1024.19 is removed in its 

entirety.67

Subpart C—Mortgage Servicing 

Section 6 of RESPA sets forth a 

number of protections for borrowers 

with respect to the servicing of federally 

related mortgage loans that are currently 

implemented through Regulation X in 

current § 1024.21. Section 1463 of the 

Dodd-Frank Act amended section 6 of 

RESPA by adding new section 6(k) 

through (m) to establish new obligations 

on servicers for federally related 

mortgage loans with respect to the 

purchase of force-placed insurance and 

responses to borrowers’ requests to 

correct errors, among other things.68

The Bureau observes that section 6(k) 

also establishes the Bureau’s authority 

to create obligations the Bureau finds 

appropriate to carry out the consumer 

protection purposes of RESPA. 

Section 1463 of the Dodd-Frank Act 

also amended existing provisions in 

section 6 of RESPA with respect to a 

servicer’s obligation to respond to 

qualified written requests, a servicer’s 

administration of an escrow account. 

Section 1463 also increased the dollar 

amounts for damages for which a 

servicer may be liable for violations of 

section 6 of RESPA. 

In order to implement the 

amendments the Dodd-Frank Act added 

to RESPA in a consistent and clear 

manner, the Bureau proposed to 

reorganize Regulation X to combine 

current Regulation X provisions relating 

to mortgage servicing in existing 

§ 1024.21 with new mortgage servicing 

provisions the Bureau proposed to 

implement Dodd-Frank Act’s 

amendment of section 6 of RESPA in a 

newly created subpart C. As discussed 

above, no comments were received on 

the proposed reorganization of 

Regulation X into three subparts and the 

Bureau is adopting subpart C as 

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10718 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

proposed as a separate subpart in 

Regulation X. 

Section 1024.21 Mortgage Servicing 

Transfers 

To incorporate mortgage servicingrelated provisions within subpart C, the 

proposed rule would have removed 

§ 1024.21 and would implement the 

provisions of § 1024.21, subject to 

proposed changes as discussed below, 

in proposed §§ 1024.31–1024.34 within 

subpart C. No comments were received 

on the removal of § 1024.21 and its 

incorporation within subpart C. The 

final rule adopts the removal of 

§ 1024.21 as proposed and implements 

the provisions of § 1024.21, subject to 

changes adopted as discussed below, in 

§§ 1024.31–1024.34 within subpart C. 

Section 1024.22 Severability 

Current § 1024.22 states that if any 

particular provision of Regulation X, or 

its application to any particular person 

or circumstance is held invalid, the 

remainder of Regulation X or the 

application of such provision to any 

other person or circumstance shall not 

be affected. The Bureau proposed 

removing current § 1024.22 because the 

Bureau believes the section may create 

unnecessary inconsistency with respect 

to other Bureau regulations that do not 

contain corresponding provisions. By 

removing § 1024.22, the Bureau is not 

suggesting that the severability of 

Regulation X is changing or that the 

Bureau intends the new provisions to be 

non-severable. The Bureau intends that 

the provisions of Regulation X are 

severable and believes that if any 

particular provision of Regulation X, or 

its application to any particular person 

or circumstance is held invalid, the 

remainder of Regulation X or the 

application of such provision to any 

other provision or circumstance should 

not be affected. The Bureau’s proposal 

to remove current § 1024.22 should not 

be construed to indicate a contrary 

position. The Bureau did not receive 

comments on the proposed removal of 

current § 1024.22, and accordingly, is 

adopting the removal of current 

§ 1024.22 as proposed. 

Section 1024.23 E-Sign Applicability 

Current § 1024.23 states that 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) permitting electronic 

disclosures to consumers if certain 

conditions are met apply to Regulation 

X. For reasons discussed above in the 

section-by-section analysis of § 1024.3, 

the Bureau has concluded that the ESign Act provisions are applicable to all 

provisions in Regulation X. 

Accordingly, the Bureau decided that 

the best place for this language was in 

§ 1024.3. Having received no comments 

on the removal of § 1024.3 or the 

placing of the E-Sign Act provisions in 

§ 1024.3, the Bureau, as discussed 

above, is removing current § 1024.23 

from Regulation X. 

Section 1024.30 Scope 

The proposal would have defined the 

scope of subpart C as any mortgage loan, 

as that term is defined in § 1024.31. A 

‘‘mortgage loan,’’ as proposed would be 

any federally related mortgage loan, as 

defined in § 1024.2, except for open-end 

loans (home equity plans) and except 

for loans exempt from RESPA and 

Regulation X pursuant to § 1024.5(b). 

The Bureau received a significant 

number of comments relating to the 

scope of the mortgage servicing rules. 

Small servicer exemption. In the 2012 

TILA Servicing Proposal, the Bureau 

proposed an exemption to the periodic 

statement requirement for small 

servicers, defined in the 2012 TILA 

Servicing Proposal as servicers that 

service 1,000 mortgage loans or fewer 

and only servicer mortgage loan that the 

servicer or an affiliate owns or 

originated. The Bureau requested 

comment in the 2012 TILA Servicing 

Proposal regarding that exemption and, 

in the 2012 RESPA Servicing Proposal, 

further requested comment regarding 

whether the Bureau should implement a 

small servicer exemption for any 

mortgage servicing requirements 

proposed in Regulation X. 

The Bureau received three comment 

letters from consumer advocacy groups 

with respect to a small servicer 

exemption from certain requirements in 

Regulation X. One comment from three 

consumer advocacy groups indicated 

that small servicers should be exempt 

from the loss mitigation procedures 

requirements in § 1024.41 on the basis 

that these servicers already have an 

interest in mitigating any losses that 

might result from proceeding with 

foreclosure. Two other consumer 

advocacy groups, however, stated their 

view that if a servicer cannot afford to 

implement the required protections, the 

servicer should not be permitted to 

service mortgage loans. Further, a large 

bank joined in opposing an exemption 

for small servicers on the basis that such 

an exemption does not implement 

consumer protections for customers of 

small servicers and creates artificial 

distinctions that provide a competitive 

advantage to small servicers. 

The Bureau also received a significant 

number of comments from small banks, 

credit unions, and non-bank servicers, 

as well as their trade associations, that 

requested that the Bureau consider an 

exemption for small servicers from the 

mortgage servicing rules, including the 

discretionary rulemakings. The Bureau 

also received a comment letter from 

Advocacy urging the implementation of 

a small servicer exemption for 

requirements in Regulation X. 

Many of the small banks, credit 

unions, and non-bank servicers that 

provided comments stated that their 

business models necessarily facilitate 

communication with delinquent 

borrowers. Per the comments, such 

servicers have an incentive to work with 

borrowers to avoid losses because 

typically, for small servicers, either the 

mortgage loan is owned by the servicer 

(or an affiliate) or the servicer has a 

customer relationship with the borrower 

to consider. Community banks, credit 

unions, and Advocacy further stated 

that the servicing market should not be 

considered simplistically; small 

servicers have substantially different 

business practices than larger servicers, 

including with respect to considering 

borrowers for loss mitigation or 

managing force-placed insurance. 

Further, such servicers have not been 

shown to have engaged in the servicing 

failures that contributed to the financial 

crisis, including poor oversight of thirdparty providers, lost documents and 

other process failures relating to loss 

mitigation evaluations, or wrongful 

filing of foreclosure documents that 

contain false information or fail to 

comply with applicable law. 

Comments from small banks, credit 

unions, non-bank servicers, and their 

trade associations, suggested various 

means for defining a small servicer. 

Most industry commenters indicated 

that the proposed 1,000 mortgage loan 

threshold was inadequate because it 

would capture only the smallest 

servicers in the market. One trade 

association commenter stated that a 

1,000-mortgage-loan threshold would 

cover only single-employee servicing 

operations. Most commenters indicated 

that the small servicer exemption 

threshold should be raised to between 

5,000 and 15,000 mortgage loans. One 

commenter indicated that a small 

servicer threshold should be based on a 

delinquency percentage or foreclosure 

filing threshold, while a large 

community bank servicer stated that a 

small servicer exemption should 

include all but the top five servicers by 

market share. 

Small servicers indicated several 

components of the rulemaking that 

would have particularly problematic 

impacts on small servicers. For 

example, many small servicers and their 

trade associations raised concerns 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10719 

69See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, appendix C at 19, 22, 24–26 

(Jun, 11, 2012), available at http:// 

files.consumerfinance.gov/f/ 

201208_cfpb_SBREFA_Report.pdf. 

70See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, 26 (Jun, 11, 2012). 

regarding the appeal process set forth in 

§ 1024.41(h). Small servicers stated that 

required independent reviews for the 

appeal process would be difficult to 

implement because the size of a small 

servicer necessarily constrains the 

number of knowledgeable servicing 

personnel that would be able to conduct 

the independent review. Per the 

commenters, the resulting review would 

be without value because the 

independent review would be 

conducted by employees less familiar 

with, or skilled in, evaluating borrowers 

for loss mitigation options. Small 

servicers also indicated they would be 

burdened by implementing new notice 

requirements, including those set forth 

in § 1024.39 and § 1024.41, which, 

commenters believed, would only serve 

to require communications that are 

already occurring, but would impose the 

cost of requirements to track 

communications and demonstrate 

compliance to appropriate regulators. 

In addition to the comments, the 

Bureau reviewed the input gained 

through outreach with small servicers 

during the Small Business Review Panel 

process. As discussed throughout, in 

order to gain feedback on small servicer 

impacts, the Bureau participated in a 

Small Business Review Panel and 

conducted outreach with small entities 

that would be subject to the regulations. 

The Bureau solicited feedback from the 

small entities participating in the Small 

Business Review Panel on many 

elements of the loss mitigation process 

in conjunction with other elements of 

the servicing proposals, including 

impacts on loss mitigation processes of 

small servicers from proposed rules 

relating to error resolution, reasonable 

information management policies and 

procedures, early intervention for 

troubled or delinquent borrowers, and 

continuity of contact. In particular, the 

Bureau requested feedback from small 

servicers on the following: (1) A duty to 

suspend a foreclosure sale while a 

borrower is performing as agreed under 

a loss mitigation option or other 

alternative to foreclosure; (2) the ability 

to adopt policies and procedures to 

facilitate review of borrowers for loss 

mitigation options; (3) the ability to 

provide information regarding loss 

mitigation early in the foreclosure 

process to borrowers; and (4) the ability 

to provide borrowers with the 

opportunity to discuss evaluations for 

loss mitigation options with designated 

servicer contact personnel.69

The small entities generally informed 

the Small Business Review Panel that 

they engaged in individualized contact 

with borrowers early in the foreclosure 

process, that some servicers completed 

discussions of loss mitigation options 

with borrowers prior to a point in time 

when borrowers should receive 

significant foreclosure-related 

information, and that small servicers 

generally worked closely with 

foreclosure counsel such that 

foreclosure processes and loss 

mitigation could be easily conducted 

simultaneously without prejudice to the 

loss mitigation process. Further, the 

small entities explained that they were 

willing to communicate with borrowers 

about loss mitigation 

contemporaneously with the foreclosure 

process, and one small entity indicated 

that it would be willing to halt the 

foreclosure process, if appropriate, in 

order to consider a modification.70

The Bureau carefully considered the 

comments regarding requested 

exemptions for small servicers, 

including the comments received from 

Advocacy. In addition, the Bureau 

carefully considered the specific aspects 

of the rule that community banks, small 

credit unions, and other small servicers 

indicated would potentially impact 

those institutions most significantly. 

The analysis conducted by the Bureau is 

set forth below, as well as in the 

analyses required pursuant to section 

1022 of the Dodd-Frank Act and the 

Regulatory Flexibility Act. 

In general, the Bureau is persuaded 

based on its experience, outreach, and 

the submission of the comments that the 

problematic practices that have plagued 

the servicing industry, particularly in 

recent years, are to a large extent a 

function of a business model in which 

servicing is viewed as a discrete line of 

business and profit center, and in which 

servicers compete to secure business 

from owners or assignees of mortgage 

loans based upon price. As discussed in 

greater detail in part II, such a model 

leads to a high volume, low margin 

business, in which servicers are not 

incentivized to invest in operations 

necessary to handle large numbers of 

delinquent borrowers. The significant 

weight of evidence of servicer failures of 

which the Bureau is aware involved 

large servicers following such a business 

model. 

In contrast, there is a segment of 

servicers who service a relatively small 

number of mortgage loans and do not 

purchase or hold mortgage servicing 

rights for mortgage loans they do not 

own or did not originate. Many 

community bank and small credit union 

servicers fit this model. For example, 

the Bureau estimates that 10,829 banks, 

thrifts, and credit unions service 5,000 

or fewer loans. Of these, approximately 

96 percent have assets of $1 billion or 

less, which is the traditional threshold 

for denoting a community bank. The 

Bureau is not aware of evidence 

indicating the performance of these 

types of institutions in servicing the 

mortgage loans they originate or own 

generally results in substantial 

consumer harm. To the contrary, data 

available to the Bureau indicates that 

such servicers achieve significantly 

reduced levels of borrowers rolling into 

90 or more days of delinquency or 

having a mortgage loan charged-off 

when compared to the average for all 

banks. For example, in 2011, the 90+ 

delinquency rate for community banks 

was 0.27 percent compared with over 6 

percent for all banks. Further, the net 

charge-off rate for community banks was 

0.66 percent against 1.31 percent for all 

banks. Community bank performance 

with respect to levels of delinquencies 

and charge-offs has also remained 

relatively stable through the financial 

crisis. From 2007 through 2011, the 90+ 

delinquency rate fluctuated between 

0.27 percent in 2007 to a high of only 

0.31 percent in 2009. The equivalent 

metric for all banks showed the 90+ 

delinquency rate at 0.80 percent rising 

rapidly to a high of 6.29 percent in 

2011. 

The reasons for this performance may 

lay in the fact that small servicers have 

very different incentives than large 

servicers. Servicers that service 5,000 or 

fewer mortgage loans and only service 

mortgage loans that the servicer or an 

affiliate owns or originated generally 

must be conscientious of the impact of 

servicing operations on the borrower. 

Any such servicer has an interest in 

maintaining a relationship with 

borrower as a customer of the bank or 

thrift or member of the credit union to 

provide other banking services. Further, 

such servicers must be conscientious of 

reputational consequences within a 

community or member base. Further, to 

the extent a servicer or an affiliate owns 

a mortgage loan, the servicer bears risk 

from the borrower’s potential 

delinquency and default on the 

mortgage loan obligation and does not 

have an incentive to engage in practices 

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71The 5,000-loan threshold reflects the purposes 

of the exemptions that the rule establishes for these 

servicers and the structure of the mortgage servicing 

industry. The Bureau’s choice of 5,000 in loans 

serviced for purposes of Regulation X does not 

imply that a threshold of that type or of that 

magnitude would be an appropriate way to 

distinguish small firms for other purposes or in 

other industries. 

72The nonprofit lenders/servicer did not object to 

the proposed 1,000-loan threshold; the Bureau 

infers that this nonprofit lender/servicer would 

qualify as a small servicer under that threshold, 

much less the 5,000-loan threshold that the Bureau 

has implemented pursuant to § 1024.30. 

that may put the performance of the 

mortgage loan obligation at risk. 

All of these considerations, as well as 

the performance data discussed above, 

persuades the Bureau that the small 

servicers are generally achieving the 

goals of the discretionary rulemakings to 

protect delinquent borrowers. The 

Bureau recognizes, however, that these 

small servicers may be achieving these 

ends through procedures that differ 

from those mandated in § 1024.39 and 

§ 1024.41, with respect to early 

intervention and loss mitigation 

procedures, and that while the practice 

of these small servicers are, in the main, 

achieving the objectives delineated in 

§ 104.38 and § 1024.40, with respect to 

general servicing policies, procedures, 

and requirements and continuity of 

contact, these servicers may not have 

systems in place to document how they 

are achieving these results. Thus, the 

Bureau believes that subjecting the 

small servicers to these provisions 

would impose costs that they could find 

difficult to absorb. 

In sum, the Bureau is not persuaded 

at this time that the consumer 

protection purposes of RESPA 

necessarily would be furthered by 

requiring small servicers to comply with 

the discretionary rulemakings. 

Accordingly, a small servicer as 

defined pursuant to 12 CFR 

1026.41(e)(4), that is, a servicer that 

services 5,000 mortgage loans or less 

and only services mortgage loans that 

the servicer or an affiliate owns or 

originated, is exempt from the 

requirements of § 1024.38 through 41, 

with two exceptions.71 First, 

§ 1024.41(f) prohibits servicers from 

making the first notice or filing required 

by applicable law for any judicial or 

non-judicial foreclosure process unless 

a borrower’s mortgage loan obligation is 

greater than 120 days delinquent. 

Second, § 1024.41(g) prohibits a servicer 

from, among other things, proceeding 

with a foreclosure sale if the borrower 

is performing under an agreement on a 

loss mitigation option. The Bureau 

deems it highly unlikely, given the 

considerations discussed above, that a 

small servicer would initiate a 

foreclosure with respect to a borrower 

who is less than 120 days delinquent to 

conclude a foreclosure sale if a borrower 

was performing under a loss mitigation 

agreement. Nonetheless, the Bureau 

does not see any reason why these basic 

protections should not be extended to 

all borrowers or why subjecting small 

servicers to these prohibitions would 

create any burden for them. 

Accordingly, § 1024.41(j) extends these 

two rules to small servicers. The 

analysis pursuant to section 1022 of the 

Dodd-Frank Act, set forth in part VII 

below, and the final regulatory 

flexibility analysis, set forth in part VIII 

below, provide significant additional 

discussion regarding the assumptions 

used in determining an appropriate 

small servicer exemption threshold of 

5,000 mortgage loans. 

The Bureau received comments from 

a nonprofit lender/servicer indicating 

that the mortgage servicing rules would 

be costly and difficult to implement, in 

light of the commenter’s nonprofit 

mission and volunteer workforce. The 

commenter indicated that the Bureau 

should carry over the small servicer 

exemption proposed with respect to the 

periodic statement requirement in 

Regulation Z to the Regulation X 

requirements and should also 

implement a narrow exemption for 

nonprofit servicers. Although the 

Bureau declines to exempt nonprofit 

servicers separately, the Bureau believes 

that such servicers will likely fall within 

the small servicer exemption 

established by the Bureau.72 To the 

extent a nonprofit servicer services more 

than 5,000 mortgage loans or services 

mortgage loans that the servicer or an 

affiliate does not own or did not 

originate, then the Bureau believes any 

such servicer should be required to 

provide appropriate consumer 

protection by implementing the loss 

mitigation procedures, notwithstanding 

the non-profit status of the servicer. 

Other exemptions. In addition to 

requests for a small servicer exemption, 

the Bureau received comments that it 

should implement exemptions for 

housing finance agencies, reverse 

mortgage transactions, and servicers that 

are qualified lenders as defined in 

regulations established by the Farm 

Credit Administration. Housing finance 

agencies and their associations 

commented that the mission orientation 

of these agencies weighs in favor of 

exempting such agencies from certain of 

the proposed mortgage servicing rules. 

A comment from one such agency with 

respect to the Homeowners’ Emergency 

Mortgage Assistance Program is 

instructive. That program assists a 

borrower experiencing hardship by 

extending a loan, secured by a 

subordinate lien on a borrower’s 

property, to bring a borrower’s first-lien 

mortgage loan current and, for certain 

borrowers, to provide continuing 

assistance. Absent an exemption, the 

servicing of the subordinate-lien 

mortgage loan that secures such 

assistance would be subject to mortgage 

servicing rules relating to loss 

mitigation, notwithstanding that the 

loan itself is a form of loss mitigation. 

In addition, the Bureau received 

comments from housing finance 

agencies indicating that the costs of 

certain of the rulemakings may be 

burdensome for housing finance 

agencies. 

The Bureau also received comments 

from a trade association for reverse 

mortgage lenders and servicers. The 

commenter stated that many of the 

rulemakings, including the 

discretionary rulemakings, are not 

appropriate for reverse mortgage 

transactions. For example, loss 

mitigation requirements in the proposed 

rule were based on days of delinquency, 

which is an imprecise and difficult 

concept with respect to a reverse 

mortgage transaction because of the 

structure of the transaction. Further, the 

vast majority of reverse mortgage 

transactions are subject to regulations 

implemented by FHA in connection 

with the Home Equity Conversion 

Mortgage Program. 

The Bureau received comments from 

lenders subject to regulations 

established by the Farm Credit 

Administration with respect to loss 

mitigation. These entities requested 

exemptions for mortgage loans for 

which a servicer is required to comply 

with Farm Credit Administration 

requirements on loss mitigation because 

those requirements differ markedly from 

those proposed by the Bureau. 

The Bureau agrees that additional 

exemptions are appropriate for certain 

of the rulemakings. As discussed in 

more detail below, the Bureau has 

determined not to implement these 

additional exemptions to those 

regulations that principally implement 

requirements set forth in the DoddFrank Act. These include the 

requirements in §§ 1024.35 (Error 

Resolution Procedures), 1024.36 

(Information Requests), and 1024.37 

(Force-Placed Insurance). With respect 

to error resolution procedures and 

information requests, those provisions 

build upon the existing Qualified 

Written Request procedures, which are 

currently applicable to the servicers 

discussed above. Providing an 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10721 

73See Donghoon Lee et al., A New Look at Second 

Liens, 3, 19 (Feb. 2012), available at http:// 

ssrn.com/abstract=2014570 (chapter in Housing 

and the Financial Crisis, Edward Glaeser and Todd 

Sinai, eds.) 

74See, e.g., Julapa Jagtiani and William W. Lang, 

Strategic Default on First and Second Lien 

Mortgages During The Financial Crisis, at n.5 

(Federal Reserve Bank of Philadelphia, Working 

Paper No. 11–3, Dec. 9, 2010), available at http:// 

papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=1724947. 

exemption to these requirements would 

have removed a currently existing 

consumer protection. 

The Bureau is persuaded that 

imposing the requirements in the 

discretionary rulemakings on housing 

finance agencies does not further the 

goals of those requirements and imposes 

undue costs on housing finance 

agencies. Such agencies are engaged in 

programs that assist mortgage loan 

borrowers facing hardship under the 

auspices of state or local governments. 

The Bureau believes the mission of 

these agencies, as articulated by the 

agencies and their associations, clearly 

demonstrates that the interests of such 

agencies are aligned with those of 

borrowers, so that imposing the 

discretionary rulemakings on such 

agencies would not further the 

consumer protection purposes of 

RESPA. Accordingly, the Bureau 

exempts housing finance agencies from 

the requirements of §§ 1024.38 through 

1024.41 as well as the principal 

restrictions of § 1024.17(k)(5). To 

effectuate this exemption, the Bureau 

simply uses the term ‘‘small servicer,’’ 

because Regulation Z, as amended by 

the 2013 TILA Servicing Rule, defines a 

housing finance agency as a small 

servicer without regard to the number of 

mortgage loans serviced by a housing 

finance agency. 

The Bureau also is persuaded that the 

discretionary rulemakings are not 

appropriate for reverse mortgage 

transactions. For example, many of the 

timing requirements in § 1024.41 relate 

to the length of a borrower’s 

delinquency, which is a concept that 

does not apply cleanly with respect to 

reverse mortgage transactions. Further, 

the vast majority of reverse mortgage 

transactions are subject to regulation by 

FHA pursuant to the Home Equity 

Conversion Mortgage program. These 

regulations provide many protections 

for borrowers that are appropriate for 

the specific circumstances of a reverse 

mortgage transaction. The Bureau 

continues to consider appropriate 

requirements for reverse mortgage 

transactions separately from the 

mortgage servicing rulemakings. 

Similarly, the Bureau finds that 

‘‘qualified lenders’’ subject to Farm 

Credit Administration regulation of 

their loss mitigation practices should be 

exempt from compliance with 

§§ 1024.38–41. The Bureau agrees with 

the commenters that the Farm Credit 

Administrations’ regulations in this area 

offer consumer protections comparable 

to those in the mortgage servicing rules 

and subjecting such institutions to the 

new rules would subject such servicers 

to overlapping, and potentially 

inconsistent, regulatory requirements. 

Accordingly, the Bureau has determined 

to exempt a servicer with respect to any 

mortgage loan for which the servicer is 

a qualified lender as that term is defined 

in 12 CFR 617.7000 from the 

requirements of §§ 1024.38 through 41. 

Finally, the Bureau has determined to 

revise the scope of certain sections. 

Section 1024.30(c) implements two 

limitations on the scope of subpart C. 

First, § 1024.33(a) is only applicable to 

mortgage loans that are secured by first 

liens. This limitation excludes from 

coverage subordinate-lien mortgage 

loans. Section 1024.33(a) is based on the 

existing § 1024.21, renumbered in 

accordance with the reorganization of 

Regulation X, and § 1024.21 is already 

limited to first-lien mortgage loans. 

When the TILA–RESPA Integrated 

Disclosure rulemaking is finalized, the 

Bureau anticipates that rule will alter 

the requirements for servicers to comply 

with § 1024.33(a). Accordingly, the 

Bureau does not believe it is beneficial 

to require servicers to begin 

implementing the requirements of 

§ 1024.33(a) for subordinate-lien 

mortgage loans, only to have to adjust 

compliance with § 1024.33(a) upon 

finalization of the TILA–RESPA 

Integrated Disclosure rulemaking. 

Accordingly, the Bureau is not making 

a change to the scope of § 1024.33(a) 

and retains the limitation on the scope 

of that requirement to mortgage loans 

that are secured by a first lien. 

The Bureau proposed to maintain the 

exclusion for open-end lines of credit 

(home-equity plans) covered by TILA 

and Regulation Z, including open-end 

lines of credit secured by a first lien, 

from the mortgage servicing 

requirements in subpart C of Regulation 

X. Open-end lines of credit, which may 

be federally related mortgage loans 

when secured by a first or subordinate 

lien on residential real property, have 

been historically excluded from 

regulations applicable to mortgage 

servicing under Regulation X. See 

current § 1024.21(a) (defining ‘‘mortgage 

servicing loan’’). Further, open-end 

lines of credit are already regulated 

under Regulation Z. Certain provisions 

of Regulation Z would substantially 

overlap with the servicer obligations 

that would be set forth in subpart C, 

including, for example, billing error 

resolution procedures. See 12 CFR 

1026.13. The Bureau requested 

comment regarding whether to maintain 

an exemption for open-end lines of 

credit for the requirements in subpart C. 

To the extent industry commenters 

responded to the Bureau’s request, they 

supported the continued exclusion of 

open-end lines of credit (home-equity 

plans). Two consumer advocacy groups, 

however, jointly commented that openend credit transactions secured by a 

borrower’s principal residence should 

be fully covered by RESPA. The two 

commenters stated that consumer 

protections for open-end lines of credit 

(home equity plans) are less robust than 

consumer protections for closed-end 

credit, particularly in the area of 

disclosures, error resolution, 

information requests, and penalties for 

violation. They expressed concerns that 

the Bureau has failed to appreciate these 

differences and the potential for 

consumer harm when predatory lenders 

exploit these differences. Additionally, 

the commenters questioned the Bureau’s 

authority to exempt open-end lines of 

credit (home-equity plans) when the 

statutory definition of the term 

‘‘federally related mortgage loan’’ does 

not include such an exemption. 

The Bureau believes it is necessary 

and appropriate at this time not to apply 

the requirements in subpart C to openend credit (home equity lines). Openend lines of credit secured by a first or 

subordinate lien on residential real 

property can constitute a federally 

related mortgage loans. As stated in the 

proposal, home equity lines of credit 

(HELOCs) tend to reflect better credit 

quality than subordinate-lien closed-end 

mortgage loans and share risk 

characteristics more similar to other 

open-end consumer financial products, 

such as credit cards, because of the 

access to additional unutilized credit 

provided by a HELOC.73 The Bureau 

understands from discussions with 

servicers and industry representatives 

that the servicing of HELOCs tends to 

differ significantly from closed-end 

mortgage loans, including with respect 

to information systems used, lender 

remedies (including restricting access to 

the line of credit), and borrower 

behavior. Further, the Bureau 

understands that although a household 

may finance a property solely with an 

open-end line of credit, the proportion 

that do so is very small.74

In addition, the protections proposed 

in subpart C of Regulation X are not 

necessary for open-end lines of credit. 

As set forth above, separate error 

resolution and information request 

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75See, e.g., Julapa Jagtiani and William W. Lang, 

Strategic Default on First and Second Lien 

Mortgages During The Financial Crisis, at n.11 

(Federal Reserve Bank of Philadelphia, Working 

Paper No. 11–3, Dec. 9, 2010). 

76See Cal. Civ. Code § 2923.6; see also Attorneys 

Gen. et al., National Mortgage Settlement: Consent 

Agreement A–1 (2012), available at http:// 

www.nationalmortgagesettlement.com stating ‘‘[t]he 

provisions outlined below are intended to apply to 

loans secured by owner-occupied properties that 

serve as the primary residence of the borrower 

unless otherwise noted herein’’). 

requirements exist under Regulation Z 

for open-end lines of credit. Further, the 

Bureau understands from servicers of 

open-end lines of credit that such 

servicers typically do not maintain 

escrow accounts for open-end lines of 

credit, require borrowers to maintain 

insurance for properties secured by 

open-end lines of credit, or force-place 

insurance for such borrowers. The 

Bureau believes that it would 

contravene the consumer protection 

purposes of RESPA for servicers to 

expend resources complying with 

overlapping or unnecessary 

requirements that would not benefit 

consumers. 

Further, open-end lines of credit 

perform differently from closed-end 

mortgages with respect to loss 

mitigation. A borrower is in control of 

an open-end line of credit and can draw 

from that line as necessary to meet 

financial obligations. Many borrowers 

who have become delinquent on a first 

lien closed-end mortgage loan keep 

current on payments for subordinate 

lien open-end lines of credit in order to 

maintain their access to the line of 

credit.75 Conversely, when borrowers 

experience difficulty meeting their 

obligations, lenders have the ability to 

cut off access to unutilized draws from 

the open-end line of credit. These 

features of open-end lines of credit 

weigh against imposing the 

requirements set forth for early 

intervention with delinquent borrowers, 

continuity of contact, and loss 

mitigation procedures on servicers for 

open-end lines of credit. Further, openend lines of credit tend to differ from 

closed-end mortgage loans with respect 

to servicing information systems 

utilized. 

For the reasons set forth above, the 

Bureau believes it is necessary and 

appropriate to achieve the purposes of 

RESPA to maintain the current 

exemption, which HUD originally 

adopted as 24 CFR 3500.21 nearly 20 

years ago. Accordingly, this exemption 

is authorized under section 19(a) of 

RESPA. 

In addition, § 1024.30(c)(2) limits the 

scope of §§ 1024.39 through 41 to 

mortgage loans that are secured by a 

borrower’s principal residence. The 

purpose of the early intervention 

requirement, the continuity of contact 

requirement, and the loss mitigation 

procedures is to help borrowers stay in 

their principal residences, where 

possible, while mitigating the losses of 

loan owners and assignees, by ensuring 

that servicers use clear standards of 

review for loss mitigation options. The 

Bureau does not believe that this 

purpose is furthered by extending those 

protections to mortgage loans for 

investment, vacation, or other properties 

that are not principal residences. For 

example, in such circumstances, the 

protections set forth in §§ 1024.39–41 

may only serve to assist a nonoccupying borrower to maintain cash 

flow from rental revenue during a 

period of delinquency. Further, for 

certain properties that are not principal 

residences, there is a significant risk 

that a property may not be maintained 

and may present hazards and blight to 

local communities. Thus, for investment 

or vacation properties, the lack of 

borrower occupancy, and the potential 

rental income obtained by the borrower, 

vitiates the justifications for ensuring 

that a foreclosure process is not 

undertaken unless the borrower has the 

opportunity for review for a loss 

mitigation option. Finally, this 

limitation is consistent with the 

California Homeowner Bill of Rights 

and the National Mortgage Settlement, 

and its incorporation here furthers the 

goal of creating uniform standards.76

Accordingly, the Bureau has limited the 

scope of §§ 1024.39 through 41 to 

mortgage loans that are secured by 

properties that are borrowers’ principal 

residences. 

Section 1024.31 Definitions 

For purposes of subpart C, proposed 

§ 1024.31 would have provided 

definitions of the following terms: 

‘‘Consumer reporting agency,’’ ‘‘Day,’’ 

‘‘Hazard insurance,’’ ‘‘Loss mitigation 

application,’’ ‘‘Loss mitigation options,’’ 

‘‘Master servicer,’’ ‘‘Mortgage loan,’’ 

‘‘Qualified written request,’’ ‘‘Reverse 

mortgage transaction,’’ ‘‘Subservicer,’’ 

‘‘Service provider,’’ ‘‘Transferee 

servicer,’’ and ‘‘Transferor servicer.’’ For 

the reasons set forth below, and except 

as otherwise discussed, § 1024.31 is 

adopted as proposed. 

‘‘Consumer reporting agency’’; ‘‘Day’’; 

‘‘Reverse mortgage transaction’’; 

‘‘Master servicer’’; ‘‘Transferee 

servicer’’; ‘‘Transferor servicer.’’ The 

Bureau proposed to move the 

definitions of ‘‘Master servicer,’’ 

‘‘Transferee servicer,’’ and ‘‘Transferor 

servicer’’ from current § 1024.21(a) to 

proposed § 1024.31 without change. The 

Bureau also proposed to add new 

defined terms for ‘‘Reverse mortgage 

transaction’’ and ‘‘Consumer reporting 

agency,’’ in proposed § 1024.31 by 

adopting the same definition for those 

terms as is already provided in current 

Regulation Z and section 503 of the Fair 

Credit Reporting Act, 15 U.S.C. 1681a, 

respectively. The Bureau proposed to 

add a new defined term ‘‘Day’’ in 

proposed § 1024.31. The Bureau 

proposed to define ‘‘Day’’ to mean a 

calendar day because the Bureau 

believed that Congress intended that the 

term ‘‘day’’ by itself includes legal 

public holidays, Saturdays, and 

Sundays for purposes of RESPA. No 

comments were received on these 

proposed defined terms. The final rule 

adopts these terms as proposed. 

‘‘Hazard insurance.’’ As discussed in 

the section-by-section analyses 

concerning §§ 1024.17(k)(5) and 

1204.37, section 1463(a) of the DoddFrank Act amended section 6 of RESPA 

to establish new servicer duties with 

respect to the purchase of force-placed 

insurance on a property securing a 

federally related mortgage. The statute 

generally defines ‘‘force-placed 

insurance’’ as hazard insurance 

coverage obtained by a servicer of a 

federally related mortgage when the 

borrower has failed to maintain or 

renew hazard insurance on such 

property as required of the borrower 

under the terms of the mortgage.’’ See 

section 6(k)(2). Thus, the statutory 

definition of ‘‘force-placed insurance’’ 

indicates that Congress intended the 

term ‘‘force-placed insurance’’ to mean 

a type of ‘‘hazard insurance.’’ However, 

neither the statute nor current 

Regulation X defines ‘‘hazard 

insurance.’’ The Bureau believed that it 

was necessary to define ‘‘hazard 

insurance’’ in order to implement the 

statute. 

The Bureau proposed to add new 

defined term ‘‘Hazard insurance’’ in 

proposed § 1024.31 to mean insurance 

on the property securing a mortgage 

loan that protects the property against 

loss caused by fire, wind, flood, 

earthquake, theft, falling objects, 

freezing, and other similar hazards for 

which the owner or assignee of such 

loan requires insurance. The Bureau 

modeled the definition of ‘‘hazard 

insurance’’ on the definition of 

‘‘property insurance’’ in typical 

mortgage loan contracts, in light of the 

fact that the statute generally prohibits 

servicers from obtaining force-placed 

insurance ‘‘unless there is a reasonable 

basis to believe the borrower has failed 

to comply with the loan contract’s 

requirement to maintain property 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10723 

insurance.’’ See section 6(k)(1)(A). The 

Bureau thus interpreted the statute to 

mean that ‘‘force-placed hazard 

insurance’’ refers to ‘‘property 

insurance’’ that the borrower has failed 

to maintain as required by the 

borrower’s mortgage loan contract. 

The Bureau sought comment on the 

definition in general and in particular 

on the proposed inclusion of insurance 

to protect against flood loss. Although 

including flood insurance is consistent 

with the way typical mortgage loan 

contracts define ‘‘property insurance,’’ 

the Bureau did not believe that the 

Bureau’s force-placed insurance 

regulations should apply to servicers 

when they are required by the Flood 

Disaster Protection Act of 1973 (FDPA) 

to purchase hazard insurance to protect 

against flood loss. The FDPA provides 

an extensive set of restrictions on flood 

insurance provision, and the Bureau 

was concerned that overlapping 

regulatory restrictions would be unduly 

burdensome and produce little 

consumer benefit. The Bureau thus 

proposed to include flood insurance as 

part of the general definition of ‘‘Hazard 

insurance,’’ but to exclude flood 

insurance that is required under the 

FDPA from the definition of ‘‘forceplaced insurance’’ in proposed 

§ 1024.37(a)(2)(i). 

The Bureau did not receive comments 

from consumer groups or industry 

commenters on the proposed defined 

term ‘‘Hazard insurance’’ other than 

with respect to the treatment of flood 

insurance. On that topic, most industry 

commenters believed that simply 

excluding flood insurance obtained by a 

servicer as required by the FDPA from 

the definition of the term ‘‘force-placed 

insurance’’ in proposed 

§ 1024.37(a)(2)(i) was workable and 

adequately mitigated the risk of a 

servicer having to comply with both 

regulations under the FDPA and the 

Bureau’s force-placed insurance 

regulations. But one large bank servicer 

and one large force-placed insurance 

provider urged the Bureau to exclude 

flood insurance from the defined term 

‘‘Hazard insurance’’ in § 1024.31 

instead. 

The large bank servicer expressed 

concern that the proposed definitions of 

‘‘hazard insurance’’ and ‘‘force-placed 

insurance’’ would effectively require a 

servicer to strictly monitor any potential 

change in a mortgage’s property’s flood 

zone designation because whether the 

FDPA requires a servicer to obtain 

hazard insurance to protect against 

flood loss depends, among other things, 

on whether a property is located in an 

area designated as a Special Flood 

Hazard Area (SFHA). The commenter 

thus worried that the force-placed 

insurance requirements of § 1024.37 

would become applicable 

instantaneously after a change in SFHA 

designations if that change meant that 

flood insurance was no longer required 

under the FDPA for a particular 

property. The Bureau, however, does 

not interpret § 1024.37 to apply in this 

way. Compliance with § 1024.37 would 

be required if the servicer decides to 

renew or replace a flood insurance 

policy that had been previously been 

required under the FDPA with a new 

policy after the property’s SFHA 

designation had changed. As discussed 

above, the Bureau proposed to exclude 

hazard insurance required by the FDPA 

from the definition of ‘‘force-placed 

insurance’’ because the Bureau believes 

that the FDPA and other related Federal 

laws adequately regulated this activity. 

However, if a servicer chooses to renew 

or replace hazard insurance to protect 

against flood loss even though the 

insurance the renewal or replacement is 

no longer required by the FDPA, then 

the FDPA would not apply. The 

Bureau’s force-placed insurance 

regulations are intended to fill precisely 

this gap to ensure that consumers have 

basic procedural and substantive 

protections in the absence of FDPA 

coverage. Thus, a servicer would have to 

check a property’s flood zone 

designation when a servicer is about to 

renew or replace hazard insurance to 

protect against flood loss that the 

servicer originally obtained pursuant to 

the FDPA to determine whether the 

status has changed such that § 1024.37 

would apply going forward. The Bureau 

believes that this presents minimal if 

any burden on servicers and is justified 

to avoid imposing unnecessary costs on 

borrowers. 

The large force-placed insurance 

provider urged the same result based on 

statutory interpretation grounds, 

asserting that Congress had not intended 

to include flood insurance as a type of 

hazard insurance that would potentially 

be subject to the force-placed insurance 

requirements because section 1461 of 

the Dodd-Frank Act, which governs the 

establishment of escrow accounts for 

certain higher-priced mortgage loans, 

contains separate definitions for 

‘‘hazard insurance’’ and ‘‘flood 

insurance.’’ The commenter 

acknowledged that section 1461 is 

distinct from section 1463 and amends 

different underlying statutes, TILA and 

RESPA respectively. Nonetheless, it 

asserted that both address insurance for 

which premiums could be paid through 

the establishment of escrow accounts 

and therefore should be interpreted in 

tandem. 

Again, the Bureau declines to make 

this change. The Bureau does not 

believe that Congress intended the 

statutory definition of ‘‘flood insurance’’ 

and ‘‘hazard insurance’’ in section 1461 

to control the interpretation of ‘‘hazard 

insurance’’ for purposes of section 

1463(a). Indeed, section 1461 expressly 

limits its scope by stating that ‘‘For 

purposes of this section, the following 

definitions [of ‘‘flood insurance’’ and 

‘‘hazard insurance’’] shall apply.’’ In 

light of this language, the Bureau does 

not believe that section 1461 controls. 

Section 1463(a) itself demonstrates that 

Congress expected the force-placed 

insurance provisions to apply to flood 

insurance other than that required by 

the FDPA. Section 6(l)(4) of RESPA 

states that nothing in the force-placed 

insurance provisions shall be construed 

as prohibiting a servicer from providing 

simultaneous or concurrent notice of a 

lack of flood insurance pursuant to the 

FDPA. This provision would have little 

impact if flood insurance could never be 

considered force-placed insurance 

within the meaning of section 1463. 

Thus, the Bureau believes its 

interpretation of the statutory terms to 

apply the force-place insurance 

requirements to flood insurance that is 

not required by the FDPA and thus not 

subject to that statute’s extensive 

regulation is consistent with the 

statutory language, congressional intent, 

and consumers’ interests. Accordingly, 

the Bureau adopts the proposed defined 

term ‘‘Hazard insurance’’ as proposed. 

‘‘Loss mitigation application.’’ 

Proposed § 1024.31 would have defined 

a loss mitigation application as a 

submission from a borrower requesting 

evaluation for a loss mitigation option 

in accordance with procedures 

established by the servicer for the 

submission of such requests. As 

discussed below with respect to 

§ 1024.41, the Bureau received 

comments from large bank servicers 

regarding the application of the loss 

mitigation requirements on prequalification and informal oral 

communications with borrowers. 

Based on the consideration of those 

comments, the Bureau has determined 

to revise the definition of a loss 

mitigation application. The Bureau 

believes that a loss mitigation 

application differentiates a 

communication or inquiry from a 

borrower regarding loss mitigation 

options from a borrower’s request for 

consideration for a loss mitigation 

option. When a borrower, orally or 

writing, expresses an interest in a loss 

mitigation option and provides any 

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10724 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

information that would be evaluated by 

a servicer, that communication should 

be considered a loss mitigation 

application. A servicer must then 

determine whether the loss mitigation 

application is complete or incomplete 

pursuant to the requirements of 

§ 1024.41(b). This definition of a loss 

mitigation application is similar to 

framework established in Regulation B 

with respect to an application for credit. 

Accordingly, § 1024.31 states that a 

loss mitigation application means an 

oral or written request for a loss 

mitigation option that is accompanied 

by any information required by a 

servicer for evaluation for a loss 

mitigation option. 

‘‘Loss mitigation option.’’ Pursuant to 

the Bureau’s authorities under RESPA 

sections 6(k)(1)(E), 6(j)(3), and 19(a), the 

Bureau proposed rules on error 

resolution (proposed § 1024.35), 

information management (proposed 

§ 1024.38), early intervention (proposed 

§ 1024.39), continuity of contact 

(proposed § 1024.40), and loss 

mitigation (proposed § 1024.41) that 

would have set forth servicer duties 

with respect to ‘‘Loss mitigation 

options.’’ 

The Bureau proposed to define ‘‘Loss 

mitigation options’’ at new § 1024.31 as 

‘‘alternatives available from the servicer 

to the borrower to avoid foreclosure.’’ 

The Bureau also proposed to clarify 

through comment 31 (Loss mitigation 

options)-1 that loss mitigation options 

include temporary and long-term relief, 

and options that allow borrowers to 

remain in or leave their homes, such as, 

without limitation, refinancing, trial or 

permanent modification, repayment of 

the amount owed over an extended 

period of time, forbearance of future 

payments, short-sale, deed-in-lieu of 

foreclosure, and loss mitigation 

programs sponsored by a State or the 

Federal Government. The Bureau also 

proposed to clarify through comment 31 

(Loss mitigation options)-2 that loss 

mitigation options available from the 

servicer include options offered by the 

owner or assignee of the loan that are 

made available through the servicer. 

Several industry commenters 

addressed the Bureau’s proposed 

definition of ‘‘Loss mitigation options.’’ 

One industry commenter recommended 

that the term ‘‘Loss mitigation options’’ 

should be defined as alternatives 

available ‘‘from the investor through the 

servicer to the borrower’’ to avoid 

foreclosure, in light of the general 

industry practice that loss mitigation 

options are generally authorized by 

investors rather than servicers. While 

one industry trade group supported the 

proposed definition, other commenters 

were concerned that the breadth of the 

definition could conflict with servicers’ 

delinquency management programs 

because the definition would subject 

short-term cures to the same procedural 

requirements as more permanent 

options. Similarly, industry commenters 

were concerned that the proposed 

definition would be inconsistent with 

requirements under existing loss 

mitigation programs, such as Farm 

Credit Administration rules and 

portions of the National Mortgage 

Settlement. 

In light of comments and upon further 

consideration, the Bureau is adopting a 

definition of the term ‘‘Loss mitigation 

option’’ substantially as proposed, but 

that incorporates the substance of 

proposed comment 31 (Loss mitigation 

options)-2 into the regulatory text. 

Accordingly, the final rule defines the 

term ‘‘Loss mitigation option’’ as an 

alternative to foreclosure offered by the 

owner or assignee of a mortgage loan 

that is made available through the 

servicer to the borrower. 

The Bureau proposed to define ‘‘Loss 

mitigation options’’ as alternatives 

available ‘‘from the servicer’’ to reflect 

the practical, day-to-day relationship 

between borrowers and servicers, in 

which servicers pursue loss mitigation 

activities with respect to delinquent 

borrowers on behalf of the owners or 

assignees of the mortgage loans. The 

Bureau had proposed to add comment 

31 (Loss mitigation options)-2 to clarify 

that the proposed definition should be 

read to include options offered by the 

owner and assignee and made available 

through the servicer in light of the 

actual legal relationship between 

servicers and owners or assignees, in 

which the owner or assignee authorizes 

the offering of loss mitigation options. 

Upon further consideration, the Bureau 

believes that the text of the definition 

should reflect the underlying legal 

relationship between servicers and 

owners or assignees to avoid confusion 

over whether servicers may be able to 

authorize loss mitigation options 

independent of the owner or assignee of 

the mortgage loan. Accordingly, the 

Bureau is not adopting comment 31 

(Loss mitigation options)-2 as proposed, 

but instead is amending the proposed 

definition to incorporate the substance 

of proposed comment 31 (Loss 

mitigation option)-2. 

The definition of the term ‘‘Loss 

mitigation option’’ is broad to account 

for the wide variety of options that may 

be available to a borrower, the 

availability of which may vary 

depending on the underlying loan 

documents, any servicer obligations to 

the lender or assignee of the loan, the 

borrower’s particular circumstances, 

and the flexibility the servicer has in 

arranging alternatives with the 

borrower. Accordingly, the Bureau is 

adopting proposed comment 31 (Loss 

mitigation option)-1 substantially as 

proposed to set forth examples of loss 

mitigation options ‘‘without limitation.’’ 

The Bureau has revised proposed 

comment 31 (Loss mitigation option)-1 

to clarify that loss mitigation options 

include programs sponsored by ‘‘a 

locality’’ as well as a State or the 

Federal government and other nonsubstantive revisions describing options 

that allow borrowers ‘‘who are behind 

on their mortgage payments to remain in 

their homes or to leave their homes 

without a foreclosure.’’ 

While the Bureau has developed a 

broad definition of loss mitigation 

options in order to accommodate the 

variety of loss mitigation programs, the 

Bureau does not intend for the 

provisions of Regulation X that use the 

term ‘‘Loss mitigation option’’ to require 

servicers to offer options that are 

inconsistent with any investor or 

guarantor requirements. Thus, under the 

Bureau’s definition, an alternative that 

is not made available by the owner or 

assignee of the mortgage loan would not 

be a loss mitigation option for purposes 

of the final rule. The Bureau discusses 

the final rules that use the term ‘‘Loss 

mitigation option’’ in the applicable 

section-by-section analysis below. 

The final rule includes new language 

in comment 31 (Loss mitigation option) 

-2, which explains that a loss mitigation 

option available through the servicer 

refers to an option for which a borrower 

may apply, even if the borrower 

ultimately does not qualify for such 

option. The Bureau has included this 

comment to clarify that the regulatory 

text’s reference to options ‘‘available’’ to 

borrowers is not intended to restrict the 

definition to options for which a 

borrower ultimately qualifies, but 

instead refers to options for which a 

borrower may apply. 

‘‘Mortgage loan.’’ As discussed in 

detail in the section-by-section analysis 

of § 1024.30, the Bureau proposed to 

add a new defined term ‘‘Mortgage 

loan’’ in proposed § 1024.31 to mean 

any federally related mortgage loan, as 

that term is defined in § 1024.2, subject 

to the exemptions in § 1024.5(b), but 

does not include open-end lines of 

credit (home equity plans). For the 

reasons discussed in the section-bysection analysis of § 1024.30, the Bureau 

is adopting the proposed definition to 

the defined term ‘‘Mortgage loan’’ as 

proposed. 

‘‘Qualified written request.’’ The 

Bureau proposed to adopt the defined 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10725 

term ‘‘Qualified written request’’ 

included in current § 1024.21(a) in 

proposed § 1024.31 without change, 

except to add related commentary, 

proposed 31 (qualified written request) 

-1, that would have explained that: (1) 

A qualified written request is a written 

notice a borrower provides to request a 

servicer either correct an error relating 

to the servicing of a loan or to request 

information relating to the servicing of 

the loan; and (2) a qualified written 

request is not required to include both 

types of requests. For example, a 

qualified written request may request 

information relating to the servicing of 

a mortgage loan but not assert that an 

error relating to the servicing of a loan 

has occurred. 

One commenter suggested that the 

Bureau should clarify that the policies, 

procedures, and penalties related to a 

qualified written request are the same as 

those related to error resolution and 

information requests under §§ 1024.35 

and 1024.36. The Bureau agrees that it 

would be helpful to clarify that the error 

resolution and information request 

requirements in §§ 1024.35 and 1024.36 

apply as set forth in those sections 

irrespective of whether the servicer 

receives a qualified written request, and 

accordingly, is adopting new comment 

31 (qualified written request)-2 for that 

purpose. However, the Bureau does not 

believe it is appropriate to discuss a 

servicer’s penalties for violation of the 

Bureau’s regulations in either the 

regulation or the commentary. 

In addition, the Bureau has made 

slight modifications to the proposed 

definition of ‘‘qualified written request’’ 

so it more closely tracks the definition 

included in section 6(e)(1) of RESPA. 

The final rule defines ‘‘qualified written 

request’’ to mean a written 

correspondence from the borrower to 

the servicer that includes, or otherwise 

enables the servicer to identify, the 

name and account of the borrower, and 

either: (1) States the reasons the 

borrower believes the account is in 

error; or (2) provides sufficient detail to 

the servicer regarding information 

relating to the servicing of the mortgage 

loan sought by the borrower. 

‘‘Service provider.’’ The Bureau 

proposed to add new defined term 

‘‘Service provider’’ in proposed 

§ 1024.31 to mean any party retained by 

a servicer that interacts with a borrower 

or provides a service to the servicer for 

which a borrower may incur a fee. The 

Bureau proposed related commentary, 

comment 31 (service provider)-1, that 

would have clarified that service 

providers may include attorneys 

retained to represent a servicer or an 

owner or assignee of a mortgage loan in 

a foreclosure proceeding, as well as 

other professionals retained to provide 

appraisals or inspections of properties. 

Two industry groups representing 

appraisal professionals submitted joint 

comments that objected to the inclusion 

of appraisal professionals in the 

Bureau’s proposed comment 31 (service 

provider)-1. The commenters sought 

clarification from the Bureau about the 

circumstances under which appraisers 

are ‘‘service providers’’ and what their 

obligations would be. The Bureau 

believes that comment 31 (service 

provider)-1 is clear in describing the 

circumstances under which appraisal 

professionals are ‘‘service providers’’ 

and thus feels no further explanation is 

required. While acknowledging that the 

Bureau’s mortgage servicing rules do not 

directly regulate real estate appraisal 

services, the commenters claimed that 

individual appraisers and small 

appraisal firms would experience costly 

and unnecessary hardship if they were 

considered ‘‘service providers.’’ The 

Bureau disagrees. The definition of the 

term ‘‘service provider’’ in § 1024.31, by 

its terms, applies only for purposes of 

subpart C, and the term ‘‘service 

provider’’ appears only in § 1024.38 of 

subpart C. Section 1024.38 requires 

servicers maintain policies and 

procedures reasonably designed to 

ensure that they can exercise reasonable 

oversight of their service providers. The 

Bureau does not believe that requiring 

servicers to exercise reasonable 

oversight of their service providers will 

lead to costly and unnecessary hardship 

on individual appraisers and small 

appraisal firms. 

‘‘Subservicer.’’ The Bureau proposed 

to adopt the defined term ‘‘Subservicer’’ 

included in current § 1024.21(a) in 

proposed § 1024.31 without change. The 

proposed defined term ‘‘Subservicer’’ 

provides that a ‘‘subservicer’’ is any 

servicer who does not own the right to 

perform servicing, but who performs 

servicing on behalf of the master 

servicer. 

One commenter suggested that the 

Bureau should replace the reference to 

‘‘master servicer’’ in the definition of 

‘‘subservicer’’ with ‘‘servicer’’ to 

accommodate circumstances where 

there are multiple levels of subservicing. 

The example the commenter provided is 

one where there is one master servicer, 

but also a primary servicer and multiple 

subservicers. It appears that the 

commenter’s concern is that people 

might be confused by thinking ‘‘primary 

servicers’’ would not be considered 

‘‘subservicers’’ for purposes of subpart C 

of Regulation X. Based on the example 

provided by the commenter, the Bureau 

understands that a primary servicer is 

performing servicing on behalf of the 

master servicer, who owns the right to 

perform servicing. Because the primary 

servicer is not the owner of the right to 

perform servicing, it would be a 

‘‘subservicer’’ pursuant to the proposed 

definition to the defined term 

‘‘Subservicer.’’ Although industry 

practice may differentiate between 

levels of subservicing by referring to a 

servicer that directly performs servicing 

on behalf of a master servicer as the 

‘‘primary servicer,’’ and servicers 

performing on behalf of the ‘‘primary 

servicer’’ as ‘‘subservicers,’’ for 

purposes of subpart C, any servicer that 

does not own the servicing right but 

performs servicing on behalf of a 

servicer that owns the servicing right is 

a subservicer. Accordingly, the Bureau 

believes the proposed definition to the 

defined term ‘‘Subservicer’’ adequately 

captures situations where there are 

multiple levels of subservicing and the 

defined term ‘‘Subservicer’’ is adopted 

as proposed. 

Section 1024.32 General Disclosure 

Requirements 

The Bureau set forth requirements 

applicable to disclosures required by 

subpart C in proposed § 1024.32. 

Specifically, proposed § 1024.32(a)(1) 

would have required that disclosures 

provided by servicers be clear and 

conspicuous, in writing, and in a form 

the consumer may keep. This standard 

is consistent with disclosure standards 

applicable in other regulations issued by 

the Bureau, including, for example, 

Regulation Z. See, e.g., 12 CFR 

1026.17(a)(1). Proposed § 1024.32(a)(2) 

would have permitted disclosures to be 

provided in languages other than 

English, so long as disclosures are made 

available in English upon a borrower’s 

request. Further, proposed § 1024.32(b) 

would have permitted disclosures 

required under subpart C to be 

combined with disclosures required by 

applicable laws, including State laws, as 

well as disclosures required pursuant to 

the terms of an agreement between the 

servicer and a Federal or State 

regulatory agency. 

The Bureau is adopting the final rule 

as proposed, with minor changes to 

§ 1024.32(a)(1) to replace the term 

‘‘consumer,’’ with ‘‘recipient’’ as 

applicable and to improve the clarity of 

§ 1024.32. Two commenters 

representing industry trade groups 

suggested that the clarity of § 1024.32(a) 

could be enhanced if the final rule 

could remove the term ‘‘consumer’’ 

where permissible because the term 

‘‘consumer’’ is more appropriate in the 

context of disclosures provided prior to 

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10726 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

77Further, the Bureau proposed to move and 

amend provisions in § 1024.21(e) (pertaining to 

servicer responses to borrower inquiries) to new 

§ 1024.35 (error resolution) and § 1024.36 

(information requests). The Bureau’s proposal also 

would have removed current § 1024.21(f) 

(damages), which had restated the damages and 

costs provision in RESPA section 6(f). The Bureau 

is removing this provision from Regulation X, 

which is no longer accurate following amendments 

to RESPA section 6(f) by section 1463(b) of the 

Dodd-Frank Act. The Bureau believes the damages 

and costs provision is more appropriate as a 

statutory provision. 

78The Bureau issued the 2012 TILA–RESPA 

Proposal on July 9, 2012. 79The Bureau notes that it proposed in the 2012 

TILA–RESPA Proposal to implement the servicing 

disclosure requirement in RESPA section 6(a) 

through a disclosure appearing on the Bureau’s 

proposed Loan Estimate for both first and 

subordinate liens See 2012 TILA–RESPA Proposal, 

77 FR 51116, 51230 (2012) and proposed 

§ 1026.19(e)(1)(i). 80See 59 FR 65442, 65443 (1994). 81See 12 CFR 1002.9(f). 

the consummation of the mortgage loan 

transaction. 

Section 1024.33 Mortgage Servicing 

Transfers 

RESPA section 6(a) through (d) sets 

forth disclosure requirements for 

servicing transfers that are currently 

implemented in § 1024.21(b) through (d) 

of Regulation X. 12 U.S.C. 2605(a) 

through (d). As part of the Bureau’s 

proposed reorganization of Regulation 

X, which would have created a new 

subpart C to contain the Bureau’s 

mortgage servicing rules, the Bureau 

proposed to move the disclosure 

provisions in § 1024.21(b) through (d) to 

new § 1024.33 and new Regulation X 

official interpretations. The Bureau also 

proposed to move the existing State law 

preemption provision in § 1024.21(h) to 

§ 1024.33(d). In addition to these 

conforming amendments, the Bureau 

proposed to add certain new provisions 

to § 1024.33 and official commentary to 

§ 1024.33, as discussed in more detail 

below.77

Section 1024.21(b) through (d) 

currently requires that borrowers 

receive two notices related to mortgage 

servicing: (1) A servicing disclosure 

statement provided at application 

notifying the applicant whether the 

servicing of the loan may be transferred 

at any time (§ 1024.21(b) and (c)); and 

(2) if servicing is transferred, a notice of 

transfer provided by the transferor and 

transferee servicer around the time of 

the transfer (§ 1024.21(d)). 

33(a) Servicing Disclosure Statement 

RESPA section 6(a) generally sets 

forth requirements for persons making 

federally related mortgage loans to 

disclose to loan applicants, at the time 

of application, whether servicing of the 

loan may be assigned, sold, or 

transferred to any other person at any 

time while the loan is outstanding. 12 

U.S.C. 2605(a). Current § 1024.21(b) and 

(c) implements requirements in RESPA 

section 6(a) related to the servicing 

disclosure statement. The Bureau’s 

proposed § 1024.33(a) would have made 

certain changes to the requirements 

currently set forth in § 1024.21(b) and 

(c) pertaining to the servicing disclosure 

statement, including changes to the 

scope of applicability and delivery of 

the servicing disclosure statement, and 

certain other non-substantive technical 

revisions. 

The Bureau proposed to limit the 

scope of the servicing disclosure 

statement to closed-end reverse 

mortgage transactions to conform 

§ 1024.33(a) to the comprehensive 

amendments to consumer mortgage 

disclosures proposed by the Bureau in 

the 2012 TILA–RESPA Proposal.78

Because the Bureau intended to 

incorporate the servicing disclosure 

statement requirements of RESPA 

section 6(a) into the consolidated 

disclosure forms for the TILA–RESPA 

Integrated Disclosure rulemaking, the 

Bureau had proposed to limit the scope 

of the servicing disclosure statement 

provisions in new § 1024.33 to closedend reverse mortgage transactions 

because those transactions would not be 

covered by the 2012 TILA–RESPA 

Proposal. 

After additional consideration, 

because the Bureau will not be 

finalizing the 2012 TILA–RESPA 

Proposal until after this final rule, the 

Bureau has decided not to finalize the 

language in proposed § 1024.33(a) that 

would have limited the scope of the 

provision to closed-end reverse 

mortgage transactions. Instead, the 

Bureau is finalizing § 1024.33(a) by 

conforming the scope to ‘‘mortgage 

loans’’ other than subordinate-lien 

mortgage loans, as discussed in the 

section-by-section analysis of 

§ 1024.30(c) above. The Bureau is 

excluding subordinate liens in order to 

maintain the current coverage of the 

servicing disclosure statement 

requirement in Regulation X.79 HUD 

initially implemented this exemption in 

reliance on its authority under section 

19(a) of RESPA; 80 the Bureau relies on 

the same authority to maintain the 

current exemption. Accordingly, in the 

final rule, the Bureau has added 

language to § 1024.33(a) so that 

applicants for ‘‘first-lien mortgage 

loans’’ must receive the servicing 

disclosure statement, as indicated at 

§ 1024.30(c)(1). Thus, applicants for 

both reverse and forward mortgage loans 

must receive the servicing disclosure 

statement. The Bureau expects to 

harmonize the scope of § 1024.33(a) in 

the final rule implementing the TILA– 

RESPA integrated disclosures and to 

provide for consolidated disclosure 

forms at that time. 

The Bureau also proposed to add 

comment 33(a)(1)–2 to § 1024.33(a) to 

clarify that the servicing disclosure 

statement need only be provided to the 

‘‘primary applicant.’’ Current 

§ 1024.21(b) requires that the servicing 

disclosure statement be provided to 

mortgage servicing loan applicants, and 

current § 1024.21(c) provides that if coapplicants indicate the same address on 

their application, one copy delivered to 

that address is sufficient, but that if 

different addresses are shown by coapplicants on the application, a copy 

must be delivered to each of the coapplicants. The Bureau proposed to 

implement through commentary to 

§ 1024.33(a) a clarification relating to 

providing a servicing disclosure 

statement for co-applicants—that when 

an application involves more than one 

applicant, notification need only be 

given to one applicant but must be given 

to the primary applicant when one is 

readily apparent. A credit union trade 

association supported this proposed 

change. 

In its proposal, the Bureau explained 

that the modified requirement would 

reduce burdens on servicers without 

significantly reducing consumer 

protections, given that the Bureau 

proposed to apply the regulation only to 

closed-end reverse mortgage 

transactions. The Bureau explained that 

such transactions are typically only 

conducted with regard to a borrower’s 

principal residence and do not involve 

ongoing consumer payments for the life 

of the loan, so that contact with 

servicers is generally quite minimal. 

The Bureau also observed that 

amending the current requirement 

would be consistent with disclosure 

requirements applicable to other Bureau 

regulations, such as the adverse action 

notice required under Regulation B 

(Equal Credit Opportunity Act).81

Because the Bureau is not limiting 

§ 1024.33(a) to closed-end reverse 

mortgage transactions in the final rule, 

as originally proposed, the Bureau is not 

adopting proposed comment 33(a)(1)–2 

as proposed and is not amending the 

existing requirement in § 1024.21(c), 

under which the servicing disclosure 

statement must be provided to coapplicants if different addresses are 

shown by co-applicants. Instead, 

comment 33(a)–2 contains the same 

guidance that originally appeared in 

§ 1024.21(c): That if co-applicants 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10727 

82The disclosure preparation instructions in 

current § 1024.21(b)(2) refer to ‘‘table funding 

mortgage broker.’’ In implementing these 

instructions through comment 33(a)–3, the Bureau 

has replaced that phrase with the phrase ‘‘mortgage 

broker who anticipates using table funding’’ to 

better conform to the language in § 1024.33(a). 

83For example, the Bureau changed ‘‘consumer 

inquiry address,’’ under § 1024.21(d)(3)(ii) to an 

address ‘‘that can be contacted by the borrower to 

obtain answers to servicing transfer inquiries,’’ 

under § 1024.33(b)(4)(ii). The Bureau also changed 

the provision in § 1024.21(d)(3)(v) regarding 

‘‘[i]nformation concerning any effect the transfer 

may have’’ on the terms of the continued 

availability of mortgage life or disability insurance, 

to a requirement in § 1024.33(d)(3)(v) to include 

information ‘‘[w]hether the transfer will affect’’ the 

terms or the continued availability of mortgage life 

or disability insurance. 

84As noted in the section-by-section analysis of 

§ 1024.33(a), the Bureau is finalizing the servicing 

disclosure statement requirement for first-lien 

mortgage loans, including forward and reverse 

mortgage loans. 

indicate the same address on their 

application, one copy of the servicing 

disclosure statement delivered to that 

address is sufficient; and that if different 

addresses are shown by co-applicants 

on the application, a copy must be 

delivered to each of the co-applicants. 

Finally, in addition to proposing 

changes about the scope of the rule, the 

Bureau proposed in § 1024.33(a) to 

make certain non-substantive changes to 

language from current § 1024.21(b) and 

(c) to clarify the circumstances under 

which the servicing disclosure 

statement must be provided and the 

proper use of appendix MS–1, which 

provides a model form for the servicing 

disclosure statement. For example, 

§ 1024.21(b) currently provides that the 

servicing disclosure statement must be 

provided ‘‘[a]t the time an application 

for a mortgage servicing loan is 

submitted, or within three days after 

submission of the application.’’ The 

Bureau’s proposed § 1024.33(a) stated 

that the servicing disclosure statement 

must be provided ‘‘[w]ithin three days 

(excluding legal public holidays, 

Saturdays, and Sundays) after a person 

applies [.]’’ The Bureau also proposed to 

incorporate some of the language 

currently in § 1024.21(b) and (c) into 

new Regulation X official commentary. 

For example, the Bureau proposed to 

move § 1024.21(b)(1), which explained 

use of appendix MS–2, to new comment 

33(a)–1; the Bureau also included 

generally applicable instructions for use 

of model forms and clauses in 

commentary to appendix MS. The 

Bureau did not receive comment on this 

aspect of the proposal and adopts these 

revisions substantially as proposed, 

other than with respect to the scope of 

the rule, discussed above. 

In the final rule, the Bureau has 

replaced the phrase ‘‘table funding 

mortgage broker’’ with the phrase 

‘‘mortgage broker who anticipates using 

table funding,’’ which the Bureau 

believes is clearer and better conforms 

to the term that currently appears in 

§ 1024.21(b)(1). In addition, the Bureau 

has consolidated proposed comments 

33(a)(2)–1, –2, and –3 into comment 

33(a)–3, which contains disclosure 

preparation instructions currently in 

§ 1024.21(b)(2).82 Comment 33(a)–3 

explains that, if the lender, mortgage 

broker who anticipates using table 

funding, or dealer in a first lien dealer 

loan knows at the time of the disclosure 

whether it will service the mortgage 

loan for which the applicant has 

applied, the disclosure should, as 

applicable, state that such entity will 

service such loan and does not intend 

to sell, transfer, or assign the servicing 

of the loan, or that such entity intends 

to assign, sell, or transfer servicing of 

such mortgage loan before the first 

payment is due. The comment also 

provides that, in all other instances, a 

disclosure that states that the servicing 

of the loan may be assigned, sold, or 

transferred while the loan is outstanding 

complies with § 1024.33(a). 

The final rule also makes a technical 

revision to the last sentence of proposed 

§ 1024.33(a). The final rule provides that 

the servicing disclosure statement is not 

required to be delivered if ‘‘a person 

who applies for a first-lien mortgage 

loan is denied credit’’ within the threeday period. 

33(b) Notice of Transfer of Loan 

Servicing 

RESPA section 6(b) and (c) sets forth 

the general requirement for the 

transferor and transferee servicers of a 

federally related mortgage loan to notify 

the borrower in writing of any 

assignment, sale, or transfer of servicing. 

12 U.S.C. 2605(b) and (c). These 

statutory requirements are implemented 

through current § 1024.21(d). The 

Bureau had proposed to move and adopt 

substantially all of these requirements to 

new § 1024.33(b), with a few exceptions, 

as explained in the section-by-section 

analysis below. The Bureau’s proposal 

also would have made certain nonsubstantive revisions to current 

§ 1024.21(d) to clarify existing servicing 

transfer requirements.83 New 

§ 1024.33(b)(1) sets forth the general 

requirement to provide the servicing 

transfer notice. New § 1024.33(b)(2) sets 

forth the transfers for which a servicing 

transfer is not required. New 

§ 1024.33(b)(3) sets forth the timing 

requirements of the notice. New 

§ 1024.33(b)(4) sets forth the content 

requirements for the servicing transfer 

notice. The Bureau is generally adopting 

these provisions as proposed, except as 

noted in the section-by-section analysis 

below. 

33(b)(1) Requirements for Notice and 

33(b)(2) Certain Transfers Excluded 

RESPA section 6(b)(1) and (c)(1) sets 

forth the general requirements for the 

transferor and transferee servicers to 

provide a notice of servicing transfer for 

any federally related mortgage loan that 

is assigned, sold, or transferred. 12 

U.S.C. 2605(b)(1) and (c)(1). Current 

§ 1024.21(d)(1)(i) implements the 

general requirement for the transferor 

and transferee servicers to provide the 

notice of transfer, which the Bureau 

proposed to move to new 

§ 1024.33(b)(1). Unlike the servicing 

disclosure statement that the Bureau 

proposed in § 1024.33(a) to apply only 

to closed-end reverse mortgage 

transactions,84 the Bureau proposed that 

the servicing transfer notice be provided 

with respect to the transfer of a 

‘‘mortgage loan,’’ including forward and 

reverse mortgage loans. 

The Bureau proposed to include in 

§ 1024.33(b)(1) a statement that 

appendix MS–2 contains a model form 

for the notice. The reference to 

appendix MS–2 was previously located 

in § 1024.21(d)(4). Section 1024.21(d)(4) 

also contained language indicating that 

servicers could make minor 

modifications to the sample language 

but that the substance of the sample 

language could not be omitted or 

substantially altered. Similar language 

now appears in a general comment to 

appendix MS in comment MS–2, 

discussed below in the section-bysection analysis of appendix MS. The 

Bureau did not receive comment on 

these proposed provisions and is 

adopting them in the final rule. 

Current § 1024.21(d)(i) exempts 

certain transactions from the 

requirement to provide the notice of 

transfer (if there is no change in the 

payee, address to which payment must 

be delivered, account number, or 

amount of payment due): Transfers 

between affiliates, transfers resulting 

from mergers or acquisitions of servicers 

or subservicers, and transfers between 

master servicers where the subservicer 

remains the same. The Bureau did not 

receive comment on these proposed 

provisions and is adopting them in the 

final rule. 

Current § 1024.21(d)(ii) exempts the 

FHA from the requirement to provide a 

transfer notice where a mortgage 

insured under the National Housing Act 

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10728 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

85See 59 FR 65442, 65443 (1994). 

86Section 1024.11 provides that ‘‘the provisions 

of [part 1024] requiring or permitting mailing of 

documents shall be deemed to be satisfied by 

placing the document in the mail (whether or not 

received by the addressee) addressed to the 

addresses stated in the loan application or in the 

other information submitted to or obtained by the 

lender at the time of loan application or submitted 

or obtained by the lender or settlement agent, 

except that a revised address shall be used where 

the lender or settlement agent has been expressly 

informed in writing of a change in address.’’ 

87See Rodriguez v. Countrywide Homes et al., 668 

F. Supp. 2d 1239, 1245 (E.D. Ca. 2009) 

(‘‘Countrywide submits, and the Court agrees, that 

RESPA requires a lender to send a Good Bye letter 

to the Mailing Address listed by the borrower in the 

loan documents. When the borrower submits an 

express change of mailing address, the lender is 

required to send the Good Bye letter to the new 

address.’’). 

is assigned to the FHA. The Bureau 

proposed to move this provisions to 

new § 1024.33(b)(2)(i)(ii). HUD initially 

implemented this exemption in reliance 

on its authority under section 19(a) of 

RESPA; 85 the Bureau relies on the same 

authority to maintain the current 

exemption. The Bureau did not receive 

comment on this proposed provision 

and is adopting it in the final rule. 

33(b)(3) Time of the Notice 

33(b)(3)(i) In General 

Timing of the Transferor and Transferee 

Notices 

RESPA section 6(b)(2)(A) requires that 

the transferor’s notice be provided not 

less than 15 days before the effective 

date of transfer of servicing, except as 

provided in RESPA section 6(b)(2)(B) 

and (C), which provides that the notice 

may be provided under different 

timeframes in certain cases. 12 U.S.C. 

2605(b)(2)(A). RESPA section 6(c)(2)(A) 

requires that the transferee’s notice be 

provided not more than 15 days after 

the effective date of transfer, except as 

provided in RESPA section 6(c)(2)(B) 

and (C). 12 U.S.C. 2605(c)(2)(A). Current 

§ 1024.21(d)(2)(i) implements these 

requirements and provides that, except 

as provided in paragraph (d)(1)(i) or 

(d)(2)(ii), the notice of transfer must be 

provided by the transferor not less than 

15 days before the effective date of the 

transfer and by the transferee not more 

than 15 days after the effective date of 

the transfer. The Bureau proposed to 

move these requirements to new 

§ 1024.33(b)(3)(i). 

Several individual consumers 

suggested that a 15-day timeframe was 

too short a period for borrowers to make 

adjustments with respect to whom they 

should direct their mortgage payments. 

They recommended that transferees 

should be required to provide the 

transfer notice 30 to 45 days in advance 

of the effective date of transfer. In its 

final rule, the Bureau is not adjusting 

the exiting timing requirements. The 15- 

day time period was established by 

Congress, which reasonably concluded 

that this time period provides borrowers 

with sufficient time to make 

adjustments to any automated payment 

systems. In addition, the Bureau 

believes that there is minimal risk to 

borrowers who may be unable to send 

payments to the proper servicer after a 

transfer. Pursuant to § 1024.33(c)(1), 

servicers generally may not treat a 

payment as late for 60 days after a 

transfer if a borrower makes a timely but 

misdirected payment to the transferee 

servicer. 

Delivery. Subparagraphs (b)(1) and 

(c)(1) of RESPA section 6 require that 

the transferor and transferee servicer 

notify ‘‘the borrower’’ of any 

assignment, sale, or transfer of servicing. 

Current § 1024.21(d)(1)(i) implements 

these requirements by requiring that 

notices be delivered to ‘‘the borrower.’’ 

However, unlike as set forth in current 

§ 1024.21(c) with respect to the 

servicing disclosure statement, current 

§ 1024.21(d) does not contain specific 

delivery instructions for delivering 

servicing transfer notice under 

§ 1024.21(d) to multiple borrowers. The 

Bureau proposed comment 33(b)(3)–2 to 

clarify that a notice of transfer should be 

delivered to the mailing address listed 

by the borrower in the mortgage loan 

documents, unless the borrower has 

notified the servicer of a new address 

pursuant to the servicer’s requirements 

for receiving a notice of a change of 

address. Proposed comment 33(b)(3)–2 

further clarified that when a mortgage 

loan has more than one borrower, the 

notice of transfer need only be given to 

one borrower, but must be given to the 

primary borrower when one is readily 

apparent. 

The Bureau did not receive comment 

on the language in proposed comment 

33(b)(3)–2 clarifying that a servicer 

deliver the notice of transfer to the 

mailing address listed by the borrower 

in the mortgage loan documents unless 

the borrower has notified the servicer of 

a new address pursuant to the servicer’s 

requirements for receiving a notice of a 

change in address. However, the Bureau 

did receive comment on the proposed 

language clarifying that servicers may 

provide the transfer notice to the 

‘‘primary’’ borrower. Industry 

commenters supported the proposed 

limitation to provide the transfer notice 

only to the primary borrower. One 

industry commenter indicated, 

however, that servicers generally will 

not know who the primary borrower is, 

noting that servicers would likely rely 

on the owner’s or a prior servicer’s 

designation in servicer transfer 

instructions, or the party that is listed 

first on the note. The industry 

commenter recommended that the 

Bureau permit such reliance. 

Two consumer advocacy groups 

recommended that the Bureau omit this 

comment. These commenters were 

concerned that providing notice to only 

one party would not ensure that 

multiple obligors, or even the party who 

is actually making payments on the 

mortgage, would receive it. For 

example, in the event of a divorce or 

separation, a ‘‘primary’’ borrower could 

be a spouse who is no longer living at 

home but who has submitted a changeof-address notice to the servicer. In 

another scenario, a borrower not living 

at home could be under a family court 

order to make mortgage payments even 

though the borrower is not a ‘‘primary’’ 

borrower. In these types of cases, the 

consumer groups were concerned that 

borrowers not considered ‘‘primary’’ 

would not receive the transfer notice. 

The consumer groups also raised 

concern about the lack of a definition of 

‘‘primary’’ borrower and observed that, 

even if a definition were provided, a 

servicer’s original designation of 

‘‘primary’’ may become inaccurate over 

time if the obligors’ relationship 

changes or other changed circumstances 

arise. The consumer groups also noted 

that sending two notices is not costly, 

would simplify compliance, and would 

reduce the risk that an interested 

borrower would not receive the notice. 

In light of comments received, the 

Bureau is not adopting the proposed 

comment 33(b)(3)–2 regarding delivery 

to ‘‘primary’’ borrowers. The Bureau 

recognizes that a party who may be 

‘‘primary’’ at application could change 

over time without the servicer’s 

knowledge, which could be problematic 

for borrowers responsible for making 

ongoing payments to their servicer. The 

Bureau believes that servicers should be 

responsible for providing a notice to the 

address listed by the borrower in the 

mortgage loan documents or different 

addresses they have received through 

their own procedures, consistent with 

§ 1024.11 86 and applicable case law.87

The Bureau has otherwise retained 

proposed comment 33(b)(3)–2 

substantially as proposed. The Bureau 

has omitted the comment limiting 

delivery to ‘‘primary’’ borrowers, added 

parenthetical language about providing 

the notice to ‘‘addresses,’’ and has 

renumbered the comment as 33(b)(3)–1 

because of the deletion of proposed 

comment 33(b)(3)–1 discussed above. 

Comment 33(b)(3)–1 explains that a 

servicer mailing the notice of transfer 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10729 

88Whereas § 1024.21(d)(2)(iii) describes a notice 

of transfer ‘‘delivered’’ at settlement, 

§ 1024.33(b)(3)(iii) describes a notice of transfer 

‘‘provided’’ at settlement. The Bureau has made this 

change to conform to the language of RESPA section 

6(b)(2)(C) and (c)(2)(C) and other similar technical 

amendments throughout Regulation X. 

must deliver the notice to the mailing 

address (or addresses) listed by the 

borrower in the mortgage loan 

documents, unless the borrower has 

notified the servicer of a new address 

(or addresses) pursuant to the servicer’s 

requirements for receiving a notice of a 

change in address. 

33(b)(3)(ii) Extended Time 

RESPA section (b)(2)(B) and (c)(2)(B) 

contains exemptions from the general 

requirements that the transferor notice 

be provided not less than 15 days before 

the effective date of transfer and that the 

transferee notice be provided not more 

than 15 days after the effective date of 

transfer. 12 U.S.C. 2605(b)(2)(B) and 

(c)(2)(B). Paragraphs (b)(2)(B) and 

(c)(2)(B) permit these notices to be 

provided not more than 30 days after 

the effective date of assignment, sale, or 

transfer that is preceded by the 

termination of a servicing contract for 

cause, a servicer’s bankruptcy, or the 

commencement of proceedings by the 

FDIC for conservatorship or receivership 

of the servicer. These exemptions to the 

general timing requirements are 

currently set forth in § 1024.21(d)(2)(ii). 

The Bureau had proposed to adopt the 

existing exemptions and add 

§ 1024.33(b)(3)(ii)(D), which would 

extend the current 30-day exemption to 

situations in which the transfer of 

servicing is preceded by commencement 

of proceedings by the NCUA for 

appointment of a conservator or 

liquidating agent of the servicer or an 

entity that owns or controls the servicer. 

The Bureau did not receive comment on 

this aspect of the proposal and is 

adopting new § 1024.33(b)(3)(ii)(D) as 

proposed. 

As is evident by RESPA section 

6(b)(2)(B) and (c)(2)(B), one of the 

purposes of RESPA is to provide 

exemptions from the general transfer 

notice timing requirements for servicing 

transfers occurring in the context of 

troubled institutions involving the 

appointment of an agent by a Federal 

agency, such as those in which a 

servicing transfer is preceded by the 

commencement of proceedings by the 

FDIC for conservatorship or receivership 

of the servicer (or an entity by which the 

servicer is owned or controlled). The 

Bureau does not believe that the timing 

for providing a servicing transfer 

disclosure should differ for an insured 

credit union in the process of 

conservatorship of liquidation by the 

NCUA compared to an insured 

depository institution in the process of 

conservatorship or receivership by the 

FDIC. Thus, because the Bureau believes 

institutions for which the NCUA has 

commenced proceedings to appoint a 

conservator or liquidating agent should 

be treated similarly to those for which 

the FDIC has commenced proceedings 

to appoint a conservator or receiver, the 

Bureau believes § 1024.33(b)(3)(ii)(D) is 

necessary to achieve the purposes of 

RESPA. Accordingly, the Bureau 

exercises its authority under RESPA 

section 19(a) to grant reasonable 

exemptions for classes of transactions 

necessary to achieve the purposes of 

RESPA. 

33(b)(3)(iii) Notice Provided at 

Settlement 

RESPA section 6(b)(2)(C) and (c)(2)(C) 

generally provides that the timing 

requirements of the transferor and 

transferee notices at RESPA section 

6(b)(2)(A) and (B), and (c)(2)(A) and (B) 

do not apply if the person making the 

loan provides a transfer notice to the 

borrower at settlement. Current 

§ 1024.21(d)(2)(iii) implements these 

provisions and provides that notices of 

transfer delivered at settlement by the 

transferor servicer and transferee 

servicer, whether as separate notices or 

as a combined notice, satisfy the timing 

requirements of § 1024.21(d)(2). The 

Bureau proposed to move this provision 

to new comment 33(b)(3)–1 

substantially as in the original.88 The 

Bureau did not receive comment on this 

aspect of the proposal. The Bureau is 

adopting the substance of the language 

in the proposed commentary but is 

placing the language in new 

§ 1024.33(b)(3)(iii) instead of official 

commentary to more closely track the 

requirements of the statute. 

33(b)(4) Contents of Notice 

Overview 

RESPA section 6(b)(3) sets forth 

content requirements for the transferor 

notice, and RESPA section 6(c)(3) 

requires that the transferee notice 

contain the same content required by 

RESPA section 6(b)(3). 12 U.S.C. 

2605(b)(3) and (c)(3). RESPA section 

6(b)(3)(A) through (G) requires that the 

transferor and transferee notice contain 

the effective date of transfer, contact 

information for the transferee servicer, 

the name of an individual or department 

of the transferor and transferee servicer 

who may be contacted for borrower 

inquiries, the date on which the 

transferor will stop accepting payments 

and the date on which the transferee 

servicers will begin accepting payments, 

any information about the effect of the 

transfer on the availability of insurance, 

and a statement that the transfer will not 

affect any term or condition of the 

mortgage loan, other than servicing. 

These requirements are currently 

implemented by § 1024.21(d)(3)(i) 

through (vi). Section 1024.21(d)(3)(vii) 

also requires servicers to include a 

statement of the borrower’s rights in 

connection with complaint resolution, 

including the information set forth in 

§ 1024.21(e), as illustrated by current 

appendix MS–2. 

The Bureau proposed to adopt most of 

the existing content requirements from 

current § 1024.21(d)(3), with the 

exception of the complaint resolution 

statement in § 1024.21(d)(3)(viii) and 

certain other changes discussed in more 

detail below. Except as otherwise 

discussed below, the Bureau is adopting 

§ 1024.33(b)(4) as proposed. 

Accordingly, § 1024.34(b)(4) sets forth 

content requirements for the transfer 

notice, including the effective date of 

the servicing transfer; the name, 

address, and telephone number for the 

transferor and transferee servicers to 

answer inquiries related to the transfer 

of servicing; the date on which the 

transferor will stop accepting payments 

and the date the transferee will begin 

accepting payments, as well as the 

address for the transferee servicer to 

which borrower payments should be 

sent; information about whether the 

transfer will affect the terms or 

availability of insurance coverage; and a 

statement indicating that the transfer 

does not affect any of the mortgage loan 

terms other than servicing. 

Information about loan status. Two 

consumer advocacy groups also 

requested that the Bureau require that 

transfer notices provide information 

about the default status of the loan and 

include a full payment history. The 

groups explained that many servicing 

problems occur at or near the time of 

transferring servicing records and that 

errors involving one or two payments 

can spiral into a threatened foreclosure 

despite borrower efforts to prove that 

payments were in fact made. Thus, the 

consumer groups recommended that the 

transfer notices should advise if the 

homeowner is current and whether 

there are any unpaid fees, and the status 

of loss mitigation options being 

considered. They also recommended 

that a full payment history, including 

allocation of the payments to interest, 

principal, late fees, and other fees 

should be included by both the old and 

the new servicer, so that the homeowner 

may promptly ascertain if there is a 

discrepancy in the records. These 

commenters also requested that the 

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10730 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

89 During the fourth round of consumer testing in 

Philadelphia, Pennsylvania, the Bureau tested a 

brief statement informing borrowers that they have 

rights associated with resolving errors. While 

participants generally understood the meaning of 

the clause, the Bureau is not finalizing model 

language for a statement informing borrowers of 

their rights to resolve errors and request 

information. 

Bureau require that fees not listed in a 

payment history provided at the transfer 

of servicing be waived. 

The Bureau recognizes the problems 

that can arise when servicing is 

transferred, especially in the case of a 

borrower who is not current at the time 

of transfer. However, requiring 

individualized information about each 

borrower’s loan could significantly 

affect the time required to produce the 

notice as well as the cost. Moreover, the 

Bureau believes that other new 

provisions being finalized in Regulation 

X and Regulation Z will adequately 

address borrowers’ interests in ensuring 

the accuracy of transferred records 

concerning their payment history. First, 

borrowers will be able to obtain 

information about their current payment 

status on a monthly basis on the 

periodic statement required under the 

Regulation Z provision that the Bureau 

is finalizing in the 2013 TILA Mortgage 

Servicing Final Rule. That statement 

will show, among other things, the 

payment amount due, the amount of any 

late payment fee, the total sum of any 

fees or charges imposed since the last 

statement, the total of all payments 

received since the last statement, the 

total of all payments received since the 

beginning of the current calendar year, 

transaction activity since the last 

statement, the outstanding principal 

balance, the borrower’s delinquency 

status, amounts past due from previous 

billing cycles, and the total payment 

amount needed to bring the account 

current. As a result, if there are 

discrepancies between the last 

statement provided by the prior servicer 

and the first statement provided by the 

new servicer, those discrepancies will 

be apparent on the face of the 

statements. Second, borrowers will also 

be able to assert errors and request 

information about their payment history 

and current status through the new error 

resolution and information request 

provisions of Regulation X §§ 1024.35 

and 1024.36; and new 

§ 1024.38(b)(1)(iii) requires servicers to 

maintain policies and procedures 

reasonably designed to ensure that the 

servicer can provide a borrower with 

accurate and timely information and 

documents in response to the borrower’s 

requests for information with respect to 

the servicing of the borrower’s mortgage 

loan account. Third, new § 1024.38(b)(4) 

generally requires servicers to maintain 

policies and procedures reasonably 

designed to ensure (as a transferor 

servicer) the timely transfer of all 

information and documents in a manner 

that ensures the accuracy of information 

and documents transferred, and (as a 

transferee servicer) identify necessary 

documents or information that may not 

have been transferred by a transferor 

servicer and obtain such documents 

from the transferor servicer. Fourth, new 

§ 1024.38(c)(2) generally requires, 

among other things, that servicers 

maintain a schedule of all transactions 

credited or debited to the mortgage loan 

account, including any escrow account 

defined in § 1024.17(b) and any 

suspense account and data in a manner 

that facilitates compiling such 

documents and data into a servicing file 

within five days. In light of these 

provisions, the Bureau does not believe 

that the cost of providing the default 

status of the loan or a full payment 

history with the servicing transfer notice 

for all borrowers would be justified. 

Statement of borrower’s rights in 

connection with the complaint 

resolution process. Although not 

specifically required by RESPA section 

6(b)(3), current § 1024.21(d)(3)(vii) 

requires that the transfer notice include 

a statement of the borrower’s rights in 

connection with the complaint 

resolution process. The Bureau 

proposed to remove this requirement 

from the servicing transfer notice in new 

§ 1024.33(b)(4). Two consumer 

advocacy groups requested that the 

Bureau retain the current requirement, 

noting that borrowers would benefit 

from being informed of their rights 

related to errors and information 

requests. They asserted that retaining an 

existing disclosure would not add new 

burden. Further, they asserted that 

omitting the disclosure would not 

significantly reduce burden because the 

language in the proposed revised model 

notice (without the complaint resolution 

statement) at appendix MS–2 would 

likely only comprise one page, and that 

adding a paragraph about the error 

resolution and information rights might 

at most extend some of the information 

to the back side of the notice, but would 

not require an additional page or 

increased postage. 

After considering the comments 

received, the Bureau has decided to 

adopt § 1024.33(b)(4) without a 

requirement to provide information 

about complaint resolution, as 

proposed. The Bureau believes that 

borrowers are best served by providing 

a notice that clearly and concisely 

explains that the servicing of their 

mortgage is being transferred, and that 

detailed information about the error 

resolution and information request 

process may not always be optimally 

located in the transfer notice. 

Additionally, as a result of amendments 

to the error resolution and information 

request procedures that the Bureau is 

finalizing in this rule, the existing 

disclosure in current appendix MS–2 

would no longer be completely accurate. 

The Bureau agrees that borrowers 

should be notified of their rights in 

connection with errors and inquiries, 

but the Bureau believes that borrowers 

should be informed of the error 

resolution and information request 

process through mechanisms that do not 

necessarily depend on the transfer of 

servicing. To address this, the Bureau is 

adding a requirement in § 1024.38(b)(5) 

that servicers maintain policies and 

procedures reasonably designed to 

ensure that servicers inform borrowers 

of procedures for submitting written 

notices of error set forth in § 1024.35 

and written information requests set 

forth in § 1024.36. New comment 

38(b)(5)–1 explains, among other things, 

that a servicer may comply with 

§ 1024.38(b)(5) by including in the 

periodic statement required pursuant to 

§ 1026.41 a brief statement informing 

borrowers that borrowers have certain 

rights under Federal law related to 

resolving errors and requesting 

information about their account, and 

that they may learn more about their 

rights by contacting the servicer, and a 

statement directing borrowers to a Web 

site that provides the information about 

the procedures set forth in §§ 1024.35 

and 1024.36.89

The Bureau believes that a 

requirement to establish policies and 

procedures to achieve the objective of 

notifying borrowers of the written error 

resolution and information request 

procedures set forth in §§ 1024.35 and 

36 will provide servicers with more 

flexibility to the time and in a manner 

in which to notify borrowers about the 

written error resolution and information 

request procedures. Specifically, the 

Bureau expects that servicers may 

decide to inform borrowers about these 

procedures at a time and in a manner 

that borrowers are more likely to find 

beneficial than at the time of servicing 

transfer. Further, as described in more 

detail in the section-by-section analysis 

of § 1024.40, pursuant to § 1024.40(b)(4), 

servicers must have policies and 

procedures reasonably designed to 

ensure that continuity of contact 

personnel assigned to assist delinquent 

borrowers provide such borrowers with 

information about the procedures for 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10731 

90Pursuant to § 1024.36(d)(2)(i)(A), a servicer 

generally must respond within 10 days to borrower 

requests for information about the identify or, and 

address or relevant contact information for, the 

owner or assignee of the borrower’s mortgage loan. 

submitting a notice of error pursuant to 

§ 1024.35 or an information request 

pursuant to § 1024.36. 

Finally, the Bureau believes 

borrowers are most likely to raise 

questions and complaints with servicers 

outside of the formal process outlined in 

§§ 1024.35 and 36. To ensure that 

servicers have systems in place for 

responding to errors and information 

requests through informal means, the 

Bureau believes servicers should have 

reasonable policies and procedures in 

place for responding to errors and 

information requests that fall outside of 

the required error resolution and 

information request procedures set forth 

in §§ 1024.35 and 36. Accordingly, as 

discussed in more detail in the sectionby-section analysis of § 1024.38(b)(1), 

the Bureau is adopting 

§ 1024.38(b)(1)(ii) and (iii), which 

generally requires that servicers 

maintain policies and procedures that 

are reasonably designed to ensure that 

the servicer can investigate, respond to, 

and, as appropriate, make corrections in 

response to borrower complaints, and 

provide accurate and timely information 

and documents in response to borrower 

information requests. Therefore, for the 

reasons discussed above, the Bureau is 

adopting the proposal to remove the 

requirement that the servicing transfer 

notice describe the complaint resolution 

statement currently set forth in 

§ 1024.21(d)(3)(vii). 

33(b)(4)(ii) and (b)(4)(iii) 

RESPA section 6(b)(3)(C) and (D) 

requires that the transferor and 

transferee notices include the name and 

a toll-free or collect call telephone 

number for an individual employee or 

the department of the transferor and 

transferee servicers that can be 

contacted by the borrower to answer 

inquiries relating to the transfer of 

servicing. 12 U.S.C. 2605(b)(3)(C) and 

(D). The Bureau proposed to implement 

these requirements, currently in 

§ 1024.21(d)(3)(ii) and (iii), through new 

§ 1024.33(b)(4)(ii) and (iii). 

The Bureau’s proposal would have 

retained the requirement to provide 

contact information for ‘‘an employee or 

department’’ of the transferor and 

transferee servicers. The Bureau had 

also proposed in § 1024.33(b)(4)(ii) and 

(iii) to remove the requirement that the 

transferor and transferee servicers 

provide collect call telephone numbers, 

but to retain the requirement to provide 

toll-free telephone numbers. 

Accordingly, proposed 

§ 1024.33(b)(4)(ii) and (iii) would have 

required that servicers provide only a 

toll-free telephone number for an 

employee or department of the 

transferee servicer that can be contacted 

by the borrower to obtain answers to 

servicing transfer inquiries. The 

Bureau’s proposal also would have 

required that the transferor notice 

include the address for an employee or 

department of the transferor servicer 

that can be contacted by the borrower to 

obtain answers to servicing transfer 

inquiries. Current § 1024.21(d)(3)(iii) 

requires only that the notice list 

telephone contact information to reach 

an employee or department of the 

transferor servicer. 

One industry commenter indicated 

that providing an individual employee 

name may not be appropriate in all 

cases because individuals can change 

roles within a servicer’s organization. 

The commenter requested that only 

contact information for a servicing 

department be required. One individual 

consumer recommended requiring that 

the notice of transfer identify the owner 

or assignee of the loan, without contact 

information, in addition to contact 

information for the transferor and 

transferee servicers. Another individual 

consumer also recommended that the 

transfer notice include a plain language 

explanation of what ‘‘owning’’ and 

‘‘servicing’’ a loan mean. 

The Bureau is adopting the 

requirements in proposed 

§ 1024.33(b)(4)(ii) and (iii) substantially 

as proposed. However, the Bureau is 

retaining the option to include a collect 

call number because, upon further 

consideration, the Bureau believes some 

servicers may continue to use collect 

call numbers. The Bureau is also 

retaining the requirement to provide 

contact information for either an 

employee or department in the final 

rule. Neither the statute nor the 

regulatory provision requires servicers 

to list specific employees but instead 

gives servicers the option of listing 

personnel or a department contact 

number. The Bureau believes servicers 

should be able to determine the most 

appropriate point of contact within their 

organizations. While the Bureau 

recognizes that servicer personnel may 

change over time, the Bureau does not 

believe that there is significant risk from 

the potential that contact information 

may be inaccurate because servicers are 

required under § 1024.38 to have 

policies and procedures in place to 

achieve the objective of providing 

accurate information to borrowers. 

Servicers may choose to provide 

department-level contacts to ease their 

own compliance. The Bureau believes 

borrowers would likely benefit from the 

disclosure of specific employees to the 

extent the servicer decides to list them. 

The Bureau has considered the 

recommendation to require that the 

servicing transfer notice identify the 

owner or assignee of the loan in 

addition to contact information for the 

transferor and transferee servicer but is 

not adopting such a requirement in the 

final rule. First, the Bureau notes that 

the servicing disclosure statement 

provided at application pursuant to 

§ 1024.33(a) already provides 

information about whether the lender, 

mortgage broker who anticipates using 

table funding, or dealer may assign, sell, 

or transfer the mortgage servicing to any 

other person at any time. Additionally, 

the Bureau believes the language in the 

model form at appendix MS–2, 

explaining that a new servicer will be 

collecting the borrower’s mortgage loan 

payments and that nothing else about 

the borrower’s mortgage loan will 

change, will avoid potential confusion 

about what the transfer of servicing 

means for a borrower’s loan. 

Additionally, as explained above, the 

Bureau believes that borrowers are best 

served by a transfer notice that sets forth 

the most relevant information related to 

the transfer of servicing of their loan 

and who should receive their payments 

requiring additional information in the 

notice about the owner or the loan may 

be confusing. Finally, the servicing 

transfer notice will include contact 

information for the transferor and 

transferee servicer that the borrower 

may contact with any questions.90

33(b)(4)(iv) 

RESPA section 6(b)(3)(E) requires that 

the transferor and transferee notices 

provide the date on which the transferor 

will cease to accept payments relating to 

the loan and the date on which the 

transferee servicer will begin to accept 

such payments. 12 U.S.C. 2605(b)(3)(E). 

This requirement is currently in 

§ 1024.21(d)(3)(iv), which the Bureau 

proposed to implement through 

proposed § 1024.33(b)(4)(iv). 

Several individual consumers 

indicated that the transfer notice could 

provide clearer instructions for how 

borrowers should submit payments after 

the effective date of transfer date. One 

individual consumer recommended that 

the notice should list the Web site 

address for transferee servicer and the 

proper address to submit electronic 

payments. Other consumers 

recommended that the notice explain 

which servicer is responsible for making 

payments from any escrow account for 

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10732 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

91Appendix MS–2 currently states, ‘‘Send all 

payments due on or after that date to your new 

servicer.’’ 92The Bureau proposed to amend appendix MS– 

2 to state, ‘‘Send all payments due on or after [Date] 

to [Name of new servicer] at this address: [New 

servicer address].’’ 

property taxes and insurance and the 

effective date of such payments. 

Current § 1024.21(d)(3)(i) requires and 

the current model form in appendix 

MS–2 include a statement directing 

borrowers to send all payments due on 

or after the effective date of transfer to 

the new servicer.91 The Bureau’s 

proposed amendments to the model 

notice contained similar language but 

included space for the transferee 

servicer’s payment address.92 The 

Bureau is adopting this change to the 

model form in the final rule. See 

appendix MS–2. The Bureau believes 

this change to the model form will 

provide clear instructions to borrowers 

for the submission of future payments to 

the transferee. 

The Bureau does not believe it is 

necessary to amend the regulatory text 

of § 1024.33(b)(4)(iv) because the Bureau 

believes servicers have an incentive to 

instruct borrowers where to send future 

payments, and the Bureau is concerned 

that a regulatory requirement to identify 

payment instructions, including 

electronic payment instructions, could 

be overly prescriptive. Moreover, 

§ 1024.33(b)(ii) and (iii) requires 

transferor and transferee servicers to 

provide the contact information for 

borrowers to obtain answers to inquiries 

about the transfer; the Bureau believes 

that borrowers requiring further 

instruction about submitting payments 

would make use of this contact 

information. 

33(c) Borrower Payments During 

Transfer of Servicing 

33(c)(1) Payments Not Considered Late 

RESPA section 6(d) provides that, 

during the 60-day period beginning on 

the effective date of transfer of servicing 

of any federally related mortgage loan, 

a late fee may not be imposed on the 

borrower with respect to any payment 

on such loan and no such payment may 

be treated as late for any other purposes, 

if the payment is received by the 

transferor servicer (rather than the 

transferee servicer who should properly 

receive the payment) before the due date 

applicable to such payment. This 

provision is implemented through 

§ 1024.21(d)(5). The Bureau proposed to 

retain that general requirement in new 

§ 1024.33(c) by making a clarifying 

revision to the regulatory text—i.e., that 

such misdirected payment may not be 

treated as late ‘‘for any purpose.’’ 

The Bureau also proposed to add a 

qualification to that general prohibition 

to conform new § 1024.33(c)(1) with the 

requirements in new § 1024.39 by 

clarifying that a borrower’s account may 

be considered late for purposes of 

contacting the borrower for early 

intervention. Proposed § 1024.39 would 

have required servicers to provide oral 

and written notices to borrowers about 

the availability of loss mitigation 

options within 30 and 40 days after a 

missed payment, respectively. 

The Bureau did not receive comment 

on this aspect of the proposal and is 

adopting § 1024.33(c)(1) substantially as 

proposed, except with respect to the 

statement referencing § 1024.39. The 

Bureau is adding new comment 

33(c)(1)–1, to clarify that the prohibition 

on treating a payment as late for any 

purpose in § 1024.33(c)(1) includes a 

prohibition on imposing a late fee on 

the borrower with respect to any 

payment on the mortgage loan, with a 

cross-reference to RESPA section 6(d) in 

order to clarify that the statutory 

prohibition on charging late fees 

remains in effect notwithstanding the 

change to the language of the regulatory 

provision. 

In the final rule, the Bureau is not 

adopting the proposed qualifying 

language regarding § 1024.39 as 

regulatory text, but instead is adopting 

this language as new comment 33(c)(1)– 

2. New comment 33(c)(1)–2 clarifies that 

a transferee servicer’s compliance with 

1024.39 during the 60-day period 

beginning on the effective date of a 

servicing transfer does not constitute 

treating a payment as late for purposes 

of § 1024.33(c)(1). The Bureau believes 

this provision is more appropriately 

located as commentary than regulatory 

text because it is an interpretation of the 

prohibition on treating a payment as 

late. 

The early intervention rules are new 

requirements designed to inform 

delinquent borrowers about loss 

mitigation options. While a borrower 

who has made a timely but misdirected 

payment is not likely to benefit from 

information about early intervention, 

transferee servicers may not know the 

reasons for a missed payment if they are 

unable to establish live contact with 

borrowers pursuant to § 1024.39(a) 

(requiring that servicers establish live 

contact or make good faith efforts to do 

so by the 36th day of a borrower’s 

delinquency). In the face of this 

uncertainty, transferee servicers may 

decide the best course of action is to 

comply with § 1024.39, as applicable. In 

these situations, the Bureau does not 

believe a servicer complying with 

§ 1024.39 is treating a borrower as late 

within the meaning of RESPA section 

6(d). 

33(c)(2) Treatment of Payments 

The Bureau also proposed to add a 

requirement in proposed § 1024.33(c)(2) 

that, in connection with a servicing 

transfer, a transferor servicer shall 

promptly either transfer a payment it 

has received incorrectly to the transferee 

servicer for application to a borrower’s 

mortgage loan account or return the 

payment to the person that made the 

payment to the transferor servicer. The 

Bureau explained that many servicers 

already transfer misdirected payments 

to the appropriate servicer in 

connection with a servicing transfer, 

and the Bureau requested comment 

regarding whether the option to return 

the payment to the borrower should be 

eliminated. 

One industry commenter supported 

the proposed provision, but two 

consumer advocacy groups and a 

number of individual consumers 

requested that the Bureau require the 

transferring servicer to forward all 

payments received from borrowers after 

the transfer date to the appropriate 

servicer. Consumer groups and 

individual consumers were concerned 

that returning misdirected payments to 

the borrower would lead to confusion, 

defaults, unnecessary fees, and 

potentially more foreclosures. Consumer 

groups believed that the transferor 

servicer could easily pass payments on 

to the transferee servicer, reducing the 

opportunity for unnecessary harm to 

borrowers. Similarly, one individual 

consumer suggested that the borrower 

should be permitted to make payments 

to the transferor servicer during the 60 

days after the transfer date. Another 

individual consumer recommended that 

the transferee servicer should be 

responsible for collecting payments 

from the transferor servicer. Another 

consumer recommended that transferee 

servicer should be required to take steps 

to remind the borrower to send 

payments to the new servicer. 

After consideration of the comments 

received, the Bureau has decided to 

adopt § 1024.33(c)(2) substantially as 

proposed. As discussed in more detail 

below, the Bureau believes that this 

requirement is necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including ensuring the avoidance of 

unnecessary and unwarranted charges 

and the provision of accurate 

information to borrowers. Accordingly, 

the provision is authorized under 

sections 6(j)(3), 6(k)(1)(E), and 19(a) of 

RESPA. 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10733 

93See 59 FR 65442, 65443 (1994). 

The Bureau has added clarifying 

language to § 1024.33(c)(2) and has 

made conforming edits to 

§ 1024.33(c)(2)(i) and (ii) to clarify the 

circumstances under which the 

transferor servicer must take action with 

respect to misdirected payments. 

Section 1024.33(c)(2) now provides that, 

beginning on the effective date of 

transfer of the servicing of any mortgage 

loan, with respect to payments received 

incorrectly by the transferor servicer 

(rather than the transferee servicer that 

should properly receive the payment on 

the loan), the transferor servicer shall 

promptly take action described in either 

paragraph (c)(2)(i) or (c)(2)(ii). The 

Bureau has modeled this language on 

the language of § 1024.33(c)(1) 

(payments not considered late). The 

Bureau does not intend any substantive 

difference from proposed 

§ 1024.33(c)(2). 

The Bureau has also added language 

to § 1024.33(c)(2)(ii) to provide that if a 

servicer does not transfer a misdirected 

payment to the transferee servicer, the 

servicer must return the payment to the 

person that made the payment to the 

transferor servicer and notify the payor 

of the proper recipient of the payment. 

The Bureau believes § 1024.33(c)(2) will 

ensure that transferor servicers take 

some action with respect to misdirected 

payments; otherwise, transferor 

servicers may claim that they had no 

obligation with respect to misdirected 

payments. The Bureau also believes it is 

reasonable to permit transferors to either 

return a misdirected payment to the 

payor or transmit the payment to the 

transferee servicer because there may be 

circumstances in which a borrower 

would want to be notified that the 

payment had been mailed to the wrong 

servicer, recoup the misdirected 

payment, and forward it to the correct 

servicer. In addition, there may be 

situations in which a transferor servicer 

receives a payment from a party it does 

not recognize as the borrower associated 

with the mortgage loan account. In such 

situations, the Bureau believes servicers 

may reasonably determine the best 

course of action is to return such a 

payment to the payor. Moreover, the 

Bureau does not believe there is 

significant potential for borrower harm 

associated with § 1024.33(c)(2) because 

§ 1024.33(c)(1) permits a 60-day grace 

period in which timely but misdirected 

payments to the transferor servicer may 

not be considered late for any purpose. 

In addition, § 1024.33(c)(2) requires the 

transferor servicer to take action with 

respect to the misdirected payment 

‘‘promptly.’’ The Bureau does not agree 

with individual consumers who suggest 

that borrowers should be permitted to 

make payments to the transferor during 

the 60 days after the transfer date, or 

that the transferee servicer should 

collect payments from the transferor. 

While § 1024.33(c)(1) would prevent 

timely but misdirected payments from 

being treated as late, the transferor 

servicer’s contractual right to collect 

payments from the borrower would 

likely end after a servicing transfer. 

In the final rule, the Bureau has added 

language to § 1024.33(c)(2)(ii) to require 

the transferor servicer to notify the 

payor of the proper recipient of 

payment. Although the servicing 

transfer notice will provide some notice 

to the borrower of a transfer, there may 

be situations in which the payor may be 

a different party than the borrower who 

received the transfer notice. In addition, 

the fact that the payment was sent to the 

transferor servicer would suggest that 

the transfer notice sent pursuant to 

§ 1024.33(b) did not achieve its 

intended purpose. Thus, the Bureau 

believes it is appropriate to instruct the 

payor of the proper recipient of the 

payment and that borrowers will be 

better served by this requirement than 

by requiring the transferor to redirect 

the payment to the transferee. 

33(d) Preemption of State Laws 

RESPA section 6(h) generally 

provides that a person who makes a 

federally related mortgage loan or a 

servicer shall be considered to have 

complied with the provisions of any 

such State law or regulation requiring 

notice to a borrower at the time of 

application for a loan or transfer of the 

servicing of a loan if such person or 

servicer complies with the requirements 

under RESPA section 6 regarding 

timing, content, and procedures for 

notification of the borrower. 12 U.S.C. 

2605(h). Current § 1024.21(h) 

implements RESPA section 6(h) and 

was finalized as part of a HUD’s 1994 

final rule implementing RESPA section 

6, which was added by section 921 of 

the Cranston-Gonzalez National 

Affordable Housing Act.93

Current § 1024.21(h) provides that a 

lender who makes a mortgage servicing 

loan or a servicer shall be considered to 

have complied with any State law or 

regulation requiring notice to a borrower 

at the time of application or transfer of 

servicing if the lender or servicer 

complies with the requirements of 

§ 1024.21. The provision further states 

that any State law requiring notice to 

the borrower at application or transfer of 

servicing is preempted and that lenders 

and servicers shall have no other 

disclosure requirements. Finally, 

§ 1024.21(h) provides that provisions of 

State law, such as those requiring 

additional notices to insurance 

companies or taxing authorities, are not 

preempted by RESPA section 6 or 

§ 1024.21 and that this additional 

information may be added to a notice 

provided under § 1024.33 if permitted 

under State law. 

The Bureau proposed to move 

§ 1024.21(h) to new § 1024.33(d), along 

with several non-substantive 

amendments. The language of the 

Bureau’s proposed preemption 

provision is substantially similar to the 

existing preemption provision with 

respect to the types of provisions of 

State laws or regulations preempted— 

i.e., those requiring notices to the 

borrower at application or transfer of 

servicing where the servicer or lender 

complies with the Bureau’s servicing 

transfer notice provisions. The Bureau 

notes, however, that consistent with the 

discussion above, the Bureau’s proposal 

would have expanded the coverage of 

the preemption provision to cover 

subordinate-lien mortgage loans by 

replacing the term ‘‘mortgage servicing 

loan’’ in the current language with 

references to the term ‘‘mortgage loans.’’ 

The Bureau notes that expanded 

coverage of the preemption provision to 

subordinate-lien loans is consistent with 

the scope of statutory preemption 

provision in RESPA section 6(h), which 

applies to ‘‘person who makes a 

federally related mortgage loan or a 

servicer.’’ As discussed above, the term 

‘‘federally related mortgage loan’’ 

includes subordinate-lien loans. 12 

U.S.C. 2602(1)(A). 

The Bureau received one comment 

from an organization of State bank 

regulators that requested that the Bureau 

omit § 1024.33(d). The organization 

asserted that proposed § 1024.33(d) is 

broader than the statutory preemption 

provision in RESPA section 6(h) 

because the proposed rule would have 

invalidated State laws rather than 

having provided that any State 

requirements were fulfilled by 

compliance with the Federal regime. 

The organization explained it believes 

RESPA section 6(h) is sufficient to 

address the issue of duplicative or 

conflicting State laws, without 

promulgation of implementing 

regulations. 

Specifically, the organization objected 

to language in proposed § 1024.33(d) 

stating that State laws requiring notices 

to borrowers were preempted, ‘‘and 

there shall be no additional borrower 

disclosure requirements.’’ The 

commenter asserted that RESPA section 

6(h) provides State notice laws are 

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10734 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

94RESPA section 6(h) provides, in full: 

‘‘Notwithstanding any provision of any law or 

regulation of any State, a person who makes a 

federally related mortgage loan or a servicer shall 

be considered to have complied with the provisions 

of any such State law or regulation requiring notice 

to a borrower at the time of application for a loan 

or transfer of the servicing of a loan if such person 

or servicer complies with the requirements under 

this section regarding timing, content, and 

procedures for notification to the borrower’’ 

(emphasis added). Section 1024.33(d) provides, in 

relevant part: ‘‘A lender who makes a mortgage loan 

or a servicer shall be considered to have complied 

with the provisions of any State law or regulation 

requiring notice to a borrower at the time of 

application for a loan or transfer of servicing of a 

loan if the lender or servicer complies with the 

requirements of this section.’’ 

considered satisfied if the RESPA 

timing, content, and notice procedure 

requirements are met—not that State 

laws are invalidated. The commenter 

asserted that RESPA section 6(h) allows 

State laws to apply where the or servicer 

has not satisfied the RESPA 

requirements, and that State 

examination processes would be 

hampered by an interpretation that 

simply invalidates State law 

requirements. 

The Bureau is finalizing § 1024.33(d) 

as proposed. The Bureau has considered 

these objections but disagrees that the 

language of § 1024.33(d) as proposed is 

broader than the language of RESPA 

section 6(h) or will introduce new 

difficulties for State bank examiners. By 

adopting § 1024.33(d), the Bureau is 

maintaining substantially all of the 

language of § 1024.21(h), which was 

originally adopted by HUD through its 

final rule implementing RESPA section 

6(h). By implementing RESPA section 

6(h) through § 1024.33(d), the Bureau 

intends to maintain the current coverage 

of § 1024.21(h) as it has existed for 

many years. Accordingly, the Bureau 

disagrees that § 1024.33(d) will 

introduce any new complications into 

the State examination process. 

The commenter was also concerned 

that, by implementing RESPA section 

6(h) through language similar but not 

identical to the statutory provision, 

proposed § 1024.33(d) would broaden 

the classes of State laws that are subject 

to RESPA section 6(h). The commenter 

focused on the omission in proposed 

§ 1024.33(d) of the word ‘‘such’’ from 

the statutory phrase ‘‘complied with the 

provisions of any such State law’’; and 

the omission of the phrase limiting the 

scope of RESPA section 6(h) to the 

‘‘timing, content, and procedures’’ for 

notification to the borrower under 

RESPA section 6.94

The Bureau disagrees with the 

commenter’s assertion that, by 

eliminating ‘‘such’’ from the statutory 

provision of ‘‘complied with the 

provisions of any such State law’’ 

(emphasis added), the Bureau has 

broadened the scope of the preemption 

from specific State laws requiring notice 

to broad classes of law. Section 

1024.33(d) makes clear that the State 

laws at issue are those requiring notice 

to borrower at the time of application 

for a loan or transfer of servicing of a 

loan, which the Bureau believes is 

consistent with the types of notices 

identified in RESPA section 6(h). The 

Bureau also disagrees with the 

commenter’s assertion that, by 

eliminating the statutory phrase, 

‘‘regarding timing, content, and 

procedures for notification of the 

borrower’’ from the description of the 

requirements under section 6 with 

which a servicer must comply to trigger 

preemption, the Bureau has broadened 

the preemption provision. Section 

1024.33(d) indicates that State laws and 

regulations are considered to be 

complied with if the lender or servicer 

complies with the requirements of ‘‘this 

section,’’ which refers to the regulatory 

section (1024.33) containing 

requirements regarding timing, content, 

and procedures for notifying borrowers 

about servicing transfers. Accordingly, 

the omission of the phrase regarding 

timing, content, and procedures does 

not substantively alter the meaning of 

section 6(h) of RESPA. 

Finally, the commenter suggested 

there may be tension between 

§ 1024.33(d) and § 1024.32(b), which 

provides that servicers can combine 

disclosures required by other laws or 

the terms of an agreement with a 

Federal or State regulatory agency with 

the disclosures required by subpart C. 

The Bureau does not believe these 

provisions are in conflict. Paragraph 

33(d) applies by its terms only to 

notification provisions in § 1024.33. To 

the extent § 1024.32(b) generally 

provides that servicers can combine 

disclosures required by other laws or 

the terms of an agreement with a 

Federal or State regulatory agency with 

the disclosures required by subpart C, 

the Bureau believes that servicers would 

understand that the more specific rule 

overrides the general rule with regard to 

servicing transfer disclosures. 

Section 1024.34 Timely Escrow 

Payments and Treatment of Escrow 

Account Balances In General 

In the 2012 RESPA Mortgage 

Servicing Proposal, the Bureau 

proposed to move the substance of 

current § 1024.21(g) to new § 1024.34(a) 

to require a servicer to pay amounts 

owed for taxes, insurance premiums, 

and other charges from an escrow 

account in a timely manner, pursuant to 

the requirements of current § 1024.17(k). 

The Bureau also proposed in new 

§ 1024.34(a) to make certain nonsubstantive amendments to the language 

of current § 1024.21(g). Further, the 

Bureau proposed to add new 

§ 1024.34(b) to implement Dodd-Frank 

Act amendments to section 6(g) of 

RESPA. The Bureau is adopting 

§ 1024.34 substantially as proposed, 

except as where noted in the section-bysection analysis below. 

34(a) Timely Escrow Disbursements 

Required 

RESPA section 6(g) provides that, if 

the terms of any federally related 

mortgage loan require the borrower to 

make payments to the servicer of the 

loan for deposit into an escrow account 

for the purpose of assuring payment of 

taxes, insurance premiums, and other 

charges with respect to the property, the 

servicer shall make payments from the 

escrow account for such taxes, 

insurance premiums, and other charges 

in a timely manner as such payments 

become due. 12 U.S.C. 2605(g). Current 

§ 1024.21(g) implements this provision 

by replicating the statutory nearly 

verbatim. Current § 1024.21(g) uses the 

term ‘‘mortgage servicing loan’’ in place 

of the statutory term ‘‘federally related 

mortgage loan’’ and includes a crossreference to § 1024.17(k), which sets 

forth more detailed requirements for 

how escrow payments are made in a 

timely manner. 

The Bureau proposed to incorporate 

the substance of current § 1024.21(g) 

into new § 1024.34(a) to provide that, if 

the terms of a mortgage loan require the 

borrower to make payments to the 

servicer of the mortgage loan for deposit 

into an escrow account to pay taxes, 

insurance premiums, and other charges 

for the mortgaged property, the servicer 

shall make payments from the escrow 

account in a timely manner, that is, on 

or before the deadline to avoid a 

penalty, as governed by the 

requirements in § 1024.17(k). 

As discussed above, the Bureau 

proposed to expand the scope of current 

§ 1024.21(g); proposed § 1024.34(a) 

would have replaced the term 

‘‘mortgage servicing loan’’ with the term 

‘‘mortgage loan,’’ which includes 

subordinate-lien loans. Other than this 

change in scope, the Bureau proposed 

several non-substantive technical 

revisions to the current provision. One 

commenter indicated that subordinatelien, closed-end loans typically do not 

have escrow accounts. The commenter 

asked that the Bureau clarify whether 

these rules would apply to subordinatelien loans to avoid confusion. 

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95As the Bureau explained in its proposal, the 

Bureau interprets the language ‘‘account with the 

same lender’’ consistent with secondary market 

practices. In addition, ‘‘lender’’ is defined in 

Regulation X to mean, generally, the secured 

creditor or creditors named in the debt obligation 

and document creating the lien. For loans 

originated by a mortgage broker that closes a 

federally related mortgage loan in its own name in 

a table funding transaction, the lender is the party 

to whom the obligation is initially assigned at or 

after settlement. 

The Bureau is adopting this provision 

as proposed. RESPA section 6(g), and 

both current § 1024.21(g) and new 

§ 1024.34(a), limit the applicability of 

the provision, among other things, to 

loans whose terms require the borrower 

to make payments to the servicer of the 

loan for deposit into an escrow account 

to pay taxes, insurance premiums, and 

other charges for the mortgaged 

property. Thus, if a subordinate-lien 

mortgage loan does not require 

borrowers to make payments into an 

escrow account, § 1024.34(a) would not 

apply. 

34(b) Refunds of Escrow Balance 

34(b)(1) In General 

As noted above, RESPA section 6(g) 

generally requires a servicer to make 

payments from an escrow account in a 

timely manner as payments become 

due. 12 U.S.C. 2605(g). Section 1463(d) 

of the Dodd-Frank Act amended RESPA 

section 6(g) by adding a provision 

requiring that any balance in any such 

account that is within the servicer’s 

control at the time the loan is paid off 

be promptly returned to the borrower 

within 20 business days or credited to 

a similar account for a new mortgage 

loan to the borrower with the ‘‘same 

lender.’’ The Bureau proposed to add 

§ 1024.34(b)(1) through (2) to implement 

this amendment to RESPA section 6(g). 

Proposed § 1024.34(b)(1) would have 

provided that, within 20 days 

(excluding legal public holidays, 

Saturdays, and Sundays) of a borrower’s 

payment of a mortgage loan in full, any 

amounts remaining in the escrow 

account shall be returned to the 

borrower. The Bureau explained in its 

proposal that the Bureau interprets the 

20-day allowance in RESPA section 6(g) 

to apply only if the servicer refunds the 

escrow account balance to the borrower 

(and not if the servicer credits a new 

account with the same lender, as 

provided in proposed § 1024.34(b)(2)). 

Several industry associations and a 

community bank commenter 

recommended that the Bureau permit 

servicers to net escrow funds against the 

payoff amount. These commenters 

noted that community banks frequently 

net escrow funds against a payoff 

balance, and they observed that 

requiring servicer to obtain a full payoff 

and then refund the escrow is costly and 

does not provide a benefit to the 

borrower. Another industry association 

commenter requested that the Bureau 

clarify that the borrower may direct how 

the escrow account funds should be 

applied. 

Based on these comments and upon 

further consideration, the Bureau has 

decided to revise the proposed 

regulatory text and commentary. To 

clarify the relationship between 

§ 1024.33(b)(1) and (b)(2), the Bureau 

has amended § 1024.34(b)(1) to provide 

that, ‘‘[e]xcept as provided in paragraph 

(b)(2),’’ a servicer shall return escrow 

funds to the borrower. Paragraph (b)(2) 

continues to give the servicer the option 

of applying the escrow account to the 

new loan in specified circumstances. 

Accordingly, servicers shall generally 

refund escrow amounts to the borrower, 

unless the servicer applies the escrow 

balance to a new account, as permitted 

under § 1024.33(b)(2). In addition, the 

Bureau has added language referring to 

amounts remaining in an escrow 

account ‘‘that is within the servicer’s 

control’’ to replicate language appearing 

in the statutory provision. The Bureau 

has also made minor technical wording 

clarifications, but is otherwise adopting 

the text of § 1024.34(b)(1) as proposed. 

The Bureau has also included 

comment 34(b)(1)–1 to clarify that 

§ 1024.34(b)(1) does not prohibit a 

servicer from netting any remaining 

funds in an escrow account against the 

outstanding balance of the borrower’s 

mortgage loan. The Bureau interprets 

RESPA section 6(g), as amended by the 

Dodd-Frank Act, as only requiring 

servicers to return escrow balances or 

credit a new account after the mortgage 

loan is paid off. The Bureau does not 

believe the Dodd-Frank Act amendment 

to RESPA section 6(g) was intended to 

affect the manner in which the loan is 

paid off. Accordingly, the Bureau has 

added comment 34(b)(1)–1 to clarify 

that servicers are not prohibited under 

§ 1024.34(b)(1) from netting any 

remaining funds in an escrow account 

against the borrower’s outstanding loan 

balance. 

34(b)(2) Servicer May Credit Funds to 

a New Escrow Account 

As amended by the Dodd-Frank Act, 

RESPA section 6(g) permits a servicer to 

credit the escrow account balance to an 

escrow account for a new mortgage loan 

to the borrower with the same lender if 

the servicer does not return the balance 

to the borrower within 20 business days. 

12 U.S.C. 2605(g). To implement this 

provision, the Bureau proposed to add 

new § 1024.34(b)(2) to provide that a 

servicer may credit funds in an escrow 

account balance to an escrow account 

for a new mortgage loan as of the date 

of the settlement of the new mortgage 

loan if the new mortgage loan is 

provided to the borrower by a lender 

that: (i) Was also the lender to whom the 

prior mortgage loan was initially 

payable; (ii) is the owner or assignee of 

the prior mortgage loan; or (iii) uses the 

same servicer that serviced the prior 

mortgage loan to service the new 

mortgage loan.95 Thus, if the servicer 

credits the funds in the escrow account 

to an escrow account for a new mortgage 

loan, the credit should occur as of the 

settlement of the new mortgage loan. 

The Bureau proposed to add comment 

34(b)(2)–1 to clarify that a servicer is not 

required to credit an escrow account 

balance to a new mortgage loan in any 

circumstance in which it would be 

permitted to do so. Thus, a servicer 

would have been permitted, in all 

circumstances, to return funds in an 

escrow account to the borrower 

pursuant to proposed § 1024.34(a). 

Several industry commenters 

supported proposed comment 34(b)(2)– 

1. However, several industry 

associations requested that the rule 

include an option for the borrower to 

direct how the escrow account funds 

should be applied. One industry trade 

association expressed concern that 

RESPA section 6(g) and proposed 

§ 1024.34 contained an ambiguity 

regarding the ability of a servicer to 

transfer funds retained in the escrow 

account to a new lender with the 

borrower’s consent. This commenter 

noted that, while neither RESPA section 

6(g) nor § 1024.34 explicitly prohibits 

this practice, the use of the term ‘‘same 

lender’’ in the statute and proposed 

§ 1024.34 creates uncertainty over 

whether a servicer may credit any 

excess escrow account balances to a 

new escrow account for a new mortgage 

loan with a new lender with the 

borrower’s consent. 

Section 1024.34(b)(2) provides that, 

notwithstanding § 1024.34(b)(1), if the 

borrower agrees, a servicer may credit 

any amounts remaining in an escrow 

account that is within the servicer’s 

control to an escrow account for a new 

mortgage loan as of the date of the 

settlement of the new mortgage loan if 

the new mortgage loan is provided to 

the borrower by a lender specified in 

§ 1024.34(b)(2)(i) through (iii). As in the 

proposal, these lenders are (i) the lender 

to whom the prior mortgage loan was 

initially payable; (ii) the lender that is 

the owner or assignee of the prior 

mortgage loan; or (iii) the lender that 

uses the same servicer that serviced the 

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10736 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

96The Bureau has added the following language 

to § 1024.34(b)(2): ‘‘Notwithstanding paragraph 

(b)(1) of this section * * *’’ 

97The Bureau has made a technical correction to 

comment 34(b)(2)–1 to replace the proposed 

comment’s reference to ‘‘§ 1024.34(a)’’ with a 

corrected reference to ‘‘§ 1024.34(b)(1).’’ 

prior mortgage loan to service the new 

mortgage loan. 

The Bureau has considered 

commenters’ recommendations to revise 

§ 1024.34 to permit servicers to credit 

escrow accounts for loans with a new 

lender with the borrower’s consent, but 

the Bureau declines to further amend 

proposed § 1024.34(b)(2) to expand the 

types of lenders with whom a 

borrower’s new mortgage loan may be 

credited. The Dodd-Frank Act amended 

RESPA section 6(g) to require that 

servicers either return remaining escrow 

account balances to the borrower within 

20 days or credit a new escrow account 

for a new mortgage loan with the ‘‘same 

lender,’’ which the Bureau has 

interpreted to be (i) the lender to whom 

the prior mortgage loan was initially 

payable; (ii) the lender that is the owner 

or assignee of the prior mortgage loan; 

or (iii) the lender that uses the same 

servicer that serviced the prior mortgage 

loan to service the new mortgage loan. 

The Bureau believes an additional 

exception to permit servicers to apply 

remaining escrow balances to lenders 

who are not the ‘‘same lender’’ within 

the meaning of RESPA section 6(g) 

would subsume the statutory provision. 

Moreover, the Bureau believes that the 

provision in § 1024.34(b)(1) (generally 

requiring servicers to return remaining 

escrow balances to borrowers within 20 

days of loan payoff) provides borrowers 

with sufficient flexibility to apply their 

funds as they wish. 

In addition, the Bureau has revised 

proposed § 1024.34(b)(2) to add the 

phrase ‘‘if the borrower agrees’’ to 

require servicers to obtain the 

borrower’s consent before crediting an 

escrow balance to a new escrow account 

for a new mortgage loan. The Bureau 

has added this language to ensure 

borrowers are informed of and agree to 

a servicer’s actions with respect to any 

remaining escrow balances if the 

servicer does not return the balance 

within 20 days under § 1024.34(b)(1). 

Moreover, unlike the 20-day period in 

which the servicer must otherwise 

refund escrow balances in 

§ 1024.34(b)(1), § 1024.34(b)(2) does not 

require that funds be credited within a 

particular time frame; the Bureau 

believes it is appropriate to include a 

requirement in § 1024.34(b)(2) that the 

borrower agrees before the servicer takes 

an action that could delay the 

disposition of the borrower’s escrow 

account balance. The Bureau also 

believes it is appropriate to include a 

requirement that borrowers agree to 

servicer actions under § 1024.34(b)(2) to 

avoid potential borrower confusion that 

might otherwise arise if a servicer did 

not refund an escrow balance within 20 

days, as required under § 1024.34(b)(1). 

Accordingly, the Bureau believes that 

the addition of the requirement that a 

borrower must agree under 

§ 1024.34(b)(2) is necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including to achieve the purposes of 

RESPA section 6(g) and to ensure 

responsiveness to borrower requests. 

This change is therefore authorized 

under sections 6(j)(3), 6(k)(1)(E), and 

19(a) of RESPA. The Bureau has also 

made technical revisions to proposed 

§ 1024.34(b)(2) to clarify its relationship 

to § 1024.34(b)(1), in light of the 

Bureau’s revision to § 1024.34(b)(1) in 

this final rule.96

To ensure servicers can easily credit 

funds to a new account, the Bureau has 

added comment 34(b)(2)–2, which 

explains that a borrower may provide 

consent either orally or in writing. The 

Bureau has also added language to 

§ 1024.34(b)(2), referring to amounts 

remaining in an escrow account ‘‘that is 

within the servicer’s control,’’ to 

replicate language appearing in the 

statutory provision. Finally, the Bureau 

is adopting comment 34(b)(2)–1 

substantially as proposed to clarify that 

a servicer is not required to credit funds 

in an escrow account to an escrow 

account for a new mortgage loan and 

may, in all circumstances, comply with 

the requirements of § 1024.34 by 

refunding the funds in the escrow 

account to the borrower pursuant to 

§ 1024.34(b)(1).97

Section 1024.35 Error Resolution 

Procedures 

Section 6(e) of RESPA requires 

servicers to respond to borrowers’ 

‘‘qualified written requests’’ that relate 

to the servicing of a loan, and 

§ 6(k)(1)(B) of RESPA, added by the 

Dodd-Frank Act, separately prohibits 

servicers from charging fees for 

responding to valid qualified written 

requests. Section 1463(a) of the DoddFrank Act amended RESPA to add new 

servicer prohibitions regarding 

borrowers’ assertions of error and 

requests for information. Specifically, 

section 1463(a) of the Dodd-Frank Act 

added section 6(k)(1)(C) to RESPA, 

which states that a servicer shall not 

‘‘fail to take timely action to respond to 

a borrower’s requests to correct errors 

relating to allocation of payments, final 

balances for purposes of paying off the 

loan, or avoiding foreclosure, or other 

standard servicer’s duties.’’ In addition, 

section 1463(a) of the Dodd-Frank Act 

added section 6(k)(1)(D) to RESPA 

which states that a servicer shall not fail 

to provide information regarding the 

owner or assignee of a borrower’s loan 

within ten business days of a borrower’s 

request. Neither Dodd-Frank Act 

provision suggests that a borrower 

request to correct an error or for 

information regarding the owner or 

assignee of the borrower’s loan must be 

in the form of a ‘‘qualified written 

request’’ to trigger the new servicer 

prohibitions. 

As explained in the proposal, the 

Bureau believed that both borrowers 

and servicers would be best served if the 

Bureau were to clearly define a 

servicer’s obligation to correct errors or 

respond to information requests as 

required by RESPA sections 6(k)(1)(C) 

and (D) and the RESPA provisions 

regarding qualified written requests. 

Thus, the Bureau proposed to establish 

comprehensive, parallel requirements 

for servicers to respond to specified 

notices of error and information 

requests. The Bureau proposed 

§ 1024.35 to set forth the error 

resolution requirements that servicers 

would be required to follow to respond 

to errors asserted by borrowers. The 

Bureau proposed § 1024.36 to set forth 

the information request requirements 

that servicers would be required to 

follow to respond to requests for 

information from borrowers. In doing 

so, the Bureau intended to establish 

servicer procedural requirements for 

error resolution and information 

requests that are consistent with the 

requirements applicable to a ‘‘qualified 

written request’’ that relates to the 

servicing of a loan under RESPA. Rather 

than create overlapping regimes that 

might confuse and frustrate both 

borrowers and servicers alike, the 

Bureau intended to create a uniform 

regulatory regime by subsuming the 

qualified written request rules in the 

new regime established and authorized 

by the Dodd-Frank Act for notices of 

error and requests for information more 

generally. The Bureau believed such a 

single regulatory regime would reduce 

the burden on both borrowers and 

servicers who otherwise would expend 

wasteful resources navigating between 

two separate regulatory regimes and 

parsing form requirements applicable to 

qualified written requests. To that end, 

the Bureau proposed to delete current 

§ 1024.21(e), the existing regulations 

concerning qualified written requests, 

and provide instead that a qualified 

written request asserting an error or 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10737 

98Notably, a notice of error may also constitute 

a direct dispute under Regulation V, which 

implements the Fair Credit Reporting Act, if it 

complies with the requirements in 12 CFR 1022.43. 

requesting information regarding the 

servicing of a mortgage loan would be 

subject to the new provisions governing 

notices of error and information 

requests, as applicable.98

Because the Bureau understands that 

the majority of borrower complaints are 

submitted orally, the Bureau proposed 

that both written and oral notices of 

error would be subject to the error 

resolution provisions. At the same time, 

the Bureau recognized that permitting 

oral error notices would significantly 

expand servicers’ responsibility to 

respond to notices of error. To enable 

servicers to allocate resources to 

respond to errors in a manner that 

would benefit borrowers, the Bureau 

proposed a limited list of errors to 

which the error resolution provisions 

would apply. As discussed in more 

detail below, industry commenters were 

unanimously opposed to applying error 

resolution requirements under proposed 

§ 1024.35 to errors asserted orally. 

Consumer advocacy group commenters 

expressed support for applying the 

requirements under § 1024.35 to oral 

error notices, but were strongly opposed 

to the proposal to limit those errors 

subject to error resolution procedures 

under proposed § 1024.35 to a finite list. 

Industry commenters supported 

inclusion of a limited list. Based on the 

Bureau’s consideration of these 

comments and the analysis below, the 

final rule does not require servicers to 

comply with error resolution procedures 

under § 1024.35 for oral notices of error. 

At the same time, the final rule includes 

a catch-all provision that defines as an 

error subject to the error resolution 

procedures under § 1024.35 errors 

relating to the servicing of a borrower’s 

mortgage loan. Moreover, the final rule 

provides that a servicer’s policies and 

procedures should be reasonably 

designed to provide information to 

borrowers who are not satisfied with the 

resolution of a complaint or request for 

information submitted orally of the 

procedures for submitting written 

notices of error and information 

requests. 

Some credit unions, community 

banks and their trade associations 

asserted that the Bureau should exempt 

small servicers from error resolution 

requirements under § 1024.35 and 

information request requirements under 

§ 1024.36. Commenters argued that 

small servicers effectively communicate 

with borrowers regarding complaints 

and information requests, and especially 

disfavored the proposed requirement 

that small servicers respond to oral 

notices of error and information 

requests. In contrast, a consumer 

advocacy group commenter asserted 

that exempting small servicers would be 

inappropriate, as all servicers should be 

capable of complying with error 

resolution and information request 

requirements. Having carefully 

considered these comments, the Bureau 

declines to exempt small servicers from 

error resolution procedures under 

§ 1024.35 and information request 

procedures under § 1024.36. As 

discussed above, §§ 1024.35 and 

1024.36, as finalized, do not require 

servicers to comply with such 

procedures for oral submissions by 

borrowers. In light of this adjustment, 

final §§ 1024.35 and 1024.36 primarily 

provide clarification as to existing 

obligations under RESPA and 

Regulation X. Moreover, the burden on 

all servicers is significantly mitigated. 

For these reasons, and the reasons 

discussed below, the Bureau declines to 

exempt small servicers from error 

resolution and information request 

procedures. 

Legal Authority 

Section 1024.35 implements section 

6(k)(1)(C) of RESPA, and to the extent 

the requirements are also applicable to 

qualified written requests, sections 6(e) 

and 6(k)(1)(B) of RESPA. Pursuant to the 

Bureau’s authorities under sections 6(j), 

6(k)(1)(E), and 19(a) of RESPA, the 

Bureau is also adopting certain 

additions and certain exemptions to 

these provisions. As explained in more 

detail below, these additions and 

exemptions are necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including ensuring responsiveness to 

consumer requests and complaints and 

the provision and maintenance of 

accurate and relevant information. 

35(a) Notice of Error 

Section 6(k)(1)(C) of RESPA, as added 

by section 1463(a) of the Dodd-Frank 

Act, prohibits servicers from failing to 

take timely action to respond to requests 

of borrowers to correct certain errors. 

However, unlike section 6(e) of RESPA, 

which sets forth specific rules for 

submission of and response to 

‘‘qualified written requests,’’ section 

6(k)(1)(C) of RESPA does not specify 

that borrowers’ requests to correct errors 

must be submitted in any particular 

format to trigger the new prohibition. 

Proposed § 1024.35(a) stated that a 

servicer must comply with the 

requirements of § 1024.35 for a notice of 

error made either orally or in writing 

and that included the name of the 

borrower, information that enabled a 

servicer to identify the borrower’s 

mortgage loan account, and the error the 

borrower believed had occurred. Section 

1024.35(a) was intended to implement 

RESPA section 6(k)(1)(C), with respect 

to borrower requests to assert errors 

generally, and RESPA section 6(e), with 

respect to qualified written requests by 

borrowers to correct errors, by defining 

what constituted a proper borrower 

request within the meaning of these 

provisions. The Bureau received 

comment on proposed § 1024.35(a) and 

is finalizing it with changes as 

discussed below. 

Substance Over Form 

The proposal included proposed 

comment 35(a)–2, which would have 

clarified that the substance of the notice 

of error would determine the servicer’s 

obligation to comply with the error 

resolution requirements, information 

request requirements, or both, as 

applicable. Proposed comment 35(a)–2 

stated that no particular language (such 

as ‘‘qualified written request’’ or ‘‘notice 

of error’’) is necessary to set forth a 

notice of error. The Bureau did not 

receive comment regarding proposed 

comment 35(a)–2 and is adopting it as 

proposed. 

Qualified Written Requests 

Proposed § 1024.35(a) would have 

required a servicer to treat a qualified 

written request that asserts an error 

relating to the servicing of a loan as a 

notice of error subject to the 

requirements of § 1024.35. The Bureau 

intended to propose servicer obligations 

applicable to qualified written requests 

that were the same as requirements 

applicable to other notices of error that 

met the requirements for assertions of 

error under § 1024.35(a). One consumer 

group commenter expressed support for 

the proposal because it dispensed with 

technicalities about whether an 

assertion of error constituted a valid 

qualified written request. A trade 

association commenter said the Bureau 

failed to define a valid qualified written 

request and said that proposed 

§ 1024.35 does not fully integrate 

section 6(e) of RESPA into the proposed 

error resolution procedures. Another 

trade association of private mortgage 

lenders said the proposal did not make 

clear what constitutes a qualified 

written request and to what extent 

servicers must continue to comply with 

existing law regarding qualified written 

requests. Having considered these 

comments, the Bureau notes that final 

§ 1024.31 defines the term ‘‘qualified 

written request.’’ In addition, as 

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10738 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

99See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, 30 (Jun, 11, 2012). 

100See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, 30 (Jun, 11, 2012). 

discussed above, the Bureau has added 

new comment 31 (qualified written 

request)-2, which clarifies that the error 

resolution and information request 

requirements in §§ 1024.35 and 1024.36 

apply as set forth in those sections 

irrespective of whether the servicer 

receives a qualified written request. 

Finally, the Bureau has revised 

proposed § 1024.35(a) to make clear in 

the final rule that a qualified written 

request that asserts an error relating to 

the servicing of a mortgage loan is a 

notice of error for purposes of § 1024.35 

for which a servicer must comply with 

all requirements applicable to a notice 

of error. 

Oral Notices of Error 

The Bureau proposed to require 

servicers to comply with the 

requirements under § 1024.35 for errors 

asserted by a borrower either orally or 

in writing. The Bureau believed this 

approach was warranted because, based 

on its discussions with consumers, 

consumer advocates, servicers, and 

industry trade associations during 

outreach, the Bureau learned that the 

vast majority of borrower complaints are 

asserted orally rather than in writing. 

The proposal solicited comment 

regarding whether servicers should be 

required to comply with the error 

resolution requirements under § 1024.35 

for notices of error received orally. 

The Bureau received a number of 

comments from both consumer groups 

and various industry members on this 

question. Consumer advocacy group 

commenters reiterated their support for 

applying the requirements under 

§ 1024.35 to notices of error made 

orally, noting that consumers most often 

assert errors and request information 

orally rather than in writing. In contrast, 

consumer commenters on Regulation 

Room disfavored the proposal’s 

application of the error resolution 

requirements under § 1024.35 to notices 

of error received orally. Consumer 

commenters, citing their negative 

experiences attempting to request 

information from servicers orally, were 

concerned that encouraging an oral 

process would weaken consumer 

protections. Industry commenters also 

opposed the proposal’s application of 

the error resolution requirements under 

§ 1024.35 to oral notices of error, albeit 

for different reasons. Industry 

commenters asserted that applying error 

resolution requirements to oral notices 

of error would create new burdens for 

servicers regarding tracking the notices 

of error and monitoring borrowers’ 

receipt of written acknowledgements 

and responses. Industry commenters 

further stressed that a written process 

would provide more clarity and 

certainty as to the nature of the error the 

borrower asserted and the 

communications from the servicer to the 

borrower during the conversation. 

Further, industry commenters asserted, 

written notices of error would help 

avoid situations in which the borrower 

and servicer have differing recollections 

as to the content of the borrower’s 

notice of error and the servicer’s 

response during the conversation. 

Absent a written record, commenters 

said, servicers would need to record 

conversations with borrowers to 

minimize the significant litigation risk. 

The commenters asserted that recording 

conversations could be especially costly 

for small servicers and would require 

the borrower’s consent in many 

jurisdictions. Some industry 

commenters also noted their belief that 

RESPA requires that borrowers assert 

errors in writing. 

Many of the concerns articulated by 

industry commenters were consistent 

with those expressed by small entity 

representatives with whom the Small 

Business Review Panel conducted 

outreach in advance of the proposal. 

The Small Business Review Panel 

recommended that the Bureau consider 

requiring small servicers to comply with 

the error resolution procedures under 

§ 1024.35 only when borrowers asserted 

errors in writing.99 The Small Business 

Review Panel also recommended that 

the Bureau consider adopting a more 

flexible process for tracking errors and 

demonstrating compliance that could be 

used by small servicers.100

The Bureau had anticipated many of 

these comments and had proposed to 

delimit the category of issues that could 

be raised through the error process to 

mitigate the challenges of identifying 

oral assertions of error. Nonetheless, 

after consideration of these comments 

and the comments received with respect 

to the Bureau’s definition of error as 

discussed below, the Bureau is 

amending proposed § 1024.35(a) to 

apply the error resolution requirements 

under § 1024.35 solely to notices of 

error received in writing, and the 

Bureau is broadening the definition of 

error as well. While borrowers may 

continue to assert errors orally, servicers 

will not be required to comply with the 

formal error resolution requirements 

outlined in § 1024.35 for such assertions 

of errors. Instead, the Bureau has added 

§ 1024.38(b)(1)(ii), which generally 

requires that servicers maintain policies 

and procedures that are reasonably 

designed to ensure that the servicer can 

investigate, respond to, and, as 

appropriate, make corrections in 

response to complaints, whether written 

or oral, asserted by borrowers. In 

addition, the Bureau has added a 

requirement in § 1024.38(b)(5) that 

servicers establish policies and 

procedures reasonably designed to 

achieve the objective of informing 

borrowers of the procedures for 

submitting written notices of error set 

forth in § 1024.35 and written 

information requests set forth in 

§ 1024.36. 

The Bureau believes that imposing the 

formal requirements under § 1024.35 

only to written notices of error and 

addressing oral notices of error instead 

through the policies and procedures 

requirements under § 1024.38 strikes the 

appropriate balance between ensuring 

responsiveness to consumer requests 

and complaints and mitigating the 

burden on servicers of following and 

demonstrating compliance with specific 

procedures with respect to oral notices 

of error. The Bureau believes that the 

need to provide additional flexibility to 

servicers with respect to responding to 

oral notices of error is particularly 

necessary in light of the Bureau’s further 

decision, as discussed below, to expand 

the list of covered errors under 

§ 1024.35 to include a catch-all 

provision for errors relating to the 

servicing of mortgage loans. On the one 

hand, the Bureau is persuaded, for the 

reasons discussed further below, that it 

should not delimit the set of issues that 

consumers should be able to raise 

within the error resolution process. On 

the other hand, the Bureau also is 

persuaded that determining from a 

telephone call from a borrower to a 

servicer whether the borrower is 

asserting an error rather than simply, for 

example, posing a question can be 

challenging. Drawing this line—and 

triggering the investigation and response 

requirement with respect to errors— 

would be exponentially more difficult if 

any concern relating to the servicing of 

the borrower’s mortgage loan could 

constitute an error. 

The final rule will thus require 

servicers to maintain policies and 

procedures reasonably designed to 

ensure that servicers investigate, 

respond to and, as appropriate, resolve 

oral complaints on a more informal 

basis, without having to follow the 

formal error resolution requirements, so 

long as the servicer has policies and 

procedures reasonably designed to 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10739 

101 In providing these examples, the Bureau is 

making no judgment regarding whether they fall 

within the meaning of ‘‘servicing’’ as defined in this 

rule. 

ensure that borrowers are informed of 

the written error resolution procedures. 

At the same time, the final rule will 

provide a broader definition of errors 

subject to the requirements of § 1024.35. 

Borrower’s Representative 

Proposed comment 35(a)–1 would 

have clarified that a notice of error 

submitted by an agent of the borrower 

is considered a notice of error submitted 

by the borrower. Proposed comment 

35(a)–1 would have further permitted 

servicers to undertake reasonable 

procedures to determine if a person who 

claims to be an agent of a borrower has 

authority from the borrower to act on 

the borrower’s behalf. Several industry 

commenters said it would be costly and 

burdensome to determine whether a 

third party has authority to act on a 

borrower’s behalf. Many requested 

clarification as to what the Bureau 

believes constitutes acting on the 

borrower’s behalf. Further, some 

industry commenters expressed concern 

about potential liability for the improper 

release of information, including the 

risk of violating State or Federal privacy 

laws, as well as what commenters 

perceived to be increased risk of 

identity theft and fraud. Finally, a few 

industry commenters took the position 

that only the borrower, but not the 

borrower’s agent, should be permitted to 

assert notices of error. 

Section 6(e)(1)(A) of RESPA states 

that a qualified written request may be 

provided by a ‘‘borrower (or an agent of 

the borrower).’’ Thus, one consumer 

advocacy group commenter noted that 

the proposal to permit borrowers’ agents 

to submit notices of error is consistent 

with the statutory requirement. 

Consumer groups also requested that the 

Bureau clarify that the timelines for 

error resolution will not toll during the 

period in which the servicer attempts to 

validate through reasonable policies and 

procedures that a third party purporting 

to act on a borrower’s behalf is, in fact, 

an agent of the borrower. 

Having considered these comments, 

the Bureau is amending proposed 

comment 35(a)–1 to address servicers’ 

concerns about potential liability for the 

improper release of information. The 

final comment clarifies that servicers 

may have reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf, for example, by 

requiring purported agents to provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. Upon receipt 

of such documentation, the servicer 

shall treat a notice of error as having 

been submitted by the borrower. The 

Bureau acknowledges that requiring 

servicers to respond to error notices 

submitted by borrowers’ agents is more 

costly than limiting the requirement to 

borrowers’ notices, but notes that this 

approach is consistent with section 

6(e)(1)(A) of RESPA with respect to a 

qualified written request. The Bureau 

believes that it is necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including ensuring responsiveness to 

borrower requests and complaints, to 

apply this requirement to all written 

notices of error, especially since 

borrowers who are experiencing 

difficulty in making their mortgage 

payments or in dealing with their 

servicer may turn, for example, to a 

housing counselor or other 

knowledgeable persons to assist them in 

addressing such issues. The Bureau 

declines to define further the term 

‘‘agent.’’ The concept of agency has 

historically been defined under State or 

other applicable law. Thus, it is 

appropriate for the definition to defer to 

applicable State law regarding agents. 

35(b) Scope of Error Resolution 

Section 6(e) of RESPA requires 

servicers to respond to ‘‘qualified 

written requests’’ asserting errors or 

requesting information relating to the 

servicing of a federally-related mortgage 

loan. Section 1463(a) of the Dodd-Frank 

Act amended RESPA to add section 

6(k)(1)(C), which states that a servicer 

shall not ‘‘fail to take timely action to 

respond to a borrower’s request to 

correct errors relating to allocation of 

payments, final balances for purposes of 

paying off the loan, or avoiding 

foreclosure, or other standard servicer’s 

duties.’’ The Bureau believes that 

standard servicer duties are those 

typically undertaken by servicers in the 

ordinary course of business. Such duties 

include not only the obligations that are 

specifically identified in section 

6(k)(1)(C) of RESPA, but also those 

duties that are defined as ‘‘servicing’’ by 

RESPA, as implemented by this rule, as 

well as duties customarily undertaken 

by servicers to investors and consumers 

in connection with the servicing of a 

mortgage loan. These standard servicer 

duties are not limited to duties that 

constitute ‘‘servicing,’’ as defined in this 

rule, and include, for example, duties to 

comply with investor agreements and 

servicing program guides, to advance 

payments to investors, to process and 

pursue mortgage insurance claims, to 

monitor coverage for insurance (e.g., 

hazard insurance), to monitor tax 

delinquencies, to respond to borrowers 

regarding mortgage loan problems, to 

report data on loan performance to 

investors and guarantors, and to work 

with investors and borrowers on options 

to mitigate losses for defaulted mortgage 

loans.101

Limited List 

The Bureau proposed § 1024.35(b) to 

implement section 6(k)(1)(C) of RESPA. 

