BILLING CODE: 4810-AM-P 

BUREAU OF CONSUMER FINANCIAL PROTECTION 

12 CFR Part 1024

[Docket No. CFPB-2012-0034] 

RIN 3170-AA14 

2012 Real Estate Settlement Procedures Act (Regulation X) Mortgage Servicing Proposal 

AGENCY: Bureau of Consumer Financial Protection. 

ACTION: Proposed rule with request for public comment. 

SUMMARY: The Bureau of Consumer Financial Protection (the Bureau) is proposing to amend 

Regulation X, which implements the Real Estate Settlement Procedures Act of 1974 (RESPA) 

and the official interpretation of the regulation. The proposed amendments implement the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provisions regarding 

mortgage loan servicing. Specifically, this proposal requests comment regarding proposed 

additions to Regulation X to address seven servicer obligations: (1) to correct errors asserted by 

mortgage loan borrowers; (2) to provide information requested by mortgage loan borrowers; (3) 

to ensure that a reasonable basis exists to obtain force-placed insurance; (4) to establish 

reasonable information management policies and procedures; (5) to provide information about 

mortgage loss mitigation options to delinquent borrowers; (6) to provide delinquent borrowers 

access to servicer personnel with continuity of contact about the borrower’s mortgage loan 

account; and (7) to evaluate borrowers’ applications for available loss mitigation options. 

 This proposal would also modify and streamline certain existing servicing-related 

provisions of Regulation X. For instance, the proposal would revise provisions relating to a 

mortgage servicer’s obligation to provide disclosures to borrowers in connection with a transfer 
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of mortgage servicing, and a mortgage servicer’s obligation to manage escrow accounts, 

including the obligation to advance funds to an escrow account to maintain insurance coverage 

and to return amounts in an escrow account to a borrower upon payment in full of a mortgage 

loan. 

 Published elsewhere in today’s Federal Register, the Bureau proposes companion 

regulations implementing amendments to the Truth In Lending Act (TILA) in Regulation Z (the 

2012 TILA Servicing Proposal). 

DATES: Comments must be received on or before October 9, 2012, except that comments on 

the Paperwork Reduction Act analysis in part IX of this Federal Register notice must be received 

on or before [INSERT DATE THAT IS 60 DAYS FROM THE DATE OF PUBLICATION IN 

THE FEDERAL REGISTER]. 

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-0034 or RIN 

3170-AA14, by any of the following methods: 

 Electronic: http://www.regulations.gov. Follow the instructions for submitting 

comments. 

 Mail/Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, 

Consumer Financial Protection Bureau, 1700 G Street, NW, Washington, D.C. 20552. 

Instructions: All submissions must include the agency name and docket number or 

Regulatory Information Number (RIN) for this rulemaking. In general, all comments received 

will be posted without change to http://www.regulations.gov. In addition, comments will be 

available for public inspection and copying at 1700 G Street, NW, Washington, D.C. 20552, on 

official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an 

appointment to inspect the documents by telephoning (202) 435-7275. 
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All comments, including attachments and other supporting materials, will become part of 

the public record and subject to public disclosure. Sensitive personal information, such as 

account numbers or Social Security numbers, should not be included. Comments will not be 

edited to remove any identifying or contact information. 

e-Rulemaking Initiative 

 The Bureau is working with the Cornell e-Rulemaking Initiative (CeRI) on a pilot 

project, Regulation Room, 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. The TILA and RESPA proposed rulemakings on mortgage 

servicing are the subject of the project. The Bureau has undertaken this project to increase 

effective public involvement in the rulemaking process and strongly encourages all parties 

interested in this rulemaking to visit the Regulation Room website, 

http://www.regulationroom.org, to learn about the Bureau’s proposed mortgage servicing rules 

and the rulemaking process, to discuss the issues in the rules with other persons and groups, and 

to participate in drafting a summary of that discussion that CeRI will submit to the Bureau. 

 Note that Regulation Room is sponsored by CeRI, and is not an official United States 

Government website. Participating in the discussion on that site will not result in individual 

formal comments that will be included in the Bureau’s rulemaking record. If you would like to 

add a formal comment, please do so through the means identified above. The Bureau anticipates 

that CeRI will submit to the Bureau’s rulemaking docket a summary of the discussion that occurs 

on the Regulation Room site and that participants will have a chance to review a draft and 

suggest changes before the summary is submitted. For questions about this project, please 

contact Whitney Patross, Attorney, Office of Regulations, at (202) 435-7700. 
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FOR FURTHER INFORMATION CONTACT: 

Regulation X (RESPA): Jane Gao, Mitchell E. Hochberg, and Michael Scherzer, Counsels at 

(202) 435-7700; Office of Regulations, Division of Research, Markets, and Regulations, Bureau 

of Consumer Financial Protection; 1700 G Street, NW, Washington, DC 20552. 

Regulation Z (TILA): Whitney Patross, Attorney and Marta Tanenhaus, Senior Counsel at 

(202) 435-7700; Office of Regulations, Division of Research, Markets, and Regulations, Bureau 

of Consumer Financial Protection; 1700 G Street, NW, Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: 

I. Overview 

A. Background 

The recent financial crisis exposed pervasive consumer protection problems across major 

segments of the mortgage servicing industry. As millions of borrowers fell behind on their 

loans, many servicers failed to provide the level of service necessary to serve the needs of those 

borrowers. Many servicers simply had not made the investments in resources and infrastructure 

necessary to service large numbers of delinquent loans. Existing weaknesses in servicer 

practices, including inadequate recordkeeping and document management and lack of oversight 

of service providers, made it harder to sort out borrower problems to achieve optimal results. In 

addition, many servicers took short cuts that made things even worse. As one review of fourteen 

major servicers found, companies “emphasize[d] speed and cost efficiency over quality and 

accuracy” in their foreclosure processes.1

 

1

 Federal Reserve System, Office of the Comptroller of the Currency, & Office of Thrift Supervision, Interagency 

Review of Foreclosure Policies and Practices, at 5 (Apr. 2011) (Interagency Foreclosure Report), available at 

http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47a.pdf. 
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The Dodd-Frank Act (Public Law 111-203, July 21, 2010) adopts several new servicing 

protections.2

 The Bureau has the authority to promulgate regulations to implement the new 

servicing protections. These changes will significantly improve disclosures to make it easier for 

consumers to monitor their mortgage loans and servicers’ activities. The changes also address 

critical servicer practices, including error resolution, prompt crediting of payments, and “forceplacing” insurance where borrowers have allowed their hazard insurance policies to lapse. 

The Dodd-Frank Act also gives the Bureau discretionary authority to develop additional 

servicing rules. The Bureau proposes to use this authority to adopt requirements relating to 

reasonable information management policies and procedures, early intervention with delinquent 

borrowers, continuity of contact, and procedures for evaluating and responding to loss mitigation 

applications when the servicer makes loss mitigation options available in the ordinary course of 

business. These proposals address fundamental problems that underlie many consumer 

complaints and recent regulatory and enforcement actions. The Bureau believes these changes 

will reduce avoidable foreclosures and improve general customer service. The proposals cover 

nine major topics, as summarized below. 

The Bureau’s proposal is split into two parts because Congress imposed some 

requirements under TILA and some under RESPA.3

 This proposed rule would amend 

Regulation X, which implements RESPA, to implement section 1463 of the Dodd-Frank Act 

concerning error resolution and force-placed insurance and to impose additional requirements 

concerning reasonable information management policies and procedures, early intervention with 

 

2 See Dodd-Frank Act sections 1418, 1420, 1463, and 1464. 3

 Note that TILA and RESPA differ in their terminology. Consumers and creditors are the defined terms used in 

Regulation Z. Borrowers and lenders are the defined terms used in Regulation X. 
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delinquent borrowers, continuity of contact, and procedures for evaluating and responding to loss 

mitigation applications. 

B. Scope of Coverage

The proposed rules generally apply to closed-end mortgage loans, with certain 

exceptions. Under the proposed amendments to Regulation X, open-end lines of credit and 

certain other loans, such as construction loans and business-purpose loans, are excluded. Under 

the proposed amendments to Regulation Z, the periodic statement and adjustable-rate mortgage 

(ARM), disclosure provisions apply only to closed-end mortgage loans, but the prompt crediting 

and payoff statement provisions apply both to open-end and closed-end mortgage loans. In 

addition, reverse mortgages and timeshares are excluded from the periodic statement 

requirement, and certain construction loans are excluded from the ARM disclosure requirements. 

As discussed below, the Bureau is seeking comment on whether to exempt small servicers from 

certain requirements or modify certain requirements for small servicers. 

C. Summary

The proposals cover nine major topics, summarized below. More details can be found in 

the proposed rules, which are split into two notices issued under the Truth in Lending Act 

(TILA) and Real Estate Settlement Procedures Act (RESPA), respectively. 

1. Periodic billing statements. The Dodd-Frank Act generally mandates that servicers of 

closed-end residential mortgage loans (other than reverse mortgages) must send a periodic 

statement for each billing cycle. These statements must meet the timing, form, and content 

requirements provided for in the rule. The proposal contains sample forms that servicers could 

use. The periodic statement requirement generally would not apply for fixed-rate loans if the 

servicer provides a coupon book, so long as the coupon book contains certain information 
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specified in the rule and certain other information is made available to the consumer. The 

proposal also includes an exception for small servicers that service 1000 or fewer mortgage loans 

and service only mortgage loans that they originated or own. 

2. Adjustable-rate mortgage interest-rate adjustment notices. Servicers would have to 

provide a consumer whose mortgage has an adjustable rate with a notice 60 to 120 days before 

an adjustment which causes the payment to change. The servicer would also have to provide an 

earlier notice 210 to 240 days prior to the first rate adjustment. This first notice may contain an 

estimate of the rate and payment change. Other than this initial notice, servicers would no longer 

be required to provide an annual notice if a rate adjustment does not result in an increase in the 

monthly payment. The proposal contains model and sample forms that servicers could use. 

3. Prompt payment crediting and payoff payments. As required by the Dodd-Frank Act, 

servicers must promptly credit payments from borrowers, generally on the day of receipt. If a 

servicer receives a payment that is less than a full contractual payment, the payment may be held 

in a suspense account. When the amount in the suspense account covers a full installment of 

principal, interest, and escrow (if applicable), the proposal would require the servicer to apply 

the funds to the oldest outstanding payment owed. A servicer also would be required to send 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. As required by the Dodd-Frank Act, servicers would not be 

permitted to charge a borrower for force-placed insurance coverage unless the servicer has a 

reasonable basis to believe the borrower has failed to maintain hazard insurance and has 

provided required notices. One notice to the borrower would be required at least 45 days before 

charging for forced-place insurance coverage, and a second notice would be required no earlier 
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than 30 days after the first notice. The proposal contains model forms that servicers could use. 

If a borrower provides proof of hazard insurance coverage, then the servicer would be required to 

cancel any force-placed insurance policy and refund any premiums paid for periods in which the 

borrower’s policy was in place. In addition, if a servicer makes payments for hazard insurance 

from a borrower’s escrow account, a servicer would be required to continue those payments 

rather than force-placing a separate policy, even if there is insufficient money in the escrow 

account. The rule would also provide that charges related to forced place insurance (other than 

those subject to State regulation as the business of insurance or authorized by federal law for 

flood insurance) must relate to a service that was actually performed. Additionally, such charges 

would have to bear a reasonable relationship to the servicer’s cost of providing the service. 

5. Error resolution and information requests. Pursuant to the Dodd-Frank Act, servicers 

would be required to meet certain procedural requirements for responding to information 

requests or complaints of errors. The proposal defines specific types of claims which constitute 

an error, such as a claim that the servicer misapplied a payment or assessed an improper fee. A 

borrower could assert an error either orally or in writing. Servicers could designate a specific 

phone number and address for borrowers to use. Servicers would be required to acknowledge 

the request or complaint within five days. Servicers would have to correct or respond to the 

borrower with the results of the investigation, generally within 30 to 45 days. Further, servicers 

generally would be required to acknowledge borrower requests for information and either 

provide the information or explain why the information is not available within a similar amount 

of time. A servicer would not be required to delay a scheduled foreclosure sale to consider a 

notice of error unless the error relates to the servicer’s improperly proceeding with a foreclosure 

sale during a borrower’s evaluation for alternatives to foreclosure. 
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6. Information management policies and procedures. Servicers would be required to 

establish reasonable information management policies and procedures. The reasonableness of a 

servicer’s policies and procedures would take into account the servicer’s size, scope, and nature 

of its operations. A servicer’s policies and procedures would satisfy the rule if the servicer 

regularly achieves the document retention and servicing file requirements, as well as certain 

objectives specified in the rule. Examples of such objectives include providing accurate and 

timely information to borrowers and the courts or enabling service personnel to have prompt 

access to documents and information submitted in connection with loss mitigation applications. 

In addition, a servicer must retain records relating to each mortgage until one year after the 

mortgage is discharged or servicing is transferred and must create a mortgage servicing file for 

each loan containing certain specified documents and information. 

7. Early intervention with delinquent borrowers. Servicers would be required to make 

good faith efforts to notify delinquent borrowers of loss mitigation options. If a borrower is 30 

days late, the proposal would require servicers to make a good faith effort to notify the borrower 

orally and to let the borrower know that loss mitigations options may be available. If the 

borrower is 40 days late, the servicer would be required to provide the borrower with a written 

notice with certain specific information, including examples of loss mitigation options available, 

if applicable, and information on how to obtain more information about loss mitigation options. 

The notice would also provide information to the borrower about the foreclosure process. The 

rule contains model language servicers could use for these notices. 

8. Continuity of contact with delinquent borrowers. Servicers would be required to 

provide delinquent borrowers with access to personnel to assist them with loss mitigation options 

where applicable. The proposal would require servicers to assign dedicated contact personnel for 
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a borrower no later than five days after providing the early intervention notice. Servicers would 

be required to establish reasonable policies and procedures designed to ensure that the servicer 

personnel perform certain specified functions where applicable, such as access the borrower’s 

records and provide the borrower with information about how and when to apply for a loss 

mitigation option and about the status of the application. 

9. Loss mitigation procedures. Servicers that offer loss mitigation options to borrowers 

would be required to implement procedures to ensure that complete loss mitigation applications 

are reasonably evaluated before proceeding with a scheduled foreclosure sale. The proposal 

would require servicers to exercise reasonable diligence to secure information or documents 

required to make an incomplete loss mitigation application complete. In certain circumstances, 

this could include notifying the borrower within five days of receiving an incomplete application. 

Within 30 days of receiving a borrower’s complete application, the servicer would be required to 

evaluate the borrower for all available options, and, if the denial pertains to a requested loan 

modification, notify the borrower of the reasons for the servicer’s decision, and provide the 

borrower with at least a 14-day period within which to appeal the decision. The proposal would 

require that appeals be decided within 30 days by different personnel than those responsible for 

the initial decision. A servicer that receives a complete application for a loss mitigation option 

could not proceed with a foreclosure sale unless (i) the servicer had denied the borrower’s 

application and the time for any appeal had expired; (ii) the servicer had offered a loss mitigation 

option which the borrower declined or failed to accept within 14 days of the offer; or (iii) the 

borrower failed to comply with the terms of a loss mitigation agreement. The proposal would 

require that deadlines for submitting an application for a loss mitigation option be no earlier than 

90 days before a scheduled foreclosure sale. 
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D. Small Servicers 

 As discussed below, the Bureau convened a Small Business Regulatory Enforcement 

Fairness Act (SBREFA) 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. Informed by this process, the 2012 

TILA Servicing Proposal contains an exemption from the periodic statement requirement for 

certain small servicers. The Bureau seeks comment on whether other exemptions might be 

appropriate for small servicers. 

E. Effective Date 

As discussed below, the Bureau is seeking comment on when this final rule should be 

effective. Because the final rule will provide important benefits to consumers, the Bureau seeks 

to make it effective as soon as possible. However, the Bureau understands that the final rules 

will require servicers to make revisions to their software and to retrain their staff. In addition, 

some entities will be required to implement other Dodd-Frank Act provisions, which are subject 

to separate rulemaking deadlines under the statute and will have separate effective dates. 

Therefore, the Bureau is seeking comment on how much time industry needs to make these 

changes. 

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.4

 Mortgage 

 

4

 Inside Mortgage Finance, Outstanding 1-4 Family Mortgage Securities, Mortgage Market Statistical Annual 

(2012). For general background on the market and the recent mortgage crisis, see the 2012 TILA-RESPA Proposal 

available at http://www.consumerfinance.gov/knowbeforeyouowe/. 
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servicers play a vital role within the broader market by undertaking the day-to-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.5

 Over 60% 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.6

Several aspects of the mortgage servicing business make it uniquely challenging for 

consumer protection purposes. Given the nature of their activities, servicers can have a direct 

and profound impact on borrowers. However, industry compensation practices and the structure 

of the mortgage servicing industry create wide variations in servicers’ incentives to provide 

effective customer service to borrowers. Also, because borrowers cannot choose their own 

servicers, it is particularly difficult for them to protect themselves from shoddy service or 

harmful practices. 

 

5

 As of the end of 2011, approximately 33% of outstanding mortgage loans were held in portfolio, 57% of mortgage 

loans were owned through mortgage-backed securities issued by government sponsored enterprises (GSEs), and 

11% of loans were owned through private label mortgage-backed securities. Inside Mortgage Finance, Issue 

2012:13, at 11 (March 30, 2012). 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). 

6 See, 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.”). 
13 

Mortgage servicing is performed by banks, thrifts, credit unions, and non-bank servicers 

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.7

 

These different servicing structures can create difficulties for borrowers if a servicer 

makes mistakes, fails to invest sufficient resources in its servicing operations, or does not 

properly service the borrower’s loan. Although the mortgage servicing industry has numerous 

participants, the industry is highly concentrated, with the five largest servicers servicing 

approximately 55% percent of outstanding mortgage loans in this country.8 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.9

 

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 investors can transfer servicing rights to a different servicer. 

 

7 See, e.g., Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan 

Modifications, 86 Wash. L. Rev. 755, 763 (2011) (Thompson), available at http://digital.law.washington.edu/dspacelaw/bitstream/handle/1773.1/1074/86WLR755.pdf. 

8 See, e.g, Inside Mortgage Finance, Issue 2012:13, at 12 (Mar. 30, 2012). As of the end of the fourth quarter of 

2011, the top five largest servicers serviced $5.66 trillion of mortgage loans. See id. at 12. 9 See, e.g., Fitch Ratings, U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria, at 14-

15 (Jan. 31, 2011), available at www.fitchratings.com. 
14 

Compensation structures vary somewhat for loans held in portfolio and securitized 

loans,10 but have tended to make pure mortgage servicing (where the servicer has no role in 

origination) a high-volume, low-margin business in which servicers have little incentive to invest 

in customer service. A servicer will expect to recoup its investment in purchasing mortgage 

servicing rights and earn a profit through a net servicing fee (which is expressed as a constant 

rate assessed on unpaid mortgage balances),11 fees assessed on borrowers, 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 provide minimal customer service to ensure profitability. Servicers also 

have an incentive to look for opportunities to impose fees on borrowers to enhance revenues and 

are generally not subject to market discipline because consumers have no opportunity to switch 

providers. Additionally, servicers may have financial incentives to foreclose rather than engage 

in loss mitigation.12

 

10 At 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, Mortgage Servicing Primer, at 3 (Apr. 17, 

2012). 

11 See, e.g., Thompson, 86 Wash. L. Rev. 755, 767. 12 National Consumer Law Center, Why Servicers Foreclose When They Should Modify and Other Puzzles of 

Servicer Behavior, at v (Oct. 2009) (“Servicers, unlike investors or homeowners, do not generally lose money on 

foreclosure. Servicers may even make money on a foreclosure.”); see also, The Need for National Mortgage 

Servicing Standards: Hearing Before the Subcomm. on Housing, Transportation, and Community Affairs of the 

Senate Comm. on Banking, Housing and Urban Affairs, S. Hrg. 112-139, 112th Cong. 126 (2011) (statement of 

Diane E. Thompson, National Consumer Law Center), at 15 (“...modification will also likely reduce future income, 

cost more in the present in staffing, and delay recovery of expenses. Moreover, the foreclosure process itself 

generates significant income for servicers.”), available at http://www.nclc.org/images/pdf/pr-reports/reportservicers-modify.pdf. 
15 

These attributes of the servicing market created problems for certain borrowers even prior 

to the national mortgage crisis. For example, borrowers experienced problems with mortgage 

servicers even during regional mortgage market downturns that preceded the mortgage crisis.13 

Borrowers were subjected to improper fees that servicers had no reasonable basis to impose on 

borrowers, improper force-placed insurance practices, and improper foreclosure and bankruptcy 

practices.14 

When the mortgage crisis erupted, many servicers were ill-equipped to handle the high 

volumes of delinquent mortgages, loan modification requests, and foreclosures they were 

required to process. These servicers lacked the infrastructure, trained staff, controls, and 

procedures needed to manage effectively the flood of delinquent mortgages they were forced to 

handle. Consumer harm has manifested in many different areas. Major servicers have violated 

applicable laws (including State foreclosure laws), ignored investor loss mitigation requirements, 

and breached investor servicing agreements.15 For example, Bank of America, Citibank, HSBC 

Bank, JPMorgan Chase Bank, N.A., MetLife Bank, N.A., PNC Bank, N.A., U.S. Bank N.A., and 

Wells Fargo Bank, N.A., which together account for almost 57% of all mortgage servicing have 

admitted that they (1) filed foreclosure documents that failed to comply with applicable law, (2) 

failed to devote sufficient financial, staffing and managerial resources to proper administration of 

foreclosures processes, (3) failed to devote to its foreclosure processes adequate oversight, 

internal controls, policies and procedures, compliance risk management, internal audit, third 

 

13 See Problems in Mortgage Servicing from Modification to Foreclosure: Hearings Before the Comm. on Banking, 

Housing and Urban Affairs, S. Hrg. 111-987, 111th Cong. 53-54 (2010) (statement of Thomas J. Miller, Iowa 

Attorney General) (Miller Testimony). See also, Kurt Eggert, Limiting Abuse and Opportunism by Mortgage 

Servicers 15:3 Housing Policy Debate (2004), available at http://ssrn.com/abstract=992095 14 See Kurt Eggert, Limiting Abuse and Opportunism by Mortgage Servicers 15:3 Housing Policy Debate (2004), 

available at http://ssrn.com/abstract=992095 (collecting cases). 15 Peter P. Swire, What the Fair Credit Reporting Act Should Teach Us About Mortgage Servicing, Ohio State 

Public Law Working Paper No. 160 (Nov. 16, 2011), available at SSRN: http://ssrn.com/abstract=1960644. 
16 

party management, and training, and (4) failed to sufficiently oversee outside counsel and other 

third-party providers handling foreclosure-related services.16 Congress has held significant 

detailed hearings on the issue of servicer “robo-signing” of foreclosure related documentation.17 

Servicers have also misled, or failed to communicate with, borrowers, lost or mishandled 

borrower-provided documents supporting loan modification requests, and generally provided 

inadequate service to delinquent borrowers. These problems became pervasive in broad 

segments of the mortgage servicing industry and had profound impacts on borrowers, 

particularly delinquent borrowers.18

The Bureau further understands from mortgage investors that there is a pervasive belief 

that servicers are making discretionary decisions based on the best interests of the servicer rather 

than to achieve results that will benefit owners or assignees of mortgages loans. 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.19 Specifically, “liquidation and modification of securitized first mortgages are 

60% [to] 70% less likely respectively and no action is 13% more likely when the servicer of that 

securitized first mortgage holds on its portfolio the second lien attached to the first mortgage.”20 

 

16 OCC Press Release, OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound 

Foreclosure Practices (April 13, 2011), available at http://www.occ.treas.gov/news-issuances/news-releases/2011/nrocc-2011-47.html. In addition to eight servicers, the OCC obtained consent orders against two service providers: 

MERSCORP and LPS. 

17 See, e.g., Problems in Mortgage Servicing from Modification to Foreclosure: Hearings Before the Comm. on 

Banking, Housing and Urban Affairs, S. Hrg. 111-987, 111th Cong. 53-54 (2010) (statement of Diane E. Thompson, 

NCLC) (Thompson Testimony). 

18 See U.S. Government Accountability Office, Troubled Asset Relief Program: Further Actions Needed to Fully 

and Equitably Implement Foreclosure Mitigation Actions, at 14-16 (Jun, 2010); Miller Testimony at 54. 19 Sumit Agarwal et al., Second Liens and the Holdup Problem in First Mortgage Renegotiation (Dec, 2011), 

available at http://ssrn.com/abstract=2022501. 20 Id.
17 

These failures to take actions that may benefit both consumers and owners or assignees of first 

lien mortgage loans harm consumers. 

The mortgage servicing industry, however, is not monolithic. Some servicers provide 

high levels of customer service. Some of these servicers may be compensated by investors in a 

way that incentivizes them to provide high levels of customer service in order to optimize 

investor outcomes. Other servicers provide high levels of customer service because they rely on 

providing other products and services to consumers 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 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.21

B. Mortgage Servicing Consumer Protection Regulation Before the Recent Crisis 

 Prior to the adoption of the Dodd-Frank Act, the mortgage servicing industry was subject 

to limited Federal consumer financial protection regulation. RESPA set forth basic protections 

with respect to mortgage servicing that were implemented by the U.S. Department of Housing 

and Urban Development (HUD). 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.22 RESPA further imposed substantive and disclosure requirements for 

escrow account management and required servicers to respond to “qualified written requests” – 

 

21 See Final Report of the Small Business Review Panel on CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (Small Business Review Panel Report) (Jun, 11, 2012). A copy of the report is available at 

http://www.consumerfinance.gov. 

22 See 12 U.S.C. 2605(a)-(e). 
18 

written error resolution or information requests relating to a restricted definition of the 

“servicing” of the borrower’s mortgage loan.23 

TILA set forth requirements on creditors that were implemented by servicers, including 

disclosures regarding interest rate adjustments on adjustable rate mortgage loans. Regulation Z, 

which implements TILA, was amended by the Board of Governors of the Federal Reserve 

System (the Board) to include certain limited requirements directly on servicers, such as 

requirements to timely credit payments, provide payoff balances and prohibit pyramiding of late 

fees.24 Servicers also had some obligations under other Federal laws, including, for example, the 

Servicemembers Civil Relief Act.25

 Although TILA and RESPA did not impose many requirements on servicers, servicers 

were still required to navigate overlapping requirements governing their servicing 

responsibilities. In addition to Federal law, servicers were required to consider the impact of 

State and even local regulation on mortgage servicing. Servicers also had to comply with 

investor requirements to the extent they serviced loans owned or guaranteed by various types of 

entities. These include (1) servicing guidelines required by Federal National Mortgage 

Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), 

together known as the government-sponsored enterprises (GSEs), as well as servicing guidelines 

required by the Government National Mortgage Association (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 

 

23 See 12 U.S.C. 2605(e) and 2609. 24 See 12 CFR 1026.36(c). 25 See 50 U.S.C. App. 501 et seq.
19 

(such as pooling and servicing agreements and subservicing contracts); and (4) bank or 

institution policies. All those requirements remain in effect today and going forward. 

C. The National Mortgage Settlement and Other Regulatory Actions

In response to the unprecedented mortgage 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, 49 State attorneys general,26 joined by numerous Federal agencies including 

the Bureau, entered into a National Mortgage Settlement (National Mortgage Settlement) with 

the nation’s five largest servicers in February 2012.27 The National Mortgage Settlement applies 

to loans held in portfolio and serviced by the five largest servicers. Loans owned by GSEs, 

private investors, or smaller servicers are not covered by the settlement. 

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. 

 

26 Oklahoma elected not to join the settlement. 

27 The 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. 

28 See http://www.nationalmortgagesettlement.com/. 
20 

In addition to the settlement, other Federal regulatory agencies have 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 The Bureau 

and other Federal agencies have also engaged since spring 2011 in informal discussions about 

the potential development of national mortgage servicing standards through regulations and 

guidance. 

The Bureau’s proposed rules under Regulation Z and X represent another important step 

towards establishing uniform minimum national standards. When adopted in final form, the 

Bureau’s rules will apply to all mortgage servicers, whether depository institutions or nondepository institutions, and to all segments of the mortgage market, regardless of the ownership 

of the loan. The proposals focus both on implementing the specific mortgage servicing 

requirements of the Dodd-Frank Act and on addressing broader systemic problems that the 

Bureau believes are critical to ensure that the mortgage servicing market functions to serve 

consumer needs. To that end, the proposed TILA and RESPA mortgage servicing rules 

incorporate elements from four categories of the National Mortgage Settlement—(1) foreclosure 

 

29 Office of the Comptroller of the Currency, Bulletin 2011-29 (Jun. 30, 2011), available at: 

http://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-29.html; Letter from Edward J. DeMarco, Acting 

Director of FHFA, to Hon. Elijah E. Cummings, Ranking Member, Committee on Oversight and Government 

Reform, U.S. House of Representatives (Jan. 20, 2012), available at 

http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf; Guidance, Home Affordable Modification 

Program, available at: https://www.hmpadmin.com/portal/programs/guidance.jsp. 

FHFA, Frequently Asked Questions—Servicing Alignment Initiative, available at: 

http://www.fhfa.gov/webfiles/21191/FAQs42811Final.pdf. 30 See 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.. 

31 See Interagency Foreclosure Report at 5; Federal Reserve Board, Press Release (May 24, 2012), available at: 

http://www.federalreserve.gov/newsevents/press/enforcement/20120524a.htm; Federal Reserve Board, Press 

Release (Feb. 27, 2012), available at: 

http://www.federalreserve.gov/newsevents/press/enforcement/20120227a.htm; Office of the Comptroller of the 

Currency, News Release 2011-47 (Apr. 13, 2011), available at: http://www.occ.gov/news-issuances/newsreleases/2011/nr-occ-2011-47.html.
21 

and bankruptcy information and documentation, (4) loss mitigation, (6) restrictions on servicing 

fees, and (7) force-placed insurance. In addition, the proposed requirement to maintain 

reasonable information management policies and procedures addresses oversight of service 

providers, which impacts category (2) of the settlement. 

The Bureau continues to consider whether to incorporate other settlement standards into 

rules or guidance, either alone or in conjunction with other Federal regulatory agencies; certain 

requests for comment in this proposal reflect these considerations. The Bureau is also continuing 

ongoing discussions with other regulators to ensure appropriate coordination of rulemaking and 

other initiatives relating to mortgage servicing issues. 

D. The Statutory Requirements and Additional Proposals

The Dodd-Frank Act mandates several protections for homeowners in the servicing of 

their loans. The Act requires new disclosures, specifically periodic statements (unless coupon 

books are provided in certain circumstances), notices prior to the reset of adjustable-rate 

mortgages, and force-placed insurance notices. These disclosures are designed to provide 

consumers with comprehensive and comprehensible information when they need it and in a form 

they can use, so they can better manage their obligations and avoid unnecessary problems. 

The Dodd-Frank Act also imposes new requirements on servicers to respond in a timely 

way to borrowers who assert that their servicer made an error. The statute also requires servicers 

to respond in a timely way to borrower requests for information. 

The Dodd-Frank Act contains requirements relating to the prompt crediting of payments, 

so that consumers are not wrongly penalized with late fees or other fees because servicers did not 

credit their payments quickly. The statute also requires servicers to provide timely responses to 

consumer requests for payoff amounts, so consumers can get this information when they need it, 
22 

such as when refinancing. 

 The Bureau is proposing additional standards to improve the way servicers treat all 

borrowers, including delinquent borrowers. Some servicers have made it very difficult for 

delinquent borrowers to explore and take advantage of potential alternatives to foreclosure. For 

example, servicers have frequently neglected to reach out or respond to such borrowers to 

discuss alternatives to foreclosure, lost or misplaced the documents of borrowers who have 

sought modifications or other relief, failed to keep track of borrower communications, and forced 

borrowers who have invested substantial time communicating with an employee of the servicer 

to repeat the process with a different employee.32 

To address these concerns, the Bureau is proposing new servicing standards in four areas. 

First, servicers would have to establish and maintain information management policies and 

procedures that would have to be reasonably designed to achieve certain objectives and address 

certain obligations, including accessing and providing accurate information, evaluating 

borrowers for loss mitigation options, facilitating oversight of, and compliance by, service 

providers, and facilitating servicing transfers. Second, servicers would have to intervene early 

with delinquent borrowers to provide them with information about, and encourage them to 

explore, available alternatives to foreclosure. Third, servicers would have to provide delinquent 

borrowers with a point of contact on the servicer’s staff that provides continuity in the 

borrowers’ dealings with the servicer. At such point of contact, staff must have access to 

complete records about that borrower, including records of prior communications with the 

borrower, and be able to assist the borrower in pursuing loss mitigation options. 

Fourth, servicers that offer loss mitigation options in the ordinary course of business 

 

32 See, e.g., Larry Cordell et al., The Incentives of Mortgage Servicers: Myths and Realities, at 9 (Federal Reserve 

Board, Working Paper No. 2008-46, Sept. 2008). 
23 

would be required to follow certain procedures to ensure that borrowers’ completed loss 

mitigation applications are evaluated in a timely manner, that borrowers are notified of the 

results, and that borrowers have a right to appeal the denial of a loan modification option. 

Servicers would also be required to provide borrowers who submit incomplete loss mitigation 

applications with timely notice about the additional documents or information needed to make a 

loss mitigation application complete. 

The Bureau recognizes that a one-size-fits-all approach may not be optimal with regard to 

either the mandated or additional requirements. As discussed below, the Bureau seeks comment 

on to what extent it may be appropriate to adjust these standards for small servicers. 

III. Summary of Statute and Rulemaking Process 

A. Overview of the Statute

The Dodd-Frank Act imposes certain new requirements related to mortgage servicing. 

Some of these new requirements are amendments to RESPA addressed in this proposal and 

others are amendments to TILA.

RESPA amendments. Section 1463 of the Dodd-Frank Act imposes a number of new 

servicing related requirements under RESPA that broadly relate to force-placed insurance and 

error resolution/responses to requests for information. First, the statute prohibits a servicer from 

obtaining force-placed hazard insurance, unless there is a reasonable basis to believe the 

borrower has failed to comply with the loan contract’s requirement to maintain property 

insurance. A servicer may not impose any charge on any borrower for force-placed insurance 

with respect to any property secured by a federally related mortgage, unless the servicer sends, 

by first-class mail, two written notices to the borrower, at least 30 days apart. The notices must 

remind borrowers of their obligation to maintain hazard insurance on the property, alert 
24 

borrowers to the servicer’s lack of evidence of insurance coverage, tell borrowers what they must 

do to demonstrate that they have coverage, and state that the servicer may obtain coverage at the 

borrower’s expense if the borrower fails to provide evidence of coverage. Servicers must 

terminate force-placed insurance coverage and refund to borrowers any premiums charged 

during any period when the borrower had private insurance coverage. The statute also provides 

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. 

Second, the statute prohibits certain acts and practices by servicers of federally related 

mortgages with regard to resolving errors and responding to requests for information. 

Specifically, the statute prohibits servicers of federally related mortgages from charging fees for 

responding to valid qualified written requests. The statute also provides that a servicer of a 

federally related mortgage must 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, avoiding foreclosure, or other standard servicer duties. 

Finally, the statue requires a servicer of a federally related mortgage to 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. The statue also reduces the amount 

of time that servicers of federally related mortgages have to correct errors and respond to 

inquiries generally, as well as refund escrow accounts upon payoff.33 

In addition, the statute provides that a servicer of a federally related mortgage must 

“comply with any other obligation found by the Consumer Financial Protection Bureau, by 

 

33 Other changes in section 1463 of the Dodd-Frank Act relate to increases in penalties for violations. These 

provisions are not addressed in this rulemaking. 
25 

regulation, to be appropriate to carry out the consumer protection purposes of this Act.”34 This 

provision gives the Bureau broad authority to adopt additional regulations to govern the conduct 

of servicers of federally related mortgage loans. In light of the systemic problems in the 

mortgage servicing industry, the Bureau is proposing to exercise this authority to require 

servicers of federally related mortgages to: establish reasonable information management 

policies and procedures; undertake early intervention with delinquent borrowers; provide 

delinquent borrowers with continuity of contact with staff equipped to assist them; and require 

servicers that offer loss mitigation options in the ordinary course of business to follow certain 

procedures when evaluating loss mitigation applications.

TILA amendments. There are three new mortgage servicing requirements under TILA. 

First, for closed-end credit transactions secured by a consumer’s principal residence, section 

1418 of the Dodd-Frank Act adds a new section 128A to TILA. TILA section 128A states that, 

for hybrid ARMs with a fixed interest rate for an introductory period that adjusts or resets to a 

variable interest rate at the end of such period, a notice must be provided six months prior to the 

initial adjustment of the interest rate for closed-end credit transactions secured by a consumer’s 

principal residence. Section 1418 of the Dodd-Frank Act permits the Bureau to extend this 

requirement to ARMs that are not hybrid ARMs. 

Second, section 1420 of the Dodd-Frank Act, which adds section 128(f) to TILA, 

requires the creditor, assignee, or servicer of any residential mortgage loan to transmit to the 

borrower, for each billing cycle, a periodic statement that sets forth certain specified information 

in a conspicuous and prominent manner. The statute also gives the Bureau the authority to 

require additional content to be included in the periodic statement. The statute provides an 

 

34 12 U.S.C. 2605(k)(1)(E). 
26 

exception to the periodic statement requirement for fixed-rate loans where the borrower is given 

a coupon book containing substantially the same information as the statement. 

Third, section 1464 of the Dodd-Frank Act adds sections 129F and 129G to TILA, which 

generally codify existing Regulation Z requirements for the prompt crediting of mortgage 

payments received by servicers in connection with consumer credit transactions secured by a 

consumer’s dwelling. The statute also requires a creditor or servicer to send accurate and timely 

responses to borrower requests for payoff amounts for home loans. 

The statutory provisions with enumerated mortgage servicing requirements become 

effective on January 21, 2013, unless final rules are issued on or before that date. 

B. Outreach and Consumer Testing

 The Bureau has conducted extensive outreach in developing the mortgage servicing 

proposals. Bureau staff met with mortgage servicers, force-placed insurance carriers, industry 

trade associations, consumer advocates, other Federal regulatory agencies, and other interested 

parties to discuss various aspects of the statute and the servicing industry. 

In preparing this proposed rule, 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 (SBA) and the Administrator of the Office of 

Information and Regulatory Affairs within the Office of Management and Budget (OMB).35 The 

Small Business Review Panel’s findings and recommendations are contained in the Final Report 

 

35 The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) 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 Pub. L. 104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Pub. L. 110-28, sec. 

8302 (2007)). 
27 

of the Small Business Review Panel on CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (Small Business Review Panel Report).36 

The Bureau also engaged in other meetings and roundtables with a variety of other 

stakeholders to gather factual information about the servicing industry and to discuss various 

elements of the Bureau’s proposals as they were being developed. 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 proposals and the need for and 

potential contents of national mortgage servicing standards in general. As it considers public 

comment and works to develop final rules on mortgage servicing, the Bureau will continue to 

seek input from all interested parties. 

In addition, the Bureau engaged ICF Macro (Macro), a research and consulting firm that 

specializes in designing disclosures and consumer testing, to conduct one-on-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 ARM notices, the forceplaced insurance notices, and the periodic statements. Macro conducted three rounds of one-onone 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 

 

36 See Small Business Review Panel Report (Jun. 11, 2012). A copy of the report is available at 

http://www.consumerfinance.gov. 
28 

disclosure forms for periodic statements, ARM interest rate adjustment notices for the new 

disclosures required by Dodd-Frank Act section 1418, 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, as well as to learn about how they would use the 

information presented in each of the disclosures. The disclosures were revised after each round 

of testing. Specific findings from the consumer testing are discussed in detail throughout the 

SUPPLEMENTARY INFORMATION where relevant.37

C. Other Dodd-Frank Act Mortgage-Related Rulemakings 

 Including this proposal, the Bureau currently is engaged in seven rulemakings relating to 

mortgage credit to implement requirements of the Dodd-Frank Act:

 TILA-RESPA Integration: On July 9, 2012, the Bureau released proposed rules and 

forms combining the TILA mortgage loan disclosures with the Good Faith Estimate 

(GFE) and settlement statement required under RESPA, pursuant to Dodd-Frank Act 

section 1032(f) as well as sections 4(a) of RESPA and 105(b) of TILA, as amended by 

Dodd-Frank Act sections 1098 and 1100A, respectively. 12 U.S.C. 2603(a); 15 U.S.C. 

1604(b) (the 2012 TILA-RESPA Proposal).38

 HOEPA: On July 9, 2012, the Bureau released proposed rules to implement Dodd-Frank 

Act requirements expanding protections for “high-cost” mortgage loans under HOEPA, 

pursuant to TILA sections 103(bb) and 129, as amended by Dodd-Frank Act sections 

 

37 A copy of the Macro report on consumer testing is available at http://www.consumerfinance.gov/notice-andcomment/. 

38 Available at http://www.consumerfinance.gov/notice-and-comment/. 
29 

1431 through 1433. 15 U.S.C. 1602(bb) and 1639.39 Such loans have requirements on 

servicers of “high-cost” mortgage loans related to payoff statements, late fees, 

prepayment penalties, and fees for loan modifications or deferrals. 

 Loan Originator Compensation: The Bureau is in the process of developing a proposal to 

implement provisions of the Dodd-Frank Act requiring certain creditors and mortgage 

loan originators to meet duty of care qualifications and prohibiting mortgage 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, pursuant to TILA section 129B as established by 

Dodd-Frank Act sections 1402 through 1405. 15 U.S.C. 1639b. 

 Appraisals: The Bureau, jointly with Federal prudential regulators and other Federal 

agencies, is in the process of developing a proposal to implement Dodd-Frank Act 

requirements concerning appraisals for higher-risk mortgages, appraisal management 

companies, and automated valuation models, pursuant to TILA section 129H as 

established by Dodd-Frank Act section 1471, 15 U.S.C. 1639h, and sections 1124 and 

1125 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 

(FIRREA) as established by Dodd-Frank Act sections 1473(f), 12 U.S.C. 3353, and 

1473(q), 12 U.S.C. 3354, respectively. In addition, the Bureau is developing rules to 

implement section 701(e) of the Equal Credit Opportunity Act (ECOA), as amended by 

Dodd-Frank Act section 1474, to require that creditors provide applicants with a free 

copy of written appraisals and valuations developed in connection with applications for 

 

39 Id
30 

loans secured by a first lien on a dwelling (collectively, Appraisals Rulemaking). 15 

U.S.C. 1691(e). 

 Ability to Repay: The Bureau is in the process of finalizing a proposal issued by the 

Board to implement provisions of the Dodd-Frank Act requiring creditors to determine 

that a consumer can repay a mortgage loan and establishing standards for compliance, 

such as by making a “qualified mortgage,” pursuant to TILA section 129C as established 

by Dodd-Frank Act sections 1411 and 1412 (ATR Rulemaking). 15 U.S.C. 1639c. 

 Escrows: The Bureau is in the process of finalizing a proposal issued by the Board to 

implement provisions of the Dodd-Frank Act requiring certain escrow account 

disclosures and exempting from the higher-priced mortgage loan escrow requirement 

loans made by certain small creditors, among other provisions, pursuant to TILA section 

129D as established by Dodd-Frank Act sections 1461 and 1462 (Escrows Rulemaking). 

15 U.S.C. 1639d. 

With the exception of the requirements being implemented in the 2012 TILA-RESPA 

Proposal, the Dodd-Frank Act requirements referenced above 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. To provide an orderly, coordinated, and efficient 

comment process, the Bureau is generally setting the deadlines for comments on this and other 

proposed mortgage rules based on the date the proposal is issued, instead of the date this notice is 

published in the Federal Register. Therefore, the Bureau is providing 60 days for comment on 

those proposals, which will ensure that the Bureau receives comments with sufficient time 

remaining to issue final rules by January 21, 2013. Because the precise date this notice will be 
31 

published cannot be predicted in advance, setting the deadlines based on the date of issuance will 

allow interested parties that intend to comment on multiple proposals to plan accordingly. 

The Bureau regards the foregoing rulemakings as components of a larger undertaking; 

many of them intersect with one or more of the others. Accordingly, the Bureau is coordinating 

carefully the development of the proposals and final rules identified above. Each rulemaking 

will adopt new regulatory provisions to implement the various Dodd-Frank Act mandates 

described above. In addition, each of them may include other provisions the Bureau considers 

necessary or appropriate to ensure that the overall undertaking is accomplished efficiently and 

that it ultimately yields a regulatory scheme for mortgage credit that achieves the statutory 

purposes set forth by Congress, while avoiding unnecessary burdens on industry. 

Thus, many of the rulemakings listed above involve issues that extend across two or more 

rulemakings. In this context, each rulemaking may raise concerns that might appear unaddressed 

if that rulemaking were viewed in isolation. For efficiency’s sake, however, the Bureau is 

publishing and soliciting comment on a proposed approach to certain issues raised by two or 

more of its mortgage rulemakings in whichever rulemaking is most appropriate, in the Bureau’s 

judgment, for addressing each specific issue. Accordingly, the Bureau urges the public to review 

this and the other mortgage proposals identified above, including those previously published by 

the Board, together. Such a review will ensure a more complete understanding of the Bureau’s 

overall approach and will foster more comprehensive and informed public comment on the 

Bureau’s several proposals, including provisions that may have some relation to more than one 

rulemaking but are being proposed for comment in only one of them. 

D. Small Servicers 
32 

 The small entity representatives (SERs) who provided feedback to the SBREFA panel 

generally emphasized that their business models required a “high touch” approach to customer 

service and that they did not engage in many of the practices that contributed to the mortgage 

market process. The SERs indicated that they take a proactive approach to providing consumer 

information, resolving errors and working with delinquent borrowers to find alternatives to 

foreclosure. Nevertheless, they indicated that some elements of the proposals under 

consideration were not consistent with their current business practices and expressed concern 

about the need to begin providing extensive documentation to prove compliance with the 

proposed standards. The SERs urged the Bureau to adopt standards that would allow small 

servicers to stay in the market and provide choices to consumers.40 The SERs were particularly 

concerned about the costs and burdens of complying with the periodic statement requirements, as 

well as certain aspects of the process for resolving errors and responding to inquiries.41 

 Informed by this process, the Bureau is proposing in the 2012 TILA Servicing Proposal 

to exempt certain small servicers from the periodic statement requirement. The Bureau is also 

proposing that certain requirements, such as the requirement to maintain reasonable information 

management policies and procedures under Regulation X, should be applied in light of the scale 

of the servicer’s operations as well as other contextual factors. The Bureau does not believe that 

these provisions, described more fully in the section-by-section analysis of the applicable 

proposal, would impair consumer protection. The Bureau is also seeking comment more broadly 

on whether other exemptions or adjustments for small servicers would be warranted to reduce 

regulatory burden while appropriately balancing consumer protections.

E. Request for Comment on Effective Date

 

40 Small Business Review Panel Report at 16, 21. 

41 Id. at 16-19, 21, and 23-24. 
33 

The Bureau specifically requests comment on the appropriate effective date for each of 

the servicing-related rules contained in this proposal and the 2012 TILA Servicing Proposed 

Rule. As discussed above, the Dodd-Frank Act servicing requirements take effect automatically 

on January 21, 2013, unless final rules are issued on or before that date.42 Where rules are 

required to be issued, the Dodd-Frank Act permits the Bureau to provide up to 12 months for 

implementation. For all other rules, the implementation period is left to the discretion of the 

Bureau. 

Given the significant consumer benefits offered by the proposals and the challenges faced 

by delinquent borrowers in dealing with their servicers, the Bureau generally believes that the 

final rules should be made effective as soon as possible. However, the Bureau understands that 

various elements of the final rules would require servicers to adopt or revise existing software to 

generate compliant disclosures, retrain staff, assess and revise policies and procedures, and/or 

take other implementation measures. The Bureau therefore seeks detailed comment on the 

nature and length of implementation process for each individual servicing rule and in light of 

interactions between the rules. The Bureau is particularly interested in analyzing the impacts on 

both consumers and servicers of a staggered implementation sequence as compared to imposing 

a single date by which all rules must be implemented. 

The Bureau also notes that some companies may also need to implement other new 

requirements under other parts of the Dodd-Frank Act, as described above. The Bureau believes 

based on conversations and analysis to date that there is more overlap and interaction among the 

various proposals relating to mortgage origination than there is between the servicing proposals 

and the origination proposals. However, the Bureau seeks comment specifically on this issue 

 

42 Public Law 111-203, 124 Stat. 1376, section 1400(c) (2010). 
34 

and on whether the general cumulative burden on entities that are subject to both sets of rules 

will complicate implementation. 

Finally, the Bureau seeks comment on any particular implementation challenges faced by 

small servicers, and on whether an extended implementation period would be appropriate or 

useful. For instance, to the extent that small servicers rely heavily on outside software vendors, 

the Bureau seeks comment on whether a delayed effective date would provide significant relief if 

the vendors will have to develop software solutions for larger servicers on a shorter timeline 

anyway. The Bureau also seeks comment on the impacts of delayed implementation on 

consumers and on other market participants. 

IV. Summary of Proposed Rule

The proposal contains a number of significant revisions to Regulation X. As a 

preliminary matter, the Bureau proposes to reorganize Regulation X to include three distinct 

subparts. Subpart A (General) would include general provisions of Regulation X, including 

provisions that apply to both subpart B and subpart C. Subpart B (Mortgage settlement and 

escrow accounts) would include provisions relating to settlement services and escrow accounts, 

including disclosures provided to borrowers relating to settlement services. Subpart C 

(Mortgage servicing) would include provisions relating to obligations of mortgage servicers. 

The Bureau also proposes to set forth a commentary that includes official Bureau interpretations 

of Regulation X. 

With respect to mortgage servicing-related provisions, the proposed rule would amend 

existing provisions currently published in 12 CFR 1024.21, which relate to disclosures of 

mortgage servicing transfers and servicer obligations to borrowers. The Bureau is proposing to 

include these provisions within the proposed subpart C as proposed §§ 1024.33-1024.34. The 
35 

Bureau also proposes 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 establish procedures for investigating and resolving alleged 

errors and responding to requests for information. The requirements would be set forth in 

proposed §§ 1024.35-1024.36. As proposed, these sections would require servicers to respond to 

errors and information requests from borrowers, which would include qualified written requests. 

The Bureau’s goal is to conform and consolidate the pre-existing procedures applicable to 

qualified written requests with the new requirements imposed by the Dodd-Frank Act to respond 

to errors and information requests under section 6(k)(1)(C) and 6(k)(1)(D) of RESPA. The 

Bureau proposes to create a unified requirement for servicers to respond to errors and 

information requests provided by borrowers, without regard to whether the request constitutes a 

qualified written request.43 To that end, the proposed rule would implement 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. 

The proposed rule would implement limitations on servicers obtaining force-placed 

insurance in § 1024.37. The proposed rule would require servicers to provide notices to 

 

43 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 or to provide information regarding an owner or assignee 

of a mortgage loan without reference to the “qualified written request” process. The Bureau’s proposal would 

integrate all error resolution and information request processes, including requirements applicable to “qualified 

written requests.” Although a borrower would still be able to submit a “qualified written request,” under the 

proposed rule, a “qualified written request” would be subject to the same error resolution or information request 

requirements applicable to any other type written error notice or information request to a servicer and a servicer’s 

liability for failure to respond to a qualified written request would be the same as for any other written error or 

information request notice. 
36 

borrowers at certain timeframes before a servicer could impose a charge on a borrower. See 

proposed § 1024.37. Further, the proposed rule would require that charges related to forceplaced insurance, other than charges subject to State regulation as the business of insurance or 

authorized by Federal flood laws must be bona fide and reasonable. Finally, and as set forth in 

more detail below, the proposed rule would also reduce the instances in which force-placed 

insurance would be needed by amending current § 1024.17 to require that where a borrower has 

escrowed for hazard insurance, servicers must generally advance funds to maintain the 

borrowers’ own hazard insurance policies even if the loan is delinquent. 

The proposed rule would also implement the Dodd-Frank Act amendment to RESPA 

section 6(g) in proposed § 1024.34(b) by proposing requirements on servicers for the refund or 

transfer of funds in an escrow account when a mortgage loan is paid in full. 

The proposed rule would also impose obligations on servicers in four additional areas not 

specifically required by the Dodd-Frank Act: reasonable information management policies and 

procedures, early intervention for delinquent borrowers, continuity of contact, and loss 

mitigation procedures. See proposed §§ 1024.38-1024.41. The Bureau is proposing rules in 

these areas to address significant problems in the mortgage servicing industry and the difficulties 

that borrowers, particularly delinquent borrowers, have encountered when dealing with servicers. 

The early intervention for delinquent borrower provisions would require 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 provisions would 

require servicers to make available to borrowers direct phone access to personnel who could 

assist borrowers in pursuing loss mitigation options. The reasonable information management 

policies and procedures would require servicers to implement policies and procedures to manage 
37 

documents and information to achieve defined objectives that ensure borrowers are not harmed 

by servicers’ information management operations. These objectives include providing accurate 

information to borrowers, correcting errors on borrower accounts, providing oversight of service 

providers, protecting borrowers from lost information during servicing transfers, and ensuring 

that servicers have access to all information necessary to evaluate loss mitigation options, as 

appropriate. The information management policies and procedures would also have to include 

standard requirements. Policies and procedures would satisfy the requirements if they do not 

result in a pattern or practice of failing to comply with the standard requirements or achieving the 

objectives. The loss mitigation procedures would require servicers that offer loss mitigation 

options to borrowers to evaluate complete and timely applications for loss mitigation options. 

Servicers would be required to permit borrowers to appeal denials of loss mitigation applications 

for loan modification programs. A servicer that receives a complete application for a loss 

mitigation option may not proceed with a foreclosure sale unless (i) the servicer has denied the 

borrower’s application and the time for any appeal has expired; (ii) the servicer has offered a loss 

mitigation option which the borrower has declined or failed to accept within 14 days of the offer; 

or (iii) the borrower fails to comply with the terms of a loss mitigation agreement. 

 The proposed new protections would significantly improve the transparency of mortgage 

servicing operations, provide substantive protections, enhance borrowers’ ability to obtain 

information from and assert errors to servicers, and provide borrowers, particularly delinquent 

borrowers, with information and options necessary to undertake informed actions with respect to 

mortgage loan obligations. 

V. Legal Authority 

Section 1463 of the Dodd-Frank Act creates statutory mandates under new sections 6(k), 
38 

6(l) and 6(m) of RESPA. Section 1463 of the Dodd-Frank Act also amends certain consumer 

protection provisions set forth in sections 6(e), 6(f) and 6(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 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 a charge for a force-placed insurance 

policy may be imposed on the borrower. 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. See RESPA section 6(l). 

Section 6(m) of RESPA requires that charges related to force-placed insurance, other 

than charges subject to State regulation as the business of insurance, must be bona fide and 

reasonable. See RESPA section 6(m). 
39 

 The Dodd-Frank Act also amends sections 6(e), 6(f), and 6(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. 

In addition to the statutory mandates and amendments, RESPA section 6(k) authorizes 

the Bureau 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 for servicing federally related mortgage loans that are intended to protect 

borrowers. RESPA has established a consumer protection paradigm of requiring disclosures to 

consumers, and establishing servicer obligations, all of which are intended to protect consumers 

regarding servicer actions. The disclosures include, for example, disclosures regarding escrow 

account balances and disbursements, transfers of mortgage servicing among mortgage servicers, 

and force-placed insurance. Obligations limiting servicer actions include obligations for 

servicers to respond to qualified written requests from borrowers and obligations with respect to 

escrow account payments. Servicers incur liability for failure to comply with such requirements. 

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. 

Each of the provisions proposed in this rulemaking address these purposes. RESPA section 
40 

19(a) 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. In addition, RESPA section 6(j)(3) authorizes the Bureau to establish any requirements 

necessary to carry out the purposes of section 6 of RESPA. 

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 in issuing this proposal. As 

described in more detail elsewhere in the SUPPLEMENTARY INFORMATION, the 

provisions proposed in part or in whole pursuant to the Bureau’s authority in RESPA sections 

6(j)(3), 6(k) and 19(a) include: §§ 1024.17(k)(5), 1024.30 – 1024.41. 44 

 The Bureau’s proposal 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 proposed practice of setting forth official 

Bureau interpretations in the supplement substitutes for the prior practice of the HUD of 

publishing Statements of Policy with respect to interpretations of RESPA.45

Dodd-Frank Act Section 1032(a)

As discussed in the section-by-section analysis for proposed § 1024.37, the Bureau is 

proposing disclosures and model forms for force-placed insurance notices pursuant to its 

 

44 Throughout the SUPPLEMENTARY INFORMATION, the Bureau is citing its authority under RESPA sections 

6(j)(3), 6(k), and 19(a) for purposes of simplicity. The Bureau notes, however, that with respect to some of the 

provisions referenced in the text, use of only one of the authorities may be sufficient. 

45 The 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. 
41 

authority under RESPA sections 6(k), 6(j)(3), 19(a), as well as its authority under 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 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 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 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). In developing proposed rules 

under Dodd-Frank Act section 1032(a) for this proposal, 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. The Bureau has considered the evidence developed through its consumer 

testing of the force-placed insurance notices. 

 In addition, Dodd-Frank Act section 1032(b)(1) provides that “any final rule prescribed 

by the Bureau under this [section 1032] requiring disclosures 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. 
42 

5532(b)(1). Any model form issued pursuant to that authority shall contain a clear and 

conspicuous disclosure that, at a minimum, uses plain language that is comprehensible to 

consumers, using a clear format and design, such as readable type font, and succinctly explains 

the information that must be communicated to the consumer. Dodd-Frank Act 1032(b)(2); 12 

U.S.C. 5532(b)(2). As discussed in the section-by-section analysis for proposed § 1024.37, the 

Bureau is proposing model forms for force-placed insurance notices. As discussed in this notice, 

the Bureau is proposing these model forms pursuant to its authority under Dodd-Frank Act 

section 1032(b)(1). 

VI. Section-by-Section Analysis 

Subpart A—General 

The Bureau proposes to create three distinct subparts within Regulation X. Subpart A 

titled “General” would include general provisions as well as provisions that are applicable to 

both subpart B and subpart C of Regulation X. Subpart B titled “Mortgage settlement and 

escrow accounts” would include provisions relating to settlement services and escrow accounts, 

including disclosures required to be provided to borrowers with respect to settlement service 

providers. Subpart C titled “Mortgage servicing” would include provisions relating to mortgage 

servicing and would include most of the provisions in this proposal.

 In order to organize the general provisions of Regulation X, as well as the provisions that 

would be applicable to both subpart B and subpart C, the Bureau proposes placing §§ 1024.1 

through 1024.5 in subpart A. 

 Current § 1024.1 sets forth the designation and applicability of Regulation X and would 

be republished without change. Current § 1024.2 sets forth definitions that are applicable to 

transactions covered by this regulation, including the definition of federally related mortgage 
43 

loan that is referenced in the proposed definition of the term “mortgage loan” in subpart C. See 

proposed § 1024.31. Current § 1024.2 would generally be republished without changed, except 

for a deletion from the definitions of “Federally related mortgage loan” and “Mortgage broker” 

and additions to the definitions of “Public Guidance Documents” and “Servicer.” 

 The deletion to the definition of “Federally related mortgage loan” eliminates the use of 

the short term “mortgage loan” as a substitute for “Federally related mortgage loan” in light of 

the definition of the term “mortgage loan” in proposed § 1024.31. Conforming edits have also 

been proposed for the definitions of “Origination service,” “Servicer,” and “Servicing.” 

Conforming edits have also been proposed for 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 deletion to the definition of “Mortgage broker” removes a reference to loan 

correspondents that are approved under 24 CFR 202.8. HUD amended 24 CFR 202.8 on April 

20, 2010 to eliminate the FHA approval process for loan correspondents and determined that 

loan correspondents would no longer be approved participants in FHA programs.46 The deletion 

of the reference to FHA approved loan correspondents in the definition of “Mortgage broker” 

removes the now obsolete reference. 

 The addition to the definition of “Public Guidance Documents” provides that such 

documents are available from the Bureau upon request and provides an address that could be 

used to request the “Public Guidance Documents.” 

 The addition to the definition of “Servicer” is intended to clarify the treatment 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 definition of 

 

46 See 75 FR 20718. 
44 

“Servicer” currently 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 

addition to the definition of “servicer” clarifies 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 union 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 NCUA for appointment of a conservator or liquidating 

agent of a servicer (or an entity by which the servicer is owned or controlled). The definition of 

“servicer” also has been edited to clarify that it relates to servicers of federally related mortgage 

loans. 

 With respect to the additions to the definition of “Servicer,” the Bureau relies on its 

authority in section 19(a) of RESPA to make such interpretations and to grant such reasonable 

exemptions for classes of transactions as may be necessary to achieve the consumer protection 

purposes of the Act. 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 in light of the fact that Congress 

has specifically stated that the FDIC, when it is providing assistance to an insured depository 

institution or in its role as conservator or receiver of an insured deposition institution, should not 

be considered a servicer. 
45 

 Current § 1024.3 would be removed and the substance of § 1024.23 would be moved to 

proposed § 1024.3. Current § 1024.3 sets forth the process for the public to submit questions or 

suggestions regarding RESPA or to receive copies of Public Guidance Documents. Although the 

Bureau welcomes questions and suggestions from the public regarding Regulation X, the Bureau 

does not believe a provision of Regulation X must be specifically designated for that purpose. 

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 Bureau has proposed including contact 

information to request copies of Public Guidance Documents in the definition of Public 

Guidance Documents in proposed § 1024.2 as discussed above. 

 Current § 1024.23 states that provisions of the Electronic Signatures in Global and 

National Commerce Act (E-Sign Act), which permits electronic disclosures to consumers if 

certain conditions are met, apply to Regulation X. The Bureau believes that the E-Sign Act 

provisions are applicable to all provisions in the regulation, and, therefore, should be moved to 

subpart A. The Bureau has made technical edits to the language of the provision to conform to 

the language of other similar Bureau regulations. 

 Current § 1024.4 sets forth provisions relating to reliance upon rules, regulations, or 

interpretations by the Bureau. The Bureau proposes 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 
46 

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, proposes 

to include the substance of this provision in the introduction to the commentary. 

 Current § 1024.5 sets forth exemptions with respect to the applicability of Regulation X. 

The Bureau proposes to make a technical correction to current § 1024.5(b)(7) to reflect that 

mortgage servicing related provisions of Regulation X will be included in the new subpart C and 

will no longer be placed in current § 1024.21. 

 The Bureau further proposes to remove current § 1024.22. 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 is proposing removing 

current § 1024.22 because the section is unnecessary and the inclusion of the current section in 

Regulation X is inconsistent with the drafting of other Bureau regulations. A court reviewing 

Regulation X should presume that provisions of Regulation X are severable in the absence of an 

indication that the Bureau intended the provisions to be non-severable.47 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 

 

47 See Regan v. Time, 468 U.S. 641, 653 (1984) (stating that the presumption regarding the review of statutes is 

always in favor of severability); Community for Creative Non-Violence v. Turner, 893 F.2d 1387, 1394 (D.C. Cir. 

1990) (applying presumption against severability in Regan to administrative regulations); Stupak-Thrall v. United 

States, 89 F.3d 1269, 1289 (6th Cir. 1996) (same). 
47 

not be construed to indicate a contrary position.

Subpart B—Mortgage Settlement and Escrow Accounts 

 The Bureau proposes to establish the provisions of Regulation X relating to settlement 

services and escrow accounts within subpart B of Regulation X. These provisions include 

§§ 1024.6 through 1024.21. 

Section 1024.17 Escrow Accounts 

17(k) Timely Payments 

 The Bureau proposes to modify § 1024.17(k), which, pursuant to proposed § 1024.34(a) 

discussed below, sets forth requirements a servicer must follow when making payments from a 

borrower’s escrow account. The Bureau proposes to add a new § 1024.17(k)(5) to Regulation X 

to address circumstances in which servicers are required to make payments from a borrower’s 

escrow account to continue a borrower’s hazard insurance policy. The Bureau has reviewed a 

number of issues concerning force-placed insurance in order to implement the new Dodd-Frank 

Act requirements on force-placed insurance discussed below. During that process, for reasons 

set forth below, the Bureau concluded that if a borrower has escrowed for hazard insurance (i.e. 

established an escrow account for the payment of hazard insurance premiums), it would be 

appropriate to require servicers to continue paying for the borrower’s existing hazard insurance 

when practicable. The Bureau understands that it is practicable for a servicer to pay the hazard 

insurance premium of such borrower unless the borrower’s hazard insurance has been canceled 

or not renewed for reasons other than nonpayment of premium charges. Under proposed 

§ 1024.37(a)(2)(ii) discussed below, the Bureau is proposing that hazard insurance obtained by a 

borrower but renewed by the borrower’s servicer as required by § 1024.17(k)(1), (k)(2), or (k)(5) 

is not considered to be force-placed insurance under § 1024.37. 
48 

 Current § 1024.17(k)(1) and (k)(2) require servicers to make timely disbursements from a 

borrower’s escrow account, and to advance funds if necessary, as long as the borrower’s 

mortgage payment is not more than 30 days past due. Proposed § 1024.17(k)(5) would amend 

the requirements of § 1024.17(k)(1) and (k)(2) with respect to the timely payment of hazard 

insurance premiums. Proposed § 1024.17(k)(5) provides that notwithstanding § 1024.17(k)(1) 

and (k)(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 such insurance has been canceled or not renewed 

for reasons other than nonpayment of premium charges. The proposal would require the servicer 

to advance funds to pay the premium charge if the borrower’s escrow account does not contain 

sufficient funds. 

 Proposed comment 17(k)(5)-1 clarifies that the receipt by a servicer of a notice of 

cancellation or non-renewal from the borrower’s insurance company before the insurance 

premium is due provides a servicer with 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. 

 Proposed comment 17(k)(5)-2 contains three examples of a borrower’s hazard insurance 

being canceled or not renewed for reasons other than the nonpayment of premium charges, to the 

extent permitted by State or other applicable law. Proposed comment 17(k)(5)-2.i describes a 

situation in which the borrower cancels the hazard insurance before its expiration date or chooses 

to not renew the insurance. Proposed comment 17(k)(5)-2.ii describes a situation in which the 

insurance company cancels the hazard insurance before its expiration date or chooses not to 

renew the insurance because it decides to stop writing insurance for all properties in the 
49 

community where the borrower’s property is located. Proposed comment 17(k)(5)-2.iii describes 

a situation in which the insurance company cancels or chooses not to renew the borrower’s 

hazard insurance based on its underwriting criteria, which may include, for example, a 

borrower’s claim history, a change in the occupancy status of the property, or a change in the 

probability of the property being exposed to loss caused by certain hazards (e.g., a change in the 

property’s exposure to loss caused by wind). 

 Proposed comment 17(k)(5)-3 clarifies 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. 

 As discussed above, the Bureau’s review of issues concerning force-placed insurance has 

led the Bureau to conclude that it would be appropriate to require servicers to continue paying 

for a borrower’s existing hazard insurance when practicable if the borrower has an escrow 

account established to pay for hazard insurance. As discussed in greater detail in the discussion 

of the Bureau’s proposed definition of “force-placed insurance” in proposed § 1024.37(a)(1), a 

servicer is already contractually required to obtain alternative hazard insurance to protect the 

interest that the owner or assignee of a mortgage loan has in the property securing such loan if 

the servicer is unable to obtain evidence of acceptable borrower-purchased hazard insurance for 

such property. Additionally, a servicer typically makes payments for force-placed insurance 

with its own funds.48 Because the servicer would have to obtain some type of hazard insurance 

to protect the interest of the mortgage loan owner or assignee (and to advance payment with its 

 

48 See e.g., Force-Placed Insurance Hearings: Testimony of Justin Crowley on Behalf of Select Portfolio Servicing, 

Inc., et al. Before the New York State Department of Financial Services, at 3 (May 2012), available at 

http://www.dfs.ny.gov/insurance/hearing/fp_052012_testimony.htm. 
50 

own funds, if necessary), requiring servicers to continue paying for an escrowed borrower’s 

existing hazard insurance when practicable would provide borrowers with greater protection than 

a servicer obtaining force-placed insurance. For reasons discussed in greater detail in the 

Bureau’s proposed definition of force-placed insurance, servicer’s purchase of force-placed 

insurance under certain circumstances could harm borrowers. The Bureau also believes that the 

approach the Bureau is proposing would be generally more cost-effective for the owner or 

assignee of the mortgage loan.49 As discussed above, when servicers obtain force-placed 

insurance, they typically advance the force-placed insurance premium charges, which are then 

added to the amount of the loan. If a borrower cannot reimburse a servicer for the advancement 

of force-placed insurance charges, then when a loan is liquidated, the servicer will mostly likely 

be paid for the unreimbursed force-placed insurance charges before the owner or assignee of the 

mortgage loan gets paid.50 

 Additionally, the Bureau understands that servicers currently advance hazard insurance 

premiums for a borrower with an escrow account established to pay for hazard insurance even if 

they are not required by Regulation X to do so. The Bureau notes that when it solicited input 

from small servicers through the Small Business Review Panel, most SERs did not raise specific 

concerns with the Bureau’s proposal to require servicers to advance funds to pay a borrower’s 

hazard insurance. There were two SERs who expressed concern about advancing funds to renew 

a borrower’s hazard insurance because the borrower could cancel the hazard insurance and keep 

 

49 One mortgage analyst has suggested 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.” The Need for National Mortgage Servicing Standards: Hearing Before the Subcomm. on 

Housing, Transportation, and Community Affairs of the Senate Comm. on Banking, Housing and Urban Affairs, S. 