Proposed § 1024.35(b) set forth a limited 

list of errors to which the error 

resolution provisions would apply. The 

Bureau proposed a limited list because 

it believed such a list would provide 

certainty to both borrowers and 

servicers regarding the types of errors 

that are subject to the error resolution 

process. Further, as discussed above, the 

Bureau believed a limited list would 

enable servicers to allocate resources to 

respond to errors in a manner that 

would ultimately benefit borrowers. The 

Bureau also considered that it was 

proposing to require servicers to 

respond to both oral and written error 

notices and information requests in 

compressed time periods. Finally, the 

Bureau considered the feedback the 

Small Business Review Panel received 

from small entity representatives 

regarding whether the error resolution 

procedures should include a catch-all 

provision to the enumerated list of 

errors. In general, small entity 

representatives commented favorably on 

the Bureau’s proposal to delimit the list 

of errors. 

The Bureau solicited comment 

regarding whether the list of errors to 

which error resolution procedures 

would apply should include a catch-all 

provision or be limited to an 

enumerated list. Industry commenters 

supported the establishment of a limited 

list of errors, noting certainty, clarity, 

and notice as its primary benefits. 

Consumer group commenters generally 

opposed limiting notices of error to an 

enumerated list. Consumer advocates 

asserted that the proposal was a 

departure from and offered fewer 

consumer protections than the existing 

qualified written request process under 

section 6 of RESPA, which incorporates 

a catch-all provision for errors relating 

to the servicing of a borrower’s mortgage 

loan. Some consumer advocates noted 

the reference in section 6(k)(1)(C) of 

RESPA to ‘‘standard servicer’s duties,’’ 

and argued that the catch-all provision 

should likewise cover all errors relating 

to ‘‘standard servicer’s duties.’’ In 

addition, some consumer group 

commenters noted the fluid nature of 

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10740 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

mortgage servicing and cautioned that a 

limited list of covered errors lacks the 

flexibility necessary to ensure that 

consumers will be adequately protected 

as servicing practices evolve. 

After consideration of these 

comments, and as discussed further 

below, the Bureau has decided to revise 

proposed § 1024.35(b) to include a 

catch-all that includes as an error errors 

relating to the servicing of a borrower’s 

mortgage loan. In addition, as discussed 

below, final § 1024.35(b) substantively 

retains the enumerated errors listed in 

the proposal. The Bureau believes 

revising proposed § 1024.35(b) in this 

manner is necessary and appropriate to 

achieve the consumer protection 

purposes of RESPA, including ensuring 

responsiveness to consumer requests 

and complaints in light of the fluidity of 

the mortgage market and the inability to 

anticipate in advance and delineate all 

types of errors related to servicing that 

borrowers may encounter, and which 

should be subject to the error resolution 

process under § 1024.35 to prevent 

borrower harm. At the same time, the 

Bureau believes that the costs and 

burdens created by having a more 

expansive definition of the term error 

are significantly mitigated because, as 

discussed above, the final rule applies 

error resolution requirements under 

§ 1024.35 only to written assertions of 

error. Moreover, the final rule 

implements an error resolution process 

that is consistent with the existing 

process for responding to qualified 

written requests under RESPA section 6, 

which includes a catch-all for servicingrelated errors. 

Covered Errors 

The Bureau proposed comment 35(b)– 

1, which would have clarified that a 

servicer would not be required to 

comply with the requirements of 

proposed § 1024.35(d) and (e) if a notice 

related to something other than one of 

the types of errors in proposed 

§ 1024.35(b). The proposed comment 

provided examples of categories of 

excluded errors that would not be 

considered covered errors pursuant to 

proposed § 1024.35(b). These included 

matters relating to the origination or 

underwriting of a mortgage loan, matters 

relating to a subsequent sale or 

securitization of a mortgage loan, and 

matters relating to a determination to 

sell, assign, or transfer the servicing of 

a mortgage loan. 

Industry commenters supported the 

proposed exclusion, noting that the 

categories the Bureau proposed to 

exclude are unrelated to servicing and 

largely beyond servicers’ knowledge. 

Some consumer group commenters 

objected that the proposed exclusions 

were overly broad. The Bureau believes 

that a mortgage servicer is generally not 

in a position to investigate or resolve 

borrower complaints regarding potential 

errors that may have occurred during an 

origination, underwriting, sale, or 

securitization process. Accordingly, the 

Bureau is adopting comment 35(b)–1 

substantially as proposed. The final 

comment clarifies that, in addition to 

§ 1024.35(d) and (e), servicers need not 

comply with § 1024.35(i) with respect to 

a borrower’s assertion of an error that is 

not defined as an error in § 1024.35(b). 

Final comment 35(b)–1 also includes a 

clarification that the failure to transfer 

accurately and timely information 

relating to a borrower’s loan account to 

a transferee servicer is an error for 

purposes of § 1024.35, while matters 

relating to an initial determination to 

transfer servicing are not. 

A trade association of reverse 

mortgage lenders also commented 

regarding the scope of the error 

resolution procedures, urging the 

Bureau to exclude reverse mortgages 

from the scope of covered error. Having 

considered this comment, the Bureau 

notes that servicers of reverse mortgage 

transactions are already subject to the 

qualified written request procedures set 

forth in section 6(e) of RESPA and 

§ 1024.21(e) of Regulation X. Likewise, 

pursuant to final § 1024.30, the error 

resolution requirements under § 1024.35 

apply to reverse mortgage transactions 

that are mortgage loans, as that term is 

defined in final § 1024.31. Accordingly, 

to the extent that a borrower asserts an 

error under § 1024.35 that is applicable 

to such a reverse mortgage, the servicer 

shall comply with error resolution 

procedures as to the error. For example, 

because § 1024.30 generally excludes 

servicers of reverse mortgage 

transactions from § 1024.41, errors 

asserted under § 1024.35(b)(9) and (10), 

discussed below, are not applicable to 

reverse mortgage transactions. 

35(b)(1) 

Proposed § 1024.35(b)(1) would have 

included as a covered error a servicer’s 

failure to accept a payment that 

conforms to the servicer’s written 

requirements for the borrower to follow 

in making payments. The Bureau 

proposed § 1024.35(b)(1) to implement, 

in part, section 6(k)(1)(C) of RESPA with 

respect to borrower requests to correct 

errors relating to allocation of payments 

for a borrower’s account and ‘‘other 

standard servicer’s duties.’’ 

A failure to accept a proper payment 

will necessarily have implications for 

the correct application of borrower 

payments. The Bureau further believes 

that proper acceptance of payments is a 

standard servicer duty. Moreover, 

proper acceptance of payments is, by 

definition, servicing, and already 

subject to the qualified written request 

procedure set forth in section 6(e) of 

RESPA and current § 1024.21(e) of 

Regulation X. The Bureau did not 

receive comment regarding proposed 

§ 1024.35(b)(1) and is adopting it as 

proposed. 

35(b)(2) 

Proposed § 1024.35(b)(2) would have 

included as an error a servicer’s failure 

to apply an accepted payment to the 

amounts due for principal, interest, 

escrow, or other items pursuant to the 

terms of the mortgage loan and 

applicable law. The Bureau proposed 

§ 1024.35(b)(2) to implement, in part, 

section 6(k)(1)(C) of RESPA with respect 

to borrower requests to correct errors 

relating to the allocation of payments for 

a borrower’s account and other standard 

servicer duties. Proper allocation of 

payments is also, by definition, 

servicing, and already subject to the 

qualified written request procedures set 

forth in section 6(e) of RESPA and 

current § 1024.21(e) of Regulation X. 

The Bureau did not receive comment 

regarding proposed § 1024.35(b)(2) and 

is adopting it as proposed. 

35(b)(3) 

Proposed § 1024.35(b)(3) would have 

included as an error a servicer’s failure 

to credit a payment to a borrower’s 

mortgage loan account as of the date of 

receipt, where such failure results in a 

charge to the consumer or the furnishing 

of negative information to a consumer 

reporting agency. The Bureau proposed 

§ 1024.35(b)(3) to implement, in part, 

section 6(k)(1)(C) of RESPA with respect 

to borrower requests to correct errors 

relating to the allocation of payments for 

a borrower’s account and other standard 

servicer duties. A failure to credit a 

payment as of the date of receipt may 

have implications for the correct 

application of borrower payments. A 

servicer’s failure to credit a payment 

promptly may cause the servicer to 

report to a borrower improper 

information regarding the amounts 

owed by the borrower and may cause a 

servicer to misapply other payments 

received by the borrower. Further, a 

servicer’s failure to credit borrower 

payments promptly may generate 

improper late fees and other charges. 

The Bureau further believes that prompt 

crediting of borrower payments is a 

standard servicer duty as set forth in 

section 6(k)(1)(C) of RESPA. The Bureau 

also observes that prompt crediting of 

borrower payments is, by definition, 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10741 

servicing and, therefore, is subject to the 

qualified written request procedure set 

forth in section 6(e) of RESPA. 

As the Bureau noted in the 2012 

RESPA Servicing Proposal, prompt 

crediting of payments to consumers is 

required by section 129F of TILA, which 

was added by section 1464 of the DoddFrank Act and will be implemented by 

§ 1026.36(c)(1) in the 2013 TILA 

Servicing Final Rule. For a mortgage 

loan secured by a principal dwelling, 

TILA section 129F mandates that 

servicers shall not fail to credit a 

payment to a consumer’s loan account 

as of the date of receipt, except when a 

delay in crediting does not result in any 

charge to the consumer, or in the 

furnishing of negative information to a 

consumer reporting agency. See 15 

U.S.C. 1639f. TILA section 129F 

provides a specific exception for 

payments that do not conform to a 

servicer’s written requirements, but 

nonetheless are accepted by the 

servicer, in which case the servicer shall 

credit the payment as of five days after 

receipt. See 15 U.S.C. 1639f(b). 

Servicers of mortgage loans covered by 

TILA section 129F have a duty to 

comply with that provision. 

A credit union and a non-bank 

servicer commented on proposed 

§ 1024.35(b)(3). The credit union 

requested greater flexibility as to 

payments received outside of the 

servicer’s operating hours or at the end 

of the business day. The non-bank 

servicing company requested 

clarification that the proposal was not 

intended to impact servicers’ ability as 

to scheduled interest loans to credit an 

account as of the receipt date and apply 

payment as of the scheduled due date. 

The Bureau believes § 1024.35(b)(3) as 

proposed would have provided 

servicers sufficient flexibility to credit 

payments, as it would have limited 

errors to where the failure to credit a 

payment as of the date of receipt results 

in a charge to consumers or furnishing 

of negative information to a credit 

reporting agency. Nevertheless, the 

Bureau recognizes that there would be 

little consumer benefit to subjecting 

servicers to potentially overlapping 

standards as to prompt crediting of 

borrowers’ accounts. At the same time, 

for those loans that are not subject to 

TILA section 129F, the Bureau believes 

that it would be inappropriate to extend 

the requirements of that provision 

beyond the scope mandated by 

Congress, as implemented by 

§ 1026.36(c)(1) of the 2013 TILA 

Servicing Final Rule. Accordingly, the 

Bureau is revising the proposed 

language in final § 1024.35(b)(3) to make 

clear that a servicer’s failure to credit a 

payment to a borrower’s mortgage loan 

account as of the date of receipt is an 

error only in those circumstances in 

which the failure to credit as of the date 

of receipt would contravene 

§ 1026.36(c)(1). Final § 1024.35(b)(3) 

defines as an error the failure to credit 

a payment to a borrower’s mortgage loan 

account as of the date of receipt in 

violation of 12 CFR 1026.36(c)(1). 

Because servicers will already be 

required to comply with § 1026.36(c)(1) 

with respect to certain mortgage loans 

they service, the Bureau does not 

believe that defining their failure to do 

so as an error imposes additional 

burden on servicers. 

35(b)(4) 

Proposed § 1024.35(b)(4) would have 

included as an error a servicer’s failure 

to make disbursements from an escrow 

account for taxes, insurance premiums, 

or other charges, including charges that 

the borrower and servicer have 

voluntarily agreed that the servicer 

should collect and pay, as required by 

current § 1024.17(k) and proposed 

§ 1024.34(a), or to refund an escrow 

account balance in a timely manner as 

required by proposed § 1024.34(b). The 

Bureau proposed § 1024.35(b)(4) to 

implement, in part, section 6(k)(1)(C) of 

RESPA with respect to borrower 

requests to correct errors relating to the 

allocation of payments for a borrower’s 

account and other standard servicer 

duties. 

In the normal course of business, 

servicers typically engage in collecting 

payments from borrowers to fund 

escrow accounts and disburse payments 

from escrow accounts to pay borrower 

obligations for taxes, insurance 

premiums, and other charges. Servicers 

typically undertake this obligation on 

behalf of investors because a borrower’s 

maintenance of an escrow account 

reduces risk for investors that unpaid 

taxes may generate tax liens that are 

higher in priority than a lender’s 

mortgage lien and that unpaid insurance 

may cause lapses in insurance coverage 

that present risk for investors in the 

event of a loss. Servicers are required to 

make disbursements from escrow 

accounts in a timely manner pursuant to 

section 6(g) of RESPA and are required 

to account for the funds credited to an 

escrow account pursuant to section 10 

of RESPA. In addition, the proper 

disbursement of escrow funds is, by 

definition, servicing and, therefore, is 

currently subject to the qualified written 

request procedure set forth in section 

6(e) of RESPA and current § 1024.21(e) 

of Regulation X. A credit union 

commenter agreed that proposed 

§ 1024.35(b)(4) should constitute an 

error. For the reasons set forth above 

and in the proposal, the Bureau is 

adopting § 1024.35(b)(4) as proposed. 

35(b)(5) 

Proposed § 1024.35(b)(5) would have 

included as an error a servicer’s 

imposition of a fee or charge that the 

servicer lacks a reasonable basis to 

impose upon the borrower. The Bureau 

proposed § 1024.35(b)(5) to implement, 

in part, section 6(k)(1)(C) of RESPA with 

respect to standard servicer duties. The 

Bureau believes that it is a typical 

servicer duty, both to the borrower and 

to the servicer’s principal, to ensure that 

the servicer has a reasonable basis to 

impose a charge on a borrower. 

The Bureau believes that servicers 

should not impose fees on borrowers 

that are not bona fide—that is, fees that 

a servicer does not have a reasonable 

basis to impose upon a borrower. 

Examples of non-bona fide charges 

include such common sense errors as 

late fees for payments that were not late, 

default property management fees for 

borrowers that are not in a delinquency 

status that would justify the charge, 

charges from service providers for 

services that were not actually rendered 

with respect to a borrower’s mortgage 

loan account, and charges for forceplaced insurance in circumstances not 

permitted by final rule § 1024.37. 

Improper fees harm both mortgage 

loan borrowers and the investors that 

are mortgage servicers’ principals. 

Improper and uncorrected fees harm 

borrowers by taking funds that may 

otherwise be used to keep a mortgage 

loan current. Further, improper fees 

reduce recovery values available to 

investors from foreclosures or loss 

mitigation activities. Servicers that 

operate in good faith in the normal 

course of business refrain from 

imposing charges on borrowers that the 

servicer does not have a reasonable 

basis to impose and correct errors 

relating to those fees when they arise. 

Industry commenters asserted that the 

term ‘‘reasonable basis’’ is open to 

interpretation and thus urged the 

Bureau to further define the term or to 

otherwise provide additional 

clarification. One credit union trade 

association suggested that the Bureau 

prohibit fees for which the servicer 

lacks a legal basis. Having considered 

these comments, the Bureau believes it 

is appropriate to provide more clarity as 

to what constitutes a fee for which a 

servicer lacks a reasonable basis. 

Accordingly, the Bureau has added new 

comment 35(b)–2, which provides 

examples of fees that a servicer lacks a 

reasonable basis to impose. The Bureau 

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10742 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

102 In the Bureau’s 2013 TILA Servicing Final 

Rule, the Bureau interpreted the use of the term 

‘‘home loans’’ to include consumer credit 

transactions secured by a consumer’s dwelling. 

103See, e.g., Mortgage Servicing: An Examination 

of the Role of Federal Regulators in Settlement 

Negotiations and the Future of Mortgage Servicing 

Standards: Joint Hearing Before the Subcomm. on 

Fin. Inst. & Consumer Credit & Subcomm. on 

Oversight & Investigations of the Hous. Fin. Serv. 

Comm., 112th Cong. 76 (July 7, 2011) (statement of 

Mike Calhoun, President, Center for Responsible 

Lending). 

is otherwise adopting § 1024.35(b)(5) as 

proposed. 

35(b)(6) 

Proposed § 1024.35(b)(6) would have 

included as an error a servicer’s failure 

to provide an accurate payoff balance to 

a borrower upon request pursuant to 12 

CFR 1026.36(c)(3). The Bureau intended 

through this provision to implement 

TILA section 129G, which was added by 

section 1464 of the Dodd-Frank Act and 

which requires that a creditor or 

servicer of a home loan send an accurate 

payoff balance amount to the borrower 

within a reasonable time, but in no case 

more than seven business days after the 

receipt of a written request for such 

balance from or on behalf of a borrower. 

The Bureau proposed § 1024.35(b)(6) to 

implement, in part, section 6(k)(1)(C) of 

RESPA with respect to borrower 

requests to correct errors relating to a 

final balance for purposes of paying off 

a mortgage loan and standard servicer 

duties. 

Servicers already have an obligation 

to comply with the timing requirements 

of section 129G of TILA with respect to 

any mortgage loan that constitutes a 

‘‘home loan’’ as used in section 129G of 

TILA.102 The Bureau proposed 

§ 1024.35(b)(6) because it believed, 

consistent with TILA section 129G, that 

borrowers require accurate payoff 

statements to manage their mortgage 

loan obligations. A payoff statement is 

necessary any time a borrower repays a 

mortgage loan, and servicers routinely 

provide payoff statements for borrowers 

to refinance or pay in full their mortgage 

loan obligations. However, consumer 

advocates have indicated that servicers 

have failed, or refused, to provide payoff 

statements to certain borrowers or have 

required borrowers to make a payment 

on a mortgage loan as a condition of 

fulfilling the borrower’s request for a 

payoff statement.103 Any such conduct 

has the perverse effect of impeding a 

borrower’s ability to pay a mortgage 

loan obligation in full. 

The Bureau did not receive comment 

regarding proposed § 1024.35(b)(6) but 

is revising the proposed language in the 

final rule to make clear that the failure 

to provide a payoff balance is an error 

only in those circumstances in which 

TILA section 129G, as implemented by 

§ 1026.36(c)(3) of the 2013 TILA 

Servicing Final Rule, applies. The 

Bureau recognizes that there would be 

little consumer benefit to subjecting 

servicers to potentially overlapping 

standards under TILA and RESPA as to 

the provision of a payoff statement. At 

the same time, for those loans that are 

not subject to TILA section 129G, the 

Bureau believes that it would be 

inappropriate to extend the 

requirements of the provision beyond 

the scope mandated by Congress, as 

implemented by § 1026.36(c)(3). 

Final § 1024.35(b)(6) defines as an 

error the failure to provide an accurate 

payoff balance amount upon a 

borrower’s request in violation of 

section § 1026.36(c)(3). Because 

servicers will already be required to 

comply with the timeframes set forth in 

§ 1026.36(c)(3) with respect to certain 

mortgage loans they service, the Bureau 

does not believe that defining their 

failure to do so as an error imposes 

additional burden on servicers. 

35(b)(7) 

Proposed § 1024.35(b)(7) would have 

included as an error a servicer’s failure 

to provide accurate information to a 

borrower with respect to loss mitigation 

options available to the borrower and 

foreclosure timelines that may be 

applicable to the borrower’s mortgage 

loan account, as required by proposed 

§§ 1024.39 and 1024.40. The Bureau 

proposed § 1024.35(b)(7) to implement, 

in part, section 6(k)(1)(C) of RESPA with 

respect to borrower requests to correct 

errors relating to avoiding foreclosure, 

as well as errors relating to standard 

servicer duties. 

In order to pursue loss mitigation 

options that may benefit both the 

borrower and the owner or assignee of 

the borrower’s mortgage loan, a 

borrower requires accurate information 

about the loss mitigation options 

available to the borrower, the 

requirements for receiving an evaluation 

for any such loss mitigation option, and 

the applicable timelines relating to both 

the evaluation of the borrower for the 

loss mitigation options and any 

potential foreclosure process. 

The Bureau believes that borrowers 

may benefit from asserting errors with 

respect to a servicer’s failure to provide 

information regarding loss mitigation 

options that may be available to the 

borrower but for which the servicer has 

not provided information to the 

borrower. By correcting such errors and 

providing the borrower with accurate 

information regarding such loss 

mitigation options, a servicer can help 

a borrower receive an evaluation for 

available loss mitigation options 

pursuant to § 1024.41 and to potentially 

receive an offer of such an option, 

which may be mutually beneficial to the 

borrower and the owner or assignee of 

the borrower’s mortgage loan. 

Further, the Bureau believes that the 

National Mortgage Settlement, servicer 

participation in Home Affordable 

Modification Program (HAMP) 

sponsored by the U.S. Department of the 

Treasury (Treasury) and HUD, and 

servicer participation in other loss 

mitigation programs required by Fannie 

Mae and Freddie Mac demonstrate that, 

at present, servicers typically provide 

borrowers with information regarding 

loss mitigation options and foreclosure 

and that providing such information to 

borrowers is a standard servicer duty. 

One non-bank servicer and one credit 

union commented on proposed 

§ 1024.35(b)(7). Both advocated against 

inclusion of a servicer’s failure to 

provide information regarding loss 

mitigation options as an error subject to 

error resolution procedures under 

§ 1024.35. The credit union asserted that 

lenders are incentivized to provide 

accurate loss mitigation information, as 

they try to avoid foreclosing upon 

properties. 

The Bureau believes it is critical for 

borrowers to have information regarding 

available loss mitigation options and 

requiring that a servicer comply with 

error resolution procedures as to a 

borrower assertion that a servicer failed 

to provide such information is 

important to ensure that borrowers 

receive this information. The Bureau 

does not believe there is significant risk 

that the rule will result in servicers 

limiting options offered to consumers, 

as investors and guarantors dictate the 

loss mitigation options available to 

borrowers. Further, the Bureau notes 

that the failure of a servicer to provide 

accurate information will create liability 

under this section only if the servicer 

fails to correct the error when called to 

its attention. Accordingly, the Bureau is 

adopting § 1024.35(b)(7) as proposed, 

except that the Bureau has removed the 

reference to § 1024.40 in light of other 

changes to the proposed rule. 

35(b)(8) 

Proposed § 1024.35(b)(8) would have 

included as an error a servicer’s failure 

to accurately and timely transfer 

information relating to a borrower’s 

mortgage loan account to a transferee 

servicer. The Bureau proposed 

§ 1024.35(b)(8) to implement, in part, 

section 6(k)(1)(C) of RESPA with respect 

to borrower requests to correct errors 

relating to standard servicer duties. 

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The Bureau believes that the accurate 

and timely transfer of information 

relating to a borrower’s mortgage 

account is a standard servicer duty. In 

the normal course of business, servicers 

typically anticipate that they will be 

required to transfer servicing for some 

mortgage loans they service. Owners or 

assignees of mortgage loans typically 

have rights to transfer servicing for a 

mortgage loan pursuant to the 

requirements set forth in mortgage 

servicing agreements. Servicers 

generally are required to develop 

capacity for transferring information to 

transferee servicers in order to comply 

with such obligations to owners or 

assignees of mortgage loans. Further, 

servicers generally are required to 

develop capacity to download data for 

transferred mortgage loans onto the 

servicer’s servicing platform. Borrowers 

may be harmed, however, if information 

that is transferred to transferee servicers 

is not accurate, current, or is not 

properly captured by a transferee 

servicer. In certain circumstances, such 

failure may cause errors to occur 

relating to allocating payments, 

calculating final balances for purposes 

of paying off a mortgage loan, or 

avoiding foreclosure. 

Accordingly, the 2013 RESPA 

Servicing Final Rule requires servicers 

to maintain policies and procedures 

reasonably designed to achieve the 

objective of facilitating servicing 

transfers. Specifically, § 1024.38(b)(4)(i) 

provides that as a transferor servicer, a 

servicer must maintain policies and 

procedures reasonably designed to 

ensure the timely transfer of all 

information and documents in the 

possession or control of the servicer 

relating to a transferred mortgage loan to 

a transferee servicer in a form and 

manner that ensures the accuracy of the 

information and enables a transferee 

servicer to comply with its obligations 

to the owner or assignee of the mortgage 

loan and applicable law. 

Under proposed § 1024.35(b)(8), a 

servicer’s failure to accurately and 

timely transfer information relating to a 

borrower’s mortgage loan account to a 

transferee servicer would constitute an 

error. The Bureau believes that by 

defining an error in this way, a borrower 

will have a remedy to ensure that a 

transferor servicer provides information 

to a transferee servicer that accurately 

reflects the borrower’s account 

consistent with the obligations 

applicable to a servicer’s general 

servicing policies and procedures. The 

Bureau did not receive comment 

regarding § 1024.35(b)(8) and is 

adopting it as proposed. 

35(b)(9) and 35(b)(10) 

Proposed § 1024.35(b)(9) would have 

included as an error a servicer’s failure 

to suspend a foreclosure sale in the 

circumstances described in proposed 

§ 1024.41(g). The Bureau proposed 

§ 1024.35(b)(9) to implement, in part, 

section 6(k)(1)(C) of RESPA with respect 

to borrower requests to correct errors 

relating to avoiding foreclosure and 

other standard servicer duties. 

Proposed § 1024.41(g) provided that a 

servicer that offers loss mitigation 

options to borrowers in the ordinary 

course of business would be prohibited 

from proceeding with a foreclosure sale 

when a borrower has submitted a 

complete application for a loss 

mitigation option by a specified date 

unless the servicer denies the 

borrower’s application for a loss 

mitigation option (including any appeal 

thereof), the borrower rejects the 

servicer’s offer of a loss mitigation 

option, or the borrower fails to perform 

on a loss mitigation agreement. These 

requirements are discussed in more 

detail in the section-by-section analysis 

for § 1024.41 below. 

A credit union commenter asserted 

that failure to suspend a foreclosure sale 

in the circumstances described in 

proposed § 1024.41(g) should not be 

considered an error subject to the error 

resolution requirements under § 1024.35 

because, the commenter reasoned, a 

lender will delay foreclosure when there 

is a legitimate need to do so. Having 

considered the comment, and as 

explained with respect to § 1024.41, the 

Bureau continues to believe it is 

appropriate to prohibit a servicer from 

completing the foreclosure process until 

after a borrower has had a reasonable 

opportunity to submit an application for 

a loss mitigation option and the servicer 

has completed the evaluation of the 

borrower for a loss mitigation option, 

and that a borrower should be able to 

assert an error where a servicer fails to 

comply with these procedures. 

The Bureau, however, is revising 

proposed § 1024.35(b)(9) in light of 

changes to proposed § 1024.41. Final 

§ 1024.35(b)(9) defines as an error 

subject to error resolution requirements 

under § 1024.35 making the first notice 

or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process in violation of § 1024.41(f) or (j). 

The Bureau has also added new 

§ 1024.35(b)(10) which defines as an 

error moving for foreclosure judgment 

or order of sale, or conducting a 

foreclosure sale in violation of 

§ 1024.41(g) or (j). 

35(b)(11) 

New § 1024.35(b)(11) includes a 

catch-all that applies error resolution 

procedures to errors relating to the 

servicing of a borrower’s mortgage loan. 

As discussed above, the Bureau 

solicited comment regarding whether 

the list of covered errors should include 

a catch-all provision. The Bureau also 

requested comment as to whether to add 

additional specific errors to the list of 

errors under § 1024.35. In particular, the 

Bureau solicited comment regarding 

whether to include as an error a 

servicer’s failure to correctly evaluate a 

borrower for a loss mitigation option. 

Industry commenters supported the 

inclusion of a limited list of errors, 

citing certainty, clarity, and notice as its 

primary benefits. Consumer group 

commenters generally opposed limiting 

notices of error to a finite list. Consumer 

advocates asserted that the proposal was 

a departure from and offered fewer 

consumer protections than the existing 

qualified written request process under 

section 6 of RESPA, which applies to all 

errors relating to servicing. In addition, 

some consumer group commenters 

noted the fluid nature of mortgage 

servicing and cautioned that a finite list 

lacks the flexibility necessary to ensure 

that consumers will be adequately 

protected as servicing practices evolve. 

As to whether the Bureau should add 

additional specific errors to the list of 

covered errors, some consumer groups 

suggested the addition of specific errors, 

including errors relating to escrow 

accounts, servicing transfer, disclosures, 

and loss mitigation, while also 

reiterating their support for a broad 

catch-all provision. While most industry 

commenters said the proposed list of 

covered errors was adequate, a credit 

union commenter suggested that the 

Bureau add requests to cancel liens once 

accounts have been paid in full. Both 

consumer groups and industry 

commented regarding whether to 

include a servicer’s failure to correctly 

evaluate a borrower for a loss mitigation 

option as an error. One consumer group 

urged the Bureau to do so, asserting that 

because the Dodd-Frank Act requires 

servicers to take timely action to correct 

errors relating to avoiding foreclosure, 

the plain language of the statute 

suggests that borrowers should be able 

to assert errors related to loss mitigation 

before they get to the point of a 

foreclosure sale. The commenter further 

contended that the appeals process set 

forth in proposed § 1024.41(h) will not 

hold servicers sufficiently accountable 

for uncorrected errors. The commenter 

said that borrowers need a statutory 

remedy for uncorrected errors. Another 

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consumer group advocated for a catchall sufficiently broad to capture the 

array of servicer loss mitigation duties. 

An industry association took the 

opposing view, citing concerns about 

the inability to objectively measure 

whether a servicer evaluated a borrower 

for an option correctly. The industry 

commenter requested that should the 

Bureau add this category as a covered 

error, the Bureau also clarify that a 

servicer who complies with § 1024.41 

has not committed the error. 

As noted in the proposal, the Bureau 

believes that the appeals process set 

forth in § 1024.41(h) provides an 

effective procedural means for 

borrowers to address issues relating to a 

servicer’s evaluation of a borrower for a 

loan modification program. For this 

reason, and the reasons stated below 

with respect to loss mitigation practices, 

the Bureau declines to add a servicer’s 

failure to correctly evaluate a borrower 

for a loss mitigation option as a covered 

error in the final rule. 

The Bureau is, however, adding new 

§ 1024.35(b)(11), which includes a 

catch-all that defines as an error subject 

to the requirements of § 1024.35 errors 

relating to the servicing of a borrower’s 

mortgage loan. The Bureau believes that 

any error related to the servicing of a 

borrower’s mortgage loan also relates to 

standard servicer duties. The Bureau 

also agrees with consumer advocacy 

commenters that the mortgage market is 

fluid and constantly changing and that 

it is impossible to anticipate with 

certainty the precise nature of the issues 

that borrowers will encounter. The 

Bureau, therefore, believes that it is 

necessary and appropriate to achieve 

the purposes of RESPA to craft error 

resolution procedures that are 

sufficiently flexible to adapt to changes 

in the mortgage market and to 

encompass the myriad and diverse types 

of errors that borrowers may encounter 

with respect to their mortgage loans. At 

the same time, the Bureau believes the 

costs and burdens created by having a 

more expansive definition of error are 

significantly mitigated because, as 

discussed above, under the final rule the 

requirements under § 1024.35 apply 

only to written notices of error. 

Moreover, the final rule adopts a 

process that is consistent with the 

existing process for responding to 

qualified written requests under RESPA 

section 6, which likewise includes a 

catch-all for servicing-related errors. 

The Bureau declines to add additional 

covered errors beyond the catch-all. 

35(c) Contact Information for Borrowers 

To Assert Errors 

The Bureau proposed § 1024.35(c), 

which would have permitted a servicer 

to establish an exclusive telephone 

number and address that a borrower 

must use to assert an error. If a servicer 

chose to establish a separate telephone 

number and address for receiving errors, 

the proposal would have required the 

servicer to provide the borrower a notice 

that states that the borrower may assert 

an error at the telephone number and 

address established by the servicer for 

that purpose. Proposed comment 35(c)– 

1 would have clarified that if a servicer 

has not designated a telephone number 

and address that a borrower must use to 

assert an error, then the servicer will be 

required to comply with the error 

resolution requirements for any notice 

of error received by any office of the 

servicer. Proposed comment 35(c)–2 

would have further clarified that the 

written notice to the borrower may be 

set forth in another written notice 

provided to the borrower, such as a 

notice of transfer, periodic statement, or 

coupon book. Proposed comment 35(c)– 

2 would have further clarified that if a 

servicer establishes a telephone number 

and address for receipt of notices of 

error, the servicer must provide that 

telephone number and address in any 

communication in which the servicer 

provides the borrower with contact 

information for assistance from the 

servicer. 

The Bureau proposed to allow 

servicers to establish a telephone 

number and address that a borrower 

must use to assert an error in order to 

allow servicers to direct oral and written 

errors to appropriate personnel that 

have been trained to ensure that the 

servicer responds appropriately. As the 

proposal noted, at larger servicers with 

other consumer financial service 

affiliates, many personnel simply do not 

typically deal with mortgage servicingrelated issues. For instance, at a major 

bank servicer, a borrower might assert 

an error to local bank branch staff, who 

likely would not have access to the 

information necessary to address their 

error. Thus, the Bureau reasoned, if a 

servicer establishes a telephone number 

and address that a borrower must use, 

a servicer would not be required to 

comply with the error resolution 

requirements for errors that may be 

received by the servicer through a 

different method. 

Most industry commenters favored 

allowing servicers to designate an 

address and telephone number to which 

borrowers must direct error notices. At 

the same time, such commenters 

asserted that creating an exclusive 

intake portal was not sufficient to offset 

the burdens inherent in permitting oral 

error notices to which error resolution 

requirements apply. Some commenters 

said that designating telephone lines for 

error notices could be especially costly 

for small servicers. Thus, one 

community bank trade association 

argued that the proposal favored large 

institutions. Two industry commenters 

requested clarification regarding how 

servicers must treat error notices sent to 

the wrong address. Finally, one credit 

union commenter asserted that servicers 

should only be required to include 

designated telephone numbers and 

addresses in regular forms of 

communication to borrowers, such as 

the periodic statement. In contrast, 

consumer group commenters suggested 

that to the extent a servicer designates 

a telephone line or address, the servicer 

should be required to post such 

information on its Web site and to 

include it in mailed notices. 

Because the final rule removes the 

requirement that servicers comply with 

error resolution requirements under 

§ 1024.35 for oral notices of error, the 

Bureau believes that it is no longer 

necessary to regulate the circumstances 

under which servicers may direct oral 

errors to an exclusive telephone number 

that a borrower must use to assert an 

error. However, for written error notices, 

the Bureau continues to believe that it 

is reasonable to permit servicers to 

designate a specific address for the 

intake of notices of error. Allowing a 

servicer to designate a specific address 

is consistent with current requirements 

of Regulation X with respect to qualified 

written requests. Current § 1024.21(e)(1) 

permits a servicer to designate a 

‘‘separate and exclusive office and 

address for the receipt and handling of 

qualified written requests.’’ Moreover, 

the Bureau believes that identifying a 

specific address for receiving errors and 

information requests will benefit 

consumers. By providing a specific 

address, servicers will identify to 

consumers the office capable of 

addressing errors identified by 

consumers. 

The Bureau believes it is critical for 

servicers to publicize any designated 

address to ensure that borrowers know 

how properly to assert an error and to 

avoid evasion by servicers of error 

resolution procedures. This is especially 

important because, as noted in the 

proposal, servicers who designate a 

specific address for receipt of error 

notices are not required to comply with 

error resolution procedures for notices 

sent to the wrong address. Accordingly, 

final § 1024.35(c) requires servicers that 

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designate an address for receipt of 

notices of error to post the designated 

address on any Web site maintained by 

the servicer if the Web site lists any 

contact address for the servicer. In 

addition, final comment 35(c)–2 retains 

the clarification that servicers that 

establish an address that a borrower 

must use to assert an error, must 

provide the address to the borrower in 

any communication in which the 

servicer provides the borrower with 

contact information for assistance. The 

Bureau is otherwise adopting 

§ 1024.35(c) and comments 35(c)–1 and 

35(c)–2 as proposed, except that the 

Bureau has revised the provisions 

permitting servicers to designate a 

telephone number that a borrower must 

use to assert an error and clarified that 

the notice to the borrower must be 

written. 

Multiple Offices 

Proposed § 1024.35(c) also included 

language that would have required a 

servicer to use the same telephone 

number and address it designates for 

receiving notices of error for receiving 

information requests pursuant to 

proposed § 1024.36(b), and vice versa. 

Further, the Bureau proposed comment 

35(c)–3, which would have clarified that 

any telephone numbers or address 

designated by a servicer for any 

borrower may be used by any other 

borrower to submit a notice of error. For 

instance, if a servicer set up regional 

call centers, it would have had to assist 

any borrowers who called in to a 

particular center to complain about an 

error, regardless of whether the 

borrower called the correct region. 

One non-bank servicer expressed 

concern about the proposal’s 

requirement to designate the same 

address and telephone number for 

notices of error and information 

requests. The commenter explained that 

it assigns separate teams to address 

information requests and error notices. 

Thus, the commenter asserted, proposed 

§ 1024.35(c) would negatively impact 

customer service. Having considered 

this comment, the Bureau notes that it 

proposed § 1024.35(c) because it was 

concerned that designating separate 

telephone numbers and addresses for 

notices of error and information 

requests could impede borrower 

attempts to submit notices of error and 

information requests to servicers due to 

debates over whether a particular 

communication constituted a notice of 

error or an information request. For the 

reasons set forth above and in the 

proposal, final § 1024.35(c) maintains 

the requirement that servicers designate 

the same address for receipt of notices 

of error and information requests. In 

addition, the Bureau is adopting 

comment 35(c)–3 as substantially as 

proposed, except that the Bureau has 

removed references to error notices 

received by telephone. 

The Bureau proposed comment 35(c)– 

5 to further clarify that a servicer may 

use automated systems, such as an 

interactive voice response system, to 

manage the intake of borrower calls. The 

proposal provided that prompts for 

asserting errors must be clear and 

provide the borrower the option to 

connect to a live representative. Because 

the final rule does not require servicers 

to comply with error resolution 

procedures for oral error notices, the 

Bureau is withdrawing proposed 

comment 35(c)–5 from the final rule. 

Internet Intake of Notices of Error 

The Bureau proposed comment 35(c)– 

4 to clarify that a servicer would not be 

required to establish a process for 

receiving notices of error through email, 

Web site form, or other online methods. 

Proposed comment 35(c)–4 was 

intended to further clarify that if a 

servicer establishes a process for 

receiving notices of error through online 

methods, the servicer can designate it as 

the only online intake process that a 

borrower can use to assert an error. A 

servicer would not be required to 

provide a written notice to a borrower 

in order to gain the benefit of the online 

process being considered the exclusive 

online process for receiving notices of 

error. Proposed comment 35(c)–4 would 

have further clarified that a servicer’s 

decision to accept notices of error 

through an online intake method shall 

be in addition to, not in place of, any 

processes for receiving error notices by 

phone or mail. 

One consumer group commenter 

advocated requiring servicers to 

establish on online process for receipt of 

error notices. The Bureau agrees that 

online processes have significant 

promise to facilitate faster, cheaper 

communications between borrowers and 

servicers. However, the Bureau believes 

that this suggestion raises a broader 

issue around the use of electronic media 

for communications between servicers 

(and other financial service providers) 

and borrowers (and other consumers). 

The Bureau believes it would be most 

effective to address this issue in that 

larger context after study and outreach 

to enable the Bureau to develop 

principles or standards that would be 

appropriate on an industry-wide basis. 

The Bureau is therefore, at this time, 

finalizing language to permit, but not 

require, servicers to elect whether to 

adopt such a process. The Bureau 

intends to conduct broader analyses of 

electronic communications’ potential 

for disclosure, error resolution, and 

information requests after the rule is 

released. Accordingly, the Bureau is 

adopting comment 35(c)–4 as proposed, 

with minor technical amendments, and 

the Bureau has removed references to 

error notices received by telephone. 

35(d) Acknowledgment of Receipt 

The Bureau proposed § 1024.35(d), 

which would have required a servicer to 

provide a borrower an 

acknowledgement of a notice of error 

within five days (excluding legal public 

holidays, Saturdays, and Sundays) of 

receiving a notice of error. Proposed 

§ 1024.35(d) would have implemented 

section 1463(c) of the Dodd-Frank Act, 

which amended the current 

acknowledgement deadline of 20 days 

for qualified written requests to five 

days. Proposed § 1024.35(d) would have 

further implemented the language in 

section 6(k)(1)(C) of RESPA prohibiting 

the failure to take timely action to 

respond to requests to correct errors by 

applying the same timeline applicable 

to a qualified written request to any 

notice of error. 

Industry commenters, including 

multiple credit union associations, 

requested that the Bureau lengthen the 

acknowledgment time period, asserting 

that five days is unreasonable, 

especially for smaller institutions. A 

nonprofit mortgage servicer said the 

timeframe is insufficient for its small 

volunteer staff. An industry trade 

association commenter argued that the 

acknowledgment requirement creates 

unnecessary paperwork and should be 

removed from the final rule altogether. 

In contrast, consumer group 

commenters were generally supportive 

of the acknowledgment requirement, 

noting that the timeline in the proposal 

was consistent with that in the DoddFrank Act for qualified written requests. 

The Bureau believes that 

acknowledgment within five days is 

appropriate given that the Dodd-Frank 

Act expressly adopts that requirement 

for qualified written requests and 

differentiating between the two regimes 

would increase operational complexity. 

Moreover, the burden on servicers is 

significantly mitigated by the fact that 

the error resolution procedures are only 

applicable to written notices of error. 

The Bureau further notes that the 

contents of the acknowledgment are 

minimal. In addition, servicers need not 

provide an acknowledgment if the 

servicer corrects the error identified by 

the borrower and notifies the borrower 

of that correction in writing within five 

days of receiving the error notice. 

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Accordingly, the Bureau is adopting 

§ 1024.35(d) substantially as proposed, 

except that the Bureau has revised the 

provision to clarify that the 

acknowledgment must be written. 

35(e) Response to Notice of Error 

The Bureau proposed § 1024.35(e) to 

set forth requirements on servicers for 

responding to notices of error. As 

discussed in more detail below, 

proposed § 1024.35(e) would have 

implemented the response requirement 

in section 6(e)(2) of RESPA applicable to 

a qualified written request, including 

section 1463(c) of the Dodd-Frank Act, 

which changed the deadline for 

responding to qualified written requests 

from 60 days to 30 days. Proposed 

§ 1024.35(e) would have further 

implemented section 6(k)(1)(C) of 

RESPA by applying the same 

requirements and timeline applicable to 

a qualified written request to any notice 

of error. 

35(e)(1) Investigation and Response 

Requirements 

Proposed § 1024.35(e)(1) would have 

required a servicer to correct an error 

within 30 days unless the servicer 

concluded after a reasonable 

investigation that no error occurred and 

notified the borrower of that finding. As 

discussed below, the Bureau maintains 

the 30-day timeline in the final rule. 

Notices to Borrower 

Proposed § 1024.35(e)(1)(i)(A) would 

have required a servicer that does not 

determine after a reasonable 

investigation that no error occurred as 

set forth under § 1024.35(e)(1)(i)(B), to 

correct the error identified by the 

borrower, and provide the borrower 

with notification that indicates that the 

error was corrected, the date of the 

correction, and contact information the 

borrower can use to get further 

information. One industry commenter 

asserted that RESPA does not require 

that servicers provide correction dates 

and questioned the utility of such a 

requirement. The commenter further 

requested clarification as to whether the 

date of correction was equivalent to the 

effective date of the correction. 

The Bureau did not intend the 

reference to the date of correction in 

§ 1024.35(e)(1)(i)(A) to refer to the date 

the correction was made by the servicer, 

but rather to the date the correction is 

made effective. Accordingly, the Bureau 

is amending proposed 

§ 1024.35(e)(1)(i)(A) to add the word 

‘‘effective’’ to the final rule in order to 

clarify that the date servicers must 

provide is the effective date of the 

correction. The Bureau believes that 

providing the effective date of the 

correction is meaningful information for 

a borrower to assess whether the 

servicer has satisfactorily corrected the 

error, particularly in cases involving 

changes to the balance of the borrower’s 

account. Commenters did not comment 

on other aspects of proposed 

§ 1024.35(e)(1)(i)(A), and the Bureau is 

adopting § 1024.35(e)(1)(i)(A) as 

proposed, except that the Bureau has 

revised the final rule to clarify that the 

notification must be provided in writing 

and the servicer’s contact information 

must include a telephone number. 

Proposed § 1024.35(e)(1)(i)(B) would 

have required a servicer that determines 

after conducting a reasonable 

investigation that no error occurred to 

provide the borrower a notice stating 

that the servicer has determined that no 

error has occurred, the reason(s) the 

servicer believes that no error has 

occurred, and contact information for 

servicer personnel that can provide 

further assistance. The proposal would 

have also required the servicer to inform 

the borrower in the notice that the 

borrower may request documents relied 

on by the servicer in reaching its 

determination and how the borrower 

can request such documents. In 

contrast, proposed § 1024.35(e)(1)(i)(A) 

would not have required a servicer who 

determines that an error has occurred 

and corrects the error to provide a 

statement in the notice to the borrower 

about requesting documents that were 

the basis for that determination. 

One consumer group commenter 

requested that the Bureau amend the 

proposed rule to address situations in 

which servicers make inaccurate 

determinations that no error occurred. 

The Bureau believes that, as proposed, 

the rule adequately addresses such 

scenarios by requiring disclosures about 

borrowers’ rights to request the 

information on which the servicer 

relied, so as to facilitate the borrower’s 

opportunity to review and consider 

further action as appropriate. The 

Bureau believes that the rule will 

facilitate the timely correction of errors 

and that borrowers are less likely to 

need documents and information when 

errors are corrected per the borrower’s 

requests. Accordingly, the Bureau is 

adopting § 1024.35(e)(1)(i)(B) as 

proposed, except that the Bureau has 

revised the provision to clarify that the 

notification must be written and the 

servicer’s contact information must 

include a telephone number. 

Multiple Responses 

The Bureau proposed comment 

35(e)(1)(i)–1 to clarify that if a notice of 

error asserts multiple errors, a servicer 

may respond to those errors through a 

single or separate written responses that 

address the alleged errors. The Bureau 

believes that the purpose of the rule, 

which is to require timely resolution of 

errors, is facilitated by allowing a 

servicer to respond to multiple errors set 

forth in a single notice of error through 

separate communications. For example, 

a servicer could correct one error and 

send a notice regarding the correction of 

that error, while an investigation is in 

process regarding another error that is 

the subject of the same notice of error. 

The Bureau did not receive any 

comments regarding proposed comment 

35(e)(1)(i)–1 and is adopting it as 

proposed. 

Different or Additional Error 

The Bureau proposed 

§ 1024.35(e)(1)(ii), which provided that 

if a servicer, during the course of a 

reasonable investigation, determines 

that a different or additional error has 

occurred, the servicer is required to 

correct that different or additional error 

and to provide a borrower a written 

notice about the error, the corrective 

action taken, the effective date of the 

corrective action, and contact 

information for further assistance. 

Because the servicer would be 

correcting an error, a servicer would not 

be required to provide a notice to the 

borrower about requesting documents 

that were the basis for that 

determination for the reasons discussed 

above. Proposed comment 35(e)(1)(ii)–1 

would have clarified that a servicer may 

provide the response required by 

§ 1024.35(e)(1)(ii) in the same notice 

that responds to errors asserted by the 

borrower pursuant to § 1024.35(e)(1)(i) 

or in a separate response that addresses 

the different or additional errors 

identified by the servicer. The Bureau 

did not receive any comments regarding 

proposed § 1024.35(e)(1)(ii) and 

comment 35(e)(1)(ii)–1 and is adopting 

both substantially as proposed. 

As discussed above, the Bureau 

believes that a consumer protection 

purpose of RESPA is to facilitate the 

timely correction of errors. Where a 

servicer discovers an actual error, this 

purpose is best served by requiring the 

servicer to correct that error subject to 

the same procedures that would have 

applied had the borrower asserted the 

same error through a qualified written 

request or notice of error. Accordingly, 

the Bureau finds that § 1024.35(e)(1)(ii) 

is necessary and appropriate to achieve 

the consumer protection purposes of 

RESPA, including of facilitating the 

timely correction of errors. 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10747 

35(e)(2) Requesting Information From 

Borrower 

Proposed § 1024.35(e)(2) would have 

permitted a servicer to request that a 

borrower provide documentation if 

needed to investigate an error but would 

not have permitted a servicer to require 

the borrower to provide such 

documentation as a condition of 

investigating the asserted error. Further, 

proposed § 1024.35(e)(2) would have 

prohibited a servicer from determining 

that no error occurred simply because 

the borrower failed to provide the 

requested documentation. The Bureau 

proposed § 1024.35(e)(2) to allow 

servicers to obtain information that may 

assist in resolving notices of error. 

Several industry commenters stressed 

the importance of permitting reasonable 

requests for information from borrowers. 

Commenters said that limiting servicers’ 

access could impede the early 

resolution of errors. One industry 

commenter asked that the Bureau clarify 

that servicers may request documents so 

long as they do not condition 

investigation on the receipt of 

documents. Other commenters 

requested clarification that requiring a 

borrower to provide specific 

information about what the borrower is 

requesting does not constitute requiring 

a borrower to provide information as a 

condition of conducting the 

investigation. 

Having considered these comments, 

the Bureau believes the proposed rule 

strikes the right balance by permitting 

servicers to request documents from 

borrowers so long as the servicer’s 

investigation and conclusion that no 

error occurred is not dependent on the 

receipt of documents. As stated in the 

proposal, the Bureau believes that the 

process for servicers to obtain 

information from borrowers should not 

prejudice the ability of the borrower to 

seek the resolution of the error. 

Accordingly, the Bureau is adopting 

§ 1024.35(e)(2) as proposed with minor 

technical amendments. 

35(e)(3) Time Limits 

35(e)(3)(i) 

The Bureau proposed 

§ 1024.35(e)(3)(i), which would have 

required a servicer to respond to a 

notice of error not later than 30 days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

borrower notifies the servicer of the 

asserted error, with two exceptions: 

Errors relating to accurate payoff 

balances and errors relating to failure to 

suspend a foreclosure sale where a 

borrower has submitted a complete 

application for a loss mitigation option. 

As discussed further below, the 

proposal would have required servicers 

to respond to errors relating to payoff 

balances within five days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the servicer receives the 

notice of error. The Bureau believed this 

shortened timeframe was appropriate 

because a servicer’s failure to correct 

such an error may prevent a borrowing 

from pursuing options in the interim, 

such as a refinancing transaction. The 

proposal would have also required 

servicers to respond to errors relating to 

the failure to suspend a foreclosure sale 

where a borrower has submitted a 

complete application the earlier of 

within 30 days (excluding legal public 

holidays, Saturdays, and Sundays) after 

the servicer receives the error notice or 

prior to the foreclosure sale. The Bureau 

believed the shorter timeline was 

appropriate because delaying the 

response and investigation until after 

the foreclosure sale could cause 

irreparable harm to the borrower. 

While several industry commenters 

asserted that 30 days was insufficient 

for error notices, one credit union stated 

that the timeline was reasonable. 

Similarly, a consumer group commenter 

noted that the timeline was consistent 

with the time period for qualified 

written requests required by the DoddFrank Act. Consumer commenters on 

Regulation Room asserted that the 

timelines were too generous. The 

Bureau believes that the 30-day 

timeframe proposed is appropriate given 

that the Dodd-Frank Act expressly 

changed the timeframe for qualified 

written requests from 60 days to 30 days 

and differentiating between two regimes 

would increase operational complexity 

as well as burden on borrowers and 

servicers. Accordingly, the final rule 

adopts the 30-day timeline as proposed. 

Shortened Time Limit To Correct Errors 

Relating to Payoff Balances 

Proposed § 1024.35(e)(3)(i)(A) would 

have provided that if a borrower 

submits a notice of error asserting that 

a servicer has failed to provide an 

accurate payoff balance as set forth in 

proposed § 1024.35(b)(6), a servicer 

must respond to the notice of error not 

later than five days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the borrower notifies the 

borrower of the alleged error. The 

Bureau proposed the accelerated 

timeframe because it believed that a 30- 

day deadline for responding to this type 

of notice of error would not provide 

adequate protection for borrowers 

because the servicer’s failure to correct 

the error promptly may prevent a 

borrower from pursuing options in the 

interim such as a refinancing 

transaction. Moreover, discussions with 

servicers during outreach suggested that 

a five day timeframe would be 

reasonable for a servicer to correct an 

error with respect to calculating a payoff 

balance. 

Industry commenters noted the 

complexity involved in calculating 

payoff balances, especially where 

servicers need to collect information 

from third parties, such as fee 

information from vendors or prior 

servicers. In light of the complexity 

involved, industry commenters asserted 

that the timeframe was insufficient. 

While the Bureau continues to believe 

it is important to have an accelerated 

timeline for errors associated with 

payoff balances, the Bureau 

acknowledges that in some 

circumstances the need to collect 

information from third parties may pose 

timing challenges. Accordingly, the 

Bureau has revised proposed 

§ 1024.35(e)(3)(i)(A) to provide that a 

servicer must respond to a borrower’s 

notice of error asserting that a servicer 

has failed to provide an accurate payoff 

balance as set forth in § 1024.35(b)(6) 

not later than seven days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the borrower notifies the 

servicer of the alleged errors. The 

Bureau believes that this modest 

increase in the timeline strikes the right 

balance between prompt provision of 

payoff information to consumers and 

the need for servicers to have sufficient 

time to access the required information. 

Moreover, the Bureau also notes that 

section 129G of TILA requires servicers 

to provide accurate payoff balance 

amounts to consumers within a 

reasonable time, but in no case more 

than seven business days. Otherwise, 

the Bureau is adopting 

§ 1024.35(e)(3)(i)(A) as proposed, with 

minor technical amendments. 

Shortened Time Limit To Correct 

Certain Errors Relating to Foreclosure 

Proposed § 1024.35(e)(3)(i)(B) would 

have provided that if a borrower 

submits a notice of error asserting, 

under § 1024.35(b)(9), that a servicer has 

failed to suspend a foreclosure sale, a 

servicer would be required to 

investigate and respond to the notice of 

error by the earlier of 30 days (excluding 

legal public holidays, Saturdays, and 

Sundays) or the date of a foreclosure 

sale. Proposed comment 35(e)(3)(i)(B)–1 

would have clarified that a servicer 

could maintain a 30-day timeframe to 

respond to the notice of error if it 

cancels or postpones the foreclosure 

sale and a subsequent sale is not 

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10748 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

scheduled before the expiration of the 

30-day deadline. 

The Bureau believes the shortened 

timeframe is appropriate because, given 

the complexity of the process, servicers 

may mistakenly fail to suspend a 

foreclosure. Thus, the Bureau believes 

borrowers may reasonably benefit from 

the opportunity to have servicers 

investigate and respond to notices of 

error regarding such failures before the 

foreclosure sale. The Bureau believes 

that a timeframe that allowed a servicer 

to investigate and respond to the notice 

of error after the date of a foreclosure 

sale would cause irreparable harm to a 

borrower. Accordingly, the Bureau is 

adopting § 1024.35(e)(3)(i)(B) and 

comment 35(e)(3)(i)(B)–1 as proposed, 

except for minor technical amendments 

and that the Bureau has revised 

§ 1024.35(e)(3)(i)(B) to reference both 

§ 1024.35(b)(9) and (10). 

Extensions of Time Limit 

Proposed § 1024.35(e)(3)(ii) would 

have permitted, subject to certain 

exceptions discussed below, a servicer 

to extend the time period for 

investigating and responding to a notice 

of error by 15 days (excluding legal 

public holidays, Saturdays, and 

Sundays) if, before the end of the 30-day 

period set forth in proposed 

§ 1024.35(e)(3)(i)(C), the servicer notifies 

the borrower of the extension and the 

reasons for the delay in responding. 

Proposed comment 35(e)(3)(ii)–1 would 

have clarified that if a notice of error 

asserts multiple errors, a servicer may 

extend the time period for investigating 

and responding to those errors for 

which extensions are permissible 

pursuant to proposed § 1024.35(e)(3)(ii). 

While some consumer groups 

generally objected to the proposed 

extension, one industry commenter 

urged the Bureau to permit two 

automatic 15-day extensions. The 

Bureau does not believe that permitting 

a second 15-day extension would 

promote timely resolution of errors. 

Section 1463(c)(3) of the Dodd-Frank 

Act amended section 6(e) of RESPA to 

provide one 15-day extension of time 

with respect to qualified written 

requests, and the Bureau believes that 

differentiating between two regimes 

would increase operational complexity. 

The Bureau did not propose to apply 

the extension allowance of proposed 

§ 1024.35(e)(3)(ii) to investigate and 

respond to errors relating to a servicer’s 

failure to provide an accurate payoff 

statement or to suspend a foreclosure 

sale. As discussed above, the final rule 

applies a shortened timeframe for 

responding to such errors in light of 

special statutory provisions and special 

considerations at the foreclosure stage. 

Permitting a 15-day extension of those 

timeframes would negate these 

shortened response periods and 

undermine the purposes served by 

shortening them. For the reasons set 

forth above and in the proposal, the 

Bureau is adopting § 1024.35(e)(3)(ii) 

and comment 35(e)(3)(ii)–1 substantially 

as proposed. 

35(e)(4) Copies of Documentation 

Proposed § 1024.35(e)(4) would have 

required that, where a servicer 

determines that no error occurred and a 

borrower requests the documents the 

servicer relied upon, the servicer must 

provide the documents within 15 days 

of the servicer’s receipt of the 

borrower’s request. The Bureau 

proposed comment 35(e)(4)–1 to clarify 

that a servicer would need only provide 

documents actually relied upon by the 

servicer to determine that no error 

occurred, not all documents reviewed 

by a servicer. Further, the proposed 

comment stated that where a servicer 

relies upon entries in its collection 

systems, a servicer may provide printouts reflecting the information entered 

into the system. 

Some industry commenters 

questioned the utility of providing 

documents relied upon to borrowers, 

noting that borrowers may not 

understand how to interpret the 

documents printed from servicers’ 

systems. Industry commenters said 

providing such documents will be 

burdensome, and one commenter added 

that the Dodd-Frank Act neither 

requires nor contemplates such a 

requirement. One commenter urged the 

Bureau to clarify that servicers need 

only provide borrowers a summary of 

information that is stored electronically 

and not in a producible format. And 

several industry commenters urged the 

Bureau to limit servicers’ responsibility 

to provide documents that reflect trade 

secrets or other sensitive information. 

The Bureau believes the proposed 

rule strikes the right balance in that it 

does not subject servicers to undue 

paperwork burden but assures that 

borrowers will have access to 

underlying documentation if necessary. 

In certain cases, a borrower may 

determine that the servicer’s response 

resolves an issue and that reviewing 

documents would be unnecessary. 

Thus, the Bureau believes that requiring 

a servicer to provide documents only 

upon a borrower’s request limits 

burden. The Bureau understands that 

servicers may store information 

electronically and not in a readily 

producible format. Accordingly, the 

Bureau is adopting final comment 

35(e)(4)–1, which clarifies that servicers 

may provide a printed screen capture in 

such situations, as proposed with minor 

technical amendments. In addition, the 

Bureau acknowledges industry 

commenters’ concern regarding 

providing confidential or sensitive 

information to borrowers. Accordingly, 

the Bureau has revised proposed 

§ 1024.35(e)(4) to provide that servicers 

need not produce to borrowers 

documents reflecting confidential, 

proprietary or privileged information. 

Final § 1024.35(e)(4) further provides 

that if a servicer withholds documents 

relied upon because such documents 

reflect confidential, proprietary or 

privileged information, the servicer 

must notify the borrower of its 

determination in writing. The Bureau is 

otherwise adopting § 1024.35(e)(4) as 

proposed. 

35(f) Alternative Compliance 

Proposed § 1024.35(f) provided that a 

servicer would not be required to 

comply with the timing and process 

requirements of paragraphs (d) and (e) 

of proposed § 1024.35 in two situations. 

First, a servicer that corrects the error 

identified by the borrower within five 

days of receiving the notice of error, and 

notifies the borrower of the correction in 

writing, would not be required to 

comply with the acknowledgment, 

notice and inspection requirements in 

paragraphs (d) and (e). Because such 

errors are corrected, an investigation 

would not be required. Second, a 

servicer that receives a notice of error 

for failure to suspend a foreclosure sale, 

pursuant to § 1024.35(b)(9), seven days 

or less before a scheduled foreclosure, 

would not be required to comply with 

paragraphs (d) and (e), if, within the 

time period set forth in paragraph 

(e)(3)(i)(B), the servicer responds to the 

borrower, orally or in writing, and 

corrects the error or states the reason the 

servicer has determined that no error 

has occurred. 

35(f)(1) Early Correction 

The Bureau proposed § 1024.35(f)(1) 

to permit alternative compliance as to 

errors resolved within the first five days. 

This provision is consistent with section 

6(e)(1)(A) of RESPA, which requires 

servicers to provide written 

acknowledgment of a qualified written 

request within five days (excluding legal 

public holidays, Saturdays, and 

Sundays) ‘‘unless the action requested is 

taken within such period.’’ In addition, 

the alternative compliance mechanism 

in proposed § 1024.35(f)(1) was based 

on feedback from servicers during 

outreach, and especially small servicers, 

which indicated that the majority of 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10749 

104See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, 30 (Jun, 11, 2012). 

errors are addressed promptly after a 

borrower’s communication and 

generally within five days. Small entity 

representatives communicated to the 

Small Business Review Panel that small 

servicers have a high-touch customer 

service model, which made it very easy 

for borrowers to report errors or make 

inquiries, and to receive real-time 

responses. The Bureau believed the 

alternative compliance method was 

necessary and appropriate to reduce the 

unwarranted burden of an 

acknowledgement and other response 

requirements on servicers, and 

especially small servicers, that are able 

to correct borrower errors within five 

days consistent with the Small Business 

Review Panel recommendation that the 

Bureau consider requirements that 

provide flexibility to small servicers. 

Industry commenters supported the 

proposal’s exemption of servicers from 

complying with paragraphs (d) and (e) 

where the servicer corrects the error 

identified by the borrower within five 

days of receiving the notice of error. 

However, industry commenters opposed 

the requirement that servicers notify 

borrowers of the correction in writing. 

Commenters reasoned that a significant 

number of errors are asserted and 

quickly resolved in a single telephone 

call. Accordingly, commenters argued 

that the requirement to advise borrowers 

of the correction in writing would be 

burdensome. 

The Bureau believes that because the 

final rule subjects written but not oral 

notices to error resolution requirements 

under § 1024.35, the commenters’ 

concerns regarding written notice of 

correction has been significantly 

mitigated. To the extent that a borrower 

asserts an error in writing which the 

servicer resolves within five days, the 

Bureau believes the borrower will 

benefit from receiving the written 

notification. For these reasons, the 

Bureau adopts § 1024.35(f)(1) as 

proposed, except that the Bureau has 

revised the provision to make clear that 

the servicer must provide such 

notification within five days of 

receiving the notice of error. 

35(f)(2) Errors Asserted Before 

Foreclosure Sale 

As explained in proposed 

§ 1024.35(f)(2), the Bureau believes that 

it is appropriate to streamline 

acknowledgment and response 

requirements when servicers receive a 

notice of error that may impact a 

foreclosure sale less than seven days 

before a foreclosure sale. Notices of 

errors identified in § 1024.35(b)(9) and 

(10), which focus on the failure to 

suspend a foreclosure sale in the 

circumstances described in § 1024.41(f), 

(g), or (j), implicate this concern. 

Numerous entities, including other 

federal agencies and small entity 

representatives during the Small 

Business Review Panel outreach, 

expressed concern about borrower use 

of error resolution requirements as a 

procedural tool to impede proper 

foreclosures and promote litigation.104

Industry commenters reiterated 

concerns heard during pre-proposal 

outreach that borrowers could use the 

error resolution requirements to halt 

foreclosure sales, including minutes 

before a foreclosure sale. One industry 

commenter stressed that in some 

circumstances, whether to proceed with 

foreclosure will be beyond the servicer’s 

control, as some courts will not cancel 

foreclosure after a certain date and 

Freddie Mac can override a servicer’s 

request to postpone or cancel a sale. 

Thus, two commenters urged the Bureau 

to exempt from liability servicers 

required by an investor, insurer, 

guarantor or legal requirement to 

proceed with a foreclosure sale. Another 

industry commenter requested an 

exception for those borrowers who have 

had their claims heard by a court, 

asserting that servicers need finality and 

that extending foreclosure timelines is 

costly. In contrast, consumer group 

commenters opposed the alternative 

compliance option for errors asserted 

within seven days of a foreclosure sale. 

Consumer groups asserted that servicers 

should be required to communicate 

with borrowers in writing. In addition, 

some consumer group commenters 

reasoned that because proposed 

§ 1024.35(f)(2) would exempt the 

servicer from the requirement to 

conduct an investigation or provide the 

borrower with the documents relied 

upon in reaching its determination that 

no error occurred, it would effectively 

permit servicers to ignore valid requests 

for postponement so long as the servicer 

sends a letter stating that no error 

occurred. 

Having considered these comments, 

the final rule provides that for error 

notices submitted seven days or less 

before a foreclosure sale that assert an 

error identified in § 1024.35(b)(9) or 

(10), servicers are not required to 

comply with the requirements for 

acknowledgement and response to 

notices of error, but must make a good 

faith attempt to respond to borrowers, 

orally or in writing, and to either correct 

the error or state the reason the servicer 

has determined no error occurred. As 

stated in the proposal, the Bureau 

believes that reducing the procedural 

requirements for servicers to follow for 

such notices mitigates the concern that 

borrowers may use error resolution 

procedures to impede foreclosure, while 

maintaining protection for consumers. 

The Bureau believes that this alternative 

compliance method is also consistent 

with the Small Business Review Panel 

recommendation that the Bureau 

provide flexibility to small servicers and 

responds to small entity representatives’ 

concern that error resolution procedures 

may be used in unwarranted litigation. 

Further, the Bureau understands the 

timing to be consistent with the GSE 

requirement that servicers conduct 

account reviews to document that all 

required actions have occurred at least 

seven days prior to a foreclosure sale. 

The Bureau declines to revise the 

proposal to require that servicers 

communicate with borrowers in writing, 

as the Bureau believes servicers require 

flexibility in communicating with 

borrowers close in time to a foreclosure 

sale. 

35(g) Requirements Not Applicable 

The Bureau proposed § 1024.35(g) to 

set forth the types of notices of error to 

which the error resolution requirements 

would not apply. 

35(g)(1) In General 

Proposed § 1024.35(g)(1) would have 

provided that a servicer is not required 

to comply with the error resolution 

requirements set forth in § 1024.35(d) 

and (e) if the servicer reasonably makes 

certain determinations specified in 

§§ 1024.35(g)(1)(i), (ii), or (iii). 

Specifically, subject to certain 

exceptions, a servicer need not comply 

with error resolution requirements with 

respect to a notice of error that asserts 

an error that is substantially the same as 

an error asserted previously by or on 

behalf of the borrower, that is overbroad 

or unduly burdensome, or that is 

untimely. A servicer would be liable to 

the borrower for its unreasonable 

determination that any of the listed 

categories apply and resulting failure to 

comply with proposed § 1024.35(d) and 

(e), however. Industry commenters 

generally favored the proposed 

exclusions, but requested that the 

Bureau expand the categories for which 

servicers would not be required to 

comply with error resolution 

requirements. Except as discussed 

below, the Bureau declines to do so. The 

Bureau has, however, revised proposed 

§ 1024.35(g)(1) to state that, in addition 

to § 1024.35(d) and (e), a servicer is not 

required to comply with § 1024.35(i) if 

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10750 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

a servicer reasonably determines that 

§§ 1024.35(g)(i), (ii), or (iii) apply. 

35(g)(1)(i) 

Proposed § 1024.35(g)(1)(i) would 

have provided that a servicer is not 

required to comply with the notice of 

error requirements in proposed 

§ 1024.35(d) and (e) with respect to a 

notice of error to the extent that the 

asserted error is substantially the same 

as an error asserted previously by or on 

behalf of the borrower for which the 

servicer had previously complied with 

its obligation to respond to the notice of 

error pursuant to § 1024.35(e)(1), unless 

the borrower provides new and material 

information. The proposed rule would 

have defined new and material 

information as information that was not 

reviewed by the servicer in connection 

with investigating the prior notice of 

error and was reasonably likely to 

change a servicer’s determination with 

respect to the existence of an error. 

As stated in the proposal, the Bureau 

believes that both elements of this 

requirement are important. First, the 

information must not have been 

reviewed by the servicer. If the 

information was reviewed by the 

servicer, then such information is not 

new and requiring a servicer to re-open 

an investigation will create unwarranted 

burden and delay. Second, even if the 

information is new, it must be material 

to the asserted error. A servicer may not 

have reviewed information because the 

information may not have been material 

to the error asserted by the borrower. 

The Bureau proposed § 1024.35(g)(1)(i) 

to ensure that a servicer is not required 

to expend resources conducting 

duplicative investigations of notices of 

error unless there is a reasonable basis 

for re-opening a prior investigation 

because of new and material 

information. 

The Bureau proposed comment 

35(g)(1)(i)–1 to further clarify that a 

dispute regarding whether a servicer 

previously reviewed information or 

whether a servicer properly determined 

that information reviewed was not 

material to its determination of the 

existence of an error, will not itself 

constitute new and material information 

and, consequently, does not require a 

servicer to re-open a prior, resolved 

investigation of a notice of error. 

While industry commenters 

supported the proposed exclusion, some 

consumer groups expressed concern. 

One consumer group commenter argued 

that the proposal effectively requires 

that borrowers describe alleged errors 

with more specificity than is 

appropriate, given that borrowers often 

do not fully understand the nature of 

the alleged error. Another consumer 

group commenter urged the Bureau to 

require servicers to inform borrowers 

that servicers will reconsider a 

duplicative error notice to the extent 

that the borrower is able to more 

concisely describe an alleged error. 

Another commenter asserted that the 

proposed exclusion shields servicers 

from the consequences of incompletely 

addressing a notice of error the first time 

it is received. Finally, an anonymous 

commenter questioned the Bureau’s 

authority to create the exclusion 

altogether. 

Having considered these comments, 

the Bureau believes that 

§ 1024.35(g)(1)(i), as proposed, strikes 

the appropriate balance in that it 

requires servicers to respond to 

duplicative error notices only to the 

extent that such notices present new 

and material information. The Bureau 

recognizes that borrowers will assert 

errors in lay terms, and this section is 

not intended to require any particular 

level of specificity in the errors that 

borrowers assert. All that this section 

provides is that if a borrower submits a 

second error claim that the servicer 

reasonably determines is substantially 

the same as a previous submission, the 

servicer is not obligated to go back 

through the investigative process unless 

the borrower has presented new and 

material information. Thus, to the extent 

that a borrower initially lacks sufficient 

information to articulate clearly an 

alleged error but is later privy to new 

and material information that enables 

the borrower to describe the error more 

clearly, proposed § 1024.35(g)(1)(i) 

requires a servicer to reconsider new 

and material information subsequently 

put forward by the borrower. Thus, for 

the reasons outlined in the proposal and 

set forth above, the Bureau is adopting 

§ 1024.35(g)(1)(i) and comment 

35(g)(1)(i)–1 as proposed, with minor 

technical amendments. 

The Bureau’s authority for § 1024.35 

is addressed above. Moreover, the 

Bureau finds that § 1024.35 is necessary 

and appropriate to achieve the purposes 

of RESPA, including ensuring 

responsiveness to consumer requests 

and complaints because the Bureau 

believes that this purpose will best be 

met if servicers are not required to waste 

resources responding to duplicative 

requests that will not benefit consumers, 

but rather are allowed to focus their 

resources on responding to error 

requests where such responses are most 

likely to result in consumer benefit. 

35(g)(1)(ii) 

Proposed § 1024.35(g)(1)(ii) would 

have provided that a servicer is not 

required to comply with the notice of 

error requirements in proposed 

§ 1024.35(d) and (e) with respect to a 

notice of error that is overbroad or 

unduly burdensome. The proposed rule 

would have defined ‘‘overbroad’’ and 

‘‘unduly burdensome’’ for this purpose. 

It would have provided that a notice of 

error is overbroad if a servicer cannot 

reasonably determine from the notice of 

error the specific covered error that a 

borrower asserts has occurred on a 

borrower’s account. The proposed rule 

would have provided that a notice of 

error is unduly burdensome if a diligent 

servicer could not respond to the notice 

of error without either exceeding the 

maximum timeframe permitted by 

§ 1024.35(e)(3)(ii) or incurring costs (or 

dedicating resources) that would be 

unreasonable in light of the 

circumstances. The proposed rule 

would have further clarified that if a 

servicer can identify a proper assertion 

of a covered error in a notice of error 

that is otherwise overbroad or unduly 

burdensome, a servicer is required to 

respond to the covered error 

submissions it can identify. Finally, the 

Bureau proposed comment 35(g)(1)(ii)– 

1 to set forth characteristics that may 

indicate if a notice of error is overbroad 

or unduly burdensome. 

During pre-proposal outreach, 

consumers, consumer advocates, 

servicers, and servicing industry 

representatives indicated to the Bureau 

that consumers do not typically use the 

current qualified written request process 

to resolve errors. During the Small 

Business Review Panel outreach, small 

entity representatives expressed that 

typically qualified written requests 

received from borrowers were vague 

forms found online or forms used by 

advocates as a form of pre-litigation 

discovery. Servicers and servicing 

industry representatives indicated that 

these types of qualified written requests 

are unreasonable and unduly 

burdensome. Small entity 

representatives in the Small Business 

Review Panel outreach requested that 

the Bureau consider an exclusion for 

abusive requests, or requests made with 

the intent to harass the servicer. 

The Bureau requested comment 

regarding whether a servicer should not 

be required to undertake the error 

resolution procedures in proposed 

§ 1024.35(d) and (e) for notices of error 

that are overbroad or unduly 

burdensome. Industry commenters 

supported the exclusion, but urged the 

Bureau to remove the requirement that 

servicers identify valid assertions of 

error in submissions that are otherwise 

overbroad or unduly burdensome. 

Industry commenters said servicers 

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should not be required to parse through 

such submissions to locate a clear 

assertion of error. One large trade 

association of mortgage servicers said 

that the requirement effectively 

subsumes the exclusion. Consumer 

group commenters generally disfavored 

the exclusion. One commenter 

questioned the assertion that borrowers 

primarily use qualified written requests 

to obtain prelitigation discovery. One 

consumer group said the exclusion gives 

servicers too much discretion. Another 

said it requires borrowers to state the 

basis for their alleged error with too 

much specificity. An anonymous 

consumer advocate said a request from 

a single borrower should not be so 

voluminous as to be burdensome for 

servicers to respond. Another consumer 

group commenter requested that the 

Bureau address situations in which the 

servicer erroneously determines that a 

submission is overbroad or unduly 

burdensome. Finally, one consumer 

group commenter said the proposed 

exclusion for unduly burdensome 

notices of error leaves borrowers 

unprotected as to errors that are 

especially egregious or complex. 

In proposing § 1024.35(g)(1)(ii), the 

Bureau did not intend to frustrate 

consumers’ ability to assert actual 

complex errors and to have such errors 

investigated and corrected, as 

appropriate, by servicers. The Bureau 

believes it is critical that consumers 

have a mechanism by which to have 

complex errors addressed. Accordingly, 

the Bureau has revised proposed 

§ 1024.35(g)(1)(ii) and proposed 

comment 35(g)(1)(ii)–1 to remove 

references to unduly burdensome 

notices of error. At the same time, the 

Bureau proposed § 1024.35(g)(1)(ii), in 

part, because the Bureau believes that 

requiring servicers to respond to 

overbroad notices of error from some 

borrowers may cause servicers to 

expend fewer resources to address other 

errors that may be more clearly stated 

and more clearly require servicer 

attention. As discussed above, the 

Bureau expands the definition of errors 

subject to the requirements of § 1024.35 

to contain a catch-all for all errors 

relating to the servicing of the 

borrower’s loan. Given the breadth of 

the errors subject to the requirements of 

§ 1024.35, the Bureau continues to 

believe that a requirement for servicers 

to respond to notices of error that are 

overbroad may harm consumers and 

frustrate servicers’ ability to comply 

with the new error resolution 

requirements. The Bureau does not 

believe that the error resolution 

procedures are the appropriate forum 

for borrowers to prosecute wide-ranging 

complaints against mortgage servicers 

that are more appropriate for resolution 

through litigation. Accordingly, the 

Bureau is adopting § 1024.35(g)(1)(ii) 

and comment 35(g)(1)(ii)–1 substantially 

as proposed, except that the Bureau has 

revised the provisions to remove 

references to unduly burdensome 

notices of error. 

35(g)(1)(iii) 

Proposed § 1024.35(g)(1)(iii) would 

have provided that a servicer is not 

required to comply with the notice of 

error requirements in proposed 

§ 1024.35(d) and (e) for an untimely 

notice of error—that is, a notice of error 

received by a servicer more than one 

year after either servicing for the 

mortgage loan that is the subject of the 

notice of error was transferred by that 

servicer to a transferee servicer or the 

mortgage loan amount was paid in full, 

whichever date is applicable. The 

Bureau proposed this provision to set a 

specific and clear time that a servicer 

may be responsible for correcting errors 

for a mortgage loan. 

Moreover, the Bureau proposed 

§ 1024.35(g)(1)(iii) to achieve the same 

goal that currently exists in Regulation 

X with respect to qualified written 

requests. Specifically, current 

§ 1024.21(e)(2)(ii) states that ‘‘a written 

request does not constitute a qualified 

written request if it is delivered to a 

servicer more than one year after either 

the date of transfer of servicing or the 

date that the mortgage servicing loan 

amount was paid in full, whichever date 

is applicable.’’ 

One industry trade association 

expressed support for proposed 

§ 1024.35(g)(1)(iii). A credit union 

commenter requested that the Bureau 

impose an additional time limitation on 

borrowers’ ability to assert errors, noting 

that it often services mortgages for the 

life of the loan. A consumer advocacy 

group commenter disagreed with 

proposed § 1024.35(g)(1)(iii) and 

asserted that borrowers should be 

permitted to raise errors with their 

current servicer regardless of whether 

the servicer was responsible for the 

error. Having considered these 

comments, the Bureau declines to 

impose additional time limits on a 

borrower’s ability to assert errors, as 

borrowers may discover errors long after 

such errors were made. In addition, the 

Bureau does not believe that 

§ 1024.35(g)(1)(iii), as proposed, 

prohibits a borrower from raising errors 

with the borrower’s current servicer. 

Thus, for the reasons set forth above, the 

Bureau is adopting § 1024.35(g)(1)(iii) as 

proposed with a minor technical 

amendment. 

35(g)(2) Notice to Borrower 

Proposed § 1024.35(g)(2) would have 

required that if a servicer determines 

that it is not required to comply with 

the notice of error requirements in 

proposed § 1024.35(d) and (e) with 

respect to a notice of error, the servicer 

must provide a notice to the borrower 

informing the borrower of the servicer’s 

determination. The servicer must send 

the notice not later than five days 

(excluding legal public holidays, 

Saturdays, and Sundays) after its 

determination and the notice must set 

forth the basis upon which the servicer 

has made the determination, noting the 

applicable provision of proposed 

§ 1024.35(g)(1). 

One credit union trade association 

disfavored the proposed requirement 

that a servicer send a notice informing 

the borrower that an error falls into one 

of the enumerated exceptions. The 

commenter suggested that the Bureau 

permit servicers to send a standard 

notice informing borrowers that the 

servicer received the notice of error and 

is not required to respond. 

The Bureau proposed § 1024.35(g)(2) 

because it believes that borrowers 

should be notified that a servicer does 

not intend to take any action on the 

asserted error. The Bureau also believes 

borrowers should know the basis for the 

servicer’s determination. By providing 

borrowers with notice of the basis for 

the servicer’s determination, a borrower 

will know the servicer’s basis and will 

have the opportunity to bring a legal 

action to challenge that determination 

where appropriate. Accordingly, having 

considered the comment, the Bureau is 

adopting § 1024.35(g)(2) as proposed. 

35(h) Payment Requirements Prohibited 

Proposed § 1024.35(h) would have 

prohibited a servicer from charging a 

fee, or requiring a borrower to make any 

payment that may be owed on a 

borrower’s account, as a condition of 

investigating and responding to a notice 

of error. Proposed comment 35(h)–1 

would have clarified that § 1024.35(h) 

does not alter or otherwise affect a 

borrower’s obligation to make payments 

owed pursuant to the terms of the 

mortgage loan. The Bureau proposed 

§ 1024.35(h) for three reasons. First, 

section 1463(a) of the Dodd-Frank Act 

added section 6(k)(1)(B) to RESPA, 

which prohibits a servicer from charging 

fees for responding to valid qualified 

written requests. Proposed § 1024.35(h) 

would implement that provision with 

respect to qualified written requests. 

Second, the Bureau believes that a 

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servicer’s practice of charging for 

responding to a notice of error impedes 

borrowers from pursuing valid notices 

of error and that the prohibition is 

therefore necessary and appropriate to 

achieve the consumer protection 

purposes of RESPA, including ensuring 

responsiveness to borrower requests and 

complaints. Third, the Bureau 

understands that, in some instances, 

servicer personnel have demanded that 

borrowers make payments before the 

servicer will correct errors or provide 

information requested by a borrower. 

The Bureau believes that a servicer 

should be required to correct errors 

notwithstanding the payment status of a 

borrower’s account. A consumer 

advocacy group commenter noted, 

without elaborating, that it supported 

the fee prohibition reflected in proposed 

§ 1024.35(h). For the reasons set out 

above, the Bureau is adopting 

§ 1024.35(h) and comment 35(h)–1 as 

proposed. 

35(i) Effect on Servicer Remedies 

Adverse Information 

Proposed § 1024.35(i)(1) would have 

provided that a servicer may not furnish 

adverse information regarding any 

payment that is the subject of a notice 

of error to any consumer reporting 

agency for 60 days after receipt of a 

notice of error. RESPA section 6(e) sets 

forth this prohibition on servicers with 

respect to a qualified written request 

that asserts an error. Proposed 

§ 1024.35(i)(1) would implement section 

6(e) of RESPA with respect to qualified 

written requests and would apply the 

same requirements to other notices of 

error. 

The Bureau proposed to maintain the 

prohibition regarding supplying adverse 

information for the 60-day timeframe set 

forth in section 6(e)(3) of RESPA with 

respect to qualified written requests and 

to apply it to all notices of error. Even 

though a notice of error may be resolved 

by no later than 45 days after it is 

received pursuant to proposed 

§ 1024.35(e)(3)(ii), the Bureau reasoned 

that the 60-day timeframe is appropriate 

in the event that there are follow-up 

inquiries or additional information 

provided to the borrower. 

Industry commenters strongly 

objected to the 60-day reporting 

prohibition. Commenters said the 

proposal undermines the accuracy and 

integrity of credit reports. One 

commenter said the Fair Credit 

Reporting Act already governs credit 

reporting. One large bank commenter 

asserted that because credit reporting is 

a safety and soundness protection, 

banks have a duty to accurately report 

delinquencies. Several industry 

commenters also noted a concern that, 

based on prior experience, borrowers 

may use the reporting prohibition to 

manipulate the system by disputing 

legitimate delinquencies in order to 

apply for credit without derogatory 

marks on credit reports. The Bureau 

acknowledges the concerns expressed 

but notes that Congress specifically 

imposed the 60-day reporting 

prohibition with respect to qualified 

written requests in section 6(e) of 

RESPA. As discussed above, the Bureau 

believes it is necessary to achieve the 

consumer protection purposes of 

RESPA, including to ensure 

responsiveness to borrower requests and 

complaints and the provision of 

accurate and relevant information to 

borrowers, to apply the same procedures 

to all notices of error as applicable to 

qualified written requests. Otherwise, 

borrowers and servicers must expend 

wasteful resources parsing the form 

requirements applicable to qualified 

written requests and navigating between 

two separate regulatory regimes. As 

detailed above, the Bureau believes that 

the interests of borrowers and servicers 

are best served and the purposes of 

RESPA are best met through a single 

regulatory regime applicable to both 

qualified written requests and other 

notices of error. The Bureau is therefore 

adopting § 1024.35(i)(1) as proposed, as 

it is consistent with the 60-day reporting 

prohibition for qualified written 

requests required by section 6(e) of 

RESPA. 

Ability To Pursue Foreclosure 

Proposed § 1024.35(i)(2) stated that, 

with one exception, a servicer’s 

obligation to comply with the 

requirements of proposed § 1024.35 

would not prohibit a lender or servicer 

from pursuing any remedies, including 

proceeding with a foreclosure sale, 

permitted by the applicable mortgage 

loan instrument. The Bureau proposed 

one exception to § 1024.35(i)(2) where a 

borrower asserts an error under 

paragraph (b)(9) based on a servicer’s 

failure to suspend a foreclosure sale in 

the circumstances described in 

proposed § 1024.41(g). The Bureau 

proposed § 1024.35(i)(2) to clarify that, 

in general, a notice of error could not be 

used to require a servicer to suspend a 

foreclosure sale. 

A consumer group commenter 

asserted that proposed § 1024.35(i)(2) 

should be amended to prohibit a lender 

or servicer from pursuing a foreclosure 

sale upon receipt of any notice of error 

that disputes a servicers’ ability to 

foreclose. As stated in the proposal, the 

Bureau believes that the purpose of 

RESPA of ensuring responsiveness to 

borrower requests and complaints 

would be impeded by allowing a notice 

of error to obstruct a lender’s or 

servicer’s ability to pursue remedies 

permitted by the applicable mortgage 

loan instrument. 

The requirements in proposed 

§ 1024.41 establish procedures that 

servicers must follow for reviewing loss 

mitigation applications. Servicers are 

capable of complying with the 

requirements prior to a foreclosure sale. 

Nothing in this proposed requirement 

affects the validity or enforceability of 

the mortgage loan or lien. Further, a 

servicer has the opportunity to retain its 

remedies when a borrower submits a 

completed application for a loss 

mitigation option. A servicer may 

establish a deadline by which a 

borrower must submit a completed 

application for a loss mitigation option, 

and, so long as the servicer fulfills its 

duty to evaluate the borrower for a loss 

mitigation option before the date of a 

foreclosure sale, a servicer may comply 

with the requirements of § 1024.35 

without suspending the foreclosure sale. 

For the reasons set forth above and in 

the proposal, the Bureau is adopting 

§ 1024.35(i)(2) as proposed, except that 

the Bureau has revised the provision to 

reference both paragraphs (b)(9) and 

(10). 

Section 1024.36 Requests for 

Information 

Section 6(e) of RESPA requires 

servicers to respond to ‘‘qualified 

written requests’’ that relate to the 

servicing of a loan. Section 1463(a) of 

the Dodd-Frank Act amended RESPA to 

add section 6(k)(1)(B), which prohibits 

servicers from charging fees for 

responding to valid qualified written 

requests (as defined in regulations to be 

issued by the Bureau). In addition, 

section 1463(a) of the Dodd-Frank Act 

amended RESPA to add section 

6(k)(1)(D), which states that a servicer 

shall not fail to provide information 

regarding the owner or assignee of a 

mortgage loan within ten business days 

of a borrower’s request. 

Proposed § 1024.36 set forth 

requirements servicers would be 

required to follow to respond to 

information requests from borrowers 

with respect to their mortgage loans. 

The Bureau proposed § 1024.36 to 

implement the servicer prohibitions set 

forth in section 6(k)(1)(B) and 6(k)(1)(D) 

of RESPA, as well as the requirements 

applicable to qualified written requests 

set forth in section 6(e) of RESPA. In 

addition, as discussed above with 

respect to § 1024.35, the Bureau 

believed that it served the interests of 

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borrowers and servicers alike to 

establish a uniform regulatory regime, 

parallel to that applicable to notices of 

error under § 1024.35, applicable to 

borrower requests for information 

relating to their mortgage loan 

irrespective of whether such requests 

were made in the form of a qualified 

written request. In the Bureau’s view, 

such requirements are necessary to 

ensure that servicers respond to 

borrowers’ requests and complaints and 

timely provide borrowers with relevant 

and accurate information about their 

mortgage loans. 

Legal Authority 

Section 1024.36 implements section 

6(k)(1)(D) of RESPA, and to the extent 

the requirements are also applicable to 

qualified written requests, sections 6(e) 

and 6(k)(1)(B) of RESPA. Pursuant to the 

Bureau’s authorities under sections 6(j), 

6(k)(1)(E), and 19(a) of RESPA, the 

Bureau is also adopting certain 

additions and certain exemptions to 

these provisions. As explained in more 

detail below, these additions and 

exemptions are necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including ensuring responsiveness to 

consumer requests and complaints and 

the provision and maintenance of 

accurate and relevant information. 

36(a) Information Requests 

Proposed § 1024.36(a) would have 

required a servicer to comply with the 

requirements of proposed § 1024.36 for 

an information request from a borrower 

that includes the borrower’s name, 

enables the servicer to identify the 

borrower’s mortgage loan account, and 

states the information the borrower is 

requesting for the borrower’s mortgage 

loan account. The Bureau received no 

comment on this aspect of proposed 

§ 1024.36, and is finalizing these 

requirements as proposed. The Bureau 

is otherwise finalizing proposed 

§ 1024.36 as discussed below. 

Qualified Written Requests 

Similar to the proposed requirements 

for notices of error, proposed 

§ 1024.36(a) would have required a 

servicer to treat a qualified written 

request that requests information 

relating to the servicing of a loan as an 

information request subject to the 

requirements of § 1024.36. The Bureau 

intended to propose servicer obligations 

applicable to qualified written requests 

that were the same as requirements 

applicable to information requests 

under § 1024.36(a). One consumer group 

commenter expressed support for the 

proposal because it dispensed with 

technicalities about whether an 

information request constituted a valid 

qualified written request. One trade 

association commenter said the Bureau 

failed to define a valid qualified written 

request and said that proposed 

§ 1024.36 does not fully integrate 

section 6(e) of RESPA into the proposed 

information request procedures. 

Another trade association of private 

mortgage lenders said the proposal did 

not make clear what constitutes a 

qualified written request and to what 

extent servicers must continue to 

comply with existing law regarding 

qualified written requests. Having 

considered these comments, the Bureau 

notes that final § 1024.31 defines the 

term ‘‘qualified written request.’’ In 

addition, as discussed above, the Bureau 

has added new comment 31 (qualified 

written request)-2, which clarifies that 

the error resolution and information 

request requirements in §§ 1024.35 and 

1024.36 apply as set forth in those 

sections irrespective of whether the 

servicer receives a qualified written 

request. Finally, the Bureau has revised 

proposed § 1024.36(a) to make clear in 

the final rule that a qualified written 

request that requests information 

relating to the servicing of a mortgage 

loan is a request for information for 

purposes of § 1024.36 for which a 

servicer must comply with all 

requirements applicable to a request for 

information. 

Oral Information Requests 

The Bureau proposed to require 

servicers to comply with information 

request procedures under § 1024.36 for 

information requests made by borrowers 

orally or in writing. The Bureau 

believed this approach was warranted, 

in part, because discussions with 

consumers, consumer advocates, 

servicers, and industry trade 

associations during outreach suggested 

that the vast majority of borrowers 

orally request information from 

servicers. 

As was the case for notices of error, 

the Bureau believed that a requirement 

that an information request be in writing 

would serve as a barrier that could 

unduly restrict the ability of borrowers 

to have errors resolved and requests 

fulfilled. At the same time, the Bureau 

recognized the burdens on servicers to 

ensure compliance with the proposed 

rule with respect to oral information 

requests. The Bureau believed that 

elements of the proposed rule would 

assist in mitigating servicer burden. For 

example, the Bureau considered that the 

proposal allowed servicers to designate 

a specific telephone number for 

receiving oral information requests and 

included an alternative compliance 

provision that allows a servicer to 

provide information orally if the 

information is provided within five days 

of the borrower’s request. 

In addition, the Bureau learned from 

pre-proposal discussions with servicers, 

including the small entity 

representatives in the Small Business 

Review Panel outreach, that most 

information requests are responded to 

by servicers either on the same 

telephone call with the borrower or 

within an hour of a borrower’s 

communication. The Bureau believed 

that allowing servicers to respond to 

information requests orally would 

significantly reduce the burden 

associated with the proposed 

information request requirements on 

servicers. Further, the Bureau believed 

that this requirement provided 

flexibility for small servicers consistent 

with the recommendations of the Small 

Business Review Panel and mitigates 

concerns by the small entity 

representatives regarding compliance 

costs. 

The Bureau solicited comment 

regarding whether servicers should be 

required to comply with information 

request procedures for information 

requests asserted orally. The Bureau 

received a number of comments from 

both consumer groups and various 

industry members. Consumer group 

commenters reiterated their support for 

applying the information request 

provisions to requests made orally, 

noting that consumers most often 

request information orally rather than in 

writing. Consumer commenters on 

Regulation Room disfavored the 

proposal’s application of the 

information request procedures under 

§ 1024.36 to information requests 

received orally. Consumer commenters, 

citing their negative experiences 

attempting to request information from 

servicers orally, were concerned that 

encouraging an oral process would 

weaken consumer protections. Industry 

commenters also opposed the proposal’s 

application of the information request 

requirements to oral information 

requests. Commenters said doing so 

would create new burdens for servicers 

regarding tracking the information 

requests and monitoring that a borrower 

receives written acknowledgements and 

responses. Industry commenters further 

stressed that a written process would 

provide more clarity and certainty as to 

the nature of the request and what the 

servicer communicated to the borrower 

during the conversation. Further, 

industry commenters asserted, requiring 

written information requests would help 

avoid situations in which the borrower 

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and servicer have differing recollections 

as to the borrower’s request and the 

servicer’s response during the 

conversation. Absent a written record, 

commenters said, servicers would need 

to record conversations with borrowers 

to minimize the significant litigation 

risk. The commenters asserted that 

recording conversations could be 

especially costly for small servicers and 

would require the borrower’s consent in 

many jurisdictions. 

After consideration of these 

comments, the Bureau is amending 

proposed § 1024.36(a) to require 

servicers to comply with § 1024.36 

solely with respect to written requests 

for information. While borrowers may 

continue to raise information requests 

orally, servicers will not be required to 

comply with the formal requirements 

outlined in § 1024.36 for such requests. 

Instead, the Bureau has added to the 

final rule § 1024.38(b)(1)(iii), which 

generally requires that servicers 

maintain policies and procedures that 

are reasonably designed to ensure that 

servicers provide borrowers with 

accurate and timely information and 

documents in response to borrowers’ 

requests for information. In addition, 

the Bureau has added a requirement in 

§ 1024.38(b)(5) that servicers establish 

policies and procedures reasonably 

designed to achieve the objective of 

informing borrowers about the 

availability of procedures for submitting 

written notices of error set forth in 

§ 1024.35 and written information 

requests set forth in § 1024.36. 

The Bureau believes that eliminating 

the requirement under proposed 

§ 1024.36(a) for servicers to comply with 

the requirements under § 1024.36 with 

respect to oral requests for information 

from borrowers and instead requiring 

servicers to develop policies and 

procedures to ensure responsiveness to 

such oral requests and inform borrowers 

about the availability of the written 

process, strikes the appropriate balance 

between providing prompt responses to 

borrower requests and mitigating 

servicer burden. The final rule will thus 

require servicers to maintain policies 

and procedures reasonably designed to 

assure that the servicers respond to oral 

information requests on a more informal 

basis, without having to comply with all 

of the required steps for a formal 

information request under § 1024.36. As 

discussed more fully below, because 

only written information requests will 

be subject to the procedures outlined in 

§ 1024.36, the Bureau believes it is 

logical and appropriate to require 

servicers to respond to such written 

requests in writing. 

Borrower’s Representative 

Section 6(e)(1)(A) of RESPA states 

that a qualified written request may be 

provided by a ‘‘borrower (or an agent of 

the borrower).’’ See RESPA section 

6(e)(1)(A). The Bureau proposed 

comment 36(a)–1 to clarify that this 

standard applies to all information 

requests, irrespective of whether they 

are qualified written requests. 

Specifically, proposed comment 36(a)–1 

would have clarified that a servicer 

should treat an information request 

submitted by a person acting as an agent 

of the borrower as if it received the 

request directly from the borrower. 

Further, proposed comment 36(a)–1 

stated that servicers may undertake 

reasonable procedures to determine if a 

person that claims to be an agent of a 

borrower has authority from the 

borrower to act on the borrower’s behalf. 

Several industry commenters said it 

would be costly and burdensome to 

determine whether a third party has 

authority to act on a borrower’s behalf. 

Many requested clarification as to what 

the Bureau believes constitutes acting 

on the borrower’s behalf. Further, some 

industry commenters expressed concern 

about potential liability for the improper 

release of information, including the 

risk of violating State or Federal privacy 

laws, as well as what commenters 

perceived to be increased risk of 

identity theft and fraud. Finally, a few 

industry commenters took the position 

that only the borrower, but not the 

borrower’s agent, should be permitted to 

request information pursuant to 

§ 1024.36. 

One consumer advocacy group noted 

that the proposal to permit borrowers’ 

agents to submit information requests is 

consistent with the statutory language. 

Consumer groups also requested that the 

Bureau clarify that the timelines will 

not toll during the period in which the 

servicer attempts to validate through 

reasonable policies and procedures that 

a third party purporting to act on a 

borrower’s behalf is, in fact, an agent of 

the borrower. 

Having considered these comments, 

the Bureau is amending proposed 

comment 36(a)–1 to address servicers’ 

concerns about potential liability for the 

improper release of information. The 

final comment clarifies that servicers 

may have reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf, for example, by 

requiring that purported agents provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. Upon receipt 

of such documentation, the servicer 

shall treat a request for information as 

having been submitted by the borrower. 

The Bureau acknowledges that requiring 

servicers to respond to information 

requests submitted by borrowers’ agents 

is more costly than limiting the 

requirement to borrowers’ requests, but 

notes that this approach is consistent 

with section 6(e)(1)(A) of RESPA with 

respect to a qualified written request. 

The Bureau finds that it is necessary 

and appropriate to achieve the 

consumer protection purposes of 

RESPA, including ensuring 

responsiveness to borrower requests and 

complaints, to apply this requirement to 

all written information requests, 

especially since borrowers who are 

experiencing difficulty in making their 

mortgage payments or dealing with their 

servicer may turn, for example, to a 

housing counselor or other 

knowledgeable persons to assist them in 

addressing such issues. The Bureau 

declines to further define the term 

‘‘agent.’’ The concept of agency has 

historically been defined in State and 

other applicable law. Thus, it is 

appropriate for the definition to defer to 

applicable State law regarding agents. 

Information Subject to Information 

Request Procedures 

Section 6(e)(1)(A) of RESPA requires 

servicers to respond to qualified written 

requests that request information 

relating to the servicing of a loan. 

Proposed § 1024.36(a) would have 

provided that any information requested 

by a borrower with respect to the 

borrower’s mortgage loan is subject to 

the information request requirements in 

proposed § 1024.36 other than as 

provided in proposed § 1024.36(f), 

which defined specific circumstances in 

which a servicer is not obligated to 

comply with information request 

procedures. 

One industry commenter expressed 

concern that borrowers or their 

attorneys may abuse the information 

request process. The commenter said 

that borrowers may request information 

that should already be in the borrower’s 

possession, such as information 

received at closing. The commenter also 

urged the Bureau not to require that 

servicers produce the servicing file in 

response to a borrower’s information 

request. The commenter said that such 

information will be of limited utility to 

borrowers and often reflects privileged 

communications. Having considered 

these comments, the Bureau notes that 

final § 1024.36, like the proposal, has 

mechanisms in place to limit abuse and 

to protect confidential communications. 

Specifically, as discussed more fully 

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below, § 1024.36(f) lists circumstances 

under which servicers need not comply 

with information request requirements 

under § 1024.36. To the extent that a 

borrower requests a servicing file, the 

servicer shall provide the borrower with 

a copy of the information contained in 

the file subject to the limitations set 

forth in § 1024.36(f). 

Another commenter requested 

clarification as to whether consumers 

may use the information request process 

to request payoff statements. The 

Bureau is amending proposed 

§ 1024.36(a) to make clear that servicers 

need not treat borrowers’ requests for 

payoff balances as requests for 

information for which servicers must 

comply with the information request 

procedures set forth in § 1024.36. The 

Bureau believes that this revision is 

appropriate, as borrowers already have 

a mechanism by which to request payoff 

balances under section 129G of TILA 

with respect to home loans. For those 

loans that are not subject to section 

129G of TILA, the Bureau believes that 

it would be inappropriate to extend the 

requirements of that provision beyond 

the scope mandated by Congress, as 

implemented by § 1026.36(c)(3) of the 

2013 TILA Servicing Final Rule. 

Owner or Assignee 

Section 1463(a) of the Dodd-Frank Act 

amended RESPA to add section 

6(k)(1)(D), which states that a servicer 

shall not fail to provide information 

regarding the owner or assignee of a 

mortgage loan within ten business days 

of a borrower’s request. Proposed 

comment 36(a)–2 would have clarified 

that if a borrower requests information 

regarding the owner or assignee of a 

mortgage loan, a servicer complies with 

its obligations to identify the owner or 

assignee of the mortgage loan by 

identifying the entity that holds the 

legal obligation to receive payments 

from a mortgage loan. Proposed 

comments 36(a)–2.i and 36(a)–2.ii 

would have provided examples of 

which party is the owner or assignee of 

a mortgage loan for different forms of 

mortgage loan ownership. These include 

situations when a mortgage loan is held 

in portfolio by an affiliate of a servicer, 

when a mortgage loan is owned by a 

trust in connection with a private label 

securitization transaction, and when a 

mortgage loan is held in connection 

with a GSE or Ginnie Mae guaranteed 

securitization transaction. The Bureau 

believes that it would not provide 

additional consumer protection to 

impose an obligation on a servicer to 

identify entities that may have an 

interest in a borrower’s mortgage loan 

other than the owner or assignee of the 

mortgage loan, as such information 

would be of limited utility. 

During outreach, servicers generally 

did not express concerns to the Bureau 

regarding the obligation to provide 

borrowers with the type of information 

subject to the information request 

requirements. Specifically, in the Small 

Business Review Panel outreach, small 

entity representatives indicated that 

they felt fairly comfortable with the 

types of information that would be 

subject to the requirements, indicating 

that this information was generally in 

the borrower’s mortgage loan file. 

The small entity representatives did 

express concern regarding the obligation 

to provide information regarding the 

owner or assignee of a mortgage loan. 

The small entity representatives stated 

that servicers may not have contact 

information for owners or assignees of 

mortgage loans, that such owners or 

assignees are not prepared to handle 

calls from borrowers, and that a typical 

servicer duty is to handle customer 

complaints so that owners or assignees 

of mortgage loans do not have to handle 

that responsibility. Certain owners, 

assignees, and guarantors of mortgage 

loans, including other federal agencies, 

have expressed similar concerns to the 

Bureau. 

Industry commenters expressed 

similar concerns in response to the 

proposal. One industry trade association 

suggested that the Bureau amend 

proposed comment 36(a)–2 to require 

that servicers identify the name of the 

trustee rather than the name of the legal 

entity that holds the legal right to 

receive payments. The commenter 

argued that the information that the 

Bureau proposes servicers provide 

would not be meaningful to borrowers, 

as the trust itself cannot act. Moreover, 

the commenter asserted that servicers 

do not typically track the trust name 

with the account, as such information is 

rarely used. One large bank commenter 

urged the Bureau to amend the 

comment to replace the reference to 

‘‘obligation’’ with ‘‘right’’ as the 

commenter asserted the former is not 

technically accurate. 

As outlined in the proposal, the 

Bureau understands the concerns 

asserted by servicers, owners, assignees, 

guarantors, and other federal agencies 

that requiring servicers to provide the 

proposed information to borrowers may 

confuse borrowers and lead to attempts 

to communicate with owners or 

assignees that are unprepared or 

unwilling to engage in such 

communications. The requirement that 

servicers identify to the borrower the 

owner or assignee of a mortgage loan 

was added as section 6(k)(1)(D) of 

RESPA by the Dodd-Frank Act. Section 

6(k)(1)(D) requires that information 

regarding the owner or assignee of a 

mortgage loan must be provided to 

borrowers. The Bureau believes that the 

benefit to borrowers of obtaining the 

information, which was required by 

Congress, justifies any concerns about 

the potential for confusion. As to 

commenters’ concern that trustee 

information is more relevant than trust 

information, the Bureau notes that 

proposed comment 36(a)–2 provided 

that where a trust is the owner or 

assignee of a loan, a servicer must 

provide the name of both the trustee and 

the trust. Also, for clarification 

purposes, the Bureau is revising 

proposed comment 36(a)–2 to state that 

when a borrower requests information 

regarding the owner or assignee of a 

mortgage loan, a servicer complies by 

identifying the person on whose behalf 

the servicer receives payments from the 

borrower. Otherwise, the Bureau is 

adopting comment 36(a)–2 substantially 

as proposed. 

36(b) Contact Information for Borrowers 

To Request Information 

The Bureau proposed § 1024.36(b), 

which would have permitted a servicer 

to establish an exclusive telephone 

number and address that a borrower 

must use to request information in 

accordance with the procedures in 

§ 1024.36. If a servicer chose to establish 

a separate telephone number and 

address for information requests, the 

proposal would have required the 

servicer to provide the borrower a notice 

that states that the borrower may request 

information using the telephone number 

and address established by the servicer 

for that purpose. Proposed comment 

36(b)–1 would have clarified that if a 

servicer has not designated a telephone 

number and address that a borrower 

must use to request information, then 

the servicer will be required to respond 

to an information request received at 

any office of the servicer. Proposed 

comment 36(b)–2 would have further 

clarified that the written notice to the 

borrower may be set forth in another 

written notice provided to the borrower, 

such as a notice of transfer, periodic 

statement, or coupon book. Proposed 

comment 36(b)–2 would have further 

clarified that if a servicer establishes a 

telephone number and address for 

receipt of information requests, the 

servicer must provide that telephone 

number and address in any 

communication in which the servicer 

provides the borrower with contact 

information for assistance from the 

servicer. 

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The Bureau proposed to allow 

servicers to establish a telephone 

number and address that a borrower 

must use to request information in order 

to allow servicers to direct oral and 

written requests to appropriate 

personnel that have been trained to 

ensure that the servicer responds 

appropriately. As the proposal noted, at 

larger servicers with other consumer 

financial service affiliates, many 

personnel simply do not typically deal 

with mortgage servicing-related issues. 

For instance, at a major bank servicer, 

a borrower might request information 

from a local bank branch staff, who 

likely would not have access to the 

information necessary to respond to the 

request. Thus, the Bureau reasoned, if a 

servicer establishes a telephone number 

and address that a borrower must use, 

a servicer would not be required to 

comply with the information request 

requirements set forth in § 1024.36 for 

requests that may be received by the 

servicer through a different method. 

Most industry commenters favored 

allowing servicers to designate an 

address and telephone number to which 

borrowers must direct information 

requests. At the same time, such 

commenters asserted that the proposal 

constituted an insufficient remedy to 

the burdens inherent in permitting oral 

information requests. Some commenters 

said that designating telephone lines for 

information requests could be especially 

costly for small servicers. Thus, one 

community bank trade association 

argued that the proposal favored large 

institutions. Two industry commenters 

requested clarification regarding how 

servicers must handle information 

requests sent to the wrong address. 

Finally, one credit union commenter 

asserted that servicers should only be 

required to include designated 

telephone numbers and addresses in 

regular forms of communication to 

borrowers, such as the periodic 

statement. In contrast, consumer group 

commenters suggested that to the extent 

a servicer designates a telephone line or 

address, the servicer should be required 

to post such information on its Web site 

and to include it in mailed notices. 

Because the final rule removes the 

requirement that servicers comply with 

information request requirements under 

§ 1024.36 for oral information requests, 

the Bureau believes that it is no longer 

necessary to regulate the circumstances 

under which servicers may direct oral 

information requests to an exclusive 

telephone number that a borrower must 

use to request information. However, for 

written information requests, the Bureau 

continues to believe that it is reasonable 

to permit servicers to designate a 

specific address for the intake of 

information requests. Allowing a 

servicer to designate a specific address 

is consistent with current requirements 

of Regulation X with respect to qualified 

written requests. Current § 1024.21(e)(1) 

permits a servicer to designate a 

‘‘separate and exclusive office and 

address for the receipt and handling of 

qualified written requests.’’ Moreover, 

the Bureau believes that identifying a 

specific address for receiving 

information requests will benefit 

consumers. By providing a specific 

address, servicers will identify to 

consumers the office capable of 

addressing requests made by consumers. 

The Bureau believes it is critical for 

servicers to publicize any designated 

address to ensure that borrowers know 

how properly to request information 

and to avoid evasion by servicers of 

information request procedures. This is 

especially important because, as noted 

in the proposal, servicers who designate 

a specific address for receipt of 

information requests are not required to 

comply with information request 

procedures for notices sent to the wrong 

address. Accordingly, final § 1024.36(b) 

requires servicers that designate 

addresses for receipt of requests for 

information to post the designated 

address on any Web site maintained by 

the servicer if the servicer lists any 

contact address for the servicer. In 

addition, final comment 36(b)–2 retains 

the clarification that servicers that 

establish an address that a borrower 

must use to request information, must 

provide the address to the borrower in 

any communication in which the 

servicer provides the borrower with 

contact information for assistance. The 

Bureau is otherwise adopting 

§ 1024.36(b) and comments 36(b)–1 and 

36(b)–2 as proposed, except that it has 

revised the provisions permitting 

servicers to designate a telephone 

number that a borrower must use to 

request information and clarified that 

the notice must be written. 

Multiple Offices 

Proposed § 1024.36(b), similar to 

proposed § 1024.35(c) for notices of 

error, would have required a servicer to 

use the same telephone number and 

address it designates for receiving 

notices of error for receiving 

information requests pursuant to 

proposed § 1024.36(b), and vice versa. 

Further, proposed comment 36(b)–3 

would have clarified that any telephone 

numbers or addresses designated by a 

servicer for any borrower may be used 

by any other borrower to submit an 

information request. This clarifies that a 

servicer may not determine that an 

information request is invalid if it was 

received at any telephone number or 

address designated by the servicer for 

receipt of information requests just 

because it was not received by the 

specific phone number or address 

identified to a specific borrower. 

One non-bank servicer expressed 

concern about the proposal’s 

requirement to designate the same 

address and telephone number for 

notices of error and information 

requests. The commenter explained that 

it assigns separate teams to address 

information requests and error notices. 

Thus, the commenter asserted, proposed 

§ 1024.36(b) would negatively impact 

customer service. Having considered 

this comment, the Bureau notes that it 

proposed § 1024.36(b) because it was 

concerned that designating separate 

telephone numbers and addresses for 

notices of error and information 

requests could impede borrower 

attempts to submit notices of error and 

information requests to servicers due to 

debates over whether a particular 

communication constituted a notice of 

error or an information request. For the 

reasons set forth above and in the 

proposal, final § 1024.36(b) retains the 

requirement that servicers designate the 

same address for receipt of information 

requests and notices of error. In 

addition, the Bureau is adopting 

comment 36(b)–3 substantially as 

proposed, except that the Bureau has 

removed references to information 

requests received by telephone. 

Proposed comment 36(b)–5 would 

have further clarified that a servicer may 

use automated systems, such as an 

interactive voice response system, to 

manage the intake of borrower calls. The 

proposal provided that prompts for 

requesting information must be clear 

and provide the borrower the option to 

connect to a live representative. Because 

the final rule does not require servicers 

to comply with information request 

procedures for oral requests, the Bureau 

is withdrawing proposed comment 

36(b)–5 from the final rule. 

Internet Intake of Information Requests 

The Bureau proposed comment 36(b)– 

4 to clarify that a servicer would not be 

required to establish a process for 

receiving information requests through 

email, Web site form, or other online 

methods. Proposed comment 36(b)–4 

was intended to further clarify that if a 

servicer establishes a process for 

receiving information requests through 

online methods, the servicer can 

designate it as the only online intake 

process that a borrower can use to 

request information. A servicer would 

not be required to provide a written 

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notice to a borrower in order to gain the 

benefit of the online process being 

considered the exclusive online process 

for receiving information requests. 

Proposed comment 36(b)–4 would have 

further clarified that a servicer’s 

decision to accept requests for 

information through an online intake 

method shall be in addition to, not in 

place of, any processes for receiving 

information requests by phone or mail. 

One consumer group commenter 

advocated requiring servicers to 

establish an online process for receipt of 

information requests. The Bureau agrees 

that online processes have significant 

promise to facilitate faster, cheaper 

communications between borrowers and 

servicers. However, the Bureau believes 

that this suggestion raises a broader 

issue around the use of electronic media 

for communications between servicers 

(and other financial services providers) 

and borrowers (and other consumers). 

The Bureau believes it would be most 

effective to address this issue in that 

larger context after study and outreach 

to enable the Bureau to develop 

principles or standards that would be 

appropriate on an industry-wide basis. 

The Bureau is therefore, at this time, 

finalizing language to permit, but not 

require, servicers to elect whether to 

adopt such a process. The Bureau 

intends to conduct broader analyses of 

electronic communications’ potential 

for disclosure, error resolution, and 

information requests after the rule is 

released. Accordingly, the Bureau is 

adopting comment 36(b)–4 as proposed, 

with minor technical amendments, and 

having removed references to 

information requests received by 

telephone. 

36(c) Acknowledgment of Receipt 

Proposed § 1024.36(c) would have 

required a servicer to provide a 

borrower an acknowledgement of an 

information request within five days 

(excluding legal public holidays, 

Saturdays, and Sundays) of receiving an 

information request. Proposed 

§ 1024.36(c) would have implemented 

section 1463(c) of the Dodd-Frank Act, 

which amended the current 

acknowledgement deadline of 20 days 

for qualified written requests to five 

days. Proposed § 1024.36(c) would have 

further applied the same timeline 

applicable to a qualified written request 

to any information request. 

Industry commenters, including 

multiple credit union trade associations, 

requested that the Bureau lengthen the 

acknowledgment time period, asserting 

that five days was unreasonable, 

especially for smaller institutions. A 

nonprofit mortgage servicer said the 

timeframe was insufficient for its small 

volunteer staff. An industry trade 

association commenter argued that the 

acknowledgment requirement creates 

unnecessary paperwork and should be 

removed from the final rule altogether. 

In contrast, consumer group 

commenters were generally supportive 

of the acknowledgment requirement, 

noting that the timeline in the proposal 

was consistent with that in the DoddFrank Act for qualified written requests. 

The Bureau believes acknowledgment 

within five days is appropriate given 

that the Dodd-Frank Act expressly 

adopts that requirement for qualified 

written requests and differentiating 

between two regimes would increase 

operational complexity. Moreover, the 

burden on servicers is significantly 

mitigated by the fact that the 

information request procedures are only 

applicable to written requests. The 

Bureau further notes that the contents of 

the acknowledgment are minimal. 

Moreover, servicers need not provide an 

acknowledgment if the servicer provides 

the information requested within five 

days. Accordingly, the Bureau is 

adopting § 1024.36(c) as proposed. 

36(d) Response to Information Request 

The Bureau proposed § 1024.36(d) to 

set forth requirements on servicers for 

responding to information requests. As 

discussed in more detail below, 

proposed § 1024.36(d) would have 

implemented the response requirement 

in section 6(e)(2) of RESPA applicable to 

a qualified written request, including 

section 1463(c) of the Dodd-Frank Act, 

which amended certain deadlines for 

responses to qualified written requests. 

Proposed § 1024.36(d) would have 

further implemented the ten business 

day timeline in section 6(k)(1)(D) of 

RESPA by applying the timeline to 

requests for information about the 

owner or assignee of the loan. 

36(d)(1) Investigation and Response 

Requirements 

Proposed § 1024.36(d)(1) would have 

required a servicer to respond to an 

information request within 30 days by 

either (i) providing the borrower with 

the requested information and contact 

information for further assistance, or (ii) 

conducting a reasonable search for the 

requested information and providing the 

borrower with a written notification that 

states that the servicer has determined 

that the requested information is not 

available or cannot reasonably be 

obtained by the servicer, as appropriate, 

the basis for the servicer’s 

determination, and contact information 

for further assistance. The proposal 

would have only required a servicer to 

provide a written notice to the borrower 

in response to the information request if 

the information requested by the 

borrower is not available or cannot 

reasonably be obtained by the servicer. 

The proposal would have permitted a 

servicer to respond either orally or in 

writing to the borrower if the servicer is 

providing the information requested by 

the borrower. The Bureau proposed to 

allow servicers to respond orally 

because it believed that the goal of 

providing information to borrowers 

would be furthered by allowing 

servicers to respond orally. 

Additionally, the Bureau believed that 

allowing the servicer to respond orally 

would reduce the burden on servicers. 

One consumer advocacy group 

commenter urged the Bureau to require 

that servicers respond to information 

requests in writing. The commenter 

argued that servicers regularly provide 

borrowers inconsistent and inaccurate 

information, which necessitates a 

written response. Because, as discussed 

above, the final rule requires borrowers 

to submit information requests in 

writing in order to gain the benefit of 

the information request procedures set 

forth in § 1024.36, the Bureau now 

believes it is appropriate and effectuates 

the consumer protection purposes of 

RESPA to require that servicers respond 

to borrowers’ information requests in 

writing. Doing so will help ensure that 

there is a written record of both the 

borrower’s request and the servicer’s 

response, which the Bureau believes 

will reduce confusion regarding the 

accuracy of the information provided. 

For these reasons, the Bureau is 

adopting § 1024.36(d)(1) substantially as 

proposed, except that it has removed 

references to a servicer’s oral response 

and clarified that the servicer’s contact 

information must include a telephone 

number. 

Information Not Available 

Proposed comment 36(d)(1)(ii)–1 

would have clarified that information 

should not be considered as available to 

a servicer if the information is not in the 

servicer’s possession or control or the 

servicer cannot retrieve the information 

in the ordinary course of business 

through reasonable efforts. 

The purpose of the information 

request requirements is to provide an 

efficient means for borrowers to obtain 

information regarding their mortgage 

loan accounts and the Bureau believes 

that imposing obligations on servicers to 

provide information in response to an 

information request is an efficient 

means of achieving the goal of providing 

a borrower with access to requested 

information. However, the Bureau 

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proposed comment 36(d)(1)(ii)–1 

because it believes that burden for 

information requests will increase 

greatly if a servicer is required to 

undertake an investigation for 

documents that are not in a servicer’s 

possession or control. The same 

inefficiency exists even if information is 

in a servicer’s possession or control but, 

for appropriate business reasons, is 

stored in a medium that is not 

accessible by a servicer in the ordinary 

course of business. The Bureau believes 

that the marginal benefit of having 

additional information available to 

borrowers is not justified by the 

significant burdens that such 

investigations may incur. Moreover, the 

Bureau believes that it would frustrate 

the consumer protection purposes of 

RESPA to require that servicers devote 

considerable resources, which could 

otherwise be spent on responding to 

information requests that would benefit 

borrowers, to locating inaccessible 

information. 

One mortgage servicer commented on 

proposed comment 36(d)(1)(ii)–1. The 

commenter requested that the Bureau 

provide examples in the commentary of 

what it considers to be unavailable 

information. Proposed comment 

36(d)(1)(ii)–2 provides examples of 

when documents should and should not 

be considered to be available to a 

servicer in response to an information 

request, and such examples are reflected 

in the final comment as well. For the 

reasons discussed in the proposal and 

above, the Bureau is adopting comments 

36(d)(1)(ii)–1 and 36(d)(1)(ii)–2 

substantially as proposed. 

36(d)(2) Time Limits 

36(d)(2)(i) 

Section 1463(b) of the Dodd-Frank 

Act amended section 6(e)(2) of RESPA 

to require a servicer to investigate and 

respond to a qualified written request 

within 30 days (excluding legal public 

holidays, Saturdays, and Sundays). 

Prior to the Dodd-Frank Act, servicers 

had 60 days to investigate and respond 

to a borrower’s qualified written 

request. The Bureau proposed 

§ 1024.36(d)(2)(i) to implement section 

6(e)(2) of RESPA with respect to 

qualified written requests, and to 

impose the same timeframe on other 

requests for information from borrowers. 

Specifically, proposed § 1024.36(d)(2)(i) 

would have required a servicer to 

respond to an information request not 

later than 30 days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the servicer receives the 

information request, with one exception 

discussed below. 

While several industry commenters 

asserted that 30 days was insufficient, 

one credit union opined that the 

timeline was reasonable. Similarly, a 

consumer group commenter noted that 

the timeline was consistent with the 

time period for qualified written 

requests required by the Dodd-Frank 

Act. Consumer commenters on 

Regulation Room asserted that the 

timeline was too generous. The Bureau 

believes that the 30-day timeframe 

proposed is appropriate given that the 

Dodd-Frank Act expressly changed the 

timeframe for qualified written requests 

from 60 days to 30 days and 

differentiating between two regimes 

would increase operational complexity 

as well as burden on borrowers and 

servicers. Accordingly, the Bureau is 

adopting the 30-day timeline as 

proposed. 

Shortened Time Limit To Provide 

Information Regarding the Identity of 

the Owner or Assignee 

Section 1463(a) of the Dodd-Frank Act 

added section 6(k)(1)(D) to RESPA, 

which sets forth a ten business day 

limitation on a servicer to respond to a 

borrower’s request for information 

regarding the owner or assignee of a 

mortgage loan. The Bureau proposed 

§ 1024.36(d)(2)(i)(A) to implement this 

provision of RESPA. Proposed 

§ 1024.36(d)(2)(i)(A) would have 

provided that if a borrower submits a 

request for information regarding the 

identity of, and address or relevant 

contact information for, the owner or 

assignee of a mortgage loan, a servicer 

shall respond to the information request 

with ten days (excluding legal public 

holidays, Saturdays, and Sundays). 

Proposed § 1024.36(d)(2)(i)(A) would 

have required a servicer to provide the 

requested information within ten days 

(excluding legal public holidays, 

Saturdays, and Sundays) instead of ‘‘10 

business days,’’ as the Bureau interprets 

the ‘‘10 business day’’ requirement in 

section 6(k)(1)(D) of RESPA to mean ten 

calendar days with an exclusion for 

intervening legal public holidays, 

Saturdays, and Sundays, and proposes 

to implement that interpretation in 

proposed § 1024.36(d)(2)(i)(A). 

Two non-bank servicers commented 

that ten days is insufficient for those 

circumstances in which a servicer needs 

to obtain documentation confirming 

ownership, such as information 

contained in the collateral file. The 

Bureau acknowledges the concerns 

expressed but, as discussed in the 

proposal, the Bureau does not believe 

that the burden of obtaining this 

information for any borrower will be 

significant enough to justify additional 

time beyond the ten days (excluding 

legal public holidays, Saturdays, and 

Sundays) established by Congress for 

responding to borrower requests for 

information regarding the owner or 

assignee of the loan. Servicers generally 

have access to the identification of 

investors as that information is 

necessary to determine where to direct 

mortgage loan payments and reports 

with respect to the performance of 

serviced assets. The benefit to the 

borrower of obtaining the information, 

which Congress required, justifies the 

costs to servicers of complying within 

ten days (excluding legal public 

holidays, Saturdays, and Sundays). 

Accordingly, the Bureau is adopting 

§ 1024.36(d)(2)(i)(A) as proposed. 

Extensions of Time Limits 

Section 1463(c)(3) of the Dodd-Frank 

Act amended section 6(e) of RESPA to 

permit servicers to extend the time for 

responding to a qualified written 

request by 15 days if, before the end of 

the 30-day period, the servicer notifies 

the borrower of the reasons for the 

extension. The Bureau proposed 

§ 1024.36(d)(2)(ii) to implement this 

provision with respect to qualified 

written requests, and to impose the 

same timeframe with respect to other 

requests for information. Proposed 

§ 1024.36(d)(2)(ii) would have permitted 

a servicer to extend the time period for 

responding to an information request by 

15 days (excluding legal public 

holidays, Saturdays, and Sundays) if, 

before the end of the 30-day period set 

forth in proposed § 1024.36(d)(2)(i)(B), 

the servicer notifies the borrower of the 

extension and the reasons for the delay 

in responding. For the reasons 

discussed above, the Bureau did not 

propose to apply the extension 

allowance of proposed 

§ 1024.36(d)(2)(ii) to information 

requests with respect to the owner or 

assignee of a mortgage loan. Permitting 

a 15-day extension of that timeframe 

would negate the shortened response 

period and undermine the purpose 

served by shortening it. While some 

consumer groups disfavored the 

extension, for the reasons discussed 

above and in the proposal, the Bureau 

is adopting § 1024.36(d)(2)(ii) as 

proposed with minor technical 

amendments. 

36(e) Alternative Compliance 

Proposed § 1024.36(e) would have 

provided that a servicer is not required 

to comply with the requirements of 

paragraphs (c) and (d) of proposed 

§ 1024.36 if the information requested 

by a borrower is provided to the 

borrower within five days along with 

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contact information the borrower can 

use for further assistance. This 

provision was consistent with section 

6(e)(1)(A) of RESPA, which requires 

servicers to provide written 

acknowledgment of a qualified written 

request within five days (excluding legal 

public holidays, Saturdays, and 

Sundays) ‘‘unless the action requested is 

taken within such period.’’ Proposed 

§ 1024.36(e) would have permitted a 

servicer to provide the information 

requested either orally or in writing. 

Proposed comment 36(e)–1 would have 

permitted servicers that provide 

information orally to demonstrate 

compliance by, among other things, 

including a notation in the servicing file 

that the information requested was 

provided or maintaining a copy of a 

recorded telephone conversation. 

Because, as discussed above, the final 

rule requires borrowers to submit 

information requests in writing in order 

to gain the benefit of the information 

request procedures set forth in 

§ 1024.36, the Bureau now believes it is 

appropriate and consistent with the 

consumer protection purposes of RESPA 

to require that servicers respond to 

borrowers’ information requests in 

writing. Doing so will help ensure that 

there is a written record of both the 

borrower’s request and the servicer’s 

response, which the Bureau believes 

will reduce confusion regarding the 

accuracy of the information provided. 

The Bureau did not receive comment 

regarding proposed § 1024.36(e) and, for 

the reasons set forth above, is adopting 

§ 1024.36(e) substantially as proposed, 

except that it no longer permits 

servicers to respond orally and clarifies 

that the contact information must 

include a telephone number. The 

Bureau is removing proposed comment 

36(e)–1 from the final rule. 

36(f) Requirements not Applicable 

The Bureau proposed § 1024.36(f) to 

set forth the types of information 

requests to which the information 

request requirements would not apply. 

36(f)(1) In General 

Proposed § 1024.36(f)(1) would have 

provided that a servicer is not required 

to comply with the information request 

requirements set forth in § 1024.36(c) 

and (d) if the servicer reasonably makes 

certain determinations specified in 

§§ 1024.36(f)(1)(i), (ii), (iii), (iv) or (v). 

Specifically, subject to certain 

exceptions, a servicer would not be 

required to comply with information 

request requirements under § 1024.36 as 

to information requests that are 

duplicative, overbroad or unduly 

burdensome, or untimely, as well as 

requests for confidential, proprietary, 

general corporate or irrelevant 

information. A servicer would be liable 

to the borrower for its unreasonable 

determination that any of the listed 

categories apply and resulting failure to 

comply with proposed § 1024.36(c) and 

(d). 

36(f)(1)(i) 

Proposed § 1024.36(f)(1)(i) would 

have provided that a servicer is not 

required to comply with the information 

request requirements in proposed 

§ 1024.36(c) and (d) with respect to an 

information request that requests 

information that is substantially the 

same as information previously 

requested by or on behalf of the 

borrower, and for which the servicer has 

previously complied with its obligation 

to respond to the information request. 

Proposed comment 36(f)(1)(i)–1 would 

have clarified that a borrower’s request 

for a type of information that can change 

over time should not be considered 

substantially the same as a previous 

request for the same type of information. 

The Bureau proposed § 1024.36(f)(1)(i) 

to ensure that a servicer is not required 

to expend resources conducting 

duplicative searches for documents, as 

such a requirement could divert 

resources from responding to other 

requests. 

One anonymous commenter urged the 

Bureau to withdraw proposed 

§ 1024.36(f)(1)(i), claiming that the 

Bureau lacked authority to narrow the 

requirements listed in RESPA. The 

Bureau’s authority for § 1024.36 is 

discussed above. In addition, the Bureau 

believes that it would frustrate the 

consumer protection purposes of RESPA 

to require that servicers devote 

resources, which could otherwise be 

spent on responding to information 

requests that would benefit consumers, 

to respond to duplicative information 

requests. The Bureau therefore believes 

that § 1024.36(f)(1)(i) is necessary to 

achieve the purposes of RESPA, 

including of ensuring responsiveness to 

consumer requests and complaints and 

the provision and maintenance of 

accurate and relevant information. 

Accordingly, for the reasons set forth in 

the proposal and above, the Bureau is 

adopting § 1024.36(f)(1)(i) and comment 

36(f)(1)(i)–1 substantially as proposed. 

36(f)(1)(ii) 

Proposed § 1024.36(f)(1)(ii) would 

have provided that a servicer is not 

required to comply with the information 

request requirements in proposed 

§ 1024.36(c) and (d) with respect to an 

information request that requests 

confidential, proprietary, or general 

corporate information of a servicer. The 

Bureau proposed § 1024.36(f)(1)(ii) 

because it believed that the purpose of 

providing borrowers with a means to 

request information regarding a 

borrower’s mortgage loan account 

would be frustrated by permitting 

borrowers to request confidential, 

proprietary, or general corporation 

information of a servicer. Proposed 

comment 36(f)(1)(ii)–1 would have 

provided examples of confidential, 

proprietary, or general corporate 

information. These include information 

requests regarding: management and 

profitability of a servicer; other 

mortgage loans than the borrower’s; 

investor reports; compensation, 

bonuses, and personnel actions for 

servicer personnel; the servicer’s 

training programs; investor agreements; 

the evaluation or exercise of any owner 

or assignee remedy; the servicer’s 

servicing program guide; investor 

instructions or requirements regarding 

loss mitigation options, examination 

reports, compliance audits or other 

investigative materials. 

Industry commenters expressed 

support for proposed § 1024.36(f)(1)(ii), 

but urged the Bureau to make clear that 

servicers need not turn over privileged 

documents. Multiple industry 

commenters said that servicers should 

not be required to produce pooling and 

servicing agreements, as such 

agreements are confidential, proprietary 

and also costly to mail. In contrast, one 

consumer advocate commenter said that 

such agreements are not typically 

confidential or proprietary, yet 

important because servicers rely on 

such documents to make erroneous 

claims that they are not authorized to 

offer certain loan modifications. 

Consumer advocacy groups also 

asserted that proposed 

§ 1024.36(f)(1)(ii), as a whole, gives 

servicers too much discretion which 

may increase servicers’ 

nonresponsiveness. An anonymous 

commenter said it was unclear which 

information falls into proposed 

§ 1024.36(f)(1)(ii) and also questioned 

the Bureau’s authority to narrow the 

requirements of RESPA. 

Having considered these comments, 

the Bureau is amending proposed 

§ 1024.36(f)(1)(ii) to provide that 

servicers need not provide borrowers 

with information that is confidential, 

proprietary or privileged, as the Bureau 

believes that permitting information 

requests for such information could 

impede the ability of servicers to 

operate effectively. In addition, the 

Bureau believes that it would frustrate 

the consumer protection purposes of 

RESPA to require that servicers devote 

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resources, which could otherwise be 

spent responding to information 

requests that would benefit consumers, 

to determining how to respond to 

information requests for confidential, 

proprietary, or privileged information 

that generally would not directly benefit 

the borrower, but might pose 

considerable disclosure risk to the 

servicer. 

The final rule further removes the 

reference to general corporate 

information, and references to such 

information have been removed from 

the examples listed in final comment 

36(f)(1)(ii)–1 as well. For example, 

because the Bureau does not believe that 

pooling and servicing agreements are 

typically kept confidential, final 

comment 36(f)(1)(ii)–1 no longer lists 

such agreements as examples. However, 

the Bureau notes that to the extent that 

a borrower requests such agreements, a 

servicer is not required to comply with 

the requirements of § 1024.36(c) or (d) if 

the servicer reasonably determines that 

any of the exclusions set forth in 

§ 1024.36(f) apply. The Bureau’s 

authority for § 1024.36 is addressed 

above. 

36(f)(1)(iii) 

Proposed § 1024.36(f)(1)(iii) would 

have provided that a servicer is not 

required to comply with the information 

request requirements in proposed 

§ 1024.36(c) and (d) with respect to 

information requests that are not 

directly related to the borrower’s 

mortgage loan account. The Bureau 

proposed § 1024.36(f)(1)(iii) because it 

believes the protection in it is 

appropriate to fulfill the purpose of the 

proposed rule, which is to provide a 

means for borrowers to obtain 

information from servicers regarding 

their own mortgage loan accounts. 

A consumer group commenter argued 

that the proposal requires that 

borrowers state the information 

requested with too much specificity, 

arguing that a general request for 

information about the status of the 

borrower’s loan should suffice. An 

anonymous commenter asserted that the 

Bureau proposes to improperly narrow 

the scope of information requests. The 

commenter reasoned that section 

6(e)(1)(B) of RESPA requires servicers to 

respond to qualified written requests for 

information relating to the servicing of 

the loan. The commenter argued that the 

Bureau proposes to narrow that 

definition by adding the requirement 

that such requests must ‘‘directly’’ relate 

to the ‘‘mortgage loan account’’ for the 

loan. 

By relieving servicers of the duty to 

respond to requests for information that 

are not directly related to the borrower’s 

mortgage loan account, the Bureau does 

not intend to impose an obligation on 

borrowers to identify with specificity 

the precise document or data point the 

borrower is seeking. Rather, the point of 

this section is to assure that servicers’ 

resources are focused on securing 

relevant information for borrowers by 

excluding requests for information that 

are not relevant to the borrower’s 

account. For the reasons discussed 

above, the Bureau finds that 

§ 1024.36(f)(1)(iii) is necessary to 

achieve the purposes of RESPA by 

ensuring that servicer resources that 

could be devoted to responding to 

information requests that benefit 

borrowers are not diverted to 

responding to information requests that 

would not result in consumer benefit. 

Accordingly, for the reasons set forth in 

the proposal and above, the Bureau is 

adopting § 1024.36(f)(1)(iii) as proposed. 

The Bureau is also adopting new 

comment 36(f)(1)(iii)–1, which includes 

examples of information that is not 

directly related to a borrower’s loan 

account. 

36(f)(1)(iv) 

Proposed § 1024.36(f)(1)(iv) would 

have provided that a servicer is not 

required to comply with the request for 

information requirements in proposed 

§ 1024.36(c) and (d) with respect to a 

request for information that is overbroad 

or unduly burdensome. The proposed 

rule would have defined ‘‘overbroad’’ 

and ‘‘unduly burdensome’’ for this 

purpose. It would have provided that an 

information request is overbroad if a 

borrower requests a servicer provide an 

unreasonable volume of documents or 

information to a borrower. The 

proposed rule stated that an information 

request is unduly burdensome if a 

diligent servicer could not respond to 

the request without either exceeding the 

maximum timeframe permitted by 

§ 1024.36(d)(2)(ii) or incurring costs (or 

dedicating resources) that would be 

unreasonable in light of the 

circumstances. The proposed rule 

would have further clarified that if a 

servicer can identify a valid information 

request in a submission that is 

otherwise overbroad or unduly 

burdensome, the servicer is required to 

respond to the information request that 

it can identify. Finally, the Bureau 

proposed comment 36(f)(1)(iv)–1 to set 

forth characteristics that may indicate if 

an information request is overbroad or 

unduly burdensome. 

As discussed above for proposed 

§ 1024.35(g)(1)(ii), during pre-proposal 

outreach, consumers, consumer 

advocates, servicers, and servicing 

industry representatives indicated to the 

Bureau that consumers do not typically 

use the current qualified written request 

process to request information. During 

the Small Business Review Panel 

outreach, small entity representatives 

expressed that typically qualified 

written requests received from 

borrowers were vague forms found 

online or forms used by advocates as a 

form of pre-litigation discovery. 

Servicers and servicing industry 

representatives indicated that these 

types of qualified written requests are 

unreasonable and unduly burdensome. 

Small entity representatives in the 

Small Business Review Panel outreach 

requested that the Bureau consider an 

exclusion for abusive requests, or 

requests made with the intent to harass 

the servicer. 

The Bureau requested comment 

regarding whether a servicer should not 

be required to undertake the 

information request requirements in 

proposed § 1024.36(c) and (d) for 

information requests that are overbroad 

or unduly burdensome. Industry 

commenters supported the exclusion, 

but urged the Bureau to remove the 

requirement that servicers identify valid 

information requests in submissions 

that are otherwise overbroad or unduly 

burdensome. Industry commenters said 

servicers should not be required to parse 

through such submissions to locate a 

clear information request. One large 

trade association of mortgage servicers 

said that the requirement effectively 

subsumes the exclusion. Consumer 

group commenters generally disfavored 

the exclusion. One commenter 

questioned the assertion that borrowers 

primarily use qualified written requests 

to obtain prelitigation discovery. One 

consumer group said the exclusion gives 

servicers too much discretion. Another 

said it requires borrowers to state their 

information requests with too much 

specificity. An anonymous consumer 

advocate said a request from a single 

borrower should not be so voluminous 

as to be burdensome for servicers to 

respond. Another consumer group 

commenter requested that the Bureau 

address situations in which the servicer 

erroneously determines that a 

submission is overbroad or unduly 

burdensome. 

The Bureau proposed 

§ 1024.36(f)(1)(iv), in part, because the 

Bureau believes that requiring servicers 

to respond to overbroad or unduly 

burdensome information requests from 

some borrowers may cause servicers to 

expend fewer resources to address 

requests that may be more clearly stated 

and more clearly require servicer 

attention. The Bureau was especially 

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concerned about this in light of the 

proposed rule’s requirement that 

servicers respond to an expanded 

universe of information requests, 

including requests for information that 

do not specifically relate to ‘‘servicing’’ 

as defined in RESPA, as implemented 

by this rule, as well as information 

requests asserted orally. While the final 

rule does not require that servicers 

undertake the information request 

procedures in § 1024.36(c) and (d) for 

oral submissions, it does not limit 

information requests to those related to 

servicing. Thus, the Bureau continues to 

believe that a requirement for servicers 

to respond to information requests that 

are overbroad or unduly burdensome 

may harm consumers and frustrate 

servicers’ ability to comply with the 

new information request requirements. 

Finally, as stated in the proposal, the 

Bureau does not believe that the 

information request procedures should 

replace or supplant civil litigation 

document requests and should not be 

used as a forum for pre-litigation 

discovery. Accordingly, the Bureau is 

adopting § 1024.36(f)(1)(iv) and 

comment 36(f)(1)(iv)–1 substantially as 

proposed. 

36(f)(1)(v) 

Proposed § 1024.36(f)(1)(v) would 

have provided that a servicer is not 

required to comply with the information 

request requirements in proposed 

§ 1024.36(c) and (d) for an untimely 

information request—that is, an 

information request delivered to the 

servicer more than one year after either 

servicing for the mortgage loan that is 

the subject of the request was 

transferred by that servicer to a 

transferee servicer or the mortgage loan 

amount was paid in full, whichever date 

is applicable. The Bureau proposed this 

provision to set a specific and clear time 

that a servicer may be responsible for 

responding to information requests for a 

mortgage loan. 

Moreover, the Bureau proposed 

§ 1024.36(f)(1)(v) to achieve the same 

goal that currently exists in Regulation 

X with respect to qualified written 

requests. Specifically, current 

§ 1024.21(e)(2)(ii) states that ‘‘a written 

request does not constitute a qualified 

written request if it is delivered to a 

servicer more than one year after either 

the date of transfer of servicing or the 

date that the mortgage servicing loan 

amount was paid in full, whichever date 

is applicable.’’ 

One industry trade association 

expressed support for proposed 

§ 1024.36(f)(1)(v). Consumer advocacy 

groups did not comment on proposed 

§ 1024.36(f)(1)(v). For the reasons set 

forth above, the Bureau is adopting 

§ 1024.36(f)(1)(v) as proposed with a 

minor technical amendment. 

36(f)(2) Notice to Borrower 

Proposed § 1024.36(f)(2) would have 

required that if a servicer determines 

that it is not required to comply with 

the information request requirements in 

proposed § 1024.36(c) and (d) with 

respect to an information request, the 

servicer must provide a notice to the 

borrower informing the borrower of the 

servicer’s determination. The servicer 

must send the notice not later than five 

days (excluding legal public holidays, 

Saturdays, and Sundays) after its 

determination and the notice must set 

forth the basis upon which the servicer 

has made the determination, noting the 

applicable provision of proposed 

§ 1024.36(f)(1). 

One credit union trade association 

disfavored the proposed requirement 

that a servicer send a notice informing 

the borrower that an information request 

falls into one of the enumerated 

exclusions. The commenter suggested 

that the Bureau permit servicers to send 

a standard notice informing borrowers 

that the servicer received the 

information request and is not required 

to respond. 

The Bureau proposed § 1024.36(f)(2) 

because it believes that borrowers 

should be notified that a servicer does 

not intend to take any action on the 

information request. The Bureau also 

believes borrowers should know the 

basis for the servicer’s determination. 

By providing borrowers with notice of 

the basis for the servicer’s 

determination, a borrower will know the 

servicer’s basis and will have the 

opportunity to bring a legal action to 

challenge that determination where 

appropriate. Accordingly, having 

considered the comment, the Bureau is 

adopting § 1024.36(f)(2) as proposed. 

36(g) Payment Requirement Limitations 

Proposed § 1024.36(g)(1) would have 

prohibited a servicer from charging a 

fee, or requiring a borrower to make any 

payment that may be owed on a 

borrower’s account as a condition of 

responding to an information request. 

Proposed § 1024.36(g)(2) would have, 

however, permitted fees for providing 

payoff statements or beneficiary notices 

under applicable law. The Bureau 

proposed § 1024.36(g)(1) and (2) for 

three reasons. First, section 1463(a) of 

the Dodd-Frank Act added section 

6(k)(1)(B) to RESPA, which prohibits a 

servicer from charging fees for 

responding to valid qualified written 

requests. Proposed § 1024.36(g) would 

have implemented that provision with 

respect to qualified written requests for 

information relating to the servicing of 

a mortgage loan. Second, the Bureau 

believes that a servicer practice of 

charging for responding to an 

information request impedes borrowers 

from pursuing valid information 

requests, and that the prohibition is 

therefore necessary and appropriate to 

achieve the consumer protection 

purposes of RESPA, including ensuring 

responsiveness to borrower requests and 

complaints. Third, the Bureau learned 

from outreach with consumer advocates 

that, in some instances, servicers have 

demanded that borrowers make 

payments before the servicer will 

provide a borrower with information 

requested by the borrower or will 

correct errors identified by a borrower. 

The Bureau believes that a servicer is 

required to provide a borrower with 

information about the borrower’s 

mortgage loan account notwithstanding 

the payment status of a borrower’s 

account. 

Some consumer advocacy group 

commenters expressed support for the 

fee prohibition, stating that the 

prohibition is statutorily required. In 

contrast, a large credit union trade 

association opposed the prohibition, 

noting that it bars fees for items for 

which credit unions routinely charge, 

such as fees for copies of cancelled 

checks and periodic statements. The 

trade association argued that the 

proposed rule should take the fact that 

a fee is legally permissible into account. 

A law firm that represents servicers 

argued that it would be unfair and 

economically burdensome to prohibit 

servicers from charging fees for 

duplicate statements, such as year-end 

statements and tax forms. 

Having considered these comments, 

for the reasons stated above and in the 

proposal, the Bureau is adopting 

§ 1024.36(g) as proposed, except that 

§ 1024.36(g)(2) no longer references 

payoff statements. The Bureau has 

removed the reference to payoff 

statements, as the final rule excludes 

such statements from information 

request requirements under § 1024.36 

altogether. 

36(h) Servicer Remedies 

Proposed § 1024.36(h) would have 

provided that the existence of an 

outstanding information request does 

not prohibit a servicer from furnishing 

adverse information to any consumer 

reporting agency or from pursuing any 

remedies, including proceeding with a 

foreclosure sale, permitted by the 

applicable mortgage loan instrument. 

The proposed requirement is consistent 

with section 6(e)(3) of RESPA which 

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105See e.g., H.R. Rep. 111–94, at 55 (calling the 

force-placement of insurance without a reasonable 

basis a problematic method used by some servicers 

to increase revenue); see also further, Compl., 

United States of America et al. v. Bank of America 

Corp., et al. at ¶ 51 (alleging that the defendant 

servicers engaged in unfair and deceptive practices 

in the discharge of their loan servicing activities by 

imposing force-placed insurance without properly 

notifying the borrowers and when borrowers 

already had adequate coverage) (filed on March 14, 

2012); see further, N.Y. Orders ‘Force-Placed’ 

Insurers to Submit New Lower Rate Proposals, Ins. 

J., June 13, 2012 (describing that New York State’s 

Department of Financial Services ordered three 

force-placed insurance providers to submit new 

force-placed insurance premium rates after 

determining that the insurers overcharged New 

York homeowners). 

104See Assurant Specialty Property, LenderPlaced Insurance, available at http://newsroom.

assurant.com/releasedetail.cfm?ReleaseID=645046

&ReleaseType=Featured%20News. 

106See Assurant Specialty Property, LenderPlaced Insurance, available at http://newsroom.

assurant.com/releasedetail.cfm?ReleaseID=645046

&ReleaseType=Featured%20News. 

107See Jeff Horowitz, Ties to Insurers Could Land 

Mortgage Servicers in More Trouble, Am. Banker 

(Nov. 9, 2010.) 

108See e.g., The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. 

on Hous., Transp., & Comm. Affairs of the Senate 

Comm. on Banking and Urban Affairs, 112th Cong. 

126 (2011)(statement of Laurie Goodman, Amherst 

Securities) (testifying that incentives to obtain 

force-placed insurance are such that it would be 

‘‘unrealistic to expect a servicer to make an 

unbiased decision on when to buy [force-placed 

insurance],’’ and hence, national servicing 

standards should be established to require servicers 

to maintain a borrower’s hazard insurance ‘‘as long 

as possible.’’); see also, N.Y. State Dep’t of Fin. 

Services, Public Hearings on Force-Placed 

Insurance (2012) (statement of Alexis Iwanisziw, 

Neighborhood Economic Development Advocacy 

Project) (testifying that problems like mortgage 

servicers imposing force-placed insurance when 

homeowners have voluntary market policies persist 

because mortgage servicers receive commissions, 

reinsurance contracts, free insurance tracking and 

other kickbacks when they purchase force-placed 

insurance); see further, Compl., United States of 

America et al v. Bank of America Corp., et al at ¶ 51 

(alleging that the defendant servicers engaged in 

prohibits servicers from furnishing 

adverse information only as to qualified 

written requests that assert an error with 

respect to the borrower’s payments, but 

not to a qualified written request that 

requests information. Moreover, the 

Bureau does not believe that the 

consumer protection purposes of RESPA 

would be furthered by permitting 

borrowers to evade consumer reporting 

by submitting an information request. 

The Bureau did not receive comment 

regarding proposed § 1024.36(h) and is 

adopting it as proposed. 

Section 1024.37 Force-Placed 

Insurance 

Section 1463(a) of the Dodd-Frank Act 

amended section 6 of RESPA to 

establish new servicer duties with 

respect to servicers’ purchase of forceplaced insurance on a property securing 

a federally related mortgage loan. The 

statute generally defines ‘‘force-placed 

insurance’’ as hazard insurance 

coverage obtained by a servicer of a 

federally related mortgage loan when 

the borrower has failed to maintain or 

renew hazard insurance on such 

property as required of the borrower 

under the terms of the mortgage loan. 

New § 6(k)(1)(A) of RESPA states that a 

servicer shall not obtain force-placed 

insurance unless there is a reasonable 

basis to believe the borrower has failed 

to comply with the loan contract’s 

requirements to maintain property 

insurance. New section 6(l) of RESPA 

further states that servicers must: (1) 

provide two written notices to a 

borrower over a notification period 

lasting at least 45 days before imposing 

a charge for force-placed insurance on 

the borrower; (2) accept any reasonable 

form of written confirmation from a 

borrower of existing insurance coverage; 

and (3) within 15 days of the receipt of 

confirmation of a borrower’s existing 

insurance coverage, terminate forceplaced insurance and refund all forceplaced insurance premiums paid by the 

borrower during any period during 

which the borrower’s insurance 

coverage and the force-placed insurance 

coverage were both in effect, as well as 

any related fees charged to the 

borrower’s account with respect to 

force-placed insurance during such 

period. Section 6(l) of RESPA 

additionally states that no provisions of 

section 6(l) shall be construed as 

prohibiting a servicer from providing 

simultaneous or concurrent notice of a 

lack of flood insurance pursuant to 

section 102(e) of the Flood Disaster 

Protection Act of 1973. Section 6(m) of 

RESPA states that all charges related to 

force-placed insurance imposed on a 

borrower by or through a servicer, other 

than charges subject to State regulation 

as the business of insurance, must be 

bona fide and reasonable. 

The Bureau proposed § 1024.37 to 

implement the new servicer duties 

established by section 1463(a) of the 

Dodd-Frank Act in section 6(k) through 

(m) of RESPA. Force-placed insurance 

was created by the insurance industry to 

provide mortgage loan owners and 

investors with a hazard insurance 

product that would protect the value of 

their investment by insuring properties 

securing mortgage loans when hazard 

insurance obtained by a borrower 

lapsed. In recent years, however, forceplaced insurance has become a 

consumer protection concern and has 

attracted the attention of lawmakers, 

enforcement officials, and Federal and 

State regulators.105 First, a force-placed 

insurance policy typically provides less 

coverage than the typical homeowners’ 

insurance policy because force-placed 

insurance has been designed to provide 

coverage limited to protecting the value 

of the dwelling, but not personal 

property, personal liabilities for injuries 

on site, and other types of loss included 

in the scope of coverage of a typical 

homeowners’ insurance policy. Second, 

although a force-placed insurance 

policy generally provides less coverage 

than a homeowners’ insurance policy, 

force-placed insurance policy premiums 

are generally substantially more 

expensive than homeowners’ insurance 

policy premiums. One large forceplaced insurance provider estimates that 

the force-placed policies it writes cost, 

on average, 1.5 to 2 times more than the 

prior hazard insurance purchased by a 

borrower.106 But at the same time, it has 

been reported that an individual forceplaced policy could cost 10 times as 

much as a homeowners’ insurance 

policy.107 Explanations for the cost of 

force-placed insurance differ. Industry 

stakeholders generally attribute the 

substantially higher cost of force-placed 

insurance (relative to homeowners’ 

insurance) to the fact that force-placed 

insurance: (1) Can be purchased for 

every mortgage loan in a servicer’s 

portfolio (including vacant properties 

and other properties that homeowners’ 

insurance providers will not insure); (2) 

ensures continuous coverage as of the 

date a homeowners’ insurance policy 

lapses or is canceled; and (3) can be 

canceled by a servicer at any time, with 

a full refund back to the date of 

placement. 

Consumer groups, however, assert 

that the higher cost of force-placed 

insurance can be largely explained by 

market mechanisms that drive forceplaced insurance providers to compete 

for business from servicers. Consumer 

groups argue that the cost of forceplaced insurance is inflated by 

incentives like commissions to servicers 

(or their affiliates) that are licensed to 

engage in insurance transactions, nocost or below-cost insurance tracking 

and monitoring services to servicers 

because the actual cost is passed on to 

borrowers in the force-placed insurance 

premium charge a force-placed 

insurance provider assesses on a 

borrower through the servicer, and 

payments for entering into reinsurance 

arrangements with servicers (or their 

affiliates) that are licensed to engage in 

insurance transactions. Consumer 

groups and mortgage investors have 

alleged that servicers have frequently 

improperly placed force-placed 

insurance, in some instances to receive 

lucrative commissions or reinsurance 

fees, or other consideration.108 In some 

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unfair and deceptive practices in the discharge of 

their loan servicing activities by imposing forceplaced insurance without properly notifying the 

borrowers and when borrowers already had 

adequate coverage) (filed on March 14, 2012). 

cases, consumer groups have asserted 

that the higher cost of force-placed 

insurance can drive borrowers, 

particularly those already facing 

financial hardship, into default. 

As discussed above, RESPA is a 

remedial consumer protection statute 

and imposes obligations upon the 

servicing of federally related mortgage 

loans that are intended to protect 

borrowers. The Bureau believes that the 

obligations the Dodd-Frank Act 

established with respect to servicers’ 

purchase of force-placed insurance were 

intended to impose, at minimum, (1) a 

duty to help borrowers avoid 

unwarranted and unnecessary charges 

related to force-placed insurance 

through both direct limitations on 

certain charges and several procedural 

safeguards; and (2) a duty to provide 

borrowers with reasonably accurate 

information about servicers’ grounds for 

purchasing force-placed insurance and 

the financial impact that such purchase 

could have on the borrowers, in order to 

encourage borrowers to take appropriate 

steps to maintain their hazard insurance 

policies. 

Legal Authority 

Section 1024.37 implements section 

6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of 

RESPA. Pursuant to the Bureau’s 

authorities under sections 6(j), 

6(k)(1)(E), and 19(a) of RESPA, the 

Bureau is also adopting certain 

additions and certain exemptions to 

these provisions. As explained in more 

detail below, these additions and 

exemptions are necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including the avoidance of unnecessary 

and unwarranted charges and fees and 

the provision to borrowers of accurate 

and relevant information. 

37(a) Definition of Force-Placed 

Insurance 

37(a)(1) In General 

As added by the Dodd-Frank Act, 

section 6(k)(2) of RESPA states that for 

purposes of section 6(k) through (m) of 

RESPA, force-placed insurance means 

hazard insurance coverage obtained by 

a servicer of a federally related mortgage 

loan when the borrower has failed to 

maintain or renew hazard insurance on 

such property as required of the 

borrower under the terms of the 

mortgage. The Bureau proposed 

§ 1024.37(a)(1) to implement section 

6(k)(2) of RESPA. The proposed 

provision stated that in general, for 

purposes of § 1024.37, the term ‘‘forceplaced insurance’’ means hazard 

insurance obtained by a servicer on 

behalf of the owner or assignee of a 

mortgage loan on a property securing 

such loan. 

Proposed § 1024.37(a)(1) did not 

incorporate language from the statute 

referring to a borrower’s failure to 

maintain or renew hazard insurance as 

required under the terms of the 

mortgage. As explained in the proposal, 

the Bureau was concerned that adopting 

that language might raise questions 

whether the Dodd-Frank Act protections 

applied to situations in which a 

borrower did, in fact, have hazard 

insurance in place but the borrower’s 

servicer obtained force-placed insurance 

anyway. The Bureau noted that 

borrowers in such a situation are most 

in need of protection from unwarranted 

and unnecessary charges related to 

force-placed insurance. Indeed, in other 

respects, the force-placed insurance 

provisions added to RESPA by the 

Dodd-Frank Act expressly contemplate 

that the protections apply in 

circumstances where a borrower, in fact, 

has hazard insurance in place. For 

example, the notice to the borrower 

required under RESPA section 6(l)(1)(A) 

is required to include a statement of the 

procedures by which the borrower may 

demonstrate insurance coverage, and 

under RESPA section 6(l)(3), which 

provides that upon receipt by a servicer 

of confirmation that a borrower has 

hazard insurance in place, a servicer 

must terminate force-placed insurance 

and refund to the borrower all forceplaced premiums and related charges 

for periods of overlapping coverage. 

Thus, notwithstanding the phrase 

‘‘when the borrower has failed to 

maintain or renew hazard insurance,’’ 

the Bureau interprets the definition of 

force-placed insurance to include 

situations in which a servicer obtains 

hazard insurance coverage on a property 

where the borrower has in fact 

maintained the borrower’s own hazard 

insurance. The Bureau also proposed to 

add language to the definition of the 

term ‘‘force-placed insurance’’ in 

proposed § 1024.37(a)(i) to describe the 

insurance as being obtained by a 

servicer ‘‘on behalf of the owner or 

assignee of a mortgage loan on a 

property securing such loan.’’ This 

language was intended to distinguish 

force-placed insurance from situations 

in which a servicer renews borrowers’ 

own hazard insurance policies as 

described in § 1024.17 or otherwise. The 

Bureau observes that a servicer is 

simply renewing a borrower’s own 

hazard insurance under these 

circumstances and does not interpret 

such insurance as hazard insurance 

‘‘obtained’’ by a servicer within the 

statutory definition of ‘‘force-placed 

insurance’’ set forth in section 6(k)(2) of 

RESPA. The Bureau did not receive 

comments on the proposed definition of 

the term ‘‘force-placed insurance’’ set 

forth in proposed § 1024.37(a)(1). 

Accordingly, the Bureau is adopting 

§ 1024.37(a)(1) as proposed. 

37(a)(2) Types of Insurance Not 

Considered Force-Placed Insurance 

37(a)(2)(i) 

Proposed § 1024.37(a)(2)(i) would 

have provided that hazard insurance to 

protect against flood loss obtained by a 

servicer as required by the Flood 

Disaster Protection Act of 1973 is not 

force-placed insurance for the purposes 

of § 1024.37. The Bureau proposed to 

exclude flood insurance that is required 

under the Flood Disaster Protection Act 

of 1973 (FDPA) from the definition of 

the term ‘‘force-placed insurance,’’ 

because, as discussed above in the 

section-by-section analysis of the 

defined term ‘‘Hazard insurance,’’ the 

Bureau believed and continues to 

believe that the Bureau’s force-placed 

insurance regulations should not apply 

to servicers when they are required by 

the FDPA to purchase flood insurance. 

As discussed above, the FDPA provides 

an extensive set of restrictions on a 

servicers’ purchase of flood insurance 

required by the FDPA, and the Bureau 

was concerned that subjecting servicers 

to overlapping regulatory restrictions 

would be unduly burdensome and 

might result in consumer confusion. 

Several consumer groups suggested 

that the Bureau should only exempt 

servicers from the Bureau’s force-placed 

insurance regulations to the extent they 

purchase force-placed flood policies 

from the National Flood Insurance 

Program (NFIP) because the FDPA can 

reasonably be interpreted to require 

servicers to purchase force-placed flood 

insurance through the NFIP. The 

consumer groups further asserted that it 

was important to ensure that RESPA’s 

consumer protections with respect to 

force-placed insurance apply when 

servicers force-place private flood 

insurance because private force-placed 

insurance policies are more expensive 

than the NFIP flood policies. As 

discussed above, industry commenters 

generally said that the proposed 

exclusion of hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FDPA from the 

definition of the term ‘‘force-placed 

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10764 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

109See Interagency Questions and Answers 

Regarding Flood Insurance, 74 FR 35914, 35944 

(July 21, 2009) (question 63 & 64 provide guidance 

on the circumstances under which lenders could 

rely on private flood insurance policies to meet 

their obligations to maintain adequate flood 

insurance coverage); see also, Fed. Emergency 

Mgmt. Agency, Mandatory Purchase of Flood 

Insurance Guidelines 42 (September 2007)(stating 

that a lender has the option of force placing flood 

insurance through a private (non-NFIP) insurer). 

110Section 6(l) provides that a servicer of a 

federally related mortgage shall not be construed as 

having a reasonable basis for obtaining force-placed 

insurance’’ was workable and 

adequately mitigated the risk of a 

servicer having to comply with both 

regulations under the FDPA and the 

Bureau’s force-placed insurance 

regulations. 

The Bureau has carefully considered 

these comments and is adopting 

proposed § 1024.37(a)(2)(i) as proposed. 

The Bureau does not administer the 

FDPA, and accordingly declines to 

opine on whether the FDPA requires 

servicers to purchase flood insurance 

policies from the NFIP. The Bureau, 

however, observes that there is existing 

guidance from Federal agencies that 

administer the FPDA that suggests that 

a servicer may reasonably interpret the 

FDPA to permit servicers to satisfy their 

obligations under the statute through 

the purchase of private flood 

insurance.109

Moreover, the consumer groups did 

not suggest that the consumer 

protections in the FDPA do not apply to 

a servicer’s purchase of private flood 

insurance, and the Bureau has no reason 

to believe that they do not. Accordingly, 

the Bureau believes that if the Bureau 

were to adopt the consumer groups’ 

suggestion to exclude from the 

definition of the term ‘‘force-placed 

insurance’’ only policies purchased 

under the NFIP, a servicer who 

purchased private flood insurance to 

comply with its obligations under the 

FDPA would have to comply with both 

the Bureau’s regulations and regulations 

under the FDPA. As discussed above, 

this result would impose unnecessary 

compliance burdens and frustrate the 

consumer protection purposes of 

RESPA’s force-placed insurance 

provisions. For the reasons discussed 

above, § 1024.37(a)(2)(i) is necessary 

and appropriate to avoid undermining 

the consumer protection purposes of 

RESPA’s force-placed provisions and is 

thus authorized under sections 

6(k)(1)(E), 6(j)(3), and 19(a) of RESPA. 

37(a)(2)(ii) and (iii) 

The Bureau proposed 

§ 1024.37(a)(2)(ii) to clarify that hazard 

insurance obtained by a borrower but 

renewed by the borrower’s servicer as 

required by § 1024.17(k)(1), (2), or (5) is 

not force-placed insurance for purposes 

of § 1024.37. The Bureau proposed 

§ 1024.37(a)(2)(iii) to clarify that hazard 

insurance renewed by the servicer at its 

discretion if the servicer is not required 

to renew the borrower’s hazard 

insurance as required by § 1024.17(k)(1), 

(2), or (5) is also not force-placed 

insurance for purposes of § 1024.37. As 

discussed above, the Bureau observes 

that a servicer is simply renewing a 

borrower’s own hazard insurance under 

these circumstances and does not 

interpret such insurance as hazard 

insurance ‘‘obtained’’ by a servicer 

within the statutory definition of ‘‘forceplaced insurance’’ set forth in section 

6(k)(2) of RESPA. Other than a large 

bank servicer commending the Bureau 

for the exclusion from the definition of 

‘‘force-placed insurance’’ of hazard 

insurance renewed at the servicer’s 

discretion for non-escrowed borrowers, 

the Bureau did not receive comments on 

either proposed § 1024.37(a)(2)(ii) or 

(iii). Accordingly, proposed 

§ 1024.37(a)(2)(ii) and (iii) are adopted 

as proposed, except the Bureau has 

made technical revisions to proposed 

§ 1024.37(a)(2)(ii) consistent with 

changes to the language of 

§ 1024.17(k)(5), and adopts 

§ 1024.37(a)(2)(iii) with the clarification 

that § 1024.37(a)(2)(iii) applies to the 

extent the borrower agrees. The Bureau 

believes it is appropriate to create 

incentives for servicers to work with 

non-escrowed borrowers to renew 

hazard insurance originally obtained by 

these borrowers, but not for servicers to 

renew such insurance without borrower 

consent. 

One state housing finance agency 

commenter suggested that the Bureau 

should allow collateral protection plans 

as an acceptable alternative to forceplaced insurance for subordinate liens. 

The Bureau’s force-placed insurance 

regulations are not intended to regulate 

the type of hazard insurance a servicer 

obtains on behalf of the owner or 

assignee of a mortgage loan to insure the 

property securing such loan. But if a 

servicer attempts to seek payment from 

a borrower for such insurance, the 

Bureau’s force-placed regulations will 

apply. 

37(b) Basis for Charging a Borrower for 

Force-Placed Insurance 

Section 6(k)(1)(A) of RESPA states 

that a servicer of a federally related 

mortgage loan shall not obtain forceplaced insurance unless there is a 

reasonable basis to believe the borrower 

has failed to comply with the loan 

contract’s requirements to maintain 

property insurance. The Bureau 

proposed § 1024.37(b) to implement 

section 6(k)(1)(A) of RESPA. Proposed 

§ 1024.37(b) stated that a servicer may 

not obtain force-placed insurance unless 

the servicer has a reasonable basis to 

believe that the borrower has failed to 

comply with the mortgage loan 

contract’s requirement to maintain 

hazard insurance. 

The Bureau also proposed related 

commentary to provide illustrative 

examples of ‘‘a reasonable basis to 

believe’’ that a borrower has failed to 

maintain hazard insurance. Proposed 

comment 37(b)–1 would have provided 

two examples in the context of a 

borrower with an escrow account 

established to pay for hazard insurance 

premiums. Proposed comment 37(b)–2 

would have provided an example of a 

borrower who has not established an 

escrow account to pay for hazard 

insurance premiums. During preproposal outreach, servicers and forceplaced insurance providers told the 

Bureau that their process of verifying 

the existence of insurance coverage 

before obtaining force-placed insurance 

for borrowers with escrow and 

borrowers without escrow was different. 

Accordingly, the Bureau believed that it 

was appropriate to provide different 

examples based on whether the 

borrower had escrowed for hazard 

insurance. 

Several consumer groups and a 

number of industry commenters 

suggested that the Bureau make changes 

to proposed § 1024.37(b). Consumer 

group commenters expressed the 

concern that proposed § 1024.37(b) 

would be too weak to motivate servicers 

to change their practices with respect to 

the purchase of force-placed insurance. 

Several consumer groups recommended 

that that the Bureau replace the 

proposed commentary to 1024.37(b) 

with a collective standard that would 

determine whether the servicer had a 

reasonable basis for obtaining forceplaced insurance based on whether the 

percentage of cases in which borrowers 

receive a full refund for force-placed 

insurance charges exceed five percent 

per calendar year. 

In contrast, a number of industry 

commenters suggested that proposed 

§ 1024.37(b) was too limiting and might 

unduly chill servicer’s use of forceplaced insurance to protect a lender’s 

collateral. A number of industry 

commenters requested that the Bureau 

change proposed § 1024.37(b) so that the 

reasonable basis standard in 

§ 1024.37(b) would be defined solely by 

compliance with the procedural 

requirements enumerated in section 6(l) 

of RESPA and § 1024.37(c) and (d) 110

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insurance unless the requirements of section 6(l) of 

RESPA have been met. 

or, in the alternative, would provide a 

safe harbor for servicers that meet such 

requirements. One large force-placed 

insurance provider and one large bank 

servicer said that if the Bureau did not 

change proposed § 1024.37(b), then the 

Bureau should expressly state in 

commentary to § 1024.37(b) that the 

examples are illustrative and do not 

provide the only situations in which a 

servicer has a reasonable basis to believe 

that the borrower’s hazard insurance has 

lapsed. One national trade association 

representing federal credit unions 

suggested that the Bureau provide a safe 

harbor for servicers acting in good faith 

when they obtained force-placed 

insurance. 

After careful review of these 

comments and further consideration, 

the Bureau is adopting § 1024.37(b) with 

changes. First, the Bureau has 

concluded that when a servicer 

purchases force-placed insurance but 

does not charge a borrower for such 

insurance, the servicer does not 

‘‘obtain’’ force-placed insurance within 

the meaning of section 6(k)(1)(A) of 

RESPA. The Bureau arrived at this 

conclusion after re-evaluating the 

connection between section 6(k)(1)(A) 

and (l). As described above, section 

6(k)(1)(A) establishes that a servicer of 

a federally related mortgage loan shall 

not obtain force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance. Section 6(l) 

establishes that a servicer of a federally 

related mortgage loan shall not be 

construed as having a reasonable basis 

for obtaining force-placed insurance 

unless the requirements of section 6(l) 

have been met. But one of the 

requirements is that a servicer must 

terminate force-placed insurance within 

15 days of the servicer receiving 

confirmation of a borrower’s existing 

insurance coverage. The Bureau believes 

that this provision expressly 

contemplates that a servicer may 

purchase force-placed insurance before 

meeting the requirements of section 6(l). 

Accordingly, where ‘‘obtaining’’ is used 

in section 6(l), the Bureau interprets the 

statute to mean ‘‘charging.’’ Because 

‘‘obtain’’ appears in section 6(k)(1)(A) 

and 6(l), the Bureau has changed 

§ 1024.37(b) to reflect more clearly the 

statutory prohibition against ‘‘charging.’’ 

Accordingly, as finalized, § 1024.37(b) 

provides that a servicer may not assess 

on a borrower a premium charge or fee 

related to force-placed insurance unless 

the servicer has a reasonable basis to 

believe that the borrower has failed to 

comply with the mortgage loan 

contract’s requirement to maintain 

hazard insurance. 

The Bureau has also changed 

commentary intended to explain the 

circumstances that provide a servicer 

with a ‘‘reasonable basis to believe’’ for 

purposes of § 1024.37(b). The Bureau 

has decided not to provide specific 

examples of ‘‘a reasonable basis to 

believe.’’ Instead, as adopted, comment 

37(b)–1 provides that information about 

a borrower’s hazard insurance received 

by a servicer from a borrower, the 

borrower’s insurance provider or 

insurance agent, may provide a servicer 

with a reasonable basis to believe that 

the borrower has failed to comply with 

the loan contract’s requirement to 

maintain hazard insurance. The Bureau 

believed that sometimes the absence of 

information may provide a servicer with 

a reasonable basis to believe that the 

borrower has failed to comply with the 

loan contract’s requirement to maintain 

hazard insurance. Accordingly, 

proposed comment 37(b)–1 would have 

clarified that a servicer had a reasonable 

basis to believe that a borrower with an 

escrow account established for hazard 

insurance has failed to maintain hazard 

insurance if the servicer had not 

received a renewal bill within a 

reasonable time prior to the expiration 

date of the borrower’s hazard insurance. 

Upon further consideration, the Bureau 

believes that the comment may convey 

that the absence of information would 

provide a servicer with a safe harbor. 

The Bureau believes that a safe harbor 

based on the absence of information 

would not adequately ensure that 

borrowers are protected from 

unwarranted and unnecessary charges 

related to force-placed insurance. 

Accordingly, the Bureau is adopting 

commentary to provide that in the 

absence of receiving information about 

a borrower’s hazard insurance, a 

servicer may satisfy the reasonable basis 

to believe standard if a servicer acts 

with reasonable diligence to ascertain a 

borrower’s hazard insurance status, and 

does not receive, from the borrower or 

otherwise have evidence of insurance 

coverage as provided in 

§ 1024.37(c)(1)(iii). 

The Bureau has concluded that a 

servicer following the notification 

procedure established by section 6(l) of 

RESPA has acted with reasonable 

diligence to ascertain a borrower’s 

hazard insurance status, but compliance 

with those procedural elements alone 

are not sufficient to provide a safe 

harbor. The statute prohibits a servicer 

from imposing any charge on a borrower 

for force-placed insurance if the servicer 

has received demonstration of hazard 

insurance coverage by the end of the 

notification process. Accordingly, 

comment 37(b)–1, as adopted, explains 

that an example of acting with 

reasonable diligence is one in which a 

servicer complies with the notification 

requirements set forth in 

§ 1024.37(c)(1)(i) and (ii), and if after 

complying with such requirements, the 

servicer does not receive, from the 

borrower or otherwise, evidence of 

insurance coverage as provided in 

§ 1024.37(c)(1)(iii). 

The Bureau does not believe that it is 

necessary to provide a separate safe 

harbor for servicers acting in good faith 

because the Bureau believes the 

standard set forth in § 1024.37(b) 

provides sufficient flexibility for 

servicers to balance their obligations to 

owners and assignees of mortgage loans 

to ensure that a property is adequately 

insured and to protect borrowers from 

unwarranted and unnecessary charges 

and fees. The Bureau also declines to 

adopt a collective standard to evaluate 

whether a servicer’s purchase of forceplaced insurance is proper. The Bureau 

believes that the percentage of cases in 

which a borrower receives a full refund 

for force-placed insurance charges may 

be relevant in assessing whether a 

servicer is maintaining reasonable 

policies and procedures to ensure that a 

servicer is maintaining accurate 

information about a borrower’s mortgage 

loan. But the Bureau believes that 

section 6(k)(1)(A) of RESPA established 

a loan-level standard. Using a collective 

standard to evaluate whether a servicer 

has satisfied the reasonable basis to 

believe requirement in section 6(k)(1)(A) 

would not be appropriate because the 

standard would be overbroad and might 

discourage a servicer from obtaining 

force-placed insurance even though a 

servicer has actual information that a 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance. 

A state trade association representing 

banks and one of its member banks 

urged the Bureau to eliminate proposed 

§ 1024.37(b). They expressed concern 

that the reasonable basis standard, in 

combination with the prohibition on 

charging a borrower for insurance in 

proposed § 1024.37(c)(1) for at least 45 

days, would increase the likelihood that 

homes go uninsured for a significant 

period of time. The Bureau declines to 

eliminate § 1024.37(b) because the 

Bureau believes the provision is 

necessary to implement RESPA’s forceplaced provisions. In addition, the 

Bureau believes that the commenters’ 

concern is unwarranted, in particular, 

because § 1024.37(b) has been revised to 

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10766 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

reframe the prohibition as one on 

charging the borrower for, rather than 

purchasing, force-placed insurance. 

Lastly, a state trade association 

representing banks and thrifts expressed 

concern that servicers may rely on 

information from an insurance provider 

that later turns out to be incorrect about 

the status of a borrower’s hazard 

insurance coverage to purchase forceplaced insurance. For example, the 

commenter said that insurance 

providers may send notices of 

cancellation to servicers before a 

borrower’s insurance actually lapses. 

The Bureau recognizes that servicers 

may sometimes wrongly conclude that 

there is a reasonable basis to charge 

borrowers for force-placed insurance, 

even after complying with the 

procedures steps in § 1024.37(c)(1). But 

whether § 1024.37(b) is violated turns 

on whether or not a servicer had a 

reasonable basis to reach its conclusion 

based on the information the servicer 

has at the time the servicer charges a 

borrower for force-placed insurance. 

37(c) Requirements for Charging 

Borrower Force-Placed Insurance 

37(c)(1) In General 

Section 6(l)(1) of RESPA, added by 

section 1463(a) of the Dodd-Frank Act, 

states that a servicer may not impose 

any charge on a borrower for forceplaced insurance with respect to any 

property securing a federally related 

mortgage unless the servicer (1) sends a 

written notice by first-class mail to a 

borrower that contains disclosures about 

a borrower’s obligation to maintain 

hazard insurance, a servicer’s lack of 

evidence that a borrower has such 

insurance, a clear and conspicuous 

statement of how the borrower may 

demonstrate coverage, and a statement 

that a servicer may obtain insurance 

coverage at a borrower’s expense if the 

borrower does not provide 

demonstration of coverage in a timely 

manner (see section 6(1)(1)(A)(i) 

through (iv)); (2) sends a second written 

notice by first-class mail containing the 

same disclosures to a borrower at least 

30 days after mailing the first written 

notice (see section 6(l)(1)(B)); and (3) 

does not receive any demonstration of 

hazard insurance coverage by the end of 

the 15-day period beginning on the date 

the second written notice was sent to 

the borrower (see section 6(l)(1)(C)). 

The Bureau proposed § 1024.37(c)(1) 

to implement section 6(l)(1). Proposed 

§ 1024.37(c)(1) would have provided 

that a servicer may not charge a 

borrower for force-placed insurance 

unless: (1) A servicer delivers to the 

borrower or places in the mail a written 

notice with the disclosures set forth in 

§ 1024.37(c)(2) at least 45 days before 

the premium charge or any fee is 

assessed; (2) it delivers to such borrower 

or places in the mail a written notice in 

accordance with § 1024.37(d)(1), which 

would have prohibited a servicer from 

delivering or placing in the mail this 

second notice until 30 days have passed 

after the servicer has delivered or placed 

in the mail the first written notice 

required by § 1024.37(c)(1)(i); and (3) 

during the 45-day notice period, the 

servicer has not received verification 

that such borrower has hazard insurance 

in place continuously. Proposed 

§ 1024.37(c)(1)(iii) also stated that 

determining whether the borrower has 

hazard insurance in place continuously, 

the servicer shall take account of any 

grace period provided under State or 

other applicable law. The Bureau 

proposed to permit a servicer to choose 

between delivering the written notice to 

the borrower or mailing the written 

notices established by section 6(l)(1)(A) 

and (B) of RESPA because the Bureau 

believed it was necessary and proper to 

achieve the purposes of RESPA to 

provide servicers with flexibility to 

either deliver or mail the required 

notices, since delivery will often be 

faster than transmittal by mail. 

Proposed comment 37(c)(1)–1 would 

have clarified the minimum length of 

the notice period. It stated that notice 

period set forth in § 1024.37(c)(1) begins 

on the day that the servicer delivers or 

mails the notice to the borrower and 

expires 45 days later, and that the 

servicer may assess the premium charge 

and any fees for force-placed insurance 

beginning on the 46th day if the servicer 

has fulfilled the requirements of 

§ 1024.37(c) and (d). The comment 

further stated that if not prohibited by 

State or other applicable law, the 

servicer may retroactively charge a 

borrower for force-placed insurance 

obtained during the 45-day notice 

period. Proposed comment 37(c)(1)(iii)– 

1 would have provided examples of 

borrowers having hazard insurance in 

place continuously. 

Two non-bank servicers stated that 

they supported proposed § 1024.37(c)(1) 

and related commentary. One of the 

commenters observed that the Bureau’s 

proposal reflects its current practice. 

This is consistent with feedback from 

small servicers with whom the Small 

Business Review Panel conducted 

outreach in advance of the proposal. 

One participant stated that it currently 

provides two notices that are very 

similar to the ones that would be 

required, and another participant stated 

that it currently exceeds the number of 

notices that would be required. 

The Bureau received comments on 

various aspects of proposed 

§ 1024.37(c)(1). Except as discussed 

below, the majority of industry 

commenters did not raise concerns with 

the notification aspect of proposed 

§ 1024.37(c)(1). The majority of industry 

commenters only sought clarification. 

First, they requested the Bureau clarify 

that a servicer may retroactively charge 

a borrower for force-placed insurance 

back to the date that a borrower’s hazard 

insurance lapsed, even if the servicer 

sends the first notice after the date of 

lapse. Second, a number of industry 

commenters requested that the Bureau 

clarify how a servicer should account 

for grace periods when determining 

whether a borrower has hazard 

insurance in place continuously. They 

observed that a grace period under a 

typical hazard insurance policy extends 

a policyholder’s insurance coverage past 

the expiration date only if the 

policyholder pays the past-due 

premium during such period. A bank 

servicer requested the Bureau clarify 

that ‘‘grace period’’ used in proposed 

§ 1024.37 refer to grace periods 

applicable to the borrower’s hazard 

insurance, and not grace periods 

applicable to the borrower’s loan during 

which the borrower pays the mortgage 

payment after the due date without 

incurring a late charge. One large bank 

servicer sought clarification of whether 

the notice period could exceed 45 days. 

A minority of industry commenters 

opposed the notification aspect of 

proposed § 1024.37(c)(1). One credit 

union contended that the proposed 

notices would be duplicative, 

unnecessary, and add to the overall cost 

of lending because borrowers already 

receive multiple notices from their 

insurers prior to cancellation. A trade 

association representing retail banks 

asserted that if a borrower’s hazard 

insurance coverage lapses before the 

second notice is provided, then a 

servicer should be able to obtain forceplaced insurance without having to 

send the second notice. A bank servicer 

argued that rather than requiring a 

servicer to send a second notice at least 

15 days prior to charging a borrower for 

force-placed insurance, the Bureau 

should instead permit a servicer to 

simply provide a notice within five days 

of purchasing force-placed insurance. 

One state credit union league expressed 

concern about the aggregate notice 

burden servicers would be required to 

bear if the mortgage servicing rules are 

finalized as proposed and suggested that 

the burden could be reduced if the 

Bureau combines the first and second 

written notice into a single notice. One 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10767 

credit union asserted that the Bureau 

should allow a servicer to include the 

proposed force-placed insurance notices 

with the periodic statement because 

multiple documents mailed to the 

borrower could decrease the probability 

of the borrower actually paying 

attention to the information. 

Several industry commenters urged 

the Bureau to reconsider the aspect of 

the proposal that would have required 

servicers to wait at least 45 days to 

charge a borrower for force-placed 

insurance. The commenters contended 

that servicers, especially small servicers, 

would incur significant costs because 

servicers would have to advance forceplaced insurance charges for borrowers. 

One state credit union trade association 

urged the Bureau to exercise its 

exception authority to exempt small 

servicers from the requirements of 

§ 1024.37(c). In addition to the cost of 

advancement, the commenter also 

asserted that it would be costly for small 

servicers to send the notices. One nonbank servicer suggested the Bureau 

shorten the notice period to 30 days, 

while a bank servicer urged the Bureau 

to shorten the notice period to 10 days. 

One bank servicer also requested the 

Bureau to preempt Texas law that 

addresses notification requirements that 

apply to creditors’ purchase of forceplaced insurance for residential 

mortgages. 

One bank servicer commented that a 

rule requiring servicers to provide 

notices like the proposed periodic 

statement or force-placed insurance 

notices to borrowers would be a waste 

of servicer resources without a 

corresponding benefit to consumers in 

situations involving a borrower whom 

the servicer has referred to foreclosure, 

a borrower who has declared 

bankruptcy, or a borrower who has 

made no payment or contacted the 

servicer for more than six months and 

whom the servicer has determined to 

have vacated the property. It sought an 

exemption from compliance with any 

force-placed insurance notification 

requirements with regard to those three 

categories of borrowers. One national 

trade association representing credit 

unions and a credit union commenter 

expressed concern that credit union 

members may believe that they should 

only be charged from the date that they 

received the first notice. Lastly, some 

industry commenters stated that a 

servicer should not be subject to a 

waiting period of 45 days to obtain 

force-placed insurance because it leaves 

collateral exposed and increases the risk 

to the borrower. 

In contrast, one consumer advocacy 

group urged the Bureau to strengthen 

the notification requirement so that a 

servicer would be required to provide 

the first notice within 15 days of placing 

force-placed insurance. It further 

asserted that it would be unreasonable 

to permit a servicer to retroactively 

charge a borrower for more than 60 days 

of force-placed insurance because it is a 

servicer’s responsibility to identify 

lapses in insurance and notify 

borrowers of such lapses in a timely 

fashion. 

Lastly, several industry commenters 

requested the Bureau clarify what 

‘‘verification’’ means because they were 

concerned that the proposal would have 

required servicers to accept any 

insurance information they received 

from borrowers. The commenters noted 

that the traditional means of 

establishing proof of insurance is by 

requiring a borrower to provide a copy 

of an insurance policy declaration page, 

a certificate of insurance, or the 

insurance policy. The commenters 

expressed concern that without any of 

these, servicers may might potentially 

not be able to provide mortgage 

investors with the proof such investors 

require as evidence of coverage. 

After careful consideration of these 

comments and further consideration, 

the Bureau is adopting § 1024.37(c)(1) 

with several adjustments. With respect 

to the notification aspect of 

§ 1024.37(c)(1), the Bureau notes that 

RESPA establishes a very detailed 

scheme for any servicer (without 

consideration of the servicer’s size) to 

follow before a servicer imposes a 

charge on any borrower for force-placed 

insurance. The Bureau believes that the 

prescriptive nature of the statutory 

scheme suggests that Congress believed 

that each step was necessary to achieve 

the consumer protection purpose of 

RESPA’s force-placed insurance 

provisions. The notification procedures 

the Bureau proposed in § 1024.37(c)(1) 

mirror the prescriptive statutory scheme 

because they were necessary to achieve 

the intent of Congress. The Bureau 

declines to adopt suggestions received 

from commenters, which ranged from 

creating exemptions for small servicers 

and unresponsive borrowers to changing 

various aspects of the notification 

requirements, because they would make 

§ 1024.37(c)(1) depart from the statutory 

scheme Congress established. 

The Bureau has also worked to craft 

effective notices through consumer 

testing, and the results of those tests 

suggest that borrowers will in fact 

welcome and respond to the notices. 

The Bureau further believes that some of 

the commenters’ concerns are addressed 

by the fact that the Bureau is 

interpreting the statutory language to 

allow charges to be assessed 

retroactively for any period in which 

coverage was not maintained 

continuously once the procedural and 

substantive statutory criteria are met. 

Moreover, the Bureau believes that it is 

unnecessary to set limitations on a 

servicer’s right to assess on borrowers 

charges retroactively because the statute 

establishes that a borrower has an 

unconditional right to a full refund of 

force-placed insurance premium charges 

and related fees the borrower has paid 

for any period in which the borrower’s 

hazard insurance and the force-placed 

insurance were both in place. 

With respect to the request for 

preemption, the Bureau observes that 

based on the way in which the 

commenter described Texas law, it does 

not appear that compliance with Texas 

law would prevent a servicer from 

complying with the Bureau’s forceplaced insurance notification 

requirements. Accordingly, the Bureau 

believes preemption is not appropriate 

based on the information provided. 

The Bureau is making several changes 

to § 1024.37(c)(1) for clarification 

purposes. The Bureau is adopting new 

comment § 1024.37(c)(1)(i) to clarify 

that a servicer may charge a borrower 

for force-placed insurance a servicer 

purchased, retroactive to the first day of 

any period in which the borrower did 

not have hazard insurance in place. The 

Bureau is clarifying the role of a grace 

period under applicable law in 

determining whether a borrower has 

hazard insurance in place continuously 

in new comment 37(c)(1)(iii)–1. The 

Bureau is adopting § 1024.37(c)(1)(iii) to 

clarify what ‘‘receiving verification’’ 

means by replacing the phrase ‘‘received 

verification that the borrower has 

hazard insurance in place 

continuously’’ in proposed 

§ 1024.37(c)(1)(iii) with the phrase 

‘‘received, from the borrower or 

otherwise, evidence demonstrating that 

the borrower has had in place 

continuously hazard insurance coverage 

that complies with the loan contract’s 

requirements to maintain hazard 

insurance.’’ 

The Bureau has concluded that 

putting the responsibility entirely on a 

servicer to verify a borrower’s hazard 

insurance coverage by requiring a 

servicer to accept any written 

information from a borrower as long as 

it contains the insurance policy number, 

and the name, mailing address and 

phone number of the borrower’s 

insurance company or the borrower’s 

insurance agency as evidence of 

insurance would impose too large of a 

burden on a servicer to determine 

whether the property is in fact insured 

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in accordance with the terms and 

conditions of a borrower’s loan contract. 

Accordingly, in new comment 

1024.37(c)(1)(iii)–2, the Bureau is 

explaining that as evidence of 

continuous hazard insurance coverage 

that complies with the loan contract’s 

requirements to maintain hazard 

insurance, a servicer may require a copy 

of the borrower’s hazard insurance 

policy declaration page, the borrower’s 

insurance certificate, the borrower’s 

insurance policy, or other similar forms 

of written confirmation because the 

Bureau interprets the statutory language 

‘‘reasonable form of written 

confirmation of existing insurance 

coverage’’ in section 6(l)(2) of RESPA to 

mean documents servicers typically 

require borrowers to provide to establish 

proof of coverage. Further, comment 

37(c)(1)(iii)–2 provides that a servicer 

may reject evidence of hazard insurance 

coverage submitted by the borrower if 

neither the borrower’s insurance 

provider nor insurance agent provides 

confirmation of the insurance 

information submitted by the borrower, 

or if the terms and conditions of the 

borrower’s hazard insurance policy do 

not comply with the borrower’s loan 

contract requirements because the 

Bureau interprets section 6(l)(3) of 

RESPA to permit a servicer to separately 

confirm insurance information that a 

borrower has proffered to establish 

proof of coverage and the statutory 

language in section 6(k)(1)(A) to permit 

a servicer to charge a borrower forceplaced insurance when the servicer has 

a reasonable basis to believe that the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance. 

With respect to the request to clarify 

that the 45-day notification period set 

forth in proposed § 1024.37(c)(1) 

establishes the minimum amount of 

time that must lapse between the time 

a servicer sends a borrower the first 

written notice required by section 6(l)(1) 

and the time a servicer imposes a 

premium charge or fee related to forceplaced insurance, the Bureau believes 

that the fact that the Bureau intended 

the 45 days to be the minimum amount 

of time was clear in the proposal and 

thus, does not believe additional 

clarification in the final rule is 

necessary. 

37(c)(2) Content of Notice 

As discussed in the section-by-section 

analysis of § 1024.37(c)(1), section 

6(l)(1)(A)(i) through (iv) of RESPA 

establishes the disclosures that a 

servicer of a federally related mortgage 

loan must provide in the written notices 

it sends to borrowers. The Bureau 

proposed § 1027.37(c)(2) to implement 

section 6(l)(1)(A)(i) through (iv). 

Proposed § 1024.37(c)(2) would have 

required a servicer to set forth, in the 

notice that would have been required 

under proposed § 1024.37(c)(1)(i), 

certain information about force-placed 

insurance. Specifically, proposed 

§ 1024.37(c)(2)(i) through (iv) would 

have required a servicer to disclose the 

following information: (1) The date of 

the notice; (2) the servicer’s name and 

mailing address; (3) the borrower’s 

name and mailing address; and (4) a 

statement that requests the borrower to 

provide hazard insurance information 

for the borrower’s property and 

identifies the property by its address. 

Proposed § 1024.37(c)(2)(v) would have 

required that a servicer provide a 

statement that the borrower’s hazard 

insurance is expiring or expired, as 

applicable, and that the servicer does 

not have evidence that the borrower has 

hazard insurance coverage past the 

expiration date. For a borrower that has 

more than one type of hazard insurance 

on the property, the servicer must 

identify the type of hazard insurance for 

which the servicer lacks evidence of 

coverage. Proposed comment 

37(c)(2)(v)–1 would have explained that 

if a borrower has purchased a 

homeowners’ insurance policy and a 

separate hazard insurance policy to 

insure loss against hazards not covered 

under his or her homeowners’ insurance 

policy, the servicer must disclose 

whether it is the borrower’s 

homeowners’ insurance policy or the 

separate hazard insurance policy for 

which it lacks evidence of coverage to 

comply with § 1024.37(c)(2)(v). 

Proposed § 1024.37(c)(2)(vi) would have 

required that a servicer provide a 

statement that hazard insurance is 

required on the borrower’s property and 

that the servicer has obtained or will 

obtain, as applicable, insurance at the 

borrower’s expense. 

Proposed § 1024.37(c)(2)(vii) would 

have required that the initial notice to 

the borrower contain a statement 

requesting the borrower to promptly 

provide the servicer with the insurance 

policy number and the name, mailing 

address and phone number of the 

borrower’s insurance company or the 

borrower’s insurance agent. Proposed 

§ 1024.37(c)(2)(viii) would have 

required the notice to contain a 

description of how the borrower may 

provide the information requested 

pursuant to § 1024.37(c)(2)(vii). 

Finally, § 1024.37(c)(2)(ix) and (x) 

would have required information 

regarding the relative costs and scope of 

coverage of force-placed insurance 

versus hazard insurance obtained by the 

borrower, specifically: (1) The cost of 

the force-placed insurance, stated as an 

annual premium, or as a good faith 

estimate if actual pricing is not 

available; and (2) a statement that 

insurance the servicer obtains may cost 

significantly more than hazard 

insurance obtained by the borrower and 

may not provide as much coverage as 

hazard insurance obtained by the 

borrower. Proposed § 1024.37(c)(2)(xi) 

would have required that a servicer 

provide the servicer’s telephone number 

for borrower questions. 

The disclosures regarding the 

potential cost and scope of coverage for 

force-placed insurance were not 

specifically required under the DoddFrank Act, but the Bureau believed that 

it was appropriate to propose them 

pursuant to the Bureau’s RESPA section 

6(k)(1)(E) authority in order to provide 

borrowers with critical information 

about the benefits, costs, and risks of the 

insurance that would be imposed if they 

failed to act. The Bureau noted in the 

proposal that the Bureau tested the 

force-placed insurance disclosures 

established by the Dodd-Frank Act in 

three rounds of consumer testing. 

Participant response in consumer 

testing suggested that knowing about 

higher cost of force-placed insurance 

could motivate borrowers to act 

promptly and thus avoid being charged 

for force-placed insurance. All 

participants said upon receipt of the 

notice, they would immediately contact 

their insurance provider to find out 

whether or not their hazard insurance 

had expired or purchase new hazard 

insurance because they would not want 

to pay for the higher cost of force-placed 

insurance. 

The Bureau proposed comment 

37(c)(2)(ix)–1 to clarify that the good 

faith estimate of the cost of the forceplaced insurance the servicer may 

obtain should be consistent with the 

best information reasonably available to 

the servicer at the time the disclosure is 

provided. The proposed comment stated 

that differences between the amount of 

the estimated cost disclosed under 

§ 1024.37(c)(2)(ix) and the actual cost do 

not necessarily constitute a lack of good 

faith, so long as the estimated cost was 

based on the best information 

reasonably available to the servicer at 

the time the disclosure was provided. 

The Bureau believed that its proposed 

good faith standard would provide 

significant safeguards against the risk 

that some servicers might intentionally 

underestimate the cost of force-placed 

insurance while providing sufficient 

flexibility to account for the fact that 

costs may change due to legitimate 

reasons between the time the disclosure 

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is made and the time the borrower is 

charged. 

Several consumer groups applauded 

the content requirements the Bureau 

proposed, but with one caveat. They 

expressed concern that the proposed 

disclosure concerning the fact that 

force-placed insurance may not provide 

as much coverage as borrower-obtained 

hazard insurance was too generic, and 

thus would not provide information 

meaningful enough to alert the borrower 

to the risks of force-placed insurance 

and prompt the borrower to act. They 

suggested adding additional disclosures 

that force-placed insurance would not 

cover damage to the borrower’s personal 

property, personal liability for injuries 

to others while they are on the 

borrower’s property, or living expenses 

while the borrower’s home is under 

repair. The Bureau has considered the 

consumer groups’ concern but is 

reluctant to add further information 

without consumer testing in light of the 

risk that information overload could 

adversely impact the effectiveness of the 

notice. The Bureau also notes that 

results of the testing of the model forms 

suggest that the existing disclosures will 

prompt recipients of the force-placed 

insurance notices to act promptly. As 

summarized by Macro in its report on 

the consumer testing of mortgage 

servicing disclosures during the preproposal stage, all subjects who were 

shown samples of force-placed 

insurance notices said they would act 

immediately in response to receiving 

such notices, even though the samples 

did not contain detailed description of 

potential coverage differences. 

One consumer group suggested that a 

statement informing a borrower of the 

availability of State-created hazard 

insurance programs should be a 

required disclosure because these 

programs are designed to make hazard 

insurance available to borrowers who 

have trouble qualifying for insurance 

from traditional sources. Again, the 

Bureau has considered the issue but is 

reluctant to add further information 

without consumer testing in light of the 

risks of information overload. The 

Bureau is also concerned that a 

completely generic notice that State 

programs ‘‘may’’ be available without 

contact information would not be very 

useful to consumers, and that tailoring 

the notices to particular States would be 

burdensome to servicers. Accordingly, 

the Bureau declines to implement the 

comment. The commenter also urged 

the Bureau to require servicers to 

include force-placed insurance charges 

in regular invoice statements that are 

sent to a borrower so that a borrower is 

constantly reminded of how much of 

the borrower’s payments are going 

toward paying for such insurance. 

Another consumer group submitted 

similar comments recommending that 

the Bureau require servicers to identify 

force-placed insurance charges 

specifically in proposed periodic 

statements so that borrowers could 

easily recognize when force-placed 

insurance has been obtained. The 

Bureau notes that servicers will be 

required to list force-placed insurance 

charges like any other charge, in the 

periodic statement that the Bureau is 

finalizing in the 2012 TILA Servicing 

Final Rule. 

Consumer advocates and some 

industry commenters praised the 

proposal to require actual cost 

information or estimated costs in the 

mandatory disclosures. A force-placed 

insurance commenter, for instance, 

stated that it currently provides its 

borrowers with such estimates and that 

it has proven successful in convincing 

borrowers of the benefit of obtaining 

their own coverage. Some industry 

commenters, however, opposed the 

proposed disclosure as unnecessary 

because the Bureau separately proposed 

to require servicers to inform borrowers 

that force-placed insurance may cost 

significantly more than borrowerobtained hazard insurance. One forceplaced insurance provider further 

observed that the existing practice of 

most servicers is to provide a binder of 

the force-placed insurance coverage 

with the second notice to make 

borrowers aware of the cost of such 

insurance. These commenters and a 

large bank servicer further noted that 

the National Mortgage Settlement did 

not include a required disclosure about 

the cost of force-placed insurance and 

urged the Bureau to refrain from 

requiring more disclosures than 

required by the settlement. 

Commenters also asserted that a 

servicer might not have enough 

information to provide an estimate of 

force-placed insurance costs because the 

first notice would be provided to a 

borrower at a point where a servicer 

might not have obtained the premium 

information. Estimates are also 

complicated by the fact that the cost of 

insurance is determined by factors not 

within the servicer’s control (e.g., 

insurers’ pricing formulas, the number 

of days a borrower is delinquent on the 

mortgage loan). Two national trade 

associations representing the mortgage 

industry asserted that if a servicer does 

not rely on a third party to track a 

borrower’s hazard insurance, the 

servicer would not have the information 

necessary to make good faith estimates 

of insurance premiums until the forceplaced insurance is actually issued. One 

of the commenters asserted that this 

problem is likely to be most acute for 

small servicers because they often do 

not hire third parties to track a 

borrower’s hazard insurance. The two 

commenters also questioned whether a 

servicer could be held liable for 

differences between an estimate and the 

actual cost under a theory that the 

differences were caused by unfair, 

deceptive, or abusive practices. They 

also questioned whether a servicer 

would have the authority to provide the 

estimate because for an estimate to be 

binding, an insurance binder from a 

licensed insurance agent or provider is 

required. The two commenters and a 

force-placed insurance provider also 

expressed concern that the potential 

inaccuracies with estimate costs may 

lead to customer confusion and 

complaints. Lastly, several industry 

commenters expressed concern with the 

use of the phrase ‘‘good faith estimate’’ 

because the phrase is a defined term in 

existing Regulation X with a different 

meaning than the meaning set forth in 

proposed comment 37(c)(2)(ix)–1. 

After considering these comments, the 

Bureau is withdrawing the requirement 

to provide the cost of force-placed 

insurance (or a good faith estimate of 

the cost) in the notice required by 

§ 1024.37(c)(1)(i), but keeping the 

requirement for purposes of the 

reminder notice required by 

§ 1024.37(c)(1)(ii). The Bureau believes 

that this will reduce compliance burden 

concerns while continuing to assure that 

borrowers receive specific prices or 

estimates that are likely to provide 

strong motivation to renew their 

homeowners’ insurance policies. 

Additionally, the regulatory text is 

changed to refer to a ‘‘reasonable 

estimate’’ rather than a ‘‘good faith 

estimate,’’ and the commentary is 

changed to clarify what a ‘‘reasonable 

estimate’’ means. 

A number of industry commenters 

recommended that the Bureau allow 

servicers to provide a borrower with 

additional information about forceplaced insurance. They stated that 

servicers currently provide a number of 

disclosures in addition to the 

information the Bureau has proposed in 

response to State disclosure 

requirements, class action litigation, and 

industry best practices. Commenters 

expressed concern that the failure by 

servicers to include additional 

information may subject servicers to 

further litigation and extensive potential 

liability. Some commenters suggested 

that the Bureau permit servicers to 

include additional information and the 

required information in one document. 

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10770 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

One large bank servicer suggested an 

alternative approach where a servicer 

would be permitted to include 

additional information in the same 

transmittal that is used to provide 

notices containing the required 

information. 

The Bureau believes that providing 

additional information in the same 

notice as the required information could 

obscure the most important information 

or tend to create information overload. 

For instance, one industry commenter 

provided a list of additional information 

that included 10 specific pieces of 

information and a catch-all category for 

disclosures related to force-placed 

insurance imposed by other State or 

Federal law. The Bureau believes it 

would be better if servicers have 

latitude to provide the additional 

information on separate pieces of paper 

in the same transmittal. Accordingly, 

the Bureau is adopting new 

§ 1024.37(c)(4) to provide that a servicer 

may not include any information other 

than information required by 

§ 1024.37(c)(2) in the written notice 

required by § 1024.37(c)(1)(i), but that a 

servicer may provide such additional 

information to a borrower in the same 

transmittal as the transmittal used to 

provide the notice required by 

§ 1024.37(c)(1)(i) but on separate pieces 

of paper. The Bureau is adopting 

parallel provisions in § 1024.37(d) and 

(e), numbered as § 1024.37(d)(4) and 

(e)(4), respectively. The Bureau has also 

revised § 1024.37(c)(2) to permit the 

notice required by § 1024.37(c)(1)(i) to 

include, if applicable, a statement 

advising a borrower to review additional 

information provided in the same 

transmittal. The Bureau has adopted 

parallel provisions in § 1024.37(d) and 

(e). 

37(c)(3) Format 

As previously discussed, section 

6(l)(1) of RESPA establishes that a 

servicer must provide a borrower with 

two written notices before charging a 

borrower for force-placed insurance. To 

implement this provision, the Bureau 

proposed § 1024.37(c)(3) and (d)(3) in 

parallel. Proposed 1024.37(c)(3) stated 

that disclosures set forth in proposed 

§ 1024.37(c)(2) must be in a format 

substantially similar to form MS–3(A), 

set forth in appendix MS–3. Disclosures 

made pursuant to § 1024.37(c)(2)(vi) and 

(c)(2)(ix) must be in bold text. 

Disclosure made pursuant to 

§ 1024.37(c)(2)(iv) must be in bold text, 

except that the physical address of the 

borrower’s property may be in regular 

text. The Bureau believed the use of 

bold text to bring attention to important 

information would make it easier for 

borrowers to identify promptly the 

purpose of the notice and to find the 

information quickly and efficiently. 

Additionally, the Bureau stated in the 

proposal that the Bureau believed that it 

was important to bring attention to the 

cost of force-placed insurance so 

borrowers have a clear understanding of 

the cost to them of the service that 

servicers provide in obtaining forceplaced insurance. The Bureau further 

noted that it believed that it was 

important for borrowers to understand 

that the servicer’s purchase of forceplaced insurance arises from the 

borrower’s obligation to maintain 

hazard insurance. Although the notice 

contains additional information that is 

important, the Bureau believes the 

usefulness of highlighting in focusing a 

borrower’s attention on important 

information decreases if highlighting is 

used unsparingly. 

One large bank servicer commended 

the Bureau for the model forms the 

Bureau proposed. It observed that the 

forms were thoughtfully designed and 

should be readily understandable to 

consumers. Another large bank servicer 

agreed with the Bureau’s rationale that 

model forms facilitate compliance with 

the new Dodd-Frank Act requirements 

concerning force-placed insurance 

disclosures and the Bureau’s proposed 

supplemental disclosures, but sought 

clarification that servicers may use the 

model forms as guidance but are not 

required to demonstrate strict adherence 

to the language of the forms. One nonbank servicer argued that disclosure 

forms should generally be open-ended 

to allow the servicer to provide all the 

content required by the Bureau while 

allowing the servicer to tailor the form 

to its needs; however, the commenter 

stated that it did not have concerns with 

the model force-placed insurance forms 

the Bureau proposed. 

In consideration of the comments 

received and based on further 

consideration, the Bureau is changing 

§ 1024.37(c)(3) to no longer require a 

servicer to provide the information 

required by § 1024.37(c)(2) in a form 

‘‘substantially similar’’ to form MS–3A, 

as set forth in appendix MS–3. As 

adopted, § 1024.37(c)(3) provides that a 

servicer may use form MS–3A in 

appendix MS–3 to comply with the 

requirements of § 1024.37(c)(1)(i) and 

(2). However, the Bureau is adopting a 

final § 1024.37(c)(3) that generally 

contains the highlighting requirements 

set forth in the proposal. 

37(d) Reminder Notice 

37(d)(1) In General 

As discussed above, section 6(l)(1) of 

RESPA, added by section 1463(a) of the 

Dodd-Frank Act, states that a servicer 

must send two written notices to the 

borrower prior to charging the borrower 

for force-placed insurance. Specifically, 

RESPA section 6(l)(1)(B) requires 

servicers to use first-class mail to send 

a second written notice to the borrower, 

at least 30 days after mailing initial the 

notice required by RESPA section 

6(l)(1)(A), that contains all the 

information described in section 

6(l)(1)(A)(i) through (iv) of RESPA. 

The Bureau proposed § 1024.37(d)(1) 

to implement section 6(l)(B) of RESPA. 

Proposed § 1024.37(d)(1) stated that one 

written notice in addition to the written 

notice required pursuant to 

§ 1024.37(c)(1)(i) must be delivered to 

the borrower or placed in the mail prior 

to a servicer charging a borrower for 

force-placed insurance. It further stated 

that the servicer may not deliver or 

place this second written notice under 

§ 1024.37(d)(1) in the mail until 30 days 

after delivering to the borrower or 

placing in the mail the first written 

notice under § 1024.37(c)(1)(i). Proposed 

§ 1024.37(d)(1) would also have 

mandated that a servicer that receives 

no insurance information after 

delivering or placing in the mail the 

written notice required pursuant to in 

§ 1024.37(c)(1)(i) must provide the 

disclosures set forth in 

§ 1024.37(d)(2)(i), while a servicer that 

does receive insurance information but 

is unable to verify that the borrower has 

hazard insurance coverage continuously 

must provide the disclosures set forth in 

§ 1024.37(d)(2)(ii). 

Proposed comment 37(d)(1)–1 would 

have explained the content of the 

reminder notice will vary depending on 

the insurance information the servicer 

has received from the borrower. Two 

national trade associations representing 

the mortgage industry urged the Bureau 

to permit servicers to use the same letter 

they sent to a borrower to comply with 

the first written notice requirement to 

comply with the second written notice 

requirement. 

As the Bureau noted in the proposal, 

section 6(k)(1)(B) of RESPA can be read 

to require a servicer to provide the same 

disclosures a borrower has previously 

received. However, where a borrower 

responds to the first notice by providing 

insurance information, the Bureau 

believed that the reminder notice would 

be more useful if it contained an 

acknowledgement of the information 

these borrowers provided in response to 

the first notice and informed these 

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111The commenters suggested that if the Bureau 

was going to adopt the requirement that servicers 

must provide the actual cost (or good faith estimate 

of the cost) of force-placed insurance, the 

requirement should be limited to the second notice. 

borrowers that the information provided 

was not sufficient for a servicer to verify 

that they had continuous coverage in 

place. The Bureau observed in the 

proposal that simply repeating the same 

content as the first notice might cause 

borrowers to become frustrated and 

confused by the fact that they are 

receiving another notice asking for 

insurance information when they 

thought they had already provided such 

information. 

As discussed above in the section-bysection analysis of § 1024.37(c)(1), some 

industry commenters urged the Bureau 

to withdraw the requirement that a 

servicer send a borrower a second notice 

before charging a borrower for forceplaced insurance. As the Bureau 

observed in the section-by-section 

analysis of § 1024.37(c)(1), Congress 

specifically required that two notices be 

provided before a servicer charges a 

borrower for force-placed insurance. For 

reasons discussed above, the Bureau 

does not believe that varying from this 

statutory scheme is appropriate. 

Further, comments from two large forceplaced insurance providers suggest that 

at least by the time of the second notice, 

servicers will be able to provide 

borrowers with a reasonable estimate of 

the cost of the force-placed insurance, 

so that the second notice will 

complement the first.111 Accordingly, 

the Bureau is adopting § 1024.37(d)(1) 

as proposed with an adjustment to 

emphasize that a servicer may not 

charge a borrower for force-placed 

insurance unless it has delivered or 

mailed the second written notice at least 

15 days prior to imposing such charge. 

37(d)(2) Content of Reminder Notice 

The Bureau proposed § 1024.37(d)(2) 

to address the content of the second 

required notice. Proposed 

§ 1024.37(d)(2)(i) would have set forth 

the information that a servicer must 

provide in the written notice established 

by section 6(l)(1)(B) of RESPA to a 

borrower from whom the servicer has 

not received any insurance information. 

Proposed § 1024.37(d)(2)(ii) would have 

set forth the information required where 

the servicer received insurance 

information from the borrower within 

30 days after delivering to the borrower 

or placing in the mail the written notice 

set forth § 1024.37(c)(1)(i), but not was 

not able to verify that the borrower has 

hazard insurance in place continuously. 

Proposed § 1024.37(d)(2)(i) would 

have required that if a servicer that has 

not received any insurance information 

from the borrower within 30 days after 

delivering or placing in the mail the 

notice required pursuant to 

§ 1024.37(c)(1)(i), the servicer must 

provide a reminder notice that contains 

the disclosures forth in 

§ 1024.37(c)(2)(ii) to (c)(2)(xi), the date 

of the notice, and a statement that the 

notice is the second and final notice. 

The Bureau explained in the proposal 

that it believes that the date of the 

notice and a statement that the notice is 

the second and final notice helps to 

distinguish the notice from the notice 

required pursuant to § 1024.37(c)(1)(i). 

Moreover, because the servicer would 

not have received any insurance 

information, the Bureau believed it 

would be appropriate to require the 

servicer to provide the disclosures set 

forth in § 1024.37(c)(2)(ii) to (c)(2)(xi) in 

the second written notice sent to a 

borrower who has not sent the servicer 

any insurance information in response 

to the first written notice. 

Proposed § 1024.37(d)(2)(ii) would 

have required that if a servicer has 

received insurance information from the 

borrower within 30 days after delivering 

to the borrower or placing in the mail 

the written notice set forth in 

§ 1024.37(c)(1)(i), but has not been able 

to verify that the borrower has hazard 

insurance in place continuously, then 

the servicer must deliver or place in the 

mail a written notice that contains the 

following: (1) The date of the notice; (2) 

a statement that the notice is the second 

and final notice; (3) the disclosures set 

forth in § 1024.37(c)(2)(ii), (c)(2)(iii), 

(c)(2)(iv), and (c)(2)(xi); (4) a statement 

that the servicer has received the hazard 

insurance information that the borrower 

provided; (5) a statement that indicates 

to the borrower that the servicer is 

unable to verify that the borrower has 

hazard insurance in place continuously; 

and (6) a statement that the borrower 

will be charged for insurance the 

servicer obtains for the period of time 

where the servicer is unable to verify 

hazard insurance coverage unless the 

borrower provides the servicer with 

hazard insurance information for such 

period. 

As described above in the section-bysection analysis of § 1024.37(c)(2), a 

number of industry commenters 

requested the Bureau to withdraw the 

requirement to provide the cost of forceplaced insurance (or a good faith 

estimate of the cost) and to permit 

servicers to include additional 

information in the force-placed 

insurance notices the Bureau proposed. 

For reasons discussed above, the Bureau 

is keeping the requirement to provide 

the cost of force-placed insurance 

(revised to refer to a ‘‘reasonable 

estimate’’ rather than a ‘‘good faith 

estimate’’) in the second notice and not 

permitting a servicer to include 

additional information in a second 

reminder notice. The Bureau has also 

added new comment 37(d)(2)(i)(D)–1 to 

clarify what a ‘‘reasonable estimate’’ 

means. 

37(d)(3) Format 

As previously discussed, the Bureau 

proposed new §§ 1024.37(c)(3) and 

(d)(3) in parallel to implement section 

6(l)(1). Proposed § 1024.37(d)(3) would 

have provided that the disclosures set 

forth in proposed § 1024.37(d)(2)(i) must 

be in a format substantially similar to 

form MS–3(B), and the disclosures set 

forth in § 1024.37(d)(2)(ii) must be in a 

format be substantially similar to form 

MS–3(C). Proposed § 1024.37(d)(3) 

would have provided that disclosures 

required by § 1024.37(d)(2)(i)(B), 

(d)(2)(ii)(B), and (d)(2)(ii)(F) must be in 

bold text. The Bureau observed in the 

proposal that the reasons the Bureau 

provided for requiring the use of 

highlighting (bold text) for purposes of 

§ 1024.37(c)(3) also applied to 

§ 1024.37(e)(3). As discussed above, the 

Bureau has made changes to 

§ 1024.37(c)(3) in adopting 

§ 1024.37(c)(3), and the Bureau is 

making conforming changes to 

§ 1024.37(d)(3). 

37(d)(4) Updating Notice With Borrower 

Information 

The Bureau proposed § 1024.37(d)(4) 

to provide that if a servicer receives 

hazard insurance information from a 

borrower after the second written notice 

required pursuant to § 1024.37(d)(1) has 

been put into production, the servicer is 

not required to update the notice so long 

as the notice was put into production 

within a reasonable time prior to the 

servicer delivering the notice to the 

borrower or placing the notice in the 

mail. The Bureau proposed related 

commentary, comment 37(d)(4)–1, that 

would have provided that five days 

prior to the delivery or mailing of the 

second notice is a reasonable time and 

invited comments on whether, in 

certain circumstances, a longer time 

frame is reasonable. 

As discussed above, the Bureau 

observes that one of the minimum 

consumer protection purposes Congress 

intended to establish by creating new 

servicer duties with respect to a 

servicer’s purchase of force-placed 

insurance is to provide a borrower with 

reasonably accurate information about a 

servicer’s grounds for purchasing forceplaced insurance. The Bureau believes 

that a servicer has a duty to ensure that 

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the second notice contains reasonably 

accurate information about an 

individual borrower’s hazard insurance 

status. Therefore, the Bureau believes 

that a servicer has a duty to update the 

second notice if it receives new 

insurance information about a borrower 

after sending the first written notice to 

the borrower. The Bureau, however, 

observed in the proposal that a servicer 

might have to prepare the written notice 

in advance of sending it. Accordingly, 

the Bureau explained that it believed 

that it was appropriate to create a safe 

harbor of five days to protect a servicer 

acting diligently from exposure to 

potential litigation if the information the 

servicer provided in the second notice 

turns out to be, in fact, inaccurate, due 

to information about a borrower’s 

hazard insurance it receives subsequent 

to putting the second notice into 

production. 

One force-placed insurance provider 

and two national trade associations 

representing the mortgage industry 

recommended the Bureau withdraw 

proposed § 1024.37(d)(4) or, in the 

alternative, expand the safe harbor to 10 

days, excluding legal holidays, 

Saturdays and Sundays, because some 

servicers use third-party service 

providers to prepare force-placed 

insurance notices and need a period of 

longer than 5 days to prepare the 

notices. The force-placed insurance 

provider contended that servicers are 

going to update the second notice or not 

send the second notice at all if they 

have received verification of a 

borrower’s hazard insurance because 

they would not want to send their 

customers unnecessary notices. Two 

other force-placed insurance providers 

also recommended that the safe harbor 

be expanded to 10 days from the date 

that a borrower’s insurance is verified, 

but did not indicate whether 10 days 

should exclude legal holidays, 

Saturdays, and Sundays. 

The Bureau observes that as discussed 

above, the intent of § 1024.37(d)(4) is to 

create a safe harbor to protect servicers 

who are diligent in ensuring that 

borrowers receive reasonably accurate 

information from potential litigation 

risk. Accordingly, the Bureau is 

concerned that a 10-day safe harbor, 

even one that includes legal public 

holidays, Saturdays and Sundays, 

would be overbroad and give the benefit 

of the safe harbor to servicers who are 

not diligent in ensuring that borrowers 

receive accurate information. But the 

Bureau has concluded that servicers that 

use third-party service providers to 

prepare force-placed insurance notices 

could reasonably require more than 5 

days to prepare the second written 

notice in a timely manner, especially a 

five-day period that includes a legal 

public holiday, Saturday, or Sunday. 

Accordingly, the Bureau is adopting 

proposed comment 37(d)(4)–1 with a 

change to clarify that the 5-day period 

excludes legal public holidays, 

Saturdays, and Sundays. The Bureau 

believes this adjustment strikes the right 

balance between achieving the 

consumer protection of providing a 

borrower with accurate information 

about a servicer’s grounds for 

purchasing force-placed insurance and 

providing diligent servicers with a safe 

harbor from potential litigation risk. 

37(e) Renewal or Replacement of ForcePlaced Insurance 

The Bureau proposed § 1024.37(e) to 

prohibit a servicer from charging a 

borrower for the replacement or renewal 

of an existing force-placed insurance 

policy unless certain procedural 

requirements are followed as specified 

in proposed § 1024.37(e). The Bureau 

proposed the requirements because preproposal outreach suggested that there 

is no widespread industry standard that 

applies to renewal procedures for forceplaced insurance. Moreover, 

commissions and reinsurance 

agreements may create strong incentives 

at renewal as well as at original 

placement. The Bureau believes that the 

renewal notice is authorized under 

RESPA section 6(l), which provides that 

a servicer does not have a reasonable 

basis to obtain force-placed insurance 

unless certain notice requirements are 

met, and does not limit such 

requirements to the first time a servicer 

obtains and charges a borrower for 

force-placed insurance. The Bureau has, 

however, made certain adjustments to 

the notice and procedure requirements 

set forth in RESPA section 6(l), as 

described below, to account for the fact 

that in the case of the renewal of forcedplaced insurance, the borrower already 

will have received at least two prior 

force-placed insurance notices. Section 

1024.37(e) is further authorized under 

sections 6(j)(3), 6(k)(1)(E), and 19(a) of 

RESPA as necessary and appropriate to 

achieve the consumer protection 

purposes of RESPA, including avoiding 

unwarranted charges and fees and 

ensuring the provision to borrowers of 

accurate and relevant information. As 

discussed below, the Bureau is adopting 

proposed § 1024.37(e) generally as 

proposed with a few changes to address 

issues that were raised in comments. 

37(e)(1) In general 

The Bureau proposed § 1024.37(e)(1) 

to provide that that a servicer may not 

charge a borrower for renewing or 

replacing existing force-placed 

insurance unless: (1) The servicer 

delivers or places in the mail a written 

notice to the borrower with the 

disclosures set forth in § 1024.37(e)(2) at 

least 45 days before the premium charge 

or any fee is assessed; and (2) during the 

45-day notice period, the servicer has 

not received evidence that the borrower 

has obtained hazard insurance. The 

Bureau stated in the proposal that it 

believed that the procedures it proposed 

concerning renewal and replacement 

would provide advance notice to allow 

a borrower the time the borrower may 

need to buy hazard insurance before 

being charged again for the cost of forceplaced insurance at renewal or 

replacement. 

The Bureau did not believe a servicer 

should have to wait until the end of the 

notice period before charging a borrower 

for the cost of renewing the force-placed 

insurance if a borrower has confirmed 

that there was a gap in coverage with 

respect to a borrower who obtains 

hazard insurance after receiving the 

renewal notice. Accordingly, the Bureau 

proposed § 1024.37(e)(1)(iii) to permit a 

servicer who has renewed or replaced 

existing force-placed insurance during 

the notice period to charge a borrower 

for such renewal or replacement 

promptly after a servicer receives 

verification that the hazard insurance 

obtained by a borrower did not provide 

a borrower with insurance coverage for 

any period of time following the 

expiration of the existing force-placed 

insurance, notwithstanding 

§ 1024.37(e)(1)(i) and (e)(1)(ii). The 

Bureau proposed comment 37(e)(1)(iii)– 

1 to provide an example of what this 

means. 

Two national trade associations 

representing the mortgage industry 

observed that it is common industry 

practice for a servicer to send renewal 

notice to borrowers but urged that the 

Bureau permit servicers to charge a 

borrower for the renewal of existing 

force-placed insurance at the time of 

purchase because a servicer should not 

have to incur the burden of not being 

able to impose a charge on a borrower 

related to force-placed insurance at the 

time of renewal or replacement. The 

Bureau declines to modify the proposal 

because the Bureau believes imposing a 

notice period during which a servicer is 

prohibited from charging a borrower for 

force-placed insurance is appropriate 

and necessary to help a borrower avoid 

the cost associated with the borrower’s 

servicer renewing or replacing the 

borrower’s hazard insurance. The 

Bureau further notes that a servicer can 

provide the 45-day notice in advance of 

the expiration of the current forced 

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place coverage, and accordingly, 

disagrees that § 1024.37(e)(1) would 

invariably prohibit a servicer from 

imposing a charge on a borrower related 

to force-placed insurance at the time of 

renewal or replacement. Accordingly, 

the Bureau is adopting § 1024.37(e)(1) as 

proposed, except technical changes to 

clarify what evidence of borrower’s 

coverage means for § 1024.37(e)(1). New 

comment 37(e)(1)–1 clarifies that a 

servicer may require a borrower to 

provide a form of written confirmation 

as described in comment 37(c)(1)(iii)–3 

and may reject evidence of coverage 

submitted by the borrower for the 

reasons described in comment 

37(c)(1)(iii)–2. Comment 37(e)(1)(iii) is 

adopted as proposed. 

37(e)(2) Content of Renewal Notice 

Proposed § 1024.37(e)(2) would have 

required a servicer to provide a number 

of the disclosures set forth in in 

proposed § 1024.37(c)(2) in the renewal 

notice. The Bureau explained in the 

proposal that the main differences 

between the disclosures set forth in 

proposed § 1024.37(c)(2) and proposed 

§ 1024.37(e)(2) are that in proposed 

§ 1024.37(e)(2), servicers must provide a 

statement that: (1) The servicer 

previously obtained insurance on the 

borrower’s property and assessed the 

cost of the insurance to the borrower 

because the servicer did not have 

evidence that the borrower had hazard 

insurance coverage for the property; and 

(2) the servicer has the right to maintain 

insurance by renewing or replacing the 

insurance it previously obtained 

because insurance is required. The 

Bureau believes the differences are 

necessary to distinguish the notice 

required pursuant to proposed 

§ 1024.37(e)(1) from the notice required 

pursuant to proposed § 1024.37(c)(1). 

The proposed requirement in 

§ 1024.37(c)(2)(ix) concerning provision 

of the cost of the force-placed insurance, 

stated as an annual premium, or a good 

faith estimate of such cost, would have 

been replicated in proposed 

§ 1024.37(e)(2)(vii), with related 

commentary that would have explained 

that the good faith requirement set forth 

in § 1024.37(e)(2)(vii) is the same good 

faith requirement set forth in 

§ 1024.37(c)(2)(ix). 

The comments the Bureau received 

with respect to the content of the forceplaced insurance notices under 

§ 1024.37(c)(2) (i.e., comments about the 

requirement to provide a good-faith 

estimate and requests to be allowed to 

provide additional information) also 

apply to proposed § 1024.37(e)(2). The 

Bureau believes that the burden of 

providing a good faith estimate is lower 

for purposes of § 1024.37(e)(2) than for 

purposes of providing such an estimate 

for purposes of § 1024.37(c)(2) because a 

servicer can provide such an estimate 

based on the amount of current 

premiums. Accordingly, the Bureau is 

adopting this requirement in the final 

rule (revised to refer to a ‘‘reasonable 

estimate’’) and made technical changes 

in related commentary to reflect this 

revision. For reasons discussed above, 

the Bureau is not permitting a servicer 

to include additional information in the 

notice required by § 1024.37(e)(1). But, 

as discussed above, the Bureau is 

adopting new § 1024.37(e)(4) to permit 

servicers to provide additional 

information in the same transmittal the 

servicer uses to provide the replacement 

or renewal notice. 

37(e)(3) Format 

Proposed § 1024.37(e)(3) would have 

provided that that the disclosures set 

forth in § 1024.37(e)(2) must be in a 

format substantially similar to form MS– 

3(D), set forth in appendix MS–3. It also 

stated that disclosures made pursuant to 

§ 1024.37(e)(2)(vi)(B) and 37(e)(2)(vii) 

must be in bold text, and disclosures 

made pursuant to § 1024.37(e)(2)(iv) 

must be in bold text, except that the 

physical address of the property may be 

in regular text. Because proposed 

§ 1024.37(e)(3) paralleled proposed 

§§ 1024.37(c)(3) and (d)(3), the Bureau is 

adopting § 1024.37(e)(3) with change to 

conform to changes made in 

§ 1024.37(c)(3) and (d)(3). 

37(e)(4) Compliance 

Proposed § 1024.37(e)(4) would have 

provided that before the first 

anniversary of a servicer obtaining 

force-placed insurance on a borrower’s 

property, the servicer shall deliver to 

the borrower or place in the mail the 

notice required by § 1024.37(e)(1). 

Further, proposed § 1024.37(e)(4) would 

have provided that a servicer is not 

required to comply with § 1024.37(e)(1) 

before charging a borrower for renewing 

or replacing existing force-placed 

insurance more than once every 12 

months. 

The Bureau explained that the Bureau 

did not believe receiving more than one 

renewal or replacement notice in a 12- 

month period was necessary because 

borrowers should be able to retain the 

first notice under proposed 

§ 1024.37(e)(1), including the cost or 

estimate information, for future 

reference. The Bureau also noted that 

some small servicers who participated 

in the Small Business Review Panel 

expressed concerns about the cost of 

sending renewal notices over a 12- 

month period because unlike large 

servicers, a number of small servicers 

purchase force-placed insurance 

policies that would have to be renewed 

monthly. The Bureau, however, 

solicited comments on whether 

providing the renewal or replacement 

notice once during a 12-month period 

would adequately inform borrowers 

about the costs, benefits, and risks 

associated with servicers’ renewal or 

replacement of existing force-placed 

insurance. 

One large force-placed insurance 

provider commented that one notice per 

year is sufficient to remind borrowers 

without overly burdening the servicer or 

potentially inundating borrowers with 

multiple and repetitive notices. In 

contrast, a state consumer group 

asserted that one notice over a 12-month 

period may not be enough to adequately 

inform borrowers of the costs, benefits, 

and risks of servicer’s renewal or 

replacement of force-placed insurance 

and urged the Bureau to require a 

servicer to provide at least two renewal 

notices over a 12-month period to 

inform borrowers of the force-placed 

insurance premium they would be 

charged. 

The Bureau has further considered the 

issue but continues to believe for the 

reasons stated in the proposal that one 

annual renewal notice will adequately 

inform borrowers of the costs, benefits, 

and risks of servicer’s renewal or 

replacement of force-placed insurance. 

Additionally, the Bureau notes that in 

conjunction with the Bureau’s periodic 

statement rule, most borrowers whose 

servicers are charging them for forceplaced insurance will be made aware of 

that fact because a servicer will be 

required to list force-placed insurance 

charges on periodic statements. 

Accordingly, the Bureau is adopting 

proposed § 1024.37(e)(4) as proposed, 

renumbered as § 1024.37(e)(5) in the 

final rule. 

37(f) Mailing the Notices 

Section 6(l)(1) of RESPA, discussed 

previously, establishes that servicers 

must use first-class mail to send the 

notices established by section 6(l)(1)(A) 

and (B) of RESPA. The Bureau proposed 

to implement this aspect of section 

6(l)(1) of RESPA by adding new 

§ 1024.37(f) to provide that if a servicer 

mails a notice required pursuant to 

§ 1024.37(c)(1)(i), (d)(1), or (e)(1) of this 

section, a servicer must use a class of 

mail not less than first-class mail. 

As discussed above, the Bureau 

believes that it is necessary and 

appropriate to achieve the purposes of 

RESPA to allow servicers to transmit the 

force-placed notices required under 

§ 1024.37 by a class of mail better than 

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112 ICF Int’l, Inc., Summary of Findings: Design 

and Testing of Mortgage Servicing Disclosures 24– 

29 (Aug. 2012) (‘‘Macro Report’’), available at 

http://www.regulations.gov/ 

#!documentDetail;D=CFPB-2012-0033-0003. 

113See e.g., N.Y. State Dep’t of Fin. Services, 

Testimony of John Frobose, President of American 

Security Insurance Company (ASIC) 6 (describing 

that if ASIC receives proof that there was no gap 

in hazard insurance coverage on a borrower’s 

property, ASIC refunds all force-placed insurance 

premiums paid); see also, N.Y. State Dep’t of Fin. 

Services, Written Testimony of Nicholas Pastor and 

Matthew Freeman on behalf of QBE Insurance 

Corporation and QBE FIRST Insurance Agency 15 

(stating that if the borrower provides proof of 

voluntary insurance such that there was no lapse in 

the voluntary coverage, all premiums paid by a 

borrower or deducted from a borrower’s escrow 

account are refunded, regardless of when the 

borrower provided the proof of voluntary coverage): 

See further, N.Y. State Dep’t of Fin. Services, 

Written Testimony of Justin Crowley on behalf of 

Select Portfolio Servicing, Inc, Pelatis Insurance 

Agency Corp. and Pelatis Insurance Limited 5 

(stating that it provides a full refund equal to the 

total amount of force-placed insurance premiums 

charged to the borrower’s account for any period 

first. The Bureau observed in the 

proposal that although the notice 

required by proposed § 1024.37(e)(1) is 

not required by RESPA, applying the 

same mailing requirements to all notices 

under § 1024.37 would facilitate 

compliance by promoting consistency. 

The Bureau did not receive any 

comments on proposed § 1024.37(f) and 

is adopting § 1024.37(f) as proposed. 

37(g) Cancellation of Force-Placed 

Insurance 

Section 1463(a) added new section 

6(l)(3) to RESPA, which states that 

within 15 days of receipt by a servicer 

of confirmation of a borrower’s existing 

insurance coverage, the servicer must: 

(1) Terminate the force-placed 

insurance; and (2) refund to the 

borrower all force-placed insurance 

premium charges and related fees paid 

by the borrower during any period in 

which the borrower’s insurance and the 

force-placed insurance were both in 

effect. The Bureau proposed 

§ 1024.37(g)(1) and (2) to implement 

section 6(l)(3) of RESPA. Section 

1024.37(g)(1) and (2) would have 

provided that within 15 days of 

receiving verification that the borrower 

has hazard insurance in place, a servicer 

must cancel force-placed insurance 

obtained for a borrower’s property and 

for any period during which the 

borrower’s hazard insurance was in 

place, refund to the borrower all forceplaced insurance premium charges and 

related fees paid by the borrower for 

such period. Proposed § 1024.37(g)(2) 

would have also required a servicer to 

remove all force-placed insurance 

charges and related fees that the servicer 

has assessed to the borrower for any 

period during which the borrower’s 

hazard insurance was in place from the 

borrower’s account. The Bureau believes 

that Congress, by establishing the duty 

to provide a full refund of the forceplaced insurance premium and related 

charges paid by a borrower for any 

period of time during which the 

borrower’s hazard insurance coverage 

and the force-placed insurance coverage 

were both in effect, also intended to 

establish the duty to remove a premium 

charge or fee related to force-placed 

insurance for such period. Accordingly, 

the Bureau interprets the statutory duty 

to provide such refund to include the 

duty to remove all force-placed 

insurance premium charges and related 

fees charged to a borrower’s account for 

any period during which the borrower’s 

hazard insurance coverage and the 

force-placed insurance coverage were 

both in effect. 

Several industry commenters asserted 

that a borrower should not have an 

unconditional right to receive a refund 

for all force-placed insurance premium 

charges and related fees paid by the 

borrower during any period of 

overlapping coverage. They asserted 

that it would not be reasonable for a 

servicer to absorb the cost of the refund 

if a borrower does not provide evidence 

of insurance in a timely manner or if a 

servicer had a reasonable basis to 

purchase force-placed insurance. Some 

commenters asserted that an 

unconditional right to a refund would 

encourage borrowers to act irresponsibly 

by not providing evidence of insurance 

in a timely manner. One state housing 

finance agency and a force-placed 

insurance provider suggested that 

servicers needed 15 business days to 

cancel force-placed insurance and 

provide a borrower with refunds in an 

orderly manner and asked the Bureau to 

adjust the timelines accordingly. 

The Bureau is finalizing § 1024.37(g) 

as proposed, with adjustments to the 

regulatory language for clarity. While a 

number of commenters indicated that 

they understood ‘‘receiving verification 

that the borrower has hazard insurance 

in place’’ meant receiving evidence of 

insurance coverage, just as the Bureau 

has adjusted the text of 

§§ 1024.37(c)(1)(iii), (d)(2)(ii), and 

(e)(1)(iii), to clarify what ‘‘receiving 

verification’’ means, the Bureau has 

made similar revisions to enhance the 

clarity of § 1024.37(g). 

Additionally, in finalizing 

§ 1024.37(g)(2), the Bureau has replaced 

the proposed phrase ‘‘for any period 

during which the borrower’s hazard 

insurance was in place’’ with the phrase 

‘‘for any period of overlapping 

insurance coverage’’ because the Bureau 

believes the language ‘‘periods of 

overlapping coverage’’ more closely 

aligns with the statutory language ‘‘any 

period during which the borrower’s 

insurance coverage and the force-placed 

insurance coverage were each in effect’’ 

in RESPA section 6(l)(3). The Bureau is 

adopting new comment 37(g)(2)–1 to 

explain what ‘‘period of overlapping 

insurance coverage’’ means for purposes 

of § 1024.37(g)(2). The Bureau, however, 

is not adopting proposed comment 

37(g)–1 because upon further 

consideration, the Bureau believes that 

further elaboration on what a servicer 

must do to comply with § 1024.37(g) is 

not required. 

With respect to commenters asserting 

that a borrower should not have an 

unconditional right to a full refund of 

force-placed insurance premiums and 

related fees paid by the borrower, the 

Bureau notes that section 6(l)(3) of 

RESPA expressly establishes that a 

borrower’s right to a full refund for any 

period during which the borrower’s 

hazard insurance and the force-placed 

insurance were both in effect is an 

unconditional one. Moreover, based on 

consumer testing and other outreach, 

the Bureau is skeptical that the statutory 

regime will cause borrowers to be less 

diligent in responding to notices from 

their servicers asking them to provide 

evidence demonstrating insurance 

coverage and result in servicers having 

to absorb significant costs. 

As discussed above, across all rounds 

of testing, participants uniformly 

understood the timeliness of their 

response upon the receipt of forceplaced insurance notices affected 

whether or not they would have to pay 

for force-placed insurance. All 

participants said they would take 

immediate action because they did not 

want to bear the expense of force-placed 

insurance.112 The uniformity of the 

responses supports the Bureau’s belief 

that the substantially higher cost of 

force-placed insurance provides 

borrowers with a natural incentive to 

provide their servicers with evidence of 

insurance coverage in a timely manner. 

Further, based on outreach the Bureau 

has done with force-placed insurance 

providers and servicers, as well as based 

on public statements made by these 

entities and comment letters the Bureau 

has received from industry, the Bureau 

observes that the typical force-placed 

insurance on the market provides for 

flat cancellation (i.e., the force-placed 

insurance provider provides a full 

refund of force-placed insurance 

premiums paid by the borrower for any 

period of time where the force-placed 

insurance and the borrower’s hazard 

insurance coverage were both in 

effect).113 Accordingly, the Bureau does 

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during which the borrower maintained his or her 

own homeowners’ coverage) (copies of the 

aforementioned testimonies are available at http:// 

www.dfs.ny.gov/insurance/hearing/ 

fp_052012_testimony.htm). 

not believe that servicers will have to 

absorb significant costs. 

The Bureau further declines to adjust 

the timeline a servicer must follow to 

cancel fore-placed insurance and refund 

force-place premium charges and 

related fees paid by the borrower. As 

discussed above in the section-bysection analysis of the defined term 

‘‘Day’’ in § 1024.31, the Bureau believes 

that Congress intended the term ‘‘day’’ 

by itself to mean a calendar day for 

purposes of RESPA. The 15-day 

timeline for cancellation and refund is 

expressly established by section 6(l)(3) 

of RESPA. 

Further, based on the Bureau’s 

outreach and public statements made by 

force-placed insurance providers and 

servicers, the Bureau understands that 

servicers’ purchase of force-placed 

insurance is generally a rare occurrence. 

If the volume of force-placement is 

small to begin with, then the Bureau is 

skeptical that requiring servicers to 

follow the statutorily-prescribed 

timeline would overwhelm a servicer or 

otherwise impose too large of a burden. 

Accordingly, the Bureau does not 

believe it is appropriate to deviate from 

the statutory-determined timeline set 

forth in section 6(l)(3). 

A large force-placed insurance 

provider, a state trade association 

representing mortgage lenders, and a 

bank servicer expressed concern that 

§ 1024.37(g), as proposed, would be 

construed as requiring a servicer to 

cancel force-placed insurance and 

provide a full refund even if a 

borrower’s hazard insurance policy does 

not meet the loan contract’s 

requirements. Although the Bureau does 

not believe that it was reasonable to 

construe proposed § 1024.37(g) to 

require a servicer to cancel force-placed 

insurance and provide a full refund 

even if a borrower’s hazard insurance 

policy does not meet the loan contract’s 

requirements, the Bureau believes that 

in any event, the commenters’ concern 

is adequately addressed by § 1024.37(g), 

which, as adopted, clarifies that 

‘‘receiving verification’’ in proposed 

§ 1024.37(g) means receiving evidence 

demonstrating that the borrower has had 

hazard insurance in place that complies 

the loan contract’s requirements to 

maintain hazard insurance. 

Lastly, one large bank servicer 

expressed concern that the obligation to 

refund a borrower for force-placed 

insurance premiums and related fees 

paid by the borrower triggers a 

subsequent escrow analysis disclosure 

set forth in current § 1024.17(c)(3), 

which requires a servicer to perform an 

escrow account analysis at the 

completion of the escrow account 

computation year, which is defined in 

current § 1024.17(b) as ‘‘a 12-month 

period that a servicer establishes for the 

escrow account beginning with the 

borrower’s initial payment date.’’ 

Providing a refund to a borrower in 

accordance with § 1024.37(g), by itself, 

does not trigger the obligation to 

perform an escrow account analysis 

required by current § 1024.17(c)(3). 

37(h) Limitation on Force-Placed 

Insurance Charges 

Section 1463(a) of the Dodd-Frank Act 

amended RESPA section 6 by adding 

new section 6(m) to RESPA, which 

states that apart from charges subject to 

State regulation as the business of 

insurance, all charges related to forceplaced insurance imposed on the 

borrower by or through the servicer 

must be bona fide and reasonable. 

Proposed § 1024.37(h)(1) generally 

mirrored the statutory language by 

providing that except for charges subject 

to State regulation as the business of 

insurance and charges authorized by the 

Flood Disaster Protection Act of 1973, 

all charges related to force-placed 

insurance assessed to a borrower by or 

through the servicer must be bona fide 

and reasonable. Proposed 

§ 1024.37(h)(2) would have provided 

that a bona fide and reasonable charge 

is a charge for a service actually 

performed that bears a reasonable 

relationship to the servicer’s cost of 

providing the service, and is not 

otherwise prohibited by applicable law. 

The Bureau noted in the proposal that 

the Flood Disaster Protection Act of 

1973 establishes that notwithstanding 

any Federal or State law, any servicer 

for a loan ‘‘secured by improved real 

estate or a mobile home’’ may charge a 

reasonable fee for determining whether 

the building or mobile home securing 

the loan is located or will be located in 

a special flood hazard zone. See 42 

U.S.C. 4012a(h). As discussed in the 

proposal and explained above, the 

Bureau was concerned about issuing 

regulations that would overlap with 

regulations issued pursuant to the 

FDPA, and believed that borrowers 

would be confused by receiving 

overlapping notices under the two 

regimes with respect to the same flood 

insurance policy. Accordingly, as 

discussed above, the Bureau used its 

authority under section 19(a) of RESPA 

to exempt hazard insurance to protect 

against flood loss obtained by a servicer 

as required by the FDPA from the 

definition of force-placed insurance. 

Consistent with this exemption and for 

the same reasons, the Bureau believed 

that it was necessary to achieve the 

purposes of RESPA’s force-placed 

insurance provisions to use it authority 

under section 19(a) of RESPA to exempt 

charges authorized by the FDPA from 

proposed § 1024.37(h). The Bureau 

received no comments on the exemption 

and is adopting this aspect of 

§ 1024.37(h)(1) as proposed. 

With respect to proposed 

§ 1024.37(h)(2), which would have set 

forth the Bureau’s proposed definition 

of ‘‘bona fide and reasonable charge,’’ 

the Bureau noted in the proposal that 

the Bureau believed it was important 

that servicers do not try to inflate the 

already-high cost of force-placed 

insurance by assessing charges to 

borrowers that are not for services 

actually performed, do not bear a 

reasonable relationship to the servicer’s 

cost of providing the service, or are 

prohibited by applicable law. 

One non-bank servicer commended 

the proposed definition of ‘‘bona fide 

and reasonable charge’’ and predicted 

that the Bureau’s proposal would stop 

many of the abusive servicer practices 

that have damaged the industry’s 

reputation over the past few years. But 

a national trade association representing 

the consumer credit industry contended 

that the proposed definition would 

create an ambiguous standard that 

would expose lenders to class action 

lawsuits and infringe on state insurance 

departments’ sole authority to regulate 

insurance rates. 

Other comments received from a 

national trade association representing 

realtors and several consumer groups 

urged the Bureau to go further in 

regulating charges related to forceplaced insurance that a servicer imposes 

on a borrower. The realtors association 

urged the Bureau to mandate affordable 

force-placed insurance premiums. One 

consumer group urged the Bureau to 

ban servicers or their affiliates from 

receiving any fee, commission, 

kickback, reinsurance contract, or any 

other thing of value for a force-placed 

insurance provider in exchange for 

purchasing force-placed insurance, and 

to prohibit a servicer from obtaining an 

amount of force-placed insurance 

coverage greater than the replacement 

cost value of the borrower’s property. 

Two national consumer groups 

suggested that the Bureau should 

expressly exclude unreasonable costs 

and other costs unrelated to the 

provision of force-placed insurance. 

Two other national consumer groups 

asserted that the Bureau should 

expressly exclude commissions or other 

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10776 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

114Fannie Mae issued a servicing announcement 

stating that any servicer requesting reimbursement 

of force-placed insurance premiums must exclude 

any lender-placed insurance commission earned on 

that policy by the servicer or any related entity, 

costs associated with insurance tracking or 

administration, or any other costs beyond the actual 

cost of the lender-placed insurance policy 

premium. See Fannie Mae, Updates to LenderPlaced Property Insurance and Hazard Insurance 

Claims Processing (Mar. 14, 2012), available at 

https://www.fanniemae.com/content/ 

announcement/svc1204.pdf. The Bureau observes 

that Fannie Mae followed up in May of 2012 with 

a public statement announcing that it has 

postponed the implementation date of these 

guidelines until further notice. Fannie Mae, 

Effective Date for Lender-Placed Property Insurance 

Requirements, available at https:// 

www.fanniemae.com/content/announcement/ 

ntce052312.pdf. 

compensation paid by a force-placed 

insurance provider or its agent to a 

servicer or any affiliate of the servicer, 

costs associated with insurance 

tracking, cost for activities for which a 

servicer is being reimbursed by the 

owner of the mortgage, costs associated 

with the administration of reinsurance 

programs, cost to subsidize unrelated 

servicer activities, and any cost that is 

not directly related to the provision of 

force-placed insurance. They also urged 

the Bureau to provide guidance about 

prohibited fees that is consistent with 

Fannie Mae’s proposed changes to its 

servicing guidelines on force-placed 

insurance.114 These commenters further 

asserted that State insurance regulators 

have no authority over a charge that a 

servicer imposes on a borrower for 

force-placed insurance because a 

servicer is not an entity regulated by 

state insurance regulators. 

After consideration of the comments 

submitted, the Bureau believes it is 

appropriate to finalize § 1024.37(h)(2) as 

proposed. The Bureau believes 

§ 1024.37(h) appropriately implements 

RESPA 6(m)’s ‘‘bona fide and 

reasonable’’ requirement in a way that 

does not overlap with state insurance 

departments’ authority to regulation 

insurance rates. Further, the Bureau 

believes § 1024.37(h) provides clear 

guidance for servicers by 

unambiguously prohibiting a servicer 

from charging a borrower for a service 

it did not perform, or charging a 

borrower a fee that does not bear a 

reasonable relationship to the servicer’s 

cost of providing the service, or that 

would be otherwise prohibited by 

applicable law. 

With respect to the request that the 

Bureau should revise the definition of 

‘‘bona fide and reasonable charges’’ to 

exclude unreasonable costs, other costs 

unrelated to the provision of forceplaced insurance, and cost to subsidize 

servicing activities unrelated to the 

provision of force-placed insurance, the 

Bureau believes that the proposed and 

final definition already exclude such 

charges. 

With respect to requests that the 

Bureau mandate affordable force-placed 

insurance premiums, prohibit servicers 

from receiving commission or similar 

fees or things of value, prohibit fees 

associated with the cost of 

administration of reinsurance programs 

or insurance tracking, the Bureau 

recognizes the concerns, but believes 

the provisions of § 1024.37 provide 

adequate safeguards to borrowers and 

consistent with the regulatory scheme 

mandated by Congress. 

With respect to the request that the 

Bureau prohibit servicers from charging 

borrowers for costs that could be 

reimbursed by the owner of the 

mortgage loan, the Bureau believes that 

where a servicer charges a borrower for 

first-placed insurance in accordance 

with the requirements under § 1024.37, 

it is reasonable for the borrower, rather 

than the owner or assignee of the 

mortgage loan, to bear the costs of such 

insurance. With respect to the request 

that the Bureau exclude costs not 

directly related to force-placed 

insurance from the definition of ‘‘bona 

fide and reasonable charges,’’ the 

Bureau believes that the bona fide and 

reasonable standard provides adequate 

protection to borrowers without 

distinguishing between whether a 

charge is ‘‘directly’’ or ‘‘indirectly’’ 

related to force-placed insurance. Such 

a standard would thus inject addition 

complexity without concomitant 

consumer benefit. 

With respect to the request that the 

Bureau provide guidance about 

prohibited fees that is consistent with 

Fannie Mae’s proposed changes to its 

servicing guidelines, the Bureau 

carefully reviewed Fannie Mae’s 

servicing announcement and concluded 

that it would not be appropriate to 

provide similar guidance. The draft 

guidance simply informs servicers that 

Fannie Mae no longer plans to 

reimburse a servicer for certain servicer 

expenses related to servicer’s purchase 

of force-placed insurance and 

importantly, it offers no guidance on the 

charges a servicer may impose on a 

borrower with respect to a servicer’s 

purchase of force-placed insurance. 

Additionally, the Bureau believes that 

the prohibitions and requirements with 

respect to force-placed insurance under 

§ 1024.37 provide adequate protection 

to borrowers and that there is no reason 

to depart from the scheme established 

by Congress to regulate force-placed 

insurance by importing Fannie Mae’s 

guidance regarding prohibited fees into 

the final rule. 

Lastly, with regard to the argument 

that no charge imposed by a servicer is 

subject to State regulation as the 

business of insurance because a servicer 

is not regulated by State insurance 

regulators, the Bureau believes the 

language of section 6(m) of RESPA 

clearly contemplates that servicers may 

pass through charges that are subject to 

State regulation as the business of 

insurance to a borrower, and the fact 

that such charge is passed through by 

the servicer does not mean that such 

charge is no longer subject to State 

regulation as the business of insurance. 

For the foregoing reasons, the Bureau is 

adopting § 1024.37(h)(2) as proposed. 

37(i) Relationship to Flood Disaster 

Protection Act of 1973 

Section 1463 of the Dodd-Frank Act 

amended section 6 of RESPA to add 

new section 6(l)(4) to provide that the 

new Dodd-Frank Act requirements 

concerning force-placed insurance do 

not prohibit servicers from sending a 

simultaneous or concurrent notice of a 

lack of flood insurance pursuant to 

section 102(e) of the Flood Disaster 

Protection Act (FDPA). The Bureau 

proposed § 1024.37(i) to provide that if 

permitted by regulation under section 

102(e) of the Flood Disaster Protection 

Act of 1973, a servicer subject to the 

requirements of § 1024.37 may deliver 

to the borrower or place in the mail any 

notice required by § 1024.37 together 

with the notice required by section 

102(e) of the Flood Disaster Protection 

Act of 1973. 

One national trade association 

representing banks and insurance 

providers urged the Bureau to permit 

servicers to combine the notice required 

pursuant to the FDPA with any notice 

required pursuant to § 1024.37. One 

state consumer group expressed concern 

that a borrower might be confused if it 

receives a notice required pursuant to 

§ 1024.37 and a notice required 

pursuant to the FDPA at the same time. 

The commenter observed that the 

notices should be distinguishable from 

each other and should state that there is 

a difference between the two notices. 

Congress vested other Federal 

regulators with the authority to issue 

regulations under the FDPA, and thus, 

the Bureau cannot revise the content of 

notices required under the FDPA. With 

respect to potential confusion caused by 

receiving concurrent notices, the Bureau 

notes that it has excluded insurance 

required under the FDPA from the 

definition of force-placed insurance so 

that borrowers will not receive 

overlapping notices under § 1024.37 and 

the FDPA with respect to the same 

insurance policy. To the extent 

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115Problems in Mortg. Servicing From 

Modification to Foreclosure: Hearings Before the 

Senate Comm. on Banking, Hous. & Urban Affairs, 

111th Cong. 4 (2010) (statement of Daniel K. 

Tarullo, Board of Governors, Federal Reserve 

System), available at http:// 

www.federalreserve.gov/newsevents/testimony/ 

tarullo20101201a.htm. 

116 Failure to Recover: The State of Hous. Mkts., 

Mortg. Servicing Practices and Foreclosures: 

Hearings Before the House Comm. on Oversight and 

Gov’t Reform, 112th Cong. 4 (2012) (statement of 

Morris Morgan, Office of the Comptroller of the 

Currency), available at http://www.occ.gov/newsissuances/congressional-testimony/2012/pub-test2012–47-written.pdf. 

borrowers receive separate notices 

under § 1024.37 and the FDPA with 

respect to separate insurance policies, 

the Bureau further believes that 

borrowers will be able to distinguish the 

notices under the two regulatory 

schemes based on their content. The 

Bureau also observes that it has 

addressed compliance burden by 

permitting under final § 1024.37(i) that 

notices under the FDPA and § 1024.37 

could be provided to borrowers in the 

same transmittal. Accordingly, the 

Bureau is adopting § 1024.37(i) as 

proposed, except with adjustment just 

described. As adopted, § 1024.37(i) 

states if permitted by regulation under 

section 102(e) of the Flood Disaster 

Protection Act of 1973, a servicer 

subject to the requirements of § 1024.37 

may deliver to the borrower or place in 

the mail any notice required by 

§ 1024.37 and the notice required by 

section 102(e) of the Flood Disaster 

Protection Act of 1973 on separate 

pieces of paper in the same transmittal. 

Section 1024.38 General Servicing 

Policies, Procedures, and Requirements 

Background. As discussed above, the 

Bureau proposed rules that would 

amend Regulation X to implement the 

Dodd-Frank Act amendments to TILA 

and RESPA, with respect to among other 

things, error resolution and information 

requests. The Bureau also proposed to 

use its section 19(a) authority to require 

servicers to establish and to implement 

reasonable policies and procedures to 

manage information and documents, to 

evaluate and respond to loss mitigation 

applications, and to achieve other 

important objectives. 

As described more fully above, the 

Bureau’s proposal sought to address 

pervasive consumer protection 

problems across major segments of the 

mortgage servicing industry that came to 

light during the recent financial crisis 

and that underlie many consumer 

complaints and recent regulatory and 

enforcement actions. In the 2012 RESPA 

Servicing Proposal, the Bureau stated 

that it believed that many servicers 

simply had not made the investments in 

resources and infrastructure necessary 

to service large numbers of delinquent 

loans. The Bureau noted that recent 

evaluations of mortgage servicer 

practices have indicated that borrowers 

have been harmed as a result of many 

servicers’ lacking adequate policies and 

procedures to provide servicer 

personnel with appropriate borrower 

information. Federal regulatory agencies 

reviewing mortgage servicing practices 

have found that certain servicers 

demonstrated ‘‘significant weaknesses 

in risk-management, quality control, 

audit, and compliance practices.’’ 115

Further, the Bureau noted that major 

servicers demonstrated systemic failures 

to document and verify, in accordance 

with applicable law, information 

relating to borrower mortgage loan 

accounts in connection with foreclosure 

proceedings. Examinations by 

prudential regulators found ‘‘critical 

deficiencies in foreclosure governance 

processes, document preparation 

processes, and oversight and monitoring 

of third parties * * * [a]ll servicers 

[examined] exhibited similar 

deficiencies, although the number, 

nature, and severity of deficiencies 

varied by servicer.’’ 116

As the Bureau explained in the 2012 

RESPA Servicing Proposal, a servicer’s 

obligation to maintain accurate and 

timely information regarding a mortgage 

loan account and to be able to provide 

accurate and timely information to its 

own employees and to borrowers, 

owners, assignees, subsequent servicers, 

and courts, among others, is one of the 

most basic servicer duties. A servicer 

cannot comply with its myriad 

obligations to investors and applicable 

law, unless it maintains sound systems 

to manage the servicing of mortgage 

loan accounts, including information 

systems that maintain accurate and 

timely information with respect to 

mortgage loan accounts. To address 

those critical concerns, the Bureau 

decided to use RESPA section 19(a) 

authority to propose a rule to address 

servicers’ information management and 

other general servicing policies and 

procedures across the industry. 

The Bureau received general 

comments about whether it was 

appropriate for the Bureau to regulate 

servicers’ practices related to 

information management and other 

servicer policies and procedures 

identified in the 2012 RESPA Servicing 

Proposal. Consumer group comments 

generally demonstrated support for the 

proposal. Industry comments, on the 

other hand, expressed skepticism about 

whether it is necessary for the Bureau to 

regulate servicers’ information 

management and other operational 

practices. Some industry comments 

suggested that recent State and Federal 

remediation efforts, such as the National 

Mortgage Settlement, and other existing 

regulations obviated the need for any 

regulation by the Bureau. Some 

servicers also urged the Bureau to delay 

adopting the proposed rule. The Bureau 

also received a small number of 

comments about the scope of the rule, 

including whether the proposed rule 

would apply to mortgages other than 

federally regulated mortgages or to 

reverse mortgages. 

In light of the potential harm to 

borrowers due to the deficiencies in 

servicer practices highlighted in the 

proposal, the Bureau continues to 

believe that servicers should achieve 

certain critical general servicing 

objectives and requirements. The 

Bureau declines to adopt the 

commenters’ suggestions that regulation 

of these practices is not necessary at this 

time, and is adopting § 1024.38, as 

proposed with the modifications 

discussed in detail below. Through 

enforcement and supervision of 

§ 1024.38, the Bureau will evaluate 

whether servicers are achieving the 

objectives and requirements set forth in 

§ 1024.38. The Bureau also expects that 

servicers will measure their own ability 

to achieve the objectives and 

requirements set forth in § 1024.38. In 

addition, the Bureau expects that 

servicers’ policies and procedures will 

address the core functions that they 

need to achieve those objectives and 

requirements, including providing 

adequate staffing and meaningful 

oversight of the resources engaged in 

achieving those important objectives 

and requirements, including servicer 

staff, service providers, and vendors. 

As explained above, the Bureau 

believes that the general servicing 

policies, procedures, and requirements 

set forth in § 1024.38 are necessary and 

appropriate to achieve the consumer 

protective purposes of RESPA, 

including to avoid unwarranted or 

unnecessary costs and fees, to ensure 

that servicers are responsive to 

consumer requests and complaints, to 

ensure that servicers provide and 

maintain accurate and relevant 

information about the mortgage loan 

accounts that they service, and to 

facilitate the review of borrowers for 

foreclosure avoidance options. 

Moreover, as discussed in detail below 

in part VII, the Bureau believes that the 

burden imposed on servicers under the 

final rule is reasonable in light of the 

countervailing benefits of the 

provisions. 

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10778 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

As discussed in detail above in the 

section-by-section analysis of § 1024.30, 

§ 1024.38 applies only to the servicing 

of federally related mortgage loans, as 

defined in § 1024.2, and does not apply 

to the servicing of reverse mortgages, as 

defined in § 1024.31, or with respect to 

any mortgage loan for which a servicer 

is subject to regulation by the Farm 

Credit Administration as a ‘‘qualified 

lender,’’ as defined in 12 CFR 617.7000. 

In addition, § 1024.38 does not apply to 

small servicers, as defined in 12 CFR 

1026.41(e)(4). The Bureau has also 

modified the final rule to clarify that the 

policies, procedures, and requirements 

set forth in § 1024.38 are broader than 

information management and 

encompass general servicing policies, 

procedures, and requirements. 

Legal Authority 

In proposing § 1024.38, the Bureau 

relied on a number of authorities, 

including section 6(k)(1)(E) of RESPA. 

That provision, which was added by 

§ 1463 of the Dodd-Frank Act as part of 

a broader set of servicing-related 

requirements, authorizes the Bureau to 

promulgate regulations ‘‘appropriate to 

carry out the consumer protection 

purposes of [RESPA].’’ In the proposal, 

the Bureau noted that § 1024.38 was 

further authorized under section 6(j)(3) 

of RESPA, as necessary to carry out 

section 6 of RESPA, and under section 

19(a) of RESPA, as necessary to achieve 

the purposes of RESPA. Because rules 

issued under section 6 of RESPA, 

including under sections 6(k)(1) and 

6(j)(3), are enforceable through private 

rights of action, the Bureau proposed 

§ 1024.38(a)(2), which set forth a safe 

harbor under which a servicer would 

not violate proposed § 1024.38 unless it 

engaged in a pattern or practice of 

failing to achieve any of the objectives 

set forth in § 1024.38. The Bureau 

believed that creating a pattern or 

practice threshold would significantly 

improve industry practices but not 

subject servicers to lawsuits with 

respect to, for example, a single lost 

document or filing error. 

The Bureau received many comments 

on the private liability suggested by the 

Bureau’s reliance on its authority under 

section 6 of RESPA to propose 

§ 1024.38. Numerous industry 

commenters expressed concern that 

authorizing § 1024.38 under section 6 of 

RESPA would create a private cause of 

action to enforce the provisions of the 

section. These commenters noted that 

the litigation risk created by the 

proposed rule would complicate 

compliance due to the potential for 

inconsistent judicial interpretations of 

the rule. In light of this concern, 

industry commenters asked the Bureau 

to provide detailed, specific guidance 

on how to comply with the objectives 

set forth in proposed § 1024.38. In 

addition, servicers argued that the 

Bureau and prudential regulators are 

better positioned to assess and supervise 

servicers’ internal policies and 

procedures than courts through civil 

litigation. Industry commenters also 

stressed that the private litigation that 

would likely ensue under proposed 

§ 1024.38 would increase the cost of 

servicing and thereby decrease the 

availability of credit. 

Consumer group commenters 

generally supported the allowance of 

private rights of action to enforce 

§ 1024.38 but expressed dissatisfaction 

with the proposed safe harbor, which 

they argued should be eliminated or 

revised to reduce the barriers to 

successful civil actions and to ensure 

sufficient protection for borrowers. They 

commented that the safe harbor 

definition would make it difficult for 

consumers to bring successful civil 

suits, and urged the Bureau to eliminate 

or to revise the safe harbor to provide 

relief for more borrowers. Consumer 

advocates argued that borrowers need 

strong protections because borrowers 

cannot select their servicers. 

As stated in the proposal, the Bureau 

is concerned that a servicer’s failure to 

achieve each of the objectives and 

standard requirements set forth in 

§ 1024.38 creates the potential for 

adverse consequences harmful to 

borrowers. These may include imposing 

improper fees on borrowers, inability 

reasonably to evaluate borrowers for 

loss mitigation options that may benefit 

borrowers and owners or assignees of 

mortgage loans, unwarranted costs to 

borrowers, and the potential for fraud 

upon courts through inaccurate or 

unverifiable legal pleadings. 

The Bureau sought to balance the 

need for consumer protections with the 

costs created by command-and-control 

regulation by proposing objectivesbased policies and procedures that 

allowed servicers flexibility to set 

policies and procedures reasonably 

designed to achieve certain defined 

objectives. Because a single failure to 

achieve a desired objective or 

requirement is not necessarily 

indicative of a servicer’s failure to 

implement appropriate policies and 

procedures and in light of the potential 

costs of civil litigation, the Bureau 

proposed a safe harbor under which 

servicers would be liable only for 

systemic violations of § 1024.38. Upon 

consideration of the comments and 

further consideration, however, the 

Bureau has concluded that the proposed 

formulation would not have adequately 

balanced the countervailing concerns of 

borrowers and industry. Requiring a 

showing of a pattern or practice could 

make it difficult for borrowers or 

regulators to obtain remedies until a 

servicer had inflicted widespread harm 

among its borrowers. At the same time, 

the prospect that many individual suits 

could be filed could threaten to 

undermine the basic goal of an 

objectives-based system, if servicers felt 

pressured to adopt models to reduce 

risk that were not in fact appropriately 

tailored to their particular operations. 

Ultimately, the Bureau agrees with the 

commenters that allowing a private right 

of action for the provisions that set forth 

general servicing policies, procedures, 

and requirements would create 

significant litigation risk. As the 

commenters noted, courts potentially 

would interpret the proposed flexible 

objectives-based standards 

inconsistently, which would have 

created compliance challenges for 

servicers. To address such challenges, 

the Bureau believes that it would have 

needed to issue more prescriptive 

standards in the final rule. The Bureau 

continues to believe, however, for the 

reasons discussed above, that flexible 

objectives-based standards are best 

suited to address the information 

management and other servicing 

challenges faced by different servicers 

that the Bureau identified in the 

proposal. Policies and procedures best 

suited to achieve the desired objectives 

are often highly dependent on the facts 

and circumstances of an individual 

servicer, such as the number and type 

of loans being serviced, and the 

technology that the servicer has 

deployed. 

The Bureau believes that supervision 

and enforcement by the Bureau and 

other Federal regulators for compliance 

with and violations of § 1024.38 

respectively, would provide robust 

consumer protection without subjecting 

servicers to the same litigation risk and 

concomitant compliance costs as civil 

liability for asserted violations of 

§ 1024.38. Indeed, the Bureau believes 

that the Bureau and other Federal 

regulators have the experience and 

judgment necessary to evaluate a 

servicer’s compliance with § 1024.38 

and to take action against servicers 

whose operational systems are not 

reasonably designed to achieve the 

stated objectives without waiting for 

evidence of a pattern or practice of 

undesirable outcomes. Prior to the 

enactment of the Dodd-Frank Act, there 

was no comprehensive Federal 

supervisory authority over non-bank 

mortgage servicers. The Dodd-Frank Act 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10779 

created a comprehensive regime of 

federal regulation over both bank and 

non-bank mortgage servicers. Under this 

new regime, the Bureau and other 

federal regulators can calibrate 

supervision to focus on practices that 

present the greatest risk to borrowers 

and work with servicers to assure that 

servicers have implemented effective 

systems that protect consumers and 

manage servicing portfolios. At the same 

time, the new comprehensive regulatory 

regime will allow the Bureau and other 

regulators to take prompt and effective 

action where a servicer’s policies and 

procedures are deficient without 

waiting for proof of a pattern or practice 

of abuse. 

Therefore, the Bureau is restructuring 

the final rule so that it neither provides 

private liability for violations of 

§ 1024.38 nor contains a safe harbor 

limiting liability to situations where 

there is a pattern or practice of 

violations. As discussed in more detail 

below, the Bureau has also revised some 

of the proposed objectives and added 

new requirements that the Bureau 

believes can be appropriately overseen 

by supervisory agencies but that would 

have been difficult for the courts to 

administer on a case-by-case basis. The 

Bureau believes that this approach more 

appropriately balances the need for 

robust consumer protections with 

respect to the general servicing policies, 

procedures, and requirements set forth 

in § 1024.38 through supervision and 

enforcement by the Bureau and other 

agencies with the flexibility for industry 

to define how to achieve the important 

objectives set forth in § 1024.38. 

Thus, the Bureau no longer relies on 

its authorities under section 6 of RESPA 

to issue § 1024.38. Instead, the Bureau is 

adopting § 1024.38 pursuant to its 

authority under section 19(a) of RESPA. 

As explained in more detail below, the 

Bureau believes that the servicing 

policies, procedures, and requirements 

set forth in § 1024.38 are necessary to 

achieve the purposes of RESPA, 

including to avoid unwarranted or 

unnecessary costs and fees, to ensure 

that servicers are responsive to 

consumer requests and complaints, to 

ensure that servicers provide and 

maintain accurate and relevant 

information about the mortgage loan 

accounts that they service, and to 

facilitate the review of borrowers for 

foreclosure avoidance options. The 

Bureau believes that without sound 

operational policies and procedures and 

without achieving certain standard 

requirements, servicers will not be able 

to achieve those purposes. The Bureau 

is also adopting § 1024.38 pursuant to 

its authority under section 1022(b) of 

the Dodd-Frank Act to prescribe 

regulations necessary or appropriate to 

carry out the purposes and objectives of 

Federal consumer financial laws. 

Specifically, the Bureau believes that 

§ 1024.38 is necessary and appropriate 

to carry out the purpose under section 

1021(a) of the Dodd-Frank Act of 

ensuring that markets for consumer 

financial products and services are fair, 

transparent, and competitive, and the 

objective under section 1021(b) of the 

Dodd-Frank Act of ensuring that 

markets for consumer financial products 

and services operate transparently and 

efficiently to facilitate access and 

innovation. The Bureau additionally 

relies on its authority under section 

1032(a) of the Dodd-Frank Act, which 

authorizes the Bureau to prescribe rules 

to ensure that the features of any 

consumer financial product or service, 

both initially and over the term of the 

product or service, are fully, accurately, 

and effectively disclosed to consumers 

in a manner that permits consumers to 

understand the costs, benefits, and risks 

associated with the product or service, 

in light of the facts and circumstances. 

38(a) Reasonable Policies and 

Procedures 

Proposed § 1024.38(a)(1) would have 

required servicers to establish 

reasonable policies and procedures for 

achieving certain objectives relating to 

borrower mortgage loan accounts. 

Proposed § 1024.38(a)(1) provided that a 

servicer meets this requirement if the 

servicer’s policies and procedures are 

reasonably designed to achieve certain 

objectives, which are set forth in 

proposed § 1024.38(b), and are 

reasonably designed to ensure 

compliance with certain specific 

requirements in proposed § 1024.38(c). 

Proposed comment 38(a)–1 would 

have clarified that the proposed rule 

permits servicers to determine the 

specific methods by which they will 

implement reasonable policies and 

procedures to achieve the required 

objectives. The proposed comment also 

explained that servicers have flexibility 

to design the operations that are 

reasonable in light of the size, nature, 

and scope of the servicer’s operations, 

including, for example, the volume and 

aggregate unpaid principal balance of 

mortgage loans serviced, the credit 

quality, including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. The Bureau noted in the 

proposal that it intended that this 

clarification would provide servicers 

flexibility to design policies and 

procedures that are appropriate for their 

servicing businesses. 

The Bureau received a handful of 

comments on the structure of the 

requirements. Industry commenters, 

especially credit unions, were generally 

supportive of framing the requirements 

as objectives-based standards. A trade 

association expressed support for the 

flexibility included in the rule, but 

noted concern that examiners may not 

view servicers’ programs flexibly and 

instead may ask servicers to change 

existing programs based on unpublished 

rules. A consumer group commented 

that framing the requirements as 

objectives-based standards would lead 

to inconsistent practices throughout the 

mortgage servicing industry. 

The Bureau is adopting § 1024.38(a), 

which is re-numbered from proposed 

§ 1024.38(a)(1), as proposed with nonsubstantive modifications. The Bureau 

believes that, due to diversity of servicer 

size, infrastructure, and work practices, 

flexible objectives-based standards are 

best-suited to manage servicers’ 

operational practices. The Bureau 

understands as the commenters suggest 

that framing the requirements as 

objectives-based standards will lead to 

differences between how servicers 

implement the objectives, but believes 

that objectives-based standards best 

balance the burden on the industry with 

the protections for consumers. 

The Bureau is adopting comment 

38(a)–1, as proposed with nonsubstantive modifications to explain 

that a servicer may determine the 

specific policies and procedures it will 

adopt and the methods by which it will 

implement those policies and 

procedures so long as they are 

reasonably designed to achieve the 

objectives set forth in § 1024.38(b). A 

servicer has flexibility to determine 

such policies and procedures and 

methods in light of the size, nature, and 

scope of the servicer’s operations, 

including, for example, the volume and 

aggregate unpaid principal balance of 

mortgage loans serviced, the credit 

quality, including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. Comment 38(a)–1 clarifies 

that servicers may retain existing 

procedures or design policies and 

procedures that are appropriately 

tailored to their operations, as long as 

the procedures are reasonably designed 

to achieve the important objectives set 

forth in § 1024.38(b). The Bureau is also 

adopting new comment 38(a)–2 to 

clarify the meaning of the term 

procedures. As stated in the comment, 

the term ‘‘procedures’’ refers to the 

actual practices followed by a servicer 

for achieving the objectives set forth in 

§ 1024.38(b). This comment clarifies 

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10780 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

that the Bureau expects that servicers’ 

policies and procedures will be 

reasonably designed to measure their 

ability to achieve the objectives set forth 

in § 1024.38 and to make ongoing 

improvements to their policies and 

procedures to address any deficiencies. 

Safe harbor. As discussed above, the 

Bureau proposed § 1024.38(a)(2) to 

provide a safe harbor for servicers for 

non-systemic violations of § 1024.38 to 

manage the costs that would arise from 

the contemplated litigation risk created 

by the contemplated civil liability for 

violations of § 1024.38. Proposed 

§ 1024.38(a)(2) stated that a servicer 

satisfies the requirement in proposed 

§ 1024.38(a)(1) if the servicer does not 

engage in a pattern or practice of failing 

to achieve any of the objectives set forth 

in proposed § 1024.38(b) and did not 

engage in a pattern or practice of failing 

to comply with any of the standard 

requirements in proposed § 1024.38(c). 

Proposed comment 38(a)(1)–1 would 

have provided examples of potential 

pattern or practice failures by servicers. 

Proposed comment 38(a)(2)–1 would 

have provided further clarification 

about the operation of the safe harbor. 

Comments received by the Bureau 

expressed uniform dissatisfaction with 

the proposed safe harbor definition. 

Industry commenters in general 

expressed the concern that the proposed 

safe harbor would not sufficiently 

insulate them from the large costs that 

they said that they would bear due to 

the litigation risk they saw embedded in 

the proposal as a result of civil liability, 

as discussed above in the section-bysection discussion of the legal authority 

for § 1024.38. In addition, some industry 

commenters stated that the safe harbor 

provision, which is based on the lack of 

a pattern or practice, would lead to 

costly discovery because servicers 

would be required to produce large 

volumes of documents to establish the 

absence of a pattern or practice. 

Consumer group commenters also 

expressed opposition to the proposed 

safe harbor. They commented that the 

safe harbor definition would make it 

difficult for borrowers to bring 

successful civil suits, and urged the 

Bureau to eliminate or to revise the safe 

harbor to provide relief for more 

borrowers. Consumer advocates argued 

that borrowers need strong protections 

because borrowers cannot select their 

servicers. 

As discussed above, the Bureau is 

adopting final general servicing policies, 

procedures, and requirements that are 

not enforceable through a private right 

of action. As violations of this § 1024.38 

no longer carry potential civil liability, 

the Bureau does not believe that the 

proposed safe harbor is appropriate to 

include in the final rule. The Bureau is 

adopting a final rule that does not 

include proposed § 1024.38(a)(2) or 

proposed comments 38(a)(1)–1 and 

38(a)(2)–1. This revision will also allow 

the Bureau to protect borrowers through 

robust supervision and enforcement of 

the servicing policies, procedures, and 

requirements set forth in § 1024.38 

without having to demonstrate a pattern 

or practice of violations. 

38(b) Objectives 

38(b)(1) Accessing and Providing 

Timely and Accurate Information 

38(b)(1)(i) 

Proposed § 1024.38(b)(1)(i) would 

have required that a servicer’s policies 

and procedures be reasonably designed 

to achieve the objective of providing 

accurate and timely disclosures to 

borrowers. As stated in the proposal, the 

Bureau believed that this was an 

important objective to protect borrowers 

by making sure that servicers provide 

borrowers with accurate and timely 

information about their mortgage loan 

accounts. Having received no comments 

on this provision, the Bureau is 

adopting § 1024.38(b)(1)(i), as proposed. 

38(b)(1)(ii) 

Proposed § 1024.38(b)(1)(ii) would 

have required that a servicer’s policies 

and procedures be reasonably designed 

to achieve the objective of enabling the 

servicer to investigate, respond to, and, 

as appropriate, correct errors asserted by 

borrowers, in accordance with the 

procedures set forth in § 1024.35, 

including errors resulting from actions 

of service providers. A servicer’s ability 

to investigate promptly and respond 

appropriately to an assertion of error is 

necessarily dependent upon the 

accuracy of the servicer’s records and on 

the ability of the servicer’s employees to 

access those records readily. As a result, 

the Bureau believed that including this 

objective as one of the objectives for a 

servicer’s policies and procedures was 

an important supplement to the DoddFrank Act error resolution requirements 

that are implemented in § 1024.35. 

The Bureau received one comment on 

proposed § 1024.38(b)(1)(ii). A trade 

association urged the Bureau to limit the 

applicability of § 1024.38(b)(1)(ii) to 

errors submitted pursuant to § 1024.35. 

The Bureau declines to adopt the 

commenter’s suggestion. In light of the 

Bureau’s decision to limit the 

applicability of § 1024.35 to notices of 

error submitted in writing, as discussed 

above in the section-by-section analysis 

of § 1024.35, the Bureau has decided to 

modify proposed § 1024.38(b)(1)(ii) to 

clarify that a servicer must have policies 

and procedures reasonably designed to 

respond to complaints asserted by 

borrowers, including those complaints 

that are not subject to the procedures set 

forth in § 1024.35. In particular, the 

Bureau believes that the modification is 

necessary and appropriate to ensure that 

consumers receive prompt and 

appropriate responses to oral 

complaints even though such 

complaints will not trigger the formal 

processes under § 1024.35. 

The Bureau also is removing the 

reference to the actions of service 

providers from the text of the rule, and, 

instead, is adopting new comment 

38(b)(1)(ii)–1 to clarify that policies and 

procedures to comply with 

§ 1024.38(b)(1)(ii) must be reasonably 

designed to provide for promptly 

obtaining information from service 

providers to facilitate achieving the 

objective of correcting errors resulting 

from actions of service providers, 

including obligations arising pursuant 

to § 1024.35. 

38(b)(1)(iii) 

Proposed § 1024.38(b)(1)(iii) would 

have required servicers to develop 

policies and procedures reasonably 

designed to provide borrowers with 

accurate and timely information and 

documents in response to borrower 

requests for information or documents 

related to their mortgage loan accounts 

in accordance with the procedures set 

forth in § 1024.36. The Bureau believed 

that the proposed provision was an 

important supplement to the DoddFrank Act information request 

requirements that are implemented in 

§ 1024.36 because the maintenance of 

accurate information regarding mortgage 

loan accounts is necessary for a servicer 

to respond to requests for information 

made by borrowers. 

The Bureau received no comments on 

§ 1024.38(b)(1)(iii). However, in light of 

the Bureau’s decision to limit the 

applicability of § 1024.36 to requests for 

information submitted in writing, as 

discussed above in the section-bysection analysis of § 1024.36, the Bureau 

has decided to modify proposed 

§ 1024.38(b)(1)(iii) to clarify that a 

servicer must have policies and 

procedures to provide a borrower with 

accurate and timely information and 

documents in response to the borrower’s 

requests for information with respect to 

the borrower’s mortgage loans, 

including those requests that are not 

asserted in accordance with the 

procedures set forth in § 1024.36. In 

particular, the Bureau continues to 

believe that servicers must have the 

capacity to respond to borrowers’ 

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117 Failure to Recover: The State of Hous. Mkts., 

Mortg. Servicing Practices and Foreclosures: 

Hearings Before the House Comm. on Oversight and 

Gov’t Reform, 112th Cong. 4 (2012) (statement of 

Morris Morgan, Office of the Comptroller of the 

Currency). 

requests for information reported to 

servicers orally, but the Bureau believes 

that it is appropriate to allow servicers 

to design policies and procedures best 

suited to their operations to achieve this 

objective. Accordingly, the Bureau is 

adopting § 1024.38(b)(1)(iii) with 

modifications from the proposal to 

broaden the scope of the objective to 

include borrower requests for 

information or documents with respect 

to the borrower’s mortgage loan that are 

not encompassed by the written 

information request process set forth in 

§ 1024.36. 

38(b)(1)(iv) 

Proposed § 1024.38(b)(1)(iv) would 

have required servicers to establish 

policies and procedures reasonably 

designed to achieve the objective of 

providing owners or assignees of 

mortgage loans with accurate and 

current information and documents 

about any mortgage loans that they own. 

As stated in the proposal, the Bureau 

believes that to protect borrowers, it is 

necessary for owners and assignees to 

receive accurate and timely information 

about the mortgage loans they own. As 

the Bureau stated, owners and assignees 

can play an important role in ensuring 

that servicers comply with the 

requirements of the owner or assignee 

which may inure to the benefit of 

borrowers. 

The Bureau received a comment on 

this proposed provision from an 

investor, providing types of information 

that would benefit investors regarding 

loss mitigation evaluations conducted, 

and loss mitigation agreements entered 

into, by servicers. Having received no 

comments on the substance of the 

proposed rule, the Bureau is adopting 

§ 1024.38(b)(1)(iv), as proposed. The 

Bureau is also adopting new comment 

38(b)(1)(iv)–1 to clarify the information 

and documents contemplated by this 

section. Comment 38(b)(1)(iv)–1 

provides that the relevant and current 

information to owners or assignees of 

mortgage loans includes, among other 

things, information about a servicer’s 

evaluation of borrowers for loss 

mitigation options and a servicer’s 

agreements with borrowers on loss 

mitigation options, including loan 

modifications. Such information 

includes, for example, information 

regarding the date, terms, and features 

of loan modifications, the components 

of any capitalized arrears, the amount of 

any servicer advances, and any 

assumptions regarding the value of a 

property used in evaluating any loss 

mitigation options. 

38(b)(1)(v) 

Proposed § 1024.38(b)(1)(v) would 

have required that a servicer’s policies 

and procedures be reasonably designed 

to achieve the objective of enabling the 

servicer to submit documents or filings 

required for a foreclosure process, 

including documents or filings required 

by a court of competent jurisdiction, 

that reflect accurate and current 

information and that comply with 

applicable law. The Bureau believes that 

it is necessary and appropriate to 

protect borrowers from harms resulting 

from servicers’ failure to submit 

accurate, current, and compliant 

documents in foreclosure proceedings. 

In issuing the proposed rule, the Bureau 

pointed to findings by the Office of the 

Comptroller of the Currency that major 

servicers demonstrated failures to 

document and verify, in accordance 

with applicable law, information 

relating to borrower mortgage loan 

accounts in connection with foreclosure 

proceedings.117

The Bureau received a number of 

comments on proposed 

§ 1024.38(b)(1)(v). State attorneys 

general commented that the Bureau 

should adopt stricter standards to 

ensure the accuracy and validity of 

foreclosure documentation, such as the 

standards included in the recent 

National Mortgage Settlement. In 

addition, consumer groups urged the 

Bureau to require servicers who are 

initiating a foreclosure to provide 

documentation to borrowers of the right 

of the party initiating the action to 

foreclose, including providing evidence 

of an enforceable security interest and 

verification of supporting statements. 

After consideration of the comments, 

the Bureau has concluded that the 

proposed language already 

appropriately addresses the concerns 

raised. Section 1024.38(b)(1)(v), as 

proposed, requires servicers to develop 

policies and procedures reasonably 

designed to achieve the objective of 

ensuring the accuracy of any documents 

filed in foreclosure proceedings, which 

would include affidavits or security 

instruments, and, therefore, is broad 

enough to cover the specific documents 

identified in the National Mortgage 

Settlement. Specifying particular 

documents which must be submitted 

accurately, or regulating the particulars 

of how documents are prepared and 

validated by servicers, would be 

inconsistent with the rule’s broad 

objectives-based standards, which, as 

discussed above, are designed to 

provide flexibility for a wide range of 

servicers to develop policies and 

procedures that are appropriate to their 

business and that will achieve the stated 

objectives. Accordingly, the Bureau 

declines to adopt a final rule containing 

the specific details included in the 

National Mortgage Settlement. The 

Bureau expects that the court filings of 

servicers whose operational and 

information management policies and 

procedures are reasonably designed to 

achieve the objective of 

§ 1024.38(b)(1)(v) will be accurate and 

authorized by the underlying security 

documents. 

Second, the Bureau believes that the 

information request process defined in 

proposed § 1024.36 provides borrowers 

in foreclosure with access to the 

documentation described by consumer 

groups. Specifically, § 1024.36, as 

proposed, requires servicers to provide 

to borrowers upon their request 

information about their mortgage loan 

accounts, including their servicing files, 

which includes a complete payment 

history, a copy of their security 

instrument, collection notes, and other 

valuable information about their 

accounts. Accordingly, the Bureau does 

not believe that it is necessary to revise 

the proposed language to provide this 

protection. For the reasons discussed 

above, the Bureau is adopting 

§ 1024.38(b)(1)(v), as proposed. 

38(b)(1)(vi) 

The Bureau’s proposed servicing 

operational policies and procedures did 

not specifically address a servicer’s 

obligations related to successors in 

interest upon the death of a borrower. 

The Bureau received information about 

difficulties faced by surviving spouses, 

children, or other relatives who succeed 

in the interest of a deceased borrower to 

a property that they also occupied as a 

principal residence, when that property 

is secured by a mortgage loan account 

solely in the name of the deceased 

borrower. In particular, the Bureau 

understands that successors in interest 

may encounter challenges in 

communicating with mortgage servicers 

about a deceased borrower’s mortgage 

loan account. The Bureau believes that 

it is essential that servicers’ policies and 

procedures are reasonably designed to 

facilitate communication with 

successors in interest regarding a 

deceased borrower’s mortgage loan 

accounts. Therefore, the Bureau is 

adopting § 1024.38(b)(1)(vi) to clarify 

that servicers should maintain policies 

and procedures that are reasonably 

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118Proposed § 1024.38(b)(2)(v), discussed above, 

would have required servicers to establish 

reasonable policies and procedures that enable 

servicer personnel to properly evaluate borrower 

applications, and any appeals, as appropriate. 

designed to, upon notification of the 

death of a borrower, identify promptly 

and facilitate communication with the 

successor in interest of the deceased 

borrower with respect to the property 

secured by the deceased borrower’s 

mortgage loan. 

38(b)(2) Properly Evaluating Loss 

Mitigation Applications 

Proposed § 1024.38(b)(2) would have 

established a number of objectives 

designed specifically to support 

servicers’ loss mitigation activities and 

to facilitate compliance with various 

requirements under proposed § 1024.41. 

Specifically, proposed § 1024.38(b)(2) 

would have required that a servicer’s 

policies and procedures be reasonably 

designed to achieve the objective of 

enabling the servicer to (i) provide 

accurate information to borrowers 

regarding loss mitigation options; (ii) 

identify all loss mitigation options for 

which a borrower may be eligible; (iii) 

provide servicer personnel with prompt 

access to all documents and information 

submitted by a borrower in connection 

with a loss mitigation option; (iv) enable 

servicer personnel to identify 

documents and information that a 

borrower is required to submit to make 

a loss mitigation application complete; 

and (v) enable servicer personnel to 

evaluate borrower applications 

properly, and any appeals, as 

appropriate. 

In the proposal, the Bureau expressed 

its belief that requiring servicers to have 

reasonable policies and procedures to 

maintain and manage information and 

operations that are designed to enable 

the servicer to evaluate borrowers for 

loss mitigation options facilitates 

compliance with proposed § 1024.41. 

Further, such policies and procedures 

are likely to protect consumers by 

requiring servicers to consider, in 

advance of the potential delinquency of 

a particular mortgage loan, the loss 

mitigation options that are generally 

available to borrowers. 

While acknowledging that servicers 

generally have begun to alter the 

manner in which they invest in 

infrastructure and are changing their 

approach to default management, the 

Bureau stated in the 2012 RESPA 

Servicing Proposal that it believes that 

a requirement to develop reasonable 

policies and procedures to enable a 

servicer to evaluate loss mitigation 

applications imposes a reasonable 

burden on servicers that will benefit 

delinquent borrowers once the rule 

takes effect and will protect borrowers 

in future years as servicers transition 

from reacting to the current financial 

crisis to a more steady market more 

likely to be punctuated by regional 

spikes in delinquencies and 

foreclosures. Absent regulation, 

servicers that have not yet invested in 

improving loss mitigation functions may 

find less incentive to do so as housing 

markets recover, leading to continued 

inadequate infrastructure during future 

regional or national housing downturns, 

which may lead to future borrower 

harm. The Bureau requested comment 

regarding whether the Bureau had 

identified the appropriate objectives 

with respect to proposed § 1024.38(b)(2) 

and whether objectives should be 

removed, or other objectives included, 

in the requirements. 

Loss mitigation information. Proposed 

§ 1024.38(b)(2) would have required that 

a servicer’s policies and procedures be 

reasonably designed to achieve the 

objective of enabling the servicer to (i) 

provide accurate information to 

borrowers regarding loss mitigation 

options; (ii) identify all loss mitigation 

options for which a borrower may be 

eligible; (iii) provide servicer personnel 

with prompt access to all documents 

and information submitted by a 

borrower in connection with a loss 

mitigation option; (iv) enable servicer 

personnel to identify documents and 

information that a borrower is required 

to submit to make a loss mitigation 

application complete.118

The Bureau received a small number 

of comments on § 1024.38(b)(2). 

Consumer advocates supported 

proposed § 1024.38(b)(2), and urged the 

Bureau to specify that servicers are 

required to provide borrowers with a list 

of available loss mitigation options. 

Trade associations urged the Bureau to 

clarify servicers’ obligations in this 

section, in particular whether servicers 

could limit the information provided to 

borrowers to only the loss mitigation 

programs that the servicer offers. The 

Bureau also received many comments 

about the servicers’ obligations to offer 

loss mitigation options to borrowers, 

which are discussed in detail in the 

section-by-section analysis of § 1024.41. 

For the reasons discussed above, the 

Bureau is adopting §§ 1024.38(b)(2)(i) 

through (b)(2)(iv), as proposed with 

slight modifications for clarification. 

Section 1024.38(b)(2)(ii) clarifies that 

the rule envisions that servicers will 

develop policies and procedures 

reasonably designed to identify with 

specificity all loss mitigation options 

available for mortgage loans currently 

serviced by a mortgage servicer and that 

the mortgage servicer may service in the 

future. The Bureau is also adopting new 

comment 38(b)(2)(ii)–1, which explains 

that servicers must develop policies and 

procedures reasonably designed to 

enable servicer personnel to identify all 

loss mitigation options available for 

mortgage loans currently serviced by the 

mortgage servicer. For example, a 

servicer’s policies and procedures must 

be reasonably designed to address how 

a servicer specifically identifies, with 

respect to each owner or assignee, all of 

the loss mitigation options that the 

servicer may consider when evaluating 

any borrower for a loss mitigation 

option and the criteria that should be 

applied by a servicer when evaluating a 

borrower for such options. In addition, 

a servicer’s policies and procedures 

must be reasonably designed to address 

how the servicer will apply any specific 

thresholds for eligibility for a particular 

loss mitigation option established by an 

owner or assignee of a mortgage loan 

(e.g., if the owner or assignee requires 

that a servicer only make a particular 

loss mitigation option available to a 

certain percentage of the loans that the 

servicer services for that owner or 

assignee, then the servicer’s policies and 

procedures must be reasonably designed 

to determine in advance how the 

servicer will apply that threshold to 

those mortgage loans). A servicer’s 

policies and procedures must also be 

reasonably designed to ensure that such 

information is readily accessible to the 

servicer personnel involved with loss 

mitigation, including personnel made 

available to the borrower as described in 

§ 1024.40. 

To meet the objectives of 

§ 1024.38(b)(2)(ii), a servicer will have 

to establish policies and procedures that 

are reasonably designed to provide 

servicer personnel with the ability to 

determine, on a loan by loan basis, 

which loss mitigation options made 

available by the servicer are available to 

particular borrowers and to provide that 

information to such borrowers. This 

objective requires that servicers have 

access to accurate information about the 

available loss mitigation options for 

particular types of loans. The Bureau 

anticipates that for servicers that service 

mortgage loans held by the servicer or 

an affiliate in portfolio, providing access 

to the latter category of information will 

not present significant burdens with 

respect to such mortgage loans as any 

such policies likely will be uniformly 

set forth by the servicer or affiliate. 

Similarly, the Bureau anticipates that 

servicers that service mortgage loans 

that are included in securitizations 

guaranteed by Fannie Mae, Freddie 

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119Fed. Reserve Sys., Office of the Comptroller of 

the Currency & Office of Thrift Supervision, 

Interagency Review of Foreclosure Policies and 

Practices 9 (2011), available at http://www.occ.gov/ 

news-issuances/news-releases/2011/nr-occ-2011– 

47a.pdf. 

120Fed. Reserve Sys., Office of the Comptroller of 

the Currency, & Office of Thrift Supervision, 

Interagency Review of Foreclosure Policies and 

Practices 9 (2011). 

121Fed. Reserve Sys., Office of the Comptroller of 

the Currency, & Office of Thrift Supervision, 

Interagency Review of Foreclosure Policies and 

Practices 10 (2011). 

Mac, or Ginnie Mae, or insured by FHA 

or other government sponsored 

insurance programs, will be familiar 

with policies that will be set forth by 

those entities regarding the 

requirements for loss mitigation options 

and will be able to make that 

information available to servicer 

personnel and borrowers. Servicers that 

service mortgage loans that are 

securitized through private label 

securities may need to undertake more 

detailed discussions with investors to 

identify which, if any, loss mitigation 

programs made available by the servicer 

are available to borrowers whose 

mortgage loans are owned by the 

securitization trust pursuant to the 

terms of any particular servicing 

agreement. However, the Bureau 

believes the burden is still reasonable 

and will abate over time as the industry 

does a better job of clarifying such 

issues at the time that the servicing 

agreements are first drafted. 

The Bureau believes that the final rule 

will increase protection for borrowers 

by requiring servicers to adopt policies 

and procedures reasonably designed to 

ensure that servicers consider, in 

advance of the potential delinquency of 

a particular mortgage loan, the loss 

mitigation options that are generally 

available to borrowers. Further, the final 

rule provides a basis for Bureau 

supervision and enforcement regarding 

whether servicers are unjustifiably 

asserting investor limitations as a basis 

for avoiding the work of processing loss 

mitigation applications. 

Proper evaluation of loss mitigation 

applications. Proposed 

§ 1024.38(b)(2)(v) would have defined as 

an objective of a servicer’s policies and 

procedures, the proper evaluation of 

loss mitigation applications, and any 

appeals, pursuant to the requirements of 

proposed § 1024.41. As explained in the 

proposal, borrowers who are struggling 

to pay their mortgage have a vital 

interest in being properly considered for 

all available loss mitigation options, and 

the ability of servicers to do so is largely 

dependent upon servicers establishing 

and implementing policies and 

procedures that are reasonably designed 

to assure that servicer personnel have 

prompt and complete access to all 

relevant information, including 

documents and information submitted 

by the borrowers. Proposed § 1024.41, as 

discussed below, in turn defined 

procedures for evaluating loss 

mitigation applications. 

Most of the comments received by the 

Bureau regarding proposed 

§ 1024.38(b)(2)(v) focused on the 

procedures set forth in proposed 

§ 1024.41. However, in light of the 

comments received, the Bureau is 

adopting § 1024.38(b)(2)(v), with 

modifications from the proposal to make 

clear that the objective of proper 

evaluation of a borrower’s application 

for a loss mitigation option, or any 

appeal, extends to all loss mitigation 

options that are potentially available to 

the borrower pursuant to any 

requirements established by the owner 

or assignee of the borrower’s mortgage 

loan. As explained below in the sectionby-section analysis of § 1024.41, this 

objective is not inconsistent with the 

use of a waterfall of loss mitigation 

options that an investor or assignee may 

establish. 

The Bureau is also adopting new 

comment 38(b)(2)(v)–1 to clarify that a 

servicer is required pursuant to 

§ 1024.38(b)(2)(v) to maintain policies 

and procedures reasonably designed to 

evaluate a borrower for a loss mitigation 

option consistent with any owner or 

assignee requirements, even where the 

requirements of § 1024.41 may be 

inapplicable. For example, an owner or 

assignee may require that a servicer 

implement certain procedures to review 

a loss mitigation application submitted 

by a borrower less than 37 days before 

a foreclosure sale. Further, an owner or 

assignee may require that a servicer 

implement certain procedures to reevaluate a borrower who has 

demonstrated a material change in the 

borrower’s financial circumstances for a 

loss mitigation option after the 

servicer’s initial evaluation. A servicer 

must maintain policies and procedures 

reasonably designed to implement these 

requirements even if such loss 

mitigation evaluations may not be 

required pursuant to § 1024.41. The 

Bureau believes that the final rule will 

provide borrowers with greater access to 

loss mitigation options and more 

transparency into the evaluation 

process. 

38(b)(3) Facilitating Oversight of, and 

Compliance by, Service Providers 

Proposed § 1024.38(b)(3) would have 

required that a servicer’s policies and 

procedures be reasonably designed to 

achieve the objective of enabling the 

servicer to provide appropriate servicer 

personnel with accurate and current 

information reflecting actions performed 

by service providers, facilitating 

periodic reviews of service providers, 

and facilitating the sharing of accurate 

and current information among servicer 

personnel and service providers. 

The Bureau explained that proposed 

§ 1024.38(b)(3) was designed to address 

recent evaluations of mortgage servicer 

practices that had found that some 

major servicers ‘‘did not properly 

structure, carefully conduct, or 

prudently manage their third-party 

vendor relationships.’’ 119 For example, 

certain servicers supervised by the 

Board of Governors of the Federal 

Reserve System and the Office of the 

Comptroller of the Currency were found 

by those agencies to have failed to 

monitor third-party vendor foreclosure 

law firms’ compliance with the 

servicer’s standards or to retain copies 

of documents maintained by third-party 

law firms.120 Similar failures were 

found to be present in connection with 

servicer relationships with default 

management service providers and 

Mortgage Electronic Registration 

Systems, Inc. (MERS).121 The Bureau 

noted in the proposal that these failures 

likely resulted in significant harms for 

borrowers, including imposing 

unwarranted fees on borrowers and 

harms relating to so-called ‘‘dual 

tracking’’ from miscommunications 

between service providers and servicer 

loss mitigation personnel. 

The Bureau requested comment 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. The Bureau received a 

small number of comments proposed 

§ 1024.38(b)(3), all of which were 

submitted by industry. Commenters 

sought clarification about the scope of 

proposed § 1024.38(b)(3), including 

whether the provision would apply to 

vendors used for non-mortgage loan 

related tasks and whether the provision 

would create an independent obligation 

for service providers to comply with 

§ 1024.38. Servicers also sought 

guidance on how to comply with the 

periodic review requirements of 

proposed § 1024.38(b)(3)(ii), including 

whether compliance with the recent 

National Mortgage Settlement or 

participation in shared assessment 

programs would satisfy a servicer’s 

obligations under the proposed rule. 

Proposed § 1024.38(b)(3) would have 

imposed obligations on servicers with 

respect to maintaining and providing 

access to information about service 

providers, as defined by § 1024.31, 

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discussed above in the section-bysection analysis of that section, which 

includes any party retained by a servicer 

that interacts with a borrower or 

provides a service to a servicer for 

which a borrower may incur a fee. The 

proposed provision would therefore not 

have created obligations with respect to 

vendors who do not meet this 

definition. 

The Bureau is adopting 

§ 1024.38(b)(3), as proposed. The 

Bureau remains concerned about 

servicers’ inadequate oversight of 

service providers, and believes that 

proposed § 1024.38(b)(3) appropriately 

addresses this concern by requiring 

servicers to maintain reasonable policies 

and procedures, which will provide 

servicer personnel with information 

about actions of service providers and 

facilitate review of service providers. 

The Bureau expects that servicers 

seeking to demonstrate that their 

policies and procedures are reasonably 

designed to achieve these objectives will 

demonstrate that, in fact, the servicer 

has been able to use its information to 

oversee its service providers effectively, 

such as through a shared assessment 

program of the type set forth in the 

National Mortgage Settlement. 

38(b)(4) Facilitating Transfer of 

Information During Servicing Transfers 

Proposed § 1024.38(b)(4) would have 

required that a servicer’s policies and 

procedures be reasonably designed to 

achieve the objective of ensuring the 

timely transfer of all information and 

documents relating to a transferred 

mortgage loan to a transferee servicer in 

a form and manner that enables the 

transferee servicer to comply with the 

requirements of subpart C and the terms 

of the transferee servicer’s contractual 

obligations to owners or assignees of the 

mortgage loans. Further, proposed 

§ 1024.38(b)(4) would have provided an 

objective that a transferee servicer shall 

have documents and information 

regarding the status of discussions with 

a borrower regarding loss mitigation 

options, any agreements with a 

borrower for a loss mitigation option, 

and any analysis with respect to 

potential recovery from a nonperforming mortgage loan, as 

appropriate (typically called a final 

recovery determination). 

In proposing § 1024.38(b)(4), the 

Bureau expressed concern that servicing 

transfers could give rise to potential 

harms to consumers. Transferee 

servicers may experience problems 

relating to inaccurate transfer of past 

payment information, failures of the 

transferor servicer to transfer documents 

provided to it by a borrower or others, 

and inaccurate transfer of information 

relating to loss mitigation discussions 

with borrowers. Borrowers engaged in 

loss mitigation efforts may be 

transferred to transferee servicers that 

have no knowledge of the existence or 

status of the loss mitigation efforts. 

The Bureau explained in the proposal 

that it believed it is a typical servicer 

duty for servicers to be able to effectuate 

sales, assignments, and transfers of 

mortgage servicing in a manner that 

does not adversely impact borrowers. 

Servicers generally should expect that 

servicing may be sold, assigned, or 

transferred for certain loans they 

service. Servicers may owe a duty to 

investors to ensure that mortgage 

servicing can be transferred without 

adversely impacting the value of the 

investor’s asset. The Bureau stated that 

it believes it is appropriate for servicers 

to establish policies and procedures 

reasonably designed to achieve the 

objective of ensuring that in the event of 

any such transfer, documents and 

information regarding mortgage loan 

accounts are identified and transferred 

to a transferee servicer in a manner that 

permits the transferee servicer to 

continue providing appropriate service 

to the borrower. 

The Bureau requested comments 

regarding whether the Bureau had 

identified the appropriate objectives and 

whether objectives should be removed, 

or other objectives included, in the 

requirements. The Bureau received a 

small number of comments on proposed 

§ 1024.38(b)(4). Consumer advocates 

and some industry expressed support 

for the proposal. Other commenters 

asked for clarification about what the 

proposal would require, including 

whether transferor servicers must 

transfer all of the servicing file elements 

and whether the rule would require 

transferor servicers to obtain documents 

outside of the transferor servicers’ 

possession or control. Servicers also 

asked for clarification about whether the 

rule would allow servicers to transfer 

files electronically. 

In addition, the Bureau has received 

information that consumers often face 

difficulty enforcing a loss mitigation 

agreement reached with a transferor 

servicer prior to transfer with the 

transferee servicer. The Bureau has 

learned that transferee servicers often 

fail to request complete information 

about loss mitigation agreements from 

transferor servicers, and instead require 

borrowers to provide that 

documentation. 