Hrg. 112-139, 112th Cong. 126 (2011) (statement of Laurie Goodman). 50 National Consumer Law Center, Why Servicers Foreclose When They Should Modify, at 25. 
51 

the refund.51 The Small Business Review Panel recommended that the Bureau reduce the 

incentives for borrowers to take such action by allowing servicers to advance premium payment 

in 30-day installments. Proposed comment 17(k)(5)-3, discussed above, reflects the panel’s 

recommendation. The Bureau also notes that to the extent that the servicer is permitted by 

applicable law to seek reimbursement for advancing a borrower’s hazard insurance premium 

payment, the Bureau’s proposal would not prohibit a servicer from seeking such reimbursement. 

 The Bureau, however, invites comment on an alternative to the requirement in proposed 

§ 1024.17(k)(5) that servicers must advance funds to pay a borrower’s hazard insurance 

premium. The alternative approach would be in § 1024.37 and would simply make it a condition 

of charging a borrower who has an escrow account established to pay hazard insurance, that the 

force-placed insurance be less expensive to the borrower than the servicer advancing funds to 

continue the borrower’s hazard insurance policy. The Bureau further requests whether the 

condition should be adjusted to require that the force-placed insurance policy protect the 

borrower’s interest. 

 Borrower’s insurance canceled for reasons other than nonpayment of premiums. As 

discussed above, the Bureau understands that for a borrower who has escrowed for hazard 

insurance, it is practicable for a servicer to pay such borrower’s hazard insurance premium 

unless the borrower’s hazard insurance has been canceled or not renewed for reasons other than 

nonpayment of premium charges. In other words, the Bureau recognizes that there could be 

situations where it would not be practicable for a servicer to continue paying for a borrower’s 

existing hazard insurance even though the borrower has escrowed for hazard insurance because 

the borrower’s hazard insurance has been canceled or not renewed for reasons other than 

 

51 See Small Business Review Panel Report at 22. 
52 

nonpayment of premium charges. Accordingly, as discussed above, proposed § 1024.17(k)(5) 

clarifies that a servicer’s obligation to make payments from a borrower’s escrow account in a 

timely manner to pay the premium charge on a borrower’s hazard insurance rests on whether 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. If the servicer has such 

basis, then the servicer would not be required to make such payments. The Bureau notes that for 

such servicer, the servicer is subject to proposed § 1024.37’s consumer protections with respect 

to servicer’s purchase of force-placed insurance. The Bureau believes that “reasonable basis” 

rather than actual knowledge should be the standard for determining whether the servicer is 

required to make timely payments. The Bureau understands that notices of cancellation or nonrenewal vary in the level of detail. Hence a servicer may not be able to determine why a 

borrower’s hazard insurance was canceled or not renewed based on information provided in a 

notice of cancellation or non-renewal. Additionally, the Bureau notes that the new Dodd-Frank 

requirements, discussed below, only require a servicer to have a “reasonable basis” to believe a 

borrower has failed to maintain hazard insurance pursuant to the terms of the borrower’s 

mortgage loan contract before the servicer obtains force-placed insurance. 

 Proposed comment 17(k)(5)-1, discussed above, clarifies what constitutes a “reasonable 

basis” for the purposes of proposed § 1024.17(k)(5). The Bureau believes that providing an 

illustration of what constitutes “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 

facilitates compliance. The Bureau invites comment on whether additional circumstances may 

provide a servicer with 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. Proposed 
53 

comment 17(k)(5)-2, discussed above, contains three examples of a borrower’s hazard insurance 

being canceled or not renewed for reasons other than the nonpayment of premium charges. 

 Legal authority. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 

regulations that are appropriate to carry out the consumer protection purposes of RESPA. As 

previously discussed in part V above, RESPA has established a consumer protection paradigm of 

establishing servicer obligations intended to protect consumers regarding servicer actions. As 

noted, servicers are contractually required to obtain alternative hazard insurance—advancing 

their own funds as necessary—if they do not have evidence that the borrower has hazard 

insurance in place. The Bureau has determined that requiring servicers to continue paying for 

escrowed borrowers’ existing hazard insurance, when practicable, is more protective of the 

borrower’s interest than providing servicers with the opportunity to obtain force-placed 

insurance. Accordingly, the Bureau proposes § 1024.17(k)(5) pursuant to its authority under 

RESPA section 6(k)(1)(E) 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 and 

has authority pursuant to section 19(a) of RESPA to prescribe such rules and regulations, and to 

make such interpretations, and to grant such reasonable exemptions for classes of transactions, as 

may be necessary to achieve the consumer protection purposes of RESPA. 

 To the extent proposed § 1024.17(k)(5) would require servicers to make timely payments 

for a borrower whose mortgage payment is more than 30 days past due, but whose escrow 

account contains sufficient funds to pay the hazard insurance premium, the Bureau additionally 

relies on its authority under RESPA section 6(g). RESPA section 6(g) provides that when a 

borrower is required by the terms of a federally related mortgage loan to pay into an escrow 

account to assure payment of taxes, insurance premiums, and other charges with respect to the 
54 

property, the borrower’s servicer must make timely payments out of the borrower’s escrow 

account for such taxes, insurance premiums, and other charges. As discussed above, the Bureau 

recognizes that under certain circumstances, it may not be practicable for a servicer to continue 

paying a borrower’s existing hazard insurance. Pursuant to its interpretive authority under 

RESPA section 19(a), discussed above, the Bureau believes it is appropriate to clarify that a 

servicer’s obligation to make timely payment from a borrower’s escrow account to pay for the 

borrower’s hazard insurance premium does not apply when a servicer has a reasonable basis to 

believe that the borrower’s existing hazard insurance has been canceled or not renewed for 

reasons other than nonpayment of premium charges. The Bureau notes that for such servicer, the 

servicer would have to comply with proposed § 1024.37’s consumer protections if the servicer 

obtains force-placed insurance. Additionally, the Bureau notes that RESPA section 19(a) 

provides the Bureau with authority to grant reasonable exemptions for classes of transactions as 

may be necessary to achieve the consumer protection purposes of RESPA. 

 Borrowers not escrowed for hazard insurance. Proposed § 1024.17(k)(5) would apply in 

situations where a borrower has established an escrow account for the payment of hazard 

insurance premiums. Where a borrower has not done so, whether because the borrower has not 

established an escrow account at all, or has established an escrow account to pay for other items 

but not for hazard insurance premiums, the Bureau is proposing to set forth that hazard insurance 

obtained by a borrower but renewed at the servicer’s discretion is not force-placed insurance 

under proposed § 1024.37 in proposed § 1024.37(a)(2)(iii) discussed below. The Bureau notes 

that there is an on-going debate among consumer advocates, servicers, the GSEs, and regulators 

on whether it is practicable to require servicers to pay insurance premiums for borrowers who 

have not escrowed for hazard insurance. Consumer advocates have urged the Bureau to require 
55 

servicers to advance funds to pay insurance premiums for such borrowers.52 But servicers have 

testified that requiring servicers to pay insurance premiums for borrowers who have not 

escrowed for hazard insurance is often not possible.53 

 The National Mortgage Settlement, discussed in part II.C above, requires servicers to 

“continue to advance payments for the homeowner’s existing policy [for borrowers who have 

escrowed for hazard insurance], unless the borrower or insurance company cancels the existing 

policy.”54 On the other hand, Fannie Mae has revised its servicing guide to require servicers to 

pay a borrower’s hazard insurance premium even if the borrower has not escrowed for hazard 

insurance, stating: 

When a mortgage loan payment includes escrows, they must advance funds for 

the timely payment of the borrower’s property insurance premiums. Additionally, 

when the servicer has waived the escrow deposit account for a specific borrower, 

it remains responsible for the timely payment of the insurance premiums. 

Therefore, if a borrower fails to pay a premium, the servicer must advance its own 

funds to pay the past-due premium and reinstate the borrower insurance coverage, 

revoke the waiver and begin escrow deposit collections to pay further premiums.55

 With respect to a borrower who has not escrowed for hazard insurance, the National 

Mortgage Settlement only requires a servicer to disclose in the notices it sends to such borrower 

that the servicer would establish an escrow account for the borrower to pay the borrower’s 

hazard insurance premium with the borrower’s consent. Furthermore, the Bureau notes that in 

contrast to Fannie Mae, Freddie Mac only requires a servicer that services loans for Freddie Mac 

 

52 See The National Consumer Law Center and the Center for Economic Justice, The Consumer Financial 

Protection Bureau Should Rein in Mortgage Servicers’ Use of Force-Placed Insurance, at 4 (May 2012), available 

at http://www.nclc.org/images/pdf/regulatory_reform/ib-force-placed-insurance.pdf. 53See supra note 42, at 2-3. 54 See, e.g., United States of America et al. v. Bank of America Corp. et al (National Mortgage Settlement)., at A-38, 

available at http://nationalmortgagesettlement.com. 

55 Fannie Mae, Servicing Guide Announcement SVC-2012-04 (Fannie Mae March 2012 Servicing Announcement) 

(March 14, 2012), available at https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1204.pdf. Fannie 

Mae originally required that servicers implement the revised requirements no later than June 1, 2012. In May 2012, 

however, Fannie Mae announced that it is postponing the implementation date. See Fannie Mae, Servicing Notice 

(May 23, 2012), available at https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/ntce052312.pdf. 
56 

to obtain insurance if a borrower fails to maintain insurance coverage required by Freddie Mac. 

Freddie Mac does not require the servicer to advance funds to maintain a borrower’s hazard 

insurance coverage. The guidelines state, “[if] the borrower does not or cannot obtain such 

coverage, then the servicer must do so. The servicer must then adjust the Borrower’s escrow 

payment accordingly or bill the borrower to recover the advance if the servicer does not maintain 

an escrow account for the borrower.”56 In light of the existence of competing views about: (1) A 

servicer’s obligation to a borrower who has not escrowed for hazard insurance with respect to 

paying the borrower’s hazard insurance premium on the borrower’s behalf; and (2) the 

practicality of a servicer being able to pay the hazard insurance premium of such a borrower, the 

Bureau seeks comment on whether it should require servicers to pay the hazard insurance 

premiums of borrowers who have not escrowed for hazard insurance. The Bureau also seeks 

comment on whether servicers should be required to ask borrowers who have not escrowed for 

hazard insurance whether they would consent to servicers renewing the borrower-obtained 

hazard insurance, and then be required to pay the hazard insurance premiums if the borrowers 

give consent. 

17(l) System of Recordkeeping 

The Bureau proposes to remove current § 1024.17(l). Current § 1024.17(l) 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 mandates that the Bureau may request information contained in the 

servicer’s records for an escrow account and 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 

 

56 See Freddie Mac Single Family Seller/Servicer Guide, Vol. 2 § 58.9 (2007). 
57 

providing escrow account statements to borrowers. 

 The Bureau believes that, in light of this proposal, and the substantially different 

authorities available to the Bureau, as opposed to HUD, the obligations set forth in current 

§ 1024.17(l) are no longer required. HUD proposed adding current § 1024.17(l) to Regulation X 

in 1993 and finalized the rule in 1994.57 Current § 1024.17(l) reflects requirements relating to 

HUD’s authority to require information from mortgage servicers and compel compliance with 

the requirements of Regulation X at the time it was implemented. 

 Proposed § 1024.38(a) would require servicers to establish policies and procedures that 

include a standard requirement to retain records that document actions taken by a servicer 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. 

Such documents include those relating to escrow accounts. Further, proposed §§ 1024.35-

1024.36 provide tools available to borrowers to require the correction of misapplied escrow 

account payments or to request information regarding a borrower’s escrow account. Moreover, 

the Bureau has authority to supervise mortgage servicers and determine whether mortgage 

servicers are complying with their obligations under Regulation X with respect to escrow 

accounts. For these reasons, the Bureau proposes to remove current § 1024.17(l). The Bureau 

requests comment regarding whether current § 1024.17(l) should be removed from Regulation X. 

Subpart C—Mortgage Servicing 

Currently, section 6 of RESPA sets forth protections for borrowers with respect to the 

servicing of federally related mortgage loans. These protections include disclosures to borrowers 

about whether servicing for a mortgage loan may be transferred, as well as disclosures regarding 

 

57 See 58 FR 64065 (December 3, 1993); 59 FR 53890 (October 26, 1994). 
58 

the prior and new servicers in the event of a transfer. See RESPA section 6(a) – 6(c). Section 6 

of RESPA further provides protections regarding misdirected payments during a servicing 

transfer. See RESPA section 6(d). 

Section 6 of RESPA also currently requires a servicer to respond to qualified written 

requests asserting errors or requesting information regarding the servicing of a mortgage loan 

and sets forth obligations on servicers regarding the administration of escrow accounts. See

RESPA sections 6(e), 6(g). Servicers are liable to borrowers for violations of section 6 of 

RESPA. See RESPA section 6(f). 

Section 1463 of the Dodd-Frank Act created new sections 6(k), 6(l), and 6(m) of RESPA, 

which set forth new obligations on servicers for federally related mortgage loans. Section 6(k) of 

RESPA prohibits servicers 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 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). Further, section 6(l) of RESPA requires servicers: (i) to 

provide written notices to a borrower before a charge for a force-placed insurance policy may be 

imposed on the borrower; (ii) to accept any reasonable form of written confirmation from a 

borrower of existing insurance coverage; and (iii) 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. See RESPA section 6(l). 
59 

Section 6(m) of RESPA requires that charges related to force-placed insurance, other 

than charges subject to State regulation as the business of insurance, must be bona fide and 

reasonable. See RESPA section 6(m). 

Section 1463 of the Dodd-Frank Act also amends sections 6(e) and 6(g) of RESPA with 

respect to a servicer’s obligation to respond to qualified written requests and a servicer’s 

administration of an escrow account. Further, section 1463 of the Dodd-Frank Act amended 

section 6(f) of RESPA to increase the dollar amounts of damages for which a servicer may be 

liable for violations of section 6 of RESPA. See RESPA section 6(e)-(g); Dodd-Frank Act 

sections 1463(b)-(d). 

In order to implement these provisions in a consistent and clear manner, the Bureau 

proposes to reorganize Regulation X to include provisions relating to mortgage servicing within 

a new subpart C. 

Section 1024.21 Mortgage Servicing Transfers 

To incorporate mortgage servicing-related provisions within subpart C, the proposed rule 

would remove § 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. Compare

§ 1024.21 with proposed §§ 1024.31-1024.34. 

Section 1024.30 Scope 

Proposed § 1024.30 sets forth the scope of proposed subpart C. Currently, § 1024.21, 

which implements section 6 of RESPA, applies to a “mortgage servicing loan” as that term is 

defined in current § 1024.21(a). The term “mortgage servicing loan” means a federally related 

mortgage loan, as that term is defined in § 1024.2, subject to the exemptions in § 1024.5, when 

the mortgage loan is secured by a first lien. The term “mortgage servicing loan” does not include 
60 

subordinate-lien loans or 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. See § 1024.21(a) 

(defining mortgage servicing loan). 

Proposed § 1024.30 would eliminate the term “mortgage servicing loan” from Regulation 

X and would set forth the scope of subpart C. Subpart C would apply to any mortgage loan, as 

that term is defined in proposed § 1024.31. “Mortgage loan” in § 1024.31 would mean a 

federally related mortgage loan, as that term is defined in § 1024.2, subject to the exemptions in 

§ 1024.5. Unlike the previous term “mortgage servicing loan,” the term “mortgage loan” would 

include subordinate-lien closed-end mortgage loans. The term “mortgage loan” would 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, currently set forth in the definition of 

“mortgage servicing loan.” As a result, the elimination of the term “mortgage servicing loan,” 

the proposed definition of “mortgage loan” in proposed § 1024.31, and the proposed scope of 

subpart C in proposed § 1024.30 would create new servicer obligations with respect to 

subordinate-lien closed-end mortgage loans under Regulation X. 

The Bureau believes that borrowers of subordinate lien closed-end mortgage loans should 

be entitled to the protections that would be set forth in subpart C. 

The use of subordinate-lien closed-end mortgage loans grew substantially during the 

housing boom. Subordinate-lien closed-end mortgage loans were commonly originated as 

“piggyback loans”—that is, a subordinate-lien mortgage loan originated concurrently with a 

first-lien mortgage loan to finance a home purchase in excess of an 80% loan-to-value ratio.58 

By taking “piggyback loans,” a borrower could avoid a requirement to purchase a mortgage 

 

58 Michael LaCour-Little et al., What Role Did Piggyback Lending Play in the Housing Bubble and Mortgage 

Collapse?, at 3 (Oct. 5, 2010), available at http://ssrn.com/abstract=1688033. 
61 

insurance policy. During 2006, subordinate-lien closed-end mortgage loans were used as 

“piggyback loans” for 22% of one-to-four family owner-occupied home purchases, with higher 

percentages reported in high-cost housing areas.59 Because borrowers with simultaneouslyoriginated subordinate-lien closed-end mortgage loans are more highly levered, such borrowers 

are at a greater risk of having negative equity when home prices decline and may be more 

susceptible to default (depending on the credit quality of the borrower).60 Further, such loans 

complicate loss mitigation processes if the first-lien and subordinate-lien loans are owned by 

separate entities or serviced by separate servicers. 

There are no unique characteristics of subordinate-lien closed-end mortgage loans that 

should require servicers to treat a borrower of such a mortgage loan differently than a first-lien 

mortgage loan borrower with respect to protections for mortgage servicing transfers, error 

resolution, information requests, force-placed insurance, reasonable information management 

policies and procedures, early intervention for delinquent borrowers, continuity of contact, or 

loss mitigation procedures. To the contrary, because of the difficulty of achieving loss 

mitigation options when a borrower has a subordinate-lien closed-end mortgage loan, such 

borrower may be more likely to benefit from certain protections in proposed subpart C. 

Accordingly, the Bureau’s proposal would remove the exclusion for subordinate-lien 

closed-end mortgage loans that was previously included in Regulation X but which was not 

required by RESPA. The Bureau has not identified any countervailing reasons why borrowers of 

subordinate-lien closed-end mortgage loans should not benefit from the protections afforded by 

the provisions of proposed subpart C. However, the Bureau requests comment regarding 

 

59 Id. at 3 (stating that “piggyback loans” accounted for 30% of home purchases in New York City and 37.3% of 

home purchases in California in 2006). 

60 See id. at 26-27. 
62 

whether subordinate-lien closed-end mortgage loans should be included within the scope of 

proposed subpart C. 

 The Bureau proposes 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 servicer requirements of Regulation X. 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.61 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.62

 Open-end lines of credit 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 duplicate the servicer obligations that would be set forth in 

subpart C, including, for example, billing error resolution procedures. See 12 CFR 1026.13. 

 In addition, the protections proposed in Regulation X may not necessarily be appropriate 

for open-end lines of credit. A borrower is in control of an open-end line of credit and can draw 

 

61 See 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.) 

62 See, 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. 
63 

from that line as necessary to meet financial obligations. Many borrowers that 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.63 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 may 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, open-end lines of credit tend to differ from closed-end 

mortgage loans with respect to servicing information systems utilized and servicer processes, 

such that information management policies and procedures may be better targeted toward 

different objectives for open-end lines of credit than those set forth in proposed § 1024.38(b) 

with respect to closed-end mortgage loans. Finally, and as discussed below, the Bureau has 

learned that servicers generally do not obtain force-placed insurance on behalf of open-end lines 

of credit because such lines of credit are typically secured by a subordinate lien. Accordingly, 

the Bureau believes that exempting open-end lines of credit (home-equity plans) from the 

Bureau’s proposed force-placed insurance regulations is appropriate. 

 Although the Bureau believes that maintaining the current exclusion of open-end lines of 

credit (home-equity plans) covered by TILA and Regulation Z, from the servicer requirements of 

Regulation X is consistent with consumer protection purposes of RESPA, the Bureau requests 

comment regarding whether open-end lines of credit (home-equity plans) should be excluded 

from any of the provisions of proposed subpart C. 

The Bureau proposes to interpret the application of the servicer obligations and 

 

63 Id. at 11. 
64 

prohibitions in section 6 of RESPA pursuant to its authority in section 19(a) of RESPA 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 consumer protection 

purposes of RESPA. The Bureau further relies on its authority in section 6(j)(3) of RESPA to set 

forth requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of 

RESPA to set forth obligations appropriate to carry out the consumer protection purposes of 

RESPA. 

Section 1024.31 Definitions 

Proposed § 1024.31 contains definitions for 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. 

 Consumer reporting agency. The Bureau proposes to define the term “consumer 

reporting agency” to have the same meaning set forth in section 603 of the Fair Credit Reporting 

Act, 15 U.S.C. 1681a. This proposed definition is the same as the definition of the term 

“consumer reporting agency” set forth in the relevant provisions of RESPA that would be 

implemented by this proposed rulemaking. See RESPA section 6(e)(3). 

 Day. The Bureau proposes to define the term “day” for purposes of subpart C to mean 

calendar day. “Day” is not defined by RESPA. RESPA generally uses the terms “day” and “day 

(excluding legal public holidays, Saturdays, and Sundays).” Because Congress excluded legal 

public holidays, Saturdays, and Sundays in certain circumstances, the Bureau believes that 

Congress intended the term “day” by itself to include these days, and therefore, believes a 

definition of “day” as a calendar day reflects Congress’s intent. 
65 

 The Dodd-Frank Act, however, amended section 6(g) and added section 6(k)(1)(D) to 

RESPA and, in these provisions, used the term “business day.” The term “business day” is not 

defined by RESPA and does not otherwise appear in section 6 of RESPA.64 Rather, section 6 of 

RESPA uses the terms “day” and “day (excluding legal public holidays, Saturdays, and 

Sundays).” Accordingly, the Bureau proposes to interpret the term “business day” in sections 

6(g) and 6(k)(1)(D) of RESPA to mean “day (excluding legal public holidays, Saturdays, and 

Sundays)” consistent with other usage of the term “day” within section 6 of RESPA and RESPA 

generally. The Bureau believes that a consistent interpretation of the definition of the term “day” 

will provide certainty that benefits borrowers by clarifying their rights under subpart C and 

benefits servicers by easing compliance burden associated with different understandings of the 

meaning of the term “day.” 

 The Bureau relies on its authority in section 6(j)(3) of RESPA to set forth requirements 

necessary to carry out section 6 of RESPA and in section 19(a) of RESPA to make such 

interpretations necessary to achieve the consumer protection purposes of RESPA. 

Hazard insurance. The Bureau proposes to define “hazard insurance” to mean 

insurance on the property securing a mortgage loan that protects the property against losses 

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 believes that 

defining “hazard insurance” is necessary to implement the new Dodd-Frank requirements on 

force-placed insurance, set forth in new RESPA section 6(k)-(m). Accordingly, the Bureau 

proposes to define “hazard insurance” pursuant to its authority under section 6(j)(3) of RESPA, 

which authorizes the Bureau to establish any requirements necessary to carry out the purposes of 

 

64 The term is used three times elsewhere in RESPA, once in section 4(b) and twice in section 8(c) of RESPA. 
66 

RESPA. The Bureau additionally relies on its authority pursuant to sections 6(k)(1)(E) and 19(a) 

of RESPA. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that are 

appropriate to carry out the consumer protection purposes of RESPA, and section 19(a) of 

RESPA gives the Bureau the authority to prescribe such rules and regulations and to make such 

interpretations as may be necessary to achieve the consumer protection purposes of RESPA. 

As discussed below in the Bureau’s discussion of proposed § 1024.37(a)(1), Dodd-Frank 

Act section 1463 defines “force-placed insurance” for the purposes of RESPA section 6(k)-(m) 

as a type of hazard insurance. Although Dodd-Frank Act section 1463 does not define “hazard 

insurance,” it provides that a servicer of a federally related mortgage must not obtain “forceplaced hazard 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 other words, 

force-placed “hazard insurance” simply refers to “property insurance” the borrower has failed to 

maintain. Under the typical mortgage loan contract, property insurance is defined broadly to 

mean insurance that protects a mortgaged property against loss by “fire, hazards included within 

the term ‘extended coverage’, and any other hazards including, but not limited to, earthquakes 

and floods, for which Lender requires insurance.”65 Accordingly, the proposed definition of 

“hazard insurance” in proposed § 1024.31 is equally broad. 

The Bureau’s proposed definition of “hazard insurance” would include, but not be limited 

to, homeowner’s insurance. Virtually all borrowers are required to have homeowner’s insurance 

in place as a condition of obtaining a mortgage loan. Homeowner’s insurance policies typically 

insure mortgaged properties against loss caused by all hazards other than those specifically 

excluded by the policies. The Bureau understands that borrowers may be required by the terms 

 

65 See, e.g., California Single Family Fannie Mae/Freddie Mac Uniform Instrument, Form 3005, (Fannie 

Mae/Freddie Mac Note), at ¶ 5. 
67 

of the mortgage loan contract to obtain separate insurance policies that protect the property 

against loss caused by hazards specifically excluded from coverage by homeowner’s insurance 

policies. The Bureau understands that losses caused by earthquake or flood hazards, and in 

many coastal areas, losses caused by wind, are typically excluded.66 Insurance written to cover 

loss caused by specifically-excluded hazards is typically narrowly written to protect a mortgaged 

property against loss caused by a single, specifically-excluded hazard. A single hazard insurance 

policy, such as a hazard insurance policy to protect against flood loss, would also be included 

within the Bureau’s proposed definition of “hazard insurance.”67 The Bureau recognizes that a 

servicer could be required to obtain force-placed hazard insurance to protect against flood loss by 

the Flood Disaster Protection Act of 1973 (FDPA). As discussed in greater detail below, the 

Bureau proposes 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” in proposed § 1024.37. 

The Bureau, however, invites comment on whether a definition of “hazard insurance” that 

specifically excludes hazard insurance to protect against flood loss would be more appropriate 

than the Bureau’s proposed definition of “hazard insurance.” 

 Loss mitigation application. The Bureau proposes to define a “loss mitigation 

 

66 See National Association of Insurance Commissioners, A Consumer Quick Guide to Home Insurance, at 2-5 

(2010), available at http:\\www.naic.org/documents/consumer_guide_home_quick.pdf). 67 The Bureau acknowledges that Dodd-Frank Act section 1461, which added a new section 129D to TILA, lists 

“hazard insurance” and “flood insurance” as two separate categories of insurance. See TILA section 129D(i); 

however, the Dodd-Frank Act provides that the definitions in TILA section 129D(i) apply only to TILA section 

129D. The Bureau does not interpret the definitions to apply to RESPA section 6(k)-(m). The Bureau also 

acknowledges that in current Regulation X, the provision of settlement services involving hazard insurance is 

separate from the provision of services involving flood insurance pursuant to the definition of “settlement service” 

in § 1024.2. Further, for purposes of current Regulation X, the Bureau further acknowledges that: (1) In appendix 

A’s instructions on how to prepare a HUD-1 Settlement statement, the settlement agent must list homeowner’s 

insurance premiums separately from flood insurance premiums; and (2) appendix C’s instructions on how to prepare 

a good faith estimate (GFE) form treat hazard insurance separately from flood insurance. The Bureau’s proposed 

definition of “hazard insurance” would only apply to proposed subpart C of RESPA and § 1024.17(k)(5). It would 

not apply to § 1024.2, appendix A, or appendix C. 
68 

application” as an application from a borrower requesting evaluation for a loss mitigation option, 

as that term is defined in proposed § 1024.31, in accordance with procedures established by the 

servicer for the submission of such requests. The Bureau has set forth a separate definition of 

loss mitigation application to indicate that a loss mitigation application is separate from an 

“application” as that term is defined in current § 1024.2(b). Proposed comment 31(loss 

mitigation application)-1 clarifies that a loss mitigation application may be submitted by a 

representative of a borrower and that a servicer may undertake reasonable procedures to 

determine if a purported representative actually represents a borrower. 

 Loss mitigation options. As defined in proposed § 1024.31, “loss mitigation options” are 

“alternatives available from the servicer to the borrower to avoid foreclosure.” Proposed 

comment 31(loss mitigation options)-1 clarifies 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. 

Proposed comment 31(loss mitigation options)-2 clarifies 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. 

The Bureau’s proposed definition of “loss mitigation option” is broad to account for the 

wide variety of options that may be available to a borrower. The Bureau believes that borrowers 

are best served when they are aware of all of their options. Thus, the proposed definition sets 

forth examples of loss mitigation options “without limitation.” The Bureau has not defined each 

of the examples of loss mitigation options to account for alternatives that may vary depending on 
69 

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. 

The Bureau recognizes that not every loss mitigation option will be available to each 

individual borrower. Thus, the Bureau has limited the proposed definition of “loss mitigation 

options” to alternatives “available to the borrower.” The Bureau invites comment on the 

appropriateness of the proposed definition of “loss mitigation options,” and whether revision or 

further clarification is warranted. 

 Mortgage loan. As set forth in the discussion above on proposed § 1024.30, the term 

“mortgage loan” in proposed § 1024.31 would generally mean a federally related mortgage loan, 

as that term is defined in § 1024.2, subject to the exemptions in § 1024.5 and an exemption for 

open-end lines of credit (home equity plans). For the reasons discussed above on proposed 

§ 1024.30, the term “mortgage loan” would not exclude subordinate-lien closed-end mortgage 

loans but would 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, currently 

set forth in the definition of “mortgage servicing loan.” As a result, the elimination of the term 

“mortgage servicing loan,” the proposed definition of “mortgage loan” in proposed § 1024.31, 

and the proposed scope of subpart C in proposed § 1024.30 would create new servicer 

obligations with respect to subordinate-lien closed-end mortgage loans under Regulation X. 

The Bureau proposes to interpret the application of the servicer obligations and 

prohibitions in section 6 of RESPA pursuant to its authority in section 19(a) to prescribe such 

rules and regulations, to make such interpretations, and to grants such reasonable exemptions for 

classes of transactions as may be necessary to achieve the consumer protection purposes of 
70 

RESPA. 

 Reverse mortgage transaction. The Bureau proposes to add a definition for the term 

“reverse mortgage transaction.” A “reverse mortgage transaction” would have the same 

definition used in Regulation Z, which implements TILA, to maintain consistency with other 

Bureau definitions applicable to reverse mortgages. See 12 CFR 1026.33(a). The Bureau is 

proposing to include a definition for a “reverse mortgage transaction” in Regulation X to 

implement the requirements for mortgage servicing disclosure statements in proposed 

§ 1024.33(a). 

 Proposed § 1024.33(a) sets forth the requirements applicable to disclosures to applicants 

about assignment, sale, or transfer of loan servicing that must be provided to applicants within 

three days (excluding legal public holidays, Saturdays, and Sundays). If the 2012 TILA-RESPA 

Proposal, which was published by the Bureau on July 9, 2012, is adopted as proposed with 

respect to implementing the disclosures required by sections 6(a) of RESPA, the only mortgage 

loans that would not receive the disclosure through the 2012 TILA-RESPA Proposal would be 

reverse mortgage transactions. Accordingly, the Bureau proposes to apply the current 

requirements of § 1024.21(b)-(c) only to reverse mortgage transactions, and proposed 

§ 1024.33(a) would require the disclosure for reverse mortgage transactions. 

 Service provider. The Bureau proposes to add a definition for the term “service 

provider.” A service provider means 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. Proposed 

comment 31(service provider)-1 clarifies 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 property inspections. 
71 

 Definitions of master servicer, qualified written request, subservicer, transferee servicer, 

and transferor servicer. Currently, definitions of the terms “master servicer,” “subservicer,” 

“transferee servicer,” and “transferor servicer,” are set forth in § 1024.21(a). The proposed rule 

would include the definitions of these terms currently set forth in § 1024.21(a), without change, 

in proposed § 1024.31. 

The definition of “qualified written request” would be revised to state that a qualified 

written request is a written correspondence from the borrower to the servicer that enables the 

servicer to identify the name and account of the borrower, and (1) states the reasons the borrower 

believes an error relating to the servicing of the loan has occurred, or (2) provides sufficient 

detail to the servicer regarding information relating to the servicing of the mortgage loan sought 

by the borrower. The definition further states that a qualified written request (i) must be in 

writing, (ii) must not be written on a payment coupon or other payment form from a servicer, and 

(iii) must be delivered less than one year after servicing of a mortgage loan is transferred or a 

mortgage loan is paid in full, whichever date is applicable. All of the elements of this definition 

are currently set forth in § 1024.21(e)(2) and the proposed definition of “qualified written 

request” in proposed § 1024.32 is not intended to alter the meaning of the term. Proposed 

comment 32(qualified written request)-1 clarifies that a qualified written request may request 

information without asserting an error with respect to the servicing of a mortgage loan (and vice 

versa). 

A “qualified written request” is just one form that a written notice of error or information 

request may take. As set forth above, although 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, the Bureau’s proposal would integrate all error resolution and information 
72 

request processes, including “qualified written requests.” A borrower may still submit a 

“qualified written request,” under the proposed rule, however a “qualified written request” would 

be subject to the same error resolution or information request requirements applicable to any 

other form of written notice of error or information request to a servicer. Further, a servicer’s 

liability for failure to respond to a qualified written request would be the same as for any other 

written notice of error or information request. Accordingly, there would be no greater benefit to 

a borrower, nor additional burden to a servicer, to respond to a “qualified written request” than 

would exist for a written notice of error or written information request pursuant to proposed 

§§ 1024.35-1024.36. 

Section 1024.32 General Disclosure Requirements 

Proposed § 1024.32 would set forth requirements applicable to disclosures required by 

subpart C. Specifically proposed § 1024.32(a)(1) would require 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 permit 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 permit 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 believes this provision is appropriate to enable servicers to integrate 

disclosures required by subpart C with requirements imposed by other federal regulatory 

agencies, including through the National Mortgage Settlement, and with applicable State law. 
73 

The Bureau proposes to exercise its authority under sections 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA. The Bureau further relies on its 

authority in section 19(a) of RESPA to make such rules and regulations necessary to achieve the 

consumer protection purposes of RESPA. 

Section 1024.33 Mortgage Servicing Transfers 

 Proposed § 1023.33 implements the mortgage servicing transfer disclosure requirements 

in section 6(a)-(d) of RESPA. The mortgage servicing transfer disclosure requirements are 

currently in § 1024.21(b)-(d) of Regulation X. 

 As a preliminary matter, the Bureau proposes to implement certain provisions currently 

set forth in § 1024.21(b)-(d) of Regulation X through commentary to proposed §1024.33 rather 

than as text of the regulation itself. This change is proposed to conform the organization of 

proposed § 1024.33 with other proposed provisions of subpart C. 

 Proposed § 1024.33(a) makes changes to the requirements currently set forth in 

§ 1024.21(b)-(c). Proposed § 1024.33(a) sets forth the requirements applicable to disclosures to 

applicants about assignment, sale, or transfer of loan servicing that must be provided to 

applicants within three days (excluding legal public holidays, Saturdays, and Sundays) of 

application. If the 2012 TILA-RESPA Proposal, which was published by the Bureau on July 9, 

2012, is adopted as proposed with respect to the implementing the disclosures required by 

section 6(a) of RESPA, the only mortgage loans that currently receive mortgage servicing 

transfer disclosures that would not receive the disclosure through the new integrated 

TILA/RESPA disclosure form would be closed-end reverse mortgage transactions.68 

 

68 Currently, mortgage servicing transfer disclosures are required for “mortgage servicing loans.” See current 

§ 1024.21(b)(1). The only “mortgage servicing loans” that would not be covered by the 2012 TILA-RESPA 
74 

Accordingly, the Bureau proposes to apply the current requirements of § 1024.21(b)-(c) only to 

reverse mortgage transactions, and proposed § 1024.33(a) reflects the limited scope of this 

provision. 

 Further, the Bureau proposes to implement through commentary a clarification relating to 

providing a servicing disclosure statement for co-applicants. Regulation X currently provides 

that if co-applicants provide the same address on an application, one copy of the servicing 

disclosure statement delivered to that address is sufficient, but if different addresses are shown 

by co-applicants, a copy of the servicing disclosure statement should be provided to each of the 

co-applicants. The Bureau believes this requirement is unduly burdensome, especially in light of 

the reduced scope of the servicing disclosure statement to closed-end reverse mortgage 

transactions. The Bureau proposes instead to require that if co-applicants provide different 

addresses, a servicing disclosure statement need only be provided to the primary applicant. This 

requirement is consistent with disclosure requirements applicable to other Bureau regulations. 

See 12 CFR 1002.9(f). 

 The Bureau does not believe this change will have a meaningful impact on consumers. 

The only situation that would be covered by this commentary is when multiple applicants for a 

closed-end reverse mortgage transaction indicate separate addresses on an application. Closedend reverse mortgage transactions typically require funds to be dispersed in a single lump-sum 

payment and are typically only available for borrower-occupied residences. The servicer of a 

closed-end reverse mortgage transaction is not responsible for making on-going payments to 

reverse mortgage borrowers, and borrowers of closed-end reverse mortgage transactions do not 

have on-going mortgage loan payment obligations during the life of the loan. The Bureau 

 Proposal rulemaking are closed-end reverse mortgage transactions. Open-end reverse mortgage transactions are not 

“mortgage servicing loans” as that term is defined in current § 1024.21(a). 
75 

believes that removing the requirement that borrowers with different addresses receive a separate 

mortgage servicing disclosure statement will remove a burden for reverse mortgage lenders and 

will not remove any meaningful protection for consumers. 

Proposed § 1024.33(b)-(c) sets forth the requirements applicable to notices of transfer of 

mortgage loan servicing. The Bureau proposes to remove the requirement that the transferor and 

transferee servicers provide collect-call telephone numbers (but retain the requirement to provide 

toll-free telephone numbers). The Bureau believes the collect-call telephone number 

requirement is obsolete. The Bureau also proposes to remove the requirement currently set forth 

in § 1024.21(d)(3)(vii) for a statement of the borrower’s rights in connection with complaint 

resolution. The expanded error resolution and information request requirements set forth in 

proposed §§ 1024.35-1024.36 provide tools for borrowers to assert errors and request 

information in connection with a servicing transfer. A transferee servicer will either identify for 

borrowers a phone number and address that must be used for asserting errors or requesting 

information pursuant to the requirements of §§ 1024.35-1024.36 when servicing is transferred or 

will be required to respond to a notice of error or information request received at any office of 

the servicer. 

Further, the Bureau proposes to conform the requirements that extend the time for the 

disclosure to treat institutions for which the NCUA has commenced proceedings to appoint a 

conservator or liquidating agent similarly to those for which the FDIC has commenced 

proceedings to appoint a conservator or receiver. 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 as opposed to an insured depository institution in 

the process of conservatorship or receivership by the FDIC. 
76 

The Bureau also proposes to conform proposed § 1024.33(c) with the requirements in 

proposed § 1024.39 by clarifying that a borrower’s account may be considered late for purposes 

of contacting the borrower for early intervention, but may not be considered late for any other 

purpose, including imposing late fees. 

The Bureau proposes 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 understands that many servicers already transfer misdirected 

payments to the appropriate servicer in connection with a servicing transfer. The Bureau 

requests comment regarding whether servicers should be required to transfer funds received for a 

borrower’s mortgage loan account to the appropriate servicers. The Bureau also solicits 

comment on whether the Bureau should implement requirements on the timing and method by 

which payments are returned to consumers. 

The Bureau also proposes to add comment 33(b)(3)-2 to clarify how a notice of servicing 

transfer should be delivered to a borrower. Proposed comment 33(b)(3)-2 clarifies 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. This requirement is 

consistent with current law.69 Proposed comment 33(b)(3)-2 further clarifies that when a 

mortgage loan has more than one borrower, the notice of transfer need only be given to one 

 

69 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.”). 
77 

borrower, but must be given to the primary borrower when one is readily apparent. 

The Bureau also proposes to amend the model form set forth in appendix MS-2 to reflect 

the proposed requirements in proposed § 1024.33(b)(4) and to streamline the contents of the 

form. The Bureau believes that borrowers are best served by reducing the content of the form so 

that borrowers receive a form that clearly sets forth the required content regarding the transfer of 

servicing and the address to which the next payment should be sent. 

 The Bureau proposes to exercise its authority under section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA. The Bureau further relies on its 

authority in section 19(a) of RESPA to make such rules and regulations necessary to achieve the 

consumer protection purposes of RESPA. 

Section 1024.34 Timely Payments by Servicer 

 Proposed § 1024.34(a) would 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), including the amendments proposed in this rule. Further, 

proposed § 1024.34(b) would implement the Dodd-Frank Act amendment to section 6(g) of 

RESPA by requiring a servicer to refund to a borrower any amounts remaining in an escrow 

account when a mortgage loan is paid in full. Section 6(g) of RESPA also 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. “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 person to whom the obligation is initially assigned at 

or after settlement. 
78 

 The Bureau believes the purpose of the provision allowing a servicer to credit funds in an 

escrow account to an escrow account for a new mortgage loan is intended to allow the amounts 

to be smoothly transferred without the need for the borrower to expend funds to fund a new 

escrow account and wait for a refund of a prior escrow account. Consistent with the Bureau’s 

proposal to clarify that subpart C may relate to secondary market transactions, which is 

implemented by the amendment to current § 1024.5(b)(7), the Bureau proposes to interpret the 

language “account with the same lender” consistent with secondary market practices. 

Accordingly, for purposes of section 6(g), the Bureau believes that a servicer should be able to 

credit an escrow account for a prior mortgage loan to a new mortgage loan where the lender for 

the new mortgage loan is (i) the same as the lender for the prior mortgage loan, (ii) the same as 

the current owner or assignee of the prior mortgage loan, or (iii) intends to use as its agent the 

same servicer that services the prior mortgage loan. 

 Accordingly, proposed § 1024.34(b) is intended to clarify three points. First, a servicer 

may credit an escrow account balance to an escrow account for a new mortgage loan if the lender 

for the new mortgage loan is the owner or assignee of the prior mortgage loan, even if that entity 

was not the lender for the prior mortgage loan named in the debt obligation and document 

creating the lien. Second, a servicer may credit an escrow account balance to an escrow account 

for a new mortgage loan if the servicer for the new mortgage loan is the same as the servicer for 

the prior mortgage loan. Third, the 20-day allowance for section 6(g) only applies if the servicer 

refunds the escrow account balance to the borrower. 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. 

 Proposed comment 34(b)(2)-1 clarifies that a servicer is not required to credit an escrow 
79 

account balance to a new mortgage loan in any circumstance in which it would be permitted to 

do so. A servicer may determine, in all circumstances, to return funds in an escrow account to 

the borrower pursuant to proposed § 1024.34(a). 

 The Bureau requests comments regarding whether the Bureau has identified proper 

instances where servicers may credit funds to a new escrow account and how such crediting 

should occur. 

 The Bureau is proposing these requirements to implement section 6(g) of RESPA 

pursuant to its authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry 

out section 6 of RESPA. The Bureau further relies on its authority in section 19(a) of RESPA to 

make 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 consumer protection 

purposes of RESPA. 

Section 1024.35 Error Resolution Procedures 

 Proposed § 1024.35 states the error resolution requirements that servicers would be 

required to follow for a notice of error from a borrower. In general, this proposal provides an 

opportunity to clarify servicer obligations to correct errors and respond to information requests to 

provide certainty to borrowers regarding their rights and to servicers regarding their obligations. 

 Currently, section 6(e) of RESPA requires servicers to respond to “qualified written 

requests.” Qualified written requests must be in writing and must relate to the “servicing” of the 

mortgage loan, as that term is defined in RESPA. Although the Bureau believes that qualified 

written requests may be used to either assert an error or to request information, there has been 

confusion among courts regarding whether both types of requests are necessary to set forth a 
80 

qualified written request.70

 The Dodd-Frank Act adds another layer of complexity. Section 1463(a) of the DoddFrank Act amends RESPA to add section 6(k)(1)(C), which states that a servicer shall not fail to 

take timely action 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.” 

Further, section 1463(a) of the Dodd-Frank Act amends 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. Neither section indicates 

whether the request to correct an error or the request for information must be in the form of a 

qualified written request. 

 In light of these disparate obligations, the Bureau believes that both borrowers and 

servicers would be better served if the Bureau were to clearly define a servicer’s obligation to 

correct errors or respond to information requests. To that end, the Bureau proposes §§ 1024.35 

(Error resolution procedures) and 1024.36 (Requests for information) to establish separate but 

parallel obligations for servicers to respond to notices of error and information requests. Further, 

the Bureau’s intention is to establish servicer procedural requirements for error resolution and 

information requests that are consistent with the requirements applicable to a qualified written 

request under RESPA. Through this, the Bureau intends to make the restrictions and 

circumlocutions inherent in the language of the qualified written request provisions obsolete. 

Any valid qualified written request is a valid notice of error or information request. An invalid 

 

70 See Catalan v. GMAC Mortgage Corp., 629 F.3d 676 (7th Cir. 2011); Pettie v. Saxon Mortgage Services, No. 

C08-5089, 2009 U.S. Dist. LEXIS 41496 (W.D. Wa. May 12, 2009). 
81 

qualified written request may still be a valid notice of error or information request.71

 Proposed § 1024.35 establishes the rules implementing the servicer prohibitions set forth 

in section 6(k)(1)(B), (C), and (E) of RESPA. These prohibitions make it unlawful for a servicer 

to charge a fee for responding to valid qualified written requests, to 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, avoiding foreclosure, or other standard servicer’s 

duties, and to fail to comply with any other obligation found by the Bureau to be appropriate to 

carry out the consumer protection purposes of RESPA. 

35(a) Notice of Error 

 Proposed § 1024.35(a) states that a notice of error may be made orally or in writing and 

must include the name of the borrower, information that enables a servicer to identify the 

borrower’s mortgage loan account, and the error the borrower believes has occurred. 

 Section 6(k)(1)(C) of RESPA, as added by section 1463(a) of the Dodd-Frank Act, refers 

generically to servicers’ failures to respond to requests of borrowers to correct certain errors. 

However, unlike section 6(e) of RESPA, which contains the statutory language regarding 

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. 

Oral notices of error. The Bureau proposes to allow a borrower to make a notice of error 

either orally or in writing. The Bureau believes this approach is warranted because, based on its 

discussions with consumers, consumer advocates, servicers, and industry trade associations, it 

appears that the vast majority of borrower complaints are generated orally instead of in writing. 

A requirement that a notice of error must be in writing generally serves as a barrier that unduly 

 

71 Notably, 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. 
82 

restricts the ability of a borrower to have errors resolved. The Bureau believes it is important for 

consumers to receive the benefit of required correction or investigation from servicers of orally 

asserted errors. 

 Servicers and servicer representatives stated that allowing a notice of error to be provided 

orally would create new burdens for servicers regarding tracking the notices of error and 

monitoring that a borrower receives written acknowledgements and responses. In addition, small 

entity representatives with whom the Small Business Review Panel conducted outreach 

reiterated these burdens on behalf of small servicers. The Small Business Review Panel 

recommended that the CFPB consider requiring small servicers to comply with the error 

resolution procedures only when borrowers provided error notices in writing.72 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.73 

 The Bureau recognizes the burdens on servicers to ensure compliance with this proposed 

rule for notices of error received orally. In order to implement this section, servicers may adopt 

systems to ensure that a borrower’s notice of error is tracked and receives the required 

acknowledgement and response. In light of the concerns express in the Small Business Review 

Panel Report, the Bureau has declined to specify any particular requirement that a servicer must 

undertake to track notices of error. Further, ensuring that borrower assertions of errors are 

investigated, responded to, and, as appropriate, corrected, is an objective of the reasonable 

information management policies and procedures set forth below in proposed § 1024.38. The 

Bureau has created that proposal to provide flexibility to servicers, including small servicers, to 

design policies and procedures that are appropriate to the particular circumstances of each 

 

72 See Small Business Review Panel Report at 30. 73 Id. 
83 

servicer. The Bureau believes this flexibility reflects that Small Business Review Panel 

recommendation that the Bureau create flexibility in the manner in which small servicers comply 

with the error resolution requirements. 

 The Bureau further believes that elements of the proposed rule assist in mitigating burden 

for all servicers. These elements include, for example, a limitation on the types of errors that 

servicers would be required to resolve to a finite list, as well as a proposal to allow servicers to 

designate a specific telephone number for receiving oral notices of error. 

 The Bureau believes the error resolution (as well as the information management) 

requirement provides appropriate flexibility for small servicers to implement policies and 

procedures to comply with this objective that make sense for their organizations and responds to 

the findings and recommendations in the Small Business Review Panel Report.74

 The Bureau solicits comments regarding whether servicers should be required to apply 

the error resolution requirements to notices of error received orally. The Bureau further solicits 

comments regarding whether small servicers (as that term is defined in the 2012 TILA Servicing 

Proposal) should be exempt from a requirement to apply the error resolution procedures in 

proposed § 1024.35 to notices of error received orally. 

 Qualified written requests. Proposed § 1024.35(a) would require a servicer to treat 

notices of error, whether oral or written, the same way it treats a qualified written request that 

asserts an error. The Bureau’s intention is to propose servicer obligations applicable to a notice 

of error that are exactly the same as obligations applicable to a qualified written request. For 

example, as set forth below, a servicer may not charge a fee for responding to a notice of error, a 

servicer must acknowledge receipt of a notice of error within five days (excluding legal public 

 

74 See Small Business Review Panel Report at 29. 
84 

holidays, Saturdays, and Sundays) and must respond to the notice of error within 30 days 

(excluding legal public holidays, Saturdays, and Sundays). Moreover, a servicer’s potential 

liability for failure to respond to a notice of error is the same as the potential liability for failure 

to respond to a qualified written request. Thus, under proposed § 1024.35(a), there is no reason 

for a borrower to send a qualified written request as opposed to an oral or written notice of error 

nor is there a reason for a servicer to reject a qualified written request because it does not meet 

the requirements for a qualified written request in section 6(e) of RESPA when such request 

constitutes a valid notice of error. Even if a borrower does not comply with all the requirements 

of a qualified written request, including, for instance, by asserting an error orally, or by asserting 

an error that is defined in § 1024.35(b) but does not constitute “servicing” as defined in RESPA, 

the obligations for the servicer to respond to the borrower are the same and the liability for the 

servicer’s failure to respond to the borrower is the same. 

Proposed comment 35(a)-1 would clarify that a notice of error submitted by a person 

acting on behalf of the borrower is considered a notice of error pursuant to proposed 

§ 1024.35(b). This clarification is substantially the same as the current requirement existing 

under section 6(e)(1)(A) of RESPA with respect to a qualified written request.75 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. 

 Proposed comment 35(a)-2 would clarify that the substance of the notice of error would 

determine the servicer’s obligation to comply with the error resolution requirements. No 

particular language (such as “qualified written request” or “notice of error”) is necessary to set 

forth a notice of error. 

 

75 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).” 
85 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) 

of RESPA to implement the notice of error requirements. Further, to the extent the requirements 

are also applicable to qualified written requests, the Bureau relies on its authority in sections 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under 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. 

35(b) Scope of error resolution 

 Proposed § 1024.35(b) provides a finite list of errors to which the error resolution 

provisions would relate (covered errors). A finite list of covered errors provides certainty to both 

borrowers and servicers regarding the types of errors that are subject to the error resolution 

process. Further, a finite list of covered errors is intended to ensure that servicer resources can 

be dedicated to responding to errors that are capable of correction, to the benefit of a borrower. 

For example, the Bureau 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 untimely disclosure after the deadline, would not actually correct the 

timeliness 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. 

 The Bureau further considered the impact of the proposed error resolution requirements if 
86 

the types of covered errors were not limited. The proposal expands servicer’s obligations to 

respond to error notices and information requests from borrowers. Borrowers may initiate an 

error resolution process orally, not just in writing. Further, in general, the proposal reduces the 

time period within which a servicer must respond to a borrower (from 60 days to 30 days), 

consistent with the Dodd-Frank Act amendments to section 6(e)(2) of RESPA. For certain types 

of covered errors, the time period to respond to the borrower is even more limited. The Bureau 

believes that the added costs and burden created by having an open-ended definition of an error 

could substantially increase the costs to servicers with limited additional benefit to consumers. 

The Bureau further believes that requiring servicers to respond to potentially any assertion of an 

error could, as a practical matter, lead to servicers using disproportionate resources to respond to 

every asserted error. That practice may cause servicers to expend fewer resources to address 

errors that may be far more significant to borrowers. 

 The Small Business Review Panel received feedback from SERs regarding whether the 

error resolution procedures should include a catch-all provision to the enumerated list of errors. 

In general, the SERs commented favorably on the Bureau’s proposal to include a finite list of 

errors. The SERs indicated that if the Bureau were to consider adding a catch-all provision, then 

the Bureau should request comment on whether to not include such a provision. Accordingly, 

for the reasons above, proposed § 1024.35(b) provides a finite list of covered errors to which the 

error resolution provisions would relate. The Bureau requests comment regarding whether (1) 

the finite list of covered errors should include any other specific types of errors that are not 

addressed in the list and (2) whether the list of covered errors should not be finite and should 

include a catch-all provision for other types of errors not set forth in the rule. 

Covered errors. Paragraph 35(b) defines the types of covered errors for which the error 
87 

resolution procedures apply. As discussed below, the proposed rule sets forth a finite list of nine 

types of covered errors based on the statutory language prohibiting servicers from failing 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.” See RESPA section 6(k)(1)(C). 

Proposed comment 35(b)-1 clarifies that a servicer would not be required to comply with 

the requirements of proposed § 1024.35(d)-(e) if a notice relates to something other than one of 

the types of covered errors in proposed § 1024.35(b). The proposed comment provides examples 

of categories of excluded errors that would not be considered covered errors pursuant to 

proposed § 1024.35(b). These include 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 sale, assignment, or transfer of the servicing of a mortgage loan other than 

the transfer of information for a borrower’s mortgage loan account. 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. The Bureau requests comment regarding whether any errors that may fall 

within the examples of excluded errors should instead be included as covered errors. 

Paragraph 35(b)(1) 

 Proposed paragraph 35(b)(1) includes 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. 

 Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to take timely action to 

respond to a borrower’s request to correct errors relating to the allocation of payments for a 
88 

borrower’s account. Paragraph 35(b)(1) is an example of one type of error that fits within the 

broad statutory prohibition. A failure to accept a proper payment will necessarily have 

implications for the correct application of borrower payments. Further, proper acceptance of 

payments is, by definition, “servicing,” as that term is defined in section 6(i)(3) of RESPA 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 further believes that proper acceptance of borrower payments is a standard 

servicer duty as set forth in section 6(k)(1)(C) of RESPA. Section 6(k)(1)(C) of RESPA states 

that a servicer shall not fail to take timely action to respond to a borrower’s request to correct 

errors relating three specific categories as well as those relating to “other standard servicer 

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), but also those duties that are defined as “servicing” 

by RESPA, as well as duties customarily undertaken by servicers to investors and consumers in 

connection with the servicing of a mortgage loan. These include duties that may not be 

contemplated within the definition of “servicing” in RESPA, such as 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. Throughout this proposal, 

the Bureau refers to these standard servicer duties, in the parlance of section 6(k)(1)(C) of 

RESPA, as typical servicer duties to reflect the plain language connotation that such duties are 
89 

those typically performed by servicers in the normal course of business. 

 As set forth above, the Bureau is proposing § 1024.35(b)(1) to implement section 

6(k)(1)(C) of RESPA. The Bureau also relies on its authority in section 6(j)(3) of RESPA to set 

forth requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of 

RESPA to set forth obligations appropriate to carry out the consumer protection purposes of 

RESPA. Further, the Bureau relies on its authority in section 19(a) of RESPA to make such 

rules and regulations and to make such interpretations as may be necessary to achieve the 

consumer protection purposes of RESPA. 

Paragraph 35(b)(2) 

 Proposed paragraph 35(b)(2) would include as a covered 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. 

 Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to take timely action to 

respond to a borrower’s request to correct errors relating to the allocation of payments for a 

borrower’s account. Paragraph 35(b)(2) implements the prohibition in section 6(k)(1)(C) of 

RESPA. The Bureau also relies on its authority in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to 

set forth obligations appropriate to carry out the consumer protection purposes of RESPA. 

Further, the Bureau relies on its authority in section 19(a) of RESPA to make such rules and 

regulations and to make such interpretations as may be necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(3) 

 Proposed paragraph 35(b)(3) includes as an error a servicer’s failure to credit a payment 
90 

to a borrower’s mortgage loan account as of the date of receipt, where such failure has resulted in 

a charge to the consumer or the furnishing of negative information to a consumer reporting 

agency. 

 Proper crediting of payments to consumers is required by section 129F of TILA, which 

was added by section 1464 of the Dodd-Frank Act and would be implemented by proposed 

§ 1026.36(c) in the 2012 TILA Servicing Proposal. 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. 1639(f)(b). Servicers of mortgage loans covered by TILA section 129F have a 

duty to comply with that provision. 

 Section 6(k)(1)(C) of RESPA prohibits a servicer from failing to take timely action to 

respond to a borrower’s request to correct errors relating to the allocation of payments for a 

borrower’s account. Paragraph 35(b)(3) implements this prohibition. A failure to credit a 

payment will necessarily have implications for the correct application of borrower payments. A 

servicer’s failure to properly credit a payment will 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 properly 

credit borrower payments may generate improper late fees and other charges. 

 The Bureau also observes that proper crediting of borrower payments is, by definition, 
91 

“servicing,” as that term is defined in section 6(i)(3) of RESPA and, therefore, is subject to the 

qualified written request procedure set forth in section 6(e) of RESPA and current § 1024.21(e) 

of Regulation X. 

 For these reasons, the Bureau proposes to implement section 6(k)(1)(C) of RESPA by 

prohibiting servicers from failing to correct errors relating to proper crediting of borrower 

payments. The Bureau also relies on its authority in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to 

set forth obligations appropriate to carry out the consumer protection purposes of RESPA. 

Further, the Bureau relies on its authority in section 19(a) of RESPA to make such rules and 

regulations and to make such interpretations as may be necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(4) 

 Proposed paragraph 35(b)(4) includes as an error a servicer’s failure to make 

disbursements from an escrow account for taxes, insurance premiums (including flood 

insurance), 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), or to refund 

an escrow account balance in a timely manner as required by proposed § 1024.34(b). 

 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 
92 

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. The Bureau further observes that proper disbursement of escrow funds is, by definition, 

“servicing,” as that term is defined in section 6(i)(3) of RESPA 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. 

 Proposed paragraph 35(b)(4) would require a servicer to correct errors relating to a 

typical servicer duty and implements section 6(k)(1)(C) of RESPA. The Bureau also relies on its 

authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out section 6 of 

RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the 

consumer protection purposes of RESPA. Further, the Bureau relies on its authority in section 

19(a) of RESPA to make such rules and regulations and to make such interpretations as may be 

necessary to achieve the consumer protection purposes of RESPA. 

Paragraph 35(b)(5)

 Proposed paragraph 35(b)(5) includes as an error a servicer’s imposition of a fee or 

charge that the servicer lacks a reasonable basis to impose upon the borrower. 

 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 for services from service providers that were not actually rendered 

with respect to a borrower’s mortgage loan account, and charges for force-placed insurance 
93 

where a servicer lacks a reasonable basis to impose the charge on the borrower as set forth in 

proposed § 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. 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. 

 Proposed paragraph 35(b)(5) would require a servicer to correct errors relating to a 

typical servicer duty and implements section 6(k)(1)(C) of RESPA. The Bureau also relies on its 

authority in section 6(j)(3) of RESPA to set forth requirements necessary to carry out section 6 of 

RESPA and in section 6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the 

consumer protection purposes of RESPA. Further, the Bureau relies on its authority in section 

19(a) of RESPA to make such rules and regulations and to make such interpretations as may be 

necessary to achieve the consumer protection purposes of RESPA. 

Paragraph 35(b)(6) 

Proposed paragraph 35(b)(6) includes 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)(1)(iii). 

 Borrowers require accurate payoff statements to manage their mortgage loan obligations. 

A payoff statement is necessary anytime a borrower repays a mortgage loan and servicers 
94 

routinely provide payoff statements for borrowers to refinance or pay in full mortgage loan 

obligations. However, consumer advocates have indicated 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.76 Any 

such conduct has the perverse effect of impeding a borrower’s ability to pay a mortgage loan 

obligation in full. 

 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. The Bureau believes that, in order to implement the prohibition set forth 

in section 6(k)(1)(C) of RESPA regarding a servicer’s failure to correct errors relating to final 

balances for purposes of paying off the loan, a servicer should be required to comply with the 

requirements within a reasonable time frame. Because servicers will be required to comply with 

the timeframes set forth in 12 CFR 1026.36(c)(1)(iii) with respect to certain mortgage loans they 

service, the Bureau does not believe that requiring servicers to correct errors for mortgage loans 

that may not constitute home loans as that term is used in section 129G of TILA within error 

resolution timeframes imposes additional burden on servicers. 

 Proposed paragraph 35(b)(6) implements section 6(k)(1)(C) of RESPA with respect to a 

servicer’s obligation to correct errors relating to final balance for purposes of paying of a 

mortgage loan. The Bureau also relies on its authority in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to 

set forth obligations appropriate to carry out the consumer protection purposes of RESPA. 

 

76 See, 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 Subcommittee on Financial Institutions and 

Consumer Credit and Subcommittee on Oversight and Investigations of the House Financial Services Comm., No. 

112-44, 112th Cong. 76 (July 7, 2011) (statement of Mike Calhoun, President, Center for Responsible Lending). 
95 

Further, the Bureau relies on its authority in section 19(a) of RESPA to make such rules and 

regulations and to make such interpretations as may be necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(7) 

Proposed paragraph 35(b)(7) includes 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 §§ 1024.39-1024.40. 

 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. 

Although the Bureau does not generally believe a failure to provide a required disclosure to a 

borrower should constitute an error requiring compliance with the error resolution procedures in 

proposed § 1024.35, 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 

this error and providing the borrower with accurate information regarding loss mitigation options 

that may be available to the borrower, a servicer can help a borrower receive an evaluation for 

the loss mitigation option pursuant to proposed § 1024.41 and may be able to reach agreement 

with the borrower on a loss mitigation option that is mutually beneficial to the borrower and the 

owner or assignee of the borrower’s mortgage loan. 
96 

 Proposed paragraph 35(b)(7) implements section 6(k)(1)(C) of the Dodd-Frank Act. 

Specifically, proposed paragraph 35(b)(7) implements a servicer’s obligation to correct errors 

relating to avoiding foreclosure. 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 service participation in other 

loss mitigation programs required by Fannie Mae and Freddie Mac demonstrate that servicers 

typically provide borrowers with information regarding loss mitigation options and foreclosure 

and that providing such information to borrowers is a typical servicer duty. 

 The Bureau also relies on its authority in section 6(j)(3) of RESPA to set forth 

requirements necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to 

set forth obligations appropriate to carry out the consumer protection purposes of RESPA. 

Further, the Bureau relies on its authority in section 19(a) of RESPA to make such rules and 

regulations and to make such interpretations as may be necessary to achieve the consumer 

protection purposes of RESPA. 

Paragraph 35(b)(8) 

 Proposed paragraph 35(b)(8) would include 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. 

 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 are required to develop capacity for 

transferring information to transferee servicers in order to comply with such obligations to 
97 

owners or assignees of mortgage loans. Further, servicers are required to develop capacity to 

onboard 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 or current. 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. 

 Pursuant to proposed § 1024.38(a), servicers would be required to have policies and 

procedures to achieve the objectives set forth in proposed § 1024.38(b), which includes an 

objective of facilitating servicing transfers. An objective of the servicer’s policies and 

procedures would be to timely transfer all information and documents 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 

requirements of this subpart and the terms of the transferee servicer’s contractual obligations to 

the owner or assignee of the mortgage loan. 

 The Bureau believes that by defining a servicer’s failure to accurately and timely transfer 

information relating to a borrower’s mortgage loan account to a transferee servicer, a borrower 

will have a remedy to ensure that a transferor servicer will update the information transferred to 

provide information to a transferee servicer that accurately reflects the borrower’s account 

consistent with the obligations applicable to a servicer’s information management policies and 

procedures. 

 Proposed paragraph 35(b)(8) implements a servicer’s obligation to take timely action to 

correct errors relating to typical servicer duties pursuant to section 6(k)(1)(C) of RESPA. The 

Bureau also relies on its authority in section 6(j)(3) of RESPA to set forth requirements 
98 

necessary to carry out section 6 of RESPA and in section 6(k)(1)(E) of RESPA to set forth 

obligations appropriate to carry out the consumer protection purposes of RESPA. Further, the 

Bureau relies on its authority in section 19(a) of RESPA to make such rules and regulations and 

to make such interpretations as may be necessary to achieve the consumer protection purposes of 

RESPA. 

Paragraph 35(b)(9) 

 Proposed paragraph 35(b)(9) would include as an error a servicer’s failure to suspend a 

scheduled foreclosure sale in the circumstances described in proposed § 1024.41(g). Pursuant to 

proposed § 1024.41(g), 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 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 an 

agreement on a loss mitigation option. For further information, see discussion of proposed 

section § 1024.41 below. 

 The Bureau continues to consider whether to include as an error a servicer’s evaluation of 

a borrower for a loss mitigation option. The Bureau observes that the manner in which a 

borrower is evaluated for a loss mitigation option is complex and includes factors that are 

subjective.77 Further, the Bureau believes that the appeal process provided in proposed 

§ 1024.41(h) provides an appropriate procedural means for borrowers to address issues relating 

 

77 See, e.g., Special Inspector General for the Troubled Asset Relief Program, The Net Present Value Test’s Impact 

on the Home Affordable Modification Program, at 7-8 (Jun.. 18, 2012), available at 

http://www.sigtarp.gov/Audit%20Reports/NPV_Report.pdf (demonstrating that major HAMP servicers differed in 

their determinations regarding whether to apply a risk premium to the discount rate used to calculate net present 

value for determining eligibility for HAMP loan modifications). 
99 

to a servicer’s evaluation of a borrower for a loan modification program. 

 The Bureau requests comment regarding whether to include as an error a servicer’s 

failure to correctly evaluate a borrower for a loss mitigation option. The Bureau further requests 

comment regarding standards for determining if a borrower has been correctly evaluated for a 

loss mitigation option, including whether a servicer should be required to comply with the 

servicer’s own standards, standards promulgated by major investors and guarantors, and 

standards promulgated in connection with Federal- or State-sponsored loss mitigation options. 

 Proposed paragraph 35(b)(9) implements section 6(k)(1)(C) of the Dodd-Frank Act. 

Specifically, proposed paragraph 35(b)(9) implements a servicer’s obligation to correct errors 

relating to avoiding foreclosure. The Bureau also relies on its authority in section 6(j)(3) of 

RESPA to set forth requirements necessary to carry out section 6 of RESPA and in section 

6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the consumer protection 

purposes of RESPA. Further, the Bureau relies on its authority in section 19(a) of RESPA to 

make such rules and regulations and to make such interpretations as may be necessary to achieve 

the consumer protection purposes of RESPA. 

35(c) Contact information for borrowers to assert errors 

 Proposed § 1024.35(c) permits a servicer to establish a telephone number and address 

that a borrower must use to assert an error. If a servicer chooses to establish a separate telephone 

number and address for receiving errors, a servicer must provide the borrower a written 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)-2 would clarify 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. 
100 

The purpose of establishing a telephone number and address that a borrower must use to 

assert an error is to allow servicers to direct oral and written errors to appropriate personnel that 

have been trained to ensure that the servicer responds appropriately. 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 may 

incorrectly believe that local bank branch staff will be required to comply with error resolution 

requirements for mortgage servicing errors. 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. Proposed comment 35(c)-1 clarifies, however, that if a servicer has not designated a 

telephone number and address that a borrower must use to assert an error, then a servicer will be 

required to comply with the error resolution requirements for any notice of error received by any 

office of the servicer. 

The Bureau believes it is reasonable, especially in light of the expanded burden of 

requiring compliance with error resolution for oral notices of error, to allow servicers to manage 

the intake of notices of error to designated telephone numbers and addresses. Further, allowing a 

servicer to designate a specific telephone number and 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 

telephone number and address for receiving errors and information requests will benefit 

consumers as well. By providing a specific telephone number and address, servicers will 

identify to consumers the office capable of addressing errors identified by consumers. The 
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Bureau is proposing in the concurrent 2012 TILA Servicing Proposal to require that any 

telephone number or address identified by a servicer must appear on the periodic statement or 

other payment form supplied by the servicer. See 2012 TILA Servicing Proposal at proposed 

§ 1026.41(d)(6). 