The Bureau is adopting 

§ 1024.38(b)(4)(i), renumbered from 

proposed § 1024.38(b)(4), with 

modifications to address those 

comments. The Bureau has revised the 

proposal to add language to clarify that 

a transferor servicer’s objectives 

regarding facilitating transfer relate only 

to documents within the transferor 

servicer’s possession or control and that 

the transfer of information and 

documents must be in a form and 

manner that enables a transferee 

servicer to comply with obligations both 

under the terms of the mortgage loan 

and with applicable law. The Bureau is 

also removing the language concerning 

the transfer of information regarding 

loss mitigation discussions with 

borrowers from the text of proposed 

§ 1024.38(b)(4) and, instead, is 

including new comment 38(b)(4)(i)–2, 

which clarifies the transferor servicer’s 

obligation under § 1024.38(b)(4)(i) to 

establish policies and procedures 

reasonably designed to ensure that the 

transfer includes any information 

reflecting the current status of 

discussions with a borrower regarding 

loss mitigation options, any agreements 

entered into with a borrower on a loss 

mitigation option, and any analysis by 

a servicer with respect to potential 

recovery from a non-performing 

mortgage loan, as appropriate. 

To address industry’s comments 

about the manner in which transferor 

servicers may effectuate the transfer of 

documents and information, the Bureau 

is adopting new comment 38(b)(4)(i)–1, 

which clarifies that a transferor 

servicer’s policies and procedures may 

provide for transferring documents and 

information electronically provided that 

the transfer is conducted in a manner 

that is reasonably designed to ensure the 

accuracy of the information and 

documents transferred and that enables 

a transferee servicer to comply with its 

obligations to the owner or assignee of 

the loan and with applicable law. For 

example, transferor servicers must have 

policies and procedures for ensuring 

that data can be properly and promptly 

boarded by a transferee servicer’s 

electronic systems and that all necessary 

documents and information are 

available to, and can be appropriately 

identified by, a transferee servicer. 

The Bureau is also adopting 

§ 1024.38(b)(4)(ii) to more clearly define 

objectives for transferee servicers. 

Section 1024.38(b)(4)(ii) defines as an 

objective of a transferee servicer’s 

reasonable policies and procedures 

identifying necessary documents or 

information that may not have been 

transferred by a transferor servicer and 

obtaining such documents from the 

transferor servicer. Comment 

38(b)(4)(ii)–1 explains that a transferee 

servicer must have policies and 

procedures reasonably designed to 

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ensure, in connection with a servicing 

transfer, that the servicer receives 

information regarding any loss 

mitigation discussions with a borrower, 

including any copies of loss mitigation 

agreements. Further, the comment 

clarifies that the transferee servicer’s 

policies and procedures must address 

obtaining any such missing information 

or documents from a transferor servicer 

before attempting to obtain such 

information from a borrower. 

The Bureau is also adopting 

§ 1024.38(b)(4)(iii) to clarify that the 

obligations set forth in § 1024.38(b)(4) 

apply to circumstances when the 

performance of servicing of a mortgage 

loan is transferred, but the right to 

perform servicing of a mortgage loan is 

not transferred, such as a transfer 

between a master servicer and a 

subservicer or between subservicers. 

38(b)(5) Informing Borrowers of Written 

Error Resolution and Information 

Request Procedures 

As discussed above in the section-bysection analysis of § 1024.33, the Bureau 

is adopting a requirement for the 

servicing transfer notice that no longer 

requires a statement informing 

borrowers of the error resolution 

procedures required by existing 

§ 1024.21(d)(3)(vii). To address concerns 

raised by commenters about the 

proposed revision of the transfer 

servicing notice, as discussed above, the 

Bureau is adopting § 1024.38(b)(5) to 

require servicers to maintain policies 

and procedures reasonably designed to 

achieve the objective of informing 

borrowers about the procedures for 

submitting written notices of error set 

forth in § 1024.35 and written requests 

for information set forth in § 1024.36. 

The Bureau is also adopting new 

comment 38(b)(5)–1 to clarify the 

manner in which a servicer may inform 

borrowers about the procedures for 

submitting written notices of errors set 

forth in § 1024.35 and for submitting 

written requests for information set 

forth in § 1024.36. The Bureau is also 

adopting new comment 38(b)(5)–2 to 

clarify that a servicer’s policies and 

procedures required by § 1024.38(b)(5) 

must be reasonably designed to provide 

information to borrowers who are not 

satisfied with the resolution of a 

complaint or request for information 

submitted orally about the procedures 

for submitting written notices of error 

set forth in § 1024.35 and for submitting 

written requests for information set 

forth in § 1024.36. 

38(c) Standard Requirements 

38(c)(1) Record Retention 

Proposed § 1024.38(c)(1) would have 

required a servicer to retain records that 

document actions taken with respect to 

a borrower’s mortgage loan account 

until one year after a mortgage loan is 

paid in full or servicing of a mortgage 

loan is transferred to a successor 

servicer. When issuing the proposed 

rule, the Bureau observed that proposed 

§§ 1024.35 and 1024.36 would have 

required servicers to respond to notices 

of error and information requests 

provided up to one year after a mortgage 

loan is paid in full or servicing of a 

mortgage loan is transferred to a 

successor servicer. The Bureau also 

noted that it believes that the record 

retention requirement was necessary for 

servicer compliance with obligations set 

forth in §§ 1024.35 and 1024.36. The 

Bureau also proposed to eliminate the 

systems of record keeping set forth in 

current § 1024.17(l), which required 

servicers to retain copies of documents 

related to borrower’s escrow accounts 

for five years after the servicer last 

serviced the escrow account, which is 

likely to be close in time to when a 

mortgage loan is paid in full or servicing 

of a mortgage loan is transferred to a 

successor servicer. Further, the Bureau 

observed that servicers will require 

accurate information for the life of the 

mortgage loan to provide accurate 

payoff balances to borrowers or to 

exercise a right to foreclose. The Bureau 

requested comment regarding whether 

servicers should be required to retain 

documents and information relating to a 

mortgage file until one year after a 

mortgage loan is paid in full or servicing 

of a mortgage loan is transferred to a 

successor servicer and the potential 

burden of this requirement. 

The Bureau received a handful of 

comments on proposed § 1024.38(c)(1). 

Consumer advocates urged the Bureau 

to extend the retention period from one 

year to five years to ensure that 

documents were available for discovery 

in civil litigation. Two servicers argued 

that the one year retention period would 

impose too great a cost on servicers. 

Another servicer commented that it 

agreed with the proposed one year 

retention period. A trade association 

also urged the Bureau to clarify that 

contractual rights to access records 

possessed by another entity would 

satisfy the servicer’s requirements under 

this provision. 

The Bureau is adopting 

§ 1024.38(c)(1), as proposed. The Bureau 

believes that servicers should retain 

records that document actions taken by 

the servicer with respect to a borrower’s 

mortgage loan account until one year 

after the date the mortgage loan is 

discharged or servicing of a mortgage 

loan is transferred by the servicer to a 

transferee servicer. As the Bureau stated 

in the proposal, the Bureau believes that 

the record retention requirement is 

necessary for servicer compliance with 

obligations set forth in §§ 1024.35 and 

1024.36. Further, the Bureau believes 

that servicers require accurate 

information for the life of the mortgage 

loan to provide accurate payoff balances 

to borrowers or to exercise a right to 

foreclose. Requiring servicers to retain 

records until one year after the transfer 

or payoff of a mortgage loan may impose 

some marginal increase in the servicer’s 

compliance burden in the form of 

incremental storage costs, but the 

Bureau believes that this burden is 

reasonable in light of the considerable 

benefits to borrowers. Moreover, the 

retention period is necessary to ensure 

that the Bureau and other regulators 

have an opportunity to supervise 

servicers’ compliance with applicable 

laws effectively. The Bureau declines to 

adopt the longer period suggested by 

commenters. The Bureau believes that 

the final rule adequately addresses the 

commenters’ concerns about the 

availability of documents for discovery 

by requiring retention of documents 

throughout the life of the loan and for 

one year following the payoff or transfer 

of servicing. 

To clarify the methods that servicers 

may utilize to retain records, the Bureau 

is adopting new comment 38(c)(1)–1 

that explains that retaining records that 

document actions taken with respect to 

a borrower’s mortgage loan account does 

not necessarily mean actual paper 

copies of documents. The records may 

be retained by any method that 

reproduces the records accurately 

(including computer programs) and that 

ensures that the servicer can easily 

access the records (including a 

contractual right to access records 

possessed by another entity). 

38(c)(2) Servicing File 

Proposed § 1024.38(c)(2) would have 

required servicers to create a single 

servicing file for each mortgage loan 

account containing (1) a schedule of all 

payments credited or debited to the 

mortgage loan account, including any 

escrow account as defined in 

§ 1024.17(b) and any suspense account; 

(2) a copy of the borrower’s security 

instrument; (3) any collection notes 

created by servicer personnel reflecting 

communications with borrowers about 

the mortgage loan account; (4) a report 

of any data fields relating to a 

borrower’s mortgage loan account 

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created by a servicer’s electronic 

systems in connection with collection 

practices, including records of 

automatically or manually dialed 

telephonic communications; and (5) 

copies of any information or documents 

provided by a borrower to a servicer in 

accordance with the procedures set 

forth in §§ 1024.35 or 1024.41. The 

proposal also would have required that 

servicers provide borrowers with copies 

of the servicing file in accordance with 

the procedures set forth in § 1024.36. 

In the proposal, the Bureau expressed 

concern that many large servicers 

maintained documents and information 

related to a borrower’s mortgage loan 

account in disparate systems and that 

this practice has led servicers to have 

difficulty identifying all necessary 

information regarding a borrower’s 

mortgage loan account, including 

collector’s notes, payment histories, 

note and deed of trust documents, and 

account debit and credit information, 

including escrow account information. 

Proposed § 1024.38(c)(2) would have 

required servicers to aggregate into a 

single system a servicing file for each 

mortgage loan account, containing the 

specific information described above. 

The Bureau solicited comment 

regarding whether servicers should be 

required to provide copies of a defined 

servicing file to a borrower upon request 

and on the burden of adopting this 

requirement. Further, the Bureau 

requested comment regarding whether 

the Bureau had identified the 

appropriate components of a servicing 

file and whether certain categories of 

documents and information should be 

included or removed from the proposed 

requirement. The comments that the 

Bureau received are described in detail 

below. 

Providing copies of the servicing file 

to borrowers upon request. Proposed 

§ 1024.38(c)(2) would have required 

servicers to provide a borrower with a 

copy of a servicing file, containing 

specifically listed elements, for the 

borrower’s mortgage loan account, in 

accordance with the procedures set 

forth in § 1024.36. The Bureau received 

a large number of comments on that 

aspect of the proposal. 

The majority of the comments on 

proposed § 1024.38(c)(2) came from 

industry, and demonstrated confusion 

about the proposed provision. Industry 

commenters generally misunderstood 

the proposed provision as a requirement 

to provide borrowers with copies of 

their servicing files not subject to the 

procedures for information requests set 

forth in § 1024.36. Some servicers 

explicitly urged the Bureau to subject 

requests for servicing files to the 

procedural requirements of the 

information requests defined in 

§ 1024.36. In addition, given this 

misunderstanding, industry comments 

urged the Bureau to adopt limits on 

borrowers’ requests for servicing files to 

protect servicers from burdensome or 

duplicative requests. Servicers also 

suggested that the Bureau eliminate 

certain elements of the servicing file, 

such as payment histories, collection 

notes, and data fields, because they 

claimed that those elements would be 

too voluminous to provide to borrowers. 

A large servicer also urged the Bureau 

to allow flexibility in how servicers 

provide the information to borrowers, 

such as allowing borrowers to access the 

servicing file via a Web site. 

Servicers also expressed concern that 

the proposed provision might require 

them to disclose privileged or 

proprietary information to borrowers. In 

particular, many commenters pointed to 

collection notes and data fields as 

elements potentially containing 

privileged or proprietary information. 

Some comments also focused on a 

perceived litigation risk from providing 

copies of the servicing file to borrowers. 

Two comments cautioned that 

borrowers and their attorneys could use 

the request for the servicing file to 

obtain information normally only 

available to borrowers through courtordered discovery in litigation. 

Commenters also stated that collection 

notes and data fields were created for 

strictly internal purposes, and would 

confuse borrowers, which might lead to 

litigation. 

Consumer groups expressed support 

for providing borrowers with copies of 

their servicing files upon request. 

Consumer advocates noted that they 

specifically supported providing 

borrowers with a copy of a record of all 

payments credited to the account upon 

request and the data fields identifying 

the owner or assignee of the mortgage 

loan account. Also, one consumer 

advocate noted that the schedule of 

payments should include all payments 

made during the life of the loan and not 

just payments made to the current 

servicer. 

To address the commenters’ 

confusion about the relationship 

between proposed §§ 1024.38(c)(2) and 

1024.36, the Bureau has removed the 

requirement to provide borrowers with 

copies of their servicing file from the 

language of proposed § 1024.38(c)(2). 

Instead, the Bureau is adopting new 

comment 38(c)(2)–2 that clarifies that 

§ 1024.38(c)(2) does not confer upon any 

borrower an independent right to access 

information contained in the servicing 

file and that upon receipt of a 

borrower’s request for a servicing file, a 

servicer shall provide the borrower with 

a copy of the information contained in 

the servicing file for the borrower’s 

mortgage loan, subject to the procedures 

and limitations set forth in § 1024.36. 

This revision does not alter the 

substance of proposed § 1024.38(c)(2). 

Aggregation of servicing file. Proposed 

§ 1024.38(c)(2) would have required that 

servicers provide a defined set of 

information and data, i.e. a serving file, 

to borrowers upon request. Commenters 

interpreted this provision to require that 

servicers aggregate the elements of the 

servicing file defined in this section into 

a single file or information management 

system. Industry commenters, especially 

community banks, and credit unions, 

expressed concern about the potential 

implementation burden of aggregating 

the information regarding each borrower 

into a single system. Some of these 

commenters explained that their 

existing information systems stored 

some of the elements of the servicing 

file in separate systems. Some of these 

commenters also stated that their 

existing systems had not led to 

problems identified in the proposal, and 

urged the Bureau not to mandate that 

servicers with sound existing 

information management systems 

rebuild those systems to satisfy the 

technical details in the regulation. 

The intent of the servicing file 

requirement in proposed § 1024.38(c)(2) 

was to prevent harm to borrowers and 

to investors by requiring servicers to 

have the capacity to access key 

information about a mortgage loan 

quickly. However, the Bureau 

recognizes that there are multiple ways 

to achieve this objective. The Bureau 

also does not want needlessly to require 

servicers with existing systems that 

work well to dismantle those systems by 

adopting an overly prescriptive 

regulatory framework. In light of the 

comments that the Bureau received, the 

Bureau is adopting § 1024.38(c)(2) with 

modifications to allow flexibility for the 

manner in which a servicer maintains a 

servicing file. Under the final rule, 

§ 1024.38(c)(2) requires servicers to 

maintain a specific defined set of 

documents and data on each mortgage 

loan account serviced by the servicer in 

a manner that facilitates compiling such 

documents and data into a servicing file 

within five days. The Bureau believes 

that the final rule appropriately 

balances the benefits to borrowers and 

to investors by ensuring that servicers 

have ready access to all of the 

information necessary to service 

mortgage loan accounts with the 

flexibility required to enable servicers to 

design information management 

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systems that correspond to the servicers’ 

existing information management 

practices. 

Content of servicing file. Proposed 

§ 1024.38(c)(2) would have required 

servicers to create a single servicing file 

for each mortgage loan account 

containing, (i) a schedule of all 

payments credited or debited to the 

mortgage loan account, including any 

escrow account as defined in 

§ 1024.17(b) and any suspense account; 

(ii) a copy of the borrower’s security 

instrument; (iii) any collection notes 

created by servicer personnel reflecting 

communications with borrowers about 

the mortgage loan account; (iv) a report 

of any data fields relating to a 

borrower’s mortgage loan account 

created by a servicer’s electronic 

systems in connection with collection 

practices, including records of 

automatically or manually dialed 

telephonic communications; and (v) 

copies of any information or documents 

provided by a borrower to a servicer in 

accordance with the procedures set 

forth in §§ 1024.35 or 1024.41. 

The Bureau received several 

comments on this aspect of the 

proposal. Consumer advocates 

highlighted their support for the 

requirement that servicers maintain a 

servicing file that includes a copy of the 

security instrument and the complete 

payment history. Some servicers 

commented that the Bureau should limit 

the payment history requirement due to 

the costs associated with maintaining a 

payment history for the life of the 

mortgage loan, especially with respect 

to partial payments. A large servicer 

urged the Bureau to delay 

implementation of this proposed 

provision to allow the Bureau to test 

what fields should be contained in a 

servicing file. Industry comments also 

noted that some servicers’ existing files 

do not contain all of the required 

elements. 

Some servicers also asked for 

clarification about the requirements for 

certain elements of the servicing file. A 

few servicers also asked for clarification 

about what type of communications 

with borrowers must be recorded in the 

collection notes, and in particular, 

whether a servicer must record 

communications with borrowers 

unrelated to mortgage loans. A few 

industry commenters asked the Bureau 

to clarify the data fields the servicer 

must maintain, described in proposed 

§ 1024.38(c)(2)(iv). 

As described above, the Bureau 

believes the interests of borrowers are 

best served if servicers are quickly able 

to access certain key information 

regarding a borrower’s mortgage loan 

account, including a schedule of all 

transactions credited or debited to the 

mortgage loan account, including any 

escrow account as defined in 

§ 1024.17(b) and any suspense account, 

a copy of the security instrument that 

establishes the lien securing the 

mortgage loan, any notes created by 

servicer personnel reflecting 

communications with borrowers about 

the mortgage loan account, data fields as 

defined by § 1024.38(c)(2)(iv), and 

copies of any information or documents 

provided by the borrower to the 

servicers in accordance with the 

procedures set forth in §§ 1024.35 or 

1024.41. Therefore, the Bureau declines 

to remove any of the proposed elements 

from the servicing file definition. Also, 

the flexibility added to the final rule for 

servicers to determine how best to store 

the elements of the servicing file 

reduces the implementation burden on 

servicers. Therefore, for the reasons 

discussed above, the Bureau is adopting 

the elements of the servicing file in 

§ 1024.38(c)(2), with minor technical 

adjustments, as proposed. 

To address commenters’ confusion 

about the information described in 

proposed § 1024.38(c)(iv), the Bureau is 

adopting new comment 38(c)(2)(iv)–1. 

Comment 38(c)(2)(iv)–1 clarifies that a 

report of the data fields relating to the 

borrower’s mortgage loan account 

created by the servicer’s electronic 

systems in connection with servicing 

practices means a report listing the 

relevant data fields by name, populated 

with any specific data relating to the 

borrower’s mortgage loan account. 

Comment 38(c)(2)(iv)–1 also provides 

examples of data fields relating to a 

borrower’s mortgage loan account 

created by the servicer’s electronic 

systems in connection with servicing 

practices including fields used to 

identify the terms of the borrower’s 

mortgage loan, fields used to identify 

the occurrence of automated or manual 

collection calls, fields reflecting the 

evaluation of a borrower for a loss 

mitigation option, fields used to identify 

the owner or assignee of a mortgage 

loan, and any credit reporting history. 

Also, § 1024.38(c)(2)(iii) only requires 

servicers to maintain any notes created 

by servicer personnel reflecting 

communications with a borrower about 

the mortgage loan account. 

The Bureau also is adopting comment 

38(c)(2)–1 to address commenters’ 

confusion about the applicability of the 

servicing file requirements to existing 

servicer documents and information. 

Comment 38(c)(2)–1 explains that a 

servicer complies with § 1024.38(c)(2) if 

it maintains information in a manner 

that facilitates compliance with 

§ 1024.38(c)(2) beginning on or after 

January 10, 2014. A servicer is not 

required to comply with § 1024.38(c)(2) 

with respect to information created 

prior to January 10, 2014. 

Section 1024.39 Early Intervention 

Requirements for Certain Borrowers 

Background 

Proposed § 1024.39 would have 

required servicers to provide delinquent 

borrowers with two notices. First, 

proposed § 1024.39(a), would have 

required servicers to notify or make 

good faith efforts to notify a borrower 

orally that the borrower’s payment is 

late and that loss mitigation options 

may be available, if applicable. 

Servicers would have been required to 

take this action not later than 30 days 

after the payment due date, unless the 

borrower satisfied the payment during 

that period. Second, proposed 

§ 1024.39(b) would have required 

servicers to provide a written notice 

with information about the foreclosure 

process, housing counselors and the 

borrower’s State housing finance 

authority, and, if applicable, 

information about loss mitigation 

options that may be available to the 

borrower. Servicers would have been 

required to provide the written notice 

not later than 40 days after the payment 

due date, unless the borrower satisfied 

the payment during that period. These 

two notices were designed primarily to 

encourage delinquent borrowers to work 

with their servicer to identify their 

options for avoiding foreclosure. 

While a number of industry 

commenters supported the overall 

objective of encouraging communication 

between servicers and delinquent 

borrowers, many commenters, 

particularly small servicers, requested 

that the Bureau not issue regulations 

that are not required by the express 

provisions of the Dodd-Frank Act, citing 

compliance burden and the potential for 

overwhelming and confusing borrowers. 

Some industry commenters were 

concerned that the breadth of the 

definition of ‘‘Loss mitigation options’’ 

would require servicers to offer options 

or take actions inconsistent with 

investor or guarantor requirements. One 

industry commenter suggested, as an 

alternative to early intervention, that all 

borrowers be required to receive 

education about mortgages earlier in the 

process, before they become delinquent. 

Another stated that the Bureau’s early 

intervention requirements would be 

ineffective because borrowers would not 

open mail or respond to phone calls. 

Consumer advocacy groups were 

uniformly in favor of both an oral and 

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122For example, one credit union trade 

association identified a Michigan law that generally 

requires that, before a foreclosing party proceeds to 

foreclosure, it must provide borrowers with a notice 

containing information about foreclosure avoidance 

options and housing counselors. See Mich. Comp. 

Laws 600.3205a. 

123One nonprofit servicer requested that the 

Bureau clarify how the early intervention 

requirements would apply if, as the Bureau 

proposed, small servicers are exempt from the 

periodic statement requirement in Regulation Z. 

124See Diane Thompson, Foreclosing 

Modifications: How Servicer Incentives Discourage 

Loan Modifications, 86 Wash. L. Rev. 755, 768 

(2011); Kristopher Gerardi & Wenli Li, Mortgage 

Foreclosure Prevention Efforts, 95 Fed. Reserve 

Bank of Atlanta Econ. Rev., 1, 8–9 (2010); Michael 

A. Stegman et al., Preventative Servicing is Good for 

Business and Affordable Homeownership Policy, 18 

Housing Policy Debate 243, 274 (2007). See also 

part VII of the final rule. 

125See, e.g., The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. 

on Hous., Transp., & Comm. Affairs of the Senate 

Comm. on Banking and Urban Affairs, 112th Cong. 

72–73 (2011) (statement of Diane Thompson); see 

generally Diane Thompson, Foreclolsing 

Modifications, 86 Wash. L. Rev. 755 (2011). The 

Bureau is aware that the GSEs and other programs, 

such as HAMP, align servicer incentives to 

encourage early intervention. See, e.g., Fannie Mae, 

Single-Family Servicing Guide, Part VII § 602.04.05 

(2012); Freddie Mac, Single-Family Seller/Servicer 

Guide, Volume 2, Ch. 65.42 (2012); U.S. Dep’t of 

Treasury & U.S. Dep’t of Hous. & Urban Dev., 

Making Home Affordable Program Handbook,106 

(December 15, 2011). Through this rulemaking, the 

Bureau intends to make early intervention a 

uniform minimum national standard and part of 

established servicer practice. 

126See, e.g., Are There Government Barriers to 

the Housing Recovery? Hearing Before the 

Subcomm. on Ins., Hous., and Comm. Opportunity 

of the House Comm. on Fin. Services, 112th Cong. 

50–51 (2011) (statement of Phyllis Caldwell, Chief, 

Homeownership Preservation Office, U.S. Dep’t. of 

the Treasury); Freddie Mac, Foreclosure Avoidance 

Research II: A Follow-Up to the 2005 Benchmark 

Study 8 (2008), available at http:// 

www.freddiemac.com/service/msp/pdf/ 

foreclosure_avoidance_dec2007.pdf; Freddie Mac, 

Foreclosure Avoidance Research (2005), available 

at http://www.freddiemac.com/service/msp/pdf/ 

foreclosure_avoidance_dec2005.pdf. 

127See Office of the Comptroller of the Currency, 

Foreclosure Prevention: Improving Contact with 

Borrowers, Insights (June 2007), available at 

http://www.occ.gov/topics/communityaffairs/ 

publications/insights/insights-foreclosureprevention.pdf. 

128See, e.g., John C. Dugan, Comptroller, Office 

of the Comptroller of the Currency, Remarks Before 

the NeighborWorks America Symposium on 

Promoting Foreclosure Solutions (June 25, 2007), 

available at http://www.occ.gov/news-issuances/ 

speeches/2007/pub-speech-2007-61.pdf; Laurie S. 

Goodman et al., Amherst Securities Group LP, 

Modification Effectiveness: The Private Label 

Experience and Their Public Policy Implications 

written notice requirement. One 

consumer advocacy group explained 

that an oral and written notice 

requirement would help homeowners 

identify late payments quickly and 

engage in loss mitigation earlier to avoid 

foreclosure. Several consumer advocacy 

groups who submitted a joint comment 

stated that the Bureau was justified in 

proposing early intervention, explaining 

that early intervention is already an 

industry norm under GSE guidelines, 

the National Mortgage Settlement, and 

HAMP, which have standards for 

multiple phone calls and written notices 

at the early stages of a delinquency. 

These commenters also cited research 

that showed borrowers have a lower redefault rate the earlier they are reached 

in their delinquency. 

However, most consumer advocacy 

groups requested that the Bureau 

require servicers to provide more 

information about the foreclosure 

process and loss mitigation options than 

the Bureau had proposed to require. 

Many consumer advocacy groups 

recommended that the Bureau require 

servicers to provide information about 

all loss mitigation options potentially 

available to borrowers through the 

proposed oral and written notices. One 

mortgage investor commenter supported 

the Bureau’s policy goal of requiring 

servicers to engage more actively with 

delinquent borrowers about loss 

mitigation options. This commenter also 

recommended that the final rule require 

that servicers maintain adequate staffing 

levels with respect to delinquent loans, 

maintain frequent contact with 

borrowers to remind borrowers of 

available options, review them for such 

options, and provide a user-friendly and 

up-to-date Web site on which borrowers 

could locate servicer contact 

information. 

Industry commenters questioned 

whether the Bureau’s rules were 

necessary in light of recent State and 

Federal remediation efforts, such as the 

National Mortgage Settlement and 

various consent agreements with bank 

regulators. One credit union trade 

association believed that the Bureau’s 

proposed requirements were too rigid 

and would be ineffective, while another 

indicated that the early intervention 

requirements would not present issues 

because many of its affiliated members 

would be able to modify their current 

procedures without much difficulty. 

However, other industry trade 

associations and a nonprofit servicer 

indicated that, while most servicers 

already perform some form of early 

intervention, their programs are not 

identical to the Bureau’s proposal, and 

that compliance would require 

adjustments to or formalization of 

servicer policies and procedures that 

may not necessarily be suited to a 

borrower’s particular circumstances. 

Several industry commenters expressed 

concern that the Bureau’s rules overlap 

and could conflict with existing State 

and Federal law.122 With respect to 

addressing potential conflicts between 

the Bureau’s rules and existing State 

and Federal law as well as existing 

industry practice, commenters 

identified a variety of ways the Bureau 

could provide relief, including by not 

adopting rules that exceed or otherwise 

conflict with existing requirements, 

providing safe harbors (such as by 

clarifying that compliance with existing 

laws and agreements satisfies 1024.39), 

adopting more flexible standards, 

providing exemptions, including a 

mechanism in the rule to resolve 

compliance conflicts, or broadly 

preempting State laws. 

Trade associations, smaller servicers, 

credit unions, and rural creditors 

subject to Farm Credit Administration 

rules generally requested exemptions 

from the early intervention 

requirements, citing a ‘‘high-touch’’ 

customer service model, problems with 

internalizing compliance costs relative 

to larger servicers, and potential 

conflicts arising from complying with 

conflicting sets of rules. Small servicers 

and credit unions expressed concern 

that higher compliance costs would 

make it difficult to maintain high levels 

of customer service.123 A reverse 

mortgage trade association requested an 

exemption from the early intervention 

requirements because of the unique 

nature of reverse mortgage products and 

because the majority of reverse 

mortgages made in the current market 

are FHA Home Equity Conversion 

Mortgages already subject to specific 

requirements. 

The Bureau has considered the 

comments submitted but continues to 

believe that rules governing early 

intervention are warranted. As the 

Bureau explained in its proposal, the 

Bureau believes that a servicer’s 

delinquency management plays a 

significant role in whether the borrower 

cures the delinquency or ends up in 

foreclosure.124 For a variety of reasons, 

at least among the larger players, 

servicers have not been consistent in 

managing delinquent accounts to 

provide borrowers with an opportunity 

to avoid foreclosure. In addition, 

incentives remain that may discourage 

these larger servicers from addressing a 

delinquency quickly as servicers may 

profit from late fees.125 The Bureau also 

explained that delinquent borrowers 

may not make contact with servicers to 

discuss their options because they may 

be unaware that they have options 126 or 

that their servicer is able to assist 

them.127 There is risk to borrowers who 

do not make contact with servicers and 

remain delinquent; the longer a 

borrower remains delinquent, the more 

difficult it can be to avoid 

foreclosure.128 By requiring early 

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(June 19, 2012), at 5–6; Michael A. Stegman et al., 

Preventative Servicing, 18 Hous. Policy Debate 245 

(2007); Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costs 

11–12 (Freddie Mac, Working Paper No. 08–01, 

2008). 

129HUD and the VA have promulgated 

regulations and issued guidance on servicing 

practices for loans guaranteed or insured by their 

programs. See 24 CFR 203 subpart C (HUD); U.S. 

Hous. & Urban Dev., Handbook 4330.1 rev–5, Ch. 

7; 38 CFR Ch. 1 pt. 36, Subpt. A. Fannie Mae & 

Freddie Mac have established recommended 

servicing practices for delinquent borrowers in their 

servicing guidelines and align their modification 

incentives with the number of days the mortgage 

loan is delinquent when the borrower enters a trial 

period plan. See Fannie Mae, Single-Family 

Servicing Guide, 700–1 (2012); Fannie Mae, 

Outbound Call Attempts Guidelines (Oct. 1, 2011), 

available at https://www.efanniemae.com/home/ 

index.jsp; Fannie Mae, Letters and Notice 

Guidelines (Apr. 25, 2012), available at https:// 

www.efanniemae.com/home/index.jsp; Freddie 

Mac, Single-Family Seller/Servicer Guide, Vol. 2, 

Ch. 64–69 (2012). 

intervention with delinquent borrowers, 

the Bureau has sought to correct 

impediments to borrower-servicer 

communication so that borrowers have 

a reasonable opportunity to avoid 

foreclosure at the early stages of a 

delinquency. As the Bureau recognized 

in its proposal, not all delinquent 

borrowers may respond to servicer 

outreach or pursue available loss 

mitigation options. However, the Bureau 

believes that the notices will ensure, at 

a minimum, that covered borrowers 

have an opportunity to do so at the early 

stages of a delinquency. 

The Bureau notes that the 2013 

HOEPA Final Rule implements, among 

other things, RESPA section 5(c) 

requiring lenders to provide applicants 

of federally related mortgage loans with 

a list of homeownership counseling 

providers. Thus, borrowers will receive 

information to access counseling 

services at the time of application. In 

addition, the 2013 HOEPA Final Rule 

requires that applicants for ‘‘high cost’’ 

mortgages receive counseling prior to 

obtaining credit. While pre-mortgage 

counseling will help ensure borrowers 

understand the costs involved in 

obtaining a mortgage, borrowers who 

become delinquent may not know that 

they have options for avoiding 

foreclosure unless the servicer notifies 

them. 

The Bureau understands that private 

lenders and investors, Fannie Mae and 

Freddie Mac, and Federal agencies, such 

as FHA and VA, already have early 

intervention servicing standards in 

place for delinquent borrowers.129

However, servicers may vary as to how 

forthcoming they are in providing 

borrowers who are behind on their 

mortgage payments with options other 

than to pay only what is owed. The 

Bureau’s goal with respect to its early 

intervention requirements is to identify 

consumer protection standards that are 

now best practices but were not 

consistently applied during the recent 

financial crisis and to apply these across 

the market, subject to exemptions 

identified in § 1024.30(b) and the scope 

limitation of § 1024.30(c)(2), to ensure 

that servicers are providing delinquent 

borrowers with a meaningful 

opportunity to avoid foreclosure. 

In light of comments received on the 

proposal, the Bureau has revised the 

proposed early intervention 

requirements to provide servicers with 

additional flexibility. Proposed 

§ 1024.39(a) would have required 

servicers to notify, or make good faith 

efforts to notify, delinquent borrowers 

orally that loss mitigation options, if 

applicable, may be available by the 30th 

day of their delinquency. Under the 

proposal, servicers that make loss 

mitigation options available to 

borrowers would generally have been 

required to notify delinquent borrowers 

of the availability of such options not 

later than the 30th day of their 

delinquency. 

The final rule does not require 

servicers to provide this notice to all 

borrowers and does not require servicers 

to inform borrowers of options that are 

not available from the owner or 

investor. Instead, under § 1024.39(a), 

servicers must establish or make good 

faith efforts to establish live contact 

with a delinquent borrower by the 36th 

day of the borrower’s delinquency. Live 

contact includes telephoning or 

conducting an in-person meeting with 

the borrower. In addition, under 

§ 1024.39(a), promptly after establishing 

live contact, servicers must inform the 

borrower about the availability of loss 

mitigation options if appropriate. 

Among other changes, the final rule 

includes commentary that clarifies that 

it is within a servicer’s reasonable 

discretion to determine whether such a 

notice is appropriate under the 

circumstances. Commentary to the final 

rule also provides a more flexible good 

faith efforts standard that would permit 

servicers to comply by encouraging the 

borrower through written or electronic 

communication to make contact with 

the servicer. These changes are intended 

to help ensure servicers make efforts to 

contact delinquent borrowers who 

would be interested in learning about 

loss mitigation options and, at the same 

time, avoid causing servicers to spend 

resources notifying borrowers about loss 

mitigation options the servicer has 

reason to believe would not benefit from 

being informed of such options. 

The final rule includes a written 

notice requirement similar to the one 

proposed at § 1024.39(b), but the Bureau 

has sought to mitigate compliance 

burden without undermining the 

protection of an early written notice by 

extending the deadline for providing the 

notice from 40 to 45 days of a 

borrower’s delinquency to align with 

other notices that servicers may already 

provide to borrowers at that time. The 

Bureau has sought to develop flexible 

early intervention requirements to 

accommodate existing practices and 

requirements to avoid servicers having 

to duplicate existing early intervention 

practices. For example, if servicers are 

required by other laws to provide a 

notice that includes the content 

required by § 1024.39(b)(2) and if 

servicers may provide such notice 

within the first 45 days of a borrower’s 

delinquency, the Bureau does not 

believe servicers would need to provide 

each notice separately. 

The Bureau has further sought to 

accommodate existing practices by 

providing clarifying commentary to 

§ 1024.39(b)(1) that servicers may 

combine notices that may already meet 

the content requirements of 

§ 1024.39(b)(2) into a single mailing. In 

addition, comment 39(b)(2)–1 explains 

that the written notice contains 

minimum content requirements for the 

written notice and that a servicer may 

provide additional information that the 

servicer determines would be helpful or 

which may be required by applicable 

law or the owner or assignee of the 

mortgage loan. The Bureau has included 

this comment, in part, to accommodate 

similar notices that servicers may 

already be providing. Further, to assist 

with compliance, the Bureau has also 

developed model clauses, which the 

Bureau has tested with the assistance of 

Macro. A servicer’s appropriate use of 

the model clauses will act as a safe 

harbor for compliance. 

While the Bureau has designed its 

early intervention requirements to 

provide flexibility to servicers that 

already have early intervention 

practices in place or that are complying 

with external existing requirements, the 

Bureau acknowledges that some of the 

new requirements may not align 

perfectly with all existing practices. To 

address actual conflicts with State or 

Federal law, the Bureau has included 

new § 1024.39(c), which, as discussed in 

more detail below, provides that 

nothing in § 1024.39 shall require a 

servicer to make contact with a 

borrower in a manner that would be 

prohibited under applicable law. The 

Bureau believes this approach to 

conflicting laws is preferable to 

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preempting other laws. Because 

§ 1024.39 require servicers to 

proactively contact borrowers, the 

Bureau is concerned that preempting 

laws might override those that protect 

delinquent borrowers from certain 

contacts (e.g., debt collection laws). 

In addition, the Bureau is granting 

exemptions for small servicers as 

defined in 12 CFR 1026.41(e)(4); 

servicers with respect to any reverse 

mortgage transaction as that term is 

defined in § 1024.31; and servicers with 

respect to any mortgage loan for which 

the servicer is a qualified lender as that 

term is defined in 12 CFR 617.7000. See 

the section-by-section analysis of 

§ 1024.30(b) above. The Bureau is 

further limiting the application of 

§§ 1024.39 through 41 to mortgage loans 

that are secured by a borrower’s 

principal residence, as discussed in 

more detail in the section-by-section 

analysis of § 1024.30(c)(2) above. 

The Bureau is not mandating that 

servicers maintain specific staffing 

levels to perform early intervention with 

delinquent borrowers, but the Bureau 

notes that, under § 1024.38, servicers 

must maintain policies and procedures 

reasonably designed to achieve the 

objective of properly evaluating 

borrowers for loss mitigation options. 

The Bureau is not requiring servicers to 

maintain a Web site for delinquent 

borrowers to provide early intervention 

information because the Bureau believes 

such a requirement may be burdensome 

for all servicers and is unnecessary in 

light of the written notice at 

§ 1024.39(b), which includes contact 

information for servicer continuity of 

contact personnel assigned pursuant to 

§ 1024.40(a). 

The Bureau declines to grant an 

exemption from the early intervention 

requirements with respect to borrowers 

who have ceased making payments for 

the past six months and have not 

contacted their servicer. To the extent 

loss mitigation options are available for 

such borrowers, the Bureau believes 

these borrowers should be so informed 

in accordance with § 1024.39(a) and (b). 

Further, the Bureau believes servicers 

should make good faith efforts to 

establish live contact with borrowers 

who may be reluctant to reach out 

before taking action that may result in 

the loss of the borrower’s home. In 

addition, the Bureau believes these 

borrowers would benefit from 

information about how to contact their 

servicer as well as information about 

how to access housing counseling 

resources. 

Legal Authority 

The Bureau proposed to implement 

§ 1024.39 pursuant to authority under 

sections 6(k)(1)(E), 6(j)(3), and 19(a) of 

RESPA. Violations of section 6 of 

RESPA are subject to a private right of 

action. Industry commenters, including 

the GSEs, industry trade associations, 

and several large bank servicers were 

concerned that a private right of action 

would result in uncertainty for servicers 

and could delay loss mitigation efforts 

and the foreclosure process if a 

borrower claimed it did not receive a 

timely notice required by the Bureau’s 

rules. Commenters indicated that 

increased litigation costs would limit 

access to and increase the cost of credit 

to borrowers. One commenter was 

concerned that a private right of action 

would result in loss mitigation being 

perceived as a substantive right. Instead, 

commenters requested that the Bureau 

issue the early intervention and other 

loss mitigation provisions solely in 

reliance on RESPA section 19(a) 

authority. 

The Bureau has considered industry 

comments but continues to rely on 

RESPA section 6 authority as a basis for 

the Bureau’s early intervention 

requirements under § 1024.39. The 

Bureau does not believe § 1024.39 will 

result in loss mitigation being treated as 

a substantive right because it sets forth 

procedural requirements only. As 

finalized, § 1024.39 does not require 

servicers to offer any particular loss 

mitigation option to any particular 

borrower. The live contact requirement 

under § 1024.39(a) requires servicers to 

notify borrowers of the availability of 

loss mitigation options ‘‘if appropriate’’; 

associated commentary clarifies that it 

is within a servicer’s reasonable 

discretion to determine whether it is 

appropriate to inform borrowers of such 

options. The written notice requirement 

under § 1024.39(b)(2)(iii) requires 

servicers to inform borrowers, ‘‘if 

applicable,’’ of examples of loss 

mitigation options available through the 

servicer. Nothing in § 1024.39 affects 

whether a borrower is permitted as a 

matter of contract law to enforce the 

terms of any contract or agreement 

between a servicer and an owner or 

assignee of a mortgage loan. 

In addition, the Bureau has taken 

steps to clarify requirements in the rule, 

which the Bureau believes will help 

avoid uncertainty for servicers and help 

minimize litigation risk and compliance 

costs arising from a private right of 

action associated with RESPA section 6. 

For example, the final rule omits the 

proposed oral notice requirement under 

proposed § 1024.39(a) and instead 

requires that servicers establish or make 

good faith efforts to establish live 

contact with borrowers and, promptly 

after establishing live contact, inform 

borrowers of the availability of loss 

mitigation options ‘‘if appropriate.’’ 

Comment 39(a)–3.i explains that it is 

within a servicer’s reasonable discretion 

to determine whether informing a 

borrower about the availability of loss 

mitigation options is appropriate under 

the circumstances; the comment also 

includes illustrative examples to assist 

with compliance. While this guidance 

should provide servicers with some 

degree of certainty around compliance, 

the Bureau recognizes there may be 

limited situations that are less clear; in 

these cases, however, servicers could 

avoid compliance risk by informing 

borrowers of loss mitigation options. 

Comment 39(a)–3.ii explains that a 

servicer may inform borrowers about the 

availability of loss mitigation options 

either through an oral or written 

communication. The final rule also 

provides servicers with more flexibility 

in satisfying the good faith efforts 

standard; servicers may demonstrate 

compliance by providing written or 

electronic communication encouraging 

borrowers to establish live contact with 

their servicer. In addition, with respect 

to the written notice under § 1024.39(b), 

the final rule includes model clauses 

and clarifies in commentary that 

servicers may provide additional 

information about loss mitigation 

options not included in the model 

clauses. Further, the final rule includes 

flexible minimum content requirements 

for the written notice that will assist 

servicers in accommodating existing 

disclosures and other related disclosure 

requirements. 

The Bureau does not believe that the 

risk of a private right of action will 

negatively impact access to, or cost of, 

credit. The requirements under 

§ 1024.39 include clear procedural 

requirements as well as protections for 

a servicer’s exercise of reasonable 

discretion. Further, the requirements 

have been implemented to reduce 

compliance burden and provide clear 

rules capable of efficient 

implementation by servicers, including 

through the use of model clauses. 

Accordingly, the Bureau believes that 

the early intervention rules under 

§ 1024.39 provide necessary consumer 

protections and that servicers are 

capable of providing such protections 

without negative consequences for 

borrowers, including with respect to 

access to, or cost of, credit. 

The Bureau is adopting § 1024.39 

pursuant to its authorities under 

sections 6(j)(3), 6(k)(1)(E), and 19(a) of 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10791 

RESPA. As explained in more detail 

below, the Bureau finds, consistent with 

RESPA section 6(k)(1)(E), that § 1024.39 

is appropriate to achieve the consumer 

protection purposes of RESPA, 

including to help borrowers avoid 

unwarranted or unnecessary costs and 

fees and to facilitate review of borrowers 

for foreclosure avoidance options. For 

the same reasons, § 1024.39 is 

authorized under section 6(j)(3) of 

RESPA as necessary to carry out section 

6 of RESPA, and under section 19(a) of 

RESPA as necessary to achieve the 

purposes of RESPA, including 

borrowers’ avoidance of unwarranted or 

unnecessary costs and fees and the 

facilitation of review of borrowers for 

foreclosure avoidance options. 

The Bureau is also adopting § 1024.39 

pursuant to its authority under section 

1022(b) of the Dodd-Frank Act to 

prescribe regulations necessary or 

appropriate to carry out the purposes 

and objectives of Federal consumer 

financial laws, including the purposes 

and objectives of Title X of the DoddFrank Act. Specifically, the Bureau 

believes that § 1024.39 is necessary and 

appropriate to carry out the purpose 

under section 1021(a) of the Dodd-Frank 

Act of ensuring that markets for 

consumer financial products and 

services are fair, transparent, and 

competitive, and the objectives under 

section 1021(b) of the Dodd-Frank Act 

of ensuring that consumers are provided 

with timely and understandable 

information to make responsible 

decisions about financial transactions, 

and markets for consumer financial 

products and services operate 

transparently and efficiently to facilitate 

access and innovation. The Bureau 

additionally relies on its authority 

under section 1032(a) of the Dodd-Frank 

Act, which authorizes the Bureau to 

prescribe rules to ensure that the 

features of any consumer financial 

product or service, both initially and 

over the term of the product or service, 

are fully, accurately, and effectively 

disclosed to consumers in a manner that 

permits consumers to understand the 

costs, benefits, and risks associated with 

the product or service, in light of the 

facts and circumstances. Consistent 

with section 1032(b) of the Dodd-Frank 

Act, the model clauses at appendix MS– 

4 have been validated through consumer 

testing. 

39(a) Live Contact 

Proposed § 1024.39(a) 

Proposed § 1024.39(a) would have 

required that, if a borrower is late in 

making a payment sufficient to cover 

principal, interest, and, if applicable, 

escrow, the servicer must, not later than 

30 days after the missed payment, notify 

or make good faith efforts to notify the 

borrower that the payment is late and 

that loss mitigation options, if 

applicable, may be available. Proposed 

§ 1024.39(a) also provided that if the 

servicer attempts to notify the borrower 

by telephone, good faith efforts would 

require calling the borrower on at least 

three separate days in order to reach the 

borrower. The Bureau explained in the 

section-by-section analysis of the 

proposed rule that the ‘‘if applicable’’ 

qualification in proposed § 1024.39(a) 

meant that servicers that do not make 

any loss mitigation options available to 

borrowers would not be required to 

notify borrowers that loss mitigation 

options may be available. 

The Bureau had proposed to clarify 

through comment 39(a)–1.i that the oral 

notice would have to be made through 

live contact or good faith efforts to make 

live contact with the borrower, such as 

by telephoning or meeting in-person 

with the borrower, and that oral contact 

does not include a recorded message 

delivered by phone. Proposed comment 

39(a)–1.ii would have clarified that a 

servicer is not required to describe 

specific loss mitigation options, and that 

the servicer need only inform the 

borrower that loss mitigation options 

may be available, if applicable. The 

comment also would have clarified that 

a servicer may provide more detailed 

information that the servicer believes 

would be helpful. Proposed comment 

39(a)–2 clarified that, in order to make 

a good faith effort by telephone, the 

servicer must complete the three phone 

calls attempting to reach the borrower 

by the end of the 30-day period after the 

payment due date. 

The Bureau received significant 

comment on the proposed oral notice 

from consumer advocacy groups, trade 

associations, credit unions, community 

banks, rural servicers, large banks, nonbank servicers, and individual 

consumers. Consumer advocacy groups 

and two residential real estate trade 

associations were generally supportive 

of an oral notice requirement. One 

coalition of consumer advocacy groups 

explained that a mandatory phone call 

or visit would alert borrowers that loss 

mitigation options may be available and 

give borrowers an opportunity to ask 

questions and gather accurate 

information about the borrower’s rights 

and responsibilities. Several consumer 

advocacy groups and individual 

consumers supported an oral notice 

requirement because it would permit 

borrowers to engage in an interactive 

conversation with servicers about their 

rights and responsibilities surrounding 

loss mitigation. A number of consumer 

advocacy groups, however, requested 

that the Bureau require that servicers 

provide more information about loss 

mitigation options than the notice set 

forth in proposed § 1024.39(a). These 

commenters recommended that 

servicers notify borrowers of all loss 

mitigation options that may be 

available, including application 

instructions and deadlines, and 

information about the foreclosure 

process at the time of the oral notice. 

Several consumer advocacy groups also 

recommended that the Bureau delete 

proposed comment 39(a)–1.ii, which 

explained that a servicer need not 

describe specific loss mitigation options 

during the oral notice and that the 

servicer need only inform borrowers 

that loss mitigation options may be 

available, if applicable. 

Industry commenters expressed 

concern about the circumstances under 

which servicers would be required to 

notify borrowers about loss mitigation 

options. These commenters explained 

that a servicer’s offer of loss mitigation 

depends on not only the stage of a 

borrower’s delinquency but also the 

nature of the delinquency, as well as 

other circumstances, pursuant to 

investor or guarantor guidelines and 

could be perceived as misleading for 

borrowers who are ultimately ineligible 

based on owner or investor 

requirements. These commenters, 

including one Federal agency, also 

expressed concern that informing 

borrowers of loss mitigation options that 

are inappropriate for short-term 

delinquencies could impede the 

resolution of delinquent loans by 

discouraging borrowers from resolving a 

short-term delinquency they could have 

cured on their own. Industry 

commenters also asserted that notifying 

borrowers about loss mitigation options 

too early would be confusing or 

perceived as potentially harassing for 

those borrowers at low risk of default. 

In addition, several commenters cited 

concerns that requiring early 

intervention for low-risk borrowers 

would detract from helping high-risk 

borrowers. To address these concerns, 

they requested that the Bureau clarify 

the circumstances under which 

servicers would be required to notify 

borrowers that loss mitigation options 

may be available. In particular, several 

commenters requested that the Bureau 

clarify that, before providing the notice 

regarding loss mitigation options, a 

servicer may first determine whether a 

borrower is experiencing a short- or 

long-term delinquency, and that 

servicers be permitted to pursue 

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130See, e.g., Amy Crews Cutts & William A. 

Merrill, Interventions in Mortgage Default: Policies 

and Practices to Prevent Home Loss and Lower 

Costs 10 (Freddie Mac, Working Paper No. 08–01, 

2008) (explaining that, in one study, there was a 

‘‘significant cure rate out of the 30-day delinquency 

population without servicer intervention,’’ but that 

‘‘as the time in delinquency increases so does the 

hurdle the borrower has to overcome to reinstate 

the loan and the importance of calling the 

servicer’’). 

collection efforts in the case of shortterm delinquencies. 

Industry commenters also expressed 

concern with demonstrating compliance 

with the oral notice requirement, 

particularly in light of the possibility of 

a private right of action under RESPA 

section 6, which the Bureau relied on as 

a source of legal authority for proposed 

§ 1024.39. Rural, community bank, and 

credit union servicers recommended 

against an oral notice requirement 

because such requirements are difficult 

to track and verify, would require 

systems reprogramming or upgrades, 

may be misunderstood by borrowers, 

and would not guarantee establishing 

contact with borrowers. One community 

bank commenter stated that a simple 

delinquency notice should suffice, 

without a need to have a live 

conversation about loss mitigation 

options. Several rural and credit union 

servicers indicated that staffing and 

resource limitations would make it 

difficult to reach borrowers after normal 

work hours, when most borrowers are 

available by phone. One industry 

commenter recommended that the 

Bureau mandate in-person outreach in 

addition to the oral and written notice 

requirements while another industry 

commenter asked that the Bureau clarify 

that this provision does not mandate inperson outreach. 

Several industry commenters and 

individual consumers recommended 

that other forms of contact, such as text 

messages or email should be permitted, 

but not required, to satisfy good faith 

efforts, or that email should be 

permitted in lieu of live contact. These 

commenters noted that a more flexible 

approach, such as permitting written or 

other forms of electronic contact, would 

help reach borrowers and address 

compliance issues because written 

methods are more easily tracked. 

Several industry commenters requested 

that the Bureau permit servicers to 

engage in any form of contact that is 

reasonable under the circumstances. 

One industry commenter suggested that 

servicers should be permitted to leave a 

recorded message instead of three phone 

calls. 

By contrast, a number of consumer 

advocacy groups stated that the good 

faith effort standard as proposed was 

reasonable, although some 

recommended that servicers be required 

to engage in more efforts to contact the 

borrower, such as by attempting to 

contact borrowers on every telephone 

number on record in order to reach the 

borrower and by requiring that servicers 

leave a message when servicers have 

that option. Some consumer advocacy 

groups recommended that servicers be 

required to leave a message when a 

borrower’s telephone number provided 

a voicemail option, while an industry 

commenter indicated there may be 

privacy concerns with respect to any 

potential requirement for notices to be 

provided via text or email. 

Final § 1024.39(a) 

After considering comments on the 

proposal, the Bureau is revising the 

proposed oral notice requirement into a 

live contact requirement permits 

servicers to exercise reasonable 

discretion in determining whether 

informing delinquent borrowers of the 

availability of loss mitigation options is 

appropriate under the circumstances. 

The Bureau is also adjusting the timing 

of the contact requirement from the 

proposed 30-day timeframe to 36 days. 

Under § 1024.39(a), a servicer must 

establish or make good faith efforts to 

establish live contact with a delinquent 

borrower not later than the 36th day of 

the borrower’s delinquency and, 

promptly after establishing live contact, 

inform such borrower about the 

availability of loss mitigation options ‘‘if 

appropriate.’’ The Bureau has added 

comment 39(a)–3.i to clarify that it is 

within a servicer’s reasonable discretion 

to determine whether informing a 

borrower about the availability of loss 

mitigation options is appropriate under 

the circumstances. To illustrate, 

comment 39(a)–3.i provides examples 

demonstrating when a servicer has 

made a reasonable determination 

regarding the appropriateness of 

providing information about loss 

mitigation options. Comment 39(a)– 

3.i.A illustrates a scenario in which a 

servicer provides information about the 

availability of loss mitigation options to 

a borrower that notifies a servicer 

during live contact of a material adverse 

change in the borrower’s financial 

circumstances that is likely to cause the 

borrower to experience a long-term 

delinquency for which loss mitigation 

options may be available. Comment 

39(a)–3.i.B illustrates a scenario in 

which a servicer does not provide 

information about the availability of loss 

mitigation options to a borrower who 

has missed a January 1 payment and 

notified the servicer that full late 

payment will be transmitted to the 

servicer by February 15. 

The Bureau is adopting a modified 

version of the proposed oral notice in 

§ 1024.39(a) because the Bureau agrees 

that a prescriptive requirement to 

provide an oral notice for all delinquent 

borrowers, where loss mitigation 

options were available, within the first 

30 days of a delinquency would be 

overbroad. The Bureau observes that the 

oral notice as proposed would not have 

required servicers to offer options in a 

manner that is inconsistent with 

investor or guarantor requirements 

because servicers would only have had 

to notify borrowers that loss mitigation 

options, if applicable, ‘‘may’’ be 

available; servicers would not have been 

required to provide information about or 

offer options that the servicer did not 

already offer. However, the Bureau 

recognizes the potential for borrower 

confusion if servicers are required in 

every instance to notify borrowers who 

are experiencing short-term 

delinquencies of available loss 

mitigation options if these borrowers 

ultimately are unlikely to need or be 

eligible for such options. The Bureau 

agrees that providing the notice within 

the first 30 days of a borrower’s 

delinquency may be unwarranted if a 

borrower would not ultimately qualify 

based on investor or guarantor 

requirements or for whom loss 

mitigation options are unnecessary, 

such as for borrowers who are 

experiencing a short-term cash-flow 

problem. As the Bureau noted in its 

proposal, borrowers who are 30 days 

delinquent generally present a lower 

risk for default, (compared to borrowers 

with more extended delinquencies), and 

such borrowers typically resolve their 

delinquency without the assistance of 

loss mitigation options.130

Nonetheless, while many borrowers 

who miss a payment will be able to selfcure within 30 days, some portion of 

these borrowers are likely to fall further 

behind on their payments, and the 

Bureau believes servicers should make 

efforts to inform such borrowers that 

help is available. As the Bureau noted 

in its proposal, evidence suggests that 

one of the barriers to communication 

between borrowers and servicers is that 

borrowers do not know that servicers 

may be helpful or that they have options 

to avoid foreclosure, and that as a result 

of these barriers, borrowers may not 

know that help is available until too 

late, when it can be more difficult to 

cure a delinquency. Although borrowers 

may receive notice of loss mitigation 

options through other written notices, 

such as the written early intervention 

notice proposed at § 1024.39(b), 

borrowers may be reluctant to contact a 

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servicer on their own but would 

nonetheless benefit from early 

notification that help is available. By 

establishing early live contact with 

borrowers, servicers would be able to 

begin working with the borrower to 

develop appropriate relief at the early 

stages of a delinquency. The Bureau 

recognizes that, by giving servicers 

flexibility to determine whether it is 

appropriate under the circumstances to 

notify borrowers about loss mitigation 

options, there is some risk that 

servicers, despite their reasonable 

exercise of discretion, may incorrectly 

determine a borrower is experiencing a 

short-term delinquency. The Bureau 

believes that, on balance, the potential 

that delinquent borrowers may remain 

uninformed of their options is mitigated 

by the requirement in § 1024.39(b)(1), 

discussed below, to provide a written 

notice not later than the 45th day of a 

borrower’s delinquency. 

Proposed comment 39(a)–1.i would 

have clarified that the proposed oral 

notice would have to be made through 

live contact or good faith efforts to make 

live contact, such as by telephoning or 

conducting an in-person meeting with 

the borrower, but not leaving a recorded 

message. The final rule adopts proposed 

comment 39(a)–1.i substantially as 

proposed, which the Bureau has 

renumbered as comment 39(a)–2 for 

organizational purposes. Final comment 

39(a)–2 includes guidance appearing in 

proposed comment 39(a)–1.i about the 

meaning of live contact, but omits 

reference to the notice required under 

1024.39(a) because, as discussed 

immediately below, the final rule does 

not require servicers to inform 

borrowers of the availability of loss 

mitigation options under § 1024.39(a) 

during live contact. Final comment 

39(a)–2 further clarifies that a servicer 

may, but need not, rely on live contact 

established at the borrower’s initiative 

to satisfy the live contact requirement in 

§ 1024.39(a). Final comment 39(a)–2 

also explains that live contact provides 

servicers an opportunity to discuss the 

circumstances of a borrower’s 

delinquency. 

The Bureau has added comment 

39(a)–3.ii to clarify that, if appropriate, 

servicers may inform borrowers about 

the availability of loss mitigation 

options orally, in writing, or through 

electronic communication, but that 

servicers must provide such information 

promptly after the servicer establishes 

live contact. This comment is intended 

to provide servicers flexibility in 

notifying borrowers about loss 

mitigation options at the early stages of 

delinquency. The Bureau believes 

establishing initial live contact is 

important for a servicer to learn about 

the circumstances for a borrower’s 

delinquency and to determine whether 

it is appropriate under the 

circumstances to inform borrowers 

about the availability of loss mitigation 

options. The Bureau believes that 

providing borrowers with initial notice 

about the availability of loss mitigation 

options may be accomplished through 

an oral conversation or information 

delivered in writing, as long as it is 

provided promptly after the servicer 

establishes live contact, if appropriate. 

Comment 39(a)–3.ii further explains 

that a servicer need not notify a 

borrower about any particular loss 

mitigation options promptly after the 

servicer determines that a borrower 

should be informed of loss mitigation 

options; a servicer need only inform a 

borrower generally that loss mitigation 

options may be available. This comment 

is substantially similar to proposed 

comment 39(a)–1.ii. The Bureau is not 

requiring that servicers to provide 

detailed information about all loss 

mitigation options, application 

deadlines, or foreclosure timelines 

because not all borrowers may benefit 

from such a conversation at the time of 

this contact. Further, the Bureau 

believes the continuity of contact 

provisions at § 1024.40 will serve to 

provide borrowers with access to 

personnel who can assist them with loss 

mitigation options. Comment 39(a)–3.ii 

also explains that, if appropriate, a 

servicer may satisfy the requirement in 

§ 1024.39(a) to inform a borrower about 

loss mitigation options by providing the 

written notice required by 

§ 1024.39(b)(1), but the servicer must 

provide such notice promptly after the 

servicer establishes live contact. The 

Bureau believes that the written notice 

that must be provided by the 45th day 

of a borrower’s delinquency pursuant to 

§ 1024.39(a) provides sufficient 

information about the availability of loss 

mitigation options. 

Good Faith Efforts 

The Bureau agrees with commenters 

who assert that servicers should be 

permitted to engage in a wide variety of 

methods of contacting borrowers who 

may be difficult to reach by telephone. 

Accordingly, in the final rule, the 

Bureau has developed a more flexible 

good faith efforts standard. Proposed 

§ 1024.39(a) would have provided that, 

if the servicer attempts to notify the 

borrower about loss mitigation options 

by telephone, good faith efforts would 

require calling the borrower on at least 

three separate days in order to reach the 

borrower. The final rule does not define 

good faith efforts to establish live 

contact by identifying a particular 

number of days to reach the borrower. 

Instead, comment 39(a)–2 clarifies that 

good faith efforts to establish live 

contact consist of reasonable steps 

under the circumstances to reach a 

borrower and may include telephoning 

the borrower on more than one occasion 

or sending written or electronic 

communication encouraging the 

borrower to establish live contact with 

the servicer. 

The Bureau believes that, by 

permitting servicers to satisfy the good 

faith efforts standard through a wider 

variety of methods, servicers will be 

able to reach borrowers who may be 

difficult to reach by phone, particularly 

if a servicer does not have access to a 

borrower’s mobile phone or if a 

borrower is unreachable by phone 

during the day. In addition, permitting 

servicers to satisfy the good faith efforts 

standard through written or electronic 

communication encouraging the 

borrower to establish live contact 

addresses servicer concerns about 

tracking and compliance risks 

associated with the proposed oral notice 

requirement. 

Although the Bureau is permitting 

servicers to contact borrowers through a 

variety of means, the Bureau is not 

requiring servicers to contact borrowers 

through every means of contact possible 

because it would be difficult, if not 

impossible, to satisfy such a standard. 

The Bureau is not requiring servicers to 

leave a voicemail message when such an 

option is available because such a 

requirement may implicate privacy 

concerns. The Bureau is not adopting a 

requirement mandating that servicers 

establish in-person contact or so-called 

‘‘field calls’’ to the borrower’s residence. 

While such methods of contact may be 

effective methods of reaching 

delinquent borrowers, the Bureau 

believes telephone calls are equally, if 

not more effective in certain 

circumstances, and mandating an inperson contact requirement would be 

unduly burdensome for most servicers. 

Of course, a servicer could choose to 

establish live contact through in-person 

meetings. 

36th Day of Delinquency 

Proposed § 1024.39(a) would have 

required servicers to provide the oral 

notice not later than 30 days after a 

payment due date. In light of comments 

received, the Bureau is not adopting the 

30-day timeframe in proposed 

§ 1024.39(a) and instead is adopting a 

requirement that a servicer establish live 

contact not later than the 36th day of a 

borrower’s delinquency to determine 

whether to inform such borrower that 

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131See, e.g., John C. Dugan, Comptroller, Office 

of the Comptroller of the Currency, Remarks Before 

the NeighborWorks America Symposium on 

Promoting Foreclosure Solutions (June 25, 2007); 

Laurie S. Goodman et al., Amherst Securities Group 

LP, Modification Effectiveness: The Private Label 

Experience and Their Public Policy Implications 5– 

6 (June 19, 2012); Michael A. Stegman et al., 

Preventative Servicing, 18 Hous. Policy Debate 245 

(2007); Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costs 

11–12 (Freddie Mac, Working Paper No. 08–01, 

2008). 

132Freddie Mac recommends servicers contact 

borrowers within three days of a missed payment, 

unless the servicers use a behavior modeling tool 

that would support an alternate approach. Fannie 

Mae recommends servicers contact ‘‘high risk’’ 

borrowers within three days of a missed payment; 

campaigns for non-high-risk borrowers should 

begin within 16 days of a missed payment. See 

Fannie Mae, Single-Family Servicing Guide 700–1 

(2012); Fannie Mae, Outbound Call Attempts 

Guidelines (Oct. 1, 2011), available at https:// 

www.efanniemae.com/home/index.jsp; Fannie Mae, 

Letters and Notice Guidelines (Apr. 25, 2012), 

available at https://www.efanniemae.com/home/ 

index.jsp. 

133Under HAMP, servicers must pre-screen all 

first lien mortgage loans where two or more 

payments are due and unpaid (at least 31 days 

delinquent). Servicers must proactively solicit for 

HAMP any borrower whose loan passes this prescreen, unless the servicer has documented that the 

investor is not willing to participate in HAMP. See 

U.S. Dep’t of Treasury & U.S. Dep’t of Hous. & 

Urban Dev., MHA Handbook version 51 (June 1, 

2011). 

134 ‘‘Servicer shall commence outreach efforts to 

communicate loss mitigation options for first lien 

mortgage loans to all potentially eligible delinquent 

borrowers (other than those in bankruptcy) 

beginning on timelines that are in accordance with 

HAMP borrower solicitation guidelines set forth in 

the MHA Handbook version 3.2, Chapter II, Section 

2.2, regardless of whether the borrower is eligible 

for a HAMP modification.’’ National Mortgage 

Settlement: Consent Agreement A–23 (2012)(Loss 

Mitigation Communications with Borrowers), 

available at http:// 

www.nationalmortgagesettlement.com. 

135See U.S. Hous. & Urban Dev., Handbook 

4330.1 REV–5, ch. 7, para. 7–7B, available at 

http://portal.hud.gov/hudportal/documents/ 

huddoc?id=DOC_14710.pdf. 

loss mitigation options may be 

available. 

Industry commenters stated that 

providing notices too early would be 

unnecessary for borrowers capable of 

curing a short-term delinquency or for 

borrowers at low risk of default, and 

that providing notice of loss mitigation, 

in such circumstances, may interfere 

with sound delinquency management. A 

variety of servicers and trade 

associations recommended that the 

Bureau extend the deadline to 40 or 45 

days and one trade association 

recommended that the Bureau extend 

the deadline to 60 days to provide 

servicers with maximum flexibility. One 

industry commenter indicated that a 30- 

day timeframe would be burdensome for 

servicers that honor a 15-day grace 

period because it would only leave 

servicers only 15 days to satisfy the 

good faith efforts standard. Trade 

associations, community banks, and 

rural lenders were concerned that the 

Bureau’s requirements might be 

duplicative of or not perfectly aligned 

with existing requirements. Some 

commenters requested that the Bureau 

create an exemption from the 30-day 

deadline for servicers that employ a 

behavior modeling tool. In contrast, 

consumer advocacy groups requested 

that the Bureau maintain the 30-day 

period and include more information in 

the oral notice. One consumer advocate 

recommended that borrowers be 

notified about their options as soon as 

their account is deemed delinquent by 

the servicer. 

In the final rule, the Bureau is 

retaining a deadline by which a servicer 

must establish or make good faith efforts 

to establish live contact, but the Bureau 

is adjusting the timing of the deadline 

from the 30-day period originally 

proposed to a 36-day period. As the 

Bureau recognized in its proposal, 

certain borrowers may be temporarily 

delinquent because of an accidental 

missed payment, a technical error in 

transferring funds, a short-term payment 

difficulty, or some other reason. These 

borrowers may be able to cure a 

delinquency without a servicer’s efforts 

to make live contact. Thus, if the 

borrower fully satisfies the payment 

before the end of the 36-day period, the 

servicer would not be required to 

establish live contact or otherwise 

comply with § 1024.39(a). Proposed 

comment 39(a)–4 explained that a 

servicer would not be required to notify 

or make good faith efforts to notify a 

borrower unless the borrower remains 

late in making a payment during the 30- 

day period after the payment due date. 

A similar comment appears in 

39(a)–1.iv, revised to reflect the new 36- 

day period. 

As the Bureau noted in its proposal, 

there is risk to borrowers as a result of 

a delay in notifying borrowers that loss 

mitigation options may be available; 

research indicates that the longer a 

borrower remains delinquent, the more 

difficult it can be to avoid 

foreclosure.131 At the same time, the 

Bureau understands that a significant 

portion of borrowers who become 

delinquent are able to self-cure within 

30 days of a missed payment. 

The government-sponsored 

enterprises generally recommend that 

servicers initiate phone calls for 

borrowers who have missed a payment 

by the 16th day after a payment due 

date, although calling campaigns for 

high-risk borrowers must begin by the 

third day after a due date.132 In general, 

calls must occur every three days 

through day 36 of delinquency, and 

follow-up calls are required after 

borrower solicitation packages have 

been sent. Other standards, such as 

HAMP 133 and the National Mortgage 

Settlement,134 typically provide for the 

commencement of outreach efforts to 

communicate loss mitigation options for 

potentially eligible borrowers after two 

missed payments. For FHA-insured 

mortgages, HUD has a general 

requirement to contact borrowers with 

FHA-insured mortgages by telephone 

between the 17th day of delinquency 

and the end of the month.135 However, 

HUD Mortgagee Letter 98–18 provides 

that, at the lender’s discretion following 

a formal risk assessment, borrowers 

with FHA loans at low risk for 

foreclosure may be contacted by phone 

by the 45th day of delinquency. 

The Bureau is adjusting the timing by 

which a servicer must establish live 

contact from 30 to 36 days to be more 

consistent with GSE outbound call 

guidelines, HAMP, and the National 

Mortgage Settlement, and to give 

borrowers more time to cure a 

delinquency before a servicer attempts 

to establish live contact. In addition, a 

36-day deadline would help servicers 

screen for delinquent borrowers who 

regularly pay late, by permitting 

servicers to identify borrowers at risk of 

missing two payment deadlines before 

attempting efforts to contact them. The 

Bureau understands that servicers may 

not be able to complete an initial 

eligibility evaluation prior to the 

deadline for contact (potentially within 

five days after a second missed payment 

due date). However, the Bureau’s rule 

would only require servicers to establish 

or make good faith efforts to establish 

live contact with borrowers and inform 

such borrowers of the availability of loss 

mitigation options promptly after 

establishing live contact ‘‘if 

appropriate.’’ Where a servicer 

determines that it would be appropriate 

to inform a borrower about the 

availability of such options, comment 

39(a)–3.ii clarifies that a servicer need 

not notify borrowers about specific loss 

mitigation options under 1024.39(a), but 

only that loss mitigation options may be 

available. In addition, even if servicers 

have not completed an initial eligibility 

evaluation by the time of oral contact, 

the Bureau believes delinquent 

borrowers would still benefit from 

hearing about any other loss mitigation 

options for which they may be eligible. 

The Bureau believes a 36-day standard 

would be consistent with the Settlement 

terms requiring servicers to commence 

outreach efforts after the second missed 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10795 

payment. Under § 1024.39(a), servicers 

must establish or make good faith efforts 

to establish live contact with borrowers 

by the 36th day of delinquency, which 

would occur after a second missed 

payment is due. Moreover, servicers 

need not inform borrowers of the 

availability of loss mitigation options at 

the time of establishing live contact (if 

appropriate); § 1024.39(a) requires that 

they do so promptly after establishing 

live contact. The Bureau declines to 

adopt a requirement to contact 

borrowers as soon as they become 

delinquent because the Bureau believes 

such a requirement would be overbroad, 

as discussed above. 

The Bureau declines to adopt a 

general 40- or 45-day standard for all 

borrowers because the Bureau believes 

borrowers who may be experiencing the 

early stages of a long-term delinquency 

are, on balance, likely to benefit from 

earlier contact, and the Bureau believes 

that by the 36th day of a delinquency, 

servicers would know whether a 

borrower has missed two payments 

(subject only to the possibility that the 

payment will be received before the 

expiration of the grace period for the 

second payment). The Bureau believes 

that borrowers who miss two payments 

generally will present a greater financial 

risk than borrowers who are only one 

month late. The Bureau believes 

servicers should be required to establish 

live contact, or make good faith efforts 

to do so, not later than several days after 

a borrower has missed a second 

payment due date so the servicer may 

begin to learn about the circumstances 

of a borrower’s delinquency. Of course, 

servicers may elect to contact borrowers 

sooner, and the Bureau believes most 

servicers will do so pursuant to GSE, 

FHA, and VA guidelines. Finally, the 

Bureau declines to permit servicers to 

delay contact for borrowers identified as 

low-risk based on a servicer’s use of a 

behavior modeling tool. The Bureau is 

concerned that modeling tools used to 

predict future behavior are inherently 

imprecise and produce a certain 

percentage of false negatives—i.e., 

borrowers who are predicted to self-cure 

but do not. As also discussed below, at 

this time, the Bureau does not have 

sufficient data to evaluate or validate 

such tools. 

To account for situations in which a 

borrower proactively contacts the 

servicer about a late payment, proposed 

comment 39(a)–5 explained that, if the 

borrower contacts the servicer at any 

time prior to the end of the 30-day 

period to explain that the borrower 

expects to be late in making a payment, 

the servicer could provide the oral 

notice under proposed § 1024.39(a) by 

informing the borrower at that time that 

loss mitigation options, if applicable, 

may be available. The Bureau did not 

receive comment on proposed comment 

39(a)–5 or the two illustrative examples 

at proposed 39(a)–5.i.A or –5.i.B. The 

Bureau is omitting these comments from 

the final rule because the Bureau does 

not believe they are necessary in light of 

the clarifications provided in comment 

39(a)–2 (establishing live contact). 

The Bureau proposed in § 1024.39(a) 

to require a servicer to provide an oral 

notice, or make good faith efforts to do 

so, if the borrower is late in making ‘‘a 

payment sufficient to cover principal, 

interest, and, if applicable, escrow.’’ 

Thus, a servicer would not have been 

required to provide the oral notice if a 

borrower is late only with respect to 

paying a late fee for a given billing 

cycle. As explained in the proposal, the 

Bureau proposed this trigger because the 

Bureau believes there is low risk that 

borrowers will default solely because of 

accumulated late charges if they are 

otherwise current with respect to 

principal, interest, and escrow 

payments. The Bureau proposed to add 

comment 39(a)–3 to explain that, for 

purposes of proposed § 1024.39(a), a 

payment would be considered late the 

day after a payment due date, even if the 

borrower is afforded a grace period 

before the servicer assesses a late fee. 

Thus, for example, if a payment due 

date is January 1, the servicer would be 

required to notify or make good faith 

efforts to notify the borrower not later 

than 30 days after January 1 (i.e., by 

January 31) if the borrower has not fully 

paid the amount owed as of January 1 

and the full payment remains due 

during that period. 

The Bureau did not receive comment 

on what constitutes a late payment for 

purposes of providing the oral notice 

and is adopting a substantially similar 

standard in the final rule, which the 

Bureau has defined as ‘‘delinquency’’ 

for purposes of § 1024.39. The Bureau 

has added comment 39(a)–1.i to clarify 

that, for purposes of § 1024.39, 

delinquency begins on the day a 

payment sufficient to cover principal, 

interest, and, if applicable, escrow for a 

given billing cycle is due and unpaid, 

even if the borrower is afforded a period 

after the due date to pay before the 

servicer assesses a late fee. For example, 

if a payment due date is January 1 and 

the amount due is not fully paid during 

the 36-day period after January 1, the 

servicer must establish or make good 

faith efforts to establish live contact not 

later than 36 days after January 1—i.e., 

by February 6. Delinquency is 

calculated in a similar manner with 

respect to the written notice under 

§ 1024.39(b)(1) that must be provided by 

the 45th day of a borrower’s 

delinquency. The Bureau uses the term 

‘‘delinquency’’ in the final rule to 

improve and clarify the proposed 

regulatory text and intends no 

substantive difference from the 

proposal. Unlike proposed comment 

39(b)(1)–2, comment 39(a)(1)–1.i does 

not use the term ‘‘grace period’’ but 

instead uses the phrase ‘‘period of time 

after the due date has passed to pay 

before the servicer assesses a late fee.’’ 

The Bureau intends no substantive 

difference between the final rule and the 

proposal, but has made this change to 

conform to similar changes in the 

Bureau’s 2013 TILA Mortgage Servicing 

Final Rule. 

Proposed comment 39(a)–6 clarified 

that a servicer would not be required 

under § 1024.39(a) to provide the oral 

notice to a borrower who is performing 

as agreed under a loss mitigation option 

designed to bring the borrower current 

on a previously missed payment. The 

Bureau did not receive comment on 

proposed comment 39(a)–6 and is 

adopting it substantially as proposed, 

but reorganized under comment 39(a)– 

1 as a clarification to whether a 

borrower is ‘‘delinquent’’ for purposes 

of § 1024.39(a). Thus, comment 39(a)– 

1.ii explains that a borrower who is 

performing as agreed under a loss 

mitigation option designed to bring the 

borrower current on a previously missed 

payment is not delinquent for purposes 

of § 1024.39. 

Rural and community bank 

commenters requested clarification on 

whether the oral and written notices 

would be required to be provided on a 

recurring basis for borrowers who 

satisfy their mortgage payments late on 

a recurring basis and who may be 

unresponsive to servicer collection 

efforts. The Bureau has addressed the 

issue of recurring delinquencies with 

regard to the written notice below in the 

section-by-section analysis of 

§ 1024.39(b), discussed below. With 

respect to the live contact requirement, 

servicers would be required to establish 

live contact or make good faith efforts to 

do so with borrowers to determine 

whether to inform borrowers of loss 

mitigation options. Thus, a servicer 

must establish live contact or make good 

faith effort to establish live contact, even 

with borrowers who are regularly 

delinquent, by the 36th day of a 

borrower’s delinquency. However, it is 

within a servicer’s reasonable discretion 

to determine whether it would be 

appropriate to inform a borrower who is 

delinquent on a recurring, month-tomonth basis about the availability of 

loss mitigation options. 

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10796 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

Servicing transfers. The Bureau has 

added comment 39(a)–1.iii, which 

explains that, during the 60-day period 

beginning on the effective date of 

transfer of the servicing of any mortgage 

loan, a borrower is not delinquent for 

purposes of § 1024.39 if the transferee 

servicer learns that the borrower has 

made a timely payment that has been 

misdirected to the transferor servicer 

and the transferee servicer documents 

its files accordingly. 

The Bureau has added this comment 

to address situations that may arise 

during the 60 days after a servicing 

transfer. RESPA section 6(d) provides 

that, during the 60-day period beginning 

on the effective date of transfer of 

servicing of any federally related 

mortgage loan, a late fee may not be 

imposed on the borrower with respect to 

any payment on such loan and no such 

payment may be treated as late for any 

other purposes, if the payment is 

received by the transferor servicer 

(rather than the transferee servicer who 

should properly receive the payment) 

before the due date applicable to such 

payment. 12 U.S.C. 2605(d). This 

provision is implemented through 

current § 1024.21(d)(5), which the 

Bureau is moving and finalizing as 

§ 1024.33(c)(1). As explained in more 

detail in the section-by-section analysis 

of § 1024.33(c)(1) above, the Bureau has 

added comment 33(c)(1)–2 to clarify a 

transferee servicer’s compliance with 

1024.39 during the 60-day period 

beginning on the effective date of a 

servicing transfer does not constitute 

treating a payment as late for purposes 

of § 1024.33(c)(1). The Bureau has 

added comment 33(c)(1)–2 to address 

situations in which a transferee servicer 

does not know the reasons for a late 

payment but may still need to comply 

with § 1024.39 in the face of this 

uncertainty. 

To account for situations in which the 

transferee servicer learns that a 

borrower has simply misdirected a 

timely payment, the Bureau has added 

comment 39(a)–1.iii to clarify that, 

during the 60-day period beginning on 

the effective date of transfer of the 

servicing of any mortgage loan, a 

borrower is not delinquent for purposes 

of § 1024.39 if the transferee servicer 

learns that the borrower has made a 

timely payment that has been 

misdirected to the transferor servicer 

and the transferee servicer documents 

its files accordingly. In such cases, the 

Bureau does not believe such borrowers 

should be treated as delinquent for 

purposes of § 1024.39. Comment 39(a)– 

1.iii also contains cross-references to 

§ 1024.33(c)(1) and comment 33(c)(1)–2. 

To clarify that this guidance also applies 

to § 1024.39(b), comment 39(b)(1)–1 

includes a cross-reference to comment 

39(a)–1. 

Borrower’s representative. Several 

consumer group commenters and a 

housing counseling organization 

requested that the Bureau clarify that a 

servicer must communicate with a 

borrower’s representative. The Bureau 

agrees that, in certain situations, such as 

where the borrower is represented by an 

attorney, it may be appropriate for 

servicers to communicate with the 

borrower’s authorized representative, 

particularly in situations involving 

delinquency that may result in 

foreclosure. Accordingly, the Bureau 

has added comment 39(a)–4 to explain 

that § 1024.39 does not prohibit a 

servicer from satisfying the 

requirements of § 1024.39 by 

establishing live contact with, and, if 

applicable, providing information about 

loss mitigation to a person authorized 

by the borrower to communicate with 

the servicer on the borrower’s behalf. 

The comment provides that a servicer 

may undertake reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf, for example by 

requiring that a person that claims to be 

an agent of the borrower provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. This comment 

is similar to comments 35(a)–1, 36(a)–1, 

and 40(a)–1. 

The Bureau does not believe it is 

necessary to specifically require 

servicers to communicate with a 

borrower’s representative for purposes 

of § 1024.39. By comparison, the 

requirements applicable to notices of 

error and information requests under 

§§ 1024.35 and 36 include comments 

35(a)–1 and 36(a)–1, which explain that 

notices of error and information 

requests from a borrower’s 

representative are treated the same way 

that servicers treat such 

communications from a borrower 

though the servicer may undertake 

reasonable procedures to determine if a 

person that claims to be an agent of a 

borrower has authority from the 

borrower to act on the borrower’s behalf. 

In situations involving notices of error 

or information requests, in which a 

borrower requests through a 

representative that the servicer take 

some action that the servicer may not 

otherwise perform, there is some risk 

that a servicer might claim it had no 

obligation to act if the regulation only 

required actions with respect to the 

‘‘borrower.’’ However, § 1024.39 

requires that servicers reach out to 

borrowers. Thus, the risk that servicers 

would claim they had no obligation to 

act with respect to a borrower is not 

present in this case; to the contrary, the 

Bureau believes it would mitigate the 

burden on the servicer to be able to 

communicate with either the borrower 

or the borrower’s representative. 

39(b) Written Notice 

39(b)(1) Notice Required 

As discussed below, the Bureau is 

adopting a written notice requirement 

that has been slightly revised from the 

proposal. The Bureau proposed 

§ 1024.39(b)(1) to require servicers to 

provide borrowers who are late in 

making a payment with a written notice 

containing information about the 

foreclosure process, contact information 

for housing counselors and the 

borrower’s State housing finance 

authority, and, if applicable, loss 

mitigation options. The Bureau 

proposed to require that this notice be 

provided not later than 40 days after the 

payment due date. Proposed comment 

39(b)(1)–1 explained that the written 

notice would be required even if the 

servicer provided information about loss 

mitigation and the foreclosure process 

previously during the oral notice under 

§ 1024.39(a). 

Consumer advocacy groups were 

generally supportive of a written notice, 

although they recommended including 

more detail about loss mitigation 

options, application instructions, and 

foreclosure timelines. Industry 

commenters were concerned that the 

written notice requirement would 

conflict with existing early intervention 

requirements and recommended that the 

Bureau provide more flexibility with 

respect to the content of the notice and 

that the Bureau extend the deadline for 

providing the written notice. Some 

commenters questioned the necessity of 

the written notice in light of an oral 

notice requirement and other existing 

requirements. 

The Bureau is adopting a written 

notice requirement in the final rule at 

§ 1024.39(b). Borrowers may not receive 

information about loss mitigation 

options either because the servicer is 

unable to establish live contact with a 

borrower despite good faith efforts or 

because the servicer exercises 

reasonable discretion to determine that 

providing information about loss 

mitigation options is not appropriate. 

Further, as the Bureau noted in its 

proposal, even if a borrower receives 

information about the availability of loss 

mitigation options orally, the Bureau 

believes a written notice is still 

necessary if a borrower has not cured by 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10797 

136As discussed in the section-by-section analysis 

of § 1024.30(b), above, the Bureau is adopting 

exemptions from § 1024.39 for small servicers, 

servicers with respect to reverse mortgage 

transactions, and servicers with respect to mortgage 

loans for which the servicer is a qualified lender (as 

defined in 12 CFR 617.7000). In addition, as 

discussed in the section-by-section analysis of 

§ 1024.30(c), § 1024.39 does not apply to any 

mortgage loan that is not secured by a borrower’s 

principal residence. 

day 45 because borrowers may be 

unable to adequately assess and recall 

detailed information provided orally 

and the written notice would provide 

more information than what would 

likely have been provided under 

§ 1024.39(a). 

In addition, a written disclosure 

would provide borrowers with the 

ability to review the information or 

discuss it with a housing counselor or 

other advisor. Accordingly, the Bureau 

is adopting comment 39(b)(1)–1 

substantially as proposed. The proposed 

comment explained that the written 

notice would be required even if the 

servicer provided information about loss 

mitigation and the foreclosure process 

previously during an oral 

communication under § 1024.39(a). In 

the final rule, the Bureau has omitted 

the reference to foreclosure and 

renumbered this comment as 39(b)(1)–4 

for organizational purposes. The Bureau 

has also included new comment 

39(b)(1)–3 to provide a cross-reference 

to comment 39(a)–4 to clarify that the 

Bureau’s guidance with respect to 

communicating with a borrower’s 

representative also applies to the 

written notice provision at § 1024.39(b). 

In response to comments, however, 

the Bureau is adjusting the timing of the 

notice from 40 to 45 days after a missed 

payment and is making certain 

adjustments to the proposed content of 

the notice. To assist servicers in 

complying with the notice requirement, 

the Bureau is adopting model clauses, 

referenced in § 1024.39(b)(3), which the 

Bureau has amended. The model 

clauses are discussed in the section-bysection analysis of appendix MS–4. 

Some industry commenters were 

concerned that the breadth of the 

definition of ‘‘Loss mitigation options’’ 

would require servicers to offer options 

or take actions inconsistent with 

investor or guarantor requirements. 

The Bureau does not believe the 

written notice requirement in 

§ 1024.39(b) will pose a conflict with 

investor or guarantor requirements and 

is adopting it as applicable to servicers 

of all mortgage loans, with certain 

exemptions and limitations in scope, as 

discussed above.136 Given the breadth of 

the definition of ‘‘Loss mitigation 

option’’ and the general industry 

practice of offering some sort of shortterm relief or at least accepting a deedin-lieu of foreclosure, the Bureau 

expects that few servicers would not 

offer any loss mitigation options. In 

addition, the definition of ‘‘Loss 

mitigation option’’ is limited to options 

offered by the owner or assignee of a 

mortgage loan that are available through 

the servicer. Thus, options that are not 

offered by an owner or assignee and 

thus not available through the servicer 

would not be required to be listed. In 

addition, the Bureau has developed 

flexible content requirements in the 

written notice with regard to how and 

which loss mitigation options are 

described. Finally, the Bureau has 

retained the ‘‘if applicable’’ qualifier in 

§ 1024.39(b)(2) setting forth 

requirements to describe loss mitigation 

options. Thus, if an owner or assignee 

of a loan offers no loss mitigation 

options for delinquent borrowers, the 

servicer would not be required to 

include statements describing loss 

mitigation options, but would still be 

required to send a notice encouraging 

the borrower to contact the servicer and 

containing information about housing 

counselors; the Bureau believes 

borrowers would benefit from 

information about how to contact their 

servicer or housing counselors to ask 

questions, for example, about how the 

foreclosure process works. 

45th Day of Delinquency 

Similar to the proposed oral notice, 

the Bureau proposed in § 1024.39(b) to 

require servicers to provide the written 

notice if a borrower is late in making a 

payment sufficient to cover principal, 

interest, and, if applicable, escrow. 

However, unlike the proposed oral 

notice that servicers would have been 

required to provide, or make good faith 

efforts to provide, not later than 30 days 

after a payment due date, the Bureau 

proposed to require that the written 

notice be provided not later than 40 

days after the payment due date. The 

Bureau had proposed a 40-day deadline 

to provide borrowers a reasonable 

opportunity to cure a short-term 

delinquency while also ensuring that 

they received information on loss 

mitigation options at the early stages of 

a delinquency. The Bureau proposed to 

permit servicers to provide the written 

notice at any time during the 40-day 

period. The Bureau proposed a deadline 

for the written notice that occurred after 

the 30-day deadline for the proposed 

oral notice to provide servicers an 

opportunity to tailor the written notice 

and other information to the borrower’s 

individual circumstances following the 

oral notice. However, servicers would 

also have had the option of sending the 

notice at any time after the borrower’s 

missed payment. The Bureau proposed 

to include guidance at comment 

39(b)(1)–2 to clarify that servicers 

should consider a payment late in the 

same manner as they would for 

purposes of calculating when the oral 

notice must be provided. The Bureau 

solicited comment on whether the 

written deadline should be extended to 

45 days, 65 days, or longer. 

Consumer advocacy groups and one 

industry commenter were generally 

supportive of the timing of the written 

notice as proposed, although one 

consumer advocacy group 

recommended that borrowers receive a 

more detailed notice 60 days after the 

missed payment following a lighter 

notice about loss mitigation options 

immediately after a delinquency. Most 

industry commenters recommended that 

the Bureau extend the deadline for the 

written notice to sometime between 45 

and 70 days after a missed payment. 

Industry commenters argued that 

extending the deadline would preserve 

servicer flexibility in managing 

delinquencies and reduce the 

compliance burden in light of existing 

early intervention practices and 

requirements. Similar to arguments 

made about the proposed oral notice, 

industry commenters and a Federal 

agency expressed concern that 

informing a borrower of loss mitigation 

options that the borrower does not 

qualify for or that are not available to 

the borrower could cause borrower 

confusion and impede the resolution of 

delinquent loans. 

Industry commenters and several 

consumer advocacy groups noted that 

extending the deadline for the written 

notice would allow servicers time to 

distinguish between high- and low-risk 

borrowers, allowing servicers to focus 

on high-risk borrowers while avoiding 

the need to make contact with 

borrowers who are able to self-cure the 

occasional late payment or those who 

are repeatedly delinquent but who 

eventually make their payments. Several 

industry commenters recommended that 

the Bureau extend the deadline to 60 

days to permit servicers additional time 

to complete an eligibility assessment 

required under HAMP and the National 

Mortgage Settlement. One trade 

association noted that the Bureau’s 

original outline of proposals under 

consideration included a proposal for 

servicers to provide borrowers with 

written information about loss 

mitigation options within five days after 

notifying the servicer that they may 

have trouble making their payments. 

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10798 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

137See Form, U.S. Hous. & Urban Dev., Service 

Members Civil Relief Act Form HUD–92070 (June 

30, 2011), available at http://portal.hud.gov/ 

hudportal/documents/huddoc?id=92070.pdf. 

138See U.S. Dep’t of Treasury & U.S. Dep’t of 

Hous. & Urban Dev., Home Affordable Modification 

Program, available at http:// 

www.makinghomeaffordable.gov/programs/lowerpayments/Pages/hamp.aspx. 

139The GSEs allow servicers to rely on the results 

of a behavioral modeling tool to evaluate a 

borrower’s risk profile. U.S. Consumer Fin. Prot. 

Bureau, Final Report of the Small Business Review 

Panel on CFPB’s Proposals Under Consideration for 

Mortgage Servicing Rulemaking, 30 (Jun, 11, 2012). 

140See, e.g., John C. Dugan, Comptroller, Office 

of the Comptroller of the Currency, Remarks Before 

the NeighborWorks America Symposium on 

Promoting Foreclosure Solutions (June 25, 2007); 

Laurie S. Goodman et al., Amherst Securities Group 

LP, Modification Effectiveness: The Private Label 

Experience and Their Public Policy Implications 5– 

6 (June 19, 2012); Michael A. Stegman et al., 

Preventative Servicing, 18 Hous. Policy Debate 245 

(2007); Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costs 

11–12 (Freddie Mac, Working Paper No. 08–01, 

2008). 

141See Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costs 12 

(Freddie Mac, Working Paper No. 08–01, 

2008)(examining the success of repayment plans, 

the authors found that ‘‘[t]he cure rate among loans 

that are only 30 days delinquent is just under 60 

percent, but that rate falls to less than 30 percent 

if they are 3 or more payments behind at the onset 

of the plan’’); Laurie S. Goodman et al., Amherst 

Securities Group LP, Modification Effectiveness: 

The Private Label Experience and Their Public 

Policy Implications 6 (June 19, 2012). 

The commenter requested that this be a 

requirement in the final rule. 

In addition, as with the proposed oral 

notice, industry commenters were 

concerned that the Bureau’s 

requirements may be duplicative of or 

not perfectly aligned with existing State 

and Federal requirements, GSE 

guidelines, consent orders, and 

settlement agreements. Many industry 

commenters noted that a 40-day 

deadline would be premature and that 

it would be more efficient, common, 

and would avoid borrower confusion to 

send the notice by 45 days after a 

missed payment, consistent with other 

notices that servicers send by that time, 

such as breach letters, a notice under 

section 106(c)(5) of the Housing and 

Urban Development Act of 1968, as 

amended, regarding the availability of 

housing counselors (12 U.S.C. 

1701x(c)(5)(B)), and a notice under the 

Servicemembers Civil Relief Act (50 

U.S.C. App. 501 et seq.).137 One large 

servicer explained that extending the 

deadline from 40 to 45 days would still 

provide borrowers with sufficient notice 

of loss mitigation options before a 

servicer begins the foreclosure process. 

One industry commenter recommended 

that the Bureau extend the deadline to 

50 days after the payment due date to 

better accommodate other loss 

mitigation-related communications that 

go out by the 45th day of delinquency. 

In addition, a variety of servicers and 

trade associations requested additional 

flexibility in delivering the content of 

the written notice, such as by combining 

the proposed written notice requirement 

with existing notices. 

The GSEs, certain large lenders, and 

trade associations, as well as several 

consumer advocacy groups, 

recommended that the Bureau permit 

servicers to send the written notice by 

the 60th, 65th or 70th day of a 

borrower’s delinquency. Other industry 

commenters and a few consumer 

advocacy groups recommended that the 

Bureau extend the deadline to sometime 

between 60 and 70 days after a missed 

payment. A number of commenters 

expressed concern that the proposed 40- 

day notice was not in line with GSE 

guidelines that permit servicers to send 

a loss mitigation solicitation package to 

borrowers identified by the servicer as 

low default risks by the 65th day of the 

borrower’s delinquency. Other 

commenters recommended that the 

Bureau permit an exemption from the 

40-day deadline for servicers to comply 

with a later deadline if the servicer uses 

behavior modeling to identify 

chronically late payers that do not 

appear at risk of serious delinquency 

and where the notice is unlikely to be 

helpful, in order to better align with 

GSE practice. 

Based on comments received, the 

Bureau is adopting a 45-day deadline 

rather than a 40-day deadline in the 

final rule. First, the Bureau believes that 

a 45-day deadline strikes an appropriate 

balance between permitting servicers 

flexibility in managing delinquencies 

and providing borrowers information at 

the early stages of a delinquency. Some 

borrowers are in the habit of making 

their mortgage payments after the due 

date in order to take advantage of the 

15-day period generally available to 

make payment without incurring a late 

fee. A borrower who has missed a 

payment entirely may likewise wait 

until up to the 15th day after the next 

payment is due (i.e., the 45th day after 

the initial payment was due) before 

making a payment. A 45-day deadline 

would permit borrowers to receive a 

written notice of loss mitigation options 

at the early stages of their delinquency 

while also permitting servicers to 

distinguish between borrowers who can 

self-cure out of a 30-day delinquency 

and those experiencing longer-term 

problems. The Bureau believes that the 

fact that a borrower has not satisfied a 

late payment by the 45th day of a 

delinquency generally indicates that 

such borrower is having difficulty 

making payments and should be 

informed of the availability of loss 

mitigation options. 

The Bureau understands that some 

servicers may not be able to complete 

eligibility assessments for borrowers by 

the 45th day of a delinquency under 

HAMP (which is set to expire by 

December 31, 2013).138 However, the 

Bureau’s rule would not require that 

servicers make a determination of 

eligibility of loss mitigation options by 

this time; they require only that they 

notify borrowers that loss mitigation 

options may be available. The Bureau 

has crafted flexible content standards 

that would not require servicers to list 

specific loss mitigation options in the 

written notice. With respect to the 

National Mortgage Settlement, the 

Bureau believes a 45-day standard 

would be in line with the Settlement 

terms requiring servicers to commence 

outreach efforts after the second missed 

payment. 

The Bureau understands that GSE 

servicers have additional flexibility in 

providing the solicitation package to 

certain lower-risk borrowers as late as 

the 65th day of their delinquency.139 As 

noted above, several industry 

commenters and consumer advocacy 

groups recommended that the Bureau 

extend the deadline for the written 

notice to sometime between 60 and 70 

days after a missed payment in order to 

accommodate this GSE practice. 

However, the Bureau is not adopting an 

exemption for servicers who use 

behavior modeling tools to identify 

lower-risk borrowers for the following 

reasons. Evidence available to the 

Bureau indicates that the longer a 

borrower remains delinquent, the more 

difficult it can be to avoid 

foreclosure,140 particularly as a 

borrower experiences a delinquency 

lasting 60 days or longer.141 While 

waiting to day 65 to see if a delinquent 

borrower has self-cured may be 

appropriate for low-risk borrowers, 

modeling tools to predict future 

behavior are inherently imprecise and 

identify a certain number of borrowers 

who are predicted to self-cure but do 

not. At this time, the Bureau does not 

have data with which to validate or 

evaluate such models. Further, the 

Bureau is concerned that if these 

borrowers are not informed of their 

options until the beginning of the third 

month of their delinquency, it may be 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10799 

142 ‘‘This letter should emphasize the seriousness 

of the delinquency and the importance of taking 

prompt action to resolve the default. It should also 

notify the borrower(s) that the loan is in default, 

state the total amount due and advise the 

borrower(s) how to contact the holder to make 

arrangements for curing the default.’’ 38 CFR 

36.4278(g)(iii). 

143See 24 CFR 203.602; U.S. Hous. & Urban Dev., 

HUD Handbook 4330.1 rev-5, ch. 7, para. 7–7(G). 

144See Fannie Mae, Letters and Notice Guidelines 

(Apr. 25, 2012), available at https:// 

www.efanniemae.com/home/index.jsp; Freddie 

Mac Single-Family Seller/Servicing Guide, Volume 

2, Chapter 64.5 (2012). During the Small Business 

Panel Review outreach, SERs that service for Fannie 

Mae and Freddie Mac generally described strict 

rules and tight timeframes in dealing with 

delinquent borrowers. See Small Business Review 

Panel Report at 25. 

more difficult for them to find a solution 

than if they were notified sooner. 

The Bureau appreciates that a 45-day 

notice requirement might result in 

notices to borrowers who would selfcure without any notice. On balance, 

however, the Bureau believes it is 

appropriate to be potentially overbroad 

to avoid situations in which borrowers 

may not receive any information until 

potentially three months of missed 

payments. The Bureau has sought to 

address the compliance burden on GSE 

servicers who use behavior modeling 

tools by creating flexible content 

standards for the written notice. The 

Bureau has also sought to limit the 

burden of sending the notice by limiting 

the number of times a borrower would 

receive the notice, as discussed in more 

detail below. 

In addition, the Bureau believes a 45- 

day deadline would be more consistent 

with other notices that servicers send by 

that time than the 40-day deadline as 

originally proposed. As discussed in 

more detail in the section-by-section 

analysis of § 1024.39(b)(2), the Bureau 

has sought to adopt flexible content 

requirements for the 45-day written 

notice to accommodate existing early 

intervention notices. The Bureau agrees 

that permitting servicers to comply with 

§ 1024.39(b) by combining other notices 

that go out at this time would reduce 

possible confusion among borrowers as 

well as compliance burden. See the 

discussion of comment 39(b)(2)–3 

below. Servicers of VA loans generally 

must provide borrowers with a letter if 

payment has not been received within 

30 days after it is due and telephone 

contact could not be made.142 HUD 

generally requires servicers of FHAinsured loans to provide each mortgagor 

in default HUD’s ‘‘Avoiding 

Foreclosure’’ pamphlet, or a form 

developed by the mortgagee and 

approved by HUD, not later than the 

end of the second month of 

delinquency, although HUD 

recommends sending the form by the 

32nd day of delinquency in order to 

prevent foreclosures from proceeding 

where avoidable.143

Section 106(c)(5) of the Housing and 

Urban Development Act of 1968, as 

amended, generally requires creditors to 

provide notice of homeownership 

counseling to eligible delinquent 

borrowers not later than 45 days after a 

borrower misses a payment due date. 12 

U.S.C. 1701x(c)(5)(B). In addition, HUD 

has developed a notice pursuant to the 

Servicemembers Civil Relief Act, as 

amended, providing notice of 

servicemembers’ rights that must be 

provided within 45 days of a missed 

payment. Servicers of GSE loans are 

expected to send a written package 

soliciting delinquent borrowers to apply 

for loss mitigation options 31 to 35 days 

after a payment due date, unless the 

servicer has made contact with the 

borrower and received a promise to cure 

the delinquency within 30 days.144

The Bureau is not adopting a 

requirement in the final rule for 

servicers to provide the § 1024.39(b) 

written notice based solely on a 

borrower’s indication of difficulty in 

making payment. The Bureau notes that, 

pursuant to § 1024.39(a) and comment 

39(a)–3.i, servicers must promptly 

inform borrowers of the availability of 

loss mitigation options if appropriate, 

which servicers may determine based 

on their exercise of reasonable 

discretion. If the servicer determines 

informing a borrower of loss mitigation 

options is appropriate, they may choose 

to do so orally or in writing, in 

accordance with comment 39(a)–3.ii. 

The Bureau believes a strict 45-day 

deadline for the written notice required 

under § 1024.39(b) is necessary to 

mitigate the risk that borrowers may not 

receive notice of the availability of loss 

mitigation options pursuant 

§ 1024.39(a): a servicer may not 

establish live contact with a borrower 

despite good faith efforts to do, or a 

servicer may make a reasonable 

determination that such notice is not 

appropriate under § 1024.39(a). In 

addition, as previously noted, a single 

deadline would provide servicers with 

flexibility, within the deadline, to 

determine the most appropriate time to 

provide the written notice, e.g., for 

borrowers who may be able to self-cure. 

Finally, the Bureau believes that new 

§ 1024.36, which will require servicers 

to respond to information requests, and 

new § 1024.38(b)(2)(i), which requires 

servicers to maintain policies and 

procedures that are reasonably designed 

to ensure that servicers provide accurate 

information regarding loss mitigation 

options available to a borrower, will 

address situations in which borrowers 

request information about loss 

mitigation and foreclosure. 

In the final rule, the Bureau uses the 

term ‘‘delinquency’’ to identify when 

the 45-day period begins. The Bureau 

has clarified the meaning of 

delinquency in commentary in a 

manner substantially similar to the late 

payment trigger that was proposed in 

§ 1024.39(b). Accordingly, in the final 

rule, § 1024.39(a) requires a servicer to 

provide the written notice not later than 

the 45th day of ‘‘a borrower’s 

delinquency.’’ Comment 39(b)(1)–1 

contains a cross-reference to comment 

39(a)–1, which generally explains that 

delinquency begins on the day a 

payment sufficient to cover, principal, 

interest, and, if applicable, escrow for a 

given billing cycle is due and unpaid, 

even if the borrower is afforded a period 

of time after the due date has passed to 

pay before the servicer assesses a late 

fee. The cross-reference also clarifies 

that a borrower is not delinquent for 

purposes of § 1024.39 if the borrower is 

performing as agreed under a loss 

mitigation option designed to bring the 

borrower current on a previously missed 

payment. 

Comment 39(b)(1)–1 provides an 

example substantially similar to the 

example proposed as comment 39(b)(1)– 

2, in which a borrower misses a January 

1 payment that remains due during the 

45–day period after January 1, requiring 

that the servicer provide the written 

notice by February 15. Comment 

39(b)(1)–1 also contains an example 

similar to the example in proposed 

comment 39(b)(1)–3, which explained 

that a servicer is not required to provide 

the written notice if the borrower makes 

the payment during the 45 days after the 

payment due date. The Bureau has also 

replaced the 40-day period in the 

comment with a 45-day period to 

conform to changes adopted in the final 

rule regarding the timing of the written 

notice. The Bureau has made this 

change to clarify that the notice must be 

provided only if the borrower is 

delinquent, and must be provided not 

later than the 45th day of the borrower’s 

delinquency. 

Frequency of the Notice 

Proposed § 1024.39(b)(1) would have 

provided that a servicer would not be 

required to provide the written notice 

under § 1024.39(b) more than once 

during any 180-day period beginning on 

the date on which the disclosure is 

provided. Proposed comment 39(b)(1)–4 

further explained that, notwithstanding 

this limitation, a servicer would still be 

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10800 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

145See 24 CFR 203.602; U.S. Hous. & Urban Dev., 

HUD Handbook 4330.1 rev-5, ch. 7, para. 7–7(G). 

required to provide the oral notice 

required under § 1024.39(a) for each 

payment that is overdue. Several 

commenters provided feedback on the 

frequency of the written notice. Two 

consumer advocacy groups 

recommended that the Bureau require 

the notice be resent if the borrower 

redefaults on the mortgage loan. Other 

consumer advocacy groups 

recommended that servicers provide the 

notice again based on the results of a 

behavior modeling tool. 

The Bureau is retaining the proposed 

180-day limitation in § 1024.39(b)(1). 

The Bureau is also retaining 

substantially all of the language in 

comment 39(b)(1)–4, which the Bureau 

is renumbering to comment 39(b)(1)–2. 

The Bureau has replaced the 40-day 

time periods in the examples in the 

commentary with 45-day time periods 

to conform to the final rule; the Bureau 

is also omitting the reference in the 

proposed comment to 39(a) in the last 

example in light of the Bureau’s change 

to the nature of the proposed oral 

notice. 

The Bureau is requiring that servicers 

provide the notice once every 180 days 

to limit the number of times a servicer 

would have to send the notice to 

borrowers who consistently pay late but 

otherwise eventually make their 

payments. The Bureau does not believe 

that borrowers who consistently carry a 

short-term delinquency would benefit 

from receiving the same written notice 

every month. Because § 1024.32 requires 

that the written notice be provided in a 

form the borrower may keep, borrowers 

would be able to retain the disclosure 

for future reference. In addition, a 180- 

day timeframe is generally consistent 

with HUD’s requirement that, in 

connection with FHA loans, HUD’s 

‘‘Avoiding Foreclosure’’ pamphlet must 

be resent to delinquent borrowers unless 

the beginning of the new delinquency 

occurs less than six months after the 

pamphlet was last mailed.145

The Bureau believes that the 

requirement to provide the notice once 

every 180 days as well as the 

requirement in § 1024.40(a) to make 

servicer personnel available to 

borrowers not later than the 45th day of 

a borrower’s delinquency will, as a 

practical matter, address situations in 

which borrowers may redefault. Further, 

§ 1024.39(a) requires that servicers 

establish or make good faith efforts to 

establish live contact with borrowers 

with respect to every delinquency and 

promptly inform such borrowers that 

loss mitigation options may be available 

if appropriate, subject to a servicer’s 

reasonable exercise of discretion. In 

addition, borrowers who previously 

worked with servicer personnel 

assigned under the continuity of contact 

rule to develop a loss mitigation option 

would know that they may contact their 

servicer to discuss loss mitigation 

options. The Bureau is not adopting an 

exemption based on a servicer’s use of 

a behavior modeling tool for the reasons 

discussed above with respect to the 

timing of the written notice. 

39(b)(2) Content of the Written Notice 

In General 

The Bureau proposed to add new 

§ 1024.39(b)(2) to set forth information 

that servicers would be required to 

include in the written notice. Under 

paragraphs (b)(2)(i) and (b)(2)(ii) of 

proposed § 1024.39, servicers would 

have been required to include a 

statement encouraging the borrower to 

contact the servicer, along with the 

servicer’s mailing address and 

telephone number. Under paragraphs 

(b)(2)(iii) and (b)(2)(iv) of proposed 

§ 1024.39, servicers would have been 

required, if applicable, to include a 

statement providing a brief description 

of loss mitigation options that may be 

available, as well as a statement 

explaining how the borrower can obtain 

additional information about those 

options. Proposed § 1024.39(b)(2)(v) 

would have required servicers to 

include a statement explaining that 

foreclosure is a process to end the 

borrower’s ownership of the property. 

Proposed § 1024.39(b)(2)(v) also would 

have required servicers to provide an 

estimate for when the servicer may start 

the foreclosure process. This estimate 

would have been required to be 

expressed in a number of days from the 

date of a missed payment. Finally, 

proposed § 1024.39(b)(iv) would have 

required servicers to include contact 

information for any State housing 

finance authorities, as defined in 

FIRREA section 1301, for the State in 

which the property is located, and 

either the Bureau or HUD list of 

homeownership counselors or 

counseling organizations. 

Industry commenters, particularly 

smaller servicers, were generally 

concerned that the written notice was 

too prescriptive. A number of industry 

commenters requested clarification 

whether the Bureau’s notice would be in 

addition to other similar notices that 

servicers may be already providing to 

borrowers. A variety of servicers and 

several trade associations recommended 

that the Bureau permit servicers to 

combine the § 1024.39(b) notice with 

other notices servicers send around the 

45-day time period to improve 

efficiency and reduce the risk of 

information overload. One industry 

commenter recommended that the 

Bureau allow an exemption from the 

written notice where existing notices 

satisfy the content requirements of the 

rule, or permit servicers to consolidate 

the required information into an 

existing letter. A non-bank servicer 

requested clarification on whether 

servicers would have flexibility in how 

servicers delivered the content in the 

written notices, such as by permitting 

the use of logos, color, web sites, and 

additional information beyond what 

was required. 

Many consumer advocacy groups 

requested that the Bureau require more 

information in the written notice, 

particularly information about all 

available loss mitigation options from 

the servicer, detailed application 

instructions and eligibility 

requirements, and foreclosure referral 

deadlines. One coalition of consumer 

advocacy groups supported the Bureau’s 

proposal to include model clauses, 

explaining that they would mitigate the 

cost of creating written notice forms, but 

would also set an essential standard for 

content and level of detail, and help 

ensure that all borrowers receive the 

same information, regardless of the type 

of servicer. 

As noted in the proposal, the Bureau 

sought to establish minimum standards 

such that servicers that are already 

providing adequate notices of loss 

mitigation options would already be in 

compliance. The Bureau is not adopting 

standardized written notices because 

the Bureau continues to believe an 

overly-prescriptive written notice may 

not account for the variety of situations 

posed by delinquent borrowers or the 

variety of loss mitigation options 

available from investors and guarantors. 

Thus, the Bureau is adopting generally 

applicable minimum content 

requirements that can be tailored to a 

specific situations, as discussed in more 

detail in the section-by-section analysis 

of § 1024.39(b)(2) below. As discussed 

above in the section-by-section analysis 

of § 1024.30(b), the Bureau is granting 

exemptions from § 1024.39 for small 

servicers, servicers with respect to 

reverse mortgages, and servicers with 

respect to any mortgage loan for which 

the servicer is a qualified lender as that 

term is defined in 12 CFR 617.7000. 

The Bureau believes that permitting 

servicers to incorporate relevant 

portions of the notice required under 

§ 1024.39(b)(1) into other disclosures 

that already include some or all of the 

statements required by § 1024.39(b)(2) 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10801 

would reduce the potential for borrower 

confusion otherwise resulting from 

duplicative statements. Accordingly, the 

Bureau has added comment 39(b)(2)–3 

to clarify that servicers may satisfy the 

requirement to provide the written 

notice by grouping other notices that 

satisfy the content requirements of 

§ 1024.39(b)(2) into the same mailing, 

provided each of the required 

statements satisfies the clear and 

conspicuous standard in § 1024.32(a)(1). 

To accommodate existing servicer 

requirements and practices, proposed 

comment 39(b)(2)–1 explained that a 

servicer may provide additional 

information beyond the proposed 

content requirements that the servicer 

determines would be beneficial to the 

borrower. This would include any 

additional disclosures that servicers 

believe would be helpful, such as 

directing borrowers to Web sites. In 

addition, proposed comment 39(b)(2)–2 

explained that any color, number of 

pages, size and quality of paper, type of 

print, and method of reproduction may 

be used so long as the disclosure is 

clearly legible. The Bureau is adopting 

comments 39(b)(2)–1 and 39(b)(2)–2 

substantially as proposed. The Bureau 

has further amended proposed comment 

39(b)(2)–1 to provide that servicers may 

provide additional information that the 

servicer determines would be helpful 

‘‘or which may be required by 

applicable law or the owner or assignee 

of the mortgage loan.’’ The Bureau has 

added this language to clarify that 

servicers may provide additional 

content that may be required by, for 

example, State law. The Bureau has 

revised guidance in proposed comment 

39(b)(2)–2 that had clarified that the 

statements required by § 1024.39(b)(2) 

must be ‘‘clearly legible.’’ Instead, 

comment 39(b)(2)–2 explains that the 

statements required by § 1024.39(b)(2) 

must satisfy the clear and conspicuous 

standard in § 1024.32(a)(1). The Bureau 

has made this revision in order to clarify 

that the § 1024.39(b) written notice is 

subject to the same legibility standard 

applicable to other notices, pursuant to 

§ 1024.32(a)(1). 

Finally, the Bureau notes that 

comment MS–2, which provides 

commentary that is generally applicable 

to the model forms and clauses in 

appendix MS, clarifies that, except as 

otherwise specifically required, 

servicers may add graphics or icons, 

such as the servicer’s corporate logo, to 

the model forms and clauses. Thus, it is 

unnecessary to include a comment to 

§ 1024.39(b)(2) to clarify that servicers 

may include corporate logos. The 

Bureau has addressed consumer group 

comments regarding additional content 

for the written notice below. 

Statement Encouraging the Borrower to 

Contact the Servicer 

Proposed § 1024.39(b)(2)(i) would 

have required the written notice to 

include a statement encouraging the 

borrower to contact the servicer. The 

Bureau did not receive comment on this 

requirement and is adopting it as 

proposed, renumbered as 

§ 1024.39(b)(2)(i). As noted in its 

proposal, the Bureau believes that a 

statement informing borrowers that the 

servicer can provide assistance with 

respect to their delinquency is necessary 

to facilitate a discussion between the 

borrower and the servicer at the early 

stages of delinquency. Many borrowers 

do not know that their servicer can help 

them avoid foreclosure if they are 

having trouble making their monthly 

payments. The Bureau believes a 

statement encouraging the borrower to 

call would help remove this barrier to 

borrower-servicer communication. 

Proposed comment 39(b)(2)(i)–1 

explained that the servicer would not be 

required, for example, to specifically 

request the borrower to contact the 

servicer regarding any particular loss 

mitigation option. The Bureau is not 

adopting this comment in the final rule 

because the Bureau does not believe it 

is necessary in light of comment 

39(b)(2)(iii)–1, which explains that 

§ 1024.39(b)(2)(iii) does not require that 

a specific number of examples be 

disclosed in the written notice. 

Contact Information for the Servicer 

To facilitate a dialogue between the 

servicer and the borrower, proposed 

§ 1024.39(b)(2)(ii) would have required 

the written notice to include the 

servicer’s mailing address and 

telephone number. Proposed comment 

39(b)(2)(ii)–1 had explained that, if 

applicable, a servicer should provide 

contact information that would put a 

borrower in touch with servicer 

personnel under the continuity of 

contact rule at § 1024.40. Under 

§ 1024.40(a)(2), servicers are generally 

required to maintain policies and 

procedures that are reasonably designed 

to achieve the objective of ensuring that 

a servicer makes available to a 

delinquent borrower telephone access to 

servicer personnel to respond to 

borrower inquiries and, as applicable, 

assist with loss mitigation options by 

the time the servicer provides the 

borrower with the § 1024.39(b) written 

notice, but in any event not later than 

the 45th day of a borrower’s 

delinquency. See the section-by-section 

analysis of § 1024.40(a) below. 

The Bureau is moving language from 

comment 39(b)(2)(ii)–1 to regulation text 

to clarify that servicers are required to 

provide the telephone number to access 

servicer personnel assigned under 

§ 1024.40(a) and the servicer’s mailing 

address. The Bureau believes it is more 

appropriate to include as a requirement 

of § 1024.39(b)(2)(ii), rather than as 

commentary, that servicers must 

provide in the written notice the 

telephone number to access continuity 

of contact personnel. The Bureau 

believes that including this contact 

information will help direct borrowers 

to continuity of contact personnel who 

will be able to assist delinquent 

borrowers. 

Brief Description of Loss Mitigation 

Options 

Proposed § 1024.39(b)(2)(iii) would 

have required that the written notice 

include a statement, if applicable, 

providing a brief description of loss 

mitigation options that may be available 

from the servicer. Proposed comment 

39(b)(2)(iii)–1 explained that 

§ 1024.39(b)(2)(iii) does not mandate 

that a specific number of examples be 

disclosed, but explained that borrowers 

are likely to benefit from examples that 

permit them to remain in their homes 

and examples of options that would 

require that borrowers end their 

ownership of the property in order to 

avoid foreclosure. Proposed comment 

39(b)(2)(iii)–2 explained that an 

example of a loss mitigation option may 

be described in one or more sentences. 

Proposed comment 39(b)(2)(iii)–2 also 

explained that if a servicer offers several 

loss mitigation programs, the servicer 

may provide a generic description of 

each option instead of providing 

detailed descriptions of each program. 

The comment explained, for example, 

that if a servicer provides several loan 

modification programs, it may simply 

provide a generic description of a loan 

modification. 

Many consumer advocacy groups 

recommended that servicers should be 

required to provide detailed information 

about all loss mitigation options 

available from the servicer. One 

consumer group recommended that 

servicers provide individually tailored 

information about a borrower’s options 

depending on the nature of the 

borrower’s loan. Another recommended 

that servicers be required to inform 

borrowers specifically what type of loan 

they have and what options are 

available to them. By contrast, several 

industry commenters recommended that 

the description of loss mitigation 

options should be minimal, asserting 

that lengthy explanations could confuse, 

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10802 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

146See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, appendix C (Jun, 11, 2012). 

overwhelm, and discourage borrowers 

from reaching out to their servicer. One 

large servicer indicated that, in its 

experience, providing borrowers with 

more generic information about loss 

mitigation options resulted in better 

contact rates and pull through to 

complete loan modifications. One 

industry commenter recommended that 

any communication regarding loss 

mitigation options should explicitly 

state that all loss mitigation options 

have qualification requirements and that 

not all options are available to all 

consumers to address the risk that 

listing options that are not available to 

certain borrowers could be perceived as 

deceptive. 

The Bureau is adopting proposed 

§ 1024.39(b)(2)(iii) and the associated 

commentary substantially as proposed. 

The Bureau is amending the regulatory 

text of proposed § 1024.39(b)(2)(iii) to 

require that servicers are required to 

describe only ‘‘examples’’ of loss 

mitigation options that may be 

available. The Bureau has made this 

revision to clarify the nature of the 

requirement, consistent with proposed 

comment 39(a)(2)(iii)–1, which 

explained that the regulation does not 

mandate that a specific number of 

examples be disclosed. 

At the time the Bureau proposed its 

early intervention requirements for the 

Small Business Panel, the Bureau 

considered requiring servicers to 

provide a brief description of any loss 

mitigation programs available to the 

borrower.146 However, the Bureau did 

not propose, and is not requiring in the 

final rule, that servicers list all of the 

loss mitigation options they offer. The 

Bureau understands that, pursuant to 

investor or guarantor requirements, 

eligibility criteria for certain loss 

mitigation options are complex and may 

depend on circumstances that may arise 

over the course of a borrower’s 

delinquency. In addition, the Bureau 

understands that loss mitigation options 

may comprise several programs; 

servicers may have, for example several 

different types of loan modification 

options. The Bureau understands that 

there may be operational difficulties 

associated with explaining subtle 

differences among these programs in a 

written notice. Moreover, the Bureau is 

concerned that a lengthy written notice 

may undermine the intended effect of 

encouraging borrowers to contact their 

servicers to discuss their options. The 

Bureau is not requiring servicers to 

provide each borrower with an 

individually tailored written notice 

about that borrower’s options because 

the Bureau does not believe it would be 

practicable for servicers to provide such 

a notice at this stage of a borrower’s 

delinquency or without additional 

information about a borrower’s 

particular circumstances. Instead, the 

Bureau believes borrowers would be 

better served by servicer continuity of 

contact personnel explaining, in 

accordance with policies and 

procedures required under § 1024.40(b), 

the various loss mitigation options for 

which borrowers may be eligible. 

In lieu of providing borrowers with 

information about every option, the 

Bureau proposed that the written notice 

contain a statement, if applicable, 

informing borrowers how to obtain more 

information about loss mitigation 

options from the servicer, as well as 

contact information for housing 

counseling resources that could provide 

borrowers with information about other 

loss mitigation options that might not be 

listed on the written notice. As adopted 

in the final rule, the notice must also 

include the telephone number to access 

servicer personnel assigned under 

§ 1024.40(a). In addition, the Bureau has 

included requirements in 

§ 1024.40(b)(1) for servicers to establish 

policies and procedures reasonably 

designed to achieve the objectives of 

providing accurate information 

regarding loss mitigation options. 

Pursuant to § 1024.38(b)(2)(ii), servicers 

must also establish policies and 

procedures reasonably designed to 

achieve the objective of identifying all 

loss mitigation options for which a 

borrower may be eligible. For these 

reasons and those set forth in the 

proposal, the Bureau is adopting the 

§ 1024.39(b)(2)(iii) substantially as 

proposed. 

The Bureau is retaining proposed 

comment 39(b)(2)(iii)–1, which explains 

that § 1024.39(b)(2)(iii) does not require 

that a specific number of examples be 

disclosed, but that borrowers are likely 

to benefit from examples of options that 

would permit them to retain ownership 

of their home and examples of options 

that may require borrowers to end their 

ownership to avoid foreclosure. The 

comment further explains that a servicer 

may include a generic list of loss 

mitigation options that it offers to 

borrowers, and that it may include a 

statement that not all borrowers will 

qualify for all of the listed options, 

because different loss mitigation options 

may be available to borrowers 

depending on the borrower’s 

qualifications or other factors. The 

Bureau proposed this comment to avoid 

borrower confusion regarding their 

eligibility for loss mitigation options 

listed in the materials. The Bureau 

agrees that servicers should be able to 

clarify that not all of the enumerated 

loss mitigation options will necessarily 

be available. During consumer testing of 

the proposed model clauses, all 

participants understood that the fact 

that they received this notice did not 

mean that they would necessarily 

qualify for these options. The Bureau is 

adopting this comment substantially as 

proposed. 

The Bureau is also retaining proposed 

comment 39(b)(2)(iii)–2 substantially as 

proposed, which explains that an 

example of a loss mitigation option may 

be described in one or more sentences 

and that if a servicer offers several loss 

mitigation programs, the servicer may 

provide a generic description of the type 

of option instead of providing detailed 

descriptions of each program. The 

Bureau has included this comment 

because the Bureau recognizes that there 

may be operational difficulties 

associated with determining how to 

explain specialized loss mitigation 

programs. The Bureau recognizes that 

loss mitigation options are complex, and 

providing comprehensive explanations 

of each option may overwhelm 

borrowers and may undermine the 

intended effect of the written notice of 

encouraging borrowers to get in touch 

with their servicers to identify 

appropriate relief. The Bureau does not 

believe that borrowers would benefit 

from a disclosure with voluminous 

detail at the early stage of exploring 

available options. Instead, the Bureau 

believes that servicers should provide 

borrowers with a brief explanation of 

loss mitigation options and encourage 

borrowers to contact their servicer to 

discuss whether any options may be 

appropriate. 

Explanation of How the Borrower May 

Obtain More Information About Loss 

Mitigation Options 

Proposed § 1024.39(b)(2)(iv) would 

have required the written notice to 

include an explanation of how the 

borrower may obtain more information 

about loss mitigation options, if 

applicable. Proposed comment 

39(b)(2)(iv)–1 explained that, at a 

minimum, a servicer could comply with 

this requirement by directing the 

borrower to contact the servicer for 

more information, such as through a 

statement like, ‘‘contact us for 

instructions on how to apply.’’ 

Consumer advocacy groups 

recommended that the Bureau require 

servicers to identify the deadline by 

which borrowers must send application 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10803 

147See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, appendix C (Jun, 11, 2012). 

materials. One consumer group 

indicated that a requirement to notify 

borrowers of application deadlines in 

the written notice was necessary to 

coordinate with the Bureau’s proposed 

requirement in 1024.41(g) that only 

applications received by the servicer’s 

deadline are subject to the prohibition 

on foreclosure sales. In addition to 

application deadlines, many consumer 

advocacy groups recommended that 

servicers be required to provide 

borrowers with eligibility requirements, 

an application form and application 

instructions, along with a clear list of 

required documentation necessary to be 

considered a complete application, 

consistent with GSE practice. By 

contrast, an industry commenter 

indicated that communications about 

loss mitigation options should be more 

general in nature rather than provide too 

much detail that might overwhelm 

borrowers. An individual consumer 

indicated that the most important 

element of the notice was to inform 

borrowers who they could contact to 

discuss their options. 

While the Bureau appreciates that 

borrowers may benefit from knowing 

about the applicability of deadlines, the 

Bureau is concerned that there may be 

operational difficulties with a 

requirement to disclose application 

deadlines in the written notice at 

§ 1024.39(b). Because the Bureau is not 

requiring servicers to disclose in the 

written notice all loss mitigation options 

available from the servicer, the Bureau 

does not believe it would be appropriate 

to require servicers to disclose all loss 

mitigation application deadlines that 

may apply; otherwise, such information 

could be confusing to borrowers. 

Moreover, the Bureau is concerned that 

there may be comprehension difficulties 

associated with an explanation in the 

§ 1024.39(b) written notice of the 

interaction between application 

deadlines and deadlines in the Bureau’s 

loss mitigation procedures at § 1024.41. 

The Bureau believes that a requirement 

to specifically identify application 

deadlines in the early intervention 

notice requires further analysis by the 

Bureau to address the concern that 

disclosure of deadlines occurring far in 

the future might discourage borrowers 

from acting quickly to resolve a 

delinquency. See the discussion below 

under the heading ‘‘Foreclosure 

Statement’’ for more discussion of the 

Bureau’s concerns about borrower 

perception of deadlines in the early 

intervention notice. Further, the Bureau 

notes that servicers must maintain 

policies and procedures reasonably 

designed to ensure that servicer 

personnel assigned to a borrower 

pursuant to § 1024.40(a) provide 

borrowers accurate information about 

actions that the borrower must take to 

be evaluated for loss mitigation options 

and applicable loss mitigation deadlines 

established by an owner or assignee of 

a mortgage loan or § 1024.41. See 

§ 1024.40(b)(1)(ii) and (v); § 1024.41 

(setting forth various procedural 

requirements and timeframes governing 

a servicer’s consideration of a 

borrower’s loss mitigation application). 

Finally, because the Bureau is adopting 

§ 1024.41(f)(1) to prohibit servicers from 

making the first notice or filing required 

by applicable law unless a borrower’s 

mortgage loan is more than 120 days 

delinquent, borrowers will have more 

time to submit loss mitigation 

applications before a servicer initiates 

the foreclosure process. 

The Bureau is not adopting a rule to 

require servicers to identify application 

materials in the written notice. At the 

time the Bureau proposed its early 

intervention requirements for the Small 

Business Review Panel, the Bureau 

considered requiring servicers to 

provide a brief outline of the 

requirements for qualifying for any 

available loss mitigation programs, 

including documents and other 

information the borrower must provide, 

and any timelines that apply.147 The 

Bureau did not propose requiring 

servicers to provide this level of detail 

because each loss mitigation option may 

have its own specific documentation 

requirements and servicers may be 

unable to provide comprehensive 

application instructions generally 

applicable to all options. Additionally, 

because the Bureau had proposed that 

servicers provide only examples of loss 

mitigation options in the written notice, 

the proposal noted that detailed 

instructions for only the listed options 

may not be useful for all borrowers. The 

Bureau believes setting consistent and 

streamlined requirements best achieves 

the central purpose of the early 

intervention notice, which is to inform 

borrowers that help is available and to 

encourage them to contact their servicer. 

In addition, the Bureau understands that 

not all loss mitigation options are 

necessarily appropriate for every 

borrower. The Bureau is concerned that 

a requirement to provide application 

materials for all options listed in the 

notice might be overwhelming for 

borrowers at this stage in the process. 

Servicers might have multiple loss 

mitigation options and each may have 

its own documentation requirements. A 

requirement to prospectively disclose 

all documentation requirements for all 

listed options could prove voluminous. 

Additionally, a borrower’s eligibility for 

options depends on the borrower’s 

circumstances as well as the stage of 

delinquency, and the Bureau believes 

servicers or housing counselors are best 

suited to advising borrowers about their 

options during a live conversation. 

The Bureau’s continuity of contact 

requirements are designed to assist 

borrowers who are provided the 

§ 1024.39(b) written notice or who reach 

a certain stage of delinquency. These 

requirements are designed to ensure 

servicers have servicer personnel 

dedicated to guiding such borrowers 

through the loss mitigation application 

process. Pursuant to § 1024.40(a), 

servicers must maintain policies and 

procedures that are reasonably designed 

to achieve the objective of making 

available to a delinquent borrower 

telephone access to servicer personnel 

to respond to the borrower’s inquiries 

and, as applicable, assist the borrower 

with loss mitigation options to 

borrowers by the time the servicer 

provides the borrower with the 

§ 1024.39(b) written notice but in any 

event no than the 45th day of a 

borrower’s delinquency. Pursuant to 

§ 1024.40(b)(1), the Bureau has set forth 

objectives that servicer policies and 

procedures for continuity of contact 

personnel must be reasonably designed 

to achieve. These objectives include 

providing accurate information about 

loss mitigation options available to a 

borrower from the owner or assignee of 

a mortgage loan; actions the borrower 

must take to be evaluated for such 

options, including actions the borrower 

must take to submit a complete loss 

mitigation application, as defined in 

§ 1024.31, and, if applicable, actions the 

borrower must take to appeal the 

servicer’s determination to deny the 

borrower’s loss mitigation application 

for any trial or permanent loan 

modification program offered by the 

servicer; the status of any loss 

mitigation application that the borrower 

has submitted to the servicer; the 

circumstances under which the servicer 

may make a referral to foreclosure; and 

applicable loss mitigation deadlines 

established by an owner or assignee of 

a mortgage loan or § 1024.41. The 

Bureau believes these requirements will 

help ensure borrowers receive accurate 

information about how to submit a 

complete loss mitigation application. 

Of course, servicers may choose to 

provide application materials with the 

written notice. Accordingly, the Bureau 

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10804 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

148Section 1024.41(g) generally provides that, if 

a borrower submits a complete loss mitigation 

application after a servicer has made the first 

foreclosure filing but more than 37 days before a 

scheduled or anticipated foreclosure sale, a servicer 

may not move for foreclosure judgment or order of 

sale, or conduct a foreclosure sale until a borrower 

is notified of the borrower’s ineligibility for a loss 

mitigation options, the borrower rejects a loss 

mitigation offer, or the borrower fails to perform as 

agreed under an option. 

proposed comment 39(b)(2)(iv)–1 to 

explain that, to expedite the borrower’s 

timely application for any loss 

mitigation options, servicers may wish 

to provide more detailed instructions on 

how a borrower could apply, such as by 

listing representative documents the 

borrower should make available to the 

servicer, such as tax filings or income 

statements, and by providing estimates 

for when the servicer expects to make a 

decision on a loss mitigation option. 

Proposed comment 39(b)(2)(iv)–1 also 

provided that servicers may supplement 

the written notice with a loss mitigation 

application form. The Bureau is 

adopting this comment substantially as 

proposed in the final rule. 

Foreclosure Statement 

Proposed § 1024.39(b)(2)(v) would 

have required that the written notice 

include a statement explaining that 

foreclosure is a legal process to end the 

borrower’s ownership of the property. 

Proposed § 1024.39(b)(2)(v) also would 

have required that the notice include an 

estimate of how many days after a 

missed payment the servicer makes the 

referral to foreclosure. The Bureau 

proposed to clarify through comment 

39(b)(2)(v)–1 that the servicer may 

explain that the foreclosure process may 

vary depending on the circumstances, 

such as the location of the borrower’s 

property that secures the loan, whether 

the borrower is covered by the 

Servicemembers Civil Relief Act, and 

the requirements of the owner or 

assignee of the borrower’s loan. The 

Bureau also proposed to clarify through 

comment 39(b)(2)(v)–2 that the servicer 

may qualify its estimates with a 

statement that different timelines may 

vary depending on the circumstances, 

such as those listed in comment 

39(b)(2)(v)–1. Proposed comment 

39(b)(2)(v)–2 also explained that the 

servicer may provide its estimate as a 

range of days. 

Consumer advocacy groups and 

industry commenters were generally 

divided over whether servicers should 

be required to provide information 

about foreclosure in the written notice, 

although one industry trade group 

supported such a requirement. Several 

industry commenters supported the 

Bureau’s proposal to provide an 

estimated range of dates for when 

foreclosure may occur, citing the need 

to be flexible in light of unforeseen 

circumstances and the variety of 

timelines in which a foreclosure could 

proceed in light of the nature of the 

property. However, other industry 

commenters were concerned that 

including any range may be too 

inaccurate to provide meaningful 

guidance to borrowers because of the 

variety of factors that could influence a 

foreclosure referral. One large servicer 

explained that servicers do not typically 

review accounts for or pursue 

foreclosure until much later in a 

borrower’s delinquency and that 

including information about foreclosure 

could be construed as a threat to take 

action that is not likely to happen until 

much later. Another industry 

commenter and a trade group expressed 

concern that requiring prospective 

disclosure of possible foreclosure 

timelines could lead to litigation if the 

information turned out to be inaccurate. 

By contrast, some consumer advocacy 

groups recommended that the notices 

should include a narrower foreclosure 

timeline. Some consumer advocacy 

groups also believed it was appropriate 

to make servicers accountable to their 

estimates, such as by prohibiting 

servicers from initiating foreclosure 

earlier than the timeline in the notice. 

Industry commenters and consumer 

advocacy groups were also divided over 

whether the estimated foreclosure 

timeline would undermine the purpose 

of the early intervention notice. Several 

industry commenters expressed concern 

that a foreclosure timeline estimate 

could confuse borrowers into believing 

that the referral date is the last day for 

loss mitigation options whereas help 

may be available even after the 

foreclosure referral date. One of these 

commenters recommended that the 

Bureau add qualifying language to 

address concerns that a foreclosure 

timeline estimate could mislead 

borrowers into believing they had more 

time to take action to avoid foreclosure. 

Consumer advocacy groups, on the 

other hand, believed that a more 

detailed notice about the foreclosure 

process could serve an educational 

function. One consumer advocacy group 

recommended provision of detailed, 

State-specific foreclosure timelines 

tailored to the borrower’s residence. 

One coalition of consumer advocacy 

groups recommended that the 

foreclosure statement should provide 

more explanation of the steps occurring 

in the foreclosure process, such as a 

description of court procedures and a 

sheriff’s sale that occur in judicial 

foreclosure jurisdictions; this group 

explained that borrowers are often 

confused about how foreclosure 

referrals are related to the actual sale of 

their home. This group of advocates also 

explained that information when 

foreclosure will start and end is also 

important in non-judicial foreclosure 

jurisdictions, where the foreclosure 

process can occur quickly and with 

fewer opportunities for borrowers to 

object. In addition, this group of 

advocates recommended that the Bureau 

should specify a minimum period of 

time between a missed payment and the 

date on which foreclosure may begin. 

The Bureau notes at the outset that 

because the Bureau is adopting 

§ 1024.41(f)(1) to delay foreclosure 

referrals until 120 days after a missed 

payment, there is less risk of borrower 

confusion about when foreclosure may 

begin. Section 1024.41(f)(1) is discussed 

in more detail below in the applicable 

section-by-section analysis. 

Nonetheless, while a single foreclosure 

deadline would minimize compliance 

issues around potentially inaccurate 

estimates, the Bureau is concerned that 

requiring foreclosure information in the 

written early intervention notice may 

cause borrower confusion and may 

possibly discourage borrowers from 

seeking early assistance. In addition, an 

explanation that a servicer will not 

initiate foreclosure until the 120th day 

of delinquency may suggest to some 

borrowers that they cannot submit a loss 

mitigation application after the 

initiation of foreclosure, which may not 

necessarily be the case. See 

§ 1024.41(g).148

During consumer testing of the model 

clauses, participants had a mixed 

reaction to the foreclosure statement, 

which included an estimated timeline 

for when foreclosure may begin. The 

statement tested a timeline that 

explained foreclosure could occur 90– 

150 days after a missed payment. All 

participants understood before reading 

the statement that foreclosure was a 

process through which their lender 

could take their home if they did not 

make their mortgage payments. 

With respect to the estimated timeline 

for when foreclosure may begin, some 

thought that the estimated timeline 

meant nothing would happen before 

that date, despite the fact that the clause 

stated that the process ‘‘may begin 

earlier or later.’’ While some 

participants appeared to be motivated to 

act quickly because of the foreclosure 

statement, others commented that the 

estimated timeline implied that it was 

less important to act immediately 

because there would be a period of time 

during which they would be safe from 

foreclosure. One participant felt strongly 

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149See U.S. Consumer Fin. Prot. Bureau, Final 

Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking, 31 (Jun, 11, 2012). 

150See proposed Regulation Z §§ 1026.20(d) and 

1026.41(d)(7) in the Bureau’s 2012 TILA Mortgage 

Servicing Proposal. 

151The 2013 HOEPA Final Rule, which, among 

other things, implements RESPA section 5(c), 

which requires lenders to provide applicants of 

federally related mortgage loans with a ‘‘reasonably 

complete or updated list of homeownership 

counselors who are certified pursuant to section 

106(e) of the Housing and Urban Development Act 

of 1968 (12 U.S.C. 1701x(e)) and located in the area 

of the lender.’’ The list provided to applicants 

pursuant to this requirement will be obtained 

through a Bureau Web site Bureau or data made 

available by the Bureau or HUD to comply with this 

requirement. 

152 During consumer testing, participants referred 

colloquially to their ‘‘bank.’’ The Bureau does not 

believe this reflects comprehension difficulties with 

respect to the party borrowers must contact. During 

testing when asked whether the terms ‘‘servicer’’ 

and ‘‘lender’’ were identical, participants indicated 

that they were not. 

153Macro tested a statement including HUD’s 

housing counselor list and phone number because, 

at the time of testing, the Bureau did not have a web 

site containing this information. The Bureau 

believes consumers would have the same reaction 

if the Bureau’s contact information were listed 

instead of HUD’s. 

154At the time of testing, the Bureau tested 

clauses that included contact information for a State 

housing finance agency, as the Bureau would have 

required to be listed under proposed 

§ 1024.39(b)(2)(vi). 

that if it were true that the foreclosure 

process could start in less than 90 days, 

then the reference to the 90 to 150 day 

time period should be removed from the 

clause because it was misleading. 

The Bureau is not finalizing the 

proposed requirement that servicers 

notify borrowers about foreclosure in 

the written notice. While the Bureau 

agrees that the early intervention 

written notice could serve an 

educational function with regard to the 

foreclosure process, the Bureau believes 

a requirement to notify borrowers about 

the foreclosure process in the written 

early intervention notice requires 

further evaluation by the Bureau 

because of the risk that such a 

disclosure could be perceived as 

confusing or negatively by borrowers, 

and may discourage some borrowers 

from reaching out to their servicer 

promptly. As the Bureau noted in its 

proposal, during the Small Business 

Review Panel outreach, some small 

servicer representatives explained that 

information about foreclosure is 

typically not provided until after loss 

mitigation options have been 

explored; 149 and during consumer 

testing, several participants indicated 

that the tone of the foreclosure 

statement seemed at odds with the tone 

of the rest of the clauses encouraging 

borrowers to resolve their delinquency 

as soon as possible. Further, the Bureau 

is concerned that, given the variation in 

State foreclosure processes, a 

prescriptive requirement to explain 

foreclosure may either result in 

explanations that are too generic to be 

useful or too complex to be easily 

understood. Accordingly, for the 

reasons set forth above, the Bureau is 

removing the proposed requirement that 

servicers provide information about the 

foreclosure process in the written early 

intervention notice. 

Although the Bureau is not finalizing 

the requirement for servicers to provide 

a statement describing foreclosure in the 

written notice, the Bureau agrees that 

some borrowers would benefit from 

receiving information about foreclosure 

at the time of receiving information 

about loss mitigation options. Such 

information could help some borrowers 

understand their choices they face at the 

early stages of delinquency. The Bureau 

believes the requirements to include 

contact information for housing 

counselors and servicer personnel 

assigned under § 1024.40(a) will help 

address potential information 

shortcomings of the written notice. 

Pursuant to § 1024.40(b)(1)(iv), servicers 

must have policies and procedures 

reasonably designed to ensure that 

servicer continuity of contact personnel 

provide accurate information about the 

circumstances under which borrowers 

may be referred to foreclosure. 

Accordingly, for the reasons discussed 

above, the Bureau is not finalizing 

proposed § 1024.39(b)(2)(iv) or model 

clause MS–4(D), which contained 

language illustrating the foreclosure 

statement. 

Contact Information for Housing 

Counselors and State Housing Finance 

Authorities 

Proposed § 1024.39(b)(vi) would have 

required the written notice to include 

contact information for any State 

housing finance authority for the State 

in which the borrower’s property is 

located, and contact information for 

either the Bureau list or the HUD list of 

homeownership counselors or 

counseling organizations. 

With respect to contact information 

for homeownership counselors or 

counseling organizations, the Bureau 

proposed to require similar information 

pertaining to housing counseling 

resources that would be required on the 

ARM interest rate adjustment notice and 

the periodic statement, as provided in 

the Bureau’s 2012 TILA Mortgage 

Servicing Proposal.150 For these notices, 

the Bureau did not propose that 

servicers include a list of specific 

housing counseling programs or 

agencies (other than the State housing 

finance authority, discussed below), but 

instead that servicers provide contact 

information for either the Bureau list or 

the HUD list of homeownership 

counselors or counseling organizations. 

The Bureau solicited comment on 

whether the written early intervention 

notice should include a generic list to 

access counselors or counseling 

organizations, as proposed here, or a list 

of specific counselors or counseling 

organizations, as was proposed in the 

2012 HOEPA Proposal.151

Some consumer advocacy groups 

recommended that the Bureau require 

that servicers provide a list of specific 

counselors or HUD-certified agencies, 

citing the need to protect borrowers 

against so-called ‘‘foreclosure rescue’’ 

scams, and one organization 

recommended that the Bureau require 

servicers to refer borrowers directly to 

specific counselors upon the borrower’s 

request. Industry commenters expressed 

support for the proposed requirement to 

provide generic contact information for 

borrowers to access a list of counselors. 

One industry commenter was concerned 

that requiring servicers to provide a list 

of counselors would require frequent 

updating by servicers to ensure the 

accuracy of the notice. In addition, the 

commenter was concerned that 

providing a list of counselors could be 

construed as the servicer advocating for 

a particular counselor. One housing 

counseling organization and an industry 

commenter explained that some States 

already require that servicers provide a 

list of nonprofit housing counseling 

agencies at the time of sending a written 

foreclosure notice. The housing 

counseling organization recommended 

that the final rule require servicers to 

provide a list of HUD-approved 

nonprofit counseling agencies in the 

written notice, while the industry 

commenter was concerned about 

complying with overlapping 

requirements. 

During the fourth round of consumer 

testing in Philadelphia, all participants 

indicated they were likely to take 

advantage of the contact information 

contained in the notice, although they 

indicated they would try to contact their 

bank first.152 Several participants said 

that they would contact HUD 153 or the 

State housing finance agency 154 if they 

were not satisfied with the assistance 

they got from their bank. One 

participant indicated that this contact 

information would be useful to help 

verify that information provided by the 

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155The HUD list is available at http:// 

www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm and the 

HUD toll-free number is 800–569–4287. The Bureau 

list will be available by the effective date of this 

final rule at http://www.consumerfinance.gov/. 

156Some servicers have found that borrowers may 

trust independent counseling agencies more than 

they trust servicers. See Office of the Comptroller 

of the Currency, Foreclosure Prevention: Improving 

Contact with Borrowers, Insights (June 2007) at 6, 

available at http://www.occ.gov/topics/communityaffairs/publications/insights/insights-foreclosureprevention.pdf. 

lender was accurate and followed legal 

guidelines. 

The Bureau is adopting the 

requirement substantially as proposed, 

renumbered as § 1024.39(b)(2)(v) from 

§ 1024.39(b)(2)(vi). Section 

1024.39(b)(2)(v) requires servicers to 

include in the written notice the Web 

site to access either the Bureau list or 

the HUD list of homeownership 

counselors or counseling organizations, 

and the HUD toll-free telephone number 

to access homeownership counselors or 

counseling organizations.155 The Bureau 

is modifying the proposed requirement, 

which would have required servicers to 

list either the HUD telephone number or 

a Bureau telephone number. In the final 

rule, the Bureau is requiring servicers to 

list the HUD telephone number but not 

a Bureau telephone number because the 

Bureau believes the HUD telephone 

number that currently exists provides 

adequate access to approved counseling 

resources. 

As noted in its proposal, the Bureau 

believes that delinquent borrowers 

would benefit from knowing how to 

access housing counselors because some 

borrowers may be more comfortable 

discussing their options with a thirdparty.156 In addition, a housing 

counselor could provide a borrower 

with additional information about loss 

mitigation options that a servicer may 

not have listed on the written notice. 

The Bureau also believes the contact 

information to access the HUD or 

Bureau list would provide borrowers 

with access to qualified counselors or 

counseling organizations that could 

counsel borrowers about potential 

foreclosure rescue scams. While the 

Bureau agrees that borrowers may 

benefit from a list of specific counseling 

organizations or counselors, the Bureau 

also believes that there is value in 

keeping the content requirements in the 

written notice flexible to ensure the 

notice is able to accommodate existing 

requirements, such as State laws, that 

may overlap with the Bureau’s 

requirements. The Bureau believes that 

providing borrowers with the Web site 

address for either the Bureau or HUD 

list of homeownership counseling 

agencies and programs would 

streamline the disclosure and present 

clear and concise information for 

borrowers. 

In addition to information about 

accessing housing counselors, the 

Bureau proposed to require that the 

written notice include contact 

information for the State housing 

finance authority located in the State in 

which the property is located. In its 

proposal, the Bureau sought comment 

on the costs and benefits of the 

provision of information about housing 

counselors and State housing finance 

authorities to delinquent borrowers in 

the proposed written notice. The Bureau 

also sought comment on the potential 

effect of the Bureau’s proposal on access 

to homeownership counseling generally 

by borrowers, and the effect of increased 

borrower demand for counseling on 

existing counseling resources, including 

demand on State housing finance 

authorities. 

A State housing finance agency, an 

association of State housing finance 

agencies, and a large servicer 

recommended that the Bureau remove 

housing finance authority contact 

information from the written notice, 

citing resource limitations of State 

housing finance authorities. The large 

servicer expressed concern that 

borrowers would blame their servicer 

for directing them to State housing 

finance agencies that proved unable to 

provide assistance, or that such an 

experience would discourage borrowers 

from seeking other assistance. Two 

industry commenters also 

recommended that the Bureau eliminate 

the requirement to provide State 

housing finance authority contact 

information, citing the tracking burden 

associated with this requirement. One 

commenter explained that a phone 

number to access housing counselors 

(e.g., through a HUD or Bureau phone 

number or Web site) would provide 

borrowers with sufficient access to 

assistance. As an alternative, the 

industry commenter suggested that the 

Bureau host this information or that the 

Bureau simply include language that 

there may be State-sponsored programs 

in the borrower’s State that could be 

helpful. Another servicer recommended 

that the written notice simply reference 

that assistance may be available through 

the State Housing Finance Authority 

and provide a telephone number that 

borrowers could call to learn more about 

them. 

In the final rule, the Bureau is 

omitting the proposed requirement to 

disclose State housing finance authority 

contact information in the written 

notice because the Bureau shares the 

concern of the State housing finance 

authorities that directing borrowers to 

specific State agencies may overwhelm 

their limited resources. The Bureau also 

understands that not all State housing 

finance authorities offer counseling 

services, which may cause confusion 

among delinquent borrowers directed to 

such entities. In addition, the Bureau 

believes providing contact information 

for housing counselors or counseling 

organizations through access to a HUD 

or Bureau Web site or telephone number 

will ensure borrowers have access to 

assistance. Accordingly, the Bureau is 

amending proposed paragraph (b)(2)(vi) 

to contain no subparagraphs and is 

renumbering it as paragraph (b)(2)(v) in 

light of the deletion of the proposed 

foreclosure statement. In addition, the 

Bureau is deleting the portion of model 

clause MS–4(E) containing language 

about State housing finance authorities. 

39(b)(3) Model Clauses 

The Bureau proposed to add new 

§ 1024.39(b)(3), which contained a 

reference to proposed model clauses 

that servicers may use to comply with 

the written notice requirement. The 

Bureau proposed to include these model 

clauses are in new appendix MS–4. For 

more detailed discussion of the model 

clauses, see the section-by-section 

analysis of appendix MS below. 

39(c) Conflicts With Other Law 

As noted above, industry commenters 

were concerned that the Bureau’s 

proposed early intervention 

requirements could conflict with 

existing law. Several commenters 

requested guidance on whether 

servicers would be required to comply 

with the early intervention requirements 

if the borrower instructed the servicer to 

cease collection efforts, not to contact 

the borrower by telephone, or that the 

borrower refuses to pay the debt. 

Several of these commenters requested 

that the Bureau include an exemption in 

cases involving debt collection or 

bankruptcy law. One industry 

commenter requested that the Bureau 

clarify whether servicers would have 

immunity from claims of harassment or 

improper conduct under the Fair Debt 

Collection Practices Act, 15 U.S.C. 1692. 

To address concerns about conflicts 

with other law, the Bureau has added 

subsection (c) to § 1024.39 to provide 

that nothing in § 1024.39 shall require a 

servicer to communicate with a 

borrower in a manner otherwise 

prohibited under applicable law. The 

Bureau has added this provision to 

clarify that the Bureau does not intend 

for its early intervention requirements to 

require servicers to take any action that 

may be prohibited under State law, such 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10807 

157See Fed. Reserve Sys., Office of the 

Comptroller of the Currency, & Office of Thrift 

Supervision, Interagency Review of Foreclosure 

Policies and Practices, at 8 (2011). 

as a statutory foreclosure regime that 

may prohibit certain types of contact 

with borrowers that may be required 

under § 1024.39. The Bureau has also 

added this provision to clarify that 

servicers are not required to make 

contact with borrowers in a manner that 

may be prohibited by Federal laws, such 

as the Fair Debt Collection Practices Act 

or the Bankruptcy Code’s automatic stay 

provisions. The Bureau has also added 

comment 39(c)–1 to address borrowers 

in bankruptcy. Comment 39(c)–1 

provides that § 1024.39 does not require 

a servicer to communicate with a 

borrower in a manner inconsistent with 

applicable bankruptcy law or a court 

order in a bankruptcy case; and that, to 

the extent permitted by such law or 

court order, servicers may adapt the 

requirements of § 1024.39 in any 

manner that would permit them to 

notify borrowers of loss mitigation 

options. Through this comment the 

Bureau has not sought to interpret the 

Bankruptcy Code, but instead intended 

to indicate that servicers may take a 

flexible approach to complying with 

§ 1024.39 in order to provide 

information on loss mitigation options 

to borrowers in bankruptcy to the extent 

permitted by applicable law or court 

order. 