 Multiple offices. Proposed § 1024.35(c) would require 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. The Bureau believes 

that if servicers designate separate telephone numbers and addresses for notices of error and 

information requests, borrower attempts to provide notices of error and information requests to 

servicers could be impeded. Further, proposed comment 35(c)-3 clarifies 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. This clarifies that a servicer may not determine that a 

notice of error is invalid if it was received at any telephone number or address designated by the 

servicer for receipt of notices of error just because it was not received by the specific phone 

number or address identified to a specific borrower. Proposed comment 35(c)-5 clarifies that a 

servicer may use automated systems, such as an interactive voice response system, to manage the 

intake of borrower calls. Prompts for asserting errors must be clear and provide the borrower the 

option to connect to a live representative. 

 Internet intake of notices of error. Proposed comment 35(c)-4 would clarify that a 

servicer is not required to establish a process for receiving notices of error through email, 

website, or other online methods. If a servicer establishes a process for receiving notices of error 

through online methods, comment 35(c)-4 is intended to clarify that the process established is the 

only online intake process that a borrower can use to assert an error. Thus, a servicer would not 
102 

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 further clarifies that a servicer’s decision to accept notices of error through an 

online intake method shall not have any impact on a servicer’s obligation to comply with the 

requirements of § 1024.35 with respect to notices of error received in writing or orally. 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) 

of RESPA to implement the notice of error requirements. Further, to the extent the requirements 

are also applicable to qualified written requests, the Bureau relies on its authority in section 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under 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. 

35(d) Acknowledgment of receipt 

Proposed § 1024.35(d) would require a servicer to provide a borrower a written 

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 implement 

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) further applies the 

same timeline applicable to a qualified written request to any notice of error. 

 The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) of RESPA to 

implement the notice of error requirements. Further, to the extent the requirements are also 

applicable to qualified written requests, the Bureau relies on its authority in sections 6(e) and 

6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of RESPA to 
103 

establish any requirements necessary to carry out section 6 of RESPA and has authority under 

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. 

35(e) Response to Notice of Error 

 Proposed § 1024.35(e) would set forth requirements on servicers for responding to 

notices of error. 

35(e)(1) Investigation and Response Requirements

Proposed paragraph 35(e)(1) would require a servicer to correct an error within 30 days 

unless the servicer concludes after a reasonable investigation that no error occurred. 

 Notices to borrower. If a servicer corrects the error identified by the borrower, it must 

provide the borrower with written notification that indicates that the error was corrected, the 

effective date of the correction, and a telephone number the borrower can use to get further 

information.

 If a servicer determines that no error occurred, it is required to have conducted a 

reasonable investigation and to provide the borrower a notice 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. A servicer would 

also be required 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. 

 Borrower right to request documents. Proposed § 1024.35(e)(4) would require that if a 

servicer determines no error occurred, the servicer is required to include a statement in its 

response that the borrower can request documents relied upon by the servicer. A servicer must 
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provide the documents within 15 days of the servicer’s receipt of the borrower’s request. The 

Bureau believes that this requirement strikes an appropriate balance that does not subject the 

servicer to undue paperwork burden while assuring that the borrower can access the underlying 

documentation if necessary. Further, in certain cases, a borrower may determine that the 

servicer’s response resolves an issue and that reviewing documents would be unnecessary and 

requiring a servicer to provide documents only upon a borrower’s request limits burden. 

Proposed comment 35(e)(4)-1 clarifies that a servicer 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 states that where a servicer relies upon entries in its 

collection systems, a servicer should provide print-outs reflecting the information entered into 

the system.

A servicer would be required to provide information regarding the right to receive 

documents only if a servicer determines that no error has occurred. Proposed paragraph 

35(e)(1)(i) would not require a servicer who determines that an error has occurred, and corrects 

the error, to provide documents to a borrower that were the basis for that determination or to 

provide a statement in the notice to the borrower about requesting documents. The Bureau 

believes that the purpose of the proposed rule is to facilitate the prompt correction of errors and 

borrowers likely do not need documents and information when errors are corrected per the 

borrower’s request. The Bureau does not believe it is necessary to require servicers to provide 

documents to a borrower if a servicer corrects an asserted error. 

 Multiple responses. Proposed comment 35(e)(1)(i)-1 clarifies 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 
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is to require prompt 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. Further, a servicer’s obligation to provide a borrower with documents relied 

upon by the servicer only relates to any asserted errors that the servicer determines are not errors. 

A servicer is not required to provide documents with respect to any other errors in a notice of 

error that the servicer corrects. 

 Different or additional error. Proposed paragraph 35(e)(1)(ii) would provide that if a 

servicer, during the course of a reasonable investigation, determines that a different or additional 

error has occurred, a servicer is required to correct that different or additional error and 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 documents to the borrower 

regarding the error identified for the reasons discussed above. 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) 

of RESPA to implement the notice of error requirements. Further, to the extent the requirements 

are also applicable to qualified written requests, the Bureau relies on its authority in sections 6(e) 

and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under 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. 

35(e)(2) Requesting documentation from borrower 
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Proposed § 1024.35(e)(2) states that a servicer could request that a borrower provide 

documentation if needed to investigate an error but may not require the borrower to provide such 

documentation as a condition of investigating the asserted error. Nor may the servicer determine 

that no error occurred because the borrower failed to provide the requested documentation. The 

purpose of this provision is to allow servicers to obtain information that may assist in resolving 

notices of error. However, the Bureau believes that the process for obtaining that information 

should not prejudice the ability of the borrower to seek the resolution of the error. 

35(e)(3) Time Limits 

Paragraph 35(e)(3)(i) 

Proposed paragraph 35(e)(3)(i) would require 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 scheduled foreclosure sale 

where a borrower has submitted a complete application for a loss mitigation option. 

 Shortened time limit to correct errors relating to payoff balances. Pursuant to proposed 

paragraph 35(e)(3)(i)(A), 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 paragraph 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 believes that a 30-day deadline for responding to this type of notice of error does not 

provide adequate protection for a borrower because the servicer’s failure to correct the error will 

prevent a borrower from pursuing options that protect the borrower, including, for example, a 

refinancing transaction. Based on discussions with servicers, the Bureau believes that a five day 
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timeframe is reasonable for a servicer to correct an error with respect to calculating a payoff 

balance. 

The Bureau relies on its authority in sections 6(e) and 6(k)(1)(B) of RESPA with respect 

to qualified written requests, as well as its authority in sections 6(k)(1)(C) and 6(k)(1)(E) with 

respect to error resolution requirements to mandate a shorter time period for responding to 

notices that assert errors with respect to accurate payoff balances. The Bureau further has 

authority pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry 

out section 6 of RESPA and has authority under section 19(a) of RESPA to prescribe such rules 

and regulations, to make such interpretations, and to make such exemptions for classes of 

transactions as may be necessary to achieve the consumer protection purposes of RESPA. 

The Bureau requests comment regarding whether five days (excluding legal public 

holidays, Saturdays, and Sundays) is an appropriate timeframe for a servicer to correct an error 

with respect to a payoff balance. 

 Shortened time limit to correct certain errors relating to foreclosure. Pursuant to 

proposed paragraph 35(e)(3)(i)(B), if a borrower submits a notice of error asserting that a 

servicer has failed to suspend a scheduled 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 scheduled 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 scheduled foreclosure sale would cause irreparable harm to a borrower. 

Proposed comment 35(e)(3)(i)(B)-1 would clarify that a servicer could maintain a 30-day 

timeframe to respond to the notice of error if it cancels or postpones the scheduled foreclosure 

sale and a subsequent sale is not scheduled before the expiration of the 30-day deadline. 
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 Extensions of time limits. Proposed § 1024.35(e)(3)(ii) would permit 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 clarifies 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). Section 1463(c)(3) of the Dodd-Frank Act amended section 6(e) of RESPA 

to provide a 15-day extension of time and proposed § 1024.35(e)(3)(ii) would implement this 

provision. 

 The Bureau proposes not to apply the extension allowance of proposed 

§ 1024.35(e)(3)(ii) to investigate and respond to errors relating to payoff statement or to a 

servicer’s failure to suspend a scheduled foreclosure sale. For the reasons set forth above, the 

Bureau does not believe that allowing a servicer to extend the time period for investigating and 

responding to these types of errors will provide timely resolution of errors. 

Legal authority. The Bureau relies on its authority in sections 6(e) and 6(k)(1)(B) of 

RESPA with respect to qualified written requests, as well as its authority in sections 6(k)(1)(C) 

and 6(k)(1)(E) with respect to error resolution requirements to mandate a shorter time period for 

responding to notices that assert errors for a servicer’s failure to suspend a scheduled foreclosure 

sale. The Bureau further has authority pursuant to section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out section 6 of RESPA and has authority under section 19(a) of 

RESPA to prescribe such rules and regulations, to make such interpretations, and to make such 

exemptions for classes of transactions as may be necessary to achieve the consumer protection 
109 

purposes of RESPA. 

35(f) Alternative Compliance

 Proposed § 1024.35(f) states that a servicer is not required to comply with 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, is not required to comply with 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 scheduled foreclosure sale, pursuant to paragraph 35(b)(9), seven 

days or less before a scheduled foreclosure, is not 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. 

 The Bureau proposes these alternative compliance methods for two reasons. First, 

feedback from servicers, and especially small servicers, indicates that the majority of errors are 

addressed promptly after a borrower’s communication and generally within five days. SERs 

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.78 The Bureau believes the alternative compliance 

method is appropriate to reduce unnecessary burden of an acknowledgement 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. 

 

78 See Small Business Review Panel Report at 30. 
110 

 Second, the Bureau believes that reduced requirements are appropriate when servicers 

receive a notice of error that may impact a scheduled foreclosure scale less than five days before 

a scheduled foreclosure sale. Only notices of errors identified in proposed paragraph 35(b)(9) 

implicate this concern. Numerous entities, including other federal agencies and SERs 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.79 The 

Bureau believes that reducing the procedural requirements for servicers to follow when a notice 

asserting an error identified in paragraph (b)(9) is submitted less than 5 days before a scheduled 

foreclosure sale mitigates this concern 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 SERs’ concern that error resolution procedures may be used in unwarranted 

litigation.80 Further, the Bureau understands the timing to be consistent with account reviews 

required by the GSEs to document that all required actions have occurred permitting the servicer 

to proceed with a scheduled foreclosure sale.81

 The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) of RESPA to 

implement the notice of error requirements. Further, to the extent the requirements are also 

applicable to qualified written requests, the Bureau relies on its authority in sections 6(e) and 

6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of RESPA to 

establish any requirements necessary to carry out section 6 of RESPA and has authority under 

section 19(a) of RESPA to prescribe such rules and regulations and to make such interpretations 

 

79 See Small Business Review Panel Report at 30. 80 See Small Business Review Panel Report at 29-30. 81 See, e.g., Fannie Mae Announcement SVC-2011-08R (September 7, 2011). 
111 

as may be necessary to achieve the consumer protection purposes of RESPA. 

 The Bureau requests comment regarding whether the Bureau should consider other 

alternative compliance methods or should adjust the requirements of the proposed alternative 

compliance methods. 

35(g) Requirements not Applicable 

Proposed § 1024.35(g) would state that the error resolution requirements of proposed 

§ 1024.35 would not apply to certain types of notices of error if the servicer complies with 

proposed § 1024.35(g)(2). The types of notice of error to which the requirements would not 

apply would be set forth in § 1024.35(g)(1). The Bureau solicits comments regarding whether 

additional types of notices of error should be identified in proposed § 1024.35(g)(1). 

35(g)(1) In General 

Proposed paragraph 35(g)(1) would state that a servicer is not required to comply with 

the requirements of § 1024.35(d) and (e) if the servicer reasonably makes certain determinations 

specified in paragraphs (g)(1)(i), (ii), or (iii). A servicer may be liable to the borrower for its 

unreasonable determination and resulting failure to comply with proposed § 1024.35(d) and (e). 

Paragraph 35(g)(1)(i) 

Proposed paragraph 35(g)(1)(i) would state 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 

where the asserted error is substantially the same as an error previously asserted by or on behalf 

of the borrower for which the servicer has 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. New and material information means information that was not reviewed by the 

servicer in connection with investigating the prior notice of error and is reasonably likely to 
112 

change a servicer’s determination with respect to the existence of an error. 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 purpose of this proposed paragraph is 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. 

Proposed comment 35(g)(1)(i)-1 clarifies that a dispute regarding a servicer’s 

interpretation of information previously reviewed, including the materiality of that information, 

does 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. 

Paragraph 35(g)(1)(ii) 

Proposed paragraph 35(g)(1)(ii) provides 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 rule defines “overbroad” and “unduly 

burdensome” for this purpose. 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. 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 
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paragraph (e)(3)(ii) or incurring costs (or dedicating resources) that would be unreasonably in 

light of the circumstances. 

Consumers, consumer advocates, servicers, and servicing industry representatives have 

indicated to the Bureau that the current qualified written request process is not typically utilized 

by consumers to resolve errors. Rather, the process is more frequently used strategically to 

obtain documents and a servicer’s responses to claims as a preliminary form of civil litigation 

discovery. During the Small Business Review Panel outreach, SERs 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.82 Servicers and servicing industry 

representatives indicated that these types of qualified written requests are unreasonable and 

unduly burdensome. SERs in the Small Business Review Panel outreach requested that the 

Bureau consider an exemption for abusive requests, or requests made with the intent to harass the 

servicer.83

 The Bureau is likewise concerned that, in light of the expanded requirements for servicers 

to respond to notices of error, including adding new categories of covered errors that do not 

specifically relate to “servicing” as defined in RESPA as well as errors asserted orally, a 

requirement for servicers to respond to notices of error that are overbroad or unduly burdensome 

may harm consumer and frustrate servicers’ ability to comply with the new error resolution 

requirements. The effect of the proposed rule is to expand a servicer’s obligation to undertake 

the obligations similar to those currently applicable to qualified written requests to a broader 

universe of potential notices of error, including notices of error made orally to a servicer. 

Requiring servicers to respond to overbroad or unduly burdensome notices of error from some 

 

82 See Small Business Review Panel Report at 23. 83 See id.
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borrowers may cause servicers to expend fewer resources to address other errors that may be 

more clearly stated and more clearly require servicer attention. Further, 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. 

Proposed paragraph 35(g)(1)(ii) provides that if a servicer determines that a notice of 

error is overbroad or unduly burdensome, the servicer is required to notify the borrower, 

pursuant to proposed § 1024.35(g)(2), that it is not required to comply with the requirements of 

proposed § 1024.35(d) and (e). Further, the notice must state that the notice of error was 

overbroad or unduly burdensome, but does not need to state the specific basis for such a 

determination. Proposed comment 35(g)(1)(ii)-1 sets forth characteristics that may indicate if a 

notice of error is overbroad or unduly burdensome. 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 would be required to respond to the covered error submissions it can identify. 

 The Bureau requests 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. The Bureau further requests comment on the 

appropriate definition of overbroad or unduly burdensome notices of error and on the appropriate 

indicia for identifying notices of error that should be subject to the exclusion.

Paragraph 35(g)(1)(iii) 

Proposed paragraph 35(g)(1)(iii) provides 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 
115 

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 purpose of this proposed paragraph is to set a specific and clear time that a servicer may be 

responsible for correcting errors for a mortgage loan. 

 The purpose of the proposed paragraph is 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.” 

35(g)(3) Notice to Borrower 

Proposed § 1024.35(g)(3) states that if a servicer determines 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 notice must be sent not later than five days (excluding legal public holidays, 

Saturdays, and Sundays) after the servicer’s determination and must set forth the basis upon 

which the servicer has made the determination and the applicable provision of proposed 

§ 1024.35(g)(1).

 The Bureau 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. The Bureau requests 

comment regarding the requirement that servicers provide a notice to the borrower and the 
116 

appropriate content for the notice. 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(C) and 6(k)(1)(E) 

of RESPA to implement the notice of error requirements in proposed § 1024.35(g). Further, to 

the extent the requirements are also applicable to qualified written requests, the Bureau relies on 

its authority in sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under section 19(a) of RESPA 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 consumer protection purposes of RESPA. 

35(h) Payment Requirements Prohibited 

Proposed § 1024.35(h) would prohibit 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. The Bureau is implementing this provision 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 servicer’s practice of charging for responding to a notice of 

error impedes borrowers from pursuing valid notices of error. 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. 

 The Bureau relies on its authority in section 6(k)(1)(B), (C), and (E) of RESPA to 
117 

implement the notice of error requirements. The Bureau further has authority pursuant to section 

6(j)(3) of RESPA to establish any requirements necessary to carry out section 6 of RESPA and 

has authority under section 19(a) of RESPA 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 consumer protection purposes of RESPA.

35(i) Effect on Servicer Remedies 

 Adverse Information. Proposed § 1024.35(i)(1) states 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. 

 The Bureau proposes to maintain the 60-day timeframe set forth in section 6(e)(3) of 

RESPA. Even though a notice of error may be resolved by no later than 45 days pursuant to 

proposed § 1024.35(e)(3)(ii), the Bureau believes that the 60-day timeframe is appropriate in the 

event that there are follow-up inquiries or additional information provided to the borrower. 

 The Bureau relies on its authority in section 6(e)(3), 6(k)(1)(C), and 6(k)(1)(E) of RESPA 

to implement the adverse information requirements for qualified written requests and notices of 

error. The Bureau further has authority pursuant to section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out section 6 of RESPA and has authority under section 19(a) of 

RESPA 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 consumer 

protection purposes of RESPA. 
118 

 Ability to pursue foreclosure. Proposed § 1024.35(i)(2) states that 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, with one exception. The purpose of this provision is to 

clarify that, in general, a notice of error could not be used to require a servicer to suspend a 

scheduled foreclosure sale. The purpose of requiring prompt correction of errors is not furthered 

by allowing a notice of error to impede a lender’s or servicer’s ability to pursue remedies 

permitted by the applicable mortgage loan instrument. 

 The Bureau is proposing one exception because it believes it is inappropriate for a 

servicer to proceed with a scheduled foreclosure sale in the circumstances described in proposed 

§ 1024.41(g). Failure to suspend a potential foreclosure sale during such periods has caused 

borrower harm, as discussed below. 

 Defining as an error a servicer’s failure to suspend a scheduled foreclosure sale in the 

circumstances described in proposed § 1024.41(g) is consistent with section 17 of RESPA. The 

Bureau observes that the requirements of proposed § 1024.41 would not impede a lender’s or 

servicer’s ability to pursue a foreclosure action, or maintain a scheduled foreclosure sale. 

Rather, 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 scheduled 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 
119 

the borrower for a loss mitigation option before the date of a scheduled foreclosure sale, a 

servicer may comply with the requirements of § 1024.35 without suspending the scheduled 

foreclosure sale. 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(C), and 6(k)(1)(E) 

of RESPA to implement the error resolution requirements. To the extent the error resolution 

requirements relate to qualified written requests, the Bureau also relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 

6(j)(3) of RESPA to establish any requirements necessary to carry out section 6 of RESPA and 

has authority under section 19(a) of RESPA 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 consumer protection purposes of RESPA. 

Section 1024.36 Requests for Information 

 Proposed § 1024.36 contains requirements servicers would be required to follow for 

information requests received from borrowers. Proposed § 1024.36 implements the servicer 

prohibitions set forth in section 6(k)(1)(B) and 6(k)(1)(D) of RESPA, as well as other obligations 

the Bureau believes to be appropriate to carry out the consumer protection purposes of RESPA 

pursuant to section 6(k)(1)(E) of RESPA. 

36(a) Information Requests 

 Proposed § 1024.36(a) would require a servicer to comply with the requirements of 

proposed § 1024.36 for an information request from a borrower that includes the borrowers 

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 proposes to allow a borrower to make an information request either orally or 
120 

in writing. Based on the Bureau’s discussions with consumers, consumer advocates, servicers, 

and industry trade associations, it appears that the vast majority of borrowers orally request 

information from servicers. As is the case for notices of error, a requirement that an information 

request must be in writing generally serves as a barrier that unduly restricts the ability of 

borrower to have errors resolved. Further, as with notices of error, servicers and servicer 

representatives stated that allowing an information request to be provided orally would create 

new burdens for servicers. The Bureau recognizes the burdens on servicers to ensure compliance 

with this proposed rule and incorporates the discussion above with respect to oral notices of 

error. Responding to oral information requests will impose costs on servicers to ensure that such 

requests receive responses, but the Bureau believes it is important for consumers to receive the 

benefit of a requirement that servicers provide information requested by the borrowers. 

 The Bureau further believes that elements of the proposed rule would assist in mitigating 

servicer burden. These elements include, for example, a proposal to allow servicers to designate 

a specific telephone number for receiving oral information requests and 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. The Bureau has learned from discussions 

with servicers, including the SERs 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.84 The Bureau believes that allowing 

servicers to respond to information requests orally significantly reduces burden associated with 

the proposed information request requirements on servicers. Further, the Bureau believes that 

this requirement provides flexibility for small servicers consistent with the recommendations of 

 

84 See, e.g., Small Business Review Panel Report at 30. 
121 

the Small Business Review Panel and mitigates concerns by the SERs regarding compliance 

costs.85

 The Bureau requests comment regarding whether servicers should be required to apply 

the information request requirements to requests received orally from borrowers. The Bureau 

further requests comment regarding whether small servicers (as that term is defined in the 2012 

TILA Servicing Proposal) should be exempt from the information request requirements for 

information requests received orally. 

 Qualified written requests. Similar to the proposed requirements for notices of error, 

proposed § 1024.36(a) would require a servicer to treat information requests, whether oral or 

written, the same way it treats a qualified written request that requests information. The 

Bureau’s intention is to propose servicer obligations applicable to an information request that are 

exactly the same as obligations applicable to a qualified written request. Thus, under proposed 

§ 1024.36(a), there is no reason for a borrower to send a qualified written request nor is there a 

reason for a servicer to reject a qualified written request because it does not meet the 

requirements for a qualified written request in section 6(e) of RESPA when the request would 

otherwise constitute an information request pursuant to proposed § 1024.36. 

 Borrower’s representative. Proposed comment 36(a)-1 would clarify that an information 

request submitted by a person acting as an agent of the borrower is treated the same as a request 

by the borrower. This requirement is substantially similar as the current requirement existing 

under section 6(e)(1)(A) of RESPA for a qualified written request. Specifically, 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). 

 

85 See Small Business Review Panel Report at 23-24, 29. 
122 

 Information subject to information request procedures. In general, any information 

requested by a borrower is subject to the information request requirements in proposed § 1024.36 

unless such information is subject to proposed § 1024.36(f). Proposed comment 36(a)-2 would 

clarify that if a borrower requests information regarding the owner or assignee of a mortgage 

loan, a servicer identifies the owner or assignee of the mortgage loan by identifying the entity 

that holds the legal right to receive payments from a mortgage loan. Proposed comments 36(a)-

2.i and 36(a)-2.ii provide 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. 

 Servicers generally have not expressed 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, SERs 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.86 

 The SERs did express concern regarding the obligation to provide information regarding 

the owner or assignee of a mortgage loan. The SERs stated that servicers may not have contact 

information for owners or assignees of mortgage loans, that such owners or assignees are not 

 

86 See Small Business Review Panel Report at 24. 
123 

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.87 Certain owners, assignees, and guarantors of mortgage loans, including other 

federal agencies, have expressed similar concerns to the Bureau. 

 The Bureau understands the concerns asserted by servicers, owners, assignees, 

guarantors, and other federal agencies that requiring servicers to provide this 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 and is not a discretionary exercise of the Bureau’s 

authority. The Dodd-Frank Act clearly requires that information regarding the owner or assignee 

of a mortgage loan must be provided to borrowers. The Bureau proposes comment 36(a)-2 to 

implement this requirement. 

 Legal authority. The Bureau relies on its authority in sections 6(k)(1)(E) of RESPA to 

implement the information request requirements. To the extent the information request 

requirements relate to qualified written requests, the Bureau also relies on its authority in 

sections 6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 

6(k)(1)(D) of RESPA to implement information request requirements for requests for the identity 

of the owner or assignee of a mortgage loan. The Bureau further relies on section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA to prescribe such rules and regulations, to make such 

interpretations, and to grant such reasonable exemptions for classes of transactions as may be 

 

87 Id.
124 

necessary to achieve the consumer protection purposes of RESPA. 

36(b) Contact Information for Borrowers to Request Information 

 Proposed § 1024.36(b) permits a servicer to establish a telephone number and address 

that a borrower must use to request information. If a servicer chooses to establish a separate 

telephone number and address for receiving information requests, a servicer must provide the 

borrower a written notice that states that the borrower should only assert an error at the telephone 

number and address established by the servicer for that purpose. Proposed comment 36(b)-2 

would clarify 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. 

As discussed above for proposed § 1024.35(c), the purpose of establishing a telephone 

number and address that a borrower must use to request information is to allow servicers to 

direct oral and written errors to appropriate personnel that have been trained to ensure that the 

servicer responds appropriately. Proposed comment 36(b)-1 clarifies that if a servicer has not 

designated a telephone number and address that a borrower must use to request information then 

a servicer will be required to comply with the information request requirements for any 

information request received by any office of the servicer. 

The Bureau believes it is reasonable, especially in light of the expanded burden of 

requiring compliance with error resolution and information requests, to allow servicers to 

manage the intake of information requests to designated telephone numbers and addresses. 

Further, allowing a servicer to designate a specific telephone number and 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 
125 

identifying a specific telephone number and address for receiving errors and information requests 

will benefit consumers as well. By providing a specific telephone number and address, servicers 

will identify to consumers the office capable of responding to information requests. The Bureau 

is proposing in the concurrent 2012 TILA Servicing Proposal to require that any telephone 

number or address identified by a servicer must appear on the periodic statement or other 

payment form supplied by the servicer. See 2012 TILA Servicing Proposal at proposed 

§ 1026.41(d)(6). 

 Internet intake of information requests. Proposed comment 36(b)-4 would clarify that a 

servicer is not required to establish a process for receiving information requests through email, 

website, or other online methods. In the event a servicer establishes a process for receiving 

information requests through online methods, comment 36(b)-4 is intended to clarify that the 

process established is the only online intake process that a borrower can use to make an 

information request. Thus, 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 information requests. 

 Multiple offices. Proposed § 1024.36(b), similar to proposed § 1024.35(c) for notices of 

error, would require 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 clarifies that any telephone numbers or 

address 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 
126 

number or address identified to a specific borrower. Proposed comment 36(b)-5 clarifies that a 

servicer may use automated systems, such as an interactive voice response system, to manage the 

intake of borrower calls. Prompts for requesting information must be clear and provide the 

borrower the option to connect to a live representative. 

 Legal authority. The Bureau relies on its authority in section 6(k)(1)(E) of RESPA to 

implement the proposed information request requirements. To the extent the information request 

requirements relate to qualified written requests, the Bureau also relies on its authority in section 

6(e) and 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(k)(1)(D) 

of RESPA to implement information request requirements for requests for the identity of the 

owner or assignee of a mortgage loan. The Bureau further relies on section 6(j)(3) of RESPA to 

establish any requirements necessary to carry out section 6 of RESPA and has authority under 

section 19(a) of RESPA 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 consumer protection purposes of RESPA.

36(c) Acknowledgment of Receipt 

 Proposed § 1024.36(c) would require a servicer to provide a borrower a written 

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 

implement 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 

further apply the same timeline applicable to a qualified written request to any information 

request. 

 The Bureau relies on its authority in section 6(k)(1)(E) of RESPA to implement the 
127 

information request requirements. Further, to the extent the requirements are also applicable to 

qualified written requests, the Bureau relies on its authority in section 6(e), including the 

amendment to section 6(e) of RESPA set forth in section 1463(c) of the Dodd-Frank Act, as well 

as section 6(k)(1)(B) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under 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.

36(d) Response to Information Request 

 Proposed § 1024.36(d) would set forth requirements on servicers for responding to 

information requests. 

36(d)(1) Investigation and Response Requirements

Proposed paragraph 36(d)(1) would require 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. A servicer would only be required 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. A servicer would be able to 

respond either orally or in writing to the borrower (or electronically with the borrower’s consent) 

if the servicer is providing the information requested by the borrower. The Bureau believes that 

the goal of providing information to borrowers is furthered by allowing servicers to respond 
128 

orally. Additionally, allowing oral communication reduces burden on servicers. 

A servicer could demonstrate its compliance with this requirement by, for example, 

retaining a copy of any written correspondence to the borrower that includes the information, 

retaining tapes of telephone conversations during which the borrower is provided the requested 

information, or by making a notation in a collector’s notes that the information requested was 

provided to the borrower. The Bureau believes that the flexibility for a servicer to develop 

systems that are appropriate for that servicer addresses the Small Business Review Panel 

recommendation that the Bureau consider adopting a more flexible process for small servicers to 

demonstrate compliance with the information request requirements.88

 Information not available. Proposed comment 36(d)(1)(ii)-1 clarifies that information 

should not be considered as available to a servicer if the information is not in the servicer’s 

possession or control and 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. The Bureau believes that burden for information requests will greatly 

increase, however, 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 

 

88 Small Business Review Panel Report at 30. 
129 

marginal benefit of additional information available to borrowers is outweighed by the 

significant burdens that such investigations may incur. 

 Accordingly, the Bureau believes that servicers should not be required to provide 

documents in response to an information request that are not in the possession or control of the 

servicer and cannot be retrieved through reasonable efforts in the ordinary course of business. 

Proposed comment 36(d)(1)(ii)-1 provides examples of when documents should and should not 

be considered to be available to a servicer in response to an information request. 

 The Bureau has authority pursuant to section 6(k)(1)(E) of RESPA to set forth servicer 

obligations to provide information in response to information requests. The Bureau further has 

authority pursuant to section 6(j)(3) of RESPA to set forth requirements necessary to carry out 

section 6 of RESPA. The Bureau further relies on its authority in section 19(a) of RESPA to 

make such rules and regulations necessary to achieve the consumer protection purposes of 

RESPA. 

36(d)(2) Time Limits 

Paragraph 36(d)(2)(i) 

Proposed paragraph 36(d)(2)(i) would require 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. 

 Legal authority. 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. Proposed paragraph 36(e)(e)(i) would implement this provision of RESPA with respect to 

qualified written requests.

 Shortened time limit to provide information regarding the identity of the owner or 
130 

assignee. Under proposed paragraph 36(d)(2)(i)(A), 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). 

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 an information request with respect 

to the owner or assignee of a mortgage loan. Proposed paragraph 36(d)(2)(i)(A) implements this 

provision of RESPA. Proposed § 1024.36(d)(2)(i)(A) would require a servicer to provide the 

requested information within ten days (excluding legal public holidays, Saturdays, and Sundays) 

instead of “10 business days.” 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). Section 19(a) of RESPA provides the Bureau with authority to 

make interpretations that are necessary to achieve the consumer protection purposes of RESPA. 

 Extensions of time limits. Proposed § 1024.36(d)(2)(ii) permits 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. Section 1463(c)(3) of the Dodd-Frank Act amended section 6(e) of RESPA 

to provide a 15-day extension of time and proposed § 1024.36(d)(2)(ii) would implement this 

provision with respect to qualified written requests. The Bureau has authority pursuant to 

section 6(k)(1)(E) and 6(j)(3) of RESPA to apply the extension of time provision to information 

requests as well. The Bureau further has authority under section 19(a) of RESPA to make such 
131 

rules and regulations, and to make such interpretations necessary to achieve the consumer 

protection purposes of RESPA. 

 The Bureau proposes not 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. The Bureau does not believe that the burden of obtaining this information for any borrower 

will be significant enough to justify an extension beyond the ten days (excluding legal public 

holidays, Saturdays, and Sundays) established by Congress. Servicers generally have access to 

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 has required, outweighs the costs to 

servicers of complying within ten days (excluding legal public holidays, Saturdays, and 

Sundays).

36(e) Alternative Compliance 

Proposed § 1024.36(e) would provide 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 contact information the 

borrower can use for further assistance. A servicer may provide the information requested either 

orally or in writing (including electronically, with the borrower’s consent). A servicer’s records 

should indicate that a servicer has provided the information requested to the borrower. A 

servicer may demonstrate its compliance with this requirement by, for example, retaining a copy 

of any written correspondence to the borrower that includes the information, retaining tapes of 

telephone conversations during which the borrower is provided the requested information, or by 

making a notation in a collector’s notes that the information requested was provided to the 
132 

borrower. As discussed above, the Bureau believes that the flexibility for a servicer to develop 

systems that are appropriate for that servicer addresses the Small Business Review Panel 

recommendation that the Bureau consider adopting a more flexible process for small servicers to 

demonstrate compliance with the information request requirements.89

36(f) Requirements not Applicable 

Proposed § 1024.36(f) would state that the information request requirements of proposed 

§ 1024.36 would not apply to certain types of information requests if the servicer complies with 

proposed § 1024.36(f)(2). The types of information requests to which the requirements would 

not apply would be set forth in § 1024.36(f)(1). The Bureau solicits comments regarding 

whether any forms of information requests should be removed from proposed § 1024.36(f)(1) or 

whether additional potential forms of information requests should be identified in proposed 

§ 1024.36(f)(1). 

36(f)(1) In general 

Paragraph 36(f)(1) 

 Proposed paragraph 36(f)(1) would state that a servicer is not required to comply with the 

information request requirements in proposed § 1024.36(c) and (d) if the servicer reasonably 

makes certain determinations specified in paragraphs (f)(1)(i), (ii), (iii), (iv), or (v). A servicer 

may be liable to the borrower for its unreasonable determination and resulting failure to comply 

with proposed § 1024.36(c) and (d).

Paragraph 36(f)(1)(i) 

Proposed paragraph 36(f)(1)(i) would state that a servicer is not required to comply with 

the information request requirements in proposed § 1024.36(c) and (d) with respect to an 

 

89 Small Business Review Panel Report at 30. 
133 

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. The purpose of this proposed 

paragraph is to ensure that a servicer is not required to expend resources conducting duplicative 

searches for documents. 

Paragraph 36(f)(1)(ii) 

Proposed paragraph 36(f)(1)(ii) provides 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 believes that the purposes of the provision, which is to provide borrowers 

with a means to request information regarding a borrower’s mortgage loan account, are not 

furthered by permitting borrowers to request confidential, proprietary, or general corporation 

information of a servicer. Proposed comment 36(f)(1)(ii)-1 provides 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. 

 The Bureau believes the protection in proposed paragraph 36(f)(1)(ii) 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. Permitting information 
134 

requests for confidential, proprietary, or general corporate information does not further the 

purposes of the proposed rule. 

Paragraph 36(f)(1)(iii) 

 Proposed paragraph 36(f)(1)(iii) would provide that a servicer is not required to comply 

with the information request requirements in proposed § 1024.36(c) and (d) with respect to a 

request for information that is not directly related to the borrower’s mortgage loan account. The 

Bureau believes the protection in proposed paragraph 36(f)(1)(iii) 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. 

Paragraph 36(f)(1)(iv) 

Proposed paragraph 36(f)(1)(iv) provides 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 rule defines “overbroad” 

and “unduly burdensome” for this purpose. An information request is overbroad if a borrower 

requests a servicer provide an unreasonable volume of documents or information to a borrower. 

A notice of error is unduly burdensome if a diligent servicer could not respond to the information 

request without either exceeding the maximum timeframe permitted by paragraph (e)(3)(ii) or 

incurring costs (or dedicating resources) that would be unreasonably in light of the 

circumstances. 

As discussed above for proposed paragraph 35(g)(1)(ii), consumers, consumer advocates, 

servicers, and servicing industry representatives have indicated to the Bureau that the current 

qualified written request process is not typically utilized by consumers to request information. 

During the Small Business Review Panel outreach, SERs expressed that typically qualified 
135 

written requests received from borrowers were vague forms found online or forms used by 

advocates as a form of pre-litigation discovery.90 Servicers and servicing industry 

representatives indicated that these types of qualified written requests are unreasonable and 

unduly burdensome. SERs in the Small Business Review Panel outreach requested that the 

Bureau consider an exemption for abusive requests, or requests made with the intent to harass the 

servicer.91

The Bureau is concerned that, in light of the expanded requirements for servicers to 

respond to information requests, 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. The effect of the proposed rule is to 

expand a servicer’s obligation to undertake the obligations similar to those currently applicable 

to qualified written requests to a broader universe of information requests, including requests 

made orally to a servicer and requests for information that do not specifically relate to 

“servicing” as defined in RESPA. Requiring servicers to respond to overbroad or unduly 

burdensome information requests from some borrowers may impose unjustified and 

unmanageable burdens on servicers. Further, the Bureau does not believe that the request for 

information requirements should replace or supplant civil litigation document requests and 

should not be used as a forum for pre-litigation discovery. 

Proposed paragraph 36(f)(1)(iv) provides that if a servicer determines that an information 

request is overbroad or unduly burdensome, the servicer is required to notify the borrower, 

pursuant to proposed § 1024.36(f)(2), that the servicer is not required to comply with the 

requirements of proposed § 1024.36(c) and (d). Further, the servicer must identify the specific 

 

90 See Small Business Review Panel Report at 23. 91 See id.
136 

basis for the servicer’s determination so that the borrower is informed that the basis of the 

servicer’s determination was that the information request was overbroad or unduly burdensome. 

Proposed comment 36(f)(1)(iv)-1 sets forth characteristics that may indicate if an information 

request is overbroad or unduly burdensome. A servicer bears the risk that its determination that 

an information request is overbroad or unduly burdensome is found to be unjustified. If a 

servicer can identify a proper information request from an information request that is otherwise 

overbroad or unduly burdensome, a servicer would be required to respond to those information 

requests it could identify. 

 The Bureau requests 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.

Paragraph 36(f)(1)(v) 

Proposed paragraph 36(f)(1)(v) would provide 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 is delivered to a servicer more than one year after either servicing for the 

mortgage loan that is the subject of the information request was transferred from the servicer to a 

transferee servicer or the mortgage loan amount was paid in full, whichever date is applicable. 

 The purpose of this proposed paragraph is to set a bound on the time that a servicer may 

be responsible for responding to information requests with respect to a mortgage loan. The 

effect of the proposed paragraph is to achieve the same limitation 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 
137 

mortgage servicing loan amount was paid in full, whichever date is applicable.” The Bureau 

requests comment regarding the requirement that servicers provide a notice to the borrower and 

the appropriate content for the notice. 

36(f)(2) Notice to Borrower 

Proposed § 1024.36(f)(2) provides that if a servicer determines it is not required to 

comply with the information request requirements in proposed § 1024.36(c) and (d) with respect 

to an information request because the information requests meets one of the categories in 

proposed § 1024.36(f)(1), the servicer must provide a notice to the borrower informing the 

borrower of the servicer’s determination. The notice must be sent not later than five days 

(excluding legal public holidays, Saturdays, and Sundays) after the servicer’s determination and 

must set forth the basis upon which the servicer has made the determination, with a reference to 

the applicable provision of proposed § 1024.36(f)(1). 

 The Bureau’s intention for proposing this requirement is to ensure that borrowers are 

notified that a servicer does not intend to otherwise respond to the information requests and that 

borrowers are informed of the basis for the servicer’s determination that it is not required to 

comply with the information request requirements in proposed § 1024.36(c) and (d). 

By receiving a notice that sets forth for the servicer’s determination, a borrower will have 

the opportunity to assert any claims the borrower may have with respect to the reasonableness of 

the servicer’s determination that the servicer is not required to comply with the information 

request requirements in proposed § 1024.36(c) and (d). 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to set forth information requests requirements. Further, to the extent the information 

request requirements apply to qualified written requests, the Bureau further relies on its authority 
138 

in section 6(e) and 6(k)(1)(B) of RESPA with respect to qualified written requests. The Bureau 

has authority pursuant to section 6(j)(3) of RESPA to set forth requirements necessary to carry 

out section 6 of RESPA. The Bureau further relies on its authority in section 19(a) of RESPA to 

make such rules and regulations necessary to achieve the consumer protection purposes of 

RESPA. 

36(g) Payment Requirement Limitations 

Proposed § 1024.36(g) would prohibit 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. The Bureau is implementing this provision 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 implement that provision with respect to qualified written requests 

that for information relating to the servicing of a mortgage loan. Second, the Bureau does not 

believe that a servicer practice of charging for responding to an information request facilitates 

the purpose of the information request requirements, which is to provide a tool for borrowers to 

obtain information regarding their mortgage loan accounts. Rather, such a practice would 

improperly impede borrowers from pursuing valid information requests. Third, the Bureau has 

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. 

Legal authority. The Bureau relies on its authority in section 6(k)(1)(B) and 6(k)(1)(E) 
139 

of RESPA. The Bureau believes the limitations of fees are appropriate to carry out the consumer 

protection purposes of RESPA, pursuant to section 6(k)(1)(E) of RESPA. 

 In addition to the authority, the Bureau also has authority pursuant to section 6(j)(3) and 

19(a) of RESPA to establish requirements to carry out section 6 of RESPA or to make such rules 

and regulations as appropriate to achieve the consumer protection purposes of RESPA. 

The Bureau requests comment regarding whether the Bureau should carve out from the 

prohibition on charging fees for responding to an information request any fees charged in 

connection with providing payoff statements or State law beneficiary notices. The Bureau 

further requests comment regarding whether other types of information requests should be 

excluded from a proposed prohibition on charging fees for responding to an information request. 

36(h) Servicer remedies 

Proposed § 1024.36(h) states 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. This proposed requirement is consistent with 

section 6(e)(3) of RESPA and clarifies that prohibitions on furnishing adverse information only 

apply to qualified written requests that assert an error with respect to a mortgage loan, not to a 

qualified written request that requests information. The Bureau relies on its authority in section 

6(k)(1)(E) to apply this provision to information request requirements. The Bureau further relies 

on its authority in section 6(j)(3) to establish any requirement to carry out section 6 of RESPA 

and its authority in section 19(a) to make such interpretations as may be necessary to carry out 

the consumer protection purposes of RESPA. 

Section 1024.37 Force-Placed Insurance 
140 

37(a) Definitions 

37(a)(1) Force-Placed Insurance

Section 1463 of the Dodd-Frank Act amended RESPA section 6 by adding a new section 

6(k)(2), which sets forth that for purposes of RESPA section 6(k)-(m), “force-placed insurance” 

means “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.” The Bureau proposes to implement RESPA section 

6(k)(2) by adding new § 1024.37(a)(1) to Regulation X to define “force-placed insurance” to 

mean hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage 

loan on a property securing such loan. 

 The Bureau’s definition of force-placed insurance is broader than the statutory definition 

of force-placed insurance. Virtually all mortgage loan contracts require borrowers to maintain 

hazard insurance during the term of the loan, and permit lenders to charge borrowers for any 

hazard insurance lenders obtain if borrowers fail to maintain hazard insurance coverage.92 The 

Bureau recognizes that force-placed insurance is hazard insurance that servicers are contractually 

required to obtain on behalf of the owner or assignee of a mortgage loan when the servicer is 

unable to obtain evidence that the borrower has complied with the borrower’s obligation to 

maintain hazard insurance.93 But in its review of issues related to force-placed insurance, the 

Bureau has learned that in recent years, some servicers might have improperly obtained forceplaced insurance when they arguably knew or should have known that the borrower already had 

 

92 See, e.g., Fannie Mae/Freddie Mac Note at ¶ 5. 93 See, e.g., Fannie Mae Single-Family Servicing Guide, Part II, Ch. 2 (2012) (“Part of a servicer’s responsibility for 

protecting Fannie Mae’s interest in the security property is to ensure that hazard insurance (including flood 

insurance), under the terms specified in Fannie Mae’s Guides, is in place at all times. If the servicer is unable to 

obtain evidence of acceptable hazard insurance for a property, the servicer should obtain alternative insurance 

coverage (so-called “force-placed” or “lender-placed” insurance) to protect Fannie Mae’s interests, available at 

https://www.efanniemae.com/sf/guides/ssg/svcg/svc031412.pdf. 
141 

hazard insurance.94 The Bureau has met with servicers and insurance companies that write 

force-placed insurance. They have told the Bureau that when they detect a gap in borrowerobtained hazard insurance coverage, they typically communicate with the borrower to confirm 

the absence of borrower-obtained hazard insurance before obtaining force-placed insurance. 

According to industry, force-placed insurance is an uncommon occurrence.95 It appears that the 

new Dodd-Frank requirements on force-placed insurance, such as, for example, requiring 

servicers to provide advance notice over a 45-day notice period before charging borrowers for 

force-placed insurance, discussed further below, reflect common practice for the majority of the 

mortgage servicing market.96 But the Bureau has learned that there does not appear to be an 

industry standard for providing advance notice before a servicer renews or replaces existing 

force-placed insurance. As discussed further below, the Bureau proposes to exercise its authority 

under RESPA sections 6(j)(3), 6(k)(1)(E) and 19(a) to add new § 1024.37(e), which would 

require servicers to follow an advance notice process before they renew or replace existing forceplaced insurance. 

 The Bureau also believes that obtaining force-placed insurance when servicers arguably 

knew or should have known that the borrower already had insurance is problematic for 

 

94 See, e.g., United States of America v. Fairbanks Capital Corp., Civ. Action No. 03-12219-DPW, Complaint at ¶ 

17 (D. Mass. Nov. 12, 2003) (alleging that Fairbanks improperly obtained force-placed insurance when it knew or 

should have known that borrowers already had insurance), available at http://ftc.gov/os/2003/11/0323014comp.pdf; 

see also Ocwen Federal Bank FSB, OTS Docket No. 04592 (April 19, 2004) (requiring the bank to take reasonable 

actions to determine whether appropriate hazard insurance is already in place before it obtained force-placed 

insurance, available at http://files.ots.treas.gov/93606.pdf. 95 See Assurant Specialty Property, Lender-Placed Insurance (Assurant Specialty Property), available at

http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News.

According to Assurant, approximately 13 percent of the loans it monitors are identified as loans with a potential 

lapse in insurance, but approximately only 2 percent of that group of loans gets force-placed insurance because 

Assurant uses an advance notification process that resolves most of the lapses with the borrower renewing or 

replacing coverage on their own. 

96 See, e.g., Letter from the Financial Services Roundtable re: Outline of Proposals Under Consideration and 

Alternatives Considered in connection with the Small Business Review Panel for Mortgage Servicing Rulemaking 

to Peter Carroll, Consumer Financial Protection Bureau (May 31, 2012), at 5. See also Small Business Review 

Panel Report at 21-22. 
142 

individual borrowers, particularly borrowers experiencing financial hardship. Force-placed 

insurance is generally substantially more expensive than hazard insurance a borrower could 

purchase.97 It also generally provides less protection against loss than insurance that a borrower 

could purchase.98 Consumer advocates have asserted that the higher cost of force-placed 

insurance could drive borrowers into default.99 According to Fannie Mae, “[force-placed 

insurance] should only be issued after the servicer has exhausted all means to keep the 

borrower’s insurance policy in force.”100 The Bureau also notes that it finds problematic the 

incentives that have reportedly influenced some servicers’ decision to obtain force-placed 

insurance, such as the receipt of commissions or reinsurance fees by servicers and their insurance 

affiliates on the force-placed insurance policies they obtain,101 or that a servicer or an affiliate of 

the servicer may have an ownership interest in an insurance company that writes force-placed 

insurance.102 For similar reasons, the Bureau is proposing to require that servicers continue 

paying for a borrower’s hazard insurance when practicable if the borrower has escrowed for 

hazard insurance, as discussed previously in the Bureau’s discussion of proposed 

§ 1024.17(k)(5). 

 

97 See Assurant Specialty Property (estimating that the force-placed insurance Assurant writes costs, on average, 1.5 

to 2 times more than the prior hazard insurance purchased by the borrower.), available at

http://newsroom.assurant.com/releasedetail.cfm?ReleaseID=645046&ReleaseType=Featured%20News 98 See id. (“Lender-placed insurance provides coverage for the structural property. It typically does not extend to 

liability coverage or a homeowner's personal contents, as the lender has no collateral interest in these items”). In 

contrast, a homeowner’s policy offers a much broader scope of coverage. In addition to insuring the homeowner’s 

personal contents against loss, it also pays a homeowner’s additional living expenses while the home is being 

repaired, and covers a homeowner’s personal liability for injuries to other people or their property while they are on 

the property. 

99 See The National Consumer Law Center and Center and the Center for Economic Justice, The Consumer 

Financial Protection Bureau Should Rein in Mortgage Servicers’ Use of Force-Placed Insurance (May 2012), 

available at http://www.nclc.org/images/pdf/regulatory_reform/ib-force-placed-insurance.pdf. 100See Fannie Mae March 2012 Servicing Guide Announcement, available at 

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1204.pdf. 

101 See, e.g., Jeff Horowitz, Ties to Insurers Could Land Mortgage Servicers in More Trouble, The American Banker 

(November 10, 2010). 

102 See The Need for National Mortgage Servicing Standards: Hearing Before the Subcomm. on Housing, 

Transportation, and Community Affairs of the Senate Comm. on Banking and Urban Affairs, S. Hrg. 112-139, 112th 

Cong. 125 (2011) (statement of Laurie Goodman). 
143 

 The statutory definition in RESPA section 6(k)(2), discussed previously, may convey that 

“force-placed insurance” used in RESPA section 6(k)-(m) is limited to hazard insurance obtained 

when the borrower has in fact failed to maintain or renew hazard insurance. Based on its review 

of issues concerning force-placed insurance discussed above, the Bureau has concluded that 

defining force-placed insurance broadly is appropriate to carry out the consumer protection 

purposes of the new Dodd-Frank requirements on force-placed insurance. 

 As discussed previously in the Bureau’s discussion of proposed § 1024.30, the Bureau’s 

proposed subpart C would maintain Regulation X’s current exclusion for all open-end lines of 

credit (home-equity plans) from the servicer requirements of Regulation X. Although virtually 

all mortgage loan contracts require borrowers to maintain hazard insurance during the term of the 

loan, the majority of open-end home-equity plans are subordinate liens.103 The Bureau has 

learned that servicers generally obtain force-placed insurance on behalf of first-lien holders, not 

subordinate-lien holders. Accordingly, the Bureau believes it is appropriate to maintain the 

exemption in current Regulation X for open-end lines of credit (home-equity plans) from the 

Bureau’s proposed force-placed insurance regulations. The Bureau understands that the one 

exception to servicers obtaining force-placed insurance for open-end lines of credit (home-equity 

plans) is when flood insurance is required by the FDPA. As discussed below, however, the 

Bureau is proposing to exempt hazard insurance to protect against flood loss obtained by a 

servicer as required by the FDPA from the Bureau’s proposed definition of force-placed 

insurance. The Bureau, however, invites comment on whether the Bureau’s proposed forceplaced insurance regulations should be extended cover open-end lines of credit (home-equity 

plans). 

 

103 Donghoon Lee et al., A New Look at Second Liens, n.5 (February 2012). 
144 

Legal authority. As discussed previously, section 1463 of the Dodd-Frank Act amended 

RESPA section 6 by adding a new section 6(k)(2), which sets forth the definition of “forceplaced insurance” for purposes of RESPA section 6(k)-(m). The Bureau is proposing to 

implement section 6(k)(2) of RESPA, pursuant to its authority under section 6(j)(3) of RESPA 

by adding new § 1024.37(a)(1) to Regulation X to define “force-placed insurance” to mean 

hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan on 

a property securing such loan. Section 6(j)(3) of RESPA authorizes the Bureau to set forth any 

requirements necessary to carry out section 6 of RESPA. Section 10247.37(a)(1) is additionally 

proposed pursuant to the Bureau’s authority under section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry out the consumer protection purposes of RESPA, and 

under section 19(a) of RESPA to make such rules and regulations, and to make such 

interpretations, as may be necessary to achieve the consumer protection purpose of RESPA. 

37(a)(2) Types of Insurance not Considered Force-Placed Insurance 

Paragraph 37(a)(2)(i)

Proposed § 1024.37(a)(2)(i) would exempt hazard insurance to protect against flood loss 

obtained by a servicer as required by the FDPA from the definition of force-placed insurance for 

the purposes of § 1024.37. The Bureau understands that pursuant to section 102(e) of the FDPA, 

lenders or the servicers acting on the lenders’ behalf must obtain force-placed flood insurance 

under certain circumstances. The Bureau understands that the circumstances are as follows: (1) 

the lender determines at any time during the life of the loan that the property securing the loan is 

located in a Special Flood Hazard Area (SFHA); (2) flood insurance under the “Act” (referring 

to both the National Flood Insurance Act of 1968 and the FDPA, as revised by the National 

Flood Insurance Reform Act of 1994) is available; (3) the lender determines that flood insurance 
145 

coverage is inadequate or does not exist; and (4) after required notice, the borrower fails to buy 

the appropriate amount of coverage within 45 days.104 

Since servicers are already subject to regulations when obtaining force-placed flood insurance as 

required by the FDPA,105 the Bureau proposes 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 for purposes of proposed § 1024.37. 

 As discussed previously, to implement Dodd-Frank Act section 1463, the Bureau’s 

proposed definition of “hazard insurance” would include hazard insurance to protect against 

flood loss. Additionally, the Bureau has proposed to define “force-placed insurance” as a type of 

“hazard insurance” to implement RESPA section 6(k)(2). If the Bureau does not propose an 

exemption for hazard insurance to protect against flood loss obtained by a servicer as required by 

the FPDA, such insurance would be considered “force-placed insurance” under the definition of 

“force-placed insurance” set forth in proposed § 1024.37(a)(1). In turn, servicers who obtain 

force-placed flood insurance as required by the FDPA would be subject to the Bureau’s proposed 

§ 1024.37 as well if the Bureau does not propose the exemption. Without the Bureau’s proposed 

exemption, the Bureau believes the result would be the creation of overlapping servicer 

obligations. For example, section 6(l) of RESPA, discussed in greater detail below, requires a 

servicer to provide a borrower with two written notices over a 45-day notice period before 

charging the borrower for force-placed insurance. The FDPA also provides a 45-day notice 

period, but only one notice is required. Additionally, the FPDA was recently amended to require 

 

104 76 FR 64175, 64181 (October 17, 2011) (addressing the requirement for the force placement of flood insurance 

the under the Act). 

105 See 61 FR 45684 (August 29, 1996) (announcing the regulations originally adopted by the Board, the OCC, the 

FDIC, the FCA, NCUA, and the Office of Thrift Supervision (OTS) with respect to requirements for lenders and 

servicers when purchasing force-placed insurance for loans secured by properties located in SHFAs). 
146 

the lender or servicer to terminate force-placed flood insurance and refund to the borrower all 

force-placed flood insurance premiums and related fees paid by the borrower during any period 

when the borrower had insurance coverage in force within 30 days of receiving confirmation of a 

borrower’s existing flood insurance coverage.106 In contrast, section 6 of RESPA, as amended 

by Dodd-Frank Act section 1463, requires a servicer to cancel force-placed insurance and refund 

any premium and fees paid during the period of overlapping coverage within 15 days of 

receiving confirmation of a borrower’s existing hazard insurance coverage. 

 The requirements set forth in Dodd-Frank Act section 1463 with respect to servicers’ 

purchase of force-placed insurance represent the establishment of new consumer protections 

where protection did not exist before. The FDPA, however, has established a separate consumer 

protection paradigm to protect consumers when servicers are required by the FDPA to obtain 

force-placed flood insurance. As discussed above, the FDPA requires advance notice to 

consumers, and provides consumers with 45 days to provide evidence of flood insurance. Also 

as discussed above, the FDPA now contains termination and refund provisions with respect to 

force-placed flood insurance obtained by servicers as required by the FDPA. Accordingly, the 

Bureau believes it is consistent with the consumer protection purposes of RESPA to exempt 

hazard insurance to protect against flood loss obtained by a servicer as required by the FPDA 

from the Bureau’s proposed definition of “force-placed insurance.” For similar reasons, the 

Bureau proposes to exempt charges authorized by the FDPA from the proposed requirement that 

charges related to force-placed insurance (other than charges subject to State regulation as the 

business of insurance) must be bona fide and reasonable for purposes of proposed § 1024.37(h), 

discussed below. 

 

106 Moving Ahead for Progress in the 21st Century Act of 2012, PL 112-141, 126 Stat 405 (2012) 
147 

 The Bureau notes that the proposed exemption would only apply to servicers that obtain 

hazard insurance to protect against flood loss as required by the FDPA. The Bureau understands 

that the FDPA does not currently apply to a mortgaged property that is not located in a SFHA.107 

The Bureau further understands that the FDPA does not currently apply to mortgage loans made 

by and kept in the portfolio of a private mortgage lender.108 The Bureau’s proposed § 1024.37 

would apply in situations where the FDPA does not apply. The Bureau, however, recognizes 

that operational complexity may be introduced if a servicer had to continuously monitor its 

servicing portfolio to identify when it is required to comply with the FDPA and when it is 

required to comply with proposed § 1024.37. As discussed above, the Bureau invites comment 

on whether the Bureau’s definition of “hazard insurance” should exclude hazard insurance to 

protect against flood loss. An alternative to excluding hazard insurance to protect against flood 

loss from the definition of “hazard insurance” is to exclude hazard insurance to protect against 

flood loss obtained by a servicer from the definition of “force-placed insurance.” The Bureau 

also seeks comment on this alternative. The Bureau recognizes that another possible alternative 

exists, and it is to harmonize the force-placed insurance requirements set forth in Dodd-Frank 

Act section 1463 with the FDPA. Accordingly, the Bureau invites comments on how the forceplaced insurance requirements set forth in Dodd-Frank Act section 1463 could be harmonized 

with the FDPA. 

 Legal authority. The Bureau proposes 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 for purposes of proposed § 1024.37 by adding new § 1024.37(a)(2)(i), pursuant to its 

 

107 Federal Emergency Management Administration, Mandatory Purchase of Flood Insurance Guidelines (2007), at 

40 (explaining that a lender or servicer has statutory authority to purchase flood insurance for a property and charge 

the premium to the borrower if the property is in a SFHA). 108 Id. at 23. 
148 

authority under section 19(a) of RESPA. Section 19(a) of RESPA provides the Bureau with 

authority 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. As previously discussed, the FDPA has established a separate consumer protection 

paradigm to protect consumers when servicers are required by the FDPA to obtain force-placed 

flood insurance. Furthermore, for reasons discussed above, the exemption will reduce regulatory 

burden. 

Paragraph 37(a)(2)(ii) 

Proposed § 1024.37(a)(2)(ii) provides that hazard insurance obtained by a borrower but 

renewed by the borrower’s servicer as required by § 1024.17(k)(1), (k)(2), or (k)(5) is not forceplaced insurance for purposes of § 1024.37. A servicer that complies with § 1024.17(k)(1), 

(k)(2) or proposed § 1024.17(k)(5) would be continuing the borrower’s hazard insurance. 

Paragraph 37(a)(2)(iii) 

 Proposed § 1024.37(a)(2)(iii) provides 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), (k)(2), or (k)(5) is not force-placed insurance for purposes of § 1024.37. The 

Bureau believes that proposed § 1024.37(a)(2)(iii) would provide an incentive for servicers to 

work with non-escrowed borrowers to renew hazard insurance obtained by these borrowers. 

Legal authority. The Bureau proposes to add new § 1024.37(a)(2)(ii)-(iii) pursuant to its 

authority under section 6(j)(3) of RESPA, which authorizes the Bureau to establish any 

requirements necessary to carry out the purposes of section 6 of RESPA. As discussed 

previously, the Bureau is proposing to define “force-placed insurance” as hazard insurance 

obtained by a servicer on behalf of the owner or assignee of a mortgage loan on a property 
149 

securing such loan in proposed § 1024.37(a)(1). The Bureau believes it is necessary and 

appropriate to clarify that the term does not apply to hazard insurance obtained by a borrower 

and renewed by a borrower’s servicer. It will reduce regulatory burden and may, as discussed 

above, incentivize servicers to work with non-escrowed borrowers to renew the hazard insurance 

obtained by such borrowers. Section 1024.37(a)(2)(ii)-(iii) is additionally proposed pursuant to 

the Bureau’s authority under section 6(k)(1)(E) of RESPA to prescribe regulations that are 

appropriate to carry out the consumer protection purposes of RESPA, and under section 19(a) of 

RESPA to prescribe such rules and regulations, to make such interpretations as may be necessary 

to achieve the purposes of RESPA. 

37(b) Basis for Obtaining Force-Placed Insurance 

The Bureau is proposing a new § 1024.37(b) to implement new section 6(k)(1)(A) of 

RESPA, added by section 1463 of the Dodd-Frank Act, which requires a servicer to have a 

reasonable basis to believe that the borrower has failed to comply with the loan contract’s 

requirement to maintain property insurance before obtaining force-placed insurance. Proposed 

§ 1024.37(b) sets forth 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. 

 Proposed comment 37(b)-1 provides examples of “reasonable basis” for borrowers with 

escrow. The comment clarifies that a servicer has a reasonable basis to believe that a borrower 

with an escrow account established for hazard insurance has failed to maintain hazard insurance 

if, for example, by a reasonable time leading up to the expiration date of the borrower’s hazard 

insurance (e.g., 30 days before the expiration date), the servicer has not received a renewal bill. 

It also sets forth that the receipt by a servicer of a notice of cancellation or non-renewal from the 
150 

borrower’s insurance company before payment is due for the borrower’s hazard insurance 

provides a servicer with a reasonable basis to believe that the borrower has failed to maintain 

hazard insurance. 

 Proposed comment 37(b)-2 provides an example of “reasonable basis” for borrowers 

without escrow. The comment provides that a servicer has a reasonable basis to believe a 

borrower without an escrow account established for hazard insurance has failed to maintain 

hazard insurance if, for example, a servicer receives a notice of cancellation or non-renewal from 

the borrower’s insurance company. 

 The Bureau believes it is appropriate to distinguish situations where the borrower has 

escrowed for hazard insurance from situations where the borrower has not done so. For a 

borrower who has escrowed for hazard insurance, a servicer receives a request to pay a 

borrower’s existing hazard insurance before the insurance lapses. When a borrower has not 

escrowed for hazard insurance, the Bureau understands that a servicer does receive a payment 

request and thus may not learn of the lapse in insurance until the borrower’s coverage has 

expired. 

Legal authority. As discussed above, the Bureau is proposing a new § 1024.37(b) to 

implement new section 6(k)(1)(A) of RESPA. The Bureau proposes to implement section 

6(k)(1)(A) pursuant to its authority under RESPA section 6(j)(3) to establish any requirements 

necessary to carry out the purposes of section 6 of RESPA. The Bureau has additional authority 

under section 6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the 

consumer protection purposes of RESPA, and under section 19(a) of RESPA to prescribe such 

rules and regulations, to make such interpretations as may be necessary to achieve the purposes 

of RESPA. 
151 

37(c) Requirements for Charging Borrower Force-Placed Insurance

37(c)(1) In General 

 Section 1463 of the Dodd-Frank Act amended section 6 of RESPA by setting forth 

certain requirements a servicer must follow before imposing any charge on a borrower for forceplaced insurance with respect to any property securing a mortgage by adding new section 

6(l)(1)(A)-(C) to RESPA. RESPA section 6(l)(1)(A) requires servicers to use first-class mail to 

send a written notice to the borrower 45 days before charging a borrower for force-placed 

insurance. 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 the notice required by RESPA 

section 6(l)(1)(A). RESPA section 6(l)(1)(C) permits a servicer to charge a borrower for forceplaced insurance at the end of the 45-day notice period only if the servicer has not received any 

demonstration of hazard insurance coverage during the 45-day notice period. 

Legal authority. The Bureau proposes to implement RESPA section 6(l)(1)(A)-(C), 

pursuant to its authority under RESPA section 6(j)(3) to establish any requirements necessary to 

carry out section 6 of RESPA by adding new § 1024.37(c)(1) to Regulation X. The Bureau has 

additional authority under section 6(k)(1)(E) of RESPA to prescribe regulations that are 

appropriate to carry out the consumer protection purposes of RESPA, and under section 19(a) of 

RESPA to prescribe such rules and regulations, to make such interpretations as may be necessary 

to achieve the purposes of RESPA. 

 Proposed § 1024.37(c)(1), in implementing RESPA section 6(l)(1)(A)-(C), states that a 

servicer may not charge a borrower for force-placed insurance unless: (1) The servicer delivers 

to the borrower or places in the mail a written notice with the disclosures set forth in proposed 

§ 1024.37(c)(2) at least 45 days before the premium charge or any fee is assessed; (2) the 
152 

servicer delivers to the borrower or places in the mail a written notice in accordance with 

§ 1024.37(d)(1); and (3) during the 45-day notice period, the servicer has not received 

verification that the borrower has hazard insurance in place continuously. Determining whether 

the borrower has hazard insurance in place continuously shall take account of any grace period 

provided under State or other applicable law. 

 Proposed 1024.37(c)(1) permits a servicer to choose between delivering the written 

notice to the borrower or mailing the written notice required by RESPA section 6(l)(1)(A) and 

6(l)(1)(B). In some situations, a borrower who receives the written notice via courier may get it 

faster than a borrower who gets the notice in the mail. The Bureau believes allowing servicers to 

deliver the notice is appropriate to carry out the consumer protection purposes of RESPA. 

 Proposed comment 37(c)(1)-1 clarifies that the 45-day 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. The servicer may assess the premium charge and any fees for forceplaced insurance beginning on the 46th day if the servicer has fulfilled the requirements of 

§ 1024.37(c) and (d). As discussed previously, virtually all mortgage loan contracts provide that 

lenders may charge borrowers for hazard insurance lenders obtain if borrowers fail to maintain 

hazard insurance coverage, and that the obligation to obtain the coverage typically falls on 

servicers. Accordingly, proposed comment 37(c)(1)-1 clarifies 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. 

 The Bureau notes, however, pursuant to proposed § 1024.37(g) discussed below, if a 

servicer receives verification that the borrower had hazard insurance in place during some or all 

of the 45-day notice period, then, if the servicer retroactively charged the borrower for force-
153 

placed insurance during the notice period, the servicer would have to refund the force-placed 

insurance premium charges and related fees paid by the borrower for the period of time during 

the notice period during which the borrower’s hazard insurance was in place. The servicer 

would also have to remove all force-placed insurance premium charges and related fees from the 

borrower’s account for that period of time.

Proposed comment 37(c)(1)(iii)-1 provides examples of borrowers having hazard 

insurance in place continuously. A borrower’s prior hazard insurance might have expired on 

January 2. But so long as a borrower’s current hazard insurance takes effect January 3, then the 

borrower has hazard insurance in place continuously. When there is a grace period, the servicer 

must take the grace period into account when determining whether the borrower has hazard 

insurance in place continuously. For example, a borrower’s prior hazard insurance might have 

an expiration date of June 1, but a grace period extends the effectiveness of the borrower’s prior 

hazard insurance to June 10. Accordingly, so long as the borrower obtains hazard insurance, 

effective June 11, then the borrower has hazard insurance in place continuously. 

37(c)(2) Content of notice 

RESPA section 6(l)(1)(A)(i)-(iv) requires the following disclosures in the notice required 

pursuant to RESPA section 6(l)(1)(A) and (1)(B): (1) A reminder of the borrower’s obligation to 

maintain hazard insurance on the property securing the federally related mortgage; (2) a 

statement that the servicer does not have evidence of insurance coverage of such property; (3) a 

clear and conspicuous statement of the procedures by which the borrower may demonstrate that 

the borrower already has insurance coverage; and (4) a statement that the servicer may obtain 

such coverage at the borrower’s expense if the borrower does not provide such demonstration of 

the borrower’s existing coverage in a timely manner. 
154 

 Additionally, RESPA section 6(l)(2) requires a servicer to accept any reasonable form of 

written confirmation from a borrower of existing force-placed coverage, which “shall include the 

existing insurance policy number along with the identity of, and contact information for the 

insurance company or agent, or as otherwise required by the Bureau of Consumer Financial 

Protection.” The Bureau believes that it is the servicer’s obligation to verify a borrower’s hazard 

insurance status, and that RESPA section 6(l)(2) means that for purposes of verification, the 

servicer must accept from the borrower information that contains the borrower’s existing 

insurance policy number, and the name, mailing address, and phone number of the borrower’s 

insurance company or the borrower’s insurance agent if the borrower provides the information to 

the servicer in writing. To implement RESPA section 6(l)(2), the Bureau is requiring a servicer 

to provide, in the notice required by proposed § 1024.37(c)(1)(i), 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 § 1027.37(c)(2) would require servicers to provide, in the notice required by 

proposed § 1024.37(c)(1)(i), the following disclosures: (1) The date of the notice; (2) the 

servicer’s name and mailing address; (3) the borrower’s name and mailing address; (4) a 

statement that requests the borrower to provide hazard insurance information for the borrower’s 

property and identifies the property by its address; (5) 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 for which the servicer lacks evidence of coverage; (6) a statement 
155 

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; (7) 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; (8) a description of how the borrower may provide the information requested 

pursuant to § 1024.37(c)(2)(vii). A servicer that will only accept the requested information in 

writing must disclose that fact in the notice; (9) the cost of the force-placed insurance, stated as 

an annual premium. If the cost of the force-placed insurance is not known as of the date of the 

disclosure, a good faith estimate shall be disclosed and be identified as such; (10) 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; and (11) the servicer’s telephone number for borrower questions. Proposed § 

1024.37(c)(2) is subject to the general disclosure requirements proposed § 1024.32, including, 

for example, proposed § 1024.32’s clear and conspicuous requirement. As discussed previously, 

proposed § 1024.32 also permits servicers to combine disclosures required pursuant to subpart C 

of Regulation X with disclosures required by applicable law, including state law. 