Section 1024.40 Continuity of Contact 

Background. As discussed above, this 

final rule addresses servicers’ obligation 

to provide delinquent borrowers with 

access to servicer personnel to respond 

to inquiries, and as applicable, assist 

them with foreclosure avoidance 

options. Widespread reports of 

communication breakdowns between 

servicers and delinquent borrowers who 

present a heightened risk for default 

have revealed that one of the most 

significant impediments to the success 

of foreclosure mitigation programs is the 

inadequate manner by which servicer 

personnel at major servicers have 

provided assistance to these borrowers. 

The Bureau noted in the proposal that 

the problem was systemic. For example, 

Federal regulatory agencies reviewing 

mortgage servicing practices have found 

that ‘‘a majority of the [servicers 

examined] had inadequate staffing 

levels or had recently added staff with 

limited servicing experience.’’ 157 The 

Bureau proposed § 1024.40 to establish 

requirements to ensure that there would 

be a baseline level of standards that 

would address the issue. 

Proposed § 1024.40(a)(1) would have 

provided that a servicer must assign 

personnel to respond to borrower 

inquiries and as applicable, assist a 

borrower with loss mitigation options 

no later than five days after a servicer 

has provided such borrower with the 

oral notice that would have been 

required by proposed § 1024.39(a). For a 

transferee servicer, proposed 

§ 1024.40(a)(1) would have required 

such servicer to make the assignment 

within a reasonable time after the 

mortgage servicing right to a borrower’s 

mortgage loan has been transferred to 

such servicer if the borrower’s previous 

servicer had assigned personnel to such 

borrower as would have been required 

by proposed § 1024.40(a)(1) before the 

mortgage servicing right was transferred 

and the assignment had not ended when 

the servicing right was transferred. 

Proposed § 1024.40(a)(2) would have 

required a servicer to make access to 

assigned personnel available via 

telephone and would have set forth 

related requirements on what a servicer 

must do if a borrower contacts the 

servicer and does not receive a live 

response from the assigned personnel. 

Proposed § 1024.40(b) would have 

required a servicer to establish 

reasonable policies and procedures 

designed to ensure that the servicer 

personnel the servicer assigns to a 

borrower pursuant to proposed 

§ 1024.40(a) perform certain enumerated 

functions. Proposed § 1024.40(c) would 

have set forth requirements with respect 

to how long the assigned personnel 

must be assigned and available to a 

borrower. 

Although many servicers failed to 

adequately assist delinquent borrowers, 

the Bureau recognized that some 

servicers provide a high level of 

customer service to their borrowers both 

to ensure loan performance (because 

either they or one of their affiliates 

owned the loan) and maintain strong 

customer relationships (because they 

rely on providing borrowers with other 

products and services and thus have a 

strong interest in preserving their 

reputation and relationships with their 

customers). The Bureau believed that to 

the extent that a servicer’s existing 

practices with respect to providing 

assistance to delinquent borrowers have 

been successful at helping borrowers 

avoid foreclosure, it was important that 

these practices be permitted to continue 

to exist within the framework of 

proposed § 1024.40. The Bureau sought 

to clarify the Bureau’s intent by 

explaining in proposed comment 

40(a)(1)–3.i that the continuity of 

contact provisions allowed a servicer to 

exercise discretion to determine the 

manner by which continuity of contact 

is implemented. 

The Bureau received general 

comments about whether it was 

appropriate for the Bureau to regulate 

the manner by which servicer personnel 

at servicers provide assistance to 

delinquent borrowers. With one 

exception, consumer groups expressed 

support for proposed § 1024.40. One 

consumer group that identified itself as 

primarily serving Asian-Americans and 

Pacific Islander communities expressed 

concern that proposed § 1024.40 only 

appeared to address the initial 

assignment of servicer staff to assist 

delinquent borrowers. The commenter 

also urged the Bureau to mirror the 

more prescriptive approach of the 

National Mortgage Settlement and the 

California Homeowner Bill of Rights. 

A number of consumer groups 

suggested that the Bureau add an 

additional requirement to require 

servicers to establish electronic loan 

portals to facilitate the exchange of 

documents related to a borrower’s loan 

modification application. Consumer 

groups asserted that servicers’ insistence 

that borrowers have not submitted 

requested documents remains a barrier 

to loan modification success and that 

the National Mortgage Settlement 

already requires the five largest 

servicers to develop online portals 

linked to a servicer’s primary servicing 

system where borrowers can check the 

status of their first-lien loan 

modifications, at no cost to them. 

Industry commenters generally 

expressed agreement with the principle 

that servicers must have adequate 

staffing levels to meet the needs of 

delinquent borrowers and commended 

the Bureau for recognizing the 

importance of permitting successful 

servicing practices with respect to how 

servicers provide assistance to 

delinquent borrowers to continue to 

exist. But smaller servicers and rural 

creditors subject to Farm Credit 

Administration rules generally 

requested exemptions from the 

continuity of contact requirements. 

Smaller servicers predicted that the 

continuity of contact requirements will 

bring about a significant increase in 

borrower communication, which they 

will have to respond by significantly 

increasing the size of their staff and 

making substantial changes to their 

servicing platforms. Smaller servicers 

asserted that these adjustments will 

increase their compliance costs and 

result in the reduction in the high 

quality of customer service they already 

provide to their customers. Rural 

lenders subject to Farm Credit 

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Administration rules asserted that they 

should be exempted from the Bureau’s 

continuity of contact requirements 

because they are already required to 

follow a highly prescriptive set of 

regulations when working with 

borrowers with distressed loans issued 

by the Farm Credit Administration. 

They expressed concern about 

potentially having to comply with 

inconsistent regulations and borrower 

confusion. 

A national trade association 

representing the reverse mortgage 

industry sought a general exemption for 

reverse mortgages, asserting that 

continuity of contact requirements 

would be duplicative of existing HUD 

regulations that require servicers of 

home equity conversion mortgages 

(HECM) to assign specific employees to 

assist HECM borrowers and provide the 

information to HECM borrowers on an 

annual basis and whenever the assigned 

employees change. 

Several industry commenters urged 

the Bureau to make changes to § 1024.40 

where they contend the proposal is 

inconsistent with the National Mortgage 

Settlement because of the cost of 

potentially being required to comply 

with different standards. One non-bank 

servicer requested that the Bureau 

specify that compliance with § 1024.40 

would provide a safe harbor from 

compliance with similar applicable law, 

including State law, the National 

Mortgage Settlement, HAMP guidelines, 

and investor requirements. Another 

non-bank servicer asserted that several 

of the functions the Bureau proposed to 

require continuity of contact personnel 

to perform under § 1024.40 would 

require servicers under some States’ law 

to make available licensed loan 

originators to assist borrowers and that 

the Bureau should preempt such laws 

because servicers may not have an 

adequate number of licensed staff. 

One bank servicer and one non-bank 

servicer suggested the Bureau could 

reduce any potential compliance burden 

with § 1024.40 if the Bureau limited a 

servicer’s duty to comply with § 1024.40 

to borrowers who are responsive to 

servicers’ attempts to engage them in 

foreclosure avoidance options and who 

have not vacated their principal 

residences. One non-bank servicer urged 

the Bureau create an exemption from 

compliance with continuity of contact 

requirements with respect to borrowers 

who have filed for bankruptcy. 

In light of the comments received and 

upon further consideration, the Bureau 

has made a number of changes to 

§ 1024.40. The Bureau has concluded 

that the best way to ensure that existing, 

successful servicing practices with 

respect to assisting delinquent 

borrowers be able to continue to exist 

would be to adopt proposed § 1024.40 

as a requirement for servicers to 

maintain policies and procedures 

reasonably designed to achieved 

specified objectives, and leave it to each 

servicers to implement its own policies 

and procedures calculated to achieve 

the desired results. Given the flexibility 

provided by § 1024.40 as finalized, the 

Bureau does not discern a need to 

provide servicers with express safe 

harbors or preemptions or a need to 

make § 1024.40 align exactly with the 

terms of the National Mortgage 

Settlement. 

The Bureau also declines to adopt the 

electronic portal requirement a number 

of consumers have urged the Bureau to 

impose on servicers. The Bureau agrees 

that servicers should, consistent with 

the purposes of RESPA, facilitate the 

exchange of documents related to a 

borrower’s loan modification 

application and is adopting 

requirements in the final rule that 

would support this objective. For 

example, § 1024.38(b)(2)(iii) requires 

servicers to maintain policies and 

procedures reasonably designed to 

achieve the objective of providing 

prompt access to all documents and 

information submitted by a borrower in 

connection with a loss mitigation option 

to servicer personnel assigned to assist 

the borrower as described in § 1024.40. 

The Bureau believes that to fulfill this 

requirement, servicers must have 

policies and procedures for the use of 

reasonable means to track and maintain 

borrower-submitted loss mitigation 

documents. However, imposing on 

servicers a specific obligation to 

establish electronic portals would 

supplant other reasonable means to 

track and maintain borrower-submitted 

loss mitigation documents. As noted 

above, the Bureau expects to further 

consider the benefits of electronic 

portals, as well as requirements 

regarding electronic communication 

with servicers more broadly. 

Further, for reasons discussed in the 

section-by-section analysis of § 1024.30, 

the Bureau has decided that 

requirements set forth in the Bureau’s 

discretionary rulemakings are generally 

not appropriate to impose on small 

servicers (servicers that servicers 5,000 

mortgage loans or less and only 

servicers mortgage loans that either they 

or their affiliates own or originated), 

housing finance agencies, servicers with 

respect to any mortgage loan for which 

the servicer is a qualified lender as that 

term is defined in 12 CFR 617.7000, and 

servicers of reverse mortgage 

transactions. 

In addition, for reasons set forth 

above, the Bureau has limited the scope 

of §§ 1024.39 through 41 to mortgage 

loans that are secured by a borrower’s 

principal residence. But the Bureau 

declines to further limit the scope of 

§ 1024.40 to ‘‘responsive borrowers’’ or 

to exclude borrowers who have filed for 

bankruptcy. As discussed above, the 

purpose of the early intervention, 

continuity of contact, and loss 

mitigation procedure requirements is to 

ensure that a borrower who resides in a 

property as a principal residence have 

the protection of clear standards of 

review for loss mitigation options so 

that the borrower can be considered for 

an option that will assist the borrower 

in retaining the property and the owner 

or assignee in mitigating losses. The 

Bureau believes limiting the 

applicability of § 1024.40 to 

‘‘responsive’’ borrowers introduces a 

notable degree of subjectivity that 

conflicts with this purpose. The Bureau 

additionally declines to create an 

exemption with respect to borrowers 

who have filed for bankruptcy because 

the exemption would be too broad. A 

borrower could have filed for 

bankruptcy but still be eligible for loss 

mitigation assistance. 

Legal Authority 

The Bureau proposed § 1024.40 

pursuant to authority under sections 

6(k)(1)(E), 6(j)(3), and 19(a) of RESPA, 

and accordingly, like other rules issued 

pursuant to the Bureau’s authority 

under section 6 of RESPA, § 1024.40 

would have been enforceable through 

private rights of action. But as discussed 

above, the Bureau is adopting § 1024.40 

as an objectives-based policies and 

procedures requirement. As discussed 

above in the section-by-section analysis 

of § 1024.38, the Bureau believes that 

private liability is not compatible with 

objectives-based policies and 

procedures requirements. The Bureau 

has therefore decided to finalize 

§ 1024.40 such that there will be no 

private liability for violations of the 

provision. Accordingly, the Bureau no 

longer relies on its authorities under 

section 6 of RESPA to issue § 1024.40. 

Instead, the Bureau is adopting 

§ 1024.40 pursuant to its authority 

under section 19(a) of RESPA. The 

Bureau believes that the objectivesbased policies and procedures set forth 

in § 1024.40 that regulate the manner by 

which servicer personnel provide 

assistance to delinquent borrowers are 

necessary to achieve the purposes of 

RESPA, including avoiding 

unwarranted or unnecessary costs and 

fees, ensuring that servicers are 

responsive to consumer requests and 

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complaints, and facilitating the review 

of borrowers for foreclosure avoidance 

options. 

The Bureau is also adopting § 1024.40 

pursuant to its authority under section 

1022(b) of the Dodd-Frank Act to 

prescribe regulations necessary or 

appropriate to carry out the purposes 

and objectives of Federal consumer 

financial laws. Specifically, the Bureau 

believes that § 1024.40 is necessary and 

appropriate to carry out the purpose 

under section 1021(a) of the Dodd-Frank 

Act of ensuring that markets for 

consumer financial products and 

services are fair, transparent, and 

competitive, and the objective under 

section 1021(b) of the Dodd-Frank Act 

of ensuring that markets for consumer 

financial products and services operate 

transparently and efficiently to facilitate 

access and innovation. The Bureau 

additionally relies on its authority 

under section 1032(a) of the Dodd-Frank 

Act, which authorizes the Bureau to 

prescribe rules to ensure that the 

features of any consumer financial 

product or service, both initially and 

over the term of the product or service, 

are fully, accurately, and effectively 

disclosed to consumers in a manner that 

permits consumers to understand the 

costs, benefits, and risks associated with 

the product or service, in light of the 

facts and circumstances. 

Proposed 40(a) 

Proposed § 1024.40(a)(1) would have 

provided that no later than five days 

after a servicer has notified or made a 

good faith effort to notify a borrower to 

the extent required by proposed 

§ 1024.39(a), the servicer must assign 

personnel to respond to the borrower’s 

inquiries, and as applicable, assist the 

borrower with loss mitigation options. 

Proposed § 1024.40(a)(1) further 

provided that if a borrower has been 

assigned personnel as required by 

§ 1024.40(a)(1) and the assignment has 

not ended when servicing for the 

borrower’s mortgage loan has 

transferred to a transferee servicer, 

subject to § 1024.40(c)(1) through (4), 

the transferee servicer must assign 

personnel to respond to the borrower’s 

inquiries, and as applicable, assist the 

borrower with loss mitigation options, 

within a reasonable time of the transfer 

of servicing for the borrower’s mortgage 

loan. In support of the continuity of 

contact requirements with respect to the 

transfer of a borrower’s mortgage loan, 

the Bureau reasoned that the transfer of 

a borrower’s mortgage loan from one 

servicer to another should not 

negatively impact the borrower’s pursuit 

of loss mitigation options. 

Proposed comment 40(a)(1)–1 would 

have explained that for purposes of 

responding to borrower inquiries and 

assisting the borrower with loss 

mitigation options, the term ‘‘borrower’’ 

includes a person whom the borrower 

has authorized to act on behalf of the 

borrower (a borrower’s agent), and may 

include, for example, a housing 

counselor or attorney. The comment 

would have further explained that 

servicers may undertake reasonable 

procedures to determine if such person 

has authority from the borrower to act 

on the borrower’s behalf. Proposed 

comment 40(a)(1)–1 reflects the 

Bureau’s understanding that some 

delinquent borrowers may authorize 

third parties to assist them as they 

pursue alternatives to foreclosure. 

Accordingly, the Bureau sought to 

clarify that a servicer’s obligation in 

proposed § 1024.40 extends to persons 

authorized to act on behalf of the 

borrower. 

Proposed comment 40(a)(1)–2 would 

have clarified that for purposes of 

§ 1024.40(a)(1), a reasonable time for a 

transferee servicer to assign personnel to 

a borrower is by the end of the 30-day 

period of the transfer of servicing for the 

borrower’s mortgage loan. Proposed 

comment 40(a)(1)–2 reflects the 

Bureau’s belief that a transferee servicer 

may require some time after the transfer 

of servicing to identify delinquent 

borrowers who had personnel assigned 

to them by the transferor servicer. The 

Bureau believed that 30 days is a 

reasonable amount of time for a 

transferee servicer to assign personnel to 

a borrower whose mortgage loan has 

been transferred to the servicer through 

a servicing transfer. The Bureau invited 

comments on whether a longer time 

frame is appropriate. 

Proposed comment 40(a)(1)–3.i. 

would have explained that a servicer 

has discretion to determine the manner 

by which continuity of contact is 

implemented and reflected the Bureau’s 

belief that a one-size-fits-all approach to 

regulating the mortgage servicing 

industry may not be optimal, and thus 

servicers should be given flexibility to 

implement proposed § 1024.40 in the 

manner best suited to their particular 

circumstances. Proposed comment 

40(a)(1)–3.ii would have explained that 

§ 1024.40(a)(1) requires servicers to 

assign personnel to borrowers whom 

servicers are required to notify pursuant 

to § 1024.39(a). If a borrower whom a 

servicer is not required to notify 

pursuant to § 1024.39(a) contacts the 

servicer to explain that he or she 

expects to be late in making a particular 

payment, the comment would have 

explained that the servicer may assign 

personnel to the borrower upon its own 

initiative. Proposed comment 40(a)(1)–4 

would have explained that proposed 

§ 1024.40(a)(1) does not permit or 

require a servicer to take any action 

inconsistent with applicable bankruptcy 

law or a court order in a bankruptcy 

case to avoid any potential conflict 

between the continuity of contact 

requirements and the automatic stay. 

The Bureau, however, invited comment 

on whether servicers should be required 

to continue providing delinquent 

borrowers continuity of contact after 

borrowers have filed for bankruptcy. 

The Bureau proposed § 1024.40(a)(2) 

to require a servicer to make access to 

the assigned personnel available via 

telephone. If a borrower contacted the 

servicer and did not receive a live 

response from the assigned personnel, 

proposed § 1024.40(a)(2) would have 

required that the borrower be able to 

record his or her contact information 

and that the servicer respond to the 

borrower within a reasonable time. 

Proposed comment 40(a)(2)–1 would 

have provided that for purposes of 

§ 1024.40(a)(2), three days (excluding 

legal public holidays, Saturdays, and 

Sundays) is a reasonable time to 

respond. The Bureau intended comment 

40(a)(2)–1 to function as a safe harbor 

because the Bureau believed in most 

cases, it would be reasonable to expect 

that borrowers receive a response within 

the proposed time frame. The Bureau 

invited comments on whether the 

Bureau should provide for a longer 

response time. 

As discussed above, consumer groups 

generally supported the Bureau’s 

proposed continuity of contact 

requirements, but industry commenters 

urged the Bureau to make changes in 

various ways. With respect to proposed 

§ 1024.40(a)(1), industry commenters 

overwhelmingly opposed the 

requirement that would have required a 

servicer to make contact personnel 

available to any borrower five days after 

a servicer has orally notified such 

borrower about the borrower’s late 

payment in accordance with proposed 

§ 1024.39(a). Commenters asserted that 

tying the assignment of contact staff to 

the oral notification requirement might 

require servicers to devote significant 

resources to assist borrowers who do not 

require formal loss mitigation assistance 

because in most cases, borrowers who 

are delinquent for 30 days or less selfcure. The commenters additionally 

asserted that the diversion of resources 

would adversely impact borrowers who 

actually need loss mitigation assistance 

by diverting servicer resources 

unnecessarily. One state credit union 

association suggested that there might 

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be implementation challenges because 

servicers’ current systems might not be 

set up to assign personnel based on a 

borrower’s payment status. 

Industry commenters suggested 

alternative methods of assignment that 

they asserted would be more effective: 

(1) Delay assignment until borrowers 

become at least 45 days delinquent (the 

range was between 45 and 60 days); (2) 

permit servicers to rely on their internal 

policies and procedures to determine 

the timing of assignment; (3) require 

servicers to assign contact personnel to 

borrowers who request loss mitigation 

assistance, which could be 

demonstrated by either submitting a loss 

mitigation application or the first piece 

of documentation a servicer has 

requested from a borrower with respect 

to a loss mitigation application. Industry 

commenters who suggested the last 

alternative observed that limiting a 

servicer’s obligation to assign contact 

personnel would be consistent with the 

National Mortgage Settlement and thus 

would make compliance with the 

Bureau’s proposed rule less costly to 

servicers who have already 

implemented systems changes to 

comply with the National Mortgage 

Settlement. 

With respect to comments received on 

proposed § 1024.40(a)(2), one non-bank 

servicer expressed concern about 

whether proposed § 1024.40(a)(2) would 

have required servicers to track 

voicemail messages left in the voicemail 

box of individual staff members and 

urged the Bureau to change the 

requirement such that borrowers are 

transferred to available live 

representatives or require servicers to 

call borrowers back within some set 

amount of time. With respect to 

proposed comment 40(a)(2)–1, one 

national non-profit organization urged 

the Bureau to provide that a servicer 

may take five days to respond because 

it saw the three-day response time as a 

requirement that it could not meet 

because it is mostly staffed by 

volunteers. A non-bank servicer 

requested clarification whether the 

three-day response time is guidance or 

a requirement. 

Final 1024.40(a) 

For reasons discussed above, the 

Bureau is adopting proposed § 1024.40 

as a requirement that servicers maintain 

a set of policies and procedures 

reasonably designed to achieve 

specified objectives. Accordingly, the 

Bureau is withdrawing § 1024.40(a)(1) 

and (2) because they are proposed as 

specific requirements. But, the 

objectives the Bureau is adopting in 

§ 1024.40(a) largely draw from the 

specific requirements concerning 

assignment of personnel in proposed 

§ 1024.40(a), unless otherwise noted 

below. As adopted, § 1024.40(a) requires 

a servicer to maintain policies and 

procedures that are reasonably designed 

to achieve the following objectives: (1) 

Assign personnel to a delinquent 

borrower by the time a servicer provides 

such borrower with the written notice 

required in § 1024.39(b), but in any 

event, not later than the 45th day of a 

borrower’s delinquency; (2) make 

available to such borrower, via 

telephone, the assigned personnel to 

respond to the borrower’s inquiries and, 

as applicable, assist the borrower with 

available loss mitigation options until 

the borrower has made two consecutive 

mortgage payments in accordance with 

the terms of a permanent loss mitigation 

agreement without incurring a late 

charge; and (3) ensure that the servicer 

can provide a live response to a 

delinquent borrower who contacts the 

assigned personnel but does not 

immediately receive a live response. 

After carefully considering industry 

commenters’ concern that tying the 

assignment of contact personnel to the 

oral notification requirement in 

proposed § 1024.39(a) might require 

servicers to devote significant resources 

to assist borrowers who do not require 

formal loss mitigation assistance, the 

Bureau has decided to delay the timing 

of the assignment of contact personnel 

to the 45th day of a borrower’s 

delinquency, unless the servicer 

provides the written notice required by 

§ 1024.39(b) beforehand. The Bureau 

believes that this change adequately 

addresses the concern of industry 

commenters that the proposal might 

require servicers to devote significant 

resources to assist borrowers who do not 

require formal loss mitigation 

assistance. To the extent a servicer 

becomes obligated to assign contact 

personnel to a borrower before such 

borrower becomes 45-days delinquent, 

it would be because the servicer has 

determined that such borrower should 

be informed of the availability of loss 

mitigation options before day 45. 

The Bureau does not believe it is 

appropriate to make assignment and 

availability of contact personnel 

contingent on a borrower making a 

request for loss mitigation assistance. 

The Bureau believes that servicers have 

more information about the 

qualifications for various loss mitigation 

options than borrowers, and 

accordingly, the Bureau believes it is 

necessary to achieve the purposes of 

RESPA to require servicers to engage a 

borrower in communication that would 

facilitate reviewing a borrower for 

foreclosure avoidance options. The 

Bureau also disagrees that servicers 

would be unduly burdened by a 

continuity of contact provision that does 

not exactly align with the terms of the 

National Mortgage Settlement. The 

Bureau observes that the National 

Mortgage Settlement requires a servicer 

to identify the contact personnel to a 

borrower after a borrower has requested 

assistance. The Bureau is not requiring 

that a servicer provide borrowers with 

identifying information about the 

contact personnel, just that contact 

personnel be available to borrowers to 

whom a servicer has provided loss 

mitigation information to answer 

borrower inquiries and assist borrowers 

with loss mitigation options, as 

applicable. The Bureau believes the 

Bureau’s requirement is less 

burdensome than the terms and 

conditions of the National Mortgage 

Settlement. 

The Bureau has made changes to 

proposed comment 40(a)(1)–1 in 

response to general concerns expressed 

by several industry commenters about 

communicating with persons other than 

a borrower with respect to error 

resolution, information requests, and 

during the loss mitigation process. 

Industry commenters asserted that it 

would be costly to servicers to verify 

whether such persons are in fact 

authorized to act on a borrower’s behalf. 

They also expressed concern regarding 

potential liability for inadvertent release 

of confidential information and 

violation of applicable privacy laws. 

The Bureau acknowledges that 

requiring servicers to provide continuity 

of contact personnel to borrowers’ 

agents is more costly than limiting the 

requirement to borrowers. The Bureau 

believes, however, that borrowers who 

are experiencing difficulty in making 

their mortgage payments or in dealing 

with their servicer may turn, for 

example, to a housing counselor or 

other knowledgeable persons to assist 

them in addressing such issues. The 

Bureau believes that it is necessary to 

achieve the purposes of RESPA to 

permit such agents to communicate 

with the servicer on a borrower’s behalf. 

Proposed comment 40(a)(1)–1 is 

adopted as comment 40(a)–1 to clarify 

that a servicer may undertake 

reasonable procedures to determine if a 

person who claims to be an agent of a 

borrower has authority from the 

borrower to act on the borrower’s behalf 

and that such reasonable policies and 

procedures may require that a person 

that claims to be an agent of the 

borrower provide documentation from 

the borrower stating that the purported 

agent is acting on the borrower’s behalf. 

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The Bureau believes that this 

clarification adequately balances the 

duty of servicers to communicate with 

third parties authorized by delinquent 

borrowers to act on their behalf in 

pursuing alternatives to foreclosure and 

the compliance cost and potential 

liability asserted by industry 

commenters and described above. 

Further, the Bureau notes that this 

comment is similar to commentary 

appearing in §§ 1024.35, 36, and 39. 

In adopting § 1024.40(a), the Bureau 

has added to comment 40(a)–1 

clarification of what the term 

‘‘delinquent borrower’’ means for 

purposes of § 1024.40(a). Upon further 

consideration, the Bureau believes it 

would be better to state clearly in 

§ 1024.40(a) that the continuity of 

contact requirements in § 1024.40 only 

apply to delinquent borrower rather 

than setting forth a separate section in 

proposed § 1024.40(c) to the same effect. 

Accordingly, the Bureau is not adopting 

proposed § 1024.40(c) and is instead 

moving the substance of proposed 

§ 1024.40(c), which the Bureau has 

modified for reasons set forth below, 

into commentary as part of comment 

40(a)–1 to explain the term ‘‘delinquent 

borrower.’’ 

The Bureau is adopting proposed 

comment 40(a)(1)–3.i as comment 40(a)– 

2. Two GSEs and a credit union 

commenter asked the Bureau to move 

the clarification in proposed comment 

40(a)(1)–3.i that a servicer may assign a 

team of persons to assist a borrower as 

required by proposed § 1024.40(a)(1) 

from commentary to rule text. The 

Bureau declines because the proposed 

clarification is an example of how a 

servicer may exercise discretion to 

determine the manner by which 

continuity of contact is implemented. 

Accordingly, the Bureau believes that it 

is appropriate that the clarification 

remains in the commentary. 

As adopted, comment 40(a)–2 

additionally provides that a servicer 

may assign single-purpose or multipurpose personnel. Single-purpose 

personnel are personnel whose primary 

responsibility is to respond to a 

delinquent borrower who meets the 

assignment criteria described in 

§ 1024.40(a)(1). Multi-purpose 

personnel can be personnel that do not 

have a primary responsibility at all, or 

personnel for whom responding to a 

borrower who meet the assignment 

criteria set forth in § 1024.40(a)(1) is not 

the personnel’s primary responsibility. 

The Bureau added this clarification to 

address comments by industry 

commenters expressing concern that 

some servicers do not have the capacity 

to dedicate staff members to assisting 

borrowers with loss mitigation options 

to the exclusion of other 

responsibilities. Comment 40(a)–2 

further explains that when a borrower 

who meets the assignment criteria of 

§ 1024.40(a) has filed for bankruptcy, a 

servicer may assign personnel with 

specialized knowledge in bankruptcy 

law to assist such borrowers in response 

to questions raised by industry 

commenters about whether the Bureau’s 

continuity of contact requirement would 

allow servicers to reassign a borrower 

who has filed for bankruptcy to 

personnel with specialized knowledge 

and training in bankruptcy law. Because 

the Bureau is adopting this clarification 

in comment 40(a)–2, the Bureau is not 

adopting proposed comment 40(a)(1)–4, 

which, as explained above, was 

proposed to clarify the relationship 

between proposed § 1024.40 and 

bankruptcy law to address situations in 

which servicers transfer the borrower’s 

file to a separate unit of personnel (i.e., 

personnel who are not part of the 

servicer’s loss mitigation unit), or to 

outside bankruptcy counsel to comply 

with bankruptcy law). The Bureau is 

also not adopting proposed comment 

40(a)(1)–3.ii because the final rule no 

longer ties the assignment of contact 

personnel to a servicer’s provision of the 

oral notice that would have been 

required pursuant to proposed 

§ 1024.39(a). 

As discussed above, proposed 

§ 1024.40(a)(1) would have required a 

transferee servicer to assign contact 

personnel to a borrower if the borrower 

had been assigned personnel by the 

transferor servicer, and the assignment 

had not ended at the time of the 

borrower’s mortgage loan had been 

transferred. The Bureau became 

concerned that transferee servicers may 

try to evade compliance with the 

obligation to provide continuity of 

contact by asserting that this obligation 

is contingent upon whether the 

borrower has been assigned contact 

personnel by the transferor servicer. The 

Bureau believes that preventing a 

servicer’s evasion of its continuity of 

contact obligation is necessary to 

achieve the purposes of RESPA. The 

Bureau believes that finalized 

§ 1024.40(a) makes it clear that a 

servicer’s obligation to maintain policies 

and procedures reasonably designed to 

assign contact personnel to certain 

delinquent borrowers is not contingent 

upon whether the borrower was 

assigned such personnel by the 

borrower’s previous servicer. 

Proposed 40(b) 

The Bureau proposed § 1024.40(b)(1) 

to require a servicer to establish policies 

and procedures reasonably designed to 

ensure that the servicer personnel the 

servicer makes available to the borrower 

pursuant to proposed § 1024.40(a) 

perform certain functions that the 

Bureau believed would facilitate 

servicers’ review of a borrower for loss 

mitigation options. The functions would 

have been as follows: (1) Providing a 

borrower with accurate information 

about loss mitigation options offered by 

the servicer and available to the 

borrower based on information in the 

servicer’s possession (proposed 

§ 1024.40(b)(1)(i)(A)), actions a borrower 

must take to be evaluated for loss 

mitigation options, including what the 

borrower must do to submit a complete 

loss mitigation application, as defined 

in proposed § 1024.41, and if applicable, 

what the borrower must do to appeal the 

servicer’s denial of the borrower’s 

application (proposed 

§ 1024.40(b)(1)(i)(B)), the status of the 

borrower’s already-submitted loss 

mitigation application (proposed 

§ 1024.40(b)(1)(i)(C)), the circumstances 

under which a servicer must make a 

foreclosure referral (proposed 

§ 1024.40(b)(1)(i)(D)), and loss 

mitigation deadlines the servicer has 

established (proposed 

§ 1024.40(b)(1)(i)(E)); (2) accessing a 

complete record of the borrower’s 

payment history in the servicer’s 

possession, all documents the borrower 

has submitted to the servicer in 

connection with the borrower’s 

application for a loss mitigation option 

offered by the servicer, and if 

applicable, documents the borrower has 

submitted to prior servicers in 

connection with the borrower’s 

application for loss mitigation options 

offered by those servicers, to the extent 

that those documents are in the 

servicer’s possession (proposed 

§ 1024.40(b)(1)(ii)(A through (C)); (3) 

providing the documents in 

§ 1024.40(b)(1)(ii)(B) through (C) to 

persons authorized to evaluate a 

borrower for loss mitigation options 

offered by the servicer if the servicer 

personnel assigned to the borrower is 

not authorized to evaluate a borrower 

for loss mitigation options (proposed 

§ 1024.40(b)(1)(iii)); and (4) within a 

reasonable time after a borrower request, 

provide the information to the borrower 

or inform the borrower of the telephone 

number and address the servicer has 

established for borrowers to assert an 

error pursuant to § 1024.35 or make an 

information request pursuant to 

§ 1024.36 (proposed § 1024.40(b)(1)(iv)). 

Proposed comment 40(b)(1)(iv) would 

have clarified that for purposes of 

§ 1024.40(b)(1)(iv), three days 

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10812 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

(excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable 

time to provide the information the 

borrower has requested or inform the 

borrower of the telephone number and 

address the servicer has established for 

borrowers to assert an error pursuant to 

§ 1024.35 or make an information 

request pursuant to § 1024.36. 

Proposed § 1024.40(b)(1) reflected the 

Bureau’s belief that having staff 

available to help delinquent borrowers 

is necessary, but not sufficient, to 

ensure that when a borrower at a 

significant risk of default reaches out to 

a servicer for assistance, the borrower is 

connected to personnel who can address 

the borrower’s inquiries or loss 

mitigation requests adequately. The staff 

a servicer makes available to delinquent 

borrowers must be able to perform 

functions that are calibrated toward, 

among other things, facilitating the 

review of borrowers for foreclosure 

avoidance options. Further, as discussed 

in the proposal, § 1024.40 was intended 

to work together with proposed 

§§ 1024.39 and 1024.41. For example, 

proposed § 1024.41 would have 

required a servicer to notify a borrower 

if the borrower has submitted an 

incomplete loss mitigation application. 

Proposed § 1024.40(b)(1) would have 

addressed this duty by requiring the 

personnel assigned to the borrower to 

inform the borrower about the steps the 

borrower must take to complete his or 

her loss mitigation application. 

The Bureau additionally proposed 

§ 1024.40(b)(1) based on the recognition 

that mortgage investors and other 

regulators have responded to 

breakdowns in borrower-servicer 

communication by requiring servicers to 

adopt staffing standards. The Bureau 

believed that the functions set forth in 

proposed § 1024.40(b)(1) would have 

complemented existing standards. The 

Bureau did not receive comments in 

response to proposed § 1024.40(b)(1), 

with the exception that two national 

consumer groups questioned whether 

proposed § 1024.40(b)(1)(ii)(C) would 

unnecessarily dilute a transferor 

servicer’ responsibility to ensure it 

transfers all relevant borrower 

information and a transferee servicer’s 

responsibility to ensure that it take 

possession of all such information 

because proposed § 1024.40(b)(1)(ii)(C) 

would have limited the transferred 

documents to ones in a transferee 

servicer’s possession. The consumer 

groups also questioned whether 

§ 1024.40(b)(1)(ii)(C) would have 

conflicted with proposed 

§ 1024.38(b)(4), which would have 

required servicers to transfer all of the 

information and documents relating to a 

transferred mortgage loan. The Bureau 

observes that the limitation was 

proposed because the Bureau did not 

believe a transferee servicer should be 

exposed to potentially costly litigation if 

the lack of access to documents is due 

to the fault of the transferor servicer. 

The Bureau observes that several of the 

proposed objectives with respect to 

providing information or accessing 

information would have been limited to 

circumstances where the information 

was in the servicer’s possession. This 

proposed limitation was intended to be 

a safeguard to help servicers manage 

costs arising from the litigation risk that 

would have been created by the 

existence of civil liability for violations 

of proposed § 1024.40. But because the 

Bureau has decided to finalize § 1024.40 

such that there will be no private 

liability for violations of the provision, 

the Bureau is not adopting the 

safeguard. 

Proposed § 1024.40(b)(2) would have 

provided that a servicer’s policies and 

procedures satisfy the requirements in 

§ 1024.40(b)(1) if servicer personnel do 

not engage in a pattern or practice of 

failing to perform the functions set forth 

in § 1024.40(b)(1) where applicable. 

Proposed comment 40(b)(2)–1.i would 

have provided that for purposes of 

§ 1024.40(b)(2), a servicer exhibits a 

pattern or practice of failing to perform 

such functions, with respect to a single 

borrower, if servicer personnel assigned 

to the borrower fail to perform any of 

the functions listed in § 1024.40(b)(1) 

where applicable on multiple occasions, 

such as, for example, repeatedly 

providing the borrower with inaccurate 

information about the status of the loss 

mitigation application the borrower has 

submitted. Proposed comment 40(b)(2)– 

1.ii would have explained that a 

servicer exhibits a pattern or practice of 

failing to perform such functions, with 

respect to a large number of borrowers, 

if servicer personnel assigned to the 

borrowers fail to perform any of the 

functions listed in § 1024.40(b)(1) in 

similar ways, such as, for example, 

providing a large number of borrowers 

with inaccurate information about the 

status of the loss mitigation applications 

the borrowers have submitted. 

The Bureau recognizes that contact 

personnel may occasionally make a 

mistake and fail to perform a function 

enumerated in proposed § 1024.40(b)(1). 

Proposed § 1024.40(b)(2) reflects the 

Bureau’s belief that the occasional 

mistake is not necessarily indicative of 

servicers not complying with the 

servicing obligation set forth in 

proposed § 1024.40(b)(1). Accordingly, 

just as the Bureau proposed the safe 

harbor in proposed § 1024.38(a)(2) for 

servicers for non-systemic violations of 

§ 1024.38 to manage the costs arising 

from the litigation risk created by the 

existence of civil liability for violations 

of § 1024.38, the Bureau proposed a safe 

harbor in proposed § 1024.40(b)(2) for 

servicers for non-systemic violations of 

§ 1024.40(b)(1). 

Both consumer groups and industry 

commenters opposed the safe harbor the 

Bureau proposed in § 1024.40(b)(2). Just 

as consumer groups urged the Bureau to 

eliminate the proposed safe harbor in 

proposed § 1024.38(a)(2) to reduce 

barriers to successful litigation and to 

ensure that the rule provides protection 

for more borrowers, they urged the 

Bureau to withdraw proposed 

§ 1024.40(b)(2). Just as industry groups 

urged the Bureau to eliminate the 

pattern or practice private cause of 

action under § 1024.38(a)(2) to reduce 

significant litigation exposure, they 

urged the Bureau to do the same with 

respect to proposed § 1024.40(b)(2). 

Moreover, as is true in the general 

servicing policies and procedures 

context, the Bureau is concerned that 

the safe harbor in proposed 

§ 1024.40(b)(2) would hamper the 

Bureau and other regulators in 

exercising supervisory authority and 

could preclude relief from being secured 

until there have been widespread or 

repeated incidents of consumer harm. 

Further, the safe harbor is no longer 

necessary because, as discussed above, 

the Bureau has decided to finalize 

§ 1024.40 such that there will be no 

private liability for violations of the 

provision. Accordingly, the Bureau is 

not adopting § 1024.40(b)(2) and related 

comments 40(b)(2)–1.i and ii. Instead, 

the Bureau is only adopting 

§ 1024.40(b)(1) as § 1024.40(b). 

New 40(b) 

Proposed § 1024.40(b)(1) is largely 

adopted as § 1024.40(b)(1) through (3). 

In addition to changes that have been 

noted above, the Bureau has made 

technical changes to proposed 

§ 1024.40(b)(1)(i)(B) (redesignated as 

§ 1024.40(b)(1)(ii)) to be consistent with 

changes to the language of § 1024.41, to 

clarify that the function of accessing the 

information set forth in proposed 

§ 1024.40(b)(1)(ii) (redesignated as 

§ 1024.40(b)(2)) means retrieval, and to 

clarify that the retrieval must be done in 

a timely manner. The Bureau is also 

clarifying that ‘‘document’’ means 

‘‘written information’’ for purposes of 

proposed § 1024.40(b)(1)(ii)(B) 

(redesignated as § 1024.40(b)(2)(ii)). 

Proposed 40(c) 

The Bureau proposed § 1024.40(c) to 

provide that a servicer shall ensure that 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10813 

158Making Home Affordable Program Handbook, 

v3.4, at 89 (December 15, 2011); see also Fannie 

Mae Single Family Servicing Guide, Ch. 6, § 602 

(2012). 

the personnel it assigns and makes 

available to a borrower pursuant to 

§ 1024.40(a) remain assigned and 

available to the borrower until any of 

the following occur: (1) the borrower 

refinances the mortgage loan (see 

proposed § 1024.40(c)(1)); (2) the 

borrower pays off the mortgage loan (see 

proposed § 1024.40(c)(2)); (3) a 

reasonable time has passed since (i) the 

borrower has brought the mortgage loan 

current by paying all amounts owed in 

arrears, or (ii) the borrower and the 

servicer have entered into a permanent 

loss mitigation agreement in which the 

borrower keeps the property securing 

the mortgage loan (see proposed 

§ 1024.40(c)(3)(i) through (ii)); (4) title to 

the borrower’s property has been 

transferred to a new owner through, for 

example, a deed-in-lieu of foreclosure, a 

sale of the borrower’s property, 

including, as applicable, a short sale, or 

a foreclosure sale (see proposed 

§ 1024.40(c)(4)); or (5) if applicable, a 

reasonable time has passed since 

servicing for the borrower’s mortgage 

loan was transferred to a transferee 

servicer (see proposed § 1024.40(c)(5)). 

The Bureau observes that proposed 

§ 1024.40(c) clearly indicates that the 

Bureau intended § 1024.40 to apply to 

more than just the initial assignment of 

contact personnel. 

The Bureau proposed comment 

40(c)(3)–1 to provide that for purposes 

of § 1024.40(c)(3), a reasonable time has 

passed when the borrower has made ontime mortgage payments for three 

consecutive months. The Bureau noted 

in the 2012 RESPA Servicing Proposal 

that the ability of a borrower to make 

on-time mortgage payments for three 

consecutive months has gained wide 

acceptance as an indicator of whether a 

previously-delinquent borrower can 

succeed in keeping his or her mortgage 

loan current. For example, under 

Treasury’s HAMP program, a borrower 

is put in a trial modification period 

lasting three months. The borrower 

must have made all trial period 

payments to qualify for a permanent 

loan modification.158 The Bureau sought 

comment on whether criteria other than 

a borrower making on-time mortgage 

payments for three consecutive months 

should be used to determine what is a 

‘‘reasonable time’’ for purposes of 

§ 1024.40(c)(3). 

A number of industry commenters 

asserted that three months of tracking a 

borrower who later becomes current 

would generally be excessive, 

particularly if the borrower cures 

without the aid of loan modification. 

Several industry commenters urged the 

Bureau to conform proposed 

§ 1024.40(3) to the requirement in the 

National Mortgage Settlement, which 

permits a servicer to end the assignment 

of a single point of contact to a borrower 

upon the reinstatement of the loan, 

which occurs either due to voluntary 

reinstatement or the processing of a 

permanent loan modification program. 

They urged the Bureau to not discount 

a borrower’s completion of a trial 

modification program, and several 

commenters urged servicers to count a 

borrower’s trial modification payments 

toward meeting the proposed on-time 

payment requirement in § 1024.40(c)(3). 

One bank servicer suggested that the 

Bureau should further clarify proposed 

§ 1024.40(c)(3) by replacing the phrase 

‘‘on-time mortgage payment’’ with 

‘‘when the borrower has made payment 

for three consecutive months that have 

not incurred a late fee.’’ The servicer 

expressed the concern that narrowly 

interpreting ‘‘on-time’’ payments as 

paying as of the due date could 

unnecessarily extend the duration of the 

continuity of contact and that the 

Bureau should take account of any grace 

period after the payment due date 

during which a borrower could pay 

without incurring a late fee. 

Proposed comment 40(c)(5)–1 would 

have provided that for purposes of 

§ 1024.40(c)(5), a reasonable time would 

have passed 30 days after servicing for 

the borrower’s mortgage loan was 

transferred to a transferee servicer. As 

discussed above, the Bureau believed 

that the transferee servicer may require 

up to 30 days from the date of transfer 

of servicing to identify borrowers who 

had personnel assigned to them by the 

transferor servicer. 

A large bank servicer and a national 

trade association representing large 

mortgage financing companies opposed 

requiring a transferor servicer to 

continue making continuity of contact 

personnel available to a borrower whose 

loan has been transferred because after 

servicing has been transferred, the 

transferor servicer would no long have 

access to any records or documents of 

the borrower and could no longer 

reasonably be expected to assist a 

borrower effectively. The large bank 

servicer suggested that if the Bureau 

adopts a rule that requires a transferor 

service to continue making continuity of 

contact personnel available after a 

borrower’s loan has been transferred, 

the Bureau should require the 

assignment to last no more than 15 days 

following the transfer. The national 

trade association suggested that the 

Bureau should require contact 

information for the continuity of contact 

personnel made available by a transferee 

servicer be disclosed in the servicing 

transfer letter or provide an exemption 

for liability for potentially violating 

§ 1024.40(b) as the personnel will be 

unable to perform many of the functions 

set forth in proposed § 1024.40(b). One 

bank servicer recommended that the 

Bureau provide a safe harbor for 

situations where a continuity of contact 

personnel is no longer available due to 

staffing changes in the normal course of 

business. 

The Bureau has considered the 

comments the Bureau has received in 

response to proposed § 1024.40(c) and is 

making several adjustments. The Bureau 

has reconsidered the appropriate 

continuity of contact objectives where a 

borrower’s mortgage loan is made 

current through voluntary 

reinstatement. The Bureau believes that 

the objective should be to maintain 

continuity of contact until a borrower 

either brings a mortgage loan current by 

paying all amount owed in arrears or is 

able to make at least the first two 

payments following a permanent 

modification agreement. In the case of a 

borrower who brings her mortgage 

current, the Bureau believes that the 

likelihood of a near-term re-default is 

relatively low and thus the servicer 

should not be required to implement 

policies and procedures reasonably 

designed to maintain continuity of 

contact with such a borrower. On the 

other hand, The Bureau believes that the 

risk of a re-default for a borrower who 

has gone through formal loss mitigation 

assistance is sufficiently high that the 

servicer’s policies and procedures 

should be reasonably designed to 

maintain continuity of contact with 

such a borrower throughout any trial 

modification and for a period of time 

after the borrower enters into a 

permanent loan modification agreement. 

The Bureau is adopting § 1024.40(a)(2), 

which reduces the number of 

consecutive monthly payments from 

three to two. This responds to concerns 

about whether three months of tracking 

might be excessive. The Bureau has also 

considered the request to permit a 

servicer to factor in grace periods when 

determining whether a payment was an 

on-time payment and believes that it 

would be an appropriate change. This 

change is reflected in final 

§ 1024.40(a)(2). 

The Bureau has considered the issue 

of a transferor servicer’s obligation to 

continue making contact personnel 

available to a borrower whose loan has 

been transferred. As discussed above, 

the Bureau reasoned that it might 

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10814 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

159www.makinghomeaffordable.gov. 

160Press Release, Federal Housing Finance 

Agency, Fannie Mae and Freddie Mac to Align 

Guidelines for Servicing Delinquent Mortgages 

(Apr. 28, 2011), http://www.fhfa.gov/webfiles/ 

21190/SAI42811.pdf. See also Comment letter 

submitted by Fannie Mae and Freddie Mac. 

161Press Release, Office of the Comptroller of the 

Currency, NR 2011–47, OCC Takes Enforcement 

Action Against Eight Servicers for Unsafe and 

Unsound Foreclosure Practices (Apr. 13, 2011); 

Federal Reserve Board Press Release, Federal 

Reserve Issues Enforcement Actions Related to 

Deficient Practices in Residential Mortgage Loan 

Servicing (April 13, 2011), available at: http:// 

www.federalreserve.gov/newsevents/press/ 

enforcement/20110413a.htm. 

162www.nationalmortgagesettlement.com. 

163See, e.g., N.Y. Comp. Codes R. & Regs. tit. 3, 

§ 419.1 et seq.; 2012 Cal. Legis. Serv. Ch. 86 (A.B. 

278) (WEST) amending Cal. Civ. Code § 2923.6. See 

also Massachusetts proposed mortgage servicing 

regulations, available at http://www.mass.gov/ 

ocabr/docs/dob/209cmr18proposedred.pdf. (last 

accessed November 19, 2012). 

reasonably take some time for transferee 

servicers to identify borrower who had 

personnel assigned to them by the 

transferor servicer. The Bureau believes 

this safeguard is no longer necessary 

when violations of finalized § 1024.40 

no longer expose a servicer to civil 

liability. Accordingly, the Bureau is not 

finalizing proposed § 1024.40(c)(5). 

As discussed above, one industry 

commenter suggested that the Bureau 

should relieve a servicer of its obligation 

to make continuity of contact personnel 

available due to staffing changes in the 

normal course of business. The Bureau 

disagrees. The Bureau expects that 

servicers already have existing policies 

and procedures in place to address the 

implication of staffing changes to their 

servicing operations, including the 

impact on borrower-servicer 

communications and accordingly, this 

limitation is unnecessary. 

As discussed above, after further 

consideration, the Bureau believes it 

would be better to state clearly in 

§ 1024.40(a) that the continuity of 

contact policy and procedures 

requirements in § 1024.40 only applies 

to delinquent borrower rather than 

setting forth a separate section in 

proposed § 1024.40(c) to the same effect. 

Accordingly, the Bureau is not adopting 

proposed § 1024.40(c) as a separate 

subsection of § 1024.40 and is instead 

moving the substance of proposed 

§ 1024.40(c), revised as discussed above, 

to comment 40(a)–1, which elaborates 

on the meaning of the term ‘‘delinquent 

borrower’’ for purposes of § 1024.40(a). 

As adopted, comment 40(a)–1 clarifies 

that a borrower is no longer a 

‘‘delinquent borrower’’ (for purposes of 

§ 1024.40(a)) if a borrower has 

refinanced the mortgage loan, paid off 

the mortgage loan, brought the mortgage 

loan current by paying all amounts 

owed in arrears, or if title to the 

borrower’s property has been transferred 

to a new owner through, for example, a 

deed-in-lieu of foreclosure, a sale of the 

borrower’s property, including, as 

applicable, a short sale, or a foreclosure 

sale. 

Proposed 40(d) 

The Bureau proposed § 1024.40(d) to 

provide that a servicer has not violated 

§ 1024.40 if the servicer’s failure to 

comply with this section is caused by 

conditions beyond a servicer’s control. 

Proposed comment 40(d)–1 would have 

explained that ‘‘conditions beyond the 

servicer’s control’’ include natural 

disasters, wars, riots or other major 

upheaval, delays or failures caused by 

third parties, such as a borrower’s delay 

or failure to submit any requested 

information, disruptions in telephone 

service, computer system malfunctions, 

and labor disputes, such as strikes. The 

Bureau intended proposed § 1024.40(d) 

to limit the liability of servicers to 

borrowers under RESPA. The Bureau 

did not believe that failures to comply 

with the continuity of contact 

requirements in proposed § 1024.40 

caused by conditions beyond a 

servicer’s control should expose a 

servicer to liability to a borrower under 

section 6 of RESPA. Even if servicers 

implement processes that would 

address staffing failures that had a 

significant adverse impact on borrowers 

seeking alternatives to foreclosure, the 

Bureau believes that such conditions 

may occasionally occur that could 

adversely affect a servicer’s ability to 

provide adequate and appropriate staff 

to assist delinquent borrowers. 

One non-bank servicer recommended 

that the Bureau add to the list of 

conditions beyond a servicer’s control 

circumstances under which a servicer 

cannot establish reasonable contact with 

a borrower or the borrower is not 

responsive to reasonable attempts to 

make contact. Another servicer asked 

the Bureau to provide that major 

business reorganizations, such as 

mergers, be added to the list of 

conditions beyond a servicer’s control. 

In response to the first commenter, the 

Bureau observes that a servicer’s 

obligation under proposed § 1024.40 

would have been to simply make 

contact personnel available in 

accordance with § 1024.40(a). The 

contact personnel would not have been 

required by § 1024.40 to make multiple 

attempts to contact a borrower. Making 

multiple attempts to contact a borrower 

is also not an objective of § 1024.40 as 

adopted. In response to the second 

commenter, the Bureau observes that 

major business organizations typically 

require advanced negotiation and 

planning. Accordingly, the Bureau 

believes that such transactions should 

not be added to the list of conditions 

beyond a servicer’s control. 

But importantly, the Bureau is 

withdrawing proposed § 1024.40(d) and 

related comment 40(d)–1. For reasons 

discussed above, violations of § 1024.40 

will not give rise to civil liability. 

Accordingly, the Bureau believes that 

adopting proposed § 1024.40(d) is no 

longer necessary. 

Section 1024.41 Loss mitigation 

procedures 

As discussed in the Bureau’s 2012 

RESPA Servicing Proposal, and in part 

II above, there has been widespread 

concern among mortgage market 

participants, consumer advocates, and 

policymakers regarding pervasive 

problems with servicers’ performance of 

loss mitigation activity in connection 

with the financial crisis, including lost 

documents, non-responsive servicers, 

and unwillingness to work with 

borrowers to reach agreement on loss 

mitigation options. In response, 

servicers, investors, guarantors, and 

State and Federal regulators have 

undertaken efforts to adjust servicer loss 

mitigation and foreclosure practices to 

address problems relating to evaluation 

of loss mitigation options. Specifically: 

(1) Treasury and HUD sponsored the 

Making Home Affordable program, 

which established guidelines for Federal 

government sponsored loss mitigation 

programs such as HAMP; 159 (2) the 

Federal Housing Finance Agency 

(FHFA) directed Fannie Mae and 

Freddie Mac to align their guidelines for 

servicing delinquent mortgages they 

own or guarantee to improve servicing 

practices; 160 (3) prudential regulators, 

including the Board and the OCC, 

undertook enforcement actions against 

major servicers, resulting in consent 

orders imposing requirements on 

servicing practices; 161 (4) the National 

Mortgage Settlement agreement imposes 

obligations on five of the largest 

servicers, including on the conduct of 

loss mitigation evaluations; 162 and (5) a 

number of States have adopted, and 

others continue to propose, regulations 

relating to mortgage servicing and 

foreclosure processing, including 

requiring evaluation for loss mitigation 

options.163

Many of these initiatives imposed a 

similar set of consumer protective 

practices on covered servicers with 

respect to delinquent borrowers. For 

example, the FHFA servicing alignment 

initiative, the National Mortgage 

Settlement, and HAMP all require 

servicers to review loss mitigation 

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164See e.g., National Mortgage Settlement at 

Appendix A, at A–26; Freddie Mac Single Family 

Seller/Servicer Guide, Vol. 2 § 64.6(d)(5) (2012); 

Fannie Mae Single Family Servicing Guide § 205.08 

(2012); HAMP Guidelines, Ch. 6 (2011). 

165See e.g., National Mortgage Settlement at 

Appendix A, at A–17, available at http:// 

www.nationalmortgagesettlement.com (last 

accessed January 15, 2013). 

166See Financial Stability Oversight Council, 

2011 Annual Report (July 22, 2011), available at 

http://www.treasury.gov/initiatives/fsoc/ 

Documents/FSOCAR2011.pdf (last accessed January 

15, 2013). 

167U.S. Government Accountability Office, 

Mortgage Foreclosures—Documentation Problems 

Reveal Need for Ongoing Regulatory Oversight (May 

2011), available at http://www.gao.gov/assets/320/ 

317923.pdf (last accessed January 15, 2013). 

168See Patricia A. McCoy, Barriers to Home 

Mortgage Modifications During the Financial Crisis, 

at 4 (May 31, 2012). 

169Although there is a paucity of reliable data 

about the prevalence of problems resulting from 

proceeding with a foreclosure sale while loss 

mitigation discussions are ongoing, the Federal 

Reserve identified anecdotal evidence of these 

problems in 2008. See Larry Cordell et al., The 

Incentives of Mortgage Servicers: Myths and 

Realities, at 9 (Federal Reserve Board, Working 

Paper No. 2008–46, Sept. 2008). Anecdotal 

evidence continues to accumulate. See, e.g., 

Haskamp, et al. v. Federal National Mortgage 

Assoc., et al., No. 11–cv–2248, Plaintiff’s 

Memorandum of Law In Support of Their Motion 

For Partial Summary Judgment (D. Minn. June 14, 

2012); Stovall v. Suntrust Mortgage, Inc., No. 10– 

2836, 2011 U.S. Dist. LEXIS 106137 (D. Md. 

September 20, 2011); Debra Gruszecki, REAL 

ESTATE: Homeowner Protests ‘‘Dual Tracking,’’ 

Press-Enterprise (June 19, 2012), available at: http:// 

www.pe.com/local-news/local-news-headlines/ 

20120619-real-estate-homeowner-protests-dualtracking.ece. Information presented by consumer 

advocacy groups illustrates that consumers and 

their advocates continue to be frustrated by the 

process of dual tracking. For example, the NCLC 

conducted a survey of consumer attorneys to 

identify instances of foreclosure sales occurring 

while loss mitigation discussions were on-going. 

Per that survey, 80 percent of surveyed consumer 

attorneys surveyed reported an instance of an 

attempted foreclosure sale while awaiting a loan 

modification. National Consumer Law Center & 

National Association of Consumer Bankruptcy 

Attorneys, Servicers Continue to Wrongfully Initiate 

Foreclosures: All Types of Loans Affected (Feb. 

2012), available at http://www.nclc.org/images/pdf/ 

foreclosure_mortgage/mortgage_servicing/wrongfulforeclosure-survey-results.pdf. Further, a survey by 

the National Housing Resource Center stated that 73 

percent of 285 housing counselors surveyed rate 

servicer performance in complying with dual 

tracking rules outlined in HAMP guidelines as 

‘‘fair’’ or ‘‘poor.’’ National CAPACD Comment 

Letter, at 7. These surveys, while certainly not 

conclusive evidence of the prevalence of dual 

tracking or compliance with requirements imposed 

on servicers, indicate that concurrent loss 

mitigation and foreclosure processes continue to 

negatively impact borrowers. 

applications within 30 days.164 Further, 

the FHFA servicing alignment initiative 

and the National Mortgage Settlement 

require a servicer that receives an 

application for a loss mitigation option 

from a borrower before the 120th day of 

delinquency to postpone the referral of 

the borrower’s mortgage loan account to 

foreclosure until the borrower has been 

evaluated for a loss mitigation option.165

While these various initiatives are 

starting to bring standardization to 

significant portions of the market, none 

of them to date has established a set of 

consistent national procedures and 

expectations regarding loss mitigation 

procedures. The Financial Stability 

Oversight Council, observing that the 

mortgage servicing industry was 

unprepared and poorly structured to 

address the rapid increase in defaults 

and foreclosures, recommended that 

federal regulators establish national 

mortgage servicing standards to address 

structural vulnerability in the mortgage 

servicing market.166 Further, the GAO 

recommended that to the extent federal 

regulators create national servicing 

standards, such standards should 

address servicer foreclosure 

practices.167

In response to these 

recommendations, the Bureau has 

developed these final rules to serve as 

national mortgage servicing standards. 

The Bureau believes that because so 

many borrowers are more than 90 days 

delinquent and in need of consideration 

for loss mitigation, because borrowers 

often are not able to choose the servicer 

of their mortgage loan, and because the 

manner in which loss mitigation is 

handled has such potentially significant 

impacts on both individual consumers 

and the health of the larger housing 

market and economy, establishing 

national mortgage servicing standards is 

necessary and appropriate to protect 

borrowers and achieve the consumer 

protection purposes of RESPA. Such 

standards establish appropriate 

expectations for loss mitigation 

processes for borrowers and for owners 

or assignees of mortgage loans. Such 

standards also ensure that borrowers 

have a full and fair opportunity to 

receive an evaluation for a loss 

mitigation option before suffering the 

harms associated with foreclosure. 

These standards are appropriate and 

necessary to achieve the consumer 

protection purposes of RESPA, 

including facilitating borrowers’ review 

for loss mitigation options, and to 

further the goals of the Dodd-Frank Act 

to ensure a fair, transparent, and 

competitive market for mortgage 

servicing. 

As stated in the proposal, the Bureau 

has considered a number of different 

options for addressing consumer harms 

relating to loss mitigation. In general, 

the Federal government has at least 

three approaches to addressing loss 

mitigation: (1) Establishing processes to 

facilitate actions by market participants; 

(2) mandating outcomes of loss 

mitigation process (implicitly raising 

costs to market participants of pursuing 

foreclosure actions in violation of the 

mandated outcomes); or (3) providing 

subsidies to incent the desired 

outcomes.168 Only options (1) and (2) 

were considered by the Bureau in light 

of resources and other factors. These 

present a stark choice: Whether to 

mandate processes that provide 

consumer protections without 

mandating specific outcomes or whether 

to mandate specific outcomes by 

establishing criteria for when such 

outcomes are required. For example, a 

requirement that a servicer review a 

completed loss mitigation application in 

a certain time period establishes a 

process requirement but does not 

impose upon the servicer a criterion for 

determining whether to offer a loss 

mitigation option. In contrast, a 

requirement that a servicer provide a 

loan modification when an evaluation of 

a loss mitigation application indicates 

that a loan modification may have a 

positive net present value would impose 

a substantive criterion. Mandating a 

methodology or set of assumptions for 

determining when a modification has a 

positive net present value would further 

constrain the investor’s discretion in 

deciding under what circumstances to 

offer a loss mitigation option. 

The 2012 RESPA Servicing Proposal 

included proposed procedural 

requirements for servicers to follow in 

reviewing borrowers for loss mitigation 

options. Specifically, proposed 

§ 1024.41 provided that servicers that 

make loss mitigation options available 

to borrowers in the ordinary course of 

business must undertake certain duties 

in connection with the evaluation of 

borrower applications for loss 

mitigation options. The proposal was 

intended to achieve three main goals: 

First, it was designed to provide 

protections to borrowers to ensure that, 

to the extent a servicer offers loss 

mitigation options, a borrower would 

receive timely information about how to 

apply, and that a servicer would 

evaluate a complete application in a 

timely manner. Second, it was designed 

to prohibit a servicer from completing a 

foreclosure process by proceeding with 

a foreclosure sale until a borrower and 

a servicer had terminated discussions 

regarding loss mitigation options.169

Third, it was designed to set timelines 

for loss mitigation evaluation that could 

be completed without requiring a 

suspension of the foreclosure sale date 

in order to avoid strategic use of these 

procedures to extend foreclosure 

timelines. 

The Bureau intended that the 

protections that were set forth in 

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10816 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

170With respect to investor or guarantor 

requirements that do not constitute Federal or State 

law, such as requirements of the GSEs, the Bureau 

observes that such entities may need to review and 

adjust their requirements in light of the consumer 

protections set forth in the final rules. 

171One commenter added that servicers should 

be required to demonstrate that these models are 

accurate and do not result in discriminatory 

impacts. 172The commenters indicated that they believed 

servicers unduly delayed conversion of trial 

modifications to permanent modifications and 

stated that homeowners should not bear the 

financial burden of undue delay in conversion of 

a trial modification to a permanent modification. 

proposed § 1024.41 would have been 

augmented and supplemented by 

protections in other sections of the 2012 

RESPA Servicing Proposal that 

addressed loss mitigation issues. In 

proposed § 1024.39, for instance, the 

Bureau proposed to implement 

obligations on servicers that would have 

required servicers to contact borrowers 

early in the delinquency process and to 

provide information to borrowers 

regarding loss mitigation options. In 

proposed § 1024.40, the Bureau 

proposed to implement obligations on 

servicers that would have required 

servicers, in certain circumstances to 

provide borrowers with contact 

personnel to assist them with the 

process of applying for a loss mitigation 

option. Such personnel would have 

been required to have access to, among 

other things, information regarding loss 

mitigation options available to the 

borrower, actions the borrower must 

take to be evaluated for such loss 

mitigation options, and the status of any 

loss mitigation application submitted by 

the borrower. Further, in proposed 

§ 1024.38, the Bureau proposed to 

require that servicers implement 

policies and procedures reasonably 

designed to achieve the objective of 

reviewing borrowers for loss mitigation 

options. Finally, in proposed § 1024.35, 

the Bureau proposed to permit a 

borrower to assert an error as a result of 

a servicer’s failure to postpone a 

scheduled foreclosure sale when a 

servicer has failed to comply with the 

requirements for proceeding with a 

foreclosure sale. The Bureau believed 

that all of these protections, when 

implemented together, would have a 

substantial impact on reducing 

consumer harm. 

The Bureau requested comment on all 

aspects of the proposal, and, in 

particular, whether focusing on the 

provision of procedural rights was the 

appropriate approach to addressing the 

consumer harm it had identified. The 

Bureau sought comment on whether 

there were additional appropriate 

measures that could be required to 

improve loss mitigation outcomes for all 

parties. The Bureau also sought 

comment on whether the proposed 

requirements ensured that consumers’ 

timely and complete applications would 

receive fair and full consideration and 

ensured the predictability of outcomes 

for consumers as well as owners and 

assignees of mortgage loans. Finally, 

and as discussed further below, the 

Bureau sought comment on whether 

proposed § 1024.41 would have 

required servicers to undertake practices 

that conflicted with other Federal 

regulatory requirements or State law or 

may have caused servicers to undertake 

practices that might reduce the 

availability of loss mitigation options or 

access to credit.170

The Bureau received comments from 

numerous individual consumers, 

consumer advocates, as well as some 

servicers and industry trade associations 

in support of the Bureau’s 

implementation of loss mitigation 

procedures. Although many of these 

commenters indicated specific areas 

where adjustments to the proposed 

requirements might be warranted, a 

number of commenters indicated that 

the loss mitigation procedures proposed 

by the Bureau would provide necessary 

and appropriate tools to assist 

consumers in receiving evaluations for 

loss mitigation options. Other 

commenters disagreed with the Bureau’s 

proposed approach with respect to loss 

mitigation requirements. Numerous 

consumer advocacy groups commented 

that the Bureau’s proposed requirements 

were inadequate to address consumer 

harm, and that the Bureau should more 

aggressively regulate loss mitigation 

activities. Conversely, the majority of 

industry participants and their trade 

associations commented that the 

proposed requirements were 

burdensome, unnecessary to address 

consumer harm, and could create an 

incentive for servicers and owners or 

assignees of mortgage loans to withdraw 

current loss mitigation practices. 

Consumer advocacy groups primarily 

commented on three main topics: (1) 

Mandating specific loss mitigation 

criteria; (2) addressing consumer harms 

relating to dual tracking of processes for 

pursuing foreclosures and evaluating 

borrowers for loss mitigation; and (3) 

appropriate timelines for the loss 

mitigation procedures. These topics are 

addressed in turn below. In certain 

circumstances, because the Bureau’s 

approach to loss mitigation is not 

limited to the loss mitigation procedures 

set forth in § 1024.41, but involves a 

coordinated use of tools set forth in 

different provisions of the mortgage 

servicing rules (including the error 

resolution procedures in § 1024.35, the 

reasonable information management 

policies and procedures in § 1024.38, 

the early intervention requirements in 

§ 1024.39, and the continuity of contact 

requirements in § 1024.40), the Bureau 

has implemented adjustments to other 

provisions in light of the comments 

received with respect to the loss 

mitigation procedures in § 1024.41 as 

discussed further below and in the 

discussions of the other sections as 

appropriate. 

Mandating Specific Loss Mitigation 

Criteria 

Consumer advocates submitted a 

significant number of comments 

requesting that the Bureau mandate 

criteria for loss mitigation programs. For 

example, twelve individual consumer 

advocacy groups, as well as two 

coalitions of consumer advocacy groups, 

commented that the Bureau’s proposal 

to require loss mitigation procedures 

did not go far enough to protect 

consumers from harms relating to the 

loss mitigation process. 

Many consumer advocate commenters 

set forth a list of goals that should be 

considered by the Bureau to guide the 

development of a fuller set of consumer 

protections relating to the loss 

mitigation process. These goals 

included: (1) The Bureau should 

mandate specific home-saving 

strategies, with affordable loan 

modifications ranked first and with an 

order of priority among types of 

modifications (e.g. temporary or 

permanent interest rate reduction, 

extension of term, reduction of 

principal, etc.); (2) the Bureau should 

require all servicers to offer affordable, 

net present value positive loan 

modifications to qualified homeowners 

facing hardship and should establish 

rules for determining what constitutes 

an affordable modification by 

establishing a maximum or target debtto-income ratio; 171 (3) the Bureau 

should require that successful trial loan 

modifications must be automatically 

converted to permanent modifications 

by servicers; 172 and (4) the Bureau 

should require servicers to notify 

homeowners regarding the status of 

evaluations for loss mitigation options 

in writing. Notably, one commenter 

stated that the Bureau should require 

that if a homeowner is ineligible for a 

loan modification option, a servicer 

should fully explore non-home 

retention options, such as cash-for-keys 

or deed-in-lieu of foreclosure, with the 

homeowner before a foreclosure is filed. 

Mandatory loan modifications were 

addressed by a number of other 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10817 

173See Laurie Goodman, Outlook and 

Opportunities U.S. RMBS Market (October 2012) 

(estimated originations through the first six months 

of 2012 were approximately $777 billion; 

originations for CY2011 were approximately $1.308 

trillion). See also Mortgage Bankers Association, 

MBA Increases Originations Estimate for 2012 by 

Almost $200 Billion (May 24, 2012) http:// 

www.mortgagebankers.org/NewsandMedia/ 

PressCenter/80910.htm. 

comment submissions. A coalition of 60 

consumer advocacy groups further 

commented that the Bureau should 

require loan modification programs 

similar to HAMP using a public and 

transparent net-present-value test 

mandated by the Bureau. One consumer 

advocacy group commented that a 

servicer should be required to offer loss 

mitigation when the servicer is a 

participant in a Federal, State, or private 

loss mitigation program or process. 

Further, one commenter stated that 

servicers should be prohibited from 

offering loss mitigation options that 

grossly deviate from standard industry 

practices. Finally, individual consumers 

that participated in a discussion of the 

proposed rules in connection with the 

Regulation Room project commented 

that the Bureau should mandate specific 

loan modification programs and 

requirements. 

On the other hand, three consumer 

advocacy groups expressly stated that 

the Bureau should not mandate specific 

loan modification programs and 

requirements. Although these groups 

advocated that the Bureau should 

mandate that all servicers engage in loss 

mitigation procedures and ‘‘include 

loan modifications that reduce 

payments to an affordable level as one 

of the loss mitigation options generally 

available to borrowers,’’ these groups 

recommended against prescribing 

specific loss mitigation criteria, 

specified waterfalls or debt-to-income 

targets, or net present value models or 

assumptions. Rather, these groups stated 

that servicers should be given discretion 

to implement loss mitigation programs. 

These groups did urge, however, that 

servicers should be responsible for 

implementing loss mitigation programs 

consistent with the requirements 

imposed by owners or assignees of 

mortgage loans with respect to the 

administration of those programs. 

In contrast with consumer advocates, 

industry commenters stated that 

regulations concerning loss mitigation 

procedures will limit the availability of 

loss mitigation options and restrict the 

availability of credit. Specifically, a 

community bank, a credit union, and a 

non-bank mortgage lender commented 

that mandating outcomes would be a 

disincentive to offering loss mitigation 

programs. Further, these commenters 

indicated that such programs would be 

costly and burdensome to implement. 

Further, a number of servicers, their 

trade associations, and a law firm stated 

that allowing a private right of action for 

loss mitigation options would 

substantially increase costs for lenders, 

limit the offering of loss mitigation 

options, and more generally, restrict the 

availability of credit. 

After careful consideration of the 

comments, the Bureau has decided to 

refrain at this time from mandating 

specific loss mitigation programs or 

outcomes. The Bureau continues to 

believe that it is necessary and 

appropriate to achieve the purposes of 

RESPA to implement required 

procedures for servicers’ evaluations of 

borrowers for loss mitigation options 

and that this approach will maintain 

consumer access to credit. 

As discussed in the 2012 RESPA 

Servicing Proposal, the Bureau is 

concerned that mandating specific loss 

mitigation programs or outcomes might 

adversely affect the housing market and 

the ability of consumers to access 

affordable credit. Even in its current 

constrained state, the mortgage market 

generates approximately $1.4 trillion 

dollars in new loans.173 The mortgage 

market necessarily depends on a large 

number of creditors, investors, and 

guarantors who are willing to accept the 

credit risk entailed in mortgage lending. 

The market is constrained today at least 

in part because, in the wake of the 

financial crisis, private capital is largely 

unwilling to accept that risk without a 

government guarantee. 

As with any secured lending, those 

who take the credit risk on mortgage 

loans do so in part in reliance on their 

security interest in the collateral. When 

a borrower is unable (or unwilling) to 

repay a loan, it is in the interest of those 

who own the loans to attempt to 

mitigate (i.e., reduce) their losses. There 

are myriad options, ranging from 

forbearance, to loan modification, to 

short sales, to foreclosure or deed-inlieu of foreclosure to achieve that end. 

Further, there is a wide range of 

borrower situations regarding which the 

borrower and owner or assignee of the 

mortgage loan must make judgments as 

to the desirable options. And for any 

given situation with respect to a 

borrower’s willingness and ability to 

pay, there are a large number of issues 

to resolve in determining how to 

structure a particular option, such as a 

forbearance plan, loan modification, or 

short sale. 

The Bureau understands that different 

creditors, investors, and guarantors have 

differing perspectives on how best to 

achieve loss mitigation based in part on 

their own individual circumstances and 

structures and in part on their market 

judgments and assessments. Community 

banks and credit unions with loans on 

portfolio may have a different 

viewpoint, for example, than large 

investors who purchased mortgage loans 

on the secondary market. Even 

government insurance programs adopt 

approaches that differ in material 

respects from each other, as well as from 

those programs implemented by the 

GSEs. 

The Bureau does not believe that it 

can develop, at this time, rules that are 

sufficiently calibrated to protect the 

interests of all parties involved in the 

loss mitigation process and is concerned 

that an attempt to do so may have 

unintended negative consequences for 

consumers and the broader market. Loss 

mitigation programs have evolved 

significantly since the onset of the 

financial crisis and the Bureau is 

concerned that an attempt to mandate 

specific loss mitigation outcomes risks 

impeding innovation, that would allow 

such programs to evolve to the needs of 

the market. The Bureau further believes 

that if it were to attempt to impose 

substantive loss mitigation rules on the 

market at this time, consumers’ access 

to affordable credit could be adversely 

affected. Creditors who were otherwise 

prepared to assume the credit risk on 

mortgages might be unwilling to do so, 

or might charge a higher price (interest 

rate) because they would no longer be 

able to establish their own criteria for 

determining when to offer a loss 

mitigation option in the event of a 

borrower’s default. Investors in the 

secondary market might likewise reduce 

their willingness to invest in mortgage 

securities or pay less for securities at 

present rates (thereby requiring 

creditors to charge higher interest rates 

to maintain the same yield). The cost of 

servicing might increase substantially to 

compensate servicers for the burden of 

complying with prescribed criteria for 

evaluation of loss mitigation 

applications. Based upon these 

considerations, the Bureau declines to 

prescribe specific loss mitigation criteria 

at this time. 

The Bureau is implementing 

requirements, however, for servicers to 

evaluate borrowers for loss mitigation 

options pursuant to guidelines 

established by the owner or assignee of 

a borrower’s mortgage loan. In order to 

effectuate this policy, the Bureau has 

created certain requirements in 

§ 1024.38, with respect to general 

servicing policies, procedures, and 

requirements, and other requirements in 

connection with the loss mitigation 

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10818 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

procedures in § 1024.41. Pursuant to 

§ 1024.38, servicers are required to 

maintain policies and procedures to 

achieve the objective of (1) identifying, 

with specificity, all loss mitigation 

options for which borrowers may be 

eligible pursuant to any requirements 

established by an owner or assignee of 

the borrower’s mortgage loan and (2) 

properly evaluating a borrower who 

submits an application for a loss 

mitigation option for all loss mitigation 

options for which the borrower may be 

eligible pursuant to any requirements 

established by the owner or assignee of 

the borrower’s mortgage loan. Further, 

in § 1024.41, the Bureau is 

implementing procedural protections 

for borrowers with respect to the 

process of obtaining an evaluation for 

loss mitigation options, as well as 

restrictions on the foreclosure process 

while a borrower is being evaluated for 

a loss mitigation option. Borrowers have 

a private right of action to enforce the 

procedural requirements in § 1024.41, as 

set forth in § 1024.41(a); borrowers do 

not, however, have a private right of 

action under the Bureau’s rules to 

enforce the requirements set forth in 

§ 1024.38 or to enforce the terms of an 

agreement between a servicer and an 

owner or assignee of a mortgage loan 

with respect to the evaluation of 

borrowers for loss mitigation options. 

The Bureau believes this framework 

provides an appropriate mortgage 

servicing standard; servicers must 

implement the loss mitigation programs 

established by owners or assignees of 

mortgage loans and borrowers are 

entitled to receive certain protections 

regarding the process (but not the 

substance) of those evaluations. 

In reaching the conclusion not to 

impose substantive requirements on loss 

mitigation programs, such as eligibility 

criteria, or to mandate the outcomes of 

loss mitigation processes, the Bureau 

recognizes that there is abundant 

evidence that the current system is not 

producing a level of loan modifications 

and other foreclosure alternatives that 

best meets the interests of distressed 

borrowers, the communities that would 

be hurt by borrowers’ loss of their 

homes, and owners or assignees of 

mortgage loans. To the extent that is the 

result of process failures by servicers— 

specifically, the lack of infrastructure to 

handle the flood of delinquent 

borrowers resulting from the financial 

crisis—the Bureau believes that it can 

best contribute to solving that problem 

through the rules it is adopting which, 

as previously discussed, will require 

servicers to establish policies and 

procedures governing servicer 

operations, to implement continuity of 

contact policies and procedures, to 

engage in early intervention with 

delinquent borrowers, and to comply 

with procedures regarding the 

evaluation of a borrower for loss 

mitigation options. Together, these 

requirements are necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA. 

To the extent the failure of the current 

system to produce an optimal level of 

loss mitigation is the result of servicers 

pursuing their self-interest rather than 

the interest of their principals (i.e. the 

owners or assignees of the mortgage 

loans), the Bureau is addressing that 

issue by requiring servicers to maintain 

policies and procedures reasonably 

designed to identify all available loss 

mitigation options of their principals 

and properly consider delinquent 

borrowers for all such options. 

The Bureau observes that the vast 

bulk of delinquent mortgages today are 

owned or guaranteed by governmental 

agencies such as FHA or by the GSEs in 

conservatorship. Those agencies, and 

the FHFA as conservator for the GSEs, 

are accountable to the public for 

meeting their statutory responsibilities 

to borrowers and taxpayers. The Bureau 

believes these agencies are best situated 

to establish loss mitigation programs for 

their mortgage loans, to determine the 

extent to which they believe it 

appropriate to allow individual 

borrowers to enforce their loss 

mitigation rules, and to evaluate 

whether a borrower should be able to 

obtain judicial review of the decision of 

a servicer in an individual case to offer 

a loss mitigation option. If the Bureau 

were to effectively mandate such 

review, the Bureau fears that investors 

and guarantors might dilute the 

obligations they impose on servicers or 

the loss mitigation options they make 

available. Such a result would not serve 

the interests of consumer or the housing 

market. Accordingly, the Bureau has 

determined not to establish substantive 

criteria for review of loss mitigation 

programs at this time and not to make 

investor guidelines with respect to loss 

mitigation enforceable against servicers 

by borrowers through RESPA. The 

Bureau will continue to monitor 

developments in the market and work 

with the prudential regulators, as well 

as other Federal agencies, to assess 

collectively whether additional rules are 

necessary and appropriate to improve 

outcomes for all participants in the 

mortgage market. 

Although the Bureau is not mandating 

specific loss mitigation criteria and, 

instead, is adopting a procedural 

approach, the Bureau is finalizing the 

loss mitigation procedures as proposed 

with significant adjustments, as set forth 

below, that are designed to enhance the 

effectiveness of the proposed 

procedures in light of the public 

comments. Such adjustments include, 

for example, expanding the scope of the 

loss mitigation procedures to apply to 

all servicers, not just servicers that offer 

loss mitigation options in the ordinary 

course of business, adjusting the 

timelines for the loss mitigation 

procedures, and implementing 

protections for borrowers from the 

harms of dual tracking. Although the 

Bureau believes that substantially all, if 

not all, servicers offer loss mitigation 

options, as defined by the Bureau, in the 

ordinary course of business, the Bureau 

acknowledges, and agrees with, 

comments received from consumer 

advocates that requiring servicers to 

comply with the loss mitigation 

requirements notwithstanding their 

business practices better achieves the 

consumer protection purposes of 

RESPA. 

As set forth more fully below (and 

above with respect to § 1024.38), the 

Bureau is also making adjustments to 

other sections of the rule to address 

concerns raised by certain consumer 

advocate commenters related to loss 

mitigation. For example, § 1024.38 

requires servicers to maintain policies 

and procedures reasonably designed to 

implement the loss mitigation program 

requirements established by owners or 

assignees of mortgage loans. Such 

programs may require servicers to 

consider whether a borrower’s material 

change in financial circumstances 

warrants further consideration of the 

availability of loss mitigation options 

and may require consideration of loss 

mitigation applications beyond the 

timelines required by the Bureau. 

Although the Bureau has determined 

not to adjust the loss mitigation 

procedures requirements in § 1024.41 to 

address such concerns, the Bureau has 

made adjustments to the requirements 

for servicers to adopt policies and 

procedures in § 1024.38, as set forth 

above, which has the effect of 

addressing such concerns. 

Restricting Dual Tracking 

The proposed rule would have 

required servicers to comply with the 

loss mitigation procedures by reviewing 

complete and timely loss mitigation 

applications before a servicer could 

proceed with a foreclosure sale. Timely 

applications included complete loss 

mitigation applications submitted 

within a deadline established by a 

servicer, which could be no earlier than 

90 days before a foreclosure sale. By 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10819 

prohibiting servicers from proceeding to 

a foreclosure sale while a complete and 

timely loss mitigation application is 

pending, the proposed rule would have 

addressed one of the most direct 

consumer harms resulting from 

concurrent evaluation of loss mitigation 

options and prosecution of foreclosure 

proceedings. 

The comments from consumer 

advocacy groups regarding dual tracking 

set forth three distinct themes: (1) 

Borrowers should have the opportunity 

to be reviewed for a loss mitigation 

option before a servicer begins a 

foreclosure process, (2) borrowers 

should not receive inconsistent 

communications relating to, or incur 

costs for, continuing the foreclosure 

process when a loss mitigation review is 

underway, and (3) borrowers should 

receive the protection of required loss 

mitigation procedures closer in time to 

the date of a foreclosure sale than 90 

days. The first two of these themes are 

addressed here and the third is 

addressed below with respect to 

timelines. 

Consumer advocates submitted a 

significant number of comments stating 

that although the Bureau’s proposal 

would address harms resulting from a 

foreclosure sale, other harms to 

consumers relating to dual tracking 

were not addressed by the proposed 

rule. These included consumer harms 

resulting from participating in the 

foreclosure process, including confusion 

from receiving inconsistent and 

confusing foreclosure communications, 

while loss mitigation reviews are ongoing. Such harm potentially may lead 

to failures by borrowers to complete loss 

mitigation processes that may have 

more beneficial consequences for 

borrowers as well as owners or 

assignees of mortgage loans. Further, 

borrowers may be negatively impacted 

because borrowers are responsible for 

accruing foreclosure costs while an 

application for a loss mitigation option 

is under review. These costs burden 

already struggling borrowers and may 

impact the evaluation and ultimate 

outcome for a borrower for a loss 

mitigation option. 

These commenters recommended that 

the Bureau restrict servicers from 

pursuing the foreclosure process and 

evaluating a borrower for loss mitigation 

options on dual tracks. For example, 

twelve individual consumer advocacy 

groups, as well as two coalitions of 

consumer advocacy groups stated that 

the Bureau should require servicers to 

undertake loss mitigation evaluations, 

including loan modification reviews 

and offers, prior to beginning the 

foreclosure process. These commenters 

further stated that homeowners 

applying for loss mitigation options 

after a foreclosure has started should 

have their foreclosures paused while 

their files are reviewed, and if needed, 

appealed, in a timely fashion. Further, 

three consumer advocacy groups 

commented that the Bureau should 

create a defined pre-foreclosure period 

of 120 days before a borrower can be 

referred to foreclosure. This period 

should also have a mandatory review of 

a borrower before proceeding with 

foreclosure. 

Industry commenters also addressed 

whether the Bureau should implement 

protections relating to dual tracking 

apart from the prohibition on 

foreclosure sale set forth in the 

proposal. Outreach with servicers and 

their trade associations indicated 

general support for maintaining 

consistency among any ‘‘dual tracking’’ 

requirements established by the Bureau 

and the National Mortgage Settlement. 

A law firm commented that the Bureau’s 

requirements with respect to ‘‘dual 

tracking’’ should model the National 

Mortgage Settlement. Notably, a 

community bank and its trade 

association commented that, as a 

consequence of the Bureau’s regulations 

on loss mitigation procedures, servicers 

may try to begin foreclosures as soon as 

possible after delinquency in order to 

evade the requirements of the Bureau’s 

loss mitigation procedures and preserve 

flexibility in handling the foreclosure 

process. 

The Bureau is persuaded by the 

comments that the potential harm to 

consumers of commencing a foreclosure 

proceeding before the consumer has had 

a reasonable opportunity to submit a 

loss mitigation application or while a 

complete loss mitigation application is 

pending is substantial. The fact that the 

GSEs and the National Mortgage 

Settlement both prohibit servicers from 

commencing foreclosure for a specified 

period of time to afford a borrower a 

reasonable opportunity to apply for a 

loss mitigation option is further 

persuasive that providing borrowers 

with the same protection would 

advance the consumer protection 

purposes of RESPA and would not 

present a significant risk of unintended 

consequences. 

Accordingly, in light of the 

comments, the Bureau has determined 

to implement restrictions on dual 

tracking beyond those set forth in the 

proposal. These restrictions have three 

main components. First, the Bureau is 

prohibiting a servicer of a mortgage loan 

subject to § 1024.41 from making the 

first notice or filing required for a 

foreclosure process unless a borrower is 

more than 120 days delinquent. After a 

borrower is 120 days delinquent, a 

servicer may make the first notice or 

filing required for a foreclosure process 

unless the borrower has submitted a 

complete loss mitigation application, in 

which case, the servicer must complete 

the review and appeal procedures set 

forth in § 1024.41 before starting the 

foreclosure process. If a borrower is 

performing under an agreement on a 

loss mitigation option, such as a trial 

modification, the servicer may not 

commence the foreclosure process. 

Second, the Bureau is expanding and 

clarifying the prohibition on proceeding 

with a foreclosure sale. If a borrower 

submits a complete loss mitigation 

application by an applicable deadline, 

as discussed below, a servicer must 

complete the loss mitigation procedures 

before proceeding to a foreclosure 

judgment, obtaining an order of sale for 

the property, or conducting a 

foreclosure sale. As set forth below, the 

Bureau has clarified that proceeding to 

a foreclosure judgment includes filing a 

dispositive motion, such as a motion for 

a default judgment, judgment on the 

pleadings, or summary judgment, which 

may result in the issuance of a 

foreclosure judgment. If such a motion 

is pending when a servicer receives a 

complete loss mitigation application, 

the servicer should take reasonable 

steps to avoid a ruling on such motion 

until completing the loss mitigation 

procedures. The Bureau is also 

finalizing the prohibition on proceeding 

with a foreclosure sale if a borrower is 

performing under a trial modification or 

other agreed upon loss mitigation 

option. 

Third, as set forth below with respect 

to timelines, the Bureau is 

implementing procedures applicable to 

the evaluation of complete loss 

mitigation applications submitted by 

borrowers less than 90 days before a 

foreclosure sale, but 37 days or more 

before a foreclosure sale. These 

procedures expand the protections from 

the harms of dual tracking to borrowers 

that submit complete loss mitigation 

applications closer in time to a 

foreclosure sale. The Bureau received 

comments from consumer advocates in 

states with non-judicial foreclosure 

processes that operate on relatively 

short timelines indicating that 

consumers in such states may not 

benefit from the protections 

implemented by the Bureau. The Bureau 

agrees with these comments and is 

implementing protections on dual 

tracking that address different timing 

scenarios. The Bureau believes that such 

provisions are necessary and 

appropriate to achieve the consumer 

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10820 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

174A large bank servicer also commented that in 

light of the incentives for the borrower, it should 

not be required to notify a consumer of a deadline 

so long as the communication with the consumer 

is not within 90 days of the foreclosure sale. 

protection purposes of RESPA, 

including ensuring that consumers in all 

jurisdictions have an opportunity to 

submit a complete loss mitigation 

application and avoid certain of the 

harms resulting from dual tracking. 

The Bureau is not, however, 

otherwise mandating a pause in 

foreclosure proceedings if a loss 

mitigation application is submitted after 

a foreclosure proceeding has been 

commenced. Once the foreclosure 

process is initiated, there are typically 

timelines for the steps that follow that 

are established by state law or, in 

judicial foreclosure jurisdictions, by 

court rules or orders entered in 

individual cases. Those timelines and 

steps vary from state to state and even 

from case to case. Some of these 

timelines and steps have been 

implemented to ensure that consumers 

receive the benefit of disclosures or 

processes enacted by state law to assist 

consumers. So long as a servicer does 

not proceed with a dispositive motion 

in a foreclosure action, the Bureau does 

not believe that the benefits that might 

accrue to borrowers from mandating a 

pause in a foreclosure proceeding 

(which pause may last for up to 88 days 

under the timelines the Bureau is 

mandating for resolving loss mitigation 

applications) are justified by the 

disruption that might result to state 

court proceedings from a mandated 

pause and the risk of a loss mitigation 

application being submitted 

strategically to delay or derail the 

foreclosure process. 

The Bureau recognizes that requiring 

a pause in foreclosures while a complete 

loss mitigation application is being 

considered would create incentives for 

servicers to address such applications 

expeditiously. The Bureau believes, 

however, that the best way to address 

this issue is by mandating strict 

deadlines for review of a complete loss 

mitigation application, as the Bureau is 

doing, and providing for enforcement of 

those deadlines through private rights of 

action. The Bureau also recognizes that 

a pause could reduce costs to borrowers 

that would otherwise be incurred for the 

foreclosure process while a loss 

mitigation application is under review. 

However, so long as a servicer adheres 

to the timelines established by the 

Bureau, the Bureau does not believe that 

these costs are likely to be substantial. 

Appropriate Timelines for the Loss 

Mitigation Procedures 

The proposed rule would have 

required mortgage servicers to comply 

with the procedures set forth in 

proposed § 1024.41 with respect to a 

complete loss mitigation application 

that was received by a deadline 

established by a servicer, which 

deadline could be no earlier than 90 

days before a foreclosure sale. In the 

proposal, the Bureau stated that a 90- 

day threshold set an appropriate line 

because a servicer who received a 

complete loss mitigation application 90 

days before a foreclosure sale would 

have 30 days to review a borrower’s 

application for a loss mitigation option, 

would be able to provide the borrower 

with 14 days to respond to the servicer’s 

offer of a loss mitigation option and/or 

to file an appeal, would be able to 

consider any timely appeal during a 

subsequent 30 day period, and would be 

able to provide the borrower with an 

additional 14 days to respond to any 

offer of a loss mitigation option after an 

appeal. Thus, with the timeline set 

forth, a servicer would be able to 

complete the entire process within 88 

days and a 90 day deadline could 

accommodate completing the process 

without rescheduling the foreclosure 

sale. Proposed comment 41(f)–1 would 

have clarified that where a foreclosure 

sale had not been scheduled, or where 

a foreclosure sale could occur less than 

90 days after the sale is scheduled 

pursuant to State law, a servicer should 

establish a deadline that is no earlier 

than 90 days before the day that a 

servicer reasonably anticipates that a 

foreclosure sale will be scheduled. 

Although some servicers and a trade 

association indicated support for the 90 

day maximum deadline, in general, 

commenters indicated substantial 

disagreement regarding the appropriate 

deadlines and framework for structuring 

timing requirements for reviewing loss 

mitigation applications. A substantial 

number of consumer advocacy groups 

objected to the underlying premise of 

the deadline requirement. In addition to 

establishing timeframes prior to a 

foreclosure referral, as discussed above, 

consumer advocacy groups stated that 

borrowers should be permitted to 

provide complete loss mitigation 

applications less than 90 days before a 

foreclosure sale and receive the 

protection of the procedures required by 

the Bureau. A housing counselor and 

three consumer advocacy groups 

indicated that the deadline should be 

extended until a maximum of 14 days 

before a foreclosure sale. Another 

consumer advocacy group stated that 

the deadline should be no more than 7 

days before a foreclosure sale. These 

commenters further recommended 

postponing a foreclosure sale if an 

application received at least 14 days 

before a sale is still in the review 

process by 14 days before a sale to allow 

time for review and appeals. Further, 

consumer advocacy groups operating in 

states with non-judicial foreclosure 

processes with relatively short timelines 

stated that borrowers may not be able to 

benefit from the loss mitigation 

procedures established by the Bureau 

within the 90-day deadline set forth in 

the proposal. 

Conversely, banks, credit unions, and 

non-bank servicers, as well as their 

trade associations, objected to the 

proposed 90 day deadline requirement 

because it would purportedly provide 

too much time for borrowers to pursue 

loss mitigation applications. Two credit 

unions, two large banks, and two nonbank servicers objected to the 90 day 

deadline on the basis that the rules 

should encourage borrowers to seek 

assistance at the earliest possible time 

while the delinquency may be curable 

and allow the borrower to retain the 

home. A non-bank servicer stated that it 

appreciated the 90 day deadline but 

indicated that this deadline could be so 

far after an initial delinquency in certain 

jurisdictions that it may lead to a 

borrower submitting an application after 

so much time has passed that no option 

could reasonably assist the borrower 

with curing a delinquency. Further, a 

non-bank servicer suggested the Bureau 

implement staged timelines rather than 

requiring servicers to establish timelines 

that may be inconsistent with state 

law.174

In light of the comments, the Bureau 

has reconsidered the proposed approach 

to timelines for the loss mitigation 

procedures and has made certain 

adjustments. The Bureau is persuaded 

that, however regrettable, some 

borrowers simply may not be prepared 

to come to terms with their situations 

and explore the availability of loss 

mitigation options until foreclosure is 

close at hand. The Bureau also is 

persuaded that it is necessary, and 

appropriate, to implement protections 

for consumers that apply for loss 

mitigation options closer in time to a 

foreclosure sale than 90 days. At the 

same time, the Bureau is cognizant that 

if applications received at the last 

moment were allowed to unduly delay 

a foreclosure from proceeding, there is 

a risk that the application process could 

be used tactically to stall foreclosure. 

Given that foreclosure timelines are 

already very long in many jurisdictions; 

given that the Bureau is implementing 

protections to mandate early 

communication with borrowers 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10821 

regarding loss mitigation options; and 

given that the Bureau is prohibiting 

servicers from proceeding to foreclosure 

unless a borrower is more than 120 days 

delinquent to ensure that borrowers 

have the opportunity to apply for loss 

mitigation options early in the 

delinquency timeline; the Bureau does 

not believe it is appropriate to permit 

applications provided shortly before a 

foreclosure sale to delay the foreclosure. 

Accordingly, as set forth below, 

instead of setting an overall deadline for 

the loss mitigation procedures, the 

Bureau is implementing timelines that 

provide different loss mitigation 

processes with differing levels of 

protection at certain stages of the 

foreclosure process. These requirements 

are: (1) Pursuant to § 1024.41(b)(2), a 

servicer must comply with the 

requirements relating to 

acknowledgement of a loss mitigation 

application and notice of additional 

documents and information required to 

complete a loss mitigation application 

for any loss mitigation application 

received 45 days or more before a 

foreclosure sale; (2) pursuant to 

§ 1024.41(c)(1), a servicer must evaluate 

within 30 days any complete loss 

mitigation application received more 

than 37 days before a foreclosure sale; 

(3) pursuant to § 1024.41(e)(1), if a 

servicer receives a complete loss 

mitigation application 90 days or more 

before a foreclosure sale, the servicer 

must provide the borrower at least 14 

days to accept or reject an offer of a loss 

mitigation option; if a servicer receives 

a complete loss mitigation application 

less than 90 days before a foreclosure 

sale but more than 37 days before a 

foreclosure sale, the servicer must 

provide the borrower at least 7 days to 

accept or reject an offer of a loss 

mitigation option; and (4) pursuant to 

§ 1024.41(h)(1), a servicer must comply 

with the appeal process for any 

complete loss mitigation application 

received 90 days or more before a 

foreclosure sale. Applying these 

timelines together yields four timing 

scenarios depending upon when a 

borrower submits a complete loss 

mitigation application. 

Scenario 1. If a borrower is less than 

120 days delinquent, or if a borrower is 

more than 120 days delinquent but the 

servicer has not made the first notice or 

filing required for a foreclosure process, 

and a borrower submits a complete loss 

mitigation application, the servicer (1) 

must review the complete loss 

mitigation application within 30 days, 

(2) must allow the borrower at least 14 

days to accept or reject an offer of a loss 

mitigation option, and (3) must permit 

the borrower to appeal the denial of a 

loan modification option pursuant to 

§ 1024.41(h)(1). Further, for all loss 

mitigation applications received in this 

timeframe, the servicer must comply 

with the requirements for 

acknowledging a loss mitigation 

application and providing notice of 

additional information and documents 

necessary to make an incomplete loss 

mitigation application complete. The 

servicer may not make the first notice or 

filing required for a foreclosure process 

unless these procedures are completed. 

Scenario 2. If a borrower submits a 

complete loss mitigation application 

after a servicer has made the first notice 

or filing for a foreclosure process, but 90 

days or more exist before a foreclosure 

sale, the servicer (1) must review the 

complete loss mitigation application 

within 30 days, (2) must allow the 

borrower at least 14 days to accept or 

reject an offer of a loss mitigation 

option, and (3) must permit the 

borrower to appeal the denial of a loan 

modification option pursuant to 

§ 1024.41(h). Further, for all loss 

mitigation applications received in this 

timeframe, the servicer must comply 

with the requirements for 

acknowledging a loss mitigation 

application and providing notice of 

additional information and documents 

necessary to make an incomplete loss 

mitigation application complete. The 

servicer may not proceed to foreclosure 

judgment or order of sale, or conduct a 

foreclosure sale, unless these 

procedures are completed. 

Scenario 3. If a borrower submits a 

complete loss mitigation application 

after a servicer has made the first notice 

or filing for a foreclosure process, and 

less than 90 days, but more than 37 

days, exist before a foreclosure sale, the 

servicer (1) must review the complete 

loss mitigation application within 30 

days, and (2) must allow the borrower 

at least 7 days to accept or reject an offer 

of a loss mitigation option. The servicer 

is not required to permit the borrower 

to appeal the denial of a loan 

modification option pursuant to 

§ 1024.41(h)(1). Further, the servicer 

must comply with the requirements for 

acknowledging a loss mitigation 

application and providing notice of 

additional information and documents 

necessary to make an incomplete loss 

mitigation application complete only if 

the loss mitigation application was 

received 45 days or more before a 

foreclosure sale. The servicer may not 

proceed to foreclosure judgment or 

order of sale, or conduct a foreclosure 

sale, unless these procedures are 

completed. 

Scenario 4. None of the loss 

mitigation procedures apply to a loss 

mitigation application, including a 

complete loss mitigation application, 

received 37 days or less before a 

foreclosure sale. Servicers are required, 

however, pursuant to § 1024.38 to 

implement policies and procedures 

reasonably designed to achieve the 

objective of reviewing borrowers for loss 

mitigation options pursuant to 

requirements established by an owner or 

assignee of a mortgage loan. As set forth 

below, nothing in § 1024.41 excuses a 

servicer from complying with additional 

requirements imposed by an owner or 

assignee of a mortgage loan. For 

example, the GSEs require servicers to 

engage in certain procedures to review 

loss mitigation applications submitted 

37 days or less before a foreclosure sale, 

and servicers may be required by the 

GSEs to comply with those 

requirements. The requirement to 

implement policies and procedures to 

achieve the objective of reviewing 

borrowers for loss mitigation options 

pursuant to requirements established by 

an owner or assignee of a mortgage loan 

includes timelines established by any 

such owner or assignee of a mortgage 

loan. 

Other Servicer Loss Mitigation 

Requirements 

As set forth above, the Bureau 

recognizes that servicers have many 

layers of requirements with which they 

must comply. These include 

requirements imposed by owners or 

assignees of mortgage loans, as well as 

requirements imposed by State law or 

pursuant to settlement agreements and 

consent orders. 

Notably, certain commenters 

requested clarification regarding the 

interaction between the proposed rules 

and certain existing servicing 

requirements. The GSEs commented 

that their processes allow reviews of 

loss mitigation applications closer in 

time to foreclosure than the 90 day 

timeline proposed by the Bureau and 

requested clarification regarding the 

impact of the proposed deadlines in the 

loss mitigation procedures and the GSE 

requirements. A non-bank servicer also 

requested clarification regarding the 

interaction of timelines imposed by the 

Bureau and existing State or local preforeclosure mediation requirements that 

may require a complete loss mitigation 

application package in advance of the 

mediation meeting. 

In order to reduce burden to servicers 

and costs to borrowers, the Bureau has 

sought to maintain consistency among 

§ 1024.41, the National Mortgage 

Settlement, FHFA’s servicing alignment 

initiative, Federal regulatory agency 

consent orders, and State law mortgage 

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10822 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

175See National Mortgage Settlement., at 

Appendix A, at A–19. 

servicing statutory requirements. In 

certain instances, each of these other 

sources of servicing requirements may 

be more restrictive or prescriptive than 

§ 1024.41. That is intentional. Section 

1024.41 establishes standard consumer 

protections and provides flexibility for 

Federal regulatory agency requirements, 

State law, or investor and guarantor 

requirements to impose obligations that 

may be more restrictive on servicers. 

Servicers should comply with the 

most restrictive requirements to which 

they are subject. For example, § 1024.41 

imposes requirements with respect to 

complete loss mitigation applications 

received more than 37 days before a 

foreclosure sale. This is consistent with 

the National Mortgage Settlement and 

GSE requirements.175 Notably, the 

National Mortgage Settlement and GSE 

requirements impose obligations to 

conduct an expedited loss mitigation 

evaluation for servicers with respect to 

loss mitigation applications received 37 

days or less before a foreclosure sale 

(although in certain circumstances the 

servicer is not necessarily required to 

complete the review before foreclosure). 

Nothing in § 1024.41 prohibits or 

impedes a servicer from complying with 

these requirements and servicers may be 

required to comply with requirements 

that are more prescriptive than the 

regulations implemented by the Bureau. 

Indeed, as noted, § 1024.38 requires 

servicers to maintain policies and 

procedures reasonably designed to 

achieve the objective of evaluating 

borrower for loss mitigation options 

pursuant to requirements established by 

owners or assignees of mortgage loans. 

Similarly, if a servicer is required to 

proactively engage with a borrower to 

evaluate a borrower for a loss mitigation 

option prior to engaging in a mandatory 

mediation or arbitration process, 

§ 1024.41 does not prohibit a servicer 

from obtaining a loss mitigation 

application before such process so long 

as the servicer complies with the 

procedures set forth in § 1024.41 with 

respect to such application. 

Legal Authority 

The Bureau relies on its authority 

under sections 6(j)(3), 6(k)(1)(C), 

6(k)(1)(E) and 19(a) of RESPA to 

establish final rules setting forth 

obligations on servicers to comply with 

the loss mitigation procedures in 

§ 1024.41. These loss mitigation 

procedures are necessary and 

appropriate to achieve the consumer 

protection purposes of RESPA, 

including by requiring servicers to 

provide borrowers with timely access to 

accurate and necessary information 

regarding an evaluation for a foreclosure 

avoidance option and to facilitate the 

evaluation of borrowers for foreclosure 

avoidance options. Further, the loss 

mitigation procedures implement, in 

part, a servicer’s obligation to take 

timely action to correct errors relating to 

avoiding foreclosure under section 

6(k)(1)(C) of RESPA by establishing 

servicer duties and procedures that 

must be followed where appropriate to 

avoid errors with respect to foreclosure. 

In addition, the Bureau relies on its 

authority pursuant to section 1022(b) of 

the Dodd-Frank Act to prescribe 

regulations necessary or appropriate to 

carry out the purposes and objectives of 

Federal consumer financial law, 

including the purposes and objectives of 

Title X of the Dodd-Frank Act. 

Specifically, the Bureau believes that 

§ 1024.41 is necessary and appropriate 

to carry out the purpose under section 

1021(a) of the Dodd-Frank Act of 

ensuring that markets for consumer 

financial products and services are fair, 

transparent, and competitive, and the 

objective under section 1021(b) of the 

Dodd-Frank Act of ensuring that 

markets for consumer financial products 

and services operate transparently and 

efficiently to facilitate access and 

innovation. The Bureau additionally 

relies on its authority under section 

1032(a) of the Dodd-Frank Act, which 

authorizes the Bureau to prescribe the 

rules to ensure that features of any 

consumer financial product or service, 

both initially and over the terms of the 

product or service, are fully, accurately, 

and effectively disclosed to consumers 

in a manner that permits consumers to 

understand the costs, benefits, and risks 

associated with the product or service, 

in light of the facts and circumstances. 

41(a) Enforcement and Limitations 

Proposed § 1024.41(a) would have 

required any servicer that offers loss 

mitigation options in the ordinary 

course of business to comply with the 

requirements of § 1024.41. The purpose 

of this section was to clarify that the 

requirements in proposed § 1024.41 are 

applicable only to those servicers that 

are engaged in a practice, in the 

ordinary course of business, of 

evaluating loss mitigation options for 

their own portfolios or pursuant to 

duties owed to investors or guarantors 

of mortgage loans. Further, proposed 

comment 41(a)–1 clarified that nothing 

in proposed § 1024.41 was intended to 

impose a duty on a servicer to offer loss 

mitigation options to borrowers 

generally or to offer or approve any 

particular borrower for a loss mitigation 

option. As set forth in the 2012 RESPA 

Servicing Proposal, the Bureau did not 

intend to create a private right of action 

for borrowers to enforce, in private 

litigation, any requirements that are 

imposed by owners or assignees of 

mortgage loans (including investors or 

guarantors) on servicers to mitigate 

losses for such parties. Rather, the 

Bureau intended that borrowers could 

enforce the loss mitigation procedures 

against servicers to ensure that servicers 

complied with the appropriate 

procedural steps before completing the 

foreclosure process when a borrower 

had submitted a complete loss 

mitigation application. 

If a servicer did not evaluate 

borrowers for loss mitigation options in 

the ordinary course of business, the 

servicer would not have been subject to 

proposed § 1024.41. In proposed 

comment 41(a)–2, the Bureau set forth 

examples of practices that, by 

themselves, would not have been 

considered indicia that a servicer had 

opted to offer loss mitigation options in 

the ordinary course of business. The 

Bureau notes, however, that the 

proposed definition of loss mitigation 

options in § 1024.31, however, was 

expansive, encompassing not just loan 

modifications, but also forbearance 

plans, short sale agreements, and deedin-lieu of foreclosure programs. The 

Bureau believes that substantially all, if 

not all, servicers offer these loss 

mitigation options in the ordinary 

course of business. 

Consumer advocate commenters 

stated that the loss mitigation 

procedures should not be limited to 

mortgage servicers that offered loss 

mitigation options in the ordinary 

course of business. These commenters 

stated that the recent financial crisis has 

demonstrated that reviewing borrowers 

for loss mitigation options has risen to 

the level of a standard servicer duty that 

should be expected of all mortgage 

servicers. Further, industry commenters 

did not take issue with the concept that 

engaging in loss mitigation should be 

considered a standard servicer duty. 

Rather, comments from industry 

focused instead on whether prescriptive 

loss mitigation requirements would 

adversely affect the manner in which 

servicers engage in reviews of borrowers 

for loss mitigation options. Specifically, 

a number of large banks and their trade 

associations stated that a private right of 

action for loss mitigation was a 

particular concern. These commenters 

indicated that borrowers should not be 

entitled to bring an action to enforce 

loss mitigation requirements set forth by 

an owner or assignee of a mortgage loan 

or a voluntary loss mitigation program 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10823 

(such as HAMP). In addition, the 

Bureau’s outreach and additional 

analysis raised questions regarding 

whether the scope of the loss mitigation 

provisions should be limited to a 

borrower’s principal residence 

consistent with other governmental 

initiatives. 

Community banks, credit unions, and 

their trade associations commented that 

the loss mitigation procedures (and 

other rulemakings not specifically 

required by the Dodd-Frank Act) should 

exempt small servicers. These 

commenters also argued that the 

definition of small servicers should be 

large enough to cover most credit 

unions and community banks. A trade 

association for reverse mortgage lenders 

commented that reverse mortgage 

servicers should be exempt from the 

proposed rules. Further, four farm credit 

system institutions stated that they 

should be exempt because they are 

required to comply with distressed 

borrower regulations promulgated by 

the Farm Credit Administration in 12 

CFR part 617. A nonprofit lender 

commented that bona-fide nonprofits 

should be exempt from the mortgage 

servicing rules. 

The Bureau has adjusted § 1024.41(a) 

in response to the public comments. 

First, the Bureau has revised 

§ 1024.41(a) to eliminate the limitation 

on the loss mitigation procedures to 

only those servicers that offer loss 

mitigation options in the ordinary 

course of business. The Bureau has not 

identified from the comments or 

outreach any servicers that did not offer 

loss mitigation options in the ordinary 

course of business as contemplated by 

the Bureau and would not have been 

subject to § 1024.41 as proposed. 

Moreover, the Bureau believes that 

owners or assignees of mortgage loans 

should determine whether they will 

offer loss mitigation options and, if so, 

the Bureau does not believe an 

exemption from complying with the loss 

mitigation procedures should exist 

based on separate business practices of 

a servicer. Further, the Bureau believes 

that it is preferable that temporary or 

pilot programs should be addressed 

through clarifications regarding for 

which programs, if any, a servicer 

should evaluate a borrower’s 

application, not by limiting the overall 

application of the loss mitigation 

procedures. Accordingly, § 1024.41(a) 

has been adjusted to require that 

servicers comply with the requirements 

of § 1024.41 without consideration of 

whether a servicer currently offers loss 

mitigation options in the ordinary 

course of business. 

Second, for the reasons set forth above 

with respect to § 1024.30, the scope of 

§ 1024.41 has been changed to limit the 

scope of the loss mitigation procedures 

to a borrower’s principal residence. 

Third, for the reasons set forth above 

with respect to § 1024.30, the Bureau 

has exempted from the loss mitigation 

procedures requirements (1) small 

servicers (with the exception of 

§ 1024.41(j)), (2) reverse mortgage 

transactions, and (3) ‘‘qualified lenders’’ 

that are required to comply with Farm 

Credit Administration regulations 

relating to distressed borrowers. 

Finally, the Bureau observes that the 

loss mitigation procedures are issued, 

among other authorities, pursuant to the 

Bureau’s authority under section 6 of 

RESPA. Violations of section 6 of 

RESPA are subject to a private right of 

action pursuant to section 6(f) of 

RESPA. Servicers may be liable to 

borrowers pursuant to section 6(f) of 

RESPA for failure to comply with the 

loss mitigation procedures in § 1024.41. 

The Bureau believes a private right of 

action for borrowers to enforce the loss 

mitigation procedures is necessary to 

ensure that individual borrowers have 

the necessary tools to ensure they 

receive the benefit of the loss mitigation 

procedures in their own individual 

circumstances. Further, the Bureau 

believes that the risk of a private right 

of action will not negatively impact 

access to, or cost of, credit. The 

requirements in § 1024.41 include clear 

procedural requirements and have been 

calibrated to avoid risks of litigation 

relating to owner or assignee contractual 

requirements, as discussed below. 

Further, the requirements in § 1024.41 

are consistent with requirements 

already implemented by the GSEs, the 

National Mortgage Settlement, and 

certain State laws, with respect to 

certain servicers. Accordingly, the 

Bureau has revised § 1024.41(a) to 

reflect the effect of section 6(f) of RESPA 

with respect to a private right of action. 

Although servicers are required to 

comply with the procedural 

requirements of § 1024.41, the Bureau 

has clarified in response to inquiries 

raised by commenters that servicers are 

not required by the Bureau’s rules to 

offer any particular loss mitigation 

option to any particular borrower. 

Nothing in § 1024.41 should affect 

whether a borrower is permitted as a 

matter of contract law to enforce the 

terms of any contract or agreement 

between a servicer and an owner or 

assignee of a mortgage loan. 

Accordingly, the Bureau finalizes 

§ 1024.41(a) by relocating the substance 

of proposed comment 41(a)–1 in the text 

of § 1024.41(a). Section 1024.41(a) 

provides that nothing in § 1024.41 

imposes a duty on a servicer to offer any 

borrower any particular loss mitigation 

option. Further, § 1024.41(a) states 

nothing in § 1024.41 should be 

construed to permit a borrower to 

enforce the terms of any agreement 

between a servicer and the owner or 

assignee of a mortgage loan, including 

with respect to the evaluation for, or 

provision of, any loss mitigation option. 

41(b) Loss Mitigation Application 

Proposed § 1024.41(b) defined the 

term complete loss mitigation 

application and set forth requirements 

for servicers with regard to both 

complete and incomplete loss 

mitigation applications. Specifically, 

proposed § 1024.41(b)(1) stated that a 

complete loss mitigation application 

means a borrower’s submission 

requesting evaluation for a loss 

mitigation option for which a servicer 

has received all the information the 

servicer regularly obtains and considers 

in evaluating a loss mitigation 

application by the deadline established 

by the servicer. Proposed § 1024.41(b)(2) 

would have required a servicer that 

receives an incomplete loss mitigation 

application to exercise reasonable 

diligence in obtaining information from 

a borrower to make the application 

complete. Further, proposed 

§ 1024.41(b)(2) would have required a 

servicer that receives an incomplete loss 

mitigation application earlier than 5 

days (excluding legal public holidays, 

Saturdays, and Sundays) before the 

deadline established by the servicer to 

notify the borrower that the application 

was incomplete, the documents and 

information necessary to make the 

application complete, and the date by 

which the borrower must submit such 

documents. The servicer would have 

been required to provide the notice 

within 5 days (excluding legal public 

holidays, Saturdays, and Sundays) after 

receiving an incomplete loss mitigation 

application. 

The Bureau received numerous 

comments regarding these requirements. 

First, the Bureau received comments 

regarding the definition of a loss 

mitigation application and a complete 

loss mitigation application. A large bank 

servicer requested clarification 

regarding prequalification processes, 

including whether oral communications 

with borrowers should be considered a 

loss mitigation application. A non-bank 

servicer commented that defining a 

complete loss mitigation application as 

requiring all the information the 

servicer ‘‘regularly obtains’’ is both 

ambiguous and unduly limiting with 

respect to evaluations of borrowers in 

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10824 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

substantially different circumstances or 

subject to substantially different 

investor requirements. The commenter 

suggested instead that the Bureau define 

a complete loss mitigation application 

as a borrower’s submission requesting 

evaluation for a loss mitigation option 

for which a servicer has received all the 

information the servicer obtains and 

considers in evaluating a loss mitigation 

application for a particular loan type, 

investor, or other group of loans, as 

deemed appropriate by the servicer. 

Second, the Bureau received 

comments regarding servicer obligations 

upon receipt of a loss mitigation 

application. Specifically, four consumer 

advocacy groups stated that servicers 

should be required to review a loss 

mitigation application for completeness 

promptly upon receipt. Conversely, a 

trade association commented that five 

days is too short a time to evaluate a 

loss mitigation application, determine 

that it is incomplete, determine what 

additional documentation is needed, 

and generate a notice to the borrower. A 

financial industry trade association 

requested that the Bureau provide 

guidance in the form of examples of 

‘‘reasonable diligence’’ to obtain 

information from borrowers. The 

commenter suggested that one example 

be that the servicer sends a letter or 

electronic communication to the 

borrower with a list of what information 

is needed and how the borrower can 

submit that information. 

Third, a non-bank servicer 

commented that the Bureau should 

create standard loss mitigation 

applications so that industry may align 

around similar loss mitigation strategies. 

Finally, a coalition of 60 consumer 

advocacy groups commented that the 

Bureau should mandate that servicers 

provide borrowers that submit 

incomplete loss mitigation applications 

a reasonable amount of time to complete 

the applications. 

The Bureau has adjusted § 1024.41(b) 

in response to the public comments. 

First, the Bureau agrees with 

commenters that further clarification 

regarding the definitions of the term loss 

mitigation application and complete 

loss mitigation application is 

appropriate. Section 1024.31 defines a 

loss mitigation application to mean an 

oral or written request for a loss 

mitigation option that is accompanied 

by any information required by a 

servicer for evaluation for a loss 

mitigation option. This definition is 

intended to distinguish between 

inquiries regarding the availability of 

loss mitigation options and an actual 

request for an evaluation for a loss 

mitigation option. The Bureau intends 

the loss mitigation procedures to apply 

when servicers receive loss mitigation 

applications during oral 

communications with borrowers, 

including communications between the 

borrower and any contact personnel 

assigned to the borrower’s mortgage 

loan account pursuant to § 1024.40. 

The definition of a complete loss 

mitigation application (and, 

consequently, an incomplete loss 

mitigation application) has been 

designed similarly to the complete and 

incomplete application concepts 

underlying Regulation B. See 12 CFR 

1002.2(f), 1002.9(c). Thus, at a point in 

a conversation between a borrower and 

a mortgage servicer, if the borrower 

requests an evaluation for a loss 

mitigation option and provides 

information to the servicer that will be 

used in the evaluation of a loss 

mitigation application, the borrower has 

made a loss mitigation application, and 

the servicer, pursuant to 

§ 1024.41(b)(2)(i)(A), must review the 

application promptly to determine 

whether it is complete or incomplete. 

If a loss mitigation application is 

complete and has been submitted by an 

applicable deadline, the servicer must 

evaluate the loss mitigation application 

pursuant to the requirements in 

§ 1024.41. Under § 1024.41(b)(1), a 

complete loss mitigation application 

means an application in connection 

with which a servicer has received all 

the information that the servicer 

requires from a borrower in evaluating 

applications for the loss mitigation 

options available to the borrower. The 

Bureau has removed the requirement 

that a loss mitigation application must 

include all the information the servicer 

regularly obtains and considers in 

evaluating loss mitigation applications. 

This change is intended to further the 

goal of providing servicers flexibility to 

determine the information required for 

any individual mortgage loan borrower’s 

application for a loss mitigation option 

and require servicers to consider an 

application complete notwithstanding 

that the borrower has not submitted 

certain information that the servicer 

may regularly require but is irrelevant 

with respect to a particular borrower. 

Thus, under § 1024.41(b)(1), a loss 

mitigation application is complete when 

a servicer receives all information that 

a servicer requires from a borrower. 

Section 1024.41(b)(1) requires a 

servicer to exercise reasonable diligence 

in obtaining information to complete a 

loss mitigation application and to 

evaluate a complete loss mitigation 

application. Accordingly, a servicer is 

required to exercise reasonable 

diligence to follow up with borrowers to 

obtain any information the borrower has 

not submitted that is necessary to make 

the application complete and to ensure 

that the servicer timely receives any 

necessary third-party information, such 

as an automated valuation or consumer 

report. Contrary to requests from 

commenters, the Bureau declines to 

implement commentary that providing 

the notice required by § 1024.41(b)(2) 

constitutes reasonable diligence for 

purposes of § 1024.41(b)(1). Rather, 

reasonable diligence is based on the 

circumstances, including the 

circumstances of any continuing 

discussions between a borrower and the 

contact personnel assigned pursuant to 

§ 1024.40. Such contact personnel 

should have information regarding the 

status of a borrower’s loss mitigation 

application and should work with 

borrowers to make any such loss 

mitigation application complete. The 

Bureau has added commentary to clarify 

this requirement as set forth below. 

The Bureau has added commentary to 

§ 1024.41(b) to clarify the meaning of a 

complete loss mitigation application. 

The Bureau has added comment 

41(b)(1)–1 to clarify that a servicer, 

consistent with the requirements of the 

investor or assignee with respect to a 

particular mortgage, has flexibility to 

establish application requirements for a 

loss mitigation option offered by an 

owner or assignee and to decide the 

type and amount of information it will 

require from borrowers applying for loss 

mitigation options. The Bureau agrees 

with the comments that servicers may 

require different application 

information for loss mitigation programs 

undertaken for different owners or 

assignees of mortgage loans. Different 

owners or assignees may establish 

widely varying criteria and 

requirements for loss mitigation 

evaluations, and servicers may require 

different forms and types of information 

to effectuate such programs. The Bureau 

believes the requirement that a complete 

loss mitigation application contain 

information required by servicers 

provides appropriate flexibility to 

servicers to determine application 

requirements consistent with the variety 

of borrower circumstances or owner or 

assignee requirements that servicers 

must evaluate and to ensure that 

individual borrowers are not obliged to 

provide information or documents that 

are unnecessary and inappropriate for a 

loss mitigation evaluation. 

The Bureau has added comments 

41(b)(1)–2 and 41(b)(1)–3 in response to 

comments requesting clarity regarding 

prequalification programs and other 

feedback seeking clarification regarding 

informal communications between 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10825 

servicers and borrowers. As set forth 

above, the Bureau received a comment 

from a large bank servicer requesting 

clarification regarding prequalification 

programs. Further, in outreach, another 

large bank servicer requested 

clarification regarding whether the 

Bureau’s regulations, and specifically, 

the error resolution and the loss 

mitigation procedures represented a 

policy of regulation of informal 

communication. 

Although the Bureau has withdrawn 

the proposed requirements regarding 

oral error resolution and information 

request process with respect to 

§§ 1024.35–1024.36, the Bureau believes 

that the loss mitigation procedures 

should apply when a borrower orally 

requests evaluation for a loss mitigation 

option. One of the principal goals of the 

early intervention and continuity of 

contact requirements of the rule is to 

establish oral communications between 

servicers and borrowers; it would be 

inconsistent with that purpose to ignore 

these communications in determining 

whether a borrower has requested 

consideration for a loss mitigation 

option. Further, one of the purposes of 

the loss mitigation procedures is to 

provide accurate information to 

borrowers and to facilitate the 

evaluation of foreclosure avoidance 

options by creating uniform evaluation 

processes and ensuring that a borrower 

obtains an evaluation for all loss 

mitigation options available to the 

borrower. That purpose may be 

circumvented if the loss mitigation 

requirements focused only on written 

communications, and a servicer could 

steer a borrower into a specific loss 

mitigation option through oral 

communications. Consistent with the 

requirements set forth in Regulation B 

regarding applications for credit, the 

Bureau believes it is necessary and 

appropriate to achieve the purposes of 

RESPA to implement requirements on 

servicers to treat oral communications 

that have sufficiently passed the point 

of inquiries as loss mitigation 

applications subject to the loss 

mitigation procedures. 

The Bureau has added comment 

41(b)(1)–2 to clarify when an inquiry or 

prequalification request becomes an 

application. The Bureau recognizes 

there is substantial ambiguity in 

interpersonal communications but 

believes that loss mitigation 

applications should be considered 

expansively. For example, if a borrower 

indicates that the borrower would like 

to apply for a loss mitigation option and 

provides any information the servicer 

would evaluate in connection with a 

loss mitigation application, a borrower 

has submitted a loss mitigation 

application. Because a servicer must 

exercise reasonable diligence in making 

a loss mitigation application complete, 

the Bureau believes appropriate 

communication with a borrower that 

expresses an interest in a loss mitigation 

option is to clarify the borrower’s 

intention regarding the submission and 

to obtain information from the borrower 

to make a loss mitigation application 

complete. 

Not all communications regarding 

loss mitigation options will constitute 

loss mitigation applications. 

Accordingly, the Bureau has added 

comment 41(b)(1)–3 to illustrate 

circumstances where oral 

communications will not constitute a 

loss mitigation application. Comment 

41(b)(1)–3.i states that a borrower calls 

to ask about loss mitigation options and 

servicer personnel explain the loss 

mitigation options available to the 

borrower and the criteria for 

determining the borrower’s eligibility 

for any such loss mitigation option. In 

this example, only an inquiry has taken 

place. The borrower has not submitted 

information that would be evaluated in 

connection with a loss mitigation 

option. Comment 41(b)(1)–3.ii states 

that a borrower calls to ask about the 

process for applying for a loss 

mitigation option but the borrower does 

not provide any information that a 

servicer would consider for evaluating a 

loss mitigation application. A servicer 

that provides information regarding the 

process for applying for a loss 

mitigation application has not taken a 

loss mitigation application in this 

circumstance. 

The Bureau has added comment 

41(b)(1)–4 to indicate how a servicer 

should comply with its requirement to 

undertake reasonable diligence to obtain 

the information necessary to make an 

incomplete loss mitigation application 

complete. For example, a servicer must 

request information necessary to make a 

loss mitigation application complete 

promptly after receiving the loss 

mitigation application. Comment 

41(b)(1)–4.i provides that reasonable 

diligence requires contacting an 

applicant promptly to obtain 

information missing from a loss 

mitigation application, like an address 

or telephone number to verify 

employment. This obligation exists 

notwithstanding a servicer’s obligation 

to provide a notice pursuant to 

§ 1024.41(b)(2)(i)(B). Further, comment 

41(b)(1)–4.ii provides that reasonable 

diligence also includes reviewing 

documents that may have been included 

in connection with a servicing transfer 

to determine if a borrower previously 

submitted information or documents to 

a transferor servicer that may complete 

a loss mitigation application. 

The Bureau has added comment 

41(b)(1)–5 regarding circumstances 

where a servicer requires information 

that is not in the borrower’s control. A 

loss mitigation application is complete 

when a borrower provides all 

information required from the borrower 

notwithstanding that additional 

information may be required by a 

servicer that is not in the control of a 

borrower. For example, if a servicer 

requires a consumer report for a loss 

mitigation evaluation, a loss mitigation 

application is considered complete if a 

borrower has submitted all information 

required from the borrower without 

regard to whether a servicer has 

obtained a consumer report that a 

servicer has requested from a consumer 

reporting agency. 

The Bureau has also adjusted the 

requirements in § 1024.41(b)(2) with 

respect to a servicer’s obligation upon 

receipt of a loss mitigation application. 

The Bureau agrees with the comments it 

received that a servicer should be 

required to promptly evaluate a loss 

mitigation application to determine 

whether the application is complete or 

incomplete. Accordingly, 

§ 1024.41(b)(2)(i)(A) requires a servicer 

that receives a loss mitigation 

application to determine promptly upon 

receipt whether such application is 

complete or incomplete. Further, under 

§ 1024.41(b)(2)(i)(B), a servicer must 

notify a borrower in 5 days (excluding 

legal public holidays, Saturdays, and 

Sundays) regarding whether the servicer 

has determined an application is 

complete or incomplete. 

Proposed § 1024.41(b)(2) would have 

required a servicer that receives a loss 

mitigation application to provide a 

notice to a borrower only in the event 

a loss mitigation application is 

incomplete. The Bureau recognizes, 

however, that a borrower that submits a 

complete loss mitigation application 

may not realize that such application 

has been considered complete and that 

an evaluation for a loss mitigation 

application is ongoing. Accordingly, 

§ 1024.41(b)(2)(i)(B) requires providing a 

notice to a borrower regardless of 

whether the application is complete or 

incomplete. 

Section 1024.41(b)(2)(i)(B) further 

requires a servicer that determines a loss 

mitigation application is incomplete to 

notify the borrower of the additional 

documents and information the 

borrower must submit to make the loss 

mitigation application complete and the 

date by which the borrower must submit 

the additional documents and 

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10826 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

176See United States of America v. Bank of 

America Corp., at Appendix A, at A–26, http:// 

www.nationalmortgagesettlement.com; Freddie Mac 

Single Family Seller/Servicer Guide, Vol. 2 

§ 64.6(d)(4) (2012); Fannie Mae Single Family 

Servicing Guide § 205.07 (2012). 

information to be reviewed. The notice 

to the borrower must also include a 

statement that the borrower should 

consider contacting servicers of any 

other mortgage loans secured by the 

same property to discuss available loss 

mitigation options. The Bureau has 

added this statement to the notice in 

connection with withdrawing proposed 

§ 1024.41(j), discussed below, with 

respect to providing a loss mitigation 

application to servicers of other 

mortgage loan liens. Further, because of 

the added content of the notice and the 

requirements with respect to oral 

communications constituting loss 

mitigation applications, the Bureau has 

determined to withdraw the proposal 

that the notice required pursuant to 

§ 1024.41(b)(2)(i)(B) could be provided 

orally. Rather, the Bureau has 

determined the notice must be provided 

in writing. 

Finally, the Bureau finds that 5 days 

(excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable 

amount of time for a servicer to comply 

with the requirements for an incomplete 

loss mitigation application. Fannie Mae 

and Freddie Mac guidelines, as well as 

the National Mortgage Settlement, 

require servicers to provide a 

substantially similar but, in some cases, 

more prescriptive, notice within 5 

business days of receipt of an 

incomplete loss mitigation 

application.176

The Bureau has added 

§ 1024.41(b)(2)(ii) to clarify how a 

servicer communicates to a borrower the 

deadline by which the borrower should 

submit a complete loss mitigation 

application. A servicer must state to the 

borrower that the borrower should 

submit documents needed to complete 

the application by the earliest remaining 

date of four potential options. The rule 

provides that a servicer must disclose 

the date a borrower should complete a 

loss mitigation application, rather than 

the date a borrower must complete a 

loss mitigation application, because the 

effect of the various timelines is that a 

borrower may miss the deadline 

communicated by the servicer but still 

be able to submit a complete loss 

mitigation application in the future (and 

thus a requirement that a borrower must 

complete an application by an earlier 

deadline may be inaccurate). However, 

a borrower should complete the 

application by the applicable deadline 

in order to incur the lowest application 

burden and to gain the benefit of the 

most consumer protections for the loss 

mitigation application. Further, the 

Bureau agrees with comments received 

from a number of servicers and their 

trade associations that it is appropriate 

to encourage earlier submission of loss 

mitigation applications by borrowers. 

A servicer must state that the 

borrower should provide the documents 

and information by the earliest 

remaining date of: (a) The date by which 

any document or information already 

submitted by a borrower will be 

considered stale or invalid pursuant to 

any requirements applicable to any loss 

mitigation program available to the 

borrower; (b) the date that is the 120th 

day of the borrower’s delinquency; (c) 

the date that is 90 days before a 

foreclosure sale; or (d) the date that is 

38 days before a foreclosure sale. Dates 

in (b), (c), and (d) are designed to match 

the various scenarios set forth above 

with respect to the timing of the loss 

mitigation procedures. The date in (a) is 

meant to incorporate any internal 

servicer policy to ensure that borrowers 

do not submit documents beyond the 

date when documents and information 

previously provided are considered 

stale or invalid, which would frustrate 

the process of obtaining a complete loss 

mitigation application. 

41(c) Evaluation of Loss Mitigation 

Applications 

Proposed § 1024.41(c) would have 

required that, within 30 days of 

receiving a complete loss mitigation 

application, a servicer must evaluate the 

borrower for all loss mitigation options 

available to the borrower and provide 

the borrower with a written notice 

stating the servicer’s determination of 

whether it will offer the borrower a loss 

mitigation option. In the proposal, the 

Bureau stated that it was appropriate to 

require servicers to evaluate complete 

loss mitigation applications within 30 

days because review of a loss mitigation 

application in 30 days is an industry 

standard, as discussed above. 

The Bureau further stated that it is 

appropriate to require a servicer to 

evaluate a borrower for all loss 

mitigation options available to the 

borrower rather than requiring 

borrowers to select options for which 

the borrower may be evaluated. A 

servicer is in a better position than a 

borrower to determine the loss 

mitigation programs for which a 

borrower may qualify. Requiring that a 

borrower select a loss mitigation option 

for which the borrower may be 

considered, or only evaluating a 

borrower for a few loss mitigation 

options, may cause a borrower to accept 

or reject an option without seeking 

evaluation for another option. This may 

lead to less effective programs, disparate 

outcomes for similarly situated 

borrowers, and longer timelines for 

effectuating loss mitigation options. 

Instead, the Bureau has proposed that a 

servicer evaluate a borrower for all loss 

mitigation programs available to the 

borrower. The Bureau believes that this 

approach will ensure that all borrowers 

receive fair evaluations for all options 

available to them and will be able to 

select options appropriate for their 

circumstances. In sum, owners or 

assignees of mortgage loans (including 

investors, guarantors, and insurers that 

establish criteria governing loss 

mitigation programs) retain the ability to 

manage loss mitigation programs to 

ensure that borrower eligibility and 

program administration is consistent 

with their requirements, while 

borrowers will be able to understand all 

potential options that may be available. 

Consumer advocate commenters 

supported the proposed requirement 

that a servicer evaluate a borrower for 

all loss mitigation options available to 

the borrower within 30 days. For 

example, one such commenter stated 

that the rule as proposed would add 

more transparency in the loss mitigation 

process, would enable borrowers to 

make a more informed decision on their 

loss mitigation options, and would 

actually reduce paperwork burdens on 

borrowers by eliminating the necessity 

of a borrower having to send duplicate 

and additional paperwork each time a 

borrower requested consideration for a 

different loss mitigation option. 

Conversely, industry commenters, 

including numerous large banks, credit 

unions, community banks, non-bank 

servicers, and their trade associations, 

generally opposed the requirement that 

a servicer review a borrower for all loss 

mitigation options available to the 

borrower within 30 days. These 

commenters generally believed that 

servicers should be permitted to follow 

investor waterfalls for foreclosure 

prevention options. These commenters 

stated that the volume of documents 

borrowers may be required to submit to 

effectuate a review of all loss mitigation 

options may be substantial. Further, 

industry commenters stated that the rule 

as proposed would require overly 

complicated and unclear 

communications with customers and 

those customers should be entitled to a 

communication only about the option 

for which they specifically applied. 

Commenters requested that the 

Bureau permit servicers to allow 

borrowers to choose between home 

retention and non-home retention 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10827 

177Notably, a large bank servicer stated that the 

30 day requirement should be waived if a servicer 

does not have delegated authority to approve loss 

mitigation options. The commenter’s suggestion is 

contrary to the purposes of the loss mitigation 

procedures and the general servicing policies, 

procedures, and requirements (which require a 

servicer to establish policies and procedures for 

identifying with specificity the loss mitigation 

options that are available to borrowers and 

evaluating borrowers for loss mitigation options 

pursuant to requirements established by an owner 

or assignee of a mortgage loan). 

options for evaluations. For example, a 

Federal agency stated that servicers 

should be able to separate borrowers for 

evaluation purposes based upon 

whether a hardship is temporary or 

permanent and, accordingly, whether a 

home retention or non-home retention 

option is appropriate. A law firm 

commented that servicers should be 

able to apply different evaluations for 

borrowers that indicate a preference for 

a home retention or non-home retention 

option. A small credit union and three 

community bank commenters stated 

that loss mitigation should be a flexible 

process and prescriptive requirements 

that servicers review for all options may 

reduce optionality in favor of a ‘‘one 

size fits all’’ process. Further, a credit 

union trade association stated that 

requiring credit unions to review for all 

loss mitigation options would be overly 

burdensome. One trade association 

requested that the requirement that a 

servicer be required to review for all 

loss mitigation options should be 

withdrawn because it is not required by 

the Dodd-Frank Act and because 

providing a notice of all options will 

result in appeals from borrowers seeking 

more attractive workout options.177

Finally, a large bank servicer and a 

Federal agency requested clarification 

that a servicer is not required to provide 

borrowers with information about 

modifications that are not available to 

the borrower. 

For the reasons discussed below, the 

Bureau is adopting § 1024.41(c) as 

proposed with minor modifications. 

Further, the Bureau is adopting the 

commentary to § 1024.41(c) with minor 

modifications. The requirements of 

proposed § 1024.41(c) are located within 

§ 1024.41(c)(1). The Bureau has also 

added § 1024.41(c)(2) to implement 

requirements for offering loss mitigation 

options to borrowers that have not 

completed loss mitigation applications, 

which are discussed below. 

Eligibility Criteria 

The Bureau agrees with commenters 

that owners and assignees of mortgage 

loans should have latitude to establish 

appropriate loss mitigation programs 

and the eligibility criteria for such 

programs. For example, if a servicer 

services mortgage loans for itself and for 

the GSEs, a servicer is only required to 

review a borrower whose mortgage loan 

is guaranteed by the GSEs for programs 

approved by the GSEs, pursuant to 

criteria established by the GSEs. The 

servicer is not required to review the 

GSE borrower for loss mitigation 

options the servicer implements for 

mortgage loans owned by the servicer or 

another investor, because such loss 

mitigation options are not available to 

the borrower and any such evaluation is 

unnecessary and futile. Further, the 

applicable owner or assignee has 

latitude to set forth any evaluation 

criteria the owner or assignee deems 

appropriate. If a loss mitigation option 

is only available for military 

servicemembers, a servicer has 

conducted a proper evaluation if it 

determines that the borrower is not a 

servicemember and, therefore, does not 

meet the eligibility criteria for the 

program. Similarly, to the extent 

eligibility criteria for pilot programs, 

temporary programs, or programs that 

are limited by the number of 

participating borrowers, would exclude 

a borrower from eligibility, a servicer is 

not obligated to evaluate the borrower 

for any such loss mitigation option as if 

such eligibility criteria did not exist. 

The owner or assignee of a mortgage 

loan has the freedom to establish or 

authorize any programs it deems 

appropriate and to establish or authorize 

the eligibility criteria for such programs 

that the owner or assignee deems 

appropriate; a servicer is only obligated 

to provide the borrower a notice stating 

the results of the servicer’s review of the 

borrower’s complete loss mitigation 

application for the programs established 

or authorized by the owner or assignee 

of a mortgage loan. To this end, the 

Bureau has clarified in § 1024.41(c)(1) 

that a servicer is required to evaluate a 

borrower for all loss mitigation options 

available to the borrower. 

Use of a ‘‘waterfall’’ as an eligibility 

criterion. The Bureau believes the 

requirements in § 1024.41(c)(1) to 

evaluate a loss mitigation application 

for all loss mitigation options available 

to the borrower is not inconsistent with 

a determination by an owner or assignee 

of a mortgage loan to evaluate a 

borrower for loss mitigation options by 

using a ‘‘waterfall’’ method. A waterfall 

is simply an evaluation rule. For 

example, an owner or assignee may 

provide six loss mitigation programs for 

which borrowers should be evaluated. 

The owner or assignee may further 

provide that the programs should be 

evaluated in order from one through six 

and that if a borrower is offered a 

program evaluated higher in the order, 

the borrower will be denied for all other 

programs lower in the order. Thus, in 

this example, if a borrower were offered 

program two, the borrower would 

necessarily be denied for programs three 

through six as a consequence of the 

owner’s or assignee’s requirements. 

Nothing in the loss mitigation 

procedures dictates a result different 

than that obtained using a waterfall. 

Evaluation for all loss mitigation 

options. The requirement that a servicer 

evaluate a borrower for all loss 

mitigation options available to the 

borrower, in combination with the 

notice requirements of § 1024.41(d)(1), 

is intended to enable a borrower (1) to 

understand the loss mitigation options 

for which the servicer has determined 

the borrower is eligible, (2) to 

understand the results of the servicer’s 

evaluation of the borrower for any loan 

modification option, and (3) for any 

loan modification option, to obtain the 

reasons for the borrower’s denial for a 

loan modification option. The impact of 

the requirement that a borrower receive 

an evaluation for all loss mitigation 

options available to the borrower is that 

the borrower may, by submitting a 

single application, receive a complete 

review and either obtain a loss 

mitigation option that a borrower may 

or may not have known was available 

or, pursuant to § 1024.41(d)(1), 

understand the reasons why the 

borrower is not eligible for a loan 

modification option. The Bureau does 

not believe that the requirements in 

§ 1024.41(c)(1) will impair an investor’s 

or guarantor’s ability to implement or 

manage loss mitigation programs. 

The Bureau also does not believe that 

the requirement that a servicer evaluate 

a borrower for all loss mitigation 

options available to the borrower will 

impose onerous application burdens on 

a borrower, require a servicer to provide 

confusing or unhelpful communications 

to borrowers, or frustrate borrowers that, 

in theory, may only wish to obtain an 

evaluation for a specific type of loss 

mitigation option. Loss mitigation 

options generally fall into two 

categories, those involving home 

retention (most notably loan 

modifications) and non-home retention 

options. Insofar as commenters are 

suggesting that different retention 

options carry with them different 

application requirements and that 

servicers should be free to consider 

borrowers sequentially for different 

options through separate application 

processes, the Bureau disagrees. With 

respect to home retention options, 

outreach with consumer advocates and 

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10828 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

178See United States of America v. Bank of 

America Corp., at Appendix A, at A–16, http:// 

www.nationalmortgagesettlement.com. 

industry participants has not indicated 

that there are significant differences in 

the information required for 

consideration for differing retention 

options offered by a single investor or 

assignee such that requiring 

consideration for all of these options at 

once will add burden to the consumer 

or servicer. Importantly, the National 

Mortgage Settlement states that ‘‘[u]pon 

timely receipt of a complete loan 

modification application, Servicer shall 

evaluate borrowers for all available loan 

modification options for which they are 

eligible * * * .’’178

Although it is true, as a large bank 

commenter stated, that the Bureau’s 

requirements apply to all loss mitigation 

options and not just loan modification 

options, the Bureau does not believe 

that this additional requirement will 

add significant burden to consumers or 

servicers. The Bureau understands from 

outreach with servicers that most 

investors or guarantors do not permit a 

borrower to be evaluated for a non-home 

retention option (i.e., to walk away from 

a mortgage) unless a home retention 

option is not viable. Thus, in all events 

borrowers will be required to submit the 

financial and other information required 

for consideration of retention options 

and servicers will be required to obtain 

additional information about the 

borrower (such as a consumer report) 

and the property (such as an automated 

valuation). The Bureau is not persuaded 

that significant additional burdens are 

required to be able to consider a 

borrower for non-home retention 

options if the borrower is found not to 

be eligible for home retention options. 

The Bureau understands that industry 

commenters and trade associations are 

concerned that evaluation for non-home 

retention options may cause servicers to 

incur additional work and cost, 

including by obtaining a title search or 

an appraisal. The Bureau has added 

comment 41(c)(1)–3 to clarify that an 

offer of a non-home retention option 

may be conditional upon receipt of 

further information not in the 

borrower’s possession and necessary to 

establish the parameters of a servicer’s 

offer. For example, a servicer complies 

with the requirement for evaluating the 

borrower for a short sale option if the 

servicer offers the borrower the 

opportunity to enter into a listing or 

marketing period agreement but 

indicates that specifics of an acceptable 

short sale transaction may be subject to 

further information obtained from an 

appraisal or title search. 

The Bureau believes that significant 

consumer benefits will result from 

requiring that consumers be considered 

for all loss mitigation options in a single 

process. The Bureau understands that 

borrowers may incur more significant 

burdens in the current market as 

evaluations occur sequentially over time 

and borrower documents and 

information must be continuously 

updated to make such documents and 

information current. The requirements 

of § 1024.41(c)(1) will eliminate the 

need for borrowers to submit multiple 

applications for different loss mitigation 

options and will provide for more 

efficient compliance by servicers with 

the requirements of the rule. In 

addition, as set forth below with respect 

to § 1024.41(d), the Bureau believes 

providing information to borrowers on 

the result of their review for available 

loss mitigation options will assist 

consumers and is unlikely to create 

confusion. 

Further, the Bureau believes that a 

process that imposes the obligation on 

the borrower to identify the appropriate 

loss mitigation option is inappropriate. 

The selection of a loss mitigation option 

is complex and requires an 

understanding of the potential eligibility 

of a borrower when compared against 

the complex rule systems applied to 

evaluate such options. The differences 

among loss mitigation programs 

befuddle industry experts, much less 

borrowers attempting to evaluate such 

options while under the fear of 

foreclosure. The Bureau simply does not 

believe that permitting servicers to steer 

borrowers to apply for particular loss 

mitigation options, when the servicer 

has a far superior capacity to make the 

relevant determination, reasonably 

protects the borrower’s interest. Rather, 

the Bureau believes a more reasonable 

default is for the party with the 

knowledge of all loss mitigation options 

available to the borrower, and the 

capability of evaluating the borrower for 

all loss mitigation options available to 

the borrower, to carry the burden of 

evaluating the borrower for all loss 

mitigation options available from the 

owner or assignee of the mortgage loan 

and to communicate the results of that 

review to the borrower. If the borrower 

is found to be eligible for more than one 

option, the borrower can then make a 

more informed choice of the options 

available after the evaluation has 

occurred, not before; if the borrower is 

found to be eligible for only one option 

(as would likely be the case where the 

owner or assignee follows a waterfall) 

the borrower will at least receive 

information indicating why the 

borrower is being offered a particular 

option and not others and will, in 

certain circumstances, be able to seek 

further review from the servicer if the 

borrower believes that the waterfall has 

been misapplied. 

In addition, review for non-home 

retention options may provide a 

valuable sorting function to the short 

sale market. Currently, a borrower who 

has been denied a loan modification and 

who is attempting to complete a short 

sale may proceed with little guidance 

from a servicer regarding whether the 

borrower will be eligible for a short sale. 

A short sale involves identifying a 

potential purchaser and working to 

obtain funding and a transaction that 

may be acceptable to an owner or 

assignee of a mortgage loan even before 

a determination regarding whether an 

owner or assignee would potentially 

consider a short sale. By requiring an 

evaluation for non-home retention 

options simultaneously with the 

evaluation for home retention options, 

the Bureau creates a process by which 

a borrower that is denied a home 

retention option will be told whether 

the borrower is eligible for a non-home 

retention option, such as a short sale. 

Borrowers who are told that they are 

eligible for a short sale may better 

undertake the effort necessary to reach 

a viable sale, and may make the market 

for short sale transactions more efficient 

by obtaining servicer agreement to 

consider a short sale transaction. 

Further, concurrent evaluation reduces 

the risk that borrowers do not pursue 

options that may be available as a result 

of exhaustion with the loss mitigation 

process. 

The Bureau has added commentary to 

§ 1024.41(c)(1) to clarify a servicer’s 

obligation to evaluate a complete loss 

mitigation application for all loss 

mitigation options available from the 

owner or assignee of a mortgage loan. 

Comment 41(c)(1)–1 states that the 

conduct of a servicer’s evaluation with 

respect to any loss mitigation option is 

in the discretion of the servicer. A 

servicer meets the requirements of 

§ 1024.41(c)(1)(i) if the servicer makes a 

determination regarding the borrower’s 

eligibility for a loss mitigation program. 

Consistent with § 1024.41(a), because 

nothing in section 1024.41 should be 

construed to resolve whether borrower 

can enforce the terms of any agreement 

between a servicer and the owner or 

assignee of a mortgage loan, including 

with respect to the evaluation for, or 

provision of, any loss mitigation option, 

§ 1024.41(c)(1) does not require that an 

evaluation meet any standard other than 

the discretion of the servicer. 

Accordingly, the Bureau intends that 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10829 

the requirement that a servicer evaluate 

a borrower for all loss mitigation 

options available from an owner or 

assignee of a mortgage loan sets forth 

the procedure that must be followed by 

servicers but does not create, in itself, a 

requirement that a servicer conduct 

such evaluation in any particular 

manner. Accordingly, the Bureau does 

not intend to create a private right of 

action to enforce the guidelines of any 

owner or assignee’s loss mitigation 

program, including any HAMP 

requirements or GSE requirements, as a 

consequence of this requirement. 

Servicers should take note, however, 

that, pursuant to § 1024.38, above, and 

independent of the requirements of 

§ 1024.41, a servicer may be required to 

implement policies and procedures to 

achieve the objective of properly 

evaluating borrowers for loss mitigation 

options pursuant to requirements 

established by an owner or assignee of 

a mortgage loan. 

Comment 41(c)(1)–2 states that a 

servicer should evaluate a borrower for 

all loss mitigation options for which a 

borrower may qualify based upon 

eligibility criteria applicable to each loss 

mitigation option, as established by the 

owner or assignee of a mortgage loan. 

For example, a servicer services 

mortgage loans for two different 

investors or guarantors of mortgage 

loans. Those investors or guarantors 

each have different loss mitigation 

programs. A servicer is only required to 

evaluate the borrower for loss mitigation 

options offered by the owner or assignee 

of a borrower’s mortgage loan and is not 

required to evaluate a borrower for any 

other program implemented by a 

mortgage servicer for an owner or 

assignee that is different than the owner 

or assignee of the borrower’s mortgage 

loan. Further, if a servicer services 

mortgage loans for an owner or assignee 

of a mortgage loan that has established 

pilot programs, temporary programs, or 

programs that are limited by the number 

of participating borrowers, a servicer is 

only required to evaluate whether a 

borrower is eligible for any such 

program consistent with criteria 

established by an owner or assignee of 

a mortgage loan. For example, if an 

owner or assignee has limited a pilot 

program to a certain geographic area or 

to a limited number of participants, a 

servicer should evaluate the borrower in 

accordance with any such restrictions, 

which may include an owner or 

assignee’s determination not to include 

the borrower in the pilot program or 

among the group of participants 

applying for a limited option. 

Evaluation of Incomplete Loss 

Mitigation Applications 

The Bureau also believes it is 

appropriate to clarify the impact of the 

loss mitigation procedures when a 

borrower submits an incomplete loss 

mitigation application. As set forth 

above, the definition of a loss mitigation 

application is expansive. When a 

borrower begins the process by 

submitting a loss mitigation application, 

a servicer should be required to work 

with that borrower to make the loss 

mitigation application complete, and 

thereby assure the borrower receives the 

protections set forth in § 1024.41. 