 Proposed comment 37(c)(2)(v)-1 explains that if a borrower has purchased a 

homeowner’s insurance policy and a separate hazard insurance policy to insure loss against 

hazards not covered under his or her homeowner’s insurance policy, the servicer must disclose 

whether it is the borrower’s homeowner’s insurance policy or the separate hazard insurance 

policy for which it lacks evidence of coverage to comply with § 1024.37(c)(2)(v). As discussed 

previously, certain hazards are covered by policies separate from a homeowner’s insurance 

policy. The Bureau believes that it is important to specify the type of hazard insurance that the 
156 

borrower is required to maintain if the borrower has a hazard insurance policy the borrower uses 

to protect against loss by hazards excluded from his or her homeowner’s insurance policy. 

 As discussed in part III.B, above, the Bureau tested the force-placed insurance 

disclosures required by the Dodd-Frank Act in three rounds of consumer testing. Participant 

response in consumer testing suggests that knowing about higher cost of force-placed insurance 

could motivate borrowers to act promptly and thus avoid being charged with force-placed 

insurance. All participants said that they would immediately contact their insurance provider to 

find out whether or not their hazard insurance has expired or purchase new hazard insurance 

because they would not want to pay for the higher cost of force-placed insurance. Accordingly, 

in proposed § 1024.37(c)(2)(ix) discussed above, the Bureau is proposing to supplement the 

disclosure requirements of the Dodd-Frank Act by requiring servicers to disclose the cost of the 

force-placed insurance, stated as an annual premium. If the cost of the force-placed insurance is 

not known as of the date of the disclosure, a good faith estimate shall be disclosed and be 

identified as such. 

 Proposed comment 37(c)(2)(ix)-1 explains that the good faith estimate of the cost of the 

force-placed insurance the servicer may obtain should be consistent with the best information 

reasonably available to the servicer at the time the disclosure is provided. 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. For 

example, a mortgage investor’s requirements may provide that the amount of coverage for forceplaced 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-
157 

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(c)(2)(ix). The Bureau believes its proposed good faith standard balances the concern 

that some servicers may underestimate the cost of force-placed insurance and mislead borrowers 

into believing the cost of the force-placed insurance to be less than it actually is and the fact that 

the cost may change due to legitimate reasons between the time the disclosure is made and the 

time the borrower is charged. 

 The Bureau is also proposing to supplement the disclosure requirements of the DoddFrank Act with the requirement, discussed above, that servicers disclose to borrowers that 

insurance obtained by the servicer may cost significantly more than hazard insurance obtained by 

the borrower and that such insurance may not provide as much coverage as hazard insurance 

obtained by the borrower. As discussed previously, the consequences of servicers obtaining 

force-placed insurance may be significant and negative for borrowers. Accordingly, the Bureau 

believes it is appropriate to inform borrowers about the fact that force-placed insurance may not 

provide as much coverage as insurance borrowers could purchase for themselves, even though 

force-placed insurance may be significantly more expensive. 

Legal authority. The Bureau is proposing a new § 1024.37(c)(2) to Regulation X 

pursuant to its authority under section 6(j)(3) of RESPA to implement new section 6(l)(1)(A)(i)-

(iv) and 6(l)(2) of RESPA, added by section 1463 of the Dodd-Frank Act. Section 6(j)(3) of 

RESPA authorizes the Bureau to establish any requirements necessary to carry out the purposes 

of section 6 of RESPA. The Bureau has additional authority under section 6(k)(1)(E) of RESPA 

to prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA, and under section 19(a) of RESPA to prescribe such rules and regulations, to make such 
158 

interpretations as may be necessary to achieve the purposes of RESPA. The disclosures in 

proposed § 1024.37(c)(2) are additionally proposed pursuant to Dodd Frank Act section 1032. 

Consistent with this provision, the Bureau believes that proposed disclosures will ensure that the 

costs, benefits, and risks associated with the service that servicers provide in servicing the loan 

by obtaining force-placed insurance are fully, accurately, and effectively disclosed to borrowers, 

in light of the facts and circumstances. 

37(c)(3) Format

 Proposed 1024.37(c)(3) provides the disclosures set forth in § 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 believes the use of highlighting (bold text) to bring 

attention to important information allows borrowers to find the information quickly and 

efficiently. The Bureau believes it is important that borrowers can promptly identify the purpose 

of the notice. Additionally, the Bureau believes it is 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 force-placed insurance. The Bureau further believes it is 

important for borrowers to understand that the servicer’s purchase of force-placed insurance 

arises from the borrower’s obligation to maintain hazard insurance. Although the notice contains 

additional information that are important, the Bureau believes the usefulness of highlighting in 

focusing a borrower’s attention on important information decreases if highlighting is used 

unsparingly. 
159 

 Legal authority. As previously discussed, section 6(l)(1) of RESPA requires a servicer to 

provide a borrower with two notices before charging a borrower for force-placed insurance. The 

Bureau believes that model forms facilitate compliance with the new Dodd-Frank Act 

requirements concerning force-placed insurance disclosures and the Bureau’s proposed 

supplemental disclosures. To implement section 6(l)(1) of RESPA, the Bureau is proposing a 

new § 1024.37(c)(3) to Regulation X pursuant to its authority under section 6(j)(3) of RESPA. 

Section 6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry 

out the purposes of section 6 of RESPA. The Bureau has additional authority under section 

6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the consumer 

protection purposes of RESPA, and under section 19(a) of RESPA to prescribe such rules and 

regulations, to make such interpretations as may be necessary to achieve the purposes of RESPA. 

The model form MS-3(A) in appendix MS-3 is additionally proposed pursuant to Dodd-Frank 

Act section 1032(b). 

37(d) Reminder Notice 

37(d)(1) In General

 As discussed above, section 6(l) of RESPA, as added by section 1463 of the Dodd-Frank 

Act, requires that servicers 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). 

 Proposed §1024.37(d)(1) implements section 6(l)(B) of RESPA by providing 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-
160 

placed insurance. The servicer may not deliver or place the written notice required pursuant to 

§ 1024.37(d)(1) in the mail until 30 days after delivering to the borrower or placing in the mail 

the written notice set forth in § 1024.37(c)(1)(i). A servicer that receives no insurance 

information after delivering or placing in the mail the written notice set forth in 

§ 1024.37(c)(1)(i) must provide the disclosures set forth in § 1024.37 (d)(2)(i). A servicer that 

receives insurance information after delivering or placing in the mail the written notice set forth 

in § 1024.37(c)(1)(i) but does not receive verification that the borrower has hazard insurance 

coverage continuously must provide the disclosures set forth in § 1024.37(c)(1)(ii). 

 Proposed comment 37(d)(1)-1 explains 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, on June 1, the servicer places in the mail the written notice required pursuant to 

§ 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 one written notice, 

with the content set forth in § 1024.37(d)(2)(i), 15 days before the servicer charges Borrower A 

for force-placed insurance. Take the example above, except that Borrower A provides the 

servicer with insurance information on June 18. But the servicer cannot verify that Borrower A 

has had continuous insurance coverage 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 one reminder notice, with the content set 

forth in § 1024.37(d)(2)(ii), 15 days before charging Borrower A for force-placed insurance it 

obtains for the period between June 10 and June 15. 
161 

Legal authority. The Bureau proposes to implement RESPA section 6(l)(1)(B) pursuant 

to its authority under RESPA section 6(j)(3) by adding new § 1024.37(d)(1) to Regulation X. 

Section 6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry 

out the purposes of section 6 of RESPA. The Bureau has additional authority under section 

6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the consumer 

protection purposes of RESPA, and under section 19(a) of RESPA to prescribe such rules and 

regulations, to make such interpretations as may be necessary to achieve the purposes of RESPA. 

37(d)(2) Content of reminder notice 

37(d)(2)(i) Servicer Receiving No Insurance Information 

Proposed § 1024.37(d)(2)(i) implements RESPA section 6(l)(1)(B). It provides that 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) 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 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). Because the 

servicer has not received any insurance information, the Bureau believes it is appropriate to 

require the servicer to provide the disclosures set forth in § 1024.37(c)(2)(ii) to (c)(2)(xi). 

Legal authority. The Bureau proposes to implement section 6(l)(1)(B) of RESPA by 

adding new § 1024.37(d)(2)(i) pursuant to its authority under section 6(j)(3) of RESPA. Section 

6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry out the 

purposes of section 6 of RESPA. The Bureau has additional authority under section 6(k)(1)(E) 

of RESPA to prescribe regulations that are appropriate to carry out the consumer protection 
162 

purposes of RESPA, and under section 19(a) of RESPA to prescribe such rules and regulations, 

to make such interpretations as may be necessary to achieve the purposes of RESPA. The 

disclosures in proposed § 1024.37(d)(2)(i) are additionally proposed pursuant to Dodd-Frank Act 

section 1032. Consistent with this provision, the Bureau believes that proposed disclosures will 

ensure that the costs, benefits, and risks associated with the service that servicers provide in 

servicing the loan by obtaining force-placed insurance are fully, accurately, and effectively 

disclosed to borrowers, in light of the facts and circumstances. 

 The Bureau notes that proposed § 1024.37(d)(2)(i) is subject to the general disclosure 

requirements proposed § 1024.32, including, for example, proposed § 1024.32’s clear and 

conspicuous requirement. As discussed previously, proposed § 1024.32 also permits servicers to 

combine disclosures required pursuant to subpart C of Regulation X with disclosures required by 

applicable law, including state law. 

37(d)(2)(ii) Servicer not Receiving Verification of Continuous Coverage 

 Proposed § 1024.37(d)(2)(ii) provides that a servicer that 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 § 1024.37(c)(1)(i), but not verification that the borrower has 

hazard insurance in place continuously, 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; and (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 
163 

servicer is unable to verify hazard insurance coverage unless the borrower provides the servicer 

with hazard insurance information for such period. 

 As discussed previously, new RESPA section 6(l)(1) requirements added by section 1463 

of the Dodd-Frank Act require servicers to provide advance written notice to borrowers 45 days 

before charging a borrower for force-placed insurance. RESPA section 6(l)(1)(B) provides that 

the notice required pursuant to RESPA section 6(l)(1)(B) must contain all of the information set 

forth in the first written notice. The Bureau believes that a borrower that provides his or her 

servicer with the information requested after receiving the initial written notice might become 

angry and confused if he or she receives a second notice containing information they previously 

received. However, if a borrower’s servicer cannot verify that the borrower has hazard insurance 

in place continuously based on the information the borrower provided, the Bureau believes it 

benefits the borrower to receive the reminder notice required pursuant to proposed 

§ 1024.37(d)(1) because it would be useful in helping borrowers avoid force-placed insurance 

charges. Accordingly, the Bureau is proposing to require servicers to disclose different 

information in the notice required pursuant to proposed § 1024.37(d)(1), as set forth in proposed 

§ 1024.37(d)(2)(i) and (d)(2)(ii). 

Legal authority. The Bureau proposes to implement section 6(l)(1)(B) of RESPA by 

adding new § 1024.37(d)(2)(ii) pursuant to its authority under section 6(j)(3) of RESPA. Section 

6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry out the 

purposes of section 6 of RESPA. The Bureau has additional authority under section 6(k)(1)(E) 

of RESPA to prescribe regulations that are appropriate to carry out the consumer protection 

purposes of RESPA, and under section 19(a) of RESPA to prescribe such rules and regulations, 

to make such interpretations as may be necessary to achieve the purposes of RESPA. The 
164 

disclosures in proposed § 1024.37(d)(2)(ii) are additionally proposed pursuant to Dodd-Frank 

Act section 1032. Consistent with this provision, the Bureau believes that proposed disclosures 

will ensure that the costs, benefits, and risks associated with the service that servicers provide in 

servicing the mortgage loan by obtaining force-placed insurance are fully, accurately, and 

effectively disclosed to borrowers, in light of the facts and circumstances. 

 The Bureau notes that proposed § 1024.37(d)(2)(ii) is subject to the general disclosure 

requirements proposed § 1024.32, including, for example, proposed § 1024.32’s clear and 

conspicuous requirement. As discussed previously, proposed § 1024.32 also permits servicers to 

combine disclosures required pursuant to subpart C of Regulation X with disclosures required by 

applicable law, including state law. 

37(d)(3) Format

 Proposed § 1024.37(d)(3) provides that the disclosures set forth in paragraph (d)(2)(i) of 

this section must be in a format substantially similar to form MS-3(B), and the disclosures set 

forth in paragraph (d)(2)(ii) of this section must be in a format be substantially similar to form 

MS-3(C). The model forms are set forth in appendix MS-3. Disclosures required by 

§ 1024.37(d)(2)(i)(B), (d)(2)(ii)(B), and (d)(2)(ii)(F) of this section must be in bold text. The 

Bureau discussed the use of highlight (bold text) previously. It is proposing that disclosures 

required by § 1024.37(d)(2)(i)(B), (d)(2)(ii)(B), and (d)(2)(ii)(F) of this section must be in bold 

text for reasons previously discussed. 

Legal authority. As previously discussed, section 6(l)(1) of RESPA requires a servicer to 

provide a borrower with two notices before charging a borrower for force-placed insurance, and 

that the Bureau believes that model forms facilitate compliance with the new Dodd-Frank Act 

requirements concerning force-placed insurance disclosures and the Bureau’s proposed 
165 

supplemental disclosures. To implement section 6(l)(1) of RESPA, the Bureau is proposing a 

new § 1024.37(d)(3) to Regulation X pursuant to its authority under section 6(j)(3) of RESPA. 

Section 6(j)(3) of RESPA authorizes the Bureau to establish any requirements necessary to carry 

out the purposes of section 6 of RESPA. The Bureau has additional authority under section 

6(k)(1)(E) of RESPA to prescribe regulations that are appropriate to carry out the consumer 

protection purposes of RESPA, and under section 19(a) of RESPA to prescribe such rules and 

regulations, to make such interpretations as may be necessary to achieve the purposes of RESPA. 

The forms MS-3(B) and MS-3(C) are additionally proposed under Dodd-Frank Act 

section 1032(b). 

37(d)(4) Updating Notice with Borrower Information 

 Proposed § 1024.37(d)(4) provides that if a servicer receives hazard insurance 

information from a borrower after a 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. Proposed comment 37(d)(4)-1 provides that a 

servicer may have to prepare the written notice required pursuant to § 1024.37(d)(1) 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 insurance information received from the 

borrower after production has started so long the notice was put into production within a 

reasonable time prior to the servicer delivering or placing the notice in the mail. The Bureau 

proposes to provide guidance that 5 days prior is a reasonable time. The Bureau invites 

comment on whether, in certain circumstances, a longer time frame is reasonable. 
166 

Legal authority. The Bureau recognizes that servicers may receive borrower’s hazard 

insurance information after they have put the notices required pursuant to § 1024.37(d)(1) into 

production, and that it may be impracticable for them to stop production to update the notices. 

Accordingly, the Bureau is using its authority under RESPA sections 6(k)(1)(E) to provide a safe 

harbor in proposed § 1024.37(d)(4). Section 6(k)(1)(E) of RESPA authorizes the Bureau to 

prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA. The Bureau has additional authority under section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out the purposes of section 6 of RESPA, and under section 19(a) 

of RESPA to prescribe such rules and regulations, to make such interpretations as may be 

necessary to achieve the purposes of RESPA. 

37(e) Renewal or Replacement of Force-Placed Insurance 

37(e)(1) In general 

Proposed § 1024.37(e)(1) provides 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. 

Proposed § 1024.37(e)(1) further provides that notwithstanding § 1024.37(e)(1)(i) and (e)(ii), a 

servicer that has renewed or replaced the existing force-placed insurance during the 45-day 

notice period may charge the borrower for the renewal or replacement promptly after the servicer 

receives verification that hazard insurance obtained by the borrower did not provide the borrower 

with insurance coverage for any period of time following the expiration of the existing forceplaced insurance. 
167 

 Proposed comment 37(e)(1)(iii)-1 illustrates when a servicer may charge a borrower for 

the renewal or replacement of the borrower’s existing force-placed insurance before the end of 

the 45-day notice period. In the example, on January 2, the servicer sends the notice required by 

§ 1024.37(e)(1). On January 12, the existing force-placed insurance the servicer had obtained on 

the borrower’s property expires and the servicer replaces the expired force-placed insurance 

policy with a new force-placed insurance policy effective January 13. On February 5, the 

servicer receives verification that the borrower obtained hazard insurance effective January 31. 

The servicer may charge the borrower for force-placed insurance from January 13 to January 30, 

as early as February 5. 

 Legal authority. As discussed previously, there does not appear to be an industry 

standard that applies to renewal procedures for force-placed insurance. Moreover, incentives 

like commissions paid to servicers or their insurance affiliates may cause servicers to prefer 

renewing or replacing existing force-placed insurance coverage over providing borrowers with 

an opportunity to obtain hazard insurance. The Bureau’s proposal could help a borrower avoid 

incurring the cost to the borrower associated his or her servicer renewing or replacing existing 

force-placed insurance because the proposal provides for advance notice that allows a borrower 

the time the borrower may need to buy hazard insurance before being charged for the cost of 

force-placed insurance. The Bureau proposes to add new § 1024.37(e)(1) pursuant to its 

authority under RESPA section 6(k)(1)(E), which authorizes the Bureau to prescribe regulations 

that are appropriate to carry out the consumer protection purposes of RESPA. The Bureau has 

additional authority under section 6(j)(3) of RESPA to establish any requirements necessary to 

carry out the purposes of section 6 of RESPA, and under section 19(a) of RESPA to prescribe 
168 

such rules and regulations, to make such interpretations as may be necessary to achieve the 

purposes of RESPA. 

37(e)(2) Content of Renewal Notice 

 Except as set forth below, proposed § 1024.37(e)(2) would require servicers to provide 

the disclosures set forth in proposed § 1024.37(c)(2) in the notice required by proposed 

§ 1024.37(e)(1). The main differences between the disclosures set forth in proposed 

§ 1024.37(c)(2) and proposed § 1024.37(e)(2) is 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 § 1024.37(e)(1) from the notice required pursuant to proposed 

§ 1024.37(c)(1). 

Paragraph 37(e)(2)(vii) 

 Proposed § 1024.37(e)(2)(vii) would require a servicer to set forth the cost of the forceplaced insurance, stated as an annual premium. If the cost of the force-placed insurance is not 

known as of the date of the disclosure, a good faith estimate shall be disclosed and be identified 

as such. Proposed comment 37(e)(2)(vii)-1 provides 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). 

 Legal authority. The Bureau proposes to add new § 1024.37(e)(2) to Regulation X 

pursuant to its authority under section 6(k)(1)(E) of RESPA. Section 6(k)(1)(E) of RESPA 

authorizes the Bureau to prescribe regulations that are appropriate to carry out the consumer 
169 

protection purposes of RESPA. As discussed above, the Bureau’s proposal to require servicers 

to provide a written notice before charging a borrower for the renewal or replacement of existing 

hazard insurance could help a borrower avoid incurring the cost to the borrower associated his or 

her servicer renewing or replacing existing force-placed insurance. The Bureau has additional 

authority under section 6(j)(3) of RESPA to establish any requirements necessary to carry out the 

purposes of section 6 of RESPA, and under section 19(a) of RESPA to prescribe such rules and 

regulations, to make such interpretations as may be necessary to achieve the purposes of RESPA. 

The disclosures in proposed § 1024.37(e)(2) are additionally proposed pursuant to Dodd-Frank 

Act section 1032. Consistent with this provision, the Bureau believes that proposed disclosures 

will ensure that the costs, benefits, and risks associated with the service that servicers provide in 

the loan by obtaining force-placed insurance to renew or replace existing force-placed insurance 

are fully, accurately, and effectively disclosed to borrowers, in light of the facts and 

circumstances. 

 The Bureau notes that proposed § 1024.37(e)(2) is subject to the general disclosure 

requirements proposed § 1024.32, including, for example, proposed § 1024.32’s clear and 

conspicuous requirement. As discussed previously, proposed § 1024.32 also permits servicers to 

combine disclosures required pursuant to subpart C of Regulation X with disclosures required by 

applicable law, including state law. 

37(e)(3) Format 

Proposed § 1024.37(e)(3) provides 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. Disclosures 

made pursuant to § 1024.37(e)(2)(vi)(B) and 37(e)(2)(vii) must be in bold text. Disclosures 

made pursuant to § 1024.37(e)(2)(iv) must be in bold text, except that the physical address of the 
170 

property may be in regular text. The Bureau discussed the usefulness of highlighting (bold text) 

important information to borrowers previously, and is proposing that disclosures discussed above 

be in bold text for similar reasons. 

Legal authority. The Bureau proposes to exercise its authority under RESPA sections 

6(k)(1)(E) add § 1024.37(e)(3) to Regulation X. As discussed above, the Bureau believes model 

forms facilitate compliance. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe 

regulations that are appropriate to carry out the consumer protection purposes of RESPA. The 

Bureau has additional authority under section 6(j)(3) of RESPA to establish any requirements 

necessary to carry out the purposes of section 6 of RESPA, and under section 19(a) of RESPA to 

prescribe such rules and regulations, to make such interpretations as may be necessary to achieve 

the purposes of RESPA. The model form MS-3(D) is additionally proposed under Dodd-Frank 

Act section 1032(b). 

37(e)(4) Compliance 

 Proposed § 1024.37(e)(4) provides 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). Subsequently, 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 expects borrowers should be able to retain the notice proposed in proposed 

§ 1024.37(e)(1) over the course of a 12-months period. Additionally, the Bureau notes that 

because it is proposing to require a servicer to state the annual cost of force-placed insurance, the 

borrower would be informed of the annualized cost of the force-placed insurance. Accordingly, 

the Bureau does not believe that receiving more than one renewal or replacement notice every 
171 

12-month period would significantly benefit borrowers. The Bureau solicits comment on 

whether providing the renewal or replacement notice once during a 12-month period adequately 

informs borrowers about the costs, benefits, and risks associated with servicers’ renewal or 

replacement of existing force-placed insurance. 

Legal authority. The Bureau proposes to exercise its authority under RESPA sections 

6(k)(1)(E) add § 1024.37(e)(4) to Regulation X. Section 6(k)(1)(E) of RESPA authorizes the 

Bureau to prescribe regulations that are appropriate to carry out the consumer protection 

purposes of RESPA. For reasons discussed above, the Bureau does not believe that receiving 

more than one renewal or replacement notice every 12-month period would significantly benefit 

borrowers. Section 1024.37(e)(4) is additionally proposed under section 6(j)(3) of RESPA to 

establish any requirements necessary to carry out the purposes of section 6 of RESPA, and under 

section 19(a) of RESPA to prescribe such rules and regulations, to make such interpretations as 

may be necessary to achieve the purposes of RESPA. 

37(f) Mailing the Notices

 RESPA section 6(l)(1), discussed previously, requires servicers to send the notices 

required under RESPA section 6(l)(1)(A) and (B) by first-class mail. The Bureau proposes to 

implement RESPA section 6(l)(1) by adding new § 1024.37(f) to Regulation X to provide that if 

a servicer mails a notice required pursuant to § 1024.37(c)(1)(i), (d)(1) and (e)(1) of this section, 

as applicable, the servicer must use a class of mail not less than first-class mail. Although the 

notice required proposed § 1024.37(e)(1) is not required by statute, the Bureau believes that 

proposing that the same mailing requirements to any notice required pursuant to § 1024.37 

facilitates compliance by promoting consistency. 
172 

Legal authority. The Bureau proposes to implement RESPA section 6(l)(1), pursuant to 

its authority under RESPA section 6(j)(3) to establish any requirements necessary to carry out 

section 6 of RESPA by adding new § 1024.37(f) to Regulation X. Section 1024.37(f) is 

additionally proposed pursuant to the Bureau’s authority under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA, and under section 19(a) of RESPA to prescribe such rules and regulations, to make such 

interpretations as may be necessary to achieve the purposes of RESPA. 

37(g) Cancellation of force-placed insurance 

 Section 1463 amended RESPA by adding new section 6(l)(3) to RESPA. RESPA section 

6(l)(3) provides that within 15 days of receipt by a servicer of confirmation of a borrower’s 

existing 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 charged to the 

borrower during any period in which the borrower’s insurance and the force-placed insurance 

were each in effect. 

 Proposed § 1024.37(g) provides that within 15 days of receiving verification that the 

borrower has hazard insurance in place, a servicer must: (1) Cancel force-placed insurance 

obtained for a borrower’s property; and (2) for any period during which the borrower’s hazard 

insurance was in place, refund to the borrower all force-placed insurance premium charges and 

related fees paid by the borrower for such period and remove all force-placed insurance charges 

and related fees from the borrower’s account for such period that the servicer has assessed to the 

borrower. Proposed comment 37(g)-1 provides an example of how to comply with proposed 

§ 1024.37(g). Assume that a servicer obtains force-placed insurance, effective January 1, and the 

premium and related charges are paid by the borrower in monthly installments, due on the first of 
173 

each month. After the borrower paid the April installment, the servicer receives insurance 

information from the borrower, and verifies that the borrower had obtained hazard insurance and 

that the insurance had been in place since March 15. To comply with § 1024.37(g), within 15 

days of receiving such verification, the servicer must: (1) Cancel the force-placed insurance; (2) 

provide a refund for force-placed insurance premium charges and related fees paid by the 

borrower for the period between March 15 and April 30; and (3) remove from the borrower’s 

account any force-placed insurance premium charges and related fees for the period after March 

15 that the servicer has assessed to the borrower but the borrower has not yet paid. 

Legal authority. The Bureau proposes to implement RESPA section 6(l)(3), pursuant to 

its authority under RESPA section 6(j)(3) to establish any requirements necessary to carry out 

section 6 of RESPA by adding new § 1024.37(g) to Regulation X. Section 1024.37(g) is 

additionally proposed pursuant to the Bureau’s authority under section 6(k)(1)(E) of RESPA to 

prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA, and under section 19(a) of RESPA to prescribe such rules and regulations, to make such 

interpretations as may be necessary to achieve the purposes of RESPA. 

37(h) Limitation on Force-Placed Insurance Charges 

Section 1463 of the Dodd-Frank Act amended RESPA section 6 by adding new section 

6(m) to RESPA to require that all charges, apart from charges subject to State regulation as the 

business of insurance, related to force-placed insurance imposed on the borrower by or through 

the servicer must be bona fide and reasonable. 

 Proposed § 1024.37(h)(1) provides that except for charges subject to State regulation as 

the business of insurance and charges authorized by the FDPA, all charges related to forceplaced insurance assessed to a borrower by or through the servicer must be bona fide and 
174 

reasonable. Proposed § 1024.37(h)(2) provides that 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. 

 As previously discussed, RESPA section 6(m) provides that charges subject to State 

regulation as the business of insurance are not subject to RESPA 6(m)’s “bona fide and 

reasonable” requirement. Furthermore, the Bureau believes it is important to clarify that 

proposed § 1024.37(h) does not regulate charges authorized by the FDPA. As discussed 

previously in the discussion of proposed § 1024.37(a)(2)(i), certain servicers are required by the 

FDPA to obtain force-placed flood insurance. The FDPA provides 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 SFHA. See 42 U.S.C. 4012a(h). As discussed previously, 

the Bureau is concerned about issuing regulations that would overlap with regulations issued 

pursuant to the FDPA. Accordingly, the Bureau proposes to use its exemption authority pursuant 

to RESPA section 19(a) to exempt charges authorized by the FDPA from proposed § 1024.37(h). 

 Also as previously discussed, force-placed insurance is substantially more expensive than 

hazard insurance a borrower could obtain for himself and some servicers may be incentivized to 

obtain force-placed insurance even though helping a borrower to renew hazard insurance 

obtained by the borrower when practicable is better for the borrower and the owners and 

assignees of mortgage loans. The Bureau believes it is important to ensure that these 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, and is prohibited by applicable law. Accordingly, the 
175 

Bureau believes its proposed definition of bona fide and reasonable charge, discussed above, is 

appropriate. 

Legal authority. The Bureau proposes to implement RESPA section 6(m), pursuant to its 

authority under RESPA section 6(j)(3), to establish any requirements necessary to carry out 

section 6 of RESPA by adding § 1024.37(h) to Regulation X. Section 1024.37(h) is additionally 

proposed pursuant to the Bureau’s authority under section 6(k)(1)(E) of RESPA to prescribe 

regulations that are appropriate to carry out the consumer protection purposes of RESPA, and 

under section 19(a) of RESPA to prescribe such rules and regulations, to make such 

interpretations, and to grant such reasonable exemptions, as may be necessary to achieve the 

purposes of RESPA. 

37(i) Relationship to Flood Disaster Protection Act of 1973 

 Section 1463 of the Dodd-Frank Act amended RESPA section 6 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 FDPA. Proposed § 1024.37(i) provides 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. 

Legal authority. The Bureau proposes to implement RESPA section 6(l)(4), pursuant to 

its authority under RESPA section 6(j)(3) to establish any requirements necessary to carry out 

section 6 of RESPA by adding § 1024.37(i) to Regulation X. Section 1024.37(i) is additionally 

proposed pursuant to the Bureau’s authority under section 6(k)(1)(E) of RESPA to prescribe 
176 

regulations that are appropriate to carry out the consumer protection purposes of RESPA, and 

under section 19(a) of RESPA to prescribe such rules and regulations, to make such 

interpretations, and to grant such reasonable exemptions, as may be necessary to achieve the 

purposes of RESPA. 

Section 1024.38 Reasonable Information Management Policies and Procedures 

 Background. A servicer’s obligation to maintain accurate and timely information 

regarding a mortgage loan account is one of the most basic servicer duties. A servicer cannot 

comply with its myriad obligations to investors and under applicable law, unless it maintains 

accurate information regarding a mortgage loan account, including accurate and timely 

information with respect to borrower payments. Notwithstanding these obligations, recent 

evaluations of mortgage servicer practices have indicated that borrowers have been harmed as a 

result of servicer’s lacking adequate practices 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.”109

 Further, and as discussed in detail above, 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.110 Examinations by 

prudential regulators found “critical deficiencies in foreclosure governance processes, document 

preparation processes, and oversight and monitoring of third parties . . . [a]ll servicers 

 

109 Problems in Mortgage Servicing From Modification to Foreclosure: Hearings Before the Senate Comm. on 

Banking, Housing and Urban Affairs, S. Hrg. 111-987, 111th Cong. 360 (2010) (statement of Daniel K. Tarullo, 

Board of Governors, Federal Reserve System), available at 

http://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm. 110 The National Mortgage Settlement is available at http://www.nationalmortgagesettlement.com/. 
177 

[examined] exhibited similar deficiencies, although the number, nature, and severity of 

deficiencies varied by servicer.”111

38(a) In General 

Proposed § 1024.38(a) would require a servicer to establish reasonable policies and 

procedures for maintaining and managing information and documents relating to borrower 

mortgage loan accounts. The proposed rule would provide that a servicer meets this requirement 

if the servicer’s policies and procedures are reasonably designed to achieve the objectives set 

forth in proposed § 1024.38(b) and are reasonably designed to ensure compliance with the 

standard requirements in proposed § 1024.38(c). 

 Proposed comment 38(a)-1 clarifies that a servicer may determine the specific methods 

by which it will implement reasonable information management policies and procedures to 

achieve the required objectives. Servicers have flexibility to design the operations that are 

reasonable in 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. This clarification is intended to provide servicers, including 

small servicers, flexibility to design policies and procedures that are appropriate for their 

servicing businesses. When this proposal was discussed with SERs during the Small Business 

Review Panel outreach, the SERs were supportive of a definition that provides inherent 

flexibility for small servicers to design policies and procedures that reflect the needs of their 

 

111 Failure to Recover: The State of Housing Markets, Mortgage Servicing Practices and Foreclosures: Hearings 

Before the House Committee on Oversight and Government Reform, No. 112-134, 112th Cong. 17 (2012) (statement 

of Morris Morgan, Office of the Comptroller of the Currency), available at http://www.occ.gov/newsissuances/congressional-testimony/2012/pub-test-2012-47-written.pdf. 
178 

servicing operations.112 Consistent with the Small Business Review Panel recommendations,113

the Bureau requests comment on further guidance that should be included to clarify the types of 

policies and procedures that would be reasonable for small servicers. 

 Proposed § 1024.38(a)(2) provides a safe harbor, which states 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 does not engage 

in a pattern or practice of failing to comply with any of the standard requirements in proposed 

§ 1024.38(c). The purpose of this provision is to establish an objectives-based test for 

determining if a servicer’s policies and procedures are reasonable. Thus, servicers have 

flexibility to develop policies and procedures that a servicer determines are appropriate so long 

as those policies and procedures do not result in a pattern or practice of failing to achieve an 

enumerated objective or comply with a standard requirement. If a servicer demonstrates a 

pattern or practice of failing to achieve an objective or comply with a standard requirement, a 

servicer may violate this provision if the policies and procedures are not reasonable. Proposed 

comment 38(a)(1)-1 provides examples of potential pattern and practice failures by servicers. 

Proposed comment 38(a)(2)-1 clarifies that in the event a servicer fails to comply with the safe 

harbor in proposed § 1024.38(a)(2) because the servicer has a pattern or practice of failing to 

achieve the objectives set forth in proposed § 1024.38(b) or failing to ensure compliance with the 

standard requirements in proposed § 1024.38(c), a servicer may still comply with the 

requirements of proposed § 1024.38 if the servicer’s policies and procedures were reasonably 

designed to achieve the objectives set forth in proposed § 1024.38(b) and to ensure compliance 

with the standard requirements in proposed § 1024.38(c). 

 

112 See Small Business Review Panel Report at 31. 113 Id. 
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 A servicer’s failure to achieve each of the objectives harms borrowers because such 

failures create the potential for adverse consequences. These may include, without limitation, 

imposing improper fees on borrowers, inability to reasonably evaluate loss mitigation 

applications 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 relies on its authority in section 6(k)(1)(E) of RESPA to establish obligations 

appropriate to carry out the consumer protection purposes of RESPA to propose § 1024.38(a). 

The Bureau further has authority pursuant to section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out section 6 of RESPA and has authority under 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. 

38(b) Objectives 

38(b)(1) Accessing and Providing Accurate Information 

 Proposed § 1024.38(b)(1) would mandate that a servicer’s policies and procedures for 

maintaining and managing information and documents must be designed to enable the servicer to 

(1) provide accurate and timely disclosures to borrowers, (2) investigate, respond to, and, as 

appropriate, correct errors, (3) provide borrowers with requested information, (4) provide owners 

or assignees of mortgage loans with accurate and current information about any mortgage loans 

they own, and (5) submit documents or filings required for a foreclosure process that reflect 

accurate and current information and comply with applicable law. 

 For the reasons stated above in the background to proposed § 1024.38, the Bureau 

believes it is necessary to achieve the consumer protection purposes of RESPA that servicers 
180 

implement policies and procedures to achieve the objectives set forth in proposed 

§ 1024.38(b)(1). These objectives provide reasonable and appropriate protections for borrowers 

against harms resulting from actions based on improper or inaccurate servicer documentation or 

information. Further, the requirement in proposed § 1024.38(b)(4) ensures that owners and 

assignees of mortgage loans get better information reporting about the mortgage loans they own. 

Owners and assignees can play an important role in ensuring that servicers comply with 

requirements of the owner or assignee, which may inure to the benefit of consumers. For 

example, when a servicer improperly obtains force-placed insurance for a delinquent borrower, 

the costs of that insurance may push a borrower further into delinquency and ultimately 

foreclosure, where the costs of the more expensive policy will reduce the ultimate recovery to the 

owner or assignee. 

 The Bureau requests comment regarding whether the Bureau had identified the 

appropriate objectives and whether objectives should be removed, or other objectives included, 

in the requirements. 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to require servicers to comply with any obligation found by the Bureau to be appropriate 

to carry out the consumer protection purposes of RESPA. The Bureau further has authority 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under 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. 

38(b)(2) Evaluating Loss Mitigation Options 

Proposed § 1024.38(b)(2) would mandate that a servicer’s policies and procedures for 
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maintaining and managing information and documents must be designed to enable the servicer to 

(1) provide accurate information to borrowers regarding loss mitigation options, (2) identify all 

loss mitigation options for which a borrower may be eligible, (3) provide prompt access to all 

documents and information submitted by a borrower in connection with a loss mitigation option, 

(4) identify documents and information that a borrower is required to submit to make a loss 

mitigation application complete, and (5) evaluate borrower applications, and any appeals, as 

appropriate. 

 The Bureau believes that requiring servicers to have reasonable policies and procedures 

to maintain and manage information and documents that are designed to enable the servicer to 

evaluate borrower’s for loss mitigation options facilitates compliance with proposed § 1024.41. 

Further, such policies and procedures will lead to processes that are more protective of 

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. 

 Loss mitigation options for which borrowers may be eligible. In order to meet the 

objectives, a servicer will have to determine, on a loan by loan basis, which loss mitigation 

options offered by the servicer are available to borrowers. The Bureau anticipates that for 

servicers that service mortgage loans held by the servicer or an affiliate in portfolio, this 

determination 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 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.
182 

 Servicers that service mortgage loans that are securitized through private label securities 

will be required to undertake more burdensome efforts to identify which, if any, loss mitigation 

programs offered by the servicer are available to mortgage loan borrowers whose mortgage loans 

are owned by the securitization trust pursuant to the terms of any servicing agreement. 

 Servicer failures to achieve optimal loss mitigation efforts. The Bureau believes that 

regulations relating to the evaluation of borrowers for loss mitigation options, including the 

requirements of proposed § 1024.38(b)(2) and proposed § 1024.41 are necessary in light of the 

current servicing industry structure. 

Servicing industry compensation is not structured to incentivize servicers to engage in 

loss mitigation efforts. In that regard, “the servicing industry‘s combination of two distinct 

business lines— transaction processing and default management—encourage servicers to 

underinvest in default management capabilities, leaving them with limited ability to mitigate 

losses.”114 Direct servicing compensation is generally fixed per loan. A servicer of a prime 

mortgage loan may earn 25 basis points for servicing that loan, whereas a servicer of a subprime 

mortgage loan may earn 50 basis points for servicing that loan.115 The increased fee for 

servicing a loan with a lower credit quality should reflect the increased cost a servicer may incur 

to service the loans because of the higher default or cash flow advance assumptions related to 

those loans. However, the Bureau’s outreach with consumers, servicers, GSEs, investors, and 

other federal regulators indicates that servicers have failed to invest in systems and processes 

necessary to undertake the work necessary to service mortgage loans that are not performing. 

 

114 Levitin and Twomey, 28 Yale J. on Reg. 69 (2011). 115Robert W. Lee, Presentation, MBA’s Accounting, Tax and Financial Analysis Conference 2008 Mortgage 

Servicing Rights Discussion, available at 

http://www.mortgagebankers.org/files/Conferences/2008/2008Accounting,Tax&FinancialAnalysisConference/2008

Accounting,Tax&FinancialAnalysisConferenceR.Lee12-17-08.pdf
183 

Further, mortgage servicing cash flows, including servicer expenses like advances to 

investors, incentivize servicers to pursue foreclosure. Servicers are required to advance 

payments to investors so long as a mortgage loan has not been “charged off.” When a servicer 

modifies a mortgage loan on behalf of an investor, it is sometimes unclear how the modified 

payment amounts should be treated and whether a servicer must continue to advance funds to the 

investor to make up for any deficiency between a borrower’s modified payment and the 

scheduled payment owed to an investor. 

The Bureau observes that servicers have begun to alter the manner in which they invest in 

infrastructure and are changing their approach to default management. Notwithstanding these 

developments, reasonable policies and procedures to maintain and manage information and 

documents that are designed to enable a servicer to evaluate loss mitigation options impose a 

reasonable burden on servicers that will benefit borrowers in future years as servicers transition 

from reacting to the current crisis to a more steady market punctuated by regional spikes in 

delinquencies and foreclosures. Servicers that have not invested in improving loss mitigation 

functions may find less incentivize 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 requests comment regarding whether the Bureau had identified the 

appropriate objectives and whether objectives should be removed, or other objectives included, 

in the requirements. 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to require servicers to comply with any obligation found by the Bureau to be appropriate 

to carry out the consumer protection purposes of RESPA. The Bureau further has authority 
184 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under 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. 

38(b)(3) Facilitating Oversight of, and Compliance by, Service Providers 

 Proposed § 1024.38(b)(3) would mandate that a servicer’s policies and procedures for 

maintaining and managing information and documents must be designed to enable the servicer to 

provide appropriate servicer personnel with accurate and current information reflecting actions 

performed by service providers, facilitate periodic reviews of service providers, and facilitate the 

sharing of accurate and current information among servicer personnel and service providers. 

Recent evaluations of mortgage servicer practices have found that some major servicers 

“did not properly structure, carefully conduct, or prudently manage their third-party vendor 

relationships[.]”116 For example, certain servicers supervised by the Board of Governors of the 

Federal Reserve System and the Office of the Comptroller of the Currency did not monitor thirdparty vendor foreclosure law firms compliance with the servicer’s standards, did not retain 

copies of documents maintained by third-party law firms, and did not provide formal guidance, 

policies, or procedures governing the selection, ongoing management, and termination of law 

firms used to manage foreclosures.117 Similar failures were present in connection with servicer 

relationships with default management service providers and Mortgage Electronic Registration 

Systems, Inc. (MERS).118 The Federal Reserve Board stated to Congress that federal regulatory 

 

116 Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift Supervision, 

Interagency Review of Foreclosure Policies and Practices, at 5 (April 2011), available at http://www.occ.gov/newsissuances/news-releases/2011/nr-occ-2011-47a.pdf. 117 Id. at 9. 118 Id. at 10. 
185 

agencies identified significant “shortcomings in staff training, coordination among loan 

modification and foreclosure staff, and management and oversight of service providers, 

including legal services.”119 These failures have manifested 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 requests comment regarding whether the Bureau had identified the 

appropriate objectives and whether objectives should be removed, or other objectives included, 

in the requirements. 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to require servicers to comply with any obligation found by the Bureau to be appropriate 

to carry out the consumer protection purposes of RESPA. The Bureau further has authority 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under 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. 

38(b)(4) Facilitating Servicing Transfers 

Proposed § 1024.38(b)(4) would mandate that a servicer’s policies and procedures for 

maintaining and managing information and documents must be designed to ensure 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 

 

119 Problems in Mortgage Servicing From Modification to Foreclosure: Hearings Before the Senate Comm. on 

Banking, Housing and Urban Affairs, S. Hrg. 111-987, 111th Cong. 360 (2010) (statement of Daniel K. Tarullo, 

Board of Governors, Federal Reserve System), available at 

http://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm.
186 

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) provides 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 be a servicer with respect to potential recovery from a nonperforming mortgage loan, as appropriate (typically called a final recovery determination). 

 Servicing transfers give rise to potential harms to consumers. Servicers may experience 

problems relating to inaccurate transfer of past payment information, failures to transfer 

documents provided to a transferor servicer, and inaccurate transfer of information relating to 

loss mitigation discussions with borrowers. Borrowers engaged in loss mitigation efforts may be 

transferred to transferee servicers who had no knowledge of the existence or status of the loss 

mitigation efforts. 

 The Bureau believes 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 mortgage loan borrowers. Servicers generally should expect that servicing may be sold, 

assigned, or transferred for certain loans they service. Servicers 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 believes it is appropriate for servicers to implement reasonable information 

management policies and procedures to ensure 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. 
187 

The Bureau requests comment regarding whether the Bureau had identified the 

appropriate objectives and whether objectives should be removed, or other objectives included, 

in the requirements. 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to require servicers to comply with any obligation found by the Bureau to be appropriate 

to carry out the consumer protection purposes of RESPA. The Bureau further has authority 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under 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. 

38(c) Standard Requirements 

 In addition to the objectives set forth in proposed § 1024.38(b), proposed § 1024.38(c) 

sets forth two standard requirements that servicers must include in the required policies and 

procedures. These include provisions for record retention and identification of a servicing file. 

With respect to record retention, proposed § 1024.38(c)(1) would require a servicer 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 was transferred to a successor servicer. The Bureau 

observes that proposed §§ 1024.35 and 1024.36 require 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 was transferred to a successor servicer and the Bureau believes the 

record retention requirement is necessary for servicer compliance with obligations set forth in 

§§ 1024.35 and 1024.36. Further, the Bureau observes that servicers will require accurate 

information for the life of the mortgage loan in order to provide accurate payoff balances to 
188 

borrowers or to exercise a right to foreclose for a mortgage loan account. 

 The Bureau requests 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 was transferred to a successor servicer and the 

potential burden of this requirement. 

Proposed § 1024.38(c)(2) would require a servicer to provide a borrower upon request a 

servicing file, which shall contain 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; a copy of the borrower’s mortgage note; a copy of the borrower’s deed of trust; any 

collection notes created by servicer personnel reflecting communications with borrowers about 

the mortgage loan account; 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 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. 

 While document and information management practices vary among servicers, many 

large servicers maintain documents and information relating to a borrower’s mortgage loan 

account in many different places and forms, including on separate electronic systems. The 

Bureau understands that in the absence of a required convention for storage of servicing related 

documents and information, servicers have difficulty identifying a central file containing 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 require servicers, as part 
189 

of the reasonable information management policies and procedures to adopt practices to provide 

an accurate, complete, and defined “servicing file” to a borrower upon request and would create 

a commonly understood industry convention. 

 The Bureau requests comment regarding whether servicers should be required to adopt 

reasonable information management policies and procedures that facilitate providing a defined 

servicing file to a borrower upon request. The Bureau requests comment on the burden of 

adopting this requirement. Further, the Bureau requests comment regarding whether the Bureau 

has 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. 

 Legal authority. The Bureau relies on its authority pursuant to section 6(k)(1)(E) of 

RESPA to require servicers to comply with any obligation found by the Bureau to be appropriate 

to carry out the consumer protection purposes of RESPA. The Bureau further has authority 

pursuant to section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 

6 of RESPA and has authority under 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.

Section 1024.39 Early Intervention Requirements for Certain Borrowers 

 Background. How a servicer manages a borrower’s delinquency plays a significant role 

in whether the borrower cures the delinquency or ends up in foreclosure.120 However, for a 

variety of reasons, servicers have not been consistent in managing delinquent accounts to provide 

borrowers with an opportunity to avoid foreclosure. At the outset of the recent financial crisis, 

 

120 See Diane Thompson, Foreclosure 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 (Nov. 2, 2010); Michael A. Stegman et al., Preventative Servicing is 

Good for Business and Affordable Homeownership Policy, 18 Housing Pol’y Debate 243, 274 (2007). 
190 

many servicers had not developed the institutional capacity to manage delinquent accounts.121 

While servicers have gained some experience managing loss mitigation programs, incentives 

remain that may discourage servicers from addressing a delinquency quickly, and in some cases 

may even cause them to favor foreclosure.122

For their part, delinquent borrowers may not make contact with servicers to discuss their 

options because they may be unaware that they have options123 or that their servicer is able to 

assist them.124 As a result of these impediments to borrower-servicer communication, many 

borrowers are not informed of their options to avoid foreclosure at the early stages of a 

delinquency, when it can be most critical for them to reach out. There is significant risk to 

consumers as a result of this delay because the longer a borrower remains delinquent, the more 

difficult it can be to avoid foreclosure.125 

 

121 See, e.g., The Need for National Mortgage Servicing Standards: Hearing Before the Subcomm. on Housing, 

Transportation, and Community Affairs of the Senate Comm. on Banking and Urban Affairs, S. Hrg. 112-139, 112th 

Cong. 122 (2011) (statement of Laurie Goodman).. 122 See, e.g., The Need for National Mortgage Servicing Standards: Hearing Before the Subcomm. on Housing, 

Transportation, and Community Affairs of the Senate Comm. on Banking and Urban Affairs, S. Hrg. 112-139, 112th 

Cong. 72-73 (2011) (statement of Diane Thompson); see generally Thompson, 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/Servicing Guide, Volume 2, Ch. 65.42 (2012); Making Home Affordable Program Handbook, 

v3.4, at 106 (December 15, 2011). Through this rulemaking, the Bureau is proposing to make early intervention a 

uniform minimum national standard and part of established servicer practice. 

123 See, e.g., Are There Government Barriers to the Housing Recovery?: Hearing Before the Subcomm. on 

Insurance, Housing, and Community Opportunity of the House Comm. on Financial Services, No. 112-7, 112th 

Cong. 50-51 (2011) (statement of Phyllis Caldwell, Chief, Homeownership Preservation Office, U.S. Dept. 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. 

124 See Office of the Comptroller of the Currency, Foreclosure Prevention: Improving Contact with Borrowers, 

Insights (June 2007), available at www.occ.gov/topics/community-affairs/publications/insights/insights-foreclosureprevention.pdf. 

125 See, 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 

www.occ.gov/news-issuances/speeches/2007/pub-speech-2007-61.pdf, at 2-3; Laurie S. Goodman et al., 

Modification Effectiveness: The Private Label Experience and Their Public Policy Implications, Amherst Mortgage 

Insight (Amherst Securities Group LP, June 19, 2012), at 5-6; Stegman et al., Preventative Servicing, 18 Housing 
191 

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.126 However, there are currently no uniform minimum national standards for all 

servicers of federally related mortgage loans. In order to ensure that servicers are providing 

delinquent borrowers with information about their options at the early stages of delinquency, the 

Bureau is proposing to establish minimum early intervention requirements under RESPA. 

Proposed section 1024.39 would require servicers to provide delinquent borrowers with 

two notices. First, proposed § 1024.39(a), would require 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 be required to take this action 30 days 

after the payment due date, unless the borrower satisfies the payment during that period. Second, 

proposed § 1024.39(b) would require 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. The servicer would be required to provide the written notice not later than 40 days 

after the payment due date, unless the borrower satisfies the payment during that period. These 

two notices are designed primarily to encourage delinquent borrowers to work with their servicer 

to identify their options for avoiding foreclosure. The Bureau recognizes that not all delinquent 

 Pol’y Debate 245; 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, Mar. 2008). 126 HUD 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); HUD Handbook 4330.1 rev-5, Chapter 7; 38 CFR 

36 subpart A (VA). Fannie Mae and 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, 

Part VII (2012); Fannie Mae, Outbound Call Attempts Guidelines (Oct. 1, 2011), available at

www.eFannieMae.com; Fannie Mae, Letters and Notice Guidelines (Apr. 25, 2012), available at

www.eFannieMae.com; Freddie Mac Single-Family Seller/Servicing Guide, Volume 2, Chapters 64-69 (2012). 
192 

borrowers who receive these notices may respond to the servicer and pursue available loss 

mitigation options. However, the Bureau believes that the notices will ensure, at a minimum, 

that all borrowers have an opportunity to do so at the early stages of a delinquency. 

39(a) Oral Notice 

If a borrower is late in making a payment sufficient to cover principal, interest, and, if 

applicable, escrow, proposed § 1024.39(a) would require the servicer to notify or make good 

faith efforts to notify the borrower orally of that late payment and that loss mitigation options, if 

applicable, may be available. The term “loss mitigation options” is defined in proposed 

§ 1024.31 and is discussed in more detail above. The Bureau is proposing this requirement 

because, as discussed above, 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. By notifying borrowers through live contact that loss 

mitigation options may be available, servicers would be able to begin working with the borrower 

to develop appropriate relief. 

Proposed § 1024.39(a) would require servicers to notify borrowers about loss mitigation 

options “if applicable.” Thus, 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. In addition, proposed comment 39(a)-1.ii explains that the servicer would not be 

required to describe any particular option, but instead would need only inform the borrower that 

loss mitigation options may be available. The Bureau is not proposing that servicers provide 

borrowers detailed information because not all borrowers may benefit from such a conversation 

at the time of this contact. However, as explained in proposed comment 39(a)-1.ii, nothing 

would preclude the servicer from providing more detailed information that the servicer believes 
193 

would assist the borrower. 

During the Small Business Panel Review process, small servicer representatives 

explained that they are able to distinguish between borrowers who had simply forgotten to mail 

in a payment from borrowers who were actually having trouble making a payment.127 The 

Bureau recognizes that not all borrowers may require information about loss mitigation options 

in order to become current on their payments, but the Bureau also understands that not all 

borrowers may be forthcoming regarding the reasons for a delinquency. The Bureau is 

concerned that these borrowers may not learn about loss mitigation options unless the servicer 

indicates that help may be available at the time of the proposed oral notice. The Bureau invites 

additional comment on how servicers typically determine whether and at what stage a borrower 

should be informed that loss mitigation options may be available. 

Proposed comment 39(a)-1.i explains that the oral notice would have to be made through 

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. The Bureau has 

included this comment because the Bureau believes that servicers are likely to learn about the 

circumstances surrounding a borrower’s delinquency through an interactive conversation and 

thus, for example, would be better able to help the borrower identify an appropriate loss 

mitigation option. 

Proposed § 1024.39(a) would also require the servicer to notify or make good faith 

efforts to provide the oral notice that the borrower is late in making a payment. This oral notice 

is intended to work in concert with the written periodic statement proposed in the Bureau’s 2012 

TILA Mortgage Servicing Proposal, which would inform the borrower of any late fees that the 

 

127 See Small Business Review Panel Report at 25. 
194 

borrower faces due to a delinquency. A servicer could, for example, use the oral notice to 

explain any late charge appearing on the periodic statement the borrower would receive. In 

addition, by providing this notice through live contact, a servicer could learn about the 

circumstances of the borrower’s delinquency and the borrower’s ability to self-cure without the 

assistance of a loss mitigation option. 

Late payment. Proposed § 1024.39(a) would require the servicer to provide the 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 be 

required to provide the oral notice if a borrower is late only with respect to paying a late fee for a 

given billing cycle. The Bureau is proposing 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. 

Regulation Z § 1026.36(c)(1)(ii) generally prohibits servicers from “pyramiding” late 

fees—i.e., imposing a late fee or delinquency charge in connection with a payment, when the 

only delinquency is attributable to late fees or delinquency charges assessed on an earlier 

payment, and the payment is otherwise a full payment.128 “Pyramiding” late fees can result in 

future payments being deemed late even if they are paid in full within the required time period, 

thus permitting the servicer to charge additional late fees. This practice can cause an account to 

appear to be in default, and thus can give rise to charging excessive or unwarranted fees to 

borrowers who may be unable to catch up on payments.129 However, because this practice is 

prohibited under Regulation Z and other regulations, the Bureau does not expect that borrowers 

would be likely to be pushed into foreclosure solely because of accumulated late charges if they 

 

128 The Bureau’s 2012 TILA Mortgage Servicing Proposal would redesignate this provision as § 1026.36(c)(2). 129 See 73 FR 44522, 44569 (July 30, 2008). 
195 

are otherwise current on their payment. The Bureau has taken the same approach with respect to 

the written notice that would be required by proposed § 1024.39(b)(1). See the section-bysection analysis below of proposed § 1024.39(b)(1). 

Proposed comment 39(a)-3 explains 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. Proposed comment 39(a)-3 contains a cross-reference to proposed comment 39(a)-4, 

which, as discussed in more detail below, addresses situations in which the borrower satisfies the 

payment during the 30-day period. 

The Bureau recognizes that 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, proposed § 1024.39(a) provides that if the 

borrower fully satisfies the payment before the end of the 30-day period, the servicer would not 

be required to provide the notice under proposed § 1024.39(a). Proposed comment 39(a)-4 

explains 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. To illustrate, proposed comment 39(a)-4 provides an example in which a 

borrower is initially overdue on a payment due January 1 but satisfies the payment on January 

20. In this case, the servicer would not be required to notify or make good faith efforts to notify 
196 

the borrower by January 31. 

Proposed comment 39(a)-6 clarifies that a servicer would not be required under 

§ 1024.39(a) to notify 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 is 

proposing this clarification because the Bureau believes it would be unnecessary for a servicer to 

notify a borrower of a previously missed payment if the borrower is performing under a loss 

mitigation option designed to cure that delinquency. 

 30-day period. Proposed § 1024.39(a) would require servicers to provide the oral notice 

not later than 30 days after a payment due date. In developing the proposed 30-day time period, 

the Bureau sought to harmonize the timing of the oral notice with the timing of the periodic 

statement under the Bureau’s 2012 TILA Mortgage Servicing Proposal, as noted above. During 

the Small Business Review Panel process, some small servicer representatives expressed concern 

that those servicing loans for agencies with more restrictive timeframes and collection 

requirements would incur costs if they had to meet duplicative requirements.130 To address this 

concern, the Bureau is proposing an outer bound timeframe for servicers to comply with the 

proposed oral notice. In particular, the Bureau sought to harmonize the timing of the oral notice 

with existing early intervention standards established by the GSEs, FHA, and VA so that 

servicers already complying with those standards that meet the Bureau’s proposed requirements 

could comply with proposed § 1024.39. 

Fannie Mae and Freddie Mac generally recommend that servicers initiate phone calls for 

borrowers who have missed a payment by the 16th day after a payment due date.131 Similarly, 

 

130 See appendix A of the Small Business Review Panel Report. 131 Freddie Mac recommends servicers contact borrowers within 3 days of a missed payment, unless the servicers 

uses a behavior modeling tool that would support an alternate approach. Fannie Mae recommends servicers contact 
197 

HUD generally requires that servicers of FHA loans take “prompt action” to collect on 

delinquent loans.132 Although servicers may satisfy the “prompt action” requirement through a 

variety of means, HUD recommends that servicers that choose to contact borrowers by telephone 

begin efforts by the 17th day of a borrower’s delinquency and complete them by the end of the 

month.133 Servicers of VA loans are generally required to commence efforts to contact 

borrowers by phone concurrent with sending a written delinquency notice by the 20th day of a 

borrower’s delinquency.134 

In order to provide servicers with flexibility in contacting borrowers who may have 

different default risk profiles, the Bureau’s proposal would provide servicers with discretion to 

make the contact at any time during the 30-day period. Thus, servicers who are already 

providing an oral notice with the information required in proposed § 1024.39(a) sooner than 30 

days after a missed payment would be in compliance with the Bureau’s proposal. Although 

some servicers may choose to contact borrowers at a high risk of default within several days after 

a borrower misses a payment due date,135 there are drawbacks to requiring servicers to contact all 

borrowers too soon. Borrowers may not think of themselves as being delinquent until after the 

expiration of a grace period, which may occur on the 10th or the 15th of the month, and they 

 “high risk” borrowers within 3 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, Part VII (2012); Fannie Mae, 

Outbound Call Attempts Guidelines (Oct. 1, 2011), available at www.eFannieMae.com; Fannie Mae, Letters and 

Notice Guidelines (Apr. 25, 2012), available at www.eFannieMae.com; Freddie Mac Single-Family Seller/Servicing 

Guide, Volume 2, Chs. 64-69 (2012). 

132 24 CFR 203.600. 133 See HUD Handbook 4330.1 rev-5, 7-7(A). 134 Servicers of VA loans must have collection procedures that include “An effort, concurrent with the written 

delinquency notice [mailed no later than the 20th day of delinquency], to establish contact with the borrower(s) by 

telephone. When talking with the borrower(s), the holder should attempt to determine why payment was not made 

and emphasize the importance of remitting loan installments as they come due.” 38 CFR 36.4278(g)(i) and (ii). 135 For example, the GSEs recommend that servicers begin calling borrowers considered to be at a high risk of 

default within three days of a missed payment. See Fannie Mae Single-Family Servicing Guide, Part VII (2012); 

Fannie Mae, Outbound Call Attempts Guidelines (Oct. 1, 2011), available at www.eFannieMae.com; Freddie Mac 

Single-Family Seller/Servicing Guide, Volume 2, Ch. 64.5 (2012). 
198 

may consider contact by the servicer before the grace period unwarranted. As noted above, 

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. The 

Bureau believes these borrowers frequently would be able to self-cure within 30 days of a missed 

payment.136 

At the time the Bureau proposed its early intervention requirements for the Small 

Business Panel, the Bureau considered requiring servicers to contact a delinquent borrower 45 

days after the borrower misses a payment.137 The Bureau is not proposing a 45-day period as the 

deadline for the oral notice because the Bureau is concerned that allowing servicers to wait this 

long after a borrower misses a payment to provide initial notice of loss mitigation options may 

not afford the borrower sufficient time to consider and pursue loss mitigation options. In 

addition, by 45 days after a payment due date, a borrower may have become late on a second 

missed payment. The Bureau is concerned that delaying the time in which a servicer must make 

initial live contact with the borrower may make it more difficult for borrowers to cure their 

delinquency. 

Moreover, based on feedback received from small servicer representatives during the 

Small Business Panel Review process, the Bureau does not believe a 30-day deadline for the 

proposed oral notice will present a significant burden. During the Small Business Panel Review 

process, small servicer representatives explained that they are often in touch with delinquent 

 

136 See, 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, Mar. 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”) 137 See Small Business Review Panel Report at 12. 
199 

borrowers well before the 45-day period initially considered by the Bureau,138 and often within 

the first ten days of a delinquency.139 Based on this feedback, the Bureau believe that, with 

respect to the timeframe in which the Bureau is proposing for servicers to make initial contact,140

a 30-day deadline for the oral notice would not require small servicers to change their early 

intervention practices. 

The Bureau invites comment on whether the proposed 30-day time period provides 

borrowers with adequate notice of loss mitigation options while providing servicers sufficient 

flexibility in managing delinquent borrowers with different risk profiles. The Bureau also invites 

comment on whether the 30-day requirement would pose a substantial conflict with existing 

servicer practices. The Bureau invites comment on whether servicers should provide the oral 

notice by some deadline before or after the proposed 30-day period. 

Borrower contacts the servicer about a late payment. To account for situations in which 

a borrower proactively contacts the servicer about a late payment, proposed comment 39(a)-5 

explains 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 recognizes that borrowers 

may contact the servicer proactively to explain that the borrower expects to become overdue on a 

payment or to acknowledge an ongoing delinquency. In such cases, it would not be necessary 

for the servicer to notify the borrower of the delinquency. However, the Bureau believes that 

borrowers who contact the servicer proactively would benefit from knowing about loss 

 

138 See id. at 24 and at appendix A. 139 See id. at 25. 140 Small servicers, however, did express concerns about the written early intervention notice, as discussed more in 

the section-by-section analysis of proposed § 1024.39(b) below. 
200 

mitigation options for the reasons discussed above. 

Proposed comment 39(a)-5.i provides two examples to clarify how servicers would 

comply with proposed § 1024.39(a) for borrowers who contact the servicer about a late payment. 

In the example in proposed comment 39(a)-5.i.A, a borrower contacts a servicer on January 25 to 

explain that he expects to miss a payment due February 1. The borrower satisfies the payment 

on February 8 and the servicer had not yet notified or made good faith efforts to notify the 

borrower that loss mitigation options may be available. In this case, the servicer would not be 

required to notify or make good faith efforts to notify the borrower that loss mitigation options 

may be available during the 30 days after February 1 because the borrower was able to satisfy 

the payment within the 30-day period after the payment due date. The proposed comment 

includes a cross-reference to proposed comment 39(a)-4, which addresses situations in which the 

borrower satisfies the payment within the 30-day period. The Bureau has included this example 

because many borrowers are only delinquent for short periods and may be able to self-cure 

within 30 days after a payment due date. In these cases, the Bureau does not believe it would be 

necessary to explain that loss mitigation options may be available. 

In the example in proposed comment 39(a)-5.i.B, the borrower in the example at 

proposed comment 39(a)-5.i.A subsequently misses a payment due March 1. However, the 

borrower does not contact the servicer to explain the March 1 missed payment and the borrower 

remains late on that payment during the 30 days after March 1. In this case, not later than 30 

days after March 1, the servicer would be required to notify or make good faith efforts to notify 

the borrower orally that he is overdue on the March 1 payment and that loss mitigation options, if 

applicable, may be available. This comment is intended to clarify that the servicer’s obligations 

to notify a borrower of a late payment is tied to the 30-day period commencing on the date of the 
201 

late or missed payment. The servicer in the example in proposed comment 39(a)-5.i.B would be 

required to notify the borrower of the March 1 late payment because the borrower has not 

contacted the servicer about that payment. 

Good faith efforts. The Bureau recognizes that servicers may not always be able to reach 

a borrower despite the servicer’s good faith efforts to make contact. Thus, under proposed 

§ 1024.39(a), if a borrower is late in making a payment, not later than 30 days after the payment 

due date, the servicer would be required notify or “make good faith efforts to notify” the 

borrower. Proposed § 1024.39(a) also provides 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. Proposed comment 39(a)-2 clarifies 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 proposed comment also explains that a servicer attempting to reach the borrower by 

telephone should make the first call not later than the 28 days after the payment due date, in 

order to make three phone call attempts by the 30th day, because each phone call would be 

required to occur on a separate day, assuming the first two are unsuccessful. The Bureau 

believes servicers attempting to contact a borrower by phone should be required to make several 

attempts because of the importance of making contact. The Bureau is proposing to define good 

faith efforts as requiring that each attempt by phone occur on a different day because the Bureau 

does not believe that contacting an absent borrower in quick succession on the same day would 

constitute good faith efforts. 

The Bureau is proposing requirements for good faith efforts by telephone because it 

understands this is a common method by which servicers attempt to reach delinquent borrowers. 
202 

However, this is not the only way to notify the borrower under proposed § 1024.39(a). Servicers 

may also provide the oral notice through a live, in-person meeting. The Bureau is interested in 

whether there are forms of communication other than oral contact that would promote a dialogue 

between the borrower and the servicer regarding the borrower’s delinquency and any appropriate 

loss mitigation options. For example, the Bureau invites comment on whether text messages or 

email are as or more effective in communicating with a delinquent borrower and, if so, whether 

such communications should be required to meet any particular standards to satisfy a good faith 

effort. 

Legal authority. As discussed above, the Bureau has authority to implement 

requirements for servicers to provide information about borrower options pursuant to section 

6(k)(1)(E) of RESPA. As set forth above, the Bureau has determined that providing borrowers 

with timely information about loss mitigation options and encouraging servicers to work with 

borrowers to identify any appropriate loss mitigation options are necessary to provide borrowers 

a meaningful opportunity to avoid foreclosure. Proposed § 1024.39(a) would provide borrowers 

information about their options by requiring servicers to notify or make good faith efforts to 

notify borrowers that loss mitigation options, if applicable, may be available to assist them. 

Accordingly, the Bureau proposes to implement proposed § 1024.39(a) pursuant to its authority 

under section 6(k)(1)(E) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) 

of RESPA to establish any requirements necessary to carry out section 6 of RESPA and has 

authority under section 19(a) of RESPA 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 consumer protection purposes of RESPA. 

39(b) Written Notice 
203 

39(b)(1) In General

Proposed § 1024.39(b)(1) would require the servicer 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. This notice would be required to be provided not later 

than 40 days after the payment due date. The proposed content requirements are discussed in 

more detail below in the discussion of proposed § 1024.39(b)(2). 

Proposed comment 39(b)(1)-1 explains 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 proposed § 1024.39(a). The Bureau is proposing to require a written 

disclosure because borrowers may be unable to adequately assess and recall detailed information 

provided orally. 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. 

Based on feedback received during the Small Business Review Panel process, the Bureau 

understands that some small servicers may not provide a written notice to delinquent 

borrowers.141 The Bureau recognizes that not all servicers may provide written information to 

borrowers because each borrower may present unique situations. However, as discussed in more 

detail below, the Bureau believes borrowers would benefit from receiving written information 

about loss mitigation options, if applicable, and the foreclosure process. To address concerns 

about requiring an overly-prescriptive written notice that may not account for the variety of 

situations posed by delinquent borrowers, the Bureau has proposed generally applicable 

minimum content requirements that can be tailored to specific situations, as discussed in more 

 

141 See appendix A of the Small Business Review Panel Report. Other small servicer representatives explained, 

however, that they provide some form of written notice to delinquent borrowers. 
204 

detail in the section-by-section analysis of proposed § 1024.39(b)(2) below. 

In addition, during the Small Business Review Panel process, some small servicers 

indicated they may face costs in developing and providing the written notice.142 To assist 

servicers in complying with the written notice, the Bureau has developed proposed model 

clauses, referenced in proposed § 1024.39(b)(3). The model clauses are discussed in the sectionby-section analysis of appendix MS-4. The Bureau also notes that under proposed § 1024.32, 

discussed above, servicers would be permitted to provide the written notice to borrowers in 

electronic form, subject to compliance with the consent and other provisions of the E-Sign Act. . 

Late payment. Similar to the oral notice under proposed § 1024.39(a), proposed 

§ 1024.39(b) would require the servicer 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 oral notice, the written notice would be required to be provided not later than 40 days 

after the payment due date. Proposed comment 39(b)(1)-2 includes a cross-reference to 

proposed comment 39(a)-3 to clarify that, for purposes of calculating when the written notice 

must be provided, servicers should consider a payment late in the same manner as would they 

would for purposes of calculating when the oral notice must be provided. Proposed comment 

39(b)(1)-2 also provides an example in which a borrower misses a payment due date of January 1 

and the payment remains due during the 40-day period after January 1. In this case, the servicer 

would be required to provide the written notice not later than 40 days after January 1—i.e., by 

February 10. 

40-day time period. As with the oral notice, the Bureau is proposing to permit servicers 

to provide the written notice at any time during the 40-day period. Some servicers may choose 

 

142 See id.
205 

to provide the written notice earlier for borrowers who pose a high risk of default. The Bureau is 

proposing a deadline that occurs after the 30-day deadline for the proposed oral notice under 

§ 1024.39(a) to provide servicers an opportunity to tailor the written notice and other information 

to the borrower’s individual circumstances following the oral notice. Some servicers may 

choose to provide the written notice prior to the oral notice. The Bureau believes servicers 

should retain flexibility in determining when to provide the written notice. 

In addition, the Bureau has selected a 40-day time period to provide borrowers with a 

reasonable opportunity to cure the delinquency within ten days after servicers would be required 

to provide the oral notice under proposed § 1024.39(a). Accordingly, proposed comment 

39(b)(1)-3 explains that a service would not be required to provide the written notice unless the 

borrower is late in paying the amount owed in full during the 40 days after the payment due date. 

Proposed comment 39(b)(1)-3 provides an example in which a borrower who is contacted by a 

servicer on January 20 regarding a missed January 1 payment later satisfies the payment by 

January 30. In this case, the servicer would not be required to provide the written notice 40 days 

after January 1—i.e., by February 10. In addition, proposed comment 39(b)(1)-5 clarifies that a 

servicer would not be required under § 1024.39(b)(1) to notify a borrower who is performing as 

agreed under a loss mitigation option designed to bring the borrower current on a previously 

missed payment. See the section-by-section analysis of comment 39(a)-6 (borrower performing 

under a loss mitigation option) in the discussion of proposed § 1024.39(a) above. 

In developing the proposed 40-day time period, the Bureau sought to harmonize the 

timing of the written notice with the recommended timing for the delivery of similar written 

notices under standards for servicers of FHA, VA, and GSE loans. HUD generally requires 

servicers of FHA-insured loans to provide each mortgagor in default HUD’s “Avoiding 
206 

Foreclosure” pamphlet, or a form developed by the mortgagee and approved by HUD, not later 

than the 60th day of delinquency, although HUD recommends sending the form by the 32nd day 

of delinquency in order to prevent foreclosures from proceeding where avoidable.143 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.144 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,145 although 

GSE servicers have additional flexibility in providing the solicitation package to certain lowerrisk borrowers as late as the 65th day of their delinquency.146 The Bureau also understands that 

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). Similar to the information required under section 106(c)(5) of the Housing and 

Urban Development Act, the written notice in proposed § 1024.39(b)(2)(vi) would include 

contact information for housing counselors and the borrower’s State housing finance authority, 

although servicers would be required to provide the written notice not later than 40 days after a 

 

143 See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G). 144 “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).

145 See Fannie Mae, Letters and Notice Guidelines (Apr. 25, 2012), available at www.eFannieMae.com; Freddie 

Mac Single-Family Seller/Servicing Guide, Volume 2, Chapter 64.5 (2012). During the Small Business Panel 

Review process, small servicer representatives 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. 

146 The GSEs allow servicers to rely on the results of a behavioral modeling tool to evaluate a borrower’s risk 

profile. See id.
207 

borrower misses a payment due date. 

At the time the Bureau proposed its early intervention requirements for the Small 

Business Panel, the Bureau considered requiring servicers to provide delinquent borrowers with 

written information not later than 45 days after the borrower misses a payment.147 The Bureau is 

not proposing a 45-day period for the deadline for the written notice in proposed § 1024.39(a) 

because, as noted above, the Bureau intended to provide borrowers with a reasonable opportunity 

to cure a delinquency after receiving the oral notice (which, pursuant to proposed § 1024.39(a), 

would be required by the 30th day of the borrower’s delinquency). The Bureau is aware that 

some borrowers may be able to self-cure even after they become 30 days delinquent. In light of 

this, the Bureau invites comment on how far the deadline for the written notice could be 

extended to permit a borrower to self-cure, while still providing delinquent borrowers with 

adequate notice of loss mitigation options. 

Based on feedback provided during the Small Business Review Panel process, the Bureau 

does not believe a 40-day timeframe for providing the written notice would impose a significant 

burden for small servicers; small servicer representatives explained that they are generally in 

touch with delinquent borrowers well ahead of the 45-day time period initially considered by the 

Bureau.148 

During informal consultation, some commenters expressed concern that servicers may 

have difficulty complying with the Bureau’s proposed 40-day deadline in light of existing 

servicer requirements. The Bureau understands that a single deadline for sending the written 

notice may require some servicers to change their practices with respect to certain borrowers, 

such as GSE servicers servicing loans for borrowers determined to be at lower risk for 

 

147 See Small Business Review Panel Report at 12. 148 See Small Business Review Panel Report at 25 and at appendix A. 
208 

foreclosure. To the extent requirements proposed by Bureau overlap with standards imposed by 

Federal agencies, the GSEs, or others parties, the Bureau expects servicers would abide by 

stricter standard in order to comply with all requirements. The Bureau, however, continues to 

consider how it may align its requirements with best practices that help borrowers avoid 

foreclosure. 

Some commenters recommended that the Bureau could address a compliance conflict by 

extending the deadline for sending the notice. The Bureau is concerned that extending the 

deadline for the written notice too far into a borrower’s delinquency may not provide borrowers 

sufficient time to process loss mitigation applications before the foreclosure process begins. In 

addition, there is some risk that borrowers could fall further behind on their payments without 

knowing how to pursue loss mitigation options. The Bureau recognizes that providing the 

written notice to all delinquent borrowers within a 40-day period may be unnecessary for some 

borrowers, such as those who present a low risk of default. To mitigate this potential for 

unnecessary burden, the Bureau is proposing that the written notice be provided to delinquent 

borrowers only once every 180-day period, as discussed below in the paragraph heading, 

“Frequency of the notice.” The Bureau invites comment on whether extending the 40-day 

deadline for the written notice to 45 days, 65 days, or longer would provide borrowers with 

sufficient notice of loss mitigation options before a servicer begins the foreclosure process. 

In developing the proposed 40-day deadline, the Bureau also considered whether to 

require servicers to provide the written notice not later than five days after a borrower contacts 

the servicer about the borrower’s anticipated difficulty with making a payment.149 The Bureau 

has not proposed this requirement but instead is proposing a single 40-day deadline in order to 

 

149 See Small Business Review Panel Report at 12. 
209 

balance the need to provide borrowers with assistance at the early stages of a delinquency with 

the need to provide clear and enforceable standards. The Bureau is concerned that it may be 

difficult to enforce a requirement to provide the written notice based on borrowers’ explaining 

that they may have difficulty making a payment, particularly because such a communication may 

be subject to interpretation. A single 40-day deadline would ensure servicers are accountable to 

a clear standard that avoids the question of whether borrowers had, in fact, communicated that 

they expect to have difficulty making payment. In addition, as previously noted, the single 40-

day deadline is intended to provide servicers with flexibility to determine the most appropriate 

time to provide the written notice and to provide borrowers with the opportunity to self-cure. 

Finally, the Bureau believes that proposed § 1024.36, which would require servicers to respond 

to information requests, will address situations in which borrowers request information about 

loss mitigation and foreclosure. 

Frequency of the notice. Proposed comment 39(b)(1)-4 explains 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 explains that, notwithstanding this limitation, a servicer would still be required 

to provide the oral notice required under § 1024.39(a) for each payment that is overdue. 

Proposed comment 39(b)(1)-4 provides an example in which a borrower misses a payment due 

March 1 and the borrower remains late on that payment during the 40 days after March 1. As 

would be required under § 1024.39(b)(1), the servicer provides the written disclosure 40 days 

after March 1—i.e., by April 10. If the borrower subsequently misses another payment due April 

1 and remains late on that payment during the 40 days after April 1, the servicer would not be 

required to provide the written notice again for the 180-day period beginning on April 10, the 
210 

date the servicer last provided the written notice. However, because the borrower missed 

payments due on March 1 and April 1, the servicer would be required to provide the oral notice 

under § 1024.39(a) within the 30-day periods beginning on March 1 and April 1. 

During the Small Business Panel Review process, a small servicer representative 

expressed concern about sending a written notice each month for borrowers who are consistently 

behind on their payments.150 The Bureau does not believe that borrowers who are consistently 

delinquent would benefit from receiving the same written notice every month. The Bureau 

expects borrowers would be able to retain the disclosure because, as discussed above, proposed 

§ 1024.32 would require that the disclosure be provided in a form the borrower may keep. 

However, the Bureau does not believe servicers should only be permitted to provide the written 

notice once because the content in the written notice may be updated over time. The Bureau 

notes that providing the written disclosure once during any six-month period is generally 

consistent with HUD’s requirements for servicers of FHA-insured loans. HUD’s regulations 

provide that if an account is brought current and then again becomes delinquent, the “Avoiding 

Foreclosure” pamphlet must be sent again unless the beginning of the new delinquency occurs 

less than six months after the pamphlet was last mailed.151 The Bureau solicits comment on 

whether providing the written disclosure once during any 180-day period is sufficient to provide 

borrowers with meaningful information. 

Legal authority. As discussed above, the Bureau has authority to implement 

requirements for servicers to provide information about borrower options pursuant to section 

6(k)(1)(E) of RESPA. As set forth above, the Bureau has determined that providing borrowers 

with timely information about loss mitigation options and the foreclosure process, and 

 

150 See Small Business Review Panel Report at 25. 151 See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G). 
211 

encouraging servicers to work with borrowers to identify any appropriate loss mitigation options, 

are necessary to provide borrowers a meaningful opportunity to avoid foreclosure. Proposed 

§ 1024.39(b)(1) sets forth the general requirement that servicers provide borrowers with a written 

notice about their options by requiring servicers to provide them with a written notice about loss 

mitigation options and the foreclosure process. Proposed § 1024.39(b)(1) also sets forth timing 

requirements for the written notice. Accordingly, the Bureau proposes to implement proposed 

paragraph 39(b)(1) pursuant to its authority under section 6(k)(1)(E) of RESPA. The Bureau 

further has authority pursuant to section 6(j)(3) of RESPA to establish any requirements 

necessary to carry out section 6 of RESPA and has authority pursuant to section 19(a) of RESPA 

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 consumer 

protection purposes of RESPA. 

39(b)(2) Content of the Written Notice

Proposed § 1024.39(b)(2) sets 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, 

the servicer would be 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, the servicer would be required, if applicable, to 

include a statement providing a brief description of examples 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 require the servicer 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) would also require servicers to provide an estimate 
212 

for when the servicer may start the foreclosure process. This estimate would be required to be 

expressed in a number of days from the date of a missed payment. Finally, proposed 

§ 1024.39(b)(iv) would require 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. 

The Bureau recognizes that some of the proposed content may not appear on forms 

currently used by servicers. For example, the estimated foreclosure timeline in proposed 

§ 1024.39(b)(3)(v), does not appear on the HUD “Avoiding Foreclosure” brochure that servicers 

of FHA loans are required to send by end of the second month of a borrower’s delinquency.152 

Additionally, during the Small Business Panel Review process, small servicer representatives 

expressed concern that the information contained in the written notice may differ from written 

information they currently provide to delinquent borrowers.153 Small servicers representatives 

were generally concerned that overly-prescriptive early intervention requirements would 

interfere with “high-touch” engagement with delinquent borrowers, which they explained was 

frequently tailored to borrowers’ particular circumstances; thus, the Small Business Review 

Panel recommended that the Bureau consider flexible early intervention requirements for small 

servicers in light of their existing practices.154

To accommodate existing servicer requirements and practices, proposed comment 

39(b)(2)-1 explains that a servicer may provide additional information beyond the proposed 

content requirements that the servicer determines would be beneficial to the borrower. In 

 

152 See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G). 153 See Small Business Review Panel Report at 31. 154 See id.
213 

addition, proposed comment 39(b)(2)-2 explains 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 has attempted to propose a minimum amount of content in the 

proposed notice that will provide delinquent borrowers with helpful information. The Bureau 

solicits comments on whether the content requirements in proposed § 1024.39(b)(2) would pose 

a substantial conflict with existing disclosure standards established by Federal agencies, the 

GSEs, or other existing servicer practices. To the extent the proposed the written notice would 

provide information not currently being provided by the Federal agencies or the GSEs, the 

Bureau solicits comment on whether such information would be beneficial to delinquent 

borrowers. The Bureau solicits comment on the proposed content requirements, described 

below, and whether alternative or additional content would be beneficial to borrowers. 

Content requirements. Proposed § 1024.39(b)(2)(i) would require the written notice to 

include a statement encouraging the borrower to contact the servicer. The Bureau believes that a 

statement informing borrowers that the servicer can provide assistance with respect to their 

delinquency is necessary in order to facilitate a discussion between the borrower and the servicer 

at the early stages of delinquency. As noted above, many borrowers do not know that their 

servicer can help them avoid foreclosure if they are having trouble make their monthly 

payments. The Bureau believes a statement encouraging the borrower to call would remove this 

barrier to borrower-servicer communication. The Bureau recognizes that not every loss 

mitigation option may be available or appropriate for every borrower. Therefore, the Bureau is 

not proposing to require servicers to emphasize any particular loss mitigation option over 

another. Accordingly, proposed comment 39(b)(2)(i)-1 explains that the servicer would not be 

required, for example, to specifically request the borrower to contact the servicer regarding any 
214 

particular loss mitigation option. 

Contact information for the servicer. To facilitate a dialogue between the servicer and 

the borrower, proposed § 1024.39(b)(2)(ii) would require the written notice to include the 

servicer’s mailing address and telephone number. Pursuant to proposed § 1024.40(a), a servicer 

would be required to make available direct access to servicer personnel for assistance with curing 

a delinquency or avoiding a delinquency, default, or foreclosure for any borrower whom a 

servicer is required to notify that loss mitigation options may be available under proposed 

§ 1024.39(a). Thus, proposed comment 39(b)(2)(ii)-1 explains that, if applicable, a servicer 

should provide contact information that would put a borrower in touch with servicer personnel 

under proposed § 1024.40. 

Brief description of loss mitigation options. Proposed § 1024.39(b)(2)(iii) would require 

that the written notice include a statement, if applicable, providing a brief description of 

examples of loss mitigation options that may be available from the servicer. Proposed comment 

39(b)(2)(iii)-1 explains that proposed § 1024.39(b)(2)(iii) does not mandate that a specific 

number of examples be disclosed, but explains 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. The Bureau is 

not proposing a minimum number of examples because of the difficulty in identifying a 

minimum number given the variety of loss mitigation options offered by servicers. 

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.155 However, the Bureau is not proposing that 

 

155 See appendix C of the Small Business Review Panel Report. 
215 

servicers list all of the loss mitigation options they offer because the Bureau is concerned that 

servicers may have difficulty providing an accurate disclosure if the number of loss mitigation 

options they offer changes over time. In addition, the Bureau is concerned that a lengthy written 

notice would undermine the intended effect of encouraging borrowers to contact their servicer to 

discuss their options. To address the limitation of providing borrowers with information about 

every option, the Bureau is proposing that the written notice contain contact information for 

housing counselors and the borrower’s State housing finance authority. Housing counselors and 

State housing finance authorities may be able to provide the borrowers with information about 

other loss mitigation options that may not be listed on the written notice. 

Proposed comment 39(b)(2)(iii)-1 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 the listed options. Different loss mitigation options may be available 

to borrowers depending on the borrower’s qualifications or other factors. To avoid confusing 

borrowers, the Bureau believes servicers should be able to clarify that not all of the enumerated 

loss mitigation options will necessarily be available. 

Proposed comment 39(b)(2)(iii)-2 explains that an example of loss mitigation option may 

be described in one or more sentences. Proposed comment 39(b)(2)(iii)-2 also explains 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. For example, if a 

servicer provides several loan modification programs, it may simply provide a generic 

description of a loan modification. The Bureau recognizes that loss mitigation options are 

complex and providing comprehensive explanations to borrowers about each option may 

overwhelm a delinquent borrower with information. Thus, the Bureau does not believe that 
216 

borrowers would benefit from a disclosure with voluminous detail at the early stage of exploring 

the options. Instead, the Bureau believes that servicers should provide borrowers with a brief 

explanation and encourage the borrower to contact the servicer to discuss whether any options 

may be appropriate. The Bureau solicits comment on whether the level of detail that would be 

required to describe loss mitigation options would be helpful to delinquent borrowers, and if 

more detail would be valuable, what specific information should be required. 

Explanation of how the borrower may apply for loss mitigation options. Proposed 

§ 1024.39(b)(2)(iv) would require 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 explains 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.” 

Proposed comment 39(b)(2)(iv)-1 explains 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 provides that servicers may supplement the written notice 

with a loss mitigation application form. At the time the Bureau proposed its early intervention 

requirements for the Small Business 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 
217 

apply.156 However, the Bureau is not proposing to require servicers to provide this level of detail 

in order to comply with proposed § 1024.39(b)(2)(iv). Each loss mitigation option may have its 

own specific documentation requirements and deadlines, and servicers may be unable to provide 

comprehensive application instructions generally applicable to all options. Additionally, because 

the Bureau is proposing that servicers only provide examples of loss mitigation options in the 

written notice, detailed instructions for only the listed options may not be useful for all 

borrowers. 

Foreclosure statement. Proposed § 1024.39(b)(2)(v) would require 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) would also require that the notice 

include an estimate of how many days after a missed payment the servicer makes the referral to 

foreclosure. Proposed comment 39(b)(2)(v)-1 clarifies 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 (50 U.S.C. App. 501 et seq.), and the requirements of the 

owner or assignee of the borrower’s loan. Proposed comment 39(b)(2)(v)-2 clarifies 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 explains that the servicer may provide its estimate as a range of days. 

During the Small Business Review Panel process, some small servicer representatives 

explained that information about foreclosure is typically not provided until after loss mitigation 

 

156 See appendix C of the Small Business Review Panel Report. 
218 

options have been explored.157 The Bureau believes borrowers would benefit from receiving 

information about the foreclosure process at the same time the borrower receives information 

about loss mitigation options. In order for borrowers to understand the choices they face at the 

early stages of delinquency, the Bureau believes they would benefit from understanding what 

foreclosure is and approximately when it may begin at the same time that they receive 

information about loss mitigation options. The Bureau invites comment on this expectation and 

whether borrowers would benefit from receiving information about foreclosure after servicers 

provide information about loss mitigation options. 

In addition, the Bureau is not proposing that servicers provide detailed information about 

foreclosure because the Bureau recognizes that foreclosure processes are complex and vary by 

jurisdiction. The Bureau questions whether borrowers are likely to benefit from detailed 

information, particularly if they are experiencing financial distress. Nonetheless, the Bureau 

believes that borrowers should be informed about foreclosure to some degree. The Bureau 

invites comment on whether borrowers would benefit from knowing when the servicer may 

begin the foreclosure process and whether servicers anticipate difficulty complying with this 

requirement. 

Contact information for housing counselors and State housing finance authorities. 

Proposed § 1024.39(b)(vi) would require 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.158 The Bureau is proposing to include information about housing 

 

157 See Small Business Review Panel Report at 31. 158 At the time of publishing, the Bureau list was not yet available and the HUD list was available at 

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm (HUD Approved Housing Counseling Agencies). 
219 

counselors to provide delinquent borrowers with additional resources to understand their loss 

mitigation options. The Bureau is proposing 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.159 

The Bureau is proposing to require that servicers include housing counselor contact 

information because borrowers may be more willing to contact a housing counselor than their 

servicer to discuss their options.160 In addition, a housing counselor could also provide a 

borrower with additional information about loss mitigation options that a servicer may not have 

listed on the written notice. However, distressed borrowers may be unaware that they can talk to 

a housing counselor.161 The Bureau believes that including housing counseling contact 

information on the written notice will assist borrowers in learning more about their options and, 

in turn, help them engage in a constructive dialogue with their servicer. 

On July 9, 2012, the Bureau released proposed rules to implement Dodd-Frank Act 

requirements expanding protections for “high-cost” mortgage loans under HOEPA, including a 

requirement that borrowers receive housing counseling (2012 HOEPA Proposal).162 The 2012 

HOEPA Proposal also proposed to implement other homeownership-counseling-related 

requirements that are not amendments to HOEPA, including a proposed amendment to 

Regulation X that lenders provide a list of five homeownership counselors or counseling 

 

159 See proposed Regulation Z §§ 1026.20(d) and 1026.41(d)(7) in the Bureau’s 2012 TILA Mortgage Servicing 

Proposal. 

160 Some servicers have found that borrowers may trust independent counseling agencies more than they trust 

servicers. See OCC, Foreclosure Prevention: Improving Contact with Borrowers, at 6 (June 2007). 161 See Freddie Mac, Foreclosure Avoidance Research (2005). 162 See 2012 HOEPA Proposal, available at http://files.consumerfinance.gov/f/201207_cfpb_proposed-rule_highcost-mortgage-protections.pdf, at 29-35. 
220 

organizations to applicants for a federally related mortgage loan.163 

In connection with the written notice for delinquent borrowers, however, the Bureau is 

not proposing to require 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. During informal outreach, some 

commenters observed that delinquent borrowers may be confused by being directed to contact 

several different parties in the proposed § 1024.39(b) written notice—the servicer, housing 

counselors, and the State housing finance authority. As previously noted, the Bureau believes 

that delinquent borrowers would benefit from knowing how to access housing counselors 

because they may be more comfortable discussing their options with a third-party. However, the 

Bureau also understands that there is a benefit to providing distressed borrowers with a clear and 

concise notice. Providing contact information to access a list of counselors and counseling 

organizations would reduce the likelihood of information overload while still providing 

borrowers with access to assistance. 

In addition to information about accessing housing counselors, the Bureau is proposing to 

require that the proposed § 1024.39(b) written notice include contact information for the State 

housing finance authority located in the State in which the property is located. The Bureau is 

 

163 The list provided by the lender pursuant to proposed requirement in the 2012 HOEPA Proposal would include 

only homeownership counselors or counseling organizations from either the most current list of homeownership 

counselors or counseling organizations made available by the Bureau, or the most current list maintained by HUD of 

homeownership counselors or counseling organizations certified by HUD, or otherwise approved by HUD. The 

2012 HOEPA Proposal proposed that the list include five homeownership counselors or counseling organizations 

located in the zip code of the loan applicant’s current address, or, if there are not the requisite five counselors or 

counseling organizations in that zip code, then counselors or organizations within the zip code or zip codes closest to 

the loan applicant’s current address. To facilitate compliance with the proposed list requirement, the Bureau is 

expecting to develop a website portal that would allow lenders to type in the loan applicant’s zip code to generate 

the requisite list, which could then be printed for distribution to the loan applicant. See 2012 HOEPA Proposal at 

31-32 (discussing proposed Regulation X § 1024.20(a)). 
221 

proposing this because the Bureau believes borrowers are likely to benefit from knowing how to 

contact their State housing finance authority in the context of receiving information from their 

servicer about loss mitigation options. The Bureau is proposing that the § 1024.39(b) written 

notice include contact information for the State housing finance authority for the State in which 

the borrower’s property is located. The proposed § 1024.39(b) written notice would be required 

for delinquent borrowers of federally related mortgages, which are not limited to loans secured 

by the borrower’s principal dwelling. Thus, it is possible that the property securing the federally 

related mortgage may be located in a different State than the State in which the borrower resides. 

Accordingly, borrowers who are delinquent with respect to a federally related mortgage secured 

by a non-residential property may benefit from knowing how to access the State housing finance 

authority for the State in which the property is located, rather than the State in which the 

borrower resides. 

The Bureau notes that the ARM initial interest rate adjustment notification in the 2012 

TILA Mortgage Servicing Proposal would require the contact information for the State housing 

finance authority for the State in which the consumer resides (as opposed to the State in which 

the property is located).164 While the Bureau expects the State in which the property is located 

will most often be the State where the consumer resides, there may be circumstances in which 

that is not the case. Additionally, the Bureau understands that a difference in requirements for 

different disclosures may increase compliance costs for servicers. The Bureau invites comment 

on how the Bureau can best mitigate any compliance difficulties. 

 

164 See proposed Regulation Z § 1026.20(d) in the Bureau’s 2012 TILA Mortgage Servicing Proposal. As noted in 

the section-by-section analysis of the periodic statement proposed in the Bureau’s 2012 TILA Mortgage Servicing 

Proposal, the periodic statement would require servicers to include contact information for the State housing finance 

authority for State in which the property is located. See id. at proposed § 1026.41(d)(7). 
222 

More generally, the Bureau solicits 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 notice at § 1024.39(b). The Bureau also solicits 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. In particular, the Bureau 

solicits comment on whether the proposed notice at § 1024.39(b) 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. The Bureau also 

invites comment on whether including the State housing finance authority would be a helpful 

additional resource. 

Legal authority. As discussed above, the Bureau has authority to implement 

requirements for servicers to provide information about borrower options pursuant to section 

6(k)(1)(E) of RESPA. As set forth above, the Bureau has determined that providing borrowers 

with timely information about housing counselors and State housing finance authorities, 

information about loss mitigation options and the foreclosure process, and disclosures 

encouraging servicers to work with borrowers to identify any appropriate loss mitigation options, 

are necessary to provide borrowers a meaningful opportunity to avoid foreclosure. Proposed 

§ 1024.39(b)(2) would provide borrowers with information about their options by setting forth 

the content requirements of the written notice about loss mitigation options and the foreclosure 

process that would be required under proposed § 1024.39(b)(1). Accordingly, the Bureau 

proposes to implement proposed paragraph 39(b)(2) pursuant to its authority under section 

6(k)(1)(E) of RESPA. The Bureau further has authority pursuant to section 6(j)(3) of RESPA to 
223 

establish any requirements necessary to carry out section 6 of RESPA and has authority pursuant 

to section 19(a) of RESPA 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 consumer protection purposes of RESPA. 

39(b)(3) Model Clauses 

Proposed § 1024.39(b)(3) contains a reference to proposed model clauses that servicers 

may use to comply with the proposed written notice requirement. The proposed model clauses 

are contained in appendix MS-4. For more detailed discussion of the proposed model clauses, 

see the section-by-section analysis of appendix MS below. 

Legal authority. As discussed above, the Bureau has authority to implement 

requirements for servicers to provide information about borrower options pursuant to section 

6(k)(1)(E) of RESPA. As set forth above, the Bureau has determined that providing borrowers 

with timely information about housing counselors and State housing finance authorities, 

information about loss mitigation options and the foreclosure process, and disclosures 

encouraging servicers to work with borrowers to identify any appropriate loss mitigation options, 

are necessary to provide borrowers a meaningful opportunity to avoid foreclosure. . Proposed 

§ 1024.39(b)(3) contains a reference to model clauses that provide borrowers with information 

about their options as required under paragraphs (b)(1) and (b)(2) of proposed § 1024.39. 

Accordingly, the Bureau proposes to implement proposed paragraph 39(b)(3) pursuant to its 

authority under section 6(k)(1)(E) of RESPA. The Bureau further has authority pursuant to 

section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 6 of 

RESPA and has authority pursuant to section 19(a) of RESPA to prescribe such rules and 

regulations, to make such interpretations, and to grant such reasonable exemptions for classes of 
224 

transactions, as may be necessary to achieve the consumer protection purposes of RESPA. 

Small Servicers 

As discussed above, through outreach with servicers and servicing industry 

representatives, small servicers expressed concern that compliance with the information request 

provisions for oral information requests would require small servicers to invest in systems and 

processes at substantial costs. However, many small servicers generally explained that they did 

not expect the Bureau’s proposed early intervention requirements would impose significant 

burden because they were already providing early intervention for delinquent borrowers. 

Accordingly, the Bureau is not proposing to provide small servicers with an exemption from the 

proposed notice requirements under proposed § 1024.39. However, in light of the feedback 

provided by small entity representatives during the Small Business Panel Review process, as 

reflected in the Panel Report of the Small Business Panel, the Bureau solicits comment on 

whether the Bureau should consider alternative means of compliance with proposed § 1024.39 

that would provide small servicers with additional flexibility, such as by permitting small 

servicers to develop a more streamlined written notice under proposed § 1024.39(b).165

Relationship with Other Applicable Laws 

The Bureau understands that servicers may be subject to State and Federal laws related to 

debt collection practices, such as the Fair Debt Collection Practices Act, 15 U.S.C. 1692. In 

addition, the Bankruptcy Code’s automatic stay provisions generally prohibit, among other 

things, actions to collect, assess, or recover a claim against a debtor that arose before the debtor 

filed for bankruptcy. The Bureau invites comment on whether servicers may reasonably 

question how they could comply with Bureau’s proposal in light of these laws. 

 

165 See Small Business Review Panel Report at 31 (recommending that the Bureau consider flexible early 

intervention requirements for small servicers). 
225 

Section 1024.40 Continuity of Contact 

 Background. As discussed in part II above, the onset of the mortgage crisis revealed that 

many servicers did not have the infrastructure needed to handle the high volumes of delinquent 

mortgages, loan modification requests, and foreclosures they faced. Reports of servicers 

confusing delinquent borrowers with conflicting or misleading information, losing or 

mishandling borrower-provided documents supporting loan modifications requests, failing to 

respond to borrowers’ inquiries about loss mitigation in a timely manner, and transferring 

borrowers seeking assistance with loss mitigation from department to department made it 

apparent that many servicers did not provide appropriately-trained staff to assist delinquent 

borrowers.166

Regulators, both Federal and State, and the GSEs have responded by establishing staffing 

standards for servicers to meet when they assist delinquent borrowers. For example, in May of 

2011, Treasury issued Supplemental Directive 11-04 to require qualifying servicers participating 

in the Making Home Affordable Program to assign potentially eligible borrowers with a member 

of the servicer’s staff to assist such borrowers throughout their delinquency once a servicer has 

made a successful effort to communicate with such borrowers about resolution of their 

delinquency. The staff member assigned to the borrower would have primary responsibility for 

 

166 See, e.g., Are There Government Barriers to the Housing Market Recover?: Hearings Before the Subcomm. on 

Insurance, Housing, and Community Opportunity of the House Comm. on Financial Services, No. 112-7, 112th 

Cong. 51 (February 16, 2011) (statement of Phyllis Caldwell, Chief, Homeownership Preservation Office, U.S. 

Department of the Treasury), available at http://financialservices.house.gov/media/pdf/021611caldwell.pdf; see also 

Maryland Foreclosure Task Force, Report, at 22 (January 11, 2012) (describing that consumers continue to face 

problems of lost documentation, expired authorizations and confusing responses to requests for loss mitigation from 

multiple representatives within a given servicer) (Maryland Foreclosure Task Force Report), available at 

http://www.mdhousing.org/website/commTaskForce/documents/Foreclosure_Task_Force_Report_2012.pdf; see 

also, Peter S. Goodman, A Plan to Stem Foreclosures, Buried in a Paper Avalanche, New York Times (June 29, 

2009) (reporting on a number of borrower frustrations with the loan modification process, such as getting transferred 

from call center to call center and, having to repeatedly resubmit loan modification applications because the servicer 

could not locate them in its system). 
226 

coordinating the servicer’s actions to resolve the borrower’s delinquency or default and must 

perform certain functions with respect to the borrower, such as providing information to the 

borrower about loss mitigation programs available to the borrower, explaining the requirements 

of the various programs, notifying a borrower of the need for additional or missing information, 

being knowledgeable about the borrower’s mortgage loan account, and communicating the 

servicer’s decision regarding a borrower’s loan modification application.167 The National 

Mortgage Settlement, discussed in part II.C, above, establishes similar staffing requirements for 

servicers to follow168 As part of the GSE Servicing Alignment Initiative, Fannie Mae and 

Freddie Mac also established guidelines for servicer to follow when responding to delinquent 

borrowers to promote consistent borrower communications throughout delinquency.169 In July 

2012, the State of California amended its laws to require servicers to designate personnel on their 

staff to assist borrowers who are potentially eligible for a federal or proprietary loan modification 

application.170 

Similar to the early intervention servicing standards discussed previously, however, there 

are currently no minimum uniform national standards that apply across the mortgage servicing 

industry. Proposed § 1024.40, discussed in detail below, would establish minimum staffing 

requirements that would apply to all mortgage servicers. The proposal is built around three 

obligations. First, servicers would be required to assign personnel to delinquent borrowers. 

Second, the servicers would be required to provide delinquent borrowers with live, telephonic 

 

167 Making Home Affordable, Supplemental Directive 11-04 (May 18, 2011), available at 

https://hmpadmin.com/portal/programs/docs/hamp_servicer/sd1104.pdf. 

168 National Mortgage Settlement, at A-21-23. 169 See Freddie Mac, Servicing Alignment Initiative: Borrower Contact and Delinquency Management Practices 

(May 16, 2011), available at http://www.freddiemac.com/singlefamily/news/2011/0516_servicing.html; see also

Fannie Mae, Servicing Alignment Initiative—Overview for Fannie Mae Servicers (April 28, 2011), available at 

https://www.efanniemae.com/sf/servicing/pdf/saioverview.pdf. 

170 See Cal SB-900, available at http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0851-

0900/sb_900_bill_20120711_chaptered.html. 
227 

responses to inquiries and, as applicable, assist the borrower with loss mitigation options. Third, 

servicers must establish policies and procedures reasonably designed to ensure that servicer 

personnel available to the borrower can perform an enumerated list of functions where 

applicable. 

40(a)(1) In General 

 Proposed § 1024.40(a)(1) provides 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 § 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. 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)-(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 reasonable time of the 

transfer of servicing for the borrower’s mortgage loan. 

 Proposed comment 40(a)-1 explains that for purposes of responding to borrower inquiries 

and assisting the borrower with loss mitigation options as required pursuant to § 1024.40, the 

term “borrower” includes a person the borrower has authorized to act on behalf of the borrower 

(a borrower’s agent), which may include, for example, a housing counselor or attorney. 

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)-2 clarifies 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. 
228 

 Proposed comment 40(a)-3.i. explains that a servicer has discretion to determine the 

manner by which continuity of contact is implemented. For purposes of § 1024.40(a)(1), a 

servicer may assign a single person or a team of personnel to respond to a borrower. Proposed 

comment 40(a)-3.ii. explains 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 make be late in making a particular payment, the servicer, at its election, may 

assign personnel to the borrower. Proposed comment 40(a)-4 explains that § 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. 

 The Bureau intends § 1024.40 to work with proposed § 1024.39 (Early Intervention for 

Requirement for Certain Borrowers) and, as discussed below, with proposed § 1024.41 (Loss 

Mitigation Procedures). Proposed § 1024.40(a)(1) builds on proposed § 1024.39(a). As 

discussed previously, the Bureau believes that the borrowers that servicers are required to 

provide oral notice to pursuant to § 1024.39(a) are at high risk of becoming delinquent. As 

discussed above, common reported frustrations of delinquent borrowers include having to deal 

with servicers who would transfer them from department to department, getting confusing 

responses to loss mitigation requests from multiple representatives within a given servicer, and 

having to resubmit documents that they have previously submitted. By requiring servicers to 

assign the responsibility to assist delinquent borrowers to specific individuals, the Bureau 

believes that proposed § 1024.40(a)(1) would bring a more streamlined approach to how 

servicers communicate with delinquent borrowers. The streamlined approach would be 
229 

responsive to the most common problems delinquent borrowers have reportedly faced in recent 

years. 

 Proposed § 1024.40(a)(1) allows for five days to pass before a servicer makes the 

assignment. A servicer may find itself faced with a high number of borrowers who are late with 

respect to making their mortgage payments. The Bureau believes it is appropriate to provide a 

servicer with some time to make the personnel assignment. Additionally, there could be 

situations where the servicer complies with the oral notification requirement with respect to a 

borrower, even though the servicer is not required to do so. For example, a borrower could miss 

his or her payment due on February 1. On February 29, the end of the month, payment has not 

been received. The servicer may choose to orally notify the borrower pursuant to proposed 

§ 1024.39(a) on February 29. But so long as the borrower makes his payment by March 1, then 

pursuant to § 1024.39(a), the borrower would not be a borrower that the servicer is required to 

notify or make good faith efforts to notify pursuant to proposed § 1024.39(a). Hence the Bureau 

believes it is appropriate to provide servicers five days to make the personnel assignment. The 

Bureau invites comment on whether a longer time frame is appropriate. 

 Proposed comment 40(a)-1, discussed above, reflects that some delinquent borrowers 

may authorize third parties to assist them as they pursue alternatives to foreclosure. 

Accordingly, the Bureau seeks 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)-2, discussed above, 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 believes that 30 days 

is a reasonable amount of time for a transferee servicer to assign personnel to a borrower whose 
230 

mortgage loan has been transferred to the servicer through a servicing transfer. The Bureau 

invites comments on whether a longer time frame is appropriate. 

 Proposed comment 40(a)-3.i. discussed above, is consistent with the Bureau’s recognition 

that a one-size-fits-all approach to regulating the mortgage servicing industry may not be 

optimal,171 and thus servicers should be given flexibility to implement proposed § 1024.40. It 

also reflects the recommendation of the Small Business Review Panel that the Bureau should 

provide sufficient discretion such that current, successful practices with respect to assisting 

delinquent borrowers could continue to exist.172 Proposed comment 40(a)-3.ii explains that 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 servicer, at its 

election, may assign personnel to the borrower. As discussed above in the Bureau’s discussion 

of proposed comment 39(a)-5, many borrowers are delinquent for short periods of time and may 

be able to self-cure. The Bureau believes that servicers would incur significant cost if they were 

required to assign personnel to every borrower who contacts the servicer about a possible late 

payment. The Bureau further believes that the cost of assigning personnel to all such borrowers 

would be unduly burdensome to the servicer, while yielding little benefit to some of these 

borrowers. If the borrower who contacts the servicer about a possible late payment still has not 

made the payment within 30 days of the payment due date, then § 1024.39(a) would require the 

servicer to make oral contact with the borrower. As discussed previously, 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 § 1024.39(a), the servicer must assign personnel to respond to the borrower. For these 

reasons, the Bureau believes it is appropriate to give servicers discretion when deciding whether 

 

171 See part II, above. 172 Small Business Review Panel Report, at 31. 
231 

or not to assign personnel to a borrower whom a servicer is not required to notify pursuant to 

§ 1024.39(a). 

 Proposed comment 40(a)(1)-4 explains that § 1024.40(a) does not permit or require a 

servicer to take any action inconsistent with applicable bankruptcy law or a court order in a 

bankruptcy case. During outreach, the Bureau learned that once a borrower files for bankruptcy, 

servicers typically 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 believes a clarification should be provided with respect to the 

relationship between proposed § 1024.40 and bankruptcy law. The Bureau, however, invites 

comment on whether servicers should be required to continue providing borrowers with access to 

personnel assigned to the borrowers to address borrower inquiries and loss mitigation options 

after borrowers have filed for bankruptcy. 

 Legal authority. The Bureau proposes to exercise its authority under section 6 (k)(1)(E) 

of RESPA to add new § 1024.40(a)(1) to Regulation X. For reasons previously discussed, the 

Bureau believes that proposed § 1024.40(a)(1) would bring a more streamlined approach to how 

servicers communicate with delinquent borrowers. The streamlined approach would be 

responsive to the most common problems delinquent borrowers have reportedly faced in recent 

years. Section 6(k)(1)(E) of RESPA authorizes the Bureau to prescribe regulations that are 

appropriate to carry out the consumer protection purpose of RESPA. Accordingly, the Bureau 

proposes to exercise its authority under section 6(k)(1)(E) of RESPA to add new § 1024.40(a)(1) 

to Regulation X. The Bureau further has authority under to section 6(j)(3) of RESPA to establish 

any requirements necessary to carry out section 6 of RESPA, and under section 19(a) of RESPA 
232 

to prescribe such rules and regulations, and to make such interpretations as may be necessary to 

achieve the consumer protection purposes of RESPA. 

40(a)(2) Access to Assigned Personnel 

 Proposed § 1024.40(a)(2) would require a servicer to make access to the assigned 

personnel available via telephone. If a borrower contacts the servicer and does not receive a live 

response from the assigned personnel, the borrower must be able to record his or her contact 

information. The servicer must respond to the borrower within a reasonable time. Proposed 

comment 40(a)(2)-1 provides 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 previously discussed the importance of interactive conversations with 

delinquent borrowers in the discussion of proposed § 1024.39(a). For similar reasons, the 

Bureau is requiring servicers to provide telephone access where the borrower can receive live 

responses. The Bureau understands that some servicers may have the capacity to engage with 

borrowers in person. But the Bureau believes that in-person interactions are not practicable for 

the majority of mortgage servicers. Accordingly, the Bureau is proposing to require live, 

telephonic access instead. The Bureau, however, recognizes that it is possible that when a 

borrower calls the servicer, the borrower may not always reach a live person. Additionally, the 

Bureau does not believe it is necessary to require servicers to make access to a live person 

available 24 hours a day, seven days a week. Accordingly, the Bureau is proposing to provide 

servicers with a reasonable time to respond to a borrower if the borrower does not receive a live 

response. As discussed above, proposed comment 40(a)(2)-1 provides that for purposes of 

§ 1024.40(a)(2), three days (excluding legal public holidays, Saturdays, and Sundays) is a 
233 

reasonable time to respond. The Bureau invites comments on whether the Bureau should 

provide for a longer response time. 

 Legal authority. The Bureau proposes to exercise its authority under section 6(k)(1)(E) 

of RESPA to add new § 1024.40(a)(2) to Regulation X. The Bureau has previously discussed its 

belief in the importance of interactive conversations with delinquent borrowers. At the same 

time, the Bureau recognizes that it is not always possible that when a borrower calls the servicer, 

the borrower reaches a live person. Section 6(k)(1)(E) of RESPA authorizes the Bureau to 

prescribe regulations that are appropriate to carry out the consumer protection purpose of 

RESPA. Accordingly, the Bureau proposes to exercise its authority under section 6(k)(1)(E) of 

RESPA to add new § 1024.40(a)(2) to Regulation X. The Bureau further has authority under 

section 6(j)(3) of RESPA to establish any requirements necessary to carry out section 6 of 

RESPA, and under 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. 

40(b) Functions of Servicer Personnel 

40(b)(1) In General 

 Proposed § 1024.40(b)(1) would require servicers to establish policies and procedures 

reasonably designed to ensure that the servicer personnel it makes available to the borrower 

pursuant to § 1024.40(a) perform an enumerated list of functions where applicable: 

 (i) Provide the borrower with accurate information about: 

 (A) Loss mitigation options offered by the servicer and available to the borrower, based 

on information in the servicer’s possession; 

 (B) 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 § 1024.41, 
234 

and if applicable, actions the borrower must take to appeal the servicer’s denial of a borrower’s 

loss mitigation application; 

 (C) The status of any loss mitigation application that the borrower has submitted to the 

servicer; 

 (D) The circumstances under which the servicer may make a referral to foreclosure; and 

 (E) Any loss mitigation deadlines established by the servicer that the borrower must 

meet. 

 (ii) Access: 

 (A) A complete record of the borrower’s payment history in the servicer’s possession; 

 (B) 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 

 (C) 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; 

 (iii) Provide the documents in § 1024.40(b)(2)(ii)(B)-(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; and 

 (iv) Within a reasonable time after a borrower request, as applicable, 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 comment 40(b)(1)(iv) clarifies that for 

purposes of § 1024.40(b)(1)(iv), three days (excluding legal public holidays, Saturdays, and 

Sundays) is a reasonable time to provide the information the borrower has requested or inform 
235 

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. The 

Bureau invites comment on whether the Bureau should permit servicer a longer time frame to 

respond. 

 Proposed § 1024.40(b)(1) reflects 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 high 

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 Bureau 

believes proposed § 1024.40(b)(1) would require servicers to provide appropriately-trained staff 

to assist delinquent borrowers. Further, as discussed previously, § 1024.40 is intended to work 

together with proposed § 1024.41 as well as proposed § 1024.39. For example, under proposed 

§ 1024.41, a servicer is required to notify a borrower if the borrower has submitted an 

incomplete loss mitigation application. Section § 1024.40(b)(1) addresses this duty by requiring 

the personnel assigned to the borrower to inform a borrower about the steps the borrower must 

take to complete his or her loss mitigation application. 

 Another example of how proposed § 1024.40(b)(1) would work with proposed § 1024.41 

is that the assigned personnel must provide a borrower with accurate information about any loss 

mitigation deadlines established by the servicer in accordance with § 1024.41. Proposed 

§ 1024.41 also requires servicers to evaluate borrowers for loss mitigation options if loss 

mitigation options is offered in the ordinary course of a servicer’s business. Section 

1024.40(b)(1)(iii), discussed above, would require assigned personnel to provide borrowersubmitted documents in support of loss mitigation to other persons authorized to make loss 

mitigation evaluations. As discussed above, the Bureau believes it is appropriate to provide 
236 

servicers with discretion on how they assist delinquent borrowers. The Bureau understands that 

for some servicers, especially servicers that have a small mortgage servicing portfolio of 

mortgage loans they originated, the personnel such servicers assign to work with delinquent 

borrowers typically have authority to evaluate borrowers’ loss mitigation applications. But other 

servicers, especially large servicers or those whose servicing portfolios are made of loans owed 

by mortgage investors, the process of evaluating borrowers for loss mitigation involves multiple 

parties. For these servicers, the personnel they assign to a delinquent borrower to provide live, 

telephonic responses to the borrower’s inquiries may not have the authority to evaluate the 

borrower’s loss mitigation application. Pursuant to proposed § 1024.40(b)(1)(iii), the servicer 

would nonetheless have to ensure that the assigned personnel can provide borrower-submitted 

documentation to other persons with such authority. 

 As previously discussed, the Bureau recognizes that mortgage investors and other 

regulators have responded with requiring servicers to adopt staffing standards. The Bureau 

proposes the list of functions with an eye to harmonize the various staffing standards that exist. 

The Bureau believes proposed § 1024.40(b)(1) would complement existing standards. The 

Bureau also invites comments on whether the Bureau should add additional functions to its 

proposed list of functions. 

 Proposed § 1024.40(b)(1)(iv) reflects the Bureau’s belief that even if servicers implement 

policies and procedures that would address staffing failures in mortgage servicing practices, 

borrowers may seek information that is temporarily unavailable to the servicer. For example, a 

borrower’s most current payment information may not be immediately available because it takes 

time for the payment to post to the borrower’s account. Another example is that documents a 

borrower has submitted to the servicer in connection with the borrower’s loss mitigation 
237 

application may not be immediately available because it takes the servicer time to process them. 

Additionally, proposed § 1024.40(b)(1)(iv) indicates the Bureau’s belief that the assigned 

personnel may receive borrower requests that are more appropriately addressed through 

proposed §§ 1024.35 (Error Resolution Procedures) or 1024.36 (Requests for Information). The 

Bureau proposes to provide servicers with the discretion to make that determination. But the 

Bureau notes that even when a borrower request is addressed through proposed §§ 1024.35 or 

1024.36, the personnel the servicer assigned to the borrower pursuant to proposed § 1024.40(a) 

would remain available to the borrower until an event described in § 1024.40(c), discussed 

below, occurs. 

 Legal authority. The Bureau proposes to exercise its authority under section (k)(1)(E) of 

RESPA to add new § 1024.40(b)(1) to Regulation X. As discussed above, proposed 

§ 1024.40(b)(1) reflects 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 high 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 Bureau believes proposed 

§ 1024.40(b)(1) would require servicers to provide appropriately-trained staff to assist delinquent 

borrowers. The Bureau further has authority under section 6(j)(3) of RESPA to establish any 

requirements necessary to carry out section 6 of RESPA, and under 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. 

40(b)(2) Safe Harbor 

 Proposed § 1024.40(b)(2) provides 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 
238 

failing to perform the functions set forth in § 1024.40(b)(1) where applicable. Proposed 

comment 40(b)(2)-1.i. provides 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. explains 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) where applicable 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. 

 As discussed above, proposed § 1024.40(b)(1) would establish a new servicer obligation 

that requires servicers to establish policies and procedures reasonably designed to ensure that the 

servicer personnel it makes available to a borrower pursuant to § 1024.40(a) perform an 

enumerated list of functions where applicable. The Bureau recognizes that servicers, after 

complying with the servicer obligation (i.e., established policies and procedures that are 

reasonably designed to ensure the personnel they make available borrowers perform the 

functions listed under proposed § 1024.40(b)(1)) , the personnel may occasionally make a 

mistake and fail to perform an enumerated function. 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 in proposed § 1024.40(b)(1). 
239 

 Legal authority. The Bureau relies on its authority under section 6(k)(1)(E) of RESPA to 

add new § 1024.40(b)(2) to Regulation X. Section 6(k)(1)(E) of RESPA authorizes the Bureau 

to prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA. As discussed above, the Bureau recognizes that even if a servicer has established 

policies and procedures that are reasonably designed to ensure that the servicer personnel it 

makes available to borrowers perform the functions listed under proposed § 1024.40(b)(1), such 

personnel may occasionally make a mistake. The Bureau believes that an occasional mistake is 

not necessarily indicative of a servicer’s failure to comply with proposed § 1024.40(b)(1). The 

Bureau further has authority pursuant to section 6(j)(3) of RESPA to establish any requirements 

necessary to carry out section 6 of RESPA, and under 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. 

40(c) Duration of Continuity of Contact 

Proposed § 1024.40(c) provides that a servicer shall ensure that the personnel it assigns 

and makes available to a borrower pursuant to § 1024.40(a) remains assigned and available to the 

borrower until any of the following occurs: (1) The borrower refinances the mortgage loan; (2) 

the borrower pays off the mortgage loan; (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; (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; or (5) if 
240 

applicable, a reasonable time has passed since servicing for the borrower’s mortgage loan was 

transferred to a transferee servicer. 

 Proposed comment 40(c)(3)-1 provides that for purposes of § 1024.40(c)(3), a reasonable 

time has passed when the borrower has made on-time mortgage payments for three consecutive 

months. The Bureau notes the ability of a borrower to make on-time mortgage payments for 

three consecutive months has gained wide acceptance as an appropriate indicator of whether a 

previously-delinquent borrower could 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.173 The Bureau seeks 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). Proposed comment 

40(c)(5)-1 provides that for purposes of § 1024.40(c)(5), a reasonable time has passed when 

servicing for the borrower’s mortgage loan was transferred to a transferee servicer 30 days ago. 

As discussed above in the discussion of proposed comment 40(a)-2, the Bureau believes 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. Accordingly, the 

Bureau believes that it is appropriate to require the transferor servicer to continue providing such 

borrower with continuity of contact for 30 days following the transfer of servicing. The Bureau, 

however, seeks comment on whether a longer time period is reasonable. 

 

173 Making Home Affordable Program Handbook, v3.4, at 89 (December 15, 2011); see also Fannie Mae Single 

Family Servicing Guide, Ch. 6, § 602 (2012). 
241 

 Legal authority. As discussed above, the Bureau is proposing to establish minimum 

staffing requirements with respect to how servicers assist delinquent borrowers. The Bureau 

believes that servicers should be required to provide delinquent borrowers with access to 

assigned personnel until events occur that indicate assistance is no longer needed or practicable. 

The events listed in proposed § 1024.40(c)(1)-(4) reflects the Bureau’s belief of when assistance 

is no longer needed. The events listed in proposed § 1024.40(c)(5) indicates when assistance is 

no longer practicable. As discussed above, section 6(k)(1)(E) of RESPA authorizes the Bureau 

to prescribe regulations that are appropriate to carry out the consumer protection purposes of 

RESPA. The Bureau proposes to add new § 1024.40(c) to Regulation X pursuant to its authority 

under section 6(k)(1)(E) of RESPA. The Bureau further has authority under to section 6(j)(3) of 

RESPA to establish any requirements necessary to carry out section 6 of RESPA. The Bureau 

has additional authority under 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. 

40(d) Conditions Beyond a Servicer’s Control

 Proposed § 1024.40(d) provides 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 explains that “conditions beyond a 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. Proposed § 1024.40(d) 

reflects the Bureau’s belief that even if servicers implement processes that would address 

staffing failures that had a significant adverse impact on borrowers seeking alternatives to 
242 

foreclosure, circumstances beyond a servicer’s control may occasionally occur that could 

adversely affect a servicer’s ability to provide adequate and appropriate staff to assist delinquent 

borrowers. 

 Legal authority. The Bureau proposes to use its authority under RESPA section 

6(k)(1)(E) to add new § 1024.40(d) to Regulation X. Section 6(k)(1)(E) of RESPA authorizes 

the Bureau to prescribe regulations that are appropriate to carry out the consumer protection 

purposes of RESPA. As discussed above, proposed § 1024.40(d) reflects the Bureau’s belief that 

even if servicers implement processes that would address staffing failures that had a significant 

adverse impact on borrowers seeking alternatives to foreclosure, circumstances beyond a 

servicer’s control may occasionally occur that could adversely affect a servicer’s ability to 

provide adequate and appropriate staff to assist delinquent borrowers. The Bureau additionally 

relies on its authority under section 6(j)(3) of RESPA to establish any requirements necessary to 

carry out the purposes of REPSA, and under section 19(a) of RESPA to make such rules and 

regulations and to make such interpretations as may be necessary to achieve the purposes of 

RESPA. 

Section 1024.41 Loss Mitigation

Background. As discussed above, there has been widespread concern among mortgage 

market participants, consumer advocates, and policymakers regarding servicers’ performance of 

loss mitigation activity in connection with the mortgage market crisis. 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. For example: 

 Treasury and HUD sponsored the Making Home Affordable program, which 
243 

established guidelines for Federal government sponsored loss mitigation programs such 

as HAMP;174

 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;175 

 Prudential regulators, including the Board and the OCC undertook enforcement 

actions against major servicers, resulting in consent orders imposing requirements on 

servicing practices;176

 The recent national mortgage settlement agreement imposes obligations on 

servicers, including on the conduct of loss mitigation evaluations;177 

 States have begun to adopt regulations relating to mortgage servicing and 

foreclosure processing, including requiring evaluation of loss mitigation options.178

Many of these requirements have coalesced around a common set of best practices for 

servicing. For example, the FHFA servicing alignment initiative, the National Mortgage 

Settlement, and HAMP all require servicers to review loss mitigation applications within 30 

days.179 While these various initiatives are starting to bring standardization to significant 

portions of the market, none of them to date have set a consistent national set of procedures and 

 

174 www.makinghomeaffordable.gov. 175 Federal Housing Finance Agency, Press Release: Fannie Mae and Freddie Mac to Align Guidelines for Servicing 

Delinquent Mortgages (April 28, 2011), available at http://www.fhfa.gov/webfiles/21190/SAI42811.pdf. 176 OCC Press Release, OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound 

Foreclosure Practices (April 13, 2011), available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ2011-47.html; Federal Reserve Board of Governors Press Release (April 13, 2011), available at 

http://federalreserve.gov/newsevents/press/enforcement/20110413a.htm.

177 www.nationalmortgagesettlement.com. 178 See, 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.

179 See e.g., National Mortgage Settlement at Appendix A, at A-26, available at 

http://nationalmortgagesettlement.com; 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). 
244 

expectations regarding loss mitigation procedures. The Bureau believes that because so much 

loss mitigation activity is ongoing, and because that activity has such potentially significant 

impacts on both individual consumers and the health of the larger housing market and economy, 

consistent uniform minimum regulations would be appropriate and useful to set borrower and 

servicer expectations and provide necessary consumer protections. 

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 compliance by market 

participants; (2) mandating outcomes of loss mitigation process (implicitly raising costs to 

market participants of pursuing actions in violation of the mandated outcomes); or (3) providing 

subsidies to incentivize the desired outcomes.180 Only options (1) and (2) were considered by the 

Bureau in light of the authorities available to the Bureau. Options (1) and (2) 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 

example, a requirement that a servicer review a completed loss mitigation application establishes 

process requirements but does not impose requirements on the substance of the servicers review. 

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 be net present value positive 

would impose an outcome on the process. 

At the outset, it is worth noting that the Bureau’s goal is not to achieve any particular 

target with respect to the number or speed of foreclosures. The Bureau’s goal rather is to ensure 

that borrowers are protected from harm in connection with the process of evaluating a borrower 

 

180 See Patricia A. McCoy, Barriers to Home Mortgage Modifications During the Financial Crisis, at 4 (May 31, 

2012). 
245 

for a loss mitigation option and proceeding to foreclosure. For instance, a borrower should not 

be misled about the options available to the borrower or the steps necessary to seek evaluation 

for those options. Further, servicers should review complete loss mitigation applications and 

make appropriate decisions with respect to those submissions. 

 Evaluating the options available to the Bureau requires comparison across multiple 

dynamics, including, among others, whether the Bureau has properly identified consumer harm, 

whether the proposed solutions will effectively address the identified consumer harm, the risk of 

unintended market consequences and costs, and the appropriate scope of authorities available to 

the Bureau. By establishing appropriate loss mitigation procedures, the Bureau can ensure that 

borrowers receive information about loss mitigation options available to them and the process for 

applying for those options. Further, borrowers should be protected by ensuring that borrowers 

receive an evaluation for all options for which they may be eligible, have an opportunity to 

appeal decisions by the servicer regarding loan modification options, and are protected from 

foreclosure until the process of evaluating the borrower’s complete loss mitigation application 

has ended. 

 At the same time, the Bureau is concerned that going beyond process rights to 

give borrowers the ability to file suit over the merits of individual loss mitigation options could 

have negative effects on the availability and structure of loss mitigation programs and, indeed, of 

mortgage credit generally. The Bureau is concerned that investors and guarantors could either 

eliminate loss mitigation efforts altogether or structure them as vague, formless discretionary 

activities rather than risk significant delays in foreclosure or incur potential liability over the 
246 

structure and administration of the programs.181 Alternatively, the prospect of delays and 

litigation risk might causing certain investors and guarantors to significantly reduce mortgage 

market activity, thus potentially curtailing general access to credit. The Bureau acknowledges 

the deep frustration and desperate circumstances that record numbers of borrowers face as they 

struggle to keep their loans current in this difficult economy, and believes that a solution that 

eliminates or severely restricts the recent increase in loss mitigation initiatives and current access 

to credit may not be in consumers' best interest or the best interest of the broader market and 

economy. 

 Accordingly, proposed § 1024.41 requires servicers that make loss mitigation options 

available to borrowers in the ordinary course of business to undertake certain duties in 

connection with the evaluation of borrower applications for loss mitigation options. Proposed 

§ 1024.41 is designed to achieve three main goals: First, proposed § 1024.41 provides 

protections to borrowers to ensure that, to the extent a servicer offers loss mitigation options, 

borrowers will receive timely information about how to apply and that a complete application 

will be evaluated in a timely manner. Second, proposed § 1024.41 prohibits a servicer from 

proceeding with the end of the foreclosure process – that is, the scheduled foreclosure sale – until 

a borrower and a servicer have terminated discussions regarding loss mitigation options.182 

 

181 Evidence exists that for certain investors and servicers loss mitigation activities may not actually mitigate losses 

from an investor’s perspective when the impact across an entire portfolio is considered. Actions that impose 

additional costs on loss mitigation activities further incentives not to offer such programs. See Christopher Foote, et 

al., Reducing Foreclosures: No Easy Answers, Federal Reserve Bank of Atlanta Working Paper 2009-15 (May 

2009), available at http://www.frbatlanta.org/filelegacydocs/wp0915.pdf. 182 Although efforts to gather reliable data about the prevalence of problems resulting from proceeding with a 

foreclosure sale while loss mitigation discussion are ongoing, the Federal Reserve identified anecdotal evidence of 

these problems as far back as 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 
247 

Third, proposed § 1024.41 sets timelines that are designed to be completed without requiring a 

suspension of the foreclosure sale date to avoid strategic use of these procedures to extend 

foreclosure timelines and delay investor recover through foreclosure. 

 Although the proposed rule would prohibit a servicer from proceeding with a foreclosure 

sale while a complete and timely application for loss mitigation is pending, the proposal would 

not prohibit a servicer from taking other steps in the foreclosure process. The Bureau believes 

that addressing the problems associated with concurrent loss mitigation application and 

evaluation and foreclosure proceedings requires a balanced approach that considers the needs of 

consumers, servicers, and mortgage loan investors. This balance considers the interest of 

consumers in having servicers provide good faith evaluations and implementation of loss 

mitigation options as well as the interests of investors in obtaining timely recovery on assets for 

which losses cannot be mitigated consistent with investor requirements. 

 The Bureau believes that the proposed rule will require servicers to invest in processes to 

accomplish the regulatory requirements. 

 The Bureau notes that the steps prior to the scheduled foreclosure sale can vary by 

servicer, by jurisdiction, by type of proceeding, including judicial and non-judicial foreclosure. 

Some steps may be internal to an individual servicer, such as referring a case to a foreclosure 

department. The timing for other steps may be controlled by State law or court rules, which vary 

among jurisdictions. In some instances, there may be filing deadlines established for a particular 

matter. The Bureau recognizes that concerns can arise when a servicer proceeds on loss 

 http://www.pe.com/local-news/local-news-headlines/20120619-real-estate-homeowner-protests-dual-tracking.ece. 

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% 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/wrongful-foreclosure-survey-results.pdf. 
248 

mitigation and foreclosure proceeding tracks simultaneously. At the same time, the Bureau 

believes that by creating obligations on servicers to provide prompt notice of what is needed to 

complete a loss mitigation application and prompt decisions on completed applications – and by 

prohibiting servicers from proceeding to a foreclosure sale while a complete and timely loss 

mitigation application is pending – the proposed rule will address the most problematic issues 

posed by concurrent evaluation of loss mitigation options and foreclosure proceedings. 

 The Bureau notes that the protection s provided in proposed § 1024.41 will be further 

augmented by protections in other parts of the servicing proposals that address loss mitigation 

issues. In proposed § 1024.39, for instance, the Bureau proposes to implement obligations on 

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 proposes to 

require servicers to provide borrowers with contact personnel to assist the borrower with the 

process of applying for a loss mitigation option. Such personnel must 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 

proposes to require that servicers implement policies and procedures that achieve the objective of 

reviewing borrowers for loss mitigation options. Finally, in proposed § 1024.35, the Bureau 

proposes 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 pursuant to proposed § 1024.41(g). All of these protections 

should be considered together and these protections, when implemented together, will have a 

substantial impact on reducing consumer harm. 
249 

 In order to reduce burden to servicers and costs to borrowers, the Bureau has sought to 

maintain consistency among proposed § 1024.41, the national mortgage settlement, FHFA’s 

servicing alignment initiative, federal regulatory agency consent orders, and State law mortgage 

servicing statutory requirements. In certain instances, each of these other sources of servicing 

requirements may be more restrictive or prescriptive than proposed § 1024.41. That is 

intentional. Proposed § 1024.41 establishes a floor of minimum 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. 

 The Bureau requests comment on all aspects of the proposal, and, in particular, whether 

focusing on the provision of procedural rights would be sufficient to significantly improve the 

efficiency and fairness of loss mitigation processing. The Bureau seeks comment on whether 

there are additional appropriate measures within the authority of the Bureau, or the federal 

agencies collectively, that could be taken to improve loss mitigation outcomes for all parties. 

The Bureau seeks comment on whether the proposed requirements strike the appropriate balance 

between ensuring that consumers' timely and complete applications receive fair and full 

consideration and ensuring predictability of outcomes for investors and guarantors. Finally, and 

as discussed further below, the Bureau seeks comment on whether the requirements of proposed 

§ 1024.41 would require servicers to undertake practices that conflict with other federal 

regulatory agency requirements or State law or may cause servicers to undertake practices that 

may reduce the value to investors or guarantors of offering loss mitigation options.183

41(a) Scope. 

 

183 With respect to investor or guarantor requirements that do not constitute Federal or State law, such as 

requirements of Fannie Mae, Freddie Mac, or Ginnie Mae requirements, or requirements of federal or state agencies 

that serve as guarantors of mortgage loans, the Bureau observes that such entities may need to review and adjust 

their requirements in light of the consumer protections set forth in the proposed rules. 
250 

 Proposed § 1024.41(a) provides that the requirements in proposed § 1024.41 apply to any 

servicer that offers loss mitigation options in the ordinary course of business. The purpose of 

this provision is 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. These include servicers that participate in the HAMP program sponsored by 

HUD and Treasury, as well as servicers subject to investor or guarantor requirements, including 

requirements imposed by Fannie Mae, Freddie Mac, Ginnie Mae, private investors, or 

government or private guarantors of mortgage loans to evaluate loss mitigation options for nonperforming mortgage loans. 

 Proposed comment 41(a)-1 clarifies that nothing in proposed § 1024.41 is 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 above, the Bureau does 

not intend to create a right for borrowers to enforce in private litigation requirements that are 

imposed by investors or guarantors on servicers to take steps to protect the investors or 

guarantors from losses that can be avoided. The Bureau believes it is appropriate to clarify in 

proposed comment 41(a)-1 that the rules do not impose a duty on a servicer to offer loss 

mitigation or to approve any particular borrower for a loss mitigation option and that the rules 

should not be construed to impose liability on a servicer, or any other party, for any failure to 

offer a loss mitigation option, so long as the servicer complies with the procedural requirements 

of proposed § 1024.41. 

 Certain servicers that do not evaluate borrowers for loss mitigation options in the 

ordinary course of business would not be subject to proposed § 1024.41. In proposed comment 
251 

41(a)-2, the Bureau sets forth examples of practices that should not be considered, by 

themselves, considered indicia that a servicer had opted to offer loss mitigation options in the 

ordinary course of business. For example, it is not the Bureau’s intention to impose the 

requirements in proposed § 1024.41 on servicers that agree to limit adverse consequences to 

borrowers for making late payments, including by waiving late fees or declining to furnish 

negative information to a consumer reporting agency or on servicers that have decided to engage 

in a temporary or pilot program to explore the feasibility of offering certain loss mitigation 

options. Proposed comment 41(a)-2 clarifies that such practices, which may be the economic 

equivalent of a loss mitigation option, such as a forbearance plan, should not indicate by 

themselves that a servicer offers loss mitigation options to borrowers in the ordinary course of 

business. 

41(b) Loss Mitigation Application. 

 Proposed § 1024.41(b)(1) provides that a complete loss mitigation application includes 

all the information the servicer regularly obtains and considers in evaluating loss mitigation 

applications. This provision provides each servicer with flexibility to establish requirements 

regarding the type of information that the servicer deems necessary to determine whether a 

borrower is eligible for a loss mitigation option based on differing investor or guarantor 

guidelines. 

 Upon receipt of an incomplete loss mitigation application, proposed § 1024.41(b)(2) 

requires servicers to exercise reasonable diligence to obtain the additional information required 

to make a loss mitigation application complete. To that end, a servicer that receives an 

incomplete loss mitigation application earlier than 5 days before the timeline established for 

proposed § 1024.41(f) shall within a reasonable time, but in no event later than 5 days (excluding 
252 

legal public holidays, Saturdays, or Sundays) provide a notice to a borrower. The notice must 

state that the application is incomplete, identify the additional information or documents 

necessary to make the application complete, and provide a deadline by which the borrower must 

submit the additional information or documents. 

 The Bureau believes it is appropriate to require that servicers provide the notice within a 

reasonable time, but in no event later than 5 days (excluding legal public holidays, Saturdays, or 

Sundays) after receiving the incomplete 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 

application.184 When a servicer receives an application more than 5 days before the deadline the 

servicer has established for submitting a complete application, the servicer has sufficient 

opportunity to review the loss mitigation application, determine the information or documents 

that have not been provided and provide that information to the borrower. Further, even when a 

loss mitigation application is submitted less than 5 days (excluding legal public holidays, 

Saturdays, or Sundays) before the applicable deadline, a servicer must undertake reasonable 

diligence to obtain the information even if the servicer is not required to provide the notice 

contemplated by proposed § 1024.41(b)(2). 

 Proposed § 1024.41(b) does not require a servicer to stop foreclosure proceedings when a 

borrower submits an incomplete loss mitigation application. Further, unless an incomplete loss 

mitigation application is made complete by the deadline established by the servicer pursuant to 

proposed § 1024.41(f), a servicer is not required to comply with the loss mitigation procedures 

 

184 See United States of America et al. v. Bank of America Corp. et al., at Appendix A, at A-26, available at 

http://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). 
253 

for an incomplete loss mitigation application. The Bureau requests comment regarding whether 

servicers should be required to undertake any further obligations in connection with an 

incomplete or substantially complete loss mitigation application and what any further obligations 

should be. 

41(c) Review of Loss Mitigation Applications 

 Proposed § 1024.41(c) states that, within 30 days of receiving a complete loss mitigation 

application, a servicer must evaluate the borrower for all loss mitigation options available from 

the servicer for which the borrower may qualify and provide the borrower with a written notice 

stating the servicer’s determination of whether it will offer the borrower a loss mitigation option. 

The Bureau believes that it is appropriate to require servicers to evaluate complete loss 

mitigation applications within 30 days, which is an industry standard, as discussed above. 