Accordingly, § 1024.41(c)(2)(i) states 

that a servicer shall not evade the 

requirement to evaluate a complete loss 

mitigation option for all loss mitigation 

options available to the borrower, 

including, for example, by offering an 

individual loss mitigation option based 

upon an evaluation of borrower’s 

incomplete loss mitigation application. 

Comment 41(c)(2)(i)–1 clarifies that 

§ 1024.41(c)(2)(i) does not prohibit a 

servicer from offering a loss mitigation 

option to a borrower that has not 

submitted a loss mitigation application. 

Further, a servicer may offer a borrower 

that has submitted an incomplete loss 

mitigation application a loss mitigation 

option, but only if the offer of the loss 

mitigation option is not based on an 

evaluation of the individual borrower’s 

circumstances. Comment 41(c)(2)(i)–1 

provides, for example, that if a servicer 

offers trial loan modification programs 

to all borrowers that become 150 days 

delinquent without an application or 

consideration of any information 

provided by a borrower in connection 

with a loss mitigation application, the 

servicer is not required to comply with 

the requirements of section 1024.41 

with respect to any such trial loan 

modification program for any borrower 

that has not submitted a loss mitigation 

application or that has submitted an 

incomplete loss mitigation application. 

The example complies with 

§ 1024.41(c)(2) because the offer of the 

loss mitigation option is based on a 

standard practice and not on an 

evaluation of any information or 

documents submitted by a borrower in 

connection with a loss mitigation 

application. Comment 41(c)(2)(i)–2 

clarifies that although a review of a 

borrower’s incomplete loss mitigation 

application is within a servicer’s 

discretion, and is not required by 

§ 1024.41, a servicer may be required 

separately, in accordance with policies 

and procedures maintained pursuant to 

§ 1024.38(b)(2)(v), to properly evaluate a 

borrower who submits an application 

for a loss mitigation option for all loss 

mitigation options available to the 

borrower pursuant to any requirements 

established by the owner or assignee of 

the borrower’s mortgage loan. Such 

evaluation may be subject to 

requirements applicable to loss 

mitigation applications otherwise 

considered incomplete pursuant to 

§ 1024.41. 

The Bureau recognizes that some 

borrowers may submit incomplete loss 

mitigation applications and may not 

submit the documents or information 

necessary to make those applications 

complete. The Bureau believes that the 

best approach for servicers to comply 

with the requirements of § 1024.41 is to 

work with borrowers to make 

incomplete loss mitigation applications 

complete and servicers have an 

obligation to undertake reasonable 

diligence in this regard. However, where 

such diligence has failed, the loss 

mitigation procedures should not serve 

as an impediment to working with 

borrowers that are not able to complete 

the loss mitigation application 

requirements. Accordingly, 

§ 1024.41(c)(2)(ii) provides that 

notwithstanding § 1024.41(c)(2)(i), if a 

servicer has exercised reasonable 

diligence in obtaining documents and 

information to complete a loss 

mitigation application, but a loss 

mitigation application remains 

incomplete for a significant period of 

time under the circumstances without 

further progress by a borrower to make 

the loss mitigation application 

complete, a servicer may, in its 

discretion, evaluate an incomplete loss 

mitigation application and determine to 

offer a borrower a loss mitigation 

option. Any such evaluation and offer is 

not subject to the requirements of 

§ 1024.41 and shall not constitute an 

evaluation of a single complete loss 

mitigation application for purposes of 

§ 1024.41(i). The Bureau has further 

added comment 41(c)(2)(ii) to clarify the 

meaning of a significant period of time 

under the circumstances. Any such 

circumstances may include 

consideration of the relative timing of 

the foreclosure process. Thus, a delay of 

10 or 15 days in providing documents 

or information to make a loss mitigation 

complete may be more significant if the 

period is close to a potential foreclosure 

sale than such period would be if it 

were to occur early in the foreclosure 

process, including, for example, in the 

time period that is less than 120 days of 

delinquency. 

Timing 

The Bureau is adjusting the 

requirement in § 1024.41(c) to 

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10830 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

179See United States of America v. Bank of 

America Corp., at Appendix A, at A–27, http:// 

www.nationalmortgagesettlement.com. 

implement the various staged timing 

requirements set forth above. 

Specifically, to implement the staged 

deadlines, a servicer is required to 

comply with the requirements of 

§ 1024.41(c) for any complete loss 

mitigation application received more 

than 37 days before a foreclosure sale. 

41(d) Denial of Loan Modification 

Options 

Proposed § 1024.41(d) would have 

required that servicers comply with 

additional obligations with respect to a 

denial of a borrower’s loss mitigation 

application with respect to trial or 

permanent loan modification options. A 

servicer would have been required to 

provide any such borrower a written 

notice stating the specific reasons for 

the determination and inform the 

borrower of the right to appeal the 

servicer’s determination pursuant to 

proposed § 1024.41(h). The notice 

would have included the deadline for 

filing the appeal and any requirements 

for pursuing the appeal, such as, for 

example, forms or documents the 

borrower must file in connection with 

the appeal process. Further, proposed 

comments 41(d)(1)–1 and 41(d)(1)–2 

would have provided examples 

regarding the information that should be 

included in the specific reasons 

provided to the borrower in the notice 

when a borrower is denied a loan 

modification on the basis of an investor 

requirement or a net present value 

calculation. The Bureau stated that it 

believed such information would assist 

borrowers in providing appropriate and 

relevant information to servicers in 

connection with the appeal process. 

Further, such requirements were 

consistent with the National Mortgage 

Settlement.179

Consumers and consumer advocacy 

group commenters generally supported 

the requirements in § 1024.41(d). One 

such commenter stated that the 

requirement would further the goal of 

protecting consumers against 

discriminatory servicing practices 

because the required notice would 

likely discourage those practices. A 

consumer advocacy group commented 

that the notification requirement should 

be expanded to all loss mitigation 

programs beyond loan modifications 

and a coalition of consumer advocacy 

groups commented that servicers should 

be required to provide specific 

information and documents about the 

investor denial to borrowers. Consumer 

commenters on Regulation Room were 

concerned that servicers misrepresented 

that investor requirements barred a loan 

modification when no such restriction 

existed and sought fuller disclosure in 

that regard. 

Industry commenters submitted 

various requests for clarification 

regarding § 1024.41(d). Two credit 

unions and their trade associations, as 

well as a consumer advocacy group, 

requested clarification regarding the 

impact of the required notification 

regarding a denial of a loan modification 

option with the adverse action notice 

required by Regulation B when a 

consumer report is used in connection 

with a denial for a loan modification 

option. Further, the GSEs requested 

clarification regarding whether the offer 

of an alternative loss mitigation option 

(such as a forbearance or repayment 

plan) constitutes a denial of a loss 

mitigation option. Finally, a financial 

industry trade association requested 

clarification regarding whether servicers 

could use the ‘‘check-the-box’’ model 

clauses adopted by the Making Home 

Affordable Program to communicate 

with borrowers regarding denials of loss 

mitigation options pursuant to 

§ 1024.41(d). 

The Bureau is finalizing § 1024.41(d) 

as proposed, with technical changes to 

clarify that the requirement applies to 

complete loss mitigation applications 

and that loan modification options 

refers to programs offered by the 

applicable owner or assignee of a 

mortgage loan. In light of the comments, 

the Bureau believes that adjustments to 

the commentary are warranted. The 

Bureau is adjusting comments 41(d)(1)– 

1 and 41(d)(1)–2 as set forth below, and 

adding comments 41(d)(1)–3 and 

41(d)(1)–4. 

Accordingly, pursuant to § 1024.41(d), 

a servicer that denies a borrower’s 

complete loss mitigation application for 

any trial or permanent loan 

modification option available from the 

owner or assignee of a mortgage loan 

shall state in the notice provided to the 

borrower pursuant to § 1024.41(c)(1)(ii) 

the specific reasons for the servicer’s 

determination for each such trial or 

permanent loan modification program; 

and, if applicable, that the borrower 

may appeal the servicer’s determination 

for any such trial or permanent loan 

modification option, the deadline for 

the borrower to make an appeal, and 

any requirements for making an appeal. 

Importantly, § 1024.41(d) provides 

special rules for those loss mitigation 

options that involve loan modifications. 

With respect to those options, the 

servicer is required to provide the 

borrower with the specific reasons for 

denying the borrower for each trial or 

permanent modification for which the 

borrower was considered and, if 

applicable, notice of the borrower’s right 

to appeal. However, under § 1024.41(d), 

a servicer is not required to disclose to 

a borrower a denial for a loss mitigation 

option that is not a loan modification 

program (for non-loan modification 

options, such denial is implicit in the 

servicer’s failure to offer such a loss 

mitigation option). 

With respect to identifying the 

reasons for a servicer’s denial of a 

borrower for a loan modification option, 

the Bureau recognizes the consumer 

frustration resulting from servicer 

statements that investor requirements or 

net present value tests bar a loan 

modification option when the proper 

application of such purported 

requirements or tests may or may not 

actually result in such a determination. 

To assist consumer understanding, and 

to effectuate the appeal process, the 

Bureau believes that servicers that deny 

a loan modification option on the basis 

of an investor requirement or net 

present value model must provide 

additional detail to support such 

statements. Accordingly, the Bureau has 

adjusted comment 41(d)(1)–1 to state 

that if a trial or permanent loan 

modification option is denied because 

of a requirement of an owner or assignee 

of a mortgage loan, the specific reasons 

in the notice provided to the borrower 

must identify the owner or assignee of 

the mortgage loan and the requirement 

that is the basis of the denial. A 

statement that the denial of a loan 

modification option is based on an 

investor requirement, without 

additional information specifically 

identifying the relevant investor or 

guarantor and the specific applicable 

requirement, is insufficient. However, 

where an investor or guarantor has 

established a waterfall and a borrower 

has qualified for a particular option on 

the waterfall, it is sufficient for the 

servicer to inform the borrower, with 

respect to other options further down 

the waterfall that the investor’s 

requirements include the use of a 

waterfall and that a determination to 

offer an option on the waterfall 

necessarily results in a denial for any 

other options below the option for 

which the borrower has qualified, to the 

extent applicable for any such option. 

Further, the Bureau has adjusted 

comment 41(d)(1)–2 to provide that if a 

trial or permanent loan modification is 

denied because of a net present value 

calculation, the specific reasons in the 

notice provided to the borrower must 

include all the inputs used in the net 

present value calculation, rather than 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10831 

180Making Home Affordable Program, Handbook 

for Servicers of Non-GSE Mortgages, Version 4.0, 

August 17, 2012, available at https:// 

www.hmpadmin.com/portal/programs/docs/ 

hamp_servicer/mhahandbook_40.pdf (last accessed 

January 18, 2012). 

181The model clauses set forth in Appendix A of 

the Making Home Affordable Program Handbook 

are not incorporated by reference in Regulation X 

and do not provide servicers a safe harbor pursuant 

to section 19(b) of RESPA. 

182See United States of America v. Bank of 

America Corp., at Appendix A, at A–17, http:// 

www.nationalmortgagesettlement.com; Freddie Mac 

Single Family Seller/Servicer Guide § 64.6(d)(5) 

(2012); Fannie Mae Single Family Servicing Guide 

§ 103.04 (2012); 2012 Cal. Legis. Serv. Ch. 86 (A.B. 

278) (WEST) amending Cal. Civ. Code § 2923. 

Moreover, Fannie Mae servicing guidelines provide 

a servicer’s review of a borrower’s application for 

a loss mitigation option must not exceed 30 days 

and that if a servicer receives a borrower response 

package before 37 days prior to the foreclosure sale 

date, no delay in legal action is required, unless an 

offer is made and the foreclosure sale is within the 

borrower’s 14-day response period. See Fannie Mae 

Single Family Servicing Guide §§ 103.04, 107.01.02 

(2012). 

just the limited inputs identified in the 

proposed commentary. 

The Bureau has also added comments 

to address the form of the notice 

required by § 1024.41(d). No specific 

format is required for the notice 

provided pursuant to § 1024.41(d). 

Accordingly, servicers may determine 

the appropriate form, so long as the 

form includes the content required 

pursuant to § 1024.41(d). Comment 

41(d)(1)–3 clarifies that a servicer may 

combine other notices required by 

applicable law, including, without 

limitation, a notice with respect to an 

adverse action, as required by 

Regulation B (12 CFR 1002 et seq.), or 

a notice required pursuant to the Fair 

Credit Reporting Act, with the notice 

required pursuant to section 1024.41(d), 

unless otherwise prohibited by 

applicable law. 

Further, servicers may develop 

standard language and forms that are 

appropriate to comply with this section. 

The Making Home Affordable Program 

has promulgated model clauses that 

servicers operating pursuant to that 

program may use in communications 

with borrowers regarding denials of 

applicable loan modification options. 

Those clauses are set forth in Appendix 

A to the Making Home Affordable 

Program Handbook.180 Without 

endorsing the use of those model 

clauses in any instance, the model 

clauses adopted by the Making Home 

Affordable Program may be appropriate 

for use in specific circumstances.181 A 

servicer is responsible for monitoring 

whether the use of the model clauses is 

accurate and appropriate for any 

individual borrower. 

Finally, comment 41(d)(1)–4 clarifies 

that any determination not to offer a 

loan modification option, 

notwithstanding whether a servicer 

offers a borrower a different loan 

modification option or other loss 

mitigation option, constitutes a denial of 

a loan modification option. Thus, if a 

servicer offers a borrower a forbearance 

option or repayment plan after 

evaluation of a complete loss mitigation 

application, any such offer, without an 

offer of a loan modification option, 

constitutes a denial for a loan 

modification option and a servicer shall 

provide the disclosures required 

pursuant to § 1024.41(d) with respect to 

any loan modification program available 

to the borrower. Again, to the extent a 

waterfall was the basis for the 

determination, the disclosure may state, 

for example, that the investor’s 

requirement do not permit a borrower to 

receive a loan modification offer if a 

determination is made that the borrower 

has the capacity to repay the mortgage 

with forbearance or repayment, along 

with an explanation of the reasons for 

the conclusion that the borrower can do 

so with a forbearance plan. 

41(e) Borrower Response 

Proposed § 1024.41(e) would have 

imposed standards for when a borrower 

is considered to have accepted or 

rejected a loss mitigation option offered 

by a servicer. The proposal stated that 

a servicer may impose requirements on 

the manner in which a borrower must 

accept or reject a loss mitigation option, 

subject to standards for acceptance and 

rejection set forth in the rule. The 

proposed rule would have provided that 

a borrower must have no less than 14 

days to accept or reject an offer of a loss 

mitigation option. Further, the proposed 

rule would have clarified that if a 

servicer has not received a response 

from a borrower to an offer of loss 

mitigation after 14 days, the servicer 

may deem the borrower’s lack of a 

response as a rejection of the loss 

mitigation option. A 14-day timeframe 

for a borrower to respond to an offer of 

a loss mitigation option is consistent 

with GSE requirements, the National 

Mortgage Settlement, certain State laws, 

and Federal regulatory agency 

requirements.182 The proposed rule also 

would have provided that if a borrower 

does not satisfy the servicer’s 

requirements for accepting a loss 

mitigation option, but submits the first 

payment that would be owed pursuant 

to any such loss mitigation option 

within the deadline established by the 

servicer, the borrower was to be deemed 

to have accepted the offer of a loss 

mitigation option. This presumption 

was intended to maintain consistency 

with the terms of the National Mortgage 

Settlement. 

Numerous commenters, including 

large bank servicers, non-bank servicers, 

community banks, credit unions, their 

trade associations, and the GSEs 

objected to allowing a borrower to 

accept a loss mitigation option by 

submitting a payment. Two financial 

industry trade associations and a 

community bank indicated that 

compliance with the statute of frauds, as 

well as investor contracts, requires 

written acceptance of a loss mitigation 

option, and the lack of a written 

agreement would create unjustified risks 

for servicers and owners or assignees of 

mortgage loans. A non-bank servicer 

stated that allowing acceptance by 

payment would only work for trial loan 

modification plans, and then only if 

subject to future documentation. The 

commenter stated that written 

agreements must be required for 

permanent loan modifications, short 

sales, deed-in-lieu of foreclosure 

agreements, and longer term repayment 

plans. 

Further, a large bank servicer, a credit 

union, and two industry trade 

associations commented that it would 

be impractical to allow a borrower to 

accept a loss mitigation offer while 

simultaneously appealing an offer of a 

loan modification option. A large bank 

servicer suggested instead that the time 

for accepting the loss mitigation option 

should be suspended until after an 

appeal has been considered. 

The Bureau has revised § 1024.41(e) 

in response to the comments as set forth 

below. Specifically, the Bureau has 

revised § 1024.41(e) to reflect changes to 

the timeline, the manner by which a 

borrower can accept a trial loan 

modification program, and the 

interaction with the appeal process. 

41(e)(1) In General 

The Bureau has adjusted the 

applicable timelines as discussed above. 

The proposed rule would have provided 

that a borrower must have no less than 

14 days to accept or reject an offer of a 

loss mitigation option. This requirement 

has been changed to set two stages of 

deadlines: (1) If a borrower submits a 

complete loss mitigation application 90 

days or more before a foreclosure sale, 

a borrower shall have at least 14 days 

to accept or reject the offer of a loss 

mitigation option, and (2) if a borrower 

submits a complete loss mitigation 

application less than 90 days but more 

than 37 days before a foreclosure sale, 

a borrower shall have at least 7 days to 

accept or reject the offer of a loss 

mitigation option. As discussed above, 

the 14 day timeline requirement is 

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10832 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

consistent with the National Mortgage 

Settlement and certain State law 

requirements. Further, the secondary 7- 

day timeline is designed to implement 

appropriate procedures for timing 

scenario 3, discussed above. Nothing in 

the rule would preclude a servicer who 

considers an application received less 

than 37 days before a foreclosure sale to 

offer the borrower a loss mitigation 

option and require a response in less 

than 7 days. 

41(e)(2) Rejection 

41(e)(2)(i) In General 

The Bureau has added 

§ 1024.41(e)(2)(i), to set forth the general 

rule that a servicer may deem that a 

borrower that has not accepted an offer 

of a loss mitigation option within the 

deadlines established pursuant to 

paragraph (e)(1) to have rejected that 

offer. This general rule is subject to the 

exceptions provided in 

§ 1024.41(e)(2)(ii) and (e)(2)(iii). This 

provision finalizes the provision 

previously set forth in proposed 

§ 1024.41(e)(3). Proposed § 1024.41(e)(3) 

is withdrawn. 

41(e)(2)(ii) Trial Loan Modification Plan 

The Bureau agrees with commenters 

that the requirement that a servicer 

consider a borrower that has made the 

first payment for a loss mitigation 

option to have accepted the option is 

infeasible as proposed. The Bureau 

finds persuasive the arguments made by 

commenters regarding the necessity of 

clear contractual arrangements, as well 

as, potential issues posed by various 

State law statutes of frauds. 

Accordingly, the Bureau has 

substantially modified, and separately 

enumerated, this requirement, which 

was previously set forth in proposed 

§ 1024.41(e)(2), as § 1024.41(e)(2)(ii). 

Pursuant to § 1024.41(e)(2)(ii), and 

consistent with the requirement 

suggested by servicers and their trade 

associations, a borrower that does not 

comply with the servicer’s requirements 

for accepting a trial loan modification 

plan, but submits the payments that 

would be owed pursuant to any such 

plan, shall be provided a reasonable 

period of time to fulfill any remaining 

requirements of the servicer for 

acceptance of the trial loan modification 

plan beyond the time period established 

pursuant to § 1024.41(e)(1). A servicer 

would not be required to consider such 

payment as acceptance of a servicer’s 

offer of a loan modification option. 

41(e)(2)(iii) Interaction With Appeal 

Process 

The Bureau agrees with commenters 

that the requirement that a servicer 

permit a borrower to both accept an 

offer of a loss mitigation option and 

appeal the denial of a different loan 

modification option is infeasible as 

proposed. Specifically, the Bureau 

agrees that it is infeasible to require a 

servicer to implement a loss mitigation 

option, only to potentially have to back 

out of the implementation of such 

option and implement a different loss 

mitigation option after an appeal has 

been determined. Accordingly, the 

Bureau has modified this requirement 

and separately enumerated the 

requirement, which was previously set 

forth in proposed § 1024.41(e)(4), as 

§ 1024.41(e)(2)(iii). Proposed 

§ 1024.41(e)(4) is withdrawn. 

Pursuant to § 1024.41(e)(2)(iii), and 

consistent with the requirement 

suggested by a large bank servicer, if a 

borrower makes an appeal of a denial of 

a loan modification option pursuant to 

§ 1024.41(h), the borrower’s deadline for 

accepting a loss mitigation option 

offered pursuant to § 1024.41(c) shall be 

extended to 14 days after the servicer 

provides the notice required pursuant to 

§ 1024.41(h)(4). Accordingly, a borrower 

will be able to have an appeal reviewed 

and receive the servicer’s decision 

regarding the appeal before a borrower 

will be required to accept any offer of 

a loss mitigation option. 

Thus, if an appeal is granted, the 

borrower will have 14 days to determine 

whether to accept the loss mitigation 

option offered as a result of the appeal 

or any other previous offer made 

pursuant to § 1024.41(c)(1)(ii). If an 

appeal is denied, the borrower will have 

14 days to determine whether to accept 

an offer for another loss mitigation 

option previously offered pursuant to 

§ 1024.41(c)(1)(ii). A borrower may 

voluntarily determine to accept an offer 

of a loss mitigation option and 

withdraw an appeal at any time. 

41(f) Prohibition on Foreclosure Referral 

Proposed § 1024.41(f) would have 

required servicers to comply with the 

loss mitigation procedures by reviewing 

complete and timely loss mitigation 

applications before a servicer could 

proceed with a foreclosure sale. Timely 

applications included complete loss 

mitigation applications submitted 

within a deadline established by a 

servicers, which could be no earlier 

than 90 days before a foreclosure sale. 

By prohibiting servicers from 

proceeding to a foreclosure sale while a 

complete and timely loss mitigation 

application is pending, the proposed 

rule would have addressed one of the 

most direct consumer harms relating to 

concurrent evaluation of loss mitigation 

options and prosecution of foreclosure 

proceedings. The proposed rule also 

would have prohibited a servicer from 

moving forward with a foreclosure sale 

while the borrower was performing 

under an agreement on a loss mitigation 

option. 

As discussed above, the Bureau 

received a significant number of 

comments from consumer advocacy 

groups regarding dual tracking of 

evaluation of loss mitigation options 

and foreclosure processing. These 

comments generally stated that 

borrowers should have the opportunity 

to be reviewed for a loss mitigation 

option before a servicer begins a 

foreclosure process. Further, consumer 

advocates submitted a significant 

number of comments stating that 

although the Bureau’s proposal would 

address harms resulting from a 

foreclosure sale, other harms to 

consumers relating to dual tracking 

were not addressed by the proposed 

rule. These included consumer harms 

resulting from participating in the 

foreclosure process, including confusion 

from receiving inconsistent and 

confusing foreclosure communications 

while loss mitigation reviews are ongoing. Such confusion potentially may 

lead to failures by borrowers to 

complete loss mitigation processes, or 

impede borrowers’ ability to identify 

errors committed by servicers reviewing 

applications for loss mitigation options 

that may have more beneficial 

consequences for borrowers as well as 

owners or assignees of mortgage loans. 

Further, borrowers may be negatively 

impacted because borrowers are 

responsible for accruing potentially 

unnecessary foreclosure costs while an 

application for a loss mitigation option 

is under review. These costs burden 

already struggling borrowers and may 

impact the evaluation for a loss 

mitigation option. 

As stated above, consumer advocacy 

group commenters recommended that 

the Bureau restrict servicers from 

pursuing the foreclosure process as well 

as evaluations of borrowers for loss 

mitigation on dual tracks. Twelve 

individual consumer advocacy groups 

as well as two coalitions of consumer 

advocacy groups stated that the Bureau 

should require servicers to undertake 

loss mitigation evaluations, including 

loan modification reviews and offers, 

prior to beginning the foreclosure 

process. Further, three consumer 

advocacy groups commented that the 

Bureau should create a defined preforeclosure period of 120 days before a 

borrower can be referred to foreclosure, 

and that servicers should perform a 

mandatory review of a borrower for loss 

mitigation options during this period. 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10833 

Industry commenters also addressed 

whether the Bureau should implement 

protections relating to dual tracking 

apart from the prohibition on 

foreclosure sale set forth in the 

proposal. Outreach with servicers and 

their trade associations, indicated 

general support for maintaining 

consistency among any ‘‘dual tracking’’ 

requirements established by the Bureau 

and the National Mortgage Settlement. 

A law firm commented that Bureau 

requirements with respect to ‘‘dual 

tracking’’ should model the National 

Mortgage Settlement. Notably, a 

community bank and its trade 

association commented that as a 

consequence of the Bureau’s regulations 

on loss mitigation procedures, servicers 

may try to begin foreclosures as soon as 

possible after delinquency in order to 

preserve flexibility to comply with the 

loss mitigation procedures. 

As discussed more fully in the 

opening of the discussion of § 1024.41, 

the Bureau is persuaded by the 

comments that the potential harm to 

consumers of commencing a foreclosure 

proceeding before the consumer has had 

a reasonable opportunity to submit a 

loss mitigation application or while a 

complete loss mitigation application is 

pending is substantial. The fact that the 

GSEs and the National Mortgage 

Settlement defer commencing 

foreclosure proceedings until a borrower 

has had a reasonable opportunity to 

apply for a loss mitigation option is 

further persuasive that such a restriction 

on the commencement of foreclosure 

proceedings would further the 

consumer protection purposes of RESPA 

and would not present a significant risk 

of unintended consequences. 

The Bureau further believes it is 

necessary and appropriate for 

borrowers, servicers, and courts to have 

a known early period during which a 

servicer shall not begin the foreclosure 

process. The Bureau also believes that a 

servicer should not be permitted to 

begin the foreclosure process when 

there is a pending complete loss 

mitigation application and believes that 

such a requirement, unless coupled 

with a restriction on when the 

foreclosure process can begin, might 

incentivize servicers to begin the 

foreclosure process earlier than would 

otherwise occur to avoid delay resulting 

from the submission of a complete loss 

mitigation application. Accordingly, the 

Bureau believes it is necessary and 

appropriate to implement the consumer 

protection purposes of RESPA by 

barring servicers from making the first 

notice or filing required for a foreclosure 

process if a borrower has submitted a 

complete loss mitigation application 

before any such filing. The Bureau 

further believes it is necessary and 

appropriate to implement the consumer 

protection purposes of RESPA to bar 

servicers from making the first notice or 

filing required for a foreclosure process 

if a borrower is not more than 120 days 

delinquent in order to provide the 

borrower sufficient time to submit a 

complete loss mitigation application. 

The Bureau understands and intends 

that any such requirement will preempt 

State laws to the extent such laws 

permit filing of foreclosure actions 

earlier than after the 120th day of 

delinquency. 

Accordingly, § 1024.41(f) implements 

these prohibitions. First, pursuant to 

§ 1024.41(f)(1), a servicer shall not make 

the first notice or filing required by 

applicable law for any judicial or nonjudicial foreclosure process unless a 

borrower’s mortgage loan obligation is 

greater than 120 days delinquent. 

Second, pursuant to § 1024.41(f)(2), if a 

borrower submits a complete loss 

mitigation application during the preforeclosure review period set forth in 

paragraph (f)(1) or before a servicer has 

made the first notice or filing required 

by applicable law for any judicial or 

non-judicial foreclosure process, a 

servicer shall not make the first notice 

or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process unless the borrower is not 

eligible for any loss mitigation option 

(and any appeal is inapplicable or has 

been exhausted), has rejected all offers 

of loss mitigation options, or has failed 

to comply with the terms of an 

agreement on a loss mitigation option. 

The Bureau has also added comment 

41(f)(1)–1 to clarify the prohibition on 

making the first notice or filing required 

by applicable law. Per comment 

41(f)(1)–1, the first notice or filing 

required by applicable law refers to any 

document required to be filed with a 

court, entered into a land record, or 

provided to a borrower as a requirement 

for proceeding with a judicial or nonjudicial foreclosure process. Such filings 

include, for example, a foreclosure 

complaint, a notice of default, a notice 

of election and demand, or any other 

notice that is required by applicable law 

in order to pursue acceleration of a 

mortgage loan obligation or sale of a 

property securing a mortgage loan 

obligation. 

41(g) Prohibition on Foreclosure Sale 

Proposed § 1024.41(g) would have 

required that if a servicer receives a 

complete loss mitigation application by 

a deadline established by a servicer that 

was no earlier than 90 days before a 

foreclosure sale, the servicer may not 

proceed to foreclosure sale unless: (1) 

The servicer denies the borrower’s 

application for a loss mitigation option 

and the appeal process is inapplicable, 

the borrower has not requested an 

appeal, or the time for requesting an 

appeal has expired; (2) the servicer 

denies the borrower’s appeal; (3) the 

borrower rejects a servicer’s offer of a 

loss mitigation option; or (4) a borrower 

fails to perform pursuant to the terms of 

a loss mitigation option. 

The Bureau stated that it is 

appropriate to require that if a borrower 

submits a complete loss mitigation 

application by the deadline established 

by the servicer, a servicer should not 

proceed with a foreclosure sale until the 

servicer and borrower have terminated 

discussions regarding loss mitigation 

options. Further, the Bureau stated that 

it is appropriate to suspend a 

foreclosure sale when a borrower is 

performing under an agreement on a 

loss mitigation option. A servicer’s basis 

for servicing a mortgage loan, and 

undertaking actions to collect on an 

unpaid obligation, emanates from the 

contractual relationship between the 

owner or assignee of the mortgage loan 

and the borrower. A servicer’s 

determination to hold a foreclosure sale 

when a borrower is performing under an 

agreement that forestalls foreclosure 

violates the agreement entered into with 

the borrower. Additionally, it is already 

standard industry practice for a servicer 

to suspend a foreclosure sale during any 

period where a borrower is making 

payments pursuant to the terms of a trial 

loan modification. The Bureau stated in 

the proposal that prohibiting a servicer 

from proceeding with a foreclosure sale 

until termination of the loss mitigation 

discussion will eliminate the clearest 

harms to borrowers resulting from 

servicers’ pursuit of loss mitigation and 

foreclosure proceedings concurrently. 

Proposed comments 41(g)(4)–1 and 

41(g)(4)–2 would have clarified the 

application of the borrower performance 

definitions with respect to short sales. 

As stated in the proposal, a short sale 

typically will include a listing or 

marketing period during which a 

servicer will agree to postpone a 

foreclosure sale in order to allow a 

borrower to market a property for a 

short sale transaction. The proposed 

comments stated that a borrower is 

considered to be performing under the 

terms of a short sale agreement, or other 

similar loss mitigation agreement, 

during the term of any such marketing 

or listing period, and any time 

subsequent to such periods, if a short 

sale transaction is approved by all 

relevant parties, and the servicer has 

received proof of funds or financing. 

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10834 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

183See e.g., National Mortgage Settlement at 

Appendix A, at A–18, available at http:// 

www.nationalmortgagesettlement.com. 

184These comments had been identified as 

41(g)(4)–1 and 41(g)(4)–2 in the proposal but have 

been relocated in light of a non-substantive 

adjustment to the numeration of § 1024.41(g). 

The Bureau received comments from 

industry trade associations as well as 

consumer advocacy groups supporting a 

prohibition on proceeding with a 

foreclosure sale while a loss mitigation 

application is pending or an appeal 

from a loan modification denial is 

pending. Numerous consumer advocate 

commenters also stated, as discussed 

above with respect to § 1024.41(f), that 

the Bureau should go further to bar 

servicers from beginning or continuing 

with a foreclosure process even before a 

foreclosure sale. Specifically, a 

consumer advocate stated that a servicer 

should be barred from proceeding to 

foreclosure judgment in a judicial 

foreclosure, not just from completing a 

foreclosure sale, because of the 

difficulty in delaying a foreclosure sale 

once a foreclosure judgment has been 

rendered. 

Conversely, a credit union trade 

association, a non-bank servicer, and an 

individual consumer stated that the 

Bureau should not implement 

regulations that may have the impact of 

further delaying the foreclosure process. 

An individual consumer indicated that 

regulations that delay foreclosure will 

reduce access to credit and 

disproportionately increase costs of 

credit for low and moderate income 

households and first time homebuyers. 

Further, a non-bank servicer stated that 

borrower action should not be required 

before a servicer can proceed to 

foreclosure. 

Finally, a non-bank servicer requested 

clarification regarding application of the 

prohibition to a short sale. Specifically, 

the commenter requested clarification 

regarding whether a servicer can 

proceed with a foreclosure sale if a 

property does not sell during a listing or 

marketing period for a short sale 

transaction. 

The Bureau finalizes the rule as 

proposed with three adjustments. First, 

the Bureau has adjusted the prohibition 

on proceeding with a foreclosure sale to 

state that a servicer shall not move for 

foreclosure judgment or order of sale, or 

conduct a foreclosure sale. Second, the 

Bureau has adopted further clarification 

regarding the impact of the 

requirements on short sale transactions. 

Third, the Bureau has adjusted the 

timing of the requirement consistent 

with other changes to the timing of 

§ 1024.41 generally, as discussed above. 

As the Bureau stated in the proposal, 

the Bureau believes it is consistent with 

the purposes of RESPA, as well as with 

current market practice, to prohibit a 

servicer from completing the foreclosure 

process if a borrower has submitted a 

timely and complete application for a 

loss mitigation option until the servicer 

has completed the evaluation of the 

borrower for a loss mitigation option. In 

light of current market practice, the 

Bureau does not believe that 

§ 1024.41(g) will have a substantial 

impact on expected foreclosure 

timelines. Significantly, the Bureau has 

structured the timelines for borrowers to 

submit complete loss mitigation 

applications, and for servicers to 

evaluate loss mitigation applications, 

consistently with the National Mortgage 

Settlement, the California Homeowner 

Bill of Rights, and requirements 

currently imposed on servicers that 

service mortgage loans for the GSEs or 

government lending programs. 

Accordingly, there is no reason to 

believe that the Bureau’s requirements 

will substantially impact foreclosure 

timelines separate and apart from the 

baseline established as a result of 

current market practices. The Bureau 

also believes that avoiding the consumer 

harm caused by conducting a 

foreclosure sale before a servicer has 

completed an evaluation of a borrower 

for a loss mitigation option justifies any 

remaining concern regarding the 

potential impact on foreclosure 

timelines. 

The Bureau agrees that it is 

appropriate to clarify that the 

prohibition on conducting a foreclosure 

sale includes a prohibition that a 

servicer shall not move for foreclosure 

judgment or order of sale, or conduct a 

foreclosure sale. The final rule clarifies 

servicer obligations in judicial 

foreclosure jurisdictions and, moreover, 

is consistent with the requirements 

imposed on certain servicers under the 

National Mortgage Settlement.183

The Bureau is also adding 

commentary to clarify the impact of this 

requirement on the foreclosure process. 

Comment 41(g)–1 clarifies the impact of 

the prohibition on moving for 

foreclosure judgment by dispositive 

motions. Specifically, comment 41(g)–1 

states that the prohibition on a servicer 

moving for judgment or order of sale 

includes making a dispositive motion 

for foreclosure judgment, such as a 

motion for default judgment, judgment 

on the pleadings, or summary judgment, 

which may directly result in a judgment 

of foreclosure or order of sale. If a 

servicer has made any such motion 

before receiving a complete loss 

mitigation application, a servicer should 

make a good faith attempt to avoid the 

issuance of a judgment on any such 

motion prior to completing the 

procedures required by § 1024.41. In 

addition, comment 41(g)–2 clarifies how 

servicers may proceed with a 

foreclosure process. As stated in 

comment 41(g)–2, nothing in 1024.41(g) 

prohibits a servicer from continuing to 

move forward with a foreclosure process 

(assuming that the first notice or filing 

was made before a servicer received a 

complete loss mitigation application) so 

long as the servicer does not take an 

action that will directly result in the 

issuance of a foreclosure judgment or 

order of sale, or a foreclosure sale. For 

example, if a servicer is required to 

engage in mediation or to make 

publications in a local paper, a servicer 

may proceed with any such 

requirements, so long as the applicable 

result of a foreclosure judgment or order 

of sale, or conduct of a foreclosure sale 

does not result from such action. The 

Bureau has also added comment 41(g)– 

3, which provides that a servicer is 

responsible for promptly instructing 

foreclosure counsel retained by the 

servicer not to proceed with filing for 

foreclosure judgment or order of sale, or 

to conduct a foreclosure sale, in 

violation of § 1024.41(g) when a servicer 

has received a complete loss mitigation 

application. 

The Bureau has also clarified the 

application of § 1024.41 with respect to 

loss mitigation applications submitted 

37 days or less before a foreclosure sale 

in comment 41(g)–4. Comment 41(g)–4 

clarifies that although a servicer is not 

required to comply with the 

requirements in § 1024.41 with respect 

to a loss mitigation application 

submitted 37 days or less before a 

foreclosure sale, a servicer is required 

separately, in accordance with policies 

and procedures maintained pursuant to 

§ 1024.38(b)(2)(v), to properly evaluate a 

borrower who submits an application 

for a loss mitigation option for all loss 

mitigation options for which the 

borrower may be eligible pursuant to 

any requirements established by the 

owner or assignee of the borrower’s 

mortgage loan. Such evaluation may be 

subject to requirements applicable to a 

review of a loss mitigation application 

submitted by a borrower 37 days or less 

before a foreclosure sale. 

The Bureau also agrees that clarity is 

warranted regarding the impact of the 

requirements of § 1024.41(g)(3) on short 

sale transactions. The Bureau is 

finalizing comments 41(g)(3)–1 and 

41(g)(3)–2, the substance of which was 

previously proposed as comments 

41(g)(4)–1 and 41(g)(4)–2.184 Comment 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10835 

185See National Mortgage Settlement, at 

Appendix A, at A–27, available at http:// 

www.nationalmortgagesettlement.com; see also 

2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) 

amending Cal. Civ. Code § 2923.6. 

41(g)(3)–1 provides that a borrower is 

deemed to be performing under an 

agreement on a short sale, or other 

similar loss mitigation option, during 

the term of a marketing or listing period. 

Further comment 41(g)(3)–2 states that a 

borrower should be deemed to have 

obtained an approved short sale 

transaction if a short sale transaction 

has been approved by all relevant 

parties, including the servicer, other 

affected lienholders, or insurers, if 

applicable, and the servicer has received 

proof of funds or financing, unless 

circumstances otherwise indicate that 

an approved short sale transaction is not 

likely to occur. The Bureau has revised 

comment 41(g)(3)–2 in light of the 

public comments to further provide that 

if a borrower has not obtained an 

approved short sale transaction at the 

end of any marketing or listing period, 

a servicer may determine that a 

borrower has failed to perform under an 

agreement on a loss mitigation option. 

Finally, the Bureau has adjusted the 

timing requirements for § 1024.41(g) 

consistent with the discussion above 

regarding timelines. 

41(h) Appeal Process 

Proposed § 1024.41(h) would have 

required a servicer to establish an 

appeals process to review denials of 

complete loss mitigation applications 

for loan modifications. Pursuant to 

proposed § 1024.41(h), if a servicer 

reviewed an appeal and determined to 

offer a loss mitigation option, the 

servicer would have been prohibited 

from proceeding with a foreclosure sale 

unless the borrower rejects the offer of 

the loss mitigation option or fails to 

comply with terms of the loss mitigation 

option. If a servicer denied a borrower’s 

appeal of a loss mitigation option, the 

servicer would have been permitted to 

proceed with a foreclosure sale. A 

servicer would have been required to 

provide a notice to the borrower stating 

the servicer’s determination of the 

borrower’s appeal. 

Proposed § 1024.41(h) also stated that 

an appeal must be reviewed by servicer 

personnel that were not directly 

involved in the initial evaluation. 

Further, proposed comment 41(h)(3)–1 

would have clarified that individuals 

who supervised the personnel that 

conducted the initial evaluation may 

conduct the appeal evaluation if they 

were not directly involved in the initial 

evaluation. 

The appeals process would have been 

limited to denials of loan modification 

options. The Bureau stated in the 

proposal that an appeal process for 

denials of loan modification options 

maintains consistency with existing 

appeals and escalation processes 

established under State law or Federal 

regulatory agency requirements. For 

example, the appeal processes 

established by the National Mortgage 

Settlement and the California 

Homeowner Bill of Rights relate to 

denials of first lien loan modification 

denials.185 Moreover, loan 

modifications are some of the most 

complex loss mitigation programs with 

respect to the evaluation of borrowers, 

and the Bureau stated that loan 

modifications provide an appropriate 

scope for an appeal process. The Bureau 

requested comment regarding the appeal 

requirements, including the impact of 

the appeal process on small servicers. 

Consumer advocates commented that 

the scope of the appeal process should 

be expanded beyond loan modifications 

to include appeals of denials for any 

loss mitigation option. A consumer 

advocate further stated that there should 

be transparent standards for appeals, 

requirements on the information that 

servicers must review, and disclosure to 

the consumer of the reasons an appeal 

was denied. A housing counselor 

supported the appeal process 

requirement but requested clarification 

regarding the timing of the deadlines. 

The commenter suggested using a 

postmark to determine when applicable 

timelines start. 

By contrast, industry commenters 

objected to the appeal process 

requirement. A credit union and a trade 

association stated that many investors, 

including the GSEs and government 

insurance programs, do not consider 

appeals and that requiring a second 

review is ultimately futile and wasteful. 

A law firm commented that the appeal 

process is unnecessary and overreaching 

because it is unreasonable to believe 

that servicers will not comply with 

current loss mitigation evaluation 

requirements. Further, the commenter 

stated that an appeals process will 

extend foreclosure timelines, which 

may ultimately harm the housing 

market without benefiting consumers. 

The GSEs commented that they also 

generally oppose an appeal process but 

emphasized that, in any event, an 

appeal process should be limited to a 

denial of a loan modification option and 

only where a loss mitigation application 

is submitted 90 days or more before a 

scheduled foreclosure sale. A Federal 

regulatory agency further commented 

that instead of a formal appeal process, 

the Bureau should provide a less 

formalized escalation process. 

Credit unions and their trade 

associations, as well as a community 

bank and a non-bank servicer, 

commented that the appeal process 

presents unique issues for small 

servicers. These commenters stated that 

small servicers could not implement the 

appeal process because small servicers 

generally have so few employees that it 

is not possible to assign a separate 

employee to handle an appeal. One 

trade association commented that, as a 

consequence, an appeal may be 

reviewed by staff that may not be 

appropriate to the task. A credit union 

and a credit union trade association also 

commented that supervisory personnel 

should be allowed to conduct appeals. 

The Bureau believes that it is 

appropriate to require servicers to 

respond to appeals of denials for loan 

modification options. The Bureau’s 

proposed requirement is consistent with 

other obligations imposed on servicers, 

including, as set forth above, obligations 

pursuant to the National Mortgage 

Settlement and the California 

Homeowner Bill of Right. Consumers 

have consistently and forcefully 

complained that servicers have failed to 

review borrowers for loan modification 

options authorized by investors or 

guarantors of mortgage loans. 

Significantly, consumers and consumer 

advocates dispute in many individual 

instances whether servicers have 

properly applied the requirements of the 

Making Home Affordable program and 

the loan modification review 

requirements of the National Mortgage 

Settlement. Further, the terms of loan 

modification program reviews and 

compliance are complex and the Bureau 

understands from outreach with 

investors and guarantors of mortgage 

loans that servicers continue to have 

difficulty conducting the evaluations for 

loan modification programs pursuant to 

the guidelines and programs established 

by those investors and guarantors. 

Considering these factors, the Bureau 

believes that, as with any complex and 

unique process, servicers may make 

mistakes in evaluating borrowers for 

loan modification options. The notice 

that the Bureau is requiring servicers 

provide borrowers to explain the 

reasons for the denial of a loan 

modification, which include inputs that 

may have been the basis for such 

denials, may help uncover such 

mistakes. Many of these mistakes can 

then be corrected if a servicer 

undertakes a second review where a 

borrower believes that such further 

review is warranted. Thus, the Bureau 

believes that borrowers may reasonably 

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10836 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

benefit from the opportunity to have an 

independent review at a servicer where 

the borrower believes a mistake was 

made in the evaluation of a loan 

modification option. 

Further, the Bureau believes the scope 

and requirements of the appeal process 

as proposed are appropriate. The Bureau 

proposed limiting the scope of the 

appeal process to denials of loan 

modification options. Further, the 

appeal process would only have been 

available if a complete loss mitigation 

application was received 90 days or 

more before a scheduled foreclosure 

sale. These requirements are consistent 

with appeals processes set forth in the 

National Mortgage Settlement and the 

California Homeowner Bill of Rights 

and set an appropriate balance of 

processes that improve consumer 

protection when considered against 

burdens that may impact access and 

costs of credit for consumers. Although 

commenters focused on whether the 

process should be characterized as an 

‘‘appeal’’ process or an ‘‘escalation’’ 

process, this semantic distinction does 

not affect the actual requirements that 

would be imposed on servicers. 

Essentially, if a borrower believes that a 

servicer made a mistake regarding the 

evaluation of a borrower for a loan 

modification option, the borrower can 

indicate that to the servicer. The 

servicer would be required to ensure 

that personnel other than those that 

made the initial determination review 

the borrower’s evaluation and determine 

whether to offer the borrower a loss 

mitigation option. The Bureau also 

believes the timing of the loss mitigation 

procedures, including the appeal 

process, are clear. All such deadlines 

are based on when information is 

received or provided by a servicer. 

Although the Bureau believes that 

servicers should review borrower 

appeals and make a determination 

regarding whether the servicer shall 

offer the borrower a loss mitigation 

option, the Bureau declines to establish 

guidelines for appeals. As set forth 

above, the Bureau believes it is 

appropriate to allow investors or 

guarantors, including most notably the 

GSEs and FHA, to establish their own 

requirements and to determine the 

extent to which they want those 

requirements to be enforceable through 

private litigation. 

Accordingly, the Bureau finalizes 

§ 1024.41(h) as proposed, with minor 

changes to reflect adjustments to the 

deadlines applicable to § 1024.41 

generally, as discussed above, and 

certain non-substantive changes to 

clarify the text. Further, the Bureau 

finalizes comment 41(h)(3)–1 as 

proposed. 

41(i) Duplicative Requests 

Proposed § 1024.41(i) would have 

clarified that a servicer is only required 

to comply with the requirements of 

proposed § 1024.41 for a single 

complete loss mitigation application 

submitted by a borrower. A servicer 

would not have been required to comply 

with the requirements of proposed 

§ 1024.41 if a borrower had previously 

been evaluated for loss mitigation 

options for the borrower’s mortgage loan 

account by that servicer. 

In the proposal, the Bureau stated that 

where servicing was transferred after the 

borrower received an evaluation on a 

complete loss mitigation application 

from the transferor servicer, the 

transferee servicer still may be required 

to comply with the requirements of 

proposed § 1024.41. The Bureau 

believes that when an investor or 

guarantor is transferring servicing to a 

new servicer, which may have been 

driven by an investor’s or guarantor’s 

determination that the new servicer can 

better achieve loss mitigation options 

with borrowers, borrowers should be 

able to renew an application for a loss 

mitigation option with the transferee 

servicer, subject to the applicable 

deadlines and requirements in proposed 

§ 1024.41. 

The Bureau requested comment 

regarding whether a borrower should be 

entitled to renewed evaluation for a loss 

mitigation option if an appropriate time 

period has passed since the initial 

evaluation or if there is a material 

change in the borrower’s circumstances. 

A consumer advocate coalition 

commented that servicers should be 

required to review a subsequent loss 

mitigation submission when a borrower 

has demonstrated a material change in 

the borrower’s financial circumstances. 

Conversely, a trade association 

supported the Bureau’s proposal stating 

that it would ensure that adequate time 

and resources are devoted to borrowers 

applying for the first time for a loss 

mitigation option. 

A non-bank servicer stated concerns 

that requiring review of renewed 

applications would obstruct a servicer’s 

ability to proceed with an inevitable 

foreclosure sale. The commenter 

indicated that renewed applications 

may not actually reflect a material 

change in the borrower’s financial 

circumstances and may only constitute 

a strategic attempt to delay the 

foreclosure process. The commenter 

suggested that if a servicer is required to 

review a renewed loss mitigation 

application, a borrower should have a 

restricted time period for submitting 

such information and a servicer should 

only be required to comply with an 

expedited review process. Finally, after 

further consideration, the Bureau 

believed it appropriate to clarify the 

application of the loss mitigation 

procedures if servicing is transferred for 

a borrower’s mortgage loan account. 

The Bureau believes that it is 

appropriate to limit the requirements in 

§ 1024.41 to a review of a single 

complete loss mitigation application. 

Specifically, the Bureau believes that a 

limitation on the loss mitigation 

procedures to a single complete loss 

mitigation application provides 

appropriate incentives for borrowers to 

submit all appropriate information in 

the application and allows servicers to 

dedicate resources to reviewing 

applications most capable of succeeding 

on loss mitigation options. Further, the 

Bureau is cognizant that the borrowers 

may pursue a private right of action to 

enforce the procedures set forth in 

§ 1024.41 and significant challenges 

exist to determine whether a material 

change in financial circumstances has 

occurred and, if so, what procedures 

should be required. Accordingly, the 

Bureau is finalizing the rule as 

proposed. 

The Bureau agrees, however, that 

there is merit to providing protections 

for a borrower that has had a material 

change in the borrower’s financial 

circumstances after a review of an initial 

loss mitigation application. 

Accordingly, as discussed above for 

§ 1024.38(b)(2)(v), servicers are required 

to implement policies and procedures to 

achieve the objective of reviewing 

borrowers for loss mitigation options 

pursuant to requirements established by 

an owner or assignee of a mortgage loan. 

The Bureau understands from outreach 

that many owners or assignees of 

mortgage loans require servicers to 

consider material changes in financial 

circumstances in connection with 

evaluations of borrowers for loss 

mitigation options and servicer policies 

and procedures must be designed to 

implement those requirements. 

Finally, the Bureau believes that it is 

appropriate to clarify the application of 

the requirements of § 1024.41 when 

servicing for a mortgage loan has been 

transferred. As set forth in the proposal, 

a transferee servicer would have been 

required to comply with the 

requirements of § 1024.41, 

notwithstanding whether a borrower has 

received a determination on a complete 

loss mitigation application from a 

transferor servicer. To the extent that an 

evaluation for a loss mitigation option is 

in process with a transferor servicer, but 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10837 

186Sumit Agarwal et al., Second Liens and the 

Holdup Problem in First Mortgage Renegotiation 

(Dec. 14, 2011), available at available at http:// 

ssrn.com/abstract=2022501. 

a borrower has not finalized an 

agreement on a loss mitigation option, 

the Bureau believes it is appropriate for 

a transferee servicer to comply with the 

loss mitigation procedures, including 

reviewing a borrower again for all 

available loss mitigation options. 

The Bureau, therefore, has added 

comments 41(i)–1 and 41(i)–2 to clarify 

a transferee servicer’s obligations in 

connection with a servicing transfer for 

a borrower that has submitted a loss 

mitigation application. Comment 41(i)– 

1 provides that a transferee servicer is 

required to comply with the 

requirements of § 1024.41 regardless of 

whether a borrower received an 

evaluation of a complete loss mitigation 

application from a transferor servicer. 

Further, comment 41(i)–1 states that 

documents and information transferred 

from a transferor servicer to a transferee 

servicer may constitute a loss mitigation 

application to the transferee servicer 

and may cause a transferee servicer to 

be required to comply with the 

requirements of § 1024.41 with respect 

to a borrower’s mortgage loan account. 

Comment 41(i)–2 states that a transferee 

servicer must obtain documents and 

information submitted by a borrower in 

connection with a loss mitigation 

application pending at the time of a 

servicing transfer, consistent with 

policies and procedures adopted 

pursuant to § 1024.38, and must 

continue the evaluation of a complete 

loss mitigation application to the extent 

practicable. Comment 41(i)–2 further 

provides that for purposes of 

§ 1024.41(e)(1), 1024.41(f), 1024.41(g), 

and 1024.41(h), a transferee servicer 

must consider documents and 

information received from a transferor 

servicer that constitute a complete loss 

mitigation application for the transferee 

servicer to have been received by the 

transferee servicer as of the date such 

documents and information were 

provided to the transferor servicer. The 

purpose of this clarification is to ensure 

that a servicing transfer does not have 

the consequence of depriving a 

borrower of protections to which a 

borrower was entitled from the 

transferor servicer in accordance with 

the requirements of § 1024.41. 

Accordingly, the Bureau finalizes 

§ 1024.41(i) as proposed. The Bureau 

finalizes the comments to § 1024.41(i) to 

clarify the impact of the requirements in 

§ 1024.41 in connection with servicing 

transfers. 

41(j) Other Liens (Withdrawn) 

Proposed § 1024.41(j) would have 

required any servicer that receives a 

complete loss mitigation application to 

determine if any other servicers service 

mortgage loans that have senior or 

subordinate liens encumbering the 

property that is the subjection of the 

loss mitigation application within 5 

days. If a servicer determines that any 

other servicers service a mortgage loan 

for the property, the servicer would be 

required to provide the loss mitigation 

application received from the borrower 

to the other servicer. This provision was 

intended to require servicers of other 

liens that were not the original recipient 

to become engaged in the loss mitigation 

evaluation process by requiring such 

servicers to apply the loss mitigation 

procedures to loss mitigation 

applications received from other 

servicers on behalf of the borrower. 

Numerous commenters, including 

large banks, community banks, credit 

unions, their respective trade 

associations, the GSEs, a law firm, and 

a housing finance agency, objected to 

the proposed rule. These commenters 

stated that the proposed rule raises 

significant concerns regarding consumer 

welfare. First, the required transmittal of 

borrower personal information among 

servicers raises significant privacy 

concerns for borrowers. Second, 

borrowers that are current on other 

mortgage loans may be harmed by 

requiring information sharing among 

mortgage servicers. For example, a 

borrower that is current on a 

subordinate lien HELOC that is not fully 

utilized may find that the HELOC line 

has been frozen even though the 

borrower expects to need to draw on the 

additional credit that would have been 

available. Third, servicers would be 

required to undertake the expense of a 

title search to identify other liens, the 

costs for which would be passed on to 

a borrower, even though a borrower 

likely knows whether another lien and 

servicer exist. 

Commenters also stated that servicers 

could not reasonably comply with the 

proposed rule. Servicers indicated that 

they could not identify whether other 

mortgage liens exist from a title search 

within 5 days. A small credit union 

commented that credit unions lack the 

expertise, staffing, and training to 

ensure compliance with the 

requirement. Commenters also 

identified other operational problems, 

including delays and logistical problems 

identifying appropriate personnel to 

receive loss mitigation applications at 

other servicers, and problems relating to 

exchanging potentially proprietary 

information relating to collecting 

information for a loss mitigation 

application. 

Commenters suggested different 

approaches for involving servicers of 

other mortgage liens in loss mitigation 

evaluations. A financial industry trade 

association suggested that the Bureau 

require servicers to inform borrowers 

that they may wish to contact a servicer 

for another mortgage loan to obtain an 

evaluation for a loss mitigation option. 

Another industry commenter suggested 

that the Bureau sponsor a database for 

exchanging lienholder information and 

submitting and storing borrower 

applications. Further, a consumer 

advocate coalition suggested that the 

Bureau implement requirements 

regarding re-subordination of a junior 

lien after a loan modification. 

Specifically, the commenter states that a 

servicer should be required to secure a 

re-subordination of a junior lien to a 

modified mortgage loan secured by a 

senior lien. The commenter further 

states that a servicer should be 

prohibited from rejecting a loan 

modification even where a title problem 

exists or where another lienholder 

refuses to re-subordinate its lien to a 

modified mortgage loan. 

Some of the most difficult loss 

mitigation situations for consumers and 

owners or assignees of mortgage loans 

involve properties secured by multiple 

mortgage liens. Loss mitigation options 

for such properties can be significantly 

impeded or delayed because of 

miscommunications, lack of 

coordination, and differing interests 

among servicers of senior and 

subordinate liens. As the Bureau stated 

in the proposal, when servicers hold a 

second lien that is behind a first lien 

owned by a different owner or assignee, 

one study has found a lower likelihood 

of liquidation and modification, and a 

higher likelihood of inaction by a 

servicer. Specifically, ‘‘liquidation and 

modification of securitized first 

mortgages are 60 percent [to] 70 percent 

less likely respectively and no action is 

13 percent more likely when the 

servicer of that securitized first 

mortgage holds on its portfolio the 

second lien attached to the first 

mortgage.’’ 186

The Bureau proposed § 1024.41(j) to 

require servicers to coordinate on 

evaluations of borrowers for loss 

mitigation options. However, 

commenters have identified significant 

concerns with the requirement as 

proposed. For example, with respect to 

privacy concerns, the Bureau observed 

in the proposal that the Gramm-LeachBliley Act as implemented by 

Regulation P did not require provision 

of an initial notice and opt-out in 

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10838 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

connection with providing the loss 

mitigation application submitted by a 

borrower to another servicer under the 

exception set forth in 12 CFR 

1016.15(a)(7). However, 

notwithstanding that servicers may 

provide personal information to 

additional servicers pursuant to 

applicable law, the Bureau finds 

persuasive the concerns raised by 

servicers with respect to the potential 

privacy implications regarding the 

circulation of borrower personal 

information among servicers. 

In light of the comments, the Bureau 

has determined to withdraw the 

substance of proposed § 1024.41(j). The 

Bureau is requiring that a servicer 

inform a borrower in the notice required 

by § 1024.41(b)(2)(i)(B) that the 

borrower should consider contacting 

servicers of any other mortgage loans 

secured by the same property to discuss 

available loss mitigation options. 

Although a servicer is not required to 

comply with the requirements that 

would have been implemented by 

proposed § 1024.41(j), the Bureau 

believes that borrowers should be aware 

of the potential complications to 

achieving a loss mitigation option in 

situations where multiple liens exist. 

41(j) Small Servicers 

As previously stated above, the 

proposed rule applied all of the loss 

mitigation provisions to small servicers. 

For the reasons previously discussed 

with respect to § 1024.30, the Bureau 

has concluded that the available 

evidence indicates that the concerns 

underlying the loss mitigation 

provisions arise in the context of larger 

servicers and that the benefits of 

applying all of these requirements to 

small servicers who service loans they 

or an affiliate own or originated may not 

be justified by the burdens on these 

small servicers. 

There are, however, two elements of 

the loss mitigation rules that the Bureau 

believes should be applied across all 

servicers. First, new § 1024.41(j) states 

that a small servicer is required to 

comply with requirements similar to 

those in § 1024.41(f)(1) by not making 

the first notice or filing required for a 

foreclosure process unless a borrower is 

more than 120 days delinquent. Second, 

a small servicer shall not proceed to 

foreclosure judgment or order of sale, or 

conduct a foreclosure sale, if a borrower 

is performing pursuant to the terms of 

an agreement on a loss mitigation 

option. 

The Bureau has no reason to believe 

that any small servicers, servicing loans 

they or an affiliate owns or originated, 

in fact commence foreclosure before a 

borrower is at least 120 days delinquent 

or either commence a foreclosure 

process or conduct a foreclosure sale if 

a borrower is performing under an 

agreed-upon loss mitigation program. 

Nonetheless, the Bureau believes these 

protections, which are discussed in 

more detail above, are such essential 

standards that all borrowers should 

understand that they are entitled to 

protection from consumer harms 

relating to dual tracking 

notwithstanding the size of the servicer. 

The Bureau believes that imposing only 

these limited requirements on small 

servicers creates easily understood and 

clearly implemented consumer 

protections while appropriately 

calibrating the burdens that small 

servicers may incur. 

Supplement I to Part 1024 

As discussed throughout in this part 

VI, Section-by-Section Analysis, the 

Bureau is adopting a number of 

comments that are the Bureau’s official 

interpretations to specific Regulation X 

provisions. In addition to these specific 

comments, the Bureau is adopting five 

comments of general applicability to the 

Bureau’s official interpretations of 

Regulation X. Comment I–1 provides 

that the official Bureau interpretations 

in supplement I to part 1024 is the 

primary vehicle by which the Bureau 

issues official interpretations of 

Regulation X, and that good faith 

compliance with the official Bureau 

interpretations affords protection from 

liability under section 19(b) of the Real 

Estate Settlement Procedures Act 

(RESPA). 

Comment I–2 provides that request for 

an official interpretation shall be in 

writing and addressed to the Associate 

Director, Research, Markets, and 

Regulations, Bureau of Consumer 

Financial Protection, 1700 G Street, 

NW., Washington, DC 20552. The 

requests shall contain a complete 

statement of all relevant facts 

concerning the issue, including copies 

of all pertinent documents. Except in 

unusual circumstances, such official 

interpretations will not be issued 

separately but will be incorporated in 

the official commentary to this part, 

which will be amended periodically. No 

official interpretations will be issued 

approving financial institutions’ forms 

or statements. This restriction does not 

apply to forms or statements whose use 

is required or sanctioned by a 

government agency. 

Comment I–3 provides that unofficial 

oral interpretations may be provided at 

the discretion of Bureau staff. Written 

requests for such interpretations should 

be sent to the address set forth for 

official interpretations. Unofficial oral 

interpretations provide no protection 

under section 19(b) of RESPA. 

Ordinarily, staff will not issue unofficial 

oral interpretations on matters 

adequately covered by this part or the 

official Bureau interpretations. The 

Bureau proposed I–1 through I–3 in the 

2012 RESPA Servicing Proposal. Having 

received no comments on proposed I–1 

through I–3, the Bureau adopts I–1 

through I–3 as proposed. 

The Bureau is adopting comment I–4 

to provide instructions on rules of 

construction applicable to the 

comments set forth in Supplement I to 

Part 1024—Official Bureau 

Interpretations. Comment I–4 provides 

that: (1) lists that appear in the 

commentary may be exhaustive or 

illustrative; the appropriate construction 

should be clear from the context. In 

most cases, illustrative lists are 

introduced by phrases such as 

‘‘including, but not limited to,’’ ‘‘among 

other things,’’ ‘‘for example,’’ or ‘‘such 

as’’; and (2) throughout the commentary, 

reference to ‘‘this section’’ or ‘‘this 

paragraph’’ means the section or 

paragraph in the regulation that is the 

subject of the comment. The Bureau is 

also adopting comment I–5 to explain 

that each comment in the commentary 

is identified by a number and the 

regulatory section or paragraph that the 

comment interprets and that the 

comments are designated with as much 

specificity as possible according to the 

particular regulatory provision 

addressed. Although the Bureau did not 

propose comments I–4 and I–5, the 

Bureau believes that adopting these 

comments in the final rule promotes the 

proper use of commentary the Bureau 

has set forth in Supplement I to part 

1024. 

Legal Authority 

As discussed in part V (Legal 

Authority), section 19(a) of RESPA 

authorizes the Bureau to make such 

reasonable interpretations of RESPA as 

may be necessary to achieve the 

consumer protection purposes of 

RESPA, and section 19(b) of RESPA 

provides that good faith compliance 

with the interpretations affords servicers 

protection from liability. 

Appendix MS 

Current appendix MS–1 to part 1024 

contains a model form that a servicer 

could use in connection with providing 

a loan applicant, at the time of 

application, information about whether 

servicing of the loan such applicant is 

applying may be assigned, sold, or 

transferred at any time while the loan is 

outstanding, as required by current 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10839 

§ 1024.21(b) and (c). Current appendixMS–2 to part 1024 contains a model 

from that a servicer could use in 

connection with providing a borrower 

with information related to servicing 

transfers, as required by current 

§ 1024.21(d)(1)(i). The Bureau proposed 

to modify the current model form that 

a servicer could use in connection with 

providing a borrower with information 

related to servicing transfers in current 

appendix MS–2. Additionally, the 

Bureau proposed adding four model 

forms that a servicer could use in 

connection with providing a borrower 

with information related to force-placed 

insurance that would have been 

required by proposed §§ 1024.37(c)(2), 

(d)(2)(i) and (ii), or (e)(2), as applicable, 

in proposed appendix MS–3 to part 

1024, and adding five model clauses 

that a servicer could use in connection 

with providing delinquent borrowers 

with information about loss mitigation 

options, foreclosures, and housing 

counselors that would have been 

required by proposed § 1024.39(b) in 

proposed appendix MS–4 to part 1024. 

In adopting the final rule, the Bureau 

has organized current appendix MS–1, 

revised appendix MS–2, and new 

appendices MS–3 and 4 under the 

heading ‘‘Appendix MS.’’ 

The Bureau also proposed official 

commentary to provide general 

instructions on how to use model forms 

and clauses in appendix MS. 

Specifically, proposed comment 1 to 

appendix MS would have explained 

that appendix MS contains model forms 

and clauses for mortgage servicing 

disclosures, and that each such model 

form or clause is designated for use in 

a particular set of circumstances, as 

indicated by the title of such model 

form or clause. Proposed comment 1 to 

appendix MS would have additionally 

clarified that although a servicer is not 

required to use such model forms and 

clauses, a servicer that uses them 

properly will be deemed to be in 

compliance with the regulations with 

regard to the disclosure requirements 

connected with such model forms and 

clauses. Proposed comment 1 to 

appendix MS would have explained 

that to use such forms and clauses 

appropriately, information required by 

regulation must be set forth in the 

disclosures. Proposed comment 2 to 

appendix MS would have explained 

that servicers may make certain changes 

to the format or content of the model 

forms and clauses and may delete any 

disclosures that are inapplicable 

without losing the protection from 

liability so long as those changes do not 

affect the substance, clarity, or 

meaningful sequence of the forms and 

clauses, and that servicers making 

revisions to that effect will lose their 

protection from civil liability. Proposed 

comment 2 to appendix MS also would 

have provided examples of changes that 

the Bureau considered acceptable 

changes. 

The Bureau solicited comments on 

the appropriateness of proposing official 

commentary to provide general 

instructions on how to use model forms 

and clauses in appendix MS to part 

1024. No comments were received on 

either the substance of the proposed 

commentary or the appropriateness of 

using them to provide general 

instructions on how to use model forms 

and clauses in appendix MS to part 

1024. 

Appendix MS–2—Model Form for 

Mortgage Servicing Transfer Disclosure 

Appendix MS–2 to part 1024 sets 

forth the format for the servicing 

transfer disclosure required pursuant to 

section 6(a)(3) of RESPA and proposed 

§ 1024.33(b)(5). The Bureau proposed to 

revise the model form in appendix MS– 

2 to significantly reduce the length of 

the required disclosure to borrowers in 

connection with mortgage servicing 

transfers. As discussed below, the 

Bureau is adopting appendix MS–2 

substantially as proposed, except as 

otherwise noted. 

In its proposal, the Bureau observed 

that, unless a transferor and transferee 

servicer coordinate to provide a 

consolidated disclosure, a borrower will 

receive substantially similar disclosures 

in the form of appendix MS–2 from both 

a transferor servicer and a transferee 

servicer. The Bureau is concerned that 

the volume of the disclosure may 

overwhelm borrowers, who will not 

focus on the information set forth in the 

form, while also imposing a burden on 

servicers to provide lengthy and 

unnecessary disclosures. Thus, the 

Bureau proposed to streamline the 

language of the model form to focus on 

only the elements of information that a 

borrower needs in connection with a 

mortgage servicing transfer, specifically 

(1) the date of the transfer, (2) contact 

information for the transferor servicer, 

(3) contact information for the transferee 

servicer, (4) applicable dates for when 

each of the servicers will begin or cease 

to accept payments, (5) the impact of the 

transfer on any insurance products and 

(6) a statement that the transfer does not 

otherwise affect the terms or conditions 

of the mortgage loan. 

The Bureau proposed to remove 

significant discussion in the model form 

regarding the complaint resolution 

process and the borrower’s rights 

pursuant to RESPA. Two consumer 

advocacy groups submitted comment 

requesting that the Bureau not remove 

information about a borrower’s 

complaint resolution rights under 

RESPA. For the reasons discussed in the 

section-by-section analysis of 

§ 1024.33(b)(4) above, the Bureau is 

omitting language about complaint 

resolution from appendix MS–2. 

The Bureau’s proposed amendments 

to appendix MS–2 also would have 

omitted language informing borrowers 

of the prohibition in RESPA section 6(d) 

(as implemented through current 

§ 1024.21(d)(5)). Appendix MS–2 

currently informs borrowers, in general, 

that pursuant to RESPA section 6, 

during the 60-day period following the 

effective date of the transfer of the loan 

servicing, a loan payment received by 

the borrower’s old servicer before its 

due date may not be treated by the new 

loan servicer as late, and a late fee may 

not be imposed on the borrower. Upon 

further consideration, and in light of 

comment received with respect to the 

complaint resolution statement, the 

Bureau believes this information should 

be retained in appendix MS–2 because 

the Bureau believes information about 

misdirected payments is uniquely 

relevant to borrowers during a servicing 

transfer (unlike the complaint resolution 

statement, which the Bureau believes 

should be made available to borrowers 

in circumstances that do not necessarily 

depend on the transfer of servicing). 

Additionally, in light of its brevity, the 

Bureau does not believe its inclusion 

will significantly add to the length of 

the form. While the Bureau did not test 

this statement, the Bureau does not 

believe it is likely to cause confusion or 

present comprehension problems in 

light of its simplicity and because it 

includes language substantially similar 

to what appears in the current model 

form. Accordingly, the Bureau has 

retained the substance of the current 

statement about late payments and has 

omitted the prefatory language about a 

borrower’s rights under RESPA section 

6 with a more general statement. 

The Bureau has amended existing 

language in the statement that explains 

that a payment received ‘‘before its due 

date’’ would not be treated as late to 

more accurately reflect the requirement 

in § 1024.33(c)(1). The language 

appearing in the model form now 

provides, ‘‘Under Federal law, during 

the 60-day period following the effective 

date of the transfer of the loan servicing, 

a loan payment received by your old 

servicer on or before its due date may 

not be treated by the new servicer as 

late, and a late fee may not be imposed 

on you.’’ 

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187See 24 CFR 203.602; HUD Handbook 4330.1 

rev–5, 7–7(G). 

188The tested statement provided, ‘‘Please contact 

us. We may be able to make your mortgage more 

affordable. The longer you wait, or the further you 

fall behind on your payments, the harder it will be 

to find a solution.’’ This was followed by a sample 

servicer’s address and contact information. 

189Consumer testing of the servicing transfer 

notice, discussed above, during the Philadelphia 

round of testing indicated participants understood 

the distinction between their servicer and their 

lender and that this distinction did not present 

comprehension problems. The Bureau notes that, 

pursuant to comment MS–2.ii, servicers may freely 

substitute the words ‘‘lender’’ and ‘‘servicer’’ as 

appropriate. 

Consumer testing. To test consumer 

comprehension of the revised model 

form proposed by the Bureau, the 

Bureau contracted with Macro to 

conduct eight qualitative interviews 

during one round of consumer testing in 

the Philadelphia, Pennsylvania area on 

November 7, 2012. After reading the 

notice, all participants understood that 

they would have to send their payments 

to a different servicer after the date 

listed in the notice. All participants saw 

the contact information for both the 

transferor and transferee servicers. Most 

participants also understood the basic 

relationship between a lender and a 

servicer. 

During this round of testing, the 

Bureau was interested in whether 

participants preferred a form that listed 

the transferor and transferee servicer 

contact information in a side-by-side 

fashion, as opposed to a vertical fashion, 

as the form proposed by the Bureau 

would have been formatted. The Bureau 

expected that listing the transferor and 

transferee servicers in a side-by-side 

fashion would enhance consumer 

comprehension of who the old and new 

servicers are. To test this, the Macro 

showed participants the original notice 

(Version A) and asked participants a 

series of questions to measure their 

understanding of the notice. Macro then 

showed participants a reformatted 

notice (Version B) and asked which 

version they preferred. All participants 

said they preferred Version B. They 

commented that the format of Version B 

was easier to read and understand, and 

that the current and new servicers were 

easier to identify at a glance. 

The Bureau is finalizing appendix 

MS–2 with substantially the same 

content as proposed. However, the 

Bureau has retained, with certain 

modifications discussed above, language 

in current appendix MS–2 about the 

treatment of payments during the 60- 

day period beginning on the effective 

date of transfer. The Bureau has also 

reformatted the model form to list the 

contact information for the transferor 

and transferee servicers in a side-by-side 

fashion. 

Appendix MS–3—Model Force-Placed 

Insurance Notice Forms 

The Bureau proposed to add appendix 

MS–3 to part 1024 to include four 

model forms that a servicer could use in 

connection with providing a borrower 

with information related to force-placed 

insurance that would have been 

required by proposed §§ 1024.37(c)(2), 

(d)(2)(i) and (ii), or (e)(2), as applicable. 

The Bureau observed in the 2012 

RESPA Servicing Proposal that the 

model forms underwent three rounds of 

consumer testing. As discussed above in 

the section-by-section analysis of 

§ 1024.37(c)(3), one large bank servicer 

commended the Bureau for proposing 

model forms that were thoughtfully 

designed. Having received no other 

comment on the design of the model 

forms, the Bureau is finalizing appendix 

MS–3 as proposed, except that the 

content of the model forms in appendix 

MS–3, as adopted, reflects changes the 

Bureau made with respect to the 

§§ 1024.37(c)(2), (d)(2)(i) and (ii), and 

(e)(2), as applicable. 

The Bureau also proposed related 

commentary to appendix MS–3. 

Proposed comment MS–3–1 would have 

explained that the model form MS–3(A) 

illustrates how a servicer may comply 

with § 1024.37(c)(2). Proposed comment 

MS–3–2 would have explained that the 

model form MS–3(B) illustrates how a 

servicer may comply with 

§ 1024.37(d)(2)(i). Proposed comment 

MS–3 would have explained that the 

model form MS–3(C) illustrates how a 

servicer may comply with 

§ 1024.37(d)(2)(ii). Proposed comment 

MS–3–4 would have explained that 

model MS–3(D) illustrates how a 

servicer may comply with 

§ 1024.37(e)(2). Proposed comment MS– 

3–5 would have clarified that where the 

model forms MS–3(A), MS–3(B), MS– 

3(C), and MS–3(D) use the term ‘‘hazard 

insurance,’’ the servicer may substitute 

‘‘hazard insurance’’ with, as applicable, 

‘‘homeowners’ insurance’’ or ‘‘property 

insurance.’’ 

The Bureau did not receive any 

comments on the proposed 

commentary. But upon further 

consideration, the Bureau believes that 

proposed comment MS–3–1 through 4 

are not necessary because the title of 

each model form in appendix MS–3 

already indicates the circumstances 

under which such model form is to be 

used. Accordingly, the Bureau is 

adopting proposed comment MS–3–5 as 

proposed, but renumbered as comment 

MS–3–1. 

Appendix MS–4—Model Clauses for the 

Written Early Intervention Notice 

In the 2012 RESPA Mortgage 

Servicing Proposal, the Bureau 

proposed model clauses in new 

appendix MS–4 to illustrate the 

disclosures that would be required 

under proposed § 1024.39(b)(1). The 

Bureau developed the proposed model 

clauses to encourage the borrower to 

contact the servicer and provide 

information about loss mitigation 

options, foreclosure, and housing 

counselors. The Bureau developed the 

proposed clauses based on its own 

analysis and review of existing notices 

for delinquent borrowers, such as the 

HUD ‘‘Avoiding Foreclosure’’ 

pamphlet.187 Several consumer 

advocacy groups supported the Bureau’s 

decision to provide model clauses but 

recommended that the Bureau require 

standardized notices for all servicers 

because they were concerned that 

servicers are not consistent in the way 

they describe loss mitigation options. 

Industry commenters generally 

requested more flexibility in the way the 

notices are provided. Macro conducted 

one round of consumer testing in 

Philadelphia, Pennsylvania to assess 

consumer comprehension of the 

proposed early intervention model 

clauses. The Bureau also notes that 

Macro conducted three rounds of oneon-one cognitive interviews to test 

disclosure forms for the Bureau’s 

proposed ARM interest rate adjustment 

notices, which the Bureau is finalizing 

in the 2013 TILA Servicing Final Rule. 

The ARM interest rate adjustment 

notices contained clauses describing 

loss mitigation options and contact 

information to access housing 

counseling resources. 

Proposed clauses in Model MS–4(A) 

illustrated how a servicer may provide 

its contact information and how a 

servicer may request that the borrower 

contact the servicer, as would have been 

required under proposed 

§ 1024.39(b)(2)(i) and (ii). Consumer 

testing indicated that all participants 

understood from this statement 188 that 

if they were having trouble making their 

payments, they should contact their 

bank to see what options may be 

available.189 Several participants 

specifically noticed the sentence stating 

that ‘‘The longer you wait, or the further 

you fall behind on your payments, the 

harder it will be to find a solution.’’ 

These participants said this sentence 

would make them more likely to contact 

their bank. Participants generally 

thought that this statement was similar 

to a separate statement illustrating how 

the servicer may inform the borrower 

how to obtain additional information 

about loss mitigation options, as would 

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190The tested statement provided, ‘‘Call us today 

to learn more about your options and instructions 

for how to apply.’’ 

have been required under 

§ 1024.39(b)(2)(iv), as illustrated in 

proposed MS–4(C).190 Most participants 

responded positively to these statements 

and believed that their bank was 

reaching out towards a solution, 

although two participants thought that 

the statements could be more polite or 

resembled an advertisement rather than 

a communication from their bank. 

Separately, during the public comment 

process, one credit union commenter 

also noted that the tone in the model 

notices did not necessarily reflect the 

way it communicated with their 

borrowers and requested more 

flexibility with respect to how the 

notices are worded. 

The Bureau believes that the clauses 

required under § 1024.39(b)(2)(i), (ii), 

and (iv) may be combined into a single 

clause, as illustrated in Model MS–4(A) 

that the Bureau is adopting in the final 

rule. Both clauses in proposed MS–4(C) 

and MS–4(A) instruct borrowers to 

contact the servicer to discuss their 

options, and the statement instructing 

borrowers to contact their servicer to 

learn more about how to apply in 

proposed MS–4(C) is very closely 

related. The Bureau is not otherwise 

changing the phrasing of statements as 

proposed. Most testing participants 

reacted favorably to the proposed 

clauses, and the Bureau notes that 

servicers can make minor modifications 

to the sample clauses, pursuant to 

general comment MS–2 to appendix 

MS. Moreover, the Bureau notes that the 

model clauses are not required; they 

only illustrated how the required 

statements in § 1024.39(b)(2) can be 

provided. 

Model MS–4(A) contains a bracketed 

clause stating, ‘‘The longer you wait, or 

the further you fall behind on your 

payments, the harder it will be to find 

a solution.’’ The Bureau has included 

this statement in brackets because it is 

optional, but the Bureau is including it 

as recommended language that the 

Bureau believes will help encourage 

borrowers to contact their servicer. 

Finally, the Bureau has omitted the 

clause stating ‘‘We may be able to make 

your mortgage more affordable’’ from 

proposed MS–4(A). During consumer 

testing, participants were concerned 

that the statement was potentially 

misleading. The Bureau does not believe 

this language is necessary to encourage 

delinquent borrowers to contact their 

servicer. That statement also appeared 

in proposed MS–4(B), illustrating 

proposed § 1024.39(b)(2)(iii) (brief 

description of loss mitigation options). 

The Bureau has deleted this clause in 

MS–4(B) for the same reason. 

Proposed clauses in Model MS–4(B) 

illustrated how the servicer may inform 

the borrower of loss mitigation options 

that may be available, as would have 

been required under proposed 

§ 1024.39(b)(2)(iii). The proposed 

clauses in Model MS–4(B) illustrated 

four commonly offered examples: (1) 

Forbearance, (2) mortgage modification, 

(3) short-sale, and (4) deed-in-lieu of 

foreclosure. During consumer testing of 

proposed MS–4(B), all participants 

understood the overall message of the 

statement—that if they were having 

difficulty making a mortgage payment, 

their bank may be able to offer options 

to help them. After reading the clauses, 

while participants generally could 

explain what a forbearance and a loan 

modification were, only approximately 

half of the participants could explain 

‘‘short-sale’’ and ‘‘deed-in-lieu.’’ All but 

one of the participants understood the 

primary difference between options that 

would let borrowers remain in their 

homes (forbearance and mortgage 

modification) and options that would 

require that the borrower leave their 

home (short-sale and deed-in-lieu of 

foreclosure). All participants 

understood that the fact that they 

received this notice did not mean that 

they would necessarily qualify for these 

options. 

During the public comment process, 

one large servicer requested clarification 

that servicers only be required to list 

loss mitigation options to the extent 

those options are available from the 

servicer. Another large servicer 

recommended that clauses illustrating 

deeds-in-lieu of foreclosure and short 

sales include language noting that 

lenders may seek a deficiency obligation 

from the borrower, except in the case of 

bankruptcy. 

The Bureau is not finalizing the 

Model Clauses proposed as Model MS– 

4(B). Instead, the Bureau is finalizing 

MS–4(B) by including clauses 

substantially similar to ones that the 

Bureau developed over the course of 

several rounds of consumer testing of 

the ARM disclosures contained in 

§ 1026.20, which the Bureau tested prior 

to publication of the 2012 TILA 

Mortgage Servicing Proposal and that 

tested better than the options described 

in proposed MS–4. The Bureau 

recognizes that these examples of loss 

mitigation options may not necessarily 

accurately reflect a servicer’s loss 

mitigation programs. Thus, comment 

MS–4–2 explained that the language in 

Model MS–4(B) is optional, and that a 

servicer may add or substitute any 

examples of loss mitigation options the 

servicer offers, as long as the 

information required to be disclosed is 

accurate and clear and conspicuous. 

The Bureau noted in its proposal that if 

the servicer offered no loss mitigation 

options, a servicer may not include 

Models MS–4(B) and MS–4(C) because 

including those statements would be 

misleading. 

The Bureau proposed comment MS– 

4–2 clarifying appropriate use of model 

clause MS–4(B). The comment 

explained that Model MS–4(B) does not 

contain sample clauses for all loss 

mitigation options that may be 

available. Comment MS–4–2 also 

explained that the language in the 

model clauses contained in square 

brackets is optional, and that a servicer 

may comply with the disclosure 

requirements of § 1024.39(b)(2)(iii) by 

using language substantially similar to 

the language in the model clauses, or by 

adding or substituting applicable loss 

mitigation options for options not 

represented in these model clauses, as 

long as the information required to be 

disclosed is accurate and clear and 

conspicuous. The Bureau is adopting 

comment MS–4–2 substantially as 

proposed. 

In response to industry concerns, the 

Bureau has also added language to 

comment MS–4–2 to explain that 

servicers may use clauses to illustrate 

options to the extent they are available. 

In addition, the Bureau has clarified that 

servicers may provide additional detail 

about the options, provided the 

information disclosed is accurate and 

clear and conspicuous. This 

clarification responds to industry 

commenters’ recommendation to clarify 

that servicers may explain that the 

discussion of certain options, such as a 

short sale, may require deficiency 

obligations from the borrower. 

Proposed clauses in Model MS–4(D) 

illustrated how a servicer may explain 

foreclosure and provide the estimated 

number of days in which the servicer 

may begin the foreclosure process, as 

would have been required under 

proposed § 1024.39(b)(2)(v). During 

consumer testing of proposed MS–4(D), 

participants had mixed reactions to the 

foreclosure statement. Participants 

understood that this notice was 

intended to provide the consumer with 

a definition of the term ‘‘foreclosure’’ 

and to warn them that foreclosure could 

be a possibility in their future because 

of a missed payment. However, 

participants appeared to understand 

what foreclosure was even before 

reading this clause. Therefore, they did 

not appear to learn much from reading 

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10842 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

191 ‘‘Foreclosure is a legal process a lender can 

use to take ownership of a property from a borrower 

who is behind on his or her mortgage payments.’’ 192This specific question was not asked of all 

participants, so it is not possible to estimate exactly 

how many of the participants might have had this 

misconception. 193Macro tested a statement including HUD’s 

housing counselor list and phone number because, 

at the time of testing, the Bureau did not have a web 

site containing this information. 

194 In addition, a force-placed insurer stated that 

it would be require between 6–12 months to 

implement regulations relating to force-placed 

insurance requirements. 

195Specifically, section 1022(b)(2)(A) of the 

Dodd-Frank Act calls for the Bureau to consider the 

potential benefits and costs of a regulation to 

consumers and covered persons, including the 

potential reduction of access by consumers to 

consumer financial products or services; the impact 

on depository institutions and credit unions with 

$10 billion or less in total assets as described in 

section 1026 of the Dodd-Frank Act; and the impact 

on consumers in rural areas. 

the first sentence of this clause.191 A 

few participants specifically commented 

that this sentence seemed out of place, 

because it was a definition rather than 

a statement specifically about their 

situation. The Bureau tested a 

hypothetical estimated 90–150 day 

timeframe for when foreclosure could 

occur. When asked when lenders could 

begin to pursue foreclosure, all 

participants referred to the 90 to 150 

day timeframe in the clause, and 

understood that this time period would 

start from the due date of their missed 

payment. However, at least two 

participants mistakenly thought that the 

reference to this time period implied 

that the foreclosure process could not 

start sooner than 90 days after the 

missed payment, despite the fact that 

the clause states that the process ‘‘may 

begin earlier or later.’’ 192 One 

participant felt strongly that if it was 

true that the foreclosure process could 

start in less than 90 days, then the 

reference to the ‘‘90 to 150 day’’ time 

period should be removed from the 

clause because it was misleading. For 

the reasons explained in the section-bysection analysis of § 1024.39(b)(2) 

above, the Bureau has omitted the 

clauses in proposed MS–4(D) that 

illustrated how a servicer could explain 

foreclosure and provide the estimated 

number of days in which the servicer 

may begin the foreclosure process, as 

would have been required under 

proposed § 1024.39(b)(2)(v). 

Proposed clauses in Model MS–4(E) 

illustrated how the servicer may provide 

contact information for the State 

housing finance authority and housing 

counselors, as would have been 

required under proposed 

§ 1024.39(b)(2)(vi). During consumer 

testing of proposed MS–4(E), all 

participants understood that the 

purpose of this message was to provide 

contact information for the Federal 

government agency identified in the 

clause.193 Contact information for 

accessing housing counseling resources 

was also tested during previous rounds 

of testing of the ARM interest rate 

adjustment notice. The Bureau is 

adopting in the final rule the clauses 

substantially as proposed setting forth 

contact information for either the 

Bureau or HUD Web site to access a list 

of housing counselor or counseling 

organizations, as well as the HUD 

telephone number to access the list of 

HUD-approved counselors. The Bureau 

is renumbering MS–4(E) as MS–4(C). 

For the reasons discussed above in the 

section-by-section analysis of 

§ 1024.39(b)(2), the Bureau is omitting 

contact information for State housing 

finance authorities. 

VI. Effective Date 

This final rule is effective on January 

10, 2014. The Bureau believes that this 

approach is consistent with the 

timeframes established in section 

1400(c) of the Dodd-Frank Act and, on 

balance, will facilitate the 

implementation of the Title XIV 

Rulemakings’ overlapping provisions, 

while also affording covered persons 

sufficient time to implement the more 

complex or resource-intensive new 

requirements. Certain of the regulations 

set forth in the Final Servicing Rules are 

required under title XIV. Specifically, 

section 1420 of the Dodd-Frank Act, 

which requires the periodic statement, 

states that the Bureau ‘‘shall develop 

and prescribe a standard form for the 

disclosure required under this 

subsection, taking into account that the 

statements required may be transmitted 

in writing or electronically.’’ 15 U.S.C. 

1638(f)(2). Other regulations set forth in 

the Final Servicing Rules, while 

implementing amendments under title 

XIV of the Dodd-Frank Act, are not 

regulations required under title XIV. 

Pursuant to section 1400(c)(2) of the 

Dodd-Frank Act, the effective dates of 

these regulations need not be within one 

year of issuance. 

The Bureau received approximately 

60 comments from industry participants 

with respect to the appropriate effective 

date. As stated above, comments from 

consumer advocacy groups generally 

urged earlier effective dates. A number 

of industry trade associations, as well as 

a large bank and a small credit union 

indicated that the Bureau should 

provide a sufficient amount of time, but 

did not express an opinion regarding an 

appropriate timeframe. The majority of 

servicers, including large and small 

banks, non-bank servicers, and 

numerous credit unions, as well as their 

trade associations, indicated that the 

Bureau should establish an effective 

date of between 12 and 18 months after 

issuance.194 Some large banks, a bank 

servicer, numerous trade associations, 

the Office of Advocacy of the U.S. Small 

Business Administration, and the GSEs 

stated that the Bureau should consider 

an implementation period of 

approximately 18–24 months for certain 

of the requirements. Further, three 

banks and numerous trade associations 

for banks and manufactured housing 

servicers stated that the Bureau should 

consider an effective date between 24 

and 36 months after issuance. Each of 

the industry commenters generally 

stated that the requested time was 

necessary to effectively implement the 

regulations because of the complexity of 

the proposed rules, the impact on 

systems changes and staff training, and 

the cumulative impact of the proposed 

mortgage servicing rules when 

combined with other requirements 

imposed by the Dodd-Frank Act or 

proposed by the Bureau. These letters 

provide some basis to believe that 

implementing the regulations within 12 

months is challenging for many firms. 

They do not establish, however, that 

implementation in 12 months is 

impracticable. 

For the reasons already discussed 

above, the Bureau believes that an 

effective date of January 10, 2014 for 

this final rule and most provisions of 

the other title XIV final rules will ensure 

that consumers receive the protections 

in these rules as soon as reasonably 

practicable, taking into account the 

timeframes established by the DoddFrank Act, the need for a coordinated 

approach to facilitate implementation of 

the rules’ overlapping provisions, and 

the need to afford covered persons 

sufficient time to implement the more 

complex or resource-intensive new 

requirements. 

VII. Dodd-Frank Act Section 1022(b)(2) 

Analysis 

A. Overview 

In developing the final rule, the 

Bureau has considered potential 

benefits, costs, and impacts.195 The 

2012 RESPA Servicing Proposal set 

forth a preliminary analysis of these 

effects, and the Bureau requested and 

received comments on this topic. In 

addition, the Bureau has consulted, or 

offered to consult, with the prudential 

regulators, HUD, FHFA, the Federal 

Trade Commission, and the Federal 

Emergency Management Agency, 

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196See 77 FR 57200, 57203 (Sept. 17, 2012). 

197See Joseph E. Stiglitz, Market Failure, in 

Economics of the Public Sector (W.W. Norton & Co., 

Inc., 3d ed. 2000). An alternative way to view the 

market failure is that servicers are both the agents 

of investors and, as a practical matter, monopoly 

providers of information to consumers about details 

of the loan and consumer payments. Market failures 

need not be mutually exclusive (Stiglitz, p. 85). 

Further, as discussed below in the section on 

general servicing policies, procedures and 

requirements, foreclosure produces negative 

externalities, and some reduction in foreclosure 

may result from provisions of the final rule, 

particularly general servicing policies, procedures 

and requirements; early intervention; continuity of 

contact; and loss mitigation. 

including regarding consistency with 

any prudential, market, or systemic 

objectives administered by such 

agencies. The Bureau also held 

discussions with and solicited feedback 

from the United States Department of 

Agriculture Rural Housing Service, the 

Federal Housing Administration, Ginnie 

Mae, and the Department of Veterans 

Affairs regarding the potential impacts 

of the final rule on those entities’ 

mortgage loan insurance or 

securitization programs. 

In this rulemaking, the Bureau 

amends Regulation X, which 

implements RESPA, and the official 

commentary to the regulation, as part of 

the Bureau’s implementation of the 

Dodd-Frank Act amendments to RESPA 

regarding mortgage loan servicing. The 

final rule includes amendments to 

Regulation X that implement, among 

other things, section 1463 of the DoddFrank Act. In addition, the final rule 

includes amendments to Regulation X to 

impose servicer obligations that are not 

specifically required by RESPA 

pursuant to various authorities under 

RESPA and Title X. The amendments to 

Regulation X include new requirements 

with respect to error resolution and 

information requests; the placement of 

forced-placed insurance; general 

servicing policies, procedures and 

requirements; early intervention with 

delinquent borrowers; continuity of 

contact with delinquent borrowers; and 

loss mitigation procedures. The final 

rule would also reorganize and amend 

the mortgage servicing related 

provisions of Regulation X, currently 

published in 12 CFR part 1024.21. Such 

provisions relate to, for example, 

disclosures with respect to mortgage 

servicing transfers and servicers’ 

obligations to manage escrow accounts. 

Contemporaneously with issuing this 

rule, the Bureau is also issuing a final 

rule under TILA to amend Regulation Z 

(12 CFR part 1026). The amendments to 

Regulation Z implement the following 

sections of the Dodd-Frank Act: section 

1418 (initial rate-adjustment notice for 

adjustable-rate mortgages (ARMs)), 

section 1420 (periodic statement), and 

section 1464 (prompt crediting of 

mortgage payments and response to 

requests for payoff amounts). The final 

rule also revises certain existing 

regulatory requirements in Regulation Z 

for disclosing rate and payment changes 

to ARMs in current § 1026.20(c). 

Part II.A of the final rule (‘‘Overview 

of the Mortgage Servicing Market and 

Market Failures’’) discusses the 

servicing market and servicer 

incentives. As stated above in the 

proposed rule, a fundamental feature of 

the market for servicing is that 

borrowers generally do not choose their 

own servicers.196 It is therefore difficult 

for borrowers to protect themselves from 

shoddy service or harmful practices. A 

borrower may select a servicer at 

origination by choosing a lender that 

pledges to service the loans that it 

originates. However, relatively few 

lenders commit to servicing the loans 

that they originate, most borrowers do 

not choose a servicer at origination, and 

some borrowers who do choose a 

servicer at origination may find that the 

servicer retains a subservicer that 

interacts with the borrower. A borrower 

may refinance a mortgage loan in order 

to receive a new servicer. However, 

refinancing is an expensive and 

generally impractical way for a 

homeowner to obtain a new servicer, 

and, similar to origination, the borrower 

does not generally select the new 

servicer. 

The Bureau recognizes that certain 

servicers have incentives to service 

well. Servicers that rely on a local 

reputation—their ability to attract new 

consumers depends on how well they 

treat current consumers—have 

incentives to provide high quality 

servicing. This describes many of the 

small servicers that the Bureau 

consulted as part of a process required 

under SBREFA. They described their 

businesses as requiring a ‘‘high touch’’ 

model of customer service, both to 

ensure loan performance and to 

maintain a strong reputation in their 

local communities. The vast majority of 

smaller servicers are community banks 

and credit unions, which tend to 

operate in narrowly defined geographic 

areas, depend deeply on the economies 

of these communities for their 

profitability, offer a range of products 

and services in both deposits and loans, 

are known for a ‘‘relationship’’ model 

that depends on repeat business to 

obtain more deposits and extend more 

loans, and could suffer significant harm 

to the business from any major failure 

to treat customers properly because they 

are particularly vulnerable to ‘‘word of 

mouth.’’ These small servicers also 

generally service only loans they either 

originated or hold on portfolio. 

The Bureau believes that servicers 

that service relatively few loans, all of 

which they either originated or hold on 

portfolio, generally have incentives to 

service well: foregoing the returns to 

scale of a large servicing portfolio 

indicates that the servicer chooses not to 

profit from volume, and owning or 

having originated all of the loans 

serviced indicates a stake in either the 

performance of the loan or in an 

ongoing relationship with the borrower. 

In light of these favorable incentives, 

and to preserve access to this type of 

servicing, the Bureau is exempting 

many small servicers from the 

requirements regarding general 

servicing policies, procedures and 

requirements, early intervention with 

delinquent borrowers, continuity of 

contact with delinquent borrowers; and, 

with a few exceptions, the requirements 

regarding loss mitigation, as well as the 

restriction on obtaining force-placed 

insurance when a servicer is able to 

disburse funds from a borrower’s escrow 

account and force-placed insurance 

would be more expensive for the 

borrower. 

In general, however, mortgage 

servicing is influenced by the absence of 

avenues through which borrowers can 

effectively reward or penalize servicers 

for the quality of servicing. A borrower 

cannot readily leave a servicer if the 

quality of servicing proves to be 

unsatisfactory, and the borrower cannot 

control the selection of the new servicer. 

Borrowers also generally do not have 

other ways of imposing financial 

consequences on servicers for poor 

servicing. Markets are incomplete 

between borrowers and servicers, and 

incomplete markets are a form of market 

failure. This market failure leaves many 

servicers with only limited incentives to 

engage in certain activities of value to 

consumers.197

Of particular relevance to this 

rulemaking is the fact that servicers 

obtain limited benefits from providing a 

number of services that are important to 

borrowers, and especially to delinquent 

borrowers. As discussed in part II, 

compensation structures have tended to 

make mortgage servicing a high-volume, 

low margin business in which servicers 

have little incentive to invest in 

customer service. Servicers have an 

incentive to provide borrowers with 

information and services that keep 

collection costs low, and fees from 

default servicing may encourage 

servicers to invest in efficiently ordering 

and tracking billable work. However, 

there has generally been no such 

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198For documentation of problems with servicer 

foreclosure processes and general operating 

processes, and for discussions of servicer 

incentives, see Fed. Reserve Sys., Office of the 

Comptroller of the Currency, & Office of Thrift 

Supervision, Interagency Review of Foreclosure 

Policies and Practices (2011); Larry Cordell et al., 

The Incentives of Mortgage Servicers: Myths and 

Realities, at 9 (Fed. Reserve Board, Working Paper 

No. 2008–46, 2008); and Kurt Eggert, Limiting 

Abuse and Opportunism by Mortgage Servicers 15 

Housing. Pol’y Debate 753 (2004). 

199The Bureau noted in the proposals associated 

with the Title XIV Rulemakings that it sought to 

obtain additional data to supplement its 

consideration of the rulemakings, including 

additional data from the National Mortgage License 

System (NMLS) and the NMLS Mortgage Call 

Report, loan file extracts from various lenders, and 

data from the pilot phases of the National Mortgage 

Database. Each of these data sources was not 

necessarily relevant to each of the rulemakings. The 

Bureau used the additional data from NMLS and 

NMLS Mortgage Call Report data to better 

corroborate its estimate of the contours of the nondepository segment of the mortgage market. The 

Bureau has received loan file extracts from three 

lenders, but at this point, the data from one lender 

is not usable and the data from the other two is not 

sufficiently standardized nor representative to 

inform consideration of the final rules. 

Additionally, the Bureau has thus far not yet 

received data from the National Mortgage Database 

pilot phases. The Bureau also requested that 

commenters submit relevant data. All probative 

data submitted by commenters were discussed in 

this document. 

200The Bureau received one comment that stated 

that by failing to identify the extent to which 

servicers do not already operate in a manner that 

would meet the standards of the rule, the Bureau 

failed to identify whether there was a ‘‘compelling 

public need’’ for regulatory action. The Bureau, 

however, believes it has demonstrated a compelling 

public need for regulation, including, for example, 

through the review of material failures of private 

markets in part II and the discussion of incomplete 

markets above. In any event, the Bureau has 

described the authority and basis for the rule and 

a ‘‘compelling public need’’ is not a legal 

prerequisite for rulemaking. 

201See 12 U.S.C. 2605(k)(1)(A) and 2605(k)(1)(C) 

through (D). 

compensation for hands-on work with 

borrowers associated with error 

resolution, information requests, early 

intervention, continuity of contact, loss 

mitigation; and for effectively managing 

the information that is collected from 

borrowers and provided to them in this 

work.198

Congress included mortgage servicing 

provisions in the Dodd-Frank Act in 

response to pervasive and profound 

consumer protection problems. The new 

protections in the rules promulgated 

under TILA and RESPA will 

significantly improve the transparency 

of mortgage loans after origination, 

including by facilitating timely 

responses to borrower requests and 

complaints, requiring the maintenance 

and provision of accurate and relevant 

information, avoiding the imposition of 

unwarranted or unnecessary costs and 

fees, and requiring review of borrowers 

for foreclosure avoidance options. 

B. Provisions To Be Analyzed 

The analysis below considers the 

potential benefits, costs, and impacts of 

the following major provisions: 

1. Notices of error and requests for 

information. 

2. Force-placed insurance. 

3. General servicing policies, 

procedures and requirements. 

4. Early intervention. 

5. Continuity of contact. 

6. Loss mitigation procedures. 

With respect to each major provision, 

the analysis considers the benefits and 

costs to consumers and covered persons, 

and in certain instances other impacts. 

The analysis also addresses comments 

the Bureau received on the proposed 

section 1022 analysis, as well as certain 

other comments on the benefits or costs 

of provisions of the proposed rule that 

are helpful to understanding the section 

1022 analysis. Comments that mention 

the benefits or costs of a provision of the 

proposed rule in the context of 

commenting on the merits of that 

provision are addressed in the sectionby-section analysis for that provision. 

The analysis also addresses certain 

alternative provisions that were 

considered by the Bureau in the 

development of the proposed rule, the 

final rule, or in response to comments. 

C. Data and Quantification of Benefits, 

Costs and Impacts 

Section 1022 of the Dodd-Frank Act 

requires that the Bureau, in adopting the 

rule, consider potential benefits and 

costs to consumers and covered persons 

resulting from the rule, including the 

potential reduction of access by 

consumers to consumer financial 

products or services resulting from the 

rule. As noted above, it also requires the 

Bureau to consider the impact of 

proposed rules on covered persons and 

the impact on consumers in rural areas. 

These potential benefits and costs, and 

these impacts, however, are not 

generally susceptible to particularized 

or definitive calculation in connection 

with this rule. The incidence and scope 

of such potential benefits and costs, and 

such impacts, will be influenced very 

substantially by economic cycles, 

market developments, and business and 

consumer choices, which are 

substantially independent from 

adoption of the rule. No commenter has 

advanced data or methodology that it 

claims would enable precise calculation 

of these benefits, costs, or impacts. 

Moreover, the potential benefits of the 

rule on consumers and covered persons 

in creating market changes that are 

anticipated to address market failures 

are especially hard to quantify. 

In considering the relevant potential 

benefits, costs, and impacts, the Bureau 

has utilized the available data discussed 

in this preamble, where the Bureau has 

found it informative, and applied its 

knowledge and expertise concerning 

consumer financial markets, potential 

business and consumer choices, and 

economic analyses that it regards as 

most reliable and helpful, to consider 

the relevant potential benefits and costs, 

and relevant impacts. The data relied 

upon by the Bureau includes the public 

comment record established by the 

proposed rule. The Bureau recognizes 

that some parties may have different 

perspectives or consider potential 

benefits and costs differently. 

However, the Bureau notes that for 

some aspects of this analysis, there are 

limited data available with which to 

quantify the potential costs, benefits, 

and impacts of the final rule. For 

example, data on the number and 

volume of various loan products 

originated for the portfolios of bank and 

non-bank lenders exists only in certain 

circumstances. The Bureau has obtained 

available information about the cost of 

improving servicer operations, and the 

discussion below uses this information 

to quantify some of the costs to servicers 

of the final rule. However, 

comprehensive data on the costs of 

improving servicer operations is 

unavailable. Data regarding many of the 

benefits of the rule such as the benefits 

from prevented defaults or from 

prevented injuries to the financial 

system are also limited. 

In light of these data limitations, the 

analysis below generally provides a 

qualitative discussion of the benefits, 

costs, and impacts of the final rule. 

General economic principles, together 

with the limited data that are available, 

provide insight into these benefits, 

costs, and impacts. Where possible, the 

Bureau has made quantitative estimates 

based on these principles and the data 

that are available.199 For the reasons 

stated in this preamble, the Bureau 

considers that the rule as adopted 

faithfully implements the purposes and 

objectives of Congress in the statute. 

Based on each and all of these 

considerations, the Bureau has 

concluded that the rule is appropriate as 

an implementation of the Act.200

D. Baseline for Analysis 

The amendments to RESPA made by 

Dodd-Frank Act section 1463 regarding 

error resolution, information requests, 

and force-placed insurance are largely 

self-effectuating, and the Dodd-Frank 

Act generally does not require the 

Bureau to adopt regulations to 

implement these amendments.201 Thus, 

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202The Bureau has chosen, as a matter of 

discretion, to consider the benefits and costs of 

those provisions that are required by the DoddFrank Act in order to better inform the rulemaking. 

The Bureau has discretion in future rulemakings to 

choose the relevant provisions to discuss and to 

choose the most appropriate baseline for that 

particular rulemaking. 

203See Lori J. Pinto et al., Prime Alliance Loan 

Servicing, Re-Thinking Loan Serving, at 8 (Apr. 

2010) (‘‘Pinto Paper’’), available at http:// 

cuinsight.com/media/doc/WhitePaper_CaseStudy/ 

wpcs_ReThinking_LoanServicing_May2010.pdf. 

204As stated above, the 5,000-loan threshold 

reflects the purposes of the exemption that the rule 

establishes for these servicers and the structure of 

the mortgage servicing industry. The Bureau’s 

choice of 5,000 in loans serviced for purposes of 

Regulation Z does not imply that a threshold of that 

type or of that magnitude would be an appropriate 

way to distinguish small firms for other purposes 

or in other industries. 

many costs and benefits of the 

provisions of the final rule regarding 

error resolution, information requests, 

and force-placed insurance derive 

largely or entirely from the statute and 

from regulations regarding qualified 

written requests previously issued by 

HUD and republished by the Bureau, 

not from the final rule. These provisions 

of the final rule provide substantial 

benefits to servicers compared to 

allowing the RESPA amendments to 

take effect against the existing 

regulatory framework under Regulation 

X and without implementing 

regulations by clarifying ambiguous 

provisions of the statute and integrating 

the new statutory requirements into the 

existing regulatory regime. Greater 

clarity and integration, as provided by 

the final rule, should reduce the 

compliance burdens on covered persons 

by, for example, reducing costs for 

attorneys and compliance officers as 

well as potential costs of overcompliance and unnecessary litigation. 

Section 1022 of the Dodd-Frank Act 

permits the Bureau to consider the 

benefits, costs and impacts of the final 

rule solely compared to the state of the 

world in which the statute takes effect 

without implementing regulations. To 

provide the public better information 

about the benefits and costs of the 

statute, however, the Bureau has chosen 

to consider the benefits, costs, and 

impacts of the major provisions of the 

final rule against a pre-statutory 

baseline. That is, the Bureau’s analysis 

below considers the benefits, costs, and 

impacts of the relevant provisions of the 

Dodd-Frank Act combined with the 

final rule implementing those 

provisions relative to the regulatory 

regime that pre-dates the Dodd-Frank 

Act and remains in effect until the final 

rule takes effect.202 As noted above, 

Regulation X currently regulates 

servicers’ responses to assertions of 

error and requests for information 

through the qualified written request 

process. 

As discussed above, RESPA and Title 

X also give the Bureau authority to 

develop mortgage servicing rules under 

Regulation X that are not required by 

specific statutory provisions. In addition 

to relying on these authorities to 

supplement certain of the requirements 

under RESPA added by the Dodd-Frank 

Act, the Bureau is relying on these 

authorities to require servicers to: 

maintain certain general servicing 

policies, procedures and requirements; 

undertake early intervention with 

delinquent borrowers; provide 

delinquent borrowers with continuity of 

contact with staff equipped to assist 

them; and follow certain procedures 

when evaluating loss mitigation 

applications. Because Dodd-Frank Act 

section 1463 does not specifically 

impose these obligations on servicers, 

the pre-statute and post-statute baseline 

are the same with respect to the analysis 

of these provisions. 

E. Coverage of the Final Rule 

The coverage of the mortgage 

servicing rules is summarized in part I 

above. The rules generally apply to 

federally related mortgage loans that are 

closed-end, with certain exemptions. 

Open-end lines of credit are generally 

exempt. Small servicers are exempt 

from most of the discretionary 

rulemakings, as discussed below. 

Size of the Small Servicer Exemption 

As discussed above, the Bureau 

believes that servicers that service 

relatively few loans, all of which they 

either originated or hold on portfolio, 

generally have incentives to service 

well: foregoing the returns to scale of a 

large servicing portfolio indicates that 

the servicer chooses not to profit from 

volume, and owning or having 

originated all of the loans serviced 

indicates a stake in either the 

performance of the loan or in an 

ongoing relationship with the borrower. 

The vast majority of smaller servicers 

are community banks and credit unions, 

which tend to operate in narrowly 

defined geographic areas, depend 

deeply on the economies of these 

communities for their profitability, offer 

a range of products and services in both 

deposits and loans, are known for a 

‘‘relationship’’ model that depends on 

repeat business to obtain more deposits 

and extend more loans, and could suffer 

significant harm to the business from 

any major failure to treat customers 

properly because they are particularly 

vulnerable to ‘‘word of mouth.’’ These 

small servicers generally maintain 

‘‘high-touch,’’ customer-centric 

customer service models. They also 

generally service only loans they either 

originated or hold on portfolio. 

Where small servicers already have 

incentives to provide high levels of 

customer contact and information, the 

Bureau believes that the circumstances 

warrant exempting those servicers from 

complying with certain provisions. For 

community banks and credit unions in 

particular, affirmative communications 

with consumers help them (and their 

affiliates) to ensure loan performance, 

market other consumer financial 

products and services to the customers 

for whom they service mortgages and 

have a relationship, and protect their 

reputations in their local 

communities.203 Because these servicers 

generally have a long-term relationship 

with the consumers, their incentives 

with regard to charging fees and other 

servicing practices tend to be more 

aligned with consumer interests. 

The Bureau believes that two 

conditions are necessary to warrant a 

possible exemption from a provision of 

the rule—that is, that an exemption may 

be appropriate only for servicers that 

service a relatively small number of 

loans and either own or originated the 

loans. Larger servicers are likely to be 

much more reliant on, and sophisticated 

users of, computer technology in order 

to manage their operations efficiently. In 

such situations, compliance is likely to 

be somewhat easier to accomplish. 

Further, larger servicers also generally 

operate in a larger number of 

communities under circumstances in 

which the ‘‘high touch’’ model of 

customer service is not practical or 

service many loans in which they do not 

have as much of a stake in the long-term 

performance. 

In order to implement the small 

servicer exemption, the Bureau defines 

a small servicer to be any servicer that, 

together with any affiliates, services 

5,000 or fewer mortgages loans, all of 

which the servicer or affiliates 

originated or own. 204 The definition 

incorporates the requirement that the 

servicer or affiliates originated or own 

the loans that the servicer services 

because, as explained above, the Bureau 

believes that this is a key indicator of 

servicers that generally have incentives 

to provide high levels of customer 

contact and information. To develop the 

loan count threshold, the Bureau 

computed loan counts for insured 

depository institutions using data on 

aggregate unpaid principal balance and 

a measure the Bureau derived for the 

average loan unpaid principal balance at 

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205Credit unions report the number and aggregate 

balance of mortgages held in portfolio on their Call 

Report. Using these reports the Bureau calculated 

the average unpaid principal balance of portfolio 

mortgages by State for credit unions with less than 

$1 billion in assets and applied the State specific 

figures to banks and thrifts under $10 billion in 

assets. For banks and thrifts with over $10 billion 

in assets, the Bureau relied on the OCC Mortgage 

Metrics Report, which showed an average unpaid 

principal balance estimate of $175,000. For 

securitized loans, the Bureau relied on the FHFA’s 

non-public Home Loan Performance database, 

which provides data by size of securitized loan 

book; this yielded average unpaid principal 

balances ranging from $141,000 to $189,000. 

206The Bureau notes, however, that the FDIC 

recently released a new set of empirical criteria for 

identifying community banks in which some banks 

with under $1 billion in assets are excluded and 

some banks with over $1 billion in assets are 

included. See Fed. Deposit Ins. Corp., FDIC 

Community Banking Study, at 1–5 (Dec. 2012), 

available at http://www.fdic.gov/regulations/ 

resources/cbi/study.html. The study is somewhat 

critical of using a $1 billion threshold to define 

community banks, as has been traditional. The 

Bureau’s rule equates roughly to a $2 billion 

threshold to the extent that the rule covers 98 

percent of insured depositories and credit unions 

with fewer assets. 

207To obtain estimates of aggregate loan counts, 

the Bureau aggregated mortgage loan counts 

obtained or derived from the FHFA ‘‘Home Loan 

Performance’’ data described above, the Board’s 

Flow of Funds Accounts of the United States 

(statistical release z.1), the data from the credit 

union Call Report and the bank and thrift Call 

Report, the CoreLogic mortgage loan servicing data 

set, and the BBx data set from BlackBox Logic. 

208The Bureau believes that almost all insured 

depositories and credit unions that service 5,000 or 

fewer loans own or originated those loans. Entities 

servicing loans they did not originate and do not 

own most likely view servicing as a stand-alone line 

of business, and they would choose to service 

substantially more than 5,000 loans in order to 

obtain a profitable return on their investment in 

servicing. To the extent the assumption does not 

hold, it is more likely not to hold for insured 

depositories and credit unions servicing more than 

5,000 loans. 

209 In the 2012 RESPA Servicing Proposal, the 

Bureau solicited comment on whether to exempt 

small servicers from certain provisions. As 

discussed above in the analysis of § 1024.30, the 

Bureau received comments on this issue. Regarding 

a threshold for the number of mortgage loans in the 

definition of a small servicer, commenters 

recommended thresholds between 5,000 and 15,000 

mortgage loans. For the reasons described above, 

the Bureau believes that the 5,000 loan count 

threshold coupled with the requirement that the 

servicer owns or originated the loans provide an 

appropriate definition of small servicer for purpose 

of the exemption. 

210To obtain estimates of loan counts, the Bureau 

aggregated mortgage loan counts obtained or 

derived from the FHFA ‘‘Home Loan Performance’’ 

data described above, the Board’s Flow of Funds 

Accounts of the United States (statistical release 

z.1), the data from the credit union Call Report and 

the bank and thrift Call Report, the CoreLogic 

mortgage loan servicing data set, and the BBx data 

set from BlackBox Logic. 

insured depositories.205 The Bureau’s 

methodology takes into account the fact 

that servicers that service smaller 

numbers of loans also tend to service 

loans with smaller unpaid principal 

balances. For example, the Bureau finds 

that the average unpaid principal 

balance on mortgage loans at insured 

depositories and credit unions is about 

$160,000, but it is only about $80,000 at 

insured depositories and credit unions 

with under $1 billion in assets. 

The Bureau believes that the 5,000 

mortgage loan threshold further 

identifies the group of servicers that 

make loans only or largely in their local 

communities or more generally have 

incentives to provide high levels of 

customer contact and information. The 

Bureau also believes, in light of the 

available data, that no other threshold is 

superior in balancing potential overinclusion and under-inclusion. With the 

threshold set at 5,000 loans, the Bureau 

estimates that over 98 percent of insured 

depositories and credit unions with 

under $2 billion in assets fall beneath 

the threshold. In contrast, only 29 

percent with over $2 billion in assets 

fall beneath the threshold and only 11 

percent of those with over $10 billion in 

assets do so. Further, over 99.5 percent 

of insured depositories and credit 

unions that meet the traditional 

threshold for a community bank—$1 

billion in assets—fall beneath the 

threshold.206 The Bureau estimates 

there are about 60 million closed-end 

mortgage loans overall, with about 5.7 

million serviced by insured depositories 

and credit unions that qualify for the 

exemption.207

The Bureau believes that the insured 

depositories and credit unions that fall 

below the 5,000 loan threshold consist 

overwhelmingly of entities that make 

loans only or largely in their local 

communities and have incentives to 

provide high levels of customer contact 

and information. Further, while some 

such entities may service more than 

5,000 loans, the Bureau believes that 

relatively few do, so expanding the loan 

count above 5,000 is more likely to 

include entities that use a different 

servicing model. If the loan count 

threshold were set at 10,000 mortgage 

loans, over 99.5 percent of insured 

depositories and credit unions with 

under $2 billion in assets would fall 

beneath the threshold. However, 50 

percent of insured depositories with 

over $2 billion in assets and 20 percent 

of those with over $10 billion in assets 

would fall beneath the threshold. The 

Bureau recognizes that some of these 

servicers may not qualify as small 

servicers because some may not own or 

have originated all of the loans they 

service. However, the Bureau believes 

that these figures give a fair 

representation of the types of servicers 

that would qualify as small servicers 

given the respective thresholds.208

The Bureau concludes that the 5,000 

mortgage loan threshold, coupled with 

the requirement to service only loans 

owned or originated, provides a 

reasonable balance between the goal of 

including a substantial number of 

servicers that make loans only or largely 

in their local communities or more 

generally have incentives to provide 

high levels of customer service and the 

goal of excluding servicers that use a 

different, less personal business model. 

The Bureau further believes that it is 

appropriate for a definition of small 

servicers, for purposes of an exemption 

to servicing rules, to include conditions 

specifically associated with the 

incentives and business model of 

servicers, such as owning or originating 

all loans. There is no perfect way, 

however, to identify servicers that have 

chosen a business model in which an 

essential component is providing high 

levels of customer service.209

Finally, the Bureau estimates that 

there are about 13.9 million closed-end 

mortgage loans serviced by nondepositories.210 The data is not available 

with which to accurately estimate the 

number of exempt non-depository 

servicers or the number of loans they 

service. However, the Bureau believes 

that the number of loans serviced is a 

small percentage of this total given the 

financial advantages of servicing large 

numbers of loans. The Bureau has 

therefore decided not to distinguish, in 

the definition of a small servicer, 

whether a mortgage servicer is an 

insured depository or credit union or 

has some other business form. 

F. Potential Benefits and Costs to 

Consumers and Covered Persons 

1. Notices of Error and Requests for 

Information 

Section 1463 of the Dodd-Frank Act 

amends section 6 of RESPA by, among 

other things, establishing new servicer 

obligations with respect to handling 

notices of error and requests for 

information from borrowers and making 

certain changes to the existing qualified 

written request process under RESPA 

and Regulation X. Specifically, section 

1463 of the Dodd-Frank Act (1) 

prohibits servicers from failing to take 

timely action to respond to borrower 

requests to correct errors relating to 

allocation of payments, final balances 

for purposes of paying off a mortgage 

loan, avoiding foreclosure, or other 

standard servicer duties, (2) prohibits 

servicers from failing to respond within 

ten business days to requests from 

borrowers regarding the identity of the 

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211 In the final rule, the provisions in § 1024.35 

and § 1024.36 apply only to written notices or 

requests from borrowers. However, § 1024.38 

provides obligations on servicers regarding oral 

assertions of error and oral requests for information. 

212There may be benefits to borrowers generally 

if assertions of errors induce servicers to improve 

their operations, although whether this will occur 

is uncertain. 

213See, however, the general discussion of 

servicing operations and avoidable foreclosure in 

the analysis of the provisions on reasonable 

information management, infra. 

owner or assignee of their mortgage 

loan, and (3) prohibits servicers from 

charging fees for responding to qualified 

written requests. Further, section 1463 

of the Dodd-Frank Act shortens the 

timeframe for servicers to acknowledge 

and respond to qualified written 

requests. 

The Bureau has implemented these 

amendments to RESPA through 

§§ 1024.35 and .36. Under § 1024.35, 

servicers are required to respond to 

written notices from borrowers 

regarding certain covered errors, 

including errors relating to the servicing 

of a borrower’s mortgage loan. Under 

§ 1024.36, servicers are2 required to 

respond to borrowers’ written requests 

for information regarding their mortgage 

loan. Both §§ 1024.35 and 1024.36 apply 

to qualified written requests asserting 

covered errors or requesting information 

regarding the borrower’s mortgage loan, 

respectively, but notices of error and 

information requests need not meet the 

requirements for submission of a 

qualified written request to fall under 

§§ 1024.35 and 1024.36.211

Under § 1024.35, servicers must 

provide borrowers with a written 

acknowledgement within five days 

(excluding legal public holidays, 

Saturdays and Sundays) of receipt of a 

notice of error. In addition, § 1024.35 

requires servicers to respond to a notice 

of error by either correcting the asserted 

error and notifying the borrower of such 

correction in writing, or conducting a 

reasonable investigation and providing 

the borrower with written notification 

including a statement that no error 

occurred and of the borrower’s right to 

request documents relied upon by the 

servicer to reach this determination. For 

most asserted errors, § 1024.35 requires 

that the investigation must be 

completed and a response provided 

within 30 days (excluding legal public 

holidays, Saturdays and Sundays) after 

receipt of the notice of error. Servicers 

are not required to comply with these 

acknowledgement and response 

requirements if they correct the error 

asserted by the borrower and notify the 

borrower of the correction in writing 

within five days (excluding legal public 

holidays, Saturdays and Sundays). 

Servicers also are not required to 

comply with these requirements for 

notices of error that are duplicative, 

overbroad, or untimely. 

The final rule provides for 

substantially similar requirements with 

respect to borrower requests for 

information. Under § 1024.36, servicers 

must provide borrowers with written 

acknowledgement within five days 

(excluding legal public holidays, 

Saturdays and Sundays) of receipt of an 

information request. In addition, 

§ 1024.35 requires servicers to respond 

to an information request by either 

providing a borrower with the requested 

information or conducting a reasonable 

search for the information and 

providing the borrower with a written 

notification that the information 

requested is not available to the 

servicer. For requests for most types of 

information, the servicer must respond 

to a borrower’s request within 30 days 

(excluding legal public holidays, 

Saturdays and Sundays) after receipt of 

the information request. Servicers are 

not required to comply with these 

acknowledgement and response 

requirements if they provide the 

information requested to the borrower 

within five days (excluding legal public 

holidays, Saturdays and Sundays). 

Servicers also are not required to 

comply with these requirements for 

requests for confidential, proprietary, or 

privileged information, or requests for 

information that are overbroad, unduly 

burdensome, duplicative, or untimely. 

Potential benefits and costs to 

consumers—error resolution. Section 

1024.35 lists eleven categories of errors 

subject to the requirements of the 

section, including a catch-all category 

for any error relating to the servicing of 

a borrower’s loan. Any qualified written 

request that asserts an error relating to 

the servicing of a mortgage loan is a 

notice of error under the rule. However, 

the rule also applies to notices of error 

that are not covered by the current 

qualified written request mechanism. 

The benefits to borrowers of the new 

error resolution process depend on (a) 

the number of borrowers who use the 

new error resolution process who would 

otherwise assert errors informally, via 

phone calls or email, either because the 

new process is broader in scope or is 

easier to use than the qualified written 

request process, (b) the additional 

benefits to these borrowers from using 

the new error resolution process instead 

of an informal process, and (c) the 

additional benefits from reduced 

response times and enhanced 

investigation requirements to borrowers 

who, absent the rule, would use the 

qualified written request process.212

In developing the proposed rule, the 

Bureau conducted outreach with 

servicers regarding error resolution. The 

Bureau could not obtain representative, 

quantitative information about the 

number or types of errors currently 

asserted by borrowers under either 

informal processes or the qualified 

written request process. Thus, it is not 

possible to quantify the potential for 

greater use of the new process or the 

potential additional benefits to those 

who would use it instead of using 

current informal or formal processes.213

Some of the enumerated errors subject 

to the error resolution requirements 

under the final rule concern basic duties 

that servicers perform frequently for 

large numbers of borrowers (e.g., accept 

conforming payments, properly apply 

payments as required under the terms of 

the mortgage loan, pay taxes and 

insurance). The Bureau believes that 

servicers currently generally perform 

these duties. Further, when servicers do 

not, the errors frequently are, and will 

continue to be, asserted and resolved 

adequately through an informal process. 

Borrowers who currently assert these 

errors through the qualified written 

request process may benefit given the 

simpler form requirements and faster 

response times required under the final 

rule. On occasion, however, borrowers 

who currently use an informal process 

may instead use the error resolution 

process under the final rule, perhaps 

because it is more convenient than the 

existing qualified written request 

process, and these borrowers may obtain 

a better outcome given the final rule’s 

investigation and response 

requirements. 

Other enumerated errors concern 

activities that servicers perform less 

frequently. With respect to these 

activities, errors are more likely to occur 

and informal mechanisms are less likely 

to lead to effective resolution. For 

example, under the final rule, it is a 

covered error for a servicer to fail to 

provide accurate information to a 

borrower with respect to loss mitigation 

options and foreclosure or to fail to 

suspend a foreclosure sale when, for 

example, the borrower is performing 

under a loss mitigation agreement. The 

greater scope and clarity of the new 

error resolution process will allow 

borrowers who would otherwise not 

assert errors relating to these issues at 

all or would assert them informally to 

obtain the benefits of the new 

investigation and response requirements 

of the error resolution process. 

Borrowers who would use the qualified 

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10848 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

written request process will also benefit 

from the new investigation and response 

requirements of the error resolution 

process. Because many of these errors 

have the potential to impose substantial 

financial and other costs on borrowers, 

the error resolution requirements under 

the final rule may provide substantial 

benefits to borrowers who experience 

such errors. 

More generally, the Bureau believes 

that the rule would benefit borrowers 

because, as discussed above, there is 

reason to believe that many servicers do 

not currently invest sufficiently in 

providing robust error resolution 

procedures to borrowers. Borrowers do 

not choose their servicers, except 

indirectly by choosing their lenders, and 

have little recourse for poor customer 

service against either their servicers or 

the owners or assignees of their loans 

(for whom servicers are the agents). 

Thus, the market for servicing may not 

fully reflect the interests of borrowers in 

having robust error resolution 

procedures. 

The Bureau recognizes the possibility 

that the provisions on error resolution 

may impose costs on some servicers. 

One-time training costs and system 

updates as well as higher ongoing costs 

from the new error resolution process 

may lead servicers to reduce other 

services. Servicers may, for example, 

reallocate resources from oral error 

resolution to written error resolution, 

reducing access to servicer personnel for 

some borrowers while increasing access 

and quality of outcomes for others. This 

particular effect should be limited given 

the requirements in § 1024.38 regarding 

policies and procedures for responding 

to oral assertions of complaints. 

Servicers may, however, reduce other 

services. Similarly, servicers may not 

charge a fee or require a borrower to 

make any payment that may be owed as 

a condition of responding to a notice of 

error. Servicers may, however, charge 

fees for other activities. 

Potential benefits and costs to 

consumers—requests for information. 

The benefits to borrowers of the new 

information request process depend on 

(a) the number of borrowers who use the 

new process for requesting information 

who would otherwise make these 

requests informally, via phone calls or 

email, either because the new process is 

broader in scope or is easier to use than 

the qualified written request process, (b) 

the additional benefits to these 

borrowers from using the new process 

for requesting information instead of an 

informal process, and (c) the additional 

benefits from reduced response times 

and enhanced investigation 

requirements to borrowers who, absent 

the rule, would use the qualified written 

request process. 

Regarding outcomes of the new 

information request process, the servicer 

is a convenient source of certain 

information that may be requested by 

borrowers (e.g., details about the terms 

of the loan, the annual amount of 

interest paid, the remaining mortgage 

balance) and may be the only source of 

other information (e.g., the date a 

payment was received or a 

disbursement from escrow was made, 

the new payment on an adjustable rate 

mortgage). Receipt of such information 

may provide many benefits to 

borrowers; both by facilitating 

household budgeting in the near term 

and over time, which can improve the 

household’s welfare, and by allowing 

borrowers to forestall or correct 

problems likely to cause them monetary 

losses (e.g., by verifying that payments 

were received or taxes and insurance 

were paid from escrow). 

In developing the proposed rule, the 

Bureau conducted outreach with 

servicers regarding existing information 

request processes. One servicer 

estimated that it receives 70,000 phone 

calls a month on a portfolio of 300,000 

loans; another estimated it receives 

160,000 phone calls per month on a 

portfolio of about 1 million loans. 

Borrowers may call servicers both to 

request information and to assert errors, 

but the Bureau was informed that the 

vast majority of phone calls are requests 

for information. The most common 

request for information is whether the 

servicer has received the borrower’s 

payment. Most requests for information 

that are made by phone are addressed 

by servicers in the same call. The 

Bureau believes that other servicers 

generally follow the same practice. 

Given the convenience of receiving 

information through informal oral 

processes, the Bureau does not believe 

that the final rule will cause large 

numbers of borrowers to change from 

using informal oral processes to formal 

written processes. However, borrowers 

who do make this change as well as 

borrowers who would use the qualified 

written request process if not for the 

rule will benefit from the reduced form 

requirements and the new investigation 

and response requirements applicable to 

requests. 

More generally, the Bureau believes 

that the rule would benefit borrowers 

because, as discussed above, there is 

reason to believe that many servicers do 

not currently invest sufficiently in 

having robust procedures for addressing 

information requests from borrowers. 

Borrowers do not choose their servicers, 

except indirectly by choosing their 

lenders, and have little recourse for poor 

customer service against either their 

servicers or the owners or assignees of 

their loans (for whom servicers are the 

agents). Thus, the market for servicing 

may not fully reflect the interests of 

borrowers in having robust procedures 

for information requests. 

The Bureau recognizes the possibility 

that the provisions on requests for 

information may impose costs on some 

borrowers. One-time training costs and 

system updates and higher ongoing 

costs from the new process for 

requesting information may lead 

servicers to reduce other services. 

Servicers may, for example, reallocate 

resources from addressing oral requests 

for information to written requests for 

information, reducing access to servicer 

personnel for some borrowers while 

increasing access and quality of 

outcomes for others. This particular 

effect should be limited given the 

requirements in § 1024.38 regarding 

maintaining policies and procedures to 

address oral complaints and requests for 

information. Similarly, servicers 

generally may not charge a fee or require 

a borrower to make any payment that 

may be owed as a condition of 

responding to an information request. 

Servicers may, however, charge fees for 

other activities. 

Potential benefits and costs to covered 

persons. The Bureau has carefully 

considered whether there are any 

significant benefits to covered person 

from this provision and has determined 

that there are not. 

Servicers currently incur costs 

responding to qualified written requests 

to correct errors and to provide 

information. Servicers will incur 

additional one-time and ongoing costs 

to comply with the new investigation 

and response requirements and meet the 

new time limits. Servicers will need 

new training materials and possibly 

better access to borrower data, in which 

case some servicers will need system 

updates and better data storage and data 

management capabilities. On the other 

hand, as discussed above, the 

convenience of oral and other informal 

means of asserting errors and requesting 

information should moderate the extent 

to which borrowers make use of even 

the expanded and streamlined formal 

written processes under §§ 1024.35 and 

1024.36 for asserting errors and 

requesting information. Some servicers 

may also need to hire additional 

employees. 

Certain provisions of § 1024.35 and 

1024.36 are intended to mitigate the 

costs of complying with the procedures. 

Notices of error and information 

requests that are resolved within five 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10849 

days (excluding legal public holidays, 

Saturdays and Sundays) are not subject 

to the acknowledgement or response 

requirements of the error resolution and 

information request provisions. 

Servicers do not need to respond to 

notices of error or information requests 

that are overbroad or duplicative. 

Further, the provisions of the final rule 

provide substantial clarity to servicers 

regarding servicer duties compared to 

the current qualified written request 

mechanism. As noted, clarity reduces 

costs for attorney and compliance 

officer time as well as potential costs of 

over-compliance and unnecessary 

litigation. 

The Bureau further considered 

whether to define as a covered error a 

servicer’s failure to accurately and 

timely provide a disclosure to a 

borrower as required by applicable law. 

The Bureau determined that such a 

failure was not appropriate as a covered 

error because the information request 

provisions provide the borrower the 

ability to obtain the underlying 

information. Further, the Bureau 

believes that a servicer’s action to 

attempt to correct the failure, such as by 

sending the disclosure after the 

deadline, would not actually correct the 

error and would not be helpful or useful 

to borrowers. In that circumstance, the 

error resolution request would create 

burden and impose costs on servicers 

without offering concomitant benefit for 

borrowers. 

As discussed above in the section-bysection analysis for §§ 1024.35 and 

1024.36, in light of comments received, 

the Bureau reconsidered its assessment 

in the 2012 RESPA Servicing Proposal 

of the costs of applying the error 

resolution procedures to oral notices of 

error. Specifically, the Bureau 

concluded that tracking, investigating, 

documenting, and providing written 

responses to oral notices of error— 

expanded under the final rule from a 

finite list of errors to include a limited 

catch-all provision—would impose 

significant new costs on servicers. 

Relative to the proposed rule, the final 

rule restricts the error resolution and 

information request requirements solely 

to notices of error and information 

requests received in writing, but adds a 

catch-all provision to the definition of 

covered errors similar to the current 

statutory requirement that servicers 

respond to qualified written requests 

relating to the servicing of a mortgage 

loan. By not applying the error 

resolution procedures to oral assertions 

of error or requests for information, the 

Bureau avoids imposing on servicers the 

incremental costs of compliance with 

the strict requirements of §§ 1024.35 

and 1024.36 with respect to oral notices 

of error and requests for information, 

including with respect to errors that 

may be asserted by means of the catchall category. 

2. Requirements Regarding Force-Placed 

Insurance Policies 

Dodd-Frank Act section 1463 amends 

RESPA to prohibit a servicer of a 

federally related mortgage loan from 

obtaining force-placed insurance unless 

there is a reasonable basis to believe the 

borrower has failed to comply with the 

loan contract’s requirements to maintain 

property insurance. In addition, the 

statute sets forth a mandatory process 

servicers must follow before obtaining 

force-placed insurance. The process 

includes sending the borrower two 

written notices over a 45-day period. 

The statute also requires servicers to 

terminate force-placed insurance and 

refund to borrowers force-placed 

insurance premium charges and related 

fees paid during any period during 

which the borrower’s hazard insurance 

coverage and the force-placed insurance 

coverage were both in effect. The statute 

also specifies that servicers must accept 

any reasonable form of written 

confirmation from a borrower of existing 

insurance coverage, and that charges 

related to force-placed insurance must 

be bona fide and reasonable. 

The Bureau has implemented these 

requirements through § 1024.37 of the 

final rule. Section 1024.37 also requires 

servicers to provide borrowers with 

written notice before renewing existing 

force-placed insurance policies. The 

final rule provides model forms for the 

force-placed insurance notices to be sent 

to borrowers. 

Additionally, with respect to 

borrowers with escrow accounts for the 

payment of hazard insurance, 

§ 1024.17(k)(5) prohibits servicers from 

purchasing force-placed insurance 

where the servicer can continue the 

borrower’s homeowner insurance, even 

if the servicer needs to advance funds to 

the borrower’s escrow account to do so. 

Potential benefits and costs to 

consumers. Borrowers pay for forceplaced insurance, but they do not select 

the insurance provider or have other 

ways of providing consequential 

feedback to the insurance provider 

regarding its services. Further, 

incentives like commissions paid to 

servicers or their insurance affiliates 

may cause servicers to prefer purchasing 

force-placed insurance or renewing preexisting force-placed insurance over 

ensuring that borrowers have adequate 

opportunity to renew their hazard 

insurance. Thus, the market for forceplaced insurance may not fully reflect 

the interests of borrowers in minimizing 

force-placement and the amount of time 

force-placed insurance is in effect. 

Accordingly, mandated force-placed 

insurance disclosures and procedures 

may reduce the number of borrowers 

who pay for unnecessary force-placed 

insurance or the length of time during 

which borrowers pay for such 

insurance. 

The Bureau and ICF Macro (Macro) 

worked closely during the first quarter 

of 2012 to develop and test force-placed 

insurance disclosures that would satisfy 

the requirements of the Dodd-Frank Act 

and provide information to consumers 

in a manner that would be 

understandable and useful. Specifically, 

the Bureau undertook three rounds of 

qualitative testing of the notices, and 

participants said that if they received 

force-placed insurance notices like the 

ones the Bureau is issuing, they would 

immediately contact their insurance 

provider to find out whether or not their 

hazard insurance was still in force. In 

light of our testing, anecdotal evidence 

and the Bureau’s own judgment and 

expertise about consumer needs and 

behavior, the Bureau believes that these 

required disclosures will benefit 

consumer. This testing is summarized in 

part III and discussed further in part V, 

above. 

The Bureau does not have 

representative data with which to 

quantify the extent to which industry 

practice currently meets the standards 

of the force-placed insurance provisions 

or the extent to which the provisions on 

force-placed insurance would reduce 

the need for force placement or the 

duration of force placement; however, 

as discussed in greater detail below, the 

Bureau believes that many servicers 

already send borrowers multiple notices 

before charging borrowers for forceplaced insurance. Further, the Bureau 

understands that industry practice 

generally entails servicers terminating 

force-placed insurance coverage and 

refunding to borrowers any premiums 

charged during any period when the 

borrower had borrower-obtained 

insurance coverage in place. Borrowers 

whose servicers already provide 

multiple notice before charging 

borrowers for force-placed insurance 

and follow the provisions under 

§ 1024.37 regarding termination and 

refunds will benefit less from § 1024.37 

than borrowers whose servicers 

currently do not follow these practices. 

But even for the former category of 

borrowers, the final rule may result in 

benefits by ensuring that adequate time 

is given for borrowers to review the 

force-place insurance notices sent by 

servicers and that the form and content 

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10850 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

214For the average homeowner’s insurance 

premium, see data provided by Insurance Institute 

of America, available at: http://www.iii.org/

facts_statistics/homeowners-and-rentersinsurance.html. For information on the cost of 

force-placed insurance, see http:// 

newsroom.assurant.com/releasedetail.cfm?

ReleaseID=645046&ReleaseType=

Featured%20News (reporting force-placed 

insurance costs 1.5 to 2 times hazard insurance). 

215That is to say, the homeowner pays onetwelfth to one-half of the additional $880. 

216 Discussions with industry during the 

development of the proposed rule suggested that 2 

percent of mortgages incurred force-placement each 

year. There are approximately 52 million first liens, 

so about 1.04 million homeowners incur forceplacement each year. Ten percent of this figure 

multiplied by $73 (or $440) gives $7.6 million (or 

$45.8 million). 

of the notices are tailored to enhance 

consumer understanding. Depending on 

their current servicers’ practices, such 

borrowers may also benefit from the 

requirements under the final rule 

regarding the evidence that servicers are 

required to accept of existing hazard 

insurance, the requirement that charges 

related to force-placed insurance be 

bona fide and reasonable, and the 

requirement to provide notice before 

renewing or replacing existing forceplaced insurance. 

The Bureau notes that even a small 

reduction in force-placed insurance may 

provide borrowers with substantial 

benefits. In 2009, the average premium 

for homeowner’s insurance was $880 

while on average force-placed insurance 

cost about twice this amount.214 Thus, 

on average, a homeowner who pays for 

force-placed insurance for one to six 

months pays an additional $73 to $440 

dollars.215 If the provisions of the final 

rule reduce the incidence of forceplaced insurance by just 10 percent, 

approximately 171,000 homeowners 

will save between $7.6 million and 

$45.8 million in unnecessary premiums 

each year.216

For purposes of qualitative analysis, it 

is useful to first divide borrowers into 

those with insurance that has been 

force-placed by a servicer and those 

with hazard insurance coverage 

obtained by the borrower. Of those with 

borrower-obtained hazard insurance, it 

is useful to sub-divide this group into 

two additional groups: Those with 

hazard insurance that is about to lapse 

and who have the funds to renew 

(whether the funds are kept in an 

escrow account or elsewhere); and those 

with hazard insurance that is about to 

lapse and who do not have the funds to 

renew. The force-placed insurance 

disclosures and procedures may provide 

different benefits to borrowers 

depending on the group to which they 

belong. In all cases, the benefits to 

borrowers from the rule are smaller to 

the extent the current business practices 

of servicers approximate the practices 

required by the rule. 

Borrowers with force-placed 

insurance benefit from provisions that 

reduce the number of days the borrower 

has force-placed insurance and the 

charge per day. A borrower with forcedplaced insurance and a servicer that 

does not currently comply with some of 

the requirements regarding renewal of 

force-placed insurance, evidence of 

hazard insurance, cancellation of forceplaced insurance, or bona fide and 

reasonable charges may pay less each 

day and for a fewer number of days 

under the rule. 

Next, consider a borrower who has 

hazard insurance the borrower obtained 

(i.e. the servicer did not force-place), the 

policy is about to lapse, and the 

borrower has the funds to renew the 

insurance. If the funds are not in an 

escrow account, then the borrower may 

fail to properly renew the insurance. 

The force-placed insurance procedures 

would not require the servicer to renew 

the hazard insurance of a borrower who 

does not have an escrow account 

established to pay the borrower’s hazard 

insurance; however, the servicer still 

has to provide two notices before 

charging such borrowers for forceplaced insurance. Insofar as these forms 

are more effective than existing forms, 

compliance would reduce the chance 

that the borrower would pay for 

unnecessary force-placed insurance. 

Further, if the borrower’s insurance 

does lapse, compliance with the 

requirements regarding renewal of forceplaced insurance, evidence of hazard 

insurance and cancellation of forceplaced insurance may reduce both the 

number of days and the cost per day 

that the borrower has force-placed 

insurance. 

Next, consider a borrower who has 

hazard insurance that is about to lapse 

and does not have the funds to renew 

the insurance. If the borrower does not 

have an escrow account and the servicer 

obtains force-placed insurance, but the 

borrower later acquires the funds to 

obtain hazard insurance, then 

compliance by the servicer with the 

requirements regarding evidence of 

hazard insurance and cancellation of 

force-placed insurance may reduce both 

the number of days and the cost per day 

that the borrower has force-placed 

insurance. If this borrower has escrowed 

for the payment of hazard insurance and 

the escrow account contains insufficient 

funds to pay his or her hazard insurance 

premium charges, the servicer is 

currently required under Regulation X 

to advance funds for the timely payment 

of escrowed items as long as the 

borrower’s payment is not more than 30 

days overdue. For this borrower, 

compliance by the servicer removes the 

possibility that the borrower’s hazard 

insurance would be canceled for 

nonpayment after 30 days and 

accordingly, the chance that the 

borrower would pay for force-placed 

insurance. 

The Bureau does not believe that the 

requirements of the final rule regarding 

force-placed insurance will increase 

costs to borrowers for mortgage credit or 

impose other significant costs on 

borrowers. The costs to servicers are 

discussed below, but servicers or forceplaced insurers currently incur 

expenses associated with the activities 

required by the rule even if they do not 

comply with the rule. As discussed 

below, however, the Bureau recognizes 

that the rule may change financial 

relationships between servicers and 

force-placed insurers and servicers may 

eventually see some increase in costs. 

Servicers might pass these costs on to 

investors or, if they originate loans, at 

origination to borrowers who are more 

likely than others to require forceplaced insurance. 

Potential benefits and costs to covered 

persons. In general, to the extent 

servicers manage the force-placement of 

insurance and not the insurers or (for 

the disclosures) vendors, compliance 

will require the development of new 

disclosures, system updates to 

incorporate information specific to each 

loan into those disclosures, the 

development of internal policies and 

procedures consistent with the rule, 

staff training on those policies and 

procedures, internal monitoring for 

compliance, and other expenses 

discussed below. In all cases, the costs 

to servicers from the rule are smaller to 

the extent the current business practices 

of servicers approximate the practices 

required by the rule. 

The first of the two required 

disclosures given before charging a 

borrower for force-placed insurance 

would require minimal customization to 

each loan, but the second disclosure 

would have to include the cost or a 

reasonable estimate of the cost of forceplaced insurance, stated as an annual 

premium. Further, even if servicers 

provide the new disclosures, they will 

likely use vendors who will be 

developing and providing similar 

disclosures to many other servicers in 

light of the new rules. Thus, the onetime costs of the new disclosures will be 

spread over many servicers. The 

development costs are also mitigated by 

fact the Bureau has developed model 

forms. Servicers will not incur these 

costs to the extent force-placed 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10851 

217Further, as discussed in greater detail in part 

V, above, servicers already are subject to a 

disclosure regime with some similar characteristics 

when obtaining force-placed flood insurance as 

required by the FDPA. The presence of these 

systems may make it less costly for servicers to 

comply with the Bureau’s procedures for forceplaced insurance, since systems are in place that 

could be adapted outside the force-placed flood 

insurance context. 

218See e.g., Adam Levitin and Tara Twomey, 

Mortgage Servicing, 28 Yale J. on Reg. 48 (2011) 

(explaining that servicing advances, which include 

advances for taxes and insurance, are costly to 

servicers because they do not recover interest on the 

advances). 

insurance providers perform these 

duties for servicers and will continue to 

do so after the new rules take effect. 

However, the Bureau recognizes that 

these arrangements may change if the 

new rules make force-placement less 

frequent. 

With respect to the renewal notice, 

there does not appear to be an industry 

standard for providing advance notice 

before a servicer renews or replaces 

existing force-placed insurance. Thus, 

this provision may impose new and 

ongoing costs on servicers of the types 

described above. The renewal notice 

need only be given once per year, 

however, so again the Bureau does not 

believe that this requirement imposes 

any substantial costs relative to the 

baseline.217 The points made above 

regarding the use of vendors and forceplaced insurance providers are 

applicable to renewal notices as well 

and would mitigate the cost of 

providing the notice. 

The Bureau recognizes that under the 

final rule servicers (or insurers) may 

need to wait longer between the time 

they send disclosures to borrowers and 

when they may charge for force-placed 

insurance, as compared to current 

practice. Servicers (or insurers) may 

incur some initial expenses in adjusting 

how they monitor accounts in order to 

provide the notices in advance of 

imposing charges, or they may make 

greater use of retroactive provisions in 

force-placed insurance policies. 

With respect to borrowers with 

escrow accounts, servicers may not 

purchase force-placed insurance unless 

a servicer is unable to disburse funds 

from the borrower’s escrow account to 

ensure that the borrower’s hazard 

insurance premium charges are paid in 

a timely manner. While servicers have 

priority in recovering these funds either 

from the homeowner or when the 

property is sold in foreclosure, they do 

not recover interest on these 

advances.218 The Bureau is not aware of 

representative and reasonably available 

data that would it allow it to estimate 

the quantity of funds that will be 

advanced for different periods of time as 

a result of the final rule. 

As discussed above, current industry 

practice generally entails servicers 

terminating force-placed insurance 

coverage and refunding to borrowers 

any premiums charged during any 

period when the borrower had 

borrower-obtained insurance coverage 

in place. Thus the Bureau does not 

believe that the required refund of 

premiums for force-placed insurance 

that overlapped with existing hazard 

insurance will impose substantial costs 

relative to the baseline for most 

servicers. Although the Bureau 

understands that most, if not all, 

servicers and force-placed insurers 

refund premiums paid for overlapping 

coverage, a servicer who does not follow 

this practice may incur costs to develop 

systems and train staff necessary to 

process such refunds. Further, because 

the servicer is obligated to refund the 

premiums, there may be interests costs 

on funds between the time the servicer 

refunds the premium to the borrower 

and the corresponding time when a 

premium advanced by the servicer to 

the insurer is refunded from the insurer 

to the servicer. 

The Bureau notes that the owners or 

assignees of mortgage loans may also 

benefit from the force-placed insurance 

disclosures and procedures. As 

discussed in part V, above, force-placed 

insurance is often significantly more 

expensive than hazard insurance 

obtained by the borrower. If the final 

outcome is foreclosure, the additional 

cost of funds forwarded for force-placed 

insurance produces an additional 

expense to such persons, who benefit 

when this additional expense is 

minimized. 

Finally, the Bureau recognizes that 

the force-placed insurance provisions 

may produce a number of changes in 

how force-placed insurance is provided 

and paid for. These changes may 

increase the costs to servicers from 

monitoring insurance coverage and 

placing and removing force-placed 

insurance. The Bureau believes that 

currently some servicers incur all of the 

costs associated with providing forceplaced insurance notices, tracking 

borrower coverage, and placing and 

terminating the insurance. However, for 

other servicers, the Bureau believes that 

the force-placed insurance provider 

handles these activities and absorbs the 

costs or passes them on to the borrower. 

If the force-placed insurance provisions 

reduce the frequency with which 

servicers obtain force-placed insurance, 

then total payments by borrowers to 

servicers and force-placed insurers may 

fall. This may reduce commission 

income that in some cases is paid by 

insurers to servicers or their insurance 

affiliates, and it may also reduce the 

willingness of force-placed insurance 

providers to perform the tracking and 

other activities stated above as part of 

the service. Servicers may therefore see 

a reduction in commission income and 

an increase in costs. 

3. General Servicing Policies, 

Procedures, and Requirements 

Section 1024.38 imposes 

requirements on servicers to maintain 

policies and procedures that are 

reasonably designed to achieve certain 

objectives. These are: (1) Accessing and 

providing timely and accurate 

information; (2) properly evaluating loss 

mitigation applications; (3) facilitating 

oversight of, and compliance by service 

providers; (4) facilitating transfer of 

information during servicing transfers; 

and (5) informing borrowers of written 

error resolution and information request 

procedures. Section 1024.38 also 

requires that servicers retain records for 

a specified time period and that 

servicers maintain certain documents 

and data on each mortgage loan account 

in a manner that facilitates compiling 

such documents and data into a 

servicing file within five days. Servicers 

that qualify as small servicers pursuant 

to 12 CFR 1026.41(e) are exempt from 

the requirements in this section of the 

final rule. 

Potential benefits and cost to 

consumers. The Bureau does not have 

representative data with which to 

quantify the extent to which current 

business practices satisfy the general 

servicing policies, procedures and 

requirements in § 1024.38, the extent to 

which compliance would provide 

additional benefits to borrowers, or the 

monetary value of those additional 

benefits to borrowers. The discussion 

below therefore generally provides a 

qualitative analysis. In all cases, the 

benefits to borrowers from the rule are 

smaller to the extent the current 

business practices of servicers 

approximate the practices required by 

the rule. 

In general, the Bureau believes that 

most servicers currently correctly 

perform the basic duty of receiving 

timely and conforming payments and 

allocating them. Borrowers who make 

timely and conforming payments every 

payment period may request 

information or assert errors about their 

accounts from time to time, but by 

assumption they do not need to be 

evaluated for loss mitigation options. 

Such borrowers are likely to derive just 

small benefits from the policies and 

procedures requirements in § 1024.38 

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10852 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

219See Lender Processing Servs., LPS First Look 

Mortgage Report, Oct. 22, 2012, available at 

http://www.lpsvcs.com/LPSCorporateInformation/ 

NewsRoom/Pages/20121022a.aspx. 

220See Office of the Comptroller of Currency, 

Release 2012–178, OCC Mortgage Metrics Report, 

Third Quarter 2012, at 13 tbl. 7 (2012). 

because such borrowers are not likely to 

be directly affected by improved 

operations regarding accessing and 

providing accurate information, 

properly evaluating loss mitigation 

applications, facilitating oversight of 

service provider, and informing 

borrowers of written error resolution 

and information request procedures. 