 The Bureau further believes it is appropriate to require a servicer to evaluate a borrower 

for all loss mitigation options available from the servicer for which the borrower may qualify 

rather than to require 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. Currently, many investors and guarantors have established set 

priority orders for evaluating and offering loss mitigation options rather than requiring borrowers 

to select loss mitigation programs. While borrowers should not be required to select loss 

mitigation programs themselves for an evaluation, a consequence of ordering loss mitigation 

programs based on least cost to an investor is that a borrower that may qualify for a program 

farther down on the priority list may believe that the first option offered is the only option 

available to the borrower. This may lead to less effective programs, disparate outcomes for 

similarly situated borrowers, and longer timelines for effectuating loss mitigation options. 
254 

 The Bureau has proposed that a servicer evaluate a borrower for all loss mitigation 

programs offered by the servicer for which the borrower may be eligible. The Bureau believes 

that this will ensure that all borrowers receive fair evaluations for all options available to them 

and will be able to identify options. Further, servicers will not be required to evaluate borrowers 

for any programs for which a borrower does not qualify based on eligibility criteria established 

by investors or guarantors. In sum, investors, guarantors, and servicers retain the ability to 

manage loss mitigation programs to ensure that borrower eligibility and program administration 

is consistent with investor and guarantor requirements, while borrowers will be able to 

understand all potential options that may be available. 

 The Bureau has received feedback that a requirement that servicers evaluate borrowers 

for all loss mitigation programs offered by the servicer will impact servicers’ ability to manage 

programs through priority ordering of loss mitigation options. The Bureau agrees that the 

proposed rules would impact the ability to manage programs through the use of a loss mitigation 

option priority order, as a servicer will be required to evaluate a borrower for all programs and 

provide a notice of the results of the evaluation for all programs. However, the Bureau believes 

that servicers will be able to achieve the similar controls through the use of more detailed and 

comprehensive evaluation criteria and that the requirement will not ultimately impair a 

servicer’s, investor’s, or guarantor’s ability to manage loss mitigation programs. The 

requirement that a servicer consider a borrower’s application for all loss mitigation programs for 

which a borrower may qualify is consistent with the national mortgage settlement, which 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 . . . .”185 

 

185 See National Mortgage Settlement at Appendix A, at A-16, available at http://nationalmortgagesettlement.com. 
255 

Further, the Bureau’s proposed requirement eliminates the need for borrowers to submit multiple 

applications for different loss mitigation options and, thus, provides for more efficient 

compliance by servicers with the requirements of the rules. 

 Proposed comment 41(c)(1)-1 clarifies that the servicer’s evaluation of a borrower for a 

loss mitigation option is subject to the eligibility criteria for each loss mitigation option. For 

example, 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, as a threshold matter is ineligible 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 just as if the eligibility criteria did not 

exist. Because the requirements of proposed § 1024.41 are not intended to require that a 

borrower have a right to a loss mitigation option, nothing in proposed § 1024.41 should be 

construed to prohibit a servicer from imposing any eligibility criteria the servicer (or the investor 

or guarantor of a mortgage loan) determines is appropriate for a loss mitigation option. 

 Proposed § 1024.41(c) requires servicers to notify borrowers of the outcome of the 

servicer’s evaluation of the borrower for a loss mitigation option. Notice from the servicer 

provides certainty to the borrower regarding the outcome and serves as a basis for a borrower to 

accept, reject, or, where permitted, appeal, the servicer’s determination. 

 The Bureau requests comment regarding whether a servicer should be required to review 

a borrower for all loss mitigation options for which the borrower may be eligible. The Bureau 

further requests comment regarding what a servicer’s obligation to review a borrower’s complete 

application for a loss mitigation option should be if the obligation is not to review for all loss 
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mitigation options for which the borrower may be eligible. 

41(d) Denial of loan modification options 

 Proposed § 1024.41(d) imposes additional obligations on servicers that deny borrower 

loss mitigation applications with respect to trial or permanent loan modifications. When a 

servicer determines that a borrower is not eligible for a loan modification as a loss mitigation 

option, the written notice provided by the servicer to the borrower must state 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 must include the deadline for filing the appeal 

and any requirements, such as, for example, forms or documents the borrower must file in 

connection with the appeal process. 

 Because the determination that a borrower does not qualify for a loan modification option 

has significant consequences, the Bureau believes that borrowers should receive accurate 

information regarding the basis for the servicer’s determination. In that regard, proposed 

comments 41(d)(1)-1 and 41(d)(1)-2 provide 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 believes this information can assist borrowers in providing appropriate and relevant 

information to servicers in connection with the appeal process. Further, these requirements are 

consistent with the national mortgage settlement.186

 The Bureau requests comment regarding whether servicers should provide the basis for 

the servicer’s determination that a borrower does not qualify for each loan modification program. 

The Bureau further requests comment on whether servicers should be required to provide the 

 

186 See United States of America et al. v. Bank of America Corp. et al., at Appendix A, at A-27, available at 

http://nationalmortgagesettlement.com. 
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information set forth in proposed comments 41(d)(1)-1 and 41(d)(1)-2 regarding investor 

requirements and net present value tests. In addition, the Bureau requests comment regarding 

whether servicers should be required to provide the basis for the servicer’s determination that a 

borrower does not qualify for each loss mitigation program, including non-loan modification 

programs. 

41(e) Borrower Response and Performance 

 Proposed § 1024.41(e) sets forth standards for when a borrower is considered to have 

accepted or rejected a loss mitigation option offered by a servicer. Proposed § 1024.41(e) 

provides 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 provides 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 shall be deemed to have accepted the offer of a loss mitigation option. This 

presumption is consistent with the terms of the National Mortgage Settlement. The Bureau 

recognizes that this proposed standard would set forth a presumption with respect to the parties’ 

intent to enter into an agreement on a loss mitigation option and requests comment regarding 

whether the Bureau should implement a presumption to establish when parties should be 

considered to have entered into an agreement on a loss mitigation option. 

 The Bureau further believes it is appropriate to allow a servicer that has not received a 

response from a borrower to an offer of a loss mitigation after 14 days to 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, 
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the National Mortgage Settlement, State law, and Federal regulatory agency requirements.187

 The Bureau requests comment on whether servicers should be required to allow 

borrowers to accept or reject offers of loss mitigation options orally, including any compliance 

burdens imposed as a result of any such requirement.

41(f) Deadline for Loss Mitigation Applications

 Proposed § 1024.41(f) states that a servicer may set a deadline by which a borrower must 

submit a complete loss mitigation application, so long as any such deadline is no earlier than 90 

days before a scheduled foreclosure sale. A 90-day threshold appears to set an appropriate 

balance. A servicer that sets a deadline for complete loss mitigation applications of 90 days 

before a scheduled foreclosure sale will have 30 days to review a borrower’s application for a 

loss mitigation option, will 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, will be able to consider any 

timely appeal during a subsequent 30 day period, and will be able to provide the borrower with 

an additional 14 days to respond to any offer of a loss mitigation option after an appeal. A 

servicer’s decision on an appeal is not itself subject to appeal and a servicer is not required to 

consider any further appeals after the initial appeal. Thus, with the timeline set forth, a servicer 

must complete the entire process within 88 days. Because a servicer has the flexibility to 

establish a deadline that is no earlier than 90 days before foreclosure sale, the process can be 

completed without rescheduling the foreclosure sale. 

 

187 See, e.g., National Mortgage Settlement., at Appendix A, at A-17, available at 

http://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). 
259 

 Comment 41(f)-1 clarifies that where a foreclosure sale has not been scheduled, or where 

a foreclosure sale may 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. 

41(g) Prohibition on Foreclosure Sale 

 Proposed § 1024.41(g) provides that if a servicer receives a complete loss mitigation 

application by the deadline established pursuant to proposed § 1024.41(f), 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 believes it is appropriate to require that if a servicer offers loss mitigation 

options to borrowers in the ordinary course of business, and the borrower submits a complete 

application for a loss mitigation application by the deadline established by the servicer, a servicer 

should not proceed with a scheduled foreclosure sale until the servicer and borrower have 

terminated discussions regarding the loss mitigation option. The Bureau believes this point 

occurs when a borrower is denied for a loss mitigation option (and any appeal process has ended) 

or where a borrower rejects a servicer’s offer of a loss mitigation option. 

 Further, the Bureau believes it is appropriate to suspend a scheduled 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 
260 

and the borrower. A servicer’s determination to hold a scheduled 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 scheduled foreclosure sale during any period where a borrower is making 

payments pursuant to the terms of the trial loan modification. 

 In terms of workflow, when a servicer receives a complete loss mitigation application, it 

will either offer the borrower a loss mitigation option or deny the borrower’s request for a loss 

mitigation option. If the borrower’s request is denied, the borrower may file an appeal if the 

denial concerns a trial or permanent loan modification. Upon reviewing the appeal, a servicer 

will determine to either offer the borrower a loss mitigation option or, again, to deny the 

borrower’s request for a loss mitigation option. If the request is denied, then the servicer may 

proceed to a foreclosure sale. If a loss mitigation option is offered, either after the initial 

evaluation or after appeal, a borrower may either accept or reject the offer of the loss mitigation 

option. If the borrower rejects the loss mitigation option, the servicer may proceed to a 

foreclosure sale. If the borrower accepts the loss mitigation option, the borrower will either 

perform or fail to perform pursuant to the terms of the agreement on the loss mitigation option. 

If a borrower fails to perform pursuant to the terms of the agreement on the loss mitigation 

option, the servicer may proceed with the foreclosure sale. 

 Proposed comments 41(g)-1 and 41(g)-2 clarify the application of the borrower 

performance definitions with respect to short sales. Typically, a short sale 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 

clarify that a borrower is performing under the terms of a short sale agreement or other similar 
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loss mitigation agreement during the term of any such marketing or listing period, and any terms 

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. 

 Further, a servicer’s failure to suspend a scheduled foreclosure sale when a servicer has 

failed to comply with the requirements of proposed § 1024.41(g) is defined as a covered error in 

proposed § 1024.35(b)(9). A borrower will be able to assert this error and require a servicer to 

engage in the error resolution procedures to address this error. In order to avoid the use of this 

requirements, and the error resolution procedures, as a strategic tool to delay foreclosure, the 

Bureau has proposed § 1024.35(f)(2), which provides that if an error relating to a servicer’s 

failure to suspend a foreclosure sale is asserted seven days or less before a scheduled foreclosure 

sale, the servicer is not required to comply with the full error resolution procedures and may, 

alternatively, respond to the borrower orally or in writing in response to the notice of error. 

Because the requirements of proposed § 1024.41 are procedural in nature, the Bureau believes 

that servicers will be able to resolve and respond to any assertions of error on a very expedited 

basis by confirming that the appropriate procedure was followed. 

 By prohibiting a servicer from proceeding with a scheduled foreclosure sale until 

termination of loss mitigation discussion, the Bureau proposes to eliminate the clearest harms on 

borrowers resulting from servicers pursuing loss mitigation and foreclosure proceedings 

concurrently. 

41(h) Appeal Process 

Proposed § 1024.41(h) would require servicers to establish an appeals process to review 

denials of complete loss mitigation applications for loan modifications. Limiting the appeals 

process only to denials of loan modifications reduces burdens on servicers and maintains 
262 

consistency with existing appeals and escalation processes established under State law or Federal 

regulatory agency requirements. For example, the appeal process established by the national 

mortgage settlement relates to denials of first lien loan modification denials.188 Further, the 

recent California Homeowner Bill of Rights provides for an appeal process for denials of first 

lien loan modification.189 Moreover, loan modifications are some of the most complex loss 

mitigation programs with respect to the evaluation of borrowers, and the Bureau believes that 

loan modification provides an appropriate scope for an appeal process. 

 Pursuant to proposed § 1024.41(h), if a servicer reviews an appeal and determines to 

offer a loss mitigation option, the servicer shall not foreclose on a borrower 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 denies a borrower’s appeal of a loss mitigation option, the servicer may 

proceed with a foreclosure sale. 

 Proposed § 1024.41(h) would provide that an appeal must be reviewed by servicer 

personnel that were not directly involved in the initial evaluation. The Bureau believes that this 

basic safeguard would help to reduce the risk of bias in the appeals process, since the person who 

made the initial decision may have a particularly strong interest in upholding that decision. 

Proposed comment 41(h)(3)-1 clarifies that supervisory personnel that supervised the personnel 

that conducted the initial evaluation may conduct the appeal evaluation if they were not directly 

involved in the initial evaluation. Proposed § 1024.41(h)(4) provides for the servicer to provide 

a written notice to the borrower stating the servicer’s determination. 

 The Bureau requests comment on whether to require servicers to engage in an appeals 

process. Further, the Bureau requests comment on whether the appeals process should be limited 

 

175 See National Mortgage Settlement, at Appendix A, at A-27, available at http://nationalmortgagesettlement.com. 189 See 2012 Cal. Legis. Serv. Ch. 86 (A.B. 278) (WEST) amending Cal. Civ. Code § 2923.6. 
263 

to denials of loan modifications and other similar loss mitigation options. Further, the Bureau 

requests comment regarding the impact on small servicers (as that term is defined in the 2012 

TILA Servicing Proposal) of the requirement that the appeal must be evaluated by servicer 

personnel that were not directly involved in the initial loss mitigation application evaluation, and 

where such requirement should be modified or eliminated for small servicers. 

41(i) Duplicative Requests 

Proposed § 1024.41(i) provides that a servicer is only required to comply with the 

requirements of proposed § 1024.41 if a borrower has not previously been evaluated for loss 

mitigation options for the borrower’s mortgage loan account by that servicer. Thus, a servicer is 

not required to apply the requirements of § 1024.41 to a subsequent complete application for a 

loss mitigation option. In situations where servicing has transferred after the borrower received 

an evaluation on a complete loss mitigation application from the transferor servicer, the 

transferee servicer may be required to comply with the requirements of proposed § 1024.41. The 

Bureau believes that when an investor is transferring servicing to a new servicer, which may 

have been driven by owner or assignee’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 requests 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. If so, the 

Bureau requests comment on what should constitute appropriate time periods and requirements 

applicable to such reviews. 
264 

41(j) Other Liens 

Proposed § 1024.41(j) provides that any servicer that receives a complete loss mitigation 

application shall (1) within 5 days, 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, and (2) provide the loss mitigation application received from the 

borrower to the other servicer. 

 Loss mitigation applications for properties encumbered by multiple liens present some of 

the most difficult loss mitigation situations for investors and borrowers. The Bureau believes it 

is appropriate to impose on servicers the obligation (1) to identify other servicers that may be 

impacted by loss mitigation evaluation for a property and (2) to provide the loss mitigation 

application from the borrower to the other servicers. When the other servicer receives the loss 

mitigation application, that servicer shall be required to comply with the requirements of 

proposed § 1024.41 if the servicer offers loss mitigation options to borrowers in the ordinary 

course as required by proposed § 1024.41(a). Further, the servicer that receives the loss 

mitigation application from another servicer shall be required to comply as if the servicer 

received the application from the borrower. For example, if the initial servicer passes an 

application to the other servicer that is incomplete under the other servicer’s guidelines, the other 

servicer would be required pursuant to proposed § 1024.41(b)(2)(ii) to provide the borrower with 

the incomplete loss mitigation application notice. 

 The Bureau notes that the Gramm-Leach-Bliley Act as implemented by Regulation P 

does not require provision of an initial notice and opt-out in connection with providing the loss 

mitigation application submitted by a borrow to another servicer under the exception set forth in 

12 CFR 1016.15(a)(7). 
265 

 Small servicers. The Bureau is conscious of the potential impacts of the loss mitigation 

requirements on small servicers. In order to gain feedback on small servicer impacts, the Bureau 

participated in a Small Business Review Panel and conducted outreach with small entity 

representatives. At the time the panel process was conducted, the Bureau had not decided to 

include a separate provision concerning loss mitigation procedures. Rather, the Bureau solicited 

feedback from the small entity representatives 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.190 

 The small entity representatives 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 receiving significant foreclosure related information, and 

generally worked closely with foreclosure counsel such that foreclosure processes and loss 

mitigation could be easily conducted simultaneously without prejudice to the loss mitigation 

 

190 See Small Business Review Panel Report, appendix C at 19, 22, 24-26. 
266 

process. Further, the small entity representatives explained that they were willing to 

communicate with borrowers about loss mitigation contemporaneously with the foreclosure 

process, and one small entity representative indicated that it would be willing to bring a 

mortgage file back to the servicer for consideration of a modification and halt the foreclosure 

process, if appropriate.191

 Based in part on the outreach with the small entity representatives on April 24, 2012, as 

well as other feedback obtained by the Bureau after that outreach meeting, the Bureau considered 

proposing clearer and more detailed requirements relating to loss mitigation practices. The 

Bureau determined, for the sake of clarity and consistency, to include loss mitigation obligations 

as a separate section, rather than embedding the requirements within the provisions relating to 

error resolution, reasonable information management policies and procedures, early intervention 

for troubled or delinquent borrowers, and continuity of contact. 

 The Bureau believes that adding a separate section to address loss mitigation builds upon 

the feedback received by the Bureau as set forth in the Small Business Review Panel Report, 

although that report and the outreach meeting with small entity representatives were not 

structured around the discussion of regulations relating to loss mitigation obligations as a 

separate section and did not focus in significant detail on some of the specific measures proposed 

here such as, for example, appeals of loss mitigation determinations. The Bureau also believes 

that adding a separate section to address loss mitigation provides greater regulatory clarity to 

servicers, including small servicers. Therefore, the Bureau specifically requests comment from 

small servicers (as that term is defined in the 2012 TILA Servicing Proposal) regarding the 

potential impacts of the loss mitigation requirements in proposed § 1024.41 on small servicers. 

 

191 See Small Business Review Panel Report at 26. 
267 

Specifically, as set forth above, the Bureau requests comment of the requirement that an appeal 

must be evaluated by servicer personnel that were not directly involved in the initial loss 

mitigation application evaluation.

 Legal authority. In proposing § 1024.41, the Bureau relies on its authority in section 

6(k)(1)(E) of RESPA to set forth obligations appropriate to carry out the consumer protection 

purposes of RESPA and section 6(j)(3) of RESPA to set forth requirements necessary to carry 

out section 6 of RESPA. Further, proposed § 1024.41 implements, in part, a servicer’s 

obligation to take timely action to correct errors relating to avoiding foreclosure in section 

6(k)(1)(C) of RESPA by establishing servicer duties to avoid foreclosure that are the subject of 

the error resolution provisions in proposed § 1024.35. 

 The Bureau further relies on its authority in section 19(a) of RESPA to make such rules 

and regulations and to make such interpretations as may be necessary to achieve the consumer 

protection purposes of RESPA.

Appendix MS

Appendix MS to part 1024 sets forth model forms, model clauses that servicers may use 

to comply with the mortgage servicing requirements of Regulation X. As discussed in detail 

below, the Bureau proposes to modify the model form applicable to servicing transfer disclosure 

requirements, to add a new model for force-placed insurance disclosure requirements, and to add 

new model clauses for early intervention notice requirements. The Bureau is proposing official 

commentary that would apply to existing model forms MS-1 and MS-2, as well as a proposed 

model form MS-3 for the proposed force-placed insurance disclosure and proposed model 

clauses at MS-4 for the proposed early intervention written notice. The Bureau is proposing 

these comments to provide guidance that would be generally applicable for the mortgage 
268 

servicing model forms and clauses. The Bureau solicits comment on the appropriateness of this 

guidance for the mortgage servicing disclosures. 

Proposed comment MS-1 explains that appendix MS contains model forms and clauses 

for mortgage servicing disclosures. Each of the model forms is designated for use 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 properly will be deemed to be in 

compliance with the regulations with regard to those disclosures. To use the forms 

appropriately, information required by regulation must be set forth in the disclosures. 

Proposed comment MS-2 explains that 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: (1) use of “borrower” and “servicer” instead of pronouns; (2) 

substitution of the words “lender” and “servicer”; and (3) addition of graphics or icons, such as 

the servicer's corporate logo. 

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 

proposes to revise the model form in Appendix MS-2 to significantly reduce the length of the 

require disclosure to borrowers in connection with mortgage servicing transfers. 

 As a preliminary matter, the Bureau observes that unless a transferor and transferee 

servicer coordinate to provide a consolidated disclosure, a borrower will receive substantially 
269 

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. 

 The Bureau proposes 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 proposes to remove significant discussion in the model form regarding the 

availability of the qualified written request process and the borrower’s rights pursuant to RESPA. 

Information regarding the qualified written request process is likely to confuse borrowers in light 

of the proposed error resolution and information requirements set forth in this proposal. Further, 

the Bureau believes that error resolution and information request requirements are more effective 

by requiring servicers to respond to the notices of error and inquiries they receive as a result of 

having provided the appropriate contact information on the form. Further, the Bureau observes 

that this additional content is not required by section 6(a)(3) of RESPA. In light of these 

obligations, the Bureau does not believe the added discussion of the qualified written request 

process and RESPA provided additional practical value to consumers and detract from other 

important content of the form. 

 The Bureau relies on its authority in sections 6(a)(3), 6(j)(3), and 19(a) of RESPA to set 
270 

forth requirements on servicers with respect to providing the mortgage servicing transfer notices 

required by section 6(a)(3) of RESPA.

Appendix MS-3—Model Force-Placed Insurance Notice Forms

 Appendix MS-3 to part 1024 sets forth model forms that mortgage servicers may use to 

comply with the Bureau’s force-placed insurance disclosure requirements. As discussed 

previously in the Bureau’s discussion of proposed appendix MS, servicers are not required to use 

model forms to comply with the mortgage servicing disclosures of Regulation X, including the 

disclosures set forth in proposed § 1024.37. Using the model forms properly, however, will be 

deemed to be in compliance with regulation with regard to those disclosures. 

 Proposed comment MS-3-1 provides that the model form MS-3(A) illustrates how a 

servicer may comply with § 1024.37(c)(2). Proposed comment MS-3-2 provides that the model 

form MS-3(B) illustrates how a servicer may comply with § 1024.37(d)(2)(i). Proposed 

comment MS-3 provides that the model form MS-3(C) illustrates how a servicer may comply 

with § 1024.37(d)(2)(ii). Proposed comment MS-3-4 provides that model MS-3(D) illustrates 

how a servicer may comply with § 1024.37(e)(2). Proposed comment MS-3-5 provides 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, “homeowner’s 

insurance” or “property insurance.” The Bureau, however, notes that proposed MS-3-5 does not 

permit the servicer to use the term “homeowner’s insurance” to describe force-placed insurance. 

As discussed previously, the Bureau believes that it is necessary and appropriate to carry 

out and achieve the purposes of RESPA section 6, and the consumer protections of RESPA, to 

facilitate compliance with the new Dodd Frank Act requirements about advance notification 

before servicers charge borrowers for force-placed insurance. The Bureau’s proposed force-
271 

placed insurance notice requirements are set forth in the model forms in proposed Appendix MS3. The Bureau proposes to exercise its authority under RESPA sections 6(j)(3), 6(k)(1)(E), and 

19(a) to add new Appendix MS-3 to Regulation X. Also as discussed previously, the Bureau has 

additional authority pursuant to Dodd-Frank Act section 1032 to provide model forms by adding 

new Appendix MS-3. 

Appendix MS-4—Model Clauses for the Written Early Intervention Notice 

Model clauses in proposed appendix MS-4 illustrate the disclosures that would be 

required under proposed § 1024.39(b)(1). They encourage the borrower to contact the servicer 

and provide information about loss mitigation options, foreclosure, and housing counselors. 

Clauses in Model MS-4(A) illustrate how a servicer may provide its contact information and how 

a servicer may request that the borrower contact the servicer, as would be required under 

proposed § 1024.39(b)(2)(i) and (ii). 

Clauses in Model MS-4(B) illustrate how the servicer may inform the borrower of loss 

mitigation options that may be available, as would be required under proposed 

§ 1024.39(b)(2)(iii). Model MS-4(B) does not contain sample clauses for all loss mitigation 

options that may be available; they illustrate only four commonly offered examples: (1) 

forbearance, (2) mortgage modification, (3) short-sale, and (4) deed-in-lieu of foreclosure. These 

examples of loss mitigation options may not necessarily accurately reflect the servicer’s loss 

mitigation programs. Thus, proposed comment MS-4-2 explains that the language in proposed 

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. Clauses in Model MS-4(C) illustrate how the servicer may 

inform the borrower how to obtain additional information about loss mitigation options, as would 
272 

be required under proposed § 1024.39(b)(2)(iv). If the servicer offers 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 solicits comment on the examples of loss mitigation options 

and the descriptions of those examples in Model MS-4(B). The Bureau also solicits comment on 

whether alternate or additional model clauses would be helpful to borrowers and servicers. 

Clauses in Model MS-4(D) illustrate how a servicer may explain foreclosure and provide 

the estimated number of days in which the servicer may begin the foreclosure process, as would 

be required under proposed § 1024.39(b)(2)(v). Clauses in Model MS-4(E) illustrate how the 

servicer may provide contact information for the State housing finance authority and housing 

counselors, as would be required under proposed § 1024.39(b)(2)(vi). 

As discussed above, proposed comment MS-2 is intended to affirm that the servicer has 

flexibility in complying with the proposed disclosure requirement in proposed paragraphs (b)(1) 

and (b)(2) of § 1024.39. The servicer may comply by using language substantially similar to the 

language in the model clauses or by substituting applicable loss mitigation options not 

represented in the model clauses, as long as the information required to be disclosed is clear and 

conspicuous, as would be required by proposed § 1024.32, discussed above. 

The Bureau developed the clauses in proposed MS-4(C), MS-4(D), and MS-4(E) based 

on its analysis and review of existing notices for delinquent borrowers, such as the HUD 

“Avoiding Foreclosure” pamphlet.192 The Bureau has not yet tested the clauses in proposed 

Models MS-4(A), MS-4(B), MS-4(C), MS-4(D), and MS-4(E) with borrowers. The Bureau 

requests comment on whether consumer testing of these clauses is necessary and whether the 

Bureau should consider modifying, deleting, or adding any proposed clauses for these models. 

 

192 See 24 CFR 203.602; HUD Handbook 4330.1 rev-5, 7-7(G). 
273 

The Bureau is also considering integrating these model clauses into a model form, and the 

Bureau requests comment on what format would most effectively convey the proposed content in 

proposed § 1024.39(b)(2). 

 Legal authority. The Bureau proposes to exercise its authority under RESPA sections 

6(j)(3), 6(k)(1)(E), and 19(a) to add new appendix MS-4 to Regulation X.

VII. Section 1022(b)(2) Analysis 

In developing the proposed rule, the Bureau has considered potential benefits, costs, and 

impacts, and has consulted or offered to consult with the prudential regulators, HUD, the Federal 

Emergency Management Agency, FHFA, and the Federal Trade Commission, with respect to 

consistency with any prudential, market, or systemic objectives administered by such 

agencies.193 The Bureau also held discussions with or solicited feedback from the United States 

Department of Agriculture Rural Housing Service, the Farm Credit Administration, the Federal 

Housing Administration, Ginnie Mae, and the Department of Veterans Affairs regarding the 

potential impacts of the proposed rule on those entities’ loan or securitization programs. 

As discussed in greater detail elsewhere throughout this SUPPLEMENTARY 

INFORMATION, in this rulemaking, the Bureau proposes to amend Regulation X, which 

implements RESPA, as part of the Bureau’s implementation of the Dodd-Frank Act amendments 

to RESPA regarding mortgage loan servicing. The proposed amendments to Regulation X 

implement section 1463 of the Dodd-Frank Act, which imposes obligations on servicers with 

respect to resolving errors and responding to requests for information from mortgage loan 

 

193 Specifically, 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. 
274 

borrowers, and to ensure that a reasonable basis exists to obtain force-placed insurance. 

 In addition, the proposal includes additional amendments to Regulation X to impose 

servicer obligations the Bureau has found, pursuant to authority under RESPA section 6, as 

amended by the Dodd-Frank Act, to be appropriate to carry out the consumer protection 

purposes of RESPA. These additional amendments are not specifically required by the DoddFrank Act and consist of obligations to: establish reasonable information management policies 

and procedures; 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. 

The proposal would also reorganize and amend the mortgage servicing related provisions 

of Regulation X, currently published in 12 CFR 1024.21. Such amendments relate to, for 

example, disclosures of mortgage servicing transfers and servicer obligations to borrowers, and a 

servicer’s obligation to manage escrow accounts, including the obligation to advance funds to an 

escrow account to maintain a borrower’s hazard insurance coverage and to return escrow 

balances when a mortgage loan is paid off in full. Further, the Bureau also proposes to set forth 

a commentary that includes official Bureau interpretations of Regulation X. 

Elsewhere in today’s Federal Register, the Bureau is also publishing a proposed rule 

under TILA to amend Regulation Z (12 CFR part 1026). The proposed 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 section1464 (prompt crediting of mortgage payments and response to requests for payoff 

amounts). The proposed rule would also revise certain existing regulatory requirements in 

Regulation Z for disclosing rate and payment changes to ARMs in current § 1026.20(c). 
275 

As discussed in greater detail elsewhere in this SUPPLEMENTARY INFORMATION, 

the recent financial crisis exposed pervasive consumer protection problems across major 

segments of the mortgage servicing industry. As a result of these problems, Congress included 

in the Dodd-Frank Act the provisions that specifically address mortgage servicing. The new 

protections in the rules proposed under RESPA and TILA would significantly improve the 

transparency of mortgage loans after origination, provide substantive protections to consumers, 

enhance the ability of consumers to obtain information from and dispute errors with servicers, 

and provide consumers, particularly delinquent consumers, with better customer service when 

dealing with servicers. 

A. Provisions to be Analyzed 

The analysis below considers the potential benefits, costs, and impacts of the following 

major proposed provisions: 

1. Requirements regarding obtaining force-placed insurance policies, including disclosures 

to borrowers. 

2. Procedures regarding error resolution and requests for information. 

3. Requirements to establish reasonable information management policies and procedures. 

4. Procedures for early intervention with delinquent borrowers. 

5. Procedures for continuity of contact with delinquent borrowers. 

6. Requirements regarding loss mitigation procedures. 

 With respect to each major proposed provision, the analysis considers the benefits and 

costs to consumers and covered persons. The analysis also addresses certain alternative 

provisions that were considered by the Bureau in the development of the rule. The Bureau 

requests comment on the analysis of the potential benefits, costs, and impacts of the proposal. 
276 

B. Baseline for Analysis

The amendments to RESPA in section 1463 of the Dodd-Frank Act take effect 

automatically on January 21, 2013, unless final rules are issued on or before that date. However, 

no additional obligations are imposed under section 6(k)(1)(E) of RESPA, as amended by the 

Dodd-Frank Act, unless the Bureau adopts implementing regulations. Specifically, the 

provisions of the proposed rule that impose obligations on servicers to correct errors asserted by 

mortgage loan borrowers, to provide information requested by such borrowers, and to ensure that 

a reasonable basis exists to obtain force-placed insurance implement statutory amendments to 

RESPA that take effect automatically. Thus, many costs and benefits of the provisions of the 

proposed rule with respect to these self-executing provisions would arise largely or entirely from 

the statute, and not from the Bureau’s proposed provisions. These provisions of the proposed 

rule would provide substantial benefits compared to allowing the RESPA amendments to take 

effect automatically by clarifying parts of the statute that are ambiguous. Greater clarity on these 

issues should reduce the compliance burdens on covered persons by, for example, reducing costs 

for attorneys and compliance officers as well as potential costs of over-compliance and 

unnecessary litigation. Moreover, the costs that these provisions would impose beyond those 

imposed by the statute itself are likely to be minimal.

Section 1022 of the Dodd-Frank Act permits the Bureau to consider the benefits, costs 

and impacts of the proposed 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 proposed rule (i.e., the benefits, costs, and 

impacts of the relevant provisions of the Dodd-Frank Act and the regulation combined) against a 

pre-statutory baseline. 
277 

As discussed above, the Dodd-Frank Act also gives the Bureau discretionary authority to 

develop additional mortgage servicing rules in Regulation X, which the Bureau is relying on to 

propose to require servicers to: establish reasonable information management policies and 

procedures; 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. Since section 1463 of the Dodd-Frank 

Act does not specifically impose these obligations on servicers, the pre-statute and post-statute 

baseline are the same. The Bureau has discretion in future rulemakings to choose the most 

appropriate baseline for that particular rulemaking. 

C. Coverage of the Proposal 

Each proposed provision covers certain closed-end mortgages, as described further in 

each section below.

D. Data Limitations and Quantification of Benefits, Costs and Impacts 

The analysis relies on data that the Bureau has obtained from industry, other regulatory 

agencies, and publicly available sources. However, as discussed further below, the data are 

generally limited with which to quantify the potential costs, benefits, and impacts of the 

proposed rule. 

Regarding the costs to covered persons, the proposed rule generally establishes certain 

standards for servicer operations. In order to quantify the costs to covered persons, the Bureau 

would need representative data on the extent to which servicer operations currently do not 

comply with the proposed rule. The Bureau has little data on this issue, and does not believe that 

it is feasible to initiate a substantial collection of representative data in the time available for this 

rulemaking. However, the Bureau continues to seek data regarding the extent to which servicer 
278 

operations currently do not comply with the proposed rule. Furthermore, even with this data, the 

Bureau would need information on the cost of changing current servicer practices in order to 

quantify the cost of closing any gaps between current practices and those mandated by the 

proposed rule. The Bureau has obtained some information about the cost of improving servicer 

operations, and the discussion below uses this information to quantify certain costs of the 

proposed rule, but these calculations do not fully quantify the costs to covered persons of the 

proposed rule. The Bureau continues to seek data from available sources regarding the costs of 

improving servicer operations, as specified by the proposed rule, in order to quantify the costs to 

covered persons of the proposed rule. 

The lack of data on the extent to which servicer operations currently do not comply with 

the proposed rule also makes it difficult to quantify the benefits of the proposed rule to 

consumers. However, quantifying benefits presents additional challenges. As discussed further 

below, certain proposed provisions may directly save consumers time and money but others may 

benefit consumers in a more indirect way, by, for example, facilitating household budgeting, 

supporting the consumer’s ability to obtain credit, and reducing default and avoidable 

foreclosure. Quantifying these benefits and monetizing them would require a wide range of data 

that cannot be collected in the time frame for this rulemaking. The Bureau continues to seek data 

from available sources regarding the benefits to consumers of the proposed rule. 

Similar issues to those just described arise in quantifying the benefits to covered persons 

of the proposed rule and in quantifying the costs to consumers. Certain benefits to covered 

persons are difficult to quantify. For example, as discussed in greater detail below in the 

discussion about force-placed insurance, it is difficult to quantify the benefit servicers receive 

from reduced interest expenses when they advance their own funds to pay for force-placed 
279 

insurance. Certain costs to consumers are difficult to quantify, such as the extent to which costs 

imposed on servicers may be passed through to consumers. 

In light of these data limitations, the analysis below generally provides a qualitative 

discussion of the benefits, costs, and impacts of the proposed 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. 

E. Potential Benefits and Costs to Consumers and Covered Persons

1. Requirements Regarding Obtaining Force-Placed Insurance Policies 

 Dodd-Frank Act section 1463 amends RESPA to prohibit a servicer of a federally related 

mortgage 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 when 

they force-place insurance. The process includes sending the borrower two written notices 

before imposing any charge on a borrower for force-placed insurance. The statute also provides 

process requirements for terminating force-placed insurance and refunding 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 each in effect. 

 The Bureau is proposing model forms for the force-placed insurance notices to be sent to 

borrowers. The Bureau is also proposing requirements concerning: charges related to forceplaced insurance, payment of the borrower’s hazard insurance premiums from escrow, and notice 

requirements when servicers renew existing force-placed insurance policies. 

Benefits and costs to consumers. Borrowers pay for force-placed insurance but do not 
280 

select the insurance provider. Thus, the market for force-placed insurance may not fully reflect 

the interests of borrowers in minimizing force-placement and the amount of time force-placed 

insurance is in effect. In particular, the proposed force-placed insurance disclosures and 

procedures may reduce borrowers paying for unnecessary force-placed insurance or the length of 

time during which borrowers pay for such insurance. 

The Bureau does not have representative data with which to quantify the extent to which 

industry currently complies with the proposed force-placed insurance provisions or the extent to 

which additional compliance would reduce the need for force placement or the duration of force 

placement; however, as discussed in greater detail below, the Bureau understands that many 

servicers already comply with the proposed procedures with respect to sending borrowers notices 

before charging borrowers for force-placed insurance and canceling force-placed insurance after 

verifying that borrower has obtained hazard insurance coverage. Moreover, even a small 

reduction in force placement may provide consumers with substantial benefits. In 2009, the 

average premium for homeowner’s insurance was $880 while force-placed insurance cost about 

twice this amount.194 Thus, a homeowner who pays force-placed insurance for one to six months 

pays an additional $73 to $440 dollars.195 If the provisions of the proposed rule reduced forceplacement by just 10%, approximately 171,000 homeowners would save between $7.6 million 

and $45.8 million in unnecessary premiums each year.196 

The following discussion provides a qualitative analysis of the benefits to borrowers of 

 

194 For the average homeowner’s insurance premium, see data provided by Insurance Institute of America, available 

at http://www.iii.org/facts_statistics/homeowners-and-renters-insurance.html. For information on the cost of forceplaced 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). 195 That is to say, the homeowner pays one-twelfth to one-half of the additional $880. 196 Discussions with industry suggest that 2% of mortgages incur force-placement each year and there are 

approximately 52 million first liens, so about 1.04 million homeowners incur force-placement each year. Ten 

percent of this figure multiplied by $73 (or $440) gives $7.6 million (or $45.8 million). 
281 

the proposed force-placed insurance disclosures and procedures. In each case, as discussed 

previously, the Bureau understands that certain servicers may already comply with some of the 

proposed procedures. The Bureau believes that for a borrower in the specified situation and with 

a servicer that does not comply with some of the proposed procedures, full compliance would 

provide important additional consumer benefits. 

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 subdivide this group into three additional groups: those with hazard insurance that is not about to 

lapse; 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 proposed force-placed 

insurance disclosures and procedures may provide different benefits to borrowers depending on 

the group to which they belong. 

Borrowers with force-placed insurance would likely benefit from the proposed 

requirements regarding renewal of force-placed insurance, evidence of hazard insurance, 

cancellation of force-placed insurance, and limitations on charges related to force-placed 

insurance. The proposed rule would require servicers to send a renewal notice once every 12 

months, accept insurance information provided by the borrower to verify whether or not the 

borrower has hazard insurance in place, cancel force-placed insurance and refund the borrower 

for any period of overlapping coverage within 15 days of receiving verification that the borrower 

has obtained hazard insurance. For a borrower in the situation described and with a servicer that 

does not currently comply with some of the proposed procedures, full compliance may reduce 
282 

both the amount of time the borrower has force-placed insurance and the cost to the borrower of 

paying for force-placed insurance. 

Consider next a borrower who has hazard insurance that is not about to lapse, but the 

servicer for some reason believes it is about to lapse and begins the process of force-placing 

insurance. The proposed rule would require the servicer to send the borrower two notices before 

charging the borrower for force-placed insurance. The proposed disclosures may prompt the 

borrower to contact the servicer with their insurance information. By possibly prompting the 

borrower to communicate with the servicer and provide the servicer with information to verify 

that the borrower has hazard insurance in place, the proposed rule may reduce the chance that a 

borrower in the situation described would pay for force-placed insurance. 

Consider next a borrower who has a hazard insurance policy that is about to lapse and 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 proposed 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 would 

have to provide the two proposed notices before charging such borrower for force-placed 

insurance. The Bureau undertook three rounds of qualitative testing of the proposed notices, and 

participants said that if they received force-placed insurance notices like the ones the Bureau is 

proposing, they would immediately contact their insurance provider to find out whether or not 

their hazard insurance was still in force. For a borrower in this situation and for whom the 

mortgage loan is serviced by a servicer that does not currently provide notices that meet the 

proposed content and form requirements, full compliance with the proposed requirements may 

reduce the chance that the borrower would pay for unnecessary force-placed insurance. If the 
283 

borrower’s insurance does lapse, full compliance with the proposed requirements regarding 

renewal of force-placed insurance, evidence of hazard insurance and cancellation of force-placed 

insurance may reduce both the amount of time the borrower has force-placed insurance and the 

cost to the borrower of paying for force-placed insurance. 

Finally, consider a borrower who has hazard insurance that is about to lapse and does not 

have the funds to renew the insurance. If this borrower has an escrow account with 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 a borrower in the situation described 

and with a servicer that is not complying with the proposed procedure, full compliance would 

greatly reduce the possibility that the borrower’s hazard insurance was canceled for nonpayment 

and accordingly, the chance that the borrower would pay for force-placed 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, full compliance with the 

proposed requirement to cancel force-placed insurance within 15 days of receiving verification 

that the borrower has obtained hazard insurance may reduce the amount of time force-placed 

insurance is in effect. 

The proposed rule also provides requirements on the renewal or replacement of forceplaced insurance, including a disclosure to consumers. Specifically, a servicer may not charge a 

borrower for renewing or replacing pre-existing force-placed insurance unless: (1) The servicer 

delivers or places in the mail a written notice to the borrower with specified disclosures 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. 
284 

The proposed disclosure includes the cost of the insurance (or a good faith estimate) and 

statements to the effect that the servicer has previously obtained the insurance, charged the 

borrower for the insurance, and has the right to maintain the insurance. The proposed rule also 

provides certain formatting requirements on the disclosure. 

The Bureau’s proposal may help borrowers avoid the cost associated with the renewal or 

replacement of pre-existing force-placed insurance by both alerting borrowers to the impending 

charge and conditioning the ability of servicers to charge borrowers for renewal or replacement 

of pre-existing force-placed insurance on properly providing the specified disclosures. The 

disclosures may benefit certain borrowers by providing them with the information they need to 

purchase hazard insurance before being charged for renewal or replacement of force-placed 

insurance. Conditioning the ability of servicers to charge borrowers for renewal or replacement 

on the provision of the disclosures facilitates compliance with the disclosure requirement. As 

discussed previously, incentives like commissions paid to servicers or their insurance affiliates 

may cause servicers to prefer renewing or replacing pre-existing force-placed insurance coverage 

over providing borrowers with an opportunity to obtain hazard insurance. 

 The Bureau does not believe that the requirements with respect to force-placed insurance 

will impose any significant costs to borrowers for the following reasons: (1) as discussed above, 

the Bureau understands that only approximately two percent of mortgages incur force-placed 

insurance annually; and (2) as discussed below, many servicers already comply with the 

proposed disclosures with respect to sending borrowers notices before charging borrowers for 

force-placed insurance and the proposed requirement that the they cancel force-placed insurance 

after verifying that the borrower has obtained hazard insurance coverage. 

Benefits and costs to covered persons. The Bureau believes that the proposed force-
285 

placed insurance disclosures and procedures may provide certain benefits to servicers. For 

example, the model forms the Bureau is providing servicers may reduce servicers’ compliance 

cost. Servicers may also benefit from any reduction in the need to obtain force-placed insurance. 

Servicers advance their own funds to pay for force-placed insurance. 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, like the advances for the force-placed 

insurance premium charge.197

 The Bureau notes that the owners or assignees of mortgage loans may also benefit from 

the proposed force-placed insurance disclosures and procedures. As discussed in part VI, above, 

force-placed insurance is often significantly more expensive than hazard insurance obtained by 

the borrower. If the property ultimately goes to foreclosure and the loan is liquidated, servicers 

get compensated for advancing charges related to force-placed insurance before owner or 

assignee of the mortgage loan is paid.198 Thus, the additional cost of force-placed insurance 

produces an additional expense to such persons, who benefit when this additional expense is 

minimized. To the extent the proposed rule reduces the frequency and duration of lapses in 

hazard insurance obtained by the borrower, owners or assignees of mortgage loans benefit along 

with borrowers. 

Based on discussions with industry, the Bureau understands that servicers generally 

provide borrowers with multiple notices before charging a borrower for force-placed insurance. 

Thus, the additional cost of the proposed force-placed insurance disclosures notice would most 

likely be the one-time cost of developing the form to conform with the Bureau’s proposed 

 

197 See e.g., Levitin and Twomey, 28 Yale J. on Reg. 48 (2011) (explaining that servicing advances, which include 

advances for taxes and insurance, are costly to servicers because they are do not recover interest on the advances) . 198 See supra note 113 (Thompson, at 816-20), 
286 

regulations. The force-placed insurance disclosure would require minimal customization to each 

loan, but there may be some additional cost associated with providing the borrower with the cost 

or a good faith estimate of the cost of force-placed insurance, stated as an annual premium. The 

Bureau requests additional information about the force-placed insurance disclosures that 

servicers currently provide and the incremental cost of complying with the proposed force-placed 

insurance disclosure requirement. 

The Bureau understands that many servicers generally terminate force-placed insurance 

coverage and refund to borrowers any premiums charged during any period when the borrower 

had borrower-obtained insurance coverage in place. The Bureau does not believe that complying 

with the remaining proposed procedures—including the provision of the force-placed insurance 

renewal notice—would impose substantial incremental costs on servicers. However, the Bureau 

continues to examine this issue and to collect data and other relevant information.199

Finally, the Bureau recognizes that the proposed force-placed insurance provisions may 

produce a number of changes in how force-placed insurance is provided and paid for. The 

Bureau understands that currently some servicers incur all of the costs associated with providing 

force-placed insurance notices, tracking borrower coverage, and placing and terminating the 

insurance. For other servicers, the Bureau understands that the force-placed insurance provider 

handles these activities and absorbs the costs or passes them on to the borrower. The proposed 

force-placed insurance provisions may reduce the frequency with which servicers obtain forceplaced insurance. This would most likely reduce total payments by borrowers to servicers and 

 

199 Furthermore, as discussed in greater detail in part VI, 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 proposed procedures for 

force-placed insurance, since systems are in place that could be adapted outside the force-placed flood insurance 

context. 
287 

force-placed insurers, even if the cost to insure the remaining borrowers increased, since there 

would be fewer transactions and fees. On the other hand, a reduction in the frequency with 

which force-placed insurance is provided may also reduce commission income that in some 

cases is paid by insurers to servicers or their insurance affiliates, and a reduction in payments to 

force-placed insurance providers may reduce providers’ willingness to perform the tracking and 

other activities stated above as part of the service. The Bureau continues to examine how the 

proposed force-placed insurance provisions may affect covered persons. The Bureau asks 

interested parties to provide general information, data, and research results that are relevant to 

this issue. 

2. Procedures Regarding Error Resolution and Requests for Information 

 Section 1463 of the Dodd-Frank Act amends section 6 of RESPA by adopting a number 

of servicer prohibitions with respect to handling asserted errors and inquiries. These include (1) 

servicer obligations to respond to certain types of errors, (2) amendments to the timeframe for 

responding to qualified written requests and associated penalties for failure to comply, and (3) a 

prohibition on servicers charging fees in connection with valid qualified written requests. 

 The Bureau is using its authority in RESPA to propose a comprehensive set of 

requirements for investigating and correcting errors and for responding to borrower inquiries that 

incorporates the amendments to RESPA in the Dodd-Frank Act. In addition to the current 

requirements to address errors relating to servicing through Qualified Written Requests, , 

servicers would be required to correct errors relating to, among other things, allocating 

payments, providing an accurate payoff balance, failure to suspend a scheduled foreclosure sale 

while, for example, the borrower is performing under an agreement on a loss mitigation options. 

Servicers also would be required to respond to inquiries about a borrower’s mortgage loan 
288 

account, whether or not a borrower has complied with the requirements for submitting a 

Qualified Written Request. 

 Servicers would have to provide borrowers with a written acknowledgement of receiving 

a notice of error within five days (excluding legal public holidays, Saturdays and Sundays) of 

receipt of the notice of error, unless the servicer corrects the error within such time and the 

borrower is notified of the correction in writing. Servicers would have to correct the error and 

notify the borrower of such correction, or conduct a reasonable investigation and provide the 

borrower with written notification regarding the investigation and the documents relied upon by 

the servicer. Generally, with the exception of certain types of errors, the investigation would 

have to be completed and a response provided within 30 days (excluding legal public holidays, 

Saturdays and Sundays) after receipt of the notice of error. 

 The Bureau is proposing substantially similar requirements to apply to inquiries. For 

example, servicers would have to provide borrowers with written acknowledgement of receiving 

an information request, unless the servicer provides the borrower with the information requested 

and with contact information for further assistance within five days (excluding legal public 

holidays, Saturdays and Sundays). Servicers would have to provide the borrower with the 

requested information or conduct a reasonable search for the information and provide the 

borrower with a written notification regarding the search. Generally, with the exception of 

certain types of information requests, the information or a notification stating that the servicer 

has determined the requested information is not available to the servicer would have to be 

provided within 30 days after receipt of the information request. 

Benefits and costs to consumers – error resolution. As explained in part VI, above, each 

of the nine proposed enumerated errors would results from a failure by the servicer to perform a 
289 

typical servicer duty. The proposed error resolution procedures would require that servicers, in a 

timely manner, correct these errors or investigate and explain to the borrower why no error has 

occurred. 

The Bureau has conducted outreach with servicers regarding alleged errors. One servicer 

estimates that it receives 1,850 allegations of error per month on a portfolio of about 300,000 

loans; another estimates about the same number on a portfolio of about 1 million loans. 

However, the Bureau currently does not have data on the nature of the alleged errors, the extent 

to which servicers already comply with the proposed error resolution procedures, or the benefit 

to borrowers from full compliance. Thus, the Bureau does not have the data necessary to 

quantify the benefits to borrowers of the proposed error resolution procedures.200

Although the Bureau does not have the data necessary to quantify the benefits to 

borrowers of the proposed error resolution procedures, the Bureau believes that the benefits may 

be substantial. Some of the enumerated errors concern basic duties that servicers should 

generally perform every month for every borrower (e.g., accept conforming payments, properly 

apply payments as required under the terms of the mortgage loan, pay taxes and insurance, etc.). 

The Bureau understands that servicers currently perform them. Other enumerated errors, 

however, concern duties regarding delinquent borrowers and the transfer of mortgage loan 

account information to other servicers. Under the proposed rule, it would be an 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 scheduled foreclosure sale when, for example, the 

borrower is performing under a loss mitigation agreement. It also would be an error for a 

servicer to fail to transfer information to a transferee servicer relating to the servicing of a 

 

200 See, however, the general discussion of servicing operations and avoidable foreclosure in the analysis of the 

proposed provisions on reasonable information management, infra. 
290 

borrower’s mortgage loan account in an accurate and timely manner. Servicers may not have 

uniformly investigated and corrected these errors, as the proposal would require them to. These 

errors have the potential to impose substantial financial and other costs on consumers. Thus, the 

proposed requirements to investigate allegations that servicers have committed these errors and 

to correct these errors (when found) may provide substantial benefits to certain consumers. 

More generally, the Bureau notes that borrowers do not choose their servicer, except 

indirectly by choosing their lender. Even if borrowers choose their servicer at origination, 

perhaps by seeking a lender that services the loans it originates, the borrower cannot 

subsequently choose a different servicer if the quality of servicing is unsatisfactory. Thus, the 

market for servicing may not fully reflect the interests of borrowers in having robust error 

resolution procedures. While certain servicers may nonetheless reliably perform their duties, the 

recent financial crisis suggests that for some, the incentives to do so were lacking. 

Benefits and costs to consumers – requests for information. The Bureau has conducted 

outreach with servicers regarding requests for information. One servicer estimates that it 

receives 70,000 phone calls a month on portfolio of 300,000 loans; another estimates 160,000 

phone calls per month on a portfolio of about 1 million loans. The vast majority of these calls 

are inquiries and the most common inquiry is whether the servicer has received the borrower’s 

payment. The Bureau currently does not have data on the nature of the other inquiries, the extent 

to which servicers already comply with the proposed procedures regarding inquiries, or the 

benefit to borrowers from full compliance. Thus, the Bureau does not have the data necessary to 

quantify the benefits to borrowers of the proposed procedures regarding inquiries.201 The Bureau 

requests interested parties to provide data, research, and other information that may inform the 

 

201 See, however, the general discussion of servicing operations and avoidable foreclosure in the analysis of the 

proposed provisions on reasonable information management. 
291 

further consideration of this issue.

The Bureau understands that the servicer is a convenient source of certain information 

(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). This information provides many benefits to borrowers, both by facilitating household 

budgeting in the near term and over time and by allowing borrowers to forestall or correct 

problems (e.g., by verifying that payments were received or taxes and insurance were paid from 

escrow). The fact that borrowers go to the trouble of requesting information from servicers 

indicates that they recognize some benefit from having the information. 

More generally, as discussed above, the Bureau notes that borrowers do not choose their 

servicer, except indirectly, by choosing their lender. Even if borrowers choose their servicer at 

origination, perhaps by seeking a lender that services the loans it originates, the borrower cannot 

subsequently choose a different servicer if the quality of servicing is unsatisfactory. Thus, the 

market for servicing may not fully reflect the interests of borrowers in having robust procedures 

for responding to inquiries. While certain servicers may nonetheless reliably perform their 

duties, the recent crisis suggests that for some, the incentives to do so were lacking. 

Benefits and costs to covered persons. The Bureau understands that certain servicers may 

already comply with many of the proposed procedures regarding error resolution and response to 

inquiries.202 Further, certain proposed provisions are intended to mitigate the costs of complying 

 

202 For example, erroneous information furnished by servicers to a consumer reporting agency are a type of covered 

error specifically included in the proposed rule. See proposed § 1024.35(b)(iii). Servicers who furnish erroneous 

information to a consumer reporting agency are already required to handle disputes about this information under the 

Fair Credit Reporting Act. These preexisting obligations under the Fair Credit Reporting Act will make it less costly 
292 

with the proposed procedures. The Bureau proposes that errors and information requests that are 

resolved within five days do not require written acknowledgement of receipt of a notice of error 

or information request. The Bureau believes that the proposed provisions, including the 

proposed finite list of errors, provide clarity regarding servicer duties. Clarity mitigates one-time 

compliance costs for servicers that would otherwise pay for additional legal advice regarding 

compliance with the rule or would perform activities that were not in fact required by the rule. 

 As discussed in part VI, above, the Bureau considered the impact of the proposed error 

resolution requirements if the types of errors were not limited. The Bureau believes that the 

added costs and burden created by having an open-ended definition of an error could 

substantially increase the costs to servicers with limited additional benefit to consumers. The 

Bureau further believes that requiring servicers to respond to potentially any assertion of an error 

could, as a practical matter, lead to servicers using disproportionate resources to respond to every 

asserted error. That practice may cause servicers to expend fewer resources to address errors that 

may be far more significant to borrowers. 

 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 

 for servicers to implement the changes in this rule since they should already have systems in place that can be 

adapted outside the context of errors about information furnished to consumer reporting agencies. 
293 

borrowers. 

Although certain servicers may already comply with many of the proposed procedures, 

the Bureau understands that some of these proposed procedures may impose one-time and 

ongoing compliance costs on servicers. The Bureau asks interested parties to provide specific 

information about the proposed requirements for error resolution and requests for information 

with which servicers are not already in compliance and the costs of coming into compliance. 

3. Reasonable Information Management Policies and Procedures 

 The Bureau is using its authority in RESPA to propose requirements on the information 

management practices of servicers. The proposed rule specifies that a servicer’s information 

management practices need to address objectives broadly categorized as: accessing and 

providing accurate information relating to a borrower’s account; evaluating borrowers for loss 

mitigation options; facilitating oversight of, and compliance by, service providers; and 

facilitating servicing transfers. The reasonableness of a servicer’s policies and procedures would 

be determined in part by the nature and scope of the servicer’s operations, characteristics of the 

servicing portfolio, and the servicer’s history of consumer complaints. 

Benefits and cost to consumers. The Bureau recognizes that borrowers who make timely 

and conforming payments every period and whose payments are correctly and timely posted by 

the servicer and disbursed to third parties as appropriate may rarely need any new information 

from the servicer. The servicer of these loans generally requires only enough information about 

the loan to properly credit the payment to principal, interest, taxes and insurance; or in the case 

of adjustable rate mortgages, to change the amount due and change the crediting to principal and 

interest. However, a substantial number of borrowers do not make timely and conforming 

payments. One large database of first-lien residential mortgages shows that in each of the five 
294 

quarters ending with the last quarter of 2011, between 10% and 15% of mortgages failed to be 

current and performing.203 This represents between 3.1 million and 4.7 million loans.204 The 

borrowers with these mortgages likely face difficult decisions about budgeting limited household 

resources and may require detailed and accurate information about what they owe, their loss 

mitigation options, and the consequences of different choices. 

For reasons discussed above, the Bureau does not have representative data with which to 

quantify the extent to which industry currently complies with the proposed reasonable 

information management procedures, the extent to which additional compliance would provide 

additional benefits to consumers, or the monetary value of those additional benefits to 

consumers. However, it is possible to provide a rough estimate of a key consumer benefit—a 

reduction in avoidable default (i.e., 90 day delinquency)—that may be attributed collectively to 

the proposed provisions regarding error resolution and requests for information, reasonable 

information management, early intervention, and continuity of contact. 

These benefits are discussed as part of reasonable information management for two 

reasons. First, the proposed provisions on reasonable information management include a 

requirement that a borrower must be able to receive an accurate and timely evaluation for a loss 

mitigation option. Thus, reasonable information management may reduce avoidable or 

unnecessary foreclosures. Second, reasonable information management facilitates compliance 

with the other proposed provisions listed above, all of which could help delinquent borrowers. A 

servicer that could not access accurate and timely information relating to a borrower’s account 

would likely have difficulty providing accurate information with respect to loss mitigation 

 

203 See Office of the Comptroller of Currency, OCC Mortgage Metrics Report, Fourth Quarter 2011, at 12 (Table 1) 

(2012). 

204 There are 31.4 million loans in the database, which is 60 percent of all first-lien residential mortgages 

outstanding. See id., at 8. 
295 

options and foreclosure (consistent with the proposed provisions on error resolution), notifying a 

borrower that he or she is late with a payment (as would be required by the proposed provisions 

on early intervention), and accessing a complete record of the borrower’s payment history (as 

required by the proposed provisions on continuity of contact). 

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).205 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 use regression 

analysis 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 services in the probability a loan defaults, even after controlling for 

borrower credit score and income, certain characteristics of the property, and other factors.206 

The best servicing (servicing performed by servicers with the highest cure rates with respect to 

loans that have 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 with respect to loans 

that have become 30 days delinquent).207

To translate this figure into an estimate of avoidable default, suppose that over 1 million 

 

205 See Michael A. Stegman et al., Preventative Servicing is Good for Business and Affordable Homeownership 

Policy, 18 Housing Policy Debate 243, 257 (2007). 206 Other 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, 

Federal Reserve Bank of Chicago, (2010) (Agarwal et al). 207 Specifically, the probability that a loan cures increases from .815 with the worst performing servicer (Servicer 

#2) to .8902 with a high-performing 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. 
296 

mortgages become 30-60 days late each year. If they all receive the worst servicing and about 

20% default, then a switch to the best servicing would reduce the default rate to about 12% (a 

reduction of 41%).208 Thus, 80,000 mortgages would no longer default if they had the best 

servicing. If 30% default, then about 120,000 would no longer default if they had the best 

servicing. These defaults are avoidable with better servicing. Furthermore, a substantial number 

of these defaults will ultimately go to foreclosure, perhaps 70 percent.209 

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.210 Other work establishes substantial negative effects that foreclosed homes have 

on nearby homes.211 The Bureau continues to examine how reasonable information management 

policies and procedures and other provisions of the proposed rule may affect default and 

foreclosure and the costs of these outcomes on borrowers and other consumers. The Bureau asks 

interested parties to provide general information, data, and research results that address these 

issues. 

More generally, as noted above, servicers may not have sufficient incentives to provide 

reasonable information management policies and procedures absent the proposed rule. As 

 

208 The 20% default rate is consistent with the data in Stegman et al. but may underestimate the default rate in more 

recent data. 

209 In one study, only 30% 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 and Table 2 (Freddie Mac, Working Paper No. 08-01, 

Mar. 2008). 

210 See 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. 211 Foreclosure itself may lead to a 27% reduction in the value of a house (possibly due to losses associated with 

abandonment) and a 1% reduction in the value of every other house within 5 tenths of a mile. See John Y. 

Campbell, Stefano Giglio, & Parag Pathak, Forced Sales and House Prices, American Economic Review, 101(5) 

(2011), abstract available at http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.2108. 
297 

discussed in the Background section, mortgage servicing is to a large extent a high-volume, lowmargin business that encourages servicers to provide minimal levels of service to borrowers. 

While certain servicers may nonetheless have reasonable information management policies and 

procedures, the mortgage crisis demonstrated that for some servicers the incentives to have these 

practices were lacking. 

Benefits and costs to covered persons. The Bureau understands that certain servicers 

already comply with many of the proposed procedures.212 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. Further, the Bureau is proposing to mitigate the cost of the proposed 

procedures by providing that the reasonableness of a servicer’s policies and procedures would be 

determined in part by the nature and scope of the servicer’s operations, characteristics of the 

servicing portfolio, and the servicer’s history of consumer complaints. The Bureau believes that 

the performance-based approach of the proposed information management provisions coupled 

with the flexible requirement for reasonableness will allow each servicer to comply with the 

proposed provisions in ways that best suit its particular circumstances. 

4. Procedures for Early Intervention with Delinquent Borrowers 

 As discussed in greater detail elsewhere in this SUPPLEMENTARY INFORMATION, 

Dodd-Frank Act section 1463 amends RESPA to authorize the Bureau to impose on servicers 

obligations the Bureau finds appropriate to carry out the consumer protection purposes of 

 

212 For example, servicers are already 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. 
298 

RESPA. The Bureau is using this authority to propose early intervention provisions regarding 

delinquent borrowers. The Bureau proposes to require servicers to provide two notices (one oral 

and one written) to delinquent borrowers. Generally, the Bureau proposes to require servicers to 

make a good faith effort to contact delinquent borrowers no later than 30 days after the payment 

due date, and not later than 40 days after a missed payment, the proposed rule would require 

servicers to provide the delinquent borrower a written notice about loss mitigation and the 

foreclosure process. 

Benefits and costs to consumers. The proposed provisions on early intervention with 

delinquent borrowers are intended to spur the engagement between servicers and borrowers that 

is necessary for avoiding foreclosure. In one study using data from September 2005 through 

August 2007, Freddie Mac servicers reported that for 53.3% of the total number of loans that 

went into foreclosure, the borrower never responded to the servicer.213 Of course, this means 

that 47% of borrowers did respond to the servicer. The proposed provisions may benefit 

borrowers, possibly by reducing the number of borrowers who never respond to the servicer, but 

in any case ensuring that those who would respond have the opportunity to do so. 

 The Bureau also understands that borrowers may benefit from the proposed provisions by 

taking corrective action more quickly. In one study using data from 2000 through 2006, the redefault 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.214 Early intervention may generally benefit 

borrowers by reducing avoidable interest costs, limiting the impact on borrowers’ credit reports, 

and facilitating household budgeting and planning. 

 

213 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, Mar. 2008). 214 Id., Table 2. 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. 
299 

 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 short-sales.215 Furthermore, the eligibility criteria for these 

programs change regularly.216 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 proposed provisions for early intervention 

benefit borrowers by providing them with information they probably do not have. 

Benefits and Costs to Covered Persons. Through industry outreach, the Bureau 

understands that many servicers already comply with the proposed early intervention procedures. 

As stated above, most servicers should be familiar with the early intervention standards for 

delinquent borrowers issued by private mortgage investors, the GSEs, Ginnie Mae, or 

government agencies offering guarantees or insurance for mortgage loans, such as FHA, the VA, 

or Rural Housing Servicer. 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 

 

215 See General Accounting Office, Actions Needed by Treasury to Address Challenges in Implementing Making 

Home Affordable Programs, Table 1 (2011). 

216 For a discussion of recent changes, including the implementation of the new “HAMP Tier 2” alternative, see 

Making Home Affordable Supplemental Directive 12-02, March 9, 2012, available at 

https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1202.pdf 
300 

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. The Bureau understands, however, that some GSE servicers may not provide written 

notifications to certain lower-risk delinquent borrowers until the 65th day of delinquency. In 

addition, Federal agencies and the GSEs have established requirements and recommended 

practices with respect to written notifications that are similar to the Bureau’s proposal under 

proposed § 1024.39(b). 

 Furthermore, the Bureau is proposing to mitigate the cost of the written notice provision 

by providing servicers with model clauses and by limiting the written notice to be sent once 

every 180 days. The model clauses provide servicers with examples of language explaining the 

foreclosure process 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. 

5. Procedures for Continuity of Contact with Delinquent Borrowers 

Dodd-Frank Act section 1463 requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority to propose continuity of contact provisions regarding delinquent 

borrowers. 

The Bureau proposes to require servicers to assign personnel to delinquent borrowers for 

whom servicers are required to notify pursuant to the proposed oral notification requirement 

under its early intervention proposal, discussed above. Additionally, the servicers would be 

required to provide such borrowers with live, telephonic response to inquiries and, as applicable, 
301 

assist the borrower with loss mitigation options. Servicers would be 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, for 

example, providing the borrower with accurate information about loss mitigation options 

available to the borrower and actions the borrower must take to be evaluated for such options. 

Benefits and costs to consumers. As discussed above in greater detail in part VI, above, 

the onset of the mortgage crisis revealed that many servicers did not have the infrastructure, 

trained staff, controls, and procedures needed to handle the high volumes of delinquent 

mortgages, loan modification requests, and foreclosures they were required to process. One 

study of complaints to the HOPE Hotline reported that over half were from borrowers who could 

not reach their servicers and obtain information about the status of their applications for HAMP 

modification.217 Other complaints concerned lost documentation and that the borrower was not 

able to speak with a representative who was knowledgeable about the status of their application. 

While certain servicers may nonetheless have provided delinquent borrowers with the services 

described in the proposed 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 for a number of servicers did not. 

As discussed in part VI, above, the Bureau believes that these problems may have had a 

significant adverse impact on borrowers seeking alternatives to foreclosure. 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 

 

217 See General Accounting Office, Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably 

Implement Foreclosure Mitigation Programs, at 15 (2010). 
302 

foreclosure. Similarly, the inability of borrowers to obtain a complete record of his payment 

history with the servicer or of servicer personnel to access all documents the borrower has 

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 make 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 foreclosure.218

Benefits and costs to covered persons. The Bureau understands that many servicers are 

already in compliance with the proposed requirements. As discussed in part VI, above, in 

response to reported problems with respect to how servicers to respond to delinquent borrowers, 

other regulators and the GSEs have responded by establishing staffing standards for servicers to 

meet when they assist delinquent borrowers. Accordingly, the Bureau believes that any 

additional costs of the proposed continuity of contact provisions would be minimal. 

6. Loss Mitigation Procedures. 

 Dodd-Frank Act section 1463 requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority to propose provisions regarding loss mitigation. 

 The proposed provisions on loss mitigation would require servicers that make loss 

mitigation options available to borrowers in the ordinary course of business to undertake certain 

duties in connection with the evaluation of borrower applications for loss mitigation options. 

 

218 See also the general discussion of servicing operations and avoidable foreclosure in the analysis of the proposed 

provisions on reasonable information management. 
303 

These servicers would have a duty to evaluate borrowers that apply for loss mitigation within 

specific timeframes and to inform borrowers about the status of their application and the 

servicer’s decision. These servicers would also be prohibited from completing a foreclosure sale 

unless certain conditions held.219 

Benefits and costs to consumers. The proposed procedures in 1024.41 provide a minimal 

structure to the process and decision-making around loss mitigation. Borrowers who submit 

complete applications may benefit from the proposed requirement on servicers to review and 

respond within a fixed period of time (30 days). Those who are denied loan modifications may 

benefit from the proposed requirement to disclose the reasons for the denial and the consumer’s 

rights to appeal the decision, and from the appeal itself. 

The Bureau is aware that a mandatory timeline may have unintended consequences for 

borrowers in certain circumstances. For example, one study of the loan-level data from the 

OCC-OTS Mortgage Metrics database studied 1.8 million mortgages that were current in the last 

quarter of 2007 and became “troubled” at some point between January 2008 and May 2009.220 

About 300,000 loans became troubled in each quarter of 2008. The researchers found that 

servicers made decisions very slowly and did not take any action, even after 6 months, in about 

half the cases.221 The timeline in the proposed provisions would have been binding on a large 

 

219 Specifically, as specified in proposed § 1024.41(g), if a servicer received a timely and complete loss mitigation 

application, a servicer could not proceed to foreclosure sale unless: (1) the servicer denied 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 denied the borrower’s appeal; (3) the 

borrower rejected a servicer’s offer of a loss mitigation option; or (4) a borrower failed to perform pursuant to the 

terms of a loss mitigation option. 

220 Mortgages were troubled if they were ever 60+ days past due or the borrower contacted the lender asking to 

renegotiate the loan. 

221 See supra note 193 (Agarwal et al, at 7-10, Table 2). 
304 

number of loans during this period, and it is difficult to predict how the servicers would have 

responded. 