These borrowers may still, however, 

benefit from the policies and procedures 

that relate to facilitating the transfer of 

information during servicing transfers. 

Borrowers may experience a servicing 

transfer irrespective of whether they 

make timely and conforming payments 

and information and documents may be 

lost during transfers even with respect 

to borrowers who make timely and 

conforming payments. 

A substantial number of borrowers, 

however, do not make timely and 

conforming payments every payment 

period. Lender Processing Services 

reports that at the end of September 

2012, about 5.6 million homes were 30 

or more days delinquent or in 

foreclosure.219 One large database of 

first-lien residential mortgages shows 

that about 12 percent of mortgages failed 

to be current and performing in each of 

the five quarters ending with the third 

quarter of 2012.220 Extrapolating this 

figure to the national level indicates 

over 6 million loans in some type of 

distress. 

Borrowers who do not make timely 

and conforming payments are likely to 

benefit from all the policies and 

procedures and other requirements in 

§ 1024.38. First, delinquent borrowers 

are likely to derive substantial benefit 

from the requirement that servicers 

maintain policies and procedures to 

achieve the objective of accessing and 

providing accurate information. Such 

borrowers are both likely to need 

information from their servicer and to 

experience harm if the information 

needed is unavailable or inaccurate. For 

example, delinquent borrowers 

managing a number of different debts 

face an especially difficult challenge in 

determining how best to allocate scarce 

household resources. Managing this 

challenge requires accurate information 

from a mortgage servicer about the 

consequences of paying different 

amounts on fees and penalties, unpaid 

interest, equity, and the likelihood of 

foreclosure. Further, accurate 

information is necessary for servicers to 

achieve other objectives and 

requirements to protect borrowers. For 

example, properly evaluating 

delinquent borrowers for loss mitigation 

options requires, among other things, 

accurate information regarding the 

borrower’s mortgage loan account in 

addition to accurate information 

regarding the options available. 

Second, delinquent borrowers are 

likely to derive substantial benefit from 

the requirement that servicers maintain 

policies and procedures to achieve the 

objective of properly evaluating loss 

mitigation applications. Loss mitigation 

options necessarily relate to borrowers 

that are delinquent or are likely to 

become delinquent because it is the 

losses resulting from such delinquency 

that such options are designed to 

mitigate. Delinquent borrowers benefit 

from servicers maintaining policies and 

procedures that facilitate servicers 

understanding which loss mitigation 

options, if any, are available for a 

delinquent borrower and facilitate 

reviewing the borrower for loss 

mitigation options available pursuant to 

requirements established by an owner or 

assignee of a mortgage loan. Improving 

loss mitigation evaluations for 

delinquent borrowers improves the 

accuracy of servicer determinations, 

causing more borrowers that may 

benefit from, and should receive, such 

options to be afforded the opportunity 

to benefit from such options. Further, 

improved operations reduce costs that 

borrowers may accrue from delays in 

loss mitigation evaluations (including 

costs relating to ongoing foreclosure 

processes). 

Third, delinquent borrowers are likely 

to derive substantial benefit from the 

requirement that servicers maintain 

policies and procedures to achieve the 

objective of facilitating oversight of, and 

compliance by, service providers. 

Service providers typically provide 

services in connection with mortgage 

loan accounts for delinquent borrowers. 

Such services may include broker price 

opinions, property maintenance, or 

attorney costs for foreclosure processes. 

Delinquent borrowers, who are 

generally subject to incurring such 

costs, benefit from oversight of such 

service providers to ensure that such 

service providers do not pass charges on 

to borrowers for services that are 

unnecessary or were not actually 

performed. 

Fourth, delinquent borrowers are 

likely to derive substantial benefit from 

the requirement that servicers maintain 

policies and procedures to achieve the 

objective of facilitating transfer of 

information during servicing transfers. 

As stated above, borrowers may 

experience a servicing transfer 

irrespective of whether they make 

timely and conforming payments. 

Further, delinquent borrowers, who may 

have been interacting with servicers on 

loss mitigation options, may benefit 

because such interactions are typically 

document intensive, and information 

and documents may be lost during 

transfers. 

Fifth, delinquent borrowers are likely 

to derive substantial benefit from the 

requirement that servicers maintain 

policies and procedures to achieve the 

objective of informing borrowers of 

written error resolution and information 

request procedures. As discussed above, 

delinquent borrowers are more likely to 

need the written error resolution and 

information request provisions. The 

policies and procedures that require 

servicers to inform borrowers of the 

available options will help ensure 

delinquent borrowers have access to this 

information. 

Finally, § 1024.38 requires that 

servicers comply with two 

requirements: Servicers must retain 

documents with respect to the servicing 

of a mortgage loan until one year after 

a mortgage loan is paid in full or 

servicing for a mortgage loan is 

transferred. Further, a servicer must 

store certain information regarding a 

mortgage loan in a manner that 

facilitates compiling such information 

into a servicing file within five days. All 

borrowers, whether delinquent or not, 

derive some benefit from these 

requirements because these 

requirements facilitate the error 

resolution and information request 

requirements in §§ 1024.35 and 1024.36. 

Because borrowers may submit notices 

of error or information requests until 

one year after a mortgage loan has been 

paid in full or servicing has been 

transferred, borrowers benefit if 

servicers are required to have the 

documents and information that would 

be necessary to evaluate any such 

notices of error or to provide to the 

borrower in response to any such timely 

notice of error or information request. 

Further, all borrowers, and especially 

delinquent borrowers, benefit from the 

servicing file provision. 

Although in general data is 

unavailable to quantify the benefits and 

costs of the policies and procedures 

required under § 1024.38, it is possible 

to provide a rough estimate of a key 

consumer benefit—an increase in the 

probability a borrower is offered a loan 

modification—that may result from the 

collective impact of all the provisions of 

the final rule that address loss 

mitigation (i.e., §§ 1024.38–1024.41) but 

may depend especially on the 

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221 ‘‘Servicer fixed effects [i.e., servicer identities] 

explain at least as much variation in modification 

terms as do borrower characteristics.’’ See Sumit 

Agarwal et al., Market-Based Loss Mitigation 

Practices for Troubled Mortgages Following the 

Financial Crisis, at 5, (Fed. Reserve Bank of Chi., 

Working Paper No. 2011–03, 2010). 

222Sumit Agarwal et al., Policy Intervention in 

Debt Renegotiation: Evidence from the Home 

Affordable Modification Program, at 25, Figure 6 

(Nat’l Bureau of Economic Research, Working Paper 

No. 18311, 2012). 

223As discussed in part V, there is also a concern 

that certain servicers may pursue their self-interest 

to the detriment of both borrowers and investors. 

The final rule addresses this concern by requiring 

servicers to maintain policies and procedures 

reasonably designed to identify with specificity all 

loss mitigation options for which borrowers may be 

eligible pursuant to any requirements established 

by an owner or assignee of a mortgage loan (see 

§ 1024.38(b)(2)(ii)) and to properly evaluate 

delinquent borrowers for all such options 

(§ 1024.38(b)(2)(v)). 

224See Michael A. Stegman et al., Preventative 

Servicing is Good for Business and Affordable 

Homeownership Policy, 18 Housing Pol’y Debate 

243, 257 (2007). 

225Other authors have also noted substantial 

differences in loss mitigation practices by servicers 

that are not accounted for by differences in 

borrowers, types of mortgages and other observable 

factors. See e.g., Sumit Agarwal et al., Market-Based 

Loss Mitigation Practices for Troubled Mortgages 

Following the Financial Crisis, at 5, (Fed. Reserve 

Bank of Chi., (Working Paper No. 2011–03, 2010) 

(‘‘Agarwal et al.’’). 

226Specifically, the probability that a loan cures 

increases from .815 with the worst performing 

servicer (Servicer #2) to .8902 with a highperforming reference group of servicers. The figure 

.815 is the solution to ln[.8902/ 

(1¥.8902)]¥.61=ln[x/(1¥x)], where ¥.61 is the 

regression coefficient on Servicer #2 given on page 

265 and 8902 is discussed on page 263. Thus, the 

probability a loan that is 30 days late actually 

defaults decreases from .185 (=1¥.815) to .1098 

(=1¥.8902), which is approximately a 41 percent 

reduction. The Bureau notes that these estimates 

illustrate the possible impact that improvements in 

servicing may have on avoidable default and 

foreclosure. While the model is estimated using 

appropriate control variables, the sample is not 

representative, and it is not clear how well the 

model would predict the effects of improvements in 

servicing in different situations. 

227The Federal Reserve Bank of New York reports 

that approximately 1.5 percent of mortgages in its 

consumer credit panel transition from current to 

30+ days late each quarter, so roughly 6 percent 

annually. This corresponds to over 3 million 

mortgages at the national level. See Fed. Reserve 

Bank of NY, Quarterly Report on Household Debt 

and Credit, at 13 (2012) available at http:// 

www.newyorkfed.org/research/national_economy/ 

householdcredit/DistrictReport_Q32012.pdf. 

requirement under § 1024.38(b) that 

servicers maintain policies and 

procedures to achieve the objective of 

properly evaluating loss mitigation 

applications. It is also possible to 

provide a rough estimate of another 

benefit—the reduction in avoidable 

default (i.e., 90 day delinquency) 

associated with better servicers—that 

may be attributed to all of the provisions 

of the final rule regarding loss 

mitigation, including § 1024.38. These 

benefits are discussed below. 

First, recent research strongly 

indicates that substantially similar 

borrowers receive different loss 

mitigation options from different 

servicers. Regression analysis of data in 

the OCC–OTS Mortgage Metrics 

database shows that the identity of a 

servicer is an important determinant of 

the loss mitigation options received by 

distressed borrowers, along with the 

characteristics of the borrower (e.g., 

FICO score), the mortgage loan (e.g., 

ARM, LTV, origination year), and the 

investor (i.e., GSE, private label, or 

portfolio).221 Research focusing on the 

HAMP program presents a similar 

result: Some servicers renegotiate 

mortgage debt with borrowers at more 

than four times the rate of other 

servicers, even after taking into account 

the characteristics of loans, borrowers 

and investors.222

Second, this research shows that 

offering modifications is a persistent 

characteristic of certain servicers. 

Differences across servicers in the 

likelihood of giving HAMP 

modifications depend positively on the 

likelihood the servicer offered private 

modifications prior to HAMP, again 

taking into account the characteristics of 

loans, borrowers and investors. A 

borrower applying for a trial loan 

modification would have a 58 percent 

better chance of receiving it from the 

high-modifying ‘‘type’’ of servicer loans 

than from the low-modifying type. For 

permanent modifications, the difference 

between the two types is more than 

double (117 percent). 

Finally, investigation into the 

differences across servicers in the 

likelihood of giving modifications prior 

to HAMP shows that these differences 

depend on the characteristics of the 

servicing staff and the technology used 

by the servicer. In particular, the 

likelihood of giving modifications prior 

to HAMP depends positively on the size 

of the staff and the number of training 

hours given the staff, negatively on the 

workload of the staff, and negatively on 

indicators of poor technology like the 

percentage of dropped calls and time 

callers spend on hold. Again, all of 

these results take into account the 

characteristics of loans, borrowers and 

investors—they are not an artifact of 

differences in the servicing portfolios of 

the servicers. 

The Bureau believes that these results 

are broadly indicative of the benefits to 

consumers of the provisions relating to 

loss mitigation and in particular the 

provisions in § 1024.38(b) associated 

with properly evaluating loss mitigation 

applications. Servicers are required to 

maintain policies and procedures 

reasonably designed to ensure that 

servicers can properly evaluate 

borrowers for available loss mitigation 

options. Compliance with these policies 

and procedures will require servicers to 

devote resources to the proper 

evaluation of borrowers, presumably by 

investing in the staff, training and 

technology that the research shows 

leads, through some process, to more 

trial modifications. The Bureau cannot 

quantify the impact of the provisions for 

loss mitigation in § 1024.38 on resources 

devoted to the proper evaluation of 

borrowers and better outcomes for 

borrowers. However, the Bureau 

believes that these provisions of the 

final rule will tend to reduce the 

deficiencies in the abilities of certain 

servicers to evaluate borrowers for loss 

mitigation that recent research strongly 

indicates have been detrimental to 

borrowers.223

The estimate of avoidable default 

relies on a study of the performance of 

approximately 28,000 housing loans 

tracked from September 1998 to 

December 2004 (and originated prior to 

December 2003).224 Most of the loans 

were serviced by eight servicers. After 

restricting the sample to loans that at 

some point experience a 30-day 

delinquency, the authors estimate a 

logic regression model to isolate the 

impact each servicer has on the 

probability a loan ever reaches 90-day 

delinquency (which they define as 

‘‘default’’). 

The authors show that there are 

significant differences among the 

servicers in the probability a loan 

defaults, even after controlling for 

borrower credit score and income, 

certain characteristics of the property, 

and other factors.225 The best servicing 

(servicing performed by servicers with 

the highest cure rates for loans that 

become 30 days delinquent) achieves 

approximately a 41 percent reduction in 

the probability that a loan that becomes 

30 days delinquent will eventually 

default, relative to the worst servicing 

(servicing performed by servicers with 

the lowest cure rates for loans that 

become 30 days delinquent).226

To translate this figure into an 

estimate of avoidable default, suppose 

that 1 million mortgages become 30–60 

days late each year (currently the figure 

may be closer to 3 million).227 The 

model predicts that about 19 percent 

would default if they were serviced by 

the worst performing servicer in the 

sample. However, only 11 percent 

would default if they were serviced by 

the best performing servicer in the 

sample. This is approximately a 41 

percent reduction in default due to 

differences in servicing. This reduction 

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10854 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

228 In one study, only 30 percent of loans that 

were 90 days late and began a repayment plan were 

reinstated or paid in full during the period of the 

study. Presumably, loans that are 90 days late and 

never begin a repayment plan have an even lower 

success rate. See Amy Crews Cutts & William A. 

Merrill, Interventions in Mortgage Default: Policies 

and Practices to Prevent Home Loss and Lower 

Costs, 11–12 & Tbl. 2 (Freddie Mac, Working Paper 

No. 08–01, 2008). 

229See Kenneth P. Brevoort & Cheryl R. Cooper, 

Foreclosure’s Wake: The Credit Experiences of 

Individuals Following Foreclosure (2010), available 

at: http://www.federalreserve.gov/pubs/feds/2010/ 

201059/201059pap.pdf. 230Many recent studies document the negative 

effect of a foreclosed property on the homeowners 

in its vicinity. There are several reasons for this 

effect. Among them are displacement of demand 

that otherwise would have increased the 

neighborhood prices, reduced valuations of future 

sales if the buyers and/or the appraisers are using 

the sold foreclosed property as a comparable, 

vandalism, and disinvestment. Using the data on 

house transactions in Massachusetts from 1987 to 

2009, a foreclosure lowers the price of a house 

within 0.05 miles by 1 percent. See John Y. 

Campbell et al., Forced Sales and House Prices, 101 

Am. Econ. Rev. 2108 (2011). According to Fannie 

Mae data for the Chicago MSA, a foreclosure within 

0.9 kilometers can decrease the price of a house by 

as much as 8.7 percent; however, the magnitude 

decreases to under 2 percent within five years of the 

foreclosure. See Zhenguo Lin et al., Spillover Effects 

of Foreclosures on Neighborhood Property Values, 

38 J. Real Est. Fin. & Econ. 387 (2009). Research 

using Maryland data for 2006–2009 finds that a 

foreclosure results in a 28 percent increase in the 

default risk to its nearest neighbors (see Charles 

Towe and Chad Lawley, The Contagion Effect of 

Neighboring Foreclosures, 2011, Social Science 

Research Network Working Paper 1834805). Other 

papers document various magnitudes of the 

negative effect on nearby properties (see W. Scott 

Frame, Estimating the Effect of Mortgage 

Foreclosures on Nearby Property Values: A critical 

review of the literature, 95 Econ. Rev. Fed. Reserve 

Bank of Atlanta 1 (2010). 

231A summary of recent and ongoing research is 

presented in Julia B. Isaacs, The Ongoing Impact of 

Foreclosures on Children, The Brookings Inst., 

April 2012. 

232 In addition, servicers are currently subject to 

record keeping requirements under current 

§ 1024.17(l) of Regulation X. This will make it less 

costly for servicers to implement the changes in this 

rule since they should already have systems in 

place that can be adapted to the new requirements. 

corresponds to 80,000 mortgages 

(240,000 mortgages with current data). 

These defaults are avoidable with a 

change from the worst to the best 

servicing. Further, a substantial number 

of these defaults would likely go to 

foreclosure, perhaps 70 percent.228

The Bureau does not currently have 

data that would allow it to further 

monetize the cost of default and 

foreclosure on borrowers or other 

consumers. Some recent research that 

controls for economic conditions 

documents the persistent negative 

effects of foreclosure on borrower’s 

credit scores.229 Other work establishes 

substantial negative effects that 

foreclosed homes have on nearby 

homes.230 As mentioned above, the 

negative externalities from foreclosure 

are another market failure addressed by 

the provisions of the final rule that may 

reduce avoidable foreclosure. Other 

research establishes that children tend 

to switch to lower performing schools 

after foreclosure, and ongoing research 

is examining the effects of housing 

instability on student outcomes.231

More generally, servicers obtain 

limited benefits from having (and 

complying with) policies and 

procedures reasonably designed to 

achieve the objectives stated in this 

provision of the final rule, other than 

where contractual requirements require 

them to perform certain duties and meet 

certain goals with respect to loss 

mitigation. Borrowers do not choose 

their servicer, except indirectly by 

choosing their lender, and have little 

recourse against either the servicer or 

the owner or assignee of the loan (for 

whom the servicer is the agent) for poor 

customer service. As a result, mortgage 

servicing is to a large extent a highvolume, low-margin business in which 

successful servicers attempt to keep 

costs down. While many servicers have 

and comply with policies and 

procedures similar to those required 

under § 1024.38, the mortgage crisis 

demonstrated that for some servicers the 

incentives to do so were lacking. 

The Bureau is aware that servicers 

may incur additional costs as they come 

into compliance with the requirements 

in § 1024.38 and that some of these costs 

may be passed on to borrowers. 

However, the Bureau believes that the 

cost per borrower is likely to be small, 

as discussed below. 

Finally, the Bureau observes that 

certain servicers may have implemented 

policies and procedures with respect to 

evaluating borrowers for loss mitigation 

options pursuant to the National 

Mortgage Settlement and Federal 

regulatory agency consent orders, as 

discussed in part II, above. Borrowers 

whose mortgage loans are serviced by 

such servicers may already receive 

certain benefits relating to loss 

mitigation evaluations as a result of 

such actions, and will thus receive 

fewer benefits as a result of this rule 

than they would have otherwise 

received. The Bureau believes that such 

borrowers will nevertheless benefit from 

the requirements in § 1024.38 because 

(1) many of the objectives of the policies 

and procedures required pursuant to 

§ 1024.38 impose requirements beyond 

the National Mortgage Settlement and 

Federal regulatory agency consent 

orders and (2) the policies and 

procedures required by § 1024.38 may 

manage information that better 

facilitates such servicers complying 

with their obligations under the 

National Mortgage Settlement and 

Federal regulatory agency consent 

orders in a manner that improves loss 

mitigation evaluations for borrowers 

whose mortgage loans are serviced by 

such servicers. Additionally, the Bureau 

notes that the National Mortgage 

Settlement is an agreed on term sheet 

with a limited timeline. The national 

servicing standards established by the 

Bureau will not automatically expire 

after a set period of time. 

Potential benefits and costs to covered 

persons. Certain servicers currently 

incur costs associated with the 

requirements in the general servicing 

policies, procedures and requirements, 

despite generally not receiving 

consequential feedback from borrowers 

to do so. Depository institutions already 

are subject to interagency guidelines 

relating to safeguarding the institution’s 

safety and soundness that facilitate 

reasonable information management for 

purposes of mortgage servicing. 

Servicers that service mortgage loans 

subject to investor or guarantor loss 

mitigation requirements, such as 

requirements imposed on Fannie Mae, 

Freddie Mac, and Ginnie Mae, or 

servicers subject to regulatory consent 

orders or the national mortgage 

settlement, must already comply with 

policies regarding evaluation for a loss 

mitigation option.232

Servicers that do not already have 

policies and procedures that are 

reasonably designed to meet the 

objectives in § 1024.38 will incur the 

cost both of establishing such policies 

and procedures (which may include 

training staff and updating existing 

procedures) as well as on-going costs 

associated with such procedures. To the 

extent any entity currently follows such 

policies and procedures, these 

additional costs will already have been 

incurred 

The rule uses an objectives-based 

approach to defining its requirements 

and provides flexibility in 

implementation. An objectives-based 

approach has the advantage of allowing 

different servicers to find the least 

costly way of achieving the required 

objectives. Thus, the rule requires 

servicers to have policies and 

procedures reasonably designed to 

achieve the objective of investigating 

complaints and providing information; 

it does not specify specific steps 

required for investigating different types 

of complaints or for providing different 

types of information. Similarly, the rule 

requires servicers to have policies and 

procedures reasonably designed to 

achieve the objective of facilitating 

periodic reviews of service providers; it 

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233See for example OMB’s Circular A–4. 

‘‘Performance standards express requirements in 

terms of outcomes rather than specifying the means 

to those ends. They are generally superior to 

engineering or design standards because 

performance standards give the regulated parties 

the flexibility to achieve regulatory objectives in the 

most cost-effective way.’’ 

234The Bureau received numerous comments 

from industry describing the burden attributable to 

the proposed requirements for the servicing file. 

Many of such comments expressed that while 

servicers have the information for a serving file, 

they do not store such information grouped 

together. Such comments are discussed in part V 

with respect to § 1024.38(c)(2). 

does not specify specific steps required 

for reviewing service providers.233

Regarding implementation, a servicer 

can take into account the size, nature, 

and scope of its operations. In 

particular, a servicer may take into 

account the volume and aggregate 

unpaid principal balance of mortgage 

loans serviced, the credit quality, 

including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. 

This advantage to regulated entities of 

objectives-based standards may be offset 

by costs to the regulated entity in at 

least two ways. First, a regulated entity 

may incur costs to measure and evaluate 

whether the entity is, in fact, achieving 

the objective required by the regulation. 

Second, a regulated entity may incur 

costs resulting from over-compensation 

to achieve an objective when the 

achievement of such objective depends 

on factors outside the control of the 

regulated entity. The general servicing 

policies, procedures, and requirements 

mandate policies and procedures, which 

are under the control of the servicer. 

The policies and procedures need only 

be reasonably designed to achieve the 

objectives, which will tend to mitigate 

the risks to servicers of over-complying 

to achieve objectives when the failure to 

achieve such objectives is based on 

factors beyond the servicer’s control. 

Finally, § 1024.38 imposes a record 

retention requirement and a servicing 

file requirement. Servicers must retain 

records that document actions taken by 

servicers with respect to a borrower’s 

mortgage loan until one year after the 

date a mortgage loan is discharged or 

servicing is transferred. The Bureau 

believes that currently servicers 

generally retain this information at least 

until the mortgage loan is discharged or 

servicing is transferred. Further, this 

requirement replaces a previous 

document retention requirement in 

§ 1024.17(l) requiring servicers to retain 

documents relating to borrower escrow 

accounts for five years, notwithstanding 

whether a mortgage loan was discharged 

or servicing was transferred. Because 

documents and information relating to a 

servicing file are necessary for on-going 

servicer operations, the Bureau believes 

the cost of this provision to servicers 

comes from the additional year that they 

may need to retain documents not 

related to escrow charges after a 

mortgage loan is discharged or servicing 

is transferred. This retention expense is 

incremental to the expense associated 

with retaining the information before 

the mortgage loan is discharged or 

servicing is transferred. Further, certain 

costs may be reduced relative to the prestatutory baseline of retaining 

documents relating to escrow accounts 

for five years. Accordingly, the Bureau 

believes any expense relating to the 

document retention requirement is 

likely small. 

Finally, servicers are required to 

maintain certain documents and data in 

a manner that facilitates compiling them 

into a servicing file within five days. 

Servicers may need to develop faster 

access to some of this information than 

they currently have, and some may need 

to document the location and methods 

of access of this information in a more 

unified way than they currently do. 

However, servicers do not have to 

maintain all of the information on a 

single system.234 Further, the Bureau is 

mitigating the cost of this provision by 

not requiring servicers to comply with 

it with respect to information created 

prior to January 10, 2014. Thus, 

servicers do not have to improve access 

to legacy information that may be 

missing or inaccessible. 

4. Requirements Regarding Early 

Intervention 

Section 1024.39 establishes early 

intervention requirements with respect 

to certain delinquent borrowers. 

Servicers are required to establish or 

make good faith efforts to establish live 

contact with a borrower not later than 

the 36th day of a borrower’s 

delinquency and inform the borrower 

about the availability of loss mitigation 

options if appropriate. Section 1024.39 

also requires servicers to provide a 

written notice to borrowers not later 

than the 45th day of the borrower’s 

delinquency. Provisions of the rule 

prescribe the content of the written 

notice and provide model clauses. 

However, servicers can comply with the 

content requirement by sending 

borrowers a single mailing that contains 

separate notices that collectively 

provide all the model clauses. Servicers 

that qualify as small servicers pursuant 

to 12 CFR 1026.41(e) are exempt from 

the requirements of § 1024.39. 

Potential benefits and costs to 

consumers. The provisions on early 

intervention with delinquent borrowers 

are intended to spur communication 

between servicers and borrowers that 

facilitates borrower’s avoidance of 

foreclosure. The benefits of § 1024.39 to 

delinquent borrowers depend on 

whether servicers already meet the 

requirements of § 1024.39, servicers are 

successful in establishing live contact 

with borrowers under the live contact 

requirement, and information provided 

on loss mitigation options during the 

live contact or in the written notice 

helps borrowers manage their default 

and avoid foreclosure. 

A number of early intervention 

standards exist and are issued by private 

mortgage investors, the GSEs, or 

government agencies offering guarantees 

or insurance for mortgage loans, such as 

FHA, the VA, or the Rural Housing 

Service. Servicers of FHA and VA loans 

are generally required to take action 

within the first 20 days of a 

delinquency, such as making telephone 

calls, and sending written delinquency 

notifications. Similarly, servicers of 

loans purchased by the GSEs are 

encouraged to contact borrowers within 

several days of a delinquency. Freddie 

Mac recommends that servicers begin 

initial call campaigns on the third day 

of delinquency, and Fannie Mae 

recommends that servicers take similar 

actions with respect to borrowers having 

a high risk of default. Regarding written 

notification, Federal agencies and the 

GSEs have established requirements and 

recommended practices with respect to 

written notifications that are similar to 

the Bureau’s final rule under 

§ 1024.39(b). However, the Bureau 

believes that some GSE servicers may 

not provide written notifications to 

certain lower-risk delinquent borrowers 

until the 65th day of delinquency. 

Comprehensive data is generally 

unavailable on the extent to which 

servicers already reach out to 

delinquent borrowers; and for those that 

do, when and by what means they do, 

and what information they provide to 

borrowers. The discussion below 

therefore generally provides a 

qualitative analysis for borrowers not 

currently receiving such 

communications from their servicers. 

Given the ubiquity of some type of early 

intervention requirement on servicers, 

the benefit of the rule depends on the 

extent to which it is superior to existing 

requirements. 

The requirement that servicers 

establish or make good faith efforts to 

establish live contact with borrowers 

may benefit the borrowers who are 

required to be contacted under the 

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235 In one study using data from September 2005 

through August 2007, Freddie Mac servicers 

reported that the borrower never responded to the 

servicer for 53.3 percent of the loans that went into 

foreclosure. See Amy Crews Cutts & William A. 

Merrill, Interventions in Mortgage Default: Policies 

and Practices to Prevent Home Loss and Lower 

Costs 10 (Freddie Mac, Working Paper No. 08–01, 

2008). 

236See Amy Crews Cutts & William A. Merrill, 

Interventions in Mortgage Default: Policies and 

Practices to Prevent Home Loss and Lower Costsk, 

at tbl. 2 (Freddie Mac, Working Paper No. 08–01, 

2008). This statistic is merely suggestive of a benefit 

to early intervention, since borrowers who are 

willing to begin a repayment plan at 30 days may 

be more likely to become current even without a 

repayment plan. 

237See Gen. Accounting Office, Actions Needed 

by Treasury to Address Challenges in Implementing 

Making Home Affordable Programs, Tbl. 1 (2011). 238For a discussion of recent changes, including 

the implementation of the new ‘‘HAMP Tier 2’’ 

alternative, see Making Home Affordable, 

Supplemental Directive 12–02, Making Home 

Affordable Program- MHA Extension and 

Expansion, (2012), available at https:// 

www.hmpadmin.com/portal/programs/docs/ 

hamp_servicer/sd1202.pdf. 

provision, possibly by increasing the 

efforts that servicers make to reach such 

borrowers. Older research shows that 

significant numbers of borrowers go to 

foreclosure without ever responding to 

the servicer.235 While it is not possible 

to predict whether requiring servicers to 

make good faith efforts to establish live 

contact will change this particular 

result, the severity of the outcome 

makes it reasonable to ensure that 

borrowers are provided this type of 

effort by servicers. The requirements in 

§ 1024.39 more generally ensure that 

those borrowers who would respond are 

informed about the availability of loss 

mitigation options where the servicer 

determines that it would be appropriate 

to provide such information to the 

borrower, and that all borrowers receive 

a written notice containing information 

on loss mitigation by the 45th day of a 

delinquency. 

The Bureau also believes that such 

borrowers may benefit from the early 

intervention provisions to the extent 

that the provisions ensure that servicers 

inform borrowers of the availability of 

loss mitigation options shortly after 

delinquency, thus increasing the 

likelihood that borrowers take corrective 

action more quickly. In addition, one 

study using data from 2000 through 

2006 found that the re-default rate was 

about 27 percent (15 percentage points) 

lower on repayment plans established 

when a loan was 30 days late instead of 

60 days late.236 Early corrective action 

benefits borrowers by reducing 

avoidable interest costs, limiting the 

impact on borrowers’ credit reports 

(thereby expanding their access to less 

costly credit and other services that 

depend on credit reports), and 

facilitating household budgeting and 

planning (which may allow borrowers 

to save money). 

Finally, it is essential to note that the 

repayment plans, loan modifications 

and other alternatives to default or 

foreclosure that servicers offer change 

regularly, often to make additional 

borrowers eligible. For example, a 

number of TARP funded housing 

programs have been developed since the 

initial HAMP first-lien modification 

program was implemented in April 

2009. Programs now exist that provide 

principal reduction for HAMP-eligible 

borrowers with high loan-to-value 

ratios, provide temporary principal 

forbearance for unemployed borrowers, 

and provide incentives for shortsales.237 Further, the eligibility criteria 

for these programs change regularly.238

The changing set of alternatives to 

default and foreclosure and eligibility 

for these alternatives mean that 

delinquent borrowers who have not had 

recent contact with their servicer 

regarding the alternatives for which they 

qualify are probably uninformed or 

misinformed about the options available 

to them. The provisions for early 

intervention, together with provisions in 

§§ 1024.38(b)(2) and 1024.40(b)(1) that, 

in general, require that servicers 

maintain policies and procedures with 

respect to providing borrowers with 

accurate information about loss 

mitigation options, benefit borrowers 

who may not have otherwise been 

contacted by their servicer by providing 

them with accurate information 

regarding loss mitigation that they 

otherwise likely would lack. 

The Bureau received one comment 

that stated that the early intervention 

requirements would impose costs on all 

borrowers, including those who will 

never use the service. Given the 

ubiquity of some type of early 

intervention requirement, as described 

above, and the likelihood that servicers 

who are servicing loans that they own 

make every effort to reach out to 

delinquent borrowers, the Bureau 

believes that the incremental costs to 

most servicers of the early intervention 

provisions under § 1024.39 are minimal. 

Thus, any incremental cost to most 

borrowers would be small. The Bureau 

also notes that borrowers may value 

early intervention requirements, 

whether or not they in fact ever receive 

such intervention, to the extent they 

believe they have a chance of becoming 

delinquent. As noted, for borrowers 

whose servicers are already subject to an 

early intervention requirement, the 

benefits of this provision would be 

reduced to that extent. 

Potential benefits and costs to covered 

persons. For the reasons stated above, 

the Bureau believes that most servicers 

already comply with some type of early 

intervention requirement. To the extent 

that servicers already make efforts to 

establish live contact with borrowers 

and provide written notices to 

borrowers regarding loss mitigation 

options, servicers would likely incur 

minimal costs to conform to the time 

lines and content requirements under 

the final rule. These costs would 

generally consist of creating internal 

policies and procedures to implement 

the requirements, training personnel, 

and possibly modifying existing 

disclosures or establishing new 

disclosures. The Bureau has attempted 

to mitigate such costs by providing 

sample clauses in the rule. Services who 

are not subject to some type of early 

intervention requirement would of 

course incur greater costs, including for 

setting up policies and procedures, 

establishing disclosures, and potentially 

hiring more staff. 

Regarding the written notice, the 

Bureau understands that many servicers 

use vendors who will be developing and 

providing similar disclosures to many 

other servicers in light of the new rules. 

Thus, the one-time costs of the new 

disclosures will be spread over many 

servicers. The Bureau is mitigating onetime burden of the written notice 

provision by providing servicers with 

model clauses. The model clauses 

provide servicers with examples of 

language explaining loss mitigation 

options that may be available, how 

borrowers can access housing 

counseling resources and encouraging 

the borrower to contact the servicer. The 

Bureau intends for the model clauses to 

provide servicers with examples of the 

level of detail that the Bureau expects 

servicers to provide in their written 

notice. The Bureau is mitigating the 

ongoing cost of the written notice 

provision by limiting the requirement to 

send the written notice to at most once 

every 180 days. The Bureau is further 

mitigating the ongoing cost by 

permitting servicers to incorporate the 

relevant portions of the written notice 

required under § 1024.39 into other 

disclosures, thus increasing the 

likelihood that servicers that are already 

providing loss mitigation disclosures 

will not need to provide additional 

disclosures. 

5. Procedures for Continuity of Contact 

With Delinquent Borrowers 

Section 1024.40 requires servicers to 

maintain policies and procedures that 

are reasonably designed to achieve 

certain objectives regarding continuity 

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239See General Accounting Office, Troubled 

Asset Relief Program: Further Actions Needed to 

Fully and Equitably Implement Foreclosure 

Mitigation Programs, at 15 (2010). 

240See the general discussion of servicing 

operations and avoidable foreclosure in the analysis 

of the provisions on reasonable information 

management. 

241U.S. Dep’t of Treasury, Making Contact: The 

Path to Improving Mortgage Industry 

Communication with Homeowners (Dec. 2012), 

available at http://www.treasury.gov/initiatives/

financial-stability/reports/Documents/SPOC%

20Special%20Report_Final.pdf. 

of contact. The objectives include 

making personnel available, by 

telephone, to delinquent borrowers by 

the time the servicer has provided the 

borrower with the written notice 

regarding loss mitigation options 

required under § 1024.39(b), but in any 

case not later than the 45th day of 

delinquency. Servicers are also required 

to establish policies and procedures 

reasonably designed to ensure that the 

personnel they assign to delinquent 

borrowers perform an enumerated list of 

functions, where applicable, including 

providing the borrower with accurate 

information about loss mitigation 

options available to the borrower and 

actions the borrower must take to 

complete a loss mitigation application. 

Servicers that qualify as small servicers 

pursuant to 12 CFR 1026.41(e) are 

exempt from the requirements of 

§ 1024.40. 

Potential benefits and costs to 

consumers. The continuity of contact 

provisions are intended to ensure that 

borrowers in delinquency have access to 

servicer personnel capable of assisting 

the borrower with loss mitigation 

applications. Other regulators and the 

GSEs have established certain staffing 

standards for servicers to meet when 

they assist delinquent borrowers. The 

benefits to borrowers from the rule 

discussed below will be mitigated to the 

extent servicers already provide access 

to such servicer personnel. One study of 

complaints to the HOPE Hotline 

reported that over half (27,000 out of 

48,000) were from borrowers who could 

not reach their servicers and obtain 

information about the status of their 

applications for HAMP modification.239

Other complaints concerned lost 

documentation and the inability of 

borrowers to speak with representatives 

who were knowledgeable about the 

status of the borrowers’ applications for 

loss mitigation. While certain servicers 

may nonetheless have provided 

delinquent borrowers with the services 

described in the continuity of contact 

provisions, such as, for example, access 

to personnel who could provide the 

borrower with accurate information 

about the status of a loss mitigation 

application, the mortgage crisis 

demonstrated that a number of servicers 

did not provide such services. 

As discussed in part V, above, 

widespread reports of communication 

breakdowns between servicers and 

delinquent borrowers who present a 

heightened risk for default have 

revealed that one of the most significant 

impediments to the success of 

foreclosure mitigation programs is the 

inadequate manner by which servicer 

personnel at major servicers have 

provided assistance to these borrowers. 

While the Bureau does not have the data 

with which to quantify the effects, the 

inability of a borrower to speak with 

personnel knowledgeable about the 

status of a loss mitigation application 

creates delay in rectifying problems 

(including problems with lost 

documentation) that may lead to 

avoidable foreclosure. Similarly, the 

inability of borrowers to obtain a 

complete record of their payment 

histories with the servicer or of servicer 

personnel to access all documents the 

borrowers have submitted to the 

servicer in connection with an 

application for a loss mitigation option 

may impair the ability of borrowers to 

generally advocate for themselves 

regarding loss mitigation and possibly to 

slow or halt foreclosure. Conversely, the 

ability of borrowers to speak with 

personnel knowledgeable about loss 

mitigation options available to the 

borrower and the actions the borrower 

must take to be evaluated for such 

options makes it easier for borrowers to 

effectively pursue these options. These 

provisions therefore increase the 

chances that certain delinquent 

borrowers are able to obtain a loss 

mitigation plan and avoid the 

substantial costs foreclosure imposes on 

them, their households, and their 

neighbors, as discussed above.240 The 

Bureau is not aware of costs to 

borrowers from these provisions. 

Potential benefits and costs to covered 

persons. Servicers currently incur costs 

associated with the requirements 

regarding continuity of contact. As 

discussed in the proposal, above, in 

response to reported problems with 

respect to how servicers respond to 

delinquent borrowers, other regulators 

and the GSEs have responded by 

establishing staffing standards for 

servicers to meet when they assist 

delinquent borrowers. Other servicers 

may incur costs of creating internal 

policies and procedures to implement 

the requirements and training 

personnel. The Bureau recognizes that 

some servicers may also need to 

increase staffing time to comply with 

these requirements or transfer servicing 

to servicers who are already in 

compliance. 

The rule mandates an objectivesbased approach to the requirements for 

continuity of contact. This approach 

provides servicers with useful flexibility 

in managing the costs of compliance 

relative to mandating specific inputs or 

narrow operational requirements. 

Servicers that have adopted continuity 

of contact requirements have done so 

through different models and the 

Bureau has provided flexibility to allow 

servicers to adopt models that comply 

with the objectives of the continuity of 

contact requirements without highly 

prescriptive requirements.241 The 

discussion of the merits of this approach 

that is provided in the analysis of the 

general servicing policies, procedures 

and requirements is applicable here. 

6. Loss Mitigation Procedures 

Section 1024.41 establishes 

requirements with respect to loss 

mitigation. The goal of § 1024.41 is to 

ensure that borrowers are protected 

from harm in connection with the 

process of evaluating a borrower for a 

loss mitigation option and proceeding to 

foreclosure. Under § 1024.41, servicers 

must, among other things, accept loss 

mitigation applications and evaluate 

complete applications for all loss 

mitigation options available to the 

borrower. Servicers must take these 

actions within a prescribed period of 

time and adhere to a prescribed 

framework for making offers of loss 

mitigation alternatives to borrowers. 

Servicers must give borrowers an 

opportunity to appeal rejection of 

complete loss mitigation applications in 

certain circumstances and must follow a 

prescribed framework with respect to 

these appeals. 

Section 1024.41 also creates 

limitations with respect to starting and 

completing the foreclosure process. A 

servicer may not make the first notice or 

filing required for a foreclosure process 

if a borrower is not more than 120 days 

delinquent on the mortgage obligation. 

Further, if a borrower submits a timely 

and complete loss mitigation 

application, the servicer may not make 

the first notice or filing required for a 

foreclosure process until completing the 

requirements set forth in § 1024.41. If a 

servicer has started the foreclosure 

process, but a borrower submits a timely 

and complete loss mitigation 

application, a servicer is prohibited 

from proceeding to a foreclosure 

judgment, or order of sale, or 

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242Family Housing Fund, Cost Effectiveness of 

Mortgage Foreclosure Prevention: Summary of 

Findings (1998), available at http:// 

www.fhfund.org/_dnld/reports/MFP_1995.pdf. 

243This assumes that the foreclosure process 

itself does not change the probability that loss 

mitigation succeeds. The Bureau recognizes that 

this may not be true. Insofar as the foreclosure 

process reduces the probability that loss mitigation 

succeeds, servicers may benefit investors by trying 

to identify borrowers for this effect would be 

significant and not moving them to the brink of 

foreclosure. 

244The Bureau believes that the final rule 

provides borrowers with sufficient protections 

against improper foreclosure sale. Thus, this 

analysis does not attribute additional consumer 

benefits to a mandatory pause in the foreclosure 

process due to additional protections against 

improper foreclosure sale. 

conducting a foreclosure sale, until 

completing the requirements set forth in 

§ 1024.41. 

Servicers that qualify as small 

servicers pursuant to 12 CFR 1026.41(e) 

are exempt from § 1024.41, except for 

the prohibition on referring to 

foreclosure in the first 120 days of 

delinquency and proceeding to a 

foreclosure sale if a borrower is 

performing pursuant to the terms of an 

agreement on a loss mitigation option. 

Potential benefits and costs to 

consumers. The analysis of the benefits 

to borrowers of § 1024.38 discussed the 

benefits to borrowers of the loss 

mitigation provisions collectively under 

the final rule. This analysis will not 

repeat that discussion, but focuses more 

specifically on key provisions of this 

section of the final rule. The benefits 

discussed below are mitigated to the 

extent that servicers are already in 

compliance with the provision of 

§ 1024.41. For example servicers that are 

servicing loans subject to investor or 

guarantor loss mitigation requirements, 

such as requirements imposed by 

Fannie Mae, Freddie Mac, or 

government insurance programs, or 

servicers subject to regulatory consent 

orders or the national mortgage 

settlement, must already comply with 

policies regarding evaluation of a loss 

mitigation application for a loss 

mitigation option. 

Restricting But Not Eliminating Dual 

Tracking 

The loss mitigation provisions in 

§ 1024.41 prevent servicers from 

commencing a foreclosure proceeding 

before the consumer has had a 

reasonable opportunity to submit a loss 

mitigation application or while a 

complete loss mitigation application is 

pending. As discussed in part V, this 

provision benefits borrowers by 

preventing foreclosure costs from 

accruing and by eliminating potentially 

confusing (and, as some commenters 

noted, discouraging) communications 

from servicers. Borrowers avoid costs of 

proceeding with the foreclosure process, 

including responsibility for attorneys’ 

fees, legal filing costs, and services 

required (such as property preservation 

fees) occurring as a result of the 

foreclosure notwithstanding the 

concurrent evaluation of the borrower 

for a loss mitigation option. The 

administrative costs of foreclosure to 

borrowers are estimated, on average at 

$7,200.242

Servicers are allowed to commence a 

foreclosure proceeding in the period 120 

days after delinquency if the borrower 

does not have a complete loss mitigation 

application pending. If a servicer has 

commenced a foreclosure proceeding 

after 120 days, it may proceed up to 

foreclosure sale regardless of whether 

the borrower subsequently submits a 

complete loss mitigation application. 

The servicer, however, is prohibited 

from moving for foreclosure judgment or 

order of sale or conducting a foreclosure 

sale before acting on a borrower’s 

complete loss mitigation application 

that is submitted by certain deadlines in 

advance of foreclosure. 

The potential loss of the prohibition 

on foreclosure referral after 120 days 

provides an incentive for borrowers to 

complete a loss mitigation application 

as quickly as possible. Establishing a 

loss mitigation plan within 120 days of 

delinquency reduces interest costs and 

limits the impact on borrowers’ credit 

report. However, these future costs may 

not be salient to all consumers, and if 

these costs are heavily discounted they 

would provide little incentive to submit 

a loss mitigation application quickly. 

The Bureau notes that the borrower still 

has protections against foreclosure sale: 

a servicer may not complete the 

foreclosure process by proceeding to a 

foreclosure judgment or order of sale, or 

conducting a foreclosure sale, unless the 

servicer has completed the loss 

mitigation procedures in § 1024.41, 

described above. 

As set forth in part V, above, with 

respect to § 1024.41, the Bureau 

considered, but ultimately rejected, a 

mandatory pause on foreclosure 

proceedings. The Bureau is concerned 

about higher costs to borrowers from a 

broader prohibition on referral to 

foreclosure or from a mandatory pause 

in foreclosure proceedings after the 

borrower submits a loss mitigation 

application. The tradeoff here is 

admittedly complex. Under the final 

rule, servicers (acting on the behalf of 

investors) are allowed to move all 

borrowers up to foreclosure sale, but 

cannot move for foreclosure or order of 

sale or conduct a foreclosure sale before 

acting on complete loss mitigation 

applications submitted by certain 

deadlines. If loss mitigation efforts 

ultimately succeed, borrowers generally 

pay the costs associated with the 

foreclosure process, not investors. If loss 

mitigation efforts ultimately fail, 

investors generally pay foreclosure 

costs, but investors benefit from being 

able to quickly recover the capital that 

remains.243 In both cases, investors 

benefit from moving borrowers up to 

foreclosure sale. 

Relative to the final rule, a mandatory 

pause would benefit borrowers by 

eliminating the foreclosure process costs 

in the case in which loss mitigation 

succeeds.244 Servicers would not be able 

to move these borrowers closer to 

foreclosure. However, a mandatory 

pause would impose costs on investors 

in the case in which loss mitigation 

fails, by delaying foreclosure sales and 

capital recovery. These costs may be 

passed along to borrowers. 

It is not possible to quantify these 

costs to borrowers. However, the Bureau 

believes that the foreclosure process 

costs under the final rule would likely 

be smaller than under a mandatory 

pause regime. A pause would likely 

delay a large number of foreclosure sales 

(beyond those already delayed by the 

prohibition on referral to foreclosure in 

the final rule) and temporarily reduce 

the return on a substantial amount of 

mortgage credit. This creates some risk 

of a perceptible increase in the cost of 

mortgage credit to at least certain 

borrowers. 

Appeals 

Section 1024.41 requires servicers to 

provide an appeals process to review 

denials of complete loss mitigation 

applications for loan modifications in 

certain circumstances. Improper denials 

may result from technical errors in the 

evaluation of applications, but they may 

also result when servicers fail to review 

borrowers for loss mitigation options 

authorized by investors or guarantors of 

mortgage loans. The Bureau believes 

that the appeals process may benefit 

borrowers by allowing servicers to 

identify and correct these (and other) 

improper denials. The Bureau notes that 

the National Mortgage Settlement and 

the California Homeowner Bill of Rights 

already provide for an appeals process 

related to denials of loan modifications. 

For borrowers and servicers covered by 

the National Mortgage Settlement or the 

California Homeowner Bill of Rights, 

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245 Kristopher Gerardi, et al., Do Borrower Rights 

Improve Borrower Outcomes? Evidence from the 

Foreclosure Process (Fed. Reserve Bank of Atlanta 

Working Paper 2011–16, 2011). 

246The authors find that judicial foreclosure 

extends the timeline to foreclosure. In 

Massachusetts, however, delays created by the 

right-to-cure period were compensated for with 

faster action in other parts of the foreclosure 

process, with no overall effect on the foreclosure 

timeline. 

247The differing requirements for various 

timelines provide benefits and costs to covered 

persons. For a borrower who has not yet met a 

deadline, each deadline provides benefits both in 

the form of protections for the borrower. Depending 

on the timeline, a borrower will have the benefit of 

time to research loss mitigation options, assemble 

a loss mitigation application, benefit from the right 

to appeal a decision and benefit from certain 

disclosure from the servicer about the status of their 

application as well as information about the final 

decision. However, once a deadline has passed, 

such deadline may be a cost for a borrower in that 

a servicer may decide to no longer offer an option, 

whereas in the absence of any deadline they may 

have continued to offer such option. 

248The notice must also state all loan 

modification options for which the servicer 

considered and denied the borrower. 

249That is to say, borrowers are offered one loss 

mitigation alternative to accept or reject; and if they 

reject the alternative, they may be offered another 

one instead of proceeding to foreclosure sale. 

Bureau outreach indicates that options are generally 

presented sequentially. Further, the Bureau 

received comments indicating that borrowers are 

frequently evaluated for and presented with home 

retention options (if they qualify) before being 

considered for non-retention options. 

250Even without delay between offers, certain 

borrowers may be less assertive in asking to see 

additional options or may not be clear on whether 

they can return to rejected options after seeing 

subsequent ones. Simultaneous presentation of 

offers removes these problems as well. 

251The financial gain to the borrower would 

therefore be a transfer payment. The consideration 

of benefits and costs discusses transfer payments 

when they are significant and informative about the 

rule. 

252 In other words, the options that a servicer 

would present simultaneously to a borrower may 

differ from the options the servicer would present 

to the same borrower as she sequentially rejects 

options. 

253One comment from industry stated that 

borrowers may be confused or discouraged when all 

options (retention and non-retention) are presented 

simultaneously and may stop communicating with 

the servicer. This commenter also stated that the 

servicer would also have to request a more 

expansive list of documents for review and this 

could slow down the initiation of the review 

process. 

the appeals process under § 1024.41 

does not result in any benefits or costs. 

The Bureau received one comment 

from a law firm that argued that an 

appeals process is unnecessary. The 

commenter argues that second review is 

unnecessary because penalties in 

existing federal guidelines (like those 

for HAMP) compel proper processing of 

loss mitigation applications. The Bureau 

notes that guidelines for administering 

federal programs, some of which will 

expire, have direct influence only on 

participating servicers and only for as 

long as the program exists. The evidence 

on servicer performance presented 

above and the basic analysis of servicer 

incentives suggest that guidelines are at 

best an uneven and temporary substitute 

for an evaluation process mandated by 

a rule and that a second evaluation may 

provide additional consumer benefits. 

The same commenter argued that an 

appeals process would not benefit 

borrowers. The commenter cites 

research that in the view of the 

commenter shows that an appeals 

process would most likely just delay 

foreclosure.245 The research shows that, 

controlling for numerous characteristics, 

cure rates for seriously delinquent 

borrowers are the same in both judicial 

foreclosure states and power-of-sale 

states; and cure rates in Massachusetts 

were unaffected after the passage of a 

law that provided a 90 day ‘‘right-tocure’’ period for borrowers whose 

lenders initiated foreclosure 

proceedings on or after May 1, 2008.246

The Bureau recognizes the analytical 

strengths of the cited study. However, 

the Bureau questions the applicability of 

this research to predicting the impact of 

the appeals process provided for by 

§ 1024.41. The simple halt to 

foreclosures in Massachusetts, which 

does not appear to have been coupled 

with mandates for review, is a poor 

analogy to the new appeals process in 

the rule. The lack of an effect on cure 

rates in judicial foreclosure states may 

be more analogous, since judicial review 

is likely to be at least as protective of 

consumers as an appeals process. Thus 

the research suggests that an appeals 

process would not have an effect on 

cure rates since judicial review did not. 

First, it bears note that the costs of 

judicial foreclosure are likely far greater 

than the costs of the appeals process in 

the final rule. Assuming a borrower 

takes 14 days to accept or reject a loss 

mitigation option received on appeal, 

the entire appeals process could add as 

little 15 days (or as many as 44 days, 

depending on the servicer). The costs of 

preparing a loss mitigation application 

for reconsideration are likely small 

since the borrower has already incurred 

the greater cost of initial submission of 

the application. Further, the researchers 

discuss the substantial methodological 

difficulties (some of which they 

overcome) in isolating the causal effect 

of the additional protections in judicial 

foreclosure states. Overall, the Bureau 

believes that an appeals process may 

benefit borrowers by provide some 

borrowers with more options for loss 

mitigation, that some of these borrowers 

will avoid foreclosure as a result, and 

that the costs of this process are likely 

to be small. 

Consideration for All Alternatives for 

Which Borrowers Are Eligible 

The Bureau’s loss mitigation 

provisions require the servicer to 

evaluate complete loss mitigation 

applications submitted by certain 

deadlines 247 for all loss mitigation 

options available to the borrower and to 

provide all of the loss mitigation options 

that the servicer intends to offer the 

borrower on a single notice.248 The 

Bureau believes that in contrast to the 

process provided for under § 1024.41, 

current practice is closer to a sequential 

presentation of loss mitigation offers.249

When options are presented 

sequentially, especially if there is some 

delay between offers, borrowers must 

choose or reject an option without 

knowing whether the incremental 

benefit of an unknown later offer would 

justify the delay. By contrast, the Bureau 

believes that borrowers are likely to 

choose and therefore have a greater 

likelihood of obtaining the most 

beneficial loss mitigation option 

available when all of the available 

options are presented simultaneously. 

When options are presented 

simultaneously, both the delay between 

offers and the uncertainty about future 

offers are eliminated.250 The 

requirement for simultaneous 

presentation of offers under § 1024.41 is 

therefore likely to result in a benefit to 

borrower and an offsetting loss to 

investors.251

A more difficult question is the extent 

to which investors or servicers may 

change the offers (perhaps by changing 

the rules in loss mitigation waterfalls) as 

a result of having to present options 

simultaneously instead of 

sequentially.252 The fact that servicers 

choose to present options sequentially 

when they could present all options at 

once suggests that servicers achieve 

better outcomes for themselves or 

investors when they present options 

sequentially. However, the Bureau 

acknowledges that it is difficult to 

predict how the set of alternatives over 

which borrowers decide may change in 

response to the rule. Further, the Bureau 

acknowledges that some borrowers— 

who might be confused by simultaneous 

presentation of offers and make poor 

choices or no choices—will achieve 

better outcomes when options are 

presented sequentially. Such borrowers 

are especially likely to benefit from 

sequential presentation if they are 

presented with the offer most beneficial 

to them first; however, servicers may 

not present this offer first.253

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254The Bureau received one comment from a 

housing finance agency that noted that the 

proposed Dodd-Frank Act section 1022(b)(2) 

analysis did not discuss the costs and benefits of 

proposed § 1024.41(j) regarding other liens. The 

final rule does not include this provision. 

255See Office of the Comptroller of Currency, 

Release 2012–178, OCC Mortgage Metrics Report, 

Third Quarter 2012, at 22 Tbl. 12 (2012). 

256Even assuming none of the approximately 373 

insured depositories and credit unions with assets 

between $1 billion and $10 billion qualify for the 

exemption, it would still be true that over 94 

percent of insured depositories and credit unions 

with $10 billion or less in total assets would qualify 

for the exemption. 

The Bureau acknowledges these 

concerns and the complexity of the 

general problem over which process 

provides consumers with greater 

benefits. However, the Bureau believes 

that the final rule creates requirements, 

such as the continuity of contact 

requirement and housing counselor 

information contained in the written 

early intervention notice, that reduce 

the likelihood that borrowers will be 

confused by simultaneous presentation 

of loss mitigation options. The Bureau 

believes that the ability of borrowers to 

make better decisions over the 

alternatives they are offered is likely to 

dominate any negative consequences 

from changes to the set of alternatives 

over which they decide as a result of the 

rule. 

Potential benefits and costs to covered 

persons. Servicers currently incur costs 

associated with the requirements 

regarding loss mitigation. The Bureau 

has structured the timelines for 

borrowers to submit complete loss 

mitigation applications, and for 

servicers to evaluate loss mitigation 

applications, consistently with the 

National Mortgage Settlement, the 

California Homeowner Bill of Rights, 

and requirements currently imposed on 

servicers that service mortgage loans for 

the GSEs or government lending 

programs. Servicers that service 

mortgage loans subject to investor or 

guarantor loss mitigation requirements, 

such as requirements imposed by 

Fannie Mae, Freddie Mac, and Ginnie 

Mae, or servicers subject to regulatory 

consent orders or the national mortgage 

settlement, must already comply with 

policies regarding evaluation for a loss 

mitigation option. 

Regarding dual tracking, as discussed 

above, the Bureau has provided 

servicers with valuable flexibility by 

requiring only a limited prohibition on 

referral to foreclosure. After 120 days of 

delinquency, servicers may initiate the 

foreclosure process unless they receive 

a complete loss mitigation application 

before they do so. Once they have so 

initiated foreclosure, they may continue 

with the foreclosure process even while 

the loss mitigation application is under 

review. This allows servicers to quickly 

recover the capital that remains should 

the prohibition on foreclosure sale be 

lifted. 

Regarding the appeals process, the 

Bureau believes that some servicers 

already operate in a manner that meets 

the requirement in the rule. The 

National Mortgage Settlement and the 

California Homeowner Bill or Rights 

have an appeals process related to 

denials of loan modifications. For 

servicers that currently do not meet the 

rule’s requirement, coming into 

compliance will likely entail moderate 

costs. The cost to the servicer of 

readying a loss mitigation application 

for review (e.g., verifying all required 

documents are in the file, possibly 

creating electronic files or entering 

borrower information into software) 

should be less expensive for an appeal 

than for initial review. Further, 

assuming the borrower takes 14 days to 

accept or reject a loss mitigation option 

received on appeal, the servicer 

determines whether the full process 

takes 15 days or 44 days. On the other 

hand, servicers will also have to provide 

borrowers with continuity of contact 

during the appeal.254

The requirement to evaluate 

borrowers for all loss mitigation options 

available to the borrower will also 

impose costs on servicers. The Bureau 

recognizes that servicers generally do 

not evaluate borrowers for all loss 

mitigation options simultaneously. 

Thus, there will be an incremental cost 

arising from the cases in which the 

servicer and borrower would currently 

agree on an option and stop reviewing 

additional options. Based on industry 

comments, the Bureau believes that 

these additional options are likely to be 

short sale or other non-retention 

options. Thus, the number of borrowers 

who receive a home retention option in 

each year provides an estimate of the 

number of borrowers who will be 

evaluated for a non-retention option 

because of the rule. One large database 

of first-lien residential mortgages reports 

approximately 380,000 home retention 

options in the third quarter of 2012.255

However, it is not possible to determine 

what the cost to servicers would be of 

evaluating these homeowners for the 

additional options. 

G. Potential Specific Impacts of the 

Final rule 

1. Depository Institutions and Credit 

Unions With $10 Billion or Less in Total 

Assets, as Described in Dodd-Frank 

Section 1026 

Of the major provisions in this 

rulemaking, all insured depository 

institutions and credit unions with $10 

billion or less engaged in servicing 

mortgage loans must comply with the 

provisions regarding error resolution 

(§ 1024.35), requests for information 

(§ 1024.36), and force-placed insurance 

(§ 1024.37). However, servicers that 

service 5,000 mortgage loans or less, and 

only service mortgage loans the servicer 

or an affiliate owns or originated, are 

exempt from all of the provisions in 

§§ 1024.38 through .41 (with a minor 

exception). The Bureau estimates that 

about 97 percent of insured depositories 

and credit unions with $10 billion or 

less in total assets service 5,000 

mortgage loans or less. Some of these 

institutions may not qualify for the 

exemption because they may service 

some loans that they neither own nor 

originated. However, the Bureau 

believes that servicers that service loans 

that they neither own nor originated 

tend to service more than 5,000 loans, 

given the returns to scale in servicing 

technology. Thus, the Bureau believes 

that 97 percent of insured depositories 

and credit unions with $10 billion or 

less in total assets are likely to be 

exempt from §§ 1024.38 through .41, 

with a minor exception.256

Regarding §§ 1024.35 and 1024.36, the 

Bureau believes that the consideration 

of benefits and costs of covered persons 

presented above provides a largely 

accurate analysis of the impacts of the 

final rule on depository institutions and 

credit unions with $10 billion or less in 

total assets. The new written processes 

for error resolution and information 

requests have a broader scope and 

shorter timelines for response than the 

existing qualified written request 

process. However, as discussed above, 

the Bureau believes that the 

convenience of informal processes for 

asserting errors or requesting 

information, like email and phone calls, 

will limit the costs of these provisions 

to these institutions. 

A number of credit unions and their 

trade associations commented that 

credit unions with under $10 billion in 

assets should be exempt from the 

provisions in §§ 1024.35 and .36. The 

commenters stated that these credit 

unions already effectively communicate 

with their members regarding requests 

for information and assertions of error. 

This comment was discussed above. 

Regarding § 1024.37, the larger 

depositories and credit unions of those 

under $10 billion generally have 

contracts with force-placed insurance 

providers under which the providers 

would absorb the costs of the 

provisions. Thus, the Bureau believes 

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257For purposes of assessing the impacts of the 

final rule on small entities, ‘‘small entities’’ is 

defined in the RFA to include small businesses, 

small not-for-profit organizations, and small 

government jurisdictions. 5 U.S.C. 601(6). A ‘‘small 

business’’ is determined by application of Small 

Business Administration regulations and reference 

to the North American Industry Classification 

Continued 

there is little impact of the provisions 

on these institutions. For smaller 

depository institutions or credit unions, 

the Bureau believes that providers may 

pass along certain costs to such 

institutions. The impact of these 

provisions on small depository 

institutions and credit unions, including 

a discussion of input from Small Entity 

Representatives in the Small Business 

Review Panel process, is discussed in 

further detail in the Regulatory 

Flexibility Analysis in part VIII, below. 

Based on feedback received from the 

Small Entity Representatives, the 

Bureau believes that small mortgage 

servicers engage in relatively little forceplacement. 

As discussed above, the Bureau 

believes that about 97 percent of insured 

depositories and credit unions with $10 

billion or less in total assets are likely 

to be exempt from §§ 1024.38 through 

.41, with a minor exception. Of the 

small fraction that must comply, they 

will most likely be the relatively larger 

servicers that have substantial 

experience servicing loans for Fannie 

Mae, Freddie Mac, FHA, or the VA. 

Thus, they should already have policies 

and procedures and resources dedicated 

to complying with their requirements 

and there is substantial overlap between 

those requirements and the 

requirements of the rule. Compliance 

with the Bureau’s final rule may entail 

costs of adjustment and costs for 

extending compliance to other loans in 

the servicing portfolio. However, the 

Bureau notes that 80 percent of all 

outstanding mortgages are guaranteed 

by one of these institutions, larger 

servicers use technology and specialized 

inputs that provide economies of scale 

in servicing, and larger servicers may 

also be able to shift certain costs to 

vendors. Overall, the Bureau believes 

that few financial service providers are 

likely to increase fees and charges or 

reduce servicing activity as a result of 

these additional costs to an extent that 

they significantly reduce consumer 

access to credit. 

Finally, the Bureau notes that one 

comment letter from a bank trade 

association indicated that the Bureau’s 

section 1022 analysis in the proposal 

did not adequately identify the types of 

costs or the amounts of those costs that 

banks would incur as part of the 

servicing rulemakings. The Bureau, 

however, disagrees that the 

requirements in the final rule, especially 

in light of the exemptions in §§ 1024.38 

through .41, require changes on the 

scale described by the commenter 

relating to technology-related projects 

preformed by vendors. As described 

above, the small fraction of insured 

depositories and credit unions that must 

comply with all provisions of the final 

rule will most likely be the relatively 

larger servicers that have substantial 

experience servicing loans for Fannie 

Mae, Freddie Mac, FHA, or the VA. 

Thus, they should already have policies 

and procedures and resources dedicated 

to complying with their requirements, 

and there is substantial overlap between 

those requirements and the 

requirements of the rule. 

2. Impact of the Provisions on Consumer 

Access to Credit and on Consumers in 

Rural Areas 

The Bureau believes that the 

additional costs on servicers from the 

final rule are not likely to be extensive 

enough to significantly reduce 

consumer access to credit. The 

exemption of small servicers from many 

provisions of the final rule will help 

maintain consumer access to credit 

through these providers. Finally, the 

Bureau believes that the provisions that 

support the proper evaluation of 

borrowers for loss mitigation options 

may reduce the frequency with which 

borrowers are denied loan 

modifications, and thus access to credit. 

All servicers will need to comply with 

the provisions regarding error resolution 

and requests for information and most 

of the provisions regarding force-placed 

insurance. The Bureau believes that the 

procedures regarding error resolution 

and requests for information are similar 

enough to those regarding qualified 

written requests that the additional onetime and ongoing costs will be small. 

The Bureau recognizes that the 

provisions regarding force-placed 

insurance policies likely impose onetime costs for new disclosures and may 

entail new procedures (e.g., regarding 

the renewal notice). However, servicers 

obtain force-placed insurance on very 

few loans and small servicers may 

purchase force-placed insurance and 

charge the cost of the insurance to the 

borrower if the cost to the borrower of 

the force-placed insurance is less than 

the amount the small servicer would 

need to disburse from the borrower’s 

escrow account to ensure that the 

borrower’s hazard insurance premium is 

paid in a timely manner. 

Small servicers are exempt from all of 

the provisions in §§ 1024.38 through 

.41, with a minor exception. The Bureau 

believes that most of the remaining, 

larger servicers have substantial 

experience servicing loans for Fannie 

Mae, Freddie Mac, FHA, or the VA. 

Thus, they should already have policies 

and procedures and resources dedicated 

to complying with their requirements 

that overlap with the requirements 

regarding general servicing policies, 

procedures and requirements, early 

intervention with delinquent borrowers, 

continuity of contact and loss 

mitigation. Compliance with the 

Bureau’s final rule may entail costs of 

adjustment and costs for extending 

compliance to other loans in the 

servicing portfolio. However, the Bureau 

notes that 80 percent of all outstanding 

mortgages are guaranteed by one of 

these institutions, larger servicers use 

technology and specialized inputs that 

provide economies of scale in servicing, 

and larger servicers may also be able to 

shift certain costs to vendors. Overall, 

the Bureau believes that few financial 

service providers are likely to increase 

fees and charges or reduce servicing 

activity as a result of these additional 

costs to an extent that they significantly 

reduce consumer access to credit. 

Consumers in rural areas may 

experience impacts from the final rule 

that are different in certain respects 

from the benefits experienced by 

consumers in general. Consumers in 

rural areas may be more likely to obtain 

mortgages from small local banks and 

credit unions that either service the 

loans in portfolio or sell the loans and 

retain the servicing rights. These 

servicers may already provide most of 

the benefits to consumers that the final 

rule is designed to provide. These 

servicers will benefit from the 

exemptions to the discretionary 

rulemakings by not incurring the costs 

associated with documenting 

compliance or modifying activities that 

the Bureau believes already provide 

substantial consumer protections. 

Borrowers in turn benefit, either as 

mortgagees or as customers at these 

insured depositories and credit unions, 

through lower fees and continued access 

to a lending and servicing model that 

they prefer. 

VIII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

generally requires an agency to conduct 

an initial regulatory flexibility analysis 

(IRFA) and a final regulatory flexibility 

analysis (FRFA) of any rule subject to 

notice-and-comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities.257 The Bureau 

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System (NAICS) classifications and size standards. 

5 U.S.C. 601(3). A ‘‘small organization’’ is any ‘‘notfor-profit enterprise which is independently owned 

and operated and is not dominant in its field.’’ 5 

U.S.C. 601(4). A ‘‘small governmental jurisdiction’’ 

is the government of a city, county, town, township, 

village, school district, or special district with a 

population of less than 50,000. 5 U.S.C. 601(5). 

258 5 U.S.C. 609. 

259See U.S. Small Bus. Admin., Table of Small 

Business Size Standards Matched to North 

American Industry Classification System Codes 

(Oct. 1, 2012) available at http://www.sba.gov/ 

content/table-small-business-size-standards. (‘‘SBA 

Size Standards’’). 

260 77 FR 57200, 57285–57286 (Sept. 17, 2012). 

261See U.S. Consumer Fin. Prot. Bureau, U.S. 

Small Bus. Admin., & Office of Mgmt. & Budget, 

Final Report of the Small Business Review Panel on 

CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (2012) (‘‘Small Business 

Review Panel Report’’), available at http:// 

www.regulations.gov/#!documentDetail;D=CFPB2012-0033-0002. 

262 77 FR 57200, 57286–57292 (Sept. 17, 2012). 

263These rulemakings are the general servicing 

standards sections, the early intervention with 

delinquent borrowers requirement, the continuity of 

contact with delinquent borrowers requirement, 

and the loss mitigation procedures; however, 

regarding the loss mitigation procedures, these 

servicers are required to comply with (1) the 

prohibition on making the first notice or filing 

required for a foreclosure process unless a borrower 

is more than 120 days delinquent and (2) a 

prohibition on proceeding with a foreclosure sale 

when a borrower is performing pursuant to the 

terms of a loss mitigation agreement. 

also is subject to certain additional 

procedures under the RFA involving the 

convening of panel to consult with 

small business representatives prior to 

proposing a rule for which an IFRA is 

required.258

An entity is considered ‘‘small’’ if it 

has $175 million or less in assets for the 

banks, and $7 million or less in revenue 

for non-bank mortgage lenders, 

mortgage brokers, and mortgage 

servicers.259 The Bureau did not certify 

that the rule would not have a 

significant economic impact on a 

substantial number of small entities. 

Thus, the Bureau convened a Small 

Business Review Panel to obtain advice 

and recommendations of representatives 

of the regulated small entities. The 2012 

RESPA Servicing Proposal preamble 

included detailed information on the 

Small Business Review Panel.260 The 

Panel’s advice and recommendations 

are found in the Small Business Review 

Panel Final Report; 261 several of these 

recommendations were incorporated 

into the proposed rule. The 2012 RESPA 

Servicing Proposal preamble also 

included a discussion of each of the 

panel’s recommendations in the sectionby-section analysis for the proposed 

rule. 

In the 2012 RESPA Servicing 

Proposal, the Bureau did not certify that 

the rule would not have a significant 

economic impact on a substantial 

number of small entities and therefor 

prepared an IRFA.262 In the IRFA, the 

Bureau solicited comment on alternative 

means of compliance for small servicers 

with the proposed error resolution 

procedures and on whether the 

proposed rule would have any impact 

on the cost of credit for small entities. 

The Bureau did not receive comments 

in response to these requests. Elsewhere 

in the proposal, the Bureau sought 

comment on the small servicer 

exemption, specifically if a small 

servicer exemption should be 

established for any provisions of the 

proposed rules. These comments are 

addressed in the section-by-section 

analysis of each provision. 

As discussed above, the Bureau is 

exempting servicers that service 5,000 

mortgage loans or less, all of which the 

servicer or an affiliate owns or 

originated, from most of the 

requirements in §§ 1024.38 through .41. 

The Bureau also exempts small servicers 

in certain circumstances from the 

restriction described in § 1024.17(k)(5) 

that if borrower has an escrow account 

for hazard insurance, a servicer may not 

purchase force-placed insurance where 

the servicer could advance funds to the 

borrower’s escrow account to ensure 

timely payment of the borrower’s hazard 

insurance premium charges.263 The 

Bureau believes that these exemptions 

remove a significant amount of the total 

compliance burden of the final rule that 

would otherwise fall on small servicers 

(as defined by the RFA). However, due 

to limited data with which to compute 

the remaining compliance burden on 

small servicers (as defined by the RFA), 

the Bureau is not certifying that the final 

rule will not have a significant 

economic impact on a substantial 

number of small entities. Accordingly, 

the Bureau has prepared the following 

final regulatory flexibility analysis as 

required under section 604 of the RFA. 

1. A Statement of the Need For, and 

Objectives of, the Rule 

The Bureau is publishing this final 

rule to establish new regulatory 

protections for borrowers related to 

mortgage servicing. This rule is needed 

for the reasons discussed above in both 

the overview, the section-by-section 

analysis, and the Dodd-Frank Act 

section 1022(b) analysis above. The final 

rule amends Regulation X, among other 

things, to implement amendments to 

RESPA that were added by section 1463 

of the Dodd-Frank Act to address harms 

related to mortgage servicing. Section 

1463 of the Dodd-Frank Act requires 

servicers to provide new disclosures 

and to meet other standards with 

respect to on force-placed insurance, 

and it establishes obligations for 

servicers to respond to requests from 

borrower to correct errors or to provide 

certain information. Section 1463 of the 

Dodd-Frank Act also authorizes the 

Bureau, by regulation, to impose other 

obligations on servicers that the Bureau 

finds appropriate to carry out the 

consumer protection purposes of 

RESPA. 

The amendments to Regulation X are 

intended to protect consumers by 

addressing seven servicer obligations: 

To correct errors asserted by mortgage 

loan borrowers; to provide information 

requested by mortgage loan borrowers; 

to meet certain procedural and other 

requirements regarding force-placed 

insurance; to maintain general servicing 

policies and procedures designed to 

achieve certain objectives; to engage in 

early intervention with delinquent 

borrowers; to provide delinquent 

borrowers with continuity of contact 

with servicer personnel who have 

access to the borrower’s mortgage loan 

account; and to evaluate borrowers’ 

applications for available loss mitigation 

options. These final rules also modify 

and streamline certain existing 

servicing-related provisions of 

Regulation X, including servicer 

requirements to provide disclosures to 

borrowers in connection with a transfer 

of mortgage servicing and to manage 

escrow accounts. These revisions 

include provisions on timely 

disbursements to maintain hazard 

insurance, and to return amounts in an 

escrow account to a borrower upon 

payment in full of a mortgage loan. 

This rulemaking has multiple 

objectives. The provisions on error 

resolution require servicers promptly to 

correct errors, to conduct a reasonable 

investigation and to provide the 

borrower with a written notice. The 

provisions on requests for information 

requires servicers promptly to provide 

the information requested or to conduct 

a reasonable search for the information 

and provide the borrower with a notice 

stating, among other things, that the 

information is not available to the 

servicer. The provisions on force-placed 

insurance are intended to avoid 

unwarranted costs and fees in 

connection with force-placed insurance. 

The provisions prohibit servicers from 

charging borrowers for force-placed 

insurance unless they have a reasonable 

basis to believe the borrower has failed 

to maintain hazard insurance on the 

property, require that charges related to 

force-placed insurance be bona fide and 

reasonable, and impose obligations on 

servicers to promptly cancel force-place 

insurance upon a demonstration that the 

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264The commenter does not define small servicer, 

but the commenter does request that the Bureau 

revise the loan threshold in § 1026.41(e)(4) to 

10,000. The Bureau notes that about 200 insured 

depositories and credit unions service over 10,000 

loans and others service some loans for others. 

265The Bureau is also exempting these servicers 

from the amendment to § 1024.17(k)(5) requiring 

that a servicer advance funds to an escrow account 

when a borrower is more than 30 days delinquent. 266None of the approximately 178 insured 

depositories and credit unions that the Bureau 

estimates service between 5,001 and 10,000 loans 

would qualify for the exemption. On the other 

hand, for reasons discussed below, the Bureau 

believes that all of the insured depositories and 

credit unions that service 5,000 loans or less will 

qualify for the exemption. 267This point was made briefly in the proposed 

Section 1022 analysis (see 77 FR 57200, at 57369 

(Sept.17, 2012) and is discussed further in the final 

Section 1022 analysis. 

borrower has hazard insurance in place 

and refund the borrower for force-place 

premiums for periods of duplicative 

coverage. These provisions will reduce 

instances of servicers charging 

borrowers for force-placed insurance 

they do not need or charging more than 

is or charging more than is bona fide 

and reasonable. 

The provisions on general servicing 

standards are intended to address widespread problems reported across the 

mortgage servicing industry. The 

provisions require servicers to maintain 

policies and procedures reasonably 

designed to achieve the objectives 

relating to accessing and providing 

accurate information; properly 

evaluating loss mitigation applications; 

facilitating oversight of, and compliance 

by, service providers; facilitating 

transfer of information during servicing 

transfers; and informing borrowers of 

written error resolution and information 

request procedures. Compliance also 

requires servicers to retain records for a 

specified time period and maintain 

certain documents and data in a manner 

that facilitates compiling the documents 

and data into a servicing file within five 

days. 

The provisions on early intervention 

with delinquent borrowers are intended 

to spur communication between 

servicers and borrowers early in a 

borrower’s delinquency in order to 

facilitate borrower’s avoidance of 

foreclosure. Early intervention will also 

likely benefit borrowers by reducing 

avoidable interest costs, limiting the 

impact on borrowers’ credit reports, and 

facilitating household budgeting and 

planning. 

The provisions on continuity of 

contact are intended to ensure that 

servicer personnel with access to 

information about a delinquent 

borrower are made available to the 

borrowers so that they can appropriately 

assist the borrower in exploring loss 

mitigation options. 

Finally, the provisions on loss 

mitigation are intended to facilitate the 

review of borrowers for loss mitigation 

options. The provisions require 

servicers to undertake certain duties in 

connection with the evaluation of 

borrower applications for loss 

mitigation options. These servicers must 

evaluate any borrower who submits an 

application for all loss mitigation 

options available to the borrower and 

meet timelines with respect to the 

review process. The provisions further 

impose a foreclosure ban during the first 

120 days after delinquency and impose 

timelines for the review of a timely 

submitted complete loss mitigation 

application. The provisions also provide 

borrowers with the right to appeal a 

servicer’s denial of a complete loss 

mitigation application in certain 

circumstances. 

2. Summary of Significant Issues Raised 

by Comments in Response to the Initial 

Regulatory Flexibility Analysis 

In accordance with section 3(a) of the 

RFA, the Bureau prepared an IRFA. In 

the IFRA, the Bureau estimated the 

possible compliance costs for small 

entities with respect to each major 

component of the rule against a prestatute baseline. The Bureau requested 

comments on the IRFA. An industry 

association submitted a comment letter 

that refers in passing to the Regulatory 

Flexibility Analysis. The comment 

raises three significant issues regarding 

the impact of the proposed rule on RFA 

small servicers. First, the commenter 

states that it would not be effective 

public policy to require servicers 

smaller than those in the top-50 to incur 

the costs of complying with the 

proposed rule. The commenter observes 

that the top-50 servicers service 80 

percent of outstanding mortgage loans 

and compliance with the rule would 

impose significant costs on the well 

over 12,000 servicers that service the 

remaining 20 percent. The commenter 

states that the costs imposed on these 

12,000 servicers would be 

disproportionate to their share of the 

market. Second, the commenter stated 

that neither the proposed Dodd-Frank 

Act section 1022 analysis nor the IRFA 

adequately identifies the types of costs 

or the amount of those costs that bank 

servicers will incur as a result of the 

servicing rulemakings. Third, the 

commenter states that given the 

servicing performance of community 

banks and the incentives that drive their 

high level of customer service, there is 

no demonstrated need to apply to 

‘‘small servicers’’ those elements of the 

proposal that are not required by the 

Dodd-Frank Act.264

As discussed above in the Dodd-Frank 

Act section 1022 analysis and the 

section-by-section analysis, the Bureau 

recognizes that servicers that service 

relatively few loans, all of which they 

either originated or hold on portfolio, 

may have stronger incentives than other 

servicers to ensure loan performance or 

maintain a strong reputation in their 

local communities. Further, the Bureau 

understands the many small servicers, 

including the Small Entity 

Representatives, use a business model 

that involves frequent, intensive 

consumer contact, both to ensure loan 

performance and maintain a strong 

reputation in their local communities. 

In light of these favorable incentives, 

and to preserve access to small 

servicers, the Bureau is exempting 

servicers that service 5,000 mortgage 

loans or less, all of which the servicer 

or an affiliate owns or originated, from 

most of the requirements under sections 

§§ 1024.38 to 41.265 The Bureau 

estimates that 98 percent of insured 

depositories and credit unions that 

service 10,000 loans or less (i.e., the 

ones that service 5,000 loans or less), all 

of which the servicer or an affiliate 

owns or originated, will qualify for the 

exemption.266 Thus, the Bureau believes 

that the exemption in the final rule 

provides an outcome that is largely 

consistent with the outcome the 

commenter recommends. 

Regarding the specific comments, the 

Bureau notes that the consequences of 

compliance costs for covered persons 

depend on the size of these costs 

relative to other costs and the ability of 

covered persons to absorb or shift these 

costs. The consequences for consumers 

depend on these factors as well as the 

improvements in products and services 

from compliance by servicers. These 

consequences are not summarized by 

the share of aggregate costs imposed on 

a particular segment. The Bureau also 

notes that the fact that a large number 

of small servicers will require new and 

revised disclosures means that each 

vendor will likely spread the one-time 

costs of developing and validating 

disclosures over a large number of 

servicers.267

Second, the proposed Dodd-Frank Act 

section 1022 analysis and IRFA both 

briefly described the one-time and 

ongoing costs that bank servicers would 

incur as part of the servicing 

rulemaking. Both also provided limited 

quantification of the costs attributable to 

the rule, from a pre-statutory baseline, 

in light of the limited amount of data 

that was reasonably available. As 

discussed in the final Dodd-Frank Act 

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268See part VII.B and the consideration of costs 

to covered persons from the revised § 1026.20(c) 

notice in part VII.D.1. 

269See Press Release, Consumer Fin. Prot. 

Bureau, Consumer Financial Protection Bureau 

Proposes Rules to Protect Mortgage Borrower (Aug. 

10, 2012) available at http:// 

www.consumerfinance.gov/pressreleases/consumerfinancial-protection-bureau-proposes-rules-toprotect-mortgage-borrowers/. 

270See e.g., Nat’l Ass’n of Fed. Credit Unions, 

CFPB Proposes Mortgage Servicing Rule Changes, 

(Aug. 12, 2012), (‘‘NAFCU Compliance Blog’’) 

available at http://www.nafcu.org/News/ 

2012_News/August/ 

CFPB_proposes_mortgage_servicing_rule_changes/. 

section 1022 analysis, the Bureau does 

not believe that the changes required of 

servicers in this rulemaking would 

impose the types of costs that the 

commenter describes.268

Finally, as discussed above, the 

Bureau carefully considered how to 

define small servicers for purposes of 

the exemption. The Bureau concluded 

after analysis of data that is reasonably 

available that the 5,000 mortgage loan 

threshold, coupled with the requirement 

to service only loans owned or 

originated, provides a reasonable 

balance between the goal of including a 

substantial number of servicers that 

make loans in their local communities 

or more generally have incentives to 

provide high levels of customer contact 

and information and excluding servicers 

that use a different business model. The 

Bureau further believes that it is 

appropriate for a definition of small 

servicers, for purposes of an exemption 

to servicing rules, to include conditions 

specifically associated with the 

incentives and business model of 

servicers, such as owning or originating 

all loans. 

The Bureau received numerous 

comments describing in general terms 

the impact of the proposed rule on small 

servicers and the need for exemptions 

for small servicers from various 

provisions of the proposed rule. These 

comments, and the responses, are 

discussed in the section-by-section 

analysis above, and element 6–1 of this 

FRFA below. 

3. Response to the Office of Advocacy 

of the Small Business Administration 

Comment 

The Office of Advocacy at the Small 

Business Administration (Advocacy) 

provided a formal comment letter to the 

Bureau in response to the proposed 

rules on mortgage servicing. Among 

other things, this letter expressed 

concern about the following issues: 

Inadequate notice of the proposed rules, 

providing notice of information within 

5 days, and the effective date of the 

regulation. 

First, Advocacy expressed concern 

that small entities did not have adequate 

notice of the proposed rules, because 

although the proposed rules were 

posted on the Bureau Web site on 

August 10, 2012 the rules were not 

published in the Federal Register until 

September 17, 2012. Advocacy was 

concerned that small entities who rely 

on the Federal Register for notice of 

proposed rules did not have sufficient 

time to prepare comments in response 

to the proposed rule. 

The Bureau believes that small 

entities were given adequate notice and 

had a full opportunity to comment on 

the proposed rule. The proposed 

servicing rules were press released and 

issued on the Bureau Web site a full 60 

days before the close of the comment 

period.269 The Bureau engaged in 

outreach to industry and other members 

of the public. Further, the Bureau 

believes that due to the recent attention 

on the industry, including the National 

Mortgage Settlement and the market 

changes, small entities were aware that 

the Dodd-Frank Act mandated changes 

to the servicing industry and that 

proposed rules would be forthcoming 

from the Bureau, particularly as trade 

associations have taken an active role in 

the rulemaking. The Bureau believes 

such trade associations helped to inform 

small entities of the proposed 

rulemaking.270 In light of the foregoing, 

the Bureau believes that small entities 

were given adequate notice of the 

proposed rules, as evidenced by the 

number of small entities who submitted 

formal comments. 

Second, Advocacy expressed concern 

about the requirement that servicers 

provide a written notice and 

documenting compliance under the 

alternative compliance mechanism for 

information requests where a servicer 

responds to a request for information 

within five days. The concern is about 

unnecessary procedures being triggered 

when a request for information has 

already been resolved. 

The Bureau agrees that if a borrower 

requests information and is quickly 

provided the answer, additional 

procedures including notification that 

the request has been received may not 

be appropriate. The Bureau has 

restructured the requirement under the 

final rule that servicers adhere to 

information request requirements under 

§ 1024.36 with respect to oral notices of 

errors. Instead of the proposed 

prescriptive procedures, oral 

information requests and error 

notifications are addressed in § 1024.38, 

General Servicing Policies, Procedures 

and Requirements. Thus, the Bureau has 

provided servicers with more flexibility 

regarding responses to information 

requests. Under the final rule, if a 

borrower calls with a question and is 

given an answer, no further actions 

would be required. Additionally, if a 

borrower submits a written request for 

information, and the servicer provides a 

written response within five days, the 

servicer is not also required to send a 

separate written response notifying the 

borrower that the request was received. 

The Bureau believes these amendments 

to the rule address the Advocacy’s 

concern on this issue. 

Third, Advocacy encouraged the 

Bureau to provide Small Entity 

Representatives with a sufficient 

amount of time for them to comply with 

the requirements of the proposal, and 

expressed this could take 18–24 months. 

A complete discussion of the effective 

date is found in the Overview above. 

While the Bureau understands the new 

rules will take time to implement, the 

Bureau also believes that consumers 

should have the benefit of the additional 

protections as soon as practical. In light 

of the comments received, the Bureau 

believes that 12 months is an 

appropriate implementation period. 

This time period is consistent with (1) 

the period requested by the vast 

majority of comments, (2) outreach 

conducted by the Bureau during 

development of the proposed rule with 

vendors and systems providers 

regarding timeframes for updating core 

systems, and (3) the implementation 

period for other requirements imposed 

by the Dodd-Frank Act or regulations 

issued by the Bureau that may have 

other impact on creditors, assignees, 

and servicers. Further, the Bureau 

believes that an approximately 12 

month implementation period 

appropriately balances the needs of 

industry to appropriately adjust 

operations to implement the Final 

Servicing Rules with the goal of 

providing consumers the benefit of the 

protections implemented by the Final 

Servicing Rules as soon as practicable. 

4. A Description of and An Estimate of 

the Number of Small Entities to Which 

the Rule Will Apply 

As discussed in the Small Business 

Review Panel Report, for purposes of 

assessing the impacts of the proposed 

rule on small entities, ‘‘small entities’’ is 

defined in the RFA to include small 

businesses, small nonprofit 

organizations, and small government 

jurisdictions. 5 U.S.C. 601(6). A ‘‘small 

business’’ is determined by application 

of SBA regulations and reference to the 

North American Industry Classification 

System (NAICS) classifications and size 

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271The current SBA size standards are found on 

SBA’s Web site at http://www.sba.gov/content/ 

table-small-business-size-standards. 

272See SBA Size Standards. 

273Savings institutions include thrifts, savings 

banks, mutual banks, and similar institutions. 

274The Bureau has updated these figures from the 

Initial Regulatory Flexibility Analysis, which used 

December 2010 Call Report data as compiled by 

SNL Financial. 

standards.271 5 U.S.C. 601(3). Under 

such standards, banks and other 

depository institutions are considered 

‘‘small’’ if they have $175 million or less 

in assets, and for other financial 

businesses, the threshold is average 

annual receipts (i.e., annual revenues) 

that do not exceed $7 million.272

During the Small Business Review 

Panel process, the Bureau identified five 

categories of small entities that may be 

subject to the proposed rule for 

purposes of the RFA: Commercial 

banks/savings institutions 273 (NAICS 

522110 and 522120), credit unions 

(NAICS 522130), firms providing real 

estate credit (NAICS 522292), firms 

engaged in other activities related to 

credit intermediation (NAICS 522390), 

and small non-profit organizations. 

Commercial banks, savings institutions, 

and credit unions are small businesses 

if they have $175 million or less in 

assets. Firms providing real estate credit 

and firms engaged in other activities 

related to credit intermediation are 

small businesses if average annual 

receipts do not exceed $7 million. 

A small non-profit organization is any 

not-for-profit enterprise which is 

independently owned and operated and 

is not dominant in its field. Small nonprofit organizations engaged in mortgage 

servicing typically perform a number of 

activities directed at increasing the 

supply of affordable housing in their 

communities. Some small non-profit 

organizations originate and service 

mortgage loans for low and moderate 

income individuals while others 

purchase loans or the mortgage 

servicing rights on loans originated by 

local community development lenders. 

Servicing income is a substantial source 

of revenue for some small non-profit 

organizations while others receive most 

of their income from grants or 

investments. 

The following table provides the 

Bureau’s estimate of the number and 

types of entities to which the rule will 

apply: 

For commercial banks, savings 

institutions, and credit unions, the 

number of entities and asset sizes were 

obtained from December 2011 Call 

Report data as compiled by SNL 

Financial.274 Banks and savings 

institutions are counted as engaging in 

mortgage loan servicing if they hold 

closed-end loans secured by one to four 

family residential property or they are 

servicing mortgage loans for others. 

Credit unions are counted as engaging 

in mortgage loan servicing if they have 

closed-end one to four family mortgages 

in portfolio, or hold real estate loans 

that have been sold but remain serviced 

by the institution. 

For firms providing real estate credit 

and firms engaged in other activities 

related to credit intermediation, the 

total number of entities and small 

entities comes from the 2007 Economic 

Census. The total number of these 

entities engaged in mortgage loan 

servicing is based on a special analysis 

of data from the Nationwide Mortgage 

Licensing System and Registry (NMLS) 

and is current as of Q1 2011. The total 

equals the number of non-depositories 

that engage in mortgage loan servicing, 

including tax-exempt entities, except for 

those mortgage loan servicers (if any) 

that do not engage in any mortgagerelated activities that require a State 

license. The estimated number of small 

entities engaged in mortgage loan 

servicing is based on predicting the 

likelihood that an entity’s revenue is 

less than the $7 million threshold based 

on the relationship between servicer 

portfolio size and servicer rank in data 

from Inside Mortgage Finance. 

Non-profits and small non-profits 

engaged in mortgage loan servicing 

would be included under real estate 

credit if their primary activity is 

originating loans and under other 

activities related to credit 

intermediation if their primary activity 

is servicing. The Bureau has not been 

able to separately estimate the number 

of non-profits and small non-profits 

engaged in mortgage loan servicing. 

These non-profits may list loan 

servicing income on the IRS Form 990 

Statement of Revenue, but it is not 

possible to search public databases on 

non-profit entities according to what 

they list on the Statement of Revenue. 

The Bureau is exempting servicers 

that service 5,000 mortgage loans or 

less, all of which the servicer or an 

affiliate owns or originated, from most 

of the provisions in § 1024.38–41. The 

Bureau estimates that all but one 

insured depository or credit union that 

meets the SBA asset threshold will 

qualify for the exemption. The Bureau’s 

methodology for this estimate is 

straightforward in the case of credit 

unions. The credit union Call Report 

presents the number of mortgages held 

in credit union portfolios and the 

amount of assets. The Bureau could 

readily determine which credit union 

small servicers (as defined by the SBA 

asset threshold) serviced 5,000 mortgage 

loans or less. In contrast, the bank and 

thrift Call Report does not present the 

number of mortgages, only the aggregate 

unpaid principal balance, and the 

amount of assets. The Bureau developed 

estimates of the average unpaid 

principal balance at banks and thrifts of 


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10866 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

275For banks and thrifts with under $10 billion 

in assets, the Bureau calculated the average unpaid 

principal balance of portfolio mortgages by state for 

credit unions with less than $1 billion in assets and 

applied the state specific figures to these banks and 

thrifts. For banks and thrifts with over $10 billion 

in assets, the Bureau applied the OCC’s mortgage 

metrics estimate of $175,000. For securitized loans, 

the Bureau derived the average unpaid principal 

balance based upon the size of the securitized loan 

book using the FHFA’s Home Loan Performance 

database, which ranged from $141,000 to $189,000. 

276 In the proposed rule, the Bureau stated that it 

was working to gather data from the Nationwide 

Mortgage Licensing System and Registry (NMLS) 

that would be additional to the data used in Table 

1. The Bureau considered that this additional data 

might allow the Bureau to refine its estimate of the 

number of small entity non depositories that would 

be covered by a closely related exemption in the 

Bureau’s companion proposed mortgage servicing 

rulemaking, the proposed 2012 TILA Mortgage 

Servicing Rule. The Bureau did obtain additional 

data from the NMLS. This data, however, does not 

contain information directly about mortgage 

servicing revenue and mortgage loans serviced and 

it has limited information with which to derive 

these amounts. The Bureau has therefore not used 

this additional NMLS data to estimate the number 

of small entity non-depositories that would be 

covered by the exemption in this final rule or in the 

final 2012 TILA Mortgage Servicing Rule. 

277This calculation assumes the servicer receives 

35 basis points on each dollar of unpaid principal 

balance. Typical annual servicing fees are 25 basis 

points for prime fixed-rate loans, 37.5 basis points 

for prime ARMs, 44 basis points for FHA loans, and 

50 basis points for subprime loans ; see Larry 

Cordell et al., The Incentives of Mortgage Servicers: 

Myths and Realities, at 15 (Fed. Reserve Board, 

Working Paper No. 2008–46, 2008). The conclusion 

of the analysis would be the same regardless of 

which figure is used. 

different sizes and use this with the 

information on aggregate unpaid 

principal balance to derive loan counts 

at each bank and thrift.275 The Bureau 

could then determine which bank and 

thrift small servicers (as defined by the 

SBA asset threshold) serviced 5,000 

mortgage loans or less. 

It is not possible to observe whether 

the loans that servicers are servicing for 

others were originated by those 

servicers. However, the Bureau believes 

that all insured depositories and credit 

unions that meet both the SBA asset 

threshold and the loan count threshold 

likely qualify for the exception. In 

principle, these entities may not qualify 

for the exception because they do not 

meet the other conditions of the 

exception, i.e., they service loans that 

they did not originate and do not own. 

The Bureau believes that this is 

extremely unlikely, however. First, most 

entities servicing loans they did not 

originate and do not own most likely 

view servicing as a stand-alone line of 

business. In this case they would most 

likely choose to service substantially 

more than 5,000 loans in order to obtain 

a profitable return on their investment 

in servicing. Additionally, the Bureau 

believes it is highly unlikely that 

insured depositories and credit unions 

with $175 million in assets or less 

choose to make this investment, 

preferring to use their assets to support 

other activities. Taking both factors into 

account, the Bureau believes that 

essentially all insured depositories and 

credit unions that meet the SBA 

threshold and the loan count condition 

qualify for the exception. 

The Bureau does not have the data 

necessary to precisely estimate the 

number of small entity non-depositories 

that would be covered by the 

exemption.276 To obtain a rough 

estimate, the Bureau notes that $7 

million in servicing revenue would be 

generated from an aggregate unpaid 

principal balance of $2 billion.277 The 

Bureau estimates that all but 4 percent 

of insured depositories and credit 

unions servicing an aggregate unpaid 

principal balance of $2 billion or less 

service 5,000 loans or less. Assuming a 

similar relationship between servicing 

revenue and loan counts holds for nondepository servicers, at least for 

relatively small depository and nondepository servicers, all but 4 percent of 

non-depository servicers would service 

5,000 loans or less. This estimate and 

the limited data available imply that 768 

(all but 4 percent of 800, or 32) nondepository servicers would service 

5,000 loans or less. The Bureau 

considers these figures to be the best 

available approximations to the number 

of non-depository servicers that would 

and would not qualify for the 

exemption. However, the Bureau 

recognizes that these figures are rough. 

5. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The final rule does not impose new 

reporting requirements. The final rule 

does, however, impose new 

recordkeeping and compliance 

requirements on certain small entities. 

The requirements on small entities from 

each major component of the rule are 

presented below. 

The Bureau discusses impacts against 

a pre-statute baseline. This baseline 

assumes compliance with the Federal 

rules that overlap with the final rule. 

The Bureau expects that the impact of 

the rule relative to the pre-statute 

baseline will be smaller than the impact 

would be if not for compliance with the 

existing Federal rules. In particular, 

certain ongoing costs regarding error 

resolution, early intervention and loss 

mitigation will have generally been 

incurred and budgeted for by servicers 

because they are already providing these 

services. These expenses will facilitate 

and thereby reduce the cost of 

compliance with the rule. 

Recordkeeping Requirements 

As discussed in detail in the sectionby-section analysis above, the final rule 

amends the recordkeeping requirements 

imposed on servicers. The amendments 

to Regulation X eliminated the preexisting requirement in § 1024.17(l) to 

keep records relating to escrow accounts 

for five years. The amendments also 

impose a new obligation in § 1024.38 to 

retain records that document actions 

taken by the servicer with respect to a 

borrower’s mortgage account until one 

year after the date a mortgage loan is 

discharged or servicing of a mortgage 

loan is transferred by the servicer to a 

transferee servicer. In general, servicers 

will have to update their policies and 

procedures; additionally, servicers may 

have to update their systems, and 

increase storage capacity to ensure 

compliance. 

Compliance Requirements 

As discussed in detail in the sectionby-section analysis above, the final rule 

imposes new compliance requirements 

on servicers. In general, servicers will 

have to update their policies and 

procedures; additionally, servicers may 

have to update their systems to ensure 

compliance. 

(a) Force-Placed Insurance 

Section 1024.37 prohibits servicers 

from charging a borrower for forceplaced insurance unless there is a 

reasonable basis to believe the borrower 

has failed to comply with the loan 

contract’s requirements to maintain 

property insurance. Servicers must 

follow a procedure including sending 

two notices before imposing any charge 

on a borrower, and terminating forceplaced insurance and refunding forceplaced insurance premiums paid during 

any period during which the borrower’s 

insurance coverage and the force-placed 

insurance coverage were each in effect. 

The final rule contains a provision 

prohibiting a servicer from purchasing 

force-placed insurance, with respect to 

a borrower who has established an 

escrow for hazard insurance, unless a 

servicer is unable to disburse funds 

from the borrower’s escrow account to 

ensure that the borrower’s hazard 

insurance premium charges are paid in 

a timely manner. Servicers will have to 

update their policies and procedures to 

ensure compliance with these 

requirements, as well as update their 

systems to ensure the proper notices are 

sent. The Bureau is mitigating the 

burden by providing model forms. 

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The final rule exempts servicers that 

service 5,000 mortgage loans or less, all 

of which the servicer or an affiliate 

owns or originated, from the provision 

prohibiting servicers from purchasing 

force-placed insurance, with respect to 

a borrower who has established an 

escrow account for hazard insurance if 

the amount of the disbursement would 

be greater than the cost of the forceplaced insurance. For the reasons 

explained above, the Bureau believes 

that all small servicers (as defined by 

the SBA) would likely be exempt from 

this provision when the cost of the 

force-placed insurance is less than the 

amount the servicer would need to 

disburse from the borrower’s escrow 

account to ensure that the borrower’s 

hazard insurance premium charges were 

paid in a timely manner. 

(b) Error Resolution and Response to 

Inquiries 

Sections §§ 1024.35 and 1024.36 

require servicers to follow procedures in 

resolving errors, and responding to 

inquiries, including acknowledging 

written requests from the borrower, 

investigating and correcting errors, and 

responding to the borrower. Servicers 

may need to develop compliance 

procedures and train staff and may need 

new or updated software and hardware 

in order to access the information 

required to address notices of error and 

inquiries. 

(c) General Servicing Standards 

Section § 1024.38 requires servicers to 

maintain policies and procedures that 

are reasonably designed to achieve 

certain objectives that related to: 

accessing and providing accurate 

information properly evaluating loss 

mitigation applications; facilitating 

oversight of, and compliance by, service 

providers; facilitating transfer of 

information during servicing transfers; 

and informing borrowers of written 

error resolution and information request 

procedures. Servicers will have to 

update their policies and procedures, 

and may have to update their 

information management systems. 

To comply with these requirements, 

servicers may incur a cost to review and 

document their policies and procedures, 

obtain legal advice, train their staff to 

follow the policies and procedures, and 

monitor staff adherence to the policies 

and procedures, in addition to 

complying with expanded requirements. 

The rule mitigates all of these costs 

through the provision that the 

‘‘reasonableness’’ of a servicer’s policies 

and procedures would depend upon the 

size of the servicer and the nature and 

scope of its activities. Further, 

depository institutions already are 

subject to interagency guidelines 

relating to safeguarding the institution’s 

safety and soundness that facilitate 

reasonable information management for 

purposes of mortgage servicing. 

The final rule exempts servicers that 

service 5,000 mortgage loans or less, all 

of which the servicer or an affiliate 

owns or originated, from these 

provisions. For the reasons explained 

above, the Bureau believes that all small 

servicers (as defined by the SBA) would 

likely qualify for this exemption. 

(d) Early Intervention for Delinquent 

Borrowers 

Section 1024.39 requires servicers to 

make contact with delinquent 

borrowers. Servicers must establish or 

make good faith efforts to establish live 

contact with a delinquent borrower on 

or before the 36th day of delinquency. 

Servicers must also provide certain 

written information to borrowers not 

later than 45th day of delinquency. 

The final rule exempts servicers that 

service 5,000 mortgage loans or less, all 

of which the servicer or an affiliate 

owns or originated, from these 

provisions. For the reasons explained 

above, the Bureau believes that all small 

servicers (as defined by the SBA) would 

likely qualify for this exemption. 

(e) Continuity of Contact 

Servicers are required to maintain 

policies and procedures that are 

reasonably designed (1) to achieve the 

objective that a servicer makes available, 

by telephone, personnel who can 

perform certain functions that assist 

delinquent borrowers, and (2) to ensure 

a servicer assigns such personnel by the 

time a servicer provides the written 

early intervention notice. 

The final rule exempts servicers that 

service 5,000 mortgage loans or less, all 

of which the servicer or an affiliate 

owns or originated, from these 

provisions. For the reasons explained 

above, the Bureau believes that all small 

servicers (as defined by the SBA) would 

likely qualify for this exemption. 

(f) Loss Mitigation 

Section 1024.41 requires servicers to 

follow certain procedures and timelines 

in processing loss mitigation 

applications. Servicers are required to 

receive and evaluate complete loss 

mitigation applications within certain 

timeframes, and to provide an appeal 

process, with an independent 

evaluation, for loss mitigation 

applications received within a specified 

timeframe and with respect to which the 

servicer denies a borrower’s application 

for any trial or permanent modification 

program. The rule also imposes a 

foreclosure ban during the first 120 days 

after delinquency and imposes timelines 

if a borrower submits a complete loss 

mitigation application during this 120 

day period or before a servicer initiates 

foreclosure. 

The final rule exempts servicers that 

service 5,000 mortgage loans or less, all 

of which the servicer or an affiliate 

owns or originated, from all of the 

requirements in this section of the final 

rule except (1) the prohibition on 

making the first notice or filing required 

for a foreclosure process unless a 

borrower is more than 120 days 

delinquent and (2) a prohibition on 

proceeding with a foreclosure sale when 

a borrower is performing pursuant to the 

terms of a loss mitigation agreement. 

Given current foreclosure timelines and 

the infrequency of foreclosure by small 

servicers (as defined by the SBA), the 

Bureau does not believe that these 

requirements will significantly delay 

foreclosures by small servicers that may 

occur or impose significant other costs 

on them. 

(g) Estimate of the Classes of Small 

Entities Which Will Be Subject to the 

Requirement 

Section 603(b)(4) of the RFA requires 

an estimate of the classes of small 

entities which will be subject to the 

requirement. The classes of small 

entities which will be subject to the 

reporting, recordkeeping, and 

compliance requirements of the 

proposed rule are the same classes of 

small entities that are identified above 

in part VII.B.4. 

Section 603(b)(4) of the RFA also 

requires an estimate of the type of 

professional skills necessary for the 

preparation of the reports or records. 

The Bureau anticipates that the 

professional skills required for 

compliance with the proposed rule are 

the same or similar to those required in 

the ordinary course of business of the 

small entities affected by the proposed 

rule. Compliance by the small entities 

that will be affected by the proposed 

rule will require continued performance 

of the basic functions that they perform 

today: generating disclosure forms, 

addressing errors and providing 

information to borrowers, managing 

information about borrowers, contacting 

delinquent borrowers, providing 

continuity of contact for delinquent 

borrowers, and (as applicable) reviewing 

applications by borrowers for loss 

mitigation. 

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278For example, one Small Entity Representative 

stated that its current notice does not include an 

estimate of force-placed insurance costs. 

279Small Business Review Panel Report, at 22. 

280See comment 17(k)(5)–3 

281For purposes of this exemption, a small 

servicer is one that services 5,000 or fewer loans all 

of which it either originated or owns. 

282The procedures for receiving an oral 

notification of error or information request were 

moved to § 1024.38 (General Servicing Standards); 

small servicers are exempt from this section. 

6–1. Description of the Steps the Agency 

Has Taken To Minimize the Significant 

Economic Impact on Small Entities 

The Bureau understands the new 

provisions will impose certain costs on 

small entities, and has attempted to 

mitigate the burden where it can be 

done without unduly diminishing 

consumer protection. The section-bysection analysis of each provision 

contains a complete discussion of the 

following steps taken to minimize the 

burden. 

Importantly, the Bureau is exempting 

servicers that service 5,000 mortgage 

loans or less, all of which the servicer 

or an affiliate owns or originated, from 

most of the requirements under 1024.38 

to 1024.41. The Bureau is also 

exempting these servicers from the 

amendment to § 1024.17(k)(5) requiring 

that a servicer advance funds to an 

escrow account when a borrower is 

more than 30 days delinquent. The 

Bureau believes that these exemptions 

remove a significant amount of the total 

compliance burden of the final rule that 

would otherwise fall on small servicers 

as defined by the SBA. However, due to 

limited data with which to compute the 

remaining compliance burden on small 

servicers as defined by the SBA, the 

Bureau is providing this description of 

the other steps the agency has taken to 

minimize the economic impact on small 

entities. 

(a) Force-Placed Insurance 

Based on discussions with industry 

and the Small Entity Representatives, 

the Bureau understands that the forceplaced insurance provision may not 

have the same impact on all small 

servicers. Some small servicers incur all 

of the costs associated with providing 

notices, tracking borrower coverage, and 

placing and terminating the insurance. 

For other small servicers, the forceplaced insurance provider handles these 

activities and absorbs the costs or passes 

them on to the consumer indirectly 

through the insurance premium. Many 

small servicers already comply with 

most of the force-placed insurance 

provisions of the rule. 

If small servicers are generally already 

comply with the force-placed insurance 

provisions of the proposed rule, then 

the impact of the rule will likely come 

from the one-time cost of developing 

disclosures that would meet the 

proposed disclosure requirements and 

the ongoing costs of providing 

information in the disclosures that they 

do not already provide.278 In addition, 

some small servicers very rarely need to 

force-place insurance and therefore use 

informal procedures, such small 

servicers may need to develop written 

procedures to ensure they comply with 

the proposed rule. The Bureau believes 

the one-time cost of developing these 

policies will be minimal. 

The Bureau attempted to mitigate the 

costs of the provisions addressing forceplaced insurance. The Bureau attempted 

to mitigate costs by, for example, 

providing that a servicer is not required 

to send more than one force-placed 

renewal notice during any 12-month 

period. The Bureau attempted to 

mitigate the risk that borrower could 

cancel their own insurance and keep the 

refund,279 by allowing servicers to 

advance premium payments for a 

borrower’s hazard insurance in 30-day 

installments,280 as recommended by the 

Small Business Review Panel Final 

Report. Finally, the Bureau modified the 

final rule by exempting small servicers 

in certain circumstances from the 

requirement that for a borrower who has 

escrowed for hazard insurance, a 

servicer may not purchase force-placed 

insurance where the servicer could 

advance funds to the borrower’s escrow 

account to ensure timely payment of the 

borrower’s hazard insurance premium 

charges.281

The Bureau believes that essentially 

all small insured depositories and credit 

unions (as defined by the SBA) would 

likely be exempt from this requirement 

provided that cost to the borrower of the 

force-placed insurance purchased by the 

small servicer is less than the amount 

the small servicer would need to 

disburse from the borrower’s escrow 

account to ensure that the borrower’s 

hazard insurance premium charges were 

paid in a timely manner. As discussed 

above, the Bureau has only a rough 

estimate of the number of small nondepository servicers (as defined by the 

SBA) that would also be exempt under 

the same condition, but the estimate 

supports the view that vast majority 

would be exempt. 

(b) Error Resolution and Response to 

Inquiries 

Based on conversations with Small 

Entity Representatives, the Bureau 

understands that most small servicers 

already incur most of the costs that 

would be required to comply with the 

majority of the provisions. The Small 

Entity Representatives had no objection 

to the proposed response timeframes, 

they emphasized that their borrowers 

demanded immediate resolution of 

errors and response to inquiries and 

their high-touch customer service model 

was designed to meet the demands of 

these borrowers. 

The Small Entity Representatives did 

generally object to the proposed written 

response requirements, stating that 

having to acknowledge and respond in 

writing to every notice of error or 

inquiry would be burdensome, 

particularly if the issue was resolved in 

the course of the initial phone call. In 

the final rule, the Bureau has amended 

the oral error resolution and inquiry 

response requirements such that 

servicers must only follow the 

prescriptive procedures in §§ 1024.35 

and 1024.36 when the error notification 

or information request is received in 

writing.282 Thus, if a servicer responds 

to an inquiry during the initial phone 

call, the servicer is not required to 

provide the acknowledgement notice. 

Further, a servicer who responds to a 

written error notification or information 

request within five days need not send 

an acknowledgment notification. The 

additional flexibility of this approach 

minimizes the burden on small servicers 

by allowing them to adopt process that 

work for their business model. 

(c) Reasonable Information Management 

Policies and Procedures 

The information management 

provisions require the servicer to 

maintain policies and procedures that 

are reasonably designed to achieve 

certain objectives. As clarified in 

comment 38(a)–1, servicers have 

flexibility in developing these policies 

and procedures in light of the size, 

nature, and scope of the servicer’s 

operations. The flexibility minimizes 

the burden on small servicers. 

The Small Entity Representatives 

appreciated the flexibility of the 

proposal and thought it was good that 

reasonableness depends on the size, 

nature, and scope of the entity. The 

Small Entity Representatives 

emphasized that small firms do not 

necessarily use automated or online 

systems to record and track all borrower 

communications. The Bureau does not 

believe such systems would be required 

by the rule. 

(d) Early Intervention for Delinquent 

Borrowers 

The Bureau believes that many small 

entities already incur most of the costs 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10869 

that would be required to comply with 

the provision of the early intervention 

rule. At the Small Business Review 

Panel, Small Entity Representatives 

explained that they generally contact 

delinquent borrowers well before the 

45th day of a borrower’s delinquency. 

In the final rule, the Bureau has 

increased flexibility around the 

satisfying the 36-day live contact 

requirement. As discussed in more 

detail in the section-by-section analysis 

of § 1024.39, the final rule provides 

servicers with more flexibility in 

satisfying the live contact requirement 

by relaxing the good faith efforts 

standard and allowing servicers to 

demonstrate compliance by providing 

written or electronic communication 

encouraging borrowers to establish live 

contact with their servicer and, if 

appropriate, providing oral, written, or 

electronic information notifying 

borrowers that loss mitigation options 

may be available. Commentary also 

explains, in general, that a servicer may 

exercise reasonable discretion in 

determining whether informing a 

borrower of the availability of loss 

mitigation is appropriate under the 

circumstances. This flexibility 

minimizes the burden on small servicers 

by not requiring them to send 

information to certain borrowers when 

they believe such information would be 

premature. 

In addition, the Bureau has 

minimized the burden by providing 

flexible requirements with respect to the 

content of the written notice, which will 

help accommodate existing practices, 

and by not requiring a servicer to 

provide the written notice to a borrower 

more than once during any 180-day 

period. Further, the Bureau is 

permitting the written notice to be 

combined with other disclosures being 

sent by the 45th day of delinquency, 

which will accommodate existing 

practices. Finally the Bureau is 

providing model clauses for the written 

notice. 

(e) Continuity of Contact 

The Bureau believes that small 

servicers generally incur most of the 

costs that would be required to comply 

with the provisions for continuity of 

contact. The Small Entity 

Representatives generally stated that 

with their small staffs, everyone had 

access to files and would be able to 

assist borrowers in delinquency. The 

final rule requires that servicers 

maintain policies and procedures 

reasonably designed to, among other 

things, ensure that servicers assign 

personnel to assist delinquent borrowers 

when certain loss mitigation 

information is provided to borrowers 

(the final rule allows servicers some 

flexibility in determining when this 

information should be sent pursuant to 

§ 1024.39), but in any event, not later 

than the 45th day of a borrower’s 

delinquency. Thus, the final rule 

minimizes burden by not requiring 

servicers to establish access to 

continuity of contact for certain 

borrowers who may not require this 

assistance. Additionally, the final rule is 

modified to allow the servicers to 

terminate access to continuity of contact 

personnel if the borrower brings their 

loan back to current without going 

through formal loss mitigation 

procedures. 

(f) Loss Mitigation 

The final rule requires servicers to 

receive and evaluate loss mitigation 

applications and appeals. However, the 

final rule mitigates the cost of properly 

evaluating loss mitigation applications 

and appeals through the provisions that 

the ‘‘reasonableness’’ of a servicer’s 

policies and procedures would depend 

upon the size of the servicer and the 

nature and scope of its activities. 

6–2. Description of the Steps the Agency 

Has Taken To Minimize Any Additional 

Cost of Credit for Small Entities 

Section 603(d) of the RFA requires the 

Bureau to consult with small entities 

regarding the potential impact of the 

proposed rule on the cost of credit for 

small entities and related matters. 5 

U.S.C. 603(d). To satisfy these statutory 

requirements, the Bureau provided 

notification to the Chief Counsel on 

April 9, 2012 that the Bureau would 

collect the advice and recommendations 

of the same Small Entity 

Representatives identified in 

consultation with the Chief Counsel 

through the Small Business Review 

Panel process concerning any projected 

impact of the proposed rule on the cost 

of credit for small entities as well as any 

significant alternatives to the proposed 

rule which accomplish the stated 

objectives of applicable statutes and 

which minimize any increase in the cost 

of credit for small entities. The Bureau 

sought the advice and recommendations 

of the Small Entity Representatives 

during the Small Business Review Panel 

outreach meeting regarding these issues 

because, as small financial service 

providers, the Small Entity 

Representatives could provide valuable 

input on any such impact related to the 

proposed rule. 

At the time the Bureau circulated the 

Small Business Review Panel outreach 

materials to the Small Entity 

Representatives in advance of the Small 

Business Review Panel outreach 

meeting, it had no evidence that the 

proposals under consideration would 

result in an increase in the cost of 

business credit for small entities. 

Instead, the summary of the proposals 

stated that the proposals would apply 

only to mortgage loans obtained by 

consumers primarily for personal, 

family, or household purposes and the 

proposals would not apply to loans 

obtained primarily for business 

purposes. 

At the Panel Outreach Meeting, the 

Bureau asked the Small Entity 

Representatives a series of questions 

regarding cost of business credit issues. 

The questions were focused on two 

areas. First, the Small Entity 

Representatives from commercial banks/ 

savings institutions, credit unions, and 

mortgage companies were asked 

whether, and how often, they extend to 

their customers closed-end mortgage 

loans to be used primarily for personal, 

family, or household purposes but that 

are used secondarily to finance a small 

business, and whether the proposals 

then under consideration would result 

in an increase in their customers’ cost 

of credit. Second, the Bureau inquired 

as to whether, and how often, the Small 

Entity Representatives take out closedend, home-secured loans to be used 

primarily for personal, family, or 

household purposes and use them 

secondarily to finance their small 

businesses, and whether the proposals 

under consideration would increase the 

Small Entity Representatives’ cost of 

credit. 

The Small Entity Representatives had 

few comments on the impact on the cost 

of business credit. While they took this 

time to express concerns that these 

regulations would increase their costs, 

they said these regulations would have 

little to no impact on the cost of 

business credit. When asked, one Small 

Entity Representative mentioned that at 

times people may use a home-secured 

loan to finance a business, which was 

corroborated by a different Small Entity 

Representative based on his personal 

experience with starting a business. 

In the IRFA, the Bureau asked 

interested parties to provide data and 

other factual information regarding the 

use of personal home-secured credit to 

finance a business. The Bureau received 

only one comment on this issue. The 

commenter stated that more than 52 

percent of the 27.9 million small 

businesses in the United States are 

home-based and close to 80 percent of 

small businesses file taxes as 

individuals. The commenter further 

stated that, according to the Small 

Business Administration, 73.2 percent 

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283Ex parte communication with Tom Sullivan, 

U.S. Chamber of Commerce (Nov. 13, 2012), 

available at http://www.regulations.gov/ 

#!documentDetail;D=CFPB–2012-0034-0164. 

284For purposes of this PRA analysis, references 

to ‘‘creditors’’ or ‘‘lenders’’ shall be deemed to refer 

collectively to commercial banks, savings 

institutions, credit unions, and mortgage companies 

(i.e., non-depository lenders), unless otherwise 

stated. Moreover, reference to ‘‘respondents’’ shall 

generally mean all categories of entities identified 

in the sentence to which this footnote is appended, 

except as otherwise stated or if the context indicates 

otherwise. 

of small businesses in the United States 

are sole proprietors. Thus, in some 

instances, an increase in the cost of 

consumer credit is also an increase in 

the cost of business credit.283

The Bureau has taken numerous steps 

to minimize the costs of the rule, and 

therefore the impact of the rule, on the 

cost of consumer credit and the cost of 

credit for small entities. The Bureau 

believes that the small servicer 

exemption in the final rule will cover at 

least 12 percent of all mortgage loans, 

since this is just the fraction serviced by 

exempt insured depositories and credit 

unions; additional loans are serviced by 

exempt non-depositories. The Bureau 

believes it has also achieved significant 

cost reductions by eliminating the 

requirement to respond in writing to 

oral assertions of error and oral requests 

for information; eliminating the 

existence of a private right of action for 

certain provisions; providing flexibility 

in the general servicing standards 

provisions by having compliance 

depend on the size, nature and scope of 

the servicer’s operations; and providing 

additional flexibility in the general 

servicing standards provisions and 

continuity of contact provisions by 

basing them on objectives. Commenters 

also stated that the proposed 

requirement in loss mitigation to 

identify other servicers with senior or 

subordinate liens would have been very 

costly. This requirement has been 

entirely removed and does not appear in 

the final rule. Nevertheless, the rule will 

certainly create new one-time and 

ongoing costs for servicers. Servicers 

may attempt to recover these costs by 

increasing penalties for missed 

payments or other charges outside of 

origination, in which case individuals 

who incur these charges may make 

much larger one-time payments than 

they do now. Over time, however, 

servicers may be able to shift some or 

all of the costs to originators. All of the 

additional costs of servicing could be 

met by an origination fee or an 

increment to the cost of credit equal to 

the additional cost of servicing 

multiplied by the expected number of 

years the loan would be serviced. This 

cost is likely to be small, but the Bureau 

recognizes that it may change over time 

with the number of delinquent 

borrowers. 

The impact of an increase in the cost 

of mortgage loan servicing on other 

forms of consumer credit that may be 

used to fund a business, and on 

business credit itself, would be even 

smaller. If a lender has made optimal 

(profit maximizing) decisions in one 

line of business, a change in the costs 

of another line of business would not 

disrupt or alter the optimal decisions in 

the first line of business absent some 

shared inputs or platforms (‘‘economies 

of scope’’) or other important 

interdependencies that are not obvious 

in regards to consumer credit. This is 

especially clear if there is competition 

in the other line of business, in this case 

business credit lending, from firms that 

do not service mortgage loans and 

therefore did not experience a cost 

increase. Absent collusion, firms that 

did not experience an increase in the 

costs have the ability and the incentive 

to under-price any firm that attempts to 

pass along a cost increase. 

In summary, the Bureau believes that 

the effect of the mortgage servicing rule 

on the cost of credit for small businesses 

is likely to be small. Further, this cost 

is likely to be especially small for the 

small business relying on a small 

business loan or consumer credit apart 

from a closed-end mortgage loan. 

IX. Paperwork Reduction Act 

The collection of information 

contained in this rule, and identified as 

such, has been submitted to OMB for 

review under section 3507(d) of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501 et seq.) (Paperwork 

Reduction Act or PRA). 

Notwithstanding any other provision of 

the law, under the Paperwork Reduction 

Act, the Bureau may not conduct or 

sponsor, and a person is not required to 

respond to, an information collection 

unless the information collection 

displays a valid OMB control number. 

The control number for this collection is 

3170–0027. 

This rule amends 12 CFR Part 1024 

(Regulation X). Regulation X currently 

contains collections of information 

approved by OMB, and the Bureau’s 

OMB control number for Regulation X is 

3170–0016. The collection title is: Real 

Estate Settlement Procedures Act 

(Regulation X) 12 CFR 1024. 

On September 17, 2012, notice of the 

proposed rule was published in the 

Federal Register (77 FR 57199). The 

Bureau invited comment on: (1) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the Bureau’s functions, 

including whether the information has 

practical utility; (2) the accuracy of the 

Bureau’s estimate of the burden of the 

proposed information collection, 

including the cost of compliance; (3) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and (4) ways to minimize the 

burden of information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

The comment period for the proposed 

rule with respect to the proposed 

information collection expired on 

November 16, 2012. The Bureau did not 

receive any comments on the burden of 

the proposed information collection. 

However, the Bureau did receive 

comment on the more general 

consideration of certain costs in the 

proposed Dodd-Frank Act section 1022 

analysis. This comment is addressed in 

the final Dodd-Frank Act section 1022 

analysis above. 

The title of this information collection 

is Mortgage Servicing Amendment 

(Regulation X). The frequency of 

response is on occasion. These 

information collection requirements 

benefit consumers and would be 

mandatory. See 12 U.S.C. 2601 et seq. 

Because the Bureau does not collect any 

information, no issue of confidentiality 

arises. The likely respondents would be 

federally-insured depository institutions 

(such as commercial banks, savings 

banks, and credit unions) and nondepository institutions (such as 

mortgage brokers, real estate investment 

trusts, private-equity funds, etc.) that 

service consumer mortgages.284

Under the rule, the Bureau accounts 

for the paperwork burden for 

respondents under Regulation X. Using 

the Bureau’s burden estimation 

methodology, the Bureau believes the 

total estimated one-time industry 

burden for the approximately 12,643 

respondents subject to the proposed rule 

would be approximately 37,000 hours 

for one time changes and 1.1 million 

hours annually. The estimated burdens 

in this PRA analysis represent averages 

for all respondents. The Bureau expects 

that the amount of time required to 

implement each of the changes for a 

given institution may vary based on the 

size, complexity, and practices of the 

respondent. 

For purposes of this PRA analysis, the 

Bureau estimates that there are 11,255 

depository institutions and credit 

unions subject to the proposed rule, and 

an additional 1,388 non-depository 

institutions. Based on discussions with 

industry, the Bureau assumes that all 

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285A detailed analysis of the burdens and costs 

described in this section can be found in the 

Paperwork Reduction Act Supporting Statement 

that corresponds with this final rule. The 

Supporting Statement is available at 

www.reginfo.gov. 

286 Dollar figures are vendor costs and do not 

include the dollar value of burden hours. 

depository respondents except for one 

large entity and 95 percent of nondepository respondents (and 100 

percent of small non-depository 

respondents) use third-party software 

and information technology vendors. 

Under existing contracts, vendors would 

absorb the one-time software and 

information technology costs associated 

with complying with the proposal for 

large- and medium-sized respondents 

but not for small respondents. 

A. Information Collection Requirements 

The Bureau is requiring six changes to 

the information collection requirements 

in Regulation X: 

1. Provisions regarding mortgage 

servicing transfer notices: The Bureau’s 

rule substantially reduces the length 

and complexity of the mortgage 

servicing transfer notice but expands 

coverage from closed-end first-lien 

mortgages to closed-end subordinatelien mortgages as well. Additionally, the 

Bureau’s rule imposes obligations on a 

transferor servicer who receives a 

misdirected payment during the 60 days 

after the effective date of a transfer. 

2. Provisions regarding the placement 

and termination of force-placed 

insurance, including three notices: The 

Bureau’s rule for force-placed insurance 

prohibits servicers from charging a 

borrower for force-placed insurance 

unless two notices are provided to the 

borrower beforehand. The first notice is 

required at least 45 days before charging 

the borrower for force-placed insurance, 

and the second notice is required at 

least 15 days before charging a borrower 

for force-placed insurance. In addition 

to the two notices, the Bureau is 

requiring servicers to provide borrowers 

a written notice before charging a 

borrower for renewing or replacing 

existing force-placed insurance on an 

annual basis. 

3. Provisions regarding error 

resolution and requests for information: 

The Bureau’s rule for error resolution 

includes a requirement on servicers 

generally to provide written 

acknowledgement of receipt of a notice 

of error and to provide a written 

response to the stated error, when that 

error was submitted in writing. The 

Bureau’s requirements for response to 

information requests requires servicers 

to provide a written response 

acknowledging receipt of an information 

request when that request was 

submitted in writing. Servicers are also 

required to provide the borrower with 

the requested information or a written 

notification that the information 

requested is not available to the 

servicer. 

4. Requirements for early intervention 

with delinquent borrowers: The Bureau’s 

rule requires servicers to establish or 

make good faith efforts to establish live 

contact by the 36th day of a borrower’s 

delinquency and, if appropriate, 

promptly notify borrowers about the 

availability of loss mitigation options. In 

addition, servicers must provide a 

written notice by the 45th day of a 

borrower’s delinquency. 

5. General servicing policies, 

procedures, and requirements: Under 

the Bureau’s rule, servicers are required 

to maintain policies and procedures 

reasonably designed to achieve certain 

objectives set forth in the rule. Further, 

servicers are required to comply with 

two standard information management 

requirements, including a requirement 

that servicers retain documents with 

respect to the servicing of a mortgage 

loan until one year after a mortgage loan 

is paid in full or servicing for a mortgage 

loan is transferred. 

6. Requirements regarding loss 

mitigation: Under the Bureau’s rule, 

servicers are required to follow certain 

procedures when evaluating loss 

mitigation applications, including (1) 

providing a notice telling the borrower 

that the loss mitigation application was 

received and whether or not the 

application is complete, (2) providing a 

notice telling the borrower if the loss 

mitigation is approved, or denied (and, 

for denials of loan modification 

requests, a more detailed notice of the 

specific reason for denial and appeal 

rights), and (3) providing a notice of the 

appeal determination. 

B. Analysis of the Bureau’s Information 

Collection Requirements 285

1. Mortgage Servicing Transfers 

The Bureau’s rule substantially 

reduces the length and complexity of 

the mortgage servicing transfer notice 

but expands coverage to closed-end 

second lien mortgages, in addition to 

closed-end first-lien mortgages. 

Additionally, the Bureau’s rule imposes 

obligations on a transferor servicer who 

receives a misdirected payment during 

the 60 days after the effective date of a 

transfer. 

Currently, lenders are required to 

notify closed-end first lien borrowers at 

origination whether their loan may be 

sold and the servicing transferred. Upon 

any mortgage transfer, the transferor 

servicer is required to provide written 

notice to the borrower notifying them of 

the transfer, while the transferee 

servicer is required to provide 

notification to the borrower that it will 

service the borrower’s mortgage. The 

Bureau’s provision substantially reduces 

the length and complexity of the 

existing mortgage servicing transfer 

disclosure. The Bureau is expanding 

coverage from closed-end first-lien 

mortgages to also include closed-end 

second lien mortgages. 

All respondents will have a one-time 

burden under this requirement 

associated with reviewing the 

regulation. Certain respondents will 

have one-time burden in hours or 

vendor costs from creating software and 

information technology capability to 

produce the new disclosure. The Bureau 

estimates this one-time burden to be 30 

minutes and $90, on average, for each 

respondent.286

Certain Bureau respondents will have 

ongoing burden in hours or vendor costs 

associated with the information 

technology used in producing the 

disclosure. All Bureau respondents will 

have ongoing vendor costs associated 

with distributing (e.g., mailing) the 

disclosure. The Bureau estimates this 

ongoing burden to be two hours and 

$210, on average, for each respondent. 

2. Force-Placed Insurance Disclosures 

The Bureau’s rule for force-placed 

insurance prohibits servicers from 

charging a borrower for force-placed 

insurance unless two notices are 

provided to the borrower beforehand. 

The first notice is required at least 45 

days before a borrower is charged for 

force-placed insurance, and the second 

notice is required at least 15 days before 

a borrower is charged for force-placed 

insurance. In addition to the two 

notices, the Bureau requires servicers to 

provide borrowers a written notice 

before charging a borrower for renewing 

or replacing existing force-placed 

insurance on an annual basis. 

The Bureau understands that the 

requirement that servicers provide 

borrowers with two written notices 

prior to charging borrowers for forceplaced insurance reflects common 

practices (i.e., ‘‘usual and customary’’ 

business practices) today for the 

majority of mortgage servicers. 

However, the Bureau understands that 

the requirement that servicers provide a 

written notice prior to charging 

borrowers for the renewal or 

replacement of existing force-place 

insurance does not reflect common 

practices. 

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287 Dollar figures are vendor costs and do not 

include the dollar value of burden hours. 

All respondents will have a one-time 

burden under this requirement 

associated with reviewing the 

regulation. Certain respondents will 

have one-time burden in hours or 

vendor costs from creating software and 

information technology capability to 

produce the new renewal disclosure. 

Further, while the Bureau considers 

borrower notifications of force-placed 

insurance prior to placement as the 

normal course of business, institutions 

may still have to incur one-time costs 

associated with modifying their existing 

disclosures to comply with the Bureau’s 

proposed disclosure provisions. As a 

result, the Bureau’s one-time burden 

incorporates these costs. The Bureau 

estimates this one-time burden to be 45 

minutes and $90, on average, for each 

respondent.287

Certain respondents will have 

ongoing burden in hours or vendor costs 

associated with the information 

technology used in producing the 

disclosure. All respondents will have 

ongoing vendor costs associated with 

distributing (e.g., mailing) the renewal 

disclosure. The Bureau estimates this 

ongoing burden to be 15 minutes and 

$24, on average, for each respondent. 

3. Error Resolution and Requests for 

Information 

The Bureau’s requirements for error 

resolution and requests for information 

will require written acknowledgement 

of receiving a written notice of error or 

an information request, written 

notification of correction of error, and 

oral or written provision of the 

information requested by the borrower 

or a written notification that the 

information requested is not available to 

the servicer, and an internal record of 

engagement with the borrower, which 

are forms of information collection. All 

respondents will have a one-time 

burden under this requirement 

associated with reviewing the regulation 

of one hour per respondent. 

Respondents will have ongoing 

burden in hours and/or vendor costs 

associated with the information 

technology used in producing the 

disclosure. All respondents will have 

ongoing vendor costs associated with 

distributing (e.g., mailing) the disclosure 

and some will have production costs 

associated with the new disclosure. The 

Bureau estimates this ongoing burden to 

be 8 hours and $13, on average, for each 

respondent. 

4. Early Intervention With Delinquent 

Borrowers 

An information collection will be 

created by the Bureau’s requirement to 

require servicers to establish or make 

good faith efforts to establish live 

contact by the 36th day of a borrower’s 

delinquency and, if appropriate, 

promptly notify borrowers about the 

availability of loss mitigation options. In 

addition, servicers must provide a 

written notice by the 45th day of a 

borrower’s delinquency. Most 

respondents currently provide some 

form of delinquency notice, and thus 

the expenses associated with this 

information collection are from the onetime costs to incorporate the Bureau’s 

required information. 

Fannie Mae, Freddie Mac, FHA, and 

the VA generally recommend that all 

institutions that service any of their 

guaranteed mortgages perform duties 

similar to those set forth in the Bureau’s 

provisions regarding early intervention 

with delinquent borrowers; the Bureau 

estimates that 80 percent of outstanding 

mortgages are guaranteed by one of 

these institutions. The Bureau estimates 

that 75 percent of loans that are not 

guaranteed by one of these institutions 

are serviced by a servicer that is 

currently providing delinquency notices 

that would comply with the proposal. 

The Bureau estimates the one-time 

burden to be 0.4 hours, on average, for 

each institution. The Bureau estimates 

the ongoing burden to be 45 minutes 

and $1, on average for each respondent. 

5. General Servicing Policies 

Procedures, and Requirements 

The final rule modifies the 

recordkeeping requirements imposed on 

servicers. As discussed above in part V, 

the final rule requires servicers to retain 

records that document actions taken 

with respect to a borrower’s mortgage 

loan account until one year after a 

mortgage loan is paid in full or servicing 

of a mortgage loan is transferred to a 

successor servicer. This recordkeeping 

requirement replaces the systems of 

recordkeeping set forth in current 

§ 1024.17(l), which requires servicers to 

retain copies of documents related to 

borrower escrow accounts for five years 

after the servicer last serviced the 

escrow account. See part V above, 

section-by-section analysis of 

§§ 1024.17(l) and 1024.38(c)(1). 

The Bureau believes that any burden 

associated with the final rule’s 

recordkeeping requirement will be 

minimal or de minimis. Under current 

rules, servicers must retain records 

related to borrower escrow accounts 

until five years after the servicer last 

serviced the escrow account, which is 

likely to be close in time to when a 

mortgage loan is paid in full or servicing 

of a mortgage loan is transferred to a 

successor servicer. The final rule 

shortens the retention period for those 

records by four years, as the retention 

period set forth in the final rule ends 

one year after a mortgage loan is paid in 

full or servicing of a mortgage loan is 

transferred to a successor servicer. 

However, the final rule requires 

servicers to retain additional records, 

specifically records that document 

actions taken with respect to a 

borrower’s mortgage loan account. Since 

the length of a mortgage loan varies, for 

example, the average life of a mortgage 

loan is currently less than 5 years, the 

length of the retention period required 

by the final rule will differ depending 

on individual circumstances and can be 

as short as one year. 

The Bureau understands that servicers 

in the ordinary course of business retain 

both the records related to escrow 

accounts that servicers are required to 

retain by current rules and the 

additional records that the final rule 

requires servicers to retain (i.e. records 

that document actions taken with 

respect to a borrower’s mortgage loan 

account) for the life of a mortgage loan. 

Therefore, any burden created by the 

final rule not subject to current business 

practices is limited to any incremental 

costs of retaining for one additional year 

any records that document actions taken 

with respect to a borrower’s mortgage 

loan account that a servicer is not 

currently required to retain. This burden 

is mitigated by the reduction in the 

storage costs of documents related to 

escrow accounts due to the reduction of 

the required retention period for those 

documents by four years. In addition, 

the final rule clarifies that servicers 

need not maintain actual paper copies 

of the required records and may satisfy 

the requirement through a contractual 

right to access records possessed by 

another entity. See comment 38(c)(1)–1. 

This further reduces any burden 

associated with the final rule. 

6. Loss Mitigation 

Under the Bureau’s rule, servicers are 

required to follow certain procedures 

when evaluating loss mitigation 

applications, including (1) providing a 

notice telling the borrower that the loss 

mitigation application was received, 

and whether or not the application is 

complete (2) providing a notice telling 

the borrower if the loss mitigation is 

approved, or denied (and, for denials of 

loan modification requests, a more 

detailed notice of the specific reason for 

denial and appeal rights), and, (3) if 

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necessary providing a notice of the 

appeal determination. 

The loss mitigation provision will 

create an information collection by 

requiring servicers to notify borrowers 

who submit loss mitigation 

applications. Servicers may be required 

to send up to three notices per loss 

mitigation application. For incomplete 

applications, servicers will be required 

to notify the borrower that their 

application is incomplete and explain 

the steps needed to complete the 

application. For complete applications, 

the servicer is required to notify the 

borrower the complete application has 

been received, and to notify the 

borrower of their decision. 

All respondents will have a one-time 

burden under this requirement 

associated with reviewing the 

regulation. Certain respondents will 

have one-time burden in hours or 

vendor costs from creating software and 

information technology costs associated 

with changes in the payoff statement 

disclosure. The Bureau estimates this 

one-time burden to be 1.4 hours, on 

average, for each respondent. The 

Bureau estimates the ongoing burden to 

be 928 hours and $1,575, on average, for 

each respondent. 

B. Summary of Burden Hours 

Totals may not be exact due to 

rounding. 

Between the proposed and final rule 

the Bureau improved its methodology 

for estimating the average unpaid 

principal balance of outstanding 

mortgages. In addition, the Bureau 

updated the institution counts from 

2010 year-end to 2011 year-end figures. 

List of Subjects in 12 CFR Part 1024 

Condominiums, Consumer protection, 

Housing, Insurance, Mortgage servicing, 

Mortgagees, Mortgages, Reporting and 

recordkeeping requirements. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Bureau amends 12 CFR 

part 1024 as follows: 

PART 1024—REAL ESTATE 

SETTLEMENT PROCEDURES ACT 

(REGULATION X) 

■ 1. The authority citation for part 1024 

is revised to read as follows: 

Authority: 12 U.S.C. 2603–2605, 2607, 

2609, 2617, 5512, 5532, 5581. 

Subpart A—General 

■ 2. Sections 1024.1 through 1024.5 are 

designated as subpart A under the 

heading set forth above. 

■ 3. Section 1024.2(b) is amended by 

revising the definitions for ‘‘Federally 

related mortgage loan’’ or ‘‘mortgage 

loan,’’ ‘‘Mortgage broker,’’ ‘‘Origination 

service,’’ ‘‘Public Guidance 

Documents,’’ ‘‘Servicer,’’ and 

‘‘Servicing,’’ to read as follows: 

§ 1024.2 Definitions. 

* * * * * 

(b) * * * 

Federally related mortgage loan 

means: 

(1) Any loan (other than temporary 

financing, such as a construction loan): 

(i) That is secured by a first or 

subordinate lien on residential real 

property, including a refinancing of any 

secured loan on residential real 

property, upon which there is either: 

(A) Located or, following settlement, 

will be constructed using proceeds of 

the loan, a structure or structures 

designed principally for occupancy of 

from one to four families (including 

individual units of condominiums and 

cooperatives and including any related 

interests, such as a share in the 

cooperative or right to occupancy of the 

unit); or 

(B) Located or, following settlement, 

will be placed using proceeds of the 

loan, a manufactured home; and 

(ii) For which one of the following 

paragraphs applies. The loan: 

(A) Is made in whole or in part by any 

lender that is either regulated by or 

whose deposits or accounts are insured 

by any agency of the Federal 

Government; 

(B) Is made in whole or in part, or is 

insured, guaranteed, supplemented, or 

assisted in any way: 

(1) By the Secretary of the Department 

of Housing and Urban Development 

(HUD) or any other officer or agency of 

the Federal Government; or 

(2) Under or in connection with a 

housing or urban development program 

administered by the Secretary of HUD or 

a housing or related program 

administered by any other officer or 

agency of the Federal Government; 

(C) Is intended to be sold by the 

originating lender to the Federal 

National Mortgage Association, the 

Government National Mortgage 


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Association, the Federal Home Loan 

Mortgage Corporation (or its successors), 

or a financial institution from which the 

loan is to be purchased by the Federal 

Home Loan Mortgage Corporation (or its 

successors); 

(D) Is made in whole or in part by a 

‘‘creditor,’’ as defined in section 103(g) 

of the Consumer Credit Protection Act 

(15 U.S.C. 1602(g)), that makes or 

invests in residential real estate loans 

aggregating more than $1,000,000 per 

year. For purposes of this definition, the 

term ‘‘creditor’’ does not include any 

agency or instrumentality of any State, 

and the term ‘‘residential real estate 

loan’’ means any loan secured by 

residential real property, including 

single-family and multifamily 

residential property; 

(E) Is originated either by a dealer or, 

if the obligation is to be assigned to any 

maker of mortgage loans specified in 

paragraphs (1)(ii)(A) through (D) of this 

definition, by a mortgage broker; or 

(F) Is the subject of a home equity 

conversion mortgage, also frequently 

called a ‘‘reverse mortgage,’’ issued by 

any maker of mortgage loans specified 

in paragraphs (1)(ii)(A) through (D) of 

this definition. 

(2) Any installment sales contract, 

land contract, or contract for deed on 

otherwise qualifying residential 

property is a federally related mortgage 

loan if the contract is funded in whole 

or in part by proceeds of a loan made 

by any maker of mortgage loans 

specified in paragraphs (1)(ii) (A) 

through (D) of this definition. 

(3) If the residential real property 

securing a mortgage loan is not located 

in a State, the loan is not a federally 

related mortgage loan. 

* * * * * 

Mortgage broker means a person 

(other than an employee of a lender) 

that renders origination services and 

serves as an intermediary between a 

borrower and a lender in a transaction 

involving a federally related mortgage 

loan, including such a person that 

closes the loan in its own name in a 

table-funded transaction. 

* * * * * 

Origination service means any service 

involved in the creation of a federally 

related mortgage loan, including but not 

limited to the taking of the loan 

application, loan processing, the 

underwriting and funding of the loan, 

and the processing and administrative 

services required to perform these 

functions. 

* * * * * 

Public Guidance Documents means 

Federal Register documents adopted or 

published, that the Bureau may amend 

from time-to-time by publication in the 

Federal Register. These documents are 

also available from the Bureau. Requests 

for copies of Public Guidance 

Documents should be directed to the 

Associate Director, Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G Street NW., 

Washington, DC 20552. 

* * * * * 

Servicer means a person responsible 

for the servicing of a federally related 

mortgage loan (including the person 

who makes or holds such loan if such 

person also services the loan). The term 

does not include: 

(1) The Federal Deposit Insurance 

Corporation (FDIC), in connection with 

assets acquired, assigned, sold, or 

transferred pursuant to section 13(c) of 

the Federal Deposit Insurance Act or as 

receiver or conservator of an insured 

depository institution; 

(2) The National Credit Union 

Administration (NCUA), in connection 

with assets acquired, assigned, sold, or 

transferred pursuant to section 208 of 

the Federal Credit Union Act or as 

conservator or liquidating agent of an 

insured credit union; and 

(3) The Federal National Mortgage 

Corporation (FNMA); the Federal Home 

Loan Mortgage Corporation (Freddie 

Mac); the FDIC; HUD, including the 

Government National Mortgage 

Association (GNMA) and the Federal 

Housing Administration (FHA) 

(including cases in which a mortgage 

insured under the National Housing Act 

(12 U.S.C. 1701 et seq.) is assigned to 

HUD); the NCUA; the Farm Service 

Agency; and the Department of Veterans 

Affairs (VA), in any case in which the 

assignment, sale, or transfer of the 

servicing of the federally related 

mortgage loan is preceded by 

termination of the contract for servicing 

the loan for cause, commencement of 

proceedings for bankruptcy of the 

servicer, commencement of proceedings 

by the FDIC for conservatorship or 

receivership of the servicer (or an entity 

by which the servicer is owned or 

controlled), or commencement of 

proceedings by the NCUA for 

appointment of a conservator or 

liquidating agent of the servicer (or an 

entity by which the servicer is owned or 

controlled). 

Servicing means receiving any 

scheduled periodic payments from a 

borrower pursuant to the terms of any 

federally related mortgage loan, 

including amounts for escrow accounts 

under section 10 of RESPA (12 U.S.C. 

2609), and making the payments to the 

owner of the loan or other third parties 

of principal and interest and such other 

payments with respect to the amounts 

received from the borrower as may be 

required pursuant to the terms of the 

mortgage servicing loan documents or 

servicing contract. In the case of a home 

equity conversion mortgage or reverse 

mortgage as referenced in this section, 

servicing includes making payments to 

the borrower. 

* * * * * 

■ 4. Section 1024.3 is revised to read as 

follows: 

§ 1024.3 E-Sign applicability. 

The disclosures required by this part 

may be provided in electronic form, 

subject to compliance with the 

consumer consent and other applicable 

provisions of the Electronic Signatures 

in Global and National Commerce Act 

(E-Sign Act) (15 U.S.C. 7001 et seq.). 

■ 5. Section 1024.4 is amended by 

revising the section heading, paragraph 

(a)(1), removing paragraph (b), and 

redesignating paragraph (c) as paragraph 

(b). 

The revisions read as follows: 

§ 1024.4 Reliance upon rule, regulation, or 

interpretation by the Bureau. 

(a) Rule, regulation or interpretation. 

(1) For purposes of sections 19(a) and 

(b) of RESPA (12 U.S.C. 2617(a) and (b)), 

only the following constitute a rule, 

regulation or interpretation of the 

Bureau: 

(i) All provisions, including 

appendices and supplements, of this 

part. Any other document referred to in 

this part is not incorporated in this part 

unless it is specifically set out in this 

part; 

(ii) Any other document that is 

published in the Federal Register by the 

Bureau and states that it is an 

‘‘interpretation,’’ ‘‘interpretive rule,’’ 

‘‘commentary,’’ or a ‘‘statement of 

policy’’ for purposes of section 19(a) of 

RESPA. Except in unusual 

circumstances, interpretations will not 

be issued separately but will be 

incorporated in an official interpretation 

to this part, which will be amended 

periodically. 

* * * * * 

■ 6. Section 1024.5 is amended by 

revising paragraph (b)(7) to read as 

follows: 

§ 1024.5 Coverage of RESPA. 

* * * * * 

(b) * * * 

(7) Secondary market transactions. A 

bona fide transfer of a loan obligation in 

the secondary market is not covered by 

RESPA and this part, except with 

respect to RESPA (12 U.S.C. 2605) and 

subpart C of this part (§§ 1024.30– 

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1024.41). In determining what 

constitutes a bona fide transfer, the 

Bureau will consider the real source of 

funding and the real interest of the 

funding lender. Mortgage broker 

transactions that are table-funded are 

not secondary market transactions. 

Neither the creation of a dealer loan or 

dealer consumer credit contract, nor the 

first assignment of such loan or contract 

to a lender, is a secondary market 

transaction (see § 1024.2). 

Subpart B—Mortgage Settlement and 

Escrow Accounts 

■ 7. Sections 1024.6 through 1024.20 

are designated as subpart B under the 

heading set forth above. 

■ 8. Section 1024.7 is amended by 

revising paragraph (f)(3) to read as 

follows: 

§ 1024.7 Good faith estimate. 

* * * * * 

(f) * * * 

(3) Borrower-requested changes. If a 

borrower requests changes to the 

federally related mortgage loan 

identified in the GFE that change the 

settlement charges or the terms of the 

loan, the loan originator may provide a 

revised GFE to the borrower. If a revised 

GFE is to be provided, the loan 

originator must do so within three 

business days of the borrower’s request. 

The revised GFE may increase charges 

for services listed on the GFE only to the 

extent that the borrower-requested 

changes to the mortgage loan identified 

on the GFE actually resulted in higher 

charges. 

* * * * * 

■ 9. Section 1024.13 is amended by 

revising the section heading and 

paragraph (d) to read as follows: 

§ 1024.13 Relation to State laws. 

* * * * * 

(d) A specific preemption of 

conflicting State laws regarding notices 

and disclosures of mortgage servicing 

transfers is set forth in § 1024.33(d). 

■ 10. Section 1024.17 is amended by 

revising paragraphs (c)(8), (f)(2)(ii), 

(f)(4)(iii), (i)(2), (i)(4)(iii), adding 

paragraph (k)(5), removing paragraph (l), 

and redesignating paragraph (m) as 

paragraph (l). 

The revisions and addition read as 

follows: 

§ 1024.17 Escrow accounts. 

* * * * * 

(c) * * * 

(8) Provisions in federally related 

mortgage documents. The servicer must 

examine the federally related mortgage 

loan documents to determine the 

applicable cushion for each escrow 

account. If any such documents provide 

for lower cushion limits, then the terms 

of the loan documents apply. Where the 

terms of any such documents allow 

greater payments to an escrow account 

than allowed by this section, then this 

section controls the applicable limits. 

Where such documents do not 

specifically establish an escrow account, 

whether a servicer may establish an 

escrow account for the loan is a matter 

for determination by other Federal or 

State law. If such documents are silent 

on the escrow account limits and a 

servicer establishes an escrow account 

under other Federal or State law, then 

the limitations of this section apply 

unless applicable Federal or State law 

provides for a lower amount. If such 

documents provide for escrow accounts 

up to the RESPA limits, then the 

servicer may require the maximum 

amounts consistent with this section, 

unless an applicable Federal or State 

law sets a lesser amount. 

* * * * * 

(f) * * * 

(2) * * * 

(ii) These provisions regarding 

surpluses apply if the borrower is 

current at the time of the escrow 

account analysis. A borrower is current 

if the servicer receives the borrower’s 

payments within 30 days of the 

payment due date. If the servicer does 

not receive the borrower’s payment 

within 30 days of the payment due date, 

then the servicer may retain the surplus 

in the escrow account pursuant to the 

terms of the federally related mortgage 

loan documents. 

* * * * * 

(4) * * * 

(iii) These provisions regarding 

deficiencies apply if the borrower is 

current at the time of the escrow 

account analysis. A borrower is current 

if the servicer receives the borrower’s 

payments within 30 days of the 

payment due date. If the servicer does 

not receive the borrower’s payment 

within 30 days of the payment due date, 

then the servicer may recover the 

deficiency pursuant to the terms of the 

federally related mortgage loan 

documents. 

* * * * * 

(i) * * * 

(2) No annual statements in the case 

of default, foreclosure, or bankruptcy. 

This paragraph (i)(2) contains an 

exemption from the provisions of 

§ 1024.17(i)(1). If at the time the servicer 

conducts the escrow account analysis 

the borrower is more than 30 days 

overdue, then the servicer is exempt 

from the requirements of submitting an 

annual escrow account statement to the 

borrower under § 1024.17(i). This 

exemption also applies in situations 

where the servicer has brought an action 

for foreclosure under the underlying 

federally related mortgage loan, or 

where the borrower is in bankruptcy 

proceedings. If the servicer does not 

issue an annual statement pursuant to 

this exemption and the loan 

subsequently is reinstated or otherwise 

becomes current, the servicer shall 

provide a history of the account since 

the last annual statement (which may be 

longer than 1 year) within 90 days of the 

date the account became current. 