One feature of the proposed provisions mitigates concerns about unintended 

consequences for borrowers. Servicers would be required to make a decision about whether to 

grant a loss mitigation option within 30 days. They would not, however, have to move to 

foreclosure just because they decline to provide a loss mitigation option. Servicers would be 

required to make a decision, but they would not be required to take any action that they would 

not have taken absent the proposed loss mitigation provisions, and through continuity of contact 

they could alert borrowers to the possibility of a different decision at a later date. Servicers 

would, however, be required to produce a record of decisions and, in the case of loan mitigation 

the reasons for denial, that record may provide greater accountability to both borrowers and 

investors. This argument also mitigates concerns that borrowers who may benefit from a long 

foreclosure timeline would necessarily need to leave their homes sooner than they otherwise 

would. 

More generally, borrowers applying for a loss mitigation option are in a high-stakes and 

unfamiliar situation. They may have no clear understanding of what to expect and what is 

expected of them. Federal rules on loss mitigation may make key decision points more salient 

and credible to borrowers and motivate them, for example, to provide complete applications to 

servicers in a timely manner. Borrowers may also be able to draw more directly on the 

experiences of other borrowers who were successful in loss mitigation since all would have been 

through a similar process. 

Borrowers may also benefit from the proposed restrictions on the timing of foreclosure 

sales. As discussed above, there is substantial anecdotal evidence that borrowers have been 
305 

foreclosed upon despite working in good faith for a loss mitigation option. The proposed 

restrictions would not prevent foreclosures that occur from the failure of servicers to comply 

with basic servicer duties, like maintaining proper records of payments and agreements. 

However, the proposed restrictions would define a clear set of circumstances under which 

discussions regarding loss mitigation options have ended. This certainty and clarity should make 

it less likely that borrowers will be foreclosed upon unexpectedly and makes clear to borrowers 

what is expected from them to avoid foreclosure. 

Benefits and costs to covered persons. The proposed provisions on loss mitigation may 

impose some costs on servicers. For example, servicers who make loss mitigation options 

available in the ordinary course of business may need to employ additional staffing in order to 

meet the proposed 30 day timeline for evaluation when large numbers of borrowers submit 

applications. Servicers would also need to allow 90 days between the time a borrower submits a 

complete loss mitigation application and the servicer conducts a foreclosure sale. This builds in 

time for consideration of the application and an appeal, but it also may delay foreclosures that 

servicers, based on their experience, recognize as inevitable. Any lengthening of time until 

foreclosure sale will also increase the time during which servicers will have the expense of 

providing borrowers with continuity of contact. On the other hand, the amount of time required 

for a successful modification may be shorter, and the cost to servicers lower, if the timelines and 

other proposed provisions for loss mitigation encourage borrowers to work more effectively with 

servicers. 

The costs to covered person of the proposed loss mitigation provisions depend on the 

extent to which servicers already comply with the proposed provisions and, for those not in 

compliance, the cost of making necessary changes. The Bureau asks interested parties to provide 
306 

data and other information about current compliance with the proposed provisions, the 

challenges of coming into compliance, and the benefits and costs to covered persons from any 

interactions between these provisions and other provisions of this proposed rule. 

E. Potential Specific Impacts of the Proposed Rule 

1. Depository Institutions and Credit Unions with $10 Billion or Less in Total Assets 

Regarding the provisions for force-placed insurance, the Bureau understands within the 

group of depository institutions and credit unions with $10 billion or less in total assets, as 

described in section 1026 of the Dodd-Frank Act, the larger depositories and credit unions 

generally have contracts with force-placed insurance providers under which the providers would 

absorb the costs of the proposed provisions. Thus, the Bureau believes there would be little 

impact of the proposed provisions on these institutions. But for smaller depository institutions or 

credit unions, the Bureau understands 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 SBREFA process, is 

discussed in further detail in the Regulatory Flexibility Analysis in part VIII below. Based on 

feedback received from the SERs, The Bureau understands that small mortgage servicers engage 

in relatively little force-placement. The Bureau asks interested parties to provide general 

information, data, and research results that are relevant to understanding the impact of the 

proposed provisions for force-placed insurance on depository institutions and credit unions 

considered in this section. 

 Regarding the other proposed provisions, 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 proposed rule on depository institutions and credit unions with $10 billion or less 
307 

in total assets. About 90% of all servicers are depository institutions and the vast majority of 

these institutions adhere to the servicing guidelines established by the GSEs. There is a 

substantial overlap between these guidelines and provisions of the proposed rule, especially in 

regards to early intervention with delinquent borrowers and loss mitigation. Thus, the Bureau 

believes that the consideration of benefits and costs to covered persons given above provides a 

general description of the impacts to depository institutions and credit unions considered in this 

section. However, the Bureau seeks comment on this conclusion and asks interested parties to 

provide general information, data, and research results that are relevant to understanding the 

impact of the proposed provisions on depository institutions and credit unions considered in this 

section. 

2. Impact of the Proposed Provisions on Consumers in Rural Areas

Consumers in rural areas may experience benefits from the proposed 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 proposed rule is 

designed to provide, including, for example, getting errors corrected promptly or getting access 

to personnel to assist them with their application for loss mitigation options. On the other hand, 

it is also possible that a lack of alternatives in some rural areas among lenders who also service 

may make it possible for the proposed rule to provide rural consumers with greater benefits. 

The Bureau will further consider the impact of the proposed rule on consumers in rural 

areas. The Bureau therefore asks interested parties to provide data, research results and other 

factual information on the impact of the proposed rule on consumers in rural areas. 
308 

F. Additional Analysis Being Considered and Request for Information 

The Bureau will further consider the benefits, costs, and impacts of the proposed 

provisions before finalizing the proposal. At various points in the analysis above, the Bureau 

asks interested parties to provide data, research results and other information relating to 

particular issues. The Bureau is generally interested in the impact of the proposed provisions on 

consumers, covered persons and markets in order to further understand and quantify the benefits 

and costs to consumers and covered persons. The Bureau generally requests interested parties to 

provide data, research, and other information that may inform the further consideration of 

benefits, costs and impacts of the proposed provisions.

To supplement the information discussed in this preamble and any information that the 

Bureau may receive from commenters, the Bureau is currently working to gather additional data 

that may be relevant to this and other mortgage related rulemakings. These data may include 

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. The Bureau expects that each of these datasets will be 

confidential. This section now describes each dataset in turn.

First, as the sole system supporting licensure/registration of mortgage companies for 53 

regulatory agencies for states and territories and mortgage loan originators under the Secure and 

Fair Enforcement for Mortgage Licensing Act (SAFE Act), NMLS contains basic identifying 

information for non-depository mortgage loan origination companies. Firms that hold a State 

license or State registration through NMLS are required to complete either a standard or 

expanded Mortgage Call Report (MCR). The Standard MCR includes data on each firm’s 

residential mortgage loan activity including applications, closed loans, individual mortgage loan 
309 

originator (MLO) activity, line of credit, and other data repurchase information by State. It also 

includes financial information at the company level. The expanded report collects more detailed 

information in each of these areas for those firms that sell to Fannie Mae or Freddie Mac.222 To 

date, the Bureau has received basic data on the firms in the NMLS and de-identified data and 

tabulations of data from the MCR. These data were used, along with HMDA data, to help 

estimate the number and characteristics of non-depository institutions active in various mortgage 

activities. In the near future, the Bureau may receive additional data on loan activity and 

financial information from the NMLS including loan activity and financial information for 

identified lenders. The Bureau anticipates that these data will provide additional information 

about the number, size, type, and level of activity for non-depository lenders engaging in various 

mortgage origination and servicing activities. As such, it supplements the Bureau’s current data 

for non-depository institutions reported in HMDA and the data already received from NMLS. 

For example, these new data will include information about the number and size of closed-end 

first and second loans originated, fees earned from origination activity, levels of servicing, 

revenue estimates for each firm, and other information. The Bureau may compile some simple 

counts and tabulations and conduct some basic statistical modeling to better model the levels of 

various activities at various types of firms. In particular, the information from the NMLS and the 

MCR may help the Bureau refine its estimates of benefits, costs, and impacts for the proposed 

new servicing requirements in this proposed rule and the companion 2012 TILA Servicing 

Proposal, as well as other proposed rules to make revisions to the RESPA Good Faith Estimate 

and settlement statement forms, changes to the HOEPA thresholds, changes to requirements for 

 

222 More information about the Mortgage Call Report can be found at 

http://mortgage.nationwidelicensingsystem.org/slr/common/mcr/Pages/default.aspx. 
310 

appraisals, updates to loan originator compensation rules, and impose new ability-to-repay 

standards. 

Second, the Bureau is working to obtain a random selection of loan-level data from 

several lenders. The Bureau intends to request loan file data from lenders of various sizes and 

geographic locations to construct a representative dataset. In particular, the Bureau will request a 

random sample of RESPA GFE and RESPA settlement statement forms from loan files for 

closed-end loans. These forms include data on some or all loan characteristics including 

settlement charges, origination charges, appraisal fees, flood certifications, mortgage insurance 

premiums, homeowner’s insurance, title charges, balloon payments, prepayment penalties, 

origination charges, and credit charges or points. Through conversations with industry, the 

Bureau believes that such loan files exist in standard electronic formats allowing for the creation 

of a representative sample for analysis. The Bureau may use these data to further measure the 

impacts of certain proposed changes. Calculations of various categories of settlement and 

origination charges may help the Bureau calculate the various impacts of proposed changes in 

other proposals to the definition of finance charge, including proposed changes in the number 

and characteristics of loans that exceed the HOEPA thresholds, loans that would meet the highrate or high-risk definitions mandating additional consumer protections, and loans that meet the 

points and fees thresholds contained in the ability-to-repay provisions of the Dodd-Frank Act. 

Third, the Bureau may also use data from the pilot phases of the National Mortgage 

Database (NMDB) to refine its proposals and/or its assessments of the benefits, costs, and 

impacts of these proposals. The NMDB is a comprehensive database, currently under 

development, of loan-level information on first lien single-family mortgages. It is designed to be 

a nationally representative sample (1 percent) and contains data derived from credit reporting 
311 

agency data and other administrative sources along with data from surveys of mortgage 

borrowers. The first two pilot phases, conducted over the past two years, vetted the data 

development process, successfully pre-tested the survey component and produced a prototype 

dataset. The initial pilot phases validated that sampled credit repository data are both accurate 

and comprehensive and that the survey component yields a representative sample and a sufficient 

response rate. A third pilot is currently being conducted with the survey being mailed to holders 

of 5,000 newly originated mortgages sampled from the prototype NMDB. Based on the 2011 

pilot, a response rate of 50% or higher is expected. These survey data will be combined with the 

credit repository information of non-respondents, and then de-identified. Credit repository data 

will be used to minimize non-response bias, and attempts will be made to impute missing values. 

The data from the third pilot will not be made public. However, to the extent possible, the data 

may be analyzed to assist the Bureau in its regulatory activities and these analyses will be made 

publically available. 

The survey data from the pilots may be used by the Bureau to analyze consumers’ 

shopping behavior regarding mortgages. For instance, the Bureau may calculate the number of 

consumers who use brokers, the number of lenders contacted by borrowers, how often and with 

what patterns potential borrowers switch lenders, and other behaviors. Questions may also 

assess borrowers’ understanding of their loan terms and the various charges involved with 

origination. Tabulations of the survey data for various populations and simple regression 

techniques may be used to help the Bureau with its analysis. 

The Bureau requests commenters to submit data and to provide suggestions for additional 

data to assess the issues discussed above and other potential benefits, costs, and impacts of the 

proposed rule. The Bureau also requests comment on the use of the data described above. 
312 

VIII. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA), as amended by SBREFA and the Dodd-Frank Act, 

requires each agency to consider the potential impact of its regulations on small entities, 

including small businesses, small governmental units, and small not-for-profit organizations. 

5 U.S.C. 601 et seq. The 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. 5 U.S.C. 603, 604. 

The Bureau also is subject to certain additional procedures under the RFA involving the 

convening of a panel to consult with small business representatives prior to proposing a rule for 

which an IRFA is required. 5 U.S.C. 609. 

The Bureau has not certified that the proposed rule would not have a significant economic 

impact on a substantial number of small entities within the meaning of the RFA. Accordingly, the 

Bureau convened and chaired the Small Business Review Panel to consider the impact of the 

proposed rule on small entities that would be subject to that rule and to obtain feedback from 

representatives of such small entities. The Small Business Review Panel for this rulemaking is 

discussed below in part VIII.A. 

The Bureau is publishing an IRFA. Among other things, the IRFA estimates the number of 

small entities that will be subject to the proposed rule and describe the impact of that rule on those 

entities. The IRFA for this rulemaking is set forth below in part VIII.A. 

A. Small Business Review Panel 

Under section 609(b) of the RFA, as amended by SBREFA and the Dodd-Frank Act, the 

Bureau seeks, prior to conducting the IRFA, information from representatives of small entities 

that may potentially be affected by its proposed rules to assess the potential impacts of that rule 
313 

on such small entities. 5 U.S.C. 609(b). Section 609(b) sets forth a series of procedural steps 

with regard to obtaining this information. The Bureau first notifies the Chief Counsel for 

Advocacy (Chief Counsel) of the SBA and provides the Chief Counsel with information on the 

potential impacts of the proposed rule on small entities and the types of small entities that might 

be affected. 5 U.S.C. 609(b)(1). Not later than 15 days after receipt of the formal notification 

and other information described in section 609(b)(1) of the RFA, the Chief Counsel then 

identifies individuals representative of affected small entities for the purpose of obtaining advice 

and recommendations from those individuals about the potential impacts of the proposed rule 

(referred to previously as SERs). 5 U.S.C. 609(b)(2) The Bureau convenes a review panel for 

such rule consisting wholly of full time Federal employees of the office within the Bureau 

responsible for carrying out the proposed rule, the Office of Information and Regulatory Affairs 

(OIRA) within OMB, and the Chief Counsel, which constitutes the Small Business Review 

Panel. 5 U.S.C. 609(b)(3). The Panel reviews any material the Bureau has prepared in 

connection with the SBREFA process and collects advice and recommendations of each 

individual small entity representative identified by the Bureau after consultation with the Chief 

Counsel on issues related to sections 603(b)(3) through (b)(5) and 603(c) of the RFA.223 

5 U.S.C. 609(b)(4). Not later than 60 days after the date the Bureau convenes the Small 

Business Review Panel, the Panel reports on the comments of the SERs and its findings as to the 

issues on which the Panel consulted with the SERs, and the report is made public as part of the 

 

223 As described in the IRFA in part VIII.B, below, sections 603(b)(3) through (b)(5) and section 603(c) of the RFA, 

respectively, require a description of and, where feasible, provision of an estimate of the number of small entities to 

which the proposed rule will apply; a description of the projected reporting, record keeping, and other compliance 

requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the 

requirement and the type of professional skills necessary for preparation of the report or record; an identification, to 

the extent practicable, of all relevant Federal rules which may duplicate, overlap, or conflict with the proposed rule; 

and a description of any significant alternatives to the proposed rule which accomplish the stated objectives of 

applicable statutes and which minimize any significant economic impact of the proposed rule on small entities. 

5 U.S.C. 603(b)(3), 603(b)(4), 603(b)(5), 603(c). 
314 

rulemaking record. 5 U.S.C. 609(b)(5). Where appropriate, the Bureau modifies the rule or the 

IRFA in light of the foregoing process. 5 U.S.C. 609(b)(6). 

On April 9, 2012, the Bureau provided the Chief Counsel with the formal notification and 

other information required under section 609(b)(1) of the RFA. To obtain feedback from small 

entity representatives to inform the Panel pursuant to sections 609(b)(2) and 609(b)(4) of the 

RFA, the Bureau, in consultation with the Chief Counsel, identified five categories of small 

entities that may be subject to the proposed rule for purposes of the IRFA: commercial 

banks/savings institutions, credit unions, non-depositories engaged primarily in lending funds 

with real estate as collateral (included in NAICS 522292), non-depositories primarily engaged in 

loan servicing (included in NAICS 522390), and certain non-profit organizations. Section 3 of 

the IRFA, in Part VIII.B.3, below, describes in greater detail the Bureau’s analysis of the number 

and types of entities that may be affected by the proposed rule. Having identified the categories 

of small entities that may be subject to the proposed rule for purposes of an IRFA, the Bureau, in 

consultation with the Chief Counsel, selected 16 small entity representatives to participate in the 

SBREFA process. As described in chapter 7 of the Small Business Review Panel Report 

(described below), the SERs selected by the Bureau in consultation with the Chief Counsel 

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). 

On April 10, 2012, the Bureau convened the Small Business Review Panel pursuant to 

section 609(b)(3) of the RFA. To collect the advice and recommendations of the SERs under 

section 609(b)(4) of the RFA, the Panel held an outreach meeting/teleconference with the small 

entity representatives on April 24, 2012 (the “Panel Outreach Meeting”). To help the small 
315 

entity representatives prepare for the Panel Outreach Meeting, the Panel circulated briefing 

materials prepared in connection with section 609(b)(4) of the RFA that summarized the 

proposals under consideration at that time, posed discussion issues, and provided information 

about the SBREFA process generally.224 All 16 small entity representatives participated in the 

Panel Outreach Meeting either in person or by telephone. The Panel also provided the small 

entity representatives with an opportunity to submit written feedback until May 1, 2012. In 

response, the Panel received written feedback from 5 of the representatives.225 

On June 11, 2012, the Panel submitted to the Director of the Bureau, Richard Cordray, 

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 small entity representatives who were 

selected to advise the Panel; a summary of the Panel’s outreach to obtain the advice and 

recommendations of those small entity representatives; a discussion of the comments and 

recommendations of the small entity representatives; 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).226 

In preparing this proposed rule and the IRFA, the Bureau has carefully considered the 

feedback from the small entity representatives participating in the SBREFA process and the 

findings and recommendations in the Small Business Review Panel Report. The section-bysection analysis of the proposed rule in Part VI, above, and the IRFA discuss this feedback and 

 

224The Bureau posted these materials on its website and invited the public to email remarks on the materials. See 

http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-outlines-borrower-friendlyapproach-to-mortgage-servicing/ (the materials are accessible via the links within this document). 225 This written feedback is attached as appendix A to the written report of the Panel, discussed below. 226 See Final Report of the Small Business Review Panel on the CFPB’s Proposals Under Consideration for 

Mortgage Servicing Rulemaking, (June 11, 2012), available at: www.consumerfinance.gov. 
316 

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 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. Also, 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. The proposed rule and the 

IRFA reflect further consideration, analysis, and data collection by the Bureau. 

B. Initial Regulatory Flexibility Analysis 

Under section 603(a) of the RFA, an IRFA “shall describe the impact of the proposed 

rule on small entities.” 5 U.S.C. 603(a). Section 603(b) of the RFA sets forth the required 

elements of the IRFA. An IRFA shall contain (1) a description of the reasons why action by the 

agency is being considered; (2) a succinct statement of the objectives of, and the legal basis for, 

the proposed rule; (3) a description of and, where feasible, provision of an estimate of the 

number of small entities to which the proposed rule will apply; (4) a description of the projected 

reporting, recordkeeping, and other compliance requirements of the proposed rule, including an 

estimate of the classes of small entities that will be subject to the requirement and the types of 

professional skills necessary for the preparation of the report or record; and (5) identification, to 

the extent practicable, of all relevant Federal rules which may duplicate, overlap, or conflict with 
317 

the proposed rule. The Bureau, further, must describe any significant alternatives to the 

proposed rule which accomplish the stated objectives of applicable statutes and which minimize 

any significant economic impact of the proposed rule on small entities. Finally, as amended by 

the Dodd-Frank Act, section 603(d) of the RFA requires that the IRFA include a description of 

any projected increase in the cost of credit for small entities, a description of 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 (if such an increase in the 

cost of credit is projected), and a description of the advice and recommendations of 

representatives of small entities relating to the cost of credit issues. 5 U.S.C. 603(d)(1); DoddFrank Act section 1100G(d)(1). 

1. Description of the Reasons Why Agency Action Is Being Considered 

As discussed in the Part I, mortgage servicing has been marked by pervasive and 

profound consumer protection problems. As a result of these problems, Congress included a 

number of provisions in the Dodd-Frank Act specifically to address mortgage servicing. One of 

these provisions is section 1463 of the Dodd-Frank Act, which amends RESPA. This provision 

puts new disclosure requirements and limitations on servicers obtaining force-placed insurance, 

and it establishes obligations for servicers to respond to requests from borrower to correct errors 

or provide certain information. Section 1463 of the Dodd-Frank Act also authorizes the Bureau, 

by regulation, to impose other obligations on servicers that it finds appropriate to carry out the 

purposes of the statute. 

These new statutory requirements take effect automatically on January 21, 2013, as 

written in the statute, unless final rules are issued prior to that date. If the Bureau adopts 

implementing regulations no later than January 21, 2013, the Bureau may establish an effective 
318 

date for the rules. The statutory requirements implemented by the rules then take effect on the 

same date. The Bureau intends to exercise its authority to adopt regulations to clarify new 

consumer protection obligations under the statute, to adopt additional consumer protections not 

required by the statute, and to give servicers sufficient time to come into compliance. The 

Bureau is also considering adjusting servicers’ legal obligations, including the obligations of 

small servicers, in certain circumstances to ease burden without sacrificing adequate protection 

of consumers. 

 The Bureau is proposing additional standards to improve the way servicers treat 

borrowers, particularly delinquent borrowers. Some servicers have made it very difficult for 

delinquent borrowers to understand, and take advantage of, potential alternatives to foreclosure. 

For example, servicers have frequently neglected to reach out or respond to such borrowers to 

discuss alternatives to foreclosure, lost or misplaced the documents of borrowers who have 

sought loan modifications or other options offered by servicers, and forced borrowers who have 

invested substantial time communicating with an employee of the servicer to repeat the process 

with different employees that lack information about the substance of prior communications. 

The Bureau is proposing new servicing regulations to address these concerns. 

When finalized, the Bureau’s rules will constitute the first truly national mortgage 

servicing standards. Other federal regulatory agencies have issued guidance on mortgage 

servicing and loan modifications and taken enforcement actions against mortgage servicers. The 

State attorneys general, joined by numerous Federal agencies including the Bureau, entered into 

the National Mortgage Settlement with the nation’s five largest servicers in February 2012. The 

National Mortgage Settlement applies to portfolio loans serviced by the five largest servicers. 

Borrowers of mortgage loans owned by GSEs or private investors may not necessarily gain the 
319 

benefit of the protections set forth in that settlement. 

These varied regulatory responses are understandable when viewed as a response to an 

unprecedented mortgage crisis and significant problems in the servicing of mortgage loans. 

Ultimately, however, both borrowers and mortgage servicers will be better served by having 

uniform minimum national standards that govern mortgage servicing. When adopted in final 

form, the Bureau’s rules will apply to all mortgage servicers, whether depository institutions or 

non-depository institutions, and to all segments of the mortgage market, regardless of the 

ownership of the loan – except to the extent the Bureau adopts exemptions for smaller servicers. 

2. Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rule 

This rulemaking has multiple objectives. The proposed provisions on force-placed 

insurance should reduce the likelihood that servicers purchase force placed insurance without a 

reasonable basis. This will reduce instances of servicers charging borrowers for force-placed 

insurance they do not need or charge more than is bona fide and reasonable. The proposed 

provisions on error resolution and requests for information would require servicers to promptly 

investigate alleged errors and, as appropriate, correct them. Servicers would also be required to 

conduct reasonable and timely searches for certain types of information. 

The proposed provisions on maintaining reasonable information management policies 

and procedures address wide-spread problems reported across the mortgage servicing industry 

with regard to management of borrower documents and information. Compliance with the rule 

will require providing accurate information to borrowers, correcting errors where they occur, 

evaluating borrowers for loss mitigation options, facilitating oversight of, and compliance by, 

service providers, and facilitating servicing transfers. 

 The proposed provisions on early intervention with delinquent borrowers are intended to 
320 

spur the engagement between servicers and borrowers that is necessary for avoiding foreclosure. 

Early intervention may also generally benefit borrowers by reducing avoidable interest costs, 

limiting the impact on borrowers’ credit reports, and facilitating household budgeting and 

planning. 

The proposed provisions on continuity of contact ensure that servicer personnel have 

access to information about delinquent borrowers so that the servicer can appropriately assist the 

borrower in exploring loss mitigation options. 

Finally, the proposed provisions on loss mitigation would require servicers that make loss 

mitigation options available to borrowers in the ordinary course of business to undertake certain 

duties in connection with the evaluation of borrower applications for loss mitigation options. 

These servicers would have a duty to evaluate borrowers that apply for loss mitigation within 

specific timeframes and to inform borrowers about the status of their application and the 

servicer’s decision. These servicers would also be prohibited from completing a foreclosure sale 

unless certain conditions held.227 

3. Description and, Where Feasible, Provision of an Estimate of the Number of Small Entities to 

which the Proposed 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 

 

227 As specified in proposed § 1024.41(g), if a servicer receives a timely and complete loss mitigation application, a 

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. 
321 

American Industry Classification System (NAICS) classifications and size standards.228 

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 most other financial businesses, the 

threshold is average annual receipts (i.e., annual revenues) that do not exceed $7 million.229

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 institutions230 (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 non-profit 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 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.231 

 

228 The current SBA size standards are found on SBA’s website at http://www.sba.gov/content/table-small-businesssize-standards. 229 See id. 230 Savings institutions include thrifts, savings banks, mutual banks, and similar institutions. 231 The Bureau is continuing to refine its description of small non-profit organizations engaged in mortgage loan 

servicing and working to estimate the number of these entities, but it is not possible to estimate the number of these 
322 

The following table provides the Bureau’s estimate of the number and types of entities 

that may be affected by the proposals under consideration: 

Estimated number of affected entities and small entities by NAICS code and engagement in 

closed-end mortgage loan servicing 

Category NAICS Small entity 

threshold 

Total 

entities 

Small 

entities 

Entities 

engaged in 

mortgage loan 

servicing 

Small entities 

engaged in 

mortgage loan 

servicing 

Commercial banks 

& savings institutions 

522110 

522120 

$175,000,000 

assets 7,724 4,250 7,502 4,098 

Credit unions 522130 $175,000,000 

assets 7,491 6,568 5,190 4,270 

Real estate credit 522292 $7,000,000 

revenues 5,791 5,152 

Other activities related to 1,388 800 

credit intermediation 

(includes loan servicing) 

522390 $7,000,000 

revenues 5,494 5,319 

 For commercial banks, savings institutions and credit unions, the number of entities and 

asset sizes were obtained from December 2010 Call Report data as compiled by SNL Financial. 

Banks and savings institutions are counted as engaging in mortgage loan servicing if they hold 

closed-end loans secured by 1-to-4 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 1-to-4 family mortgages on 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 and is as of Q1 2011. The total equals the number of non-depositories that engage in 

 entities at this time. 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. 
323 

mortgage loan servicing, including tax exempt entities, except for those mortgage loan servicers 

(if any) that do not engage in any mortgage-related 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.232

4. Projected Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed 

Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the 

Requirement and the Type of Professional Skills Necessary for the Preparation of the Report

The proposed rule does not impose new reporting requirements. 

 The possible recordkeeping and compliance costs for small entities from each major 

component of the proposed rule are presented below. The Bureau presents these costs against a 

pre-statute baseline. This baseline includes the costs of complying with the Federal rules that 

overlap with the proposed rule, as described in Section 5 below. The Bureau expects that the 

costs of complying with the proposed rule relative to the pre-statute baseline are lower than these 

costs would be if not for the costs of complying with the existing Federal rules. In particular, 

certain one-time and ongoing costs regarding error resolution, early intervention and loss 

mitigation will have generally been incurred and budgeted for by servicers. These expenses will 

facilitate and thereby reduce the cost of compliance with the proposed rule. 

 Benefits to consumers from the proposed rule are discussed in the section 1022 analysis 

in Part VII above. 

(a) Force-Placed Insurance

 Dodd-Frank Act section 1463 amends RESPA to prohibit a servicer of a federally related 

 

232 The Bureau is continuing to refine its estimate of the number of firms providing real estate credit and engaging in 

other activities related to credit intermediation that are small and which engage in mortgage loan servicing. 
324 

mortgage from obtaining force-placed hazard 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 statute sets forth a mandatory process servicers must follow, which 

includes sending two notices to the borrower, before imposing any charge on a borrower for 

force-placed insurance. The statute also provides process requirements about terminating forceplaced insurance and refunding force-placed insurance premiums paid during any period during 

which the borrower’s insurance coverage and the force-placed insurance coverage were each in 

effect. 

 The Bureau is proposing forms for the force-placed insurance notices to be sent to 

borrowers. The Bureau is also proposing requirements concerning: charges related to forceplaced insurance, payment of insurance from escrow, and notice requirements when servicers 

renew existing insurance policies. 

 Based on discussions with industry and the SERs, the Bureau understands that the 

proposed force-placed 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 force-placed 

insurance provider handles these activities and absorbs the costs or passes them on to the 

consumer indirectly through the insurance premium. 

 Based on discussions with the SERs, the Bureau currently understands that many small 

servicers already comply with most of the force-placed insurance provisions of the proposed 

rule. Two SERs stated that they already provide two or more notices of pending force placed 

insurance and others stated that they already refund premiums back to borrowers for periods of 

overlapping coverage. Other SERs noted that they already provide refunds for overlapping 
325 

coverage. 

 If small servicers in general already comply with the force-placed insurance provisions of 

the proposed rule, then the impact of the proposed 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. For example, 

one SER stated that their current notice does not include an estimate of force-placed insurance 

costs. In addition, some small servicers who very rarely need to force-place insurance and 

therefore use informal procedures 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. 

 When the Bureau convened its SBREFA panel on mortgage servicing, the Bureau learned 

that several of the small servicers that participated on the panel obtained force-placed insurance 

policies that must be renewed monthly. The Bureau proposes to mitigate the cost of these 

disclosures by providing that a servicer is not required to send more than one renewal notice 

during any 12-month period. 

 One SER raised a different concern regarding notice and process costs associated with 

borrowers who have chronic lapses in hazard insurance coverage. This SER said that there 

would be labor costs associated with managing a process in which notices must be delivered at 

required intervals, setting up escrows for the premium, refunding premiums, and repeating the 

process when insurance lapses again. The Bureau believes that most small servicers already 

incur most of these costs. However, the Bureau is interested in data and other factual 

information about the likely compliance costs associated with borrowers who have chronic 

lapses in hazard insurance coverage and requests comment on this issue. 
326 

 Finally, most SERs did not raise specific concerns with the proposal to expand existing 

requirements, in regards to disbursements from a borrower’s escrow account to pay the 

borrower’s hazard insurance premium, to borrower’s whose mortgage payments are more than 

30 days past due. Two SERs that expressed concern about advancing funds to renew a 

borrower’s hazard insurance because the borrower could cancel the insurance and keep the 

refund.233 The SBREFA panel recommended that the Bureau reduce the incentives for 

borrowers to take such action by allowing servicers to advance premium payments in 30-day 

installments. Proposed comment 17(k)(5)-3 reflects the panel’s recommendation, and the 

Bureau believes that small servicers would not be unduly burdened by the Bureau’s proposal. 

(b) Error Resolution and Response to Inquiries 

 Dodd-Frank Act section 1463 amends section 6 of RESPA by adopting a number of 

servicer prohibitions with respect to handling alleged errors and inquiries, including revising the 

timeframe to respond to qualified written requests, and prohibiting the charging of fees in 

connection with qualified written requests. 

 The Bureau is proposing a comprehensive set of requirements for investigating and 

correcting errors and for responding to borrower inquiries. Servicers would be required to 

correct errors relating to allocation of payments, provision of final balances for purposes of 

paying off the loan, avoiding foreclosures, or other standard servicer duties. Servicers also 

would be required to respond to inquiries about certain topics. 

 Servicers would have to provide borrowers with a written acknowledgement of receiving 

a notice of error, unless the servicer resolves the error within five days and the borrower is 

notified of the resolution in writing. Servicers would have to correct the error and provide the 

 

233 Small Business Review Panel Report, at 22. 
327 

borrower with written notification of the correction or conduct a reasonable investigation and 

provide the borrower with written notification regarding the investigation and the documents 

relied upon by the servicer. Generally, the investigation would have to be completed and a 

response provided within 30 days after receipt of the notice of error. 

 Substantially similar requirements apply to inquiries. Servicers would have to provide 

borrowers with written acknowledgement of receiving an information request, unless the servicer 

provides the borrower with the information requested and with contact information for further 

assistance within five days, which can be provided orally or in writing. Servicers would have to 

provide the borrower with the requested information, either orally or in writing, or conduct a 

reasonable search for the information and provide the borrower with a written notification 

regarding the search. Generally, with the exception of requests for certain types of information, 

the information or the notice would have to be provided within 30 days after receipt of the 

information request. 

 Aside from the requirement to respond in writing to notices of error and inquiries, 

servicers not in compliance with the other provisions would 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. However, the Bureau 

understands that most small servicers already comply with these proposed provisions. SERs had 

no objection to the proposed response timeframes. SERs 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. 

 SERs did generally object to the proposed written response requirements. Several SERs 

stated that having to respond in writing to every notice of error would be burdensome. Further, 
328 

SERs argued that there would be no consumer benefit, since errors are generally asserted orally 

and resolved quickly, if not immediately, and orally. The Bureau notes that the proposed 

provision regarding inquiries does not require a written response if the servicer provides the 

information requested to the borrower within five days. Nevertheless, the Bureau understands 

that small servicers, as defined above, have an incentive to provide protections to consumers that 

may not exist for other servicers. 

(c) Reasonable Information Management Policies and Procedures 

 Section 1463 of the Dodd-Frank Act requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority to propose a requirement that servicers establish reasonable information 

management policies and procedures. This provision would impose a recordkeeping burden on 

small servicers. 

 The proposed provisions specify certain objectives for servicers’ information 

management practices. These practices should facilitate: accessing and providing accurate 

information; investigating and correcting errors and providing requested information; evaluating 

loss mitigation options; oversight of, and compliance by, service providers; facilitating servicing 

transfers; and providing access to information about actions taken by the servicer. 

 Servicers that maintain reasonable information management policies and procedures 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. The proposal mitigates all of these costs for small servicers 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 
329 

subject to interagency guidelines relating to safeguarding the institution’s safety and soundness 

that facilitate reasonable information management for purposes of mortgage servicing. 

 The SERs appreciated the flexibility of the proposal and thought it was good that 

“reasonable” depends on the size, nature, and scope of the entity. The SERs emphasized that 

small firms do not necessarily use automated or online systems to record and track all borrower 

communications. They urged the Bureau to avoid structuring the requirement in such a way as to 

require expensive system upgrades. 

(d) Early Intervention for Delinquent Borrowers

 Section 1463 of the Dodd-Frank Act requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority, among others, to propose early intervention and continuity of contact 

provisions regarding delinquent borrowers. 

 The Bureau is generally proposing to require servicers to make two contacts with 

delinquent borrowers. The Bureau proposes to require servicers to make a good faith effort to 

contact delinquent borrowers orally no later than 30 days after the payment due date. The 

Bureau also proposes to require servicers to provide delinquent borrowers with a written notice 

with information about loss mitigation options and foreclosure. This second contact must be 

provided no later than 40 days after the payment date that the borrower missed. 

 The Bureau is proposing to mitigate the cost of the written notice provision by providing 

servicers with model clauses and by limiting the written notice to be provided once every 180-

day period. The Bureau’s model clauses provide servicers with examples of language explaining 

the foreclosure process 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 
330 

Bureau expects servicers to provide in their written notice. 

 The SERs explained that they generally contact delinquent borrowers well before the 

45th day of a borrower’s delinquency. One SER mentioned that the GSEs require contact with 

delinquent borrowers at day 16. The SERs stated that they had relatively low numbers of 

delinquent borrowers; however, one SER expressed concern about borrowers who were 

frequently delinquent. This SER did not want to have to send information every month. The 

Bureau notes that under the proposal, a servicer is not required to provide the written notice to a 

borrower more than once during any 180-day period. 

 Some SERs did object to the proposed written notice requirement. The SERs generally 

stated that they tailor the information they provide to the specific situation of the borrower. One 

SER objected to a process that the SER regarded as unnecessary and which would require 

sending yet another notice to the borrower. 

(e) Continuity of Contact 

 Section 1463 of the Dodd-Frank Act requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority, among others, to propose requiring servicers to assign personnel to 

respond to inquiries of certain delinquent borrowers and, as applicable, assist them with loss 

mitigation options. 

 The Bureau is proposing that borrowers who meet the requirements for the proposed oral 

notification under the Bureau’s proposed early invention provision must be provided with live 

phone access to the assigned personnel. The proposal would require that servicers maintain 

reasonable policies and procedures designed to ensure that the assigned personnel perform an 

enumerated list of functions, such as having access to certain information about the borrowers 
331 

(e.g., a complete record of the borrower’s payment history in the servicer’s possession). The 

proposal provides conditions that define the duration of continuity of contact, and the proposal 

provides that certain delays and failures that disrupt continuity of contact do not violate the rule. 

 The Bureau believes that small servicers generally meet the proposed provisions for 

continuity of contact. SERs generally stated that with their small staffs, everyone had access to 

files and would be able to assist borrowers in delinquency. One SER noted that originating 

officials handle the collections for the loans they originated. This SER noted that borrowers 

have ready access to the originator and the originator has full access to all loan documents and 

payment history. 

(f) Loss Mitigation 

 Section 1463 of the Dodd-Frank Act requires servicers to comply with any obligation the 

Bureau finds appropriate to carry out the consumer protection purposes of RESPA. The Bureau 

is using this authority, among others, to propose requirements on servicers that offer loss 

mitigation options to borrowers in the ordinary course of business. 

 As discussed above, the Bureau is aware of the potential impacts of the loss mitigation 

requirements on small servicers. As discussed above for proposed § 1024.41, while the Small 

Business Review Panel Report and the outreach meeting did not focus in significant detail on 

some of the specific measures proposed here such as, for example, appeals of loss mitigation 

determinations, the SERs provided feedback on many elements of the loss mitigation process. 

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 
332 

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.234 

 The SERs said that they generally engaged in individualized contact with borrowers early 

in the foreclosure process, completed discussions of loss mitigation options with borrowers prior 

to a point in time when borrowers should have significant foreclosure related information, and 

generally worked closely with foreclosure counsel so that foreclosure processes and loss 

mitigation could be easily conducted simultaneously without prejudice to the loss mitigation 

process. Further, the SERs explained that they were willing to communicate with borrowers 

about loss mitigation contemporaneously with the foreclosure process, and one small entity 

representative indicated that it would be willing to bring a mortgage file back to the servicer for 

consideration of a modification and halt the foreclosure process, if appropriate.235

 Based in part on the outreach with the small entity representatives on April 24, 2012, as 

well as other feedback obtained by the Bureau after that outreach meeting, the Bureau considered 

proposing clearer and more detailed requirements relating to loss mitigation practices. The 

Bureau determined, for the sake of clarity and consistency, to include loss mitigation obligations 

as a separate section, rather than embedding the requirements within the provisions relating to 

error resolution, reasonable information management policies and procedures, early intervention 

for delinquent borrowers, and continuity of contact. 

(g) Estimate of the Classes of Small Entities Which will be Subject to the Requirement and the 

Type of Professional Skills Necessary for the Preparation of the Report or Record 

 

234 See Small Business Review Panel for Mortgage Servicing Rulemaking, Outline of Proposals Under 

Consideration and Alternatives Considered, at 19, 22, 24-26. 

235 See Final Report of the Small Business Review Panel on CFPB’s Proposals Under Consideration for Mortgage 

Servicing Rulemaking (June 11, 2012), at 26. 
333 

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 VIII.B.3. 

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. 

5. Identification, to the Extent Practicable, All Relevant Federal Rules which May Duplicate, 

Overlap, or Conflict with the Proposed Rule. 

 The Dodd-Frank Act codified certain requirements contained in existing regulations and 

in some cases imposed new requirements that expand or vary the scope of existing regulations. 

The Bureau is working to eliminate conflicts and to harmonize the earlier rules with the new 

statutory requirements. 

RESPA 6(e) contains procedures for qualified written requests that overlap with section 

1463 of the Dodd-Frank Act to provide additional procedures for resolving errors and responding 

to inquiries. The Bureau is proposing broader, more consumer-friendly error resolution and 

information request procedures that cover wider topics than the current qualified written request 
334 

procedures and will subsume the qualified written request procedures. The Bureau believes that 

a common minimum set of procedures applicable to all assertions of errors or information 

requests, whether in the form of a qualified written request or not, will benefit both borrowers 

and servicers. Further, as noted in the preamble, depending on the circumstances, the error 

resolution procedures in this rule may overlap with the direct dispute procedures under FCRA 

where the dispute involves erroneously furnishing negative information to a consumer reporting 

agency. See 15 U.S.C. 1681s-2(a)(8); 12 CFR 1022.43. 

As noted in the preamble, the early intervention and loss mitigation procedures in this 

rule may overlap with existing Federal law codifying requirements of FHA, VA, and the Rural 

Housing Service with respect to mortgages insured by those agencies. The Bureau also 

understands that 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). Similar to the information required under section 106(c)(5) of 

the Housing and Urban Development Act, the written notice in proposed § 1024.39(b)(2)(vi) 

would include contact information for housing counselors and the borrower’s State housing 

finance authority, although servicers would be required to provide the written notice not later 

than 40 days after a borrower misses a payment due date. To the extent requirements proposed 

by Bureau overlap with existing Federal rules, the Bureau expects servicers would abide by the 

stricter standard in order to comply with all requirements. 

Apart from this overlap, the Bureau is not aware of any other Federal regulations that 
335 

currently duplicate, overlap, or conflict with the proposals under consideration.236 The Bureau 

requests comment to identify any additional such Federal rules that impose duplicative, 

overlapping, or conflicting requirements on servicers and potential changes to the proposed rules 

in light of duplicative, overlapping, or conflicting requirements. 

6. Description of Any Significant Alternatives to the Proposed Rule which Accomplish the Stated 

Objectives of Applicable Statutes and Minimize Any Significant Economic Impact of the 

Proposed Rule on Small Entities

 The SERs expressed general concern about the costs to small entities of regulation, but 

the SERs also stated that they were already in compliance with most of the provisions of the 

proposed rule. Where the SERs expressed concern about the costs of complying with a proposed 

provision, the Bureau considered alternatives that might impose lower costs on small servicers, 

but does not believe that these alternatives would accomplish the stated objectives of the 

applicable statute. 

 Regarding the proposed disclosures for force-placed insurance, the Bureau understands 

that small servicers may incur costs for providing these disclosures that large servicers do not. 

Providers may be more likely to charge small servicers for new or changed disclosures than they 

are to charge large servicers. Small servicers are also more likely to produce the disclosures inhouse. The Bureau believes that the proposed force-placed insurance disclosures would be an 

effective and important component of a statutory regime intended to reduce or prevent 

unnecessary force-placement of hazard insurance. The Bureau does not believe that less costly 

alternatives to the proposed rule for small servicers would accomplish this objective. The 

 

236 The RFA requires identification of duplicative, overlapping, or conflicting Federal regulation. Consent orders, 

settlement agreements with Federal agencies, and investor requirements of Fannie Mae and Freddie Mac do not 

constitute federal regulations for purposes of the IRFA. 
336 

Bureau notes that most SERs did not raise concerns with the proposal. The Bureau proposes to 

mitigate the cost of the disclosures to all servicers by providing that a servicer is not required to 

send more than one renewal notice during any 12-month period. 

 Regarding the proposed provisions for reasonable information management policies and 

procedures, the Bureau provides flexibility for small servicers by providing for servicers to 

design policies and procedures that are appropriate for their servicing businesses 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. 

As noted above, the SERs appreciated the flexibility of the proposal and thought it was good that 

reasonableness would depends on the size, nature, and scope of the entity. 

 The SERs did express concern in regards to the error resolution procedures. In particular, 

several SERs stated that having to respond in writing to every notice of error would be 

burdensome. The Bureau notes that the proposal includes a provision that minimize the burden 

on servicers from the error resolution requirements if a notice of error is overbroad or unduly 

burdensome. 

 The Bureau considered providing small servicers with an alternative method of 

compliance with two of the proposed provisions for error resolution. Under the alternative 

considered, small servicers would not have needed to comply with the proposed 

acknowledgement of receipt requirement or the proposed response to notice of error requirement 

if (a) the small servicer provided notification of the correction orally if the error was asserted 

orally by the borrower and (b) the small servicer indicated in its records both the error asserted 

by the borrower and the action taken by the servicer to correct the error. The Bureau believes, 
337 

however, that there is substantial consumer protection in the acknowledgement of receipt and 

response to notice of error requirements and that the alternative may diminish these protections 

for borrowers with mortgages that happen to be serviced by small servicers. The Bureau solicits 

comment on whether the Bureau should further consider alternative means of compliance with 

the proposed error resolutions procedures. 

 Small servicers generally explained that they did not expect the Bureau’s proposed early 

intervention requirements would impose significant burden because they were already providing 

early intervention for delinquent borrowers. Based on this information, the Bureau has not 

proposed to provide small servicers an exemption from the proposed notification requirements 

under proposed § 1024.39(a) and (b). However, the Bureau solicits comment on whether the 

Bureau should consider alternative means of compliance with proposed § 1024.39(a) and (b), 

such as by permitting small servicers to develop a more streamlined written notice under 

proposed § 1024.39(b). 

7. Discussion of Impact on 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 SERs 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 
338 

the cost of credit for small entities.237 The Bureau sought to collect the advice and 

recommendations of the SERs during the Small Business Review Panel outreach meeting 

regarding these issues because, as small financial service providers, the SERs could provide 

valuable input on any such impact related to the proposed rule.238 

At the time the Bureau circulated the SBREFA materials to the SERs 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.239 

 At the Panel Outreach Meeting, the Bureau asked the SERs a series of questions 

regarding cost of business credit issues.240 The questions were focused on two areas. First, the 

SERs 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 SERs take out closed-end, 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 SERs’ cost of credit. 

 

237 See 5 U.S.C. 603(d)(2). The Bureau provided this notification as part of the notification and other information 

provided to the Chief Counsel with respect to the Small Business Review Panel process pursuant to RFA section 

609(b)(1) . 

238 See 5 U.S.C. 603(d)(2)(B). 239 See TILA § 104(1); RESPA § 7(a)(1). 240 See the Panel Report, appendix D, pp. 154-155 (PowerPoint slides from the Panel Outreach Meeting, “Topic 7: 

Impact on the Cost of Business Credit”). 
339 

 The SERs 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 

SER mentioned that at times people may use a home-secured loan to finance a business, which 

was corroborated by a different SER based on his personal experience with starting a business. 

The Bureau is generally interested in the use of personal credit to finance a business and invites 

interested parties to provide data and other factual information on this issue. 

Based on the feedback obtained from SERs at the Small Business Review Panel outreach 

meeting, the Bureau currently does not anticipate that the proposed rule will result in an increase 

in the cost of credit for small business entities. To further evaluate this question, the Bureau 

solicits comment on whether the proposed rule will have any impact on the cost of credit for 

small entities. 

IX. Paperwork Reduction Act 

The collection of information contained in this proposal, 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). 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. 

This proposed rule would amend 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. As described below, the proposal would amend 

the collections of information currently in Regulation X. 
340 

 The title of this information collection is 2012 Real Estate Settlement Procedures Act 

(Regulation X) Mortgage Servicing. The frequency of response is on-occasion. These 

information collection requirements would be required to provide benefits for consumers and 

would be mandatory. See 15 U.S.C. 1601 et seq.; 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 non-depository institutions (such as mortgage brokers, real estate investment trusts, 

private-equity funds, etc.) that service consumer mortgages.241 

Under the proposal, the Bureau would account 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 12,813 respondents subject to 

the proposed rule would be approximately 570,000 hours for one time changes and 2.4 million 

hours annually.242 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 

proposed 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 11,425 depository 

institutions and credit unions subject to the proposed rule, and an additional 1,388 nondepository institutions. Based on discussions with industry, the Bureau assumes that all 

depository respondents except for one large entity and 95% of non-depository respondents (and 

 

241 For 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. 
341 

100% 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 proposing six changes to the information collection requirements in 

Regulation X: 

1. Provisions regarding mortgage servicing transfer notices: The Bureau’s proposal would 

substantially reduce the length and complexity of the mortgage servicing transfer notice 

but would expand coverage from closed-end first-lien mortgages to closed-end 

subordinate-lien mortgages as well. 

2. Provisions regarding the placement and termination of force-placed insurance, including 

three notices: The Bureau’s proposal for force-placed insurance would require servicers 

to provide two notices to a borrower at least 45 days and 15 days before charging the 

borrower for force-placed insurance. In addition to the two notices, the Bureau is 

proposing to require 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 

proposals for error resolution would include 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. The Bureau’s proposal for response to information requests 

would require servicers to provide a written response acknowledging receipt of an 

information request. Servicers would also be required to provide the borrower with the 
342 

requested information either orally or in writing, 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 proposals 

would require servicers to provide oral and written notices upon a borrower’s reaching 

certain stages of delinquency. 

5. Requirements regarding loss mitigation: Under the Bureau’s proposals, servicers that 

offer loss mitigation options in the ordinary course of business would be required to 

follow certain procedures when evaluating loss mitigation applications, including (1) 

providing a notice telling the borrower if the loss mitigation is incomplete, approved, or 

denied (and, for denials of loan modification requests, a more detailed notice of the 

specific reason for denial and appeal rights), (2) providing a notice of the appeal 

determination, and (3) providing servicers of senior or subordinate liens encumbering the 

property that is the subject of the loss mitigation application copies of the loss mitigation 

application. 

B. Analysis of Proposed Information Collection Requirements243

1. Mortgage Servicing Transfers 

 The Bureau’s proposal would substantially reduce the length and complexity of the 

mortgage servicing transfer notice but would expand coverage to closed-end second lien 

mortgages, in addition to closed-end first-lien mortgages. 

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 

 

243 A 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 proposal. The Supporting Statement is available at 

www.reginfo.gov. 
343 

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 servicer the borrower’s mortgage. The Bureau’s proposed provision would substantially 

reduce 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 would have a one-time burden under this requirement associated with 

reviewing the regulation. Certain respondents would 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.244 

 Certain Bureau respondents would have ongoing burden in hours or vendor costs 

associated with the information technology used in producing the disclosure. All Bureau 

respondents would have ongoing vendor costs associated with distributing (e.g., mailing) the 

disclosure. The Bureau estimates this ongoing burden to be 2 hours and $215, on average, for 

each respondent. 

2. Force-Placed Insurance Disclosures 

The Bureau’s proposal for force-placed insurance would require servicers to provide two 

notices to a borrower at least 45 days and 15 days before charging the borrow for force-placed 

insurance. In addition to the two notices, the Bureau is proposing to require servicers to provide 

borrowers a written notice before charging a borrower for renewing or replacing existing forceplaced insurance on an annual basis. 

 

244 Dollar figures are vendor costs and do not include the dollar value of burden hours. 
344 

The Bureau understands the proposed requirement that servicers provide borrowers with 

two written notices prior to charging borrowers for force-placed insurance reflects common 

practices (i.e., “usual and customary” business practices) today for the majority of mortgage 

servicers. However, the Bureau understands that the proposed requirement that servicers provide 

a written notice prior to charging borrowers for the renewal or replacement of existing forceplace insurance does not reflect common practices. 

 All respondents would have a one-time burden under this requirement associated with 

reviewing the regulation. Certain respondents would have one-time burden in hours or vendor 

costs from creating software and information technology capability to produce the new renewal 

disclosure. Furthermore, 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.245 

 Certain respondents would have ongoing burden in hours or vendor costs associated with 

the information technology used in producing the disclosure. All respondents would have 

ongoing vendor costs associated with distributing (e.g., mailing) the renewal disclosure. The 

Bureau estimates this ongoing burden to be 15 minutes and $23, on average, for each respondent. 

3. Error Resolution and Requests for Information 

 The Bureau’s proposals for error resolution and requests for information would require 

written acknowledgement of receiving a notice of error or an information request, written 

 

245 Dollar figures are vendor costs and do not include the dollar value of burden hours. 
345 

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. 

 The Bureau estimates that one-time hourly burden to provide training for relevant staff to 

comply with the proposed disclosure requirements to be 43 hours, on average, per respondent. 

 Respondents would have ongoing burden in hours and/or vendor costs associated with the 

information technology used in producing the disclosure. All respondents would 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 50 hours and $87, on average, for each respondent. 

4. Early Intervention with Delinquent Borrowers 

 An information collection would be created by the Bureau’s proposal to require servicers 

to provide an oral and written notice upon a borrower’s reaching certain stages of delinquency. 

Most respondents currently provide some form of delinquency notice, and thus the expenses 

associated with this information collection are from the one-time 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 to perform duties similar to those set forth in the 

Bureau’s proposed 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 
346 

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 3 hours and $3, on 

average for each respondent.

5. Loss Mitigation

 Under the Bureau’s proposals, servicers that offer loss mitigation options in the ordinary 

course of business would be required to follow certain procedures when evaluating loss 

mitigation applications, including (1) providing a notice telling the borrower if the loss 

mitigation is incomplete, approved, or denied (and, for denials of loan modification requests, a 

more detailed notice of the specific reason for denial and appeal rights), (2) providing a notice of 

the appeal determination, and (3) providing servicers of senior or subordinate liens encumbering 

the property that is subject of the loss mitigation application copies of the loss mitigation 

application. 

 The loss mitigation provision would create an information collection by requiring 

servicers to notify borrowers who submit loss mitigation applications and any servicers of senior 

or second liens encumbering the property that is the subject of the loss mitigation application 

where a applications have been submitted. Servicers may be required to send up to three notices 

per loss mitigation application. For incomplete applications, servicers would be required to 

notify the borrower that their application is incomplete and explain the steps needed to complete. 

For complete applications, the servicer is required to notify the borrower of their decision and 

provide a copy of the application to any servicers of senior or subordinate liens encumbering the 

property that is the subject of the loss mitigation application. For incomplete applications that 

resubmit, and possess second-lien loan on their property, the provision would require three 

notices. 
347 

 All respondents would have a one-time burden under this requirement associated with 

reviewing the regulation. Certain respondents would 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 20 minutes and 

$90, on average, for each respondent. The Bureau estimates the ongoing burden to be 135 hours 

and $229, on average, for each respondent. 

B. Summary of Burden Hours 

Respondents Disclosures 

per 

Respondent 

Hours 

Burden per 

Disclosure 

Total 

Burden 

Hours 

Total Vendor 

Costs 

 

Ongoing 

Notice of Mortgage Service Transfer 12,813 726 0.003 26,000 $2,760,000 

Force-Placed Insurance 12,813 77 0.003 3,000 $290,000 

Error Resolution & Response to Inquiries 12,813 300 0.167 642,000 $1,110,000 

Early Intervention for Delinquent Borrowers 12,813 12 0.250 37,000 $40,000 

Loss Mitigation 12,813 810 0.161 1,670,000 $2,930,000 

 

One-Time 

Notice of Mortgage Service Transfer 12,813 1 0.495 6,000 $1,160,000 

Force-Placed Insurance 12,813 1 0.740 9,000 $1,160,000 

Error Resolution & Response to Inquiries 12,813 1 43 547,000 $0 

Early Intervention for Delinquent Borrowers 12,813 1 0.400 5,000 $0 

Loss Mitigation 12,813 1 0.295 4,000 $1,160,000 

Totals may not be exact due to rounding. 

C. Comments 

Comments are specifically requested concerning: (1) whether the proposed collections of 

information are necessary for the proper performance of the functions of the Bureau, including 

whether the information will have practical utility; (2) the accuracy of the estimated burden 

associated with the proposed collections of information; (3) how to enhance the quality, utility, 

and clarity of the information to be collected; and (4) how to minimize the burden of complying 

with the proposed collections of information, including the application of automated collection 

techniques or other forms of information technology. All comments will become a matter of 

public record. Comments on the collection of information requirements should be sent to the 
348 

Office of Management and Budget (OMB), Attention: Desk Officer for the Consumer Financial 

Protection Bureau, Office of Information and Regulatory Affairs, Washington, DC, 20503, or by 

the internet to http://oira_submission@omb.eop.gov, with copies to the Bureau at the Consumer 

Financial Protection Bureau (Attention: PRA Office), 1700 G Street NW, Washington, DC 

20552, or by the internet to CFPB_Public_PRA@cfpb.gov. 

Text of Proposed Revisions 

Certain conventions have been used to highlight the proposed changes to the text of the 

regulation. New language is shown inside ►bold-faced arrows◄, while language that would be 

deleted is set off with [bold-faced brackets]. In certain cases deemed appropriate by the Bureau 

to aid understanding, redesignated text, such as text moved from one paragraph to another, is 

also shown inside arrows and brackets. 

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 above, the Bureau proposes to amend part 1024 of Chapter X in 

Title 1 of the Code of Federal Regulations 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. 

2. Add subpart A to part 1024, titled “General” and consisting of §§ 1024.1 through 

1024.5. 

3. In § 1024.2: 
349 

a. Revise the definition of “Federally related mortgage loan” as follows: 

Federally related mortgage loan [or mortgage loan] means as follows: 

(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 Association, the Federal Home Loan Mortgage 
350 

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. 

b. Revise the definition of “Mortgage broker” to read as follows: 

Mortgage broker means a person (not an employee of a lender) or entity that renders 

origination services and serves as an intermediary between a borrower and a lender in a 
351 

transaction involving a federally related mortgage loan, including such a person or entity that 

closes the loan in its own name in a table funded transaction. [A loan correspondent approved 

under HUD regulation 24 CFR 202.8 for Federal Housing Administration programs is a 

mortgage broker for purposes of this part.] 

c. Revise the definition of “Origination service” to read as follows: 

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. 

d. Revise the definition of “Public Guidance Documents” to read as follows: 

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 [at the address indicated in § 1024.3]. ► 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.◄

e. Revise the definition of “Servicer” to read as follows: 

Servicer means the 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; [and] 
352 

►(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◄

([2]►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 [National Credit Union Administration (]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, [or] 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)◄. 

f. Revise the definition of “Servicing” to read as follows: 

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 
353 

to the borrower.

 4. Revise § 1024.3 to read as follows: 

§ 1024.3 [Questions or suggestions from public and copies of public guidance documents] 

►E-Sign applicability◄. 

[Any questions or suggestions from the public regarding RESPA, or 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 20006. Legal questions concerning the interpretation of this part may be directed to the 

same address.] ► The disclosures required by this part may be provided to a borrower 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. In § 1024.4, revise paragraph (a)(1) to read as follows: 

(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. [Such documents will be prepared by Bureau staff and 

counsel. Such documents may be revoked or amended by a subsequent document published in 
354 

the Federal Register by the Bureau.] ►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. In § 1024.4, remove paragraph (b) and redesignate paragraph (c) as paragraph (b). 

7. In § 1024.5(b)(7), revise as follows: 

§ 1024.5 Coverage of RESPA. 

* * * * * 

 (b) Exemptions.

 * * * 

(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 as set forth in section 6 of 

RESPA (12 U.S.C. 2605) and [§ 1024.21] ►Subpart C of this part (§§ 1024.30-1024.41)◄. 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 tablefunded 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). 

8. In § 1024.7, revise paragraph (f)(3) 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 
355 

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 3 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. Amend § 1024.17 as follows. 

a. Revise paragraph (c)(8) to 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 the ►federally related◄ mortgage loan documents provide for lower 

cushion limits, then the terms of the loan documents apply. Where the terms of any [mortgage 

loan] ►such◄ document allow greater payments to an escrow account than allowed by this 

section, then this section controls the applicable limits. Where [the mortgage loan] ►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 [the 

mortgage loan] ►such◄ document►s are◄ [is] 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 [the 

loan] ►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 
356 

State law sets a lesser amount. 

b. Revise paragraph (f)(2)(ii) to read as follows: 

§ 1024.17 Escrow accounts. 

* * * * * 

 (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. 

c. Revise paragraph (f)(4)(iii) to read as follows: 

§ 1024.17 Escrow accounts. 

* * * * * 

 (f) * * * 

(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. 

d. Revise paragraph (i)(2) to read as follows: 

§ 1024.17 Escrow accounts. 
357 

* * * * * 

 (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. 

e. Revise paragraph (i)(4)(iii) to read as follows: 

§ 1024.17 Escrow accounts. 

* * * * * 

 (i) * * * 

(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 pay-off funds. 

f. Add paragraph (k)(5) to read as follows: 

§ 1024.17 Escrow accounts. 
358 

* * * * * 

 (k) * * * 

►(5) Notwithstanding paragraphs (k)(1) and (k)(2) of this section, 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 the borrower’s hazard insurance has been canceled or not renewed for reasons 

other than nonpayment of premium charges. If the borrower’s escrow account does not contain 

sufficient funds to pay the premium charge, the servicer must advance funds to make such 

payment.◄

g. Remove paragraph (l) and redesignate paragraph (m) as paragraph (l). 

9. Add subpart B to part 1024, titled “Mortgage settlement and escrow accounts” and 

consisting of §§ 1024.6 through 1024.21. 

10. Remove and reserve § 1024.21. 

11. Remove § 1024.22. 

12. Remove § 1024.23. 

13. Add subpart C to part 1024, titled “Mortgage Servicing” 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 payments by servicer. 

1024.35 Error resolution procedures. 

1024.36 Requests for information. 

1024.37 Force-placed insurance. 

1024.38 Reasonable information management policies and procedures. 

1024.39 Early intervention requirements for certain borrowers. 
359 

1024.40 Continuity of contact. 

1024.41 Loss mitigation procedures. 

►Subpart C—Mortgage Servicing 

1024.30 Scope. 

 This subpart applies to any mortgage loan, as that term is defined in § 1024.31. 

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, except where legal public holidays, Saturdays, and Sundays are 

expressly excluded. 

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 a submission from a borrower requesting evaluation 

for a loss mitigation option, as that term is defined in this section, in accordance with procedures 

established by the servicer for the submission of such requests.

Loss mitigation options means alternatives available from the servicer to the borrower to 

avoid foreclosure. 

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 
360 

servicer that enables the servicer to identify the name and account of the borrower, and either: 

(1) States the reasons the borrower believes an error relating to the servicing of the loan 

has occurred; 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 a servicer for which a borrower may incur a fee. 

Subservicer means a servicer who does not own the right to perform servicing, but who 

performs servicing on behalf of the master servicer. 

Transferee servicer means a servicer who obtains or who will obtain the right to perform 

servicing pursuant to an agreement or understanding with the owner or assignee of a mortgage 

loan. 

Transferor servicer means a servicer, including a table funding mortgage broker or dealer 

on a first lien dealer loan, who transfers or will transfer the right to perform servicing pursuant to 

an agreement or understanding with the owner or assignee of a mortgage loan. 

1024.32 General disclosure requirements. 

(a) Disclosure requirements. (1) Form of disclosures. Disclosures and notices required 

under this subpart must be clear and conspicuous, in writing, and in a form the consumer may 

keep, except as otherwise provided in this subpart. The disclosures required by this subpart may 

be provided to the consumer 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 
361 

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 the borrower’s request. 

(b) Additional information; disclosures required by other laws. Nothing in this subpart 

shall be construed as prohibiting a servicer from including additional information with a 

disclosure required by applicable law. Nothing in this subpart shall be construed as prohibiting a 

servicer from combining disclosures required by other laws (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 the terms of an 

agreement with a federal or state regulatory agency with the disclosures required by this subpart, 

unless such prohibition is expressly set forth in this subpart, applicable law, or the terms of an 

agreement with a federal or state regulatory agency. 

1024.33 Mortgage servicing transfers. 

(a) Servicing disclosure statement. Within 3 days (excluding legal public holidays, 

Saturdays, and Sundays) after a person applies for a reverse mortgage transaction, the lender, 

table funding mortgage broker, or dealer in a first lien dealer loan shall provide to the person a 

servicing disclosure statement that states whether the servicing of the reverse mortgage 

transaction may be assigned, sold, or transferred to any other person at any time. Appendix MS1 of this part contains a model form for the disclosures required under this paragraph. If an 

application is denied credit within the 3-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 this section, each transferor servicer and transferee servicer of any mortgage loan shall provide 
362 

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. 

(2) Certain transfers excluded. (i) The following transfers are not considered an 

assignment, sale, or transfer 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 

payment due: 

(A) A transfer between affiliates; 

(B) A transfer that results from mergers or acquisitions of servicers or subservicers; or 

(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 paragraph (2)(ii) 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 
363 

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. 

(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 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 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 coverage; and 

(vi) A statement that the transfer of servicing does not affect any term or condition of the 
364 

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, except with respect to calculating the period of delinquency for purposes of 

§ 1024.39. 

(2) Treatment of payments. A transferor servicer shall promptly either (i) transfer a 

payment it has received incorrectly 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 to the 

transferor servicer. 

(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 payments by servicer. 

(a) Timely escrow disbursements required. If the terms of a mortgage loan require the 
365 

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. 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. 

 (2) Servicer may credit funds to a new escrow account. 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. 

1024.35 Error resolution procedures. 

(a) Notice of error. A servicer shall comply with the requirements of this section for any 

oral or written notice from the borrower that asserts a covered 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 a covered error relating to the servicing of the 

mortgage loan is considered a notice of error and must comply with all requirements applicable 
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to a notice of error. 

(b) Scope of error resolution. For purposes of this section, the term “error” means 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, where such failure has resulted in a charge to the consumer or the furnishing of negative 

information to a consumer reporting agency; 

(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 balanced 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 

pursuant to 12 CFR 1026.36(c)(1)(iii); 

(7) Failure to provide accurate information to a borrower for loss mitigation options and 

foreclosure, as required by §§ 1024.39 and 1024.40. 

(8) Failure to accurately and timely transfer information relating to the servicing of a 

borrower’s mortgage loan account to a transferee servicer. 

(9) Failure to suspend a scheduled foreclosure sale in the circumstances described in 
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§ 1024.41(g). 

(c) Contact information for borrowers to assert errors. A servicer may, by notice 

provided to a borrower, establish a telephone number and 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 may assert an error by contacting the servicer through the 

telephone number or address established for that purpose. If a servicer designates a specific 

telephone number and address for receiving errors, a servicer shall designate the same telephone 

number and address for receiving information requests pursuant to § 1024.36(b) of this part. A 

servicer shall provide a notice to a borrower before any change in the telephone number or 

address used for receiving a notice of error. 

(d) Acknowledgment of receipt. Within five days (excluding legal public holidays, 

Saturdays, and Sundays) of a servicer receiving a notice of an error from a borrower, the servicer 

shall provide to the borrower a response acknowledging receipt of the borrower’s notice of the 

asserted error. 

(e) Response to notice of error. (1) Investigation and response requirements. (i) In 

general. A servicer must respond to a notice of error by either: 

(A) Correcting the error identified by the borrower and providing the borrower with 

notification of the correction, the date of the correction, and contact information for further 

assistance; or 

(B) Conducting a reasonable investigation and providing the borrower with a 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 
368 

the borrower can request such documents, and contact information for further assistance. 

(ii) Different or additional error. If during a reasonable investigation of a notice of error, 

a servicer concludes that an error occurred other than, or in addition to, the error alleged by the 

borrower, the servicer shall correct the error and provide the borrower with a notification that 

describes the error the servicer identified, the action taken to correct the error, the applicable date 

for the correction, and contact information for further assistance. 

(2) Requesting information from borrower. A servicer may request supporting 

documentation from a borrower, but may not: 

(i) Require a borrower to provide such information as a condition of investigating the 

alleged 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 five days (excluding legal public holidays, Saturdays, and Sundays) 

after the servicer receives the asserted error, if a notice of error identifies an error in paragraph 

(b)(6) of this section; 

(B) Prior to the date of a scheduled foreclosure sale or within 30 days (excluding legal 

public holidays, Saturdays, and Sundays) after the servicer receives the asserted error, whichever 

is earlier, if a notice of error identifies an error in paragraph (b)(9) of this section; 

(C) For all other errors, not later than 30 days (excluding legal public holidays, 

Saturdays, and Sundays) after the servicer receives the asserted error. 
369 

(ii) Extension of time limits. The servicer may extend the time period for completing its 

investigation of a notice of error by an additional 15 days (excluding legal public holidays, 

Saturdays, and Sundays) if, before the end of the 30 day period set forth in paragraph (e)(3)(i)(C) 

of this section, the servicer notifies the borrower of the extension and the reasons for the 

extension. A servicer may not extend the time period for completing its investigation of an error 

identified in paragraphs (b)(6) or (b)(9) 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 

within 15 days (excluding legal public holidays, Saturdays, and Sundays) of receiving 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 identified by the 

borrower within five days (excluding legal public holidays, Saturdays, and Sundays) of receiving 

the notice of error, and the borrower is notified of that correction in writing. 

(2) Error asserted before foreclosure sale. A servicer is not required to comply with the 

requirements of paragraphs (d) and (e) of this section if the servicer receives a notice of an error 

in paragraph (b)(9) of this section seven days or less before a scheduled foreclosure sale, so long 

as prior to the scheduled foreclosure sale, 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. 