* * * * * 

(4) * * * 

(iii) Short year statement upon loan 

payoff. If a borrower pays off a federally 

related mortgage loan during the escrow 

account computation year, the servicer 

shall submit a short year statement to 

the borrower within 60 days after 

receiving the payoff funds. 

* * * * * 

(k) * * * 

(5) Timely payment of hazard 

insurance. (i) In general. Except as 

provided in paragraph (k)(5)(iii) of this 

section, with respect to a borrower 

whose mortgage payment is more than 

30 days overdue, but who has 

established an escrow account for the 

payment for hazard insurance, as 

defined in § 1024.31, a servicer may not 

purchase force-placed insurance, as that 

term is defined in § 1024.37(a), unless a 

servicer is unable to disburse funds 

from the borrower’s escrow account to 

ensure that the borrower’s hazard 

insurance premium charges are paid in 

a timely manner. 

(ii) Inability to disburse funds. (A) 

When inability exists. A servicer is 

considered unable to disburse funds 

from a borrower’s escrow account to 

ensure that the borrower’s hazard 

insurance premiums are paid in a timely 

manner only if the servicer has a 

reasonable basis to believe either that 

the borrower’s hazard insurance has 

been canceled (or was not renewed) for 

reasons other than nonpayment of 

premium charges or that the borrower’s 

property is vacant. 

(B) When inability does not exist. A 

servicer shall not be considered unable 

to disburse funds from the borrower’s 

escrow account because the escrow 

account contains insufficient funds for 

paying hazard insurance premium 

charges. 

(C) Recoupment of advances. If a 

servicer advances funds to an escrow 

account to ensure that the borrower’s 

hazard insurance premium charges are 

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paid in a timely manner, a servicer may 

seek repayment from the borrower for 

the funds the servicer advanced, unless 

otherwise prohibited by applicable law. 

(iii) Small servicers. Notwithstanding 

paragraphs (k)(5)(i) and (k)(5)(ii)(B) of 

this section and subject to the 

requirements in § 1024.37, a servicer 

that qualifies as a small servicer 

pursuant to 12 CFR 1026.41(e)(4) may 

purchase force-placed insurance and 

charge the cost of that insurance to the 

borrower if the cost to the borrower of 

the force-placed insurance is less than 

the amount the small servicer would 

need to disburse from the borrower’s 

escrow account to ensure that the 

borrower’s hazard insurance premium 

charges were paid in a timely manner. 

* * * * * 

§ 1024.18 [Removed and Reserved] 

■ 11. Section 1024.18 is removed and 

reserved. 

§ 1024.19 [Removed and Reserved] 

■ 12. Section 1024.19 is removed and 

reserved. 

§ 1024.21 [Removed] 

■ 13. Section 1024.21 is removed. 

§ 1024.22 [Removed] 

■ 14. Section 1024.22 is removed. 

§ 1024.23 [Removed] 

■ 15. Section 1024.23 is removed. 

■ 16. Subpart C is added to read as 

follows: 

Subpart C—Mortgage Servicing 

Sec. 

1024.30 Scope. 

1024.31 Definitions. 

1024.32 General disclosure requirements. 

1024.33 Mortgage servicing transfers. 

1024.34 Timely escrow payments and 

treatment of escrow account balances. 

1024.35 Error resolution procedures. 

1024.36 Requests for information. 

1024.37 Force-placed insurance. 

1024.38 General servicing policies, 

procedures, and requirements. 

1024.39 Early intervention requirements for 

certain borrowers. 

1024.40 Continuity of contact. 

1024.41 Loss mitigation procedures. 

Subpart C—Mortgage Servicing 

§ 1024.30 Scope. 

(a) In general. Except as provided in 

paragraph (b) and (c) of this section, this 

subpart applies to any mortgage loan, as 

that term is defined in § 1024.31. 

(b) Exemptions. Except as otherwise 

provided in § 1024.41(j), §§ 1024.38 

through 1024.41 of this subpart shall not 

apply to the following: 

(1) A servicer that qualifies as a small 

servicer pursuant to 12 CFR 

1026.41(e)(4); 

(2) A servicer with respect to any 

reverse mortgage transaction as that 

term is defined in § 1024.31; and 

(3) A servicer with respect to any 

mortgage loan for which the servicer is 

a qualified lender as that term is defined 

in 12 CFR 617.7000. 

(c) Scope of certain sections. (1) 

Section 1024.33(a) only applies to 

mortgage loans that are secured by a 

first lien. 

(2) The procedures set forth in 

§§ 1024.39 through 1024.41 of this 

subpart only apply to a mortgage loan 

that is secured by a property that is a 

borrower’s principal residence. 

§ 1024.31 Definitions. 

For purposes of this subpart: 

Consumer reporting agency has the 

meaning set forth in section 603 of the 

Fair Credit Reporting Act, 15 U.S.C. 

1681a. 

Day means calendar day. 

Hazard insurance means insurance on 

the property securing a mortgage loan 

that protects the property against loss 

caused by fire, wind, flood, earthquake, 

theft, falling objects, freezing, and other 

similar hazards for which the owner or 

assignee of such loan requires 

insurance. 

Loss mitigation application means an 

oral or written request for a loss 

mitigation option that is accompanied 

by any information required by a 

servicer for evaluation for a loss 

mitigation option. 

Loss mitigation option means an 

alternative to foreclosure offered by the 

owner or assignee of a mortgage loan 

that is made available through the 

servicer to the borrower. 

Master servicer means the owner of 

the right to perform servicing. A master 

servicer may perform the servicing itself 

or do so through a subservicer. 

Mortgage loan means any federally 

related mortgage loan, as that term is 

defined in § 1024.2 subject to the 

exemptions in § 1024.5(b), but does not 

include open-end lines of credit (home 

equity plans). 

Qualified written request means a 

written correspondence from the 

borrower to the servicer that includes, 

or otherwise enables the servicer to 

identify, the name and account of the 

borrower, and either: 

(1) States the reasons the borrower 

believes the account is in error; or 

(2) Provides sufficient detail to the 

servicer regarding information relating 

to the servicing of the mortgage loan 

sought by the borrower. 

Reverse mortgage transaction has the 

meaning set forth in 12 CFR 1026.33(a). 

Service provider means any party 

retained by a servicer that interacts with 

a borrower or provides a service to the 

servicer for which a borrower may incur 

a fee. 

Subservicer means a servicer that does 

not own the right to perform servicing, 

but that performs servicing on behalf of 

the master servicer. 

Transferee servicer means a servicer 

that obtains or will obtain the right to 

perform servicing pursuant to an 

agreement or understanding. 

Transferor servicer means a servicer, 

including a table-funding mortgage 

broker or dealer on a first- lien dealer 

loan, that transfers or will transfer the 

right to perform servicing pursuant to an 

agreement or understanding. 

§ 1024.32 General disclosure 

requirements. 

(a) Disclosure requirements. (1) Form 

of disclosures. Except as otherwise 

provided in this subpart, disclosures 

required under this subpart must be 

clear and conspicuous, in writing, and 

in a form that a recipient may keep. The 

disclosures required by this subpart may 

be provided in electronic form, subject 

to compliance with the consumer 

consent and other applicable provisions 

of the E-Sign Act, as set forth in 

§ 1024.3. A servicer may use commonly 

accepted or readily understandable 

abbreviations in complying with the 

disclosure requirements of this subpart. 

(2) Foreign language disclosures. 

Disclosures required under this subpart 

may be made in a language other than 

English, provided that the disclosures 

are made available in English upon a 

recipient’s request. 

(b) Additional information; 

disclosures required by other laws. 

Unless expressly prohibited in this 

subpart, by other applicable law, such 

as the Truth in Lending Act (15 U.S.C. 

1601 et seq.) or the Truth in Savings Act 

(12 U.S.C. 4301 et seq.), or by the terms 

of an agreement with a Federal or State 

regulatory agency, a servicer may 

include additional information in a 

disclosure required under this subpart 

or combine any disclosure required 

under this subpart with any disclosure 

required by such other law. 

§ 1024.33 Mortgage servicing transfers. 

(a) Servicing disclosure statement. 

Within three days (excluding legal 

public holidays, Saturdays, and 

Sundays) after a person applies for a 

first-lien mortgage loan, the lender, 

mortgage broker who anticipates using 

table funding, or dealer in a first-lien 

dealer loan shall provide to the person 

a servicing disclosure statement that 

states whether the servicing of the 

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mortgage loan may be assigned, sold, or 

transferred to any other person at any 

time. Appendix MS–1 of this part 

contains a model form for the 

disclosures required under this 

paragraph (a). If a person who applies 

for a first-lien mortgage loan is denied 

credit within the three-day period, a 

servicing disclosure statement is not 

required to be delivered. 

(b) Notices of transfer of loan 

servicing. (1) Requirement for notice. 

Except as provided in paragraph (b)(2) 

of this section, each transferor servicer 

and transferee servicer of any mortgage 

loan shall provide to the borrower a 

notice of transfer for any assignment, 

sale, or transfer of the servicing of the 

mortgage loan. The notice must contain 

the information described in paragraph 

(b)(4) of this section. Appendix MS–2 of 

this part contains a model form for the 

disclosures required under this 

paragraph (b). 

(2) Certain transfers excluded. (i) The 

following transfers are not assignments, 

sales, or transfers of mortgage loan 

servicing for purposes of this section if 

there is no change in the payee, address 

to which payment must be delivered, 

account number, or amount of payment 

due: 

(A) A transfer between affiliates; 

(B) A transfer that results from 

mergers or acquisitions of servicers or 

subservicers; 

(C) A transfer that occurs between 

master servicers without changing the 

subservicer; 

(ii) The Federal Housing 

Administration (FHA) is not required to 

provide to the borrower a notice of 

transfer where a mortgage insured under 

the National Housing Act is assigned to 

the FHA. 

(3) Time of notice. (i) In general. 

Except as provided in paragraphs 

(b)(3)(ii) and (iii) of this section, the 

transferor servicer shall provide the 

notice of transfer to the borrower not 

less than 15 days before the effective 

date of the transfer of the servicing of 

the mortgage loan. The transferee 

servicer shall provide the notice of 

transfer to the borrower not more than 

15 days after the effective date of the 

transfer. The transferor and transferee 

servicers may provide a single notice, in 

which case the notice shall be provided 

not less than 15 days before the effective 

date of the transfer of the servicing of 

the mortgage loan. 

(ii) Extended time. The notice of 

transfer shall be provided to the 

borrower by the transferor servicer or 

the transferee servicer not more than 30 

days after the effective date of the 

transfer of the servicing of the mortgage 

loan in any case in which the transfer 

of servicing is preceded by: 

(A) Termination of the contract for 

servicing the loan for cause; 

(B) Commencement of proceedings for 

bankruptcy of the servicer; 

(C) Commencement of proceedings by 

the FDIC for conservatorship or 

receivership of the servicer or an entity 

that owns or controls the servicer; or 

(D) Commencement of proceedings by 

the NCUA for appointment of a 

conservator or liquidating agent of the 

servicer or an entity that owns or 

controls the servicer. 

(iii) Notice provided at settlement. 

Notices of transfer provided at 

settlement by the transferor servicer and 

transferee servicer, whether as separate 

notices or as a combined notice, satisfy 

the timing requirements of paragraph 

(b)(3) of this section. 

(4) Contents of notice. The notices of 

transfer shall include the following 

information: 

(i) The effective date of the transfer of 

servicing; 

(ii) The name, address, and a collect 

call or toll-free telephone number for an 

employee or department of the 

transferee servicer that can be contacted 

by the borrower to obtain answers to 

servicing transfer inquiries; 

(iii) The name, address, and a collect 

call or toll-free telephone number for an 

employee or department of the 

transferor servicer that can be contacted 

by the borrower to obtain answers to 

servicing transfer inquiries; 

(iv) The date on which the transferor 

servicer will cease to accept payments 

relating to the loan and the date on 

which the transferee servicer will begin 

to accept such payments. These dates 

shall either be the same or consecutive 

days; 

(v) Whether the transfer will affect the 

terms or the continued availability of 

mortgage life or disability insurance, or 

any other type of optional insurance, 

and any action the borrower must take 

to maintain such coverage; and 

(vi) A statement that the transfer of 

servicing does not affect any term or 

condition of the mortgage loan other 

than terms directly related to the 

servicing of the loan. 

(c) Borrower payments during transfer 

of servicing. (1) Payments not 

considered late. During the 60-day 

period beginning on the effective date of 

transfer of the servicing of any mortgage 

loan, if the transferor servicer (rather 

than the transferee servicer that should 

properly receive payment on the loan) 

receives payment on or before the 

applicable due date (including any grace 

period allowed under the mortgage loan 

instruments), a payment may not be 

treated as late for any purpose. 

(2) Treatment of payments. Beginning 

on the effective date of transfer of the 

servicing of any mortgage loan, with 

respect to payments received incorrectly 

by the transferor servicer (rather than 

the transferee servicer that should 

properly receive the payment on the 

loan), the transferor servicer shall 

promptly either: 

(i) Transfer the payment to the 

transferee servicer for application to a 

borrower’s mortgage loan account, or 

(ii) Return the payment to the person 

that made the payment and notify such 

person of the proper recipient of the 

payment. 

(d) Preemption of State laws. A lender 

who makes a mortgage loan or a servicer 

shall be considered to have complied 

with the provisions of any State law or 

regulation requiring notice to a borrower 

at the time of application for a loan or 

transfer of servicing of a loan if the 

lender or servicer complies with the 

requirements of this section. Any State 

law requiring notice to the borrower at 

the time of application or at the time of 

transfer of servicing of the loan is 

preempted, and there shall be no 

additional borrower disclosure 

requirements. Provisions of State law, 

such as those requiring additional 

notices to insurance companies or 

taxing authorities, are not preempted by 

section 6 of RESPA or this section, and 

this additional information may be 

added to a notice provided under this 

section, if permitted under State law. 

§ 1024.34 Timely escrow payments and 

treatment of escrow account balances. 

(a) Timely escrow disbursements 

required. If the terms of a mortgage loan 

require the borrower to make payments 

to the servicer of the mortgage loan for 

deposit into an escrow account to pay 

taxes, insurance premiums, and other 

charges for the mortgaged property, the 

servicer shall make payments from the 

escrow account in a timely manner, that 

is, on or before the deadline to avoid a 

penalty, as governed by the 

requirements in § 1024.17(k). 

(b) Refund of escrow balance. (1) In 

general. Except as provided in 

paragraph (b)(2) of this section, within 

20 days (excluding legal public 

holidays, Saturdays, and Sundays) of a 

borrower’s payment of a mortgage loan 

in full, a servicer shall return to the 

borrower any amounts remaining in an 

escrow account that is within the 

servicer’s control. 

(2) Servicer may credit funds to a new 

escrow account. Notwithstanding 

paragraph (b)(1) of this section, if the 

borrower agrees, a servicer may credit 

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any amounts remaining in an escrow 

account that is within the servicer’s 

control to an escrow account for a new 

mortgage loan as of the date of the 

settlement of the new mortgage loan if 

the new mortgage loan is provided to 

the borrower by a lender that: 

(i) Was also the lender to whom the 

prior mortgage loan was initially 

payable; 

(ii) Is the owner or assignee of the 

prior mortgage loan; or 

(iii) Uses the same servicer that 

serviced the prior mortgage loan to 

service the new mortgage loan. 

§ 1024.35 Error resolution procedures. 

(a) Notice of error. A servicer shall 

comply with the requirements of this 

section for any written notice from the 

borrower that asserts an error and that 

includes the name of the borrower, 

information that enables the servicer to 

identify the borrower’s mortgage loan 

account, and the error the borrower 

believes has occurred. A notice on a 

payment coupon or other payment form 

supplied by the servicer need not be 

treated by the servicer as a notice of 

error. A qualified written request that 

asserts an error relating to the servicing 

of a mortgage loan is a notice of error 

for purposes of this section, and a 

servicer must comply with all 

requirements applicable to a notice of 

error with respect to such qualified 

written request. 

(b) Scope of error resolution. For 

purposes of this section, the term 

‘‘error’’ refers to the following categories 

of covered errors: 

(1) Failure to accept a payment that 

conforms to the servicer’s written 

requirements for the borrower to follow 

in making payments. 

(2) Failure to apply an accepted 

payment to principal, interest, escrow, 

or other charges under the terms of the 

mortgage loan and applicable law. 

(3) Failure to credit a payment to a 

borrower’s mortgage loan account as of 

the date of receipt in violation of 12 CFR 

1026.36(c)(1). 

(4) Failure to pay taxes, insurance 

premiums, or other charges, including 

charges that the borrower and servicer 

have voluntarily agreed that the servicer 

should collect and pay, in a timely 

manner as required by § 1024.34(a), or 

to refund an escrow account balance as 

required by § 1024.34(b). 

(5) Imposition of a fee or charge that 

the servicer lacks a reasonable basis to 

impose upon the borrower. 

(6) Failure to provide an accurate 

payoff balance amount upon a 

borrower’s request in violation of 

section 12 CFR 1026.36(c)(3). 

(7) Failure to provide accurate 

information to a borrower regarding loss 

mitigation options and foreclosure, as 

required by § 1024.39. 

(8) Failure to transfer accurately and 

timely information relating to the 

servicing of a borrower’s mortgage loan 

account to a transferee servicer. 

(9) Making the first notice or filing 

required by applicable law for any 

judicial or non-judicial foreclosure 

process in violation of § 1024.41(f) or (j). 

(10) Moving for foreclosure judgment 

or order of sale, or conducting a 

foreclosure sale in violation of 

§ 1024.41(g) or (j). 

(11) Any other error relating to the 

servicing of a borrower’s mortgage loan. 

(c) Contact information for borrowers 

to assert errors. A servicer may, by 

written notice provided to a borrower, 

establish an address that a borrower 

must use to submit a notice of error in 

accordance with the procedures in this 

section. The notice shall include a 

statement that the borrower must use 

the established address to assert an 

error. If a servicer designates a specific 

address for receiving notices of error, 

the servicer shall designate the same 

address for receiving information 

requests pursuant to § 1024.36(b). A 

servicer shall provide a written notice to 

a borrower before any change in the 

address used for receiving a notice of 

error. A servicer that designates an 

address for receipt of notices of error 

must post the designated address on any 

Web site maintained by the servicer if 

the Web site lists any contact address 

for the servicer. 

(d) Acknowledgment of receipt. 

Within five days (excluding legal public 

holidays, Saturdays, and Sundays) of a 

servicer receiving a notice of error from 

a borrower, the servicer shall provide to 

the borrower a written response 

acknowledging receipt of the notice of 

error. 

(e) Response to notice of error. (1) 

Investigation and response 

requirements. (i) In general. Except as 

provided in paragraphs (f) and (g) of this 

section, a servicer must respond to a 

notice of error by either: 

(A) Correcting the error or errors 

identified by the borrower and 

providing the borrower with a written 

notification of the correction, the 

effective date of the correction, and 

contact information, including a 

telephone number, for further 

assistance; or 

(B) Conducting a reasonable 

investigation and providing the 

borrower with a written notification that 

includes a statement that the servicer 

has determined that no error occurred, 

a statement of the reason or reasons for 

this determination, a statement of the 

borrower’s right to request documents 

relied upon by the servicer in reaching 

its determination, information regarding 

how the borrower can request such 

documents, and contact information, 

including a telephone number, for 

further assistance. 

(ii) Different or additional error. If 

during a reasonable investigation of a 

notice of error, a servicer concludes that 

errors occurred other than, or in 

addition to, the error or errors alleged by 

the borrower, the servicer shall correct 

all such additional errors and provide 

the borrower with a written notification 

that describes the errors the servicer 

identified, the action taken to correct 

the errors, the effective date of the 

correction, and contact information, 

including a telephone number, for 

further assistance. 

(2) Requesting information from 

borrower. A servicer may request 

supporting documentation from a 

borrower in connection with the 

investigation of an asserted error, but 

may not: 

(i) Require a borrower to provide such 

information as a condition of 

investigating an asserted error; or 

(ii) Determine that no error occurred 

because the borrower failed to provide 

any requested information without 

conducting a reasonable investigation 

pursuant to paragraph (e)(1)(i)(B) of this 

section. 

(3) Time limits. (i) In general. A 

servicer must comply with the 

requirements of paragraph (e)(1) of this 

section: 

(A) Not later than seven days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

servicer receives the notice of error for 

errors asserted under paragraph (b)(6) of 

this section. 

(B) Prior to the date of a foreclosure 

sale or within 30 days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the servicer receives the 

notice of error, whichever is earlier, for 

errors asserted under paragraphs (b)(9) 

and (10) of this section. 

(C) For all other asserted errors, not 

later than 30 days (excluding legal 

public holidays, Saturdays, and 

Sundays) after the servicer receives the 

applicable notice of error. 

(ii) Extension of time limit. For 

asserted errors governed by the time 

limit set forth in paragraph (e)(3)(i)(C) of 

this section, a servicer may extend the 

time period for responding by an 

additional 15 days (excluding legal 

public holidays, Saturdays, and 

Sundays) if, before the end of the 30-day 

period, the servicer notifies the 

borrower of the extension and the 

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reasons for the extension in writing. A 

servicer may not extend the time period 

for responding to errors asserted under 

paragraph (b)(6), (9), or (10) of this 

section. 

(4) Copies of documentation. A 

servicer shall provide to the borrower, at 

no charge, copies of documents and 

information relied upon by the servicer 

in making its determination that no 

error occurred within 15 days 

(excluding legal public holidays, 

Saturdays, and Sundays) of receiving 

the borrower’s request for such 

documents. A servicer is not required to 

provide documents relied upon that 

constitute confidential, proprietary or 

privileged information. If a servicer 

withholds documents relied upon 

because it has determined that such 

documents constitute confidential, 

proprietary or privileged information, 

the servicer must notify the borrower of 

its determination in writing within 15 

days (excluding legal public holidays, 

Saturdays, and Sundays) of receipt of 

the borrower’s request for such 

documents. 

(f) Alternative compliance. (1) Early 

correction. A servicer is not required to 

comply with paragraphs (d) and (e) of 

this section if the servicer corrects the 

error or errors asserted by the borrower 

and notifies the borrower of that 

correction in writing within five days 

(excluding legal public holidays, 

Saturdays, and Sundays) of receiving 

the notice of error. 

(2) Error asserted before foreclosure 

sale. A servicer is not required to 

comply with the requirements of 

paragraphs (d) and (e) of this section for 

errors asserted under paragraph (b)(9) or 

(10) of this section if the servicer 

receives the applicable notice of an error 

seven or fewer days before a foreclosure 

sale. For any such notice of error, a 

servicer shall make a good faith attempt 

to respond to the borrower, orally or in 

writing, and either correct the error or 

state the reason the servicer has 

determined that no error has occurred. 

(g) Requirements not applicable. (1) In 

general. A servicer is not required to 

comply with the requirements of 

paragraphs (d), (e), and (i) of this section 

if the servicer reasonably determines 

that any of the following apply: 

(i) Duplicative notice of error. The 

asserted error is substantially the same 

as an error previously asserted by the 

borrower for which the servicer has 

previously complied with its obligation 

to respond pursuant to paragraphs (d) 

and (e) of this section, unless the 

borrower provides new and material 

information to support the asserted 

error. New and material information 

means information that was not 

reviewed by the servicer in connection 

with investigating a prior notice of the 

same error and is reasonably likely to 

change the servicer’s prior 

determination about the error. 

(ii) Overbroad notice of error. The 

notice of error is overbroad. A notice of 

error is overbroad if the servicer cannot 

reasonably determine from the notice of 

error the specific error that the borrower 

asserts has occurred on a borrower’s 

account. To the extent a servicer can 

reasonably identify a valid assertion of 

an error in a notice of error that is 

otherwise overbroad, the servicer shall 

comply with the requirements of 

paragraphs (d), (e) and (i) of this section 

with respect to that asserted error. 

(iii) Untimely notice of error. A notice 

of error is delivered to the servicer more 

than one year after: 

(A) Servicing for the mortgage loan 

that is the subject of the asserted error 

was transferred from the servicer 

receiving the notice of error to a 

transferee servicer; or 

(B) The mortgage loan balance was 

paid in full. 

(2) Notice to borrower. If a servicer 

determines that, pursuant to this 

paragraph (g), the servicer is not 

required to comply with the 

requirements of paragraphs (d), (e), and 

(i) of this section, the servicer shall 

notify the borrower of its determination 

in writing not later than five days 

(excluding legal public holidays, 

Saturdays, and Sundays) after making 

such determination. The notice to the 

borrower shall set forth the basis under 

paragraph (g)(1) of this section upon 

which the servicer has made such 

determination. 

(h) Payment requirements prohibited. 

A servicer shall not charge a fee, or 

require a borrower to make any payment 

that may be owed on a borrower’s 

account, as a condition of responding to 

a notice of error. 

(i) Effect on servicer remedies. (1) 

Adverse information. After receipt of a 

notice of error, a servicer may not, for 

60 days, furnish adverse information to 

any consumer reporting agency 

regarding any payment that is the 

subject of the notice of error. 

(2) Remedies permitted. Except as set 

forth in this section with respect to an 

assertion of error under paragraph (b)(9) 

or (10) of this section, nothing in this 

section shall limit or restrict a lender or 

servicer from pursuing any remedy it 

has under applicable law, including 

initiating foreclosure or proceeding with 

a foreclosure sale. 

§ 1024.36 Requests for information. 

(a) Information request. A servicer 

shall comply with the requirements of 

this section for any written request for 

information from a borrower that 

includes the name of the borrower, 

information that enables the servicer to 

identify the borrower’s mortgage loan 

account, and states the information the 

borrower is requesting with respect to 

the borrower’s mortgage loan. A request 

on a payment coupon or other payment 

form supplied by the servicer need not 

be treated by the servicer as a request for 

information. A request for a payoff 

balance need not be treated by the 

servicer as a request for information. A 

qualified written request that requests 

information relating to the servicing of 

the mortgage loan is a request for 

information for purposes of this section, 

and a servicer must comply with all 

requirements applicable to a request for 

information with respect to such 

qualified written request. 

(b) Contact information for borrowers 

to request information. A servicer may, 

by written notice provided to a 

borrower, establish an address that a 

borrower must use to request 

information in accordance with the 

procedures in this section. The notice 

shall include a statement that the 

borrower must use the established 

address to request information. If a 

servicer designates a specific address for 

receiving information requests, a 

servicer shall designate the same 

address for receiving notices of error 

pursuant to § 1024.35(c). A servicer 

shall provide a written notice to a 

borrower before any change in the 

address used for receiving an 

information request. A servicer that 

designates an address for receipt of 

information requests must post the 

designated address on any Web site 

maintained by the servicer if the Web 

site lists any contact address for the 

servicer. 

(c) Acknowledgment of receipt. 

Within five days (excluding legal public 

holidays, Saturdays, and Sundays) of a 

servicer receiving an information 

request from a borrower, the servicer 

shall provide to the borrower a written 

response acknowledging receipt of the 

information request. 

(d) Response to information request. 

(1) Investigation and response 

requirements. Except as provided in 

paragraphs (e) and (f) of this section, a 

servicer must respond to an information 

request by either: 

(i) Providing the borrower with the 

requested information and contact 

information, including a telephone 

number, for further assistance in 

writing; or 

(ii) Conducting a reasonable search for 

the requested information and providing 

the borrower with a written notification 

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that states that the servicer has 

determined that the requested 

information is not available to the 

servicer, provides the basis for the 

servicer’s determination, and provides 

contact information, including a 

telephone number, for further 

assistance. 

(2) Time limits. (i) In general. A 

servicer must comply with the 

requirements of paragraph (d)(1) of this 

section: 

(A) Not later than 10 days (excluding 

legal public holidays, Saturdays, and 

Sundays) after the servicer receives an 

information request for the identity of, 

and address or other relevant contact 

information for, the owner or assignee of 

a mortgage loan; and 

(B) For all other requests for 

information, not later than 30 days 

(excluding legal public holidays, 

Saturdays, and Sundays) after the 

servicer receives the information 

request. 

(ii) Extension of time limit. For 

requests for information governed by the 

time limit set forth in paragraph 

(d)(2)(i)(B) of this section, a servicer 

may extend the time period for 

responding by an additional 15 days 

(excluding legal public holidays, 

Saturdays, and Sundays) if, before the 

end of the 30-day period, the servicer 

notifies the borrower of the extension 

and the reasons for the extension in 

writing. A servicer may not extend the 

time period for requests for information 

governed by paragraph (d)(2)(i)(A) of 

this section. 

(e) Alternative compliance. A servicer 

is not required to comply with 

paragraphs (c) and (d) of this section if 

the servicer provides the borrower with 

the information requested and contact 

information, including a telephone 

number, for further assistance in writing 

within five days (excluding legal public 

holidays, Saturdays, and Sundays) of 

receiving an information request. 

(f) Requirements not applicable. (1) In 

general. A servicer is not required to 

comply with the requirements of 

paragraphs (c) and (d) of this section if 

the servicer reasonably determines that 

any of the following apply: 

(i) Duplicative information. The 

information requested is substantially 

the same as information previously 

requested by the borrower for which the 

servicer has previously complied with 

its obligation to respond pursuant to 

paragraphs (c) and (d) of this section. 

(ii) Confidential, proprietary or 

privileged information. The information 

requested is confidential, proprietary or 

privileged. 

(iii) Irrelevant information. The 

information requested is not directly 

related to the borrower’s mortgage loan 

account. 

(iv) Overbroad or unduly burdensome 

information request. The information 

request is overbroad or unduly 

burdensome. An information request is 

overbroad if a borrower requests that the 

servicer provide an unreasonable 

volume of documents or information to 

a borrower. An information request is 

unduly burdensome if a diligent 

servicer could not respond to the 

information request without either 

exceeding the maximum time limit 

permitted by paragraph (d)(2) of this 

section or incurring costs (or dedicating 

resources) that would be unreasonable 

in light of the circumstances. To the 

extent a servicer can reasonably identify 

a valid information request in a 

submission that is otherwise overbroad 

or unduly burdensome, the servicer 

shall comply with the requirements of 

paragraphs (c) and (d) of this section 

with respect to that requested 

information. 

(v) Untimely information request. The 

information request is delivered to a 

servicer more than one year after: 

(A) Servicing for the mortgage loan 

that is the subject of the information 

request was transferred from the 

servicer receiving the request for 

information to a transferee servicer; or 

(B) The mortgage loan balance was 

paid in full. 

(2) Notice to borrower. If a servicer 

determines that, pursuant to this 

paragraph (f), the servicer is not 

required to comply with the 

requirements of paragraphs (c) and (d) 

of this section, the servicer shall notify 

the borrower of its determination in 

writing not later than five days 

(excluding legal public holidays, 

Saturdays, and Sundays) after making 

such determination. The notice to the 

borrower shall set forth the basis under 

paragraph (f)(1) of this section upon 

which the servicer has made such 

determination. 

(g) Payment requirement limitations. 

(1) Fees prohibited. Except as set forth 

in paragraph (g)(2) of this section, a 

servicer shall not charge a fee, or require 

a borrower to make any payment that 

may be owed on a borrower’s account, 

as a condition of responding to an 

information request. 

(2) Fee permitted. Nothing in this 

section shall prohibit a servicer from 

charging a fee for providing a 

beneficiary notice under applicable 

State law, if such a fee is not otherwise 

prohibited by applicable law. 

(h) Servicer remedies. Nothing in this 

section shall prohibit a servicer from 

furnishing adverse information to any 

consumer reporting agency or pursuing 

any of its remedies, including initiating 

foreclosure or proceeding with a 

foreclosure sale, allowed by the 

underlying mortgage loan instruments, 

during the time period that response to 

an information request notice is 

outstanding. 

§ 1024.37 Force-placed insurance. 

(a) Definition of force-placed 

insurance. (1) In general. For the 

purposes of this section, the term 

‘‘force-placed insurance’’ means hazard 

insurance obtained by a servicer on 

behalf of the owner or assignee of a 

mortgage loan that insures the property 

securing such loan. 

(2) Types of insurance not considered 

force-placed insurance. The following 

insurance does not constitute ‘‘forceplaced insurance’’ under this section: 

(i) Hazard insurance required by the 

Flood Disaster Protection Act of 1973. 

(ii) Hazard insurance obtained by a 

borrower but renewed by the borrower’s 

servicer as described in § 1024.17(k)(1), 

(2), or (5). 

(iii) Hazard insurance obtained by a 

borrower but renewed by the borrower’s 

servicer at its discretion, if the borrower 

agrees. 

(b) Basis for charging borrower for 

force-placed insurance. A servicer may 

not assess on a borrower a premium 

charge or fee related to force-placed 

insurance unless the servicer has a 

reasonable basis to believe that the 

borrower has failed to comply with the 

mortgage loan contract’s requirement to 

maintain hazard insurance. 

(c) Requirements before charging 

borrower for force-placed insurance. (1) 

In general. Before a servicer assesses on 

a borrower any premium charge or fee 

related to force-placed insurance, the 

servicer must: 

(i) Deliver to a borrower or place in 

the mail a written notice containing the 

information required by paragraph (c)(2) 

of this section at least 45 days before a 

servicer assesses on a borrower such 

charge or fee; 

(ii) Deliver to the borrower or place in 

the mail a written notice in accordance 

with paragraph (d)(1) of this section; 

and 

(iii) By the end of the 15-day period 

beginning on the date the written notice 

described in paragraph (c)(1)(ii) of this 

section was delivered to the borrower or 

placed in the mail, not have received, 

from the borrower or otherwise, 

evidence demonstrating that the 

borrower has had in place, 

continuously, hazard insurance 

coverage that complies with the loan 

contract’s requirements to maintain 

hazard insurance. 

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(2) Content of notice. The notice 

required by paragraph (c)(1)(i) of this 

section shall set forth the following 

information: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing 

address; 

(iii) The borrower’s name and mailing 

address; 

(iv) A statement that requests the 

borrower to provide hazard insurance 

information for the borrower’s property 

and identifies the property by its 

physical address; 

(v) A statement that the borrower’s 

hazard insurance is expiring or has 

expired, as applicable, and that the 

servicer does not have evidence that the 

borrower has hazard insurance coverage 

past the expiration date, and that, if 

applicable, identifies the type of hazard 

insurance for which the servicer lacks 

evidence of coverage; 

(vi) A statement that hazard insurance 

is required on the borrower’s property, 

and that the servicer has purchased or 

will purchase, as applicable, such 

insurance at the borrower’s expense; 

(vii) A statement requesting the 

borrower to promptly provide the 

servicer with insurance information; 

(viii) A description of the requested 

insurance information and how the 

borrower may provide such information, 

and if applicable, a statement that the 

requested information must be in 

writing; 

(ix) A statement that insurance the 

servicer has purchased or purchases: 

(A) May cost significantly more than 

hazard insurance purchased by the 

borrower; 

(B) Not provide as much coverage as 

hazard insurance purchased by the 

borrower; 

(x) The servicer’s telephone number 

for borrower inquiries; and 

(xi) If applicable, a statement advising 

the borrower to review additional 

information provided in the same 

transmittal. 

(3) Format. A servicer must set the 

information required by paragraphs 

(c)(2)(iv), (vi), and (ix)(A) and (B) in 

bold text, except that the information 

about the physical address of the 

borrower’s property required by 

paragraph (c)(2)(iv) of this section may 

be set in regular text. A servicer may use 

form MS–3A in appendix MS–3 of this 

part to comply with the requirements of 

paragraphs (c)(1)(i) and (2) of this 

section. 

(4) Additional information. A servicer 

may not include any information other 

than information required by paragraphs 

(c)(2) of this section in the written 

notice required by paragraph (c)(1)(i) of 

this section. However, a servicer may 

provide such additional information to 

a borrower on separate pieces of paper 

in the same transmittal. 

(d) Reminder notice. (1) In general. 

The notice required by paragraph 

(c)(1)(ii) of this section shall be 

delivered to the borrower or placed in 

the mail at least 15 days before a 

servicer assesses on a borrower a 

premium charge or fee related to forceplaced insurance. A servicer may not 

deliver to a borrower or place in the 

mail the notice required by paragraph 

(c)(1)(ii) of this section until at least 30 

days after delivering to the borrower or 

placing in the mail the written notice 

required by paragraph (c)(1)(i) of this 

section. 

(2) Content of the reminder notice. (i) 

Servicer receiving no insurance 

information. A servicer that receives no 

hazard insurance information after 

delivering to the borrower or placing in 

the mail the notice required by 

paragraph (c)(1)(i) of this section must 

set forth in the notice required by 

paragraph (c)(1)(ii) of this section: 

(A) The date of the notice; 

(B) A statement that the notice is the 

second and final notice; 

(C) The information required by 

paragraphs (c)(2)(ii) through (xi) of this 

section; and 

(D) The cost of the force-placed 

insurance, stated as an annual premium, 

except if a servicer does not know the 

cost of force-placed insurance, a 

reasonable estimate shall be disclosed 

and identified as such. 

(ii) Servicer not receiving 

demonstration of continuous coverage. 

A servicer that has received hazard 

insurance information after delivering to 

a borrower or placing in the mail the 

notice required by paragraph (c)(1)(i) of 

this section, but has not received, from 

the borrower or otherwise, evidence 

demonstrating that the borrower has had 

hazard insurance coverage in place 

continuously, must set forth in the 

notice required by paragraph (c)(1)(ii) of 

this section the following information: 

(A) The date of the notice; 

(B) The information required by 

paragraphs (c)(2)(ii) through (iv), (x), 

(xi), and (d)(2)(i)(B) and (D) of this 

section; 

(C) A statement that the servicer has 

received the hazard insurance 

information that the borrower provided; 

(D) A statement that requests the 

borrower to provide the information that 

is missing; 

(E) A statement that the borrower will 

be charged for insurance the servicer 

has purchased or purchases for the 

period of time during which the servicer 

is unable to verify coverage; 

(3) Format. A servicer must set the 

information required by paragraphs 

(d)(2)(i)(B) and (D) of this section in 

bold text. A servicer may use form MS– 

3B in appendix MS–3 of this part to 

comply with the requirements of 

paragraphs (d)(1) and (d)(2)(i) of this 

section. A servicer may use form MS– 

3C in appendix MS–3 of this part to 

comply with the requirements of 

paragraphs (d)(1) and (d)(2)(ii) of this 

section. 

(4) Additional information. As 

applicable, a servicer may not include 

any information other than information 

required by paragraph (d)(2)(i) or (ii) of 

this section in the written notice 

required by paragraph (c)(1)(ii) of this 

section. However, a servicer may 

provide such additional information to 

a borrower on separate pieces of paper 

in the same transmittal. 

(5) Updating notice with borrower 

information. If a servicer receives new 

information about a borrower’s hazard 

insurance after a written notice required 

by paragraph (c)(1)(ii) of this section has 

been put into production, the servicer is 

not required to update such notice 

based on the new information so long as 

the notice was put into production a 

reasonable time prior to the servicer 

delivering the notice to the borrower or 

placing the notice in the mail. 

(e) Renewing or replacing force-placed 

insurance. (1) In general. Before a 

servicer assesses on a borrower a 

premium charge or fee related to 

renewing or replacing existing forceplaced insurance, a servicer must: 

(i) Deliver to the borrower or place in 

the mail a written notice containing the 

information set forth in paragraph (e)(2) 

of this section at least 45 days before 

assessing on a borrower such charge or 

fee; and 

(ii) By the end of the 45-day period 

beginning on the date the written notice 

required by paragraph (e)(1)(i) of this 

section was delivered to the borrower or 

placed in the mail, not have received, 

from the borrower or otherwise, 

evidence demonstrating that the 

borrower has purchased hazard 

insurance coverage that complies with 

the loan contract’s requirements to 

maintain hazard insurance. 

(iii) Charging a borrower before end of 

notice period. Notwithstanding 

paragraphs (e)(1)(i) and (ii) of this 

section, if not prohibited by State or 

other applicable law, if a servicer has 

renewed or replaced existing forceplaced insurance and receives evidence 

demonstrating that the borrower lacked 

insurance coverage for some period of 

time following the expiration of the 

existing force-placed insurance 

(including during the notice period 

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prescribed by paragraph (e)(1) of this 

section), the servicer may, promptly 

upon receiving such evidence, assess on 

the borrower a premium charge or fee 

related to renewing or replacing existing 

force-placed insurance for that period of 

time. 

(2) Content of renewal notice. The 

notice required by paragraph (e)(1)(i) of 

this section shall set forth the following 

information: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing 

address; 

(iii) The borrower’s name and mailing 

address; 

(iv) A statement that requests the 

borrower to update the hazard insurance 

information for the borrower’s property 

and identifies the borrower’s property 

by its physical address; 

(v) A statement that the servicer 

previously purchased insurance on the 

borrower’s property and assessed the 

cost of the insurance to the borrower 

because the servicer did not have 

evidence that the borrower had hazard 

insurance coverage for the property; 

(vi) A statement that: 

(A) The insurance the servicer 

purchased previously has expired or is 

expiring, as applicable; and 

(B) Because hazard insurance is 

required on the borrower’s property, the 

servicer intends to maintain insurance 

on the property by renewing or 

replacing the insurance it previously 

purchased; 

(vii) A statement informing the 

borrower: 

(A) That insurance the servicer 

purchases may cost significantly more 

than hazard insurance purchased by the 

borrower; 

(B) That such insurance may not 

provide as much coverage as hazard 

insurance purchased by the borrower; 

and 

(C) The cost of the force-placed 

insurance, stated as an annual premium, 

except if a servicer does not know the 

cost of force-placed insurance, a 

reasonable estimate shall be disclosed 

and identified as such. 

(viii) A statement that if the borrower 

purchases hazard insurance, the 

borrower should promptly provide the 

servicer with insurance information. 

(ix) A description of the requested 

insurance information and how the 

borrower may provide such information, 

and if applicable, a statement that the 

requested information must be in 

writing; 

(x) The servicer’s telephone number 

for borrower inquiries; and 

(xi) If applicable, a statement advising 

a borrower to review additional 

information provided in the same 

transmittal. 

(3) Format. A servicer must set the 

information required by paragraphs 

(e)(2)(iv), (vi)(B), and (vii)(A) through 

(C) of this section in bold text, except 

that the information about the physical 

address of the borrower’s property 

required by paragraph (e)(2)(iv) may be 

set in regular text. A servicer may use 

form MS–3D in appendix MS–3 of this 

part to comply with the requirements of 

paragraphs (e)(1)(i) and (2) of this 

section. 

(4) Additional information. As 

applicable, a servicer may not include 

any information other than information 

required by paragraph (e)(2) of this 

section in the written notice required by 

paragraph (e)(1) of this section. 

However, a servicer may provide such 

additional information to a borrower on 

separate pieces of paper in same 

transmittal. 

(5) Frequency of renewal notices. 

Before each anniversary of a servicer 

purchasing force-placed insurance on a 

borrower’s property, the servicer shall 

deliver to the borrower or place in the 

mail the written notice required by 

paragraph (e)(1) of this section. A 

servicer is not required to provide the 

written notice required by paragraph 

(e)(1) of this section more than once a 

year. 

(f) Mailing the notices. If a servicer 

mails a written notice required by 

paragraphs (c)(1)(i), (c)(1)(ii), or (e)(1) of 

this section, the servicer must use a 

class of mail not less than first-class 

mail. 

(g) Cancellation of force-placed 

insurance. Within 15 days of receiving, 

from the borrower or otherwise, 

evidence demonstrating that the 

borrower has had in place hazard 

insurance coverage that complies with 

the loan contract’s requirements to 

maintain hazard insurance, a servicer 

must: 

(1) Cancel the force-placed insurance 

the servicer purchased to insure the 

borrower’s property; and 

(2) Refund to such borrower all forceplaced insurance premium charges and 

related fees paid by such borrower for 

any period of overlapping insurance 

coverage and remove from the 

borrower’s account all force-placed 

insurance charges and related fees for 

such period that the servicer has 

assessed to the borrower. 

(h) Limitations on force-placed 

insurance charges. (1) In general. Except 

for charges subject to State regulation as 

the business of insurance and charges 

authorized by the Flood Disaster 

Protection Act of 1973, all charges 

related to force-placed insurance 

assessed to a borrower by or through the 

servicer must be bona fide and 

reasonable. 

(2) Bona fide and reasonable charge. 

A bona fide and reasonable charge is a 

charge for a service actually performed 

that bears a reasonable relationship to 

the servicer’s cost of providing the 

service, and is not otherwise prohibited 

by applicable law. 

(i) Relationship to Flood Disaster 

Protection Act of 1973. If permitted by 

regulation under section 102(e) of the 

Flood Disaster Protection Act of 1973, a 

servicer subject to the requirements of 

this section may deliver to the borrower 

or place in the mail any notice required 

by this section and the notice required 

by section 102(e) of the Flood Disaster 

Protection Act of 1973 on separate 

pieces of paper in the same transmittal. 

§ 1024.38 General servicing policies, 

procedures, and requirements. 

(a) Reasonable policies and 

procedures. A servicer shall maintain 

policies and procedures that are 

reasonably designed to achieve the 

objectives set forth in paragraph (b) of 

this section. 

(b) Objectives. (1) Accessing and 

providing timely and accurate 

information. The policies and 

procedures required by paragraph (a) of 

this section shall be reasonably 

designed to ensure that the servicer can: 

(i) Provide accurate and timely 

disclosures to a borrower as required by 

this subpart or other applicable law; 

(ii) Investigate, respond to, and, as 

appropriate, make corrections in 

response to complaints asserted by a 

borrower; 

(iii) Provide a borrower with accurate 

and timely information and documents 

in response to the borrower’s requests 

for information with respect to the 

borrower’s mortgage loan; 

(iv) Provide owners or assignees of 

mortgage loans with accurate and 

current information and documents 

about all mortgage loans they own; 

(v) Submit documents or filings 

required for a foreclosure process, 

including documents or filings required 

by a court of competent jurisdiction, 

that reflect accurate and current 

information and that comply with 

applicable law; and 

(vi) Upon notification of the death of 

a borrower, promptly identify and 

facilitate communication with the 

successor in interest of the deceased 

borrower with respect to the property 

secured by the deceased borrower’s 

mortgage loan. 

(2) Properly evaluating loss mitigation 

applications. The policies and 

procedures required by paragraph (a) of 

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this section shall be reasonably 

designed to ensure that the servicer can: 

(i) Provide accurate information 

regarding loss mitigation options 

available to a borrower from the owner 

or assignee of the borrower’s mortgage 

loan; 

(ii) Identify with specificity all loss 

mitigation options for which borrowers 

may be eligible pursuant to any 

requirements established by an owner or 

assignee of the borrower’s mortgage 

loan; 

(iii) Provide prompt access to all 

documents and information submitted 

by a borrower in connection with a loss 

mitigation option to servicer personnel 

that are assigned to assist the borrower 

pursuant to § 1024.40; 

(iv) Identify documents and 

information that a borrower is required 

to submit to complete a loss mitigation 

application and facilitate compliance 

with the notice required pursuant to 

§ 1024.41(b)(2)(i)(B); and 

(v) Properly evaluate a borrower who 

submits an application for a loss 

mitigation option for all loss mitigation 

options for which the borrower may be 

eligible pursuant to any requirements 

established by the owner or assignee of 

the borrower’s mortgage loan and, 

where applicable, in accordance with 

the requirements of § 1024.41. 

(3) Facilitating oversight of, and 

compliance by, service providers. The 

policies and procedures required by 

paragraph (a) of this section shall be 

reasonably designed to ensure that the 

servicer can: 

(i) Provide appropriate servicer 

personnel with access to accurate and 

current documents and information 

reflecting actions performed by service 

providers; 

(ii) Facilitate periodic reviews of 

service providers, including by 

providing appropriate servicer 

personnel with documents and 

information necessary to audit 

compliance by service providers with 

the servicer’s contractual obligations 

and applicable law; and 

(iii) Facilitate the sharing of accurate 

and current information regarding the 

status of any evaluation of a borrower’s 

loss mitigation application and the 

status of any foreclosure proceeding 

among appropriate servicer personnel, 

including any personnel assigned to a 

borrower’s mortgage loan account as 

described in § 1024.40, and appropriate 

service provider personnel, including 

service provider personnel responsible 

for handling foreclosure proceedings. 

(4) Facilitating transfer of information 

during servicing transfers. The policies 

and procedures required by paragraph 

(a) of this section shall be reasonably 

designed to ensure that the servicer can: 

(i) As a transferor servicer, timely 

transfer all information and documents 

in the possession or control of the 

servicer relating to a transferred 

mortgage loan to a transferee servicer in 

a form and manner that ensures the 

accuracy of the information and 

documents transferred and that enables 

a transferee servicer to comply with the 

terms of the transferee servicer’s 

obligations to the owner or assignee of 

the mortgage loan and applicable law; 

and 

(ii) As a transferee servicer, identify 

necessary documents or information 

that may not have been transferred by a 

transferor servicer and obtain such 

documents from the transferor servicer. 

(iii) For the purposes of this 

paragraph (b)(4), transferee servicer 

means a servicer, including a master 

servicer or a subservicer, that performs 

or will perform servicing of a mortgage 

loan and transferor servicer means a 

servicer, including a master servicer or 

a subservicer, that transfers or will 

transfer the servicing of a mortgage loan. 

(5) Informing borrowers of the written 

error resolution and information request 

procedures. The policies and 

procedures required by paragraph (a) of 

this section shall be reasonably 

designed to ensure that the servicer 

informs borrowers of the procedures for 

submitting written notices of error set 

forth in § 1024.35 and written 

information requests set forth in 

§ 1024.36. 

(c) Standard requirements. (1) Record 

retention. A servicer shall retain records 

that document actions taken with 

respect to a borrower’s mortgage loan 

account until one year after the date a 

mortgage loan is discharged or servicing 

of a mortgage loan is transferred by the 

servicer to a transferee servicer. 

(2) Servicing file. A servicer shall 

maintain the following documents and 

data on each mortgage loan account 

serviced by the servicer in a manner that 

facilitates compiling such documents 

and data into a servicing file within five 

days: 

(i) A schedule of all transactions 

credited or debited to the mortgage loan 

account, including any escrow account 

as defined in § 1024.17(b) and any 

suspense account; 

(ii) A copy of the security instrument 

that establishes the lien securing the 

mortgage loan; 

(iii) Any notes created by servicer 

personnel reflecting communications 

with the borrower about the mortgage 

loan account; 

(iv) To the extent applicable, a report 

of the data fields relating to the 

borrower’s mortgage loan account 

created by the servicer’s electronic 

systems in connection with servicing 

practices; and 

(v) Copies of any information or 

documents provided by the borrower to 

the servicer in accordance with the 

procedures set forth in § 1024.35 or 

§ 1024.41. 

§ 1024.39 Early intervention requirements 

for certain borrowers. 

(a) Live contact. A servicer shall 

establish or make good faith efforts to 

establish live contact with a delinquent 

borrower not later than the 36th day of 

the borrower’s delinquency and, 

promptly after establishing live contact, 

inform such borrower about the 

availability of loss mitigation options if 

appropriate. 

(b) Written notice. (1) Notice required. 

Except as otherwise provided in this 

section, a servicer shall provide to a 

delinquent borrower a written notice 

with the information set forth in 

paragraph (a)(2) of this section not later 

than the 45th day of the borrower’s 

delinquency. A servicer is not required 

to provide the written notice more than 

once during any 180-day period. 

(2) Content of the written notice. The 

notice required by paragraph (b)(1) of 

this section shall include: 

(i) A statement encouraging the 

borrower to contact the servicer; 

(ii) The telephone number to access 

servicer personnel assigned pursuant to 

§ 1024.40(a) and the servicer’s mailing 

address; 

(iii) If applicable, a statement 

providing a brief description of 

examples of loss mitigation options that 

may be available from the servicer; 

(iv) If applicable, either application 

instructions or a statement informing 

the borrower how to obtain more 

information about loss mitigation 

options from the servicer; and 

(v) The Web site to access either the 

Bureau list or the HUD list of 

homeownership counselors or 

counseling organizations, and the HUD 

toll-free telephone number to access 

homeownership counselors or 

counseling organizations. 

(3) Model clauses. Model clauses MS– 

4(A), MS–4(B), and MS–4(C), in 

appendix MS–4 to this part may be used 

to comply with the requirements of 

paragraph (a) of this section. 

(c) Conflicts with other law. Nothing 

in this section shall require a servicer to 

communicate with a borrower in a 

manner otherwise prohibited by 

applicable law. 

§ 1024.40 Continuity of contact. 

(a) In general. A servicer shall 

maintain policies and procedures that 

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are reasonably designed to achieve the 

following objectives: 

(1) Assign personnel to a delinquent 

borrower by the time the servicer 

provides the borrower with the written 

notice required by § 1024.39(b), but in 

any event, not later than the 45th day 

of the borrower’s delinquency. 

(2) Make available to a delinquent 

borrower, via telephone, personnel 

assigned to the borrower as described in 

paragraph (a)(1) of this section to 

respond to the borrower’s inquiries, and 

as applicable, assist the borrower with 

available loss mitigation options until 

the borrower has made, without 

incurring a late charge, two consecutive 

mortgage payments in accordance with 

the terms of a permanent loss mitigation 

agreement. 

(3) If a borrower contacts the 

personnel assigned to the borrower as 

described in paragraph (a)(1) of this 

section and does not immediately 

receive a live response from such 

personnel, ensure that the servicer can 

provide a live response in a timely 

manner. 

(b) Functions of servicer personnel. A 

servicer shall maintain policies and 

procedures reasonably designed to 

ensure that servicer personnel assigned 

to a delinquent borrower as described in 

paragraph (a) of this section perform the 

following functions: 

(1) Provide the borrower with 

accurate information about: 

(i) Loss mitigation options available to 

the borrower from the owner or assignee 

of the borrower’s mortgage loan; 

(ii) Actions the borrower must take to 

be evaluated for such loss mitigation 

options, including actions the borrower 

must take to submit a complete loss 

mitigation application, as defined in 

§ 1024.41, and, if applicable, actions the 

borrower must take to appeal the 

servicer’s determination to deny a 

borrower’s loss mitigation application 

for any trial or permanent loan 

modification program offered by the 

servicer; 

(iii) The status of any loss mitigation 

application that the borrower has 

submitted to the servicer; 

(iv) The circumstances under which 

the servicer may make a referral to 

foreclosure; and 

(v) Applicable loss mitigation 

deadlines established by an owner or 

assignee of the borrower’s mortgage loan 

or § 1024.41. 

(2) Retrieve, in a timely manner: 

(i) A complete record of the 

borrower’s payment history; and 

(ii) All written information the 

borrower has provided to the servicer, 

and if applicable, to prior servicers, in 

connection with a loss mitigation 

application; 

(3) Provide the documents and 

information identified in paragraph 

(b)(2) of this section to other persons 

required to evaluate a borrower for loss 

mitigation options made available by 

the servicer, if applicable; and 

(4) Provide a delinquent borrower 

with information about the procedures 

for submitting a notice of error pursuant 

to § 1024.35 or an information request 

pursuant to § 1024.36. 

§ 1024.41 Loss mitigation procedures. 

(a) Enforcement and limitations. A 

borrower may enforce the provisions of 

this section pursuant to section 6(f) of 

RESPA (12 U.S.C. 2605(f)). Nothing in 

§ 1024.41 imposes a duty on a servicer 

to provide any borrower with any 

specific loss mitigation option. Nothing 

in § 1024.41 should be construed to 

create a right for a borrower to enforce 

the terms of any agreement between a 

servicer and the owner or assignee of a 

mortgage loan, including with respect to 

the evaluation for, or offer of, any loss 

mitigation option or to eliminate any 

such right that may exist pursuant to 

applicable law. 

(b) Receipt of a loss mitigation 

application. (1) Complete loss 

mitigation application. A complete loss 

mitigation application means an 

application in connection with which a 

servicer has received all the information 

that the servicer requires from a 

borrower in evaluating applications for 

the loss mitigation options available to 

the borrower. A servicer shall exercise 

reasonable diligence in obtaining 

documents and information to complete 

a loss mitigation application. 

(2) Review of loss mitigation 

application submission. (i) 

Requirements. If a servicer receives a 

loss mitigation application 45 days or 

more before a foreclosure sale, a servicer 

shall: 

(A) Promptly upon receipt of a loss 

mitigation application, review the loss 

mitigation application to determine if 

the loss mitigation application is 

complete; and 

(B) Notify the borrower in writing 

within 5 days (excluding legal public 

holidays, Saturdays, and Sundays) after 

receiving the loss mitigation application 

that the servicer acknowledges receipt 

of the loss mitigation application and 

that the servicer has determined that the 

loss mitigation application is either 

complete or incomplete. If a loss 

mitigation application is incomplete, 

the notice shall state the additional 

documents and information the 

borrower must submit to make the loss 

mitigation application complete and the 

applicable date pursuant to paragraph 

(b)(2)(ii) of this section. The notice to 

the borrower shall include a statement 

that the borrower should consider 

contacting servicers of any other 

mortgage loans secured by the same 

property to discuss available loss 

mitigation options. 

(ii) Time period disclosure. The notice 

required pursuant to paragraph 

(b)(2)(i)(B) of this section must state that 

the borrower should submit the 

documents and information necessary to 

make the loss mitigation application 

complete by the earliest remaining date 

of: 

(A) The date by which any document 

or information submitted by a borrower 

will be considered stale or invalid 

pursuant to any requirements applicable 

to any loss mitigation option available 

to the borrower; 

(B) The date that is the 120th day of 

the borrower’s delinquency; 

(C) The date that is 90 days before a 

foreclosure sale; or 

(D) The date that is 38 days before a 

foreclosure sale. 

(c) Evaluation of loss mitigation 

applications. (1) Complete loss 

mitigation application. If a servicer 

receives a complete loss mitigation 

application more than 37 days before a 

foreclosure sale, then, within 30 days of 

receiving a borrower’s complete loss 

mitigation application, a servicer shall: 

(i) Evaluate the borrower for all loss 

mitigation options available to the 

borrower; and 

(ii) Provide the borrower with a notice 

in writing stating the servicer’s 

determination of which loss mitigation 

options, if any, it will offer to the 

borrower on behalf of the owner or 

assignee of the mortgage loan. 

(2) Incomplete loss mitigation 

application evaluation. (i) In general. 

Except as set forth in paragraph (c)(2)(ii) 

of this section, a servicer shall not evade 

the requirement to evaluate a complete 

loss mitigation option for all loss 

mitigation options available to the 

borrower by offering a loss mitigation 

option based upon an evaluation of any 

information provided by a borrower in 

connection with an incomplete loss 

mitigation application. 

(ii) Reasonable time. Notwithstanding 

paragraph (c)(2)(i) of this section, if a 

servicer has exercised reasonable 

diligence in obtaining documents and 

information to complete a loss 

mitigation application, but a loss 

mitigation application remains 

incomplete for a significant period of 

time under the circumstances without 

further progress by a borrower to make 

the loss mitigation application 

complete, a servicer may, in its 

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discretion, evaluate an incomplete loss 

mitigation application and offer a 

borrower a loss mitigation option. Any 

such evaluation and offer is not subject 

to the requirements of this section and 

shall not constitute an evaluation of a 

single complete loss mitigation 

application for purposes of paragraph (i) 

of this section. 

(d) Denial of loan modification 

options. If a borrower’s complete loss 

mitigation application is denied for any 

trial or permanent loan modification 

option available to the borrower 

pursuant to paragraph (c) of this section, 

a servicer shall state in the notice sent 

to the borrower pursuant to paragraph 

(c)(1)(ii) of this section: 

(1) The specific reasons for the 

servicer’s determination for each such 

trial or permanent loan modification 

option; and 

(2) If applicable pursuant to paragraph 

(h) of this section, that the borrower 

may appeal the servicer’s determination 

for any such trial or permanent loan 

modification option, the deadline for 

the borrower to make an appeal, and 

any requirements for making an appeal. 

(e) Borrower response. (1) In general. 

Subject to paragraphs (e)(2)(ii) and (iii) 

of this section, if a complete loss 

mitigation application is received 90 

days or more before a foreclosure sale, 

a servicer may require that a borrower 

accept or reject an offer of a loss 

mitigation option no earlier than 14 

days after the servicer provides the offer 

of a loss mitigation option to the 

borrower. If a complete loss mitigation 

application is received less than 90 days 

before a foreclosure sale, but more than 

37 days before a foreclosure sale, a 

servicer may require that a borrower 

accept or reject an offer of a loss 

mitigation option no earlier than 7 days 

after the servicer provides the offer of a 

loss mitigation option to the borrower. 

(2) Rejection. (i) In general. Except as 

set forth in paragraphs (e)(2)(ii) and (iii) 

of this section, a servicer may deem a 

borrower that has not accepted an offer 

of a loss mitigation option within the 

deadline established pursuant to 

paragraph (e)(1) of this section to have 

rejected the offer of a loss mitigation 

option. 

(ii) Trial Loan Modification Plan. A 

borrower who does not satisfy the 

servicer’s requirements for accepting a 

trial loan modification plan, but submits 

the payments that would be owed 

pursuant to any such plan within the 

deadline established pursuant to 

paragraph (e)(1) of this section, shall be 

provided a reasonable period of time to 

fulfill any remaining requirements of 

the servicer for acceptance of the trial 

loan modification plan beyond the 

deadline established pursuant to 

paragraph (e)(1) of this section. 

(iii) Interaction with appeal process. If 

a borrower makes an appeal pursuant to 

paragraph (h) of this section, the 

borrower’s deadline for accepting a loss 

mitigation option offered pursuant to 

paragraph (c)(1)(ii) of this section shall 

be extended until 14 days after the 

servicer provides the notice required 

pursuant to paragraph (h)(4) of this 

section. 

(f) Prohibition on foreclosure referral. 

(1) Pre-foreclosure review period. A 

servicer shall not make the first notice 

or filing required by applicable law for 

any judicial or non-judicial foreclosure 

process unless a borrower’s mortgage 

loan obligation is more than 120 days 

delinquent. 

(2) Application received before 

foreclosure referral. If a borrower 

submits a complete loss mitigation 

application during the pre-foreclosure 

review period set forth in paragraph 

(f)(1) of this section or before a servicer 

has made the first notice or filing 

required by applicable law for any 

judicial or non-judicial foreclosure 

process, a servicer shall not make the 

first notice or filing required by 

applicable law for any judicial or nonjudicial foreclosure process unless: 

(i) The servicer has sent the borrower 

a notice pursuant to paragraph (c)(1)(ii) 

of this section that the borrower is not 

eligible for any loss mitigation option 

and the appeal process in paragraph (h) 

of this section is not applicable, the 

borrower has not requested an appeal 

within the applicable time period for 

requesting an appeal, or the borrower’s 

appeal has been denied; 

(ii) The borrower rejects all loss 

mitigation options offered by the 

servicer; or 

(iii) The borrower fails to perform 

under an agreement on a loss mitigation 

option. 

(g) Prohibition on foreclosure sale. If 

a borrower submits a complete loss 

mitigation application after a servicer 

has made the first notice or filing 

required by applicable law for any 

judicial or non-judicial foreclosure 

process but more than 37 days before a 

foreclosure sale, a servicer shall not 

move for foreclosure judgment or order 

of sale, or conduct a foreclosure sale, 

unless: 

(1) The servicer has sent the borrower 

a notice pursuant to paragraph (c)(1)(ii) 

of this section that the borrower is not 

eligible for any loss mitigation option 

and the appeal process in paragraph (h) 

of this section is not applicable, the 

borrower has not requested an appeal 

within the applicable time period for 

requesting an appeal, or the borrower’s 

appeal has been denied; 

(2) The borrower rejects all loss 

mitigation options offered by the 

servicer; or 

(3) The borrower fails to perform 

under an agreement on a loss mitigation 

option. 

(h) Appeal process. (1) Appeal 

process required for loan modification 

denials. If a servicer receives a complete 

loss mitigation application 90 days or 

more before a foreclosure sale or during 

the period set forth in paragraph (f) of 

this section, a servicer shall permit a 

borrower to appeal the servicer’s 

determination to deny a borrower’s loss 

mitigation application for any trial or 

permanent loan modification program 

available to the borrower. 

(2) Deadlines. A servicer shall permit 

a borrower to make an appeal within 14 

days after the servicer provides the offer 

of a loss mitigation option to the 

borrower pursuant to paragraph (c)(1)(ii) 

of this section. 

(3) Independent evaluation. An 

appeal shall be reviewed by different 

personnel than those responsible for 

evaluating the borrower’s complete loss 

mitigation application. 

(4) Appeal determination. Within 30 

days of a borrower making an appeal, 

the servicer shall provide a notice to the 

borrower stating the servicer’s 

determination of whether the servicer 

will offer the borrower a loss mitigation 

option based upon the appeal. A 

servicer may require that a borrower 

accept or reject an offer of a loss 

mitigation option after an appeal no 

earlier than 14 days after the servicer 

provides the notice to a borrower. A 

servicer’s determination under this 

paragraph is not subject to any further 

appeal. 

(i) Duplicative requests. A servicer is 

only required to comply with the 

requirements of this section for a single 

complete loss mitigation application for 

a borrower’s mortgage loan account. 

(j) Small servicer requirements. A 

small servicer shall not make the first 

notice or filing required by applicable 

law for any judicial or non-judicial 

foreclosure process unless a borrower’s 

mortgage loan obligation is more than 

120 days delinquent. A small servicer 

shall not make the first notice or filing 

required by applicable law for any 

judicial or non-judicial foreclosure 

process and shall not move for 

foreclosure judgment or order of sale, or 

conduct a foreclosure sale, if a borrower 

is performing pursuant to the terms of 

an agreement on a loss mitigation 

option. 

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■ 18. The subject heading ‘‘Appendix 

MS—Mortgage Servicing’’ is added 

above appendix MS–1. 

■ 19. Appendix MS–2 to part 1024 is 

revised to read as follows: 

Appendix MS–2 to Part 1024 

Notice of Servicing Transfer 

The servicing of your mortgage loan is 

being transferred, effective [Date]. This 

means that after this date, a new servicer will 

be collecting your mortgage loan payments 

from you. Nothing else about your mortgage 

loan will change. 

[Name of present servicer] is now 

collecting your payments. [Name of present 

servicer] will stop accepting payments 

received from you after [Date]. 

[Name of new servicer] will collect your 

payments going forward. Your new servicer 

will start accepting payments received from 

you on [Date]. 

Send all payments due on or after [Date] 

to [Name of new servicer] at this address: 

[New servicer address]. 

If you have any questions for either your 

present servicer, [Name of present servicer] 

or your new servicer [Name of new servicer], 

about your mortgage loan or this transfer, 

please contact them using the information 

below: 

Current Servicer: New Servicer: 

[Name of present 

servicer] 

[Name of new 

servicer] 

[Individual or Department] [Individual or Department] 

[Telephone Number] [Telephone Number] 

[Address] [Address] 

[Use this paragraph if appropriate; 

otherwise omit.] Important note about 

insurance: If you have mortgage life or 

disability insurance or any other type of 

optional insurance, the transfer of servicing 

rights may affect your insurance in the 

following way: 

lllllllllllllllllllll

You should do the following to maintain 

coverage: 

lllllllllllllllllllll

Under Federal law, during the 60-day 

period following the effective date of the 

transfer of the loan servicing, a loan payment 

received by your old servicer on or before its 

due date may not be treated by the new 

servicer as late, and a late fee may not be 

imposed on you. 

lllllllllllllllllllll

[NAME OF PRESENT SERVICER] 

lllllllllllllllllllll

Date 

[and] [or] 

lllllllllllllllllllll

[NAME OF NEW SERVICER] 

lllllllllllllllllllll

Date 

■ 20. Appendix MS–3 is added to part 

1024 to read as follows: 

Appendix MS–3 to Part 1024 

Model Force-Placed Insurance Notice Forms 

Table of Contents 

MS–3(A)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(c)(2) 

MS–3(B)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(d)(2)(i) 

MS–3(C)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(d)(2)(ii) 

MS–3(D)—Model Form for Renewal or 

Replacement of Force-Placed Insurance 

Notice Containing Information Required By 

to § 1024.37(e)(2) 

MS–3(A)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(c)(2) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Please provide insurance 

information for [Property 

Address] 

Dear [Borrower’s Name]: 

Our records show that your [hazard] 

[Insurance Type] insurance [is expiring] 

[expired], and we do not have evidence that 

you have obtained new coverage. Because 

[hazard] [Insurance Type] insurance is 

required on your property, [we bought 

insurance for your property] [we plan to buy 

insurance for your property]. You must pay 

us for any period during which the insurance 

we buy is in effect but you do not have 

insurance. 

You should immediately provide us with 

your insurance information. [Describe the 

insurance information the borrower must 

provide]. [The information must be provided 

in writing.] 

The insurance we [bought] [buy]: 

• May be more expensive than the 

insurance you can buy yourself. 

• May not provide as much coverage as an 

insurance policy you buy yourself. 

If you have any questions, please contact 

us at [telephone number]. 

[If applicable, provide a statement advising 

a borrower to review additional information 

provided in the same transmittal.] 

MS–3(B)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(d)(2)(i) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Second and final notice—please 

provide insurance information for [Property 

Address] 

Dear [Borrower’s Name]: 

This is your second and final notice that 

our records show that your [hazard] 

[Insurance Type] insurance [is expiring] 

[expired], and we do not have evidence that 

you have obtained new coverage. Because 

[hazard] [Insurance Type] insurance is 

required on your property, [we bought 

insurance for your property] [we plan to buy 

insurance for your property]. You must pay 

us for any period during which the insurance 

we buy is in effect but you do not have 

insurance. 

You should immediately provide us with 

your insurance information. [Describe the 

insurance information the borrower must 

provide]. [The information must be provided 

in writing.] 

The insurance we [bought] [buy]: 

• [Costs $[premium charge]] [Will cost an 

estimated $[premium charge]] annually, 

which may be more expensive than 

insurance you can buy yourself. 

• May not provide as much coverage as an 

insurance policy you buy yourself. 

If you have any questions, please contact 

us at [telephone number]. 

[If applicable, provide a statement advising 

a borrower to review additional information 

provided in the same transmittal.] 

MS–3(C)—Model Form for Force-Placed 

Insurance Notice Containing Information 

Required By § 1024.37(d)(2)(ii) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Second and final notice—please 

provide insurance information for 

[Property Address] 

Dear [Borrower’s Name]: 

We received the insurance information you 

provided, but we are unable to verify 

coverage from [Date Range]. 

Please provide us with insurance 

information for [Date Range] immediately. 

We will charge you for insurance we 

[bought] [plan to buy] for [Date Range] unless 

we can verify that you have insurance 

coverage for [Date Range]. 

The insurance we [bought] [buy]: 

• Costs $[premium charge]] [Will cost an 

estimated $[premium charge]] annually, 

which may be more expensive than 

insurance you can buy yourself. 

• May not provide as much coverage as an 

insurance policy you buy yourself. 

If you have any questions, please contact 

us at [telephone number]. 

[If applicable, provide a statement advising 

a borrower to review additional information 

provided in the same transmittal.] 

MS–3(D)—Model Form for Renewal or 

Replacement of Force-Placed Insurance 

Notice Containing Information Required By 

to § 1024.37(e)(2) 

[Name and Mailing Address of Servicer] 

[Date of Notice] 

[Borrower’s Name] 

[Borrower’s Mailing Address] 

Subject: Please update insurance information 

for [Property Address] 

Dear [Borrower’s Name]: 

Because we did not have evidence that you 

had [hazard] [Insurance Type] insurance on 

the property listed above, we bought 

insurance on your property and added the 

cost to your mortgage loan account. 

The policy that we bought [expired] [is 

scheduled to expire]. Because 

[hazard][Insurance Type] insurance] is 

required on your property, we intend to 

maintain insurance on your property by 

renewing or replacing the insurance we 

bought. 

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The insurance we buy: 

• [Costs $[premium charge]] [Will cost an 

estimated $[premium charge]] annually, 

which may be more expensive than 

insurance you can buy yourself. 

• May not provide as much coverage as an 

insurance policy you buy yourself. 

If you buy [hazard] [Insurance Type] 

insurance, you should immediately provide 

us with your insurance information. 

[Describe the insurance information the 

borrower must provide]. [The information 

must be provided in writing.] 

If you have any questions, please contact 

us at [telephone number]. 

[If applicable, provide a statement advising 

a borrower to review additional information 

provided in the same transmittal.] 

■ 21. Appendix MS–4 is added to part 

1024 to read as follows: 

Appendix MS–4—Model Clauses for the 

Written Early Intervention Notice 

MS–4(A)—Statement Encouraging the 

Borrower To Contact the Servicer and 

Additional Information About Loss 

Mitigation Options (§ 1024.39(b)(2)(i), (ii) 

and (iv)) 

Call us today to learn more about your 

options and instructions for how to apply. 

[The longer you wait, or the further you fall 

behind on your payments, the harder it will 

be to find a solution.] 

[Servicer Name] 

[Servicer Address] 

[Servicer Telephone Number] 

[For more information, visit [Servicer Web 

site] [and][or] [Email Address]]. 

MS–4(B)—Available Loss Mitigation Options 

(§ 1024.39(b)(2)(iii)) 

[If you need help, the following options 

may be possible (most are subject to lender 

approval):] 

• [Refinance your loan with us or another 

lender;] 

• [Modify your loan terms with us;] 

• [Payment forbearance temporarily gives 

you more time to pay your monthly 

payment;] [or] 

• [If you are not able to continue paying 

your mortgage, your best option may be to 

find more affordable housing. As an 

alternative to foreclosure, you may be able to 

sell your home and use the proceeds to pay 

off your current loan.] 

MS–4(C)—Housing Counselors 

(§ 1024.39(b)(2)(v)) 

For help exploring your options, the 

Federal government provides contact 

information for housing counselors, which 

you can access by contacting [the Consumer 

Financial Protection Bureau at [Bureau 

Housing Counselor List Web site]] [the 

Department of Housing and Urban 

Development at [HUD Housing Counselor 

List Web site]] or by calling [HUD Housing 

Counselor List Telephone Number]. 

■ 22. Supplement I to part 1024 is 

added following the appendices to read 

as follows: 

Supplement I to Part 1024—Official 

Bureau Interpretations 

Introduction 

1. Official status. This commentary is 

the primary vehicle by which the 

Bureau of Consumer Financial 

Protection issues official interpretations 

of Regulation X. Good faith compliance 

with this commentary affords protection 

from liability under section 19(b) of the 

Real Estate Settlement Procedures Act 

(RESPA), 12 U.S.C. 2617(b). 

2. Requests for official interpretations. 

A request for an official interpretation 

shall be in writing and addressed to the 

Associate Director, Research, Markets, 

and Regulations, Bureau of Consumer 

Financial Protection, 1700 G Street NW., 

Washington, DC 20552. A request shall 

contain a complete statement of all 

relevant facts concerning the issue, 

including copies of all pertinent 

documents. Except in unusual 

circumstances, such official 

interpretations will not be issued 

separately but will be incorporated in 

the official commentary to this part, 

which will be amended periodically. No 

official interpretations will be issued 

approving financial institutions’ forms 

or statements. This restriction does not 

apply to forms or statements whose use 

is required or sanctioned by a 

government agency. 

3. Unofficial oral interpretations. 

Unofficial oral interpretations may be 

provided at the discretion of Bureau 

staff. Written requests for such 

interpretations should be sent to the 

address set forth for official 

interpretations. Unofficial oral 

interpretations provide no protection 

under section 19(b) of RESPA. 

Ordinarily, staff will not issue unofficial 

oral interpretations on matters 

adequately covered by this part or the 

official Bureau interpretations. 

4. Rules of construction. (a) Lists that 

appear in the commentary may be 

exhaustive or illustrative; the 

appropriate construction should be clear 

from the context. In most cases, 

illustrative lists are introduced by 

phrases such as ‘‘including, but not 

limited to,’’ ‘‘among other things,’’ ‘‘for 

example,’’ or ‘‘such as.’’ 

(b) Throughout the commentary, 

reference to ‘‘this section’’ or ‘‘this 

paragraph’’ means the section or 

paragraph in the regulation that is the 

subject of the comment. 

5. Comment designations. Each 

comment in the commentary is 

identified by a number and the 

regulatory section or paragraph that the 

comment interprets. The comments are 

designated with as much specificity as 

possible according to the particular 

regulatory provision addressed. For 

example, some of the comments to 

§ 1024.37(c)(1) are further divided by 

subparagraph, such as comment 

37(c)(1)(i)–1. In other cases, comments 

have more general application and are 

designated, for example, as comment 

40(a)–1. This introduction may be cited 

as comments I–1 through I–5. 

Subpart A—General Provisions 

[Reserved] 

Subpart B—Mortgage Settlement and 

Escrow Accounts 

[Reserved] 

Section 1024.17 Escrow Accounts 

17(k) Timely payments. 

17(k)(5) Timely payment of hazard 

insurance. 

17(k)(5)(ii) Ability to disburse funds. 

17(k)(5)(ii)(A) When inability exists. 

1. Examples of reasonable basis to 

believe that a policy has been cancelled 

or not renewed. The following are 

examples of where a servicer has a 

reasonable basis to believe that a 

borrower’s hazard insurance policy has 

been canceled or not renewed for 

reasons other than the nonpayment of 

premium charges: 

i. A borrower notifies a servicer that 

the borrower has cancelled the hazard 

insurance coverage, and the servicer has 

not received notification of other hazard 

insurance coverage. 

ii. A servicer receives a notification of 

cancellation or non-renewal from the 

borrower’s insurance company before 

payment is due on the borrower’s 

hazard insurance. 

iii. A servicer does not receive a 

payment notice by the expiration date of 

the borrower’s hazard insurance policy. 

17(k)(5)(ii)(C) Recoupment for 

advances. 

1. Month-to-month advances. A 

servicer that advances the premium 

payment to be disbursed from an escrow 

account may advance the payment on a 

month-to-month basis, if permitted by 

State or other applicable law and 

accepted by the borrower’s hazard 

insurance company. 

Subpart C—Mortgage Servicing 

§ 1024.30—Scope 

30(b) Exemptions. 

1. Exemption for Farm Credit System 

institutions. Pursuant to 12 CFR 

617.7000, certain servicers may be 

considered ‘‘qualified lenders’’ only 

with respect to loans discounted or 

pledged pursuant to 12 U.S.C. 

2015(b)(1). To the extent a servicer, as 

defined in RESPA, services a mortgage 

loan that has not been discounted or 

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10888 Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 

pledged pursuant to 12 U.S.C. 

2015(b)(1), and is not subject to the 

requirements set forth in 12 CFR 617, 

the servicer may be required to comply 

with the requirements of §§ 1024.38 

through 41 with respect to that mortgage 

loan. 

§ 1024.31—Definitions 

Loss mitigation application. 

1. Borrower’s representative. A loss 

mitigation application is deemed to be 

submitted by a borrower if the loss 

mitigation application is submitted by 

an agent of the borrower. Servicers may 

undertake reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf. 

Loss mitigation option. 

1. Types of loss mitigation options. 

Loss mitigation options include 

temporary and long-term relief, 

including options that allow borrowers 

who are behind on their mortgage 

payments to remain in their homes or to 

leave their homes without a foreclosure, 

such as, without limitation, refinancing, 

trial or permanent modification, 

repayment of the amount owed over an 

extended period of time, forbearance of 

future payments, short-sale, deed-in-lieu 

of foreclosure, and loss mitigation 

programs sponsored by a locality, a 

State, or the Federal government. 

2. Available through the servicer. A 

loss mitigation option available through 

the servicer refers to an option for 

which a borrower may apply, even if the 

borrower ultimately does not qualify for 

such option. 

Qualified written request. 

1. A qualified written request is a 

written notice a borrower provides to 

request a servicer either correct an error 

relating to the servicing of a mortgage 

loan or to request information relating to 

the servicing of the mortgage loan. A 

qualified written request is not required 

to include both types of requests. For 

example, a qualified written request 

may request information relating to the 

servicing of a mortgage loan but not 

assert that an error relating to the 

servicing of a loan has occurred. 

2. A qualified written request is just 

one form that a written notice of error 

or information request may take. Thus, 

the error resolution and information 

request requirements in §§ 1024.35 and 

1024.36 apply as set forth in those 

sections irrespective of whether the 

servicer receives a qualified written 

request. 

Service provider. 

1. Service providers may include 

attorneys retained to represent a servicer 

or an owner or assignee of a mortgage 

loan in a foreclosure proceeding, as well 

as other professionals retained to 

provide appraisals or inspections of 

properties. 

§ 1024.33—Mortgage Servicing 

Transfers 

33(a) Servicing disclosure statement. 

1. Terminology. Although the 

servicing disclosure statement must be 

clear and conspicuous pursuant to 

§ 1024.32(a)(1), § 1024.33(a)(1) does not 

set forth any specific rules for the format 

of the statement, and the specific 

language of the servicing disclosure 

statement in appendix MS–1 is not 

required to be used. The model format 

may be supplemented with additional 

information that clarifies or enhances 

the model language. 

2. Delivery to co-applicants. If coapplicants indicate the same address on 

their application, one copy delivered to 

that address is sufficient. If different 

addresses are shown by co-applicants 

on the application, a copy must be 

delivered to each of the co-applicants. 

3. Lender servicing. If the lender, 

mortgage broker who anticipates using 

table funding, or dealer in a first lien 

dealer loan knows at the time of making 

the disclosure whether it will service 

the mortgage loan for which the 

applicant has applied, the disclosure 

must, as applicable, state that such 

entity will service such loan and does 

not intend to sell, transfer, or assign the 

servicing of the loan, or that such entity 

intends to assign, sell, or transfer 

servicing of such mortgage loan before 

the first payment is due. In all other 

instances, a disclosure that states that 

the servicing of the loan may be 

assigned, sold, or transferred while the 

loan is outstanding complies with 

§ 1024.33(a). 

33(b) Notices of transfer of loan 

servicing. 

Paragraph 33(b)(3). 

1. Delivery. A servicer mailing the 

notice of transfer must deliver the notice 

to the mailing address (or addresses) 

listed by the borrower in the mortgage 

loan documents, unless the borrower 

has notified the servicer of a new 

address (or addresses) pursuant to the 

servicer’s requirements for receiving a 

notice of a change of address. 

33(c) Borrower payments during 

transfer of servicing. 

33(c)(1) Payments not considered late. 

1. Late fees prohibited. The 

prohibition in § 1024.33(c)(1) on treating 

a payment as late for any purpose would 

prohibit a late fee from being imposed 

on the borrower with respect to any 

payment on the mortgage loan. See 

RESPA section 6(d) (12 U.S.C. 2605(d)). 

2. Compliance with § 1024.39. A 

transferee servicer’s compliance with 

1024.39 during the 60-day period 

beginning on the effective date of a 

servicing transfer does not constitute 

treating a payment as late for purposes 

of § 1024.33(c)(1). 

§ 1024.34—Timely Escrow Payments 

and Treatment of Escrow Balances 

Paragraph 34(b)(1). 

1. Netting of funds. Section 

1024.34(b)(1) does not prohibit a 

servicer from netting any remaining 

funds in an escrow account against the 

outstanding balance of the borrower’s 

mortgage loan. 

Paragraph 34(b)(2). 

1. Refund always permissible. A 

servicer is not required to credit funds 

in an escrow account to an escrow 

account for a new mortgage loan and 

may, in all circumstances, comply with 

the requirements of § 1024.34(b) by 

refunding the funds in the escrow 

account to the borrower pursuant to 

§ 1024.34(b)(1). 

2. Borrower agreement. A borrower 

may agree either orally or in writing to 

a servicer’s crediting of any remaining 

balance in an escrow account to a new 

escrow account for a new mortgage loan 

pursuant to § 1024.34(b)(2). 

§ 1024.35—Error Resolution Procedures 

35(a) Notice of error. 

1. Borrower’s representative. A notice 

of error is submitted by a borrower if the 

notice of error is submitted by an agent 

of the borrower. A servicer may 

undertake reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf, for example, by 

requiring that a person that claims to be 

an agent of the borrower provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. Upon receipt 

of such documentation, the servicer 

shall treat the notice of error as having 

been submitted by the borrower. 

2. Information request. A servicer 

should not rely solely on the borrower’s 

description of a submission to 

determine whether the submission 

constitutes a notice of error under 

§ 1024.35(a), an information request 

under § 1024.36(a), or both. For 

example, a borrower may submit a letter 

that claims to be a ‘‘Notice of Error’’ that 

indicates that the borrower wants to 

receive the information set forth in an 

annual escrow account statement and 

asserts an error for the servicer’s failure 

to provide the borrower an annual 

escrow statement. Such a letter may 

constitute an information request under 

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Federal Register / Vol. 78, No. 31 / Thursday, February 14, 2013 / Rules and Regulations 10889 

§ 1024.36(a) that triggers an obligation 

by the servicer to provide an annual 

escrow statement. A servicer should not 

rely on the borrower’s characterization 

of the letter as a ‘‘Notice of Error,’’ but 

must evaluate whether the letter fulfills 

the substantive requirements of a notice 

of error, information request, or both. 

35(b) Scope of error resolution. 

1. Noncovered errors. A servicer is not 

required to comply with § 1024.35(d), 

(e) and (i) with respect to a borrower’s 

assertion of an error that is not defined 

as an error in § 1024.35(b). For example, 

the following are not errors for purposes 

of § 1024.35: 

i. An error relating to the origination 

of a mortgage loan; 

ii. An error relating to the 

underwriting of a mortgage loan; 

iii. An error relating to a subsequent 

sale or securitization of a mortgage loan; 

iv. An error relating to a 

determination to sell, assign, or transfer 

the servicing of a mortgage loan. 

However, an error relating to the failure 

to transfer accurately and timely 

information relating to the servicing of 

a borrower’s mortgage loan account to a 

transferee servicer is an error for 

purposes of § 1024.35. 

2. Unreasonable basis. For purposes 

of § 1024.35(b)(5), a servicer lacks a 

reasonable basis to impose fees that are 

not bona fide, such as: 

i. A late fee for a payment that was 

not late; 

ii. A charge imposed by a service 

provider for a service that was not 

actually rendered; 

iii. A default property management 

fee for borrowers that are not in a 

delinquency status that would justify 

the charge; or 

iv. A charge for force-placed 

insurance in a circumstance not 

permitted by § 1024.37. 

35(c) Contact information for 

borrowers to assert errors. 

1. Exclusive address not required. A 

servicer is not required to designate a 

specific address that a borrower must 

use to assert an error. If a servicer does 

not designate a specific address that a 

borrower must use to assert an error, a 

servicer must respond to a notice of 

error received by any office of the 

servicer. 

2. Notice of an exclusive address. A 

notice establishing an address that a 

borrower must use to assert an error 

may be included with a different 

disclosure, such as on a notice of 

transfer, periodic statement, or coupon 

book. The notice is subject to the clear 

and conspicuous requirement in 

§ 1024.32(a)(1). If a servicer establishes 

an address that a borrower must use to 

assert an error, a servicer must provide 

that address to the borrower in any 

communication in which the servicer 

provides the borrower with contact 

information for assistance from the 

servicer. 

3. Multiple offices. A servicer may 

designate multiple office addresses for 

receiving notices of errors. However, a 

servicer is required to comply with the 

requirements of § 1024.35 with respect 

to a notice of error received at any such 

designated address regardless of 

whether that specific address was 

provided to a specific borrower 

asserting an error. For example, a 

servicer may designate an address to 

receive notices of error for borrowers 

located in California and a separate 

address to receive notices of errors for 

borrowers located in Texas. If a 

borrower located in California asserts an 

error through the address used by the 

servicer for borrowers located in Texas, 

the servicer is still considered to have 

received a notice of error and must 

comply with the requirements of 

§ 1024.35. 

4. Internet intake of notices of error. 

A servicer may, but need not, establish 

a process for receiving notices of error 

through email, Web site form, or other 

online intake methods. Any such online 

intake process shall be in addition to, 

and not in lieu of, any process for 

receiving notices of error by mail. The 

process or processes established by the 

servicer for receiving notices of error 

through an online intake method shall 

be the exclusive online intake process or 

processes for receiving notices of error. 

A servicer is not required to provide a 

separate notice to a borrower to 

establish a specific online intake 

process as an exclusive online process 

for receiving such notices of error. 

35(e) Response to notice of error. 

35(e)(1) Investigation and response 

requirements. 

Paragraph 35(e)(1)(i). 

1. Notices alleging multiple errors; 

separate responses permitted. A servicer 

may respond to a notice of error that 

alleges multiple errors through either a 

single response or separate responses 

that address each asserted error. 

Paragraph 35(e)(1)(ii). 

1. Different or additional errors; 

separate responses permitted. A servicer 

may provide the response required by 

§ 1024.35(e)(1)(ii) for different or 

additional errors identified by the 

servicer in the same notice that 

responds to errors asserted by the 

borrower pursuant to § 1024.35(e)(1)(i) 

or in a separate response that addresses 

the different or additional errors 

identified by the servicer. 

35(e)(3) Time limits. 

35(e)(3)(i) In general. 

Paragraph 35(e)(3)(i)(B). 

1. Foreclosure sale timing. If a servicer 

cannot comply with its obligations 

pursuant to § 1024.35(e) by the earlier of 

a foreclosure sale or 30 days after 

receipt of the notice of error, a servicer 

may cancel or postpone a foreclosure 

sale, in which case the servicer would 

meet the time limit in 

§ 1024.35(e)(3)(i)(B) by complying with 

the requirements of § 1024.35(e) before 

the earlier of 30 days after receipt of the 

notice of error (excluding legal public 

holidays, Saturdays, and Sundays) or 

the date of the rescheduled foreclosure 

sale. 

35(e)(3)(ii) Extension of time limit. 

1. Notices alleging multiple errors; 

extension of time. A servicer may treat 

a notice of error that alleges multiple 

errors as separate notices of error and 

may extend the time period for 

responding to each asserted error for 

which an extension is permissible under 

§ 1024.35(e)(3)(ii). 

35(e)(4) Copies of documentation. 

1. Types of documents to be provided. 

A servicer is required to provide only 

those documents actually relied upon 

by the servicer to determine that no 

error occurred. Such documents may 

include documents reflecting 

information entered in a servicer’s 

collection system. For example, in 

response to an asserted error regarding 

payment allocation, a servicer may 

provide a printed screen-capture 

showing amounts credited to principal, 

interest, escrow, or other charges in the 

servicer’s system for the borrower’s 

mortgage loan account. 

35(g) Requirements not applicable. 

35(g)(1) In general. 

Paragraph 35(g)(1)(i). 

1. New and material information. A 

dispute between a borrower and a 

servicer with respect to whether 

information was previously reviewed by 

a servicer or with respect to whether a 

servicer properly determined that 

information reviewed was not material 

to its determination of the existence of 

an error, does not itself constitute new 

and material information. 

Paragraph 35(g)(1)(ii). 

1. Examples of overbroad notices of 

error. The following are examples of 

notices of error that are overbroad: 

i. Assertions of errors regarding 

substantially all aspects of a mortgage 

loan, including errors relating to all 

aspects of mortgage origination, 

mortgage servicing, and foreclosure, as 

well as errors relating to the crediting of 

substantially every borrower payment 

and escrow account transaction; 

ii. Assertions of errors in the form of 

a judicial action complaint, subpoena, 

or discovery request that purports to 

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require servicers to respond to each 

numbered paragraph; and 

iii. Assertions of errors in a form that 

is not reasonably understandable or is 

included with voluminous tangential 

discussion or requests for information, 

such that a servicer cannot reasonably 

identify from the notice of error any 

error for which § 1024.35 requires a 

response. 

35(h) Payment requirements 

prohibited. 

1. Borrower obligation to make 

payments. Section 1024.35(h) prohibits 

a servicer from requiring a borrower to 

make a payment that may be owed on 

a borrower’s account as a prerequisite to 

investigating or responding to a notice 

of error submitted by a borrower, but 

does not alter or otherwise affect a 

borrower’s obligation to make payments 

owed pursuant to the terms of a 

mortgage loan. For example, if a 

borrower makes a monthly payment in 

February for a mortgage loan, but asserts 

an error relating to the servicer’s 

acceptance of the February payment, 

§ 1024.35(h) does not alter a borrower’s 

obligation to make a monthly payment 

that the borrower owes for March. A 

servicer, however, may not require that 

a borrower make the March payment as 

a condition for complying with its 

obligations under § 1024.35 with respect 

to the notice of error on the February 

payment. 

§ 1024.36—Requests for Information 

36(a) Information request. 

1. Borrower’s representative. An 

information request is submitted by a 

borrower if the information request is 

submitted by an agent of the borrower. 

A servicer may undertake reasonable 

procedures to determine if a person that 

claims to be an agent of a borrower has 

authority from the borrower to act on 

the borrower’s behalf, for example, by 

requiring that a person that claims to be 

an agent of the borrower provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. Upon receipt 

of such documentation, the servicer 

shall treat the request for information as 

having been submitted by the borrower. 

2. Owner or assignee of a mortgage 

loan. A servicer complies with 

§ 1024.36(d) by responding to an 

information request for the owner or 

assignee of a mortgage loan by 

identifying the person on whose behalf 

the servicer receives payments from the 

borrower. Although investors or 

guarantors, including among others the 

Federal National Mortgage Association, 

the Federal Home Loan Mortgage 

Corporation, or the Government 

National Mortgage Association, may be 

exposed to risks related to the mortgage 

loans held by a trust either in 

connection with an investment in 

securities issued by the trust or the 

issuance of a guaranty agreement to the 

trust, such investors or guarantors are 

not the owners or assignees of the 

mortgage loans solely as a result of their 

roles as such. In certain circumstances, 

however, a party such as a guarantor 

may assume multiple roles for a 

securitization transaction. For example, 

the Federal National Mortgage 

Association may act as trustee, master 

servicer, and guarantor in connection 

with a securitization transaction in 

which a trust owns a mortgage loan 

subject to a request. In this example, 

because the Federal National Mortgage 

Association is the trustee of the trust 

that owns the mortgage loan, a servicer 

complies with § 1024.36(d) by 

responding to a borrower’s request for 

information regarding the owner or 

assignee of the mortgage loan by 

providing the name of the trust, and the 

name, address, and appropriate contact 

information for the Federal National 

Mortgage Association as the trustee. The 

following examples identify the owner 

or assignee for different forms of 

mortgage loan ownership: 

i. A servicer services a mortgage loan 

that is owned by the servicer, or an 

affiliate of the servicer, in portfolio. The 

servicer therefore receives the 

borrower’s payments on behalf of itself 

or its affiliate. A servicer complies with 

§ 1024.36(d) by responding to a 

borrower’s request for information 

regarding the owner or assignee of the 

mortgage loan with the name, address, 

and appropriate contact information for 

the servicer or the affiliate, as 

applicable. 

ii. A servicer services a mortgage loan 

that has been securitized. In general, in 

a securitization transaction, a special 

purpose vehicle, such as a trust, is the 

owner or assignee of a mortgage loan. 

Thus, the servicer receives the 

borrower’s payments on behalf of the 

trust. If a securitization transaction is 

structured such that a trust is the owner 

or assignee of a mortgage loan and the 

trust is administered by an appointed 

trustee, a servicer complies with 

§ 1024.36(d) by responding to a 

borrower’s request for information 

regarding the owner or assignee of the 

mortgage loan by providing the 

borrower with the name of the trust and 

the name, address, and appropriate 

contract information for the trustee. 

Assume, for example, a mortgage loan is 

owned by Mortgage Loan Trust, Series 

ABC–1, for which XYZ Trust Company 

is the trustee. The servicer complies 

with § 1024.36(d) by responding to a 

borrower’s request for information 

regarding the owner or assignee of the 

mortgage loan by identifying the owner 

as Mortgage Loan Trust, Series ABC–1, 

and providing the name, address, and 

appropriate contact information for XYZ 

Trust Company as the trustee. 

36(b) Contact information for 

borrowers to request information. 

1. Exclusive address not required. A 

servicer is not required to designate a 

specific address that a borrower must 

use to request information. If a servicer 

does not designate a specific address 

that a borrower must use to request 

information, a servicer must respond to 

an information request received by any 

office of the servicer. 

2. Notice of an exclusive address. A 

notice establishing an address that a 

borrower must use to request 

information may be included with a 

different disclosure, such as on a notice 

of transfer, periodic statement, or 

coupon book. The notice is subject to 

the clear and conspicuous requirement 

in § 1024.32(a)(1). If a servicer 

establishes an address that a borrower 

must use to request information, a 

servicer must provide that address to 

the borrower in any communication in 

which the servicer provides the 

borrower with contact information for 

assistance from the servicer. 

3. Multiple offices. A servicer may 

designate multiple office addresses for 

receiving information requests. 

However, a servicer is required to 

comply with the requirements of 

§ 1024.36 with respect to an information 

request received at any such address 

regardless of whether that specific 

address was provided to a specific 

borrower requesting information. For 

example, a servicer may designate an 

address to receive information requests 

for borrowers located in California and 

a separate address to receive 

information requests for borrowers 

located in Texas. If a borrower located 

in California requests information 

through the address used by the servicer 

for borrowers located in Texas, the 

servicer is still considered to have 

received an information request and 

must comply with the requirements of 

§ 1024.36. 

4. Internet intake of information 

requests. A servicer may, but need not, 

establish a process for receiving 

information requests through email, 

Web site form, or other online intake 

methods. Any such online intake 

process shall be in addition to, and not 

in lieu of, any process for receiving 

information requests by mail. The 

process or processes established by the 

servicer for receiving information 

requests through an online intake 

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method shall be the exclusive online 

intake process or processes for receiving 

information requests. A servicer is not 

required to provide a separate notice to 

a borrower to establish a specific online 

intake process as an exclusive online 

process for receiving information 

requests. 

36(d) Response to information 

request. 

36(d)(1) Investigation and response 

requirements. 

Paragraph 36(d)(1)(ii). 

1. Information not available. 

Information is not available if: 

i. The information is not in the 

servicer’s control or possession, or 

ii. The information cannot be 

retrieved in the ordinary course of 

business through reasonable efforts. 

2. Examples. The following examples 

illustrate when information is available 

(or not available) to a servicer under 

§ 1024.36(d)(1)(ii): 

i. A borrower requests a copy of a 

telephonic communication with a 

servicer. The servicer’s personnel have 

access in the ordinary course of 

business to audio recording files with 

organized recordings or transcripts of 

borrower telephone calls and can 

identify the communication referred to 

by the borrower through reasonable 

business efforts. The information 

requested by the borrower is available to 

the servicer. 

ii. A borrower requests information 

stored on electronic back-up media. 

Information on electronic back-up 

media is not accessible by the servicer’s 

personnel in the ordinary course of 

business without undertaking 

extraordinary efforts to identify and 

restore the information from the 

electronic back-up media. The 

information requested by the borrower 

is not available to the servicer. 

iii. A borrower requests information 

stored at an offsite document storage 

facility. A servicer has a right to access 

documents at the offsite document 

storage facility and servicer personnel 

can access those documents through 

reasonable efforts in the ordinary course 

of business. The information requested 

by the borrower is available to the 

servicer assuming that the information 

can be found within the offsite 

documents with reasonable efforts. 

36(f) Requirements not applicable. 

36(f)(1) In general. 

Paragraph 36(f)(1)(i). 

1. A borrower’s request for a type of 

information that can change over time is 

not substantially the same as a previous 

information request for the same type of 

information if the subsequent request 

covers a different time period than the 

prior request. 

Paragraph 36(f)(1)(ii). 

1. Confidential, proprietary or 

privileged information. A request for 

confidential, proprietary or privileged 

information of a servicer is not an 

information request for which the 

servicer is required to comply with the 

requirements of § 1024.36(c) and (d). 

Confidential, proprietary or privileged 

information may include information 

requests relating to, for example: 

i. Information regarding management 

or profitability of a servicer, including 

information provided to investors in the 

servicer. 

ii. Compensation, bonuses, or 

personnel actions relating to servicer 

personnel, including personnel 

responsible for servicing a borrower’s 

mortgage loan account; 

iii. Records of examination reports, 

compliance audits, borrower 

complaints, and internal investigations 

or external investigations; or 

iv. Information protected by the 

attorney-client privilege. 

Paragraph 36(f)(1)(iii). 

1. Examples of irrelevant information. 

The following are examples of irrelevant 

information: 

i. Information that relates to the 

servicing of mortgage loans other than a 

borrower’s mortgage loan, including 

information reported to the owner of a 

mortgage loan regarding individual or 

aggregate collections for mortgage loans 

owned by that entity; 

ii. The servicer’s training program for 

servicing personnel; 

iii. The servicer’s servicing program 

guide; or 

iv. Investor instructions or 

requirements for servicers regarding 

criteria for negotiating or approving any 

program with a borrower, including any 

loss mitigation option. 

Paragraph 36(f)(1)(iv). 

1. Examples of overbroad or unduly 

burdensome requests for information. 

The following are examples of requests 

for information that are overbroad or 

unduly burdensome: 

i. Requests for information that seek 

documents relating to substantially all 

aspects of mortgage origination, 

mortgage servicing, mortgage sale or 

securitization, and foreclosure, 

including, for example, requests for all 

mortgage loan file documents, recorded 

mortgage instruments, servicing 

information and documents, and sale or 

securitization information and 

documents; 

ii. Requests for information that are 

not reasonably understandable or are 

included with voluminous tangential 

discussion or assertions of errors; 

iii. Requests for information that 

purport to require servicers to provide 

information in specific formats, such as 

in a transcript, letter form in a columnar 

format, or spreadsheet, when such 

information is not ordinarily stored in 

such format; and 

iv. Requests for information that are 

not reasonably likely to assist a 

borrower with the borrower’s account, 

including, for example, a request for 

copies of the front and back of all 

physical payment instruments (such as 

checks, drafts, or wire transfer 

confirmations) that show payments 

made by the borrower to the servicer 

and payments made by a servicer to an 

owner or assignee of a mortgage loan. 

§ 1024.37—Force-Placed Insurance 

37(a) Definition of force-placed 

insurance. 

37(a)(2) Types of insurance not 

considered force-placed insurance. 

Paragraph 37(a)(2)(iii). 

1. Servicer’s discretion. Hazard 

insurance paid by a servicer at its 

discretion refers to circumstances in 

which a servicer pays a borrower’s 

hazard insurance even though the 

servicer is not required by 

§ 1024.17(k)(1), (2), or (5) to do so. 

37(b) Basis for charging force-placed 

insurance. 

1. Reasonable basis to believe. Section 

§ 1024.37(b) prohibits a servicer from 

assessing on a borrower a premium 

charge or fee related to force-placed 

insurance unless the servicer has a 

reasonable basis to believe that the 

borrower has failed to comply with the 

loan contract’s requirement to maintain 

hazard insurance. Information about a 

borrower’s hazard insurance received by 

a servicer from the borrower, the 

borrower’s insurance provider, or the 

borrower’s insurance agent, may 

provide a servicer with a reasonable 

basis to believe that the borrower has 

either complied with or failed to comply 

with the loan contract’s requirement to 

maintain hazard insurance. If a servicer 

receives no such information, the 

servicer may satisfy the reasonable basis 

to believe standard if the servicer acts 

with reasonable diligence to ascertain a 

borrower’s hazard insurance status and 

does not receive from the borrower, or 

otherwise have evidence of insurance 

coverage as provided in 

§ 1024.37(c)(1)(iii). A servicer that 

complies with the notification 

requirements set forth in 

§ 1024.37(c)(1)(i) and (ii) has acted with 

reasonable diligence. 

37(c) Requirements before charging 

borrower for force-placed insurance. 

37(c)(1) In general. 

Paragraph 37(c)(1)(i). 

1. Assessing premium charge or fee. 

Subject to the requirements of 

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§ 1024.37(c)(1)(i) through (iii), if not 

prohibited by State or other applicable 

law, a servicer may charge a borrower 

for force-placed insurance the servicer 

purchased, retroactive to the first day of 

any period of time in which the 

borrower did not have hazard insurance 

in place. 

Paragraph 37(c)(1)(iii). 

1. Extension of time. Applicable law, 

such as State law or the terms and 

conditions of a borrower’s insurance 

policy, may provide for an extension of 

time to pay the premium on a 

borrower’s hazard insurance after the 

due date. If a premium payment is made 

within such time, and the insurance 

company accepts the payment with no 

lapse in insurance coverage, then the 

borrower’s hazard insurance is deemed 

to have had hazard insurance coverage 

continuously for purposes of 

§ 1024.37(c)(1)(iii). 

2. Evidence demonstrating insurance. 

As evidence of continuous hazard 

insurance coverage that complies with 

the loan contract’s requirements, a 

servicer may require a copy of the 

borrower’s hazard insurance policy 

declaration page, the borrower’s 

insurance certificate, the borrower’s 

insurance policy, or other similar forms 

of written confirmation. A servicer may 

reject evidence of hazard insurance 

coverage submitted by the borrower if 

neither the borrower’s insurance 

provider nor insurance agent provides 

confirmation of the insurance 

information submitted by the borrower, 

or if the terms and conditions of the 

borrower’s hazard insurance policy do 

not comply with the borrower’s loan 

contract requirements. 

Paragraph 37(c)(2)(v). 

1. Identifying type of hazard 

insurance. If the terms of a mortgage 

loan contract requires a borrower to 

purchase both a homeowners’ insurance 

policy and a separate hazard insurance 

policy to insure against loss resulting 

from hazards not covered under the 

borrower’s homeowners’ insurance 

policy, a servicer must disclose whether 

it is the borrower’s homeowners’ 

insurance policy or the separate hazard 

insurance policy for which it lacks 

evidence of coverage to comply with 

§ 1024.37(c)(2)(v). 

37(d) Reminder notice. 

37(d)(1) In general. 

1. When a servicer is required to 

deliver or place in the mail the written 

notice pursuant to § 1024.37(d)(1), the 

content of the reminder notice will be 

different depending on the insurance 

information the servicer has received 

from the borrower. For example: 

i. Assume that, on June 1, the servicer 

places in the mail the written notice 

required by § 1024.37(c)(1)(i) to 

Borrower A. The servicer does not 

receive any insurance information from 

Borrower A. The servicer must deliver 

to Borrower A or place in the mail a 

reminder notice, with the information 

required by § 1024.37(d)(2)(i), at least 30 

days after June 1 and at least 15 days 

before the servicer charges Borrower A 

for force-placed insurance. 

ii. Assume the same example, except 

that Borrower A provides the servicer 

with insurance information on June 18, 

but the servicer cannot verify that 

Borrower A has hazard insurance in 

place continuously based on the 

information Borrower A provided (e.g., 

the servicer cannot verify that Borrower 

A had coverage between June 10 and 

June 15). The servicer must either 

deliver to Borrower A or place in the 

mail a reminder notice, with the 

information required by in 

§ 1024.37(d)(2)(ii), at least 30 days after 

June 1 and at least 15 days before 

charging Borrower A for force-placed 

insurance it obtains for the period 

between June 10 and June 15. 

37(d)(2) Content of reminder notice. 

37(d)(2)(i) Servicer receiving no 

insurance information. 

Paragraph 37(d)(2)(i)(D). 

1. Reasonable estimate of the cost of 

force-placed insurance. Differences 

between the amount of the estimated 

cost disclosed under 

§ 1024.37(d)(2)(i)(D) and the actual cost 

later assessed to the borrower are 

permissible, so long as the estimated 

cost is based on the information 

reasonably available to the servicer at 

the time the disclosure is provided. For 

example, a mortgage investor’s 

requirements may provide that the 

amount of coverage for force-placed 

insurance depends on the borrower’s 

delinquency status (the number of days 

the borrower’s mortgage payment is past 

due). The amount of coverage affects the 

cost of force-placed insurance. A 

servicer that provides an estimate of the 

cost of force-placed insurance based on 

the borrower’s delinquency status at the 

time the disclosure is made complies 

with § 1024.37(d)(2)(i)(D). 

37(d)(4) Updating notice with 

borrower information. 

1. Reasonable time. A servicer may 

have to prepare the written notice 

required by § 1024.37(c)(1)(ii) in 

advance of delivering or placing the 

notice in the mail. If the notice has 

already been put into production, the 

servicer is not required to update the 

notice with new insurance information 

received about the borrower so long as 

the written notice was put into 

production within a reasonable time 

prior to the servicer delivering or 

placing the notice in the mail. For 

purposes of § 1024.37(d)(4), five days 

(excluding legal holidays, Saturdays, 

and Sundays) is a reasonable time. 

37(e) Renewal or replacing forceplaced insurance. 

37(e)(1) In general. 

1. For purposes of § 1024.37(e)(1), as 

evidence that the borrower has 

purchased hazard insurance coverage 

that complies with the loan contract’s 

requirements, a servicer may require a 

borrower to provide a form of written 

confirmation as described in comment 

37(c)(1)(iii)–2, and may reject evidence 

of coverage submitted by the borrower 

for the reasons described in comment 

37(c)(1)(iii)–2. 

37(e)(1)(iii) Charging before end of 

notice period. 

1. Example. Section 1024.37(e)(1)(iii) 

permits a servicer to assess on a 

borrower a premium charge or fee 

related to renewing or replacing existing 

force-placed insurance promptly after 

the servicer receives evidence 

demonstrating that the borrower lacked 

hazard insurance coverage in 

compliance with the loan contract’s 

requirements to maintain hazard 

insurance for any period of time 

following the expiration of the existing 

force-placed insurance. To illustrate, 

assume that on January 2, the servicer 

sends the notice required by 

§ 1024.37(e)(1)(i). At 12:01 a.m. on 

January 12, the existing force-placed 

insurance the servicer had purchased on 

the borrower’s property expires and the 

servicer replaces the expired forceplaced insurance policy with a new 

policy. On February 5, the servicer 

receives evidence demonstrating the 

borrower has hazard insurance effective 

since 12:01 a.m. on January 31. The 

servicer may charge the borrower for 

force-placed insurance covering the 

period from 12:01 a.m. January 12 to 

12:01 a.m. January 31, as early as 

February 5. 

Paragraph 37(e)(2)(vii). 

1. Reasonable estimate of the cost of 

force-placed insurance. The reasonable 

estimate requirement set forth in 

§ 1024.37(e)(2)(vii) is the same 

reasonable estimate requirement set 

forth in § 1024.37(d)(2)(i)(D). See 

comment 37(d)(2)(i)(D)–1 regarding the 

reasonable estimate. 

37(g) Cancellation of force-placed 

insurance. 

Paragraph 37(g)(2). 

1. Period of overlapping insurance 

coverage. Section 1024.37(g)(2) requires 

a servicer to refund to a borrower all 

force-placed insurance premium charges 

and related fees paid by the borrower for 

any period of overlapping insurance 

coverage and remove from the 

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borrower’s account all force-placed 

insurance charges and related fees for 

such period. A period of overlapping 

insurance coverage means the period of 

time during which the force-placed 

insurance purchased by a servicer and 

the hazard insurance purchased by a 

borrower were in effect at the same 

time. 

Section 1024.38—General Servicing 

Policies, Procedures, and Requirements 

38(a) Reasonable policies and 

procedures. 

1. Policies and procedures. A servicer 

may determine the specific policies and 

procedures it will adopt and the 

methods by which it will implement 

those policies and procedures so long as 

they are reasonably designed to achieve 

the objectives set forth in § 1024.38(b). 

A servicer has flexibility to determine 

such policies and procedures and 

methods in light of the size, nature, and 

scope of the servicer’s operations, 

including, for example, the volume and 

aggregate unpaid principal balance of 

mortgage loans serviced, the credit 

quality, including the default risk, of the 

mortgage loans serviced, and the 

servicer’s history of consumer 

complaints. 

2. Procedures used. The term 

‘‘procedures’’ refers to the actual 

practices followed by a servicer for 

achieving the objectives set forth in 

§ 1024.38(b). 

38(b) Objectives. 

38(b)(1) Accessing and providing 

timely and accurate information. 

Paragraph 38(b)(1)(ii). 

1. Errors committed by service 

providers. A servicer’s policies and 

procedures must be reasonably designed 

to provide for promptly obtaining 

information from service providers to 

facilitate achieving the objective of 

correcting errors resulting from actions 

of service providers, including 

obligations arising pursuant to 

§ 1024.35. 

Paragraph 38(b)(1)(iv). 

1. Accurate and current information 

for owners or assignees of mortgage 

loans relating to loan modifications. 

The relevant current information to 

owners or assignees of mortgage loans 

includes, among other things, 

information about a servicer’s 

evaluation of borrowers for loss 

mitigation options and a servicer’s 

agreements with borrowers on loss 

mitigation options, including loan 

modifications. Such information 

includes, for example, information 

regarding the date, terms, and features 

of loan modifications, the components 

of any capitalized arrears, the amount of 

any servicer advances, and any 

assumptions regarding the value of a 

property used in evaluating any loss 

mitigation options. 

38(b)(2) Properly evaluating loss 

mitigation applications. 

Paragraph 38(b)(2)(ii). 

1. Means of identifying all available 

loss mitigation options. Servicers must 

develop policies and procedures that are 

reasonably designed to enable servicer 

personnel to identify all loss mitigation 

options available for mortgage loans 

currently serviced by the mortgage 

servicer. For example, a servicer’s 

policies and procedures must be 

reasonably designed to address how a 

servicer specifically identifies, with 

respect to each owner or assignee, all of 

the loss mitigation options that the 

servicer may consider when evaluating 

any borrower for a loss mitigation 

option and the criteria that should be 

applied by a servicer when evaluating a 

borrower for such options. In addition, 

a servicer’s policies and procedures 

must be reasonably designed to address 

how the servicer will apply any specific 

thresholds for eligibility for a particular 

loss mitigation option established by an 

owner or assignee of a mortgage loan 

(e.g., if the owner or assignee requires 

that a servicer only make a particular 

loss mitigation option available to a 

certain percentage of the loans that the 

servicer services for that owner or 

assignee, then the servicer’s policies and 

procedures must be reasonably designed 

to determine in advance how the 

servicer will apply that threshold to 

those mortgage loans). A servicer’s 

policies and procedures must also be 

reasonably designed to ensure that such 

information is readily accessible to the 

servicer personnel involved with loss 

mitigation, including personnel made 

available to the borrower as described in 

§ 1024.40. 

Paragraph 38(b)(2)(v). 

1. Owner or assignee requirements. A 

servicer must have policies and 

procedures reasonably designed to 

evaluate a borrower for a loss mitigation 

option consistent with any owner or 

assignee requirements, even where the 

requirements of § 1024.41 may be 

inapplicable. For example, an owner or 

assignee may require that a servicer 

implement certain procedures to review 

a loss mitigation application submitted 

by a borrower less than 37 days before 

a foreclosure sale. Further, an owner or 

assignee may require that a servicer 

implement certain procedures to reevaluate a borrower who has 

demonstrated a material change in the 

borrower’s financial circumstances for a 

loss mitigation option after the 

servicer’s initial evaluation. A servicer 

must have policies and procedures 

reasonably designed to implement these 

requirements even if such loss 

mitigation evaluations may not be 

required pursuant to § 1024.41. 

38(b)(4) Facilitating transfer of 

information during servicing transfers. 

Paragraph 38(b)(4)(i). 

1. Electronic document transfers. A 

transferor servicer’s policies and 

procedures may provide for transferring 

documents and information 

electronically, provided that the transfer 

is conducted in a manner that is 

reasonably designed to ensure the 

accuracy of the information and 

documents transferred and that enables 

a transferee servicer to comply with its 

obligations to the owner or assignee of 

the loan and with applicable law. For 

example, a transferor servicer must have 

policies and procedures reasonably 

designed to ensure that data can be 

properly and promptly boarded by a 

transferee servicer’s electronic systems 

and that all necessary documents and 

information are available to, and can be 

appropriately identified by, a transferee 

servicer. 

2. Loss mitigation documents. A 

transferor servicer’s policies and 

procedures must be reasonably designed 

to ensure that the transfer includes any 

information reflecting the current status 

of discussions with a borrower 

regarding loss mitigation options, any 

agreements entered into with a borrower 

on a loss mitigation option, and any 

analysis by a servicer with respect to 

potential recovery from a nonperforming mortgage loan, as 

appropriate. 

Paragraph 38(b)(4)(ii). 

1. Missing loss mitigation documents 

and information. A transferee servicer 

must have policies and procedures 

reasonably designed to ensure, in 

connection with a servicing transfer, 

that the transferee servicer receives 

information regarding any loss 

mitigation discussions with a borrower, 

including any copies of loss mitigation 

agreements. Further, the transferee 

servicer’s policies and procedures must 

address obtaining any such missing 

information or documents from a 

transferor servicer before attempting to 

obtain such information from a 

borrower. For example, assume a 

servicer receives documents or 

information from a transferor servicer 

indicating that a borrower has made 

payments consistent with a trial or 

permanent loan modification but has 

not received information about the 

existence of a trial or permanent loan 

modification agreement. The servicer 

must have policies and procedures 

reasonably designed to identify whether 

any such loan modification agreement 

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exists with the transferor servicer and to 

obtain any such agreement from the 

transferor servicer. 

38(b)(5) Informing borrowers of 

written error resolution and information 

request procedures. 

1. Manner of informing borrowers. A 

servicer may comply with the 

requirement to maintain policies and 

procedures reasonably designed to 

inform borrowers of the procedures for 

submitting written notices of error set 

forth in § 1024.35 and written 

information requests set forth in 

§ 1024.36 by informing borrowers, 

through a notice (mailed or delivered 

electronically) or a Web site. For 

example, a servicer may comply with 

§ 1024.38(b)(5) by including in the 

periodic statement required pursuant to 

§ 1026.41 a brief statement informing 

borrowers that borrowers have certain 

rights under Federal law related to 

resolving errors and requesting 

information about their account, and 

that they may learn more about their 

rights by contacting the servicer, and a 

statement directing borrowers to a Web 

site that provides a description of the 

procedures set forth in §§ 1024.35 and 

1024.36. Alternatively, a servicer may 

also comply with § 1024.38(b)(5) by 

including a description of the 

procedures set forth in §§ 1024.35 and 

1024.36 in the written notice required 

by § 1024.35(c) and § 1024.36(b). 

2. Oral complaints and requests. A 

servicer’s policies and procedures must 

be reasonably designed to provide 

information to borrowers who are not 

satisfied with the resolution of a 

complaint or request for information 

submitted orally about the procedures 

for submitting written notices of error 

set forth in § 1024.35 and for submitting 

written requests for information set 

forth in § 1024.36. 

38(c) Standard requirements. 

38(c)(1)Record retention. 

1. Methods of retaining records. 

Retaining records that document actions 

taken with respect to a borrower’s 

mortgage loan account does not 

necessarily mean actual paper copies of 

documents. The records may be retained 

by any method that reproduces the 

records accurately (including computer 

programs) and that ensures that the 

servicer can easily access the records 

(including a contractual right to access 

records possessed by another entity). 

38(c)(2) Servicing file. 

1. Timing. A servicer complies with 

§ 1024.38(c)(2) if it maintains 

information in a manner that facilitates 

compliance with § 1024.38(c)(2) 

beginning on or after January 10, 2014. 

A servicer is not required to comply 

with § 1024.38(c)(2) with respect to 

information created prior to January 10, 

2014. For example, if a mortgage loan 

was originated on January 1, 2013, a 

servicer is not required by 

§ 1024.38(c)(2) to maintain information 

regarding transactions credited or 

debited to that mortgage loan account in 

any particular manner for payments 

made prior to January 10, 2014. 

However, for payments made on or after 

January 10, 2014, a servicer must 

maintain such information in a manner 

that facilitates compiling such 

information into a servicing file within 

five days. 

2. Borrower requests for servicing file. 

Section 1024.38(c)(2) does not confer 

upon any borrower an independent 

right to access information contained in 

the servicing file. Upon receipt of a 

borrower’s request for a servicing file, a 

servicer shall provide the borrower with 

a copy of the information contained in 

the servicing file for the borrower’s 

mortgage loan, subject to the procedures 

and limitations set forth in § 1024.36. 

Paragraph 38(c)(2)(iv). 

1. Report of data fields. A report of 

the data fields relating to a borrower’s 

mortgage loan account created by the 

servicer’s electronic systems in 

connection with servicing practices 

means a report listing the relevant data 

fields by name, populated with any 

specific data relating to the borrower’s 

mortgage loan account. Examples of 

data fields relating to a borrower’s 

mortgage loan account created by the 

servicer’s electronic systems in 

connection with servicing practices 

include fields used to identify the terms 

of the borrower’s mortgage loan, fields 

used to identify the occurrence of 

automated or manual collection calls, 

fields reflecting the evaluation of a 

borrower for a loss mitigation option, 

fields used to identify the owner or 

assignee of a mortgage loan, and any 

credit reporting history. 

§ 1024.39—Early Intervention 

Requirements for Certain Borrowers 

39(a) Live contact. 

1. Delinquency. A borrower is 

delinquent for purposes of § 1024.39 as 

follows: 

i. Delinquency begins on the day a 

payment sufficient to cover principal, 

interest, and, if applicable, escrow for a 

given billing cycle is due and unpaid, 

even if the borrower is afforded a period 

after the due date to pay before the 

servicer assesses a late fee. For example, 

if a payment due date is January 1 and 

the amount due is not fully paid during 

the 36-day period after January 1, the 

servicer must establish or make good 

faith efforts to establish live contact not 

later than 36 days after January 1—i.e., 

by February 6. 

ii. A borrower who is performing as 

agreed under a loss mitigation option 

designed to bring the borrower current 

on a previously missed payment is not 

delinquent for purposes of § 1024.39. 

iii. During the 60-day period 

beginning on the effective date of 

transfer of the servicing of any mortgage 

loan, a borrower is not delinquent for 

purposes of § 1024.39 if the transferee 

servicer learns that the borrower has 

made a timely payment that has been 

misdirected to the transferor servicer 

and the transferee servicer documents 

its files accordingly. See § 1024.33(c)(1) 

and comment 33(c)(1)–2. 

iv. A servicer need not establish live 

contact with a borrower unless the 

borrower is delinquent during the 36 

days after a payment due date. If the 

borrower satisfies a payment in full 

before the end of the 36-day period, the 

servicer need not establish live contact 

with the borrower. For example, if a 

borrower misses a January 1 due date 

but makes that payment on February 1, 

a servicer need not establish or make 

good faith efforts to establish live 

contact by February 6. 

2. Establishing live contact. Live 

contact provides servicers an 

opportunity to discuss the 

circumstances of a borrower’s 

delinquency. Live contact with a 

borrower includes telephoning or 

conducting an in-person meeting with 

the borrower, but not leaving a recorded 

phone message. A servicer may, but 

need not, rely on live contact 

established at the borrower’s initiative 

to satisfy the live contact requirement in 

§ 1024.39(a). Good faith efforts to 

establish live contact consist of 

reasonable steps under the 

circumstances to reach a borrower and 

may include telephoning the borrower 

on more than one occasion or sending 

written or electronic communication 

encouraging the borrower to establish 

live contact with the servicer. 

3. Promptly inform if appropriate. 

i. Servicer’s determination. It is 

within a servicer’s reasonable discretion 

to determine whether informing a 

borrower about the availability of loss 

mitigation options is appropriate under 

the circumstances. The following 

examples demonstrate when a servicer 

has made a reasonable determination 

regarding the appropriateness of 

providing information about loss 

mitigation options. 

A. A servicer provides information 

about the availability of loss mitigation 

options to a borrower who notifies a 

servicer during live contact of a material 

adverse change in the borrower’s 

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financial circumstances that is likely to 

cause the borrower to experience a longterm delinquency for which loss 

mitigation options may be available. 

B. A servicer does not provide 

information about the availability of loss 

mitigation options to a borrower who 

has missed a January 1 payment and 

notified the servicer that full late 

payment will be transmitted to the 

servicer by February 15. 

ii. Promptly inform. If appropriate, a 

servicer may inform borrowers about the 

availability of loss mitigation options 

orally, in writing, or through electronic 

communication, but the servicer must 

provide such information promptly after 

the servicer establishes live contact. A 

servicer need not notify a borrower 

about any particular loss mitigation 

options at this time; if appropriate, a 

servicer need only inform borrowers 

generally that loss mitigation options 

may be available. If appropriate, a 

servicer may satisfy the requirement in 

§ 1024.39(a) to inform a borrower about 

loss mitigation options by providing the 

written notice required by 

§ 1024.39(b)(1), but the servicer must 

provide such notice promptly after the 

servicer establishes live contact. 

4. Borrower’s representative. Section 

1024.39 does not prohibit a servicer 

from satisfying the requirements 

§ 1024.39 by establishing live contact 

with and, if applicable, providing 

information about loss mitigation 

options to a person authorized by the 

borrower to communicate with the 

servicer on the borrower’s behalf. A 

servicer may undertake reasonable 

procedures to determine if a person that 

claims to be an agent of a borrower has 

authority from the borrower to act on 

the borrower’s behalf, for example, by 

requiring a person that claims to be an 

agent of the borrower provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. 

39(b) Written notice. 

39(b)(1) Notice required. 

1. Delinquency. For guidance on the 

circumstances under which a borrower 

is delinquent for purposes of § 1024.39, 

see comment 39(a)–1. For example, if a 

payment due date is January 1 and the 

payment remains unpaid during the 45- 

day period after January 1, the servicer 

must provide the written notice within 

45 days after January 1—i.e., by 

February 15. However, if a borrower 

satisfies a late payment in full before the 

end of the 45-day period, the servicer 

need not provide the written notice. For 

example, if a borrower misses a January 

1 due date but makes that payment on 

February 1, a servicer need not provide 

the written notice by February 15. 

2. Frequency of the written notice. A 

servicer need not provide the written 

notice under § 1024.39(a) more than 

once during a 180-day period beginning 

on the date on which the written notice 

is provided. For example, a borrower 

has a payment due on March 1. The 

amount due is not fully paid during the 

45 days after March 1 and the servicer 

provides the written notice within 45 

days after March 1—i.e., by April 15. If 

the borrower subsequently fails to make 

a payment due April 1 and the amount 

due is not fully paid during the 45 days 

after April 1, the servicer need not 

provide the written notice again during 

the 180-day period beginning on April 

15. 

3. Borrower’s representative. See 

comment 39(a)–4. 

4. Relationship to § 1024.39(a). The 

written notice required under 

§ 1024.39(b)(1) must be provided even if 

the servicer provided information about 

loss mitigation and foreclosure 

previously during an oral 

communication with the borrower 

under § 1024.39(a). 

39(b)(2) Content of the written notice. 

1. Minimum requirements. Section 

1024.39(b)(2) contains minimum 

content requirements for the written 

notice. A servicer may provide 

additional information that the servicer 

determines would be helpful or which 

may be required by applicable law or 

the owner or assignee of the mortgage 

loan. 

2. Format. Any color, number of 

pages, size and quality of paper, size 

and type of print, and method of 

reproduction may be used, provided 

each of the statements required by 

§ 1024.39(b)(2) satisfies the clear and 

conspicuous standard in § 1024.32(a)(1). 

3. Delivery. A servicer may satisfy the 

requirement to provide the written 

notice by combining other notices that 

satisfy the content requirements of 

§ 1024.39(b)(2) into a single mailing, 

provided each of the statements 

required by § 1024.39(b)(2) satisfies the 

clear and conspicuous standard in 

§ 1024.32(a)(1). 

Paragraph 39(b)(2)(iii). 

1. Number of examples. Section 

1024.39(b)(2)(iii) does not require that a 

specific number of examples be 

disclosed, but borrowers are likely to 

benefit from examples of options that 

would permit them to retain ownership 

of their home and examples of options 

that may require borrowers to end their 

ownership to avoid foreclosure. The 

servicer may include a generic list of 

loss mitigation options that it offers to 

borrowers. The servicer may include a 

statement that not all borrowers will 

qualify for the listed options. 

2. Brief description. An example of a 

loss mitigation option may be described 

in one or more sentences. If a servicer 

offers a loss mitigation option 

comprising several loss mitigation 

programs, the servicer may provide a 

generic description of the option 

without providing detailed descriptions 

of each program. For example, if the 

servicer offers several loan modification 

programs, the servicer may provide a 

generic description of ‘‘loan 

modification.’’ 

Paragraph 39(b)(2)(iv). 

1. Explanation of how the borrower 

may obtain more information about loss 

mitigation options. A servicer may 

comply with § 1024.39(b)(2)(iv) by 

directing the borrower to contact the 

servicer for more detailed information 

on how to apply for loss mitigation 

options. For example, a general 

statement such as, ‘‘contact us for 

instructions on how to apply’’ would 

satisfy the requirement to inform the 

borrower how to obtain more 

information about loss mitigation 

options. However, to expedite the 

borrower’s timely application for any 

loss mitigation options, servicers may 

provide more detailed instructions, such 

as by listing representative documents 

the borrower should make available to 

the servicer (such as tax filings or 

income statements), and an estimate of 

how quickly the servicer expects to 

evaluate a completed application and 

make a decision on loss mitigation 

options. Servicers may also supplement 

the written notice required by 

§ 1024.39(b)(1) with a loss mitigation 

application form. 

39(c) Conflicts with other law. 

1. Borrowers in bankruptcy. Section 

1024.39 does not require a servicer to 

communicate with a borrower in a 

manner that would be inconsistent with 

applicable bankruptcy law or a court 

order in a bankruptcy case. To the 

extent permitted by such law or court 

order, servicers may adapt the 

requirements of § 1024.39 in any 

manner that would permit them to 

notify borrowers of loss mitigation 

options. 

§ 1024.40—Continuity of Contact 

40(a) In general. 

1. Delinquent borrower. A borrower is 

not considered delinquent if the 

borrower has refinanced the mortgage 

loan, paid off the mortgage loan, brought 

the mortgage loan current by paying all 

amounts owed in arrears, or if title to 

the borrower’s property has been 

transferred to a new owner through, for 

example, a deed-in-lieu of foreclosure, a 

sale of the borrower’s property, 

including, as applicable, a short sale, or 

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a foreclosure sale. For purposes of 

responding to a borrower’s inquiries and 

assisting a borrower with loss mitigation 

options, the term ‘‘borrower’’ includes a 

person authorized by the borrower to act 

on the borrower’s behalf. A servicer may 

undertake reasonable procedures to 

determine if a person that claims to be 

an agent of a borrower has authority 

from the borrower to act on the 

borrower’s behalf, for example by 

requiring that a person who claims to be 

an agent of the borrower provide 

documentation from the borrower 

stating that the purported agent is acting 

on the borrower’s behalf. 

2. Assignment of personnel. A 

servicer has discretion to determine 

whether to assign a single person or a 

team of personnel to respond to a 

delinquent borrower. The personnel a 

servicer assigns to the borrower as 

described in § 1024.40(a)(1) may be 

single-purpose or multi-purpose 

personnel. Single-purpose personnel are 

personnel whose primary responsibility 

is to respond to a delinquent borrower’s 

inquiries, and as applicable, assist the 

borrower with available loss mitigation 

options. Multi-purpose personnel can be 

personnel that do not have a primary 

responsibility at all, or personnel for 

whom responding to a delinquent 

borrower’s inquiries, and as applicable, 

assisting the borrower with available 

loss mitigation options is not the 

personnel’s primary responsibility. If 

the delinquent borrower files for 

bankruptcy, a servicer may assign 

personnel with specialized knowledge 

in bankruptcy law to assist the 

borrower. 

3. Delinquency. For purposes of 

§ 1024.40(a), delinquency begins on the 

day a payment sufficient to cover 

principal, interest, and, if applicable, 

escrow for a given billing cycle is due 

and unpaid, even if the borrower is 

afforded a period after the due date to 

pay before the servicer assesses a late 

fee. See the example set forth in 

comment 39(a)–1.i. 

§ 1024.41—Loss mitigation options. 

41(b) Receipt of a loss mitigation 

application. 

41(b)(1) Complete loss mitigation 

application. 

1. In general. A servicer has flexibility 

to establish its own application 

requirements and to decide the type and 

amount of information it will require 

from borrowers applying for loss 

mitigation options. 

2. When an inquiry or prequalification 

request becomes an application. A 

servicer is encouraged to provide 

borrowers with information about loss 

mitigation programs. If in giving 

information to the borrower, the 

borrower expresses an interest in 

applying for a loss mitigation option 

and provides information the servicer 

would evaluate in connection with a 

loss mitigation application, the 

borrower’s inquiry or prequalification 

request has become a loss mitigation 

application. A loss mitigation 

application is considered expansively 

and includes any ‘‘prequalification’’ for 

a loss mitigation option. For example, if 

a borrower requests that a servicer 

determine if the borrower is 

‘‘prequalified’’ for a loss mitigation 

program by evaluating the borrower 

against preliminary criteria to determine 

eligibility for a loss mitigation option, 

the request constitutes a loss mitigation 

application. 

3. Examples of inquiries that are not 

applications. The following examples 

illustrate situations in which only an 

inquiry has taken place and no loss 

mitigation application has been 

submitted: 

i. A borrower calls to ask about loss 

mitigation options and servicer 

personnel explain the loss mitigation 

options available to the borrower and 

the criteria for determining the 

borrower’s eligibility for any such loss 

mitigation option. The borrower does 

not, however, provide any information 

that a servicer would consider for 

evaluating a loss mitigation application. 

ii. A borrower calls to ask about the 

process for applying for a loss 

mitigation option but the borrower does 

not provide any information that a 

servicer would consider for evaluating a 

loss mitigation application. 

4. Diligence requirements. Although a 

servicer has flexibility to establish its 

own requirements regarding the 

documents and information necessary 

for a loss mitigation application, the 

servicer must act with reasonable 

diligence to collect information needed 

to complete the application. Further, a 

servicer must request information 

necessary to make a loss mitigation 

application complete promptly after 

receiving the loss mitigation 

application. Reasonable diligence 

includes, without limitation, the 

following actions: 

i. A servicer requires additional 

information from the applicant, such as 

an address or a telephone number to 

verify employment; the servicer contacts 

the applicant promptly to obtain such 

information after receiving a loss 

mitigation application; and 

ii. Servicing for a mortgage loan is 

transferred to a servicer and the 

borrower makes an incomplete loss 

mitigation application to the transferee 

servicer after the transfer; the transferee 

servicer reviews documents provided by 

the transferor servicer to determine if 

information required to make the loss 

mitigation application complete is 

contained within documents transferred 

by the transferor servicer to the servicer. 

5. Information not in the borrower’s 

control. A loss mitigation application is 

complete when a borrower provides all 

information required from the borrower 

notwithstanding that additional 

information may be required by a 

servicer that is not in the control of a 

borrower. For example, if a servicer 

requires a consumer report for a loss 

mitigation evaluation, a loss mitigation 

application is considered complete if a 

borrower has submitted all information 

required from the borrower without 

regard to whether a servicer has 

obtained a consumer report that a 

servicer has requested from a consumer 

reporting agency. 

41(c) Review of loss mitigation 

applications. 

41(c)(1) Complete loss mitigation 

application. 

1. Definition of ‘‘evaluation.’’ The 

conduct of a servicer’s evaluation with 

respect to any loss mitigation option is 

in the sole discretion of a servicer. A 

servicer meets the requirements of 

§ 1024.41(c)(1)(i) if the servicer makes a 

determination regarding the borrower’s 

eligibility for a loss mitigation program. 

Consistent with § 1024.41(a), because 

nothing in section 1024.41 should be 

construed to permit a borrower to 

enforce the terms of any agreement 

between a servicer and the owner or 

assignee of a mortgage loan, including 

with respect to the evaluation for, or 

provision of, any loss mitigation option, 

§ 1024.41(c)(1) does not require that an 

evaluation meet any standard other than 

the discretion of the servicer. 

2. Loss mitigation options available to 

a borrower. The loss mitigation options 

available to a borrower are those options 

offered by an owner or assignee of the 

borrower’s mortgage loan. Loss 

mitigation options administered by a 

servicer for an owner or assignee of a 

mortgage loan other than the owner or 

assignee of the borrower’s mortgage loan 

are not available to the borrower solely 

because such options are administered 

by the servicer. For example: 

i. A servicer services mortgage loans 

for two different owners or assignees of 

mortgage loans. Those entities each 

have different loss mitigation programs. 

loss mitigation options not offered by 

the owner or assignee of the borrower’s 

mortgage loan are not available to the 

borrower; or 

ii. The owner or assignee of a 

borrower’s mortgage loan has 

established pilot programs, temporary 

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programs, or programs that are limited 

by the number of participating 

borrowers. Such loss mitigation options 

are available to a borrower. However, a 

servicer evaluates whether a borrower is 

eligible for any such program consistent 

with criteria established by an owner or 

assignee of a mortgage loan. For 

example, if an owner or assignee has 

limited a pilot program to a certain 

geographic area or to a limited number 

of participants, and the servicer 

determines that a borrower is not 

eligible based on any such requirement, 

the servicer shall inform the borrower 

that the investor requirement for the 

program is the basis for the denial. 

3. Offer of a non-home retention 

option. A servicer’s offer of a non-home 

retention option may be conditional 

upon receipt of further information not 

in the borrower’s possession and 

necessary to establish the parameters of 

a servicer’s offer. For example, a 

servicer complies with the requirement 

for evaluating the borrower for a short 

sale option if the servicer offers the 

borrower the opportunity to enter into a 

listing or marketing period agreement 

but indicates that specifics of an 

acceptable short sale transaction may be 

subject to further information obtained 

from an appraisal or title search. 

41(c)(2) Incomplete loss mitigation 

application evaluation. 

41(c)(2)(i) In general. 

1. Offer of a loss mitigation option 

without an evaluation of a loss 

mitigation application. Nothing in 

§ 1024.41(c)(2)(i) prohibits a servicer 

from offering loss mitigation options to 

a borrower who has not submitted a loss 

mitigation application. Further, nothing 

in § 1024.41(c)(2)(i) prohibits a servicer 

from offering a loss mitigation option to 

a borrower who has submitted an 

incomplete loss mitigation application 

where the offer of the loss mitigation 

option is not based on any evaluation of 

information submitted by the borrower 

in connection with such loss mitigation 

application. For example, if a servicer 

offers trial loan modification programs 

to all borrowers who become 150 days 

delinquent without an application or 

consideration of any information 

provided by a borrower in connection 

with a loss mitigation application, the 

servicer’s offer of any such program 

does not violate § 1024.41(c)(2)(i), and a 

servicer is not required to comply with 

§ 1024.41 with respect to any such 

program, because the offer of the loss 

mitigation option is not based on an 

evaluation of a loss mitigation 

application. 

2. Servicer discretion. Although a 

review of a borrower’s incomplete loss 

mitigation application is within a 

servicer’s discretion, and is not required 

by § 1024.41, a servicer may be required 

separately, in accordance with policies 

and procedures maintained pursuant to 

§ 1024.38(b)(2)(v), to properly evaluate a 

borrower who submits an application 

for a loss mitigation option for all loss 

mitigation options available to the 

borrower pursuant to any requirements 

established by the owner or assignee of 

the borrower’s mortgage loan. Such 

evaluation may be subject to 

requirements applicable to loss 

mitigation applications otherwise 

considered incomplete pursuant to 

§ 1024.41. 

41(c)(2)(ii) Reasonable time. 

1. Significant period of time. A 

significant period of time under the 

circumstances may include 

consideration of the timing of the 

foreclosure process. For example, if a 

borrower is less than 50 days before a 

foreclosure sale, an application 

remaining incomplete for 15 days may 

be a more significant period of time 

under the circumstances than if the 

borrower is still less than 120 days 

delinquent on a mortgage loan 

obligation. 

41(d) Denial of loan modification 

options. 

Paragraph 41(d)(1). 

1. Investor requirements. If a trial or 

permanent loan modification option is 

denied because of a requirement of an 

owner or assignee of a mortgage loan, 

the specific reasons in the notice 

provided to the borrower must identify 

the owner or assignee of the mortgage 

loan and the requirement that is the 

basis of the denial. A statement that the 

denial of a loan modification option is 

based on an investor requirement, 

without additional information 

specifically identifying the relevant 

investor or guarantor and the specific 

applicable requirement, is insufficient. 

However, where an owner or assignee 

has established an evaluation criteria 

that sets an order ranking for evaluation 

of loan modification options (commonly 

known as a waterfall) and a borrower 

has qualified for a particular loan 

modification option in the ranking 

established by the owner or assignee, it 

is sufficient for the servicer to inform 

the borrower, with respect to other loan 

modification options ranked below any 

such option offered to a borrower, that 

the investor’s requirements include the 

use of such a ranking and that an offer 

of a loan modification option 

necessarily results in a denial for any 

other loan modification options below 

the option for which the borrower is 

eligible in the ranking. 

2. Net present value calculation. If a 

trial or permanent loan modification is 

denied because of a net present value 

calculation, the specific reasons in the 

notice provided to the borrower must 

include the inputs used in the net 

present value calculation. 

3. Other notices. A servicer may 

combine other notices required by 

applicable law, including, without 

limitation, a notice with respect to an 

adverse action required by Regulation B 

(12 CFR 1002 et seq.) or a notice 

required pursuant to the Fair Credit 

Reporting Act, with the notice required 

pursuant to § 1024.41(d), unless 

otherwise prohibited by applicable law. 

4. Determination not to offer a loan 

modification option constitutes a 

denial. A servicer’s determination not to 

offer a borrower a loan modification 

available to the borrower constitutes a 

denial of the borrower for that loan 

modification option, notwithstanding 

whether a servicer offers a borrower a 

different loan modification option or 

other loss mitigation option. 

41(f) Prohibition on foreclosure 

referral. 

41(f)(1) Pre-foreclosure review period. 

1. First notice or filing required by 

applicable law. The first notice or filing 

required by applicable law refers to any 

document required to be filed with a 

court, entered into a land record, or 

provided to a borrower as a requirement 

for proceeding with a judicial or nonjudicial foreclosure process. Such 

notices or filings include, for example, 

a foreclosure complaint, a notice of 

default, a notice of election and 

demand, or any other notice that is 

required by applicable law in order to 

pursue acceleration of a mortgage loan 

obligation or sale of a property securing 

a mortgage loan obligation. 

41(g) Prohibition on foreclosure sale. 

1. Dispositive motion. The prohibition 

on a servicer moving for judgment or 

order of sale includes making a 

dispositive motion for foreclosure 

judgment, such as a motion for default 

judgment, judgment on the pleadings, or 

summary judgment, which may directly 

result in a judgment of foreclosure or 

order of sale. A servicer that has made 

any such motion before receiving a 

complete loss mitigation application has 

not moved for a foreclosure judgment or 

order of sale if the servicer takes 

reasonable steps to avoid a ruling on 

such motion or issuance of such order 

prior to completing the procedures 

required by § 1024.41, notwithstanding 

whether any such action successfully 

avoids a ruling on a dispositive motion 

or issuance of an order of sale. 

2. Proceeding with the foreclosure 

process. Nothing in § 1024.41(g) 

prevents a servicer from proceeding 

with the foreclosure process, including 

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any publication, arbitration, or 

mediation requirements established by 

applicable law, when the first notice or 

filing for a foreclosure proceeding 

occurred before a servicer receives a 

complete loss mitigation application so 

long as any such steps in the foreclosure 

process do not cause or directly result 

in the issuance of a foreclosure 

judgment or order of sale, or the 

conduct of a foreclosure sale, in 

violation of § 1024.41. 

3. Interaction with foreclosure 

counsel. A servicer is responsible for 

promptly instructing foreclosure 

counsel retained by the servicer not to 

proceed with filing for foreclosure 

judgment or order of sale, or to conduct 

a foreclosure sale, in violation of 

§ 1024.41(g) when a servicer has 

received a complete loss mitigation 

application, which may include 

instructing counsel to move for a 

continuance with respect to the 

deadline for filing a dispositive motion. 

4. Loss mitigation applications 

submitted 37 days or less before 

foreclosure sale. Although a servicer is 

not required to comply with the 

requirements in § 1024.41 with respect 

to a loss mitigation application 

submitted 37 days or less before a 

foreclosure sale, a servicer is required 

separately, in accordance with policies 

and procedures maintained pursuant to 

§ 1024.38(b)(2)(v) to properly evaluate a 

borrower who submits an application 

for a loss mitigation option for all loss 

mitigation options available to the 

borrower pursuant to any requirements 

established by the owner or assignee of 

the borrower’s mortgage loan. Such 

evaluation may be subject to 

requirements applicable to a review of 

a loss mitigation application submitted 

by a borrower 37 days or less before a 

foreclosure sale. 

Paragraph 41(g)(3). 

1. Short sale listing period. An 

agreement for a short sale transaction, or 

other similar loss mitigation option, 

typically includes marketing or listing 

periods during which a servicer will 

allow a borrower to market a short sale 

transaction. A borrower is deemed to be 

performing under an agreement on a 

short sale, or other similar loss 

mitigation option, during the term of a 

marketing or listing period. 

2. Short sale agreement. If a borrower 

has not obtained an approved short sale 

transaction at the end of any marketing 

or listing period, a servicer may 

determine that a borrower has failed to 

perform under an agreement on a loss 

mitigation option. An approved short 

sale transaction is a short sale 

transaction that has been approved by 

all relevant parties, including the 

servicer, other affected lienholders, or 

insurers, if applicable, and the servicer 

has received proof of funds or financing, 

unless circumstances otherwise indicate 

that an approved short sale transaction 

is not likely to occur. 

41(h) Appeal process. 

Paragraph 41(h)(3). 

1. Supervisory personnel. The appeal 

may be evaluated by supervisory 

personnel that are responsible for 

oversight of the personnel that 

conducted the initial evaluation, as long 

as the supervisory personnel were not 

directly involved in the initial 

evaluation of the borrower’s complete 

loss mitigation application. 

41(i) Duplicative requests. 

1. Servicing transfers. A transferee 

servicer is required to comply with the 

requirements of § 1024.41 regardless of 

whether a borrower received an 

evaluation of a complete loss mitigation 

application from a transferor servicer. 

Documents and information transferred 

from a transferor servicer to a transferee 

servicer may constitute a loss mitigation 

application to the transferee servicer 

and may cause a transferee servicer to 

be required to comply with the 

requirements of § 1024.41 with respect 

to a borrower’s mortgage loan account. 

2. Application in process during 

servicing transfer. A transferee servicer 

must obtain documents and information 

submitted by a borrower in connection 

with a loss mitigation application 

during a servicing transfer, consistent 

with policies and procedures adopted 

pursuant to § 1024.38. A servicer that 

obtains the servicing of a mortgage loan 

for which an evaluation of a complete 

loss mitigation option is in process 

should continue the evaluation to the 

extent practicable. For purposes of 

§ 1024.41(e)(1), 1024.41(f), 1024.41(g), 

and 1024.41(h), a transferee servicer 

must consider documents and 

information received from a transferor 

servicer that constitute a complete loss 

mitigation application for the transferee 

servicer to have been received by the 

transferee servicer as of the date such 

documents and information were 

provided to the transferor servicer. 

Appendix MS—Mortgage Servicing 

Model Forms and Clauses 

1. In general. This appendix contains 

model forms and clauses for mortgage 

servicing disclosures required by 

§§ 1024.33, 37, and 39. Each of the 

model forms is designated for uses in a 

particular set of circumstances as 

indicated by the title of that model form 

or clause. Although use of the model 

forms and clauses is not required, 

servicers using them appropriately will 

be in compliance with disclosure 

requirements of §§ 1024.33, 37, and 39. 

To use the forms appropriately, 

information required by regulation must 

be set forth in the disclosures. 

2. Permissible changes. Servicers may 

make certain changes to the format or 

content of the forms and clauses and 

may delete any disclosures that are 

inapplicable without losing the 

protection from liability so long as those 

changes do not affect the substance, 

clarity, or meaningful sequence of the 

forms and clauses. Servicers making 

revisions to that effect will lose their 

protection from civil liability. Except as 

otherwise specifically required, 

acceptable changes include, for 

example: 

i. Use of ‘‘borrower’’ and ‘‘servicer’’ 

instead of pronouns. 

ii. Substitution of the words ‘‘lender’’ 

and ‘‘servicer’’ for each other. 

iii. Addition of graphics or icons, 

such as the servicer’s corporate logo. 

Appendix MS–3—Model Force-Placed 

Insurance Notice Forms 

1. Where the model forms MS–3(A), 

MS–3(B), MS–3(C), and MS–3(D) use 

the term ‘‘hazard insurance,’’ the 

servicer may substitute ‘‘hazard 

insurance’’ with ‘‘homeowners’ 

insurance’’ or ‘‘property insurance.’’ 

Appendix MS–4—Model Clauses for the 

Written Early Intervention Notice 

1. Model MS–4(A). These model 

clauses illustrate how a servicer may 

provide its contact information, how a 

servicer may request that the borrower 

contact the servicer, and how the 

servicer may inform the borrower how 

to obtain additional information about 

loss mitigation options, as required by 

§ 1024.39(b)(2)(i), (ii), and (iv). 

2. Model MS–4(B). These model 

clauses illustrate how the servicer may 

inform the borrower of loss mitigation 

options that may be available, as 

required by § 1024.39(b)(2)(iii), if 

applicable. A servicer may include 

clauses describing particular loss 

mitigation options to the extent such 

options are available. Model MS–4(B) 

does not contain sample clauses for all 

loss mitigation options that may be 

available. The language in the model 

clauses contained in square brackets is 

optional; a servicer may comply with 

the disclosure requirements of 

§ 1024.39(b)(2)(iii) by using language 

substantially similar to the language in 

the model clauses, providing additional 

detail about the options, or by adding or 

substituting applicable loss mitigation 

options for options not represented in 

these model clauses, provided the 

information disclosed is accurate and 

clear and conspicuous. 

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3. Model MS–4(C). These model 

clauses illustrate how a servicer may 

provide contact information for housing 

counselors, as required by 

§ 1024.39(b)(2)(v). A servicer may, at its 

option, provide the Web site and 

telephone number for either the 

Bureau’s or the Department of Housing 

and Urban Development’s housing 

counselors list, as provided by 

paragraphs § 1024.39(b)(2)(v). 

Dated: January 17, 2013. 

Richard Cordray, 

Director, Bureau of Consumer Financial 

Protection. 

[FR Doc. 2013–01248 Filed 2–1–13; 4:15 pm] 

BILLING CODE 4810–AM–P 

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