(g) Requirements not applicable. (1) In general. A servicer is not required to comply 

with the requirements of paragraphs (d) and (e) of this section if the servicer reasonably 

determines that any of the following applies: 
370 

(i) Duplicative notice of error. An 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 paragraph (e)(1) 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 error and is reasonably likely to change a servicer’s prior determination about the error. 

(ii) Overbroad or unduly burdensome notice of error. A notice of error is overbroad or 

unduly burdensome. 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. 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 

paragraph (e)(3)(ii) of this section or incurring costs (or dedicating resources) that would be 

unreasonable in light of the circumstances. To the extent a servicer can identify a valid assertion 

of an error in a submission that is otherwise overbroad or unduly burdensome, the servicer shall 

comply with the requirements of paragraphs (d) and (e) of this section with respect to that 

asserted error. 

(iii) Untimely notice of error. An error is untimely if the error is asserted more than one 

year after: 

(A) Servicing for the mortgage loan that is the subject of asserted error was transferred 

from the servicer receiving the notice of error to a transferee servicer; or 

(B) The mortgage loan amount was paid in full. 

(2) Notice to borrower. A servicer shall notify the borrower of its determination that the 

servicer is not required to comply with the requirements of paragraphs (d) and (e) of this section 
371 

in writing not later than five days (excluding legal public holidays, Saturdays, and Sundays) after 

making its determination. The notice to the borrower shall set forth the basis that is permitted 

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 

investigating and 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 error 

identified in paragraph (b)(9) 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 scheduled foreclosure sale. 

1024.36 Requests for information. 

(a) Information request. A servicer shall comply with the requirements of this section for 

any oral or written request for information (including a qualified written request for information 

related to the servicing of the mortgage loan) 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 qualified written request that requests 

information relating to the servicing of the mortgage loan is considered a request for information 

and must comply with all requirements applicable to a request for information. 
372 

(b) Contact information for borrowers to request information. A servicer may, by notice 

provided to a borrower, establish a telephone number and address that a borrower must use to 

request information in accordance with the procedures in this section. The notice shall include a 

statement that a borrower should request information by contacting the servicer through the 

telephone number or address established for that purpose. If a servicer designates a specific 

telephone number and address for receiving information requests, a servicer shall designate the 

same telephone number and address for receiving notices of error pursuant to § 1024.35(c) of 

this part. A servicer shall provide notice to a borrower before any change in the telephone 

number or address used for receiving an information request. 

(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 response acknowledging receipt of the information 

request. 

(d) Response to information request. (1) Investigation and response requirements. A 

servicer must respond to an information request by either: 

(i) Providing the borrower with the requested information and contact information for 

further assistance either orally or in writing; or 

(ii) Conducting a reasonable search for the requested information and providing the 

borrower with a notification 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 for further assistance. 
373 

(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 information requests, not later than 30 days (excluding legal public 

holidays, Saturdays, and Sundays) after the servicer receives an information request. 

(ii) Extension of time limit. For information requests governed by the time limit set forth 

in paragraph (d)(2)(i)(B) of this section, the servicer may extend the time period for completing 

its search for information 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. 

(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 for further assistance within five days (excluding legal public holidays, 

Saturdays, and Sundays) of receiving an information request. A servicer may provide the 

borrower such information orally or in writing. 

(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 applies: 

(i) Duplicative information. A borrower requests information that is substantially the 

same as information previously requested by the borrower for which the servicer has previously 

complied with its obligation pursuant to paragraph (d)(1) of this section. 
374 

(ii) Confidential, proprietary, or general corporate information. The borrower requests 

confidential, proprietary, or general corporate information. 

(iii) Irrelevant information. The borrower requests information that is not directly related 

to the borrower’s mortgage loan account. 

(iv) Overbroad or unduly burdensome information request. An information request is 

overbroad or unduly burdensome. An information request is overbroad if a borrower requests a 

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 maximum timeframe permitted by paragraph 

(d)(2)(ii) of this section or incurring costs (or dedicating resources) that would be unreasonable 

in light of the circumstances. To the extent a servicer can 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. An 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 amount was paid in full. 

(2) Notice to borrower. A servicer shall notify the borrower of its determination that the 

servicer is not required to comply with the requirements of paragraphs (c) and (d) of this section 

in writing not later than five days (excluding legal public holidays, Saturdays, and Sundays) after 

making its determination. The notice to the borrower shall set forth the basis that is permitted 
375 

under paragraph (f)(1) 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 may 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 valid 

information request. 

(2) Fees permitted. Nothing in this section shall prohibit a servicer from charging a fee 

for providing a payoff statement or a beneficiary notice under applicable State law, if such fees 

are 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 scheduled 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 on a property securing such loan. 

(2) Types of insurance not considered force-placed insurance. The following insurance 

does not constitute “force-placed insurance” under this section: 

(i) Hazard insurance to protect against flood loss obtained by a servicer as required by the 

Flood Disaster Protection Act of 1973. 

(ii) Hazard insurance obtained by a borrower but renewed by the borrower’s servicer as 

required by § 1024.17(k)(1), (k)(2), or (k)(5). 
376 

(iii) Hazard insurance obtained by the borrower but 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), (k)(2), or (k)(5). 

(b) Basis for obtaining force-placed insurance. 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. 

(c) Requirements for charging borrower for force-placed insurance. (1) In general. A 

servicer may not charge a borrower for force-placed insurance unless: 

(i) The servicer delivers to the borrower or places in the mail a written notice with the 

disclosures set forth in paragraph (c)(2) of this section at least 45 days before the premium 

charge or any fee is assessed; 

(ii) The servicer delivers to the borrower or places in the mail a written notice in 

accordance with paragraph (d)(1) of this section; and 

(iii) During the 45-day notice period, the servicer has not received verification that the 

borrower has hazard insurance in place continuously. Determining whether the borrower has 

hazard insurance in place continuously shall take account of any grace period provided under 

State or other applicable law. 

(2) Content of notice. The notice required under paragraph (c)(1)(i) of this section shall 

include the following: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing address; 

(iii) The borrower’s name and mailing address; 
377 

(iv) A statement that requests the borrower to provide hazard insurance information for 

the borrower’s property and identifies the property by its address; 

(v) 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 who has obtained 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; 

(vi) A statement that: 

(A) Hazard insurance is required on the borrower’s property; and 

(B) The servicer has obtained or will obtain, as applicable, insurance at the borrower’s 

expense; 

(vii) 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; 

(viii) A description of how the borrower may provide the information requested pursuant 

to paragraph (c)(2)(vii) of this section. A servicer that will only accept the requested information 

in writing must disclose that fact in the notice; 

(ix) The cost of the force-placed insurance, stated as an annual premium. If the cost of 

the force-placed insurance is not known as of the date of the disclosure, a good faith estimate 

shall be disclosed and be identified as such; 

(x) A statement that insurance the servicer obtains may: 

(A) Cost significantly more than hazard insurance obtained by the borrower; and 

(B) Not provide as much coverage as hazard insurance obtained by the borrower; and 
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(xi) The servicer’s telephone number for borrower questions. 

(3) Format. The disclosures set forth in paragraph (c)(2) of this section must be in a 

format substantially similar to form MS-3(A), set forth in Appendix MS-3 of this part. 

Disclosures made pursuant to paragraphs (c)(2)(vi) and (c)(2)(ix) of this section must be in bold 

text. Disclosure made pursuant to paragraph (c)(2)(iv) of this section must be in bold text, 

except that the physical address of the borrower’s property may be in regular text. 

(d) Reminder notice. (1) In general. One written notice in addition to the written notice 

required pursuant to paragraph (c)(1)(i) of this section must be delivered to the borrower or 

placed in the mail prior to the servicer charging a borrower for force-placed insurance. The 

servicer may not deliver to the borrower or place the written notice required pursuant to this 

paragraph (d)(1) in the mail until 30 days after delivering to the borrower or placing in the mail 

the written notice set forth in paragraph (c)(1)(i) of this section. A servicer that receives no 

insurance information after delivering to the borrower or placing in the mail the written notice 

set forth in paragraph (c)(1)(i) of this section must provide the disclosures set forth in paragraph 

(d)(2)(i) of this section. A servicer that receives insurance information after delivering to the 

borrower or placing in the mail the written notice set forth in paragraph (c)(1)(i) of this section 

but does not receive verification that the borrower has hazard insurance in place continuously 

must provide the disclosures set forth in paragraph (d)(2)(ii) of this section. 

(2) Content of the reminder notice. (i) Servicer receiving no insurance information. A 

servicer that has not received any insurance information after delivering to the borrower or 

placing in the mail the written notice set forth paragraph (c)(1)(i) of this section must provide a 

written notice that shall include the following: 

(A) The date of the notice; 
379 

(B) A statement that the notice is the second and final notice; and 

(C) The disclosures set forth in paragraphs (c)(2)(ii) to (c)(2)(xi) of this section. 

(ii) Servicer not receiving verification of continuous coverage. A servicer that has 

received insurance information after delivering to the borrower or placing in the mail the written 

notice required pursuant to paragraph (c)(1)(i) of this section, but not verification that the 

borrower has hazard insurance in place continuously, must deliver or place in the mail a written 

notice that shall include the following: 

(A) The date of the notice; 

(B) A statement that the notice is the second and final notice; 

(C) The disclosures set forth in paragraphs (c)(2)(ii), (c)(2)(iii), (c)(2)(iv), and (c)(2)(xi) 

of this section; 

(D) A statement that the servicer has received the hazard insurance information that the 

borrower provided; 

(E) A statement that indicates to the borrower that the servicer is unable to verify that the 

borrower has hazard insurance in place continuously; and 

(F) 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. 

(3) Format. The disclosures set forth in paragraph (d)(2)(i) of this section must be in a 

format substantially similar to form MS-3(B), and the disclosures set forth in paragraph (d)(2)(ii) 

of this section must be in a format be substantially similar to form MS-3(C). Both MS-3(B) and 

MS-3(C) are set forth in Appendix MS-3 of this part. Disclosures required by paragraphs 

(d)(2)(i)(B), (d)(2)(ii)(B), and (d)(2)(ii)(F) of this section must be in bold text. 
380 

(4) Updating notice with borrower information. If a servicer receives hazard insurance 

information from a borrower after a written notice required pursuant to paragraph (d)(1) of this 

section 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. 

(e) Renewal or replacing force-placed insurance. (1) In general. A servicer may not 

charge a borrower for renewing or replacing existing force-placed insurance unless: 

(i) The servicer delivers or places in the mail a written notice to the borrower with the 

disclosures set forth in paragraph (e)(2) of this section at least 45 days before the premium 

charge or any fee is assessed; and 

(ii) During the 45-day notice period, the servicer has not received evidence that the 

borrower has obtained hazard insurance. 

(iii) Charging a borrower before end of notice period. Notwithstanding paragraphs 

(e)(1)(i) and (e)(1)(ii) of this section, a servicer that has renewed or replaced existing forceplaced insurance during the 45-day notice period may charge the borrower for the renewal or 

replacement promptly after the servicer receives verification that hazard insurance obtained by 

the borrower did not provide the borrower with insurance coverage for any period of time 

following the expiration of the existing force-placed insurance. 

(2) Content of renewal notice. A servicer must provide the following information in the 

notice required under paragraph (e)(1) of this section: 

(i) The date of the notice; 

(ii) The servicer’s name and mailing address; 

(iii) The borrower’s name and mailing address; 
381 

(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 address; 

(v) A statement that 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; 

(vi) A statement that: 

(A) The insurance the servicer obtained previously has expired or is expiring, as 

applicable; and 

(B) Because hazard insurance is required on the borrower’s property, the servicer has the 

right to maintain insurance on the property by renewing or replacing the insurance it previously 

obtained; 

(vii) The cost of the force-placed insurance, stated as an annual premium. If the cost of 

the force-placed insurance is not known as of the date of the disclosure, a good faith estimate 

shall be disclosed and be identified as such; 

(viii) A statement reminding the borrower that insurance the servicer obtains may: 

(A) Cost significantly more than hazard insurance obtained by the borrower; and 

(B) Not provide as much coverage as hazard insurance obtained by the borrower. 

(ix) A statement that if the borrower obtains hazard insurance, the borrower should 

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. 

(x) A description of how the borrower may provide the information requested pursuant to 

paragraph (e)(2)(ix) of this section. A servicer that will only accept the requested information in 

writing must disclose that fact in the notice; and 
382 

(xi) The servicer’s telephone number for borrower questions. 

(3) Format. The disclosures set forth in paragraph (e)(2) of this section must be in a 

format substantially similar to form MS-3(D), set forth in Appendix MS-3 to this part. 

Disclosures made pursuant to paragraphs (e)(2)(vi)(B) and (e)(2)(vii) of this section must be in 

bold text. Disclosures made pursuant to paragraph (e)(2)(iv) of this section must be in bold text, 

except that the physical address of the property may be in regular text. 

(4) Compliance. 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 paragraph (e)(1) of this section. Subsequently, a servicer is not required to 

comply with paragraph (e)(1) of this section before charging a borrower for renewing or 

replacing existing force-placed insurance more than once every 12 months. 

(f) Mailing the notices. If a servicer mails a notice required pursuant to paragraphs 

(c)(1)(i), (d)(1) and (e)(1) of this section, as applicable, 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 verification that 

the borrower has hazard insurance in place, a servicer must: 

(1) Cancel force-placed insurance obtained for a borrower’s property; and 

(2) For any period during which the borrower’s hazard insurance was in place, refund to 

the borrower all force-placed insurance premium charges and related fees paid by the borrower 

for such period 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. 

(i) 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 
383 

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. 

(j) 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 together with the notice required by section 102(e) of the Flood Disaster 

Protection Act of 1973. 

1024.38 Reasonable information management policies and procedures. 

(a) In general. (1) Reasonable policies and procedures. A servicer shall establish 

reasonable policies and procedures for maintaining and managing information and documents 

related to borrower mortgage loan accounts. A servicer meets this requirement if: 

(i) The servicer’s policies and procedures are reasonably designed to achieve the 

objectives set forth in paragraph (b) of this section; and 

(ii) The servicer’s policies and procedures are reasonably designed to ensure compliance 

with the standard requirements in paragraph (c) of this section. 

(2) Safe harbor. A servicer satisfies the requirements in this section if it does not engage 

in a pattern or practice of failing to achieve any of the objectives set forth in paragraph (b) of this 

section and does not engage in a pattern or practice of failing to comply with any of the standard 

requirements in paragraph (c) of this section. 

(b) Objectives. (1) Accessing and providing accurate information. 
384 

(i) Provide accurate and timely disclosures to borrowers as required by this subpart or 

other applicable law; 

(ii) Investigate, respond to, and, as appropriate, correct errors asserted by borrowers in 

accordance with the procedures set forth in § 1024.35, including asserted errors resulting from 

actions of service providers; 

(iii) Provide borrowers with accurate and timely information and documents in response 

to borrower requests made in accordance with the procedures set forth in § 1024.36; 

(iv) Provide owners or assignees of mortgage loans with accurate and current information 

and documents about any mortgage loans they own; and 

(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. 

(2) Evaluating loss mitigation options. (i) Provide accurate information regarding loss 

mitigation options available to borrowers pursuant to §§ 1024.39 and 1024.40; 

(ii) Identify all loss mitigation options for which a borrower may be eligible pursuant to 

any requirements imposed by an owner or assignee of a 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 make a 

loss mitigation application complete so that prompt notice of such requirements can be provided 

to the borrower pursuant to § 1024.41(b)(2); and 

(v) Evaluate loss mitigation applications, and any appeals, pursuant to the requirements in 
385 

§ 1024.41. 

(3) Facilitating oversight of, and compliance by, service providers. (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 an 

evaluation of a borrower’s completed loss mitigation application and the status of any 

foreclosure proceeding among servicer personnel assigned to a borrower pursuant to § 1024.40 

and service providers responsible for handling foreclosure proceedings. 

 (4) Facilitating servicing transfers. Timely transfer all information and documents 

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 requirements of this subpart and the terms of the transferee servicer’s 

contractual obligation to the owner or assignee of the mortgage loan. Such information and 

documents shall include 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. 

(c) Standard requirements. (1) Record retention. A servicer shall retain records that 

document actions taken by the servicer 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 
386 

transferred by the servicer to a transferee servicer. 

(2) Servicing file. A servicer shall provide a borrower with a servicing file upon request 

in accordance with the procedures set forth in § 1024.36. The servicing file shall contain: 

(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 mortgage note; 

(iii) A copy of the borrower’s deed of trust; 

(iv) Any collection notes created by servicer personnel reflecting communications with 

borrowers about the mortgage loan account; 

(v) 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 

(vi) 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. 

1024.39 Early intervention requirements for certain borrowers.

(a) Oral notice. If a borrower is late in making a payment sufficient to cover principal, 

interest, and, if applicable, escrow for a given billing cycle, a servicer shall notify or make good 

faith efforts to notify the borrower orally not later than 30 days after the payment due date that 

the borrower is late and that loss mitigation options, if applicable, may be available. If the 

servicer attempts to notify the borrower by telephone, good faith efforts require calling the 

borrower on at least three separate days in order to reach the borrower. A servicer is not required 

to notify or make good faith efforts to notify the borrower under this paragraph if the borrower 

makes the payment within 30 days after the payment due date. 
387 

(b) Written notice. (1) In general. If a borrower is late in making a payment sufficient to 

cover principal, interest, and, if applicable, escrow for a given billing cycle, a servicer shall 

provide to the borrower a written notice that complies with paragraph (b)(2) of this section not 

later than 40 days after the payment due date. A servicer is not required to provide the written 

notice if the borrower makes the payment within 40 days after the payment due date. 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 servicer’s mailing address and telephone number; 

(iii) A statement, if applicable, providing a brief description of loss mitigation options 

that may be available from the servicer; 

(iv) A statement, if applicable, informing the borrower how to obtain more information 

about loss mitigation options from the servicer; 

(v) A statement explaining that foreclosure is a legal process to end the borrower’s 

ownership of the property and an estimate, expressed in a number of days from the date of a 

missed payment, of when the servicer makes the referral to foreclosure; and 

(vi) The website address, if applicable, and telephone number to access: 

(A) Any State housing finance authority (as defined in section 1301 of the Financial 

Institutions Reform, Recovery, and Enforcement Act of 1989) for the State in which the 

borrower’s property is located; and 

(B) Either the Bureau list of homeownership counselors or counseling organizations or 

the HUD list of homeownership counselors or counseling organizations. 
388 

(3) Model clauses. Model Clauses MS-4(A), MS-4(B), MS-4(C), MS-4(D), and MS-4(E) 

in Appendix MS-4 to this part may be used to comply with the requirements of paragraphs (b)(1) 

and (b)(2) of this section. 

1024.40 Continuity of contact. 

(a) Continuity of contact requirements. (1) In general. No later than five days after a 

servicer has notified or made a good faith effort to notify a borrower as required by § 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. If a borrower has been assigned personnel as 

required by this paragraph and the assignment has not ended when servicing for borrower’s 

mortgage loan has transferred to a transferee servicer, subject to paragraphs (c)(1)-(c)(4) of this 

section, the transferee servicer must assign personnel to respond to the borrower’s inquiries, and 

as applicable, assist the borrower with loss mitigation options, within reasonable time of the 

transfer of servicing for the borrower’s mortgage loan. 

(2) Access to assigned personnel. A servicer shall make access to the assigned personnel 

available via telephone. If a borrower contacts the servicer and does not receive a live response 

from the assigned personnel, the borrower must be able to record his or her contact information. 

The servicer must respond to the borrower within a reasonable time. 

(b) Functions of servicer personnel. (1) Reasonable policies and procedures. A servicer 

shall establish policies and procedures reasonably designed to ensure the servicer personnel it 

makes available to the borrower pursuant to paragraph (a) of this section perform the following 

functions where applicable: 

(i) Provide the borrower with accurate information about: 
389 

(A) Loss mitigation options offered by the servicer and available to the borrower, based 

on information in the servicer’s possession; 

(B) 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 § 1024.41, 

and if applicable, actions the borrower must take to appeal the servicer’s denial of the borrower’s 

loss mitigation application; 

(C) The status of any loss mitigation application that the borrower has submitted to the 

servicer; 

(D) The circumstances under which the servicer may make a referral to foreclosure; and 

(E) Any loss mitigation deadlines established by the servicer that the borrower must 

meet. 

(ii) Access: 

(A) A complete record of the borrower’s payment history in the servicer’s possession; 

(B) 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 

(C) 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; 

(iii) Provide the documents in paragraphs (b)(2)(ii)(B) and (b)(2)(ii)(C) of this section to 

persons authorized to evaluate a borrower for loss mitigation options offered by the servicer if 

the servicer personnel assigned to the borrower are not authorized to evaluate a borrower for loss 

mitigation options; and 
390 

(iv) Within a reasonable time after a borrower request, as applicable, 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. 

(2) Safe harbor. A servicer’s policies and procedures satisfy the requirements in 

paragraph (b)(1) of this section if servicer personnel do not engage in a pattern or practice of 

failing to perform the functions set forth in paragraph (b)(1) of this section where applicable. 

(c) Duration of continuity of contact. A servicer shall ensure that the personnel it assigns 

and makes available to a borrower pursuant to paragraph (a) of this section remain assigned and 

available to the borrower until any of the following occurs: 

(1) The borrower refinances the mortgage loan; 

(2) The borrower pays off the mortgage loan; 

(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; or 

(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; or 

(5) If applicable, a reasonable time has passed since servicing for the borrower’s 

mortgage loan was transferred to transferee servicer. 

(d) Conditions beyond a servicer’s control. A servicer has not violated this section if the 

servicer’s failure to comply with this section is caused by conditions beyond a servicer’s control. 
391 

1024.41 Loss mitigation procedures. 

(a) Scope. This section applies to any servicer that makes loss mitigation options 

available to borrowers in the ordinary course of business with respect to the procedures for 

reviewing and responding to a loss mitigation application. Nothing in this section shall be 

construed to impose an obligation on an owner, assignee, guarantor, or insurer of a mortgage 

loan, unless such entity is also a servicer of a mortgage loan. 

(b) Loss mitigation application. (1) Complete loss mitigation application. 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 loss mitigation applications by the deadline established by 

the servicer pursuant to paragraph (f) of this section. 

(2) Incomplete loss mitigation application. (i) Upon receipt of an incomplete loss 

mitigation application, a servicer shall exercise reasonable diligence in obtaining information 

from a borrower to make the loss mitigation application complete. 

(ii) If a servicer receives an incomplete loss mitigation application earlier than 5 days 

(excluding legal public holidays, Saturdays, or Sundays) before the deadline established pursuant 

to paragraph (f), the servicer shall notify the borrower orally or in writing within 5 days 

(excluding legal public holidays, Saturdays, or Sundays) after receiving the incomplete loss 

mitigation application, of the following: 

(A) That the loss mitigation application is incomplete; 

(B) The additional documents and information the borrower must submit to make the loss 

mitigation application complete; and 

(C) The date by which the borrower must submit the additional documents and 
392 

information. 

(c) Review of loss mitigation applications. Within 30 days of receiving a borrower’s 

complete loss mitigation application that is submitted prior to the deadline established pursuant 

to paragraph (f) of this section, a servicer shall: 

(1) Evaluate the borrower for all loss mitigation options available from the servicer for 

which the borrower may qualify; and 

(2) Provide the borrower with a notice stating the servicer’s determination of whether it 

will offer the borrower a loss mitigation option. 

(d) Denial of loan modification options. A servicer that denies a borrower’s loss 

mitigation application for any trial or permanent loan modification program offered by the 

servicer shall state in the notice provided to the borrower pursuant to paragraph (c)(2) of this 

section: 

(1) The specific reasons for the servicer’s determination for each such trial or permanent 

loan modification program; and 

(2) The fact that the borrower may appeal the servicer’s determination, the deadline for 

the borrower to make an appeal, and any requirements for making an appeal. 

(e) Borrower response. (1) In general. A servicer may require that a borrower accept or 

reject an offer of a loss mitigation option by a deadline established by the servicer that is no 

earlier than 14 days after the servicer communicates the loss mitigation option to the borrower. 

(2) Acceptance. A borrower that 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, shall be deemed 

to have accepted the offer of a loss mitigation option. 
393 

(3) Rejection. A servicer may deem a borrower that has not accepted an offer of a loss 

mitigation option within 14 days after the servicer offers the loss mitigation option to the 

borrower to have rejected the offer of a loss mitigation option. 

(4) Interaction with appeal process. A servicer shall permit a borrower to accept or reject 

a loss mitigation option concurrently with making an appeal pursuant to paragraph (h) of this 

section. 

(f) Deadline for loss mitigation applications. A servicer may establish a deadline for a 

borrower to provide a complete loss mitigation application, which shall be no earlier than 90 

days before a scheduled foreclosure sale. 

(g) Prohibition on foreclosure sale. A servicer shall not conduct a foreclosure sale if a 

borrower has provided a complete loss mitigation application to the servicer for a loss mitigation 

option within the deadline established by the servicer pursuant to paragraph (e) of this section, 

unless: 

(1) The servicer has provided the borrower a notice pursuant to paragraph (c)(2) of this 

section that the borrower is not eligible for a loss mitigation option and the appeal process in 

paragraph (h) of this section is not applicable, the borrower has not requested an appeal, or the 

time for requesting an appeal has expired; 

(2) The servicer denies the borrower’s appeal, as applicable; 

(3) The borrower rejects the servicer’s offer of a loss mitigation option; 

(4) The borrower fails to perform under an agreement on a loss mitigation option. 

(h) Appeal process. (1) Appeal process required for loan modification denials. A 

servicer that denies a borrower’s loss mitigation application for any trial or permanent loan 

modification program offered by the servicer shall permit a borrower to appeal the servicer’s 
394 

determination. 

(2) Deadlines. A servicer shall permit a borrower to make an appeal within at least 14 

days after providing the notice required pursuant to paragraph (c)(2). 

(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. A servicer’s offer of a loss mitigation option 

after appeal shall be subject to paragraph (e). A servicer’s decision under this paragraph is not 

subject to another appeal. 

(i) Duplicative requests. A servicer is only required to comply with the requirements of 

this provision for a single complete loss mitigation application for a borrower’s mortgage loan 

account. 

(j) Other liens. (1) Duty to identify other servicers. Any servicer that receives a loss 

mitigation application shall: 

(i) Within 5 days, determine if any other servicers service mortgage loans that have 

senior or subordinate liens encumbering the property that is the subject of the loss mitigation 

application; and 

(ii) Provide any other servicers identified pursuant to paragraph (j)(1)(i) with a copy of 

the loss mitigation application. 

(2) Receipt of loss mitigation application. A servicer that offers loss mitigation options 

in the ordinary course of business shall comply with the requirements of this section with respect 

to any loss mitigation application received pursuant to paragraph (j)(1)(ii) of this section as if 
395 

such loss mitigation application was provided by a borrower.◄
396 

14. Revise Appendix MS-2 to Part 1024 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 your present servicer, [Name of present servicer], about 

your mortgage loan or this transfer, please contact [Individual or Department] at [Telephone 

Number]. You may also write to your present servicer at the following address: [Address]. 

 If you have any questions for your new servicer, [Name of new servicer], about your 

mortgage loan or this transfer, please contact [Individual or Department] at [Telephone Number]. 

You may also write to your new servicer at the following 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: 

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________ 

You should do the following to maintain coverage: 

______________________________________________________________________________

_____________________________________________________________________________. 

________________________________________________ ________________________ 

[NAME OF PRESENT SERVICER] Date 

 [and] 

________________________________________________ ________________________ 

[NAME OF NEW SERVICER] Date◄
397 

15. Add Appendix MS-3 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 Required Pursuant to § 1024.37(c)(2) 

MS-3(B) – Model Form for Force-Placed Insurance Notice Pursuant to § 1024.37(d)(2)(i) 

MS-3(C) – Model Form for Force-Placed Insurance Notice Pursuant to § 1024.37(d)(2)(ii) 

MS-3(D) – Model Form for Renewal or Replacement of Force-Placed Insurance Notice pursuant 

to § 1024.37(e)(2)
398 

MS-3(A) – Model Form for Force-Placed Insurance Notice Required Pursuant to 

§ 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 policy number and the name, mailing 

address and phone number of your insurance company or insurance agent. [Describe how the 

borrower may provide the insurance information]. [The information must be provided in 

writing.] 

The insurance we [bought] [buy]: 

 [Costs $[premium charge]] [Will cost an estimated $[premium charge]] annually, 

which is probably more expensive than insurance you can buy yourself. 

 May not provide as much coverage as insurance policy you buy yourself. 

If you have any questions, please contact us at [telephone number]. 
399 

MS-3(B) – Model Form for Force-Placed Insurance Notice Pursuant to § 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 policy number and the name, mailing 

address and phone number of your insurance company or insurance agent. [Describe how the 

borrower may provide the insurance information]. [The information must be provided in 

writing.] 

The insurance we [bought] [buy]: 

 [Costs $[premium charge]] [Will cost an estimated $[premium charge]] annually, 

which is probably more expensive than insurance you can buy yourself. 

 May not provide as much coverage as insurance policy you buy yourself. 

If you have any questions, please contact us at [telephone number]. 
400 

MS-3(C) – Model Form for Force-Placed Insurance Notice Pursuant to § § 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]. 

If you have any questions, please contact us at [telephone number]. 
401 

MS-3(D) – Model Form for Renewal or Replacement of Force-Placed Insurance Notice 

Pursuant 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 have the right to maintain insurance on 

your property by renewing or replacing the insurance we bought. 

The insurance we buy: 

 [Costs $[premium charge]] [Will cost an estimated $[premium charge]], which is 

probably 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 policy number and the name, mailing address and phone number of your insurance 

company or insurance agent. [Describe how the borrower may provide the insurance 

information]. [The information must be provided in writing.] 

If you have any questions, please contact us at [telephone number].◄
402 

16. Add Appendix MS-4 to part 1024 to read as follows:

►MS-4—Model Clauses for the Written Early Intervention Notice Pursuant to 

§ 1024.39(b)(2) 

MS-4(A)—Statement Encouraging the Borrower to Contact the Servicer (§ 1024.39(b)(2)(i) and 

(ii))

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.] 

[Servicer Name] 

[Servicer Address] 

[Servicer Telephone Number] 

[For more information, visit [Servicer Web Site or Email Address]]. 

MS-4(B)—Available Loss Mitigation Options (§ 1024.39(b)(2)(iii)) 

[You may have options that could help make your mortgage more affordable, including:] 

[Forbearance. This is a temporary reduction or suspension of your mortgage payments. 

Forbearance might be available if recent events have made it difficult for you to make your 

payments—for example, if you recently lost your job, suffered from a disaster, or had an illness 

or injury that increased your health care costs. If this option is available, your lender could 

create a payment plan to make up any missed payments over a period of time.] 

[Mortgage modification. Your lender may be able to change your loan terms, such as your 

interest rate, the amount of principal you owe, or the number of years you have to repay the 

loan.] 

[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 might be able to transfer ownership of 

your home without having to pay off the full amount of your mortgage, although you would be 

required to leave your home. For example, you may be eligible for the following option[s]:] 

 [Short-sale. With your lender’s permission, you might be able to sell your home and pay 

off your mortgage even if the sale price is less than your remaining balance. You might 

also be eligible to receive money to help you move.] 

 [Deed-in-lieu of foreclosure. Your lender may release you from your mortgage if you 

transfer ownership of your home to your lender. As with a short sale, you might also be 

eligible to receive money to help you move.] 

MS-4(C)—Additional Information About Loss Mitigation Options (§ 1024.39(b)(2)(iv)) 

[Call us today to learn more about your options and for instructions on how to apply.] 
403 

MS-4(D)—Foreclosure Statement (§ 1024.39(b)(2)(v)) 

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. The foreclosure process usually begins 

approximately [_] days after you miss a mortgage payment, although it may begin earlier or 

later. The foreclosure process depends on the laws of the state where your home is located, the 

terms of your loan, whether you are covered by the Servicemembers Civil Relief Act, and other 

factors. 

MS-4(E)—State Housing Finance Authorities and Housing Counselors (§ 1024.39(b)(2)(vi)) 

For help exploring your options, Federal government agencies provide contact information for 

housing counselors, which you can access by contacting [the Consumer Financial Protection 

Bureau at [Bureau Housing Counselor List Telephone Number] or [Bureau Housing Counselor 

List Web Site]] [the Department of Housing and Urban Development at [HUD Housing 

Counselor List Telephone Number] or [HUD Housing Counselor List Web Site]]. 

Your State housing finance authority may also be able to help. You can reach them at 

[State Housing Finance Authority Telephone Number] or [State Housing Finance Authority Web 

Site].◄
404 

17. In part 1024, add Supplement I 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. 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. 

 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. 

Section 1024.17—Escrow Accounts 

 17(k) Timely payments. 
405 

 Paragraph 17(k)(5). 

1. Reasonable basis. The receipt by a servicer of a notice of cancellation or non-renewal 

from the borrower’s insurance company before the insurance premium is due provides a servicer 

with 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. 

2. Reasons other than nonpayment of premium charges. A borrower’s hazard insurance 

may be canceled or not renewed for a number of reasons other than the nonpayment of premium 

charges, to the extent permitted by State or other applicable law. Such reasons may include, for 

example: 

i. The borrower cancels the hazard insurance before its expiration date or chooses to not 

renew the insurance. 

ii. The insurance company cancels the hazard insurance before its expiration date or 

chooses to not renew the insurance because it decides to stop writing insurance for all properties 

in the community where the borrower’s property is located. 

iii. The insurance company cancels or chooses not to renew the borrower’s hazard 

insurance based on its underwriting criteria, which may include, for example, borrower’s claim 

history, or a change in the occupancy status of the property (e.g., changing from occupied to nonoccupied), or a change in the probability of the property being exposed to loss caused certain 

hazards (e.g., a change in the property’s exposure to loss by windstorm). 

3. Advancement of premium. 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. 

Section 1024.31—Definitions 
406 

 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 options. 

 1. Types of loss mitigation options. Loss mitigation options include temporary and longterm 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. 

 2. Available from the servicer. 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. 

 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 loan or to request information relating to the 

servicing of the 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. 

 Service provider. 

1. Service providers may include attorneys retained to represent a servicer or an owner or 
407 

assignee of a mortgage loan in a foreclosure proceeding, as well as other professionals retained 

to provide appraisals or inspections of properties. 

Section 1024.33—Mortgage Servicing Transfers 

 33(a) Servicing disclosure statement. 

 Paragraph 33(a)(1). 

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 address for co-applicants. When an application involves more than one 

applicant, notification need only be given to one applicant but must be given to the primary 

applicant where one is readily apparent. 

 Paragraph 33(a)(2). 

1. Lender servicing. If the lender, table funding mortgage broker, or dealer in a first lien 

dealer loan will service the mortgage loan for which the applicant has applied, the disclosure 

should state that such entity will service such loan and does not intend to sell, transfer, or assign 

the servicing of the loan. 

2. Lender not servicing. If the lender, table funding mortgage broker, or dealer in a first 

lien dealer loan will not service the mortgage loan for which the applicant has applied, the 

disclosure should state that such entity intends to assign, sell, or transfer servicing of such 

mortgage loan before the first payment is due. 

3. Other circumstances. In all other instances, a disclosure that states that the servicing 
408 

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. Notice given 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. 

2. Delivery. A servicer should 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 of 

address. 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 where one is readily apparent.

Section 1024.34—Timely Payments by Servicer 

 34(b)(2) Servicer may credit funds to a new escrow account. 

1. 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(a). 

Section 1024.35 – Error Resolution Procedures 

 35(a) Notice of error. 

1. Borrower’s representative. A notice of error is deemed to be submitted by a borrower 

if the notice of error 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. 
409 

2. Information request. A servicer should not solely rely on the borrower’s description of 

a request to determine whether the notice constitutes a notice of error, an information request 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. Although the servicer’s failure to provide the borrower an annual escrow 

statement is not defined as an error pursuant to § 1024.35(b), such a letter may constitute an 

information request under § 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 should evaluate whether the letter fulfills the substantive 

requirements of a notice of error or an information request. 

 35(b) Scope of error resolution. 

1. Excluded errors. A servicer is not required to comply with sections 1024.35(d) and (e) 

with respect to a borrower’s assertion of an error that is not defined as a covered error in section 

1024.35(b). For example, the following are not covered errors: 

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. 

 35(c) Contact information for borrowers to assert errors. 

1. Exclusive telephone number and address not required. A servicer is not required to 

designate a specific telephone number and address that a borrower must use to assert an error. If 
410 

a servicer does not designate a specific telephone number and 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 telephone number and address. A notice establishing a 

telephone number and 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 a telephone number and address that a borrower must use to assert an error, a servicer 

should provide that telephone number and 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. The purpose of the designation of an exclusive telephone number and 

address is to distinguish offices that are capable of receiving errors from other offices maintained 

by a servicer. A servicer may designate multiple office addresses and phone numbers for 

receiving 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 address and phone number regardless of 

whether that specific address or phone number was provided to a specific borrower asserting an 

error. For example, a servicer may designate a phone number and address to receive errors for 

borrowers located in California and a separate phone number and address to receive errors for 

borrowers located in Texas. If a borrower located in California asserts an error through the 

phone number or address used by the servicer for borrowers located in Texas, a servicer is still 

considered to have received a notice of error and must comply with the requirements of 

§ 1024.35. 
411 

4. Internet intake of information requests. A servicer may, but is not required to, 

establish a process for receiving error notices through email, website form, or other online intake 

method. Any such process shall be in addition to, and not in lieu of, any process for receiving 

error notices by phone or mail. The process established by the servicer for receiving errors 

through an online intake method shall be considered the exclusive online intake process for 

receiving errors. A servicer is not required to provide a separate notice to a borrower to establish 

a specific online intake process as an exclusive process for receiving such errors. 

5. Automated systems. Servicers may use toll-free telephone numbers that connect 

borrowers to automated systems, such as an interactive voice response system, through which 

consumers may assert errors by inputting information using a touch-tone telephone or similar 

device. The prompts for asserting errors must be clear and provide the borrower the option to 

connect to a live representative.

 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 for § 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. 
412 

 35(e)(3) Time limits. 

 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 scheduled foreclosure sale or 30 days, a servicer may cancel or 

postpone a scheduled foreclosure sale, in which case, the servicer meets the time limits in 

§ 1024.35(i)(B) by complying with the requirements of § 1024.35(e) before the earlier of 30 days 

or the date of the rescheduled foreclosure sale. 

 35(e)(3)(ii) Extension of time limits. 

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 errors for which an extension is permissible. 

 35(e)(4) Copies of documentation. 

1. Types of documents to be provided. A servicer is only required to provide 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. 

 Paragraph 35(g)(1)(i). 

1. New and material information. A dispute between a borrower and a servicer with 

respect to (i) whether information was previously reviewed by a servicer or (ii) whether a 
413 

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. Indicia of overbroad or unduly burdensome notices of error. The following are indicia 

of notices of error that are overbroad or unduly burdensome: 

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 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 covered error asserted by a borrower. 

 35(h) Payment requirements prohibited.

 1. Borrower obligation to make payments. Section 1024.35(g) prohibits a servicer from 

requiring a borrower to make a payment that may be owed on a borrower’s account as a 

prerequisite for complying with its obligations regarding 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, section 1024.35(g) 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 
414 

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. 

Section 1024.36—Requests for information. 

 36(a) Information request. 

1. Borrower’s representative. An information request is deemed to be submitted by a 

borrower if the information request 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. 

2. Owner or assignee of a mortgage loan. A servicer responds to an information request 

for the owner or assignee of a mortgage loan by identifying the entity that holds the legal 

obligation to receive payments from the borrower. For example: 

i. A servicer services a mortgage loan that is owned by the servicer, or an affiliate of the 

servicer, in portfolio. A servicer responds to the borrower’s information request 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. 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 

responds by providing the borrower with the name of the trust and the name, address, and 

appropriate contract information for the trustee. Assume a mortgage loan is owned by Mortgage 

Loan Trust, Series ABC-1, for which XYZ Trust Company is the trustee. The servicer responds 

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. 
415 

Although investors or guarantors, including, among others, 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 the trust 

either in connection with an investment in securities issued by the trust or the issuance of a 

guaranty agreement to the trust, entities that act as investors or guarantors should not be 

considered the owner or assignee of the mortgage loans solely as a result of their roles as 

investors or guarantors. 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 Federal National Mortgage Association is the trustee of the trust that owns the 

mortgage loan, a servicer responds 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 Federal National Mortgage Association as the trustee. 

 36(b) Contact information for borrowers to request information. 

1. Exclusive telephone number and address not required. A servicer is not required to 

designate a specific telephone number and address that a borrower must use to request 

information. If a servicer does not designate a specific telephone number and 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 telephone number and address. A notice establishing a 

telephone number and 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. 
416 

The notice is subject to the clear and conspicuous requirement in § 1024.32(a)(1). If a servicer 

establishes a telephone number and address that a borrower must use to request information, a 

servicer should provide that telephone number and 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. The purpose of the designation of an exclusive telephone number and 

address is to distinguish offices that are capable of receiving information requests from other 

offices maintained by a servicer. A servicer may designate multiple office addresses and phone 

numbers for receiving information requests. However, a servicer is required to comply with the 

requirements of § 1024.36 with respect to a notice of error received at any such address and 

phone number regardless of whether that specific address or phone number was provided to a 

specific borrower that is requesting information. For example, a servicer may designate a phone 

number and address to receive information requests for borrowers located in California and a 

separate phone number and address to receive information requests for borrowers located in 

Texas. If a borrower located in California requests information through the phone number or 

address used by the servicer for borrowers located in Texas, a servicer is still considered to have 

received an information request and must comply with the requirements of § 1024.35. 

4. Internet intake of information requests. A servicer may, but is not required to, 

establish a process for receiving information requests through email, website form, or other 

online method. Any such process shall be in addition to, and not in lieu of, any process for 

receiving information requests by phone or mail. The process established by the servicer for 

receiving information requests through an online intake method shall be considered the exclusive 

online intake process for receiving information requests. A servicer is not required to provide a 
417 

separate notice to a borrower to establish a specific online intake process as an exclusive process 

for receiving information requests. 

5. Automated systems. Servicers may use toll-free telephone numbers that connect 

borrowers to automated systems, such as an interactive voice response system, through which 

consumers may request information by using a touch-tone telephone or similar device, so long as 

the prompts for requesting information are clear and the borrower has the option to connect to a 

live representative. 

 36(d) Response to information request notice. 

 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: 

i. A borrower requests a copy of a telephonic communication from a servicer. Assume 

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 should be considered readily accessible. 

ii. A borrower requests information stored on electronic back-up media. Access to 

information on electronic back-up media is not available to that servicer’s personnel in the 

ordinary course of business without undertaking extraordinary efforts to identify and restore the 
418 

information from the electronic back-up media. The information requested by the borrower 

should not be considered readily accessible. 

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 should be considered readily accessible. 

 36(e) Alternative compliance. 

1. A servicer may provide the information requested either orally or in writing. If a 

servicer provides the information requested orally, a servicer may demonstrate that it has 

complied with its requirements by, among others, setting forth a notation in a servicer file that 

information requested by a borrower was provided, or maintaining a copy of a recorded 

telephone conversation in which the information requested by the borrower was provided to the 

borrower. 

 36(f) Requirements not applicable. 

 Paragraph 36(f)(1)(i). 

1. A borrower’s request for a type of information that can change over time should not be 

considered as substantially the same as a previous information request for the same type of 

information. 

 Paragraph 36(f)(1)(ii). 

1. Confidential, proprietary, or general corporate information. A request for 

confidential, proprietary or general corporate 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 general corporate information includes information requests 
419 

relating to, for example: 

i. Information regarding management or profitability of a servicer, including information 

provided to investors of the servicer. 

ii. 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. 

iii. Compensation, bonuses, or personnel actions relating to servicer personnel, including 

personnel responsible for servicing a borrower’s mortgage loan account; 

iv. The servicer’s training program for servicing personnel; 

v. The terms of any agreement relating to the sale of a mortgage loan, including, an 

indenture, purchase agreement, or pooling and servicing agreement; 

vi. The evaluation or exercise of any remedy of the owner of a mortgage loan including a 

foreclosure action, a mortgage insurance payment claim, or a claim relating to mortgage loan’s 

compliance with a seller’s representations and warranties; 

vii. The servicer’s servicing program guide; 

viii. Investor instructions or requirements for servicers regarding criteria for negotiating 

or approving any program with a borrower, including any loss mitigation option; or 

ix. Records of examination reports, compliance audits, consumer complaints, and internal 

investigations or external investigations. 

Paragraph 36(f)(1)(iv). 

1. Indicia of overbroad or unduly burdensome requests for information. The following 

are indicia of requests for information that are overbroad or unduly burdensome: 
420 

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 substitute for discovery in a judicial action, such as 

information requests in the form of a discovery request that purports to require a servicer to 

respond to each numbered paragraph; 

iii. Requests for information that are not reasonably understandable or are included with 

voluminous tangential discussion or assertions of errors; 

iv. 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; or 

 v. Requests for information that are not reasonably likely to assist a mortgage loan 

borrower with the mortgage loan borrower’s account, including, for example, a request for 

copies of the front and back 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. 

Section 1024.37—Force-Placed Insurance

37(b) Basis for obtaining force-placed insurance. 

1. Borrowers with escrow. A servicer has a reasonable basis to believe that a borrower 

with an escrow account established for hazard insurance has failed to maintain hazard insurance 

if, for example, by a reasonable time prior to the expiration date of the borrower’s hazard 
421 

insurance (e.g., 30 days before the expiration date), the servicer has not received a renewal bill. 

The receipt by a servicer of a notice of cancellation or non-renewal from the borrower’s 

insurance company before payment is due on the borrower’s hazard insurance premium also 

provides a servicer with a reasonable basis to believe that the borrower has failed to maintain 

hazard insurance. 

2. Borrowers without escrow. A servicer has a reasonable basis to believe the borrower 

without an escrow account established for hazard insurance has failed to maintain hazard 

insurance if, for example, a servicer receives a notice of cancellation or non-renewal from the 

borrower’s insurance company. 

37(c) Requirements for charging borrower for force-placed insurance. 

37(c)(1) In general. 

1. The notice period begins on the day that the servicer delivers or mails the notice to the 

borrower and expires 45 days later. The servicer may charge a borrower for force-placed 

insurance beginning on the 46th day if the servicer has fulfilled the requirements of § 1024.37(c) 

and (d). 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. 

Paragraph 37(c)(1)(iii). 

1. Examples of continuous insurance coverage. A borrower’s prior hazard insurance 

might have expired on January 2. But so long as a borrower’s current hazard insurance takes 

effect January 3, then the borrower has hazard insurance in place continuously. When there is a 

grace period, § 1024.37(c)(1)(iii) requires the servicer to take the grace period into account when 

determining whether the borrower has hazard insurance in place continuously. For example, a 

borrower’s prior hazard insurance might have an expiration date of June 1, but a grace period 
422 

extends the effectiveness of the borrower’s prior hazard insurance to June 10. Accordingly, so 

long as the borrower obtains hazard insurance, effective June 11, then the borrower has hazard 

insurance in place continuously. 

Paragraph 37(c)(2)(v). 

1. Identifying of type hazard insurance. If a borrower has purchased a homeowner’s 

insurance policy and a separate hazard insurance policy to insure loss against hazards not 

covered under his or her homeowner’s insurance policy, the servicer must disclose whether it is 

the borrower’s homeowner’s insurance policy or the separate hazard insurance policy for which 

it lacks evidence of coverage to comply with § 1024.37(c)(2)(v). 

Paragraph 37(c)(2)(ix) 

1. Good faith estimate of the cost of force-placed insurance. The good faith estimate of 

the cost of the force-placed insurance the servicer may obtain should be consistent with the best 

information reasonably available to the servicer at the time the disclosure is provided. 

Differences between the amount of the estimated cost disclosed under § 1024.37(c)(2)(ix) and 

the actual cost later assessed to the borrower 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. For example, a mortgage investor’s requirements may 

provide that the amount of coverage for force-placed insurance depends 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(c)(2)(ix). 

37(d) Reminder notice. 
423 

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, on June 1, the servicer 

places in the mail the written notice required pursuant to § 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 one written notice, with the content set forth in 

§ 1024.37(d)(2)(i), 15 days before the servicer charges Borrower A for force-placed insurance. 

Take the example above, 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 one reminder notice, with the content set forth in 

§ 1024.37(d)(2)(ii), 15 days before charging Borrower A for force-placed insurance it obtains for 

the period between June 10 and June 15. 

37(d)(4) Updating notice with borrower information. 

1. Reasonable time. A servicer may have to prepare the written notice required pursuant 

to § 1024.37(d)(1) 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 insurance 

information received from the borrower after production has started so long the 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 is a reasonable time. 

37(e) Renewal or replacing force-placed insurance.
424 

37(e)(1)(iii) Charging before end of notice period. 

1. Example illustrating charging before end of notice period. On January 2, the servicer 

sends the notice required by § 1024.37(e)(1)(i). On January 12, the existing force-placed 

insurance the servicer had obtained on the borrower’s property expires and the servicer replaces 

the expired force-placed insurance policy with a new force-placed insurance policy effective 

January 13. On February 5, the servicer receives verification that the borrower obtained hazard 

insurance effective January 31. The servicer may charge the borrower for force-placed insurance 

from January 13 to January 30, as early as February 5. 

Paragraph 37(e)(2)(vii). 

1. Good faith estimate of the cost of force-placed insurance. 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). See commentary to § 1024.37(c)(2)(ix) regarding the good faith 

requirement. 

37(g) Cancellation of force-placed insurance. 

 1. Example of providing a refund and removing charges. Assume that a servicer obtains 

force-placed insurance, effective January 1, and the premium charge and related fees are paid by 

the borrower in monthly installments, due on the first of each month. After the borrower paid 

the April installment, the servicer receives insurance information from the borrower, and verifies 

that the borrower had obtained hazard insurance and that the insurance had been in place since 

March 15. To comply with § 1024.37(g), within 15 days of receiving such verification, the 

servicer must: (1) Cancel the force-placed insurance; (2) provide a refund for force-placed 

insurance premium charges and related fees paid by the borrower for the period between March 

15 and April 30; and (3) remove from the borrower’s account any force-placed insurance 
425 

premium charges and related fees for the period after March 15 that the servicer has assessed to 

the borrower but the borrower has not yet paid. 

Section 1024.38—Reasonable Information Management Policies and Procedures 

 38(a) In general. 

1. Policies and procedures. A servicer may determine the specific methods by which it 

will implement information management policies and procedures that are reasonably designed to 

achieve the objectives set forth in § 1024.38(b) and are reasonably designed to ensure 

compliance with the standard requirements in § 1024.38(c). Servicers have flexibility to do so 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. 

 Paragraph 38(a)(1). 

1. Examples of pattern or practice failures. A servicer may exhibit a pattern or practice 

of failing to achieve the objectives in § 1024.38(b) in the following circumstances: 

i. Disclosures provided to borrowers regularly contain inaccurate information or are not 

provided by required deadlines; 

ii. Multiple covered errors as defined in § 1024.35(b) are documented with respect to the 

same or similar types of processes and a servicer does not modify its policies and procedures to 

seek to reduce the frequency or severity of such errors over a reasonable timeframe; 

iii. Documents provided by borrowers are lost or misplaced on a regular basis and 

borrowers are requested to provide the same documents on multiple occasions; 

iv. Servicer personnel regularly do not have access to accurate account information (such 
426 

as information about credited payments, current balances, and reasons for fees) when responding 

to borrower inquiries, and thus provide borrowers with inaccurate information; or 

v. Servicer personnel regularly do not have access to information regarding the substance 

of prior communications with borrowers. 

38(a)(2) Safe harbor. 

1. Impact of the safe harbor. A servicer is not liable for a violation under § 1024.38 if the 

servicer is in compliance with the safe harbor set forth in § 1024.38(a)(2). If a servicer is not in 

compliance with § 1024.38(a)(2), a servicer may be liable for a violation under § 1024.38. The 

servicer’s liability in the event of a pattern or practice of failing to achieve the objectives in 

§ 1024.38(b) or to ensure compliance with the standard requirements in § 1024.38(c) is based on 

whether the servicer’s policies and procedures were reasonably designed to achieve the 

objectives in § 1024.38(b) and to ensure compliance with the standard requirements in 

§ 1024.38(c), as appropriate. 

Section 1024.39—Early Intervention Requirements for Certain Borrowers 

39(a) Oral notice. 

1. In general. 

i. Live contact. The notice required under § 1024.39(a) must be made through live 

contact or good faith efforts to make live contact, such as by telephoning or conducting an inperson meeting with the borrower, but not by leaving a recorded phone message. 

ii. A servicer is not required to describe specific loss mitigation options; the servicer need 

only inform the borrower that loss mitigation options may be available, if applicable. The 

servicer may provide more detailed information that the servicer believes would be helpful. 

2. Good faith efforts to notify—telephone calls. In order to make a good faith effort by 
427 

telephone, the servicer must have made the phone calls to the borrower on three separate days by 

the end of the 30-day period after the payment due date. Thus, if the servicer attempts to reach 

the borrower by telephone, the servicer should make the first call not later than the 28th day after 

the payment due date in order to make a good faith effort by the 30th day, assuming the first two 

calls are unsuccessful. 

3. Timing requirements. Under § 1024.39(a), a servicer must notify or make good faith 

efforts to notify the borrower if the borrower is late in making the payment during the 30-day 

period after the payment due date, unless the borrower satisfies the payment during that time. 

See comment 39(a)-4. For purposes of § 1024.39, a payment is considered late the day after the 

payment due date, even if the borrower is afforded a grace period before the servicer assesses a 

late fee. For example, if a payment due date is January 1 and the full payment remains due 

during the 30-day period after January 1, the servicer is 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. 

4. Borrower makes the payment. A servicer is not required to notify the borrower unless 

the borrower is late in paying the amount owed in full during the 30 days after the payment due 

date. If the borrower satisfies the payment in full before the end of the 30-day period, the 

servicer is not required to notify or make good faith efforts to notify the borrower. For example, 

if a borrower misses a January 1 due date but makes that payment on January 20, a servicer 

would not be required to provide the oral notice by January 31. 

5. Borrower contacts the servicer about a late payment. If the borrower contacts the 

servicer at any time prior to the end of the 30-day period in § 1024.39(a) to explain that the 

borrower is or expects to be late in making a particular payment, the servicer may satisfy the 

notification requirement in § 1024.39(a) by informing the borrower orally at that time that loss 
428 

mitigation options, if applicable, may be available. 

i. Examples. 

A. A borrower contacts a servicer on January 25 to explain that he expects to miss a 

payment due February 1. The borrower makes the required payment on February 8 and the 

servicer did not notify or make good faith efforts to notify the borrower that loss mitigation may 

be available on January 25 or by February 8. The servicer is not required to provide the oral 

notice about loss mitigation options because the borrower made the required payment within the 

30-day period after February 1. See comment 39(a)-4. 

B. The borrower in comment 39(a)-5.i.A subsequently misses a payment due March 1 but 

does not contact the servicer to explain that he expects to become or acknowledges that he is late 

on that payment. The borrower remains late on that payment during the 30 days after March 1. 

Not later than 30 days after March 1, the servicer is required to notify or make good faith efforts 

to notify the borrower orally that he has missed the March 1 payment and that loss mitigation 

options, if applicable, may be available to assist him. 

6. Borrower performing under a loss mitigation option. A servicer is not required under 

§ 1024.39(a) to notify a borrower who is performing as agreed under a loss mitigation option 

designed to bring the borrower current on a previously missed payment. 

39(b) Written notice. 

Paragraph 39(b)(1) In general. 

1. 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). 

2. Timing requirements. As noted in comment 39(a)-3, a payment is considered late the 
429 

day after the payment due date, even if the borrower is afforded a grace period before the 

servicer assesses a late fee. For example, if a payment due date is January 1 and the payment 

remains due during the 40-day period after January 1, the servicer is required to provide the 

written notice not later than 40 days after January 1—i.e., by February 10. 

3. Borrower satisfies the payment. A servicer is not be required to provide the written 

notice unless the borrower has not made the payment during the 40 days after the payment due 

date. For example, a servicer contacts a borrower on January 20 to notify him that he has missed 

a January 1 payment and that loss mitigation options may be available. The borrower explains 

that he forgot to send payment and will send the payment to the servicer. The servicer receives 

the full payment on January 30 and has not yet provided the written notice. Because the 

borrower has satisfied the January 1 payment within the 40-day time period, the servicer is not 

required to provide the written notice by February 10. 

4. Frequency of the written notice. A servicer is not required to provide the written 

notice more than once during a 180-day period beginning on the date on which the written notice 

is provided. Notwithstanding this limitation, a servicer must still provide the oral notice required 

under § 1024.39(a) for each payment that is overdue. For example, a borrower is late in making 

a payment due March 1. The borrower remains late on that payment during the 40 days after 

March 1 and the servicer provides the written disclosure 40 days after March 1—i.e., by April 

10. If the borrower subsequently fails to make a payment due April 1 and remains late on that 

payment during the 40 days after April 1, the servicer is not required to provide the written 

notice again for the 180-day period beginning on April 10. However, the servicer is required to 

provide the oral notice under § 1024.39(a) for each of the 30-day periods beginning on March 1 

and April 1. 
430 

5. Borrower performing under a loss mitigation option. A servicer is not required to 

provide the written 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. 

Paragraph 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. 

2. Format. Any color, number of pages, size and quality of paper, size and type of print, 

and method of reproduction may be used, so long as the disclosure is clearly legible. 

Paragraph 39(b)(2)(i). 

1. Statement encouraging the borrower to contact the servicer. The servicer is not 

required to specifically request the borrower to contact the servicer about any particular loss 

mitigation option. 

Paragraph 39(b)(2)(ii). 

 1. Servicer’s mailing address and telephone number. If applicable, the servicer should 

provide contact information for the personnel assigned to the borrower pursuant to § 1024.40. 

Paragraph 39(b)(2)(iii). 

1. Number of examples. The regulation does not mandate 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 may require the borrower 

to end their ownership in order 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. 
431 

2. Brief description. An example of a loss mitigation option may be described in one or 

more sentences. If a servicer offers loss mitigation programs, the servicer may provide a generic 

description of each 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 this requirement 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 

§ 1024.39(b)(2)(iv). 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 for 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. 

Paragraph 39(b)(2)(v). 

 1. Foreclosure statement. The servicer may explain that a foreclosure may proceed in 

different ways 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 

(50 U.S.C. App. 501et seq.), and the requirements of the owner or assignee of the borrower’s 

loan. 
432 

2. Estimated foreclosure timelines. The servicer may qualify its estimate with a 

statement that different timelines may vary depending on the circumstances, such as those listed 

in comment 39(b)(2)(v)-1. The servicer may provide its estimate as a range of days. 

Section 1024.40—Continuity of Contact 

 40(a)(1) In general. 

1. For purposes of responding to borrower inquiries and assisting the borrower with loss 

mitigation options as required pursuant to § 1024.40, the term “borrower” includes a person the 

borrower has authorized to act on behalf of the borrower (a borrower’s agent), which may 

include, for example, a housing counselor or attorney. Servicers may undertake reasonable 

procedures to determine if such person has authority from the borrower to act on the borrower’s 

behalf. 

2. 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. 

3. Implementation of continuity of contact. 

i. A servicer has discretion to determine the manner by which continuity of contact is 

implemented. For purposes of § 1024.40(a)(1), a servicer may assign a single person or a team 

of personnel to respond to a borrower. 

ii. Section 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 make be late in making a particular payment, the servicer, at its election, may assign personnel 

to the borrower. 
433 

 4. Section 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. 

40(a)(2) Access to assigned personnel.

 1. For purposes of § 1024.40(a)(2), three days (excluding legal public holidays, 

Saturdays, and Sundays) is a reasonable time to respond. 

40(b) Functions of servicer personnel. 

40(b)(1) Reasonable policies and procedures. 

Paragraph 40(b)(1)(iv). 

1. For purposes of § 1024.40(b)(1)(iv), three days (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. 

40(b)(2) Safe harbor. 

 1. For purposes of § 1024.40(b)(2), a servicer may exhibit a pattern or practice: 

i. With respect to a single borrower, if servicer personnel assigned to the borrower 

pursuant to § 1024.40(a) 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. 

 ii. With respect to a large number of borrowers, if servicer personnel assigned to the 

borrowers pursuant to § 1024.40(a) fail to perform any of the functions listed in § 1024.40(b)(1) 

where applicable in similar ways, such as, for example, providing a large number of borrowers 
434 

with inaccurate information about the status of the loss mitigation applications the borrowers 

have submitted. 

40(c) Duration of continuity of contact. 

Paragraph 40(c)(3). 

1. For purposes of § 1024.40(c)(3), a reasonable time has passed when the borrower has 

made on-time mortgage payments for three consecutive months. 

Paragraph (40)(c)(5). 

 1. For purposes of § 1024.40(c)(5), a reasonable time has passed when servicing for the 

borrower’s mortgage loan was transferred to a transferee borrower 30 days ago. 

40(d) Conditions beyond a servicer’s control. 

1. The term “conditions beyond a servicer’s control” include natural disasters, wars, riots 

or other major upheaval, delays or failures caused by persons other than the servicer, disruptions 

in telephone service, computer system malfunctions, and labor disputes, such as strikes. 

Section 1024.41 – Loss mitigation options. 

41(a) Scope 

1. Loss mitigation not required. Nothing in section 1024.41 imposes a duty on a servicer 

to offer loss mitigation options to borrowers in the ordinary course of business or to provide any 

borrower with a right to a loss mitigation option. Nothing in section 1024.41 should be 

construed to permit a borrower to enforce the terms of any agreement between a servicer and any 

owner, assignee, guarantor, or insurer of a mortgage loan, including any agreement with respect 

to the evaluation for, or provision of, any loss mitigation option. 

2. Ordinary course of business. A servicer that does not engage in a practice of offering 

loss mitigation to borrowers in the ordinary course of business is not covered by this section 
435 

1024.41. A servicer offers loss mitigation options in the ordinary course of business if the 

servicer either (1) has a duty to an owner or assignee of a mortgage loan to engage in loss 

mitigation to improve the recovery to the owner or assignee of the mortgage loan, or (2) engages 

in a practice of evaluating borrowers for loss mitigation options. A servicer that (1) does not 

have policies or procedures for evaluating borrowers for loss mitigation options, or (2) engages 

only in temporary or pilot programs designed to evaluate the impact of implementing loss 

mitigation options is not considered to offer loss mitigation options in the ordinary course of 

business. For example, the following practices should not be considered offering loss mitigation 

in the ordinary course of business: 

a. A servicer waives adverse consequences to individual borrowers for missed payments, 

such as by providing a waiver of late fees. 

b. A servicer participates in a targeted pilot program for which only a relatively small 

percentage of mortgage loans serviced by the servicer are potentially eligible. 

3. Eligibility requirements. A servicer that engages in evaluations of borrowers for loss 

mitigation options for some mortgage loans it services offers loss mitigation in the ordinary 

course of business even though the servicer’s loss mitigation programs are not available to other 

borrowers, including borrowers subject to different investor or guarantor requirements. Any 

such servicer that receives a complete loss mitigation application is required to comply with its 

obligations pursuant to section 1024.41(c) and (d). Such compliance may include informing the 

borrower that the borrower is not eligible for loss mitigation options, including loan 

modifications, as a result of investor requirements, as set forth in sections 1024.41(c) and (d). 

41(b) Loss mitigation application. 

41(b)(2) Incomplete loss mitigation application. 
436 

Paragraph 41(b)(2)(i) 

1. Obtain additional documents and information before submitted information becomes 

stale. A servicer should undertake reasonable diligence to obtain information to constitute a 

complete loss mitigation application by the earlier of (i) the deadline established by the servicer 

pursuant to section 1024.41(f) or (ii) the earliest time any documents or information submitted 

by the borrower will no longer be considered current or valid for evaluation for a loss mitigation 

option pursuant to applicable loss mitigation program guidelines. For example, if a servicer’s 

guidelines require that income information must be no older than 90 days, the servicer should 

undertake reasonable diligence to obtain information that constitutes a complete loss mitigation 

application earlier than the date when the income information would be considered stale where 

such deadline is earlier than the deadline established by the servicer pursuant to section 

1024.41(f).

41(c) Review of loss mitigation applications. 

Paragraph 41(c)(1). 

1. Evaluation for all loss mitigation options offered. 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 servicer, guarantor, 

owner, or assignee of a mortgage loan. A servicer is not required to evaluate a borrower for a 

loss mitigation option for which the borrower does not meet threshold eligibility criteria, 

including any pilot program, temporary program, or loss mitigation program that is limited to a 

certain percentage or number of participants. 

41(d) Denial of loan modification options. 

Paragraph 41(d)(1).
437 

1. Investor requirements. If a trial or permanent loan modification 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 should identify the owner or assignee of the mortgage loan and the 

requirement that is the basis of the denial. 

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 should include the monthly gross income and property value used in the net present 

value calculation. 

41(e) Borrower response and performance. 

Paragraph 41(e)(4). 

1. Acceptance pending appeal. A borrower may accept an offer of a different loan 

modification or other loss mitigation option pending appeal of a denial of any loan modification 

program for which a borrower was denied. 

41(f) Deadline for loss mitigation applications. 

 1. No scheduled foreclosure sale. If a foreclosure sale has not been scheduled, or where a 

foreclosure sale may occur less than 90 days after the foreclosure sale is scheduled, a servicer 

should set a deadline that is no earlier than 90 days before the day a servicer reasonably 

anticipates that a foreclosure sale may occur. 

2. Servicing transfers. If servicing for a mortgage loan is transferred, the transferee 

servicer is subject to the requirements of section 1024.41 unless the effective date of the 

servicing transfer occurs after the deadline that the transferee servicer establishes pursuant to 

section 1024.41(f). 

41(g) Prohibition on foreclosure sale. 
438 

Paragraph 41(g)(4). 

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. A borrower is deemed to be performing under an agreement on 

a loss mitigation option 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.

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. 

41(j) Other liens. 

Paragraph 41(j)(1)(i). 

1. Reasonable diligence to identify other servicers. A servicer should undertake 

reasonable diligence to determine if a property is encumbered by liens as a result of other senior 

or subordinate mortgage loans serviced by other servicers. Servicers may obtain this information 

by, among other things, requesting that the borrower provide information in a loss mitigation 

application regarding any other mortgage loans with liens encumbering the property, conducting 

a search of the land records, reviewing a consumer report from a consumer reporting agency, or 
439 

consulting a database designed to match senior and subordinate lien records.

Appendix MS—Mortgage Servicing Model Forms and Clauses

1. In general. This appendix contains model forms and clauses for mortgage servicing 

disclosures. 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 deemed to be in compliance 

with disclosure requirements of the regulation. 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.” 

iii. Addition of graphics or icons, such as the servicer’s corporate logo.

Appendix MS-3—Model Force-Placed Insurance Notice Forms 

1. Model MS-3(A). The model form MS-3(A) illustrates how a servicer may comply with 

§ 1024.37(c)(2). 

2. Model MS-3(B). The model form MS-3(B) illustrates how a servicer may comply with 

§ 1024.37(d)(2)(i). 

3. Model MS-3(C). The model form MS-3(C) illustrates how a servicer may comply with 
440 

§ 1024.37(d)(2)(ii). 

4. Model MS-3(D). The model form MS-3(D) illustrates how a servicer may comply with 

§ 1024.37(e)(2). 

5. 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 “homeowner’s 

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 and how a servicer may request that the borrower contact the servicer, as required by 

paragraphs (b)(2)(i) and (b)(2)(ii) of § 1024.39. 

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. 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 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. 

3. Model MS-4(C). These model clauses illustrate how the servicer may inform the 

borrower how to obtain additional information about loss mitigation options, required by 

§ 1024.39(b)(2)(iv), if applicable. A servicer that offers no loss mitigation options may not 

include the model clauses in MS-4(C).

4. Model MS-4(D). These model clauses illustrate the foreclosure statement, as required 
441 

by § 1024.39(b)(2)(v). To use the model clauses, the servicer must fill in the estimated number 

of days following a missed payment in which the servicer may refer the borrower to foreclosure. 

 5. Model MS-4(E). These model clauses illustrate how a servicer may provide contact 

information for housing counselors and State housing finance authorities, as required by 

§ 1024.39(b)(2)(vi). A servicer may, at its option, provide the website and telephone number for 

either the Bureau’s or the Department of Housing and Urban Development’s housing counselors 

list, as provided by paragraphs (b)(2)(vi)(A) and (b)(2)(vi)(B) of § 1024.39. A servicer would be 

required to provide the telephone number and, if applicable, the website, for the appropriate State 

housing finance authority, as required by § 1024.39(b)(2)(vi).◄
[THIS SIGNATURE PAGE PERTAINS TO THE PROPOSED RULE WITH REQUEST 

FOR PUBLIC COMMENT TITLED “2012 REAL ESTATE SETTLEMENT 

PROCEDURES ACT (REGULATION X) MORTGAGE SERVICING PROPOSAL”] 

Dated: August 9, 2012. 

_____________________________________________ 

Richard Cordray, 

Director, Bureau of Consumer Financial Protection.